IFSCA (Finance Company) Regulations, 2021: Registration, Capital Requirements and Permitted Activities in GIFT IFSC

Most non-bank financial activity in GIFT IFSC runs through a single instrument: the IFSCA (Finance Company) Regulations, 2021. Lending, factoring, aircraft and ship leasing, treasury centres, trusteeship, portfolio management support, distribution and several other businesses are all licensed through it. Yet the regulations are short, and much of their operative content sits in the distinction between “core” and “non-core” activities and in a Schedule of owned-fund requirements.

Two Vehicles

The regulations recognise two forms:

• a Finance Company: a financial institution separately incorporated to carry on one or more permissible activities, which does not accept public deposits from residents or non-residents and is not registered as a Banking Unit; and
• a Finance Unit: a financial institution set up as a branch, subject to the same deposit and banking-unit exclusions.

A Finance Company may be a subsidiary, a joint venture or a newly incorporated company under the Companies Act, 2013, or another form IFSCA specifies. Where the parent carries on a regulated financial activity in its home jurisdiction, it must obtain a no-objection certificate from its home regulator, wherever applicable.

A Finance Unit requires an applicant incorporated in its home jurisdiction. For core activities, the applicant must be engaged in financial services, regulated by a financial sector regulator at home, and hold a home-regulator NOC. That condition is expressly disapplied for an entity setting up a Global or Regional Corporate Treasury Centre as a Finance Unit (Article 11).

An applicant intending to undertake only non-core activities may be registered as a “finance company” even if it is a limited liability partnership or a trust.

A 2026 amendment added two further concepts: a Special Purpose Vehicle, being a finance company incorporated or administered by a Trust and Company Service Provider for undertaking permissible activities, and the TCSP itself, authorised under the IFSCA (TechFin and Ancillary Services) Regulations, 2025.

Registration

Registration under the IFSCA (Finance Company) Regulations, 2021, is mandatory before commencing business and depends on the activities undertaken. Entities already registered for the same activity under another IFSCA framework need not obtain duplicate registration.

Applicants and promoters must meet FATF jurisdiction and compliance requirements. IFSCA may grant provisional registration subject to specified conditions. If an application cannot be approved, the applicant must be informed of deficiencies and given 30 days to rectify them, along with an opportunity to make written submissions before refusal.

Capital and Prudential Requirements

The Schedule sets minimum owned fund by activity category:

Where regulation 4 applies, three requirements follow: a capital ratio of at least 8% of regulatory capital to risk-weighted assets; a liquidity coverage ratio as determined by IFSCA, which for a Finance Unit may be maintained by the parent with specific approval; and an exposure ceiling limiting all exposures to a single counterparty or group of connected counterparties to 25% of the available eligible capital base without IFSCA’s approval.

Core and Non-Core Activities

Permitted core activities are lending in the form of loans, commitments and guarantees, credit enhancement, securitisation, financial lease, and sale and purchase of portfolios; factoring and forfaiting of receivables; investments, including subscribing, acquiring, holding or transferring securities or other permitted instruments; buying or selling derivatives; Global/Regional Corporate Treasury Centres; and any other core activity IFSCA permits.

Permitted non-core activities include merchant banking; acting as an authorised person; registrar and share transfer agency; trusteeship services; investment advisory; portfolio management; operating lease of any products, including aircraft lease, ship lease or other equipment as specified; operating an International Trade Financing Services Platform; distribution of financial products including mutual fund units and insurance products; functioning as a trading, clearing or professional clearing member of IFSC exchanges and clearing corporations; asset management support services under the ancillary services framework; acting as a facilitator of permissible activities; leasing or financing activity undertaken by an SPV, as permitted; and other activities classified as non-core by IFSCA, including activities without customer interface, with prior approval.

The core/non-core boundary is not merely descriptive. It sets the owned-fund requirement, determines whether the prudential regime in regulation 4 applies, and triggers structural obligations: an entity undertaking non-core activities must carry on each through a separately identifiable department, maintain firewalls to prevent conflicts of interest, and adopt a Board-approved grievance redressal and customer compensation policy. Each non-core activity is also subject to the specific framework IFSCA has issued for it.

A useful clarification for balance-sheet management: an entity registered only for non-core activities may undertake investment activity for liquidity and balance-sheet management as part of normal operations, without that being treated as a core activity.

Dealing with Residents, Currency and Accounts

Finance companies and finance units may transact with both residents and non-residents, but any dealing with residents is subject to FEMA. The same condition applies to their sources of funds. Derivative transactions by entities carrying on non-core activities are permitted only for hedging underlying exposures, and no entity may undertake or fund a speculative transaction.

Operations must be in freely convertible foreign currency, with INR transactions permitted only as IFSCA specifies and subject to settlement in freely convertible currency. An INR account is permitted to defray administrative and statutory expenses. The balance sheet must be maintained in US dollars, and a Finance Unit must keep its accounts distinct from those of its parent.

Governance, Change of Control and Default

KYC, CFT and AML requirements follow those specified for a Banking Unit. Mergers, acquisitions, takeovers or changes in management of a Finance Company resulting in a change in control of at least 20% of total share capital, or of business decisions under an agreement, require IFSCA’s prior approval. For a Finance Unit, corresponding changes at the parent must comply with its registration requirements and be intimated to IFSCA within 15 days.

Reporting to IFSCA is in US dollars unless otherwise specified. IFSCA may relax the strict enforcement of any requirement, for recorded reasons, in the interest of market development, on payment of any specified fee. Failure to fulfil registration conditions may lead to suspension, withdrawal or cancellation of registration, after an opportunity to make submissions.

Practical Observations

• Activity mapping comes first. The capital requirement, prudential regime and applicable framework all follow from whether the proposed business is core, non-core or a specified activity with its own framework.
• Existing IFSCA registrations may already cover the activity. The proviso to regulation 3(1) avoids duplicate registration for the same activity.
• Legal form is constrained by activity. An LLP or trust may be registered for non-core activities only.
• Resident-facing business is a FEMA question, not only an IFSCA question.

FAQ

1. What are the IFSCA (Finance Company) Regulations, 2021?
They govern finance companies and finance units in GIFT IFSC.

2. What is the difference between a Finance Company and a Finance Unit?
A Finance Company is separately incorporated, while a Finance Unit operates as a branch.

3. What are core activities?
They include lending, factoring, leasing, investments and treasury services.

4. What is the minimum owned fund requirement?
Generally, USD 3 million for core activities and USD 0.2 million for non-core activities only, subject to applicable requirements.

5. Can an LLP or trust register?
Yes, for non-core activities only, subject to IFSCA requirements.