Study On Offshore Banking In ICICI Bank

Introduction :-

Offshore banking, is a segment of the finance industry whose birth can be traced
back to Vienna, Austria. Offshore banking was born when the neutrality of
Switzerland was established during the Vienna Congress in 1815. Some
accounts, however, claim that offshore banking originated in the Channel
Islands of France.

Despite the contradictions, one thing is clear: that offshore banking was born
out of the need for individuals to find a haven for their wealth. During the post-
Napoleon Europe, wealthy families and merchants saw the need to find a safe
place to keep their growing assets. This was an era in Europe defined by
constant economic turmoil and political strife.

The ruling elite sought ways to finance their wars and lead lives of luxury, and
with the increasing numbers of affluent families, taxation had grown to become
the easiest and most rewarding way to get more money. During this time,
European kingdoms, empires, and territories imposed higher taxes without
providing equivalent services such as security. Prevalent insecurity due to
societal imbalances and exorbitant taxation forced the wealthy to safeguard their
dwindling fortunes abroad.
 INDEX

Chapter Topic Page

No. No.

1 Universal View On Offshore Banking.

1.1 Offshore Banking History. 1
1.2 Offshore financial centers 4
1.3 Offshore banking centers. 6

2. Indian View On Offshore Banking

2.1 Introduction 8
2.2 Nature of offshore banking 10
2.3 Advantages & Disadvantages 12
2.4 Scope 15
2.5 Offshore Banking Activities 17
2.6 Need & Importance. 19

3 Role of an Offshore Banking in India as

well as at International level.
3.1 International offshore banking 20
3.2 Banking Services 23
3.3 Statistics concerning offshore banking 25
3.4 Bank Secrecy 27
3.5 Regulation 28
3.6 Offshore banking jurisdictions 29
 3.7 Swiss Banking 30
3.8 Offshore Bank Account 33
3.9 Online Offshore Banking 36
3.10 Credit Cards 38
3.11 Role of offshore banking in Indian 40
context 45
3.12 Reputed offshore banks in India 48
3.13 scopes in India

4 Case Study on ICICI Bank Ltd

4.1 Introduction & History 51
4.2 ICICI Bank sets up first OBU 52
4.3 Financial Performance 53
4.4 Branches & ATMs 54
4.5 ICICI Bank’s OBU in SEEPZ 55
4.6 Bank offer Foreign Currency at its OBU. 57
4.7 Customer Review. 58

5 Findings & Suggestions ,Conclusion

5.1 Findings & Suggestions. 64
5.2 Conclusion. 66

Design of the study

Objective:

 To introduce & understand the concept of “Offshore Banking.”

 To cover various aspects relating to Offshore Banking.
  To study the advantages and disadvantages of offshore banking

Scope of the study:

 The Research tried to about the OFFSHORE BANKING. The project

has been designed to cover the concept of offshore banking in detail.
 The project tries to take a glance over the various aspects of offshore
banking, its meaning, appearance & development, advantages &
disadvantages, services, need & importance etc.
 Limitations of the study:
 The student has tried to study about Offshore Banking in depth, however
faced some of difficulties in collecting information and also faced
limitations
 Time, length and depth of study were limited in making of the project, as
per the requirement of the Mumbai University.

Research Methodology:
Primary Data-

In Primary data collection you collect the data yourself using method
such as interviews and questionnaires. The key point here is that you collect is
unique to you and until you publish no one else has access to it.
Secondary Data-

The student has collected all the information with the help of research
methodology tools such as various available websites, available Books, and also
by the help of Reference & Project Guide.

Chapter 1

Universal View On Offshore Banking

Offshore Banking History:-

The origins of the offshore banking industry are found in a group of islands off
the northwest coast of France: the Channel Islands. Several years ago a group
of likeminded bankers and government officials decided to offer an offshore
remedy of lower taxation and promises of anonymity and confidentiality. The
intent was to seize upon the frustration of UK and European residents fed up
with oppressively high rates of taxation and insufficient safeguards to privacy
and confidentiality in their home countries. These offshore banking institutions
and new offshore financial centers gained instant notoriety and popularity. The
offshore banking industry was born. As word spread across Europe and indeed
throughout the world, other small island nations and jurisdictions seized upon
the opportunity and began strengthening regulations regarding banking practices
and client confidentiality in the hopes of attracting foreign depositors; thus
becoming offshore banking jurisdictions and offshore financial centers. This
became particularly popular in the small island nations of the Caribbean which
is what many tend to associate with offshore banking jurisdictions. Investors
and depositors seeking politically and economically stable jurisdictions found
their way to these offshore financial centers and this practice continues
today. Although an abbreviated and perhaps oversimplified version of history,
these are, fundamentally, the roots of the modern offshore banking industry.

Similar to offshore companies, offshore banking is really just the practice of

banking in another country; however, the term is generally associated with "tax
haven" jurisdictions characterized by low or zero taxation on interest, dividends,
royalties and foreign derived income as well as having some degree of banking
confidentiality. Over time this term has evolved to include other onshore•
popular banking jurisdictions such as Switzerland, Austria, Lichtenstein,
Luxembourg and more recently Asian jurisdictions such as Singapore and Hong
Kong these jurisdictions gained considerable popularity for the same reasons as
the small island offshore financial centers: they implemented sound banking
practices codified in law and regulations guaranteeing confidentiality, low
taxation and security.

Offshore Banking General Information :-

It is advisable to select an offshore bank early on in the process of establishing

your offshore company or other offshore structure. The bank is obviously an
important component of the overall offshore strategy. Certain banks will only
establish accounts for companies and from intermediaries in certain
jurisdictions. If a particular bank or country is preferred for the establishment
of an offshore bank account, this should be given early consideration to guide
the establishment of the offshore company, trust, foundation, etc.

These onshore and offshore banks cater to a wide array of

customers. Some are more suitable for business and commercial accounts
offering credit card processing facilities and internet access. Some offer
international personal banking with worldwide ATM cards, deferred debit
(credit) cards, online banking and international checking. Others offer private
banking and wealth management for high net worth clients seeking privacy,
stellar service and an opportunity to invest in otherwise unavailable
markets. Still others offer specialized services such as overseas mortgages,
back to back loans and trade financing facilities.

These onshore and offshore banks cater to a wide array of

customers. Some are more suitable for business and commercial accounts
offering credit card processing facilities and internet access. Some offer
international personal banking with worldwide ATM cards, deferred debit
(credit) cards, online banking and international checking. Others offer private
banking and wealth management for high net worth clients seeking privacy,
stellar service and an opportunity to invest in otherwise unavailable markets. Still
others offer specialized services such as overseas mortgages, back to back loans
and trade financing facilities.

Definition:

It has been remarked more than once that whether a financial centre is
characterized as "offshore" is really a question of degree. Indeed, the IMF
Working Paper cited above notes that its definition of an offshore centre would
include the United Kingdom and the United States, which are ordinarily counted
as "onshore" because of their large populations and inclusion in international
organizations such as the G20 and OECD.
The more nebulous term “tax haven” is often applied to offshore centers, leading
to confusion between the two concepts. In Tolley's International Initiatives
Affecting Financial Havens the author in the Glossary of Terms defines an
“offshore financial centre” in forthright terms as “a politically correct term for
what used to be called a tax haven.” However, he then qualifies this by adding,
“The use of this term makes the important point that a jurisdiction may provide
specific facilities for offshore financial centers without being in any general sense
a tax haven.” A 1981 report by the IRS concludes, “a country is a tax haven if it
looks like one and if it is considered to be one by those who care.” With its
connotations of financial secrecy and tax avoidance, “tax haven” is not always
an appropriate term for offshore financial centers, many of which have no
statutory banking secrecy, and most of which have adopted tax information
exchange protocols to allow foreign countries to investigate suspected tax
evasion.

