The International Financial Services Centres Authority (IFSCA) on July 10, 2023, issued the Banking Handbook: Prudential Directions version 4.0
These Directions are aimed at establishing certain minimum non-quantitative prudential requirements that shall be applicable for the IBUs set up as branches in IFSC, in addition to those applicable to them as a branch of the Banking Company under the respective Home Regulations.
The PRU modules cover the qualitative aspects of prudential requirements in respect of governance, governing board responsibilities, policies, systems and controls to be made applicable on IBUs
The following has been stated namely: -
• These prudential rules shall apply to IBUs established and operating in IFSC as branches, of Banking Companies1 regulated by their respective Home Regulators.
• It states that Under the extant IFSCA Banking Regulations, an IBU can be set up and operate only as a branch of a Banking Company that is regulated by its Home Regulator.
• It states that the operations of an IBU shall be in accordance with the prudential guidelines applicable to those of the Banking Company, the IFSCA Banking Regulations provide, as part of licensing requirements, that the minimum initial regulatory capital for the IBU shall be maintained at the parent bank as per the Home Regulations. The Regulations also provide, as part of prudential requirements, that the IBUs shall continue to comply with the directions and instructions issued by their Home Regulators
• The robustness of prudential guidelines applicable to the Banking Company under the respective Home Regulations shall be one of the most important considerations while deciding on the application for a license for setting up an IBU in IFSC. Such prudential guidelines of the Home Regulators of the Banking Companies as applicable also on the IBUs set up as branches – unless otherwise specified by the Authority, must be based on the updated Basel framework including the Basel III reforms comprising all the current and forthcoming standards issued by the Basel Committee on Banking Supervision that are applicable on internationally active banks.
• It further states that the supervisory framework of the Home Regulators / Supervisors of the Banking Companies must be broadly compliant with the Basel Core Principles for Effective Banking Supervision issued by the BCBS.
• The minimum regulatory capital for the IBUs may be held by the Banking Companies as per the capital adequacy and capital requirements applicable under the Home Regulations subject to meeting the minimum initial/regulatory capital set out under the IFSCA Banking Regulations.
