Informist, Wednesday, Jun 19, 2024

--IFSCA head: To launch CP, CD mkt in GIFT City by Aug-Sep

--IFSCA head: NDF market volume at GIFT City $20.4 bln in April

--CONTEXT: IFSCA Chairperson K. Rajaraman's comments in interview

--IFSCA head: 3-4 banks very active players in NDF mkt at GIFT City

--IFSCA head: Pushing banks to opt for NDF trading at GIFT City

--IFSCA head:Talking with banks to set up arm for ship leasing finance

--IFSCA head: See more cos raise funds overseas in FY25 via GIFT City

--IFSCA head: Expert panel on REIT, InvIT may submit report by Aug

By Pratiksha, Richard Fargose and Subhana Shaikh

GANDHINAGAR – The International Financial Services Centres Authority plans to allow issuance of short-term debt instruments by corporate entities at the Gujarat International Finance Tec-City, or GIFT City, by August or September, Chairperson Kalyanaraman Rajaraman said. The idea is to provide as many options to companies, both Indian and global, Rajaraman said.

"There are Indian companies which have got a global operation. Like somebody has got operations in Dubai or Singapore, and they also have operations in India. They may do some part of the foreign leg here, there is some part of it for the domestic fundraising. They may do it in India. So, the idea is to provide all these options and the balance of convenience between both of them will keep shifting," Rajaraman told Informist in an interview.

A team is working on the modalities of setting up a market for commercial papers and certificates of deposit at GIFT City, and should come up with its recommendations soon, he said.

On how the rupee non-deliverable forwards market has panned out so far at GIFT City, the former telecom secretary said that in April, total volume in the NDF market was about $20.36 bln.

However, the volume has halved from $40 bln in September due to lack of arbitrage opportunities, he said. "What we are seeing is that it fluctuates, it all depends upon how the global market moves, how the US dollar moves, how the Indian rupee moves," he said.

Rajaraman said that at least three or four banks are currently very active in the NDF market at GIFT City, and that IFSCA is pushing banks to opt for the same.

In March, Informist had reported quoting Reserve Bank of India officials that the central bank is batting for rupee NDF to trade more actively at the IFSC in Gujarat and shifting volumes away from offshore markets.

On the exchange-traded currency derivatives market at GIFT City, the chairperson said the market is only for corporates with a global footprint. "We are asking them to come here and set up global treasury centres, where they can manage their cash flow and manage their derivatives and swaps options and all the sort," he said.

In order to make GIFT-IFSC an international currency trading hub, IFSCA had constituted an advisory committee on exchange traded currency derivatives in February. "Our idea eventually is to provide framework for global and regional treasury. We find that as a few companies have now joined, there is a possibility of further improving the policy. This committee is actually to look at further improvements to the policy," Rajaraman said.

He said the RBI's recent norms on the foreign exchange futures and options market pertain to domestic conditions and there are no restrictions on the exchange-traded currency derivatives market at GIFT City and that it is a free market.

The RBI's directions, notified on Jan 5, said that traders need to ensure the existence of an underlying exposure that backs long or short positions of up to $100 mln. Though traders are allowed to take such positions without having to establish the existence of the underlying exposure, as has been the case till now, the RBI has now said that they should be in a position to establish the same, if required. Flouting of the norms may be seen as non-compliance under the stringent Foreign Exchange Management Act.

Asked if the inclusion of Indian government bonds into global bond indices will lead to more volumes at GIFT City, Rajaraman said that foreign portfolio investors not registered in India may come through banks at GIFT City to buy government securities using offshore derivative instruments. "Some amount of money may come through IFSC also. That actually is being seen. Some of the banks are receiving for corporate bonds, g-secs," he said.

In September, JP Morgan announced the inclusion of Indian gilts in its Government Bond Index – Emerging Markets suite over 10 months starting Jun 28. Bloomberg Index Services said in March it would add India's bonds to the Bloomberg Emerging Market Local Currency Index over 10 months starting Jan 31.