Views of offshore financial centers tend to be polarized. Proponents suggest that

reputable offshore financial centers play a legitimate and integral role in
international finance and trade, and that their zero-tax structure allows financial
planning and risk management and makes possible some of the cross-border
vehicles necessary for global trade,

Offshore Financial centre:-

Offshore financial centre (OFC), though not precisely defined, is usually a
small, low-tax jurisdiction specializing in providing corporate and commercial
services to non-resident offshore companies, and for the investment of offshore
funds. The term is a relatively modern neologism, first coined in the
1980s. Academics Rose & Spiegel, and the International Monetary
Fund (IMF) consider offshore centers to include all economies with financial
sectors disproportionate to their resident population

 List of offshore financial centers:-

 Bahamas
 Barbados
 Belize
 Bermuda
 British Virgin Islands
 Cayman Islands
 Channel Islands (Jersey and Guernsey)
 Cook Islands
 Cyprus
 Dominica
 Hong Kong
 Isle of Man
 Labuan, Malaysia
 Liechtenstein
 Luxembourg
 Malta
 Macau
 Montserrat
 Nauru
 Panama
 Saint Kitts and Nevis
 Seychelles
 Switzerland
  Turks and Caicos Islands

 Types of Offshore Financial Centers (OFC’s):

 Primary OFCs: Primary OFCs are large international full service

centers with advanced settlement and payment systems, operating in liquid
regional markets where both the sources and uses of funds are available.
London, the US International Banking Facilities (IBFs) and the Japanese
Offshore Market (JOM) belong this Category.

 Secondary OFCs: Secondary OFCs differ from Primary OFCs in that

they intermediate funds in and out of their region, according to whether the
region has a deficit or surplus of funds. Such OFCs include Hong Kong
and Singapore Asian Currency Units (ACUs) for South East Asia, Bahrain
and Lebanon for the Middle East, Panama for Latin America and
Luxembourg for Europe.

 Booking OFCs: Booking OFCs do not engage in the regional

intermediation of funds, but rather serve as registries for transactions
arranged and managed in other jurisdictions. These OFCs are sometimes
referred to as tax havens and include most Caribbean OFCs.

Offshore Banking Centers:

The development of the concept of offshore banking center is one of the most
important legal, social and economic phenomena. This has occurred thanks to a
lot of modern factors such as development in technology and communication,
the spectacular growth in transnational companies and of course the
development of transnational banking. Actually, nowadays the offshore
banking activity is seen as the most dynamic sectors of financial activity.

However, the well known concept “offshore banking” brings some negative
connotation as well and an image of unethical, illegal or even criminal activity.
This is a very narrow view in relation to what offshore banking activity
represents in its entirety because it transcends such illegal activities as tax
evasion or money laundering. In contrast, many offshore banking centers
ensure compliance with international norms and practices. The creation of
offshore banking sector is the result of the laws and represents a legitimate
phenomenon in itself.

The demand for offshore banking services is determined by several factors.

Offshore banking centers aim to supply the demand of increase revenue. They
take advantage of what in modern times it is called financial sector which goes
beyond criminality, illegality and financial abuse or fraud. Today offshore
banking centers aim at facilitating taxation for investors, use of modern and
sophisticated banking, dynamic investment and mutual funds. Moreover,
offshore banking centers view the principle of confidentiality in banking issues
as an essential and crucial element which deserves to be protected and
guaranteed. At the same time let us not forget that in many parts of the world
the offshore banking sector is the main contributor to economic development
and growth in the jurisdiction were it exists.

The offshore banking sector developed step by step. The basic structure of tax
havens elevated to such sophisticated entity as offshore financial center with
multiple financial services, including offshore banking. The movement of
banking institutions offshore resulted in a huge scale offshore bank deposits.
This resulted in the creation of a big network of onshore external financial
centers and onshore-related offshore finance centers. The development of such a
big network was primarily possible due to rapid development of
telecommunications and air travel.

Thus, the offshore banking sector is rightly seen as one of the most dynamic
sector. This sector is using heavily in its activity the rapid development of
modern technologies and at the same advances it.

In terms of offshore banking centers, in terms of total deposits, the global

market is dominated by two key jurisdictions: Switzerland and the Cayman
Islands, although numerous other offshore jurisdictions also provide offshore
banking to a greater or lesser degree. In particular, Jersey, Guernsey and the Isle
of Man are known for their well regulated banking infrastructure. Some
offshore jurisdictions have steered their financial sectors away from offshore
banking, as difficult to properly regulate and liable to give rise to financial
scandal.

 Offshore banking centers offer the following benefits:

 Exemption from minimum reserve requirements.

 Freedom from control on interest rates.

 Low or non-existent taxes and levies.

 Chapter 2
Indian View On Offshore Banking.

Introduction :-
What is an Offshore Banking:-
An offshore bank is a bank located outside the country of residence of the
depositor, typically in a low tax jurisdiction ( or tax haven ) that provides
financial and legal advantages. These typically include some or all of

 Strong privacy ( see also bank secrecy , a principle born with the 1934
Swiss Banking Act)
 Less restrictive legal regulation
 Low or no taxation (i. e. tax havens)
 Easy access to deposits ( at least in terms of regulations)
 Protection against local political or financial instability
While the term Originates from the Channel Islands “offshore from Britain,
and most offshore banks are located in island nations to this day, the term is
used figuratively to refer to such banks regardless of location ( Switzerland,
Luxembourg and Andorra in particular are locked)

Offshore banking has often been associated with the underground

economy and organized crime, via tax evasion and money laundering;

however, legally, offshore banking does not prevent assets from

being subject to personal income tax on interest. Except for certain persons

who meet fairly complex requirements the personal income tax of

many countries makes no distinction between interest earned in local banks and
those earned abroad. Persons subject to US income tax, for example, are
required to declare on penalty of perjury, any offshore bank accounts—which
may or may not be numbered bank accounts—they may have. Although

offshore banks may decide not to report income to other tax

authorities, and have no legal obligation to do so as 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 accused of
being a crossroads for major illegal money flows.

Defenders of offshore banking have criticised 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 argue 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.

Nature of Offshore Banking:

 Offshore banking denotes carrying on banking activity which is insulated

from the monetary regulations of the host country. Very often, such
banking centers are set up deliberately to attract international banking
business of dealing in non-resident foreign currency denominated assets
and liabilities by exempting, reducing or eliminating restrictions upon
banking operations as well as lowering tax and/ or other levies.
 International banks may also choose to set up branches or offices at centers
abroad including offshore centers with a view to avoid conformity to
stringent domestic monetary policy regulations. The basic characteristic of
offshore banking is its segregation from the banking system of the host
country.
 Traditionally, offshore banking denoted carrying on banking activity at
offshore financial centres in a physically neutral way. These centres are
also known sometimes as “tax havens” and the bank offices “brass plate”
or “shell branches”. Bahamas for example is tax haven.
 Several of the US international banks set up branches at an offshore centre
such as Bahamas to get away from the restrictions of the US federal
government on domestic banking in USA or set up a shell or brass plate
branch to take advantage of low or complete absence of taxes.
Salient features:
 Preferential tax policy
 Relaxed policy regulation
 Convenient global fund-raising
 Stable capital returns
 Complete privacy
 Offers higher level of privacy as opposed to the local banks
 No taxation
 Protection against financial insecurities and instabilities in the local
economy
 Less restrictive regulations
 Easy access deposits
 Except for the developed nations that offer for complete financial
stability, individuals from the various undeveloped countries that are
surrounded with instability may opt to resort to offshore banking for
better steadiness in assets and resources
 Offshore banks offer better rate of interest
 Offers features that banks in the domestic realm may not possess like
unspecified bank account etc
 Offers investment opportunities far greater and better in variety and
quality than the ones available locally.
Advantages and Disadvantages of Offshore Banking:

Advantages of Offshore Banking:-

1. Offshore banks provide access to politically and economically

stable jurisdictions. This may be an advantage for those resident in
areas where there is a risk of political turmoil who fear their assets
may be frozen, seized or disappear. However, developed countries
with regulated banking systems offer the same advantages in terms
of stability.

2. Some offshore banks may operate with a lower cost base and can
provide higher interest rates than the legal rate in the home country
due to lower overheads and a lack of government intervention.
Advocates of offshore banking often characterize government
regulation as a form of tax on domestic banks, reducing interest
rates on deposits.

3. Offshore finance is one of the few industries, along with tourism,

that geographically remote island nations can competitively engage
in. It can help developing countries source investment and create
growth in their economies, and can help redistribute world finance
from the developed to the developing world.

4. Interest is generally paid by offshore banks without tax deducted.

This is an advantage to individuals who do not pay tax on
worldwide income, or who do not pay tax until the tax return is
 agreed, or who feel that they can illegally evade tax by hiding the
interest income.

