Two licensed forms
Since the amendment notified on 6 July 2023, regulation 3(1A) of the IFSCA (Banking) Regulations, 2020 allows a Banking Unit to be set up in an IFSC in one of two forms:
- IFSC Banking Unit (IBU): a Banking Unit licensed or permitted to operate in an IFSC as a branch of the parent bank.
- IFSC Banking Company (IBC): a Banking Unit licensed or permitted to operate in an IFSC as a subsidiary company of the parent bank, using the meaning of subsidiary in section 2(87) of the Companies Act, 2013.
In both cases the application is made by the parent bank, which may be an Indian bank or a foreign bank. A parent that already has an IBU may be permitted to convert it into an IBC with IFSCA's prior approval, on conditions IFSCA specifies. Both forms conduct business in the specified foreign currencies listed in the First Schedule to the Regulations, and neither has access to lender of last resort support (regulation 9).
The forms compared
| Point | IBU (branch) | IBC (subsidiary) |
|---|---|---|
| Legal form | Part of the parent bank | Separate company |
| Minimum capital (regulation 3) | USD 20 million, maintained at the parent bank in the manner IFSCA specifies | USD 50 million, calculated and maintained as IFSCA specifies |
| Home regulator | No Objection Letter for an IFSC branch | No Objection Letter for an IFSC subsidiary |
| Liquidity | Parent undertakes to provide liquidity whenever needed | Not among the conditions listed for an IBC |
| Prudential rules (regulations 4 and 5) | IFSCA norms, plus home regulator directions unless IFSCA specifies otherwise; LCR and NSFR may be kept at parent level with IFSCA's prior approval | IFSCA norms |
| Reserves (regulation 8) | Exempt from cash reserve ratio, except deposits from individuals, which carry the reserve ratios IFSCA specifies | Reserves as mandated under the Banking Regulation Act, 1949 and the Reserve Bank of India Act, 1934 |
What the branch form offers
The IBU books business on the parent's balance sheet. That keeps the capital and liquidity cost low: the minimum capital sits at the parent, and the Banking Handbook lets an IBU rely on the parent's prudential framework in several places. Under the Prudential Directions the IBU may rely on the parent's internal capital adequacy assessment, and it files a quarterly certificate, signed by an authorised official of the parent, on capital adequacy and leverage ratio within 45 days of each quarter-end.
The trade-off is that the IBU carries the parent's home regulation with it. Regulation 4 requires an IBU to follow its home regulator's directions unless IFSCA specifies otherwise, and the General Directions require undertakings to keep complying with home prudential requirements and to notify IFSCA at once of any breach of the home regulator's capital, liquidity or leverage ratios. Local management is through approved individuals: the CEO or Head of the IBU and the Compliance Officer must each hold Approved Individual status.
What the subsidiary form offers
An IBC is a separate legal entity with its own capital. It suits a bank that wants the IFSC business ring-fenced from the parent, or that wants the IFSC entity to stand on its own for counterparties and, where relevant, for a separate rating. The cost is higher: USD 50 million of capital rather than USD 20 million, reserve requirements under the Banking Regulation Act and the Reserve Bank of India Act, and the full set of company-law obligations of an Indian company, including its own board.
Because the IBC holds its own capital, the reliefs that let an IBU lean on its parent do not carry across automatically. Expect IFSCA to look at the IBC's own capital, liquidity and governance arrangements.
Choosing, and points to check
- Start with the home regulator. Both forms need a No Objection Letter, and the home regulator's view on branch or subsidiary often settles the question.
- Size the capital realistically. The minimums are floors. The business plan, product range and exposure limits drive the real figure.
- Read the Handbook with care for an IBC. The current Banking Handbook directions are written in terms of IBUs. Before filing, confirm with IFSCA which directions apply to an IBC and how.
- Deposits. Deposits of a Banking Unit may be insured only to the extent the Deposit Insurance and Credit Guarantee Corporation Act, 1961 applies (regulation 18). Say so plainly in client documentation.
- Tax follows the unit. Either form can be an IFSC unit for the section 147 deduction under the Income-tax Act, 2025, subject to its conditions. See Section 147.
For the rulebook itself, see the IFSCA Banking Handbook.