International Financial Service Centre (IFSC)


An International Financial Service Centre (IFSC) caters to customers outside the jurisdiction of the domestic economy. Such centres deal with flows of finance, financial products and services across borders. London, New York and Singapore can be counted as global financial centres. Financial centres are geographical locations with an agglomeration of banks (including headquarters, branches, subsidiaries) and other financial intermediaries.Their general functions are to:

-  Balance savings and investments over time
-  Transfer money from savers to investors
-  Act as a medium-of-exchange
- Act as an interspatial store-of-value
 In order for a centre to be considered an international financial centre, it must have a concentration of all of the following five banking activities:
(i) Financing foreign trade, such as issuing credit for import
(ii) Currency exchange, such as foreign exchange (FOREX) trading
(iii) Transferring funds across political boundaries (foreign currency deposits)
(iv) Foreign borrowing and lending
(v) Foreign investment

 International financial centres can be further characterised as follows:
- A city which facilitates domestic capital-flow to the outside world (London, New York City)
- A city, due to its location and facilities, serves as a foreign lending and trading centre for foreign currencies (Hong Kong, Singapore)
- A place, due to its favourable tax laws and banking regulations, acts as a haven for foreign lending and borrowing (Bahamas, Cayman Islands, Channel Islands)
- These are often called “offshore” financial centres
Services Provided
Services provided are: fund-raising services for individuals, corporations and governments; asset management and global portfolio diversification undertaken by pension funds, insurance companies and mutual funds; wealth management; global tax management and cross-border tax liability optimization, which provides a business opportunity for financial intermediaries, accountants and law firms; global and regional corporate treasury management operations that involve fund-raising, liquidity investment and management and asset-liability matching; risk management operations such as insurance and reinsurance; and merger and acquisition activities among trans-national corporations.
An IFSC Requires
IFSCs such as Dubai International Financial Centre and Shanghai International Financial Centre, which are located within SEZs, have six key building blocks: Rational legal regulatory framework; Sustainable local economy; Stable political environment;Developed infrastructure; Strategic location; andGood quality of life.
Since India has many restrictions on the financial sector, such as partial capital account convertibility, high SLR (statutory liquidity ratio) requirements and foreign investment restrictions, an SEZ can serve as a testing ground for financial sector reforms before they are rolled out in the entire nation. Apart from SEZ-related incentives, as per the SEZ Act, there is an exemption from the securities transaction tax levied under Section 98 of the Finance Act, 2004, in case taxable securities transactions are entered into by a non-resident through an IFSC.
The SEZ Act 2005 allows setting up an IFSC in an SEZ or as an SEZ after approval from the central government.
Banks taking up Space
Commercial banks are allowed to open offshore banking units (OBUs) within SEZs, which are deemed as overseas branches. Such OBUs can trade in foreign currencies in overseas markets and also with Indian banks, raise funds in foreign currency as deposits and borrowings from non-resident sources and provide loans and liability products for clients. 

Wednesday, 09th Dec 2015, 10:15:24 AM

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