5. Some offshore banks offer banking services that may not be

available from domestic banks such as anonymous bank accounts,
higher or lower rate loans based on risk and investment
opportunities not available elsewhere.

6. Offshore banking is often linked to other services, such as offshore

companies, trusts or foundations, which may have specific tax
advantages for some individuals.

7. Many advocates of offshore banking also assert that the creation of

tax and banking competition is an advantage of the industry,
arguing with Charles Tiebout that tax competition allows people to
choose an appropriate balance of services and taxes. Critics of the
industry, however, claim this competition as a disadvantage,
arguing that it encourages a “race to the bottom” in which
governments in developed countries are pressured to deregulate
their own banking systems in an attempt to prevent the offshoring
of capital.

8. Many people are unaware of this factor and it appears to be a

foreign concept to many. Most western countries do not offer any
protection as to the details of your banking. The protection factors
makes offshore banking one of the most popular banking solutions.
Unlike many bank accounts, it is impossible to get account details,
including the account balance, of an account in an offshore
jurisdiction.
 9. In offshore banks, privacy laws are very stringent, as opposed to
laws in the United States. People are jailed and made to pay heavy
fines if they disclose any information regarding bank accounts in
offshore banks. Offshore banking allows you to conduct business in
the country in which you have your bank account with the local
currency. It will help you to increase your profits, provided you are
aware of all the details involved in investing and depositing your
money.

Disadvantages of Offshore Banking:-

1. 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. 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 a world with global
telecommunications this is rarely a problem. Accounts can be set
up online, by phone or by mail.

4. Developing countries can suffer due to the speed at which money

can be transferred in and out of their economy as “hot money”.
This “Hot money” is aided by offshore accounts, and can increase
problems in financial disturbance.
 5. Offshore banking is usually more accessible to those on higher
incomes, because of the costs of establishing and maintaining
offshore accounts. The tax burden in developed countries thus falls
disproportionately on middle-income groups.

Scope of Offshore Banking:

Offshore banking constitutes a sizable portion of the international financial
system. Experts believe that as much as half the world's capital flows through
offshore centers. Tax havens have 1.2% of the world's population and hold 26%
of the world's wealth, including 31% of the net profits of United States
multinationals. An estimated £13-20 trillion is hoarded away in offshore
accounts. Some $3 trillion is in deposits in tax haven banks and the rest is in
securities held by international business companies (IBCs) and trusts. Among
offshore banks, Swiss banks hold an estimated 35% of the world's private
and institutional funds (or 3 trillion Swiss francs), and the Cayman Islands (1.9
trillion US dollars in deposits) are the fifth largest banking centre globally in
terms of deposits. However, recent data by the Swiss National Bank show that
the assets held by foreign persons in Swiss bank accounts declined by 28.1%
between January 2008 and November 2009.
  Scale of potential Tax Revenue:
Assuming even just the lower estimate of £13 trillion on deposit in offshore
accounts, if these assets earned an average 3% a year in income for their owners
taxable at 30%, then the offshore funds would generate £121 billion in tax
revenues. However, keep in mind, these statistics assume that ZERO tax is paid
(i.e. NO ONE pays any tax on their holdings), and that 100% of those deposits
is notionally liable to tax which is not being paid, each of which seems a highly
unlikely scenario.
 Ownership:
According to Merrill Lynch and Gemini Consulting's “World Wealth Report”
for 2000, one third of the wealth of the world's “high net-worth individuals”—
nearly $6 trillion out of $17.5 trillion—may now be held offshore. A large
portion, £6.3tn, of offshore assets, is owned by only a tiny sliver, 0.001%
(around 92,000 super wealthy individuals) of the world's population. In simple
terms, this reflects the inconvenience associated with establishing these
accounts, not that these accounts are only for the wealthy. Most all individuals
can take advantage of these accounts.
Activities of Offshore Banks:

Wholesale
banking

Offshore
Banking
Activity

Merchant Routing of
Banking funds

Offshore banking today encompasses the following activities:

1) Wholesale banking:
This includes syndicated loans, project loans and such other high-value loans
to MNCs and banks.

2) Merchant Banking:

Arranging external funds, issue process of foreign currency bonds and

equities.

3) Routing of Funds:

This is an important functions of offshore banks. Many transactions are routed

through offshore banks for advantages of tax savings or for escaping the
regulations. Offshore banks also borrow funds from major Eurocurrency
market and lend or invest the same in other countries.

Thus, offshore banks engage in a wide variety of transactions: foreign

currency loans (including syndicated loans) and the taking of deposits, the
issue of securities, over-the counter (OTC) trading in derivatives for risk-
management and speculative purposes, and the management of customers’
financial assets.

Foreign currency lending and its associated funding is normally as asset driven
business, sometimes originated in the OFC, but often originated elsewhere and
booked and funded in the OFC, normally for tax reasons.

A significant proportion of Eurobonds floated in international capital markets

is also issued in OFCs, although the marketing and selling of such instrument
would normally be done in major financial markets. Deposit taking from
individual customers is an activity specialized in by a number of OFCs.
Normally, the banks involved in this business are major international banks
with a high reputation (deposit insurance is normally not available). The
attraction is normally related to tax, both income and capital taxes. The
 proceeds of this type of business are normally invested in high quality
marketable assets in major financial centers.

Need & Importance of Offshore Banking:

Quite simply, Offshore Accounts facilitate greater financial privacy. Residents of

the UK and EU can now enjoy the same financial benefits as offshore companies
and affluent individuals have done for many years. It is an affordable and secure
solution, providing anonymous offshore banking and offshore asset protection
for everyone. Shielding finances and assets from creditors, legal action and the
divorce courts, for example, are some of the major reasons to bank offshore.
Overseas Bank Accounts can be opened in the name of offshore companies in
order to provide the maximum possible anonymity, privacy and offshore asset
protection.

In the past, Offshore Bank Accounts were perceived as just for the wealthy. This
is no longer the case. There is a distinct rise in the number of Europeans who are
investing or depositing their money into anonymous bank accounts. In doing
so, they achieve complete offshore protection.
 Chapter 3
Role of an Offshore Banking in India as well as
at International level.

International Offshore Banking:-

There is a staggering amount of money in the world, and more and more of it is
in offshore jurisdictions.

According to a study by consulting firm McKinsey and Company published in

January, 2007, the value of total global financial assets, including equities,
government and corporate debt securities, and bank deposits, expanded to $140
trillion in the 12 months to the end of 2005, an increase of $7 trillion from a year
earlier. That is a growth rate of 5.3%. There are no consolidated figures for the
growth in offshore assets - many jurisdictions simply don't release figures. But
for those that do, it is clear that the rate of increase in banking, trust and fund
assets dramatically outpaces McKinsey's global figure. In Jersey, for instance,
banking assets were GBP159bn in December, 2004; by September, 2006, they
stood at GBP188bn. That is an annual growth rate of 10.2%, roughly double the
global rate; and Jersey banking is by no means untypical of offshore performance.
Indeed some other jurisdictions have shown higher growth rates; and fund assets
have grown faster even than banking ones. With 'onshore' high-taxing countries
chopping finer and finer in order to remove tax loopholes, and imposing ever
more stringent anti-money-laundering rules, it is no surprise that more and more
people move their assets offshore, if they are able to the purpose of this special
feature is to describe the history of offshore banking, and to contrast the offshore
banking sector with its onshore rival.
European Savings Tax Directive:

In their efforts to stamp down on cross border interest payments EU

governments agreed to the introduction of the Savings Tax Directive in the form
of the European Union withholding tax in July 2005. A complex measure, it
forced EU resident savers depositing money in any country other than the one
they are resident in to choose between forfeiting tax at the point of payment, or
allowing notification by the offshore banks to tax authorities in their country of
residence. This tax affects any cross border interest payment to an individual
resident in the EU. Furthermore the rate of tax deducted at source will rise in
2008 and again in 2011, making disclosure increasingly attractive. Savers'
choice of action is complex; tax authorities are not prevented from enquiring
into accounts previously held by savers which were not then disclosed.

Is Offshore Banking Legal?

