RBI Draft Rupee NDDC Norms May Draw Banks to GIFT City
Why in the news
Draft RBI rules on rupee non-deliverable derivatives are expected to encourage banks to grow their presence in the International Financial Services Centre at GIFT City.
Key facts
- NDDC: a derivative settled in cash, without physical exchange of currency; used offshore to hedge or speculate on currencies like the rupee.
- Participants: AD Category-I banks; settlement in rupees or foreign currency.
- GIFT City nudge: only banks running an IFSC Banking Unit (IBU) can use offshore platforms for NDDCs.
Draft provisions
| Area | Provision |
|---|---|
| Offshore electronic trading platforms | Forex and interest rate derivatives; platforms in FATF-member jurisdictions, regulated by global standard-setters; rupee trades only with non-residents; public trade data |
| OTC derivatives | Market-making and proprietary trading permitted; contracts with non-bank entities |
| Surplus foreign funds | Overnight placements, reverse repos on overseas sovereign debt, short-term overseas instruments, FEMA-compliant lending, conditional long-term sovereign debt investment of FCNR (Bank) money |
Background
- GIFT City is being promoted through regulatory incentives as a global financial hub.
- FATF is the global body against money laundering and terrorist financing.
Exam angle
- Full forms: NDDC, AD, IBU, OBU, FATF.
- Operating IBU unlocks offshore platform access.