DBOD.IBS.BC.32/23.13.004/2003-04

October 10, 2003

All scheduled commercial banks
(excluding RRBs and LABs)

Dear Sir,

Offshore Banking Units (OBUs)
in Special Economic Zones (SEZs)

Please refer to paragraph 2.5 of the scheme for setting up of OBUs in SEZs enclosed to circular DBOD.IBS.BC. 42/23.13.004/2002-03 dated November 11, 2002. Banks are aware that the OBUs have been set up for the purpose of lending to units located in the SEZ and SEZ developers. Further, OBUs are also permitted to lend to corporates in the domestic tariff area (DTA), subject to existing exchange control regulations as may be applicable to the beneficiaries in DTA.

2. Accordingly, under the existing regulations:

1. a corporate in the DTA can borrow from an OBU only under the scheme of External Commercial Borrowings (ECBs), subject to FEMA regulations.
2. a bank can borrow from its OBU subject to the ceiling fixed for banks for overseas borrowings.
3. OBUs cannot lend to any entity in the Domestic Tariff Area other than as specified at (a) and (b).

3. It has now been decided that henceforth (b) will not be permissible and the exposures of an OBU in the DTA will be restricted to (a) only and the aggregate of such exposures should not exceed 25% of its total liabilities as at the close of business of the previous working day, at any point of time.

4. Pease acknowledge receipt.

Yours faithfully,

( B. Mahapatra )
Chief General Manager