This is one of the frequently asked questions about offshore banking, and in
short, YES, offshore banking is legal. Offshore banking is so legal that, it's
always going to remain legal. Offshore banking is a benefit to all of society and
is indispensible. Using offshore banking for tax evasion purposes is what is not
legal, and that is usually what is associated with offshore banking in general and
is the cause of the misconception. Offshore banking is also associated with
criminal activities such as money laundering. This article will clarify the
distinction and examine why offshore banking remain legal.
Banking services:

It is possible to obtain the full spectrum of financial services from offshore

banks, including:

 Deposit taking
 Credit
 Foreign exchange
 Letters of credit and trade finance
 Investment management and investment custody
 Fund management
 Trustee services
 Corporate administration

Not every bank provides each service. Banks tend to polarise between retail
services and private banking services. Retail services tend to be low cost and
undifferentiated, whereas private banking services tend to bring a personalised
suite of services to the client.

Acceptance of Deposits:

Major types

 Checking accounts: A deposit account held at a bank or other financial

institution, for the purpose of securely and quickly providing frequent
access to funds on demand, through a variety of different channels.
Because money is available on demand these accounts are also referred to
as demand accounts or demand deposit accounts.
 Savings accounts: Accounts maintained by retail banks that pay interest
but can’t be used directly as money (for example, by writing a cheque).
Although not as convenient to use as checking accounts, these accounts let
customers keep liquid assets while still earning a monetary return.

 Money market account: A deposit account with a relatively high rate of

interest, and short notice (or no notice) required for withdrawals. In the
United States, it is a style of instant access deposit subject to federal
savings account regulations, such as a monthly transaction limit.

 Time deposit: A money deposit at a banking institution that cannot be

withdrawn for a preset fixed 'term' or period of time. When the term is over
it can be withdrawn or it can be rolled over for another term. Generally
speaking, the longer the term the better the yield on the money.
Statistics Concerning Offshore Banking:

Offshore banking is an important part of the international financial system.

Experts believe that as much as half the world's capital flows through offshore
centers. Tax havens have 1.2% of the world's population and hold 26% of the
world's wealth, including 31% of the net profits of United States multinationals.
According to Merrill Lynch and Gemini Consulting “World Wealth Report” for
2000, one third of the wealth of the world's “high net-worth individuals”—
nearly $6 trillion out of $17.5 trillion—may now be held offshore. Some $3
trillion is in deposits in tax haven banks and the rest is in securities held by
international business companies (IBCs) and trusts.
The IMF has said that between $600 billion and $1.5 trillion of illicit money is
laundered annually, equal to 2% to 5% of global economic output. Today,
offshore is where most of the world's drug money is allegedly laundered,
estimated at up to $500 billion a year, more than the total income of the world's
poorest 20%. Add the proceeds of tax evasion and the figure skyrockets to $1
trillion. Another few hundred billion come from fraud and corruption. "These
offshore centers awash in money are the hub of a colossal, underground
network of crime, fraud, and corruption" commented Lucy Komisar quoting
these statistics. Among offshore banks, Swiss banks hold an estimated 35% of
the world's private and institutional funds (or 3 trillion Swiss francs), and the
Cayman Islands are the fifth largest banking centre globally in terms of
deposits.

Terrorist Finance Tracking Program:-

A series of articles published on June 23, 2006, by The New York Times, The
Wall Street Journal and The Los Angeles Times revealed that the United States
government, specifically the Treasury Department and the CIA, had a program
to access the SWIFT transaction database after the September 11th attacks the
rendering offshore banking for privacy severely compromised.

Money Laundering:-
The IMF has said that between $600 billion and $1.5 trillion of illicit money is
laundered annually, equal to 2% to 5% of global economic output. Today,
offshore is where most of the world's drug money is allegedly laundered,
estimated at up to $500 billion a year, more than the total income of the world's
poorest 20%. Add the proceeds of tax evasion and the figure skyrockets to $1
trillion. Another few hundred billion come from fraud and corruption.
"These offshore centers awash in money are the hub of a colossal, underground
network of crime, fraud, and corruption" commented Lucy Komisar quoting
these statistics.
Bank Secrecy:

Bank secrecy (or bank privacy) is a legal principle under which banks are
allowed to protect personal information about their customers, through the use
of numbered bank accounts or otherwise. Effective bank secrecy is better
achieved in certain countries, such as Switzerland or in tax havens, where
offshore banks adhere to voluntary or statutory levels of privacy. Created by the
Swiss Banking Act of 1934, which led to the famous Swiss bank, the principle
of bank secrecy is sometimes considered one of the main aspects of private
banking. It has also been accused by NGOs and governments of being one of
the main instrument of underground economy and organized crime, in particular
following the Class action suit against the Vatican Bank in the 1990s, the
Clearstream scandal and September 11, 2001. Advances in financial
cryptography (e.g. public-key cryptography) make it possible to use anonymous
electronic money and anonymous digital bearer certificates to achieve financial
privacy and anonymous internet banking
Regulation of Offshore Banks:

In the 21st century, regulation of offshore banking is allegedly improving,

although critics maintain it remains largely insufficient. The quality of the
regulation is monitored by supra-national bodies such as the International
Monetary Fund (IMF). Banks are generally required to maintain capital
adequacy in accordance with international standards. They must report at least
quarterly to the regulator on the current state of the business. Since the late
1990s, especially following September 11, 2001, there have been a number of
initiatives to increase the transparency of offshore banking, although critics
such as the Association for the Taxation of Financial Transactions for the Aid of
Citizens (ATTAC) non-governmental organization (NGO) maintain that they
have been insufficient. A few examples of these are:

 The tightening of anti-money laundering regulations in many countries

including most popular offshore banking locations means that bankers
are required, by good faith, to report suspicion of money laundering to
the local police authority, regardless of banking secrecy rules. There is
more international co-operation between police authorities.
 In the US the Internal Revenue Service (IRS) introduced Qualifying
Intermediary requirements, which mean that the names of the recipients
of US-source investment income are passed to the IRS.
Offshore Banking Jurisdictions:

The list of offshore banking jurisdictions and offshore financial centers

continues to expand as tax competition and globalization continue to fuel
demand for international low tax banking solutions. Here is a brief look at
the recommended banking jurisdictions by Sterling Offshore.
 Isle of Man Banking
 Jersey and Guernsey Banking
 UK Banking
 Luxembourg Banking
 Austrian Banking
 Swiss Banking
 Liechtenstein Banking
 Asian Banking
Swiss Banking:

Swiss Banking History:-

Swiss banks and Swiss banking secrecy have their roots dating back more than
300 years. Swiss Banks have long been famous for their privacy, security and
superior private banking services. Indeed, Swiss banks have proven themselves
many times throughout history to be both secure and committed to the privacy of
their clients. In fact, it was attacks on Swiss banking secrecy promulgated by
Hitler in 1931 as well as French leftists looking to uncover account information
regarding French Aristocrats in 1932 that caused the Swiss Parliament to codify
the Swiss banking code into the Banking Law of 1934, which still governs today.
Swiss Banking Laws and Regulations:-

The Swiss Banking Law of 1934 is a comprehensive piece of legislation which is

still the basis for the current legal and regulatory structure governing the Swiss
banking industry. One of the most important components of the Banking Law of
1934 was a provision which criminalized violators of banking secrecy. It is
important to note that Swiss banking secrecy cannot be lifted by tax authorities
or for requests made by treaty partners for information requests relating to
possible tax evasion. Tax evasion is only considered an administrative offense in
Switzerland. Swiss banking secrecy may only be lifted in cases of serious
criminal matters such as crimes relating to tax fraud, money laundering, drug
trafficking, weapons smuggling and terrorist financing. In line with
internationally adopted practices, Switzerland has adopted mutual legal
assistance treaties and cooperates with foreign governments on matters relating
to “serious crimes” such as criminal tax fraud (falsifying or forging documents),
money laundering, drug and weapons trafficking and terrorist financing.
Although many in the offshore world see this as a potential sign of weakness and
a harbinger of things to come, our view is that this is ultimately good for
Switzerland and its image. Switzerland is not likely to allow this to be abused by
foreign tax authorities. As mentioned earlier, tax evasion is only an
administrative offense in Switzerland and thus does not rise to the necessary level
of “serious crime” required to cooperate with foreign governments on these
matters. They have also elected to reject the information exchange option of the
EU Savings Directive, instead opting for the withholding route and preserving
the privacy of their banking clients. Switzerland’s storied history of privacy and
neutrality is still alive and well today. Privacy and neutrality remain cornerstones
of banking laws and regulations. Accordingly, Switzerland has refrained from
applying for entry into the EU and it has rejected most attempts by the EU to
impose itself and infringe upon Swiss Independence.

