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MEANING:
A Offshore Bank is a bank located outside the country of resident of depositors,
Which is mostly in a low tax or no tax area that provided financial and legal
advantage to their deposits. Which will held to generate additional profit for
example UK registered offshore bank can provide service to client from any
county except to permanent Non-resident of UK. This is main formal different
between offshore bank and onshore bank.
Reserve bank of India Offshore banking units guidelines Scheme for Setting
up of Offshore Banking Units (OBUs) In Special Economic Zones (SEZs)
The Government of India has introduced the Special Economic Zone (SEZ) scheme with a
view to providing an internationally competitive and a hassle free environment
for export production. As per the Governments policy, SEZs will be a specially
delineated duty free enclave and deemed to be a foreign territory for the purpose
of trade operations and duties / tariffs so as to usher in export-led growth of the
economy. It was also indicated by the Union Commerce Minister in his speech announcing
the Exim Policy for 2002-07 that for the first time, Offshore Banking Units (OBUs) would
be permitted to be set up in SEZs. These units would be virtually foreign branches of
Indian banks but located in India. These OBUs, inter alia, would be exempt from
CRR, SLR and give access to SEZ units and SEZ developers to international finances at
international rates.
The Scheme:
1) Eligibility Criteria:
Banks operating in India viz. public sector, private sector and foreign banks
authorized to deal in foreign exchange are eligible to set up OBUs. Such banks
having overseas branches and experience of running OBUs would be given
preference. Each of the eligible banks would be permitted to establish only one
OBU which would essentially carry on wholesale banking operations.
2) Licensing:
Banks would be required to obtain prior permission of the RBI for opening an OBU in a
SEZ under Section 23(1)(a) of the Banking Regulation Act, 1949. Given the
unique nature of business of the OBUs, Reserve Bank would stipulate certain
licensing conditions such as dealing only in foreign currencies, restrictions on
dealing with Indian rupee, access to domestic money market, etc. on the
functioning of the OBUs. The parent bank's application for branch license
should itself state that it proposes to conduct business at the OBU branch in
foreign currency only. No separate authorization with respect to the OBU branch would
be issued under FEMA. As currently in vogue with respect to designating a specific
branch for conducting foreign exchange business, the parent bank may designate
the branch in SEZ as an OBU branch. A separate Notification No. FEMA71/2002-RB
dated September 7, 2002 issued by the Exchange Control Department (ECD) of RBI on
OBUs is enclosed.
3) Capital:
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 US$ 10 million to its OBU.
4) Reserve Requirements:
a) CRR
RBI would grant exemption from CRR requirements to the parent bank with reference to its
OBU branch under Section 42(7) of the RBI Act, 1934.
b) SLR
Banks are required to maintain SLR under Section 24(1) of the Banking Regulation Act,
1949 in respect of their OBU branches. However, in case of necessity, request
from individual banks for exemption will be considered for a specified period under
Section 53 of the Banking Regulation Act, 1949.
7) Prudential Regulations:
All prudential norms applicable to overseas branches of Indian banks would apply to the
OBUs. The
OBUs would be required to follow the best international practice of 90 days' payment
delinquency norm
For income recognition, asset classification and provisioning. The OBUs may follow the
credit risk management policy and exposure limits set out by their parent banks duly
approved by their Boards.
The OBUs would be required to adopt liquidity and interest rate risk
management policies prescribed by
RBI in respect of overseas branches of Indian banks as well as within the overall risk
management and
ALM framework of the bank subject to monitoring by the Board at prescribed intervals.
The bank's Board would be required to set comprehensive overnight limits for
each currency for these branches, which would be separate from the open
position limit of the parent bank.
8)
OBUs will be regulated and supervised by RBI through its Exchange Control Department,
Department of Banking Operations and Development and Department of Banking
Supervision.
Indian
corporations
are
functioning
abroad
and
many
3. India may earn revenue in the form of license fees, profit taxes imposed on
the banks operating in the area. It may also get the benefit of banks' funds
in the form of capital and liquidity requirements.
4. The country can gain improved access to the international capital markets.
5. The domestic financial system may become more efficient through
increased competition and exposure of the domestic banks to the practices
of offshore banks.
