GIFT City as a Hub for Centralised Treasury Functions: The GRCTC Framework

Indian borrowing groups have operated with fragmented external borrowings and repetitive hedging activity across multiple jurisdictions resulting in challenges such as duplicated liquidity buffers, mismatched debt maturities and suboptimal refinancing timing. Inconsistent covenant packages across lenders also constrain group flexibility. 

Centralised Treasury Use Case

Global or Regional Corporate Treasury Centres (GRCTCs) incorporated in GIFT City, address these issues by centralising decision making, funding and liquidity strategy, and providing a single point of execution for hedging and intercompany lending. Corporate groups having substantial foreign currency exposure, recurring refinancing needs and access to both loan and bond markets may consider the IFSCA framework that permits finance companies or finance units to undertake GRCTC activity. This consolidation has implications for refinancing options, lender engagement, hedging efficiency, intercompany liquidity management and overall cost of funds, while providing a regulated platform with financial substance, governance and supervision. 

Regulatory Framework and Permitted Activities

GRCTCs are ‘finance companies’ governed under International Financial Services Authority (Finance Company) Regulations, 2021 and the Framework for Finance Company/Finance Unit undertaking the activity of Global/ Regional Corporate Treasury Centres. Permitted activities include borrowing, credit arrangements, derivative transactions, re-invoicing and liquidity management, enabling centralised financial control and discipline. 

GRCTCs have the flexibility to operate as per its board approved prudential policy instead of adhering to regulatory prudential ratios. They may provide services to group entities, subject to maintaining an updated list of service recipients with IFSCA.

Key Advantages 

From lenders’ perspective, a properly structured treasury centre improves transparency and credit monitoring with a consolidated funding plan and uniform covenant discipline across entities of the borrowing group.  Regulatory oversight, governance standards and minimum owned funds requirements further enhance lender comfort.

Another advantage of this structure is that the GRCTC is regulatorily situated offshore, allowing access to global capital markets without the usual exchange control restrictions. However, any on-lending to Indian group entities would still have to be compliant with exchange control regulations. The proposed overhaul of the ECB framework, covering borrower eligibility, end-use flexibility and pricing alignment with global markets, will go a long way in making this leg of the structure viable. 

GRCTCs have also been accorded certain direct tax concessions. Business income is eligible for a 10-year tax holiday within a 15-year period from the year of registration. Dividends upstreamed to overseas parents are subject concessional withholding tax of 10% (plus applicable surcharge and cess). Further, any interest income earned by non-resident lenders is exempt from income tax in India. GRCTCs also enjoy flexibility in making loans and advances between group entities without attracting deemed dividend taxation, resulting in an efficient tax regime for operations, funding and repatriation of income.

Conclusion 

GRCTCs must have robust decision-making capability, documented risk policies and operational execution. If structured effectively, GRCTCs can reduce frictional costs, centralise risk management and enhance refinancing capabilities, while prompting forward-looking assessment of capital structure and cost of funds. 

The GRCTC framework is still in its initial phase, and certain regulatory aspects require further clarification, such as permissibility of service recipients in India providing security or guarantee for offshore borrowing by the GRCTC and classification of credit management and liquidity arrangements from a FEMA perspective.