Swiss Banking Institutions:-

Over 500 licensed bank and securities dealers operate in Switzerland holding
approximately 35% of the world banking deposits. These range from major
international banks to smaller Swiss private banks. The options vary from small
independent Swiss banks to large international banks, the two largest of which
UBS and Credit Suisse hold over 50% of Swiss banking deposits. For a variety
of reasons, but mainly due to international pressure placed on these two
institutions by the USA and UK (where they have a substantial presence), we do
not recommend either of these Swiss banks to our clientele seeking private
banking.

Swiss Banking Services:-

Swiss banks provide a variety of services but are best known, and indeed probably
best utilized, for private banking and wealth management for high net worth
clients. Swiss banks offer access to every international market and nearly every
type of investment imaginable, all supported by some of the brightest financial
minds in the world. The preferred Swiss banking partners of Sterling Offshore
certainly fit this description.
Offshore Banking Strategies:

We generally leave the offshore banking business and questions about potential
uses to our offshore partner banks; however, we often field questions regarding
these issues and find it necessary to explain a few simple strategies often utilised.
None of the information in this section and indeed in this website should be
construed as tax advice in your home country. These strategies may or may not
be legal in your home country. We can only advise on legal uses in the countries
where we establish corporations and bank accounts on behalf of our clients. For
clients looking to repatriate funds from an offshore account without having to
“cash out”, a back to back loan may be an option. We work with several banks
that are able to provide this service.

Back to Back Loan:-

Back to back loans are generally intended to hedge against changes in currency
valuations. The concept is relatively simple. You deposit funds with the bank in
one currency and the bank issues a loan in another currency using your deposit as
collateral. With the continuously deteriorating US Dollar, this has been a great
tool for many people in recent years. In practice, these loans have several uses
which have contributed to their popularity.

Business Loan:-

You have an offshore company and bank account with funds you have been
accumulating over time. A situation arises and you find your onshore business is
in need of a cash infusion. You may be able to structure a “back to back” loan
with your offshore bank. It is generally a simple concept. You deposit funds at
the bank and using your deposit as security they draft a loan agreement at an
interest rate and term decided by you. The bank loans the funds to you solving
your cash flow problem and allowing you to show the cash as a liability on your
books. This may be an instance when you actually prefer to pay a higher rate of
interest. Your interest payments may be tax deductible expenses allowing you to
save taxes in future years.

Property Mortgage:-

You are building a new house or buying a piece of property and need cash. Your
offshore bank can draft a back to back loan as a mortgage at an interest rate and
term of your choosing (usually at a fairly high rate) allowing you to purchase the
property and maintain a “lien” on the property by filing the mortgage. Many high
net worth individuals prefer not to own property and investments in their own
names and seek arrangements which make their assets more difficult to locate for
potential adversaries. This is a popular strategy in these cases. Any searches for
assets would turn up a fully mortgaged home rather than one owned free and
clear. These loans may be kept “topped up” to 100% of the value of the home as
well. As with the business loan, interest payments are often tax deductible
providing future income tax savings which may come in handy, especially if you
have the good fortune of being in the highest tax brackets.
Offshore Bank Account:

The last but probably most important component of a offshore asset protection
structure is the offshore bank account. Unfortunately, this is probably also the
weakest point of any structure and the likely target of any queries into your
affairs. Especially considering the increasing disregard of legal structures and
focus on the "beneficial owner" in some countries, it is critical to both create the
right structure and establish the right offshore bank account for your offshore
asset protection structure. Sterling Offshore is able to provide introductions for
the purpose of establishing an offshore bank account. . The applications and
requirements vary depending on the institution.

Why Do I Need An Offshore Bank Account?

Whether you are a professional expatriate, globetrotter, international investor, or

consultant, an offshore bank account could prove invaluable. Relocation, whether
on a regular or one-off basis can have serious taxation implications for your
assets, but if they are safely anchored in an offshore jurisdiction, barring
unforeseen events they can remain there for the duration of your expatriation (and
beyond), usually attracting favourable taxation and higher returns. However, it is
probably advisable to open an account in your country of secondment for day to
day transactions as well. If you are employed in a profession which has a greater
than average chance of attracting litigation (for example the medical profession),
or are concerned about future attacks on your assets from family members,
offshore bank accounts can also prove effective as asset protection vehicles. As
previously mentioned, initiatives by the OECD and EU have dealt the concept of
offshore privacy a bit of a blow, and in several jurisdictions it has been severely
compromised. Some individuals choose to address this by interposing an
International Business Company (or IBC) or trust between themselves and the
offshore account, as it can be the case that the beneficial owner of an IBC or a
trust does not have to be disclosed. Some providers also come to arrangements
with banks in jurisdictions with strong secrecy laws, whereby reporting
requirements (to the bank at least) are minimized. However, this is a complicated
area, and professional advice needs to be taken in order to ensure that you are in
compliance with the rules of both countries. The Bush administration's actions
regarding the ongoing OECD crackdown campaign may be a silver lining in the
tax havens' cloud; the administration appears to have backed away from the
organization’s campaign, and has withdrawn US support for essential elements
of the project. This climb-down appears to only be partial at the moment, and ex-
Treasury Secretary Paul O'Neill stated that although America no longer wants to
participate in efforts towards world tax harmonization, there is still room for
international co-operation on issues such as tax avoidance.

Offshore Bank Account Features:-

• True offshore banking
• No bank references for the account signatory
• No reporting requirements
• No taxation
• 24-hour online internet banking from any PC
• Multi-currency accounts
• Low monthly account management charges
• International ATM debit and credit card facilities
• ATM anonymous cash card (aka debit card)
• Gold and business credit cards
For a Personal Account:-

1. Filled out bank application form;

2. Signature sample;

3. Notarized copy of passport with client’s original signature or any other

acceptable identification;

4. Original bank reference for each signatory of the account;

5. Document confirming client’s address;

Bank application form varies from bank to bank. Some require it to be signed in
front of the public notary, while some in front of bank officer, some do not have
any of these requirements.

For Corporate Offshore Bank Account:-

1. Memorandum and Articles of Association (original or certified copy);

2. Certificate of Incorporation (original or certified copy);

3. Board resolution to open account (original or certified copy).

Online Offshore Banking:

Online offshore banking or in other words ibank represents an internet bank

system through which a holder of an offshore corporate or personal bank account,
with both offshore credit card and debit card, can manage and monitor his/her
account via internet from all over the world.

Advantages of online offshore banking:-

As already mentioned above, a holder of an offshore corporate or personal bank

account may access his/her account via ibank from all over the world. The only
thing that you need is a computer and internet connection. In addition, the
offshore bank account can be accessed 24 hours /7 days.

But this is not the last advantage, do not forget that via online offshore banking
you have at your disposal except the possibility to manage and monitor your
account also the possibility to use different banking services which may differ
from bank to bank but generally enhance such services as: transfer of money,
exchange of currencies, making deposits and many other transactions. Any of
these transactions can be made immediately or booked for a certain date. In
addition, what is the most important is that they are secured.

Moreover, if you have any questions or you encounter problems or difficulties

during the use of the online offshore banking services the majority of banks
provide 24 hour assistance. All you need is to call them. The personnel of the
offshore banks usually speak in several languages.
How to use online offshore banking?

Usually, online offshore banking can be used on different operating systems

such as Microsoft Windows or Mac and many other systems. You can even access
your private or corporate offshore bank account from a smart phone. In addition,
all largely used browsers such as Internet Explorer and Mozilla Firefox, and
others support the service. At the end of the day all you actually need is internet
connection. It is important to mention that online offshore banking is a secured
system so getting access to it presupposes several steps. Usually, you will have
to use a username and a password to login into the system. Also each electronic
transaction that you make through online offshore banking has to be confirmed
by a personal security code. This reduces the risks of frauds or any other troubles
that might occur if someone else gets access to your offshore bank account via
online offshore banking.
Credit Cards

Offshore credit cards are comparatively new type of service that offshore banks
provide for their clients. Only couple of years ago typical offshore bank client did
not have such a convenience to access his/her savings so easily through the credit
cards that are linked to the offshore bank account. In the past if a client wanted
to access money kept offshore, he/she had to personally withdraw it from his/her
offshore bank account by physically visiting bank office or transfer it to onshore
bank account.