6. Offshore banking centers will provide opportunities to train the local staff
which will, in turn, contribute to faster economic growth.
7.
The favourable factors for an OFC in India are well known. These include
availability of skilled and quality banking, legal professionals, vastly improved
telecommunication systems ensuring connectivity, the time zone advantage. The
benefit by way of fillip to local economy is also well understood. However,
clearly the regulatory regime governing it would be critical. Accordingly, the
proponents of offshore banking would need to address the key concerns of the
regulator. Apart from the apprehension of offshore banking being used for
dubious ends and in financial crime, the regulator would also be concerned
about the systemic risks to the financial system. It would perhaps not be
inappropriate to evolve a regulatory framework with a road map for informed
public debate. Such a framework would need to address issues such as
First, should only offshore banking be permitted or other activities within the
umbrella of an OFC? Some of the other activities may appear as meeting
specific needs such as insurance, fund management, trusts, etc.
Second, for an OFC being set up should there be a single regulator for
all the activities of the OFC or different regulators mirroring the pattern in the
corresponding onshore sub sectors? Also, should there a single regulator for
onshore and offshore banks?
Third, should there licensing of firms in the OFC as it is currently stipulated
for OBUs in SEZs? Or should it be simple incorporation as is the practice in
most OFCs? Or should licensing be restricted to financial intermediaries?
Fourthly, granted that licensing would be required for OBUs, who would be
the eligible parties not just banks operating in India as per current policy, but
also foreign banks, their subsidiaries/ affiliates? What would be the permissible
activities? Here again the regulator would need to strike a balance between the
fundamental objective of ensuring financial stability and the business growth
compulsions of the OBUs. For instance, if private banking were to be permitted,
the requirements of confidentiality would need to temper the anti-money
laundering safeguard measures. The RBI is today well respected in the
international community as a proactive regulator in the adoption of international
standards and the maintenance of financial stability while at the same time,
aiding development and growth. A slew of policies adopted by RBI in the last
few years have been aimed at strengthening the banking system. These include
adoption of prudential norms, consolidated supervision, connected lending,
using technology to upgrade settlement systems, payment systems, widening
and deepening the various segments of the financial markets, the unrelenting
emphasis on upgradation of risk management systems of financial
intermediaries. The gradualist approach to financial liberalisation has paid rich
dividend. The way forward appears to involve at the first step, an assessment of
the robustness of the existing legislative and regulatory framework may be done
keeping in view the principles of cross border cooperation, information sharing
transparency, ongoing monitoring. Perhaps certain overseas jurisdictions with
whom India can have reciprocal arrangements can be identified, that will ensure
proper due diligence while licensing OBUs and subsequent supervision. In sum,
the
question before us may not whether to have an OFC, but how can we set
up a well-regulated OFC that will be beneficial to the Indian economy.
Offshore banks
Commercial banks
A commercial bank is a
outside
the
country
of
resident of depositors
Which is mostly in a low
tax or no tax area that
Meaning
Account open for foreigners Account open Account open for resident in
only
India and Non Resident in
India.
Offshore banking dealing
with foreign currency only.
Dealing
currency
Tax Benefits
NOSTRO, VOSTRO,
accounts provided by
offshore bank
Type of
account
to commercial bank
Offshore banks are set-up in
India are high cost of
maintenance
maintenance
in
which
geographically
remote
island
nations
can
1) Association:
Offshore banking has been associated with the underground economy and
organized crime, through money laundering. Following September 11, 2001,
offshore banks and tax havens, along with clearing houses, have been
accused of helping various organized crime gangs, terrorist groups, and other
state or non-state actors.
2) Tax:
The existence of offshore banking encourages tax evasion, by providing tax
evaders with an attractive place to deposit their hidden income.
3) Offshore jurisdictions are often remote, so physical access and access to
information
can
be
difficult.
Yet
in
world
with
global
of
your
business,
tax-free
investment, and
anonymity with regard to financial matters, asset protection, and estate
planning. A specialty of offshore banking is that an account can be
opened with an offshore bank simply as a saving account. Account can also be
opened to carry out main business functions.
6) Apart from these, through an offshore bank, you can even make
investments and take loans.
