OVERVIEW
- Global and Regional Corporate Treasury Centres (GRCTCs) allow multinational groups to centralise their treasury operations within the GIFT City IFSC under the IFSCA (Finance Company) Regulations, 2021.
- The International Financial Services Centre Authority (IFSCA), through recent informal guidance, has clarified the manner in which such GRCTCs may be set up and run in the GIFT City IFSC.
- This guidance gives multinational groups much-needed clarity and confidence to consolidate their global treasury operations at GIFT City, strengthening the IFSC’s position as a competitive hub for corporate finance functions.
- The transitional relaxations and fee synergies, such as the factoring exemption, lower the entry barrier and ease of doing business, helping attract more group entities to set up GRCTCs in the IFSC.
BACKGROUND OF THE INFORMAL GUIDANCE REQUEST
- An Applicant submitted a formal request under the IFSCA (Informal Guidance) Scheme, 2024 sought clarifications regarding the operationalization of the GRCTC Framework under the IFSCA (Finance Company) Regulations, 2021.
- The applicant sought clarification on the permissible activities, eligible group entities and service recipients, leasing activities, and INR-denominated borrowing and lending under the GRCTC Framework.
SCOPE OF GRCTC ACTIVITIES
- Under the GRCTC Framework, registered entities may undertake treasury activities and provide treasury services that are integral to the group’s treasury function.
- This includes issuing and managing guarantees, letters of credit and other financial support instruments, as well as deploying and maintaining the IT and information systems required to support the IFSC entity’s treasury operations and the treasury services provided to its group companies.
PERMISSIBLE GROUP ENTITIES
- The GRCTC Framework mandates that a treasury centre must perform its activities and services exclusively for its “Group Entities” .
- The Applicant sought confirmation that the ultimate parent, intermediate holding company, and identified subsidiaries would qualify as “Group Entities,” given that the proposed IFSC entity is wholly owned through the intermediate holding company.
- The GRCTC Framework governs the definition of “Group Entities,” though guidance may also be drawn from other IFSCA frameworks.
- Under the Ship Leasing Framework, a group relationship may arise through a parent-subsidiary relationship (AS 21), a joint venture (AS 27), an associate relationship (AS 23), a related-party relationship (AS 18), a common brand name, or an equity investment of at least 20%, with each criterion applying independently.
BACK-OFFICE PROCESSES RELATED TO TRADING/INVOICING AND RE-INVOICING
- The activity of reinvoicing may involve certain back-office operations like generation and dispatch of invoices, etc., which is permissible for a GRCTC.
- However, to the extent the activity of reinvoicing involves buying/selling of goods by the GRCTC, it amounts to trading activity. which is not currently permitted as an activity in IFSC.
INR DENOMINATED LENDING & BORROWINGS
- An IFSC entity is treated as a person resident outside India under FEMA. Accordingly, a GRCTC may extend INR-denominated loans to Indian group entities subject to the RBI’s ECB framework.
- However, borrowing in INR from Indian financial institutions is generally not permitted under the FEMA (Borrowing and Lending) Regulations, 2018. The proposed activities should also be reassessed once the RBI finalises the revised ECB framework.
AML/CFT/KYC COMPLIANCE
- GRCTC entities must strictly adhere to the IFSCA (Anti Money Laundering, Counter-Terrorist Financing and Know Your Customer) Guidelines, 2022, along with all subsequent amendments and related circulars.
- This includes compliance with the circular dated November 18, 2024, regarding exemptions for certain entities or activities from the applicability of these guidelines, to the extent applicable.
IT AND INFORMATION SYSTEMS
- A GRCTC is permitted to deploy and maintain IT and information systems necessary to support its own treasury functions and the treasury services provided to its group companies, as such activities are integral to GRCTC operations.
CONCLUSION
- IFSCA’s informal guidance on the GRCTC Framework provides greater regulatory clarity for entities considering GIFT City as a global or regional treasury hub.
- The guidance clarifies the regulatory boundaries applicable to trading and financing activities.
- This improved certainty enables multinational groups to structure their treasury operations more efficiently and compliantly.
- Overall, the update strengthens GIFT City’s position as a competitive destination for centralised corporate treasury functions.
