Introduction: In a significant policy shift aimed at bolstering India’s position in the global bullion market, the Reserve Bank of India (RBI) has issued a circular RBI/2023-24/120, dated February 9, 2024, expanding the operational scope of Indian banks in the India International Bullion Exchange IFSC Limited (IIBX). This move, encapsulated in the directive DoR.AUT.REC.74/24.01.041/2023-24, is set to redefine the landscape of gold and silver trading within the country and internationally.
Detailed Analysis
Background and Objectives
The circular builds on the RBI’s earlier communication from June 7, 2022, which initially allowed branches of Indian banks operating in GIFT-IFSC to act as Professional Clearing Members (PCM) of IIBX. The latest revision in policy aims to further integrate Indian banking entities into the global bullion market, providing them with a more active role in trading and clearing operations on the IIBX platform.
Key Provisions and Changes
1. Enhanced Participation for Banks: The RBI has now permitted branches, subsidiaries, or joint ventures of Indian banks in GIFT-IFSC to function as Trading Members (TM) or Trading and Clearing Members (TCM) of IIBX. This broadens their operational capabilities beyond just clearing and settlement.
2. Special Category Client Status: Indian banks authorized to import gold or silver have been granted the status of Special Category Client (SCC) of IIBX. This categorization allows these banks to execute buy trades on behalf of their clients, potentially streamlining the import process for bullion.
3. Risk Management and Regulatory Compliance: The circular emphasizes strict adherence to risk management protocols and regulatory guidelines, including ensuring 110% advance pay-in of funds for buy orders and maintaining a global sub-limit for net overnight open positions in gold/silver.
4. Application and Approval Process: Banks looking to engage in TM/TCM activities must obtain a No Objection Certificate (NOC) from the RBI, with an elaborated business plan and risk management strategy. For SCC activities, prior intimation to the RBI’s Department of Regulation is required.
Implications for the Banking Sector and Bullion Market
The RBI’s decision is poised to have far-reaching implications, not just for the banking sector but also for the broader bullion market in India and the GIFT-IFSC ecosystem. By enabling banks to actively participate in bullion trading and clearing, the RBI is facilitating a more integrated and efficient market structure. This policy shift is expected to attract more international participants, enhance liquidity, and contribute to the development of GIFT-IFSC as a global financial hub.
Conclusion: The RBI’s circular marks a significant step towards integrating Indian banks into the global bullion trade, potentially transforming India into a key player in the international bullion market. By allowing greater participation and offering a streamlined regulatory framework, the RBI is not only enhancing the operational capabilities of Indian banks but also contributing to the global stature of the India International Bullion Exchange. This policy revision underscores the RBI’s commitment to fostering innovation and competitiveness among Indian financial institutions on the global stage.
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RESERVE BANK OF INDIA
RBI/2023-24/120
DoR.AUT. REC.74/24.0 1.041/2023-24
February 09, 2024
All Scheduled Commercial Banks
Madam/Dear Sir,
Participation of Indian Banks on India International Bullion Exchange IFSC Limited (IIBX)
Please refer to the circular Branches of Indian Banks operating in GIFT-IFSC – acting as Professional Clearing Member (PCM) of India International Bullion Exchange IFSC Limited (IIBX) dated June 07, 2022. On review, it has been decided to additionally allow:
a) Branch/subsidiary/joint venture of an Indian bank in GIFT-IFSC to act as a Trading Member (TM)/Trading and Clearing Member (TCM) of IIBX, and
b) Indian banks authorized to import gold/silver to act as Special Category Client1 (SCC) of IIBX.
The detailed instructions in this regard are at ANNEX to this Circular.
2. These instructions are issued in exercise of the powers conferred on the Reserve Bank of India under Section 35A of the Banking Regulation Act, 1949. In the event of non-compliance with extant guidelines, or if the Reserve Bank is satisfied that it is necessary and expedient in the public interest to do so, it may issue further necessary directions (including revocation of approval) and/or impose additional conditions, as it deems fit.