7) Offshore banking is usually preferred by people falling under three
categories, such as, high net worth individuals, expatriates, and business
owners
8) Nowadays, many of the corporate clients including multinational corporations,
large industrial as well as trading companies, shipping companies, and
banking corporations, are also getting attracted to the benefits offered by
offshore banking.
9) One of the prime benefits of offshore banking is that it provides access to
economically as well as politically stable jurisdictions. This proves to be
advantageous to such people whose residing area has risks of political
disorders.
10) There are certain offshore banks that function with low cost base, which
in turn can offer higher interest rates to the depositors when compared to
their home country.
11)
12)
5) I t i s e s s e n t i a l t h a t a n y p o t e n t i a l o w n e r o f a n o ffs h o r e b a n k
a c c o u n t s h o u l d r e s e a r c h t h e necessary information to make a strong,
informed decision when proceeding with an offshore bank account setup
a n d f o r mi n g a n o ffs h o r e c o mp a n y.
6) Offshore Bank Accounts have to be opened with an initial deposit to
activate the account.
7) Although, some offshore provider's bank account types, fees,
interest rates, etc. vary; most offshore financial institutions (OFCs) have
competitive costs and a high level of bank account security.
8) Additionally, the interest rates tend to be higher than in the UK and EU,
providing
an
PNB is one of the premier banking institutions of India with a glorious history of 117
years (est. in 1895), and is one of the top Public Sector Banks in India, owned
predominantly by the Govt. Of India. PNB is listed on the Bombay Stock Exchange and
other major Stock Exchanges of the country.
Since its humble beginning in 1895 with the distinction of being the first Indian bank to
have been started with Indian capital, PNB has achieved significant growth in business
which at the end of March 2012 amounted to $ 123 Billion (Rs.673363 cores). Today,
with assets of more than $ 83 Billion (Rs.4,58,194 core), PNB is ranked at 195 th
amongst Top 500 Global Banks, as per Brand Finance Global Banking 500 for 2011 and
features at the 25th place amongst the Top 50 most valued corporate brands by Brand
Finance-ET. It is the 2nd largest bank in country with network of 5675 branches
(including 5 oversea branches) and customer base of more than 7 Cores.
More importantly, during 2011-12, PNB has been recognized as the Best in Corporate
Social Responsibility (CSR) Overall by World HRD Congress and been recognized as
the Best Socially Responsive Bank by the Business World & PwC. Above all, the
Bank was recognized as the " Best Bank " by Business India.
The OBU of PNB is situated at Santa cruz Electronics Export Promotion Zone
(SEEPZ), Andheri East in Mumbai (Bombay), the financial capital of India, and is a
Deemed Foreign Branch of PNB, although located within the country.
Interest rates on Foreign Currency deposit being accepted by OBU has been
reviewed and it has been decided that OBU will offer the following interest
rates on USD, GBP & EUR deposits with effect from 01st Aug 2012 (Subject to
change)
US Dollars
15 days
0.22**
1 Month
0.25**
2 Months
0.34**
3 Months
0.45
5
6
Above 3 Months up to 6
months
Above 6 Months to less than 1
year
0.70
1.47
3.05
2.42
3.48
10
3.63
11
5 Years only
3.79
If you think these kinds of things cant happen in your country, think again.
According to Judge Andrew Napolitano:
...people who have more than $100,000 in the bank are targets for any
government thats looking for money to shore up its own inability to manage
its finances.
A big part of any strategy to reduce your political risk is to place some of your
savings outside of the immediate reach of thieving bureaucrats in your home
country. Setting up a foreign bank account in the right jurisdiction is a
convenient way to do just that.
That way your home government cant easily confiscate, freeze, or devalue all
of your money with a couple of taps on the keyboard. If your home government
imposes capital controls, an offshore bank account would help ensure you could
access your money when you need it most.
In short, keeping some of your savings in the right foreign bank can largely
protect you from madness in your home country.
Many people put more thought into what reality show they are going to watch
on TV tonight than which bank they choose to be custodians of their savings.
Many dont even realize they have other practical options.
There are banks in stable jurisdictions with low debt that dont gamble with
customer deposits (i.e. your money). Many of these banks are much better
capitalized, keep more cash on hand, and are otherwise much more
conservatively run than those in the U.S.
