What are the requirements for setting up a finance company in GIFT City?

Introduction

The Gujarat International Finance Tec-City (GIFT City) offers a promising environment for financial institutions to thrive. However, setting up a finance company in GIFT City, India requires compliance with certain operational and regulatory requirements. In this article, we will discuss the requirements for setting up a finance company in GIFT City, including the permissible activities.

Finance Company in GIFT City  

In GIFT City, a Finance Company (FC) is a financial institution that is separately incorporated to deal in one or more of the permissible activities in an IFSC without accepting deposits from the public and not registered as a banking unit with the IFSCA. The FC Regulations, notified by IFSCA on 25th March 2021, provide the framework for the establishment and operation of all finance companies in GIFT City. The FC Regulations are drafted to enable global financial services companies to set up holding companies, carry out investing/lending activities, undertake global treasury operations, and provide various financial services from the IFSC GIFT City.

There are different types of finance companies, including loan finance companies, microfinance companies, and private finance companies, each catering to specific market needs and segments. Entrepreneurs must follow the regulations provided by the Reserve Bank of India (RBI) and the International Financial Services Centre Authority (IFSCA) for establishing all finance companies like microfinance, private finance, and private finance companies.

What are the requirements for setting up a finance company in GIFT City?

Businesses seeking to register as a Finance Company in GIFT City must follow both operational & regulatory requirements:

A. Operational Requirements  

• The business must be a company incorporated under the Companies Act, 2013 or any other law for the time being in force in India.
• The companies must have a minimum net worth of INR 50 crore.
• The companies must have a minimum capital adequacy ratio of 15%.
• The companies must have a board of directors with at least 50% of the directors being independent directors.
• The companies must have a compliance officer who is responsible for ensuring compliance with the applicable laws and regulations.
• The companies must have a risk management committee that is responsible for identifying, assessing, monitoring, and mitigating the risks faced by the companies.
• The companies must have a whistle-blower policy that provides for the protection of employees who report any unethical behavior or violation of laws and regulations.

B. Regulatory Requirements  

• The companies must obtain a certificate of registration from the International Financial Services Centers Authority (IFSCA).
• The companies must maintain a minimum owned fund as prescribed by the IFSCA from time to time.
• The companies must maintain their balance sheet only in a freely convertible foreign currency.
• The companies must comply with the provisions of the Companies Act, 2013 and the rules made thereunder.
• The companies must comply with the provisions of the FC Regulations and the rules made thereunder.

C. Other financial requirements

• The finance company maintains a minimum capital ratio of 8% of its regulatory capital to risk-weighted assets or such percentage as specified by the IFSCA.
• The finance company maintains a liquidity coverage ratio (LCR) on a stand-alone basis at all times as determined by the IFSCA. For the finance unit, the parent entity may be allowed to maintain the LCR after obtaining the specific approval of the IFSCA.
• The sum of all exposures to a single counterparty or group of connected counterparties does not exceed 25% of the available eligible capital base without the approval of the Authority.

What are the permissible activities in GIFT City?

Finance companies in the City are authorized to participate in a range of activities, both core and non-core, including:

• Core activities include accepting deposits, lending money, issuing guarantees and indemnities, investing in securities, providing foreign exchange services, investment advisory services, custodial services, depository services, clearing and settlement services, money transfer services, financial leasing services, factoring services, and many more.

• Non-core activities include providing insurance services, real estate services, asset management services, venture capital services, private equity services, microfinance companies, etc.

How was the finance company in GIFT City formed?

The categories in which a finance company in GIFT City can be formed are newly incorporated companies, wholly owned subsidiaries, joint ventures, and branches/undertakings.

Fees of Setting up a Finance Company in GIFT City

Summary 

Setting up a finance company in GIFT City presents exciting opportunities for entrepreneurs and investors seeking to capitalize on India’s growing financial sector.  By fulfilling the necessary requirements and tapping into the talent pool available in GIFT City, aspiring finance companies can establish a strong presence and contribute to the city’s vision of becoming a global financial hub.