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A REPORT ON
OFFSHORE BANKING
SUBMITTED BY:
IYAPPA NAIR
PROJECT GUIDE:
PROF. MEHUL BARAI
DECLARATION
I IYAPPA NAIR, a student of third year bachelor of commerce banking and insurance,
vivek college of commerce, hereby that I have completed project on OFFSHORE
IYAPPA NAIR
CERTIFICATE
This is to certify that, IYAPPA NAIR of third year bachelor of commerce, vivek college
of commerce, has completed project on OFFSHORE BANKING in semester V of the
academic year 2016-17.
Internal examiner
Co-ordinator
External examiner
Principal
College stamp
ACKNOWLEDGEMENT
To list who all helped me is difficult because they are so numerous and the depth is so
enormous.
I would like to acknowledge the following as being idealistic channel and fresh dimension in
the Completion this project.
I take this opportunity to think the university of Mumbai for giving me chance to do this
project.
I would like to thank my project Dr. Nandita Roy, for providing the necessary facilities
required for completion of this project.
I like this opportunity to thank our co-ordinator Prof. Suvarna Raikar, for her moral support
and guidece .
I would also like to express my sincere gratitude towards my project guide Prof. Mehul
Barai, whose guidance and care made the project successful.
I would also like to thank my b college library, for providing various reference books and
magazines related to my project.
Lastly, I would like to thank each and every who directly or indirectly helped me to complete
project, especially my parents and my peers who supported me throughout my project.
IYAPPA NAIR
INDEX
Sr.no
TOPICS
1.
INTRODUCTION
2.
3.
BANKS
FUNCTIONS OF OFFSHORE
BANKING IN INDIA
Pg.no
4.
DIFFERENCES OF OFFSHORE
BANK AND COMMERCIAL
5.
BANK
ADVANTAGES &
6.
DISADVANTAGES
FEATURES OF OFFSHORE
7.
BANKING
IMPORTANCES OF OFFSHORE
BANKING
8.
9.
10.
11.
12.
TODAY
CONCLUSIONS
OFFSHORE BANKING
MEANING:
The establishment of offshore centres in India was foreseen when the Foreign
Exchange Regulation Act (FERA) was replaced by the Foreign Exchange
Management Act, 1999 (FEMA). The concept of offshore banking in India is
introduced through Special Economic Zones(SEZ) in the Exim policy 19972002.Offshore banking formally started in India from 2002. Branches of Indian
banking business to non-residents. Hence they are designated as Offshore
Banking Units
Offshore banking in India can be discussed from two different angles;
1) Indian Banks such as State bank of India, Punjab National Bank, Bank of
Baroda, ICICI, etc. Have set up offshore banking Units in SEZs. SBI was
the first bank t set up the Offshore Banking Unit in SEEPZ ( a SEZ located
at Andheri).
2) Indian Bank such as State Bank of India, Bank of Baroda. Indian Overseas
banks, bank of India, HDFC bank have set up their Offshore Units abroad at
place Like Singapore, Cayman Islands, Hong Kong, Colombo, and so on.
The role of Reserve Bank of India has been very critical in initiating the process
of offshore banking in India. For plenty of years, the various Indian banks had
been trying to convince the Reserve Bank of India to introduce offshore banking
in the country. Eventually, the Reserve Bank of India understanding the needs
and prospects of offshore banking in India, allowed the setting up of offshore
units in the special economic zones. Many of the Indian banks made use of that
provision to set up offshore banks in India.
Reserve bank of India Offshore banking units guidelines Scheme for Setting
up of Offshore Banking Units (OBUs) In Special Economic Zones (SEZs)
The Government of India has introduced the Special Economic Zone (SEZ) scheme with a
view to providing an internationally competitive and a hassle free environment
for export production. As per the Governments policy, SEZs will be a 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. It was also indicated by the Union Commerce Minister in his speech announcing
the Exim Policy for 2002-07 that for the first time, Offshore Banking Units (OBUs) would
be permitted to be set up in SEZs. These units would be virtually foreign branches of
Indian banks but located in India. These OBUs, inter alia, would be exempt from
CRR, SLR and give access to SEZ units and SEZ developers to international finances at
international rates.
The Scheme:
1) Eligibility Criteria:
Banks operating in India viz. public sector, private sector and foreign banks
authorized to deal in foreign exchange are eligible to set up OBUs. Such banks
having overseas branches and experience of running OBUs would be given
preference. Each of the eligible banks would be permitted to establish only one
OBU which would essentially carry on wholesale banking operations.
