How to Access GIFT City Loans: A Guide for Indian Corporates

How to Access GIFT City Loans: A Guide for Indian Corporates

Banks are increasingly turning to GIFT City to facilitate dollar loans for Indian companies. In this burgeoning financial landscape, you’ll learn to understand how GIFT City is reshaping the financial sector. This article explores the rise of GIFT City as a key financial hub, its impact on established financial centers, and the factors driving its growth. We'll delve into the strategic importance of GIFT City, the tax incentives that attract businesses, and the broader implications for India's economic future. The goal is to provide a comprehensive overview of GIFT City's evolution and its potential to transform international finance.

Banks in GIFT City are making a splash, with the Gujarat International Finance Tec-City becoming a hotspot for Indian corporates seeking US-dollar denominated debt. This shift is reshaping the landscape of international finance, drawing business away from established hubs. The rise of GIFT City highlights the evolving dynamics within the global financial system.

GIFT City's Ascent: A New Financial Hub

GIFT City's emergence marks a significant development in India's financial sector. Banks operating within GIFT City disbursed nearly \$20 billion in dollar loans to Indian corporates in the fiscal year ending March. This figure constitutes over one-third of the total dollar loans issued to Indian companies globally. The data from the International Financial Services Centres Authority (IFSCA) highlights this growth, showing a considerable increase from the 16% recorded just two years prior.

The Strategic Importance of GIFT City

The strategic importance of GIFT City is underscored by its ability to attract major financial players. For example, Mitsubishi UFJ Financial Group Inc. (MUFG), which established operations in GIFT City in 2022, now channels the majority of its debt to Indian companies through this hub. According to sources, the bank's India balance sheet, valued at \$20 billion, is largely influenced by the activities within GIFT City. HSBC Holdings Plc is also expanding its international trade finance portfolio from GIFT City, venturing into wealth and cross-border markets products. The State Bank of India is aiming for a 10% annual growth in its GIFT City branch portfolio, indicating the hub's potential.

Tax Incentives Driving Growth

The success of GIFT City is significantly driven by attractive tax incentives. These include a 10-year tax holiday on business income and the absence of withholding tax on loan or bond interest income. This allows banks in GIFT City to offer more competitive financing rates compared to established financial hubs, where withholding tax ranges from 10% to 15%. Vivek Ramji Iyer of Grant Thornton Bharat LLP notes that GIFT City is taking a larger share of the offshore borrowing market for Indian companies, posing a challenge to established centers like Hong Kong and Singapore.

India's Economic Growth and Investment

India's robust economic growth and supportive government policies are fostering a new wave of investment. This follows a period of bad loans, which peaked with the 2018 collapse of Infrastructure Leasing & Financial Services Ltd. S&P Global Ratings projects that leading Indian businesses will increase spending and capital expenditure over the next five years. They anticipate approximately \$800 billion in capex between fiscal 2026 and 2030, with an additional \$1 trillion by fiscal 2035. This surge in investment is attracting lenders, including banks and private credit firms, eager to finance this expansion, especially as the property crisis in China impacts corporate debt prospects.

Regulatory Changes and Market Dynamics

Recent regulatory changes proposed by India's central bank are aimed at easing access to foreign funds for firms, potentially accelerating the pace of issuance. Sachin Shah of Standard Chartered in India points out that borrowers increasingly prefer borrowing from GIFT City over global centers like London, Singapore, Mauritius, and Hong Kong. He notes that the all-inclusive borrowing cost is around 50 to 70 basis points lower, depending on the company's international ratings and loan specifics. Banks are introducing new products in GIFT City, with MUFG's GIFT unit offering foreign currency loans, structured products, and trade financing to Indian corporates. The bank also plans to expand its global treasury product offerings.

Expanding Business Beyond Lending

The scope of business in GIFT City extends beyond lending. Banks in GIFT City managed \$94 billion as of June, nearly tripling the amount from three years prior. HSBC holds about \$10 billion in assets there. The British bank offers nearly 50 international products at GIFT City and plans to introduce insurance products for both resident and non-resident clients. Axis Bank Ltd. consolidated its foreign business to GIFT City in fiscal 2020, closing branches in various global locations and shifting its debt fundraising operations from Dubai. K. Rajaraman, chairman of IFSCA, aims to provide Indian corporates with global capital at the most competitive rates.

The Road Ahead for GIFT City

The shift of the SGX Nifty contract, which was previously traded in Singapore, to GIFT City in July 2023, has boosted the derivatives business. The annual equity derivatives turnover on the NSE International Exchange crossed \$1 trillion in the fiscal year ending March. Rajaraman highlights the growth in fund entities and aircraft leasing financing. However, the push for Indian corporates to raise foreign equity capital from the hub is still in its early stages. The government's attempts to encourage rupee trading and green bond trading have faced challenges. The lack of infrastructure and social networks has made it difficult for the hub to attract talent. As Yashraj Erande of Boston Consulting Group points out, GIFT City needs to develop deep markets across multiple products and services to achieve global scale.

Charting the Future Landscape

GIFT City's trajectory suggests a dynamic future, potentially reshaping the global financial landscape. While challenges remain, the hub's strategic advantages and the proactive measures taken by regulators and financial institutions position it for continued growth. The ability of GIFT City to adapt to market needs and capitalize on India's economic expansion will be crucial. As GIFT City continues to evolve, it has the potential to become a leading international financial center.

Aspect	Details	Impact
Dollar Loan Disbursement	Banks in GIFT City disbursed nearly \$20 billion in dollar loans to Indian corporates in the fiscal year ended March.	Increased market share for GIFT City and a shift away from traditional financial centers.
Tax Incentives	Includes a 10-year tax holiday on business income and the absence of withholding tax on loan interest.	Offers cheaper financing options, attracting both lenders and borrowers.
Regulatory Support	Proposed regulatory changes by India's central bank to ease access to foreign funds.	Potential to accelerate the pace of issuance and attract more foreign investment.