RBI relaxes rules for foreign branches of Indian banks to deal in financial products not permitted in India

The Reserve Bank of India (RBI) on December 1 relaxed rules for foreign branches or subsidiaries of banks or All India Financial Institutions (AIFIs) to deal in financial products that are not permitted in domestic market.

"The foreign branches/foreign subsidiaries of Indian banks/AIFIs can deal in financial products, including structured financial products, which are not available or are not permitted by the Reserve Bank in the domestic market without prior approval of Reserve Bank," the RBI said on 1 December.

This framework has been implemented with immediate effect.

These directions are applicable to all banks regulated by the RBI (excluding co-operative banks, Regional Rural Banks and Local Area Banks) and AIFIs.

These relaxation has been brought with certain restrictions such as parent banks or AIFI shall ensure that dealing in such products is done with the prior approval from their Board and, if required, the appropriate authority in the concerned jurisdictions.

Further, these entities must have adequate knowledge, understanding, and risk management capability for handling such products and their exposure and mark-to-market (MTM) on these products are appropriately captured and reported in the returns furnished to the RBI, the central bank said.

"They shall provide information about dealing in such financial products as may be specified by the central bank in the manner and format and within the time frame as prescribed by the RBI," the RBI said.

The RBI said these entities should not  deal in products linked to Indian Rupee unless specifically permitted by Reserve Bank and do not accept structured deposits from any Indian resident.

"So, these entities need to adhere to the suitability and appropriateness policies as mandated by the Reserve Bank and the host regulators, as applicable," the RBI said

"Also, the activities of branches/subsidiaries in foreign jurisdictions and IFSCs shall be subject to the laws in India, unless specifically exempted by law," the RBI added.