OFFSHORE BANKING IN THE INDIAN CONTEXT
India has made a cautious beginning in offshore banking by permitting for the first time Offshore Banking Units (OBUs) to be set up in Special Economic Zones (SEZs). The SEZs have been set up with a view to providing an internationally competitive and hassle free environment for export production.
SEZs will be specially delineated duty free enclave and deemed to be a foreign territory for the purpose of trade operations and duties / tariffs so as to usher in export-led growth of the economy. The OBUs virtually would be foreign branches of Indian banks located in India.
These OBUs, inter alia, would be exempt from reserve requirements and provide access to SEZ units and SEZ developers to international finances at international rates.
The Reserve Bank of India (RBI) has permitted banks operating in India, whether Indian, public/private sector or foreign, to set up OBUs in the SEZs.
The OBUs would carry out essentially wholesale banking operations. The OBUs will be set up as branches of the banks and therefore no separate assigned capital will be required. All prudential norms applicable to overseas branches of Indian Banks would apply to OBUs.
Thus, the necessary risk management practices that are in vogue internationally would have to be adopted by the OBUs. The OBUs will be regulated and supervised by RBI. They will be required to scrupulously follow “Know Your Customer” and other anti- Money laundering directives of RBI from time to time.
FEATURES OF OFFSHORE BANKING IN INDIA:
• They will be permitted to be set up in Special Economic Zones.
• These banks will be virtually (almost) foreign branches of the banks but located in India.
• The Overseas Banking Units (OBUs) would be exempted from CRR, SLR etc.
• The OBUs would operate and maintain balance sheet only in foreign currency and would not be allowed to deal in Indian Rupees except for having a special Rupee account to meet their day to day expenses. These branches will not be allowed to participate in domestic call and money market etc.
• These accounts can be opened by Non-Resident Individuals, Corporates, Trusts or Offshore companies.
FINANCIAL SERVICES BY OFFSHORE BANKING IN INDIA
Offshore banks in India offer lot of financial services:
• Acceptance of Multi-Currency Deposits
• Multi-Currency borrowing option
• Loans against deposits in foreign currency
• Derivatives products
• Issuance of L/C, Bank Guarantee, Bill Discounting
and collection & negotiation of trade bills
• Long term finance and short term finance (working
capital) in all countries
• External Commercial Borrowings (ECB) etc.
STATISTICS CONCERNING OFFSHORE BANKING
Offshore banking is an important part of the international financial system. Experts believe that as much as half the world's capital flows through offshore centers.
Tax havens have 1.2% of the world's population and hold 26% of the world's wealth, including 31% of the net profits of United States multinationals.
According to Merrill Lynch and Gemini Consulting's “World Wealth Report” for 2000, one third of the wealth of the world's “HIGH NET-WORTH INDIVIDUALS”—nearly $6 trillion out of $17.5 trillion—may now be held offshore. Some $3 trillion is in deposits in tax haven banks and the rest is in securities held by international business companies (IBCs) and trusts.
The IMF has said that between $600 billion and $1.5 trillion of illicit money is laundered annually, equal to 2% to 5% of global economic output. Today, offshore is where most of the world's drug money is allegedly laundered, estimated at up to $500 billion a year, more than the total income of the world's poorest 20%.
Add the proceeds of tax evasion and the figure skyrockets to $1 trillion. Another few hundred billion come from fraud and corruption.
"These offshore centers awash in money are the hub of a colossal, underground network of crime, fraud, and corruption" commented Lucy Komisar quoting these statistics.
Among offshore banks, Swiss banks hold an estimated 35% of the world's private and institutional funds (or 3 trillion Swiss francs), and the Cayman Islands (1.9 trillion US dollars in deposits) are the fifth largest banking centre globally in terms of deposits. What is offshore Bank account? http://offshorebankingadvisor.com/offshore-bank-account.html