These offshore banks are almost always more responsible custodians of your
hard earned savings.
3) Asset Protection
Maybe you think its just other people who live on the lawsuit firing lineand
you live somewhere else. Think again.
The Legal Resource Network reports that 15 million lawsuits are filed in the
U.S. every year.
That works out to a new lawsuit for one out of every 12 adults each yearyear
after year. Unless youre exceptionally lucky, sooner or later your turn will
come. Youre not going to like it.
Its no fluke that 80% of the worlds lawyers, over 1.2 million of them, work in
the U.S. Thats where the action is. Your money is the trophy theyre competing
for.
While there is no such thing as 100% protection, a foreign bank account can
help make you a less attractive target.
4) Currency Diversification
Holding foreign currencies is a great way to diversify your portfolio risk,
protect your purchasing power, and internationalize some of your savings.
Chances are, though, your domestic bank offers few, if any, options for holding
foreign currencies.
Offshore banks, on the other hand, commonly offer convenient online platforms
for holding foreign currencies.
option to act quickly and transfer more money abroad in the future, should the
situation warrant it.
9) Peace of Mind
An offshore bank account is like an insurance policy. It helps protect you from
unsound banks and banking systems and the destructive actions of a bankrupt
government. It also makes you a hard target for frivolous lawsuits and ensures
you can pay for medical care abroad. Knowing that youve taken a big step to
protect yourself should give you more peace of mind.
they are protected by bank secrecy, this does not make the non-declaration of
the income by the tax-payer or the evasion of the tax on that income legal.
Following September 11, 2001, there have been many calls for more regulation
on international finance, in particular concerning offshore banks, tax havens,
and clearing houses such as Clearstream, based in Luxembourg, being possible
crossroads for major illegal money flows.
Defenders of offshore banking have criticized these attempts at regulation. They
claim the process is prompted, not by security and financial concerns, but by the
desire of domestic banks and tax agencies to access the money held in offshore
accounts. They cite the fact that offshore banking offers a competitive threat to
the banking and taxation systems in developed countries, suggesting that
Organization for Economic Co-operation and Development (OECD) countries
are trying to stamp out competition.
It is illegal to "conceal" assets offshore form the IRS, and/or to deny the
possession of such assets in a written or oral statement when there is pending
action or a judgment in place for creditor debt, alimony, restitution for personal
injury suit and so forth. The reliability of offshore asset depositories are dicey at
best and may become a nightmare rather than a haven for the depositer. If the
action is in anyway connected with bankruptcy or any federal litigation such as
the IRS, it is considered a federal felony and carries a mandatory prison
sentence of 5-years for each count of which the person is found guilty.
As previously mentioned, offshore banking is often associated with illegal
activities. One of these illegal activities is tax evasion. If you set up an offshore
bank account, you will still need to report your savings. Not reporting all of
your money in an offshore account can lead to you be brought up on tax evasion
charges. It is important to note that you have the ability to prevent this from
happening. As long as you choose to use your offshore bank account legally,
there shouldnt be any disadvantages to having one If you are planning on using
your offshore account to avoid a lawsuit or to evade taxes, you may want to
reexamine your decision. As previously mentioned, there are serious
consequences for doing this. As long as you plan on using your offshore account
in a legal way, you can benefit immensely from offshore banking.
CONCLUSION
In offshore banking, finding the right offshore service(s) that will allow you
achieve your objectives at a reasonable cost and within the shortest possible
time frame is paramount and should be considered with the utmost importance.
Considering that the stock markets are continuously changing, the way that your
offshore banking is handled must be in the best order, if not perfect. The bottom
line is for you to find an offshore services firm that can service your needs and,
has your interests and objectives at heart since it is your retirement benefits you
are most likely to use. If you are able to find this type of institution then you can
rest assured that your offshore account will grow successfully and will provide
your needs well into the twilight of your life.
BIBLIOGRAPHY
Websites
https://en.wikipedia.org/wiki/Offshore_bank
www.investopedia.com/terms/o/offshore-banking-unit.asp
www.internationalman.com/articles/offshore-banking
Books