Rajaraman, who has held key positions in the finance ministry, said there are a lot of opportunities for Indian corporates in GIFT City to tap the foreign currency bond market for raising funds. Banks have been proactively following up with Indian corporates and IFSCA has put in place all regulations to facilitate this, he said.

"Since inflation is softening, we expect more people to come and raise bonds internationally," he said.

According to IFSCA's quarterly bulletin, units of banks in GIFT City have arranged commercial loans worth $25.88 bln for Indian corporates as on Mar 31.

Rajaraman said IFSCA has already put in place a framework for listing and trading of green bonds. The framework is in accordance with the International Capital Market Association's green bond framework and other principles such as the EU taxonomy and ASEAN taxonomy.

"Because people here in India issue bonds, but the buyers are the most in the Western world, especially green bonds. So which means that, you have to adopt to what is their preferences," he said. The adoption of any of these international frameworks gives investors the confidence that regulations at GIFT City meet their requirements.

LEASING BUSINESS

Rajaraman is confident about ship leasing and aircraft leasing business thriving in GIFT City. He said many have launched their leasing companies, which gives him confidence that soon there will be an entire network in GIFT City. "Large companies are especially taking interest now. So we expect more such entities to set up shop and more such business will get done in the city," he said.

Total 27 aircraft lessors and 11 ship lessors were registered in GIFT City as on Mar 31.

Rajaraman said IFSCA is reaching out to global investors and holding roadshows for the shipping industry. Last fortnight, they conducted a roadshow in Athens and before that in Singapore and in Hong Kong. "So we are reaching out to lessors, and we found that there are many Indian lessors in this country. So we are asking them to come here and do business out of GIFT City," he said.

He said IFSCA is not just focussing on bolstering the ship and aircraft leasing business, but also wants to create a financial ecosystem to support the industry. "The other bigger part of the story is financing, so now that this ecosystem is building up, we are also talking to banks and telling them on how to set up a specialised financing arm here for ship leasing," he said.

IFSCA aims to make GIFT City a financing destination for this industry, he said. They are not only looking at banks, but also want private debt funds to set up subsidiaries to finance the shipping industry, he said.

Rajaraman said the government is working on an amendment to the IFSCA Act, which will allow setting up of an international arbitration centre in GIFT City.

IFSCA has constituted an expert committee for the development of a robust and vibrant ecosystem for real estate investment trusts and infrastructure investment trusts in GIFT City, which is expected to submit its recommendations by August.

Asked about BSE's decision to call off the merger between its IFSC arm India INX and National Stock Exchange's subsidiary NSE IX, Rajaraman said India INX decided that the merger is not in their interest and they want to expand operations.

He said the regulators have asked India INX to give a plan, and they will follow it up and ensure that the exchange gets back on track immediately. "We have told them that you must get back to health as quickly as possible and now that with direct listing and all coming around, I think there is a great amount of business opportunity for both the exchanges," Rajaraman said.

Asked about financial technology companies setting up offices at GIFT City after the RBI flagged concerns over a series of compliance failures by regulated entities and fintechs and asked them to take corrective actions, Rajaraman said that IFSCA is clear that the question of a standalone fintech providing services does not arise and they have to ride on some financial security entity to actually provide services.

"We are comfortable as long as they (fintechs) are able to tie up with a financial sector provider. Scrutiny will be there. Everybody is supposed to play by the rules," he said. "And let me tell you, fintechs are welcome because they actually provide technology as a way to simplify certain financial sector problems."

However, he cautioned that fintechs have to be very careful about fundamental things like know-your-customer and anti-money laundering norms and combating terrorism financing. Fintechs have to ensure that their products manage risk very prudently and also ensure that they do not impair the safety and the security of investors and customers on their platform, he said.

"The financial sector cannot be imperilled by rash products which are released into the market. So, we will always be concerned with this. The fintech as service providers will also have to be very conscious of that," Rajaraman said. End

US$1 = 83.46 rupees

Edited by Ashish Shirke

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