GIFT City Banks Eye Offshore Yuan (CNH) Transactions Amid Improved India-China Ties

Indian banks operating at Gujarat International Finance Tec City (GIFT City), a global financial services hub, are pushing for approval to conduct transactions in the offshore renminbi (CNH). Sources indicate that stakeholders presented this proposal to the government and the International Financial Services Centre Authority (IFSCA) in October, following internal deliberations where banks highlighted the broad acceptance of CNH.

This initiative could allow Indian banks to expand their service offerings by tapping into the significant global trade volumes driven by China. Currently, International Banking Units (IBUs) at GIFT City are authorized to deal in 15 currencies, offering spot and derivative products. For 2024, IBUs project substantial business volumes, estimated at $8.2 billion across five currencies, including the potential addition of CNH.

The IFSCA has previously supported freely floating currencies among the top international payment instruments. While approvals in 2024 initially included the Swedish krona (SEK), Danish krone (DKK), Norwegian krone (NOK), and New Zealand dollar (NZD), the CNH was excluded. However, improving diplomatic and economic ties between India and China have prompted a re-evaluation of this stance. A final decision rests with high-level authorities.

Vivek Iyer from Grant Thornton Bharat commented that recognizing currencies for trade purposes is crucial for building relationships in a multipolar world.

Impact: This development could significantly enhance GIFT City's standing as an international financial hub and bolster India's role in global currency markets, especially concerning trade with China. It may lead to increased financial services revenue and deeper integration into international payment systems. The direct impact on the Indian stock market might be indirect, affecting specific financial services companies and potentially boosting trade volumes. Rating: 8/10

Heading Difficult Terms * **Offshore Renminbi (CNH)**: Renminbi is the official currency of China. CNH refers to the renminbi traded outside mainland China, primarily in Hong Kong, London, and Singapore, used for international transactions. * **International Financial Services Centre Authority (IFSCA)**: A statutory body established by the Government of India to develop and regulate the financial services sector at the International Financial Services Centres (IFSCs) in India, like GIFT City. * **International Banking Units (IBUs)**: Special units set up by banks in IFSCs like GIFT City to conduct offshore banking business, operating outside the normal domestic banking regulations. * **Onshore Renminbi (CNY)**: CNY refers to the renminbi traded within mainland China. * **Spot and Derivative Products**: Spot products are financial instruments traded for immediate delivery. Derivative products derive their value from an underlying asset and are typically used for hedging or speculation.