Both ways had serious disadvantages. In case of withdrawing money from the
account an individual faced a risk of getting robbed on the way home and in
second case when money was transferred from offshore to onshore account
his/her privacy was seriously challenged, since it became possible to trace
offshore account through this transfer.

This whole process was extremely inconvenient, inflexible and time consuming.
Offshore credit cards made a huge step towards simplification of the ways an
individual can access funds that he/she keeps in the offshore banking center.
Offshore bank issued Visa and MasterCard offshore credit cards made a
revolution in offshore banking business.
Offshore credit cards have almost the same features as the domestic ones. They
are also branded under Visa and MasterCard and are accepted at millions of
locations for paying in exchange for goods and services. In addition, they allow
getting cash advances through automated teller machines (ATMs). Offshore
credit cards also provide insurance, car rental benefits, card replacement, offshore
banking online services, carrying balances forward and many other services that
is also available to normal credit card owners.

Although offshore credit card and domestic credit card have numerous
similarities, there are some aspects by which they differ. As a rule offshore banks
require their clients to provide certain amount of guarantee – a security deposit
together with the application for the credit card. The amount requested by
offshore banking institutions varies from case to case, however normally it is 125-
150% of the credit amount requested. For instance, to get credit card balance of
$20,000, a client should provide a security amount of $30,000. There are cases,
when banks require security deposit of 200%.

It is possible to increase offshore credit card balance, but offshore banks require
client to increase security guarantee as well by wiring funds or by any other
acceptable method. The system of security deposits differs from the requirements
that domestic banks set for their customers. In fact offshore credit cards are some
kind of hybrid card, where credit that is extended is secured by client’s own
money, therefore offshore banks often refer to such cards as “offshore cards”

Role of Offshore Banking in Indian Context:-

INDIA has made a cautious beginning in offshore banking by permitting for the
first time Offshore Banking Units (OBUs) to be set up in Special Economic
Zones (SEZs). The SEZs have been set up with a view to providing an
internationally competitive and hassle free environment for export production.
SEZs will be 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. The OBUs virtually would be foreign
branches of Indian banks located in India. These OBUs, inter alia, would be
exempt from reserve requirements and provide access to SEZ units and SEZ
developers to international finances at international rates. The Reserve Bank of
India (RBI) has permitted banks operating in India, whether Indian, public/private
sector or foreign, to set up OBUs in the SEZs. The OBUs would carry out
essentially wholesale banking operations. The OBUs will be set up as branches
of the banks and therefore no separate assigned capital will be required. All
prudential norms applicable to overseas branches of Indian banks would apply to
OBUs. Thus, the necessary risk management practices that are in vogue
internationally, would have to be adopted by the OBUs. The OBUs will be
regulated and supervised by RBI. They will be required to scrupulously follow
“Know Your Customer” and other antimony laundering directives of RBI from
time to time.
Unlike the OFCs in other developing countries which conduct offshore
banking in a significant manner, the OBUs in India have a limited mandate. In
fact, the approach appears to be facilitating the SEZ policy rather than introducing
offshore banking in India. This is in line with the cautious policy stance adopted
by the regulators in regard to the opening up of the financial sector.
Notwithstanding the limited scope for offshore banking in the light of the relevant
regulations, many Indian banks have set up OBUs in SEZs.
Available feedback is encouraging. Over the years, India has tightened the legal
framework to combat money laundering and other cross border financial crime.
These include the Prevention of Money Laundering Act 2002, passed keeping in
view the FATF deliberations and recommendation and international initiatives at
the United Nations and others. There are other laws such as The Smugglers and
Foreign Exchange Manipulation (Forfeiture of Property) Act of 1976, The Code
of Criminal Procedures 1973, Prevention of Corruption Act, 1988, The Narcotic
drugs and Psychotropic Substances Act of 1985.

Role of Reserve Bank of India in Offshore Banking

The role of Reserve Bank of India has been very critical in initiating the process
of offshore banking in India. For plenty of years, the various Indian banks had
been trying to convince the Reserve Bank of India to introduce offshore banking
in the country. Eventually, the Reserve Bank of India understanding the needs
and prospects of offshore banking in India, allowed the setting up of offshore
units in the special economic zones. Many of the Indian banks made use of that
provision to set up offshore banks in India.

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 Government's 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. In this
background, RBI has prepared the following scheme to facilitate banks operating
in India to set up OBUs.

Schemes:-

 Eligibility Criteria

Banks operating in India viz. public sector, private sector and foreign banks
authorised 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.

 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 licence should
itself state that it proposes to conduct business at the OBU branch in foreign
currency only. No separate authorisation 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.

 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.

 Reserve Requirements
 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.

 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 B.R. Act, 1949.

 Resources and deployment

The sources for raising foreign currency funds would be only external. Funds can
also be raised from those resident sources to the extent such residents are
permitted under the existing exchange control regulations to invest/maintain
foreign currency accounts abroad. Deployment of funds would be restricted to
lending to units located in the SEZ and SEZ developers. Foreign currency
requirements of corporates in the domestic area can also be met by the OBUs. If
funds are lent to residents in the Domestic Tariff Area (DTA), existing exchange
control regulations would apply to the beneficiaries in DTA.

 Priority sector lending

The loans and advances of OBUs would not be reckoned as net bank credit for
computing priority sector lending obligations.
  Deposit insurance

Deposits of OBUs will not be covered by deposit insurance.

 Choice of SEZ

OBUs would be permitted in SEZs approved by Government of India, where

according to Government policy, OBUs can be set up.

 Permissible Activities of OBUs

OBUs would be permitted to engage in the form of business mentioned in Section

6(1) of the BR Act, 1949 as stipulated in the enclosed ECD Notification No.
FEMA71/2002-RB dated September 7, 2002 and subject to the conditions of the
licence issued to the OBU branches.

 Anti-Money Laundering Measures

The OBUs would be required to scrupulously follow "Know Your Customer

(KYC)" and other anti-money laundering instructions issued by RBI from time to
time. Further, with a view to ensuring that anti-money laundering instructions are
strictly complied with by the OBUs, they are prohibited from undertaking cash
transactions, and transactions with individuals.

Reputed Offshore Banks in INDIA:

With the introduction of offshore banking numerous banks made a beeline for
setting up an offshore banking unit at the special economic zones. One of the
banks which took to offshore banking in India is the Bank of Baroda. It set up an
offshore unit in the city of Mumbai. Punjab National Bank is another banks
which boasts of an offshore banking unit at Santacruz Electronics Export
Promotion Zone or SEEPZ in Mumbai. The State Bank of India and ICICI Bank
is also one of the banks with an offshore unit at SEEPZ.

Participation of the INDIAN Banks:

Few Indian banks, such as State Bank of India, 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.
Indian Bank, Bank of Baroda and Union Bank of India jointly floated a deposit
taking company, IBU International Finance, in Hong Kong for both offshore and
onshore banking.

The benefits for the Indian banks from these ventures are:

• Improved Profits : As these ventures involve relatively low operating costs.

•Better Customer Services: With multi-currency deposit bases, the banks would
be able to serve better the needs of their customers who have set up joint ventures
abroad in the form of foreign currency finance.

• Balance of Payments: The banks would strengthen the country's balance of

Payments through repatriation of profits from the venture
Offshore Banking Centers in India:

Financial experts have been pleading to establish an offshore banking centre in

India. Geographically, India provides distinct advantages in attracting offshore
banking units, because

 It has a stable economic and political performance,

 A vast market,
 Technical manpower that could find employment in these centers.
 Another advantage is that the Indian market would open a little before the
Tokyo market closes, and close before New York opens, thus providing a
vital time link for international money market dealers.
 In an era where many Indian corporations are functioning abroad and many
corporations are granted permission to seek overseas finance, establishing
an offshore unit will help tap the resources:
 Exporters would benefit in terms of finer margins on loans and better
foreign exchange rates available via an offshore banking unit. The benefits
of multi-currency operations which, to an extent, minimize currency
fluctuation risk, will be an added advantage.
 Salaries paid by offshore banks and local expenditure incurred by them
contribute to the economy's welfare. For smaller countries, the benefit
would be greater. For a larger country such as India, however, this may not
form a significant portion of the total income.
 India may earn revenue in the form of licence 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.
 The country can gain improved access to the international capital markets.
The domestic financial system may become more efficient through
 increased competition and exposure of the domestic banks to the practices
of offshore banks.
 Offshore banking centers will provide opportunities to train the local staff
which will, in turn, contribute to faster economic growth.
 Offshore banking units would help channelize non-resident Indian
investments.
 Setting up offshore banking centers would trigger enforced development
of more advanced communication facilities — a must for their functioning.