2) Licensing:
Banks would be required to obtain prior permission of the RBI for opening an OBU in a
SEZ under Section 23(1)(a) of the Banking Regulation Act, 1949. Given the
unique nature of business of the OBUs, Reserve Bank would stipulate certain
licensing conditions such as dealing only in foreign currencies, restrictions on
dealing with Indian rupee, access to domestic money market, etc. on the
functioning of the OBUs. The parent bank's application for branch license
should itself state that it proposes to conduct business at the OBU branch in
foreign currency only. No separate authorization with respect to the OBU branch would
3) Capital:
Since OBUs would be branches of Indian banks, no separate assigned capital for such
branches would be required. However, with a view to enabling them to start their operations,
the parent bank would be required to provide a minimum of US$ 10 million to its OBU.
4) Reserve Requirements
a) CRR
RBI would grant exemption from CRR requirements to the parent bank with reference to its
OBU branch under Section 42(7) of the RBI Act, 1934.
b) SLR
Banks are required to maintain SLR under Section 24(1) of the Banking Regulation Act,
1949 in respect of their OBU branches. However, in case of necessity, request
from individual banks for exemption will be considered for a specified period under
Section 53 of the Banking Regulation Act, 1949.
7) Prudential Regulations
All prudential norms applicable to overseas branches of Indian banks would apply to the
OBUs. The
OBUs would be required to follow the best international practice of 90 days' payment
delinquency norm
For income recognition, asset classification and provisioning. The OBUs may follow the
credit risk management policy and exposure limits set out by their parent banks duly
approved by their Boards.
The OBUs would be required to adopt liquidity and interest rate risk
management policies prescribed by
RBI in respect of overseas branches of Indian banks as well as within the overall risk
management and
ALM framework of the bank subject to monitoring by the Board at prescribed intervals.
The bank's Board would be required to set comprehensive overnight limits for
each currency for these branches, which would be separate from the open
position limit of the parent bank.
8)
The loans and advances of OBUs would not be reckoned as net bank credit for
computing priority sector lending obligations.
Indian
corporations
are
functioning
abroad
and
many
4. The country can gain improved access to the international capital markets.
5. The domestic financial system may become more efficient through
increased competition and exposure of the domestic banks to the practices
of offshore banks.
6. Offshore banking centers will provide opportunities to train the local staff
which will, in turn, contribute to faster economic growth.
7.
Offshore banks
Commercial banks
A commercial bank is a
outside
the
country
of
resident of depositors
Which is mostly in a low
tax or no tax area that
Meaning
Account open for foreigners Account open Account open for resident in
only
India and Non Resident in
India.
Offshore banking dealing
with foreign currency only.
Dealing
currency
Tax Benefits
NOSTRO, VOSTRO,
Accounts, Recurring
accounts provided by
offshore bank
Type of
account
to commercial bank
Offshore banks are set-up in
India are high cost of
maintenance
maintenance
it is often argued that developed countries with regulated banking systems offer
the same advantages in terms of stability.
in
which
geographically
remote
island
nations
can
1) Association:
Offshore banking has been associated with the underground economy and
organized crime, through money laundering. Following September 11, 2001,
offshore banks and tax havens, along with clearing houses, have been
accused of helping various organized crime gangs, terrorist groups, and other
state or non-state actors.
2) Tax:
The existence of offshore banking encourages tax evasion, by providing tax
evaders with an attractive place to deposit their hidden income.
3) Offshore jurisdictions are often remote, so physical access and access to
information
can
be
difficult.
Yet
in
world
with
global
2) No taxation
of
your
business,
tax-free
investment, and
anonymity with regard to financial matters, asset protection, and estate
10)
12)
14)
providing
an
Company
UK
has
helped
thousands
of
PNB is one of the premier banking institutions of India with a glorious history of 117
years (est. in 1895), and is one of the top Public Sector Banks in India, owned
predominantly by the Govt. Of India. PNB is listed on the Bombay Stock Exchange and
other major Stock Exchanges of the country.
Since its humble beginning in 1895 with the distinction of being the first Indian bank to
have been started with Indian capital, PNB has achieved significant growth in business
which at the end of March 2012 amounted to $ 123 Billion (Rs.673363 cores). Today,
with assets of more than $ 83 Billion (Rs.4,58,194 core), PNB is ranked at 195 th
amongst Top 500 Global Banks, as per Brand Finance Global Banking 500 for 2011 and
features at the 25th place amongst the Top 50 most valued corporate brands by Brand
Finance-ET. It is the 2nd largest bank in country with network of 5675 branches
(including 5 oversea branches) and customer base of more than 7 Cores.
More importantly, during 2011-12, PNB has been recognized as the Best in Corporate
Social Responsibility (CSR) Overall by World HRD Congress and been recognized as
the Best Socially Responsive Bank by the Business World & PwC. Above all, the
Bank was recognized as the " Best Bank " by Business India.
