Bank of baroda

Regulations governing OBUs
The Government and the RBI have permitted banks to set up OBUs in special economic zones, which are specially
delineated duty free enclaves deemed to be foreign territory for the purpose of trade operations, duties and tariffs. The
key regulations applicable to OBUs include, but are not limited to, the following:
No separate assigned capital is required. However, the parent bank is required to provide a minimum of U.S.$ 10
million to its OBU.
OBUs are exempt from cash reserve ratio requirements.
RBI may exempt a bank’s OBU from statutory liquidity ratio requirements on specific application by the bank.
An OBU may not enter into any transactions in foreign exchange with residents in India, unless such a person is
eligible under the existing exchange control regulations to invest/maintain foreign currency accounts abroad.
All prudential norms applicable to overseas branches of Indian banks apply to OBUs. The OBUs are also required
to follow the best international practice of 90 days’ payment delinquency norm for income recognition, asset
classification and provisioning.

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OBUs are required to adopt liquidity and interest rate risk management policies prescribed by the RBI in respect of
overseas branches of Indian banks as well as within the overall risk management and asset and liability management
framework of the bank subject to monitoring by the bank’s board of directors at prescribed intervals.
OBUs may operate and maintain balance sheets only in foreign currency and are not allowed to deal in Indian
rupees except for having a special rupee account out of the convertible funds in order to meet their daily expenses.
These branches are prohibited from participating in the domestic call, notice, term etc. money market and payment
system.
The loans and advances of OBUs would not be reckoned as net bank credit for computing priority sector lending
obligations.
OBUs must follow the ‘Know Your Customer’ guidelines and must be able to establish the identity and address of
the participants in a transaction, the legal capacity of the participants and the identity of the beneficial owner of the
funds.
A bank cannot borrow from its OBU .
The exposures of an OBU in the domestic tariff area should not exceed 25% of its total liabilities as at the close of
business of the previous working day, at any point of time.