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Transfer of assets via ‘participation agreements’

IFSCA approves Indian banks to transfer assets via 'participation agreements'

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Transfer of assets via ‘participation agreements’

India’s Ministry of Finance today notified that banking units are free to transfer assets to or from other financial institutions, persons resident in India and persons resident outside India through any internationally recognised standard risk participation agreement.

This will be done through the International Financial Services Centres Authority (IFSCA) which was established in April this year with its head office in Gandhinagar, capital of Gujarat state.

Its establishment followed legislation passed by Parliament in December 2019 to set up a unified authority for regulating all financial activities via IFSCs as part of economic reforms. The Gandhinagar IFSC is the first in India.

The Ministry said “transfer of assets through the risk participation agreement route is a common practice in many jurisdictions especially in the field of trade finance. Such risk participation is undertaken as a bilateral contract under a standard document called a risk participation agreement between two institutions.”

With today’s notification, risk participation of foreign currency assets through banking units in IFSC instead of banks in foreign jurisdictions is expected to become popular.

The Ministry noted that the most common risk participation agreement is the Master Risk Participation Agreement developed by the Bankers Association for Finance and Trade, the Washington-based global association for organizations actively engaged in international banking transactions.–WAM

 

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