What the Handbook is
The Banking Regulations state the framework: licensing, capital, prudential ratios, permitted activities, currency and accounts. Regulation 20 lets IFSCA specify norms and procedures by guidelines or circulars, and the Handbook is where most of that detail lives.
The Handbook does not stand alone. IBUs must also follow IFSCA's activity-specific frameworks, for example for portfolio management, investment advice, custody, factoring and forfaiting, aircraft leasing and International Trade Financing Services platforms. The other Acts listed in the First Schedule to the IFSCA Act, 2019, including the Banking Regulation Act, 1949 and the Foreign Exchange Management Act, 1999, continue to apply where relevant.
Current versions
| Part | Version | Modules |
|---|---|---|
| General directions (GEN) | v5.0 | Licensing (LIBU), Governance (GOV), Controlled and Designated Functions (CODF), Core Principles (CORP), Systems and Controls (SYSCO), Supervision (SUP), Raising queries (QUEST) |
| Conduct of Business directions (COB) | v6.0 | 18 modules, from Activities of Banking Units and Client Classification to Accepting Deposits, OTC Derivatives, Providing Credit and the Global Administrative Office |
| Prudential directions (PRU) | v5.0 | General principles, banking business principles, prudential reporting, capital adequacy, credit risk, market risk, liquidity risk and operational risk |
The three versions were published together in 2024. IFSCA's banking page also carries the regulatory return formats (version 2.3), including the treasury report, reports on assets and liabilities, the liquidity coverage ratio return and the exposure data reports. Check that page before each filing cycle, because versions change.
GEN: licensing, people and governance
The licensing module sets the minimum conditions for an IBU:
- regulatory capital of at least USD 20 million from the date operations start;
- undertakings that the IBU will have adequate liquid assets, that the parent will keep complying with its home regulator's prudential rules, that it will share its capital, liquidity and leverage reports, and that it will notify IFSCA at once of any breach of the home capital, liquidity or leverage ratios;
- a No Objection Letter from the home regulator; and
- for a bank with no presence in India, proof that its home supervisor carries out effective global consolidated supervision.
IFSCA weighs the bank's record, internal controls, risk management, AML record and management competence, then issues an in-principle approval before the licence. The people module requires the CEO or Head of the IBU and the Compliance Officer to be Approved Individuals at all times. The non-executive governance function is also a controlled function. One person may hold two controlled functions only if the governing body confirms in writing that there is no conflict and IFSCA agrees.
COB: clients, deposits and conduct
- Client classification. Every client must be classified as a Retail Client, a Professional Client or a Market Counterparty, and told of its classification. Anyone who does not qualify as professional or a market counterparty is retail.
- Currency. All transactions in the IFSC are in a specified foreign currency and only by bank transfer. Capital account transactions and deposits from persons resident in India are allowed only after the IBU satisfies itself that RBI rules permit them.
- Deposits. Individuals may hold current, savings and term deposit accounts. Other clients may hold current and term deposit accounts. No interest is paid on current accounts. Interest rates follow a policy approved by the IBU's governing body. Resident individuals may hold accounts within the Liberalised Remittance Scheme (see Foreign-currency accounts for residents).
- Other modules cover communications and financial promotions, client agreements, order handling, conflicts of interest, complaints, OTC derivatives, FX prime brokerage, referral services, credit, representative offices and Global Administrative Offices.
PRU: capital, liquidity and risk
For an IBU, the parent maintains regulatory capital for the IBU's operations under its home regulator's rules, subject to the USD 20 million minimum, unless IFSCA specifies otherwise. Where IFSCA's requirements differ from the home rules, the IBU must show compliance with IFSCA's minimum. The IBU files a quarterly certificate, signed by an authorised official of the parent, on capital adequacy and leverage ratio within 45 days after each quarter. It may rely on the parent's internal capital adequacy assessment. The remaining modules set governance, policy and control expectations for credit, market, liquidity and operational risk.
Common pitfalls
- Treating home-country compliance as enough. The Handbook adds IFSC-specific conduct rules, especially on client classification and deposits.
- Missing a version change, or filing on an old return template.
- Assuming an IBC can use the IBU reliefs. The Handbook is drafted for IBUs (see IBU or IBC).