OFFSHORE BANKING

Abhirup Ubale Manish Jadhav Mansi Kumar Shoni Johnson Sushil Padhi 02 23 25 46 51

Economic role of banks

Banking is like any other form of economic activity. Like other economic agents, banks are both dealers and producers. They are dealers, in the sense that they bring together lenders and borrowers, and they are producers as they transform raw base money or cash issued by the government into more convenient checks or demand deposits, which have greater security than cash, and also they transform short-term deposits into longer-term loans. In the process they do the financial intermediation and maintain liquidity in the system.

What is Offshore Banking?

It refers to the international banking business
involving non-resident foreign currency-denominated assets and liabilities. It is the banking operations that cover only nonresidents, and does not include domestic banking. It is a place where deliberate attempt is made to attract international banking by offering many concessions in the form of taxes and levies imposed at lower rates. They are branches of international banks

 It is an extension of the euro-currency concept to the East, which provides a link between euro-currency markets and the final borrowers. It provide essential time zone links that are truly worldwide, and ensure that the market operates 24 hours a day. While offshore banking is an integral part of the euromarket, what distinguishes it from the mainstream euro market is that it was specially set up by host countries to promote international banking.

Advantages
Multi-currencies Avoid the risks Tax benefit Maximum flexibility Any interest earned is usually paid free from the deduction of taxation Greater account privacy Less government intervention Benefit of a relationship manager or private bank account manager

Disadvantages
More risky

Terms and conditions

Resolving of issues Offshore jurisdiction

Activities of offshore banking.

Wholesale banking: includes syndicated loans, projectloans and such other high value loans to MNCs and banks. Merchant banking: arranging external funds, issueprocess of foreign currency bonds and equities. Routing banking : many transactions are routed throughoffshore banks for advantages of tax saving or forescaping the regulations.Offshore banking also borrows funds from majorEurocurrency market and lends or invests the same in othercountries. thus offshore banks is engaged in wide range oftransactions: foreign currency loans which includessyndicated loans, taking of deposits, issue of securities,OTC in derivatives & management of customers financialassets.

TYPES OF OFFSHORE BANK ACCOUNTS

An International Bank Account A Multi-Currency Offshore Bank Account Offshore Business Bank Account Private Offshore Bank Account

FINANCIAL MARKETS
DOMESTIC MARKET
Subject to Countrys Regulators, Securities Market Authority Trading Asset Denominated in domestic currency. In India, Government and Corporate debt Banks Loan Stock Market

OFFSHORE MARKET
Subjects to International Character Outside the geographical boundaries of the countrys currency. Involves foreign currency transactions Examples

 Funds are employed in financing capital-intensive local projects or turnkey projects undertaken in foreign countries by the exporters of the host country. Funds also may be utilized in manufacturing goods in the offshore zone goods. The goods manufactures may be taken back to the parent country or exported to the other countries. Profits from banking operation are repatriated to the parent bank usually Tax free. Operations of such Units are subject to exchange control current regulation from time to time being in the host country

 Initially, International Banking centres were extensions of Domestic centres. Unknown market for banking centres like LONDON and NEWYORK grew rapidly to become OBCs Backed by Govt. Policies and Regulations.

ASIAN and MIDDLE EASTERN countries followed EUROPEAN AND USA.

Operate to cater needs such as FUNDING/SYNDICATING/BOOKING and ADMINISTERING LOANS

ADVANTAGE: o Eliminates time zones problem between 2 parties of opposite side of world.
o High degree of confidentiality concerning Financial Transactions

OFFSHORE FINANCIAL CENTRES

An offshore financial centre (or OFC), although not precisely defined, is usually a small, low-tax jurisdiction specialising in providing the corporate and commercial services to non-residents in the form of offshore companies and the investment of offshore funds.

OFFSHORE FINANCIAL CENTRES

LIST OF OFFSHORE FINANCIAL CENTRES

Antigua and Barbuda Bahamas Barbados

Belize
Bermuda (United Kingdom) British Virgin Islands Cayman Islands (United Kingdom) Channel Islands (Jersey, Guernsey, Alderney, Sark and Herm) Cook Islands

LIST OF OFFSHORE FINANCIAL CENTRES

Cyprus Dominica Ghana Hong Kong (People's Republic of China) Isle of Man (United Kingdom) Labuan, Malaysia

Liechtenstein
Luxembourg

LIST OF OFFSHORE FINANCIAL CENTRES

Malta Macau (People's Republic of China) Mauritius Monaco Montserrat Nauru New Zealand Panama Saint Kitts and Nevis

Seychelles
Singapore Switzerland Turks and Caicos Islands

OBUs IN SEZ:
As per policy declared by RBI, 2002 - Branches of INDIAN banks located in SEZs are called as Offshore Banking Units

Treated as foreign branches of Indian banks

OBUs are required to promote SEZs and caters about 777 operational and approved SEZs needs.

