The Off-Shore Banking Units
The off-shore banking has of late gained tremendous acceptance from the banks in India and almost all the national banks have made tremendous progress in setting up their off-shore units in various parts of the globe. In their efforts to extend the necessary banking facilities to handle import and export business of their constituents. The concept of off-shore banking owes it origin to the USA which basically envisages establishment of overseas branches of a bank to cater to the baking needs of their customers who have international focus of their businesses. These off-shore branches operate exclusively for this purpose and do not get involved into the local or domestic banking operations of these foreign countries and derive certain tax reliefs or advantages.
These off-shore branches accept deposits from foreign nationals which do not count for the purpose of determining Statutory Reserve Ratio relevant to the countries and funds raised in this manner can be deployed as loans to foreign nationals. It is important to understand that the off-shore banking is generally characterized by conduct of international businesses involving non-resident foreign currency denominated assets and liabilities in a hospitable tax and regulatory environment. The off-shore banking units can be described as a kind of privileged parking lots of the wholesale international banking established by the host countries by giving freedom from exchange control restrictions and these units also enjoy certain fiscal incentives.
Thus it may observed that the off-shore banking units operate to accept deposits, lend to or from international investors and enterprises without attracting domestic banking and monetary regulations and their business consist mainly of services like project financing, syndication of loans, issue of short of term and medium term financial instruments like foreign currency denominated bonds, CDs etc.
In brief, it can be said that various factors like liberalized exchange control regulations, minimum direct taxation, reasonable reserve requirement, relaxed banking norms, extraordinary progress in the communicational facilities, easy entry norms, skilled staff, practical location of time zone, conducive attitude of the the government and a very good country risk which itself is based on matters viz., political stability, economic growth, balance of payments position, convertibility of currency etc. all have contributed to the phenomenon of establishment of off-shore banking unit all over the world.
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