The International Financial Services Centres Authority (“IFSCA”), in exercise of the powers conferred by Section 12 and Section 13 of the International Financial Services Centres Authority Act, 2019, vide e-File No. 110/IFSCA/Banking Regulation/2020–2,[1] dated December 08, 2025, has issued a circular amending the Module No. 16 (Providing Credit) of the IFSCA Banking Handbook: Conduct of Business (COB) Directions v6.0 (“Module 16”). The amendments apply to all IFSC Banking Units (“IBUs”), as taking effect immediately.
The revisions have been introduced pursuant to the IFSCA (Banking) Regulations, 2020, and are aimed at recalibrating the regulatory framework governing lending by IBUs, with a particular focus on foreign bank IBUs, related-party transactions, and corporate financing for buy-back of securities.
Key Amendments and Regulatory Clarifications
1. Lending by Foreign Bank IBUs: Exemption from Section 20(1) of the Banking Regulation Act, 1949
IFSCA has clarified that the restrictions on loans and advances prescribed under Section 20(1) of the Banking Regulation Act, 1949 shall not apply to IBUs of foreign banks operating in IFSCs. Notwithstanding this exemption, such lending activities will continue to be subject to the IFSCA-imposed restrictions set out in Paragraph 4(ii) (Restrictions by the Authority) of Module 16. This change enhances operational flexibility for foreign bank IBUs while preserving IFSCA’s supervisory and prudential oversight.
2. Enhanced Governance Norms for Loans to Directors and Related Parties
The amendment substantially strengthens the regulatory framework governing loans or advances granted by IBUs to directors of their parent banks and to related parties of such directors. Under the amended provisions, IBUs are required to:
- formulate and implement a dedicated policy governing such loans or advances;
- ensure that lending decisions are independent and free from conflicts of interest;
- ensure that the terms and conditions of such loans are not more favourable than those offered to other borrowers under comparable circumstances;
- exclude any individual, or their family member, who may directly or indirectly benefit from the loan from participating in the approval or decision-making process;
- comply with exposure thresholds prescribed by the IBU’s home regulator, where applicable;
- conduct periodic audits to verify adherence to the approved policy; and
- notify the Department of Banking Supervision (DOBS), IFSCA, within 15 working days from the date of the transaction.
These measures underscore IFSCA’s emphasis on robust governance, transparency, and accountability in related-party lending.
3. Financing of Buy-back of Securities by Companies
The amended Module 16 now expressly permits IBUs to extend loans to companies for the buy-back of their securities, provided that such financing is permissible under the applicable laws of the jurisdiction in which the borrowing company is incorporated.
This clarification facilitates cross-border corporate financing transactions and aligns IFSC banking practices with international market norms.
[1]https://ifsca.gov.in/CommonDirect/GetFileView?id=38fea9cc5969551d78bf00e6704adcfe&fileName=circular_on_amendment_to_providing_credit_module___Dec_8__Final_20251208_0419.pdf