For long, Mumbai was considered suitable for establishing offshore banking
here. The city has all the requirements- infrastructure in the form of
Telecommunications and Services, abundant and well-trained manpower and
presence of many International Banks, both Indian and Foreign, already engaged
in international banking. The Sodhani Committee on Foreign Exchange
Reforms (1996) has recommended offshore banking in India. As against the
general recommendation of permitting offshore banking units only at Mumbai,
the present is to permit at Special Economic Zones. This is because both offshore
banking centers and SEZs have many things in common administration and
purpose.

The establishment of offshore centers in India was foreseen when the Foreign
Exchange Regulation Act (FERA) was replaced by the Foreign Exchange
Management Act, 1999 (FEMA). Article 10 of FEMA included offshore banking
units as one of the authorities to whom the RBI could delegate powers for dealing
in foreign exchange. Hence, beginning of offshore banking in India is by
permitting for the first Offshore Banking Units (OBUs) to be set up in Special
Economic Zones (SEZs). State Bank of India and ICICI Bank have opened
the first Offshore Banking Unit (OBU) in India at the SEEPZ, Mumbai.

The Scope for Offshore Banking in INDIA:

The favorable factors for an OFC in India are well known. These include
availability of skilled and quality banking, legal professionals, vastly improved
Tele communication 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
up gradation of risk management systems of financial intermediaries. The
gradualist approach to financial liberalization 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.

Asset Liability Management in India:

Ever since the initiation of the process of deregulation of the Indian banking
system and gradual freeing of interest rates to new systems and organizational
changes that are called for to manage it, particularly the new banking risks, are
still lagging. The turmoil in domestic and international markets during the last
few months and impending changes in the country’s financial system are a grim
warning to our bank managements to gear up their balance sheet management in
a single heave. To being with, as the RBI’s monetary and credit policy of October
1997 recommends, as adequate system of ALM to incorporate comprehensive
risk management should be introduced in the PSBs. It is suggested that the PSBs
should introduced ALM which would focus on liquidity management, interest
rate risk management. Broadly, there are 3 requirement to implement ALM in
these banks, in the stated order:

 Developing a better understanding of ALM concepts,

 Introducing an ALM information system, and,
 Setting up ALM decision-making processes (ALM Committee/
ALCO)

The above requirements are already met by the new private sectors banks, for
example. These banks have their balance sheets available at the close of every
day. Changes in interest rates by them to manage interest rates risk and their
maturity mismatches are based on data provided by their MIS. In contrast, loan
and deposit pricing by PSBs is based partly on hunches, partly on estimates of
internal macro data, and partly on their competitor’s rates.

Recommendations of the Expert Group on Foreign

Exchange Markets in India (1995) in Regard to Setting Up
of Offshore Banking Units (OBU’s):
 Before concluding we may note the recommendations of the Expert Group in
regard to the setting up of offshore banking units. The group has recommended
that Offshore Banking Units (OBU’s) may be allowed to be set up by scheduled
commercial banks operating in India as part of and within the existing bank
titled “domestic OBU’s”. Foreign banks not operating in India would not be
permitted to operate only as domestic OBU. OBU is expected to maintain its
own separate accounting which will be audited separately and strictly.

 Sources of Funds:-

The Group recommended that OBU’s may obtain fund from: (i) acceptance of
deposits or borrowings in foreign currency from non-residents including
foreign entities and other foreign branches of Indian banks and issuance of
foreign currency certificates of deposits, the Reserve Bank of India (RBI)
would lay down account opening criteria; (ii) acceptance of funds as
deposits/borrowings from only those residents who are eligible to hold foreign
currency accounts (although these funds cannot strictly be deemed as offshore
funds, the objective of permitting this to be held in “offshore books”, is to
increase the source of foreign currency funds which are free of reserve
requirements so that liquidity and pricing of these is more in line with
international rates), which will greatly benefit exporters; and (iii) taking
deposits from other domestic OBU in India.
 Development of Funds:-

The Group has suggested that OBU’s may deploy funds by way of: (i) lending
to any non-resident; (ii) specific category of investments permitted by RBI;
(iii) loans to other domestic OBU’s and (iv) loans to domestic entities in
foreign currency for project/ infrastructure finance under the RBI’s general or
specific permissions.

 Other Business:-

According to the Group domestic OBU’s should also be permitted to: (i)
undertake foreign exchange dealings with non-residents, other domestic
OBU’s and authorised dealers not involving local currency; (ii) issue
guarantees and do other business not involving domestic currency/local
exposure; (iii) loan syndication and management in advising, negotiating and
confirming LCs in foreign currencies where both the parties are non-residents;
and (v) financial advisory services.

 Capital Adequacy and Supervision

The Group has suggested that the OBU will be subject to strict regulation by
RBI including capital adequacy, exposure norms, accounting standards and
gap limits. Besides prescribing eligibility criteria for allowing setting up of
such units, the RBI may also, according to the Expert Group, specify a limit
on the total assets/liabilities. The limit would be subject to review from time
to time.

Chapter 4
Case Study on ICICI Bank Ltd.
Introduction & History of ICICI Bank:

Introduction:-

ICICI Bank started as a wholly owned subsidiary of ICICI Limited, an

Indian financial Institution , in 1994. Four years later, when the company
offered ICICI Bank's shares to the public, ICICI's shareholding was reduced to
46%. In the year 2000, ICICI Bank offered made an equity offering in the form
of ADRs on the New York Stock Exchange (NYSE), thereby becoming the first
Indian company and the first bank or financial institution from non-Japan Asia
to be listed on the NYSE. In the next year, it acquired the Bank of Madura
Limited in an all-stock amalgamation. Later in the year and the next fiscal year,
the bank made secondary market sales to institutional investors.
With a change in the corporate structure and the budding competition in the
Indian Banking industry, the management of both ICICI and ICICI Bank were
of the opinion that a merger between the two entities would prove to be an
essential step. It was in 2001 that the Boards of Directors of ICICI and ICICI
Bank sanctioned the amalgamation of ICICI and two of its wholly-owned retail
finance subsidiaries, ICICI Personal Financial Services Limited and ICICI
Capital Services Limited, with ICICI Bank. In the following year, the merger
was approved by its shareholders, the High Court of Gujarat at Ahmadabad as
well as the High Court of Judicature at Mumbai and the Reserve Bank of India.

ICICI Bank sets up first Offshore Banking Unit:-

ICICI bank Ltd on Friday announced that it has established its first Offshore
Banking Unit (OBU) at SEEPZ Special Economic Zone, Mumbai. The OBU
was inaugurated by ICICI Bank managing director and CEO K V Kamath.
ICICI Bank's OBU will offer a suite of products to meet specific requirements
of corporates and individuals. The OBU will provide international finance at
competitive rates, market-linked deposits in major currencies of various tenors
and a host of other products.

It will also offer foreign currency deposits to NRIs providing competitive

returns benchmarked to the international markets. The OBU will also provide
them the flexibility to choose deposit products across varying maturities and
interest rates.

