Banks, Brokers Clash Over Float Economics at GIFT City but Compromise Nears

Float balances refer to operational and settlement-related funds parked with banks in compliance with regulatory requirements, rather than discretionary client deposits. These balances can be sizeable but are inherently transient, moving in and out based on market activity and settlement cycles.

• GIFT City banks may soon pay interest on float balances after lengthy dispute.
• Interest payout depends on trading volumes being large and stable
• Resolution seen as key for GIFT City's global financial competitiveness

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A long-running dispute may be near resolution. Banks operating at GIFT City are finally showing signs of agreeing to pay interest on float balances, potentially bringing closure to a long-standing dispute over idle client funds parked with banks. However, any interest payout or commercial benefit, bankers say, would depend on whether trading volumes are large and stable enough to justify balance-sheet provisioning.

“Earlier, this was an informal understanding that nothing would be paid. Now banks are at least putting a number to it,” said a senior executive at a GIFT City–based brokerage, requesting anonymity.

What Is Float — and Why It Matters

Float balances refer to operational and settlement-related funds parked with banks in compliance with regulatory requirements, rather than discretionary client deposits. These balances can be sizeable but are inherently transient, moving in and out based on market activity and settlement cycles.

Brokers are seeking to monetise this float — either by earning interest on balances or by using it to improve margin efficiency and reduce capital strain. Banks, however, view the funds as pure liabilities rather than interest-bearing deposits.

The moment banks begin paying interest, they must deploy the funds into matching assets such as loans or placements, triggering capital allocation, liquidity buffers and regulatory costs.

Banks: Scale Is the Deciding Factor

Bankers argue that the economics only work if brokers can consistently generate volumes large enough to justify balance-sheet usage.

“This is not deposit money that we can deploy freely. It moves with market volumes and client activity, which makes it expensive from a provisioning standpoint,” said a banker familiar with the discussions.

According to banks, small or volatile balances are costly to manage because they require capital and liquidity cover without offering predictable returns.

Brokers Push Back on Volumes

Brokers, however, say the volume precondition is unfair. They argue that while they are required to maintain minimum capital and operational commitments, significant sums remain parked with banks at all times — yet generate no economic return.

They say this undermines the commercial viability of scaling brokerage operations, especially when global practice typically allows brokers to earn interest on float balances.

Settlement Cycles, Currency Mix Add Complexity

Short settlement cycles in India and the presence of multi-currency balances further complicate the issue. Brokers say these factors already compress float income.

Banks counter that these very features reduce the stability of idle funds, reinforcing their argument that float economics only work at scale and with predictability.

Global Competitiveness at Stake

Brokers stress that resolving the issue is critical for GIFT City’s positioning as an offshore, globally competitive financial hub. Without economics comparable to international markets, they argue, Indian platforms risk being disadvantaged — even within a jurisdiction designed to attract global capital.

Regulatory Flexibility, Commercial Gridlock

International Financial Services Centres Authority (IFSCA) rules allow flexibility in how idle balances can be handled in an offshore setting. However, brokers note that regulatory permission does not automatically translate into commercial execution.

So far, regulators have left pricing and economics of float balances to bilateral arrangements between banks and brokers.

Why This Matters Now

As GIFT City pushes for higher trading activity and deeper liquidity, float money remains a thorny and unresolved issue. Whether scale materialises fast enough to bridge the gap between regulatory flexibility and commercial reality could determine how quickly India’s offshore market ambitions take shape.