The OBU of PNB is situated at Santa cruz Electronics Export Promotion Zone
(SEEPZ), Andheri East in Mumbai (Bombay), the financial capital of India, and is a
Deemed Foreign Branch of PNB, although located within the country.
Interest rates on Foreign Currency deposit being accepted by OBU has been
reviewed and it has been decided that OBU will offer the following interest
rates on USD, GBP & EUR deposits with effect from 01st Aug 2012 (Subject to
change)
US Dollars
15 days
0.22**
1 Month
0.25**
2 Months
0.34**
3 Months
0.45
5
6
Above 3 Months up to 6
months
Above 6 Months to less than 1
year
0.70
1.47
3.05
2.42
3.48
10
3.63
11
5 Years only
3.79
Today, the biggest threat to your savings isnt market risk. Its your own
government.
Theres no doubt government poses an increasing risk to your savings.
Governments are sinking hopelessly deeper into insolvency. Predictably, they
are turning to the same desperate measures theyve used throughout history.
Its only prudent to expect more bail-ins (as weve seen in Cyprus), bank
deposit taxes (as weve seen in Spain), retirement savings nationalizations (as
weve seen in Poland, Hungary, Portugal, and Argentina), and capital controls
(as weve seen in Cyprus and Iceland), among other destructive actions. And
these are just a few recent examples.
If you think these kinds of things cant happen in your country, think again.
According to Judge Andrew Napolitano:
...people who have more than $100,000 in the bank are targets for any
government thats looking for money to shore up its own inability to manage
its finances.
A big part of any strategy to reduce your political risk is to place some of your
savings outside of the immediate reach of thieving bureaucrats in your home
country. Setting up a foreign bank account in the right jurisdiction is a
convenient way to do just that.
That way your home government cant easily confiscate, freeze, or devalue all
of your money with a couple of taps on the keyboard. If your home government
imposes capital controls, an offshore bank account would help ensure you could
access your money when you need it most.
In short, keeping some of your savings in the right foreign bank can largely
protect you from madness in your home country.
3) Asset Protection
Maybe you think its just other people who live on the lawsuit firing lineand
you live somewhere else. Think again.
The Legal Resource Network reports that 15 million lawsuits are filed in the
U.S. every year.
That works out to a new lawsuit for one out of every 12 adults each yearyear
after year. Unless youre exceptionally lucky, sooner or later your turn will
come. Youre not going to like it.
Its no fluke that 80% of the worlds lawyers, over 1.2 million of them, work in
the U.S. Thats where the action is. Your money is the trophy theyre competing
for.
While there is no such thing as 100% protection, a foreign bank account can
help make you a less attractive target.
An offshore bank account also protects you from overzealous government
agencies armed with the summary power to freeze your assets. Thats because
their reach doesnt extend beyond the U.S.
If you ever find yourself in a wrestling match with a government agency or a
frivolous lawsuit, a foreign bank account give you resources you can count on.
4) Currency Diversification
Holding foreign currencies is a great way to diversify your portfolio risk,
protect your purchasing power, and internationalize some of your savings.
Chances are, though, your domestic bank offers few, if any, options for holding
foreign currencies.
Offshore banks, on the other hand, commonly offer convenient online platforms
for holding foreign currencies.
interest rates effectively transfer wealth away from savers, who would otherwise
enjoy higher returns on their deposits, to borrowers.
In fact, if you live in the West, theres a good chance the interest youre earning
on your savings isnt even keeping pace with the real rate of inflation.
If you look abroad, though, you can find banks that pay significantly higher
interest rates than what youd find at home.
9) Peace of Mind
An offshore bank account is like an insurance policy. It helps protect you from
unsound banks and banking systems and the destructive actions of a bankrupt
government. It also makes you a hard target for frivolous lawsuits and ensures
you can pay for medical care abroad. Knowing that youve taken a big step to
protect yourself should give you more peace of mind.
Its a crucial step in freeing yourself from absolute dependence on any one
country.
Achieve that freedom, and it becomes very difficult for any government to
control your destiny.
CONCLUSION
In offshore banking, finding the right offshore service(s) that will allow you
achieve your objectives at a reasonable cost and within the shortest possible
time frame is paramount and should be considered with the utmost importance.
Considering that the stock markets are continuously changing, the way that your
offshore banking is handled must be in the best order, if not perfect. The bottom
line is for you to find an offshore services firm that can service your needs and,
has your interests and objectives at heart since it is your retirement benefits you
are most likely to use. If you are able to find this type of institution then you can
rest assured that your offshore account will grow successfully and will provide
your needs well into the twilight of your life.
Bibliography
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References
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