Leading international banks

World bank HSBC

Standard chartered bank

City bank Abn-amro bank Bank of Ceylon

Contd.
BNP pabris bank JP morgan chase bank

American Express bank

Deutsche Bank

Products and services

INVESTMENT PRODUCTS
FOREIGN EXCHANGE & TREASURY CREDIT AVAILABILITY

INSURANCE
DEPOSITS

OFFSHORE BANKING A BOON

Inflow of interest free foreign capital Supply of capital from foreign sources to capital intensive local industries Earning foreign exchange by way of payment for services rendered in converting raw materials into finished goods etc Exemption from minimum reserve requirement of CRR/SLR Low or non existent taxes and levies License fess are generally low Branches of Indian banks located in the SEZs are called offshore banking units and are treated as foreign branches of Indian banks in India. Exempted from maintaining CRR and SLR on the deposit of these offshore banking units Allowed to invest outside India Units set up in SEZs are allowed 100% income tax exemption for first 3 years and 50% for next 2 years

 SEZs are located in Kolkata, Madhya Pradesh,Uttar Pradesh, Rajasthan, Haryana, Karnataka, New Mumbai, Andra Pradesh Orissa Kerala, Tamil Nadu, Jharkhand and Maharashtra Total sanction for SEZs till March 2007 were 317 in India as against the total developed SEZs in the world were only 379 Banks like SBI, Indian Overseas Bank, Bank of India and Bank of Baroda set up off shore banking units

Offshore Banking in INDIA Financial expert have been pleading to establish an offshore banking centre in India Geographically, India provides distinct advantages in attracting offshore banking units, because of Stable economic & political performance Vast market, Technical manpower. Vital time linked for international money market dealers. In 1996 the sodhani committee on foreign exchange reforms, recommended offshore banking in India. The establishment of offshore banking in India was foreseen when the Foreign Exchange Regulation Act (FERA) was replaced by Foreign Exchange Management Act (FEMA), in1999. Hence, beginning of offshore banking in India is permitted for the first time offshore banking units (OBUs) to be set up in special economic zones (SEZs). SEZs will be deemed to be a foreign territory for the purpose of trade operation and duties so as to led the growth of the economy. The OBUs would be treated as foreign branches of India located in India. Which would carry out mainly wholesale banking operation. OBUs will be regulated and supervised by RBI. It has limited mandate in India. State Bank of India & ICICI Bank have opened the first offshore banking units (OBU) in India at the SEEPZ special economic zone, Mumbai.

Participation of the Indian banks

Few Indian banks, such as SBI, Indian Overseas Bank, Bank of India and Bank of Baroda, have set up offshore banking units for deposit taking and final lending at Bahrain, Hong Kong, Colombo, Cayman Islands, and so on. BENEFITS: Sizeable profits as these ventures involve relatively low operating costs. Multi-currency deposit bases Strengthen the country's balance of payments

OFFSHORE INDIAN BANKS

Allahabad Bank AXIS BANK Ltd. SBI Ltd. (Canada) (California) (Mauritius) (China) (Singapore) Bank of Baroda Ltd. (Uganda) (Kenya) (Ghana) (U.K.) (Hong Kong) (Botswana) (Guyana) (Tanzania) (United Arab Emirate) (Muscat) (Brussels) (Trinidad and Tobago) Bank of India Finance Ltd. (Kenya) Canara Bank , PT Bank Indomonex IOB Properties Pte Ltd. ICICI Bank Ltd (U.K.) (Canada)

ICICI Bank Eurasia LLC

Syndicate Bank, Indian Ocean International Bank Ltd. (IOIB) Punjab National Bank International Limited (PNBIL)

How does offshore banking affect the international financial system

Offshore banking is a significant segment of the international financial system. As it is, some 50% of the global capital flows through offshore centers as experts believe. Based on the World Wealth Report Almost one third of the high net-worth individuals in the world almost $6 trillion out of $17.5 trillion may presently hold offshore. Deposited in tax haven banks are some $3 trillion while international business companies (IBCs) and trusts hold the rest of the securities.

Contd..
According to the IMF, between $600 billion and $1.5 trillion of illegal money if laundered yearly that is equal to 2%-5% of the worlds economic output
Moreover, it is believed that the drug money worldwide, approximating to $500 billion, is laundered offshore every year. This is more than the accumulated income of 20% of the worlds poorest nations.

In addition, another $1 trillion is added from tax evasion and some more few hundreds from corruption and fraud.

Thank you