Feb 1, 2023
India Budget to Lift Foreign Banks’ Lending in Free-Market Oasis
(Bloomberg) -- India’s newest international finance hub is likely to lure more businesses from foreign lenders after Finance Minister Nirmala Sitharaman allowed banks to conduct acquisition financing from the Gujarat GIFT City.
While presenting the federal budget to parliament on Wednesday, Sitharaman proposed setting up a single window for registration and approval from the International Financial Services Centres Authority along with other regulators in a boost to the financial hub.
That along with the inclusion of arbitration law will draw global financial institutions to set up offices, bankers said. Offshore derivative instruments will also be recognized as valid contracts at the GIFT City.
Read: India’s Free-Market Oasis Aims to Take On Singapore and Dubai
“Allowing foreign banks to conduct acquisition financing from GIFT City will attract many more banks to set up offices in GIFT IFSC,” said Kaku Nakhate, country head for India at Bank of America told Bloomberg News.
GIFT City is a free markets experiment nestled inside a $3 trillion economy that’s long been reluctant to let its currency, the rupee, to float freely. The goal is to create a place where India-centric trading that’s moved to Dubai, Mauritius or Singapore can return home.
Kaustubh Kulkarni, senior country officer and vice chair for Asia Pacific at JP Morgan, said there were a number of new initiatives that have been announced for the GIFT City in the budget.
“We will study them and will continue to scale up our business in Gift City,” he added.
Sitharaman’s proposal to recognize offshore derivative instruments could give foreign investors better access to securities traded in India. It may also give a boost to trading via the so-called participatory notes that have been controversial in the past and partly banned by the regulator few years ago.
“The move is aimed at attracting more foreign investment via Gift City and this could boost fund flow to Indian markets,” said Amit Kumar Gupta, CIO of New Delhi-based Fintrekk Capital.
To make the GIFT City a viable alternative for investments in India with significant liquidity, this “sweet option” needs to be given to foreigners, he added.
(Updates with details on offshore derivative instruments 8th paragraph onwards.)
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