The Reserve Bank of India has relaxed the norms for setting up offshore banking units in Special Economic Zones. The RBI has now allowed banks to set up one OBU per SEZ as against the previous norm of setting up only one OBU.

RBI has allowed OBUs to accept deposits from individuals even as these entities would essentially carry on wholesale banking operations. It has also decided that OBUs may be allowed to invest their surplus funds outside India under the investment policy framed for this purpose by the board of directors of the concerned bank.

The RBI had received requests from banks for allowing OBUs in one SEZ to lend to units and SEZ developers in other SEZs. They had also requested that the restriction on overseas lending by OBUs may be removed.

However RBI has said that these restrictions will continue for the present. The matter will be reviewed later based on the performance of OBUs over a period of six months.

Since OBUs would be branches of Indian banks, no separate assigned capital for such branches would be required. However, with a view to enabling them to start their operations, the parent bank would be required to provide a minimum of $10 million to its OBU.

Public sector banks like Bank of Baroda have evinced interest in setting up OBUs. Foreign and private sector banks are however likely to use a wait and watch policy.

While the RBI would grant exemption from CRR requirements to the parent bank with reference to its OBU branch , banks will be required to maintain SLR in respect of their OBU branches.

However, in case of necessity, request from individual banks for exemption will be considered for a specified period.

OBUs would be virtually foreign branches of Indian banks but located in India.