Financial performance:
ICICI Bank is India's second-largest bank with total assets of Rs. 3,634.00
billion (US$ 81 billion) at March 31, 2010 and profit after tax Rs. 40.25 billion
(US$ 896 million) for the year ended March 31, 2010. The Bank has a network
of 2,016 branches and about 5,219 ATMs in India and presence in 18 countries.
ICICI Bank offers a wide range of banking products and financial services to
corporate and retail customers through a variety of delivery channels and
through its specialized subsidiaries in the areas of investment banking, life and
non-life insurance, venture capital and asset management. The Bank currently
has subsidiaries in the United Kingdom, Russia and Canada, branches in United
States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai
International Finance Centre and representative offices in United Arab
Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia.
Our UK subsidiary has established branches in Belgium and Germany. ICICI
Bank's equity shares are listed in India on Bombay Stock Exchange and the
National Stock Exchange of India Limited and its American Depositary
Receipts (ADRs) are listed on the New York Stock Exchange (NYSE).
Established in 1994, ICICI Bank is today the second largest bank in India
and among the top 150 in the world. In less than a decade, the bank has become
a universal bank offering a well diversified portfolio of financial services. It
currently has assets of over US$ 79 billion and a market capitalization of US$ 9
billion and services over 14 million customers through a network of about 950
branches, 3300 ATM's and a 3200 seat call center (as of 2007). The hallmark of
this exponential growth is ICICI Bank’s unwavering focus on technology

Branches & ATMs:

ICICI Bank has a wide network both in Indian and abroad. In India alone,
the bank has 1,420 branches and about 4,644 ATMs. Talking about foreign
countries, ICICI Bank has made its presence felt in 18 countries - United States,
78 Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International
Finance Center and representative offices in United Arab Emirates, China,
South Africa, Bangladesh, Thailand, Malaysia and Indonesia. The Bank proudly
holds its subsidiaries in the United Kingdom, Russia and Canada out of which,
the UK subsidiary has established branches in Belgium and Germany.
Products & Services
Personal Banking
 Deposits
 Loans
 Cards
 Investments
 Insurance
 Demat Services
 Wealth Management
NRI Banking
 Money Transfer
 Bank Accounts
 Investments
 Property Solutions
 Insurance
 Loans

Offshore Banking Unit in SEZ ?

Healthy and thriving OBUs crucial for SEZs L B Singhal DG, EPC for EOUs
and SEZs SEZ Act, 2005 has been enacted with the basic objectives of
increasing exports, generating employment, attracting foreign and domestic
investment and creation of world-class infrastructure. These objectives are
sought to be achieved by providing competitive fiscal exemptions, providing
power at competitive rates and access to international finance at international
rates through offshore banking units (OBUs)

What is ICICI Bank’s Offshore Banking Unit, SEEPZ?

RBI has given permission to select banks in India, fulfilling certain criteria, to
setup Offshore Banking Units for promotion of export based units in Special
Economic Zones. ICICI Bank's Offshore Banking Unit (OBU) SEEPZ, Mumbai
is a deemed foreign branch of ICICI Bank Limited situated in Special Economic
Zone within India and undertakes International Banking business involving
foreign currency denominated assets and liabilities.

ICICI Bank gets RBI nod for setting up offshore unit in Seepz:

ICICI Bank has received permission from the Reserve Bank of India (RBI) to
set up an offshore banking unit in the Seepz Special Economic Zone in
Mumbai. The unit is expected to commence operations within the next couple
of months.

The Export Import Policy of '02-03 had allowed setting up of OBUs in special
economic zones. These units would be virtually foreign branches of Indian
banks but located in India. They would also be exempted from the stipulations
of cash reserve ratio (CRR) and statutory liquidity ratio (SLR) and would
provide finances at international rates to SEZ units and developers.

The RBI had announced the facility for banks to set up offshore banking units
in SEZs in November `02. Since then SBI has been granted four licenses for
setting up banks in Seepz in Mumbai, Kandla, Kochi and Surat. Bank of Baroda
has also received licence for an OBU at Seepz.

Speaking to ET, Bharghav Dasgupta, Head - international banking at ICICI

Bank said that the OBU was planning on schemes to raise dollar resources in
the international markets to provide foreign currency loans at highly
competitive rates. "We have the flexibility to raise foreign currency liabilities-
both in respect of tenure and interest rates. We will source our liabilities from
wholesale as well as retail," he said. "An offshore banking unit does not need to
maintain cash reserve ratio (CRR) and is not subject to priority sector lending.
All the cost benefits arising out of this, we will pass on to our customers," said
Mr. Dasgupta. He added that the primary job would be to provide export
finance and other foreign exchange denominated debts to companies within the
EPZ. The banks said the OBU would enable it to offer products to suit specific
requirements of Indian corporates. It will also enable the bank to raise foreign
currency funds from non-residents including NRIs and OCBs.

The regulations that apply to OBU are in line with international norms. OBUs
need to follow the international practice of 90 days payment delinquency norm
for income recognition, asset classification and provision. They will have to
operate and maintain balance sheet only in foreign currency and would not be
allowed to deal in Indian rupees, except for having a special rupee account out
of convertible fund to meet their day-to-day expense.
ICICI Bank offers foreign currency deposits at its OBU:
MUMBAI: ICICI Bank on Monday introduced a foreign currency term deposit
scheme for non-residents including NRI's at its offshore banking unit (OBU) in
the city. The deposit products are denominated in USD, Euro and Pound
Sterling and will be offered from the bank's OBU at SEEPZ, Mumbai, the
country's second largest bank said in a release. The new scheme offers term
deposits with tenors ranging from three months to six years. The indicative rate
of returns vary from 1.62 per cent per annum for one year, 2.27 per cent for two
years, 3.01 per cent for three years, 3.35 per cent for four years, 4.02 per cent
for five years and 4.43 per cent for six years on USD deposits, it added.

Tax sops for NRI deposits may take new shape:

NEW DELHI: Non-resident Indians (NRIs) apprehending imposition of
income-tax on the interest earned on deposits parked in India can heave a sigh
of relief now. Even after withdrawing the exemption available to such income
from next April, as proposed by FM P Chidambaram, the government may open
another window for NRIs to enjoy the benefit. The commerce and industry
ministry has said that interest earned on NRI deposits should not be subject to
income-tax if the deposit is parked with an offshore banking unit (OBU)

Customer Review:-
Following pie Diagram indicates that the types of Account Customers have in
ICICI Offfshore Bank.
 Type of Account

10%

0% 10% Saving A/c

0% Current A/c
Fixed Deposit A/c
Saving & Current A/c
Saving & Fixed Deposit A/c
80%

Analysis:-

Above mentioned Pie Diagram shows that the ICICI Offshore Bank
has maximum deals in Saving Account while few are holding current account or
Fixed Deposit Account. Also we can say that in our survey we didn’t found
customer holding only current or Fixed Deposit Account.

Interpretation:-

We interpret that maximum customer are employees who migrate from

Company to Company for various projects. Luckily, we also found some
businessmen holding ICICI Offshore Account.
 Interest Rates

10%

10%
0% Saving A/c
0% Current A/c
Fixed A/c
Current & Saving A/c
Saving & Fixed Deposit A/c

80%
 Annual Charges & Fees
0% 0%

10%
20%

0-100
30% 100-200
200-300
300-400
40% 400-500
500-600
 Current Bank Schemes
0%

30%
40%

Fully Satisfied
Satisfied
Average
Poor
30%
 Service Used

10% 20%
10% Insurance & Debit Card

10% Credit card

20% Debit Card
Debit & Credit Card
30% Insurance, Debit & Credit Card
Insurance
 Survey Rating
0

10%
20%

20%
Excellent
Very Good
Good
Average
50% Poor
 Chapter 5
Findings, Suggestions & Conclusion

Findings and Suggestions:

The OBU will be deemed as an overseas branch of the Bank and undertake the
following activities:
 Raise funds in convertible foreign currency as deposits and borrowings
from Non Residents sources.
 Transact in foreign exchange with residents in India who are eligible to
enter into or undertake such transactions in terms of various Rules and
Regulations as framed under Foreign Exchange Management Act, 1999.
 Open foreign currency accounts abroad as well as with other OBUs in
India
 Trade in foreign currencies in the overseas market and also with banks in
India where both legs of the transactions are denominated in foreign
currencies.
 Provide customised loan and liability products for the benefit of clients
 Maintain Special Rupee account with an Authorised Dealer in India out
of the convertible foreign exchange resources for meeting local expenses
 Buy Rupees from an Authorised Dealer in India to fund the Special
Rupee Account.
 All the KYC information is required to open up an account.
 Minimum amount required is $1000 to open up this account.
 The interest rate is fixed in the same branch, and not by central bank of
ICICI Bank or RBI.
 CONCLUSION

In offshore banking, finding the right offshore service 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 & WEBLIOGRAPHY

WEBLIOGRAPHY:

 www.google.com
 www.wikipedia.com
 www.icicibank.com
 www.managementparadise.com
 www.offshorebankingtoday.com

BIBLIOGRAPHY:

1) International Banking & Finance.

- Mr. Dipak Abhyankar.
B.E., C.F.A.