Commencement
3. The provisions contained in the circular shall be effective from the date of this circular.
Applicability
4. This circular is applicable to all Scheduled Commercial Banks (other than Regional Rural Banks).
Yours faithfully,
(Manoranjan Padhy)
Chief General Manager
ANNEX
[Encl. to circular DoR.AUT.REC.74/24.01 .041/2023-24 dated February 09, 2024]
A. Permitted Activity
1. Trading Member/Trading and Clearing Member (TM/TCM) of IIBX
a) The TM/TCM shall execute trades only on behalf of clients (without proprietary trading).
b) The bank in its role as TM/TCM shall ensure adherence to the terms and conditions as outlined in para 5 of the circular on Branches of Indian Banks operating in GIFTIFSC – acting as PCM of IIBX dated June 07, 2022.
c) The bank shall ensure adherence to extant RBI instructions as contained in the Master Circular – Loans and Advances – Statutory and Other Restrictions dated July 01, 2015 (as updated from time to time).
d) The bank shall comply with the conditions, if any, stipulated by other regulatory bodies that may be relevant for its role.
2. Special Category Client (SCC) of IIBX
As per the extant Foreign Trade Policy, the Reserve Bank grants annual import authorization to banks for import of gold/silver. Such banks, in addition to the consignment model in domestic tariff area, are hereby allowed to operate as a SCC on IIBX for import of gold/silver.
a) The SCC shall execute only buy trades on behalf of clients.
b) The bank shall ensure adherence to extant RBI instructions as contained in the Master Circular – Loans and Advances – Statutory and Other Restrictions dated July 01, 2015 (as updated from time to time).
c) The SCCs will appoint one of the IFSC Banking Units (IBUs) to act as clearing member on their behalf.
d) The bank shall comply with the conditions, if any, stipulated by other regulatory bodies that may be relevant for its role.
B. Risk Management
a) All client trades placed on the exchange shall be against 110% advance pay-in of funds (buy order) of the expected value of bullion (quantity & quality specification) intended to be purchased and securities (sell order) in the account of the bank, as is applicable.
b) With reference to the Net Open Overnight Position Limit (NOOPL) for a bank as prescribed in Master Direction – Risk Management and Inter-Bank Dealings dated July 05, 2016 (as updated from time to time), the Board may determine a global sub-limit for net overnight open position in gold/silver, which shall not exceed one tonne of gold equivalent.
C. Procedure of Application to RBI
a) For TM/TCM activities, the parent bank (‘bank’) shall seek a No Objection Certificate (NOC) from the Reserve Bank prior to its branch/subsidiary/joint venture in GIFTIFSC seeking TM/TCM status on IIBX, subject to fulfilment of the prudential regulations as set out in Para 21 of the Master Direction/DBR.FSD.No.101/24.01.041/2015-16 dated May 26, 2016 (as updated from time to time). An eligible bank shall, with prior approval of its Board, make an application to the Department of Regulation, Reserve Bank of India with details of its proposed business plan as a TM/TCM for facilitating client trade along with particulars of the risk management architecture.
[A bank which has already been granted NOC by the Reserve Bank for its branch in GIFT-IFSC to act as Professional Clearing Member (PCM) of IIBX (as on date) need not take a separate approval from the Reserve Bank for obtaining TM/TCM status on IIBX. They should, however, give a prior intimation to the Department of Regulation, Reserve Bank of India while seeking to take up activities as TM/TCM on the IIBX].
b) Banks authorized to import gold/silver can undertake the activities of an SCC by sending prior intimation to the Department of Regulation, Reserve Bank of India.
c) A bank acting as a TM/TCM/SCC of IIBX shall be required to seek additional approval from the Department of Regulation, Reserve Bank of India in case of any change in their role or scope of activities at IIBX from those permitted by this circular.
Notes:
¹ As is defined in IFSCA’s circular F.No.329/IFSCA/Bullion MIIs/2023-24/02 dated December 11, 2023
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