IAS Economy Practice Question . 25

One of the legislations related to Banking in India reads:
“deemed foreign branch” of the parent bank situated within India , and it undertakes international banking business involving foreign currency denominated assets and liabilities”
The above definition applies to which among the following?
[A]Wholly Owned subsidiary of a Foreign Bank in India
[B]An overseas branch of a Foreign bank in India
[C]An Indian Bank branch located in a SEZ
[D]A foreign Bank Branch located in SEZ


Answer: An Indian Bank branch located in a SEZ
The definition given in the question applies to the Offshore banking unit (OBU) . Offshore banking unit (OBU) is the branch of an Indian bank located in a special economic zone (SEZ), with a special set of rules aimed at facilitating exports from the region. As laws define it, it’s a “deemed foreign branch” of the parent bank situated within India , and it undertakes international banking business involving foreign currency denominated assets and liabilities. The concept comes from the practice prevalent in several global financial centers. Here an OBU can accept foreign currency for business but not domestic deposits from local residents. This was conceived to prevent competition between local and offshore banking sectors.

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