Why Are Indian Banks Opening Branches in GIFT City?

In December 2025, Indian Overseas Bank received RBI approval to set up an IFSC Banking Unit at GIFT City.

Bank of India inaugurated its IBU in January 2026.

DBS Bank opened its GIFT City IBU in 2023. Deutsche Bank launched its IBU with Prime Minister Modi present at the inauguration.

Federal Bank was here as early as November 2015.

As of 2025, 35 banks operate IBUs in GIFT City. The number keeps growing. Source: IFSCA official data.

Every few months, another bank, Indian or international, announces an IBU at GIFT City. The business press covers the inauguration. Then the story moves on.

What nobody fully explains is why.

What does a bank actually gain by opening in GIFT City? What is driving this acceleration? And what does it mean for you as an NRI or resident Indian investor?

That is what this article covers.

What Is an IBU and How It Differs From a Regular Branch

Before getting into why banks open here, it helps to understand what they are actually opening.

An IFSC Banking Unit (IBU) is not a regular branch.

It is, for legal and regulatory purposes, treated as a foreign branch of an Indian bank. Your account at an IBU sits outside India's domestic financial system, even though the physical building is in Gujarat. Transactions happen in foreign currency.

The regulator is IFSCA, not RBI (though RBI approval is required to set one up). Source: Indian Bank IBU GIFT City; GIFT CFO IBU FAQs.

The minimum capital requirement for an IBU is USD 20 million in freely convertible foreign currency. Source: GIFT CFO IBU FAQs.

This structure is what makes GIFT City interesting for banks. It is India, but with international-standard rules. You can read more about the overall ecosystem in our GIFT City IFSC guide and our GIFT City India overview.

Reason 1: A 10-Year Tax Holiday on IBU Profits

This is the most direct financial incentive and the one banks do not often publicise.

IBUs operating in GIFT City qualify for a 10-year tax holiday under Section 80LA of the Income Tax Act. Their income from permitted IFSC activities is fully exempt from income tax for any 10 consecutive years out of the first 15 years of operation. Source: Income Tax Act Section 80LA; GIFT CFO IBU FAQs.

No GST on services rendered by or to IBUs either. Source: IFSCA regulations.

For a bank evaluating the cost of running an international banking operation, the difference between paying a 30%+ effective corporate tax rate in India versus zero tax for a decade is enormous.

This is not a marginal benefit. It is the foundational reason why the economics of an IBU work so well compared to running a full overseas branch in Singapore or Dubai.

👉 Tip: The same tax efficiency that attracts banks also benefits you as an investor. When the bank's IBU operates tax-free, it can offer better deposit rates and lower transaction costs than it could from a fully taxed domestic setup. That advantage flows partly into the rates you see on GIFT City FDs.

Reason 2: Access to NRI Capital at Scale

As of December 31, 2024, 28 IBUs collectively held over USD 1 billion in retail demand and term deposits from more than 6,897 NRIs and foreigners. Source: GIFT Treelife IBU analysis.

That number has grown rapidly.

NRIs represent a massive, underleveraged depositor base for Indian banks. The Indian diaspora is estimated to hold trillions of dollars in savings globally. Much of that sits in overseas bank accounts earning modest returns, or in NRE and FCNR accounts that were the only India-linked options for decades.

GIFT City gives banks a new product to offer: a USD-denominated account that is tax-free in India, fully repatriable, and better suited to NRIs who do not want currency conversion risk.

For the bank, every USD deposit at the IBU is foreign currency funding. This is strategically valuable. Indian banks perpetually need foreign currency to fund trade finance, external commercial borrowings, and cross-border lending. NRI deposits through GIFT City IBUs are a low-cost, stable source of that funding.

Compare NRI FD rates across banks using our NRI FD rates tool.

Reason 3: Trade Finance and Corporate Banking Opportunity

NRI retail deposits are visible. The corporate banking opportunity at GIFT City is larger and less talked about.

Indian companies borrow in USD through External Commercial Borrowings (ECBs) to fund capital expenditure, imports, and overseas expansion. Traditionally, they accessed this funding from foreign banks abroad, involving complex legal structures, higher costs, and currency logistics.

An IBU in GIFT City can provide the same ECB funding from Indian soil, in foreign currency, under IFSCA regulations. The bank stays close to its existing corporate relationships. The borrower avoids the complexity of dealing with an entirely foreign institution.

Bank of India specifically highlighted this when it inaugurated its IBU in January 2026: the unit would focus on trade finance, foreign exchange operations, cross-border lending, and ECB facilitation. Source: Indian Masterminds; Bank of India IBU inauguration.

Indian Overseas Bank, upon receiving RBI approval in December 2025, cited "foreign currency lending, trade finance, external commercial borrowings, and offshore treasury operations" as the core mandate for its IBU. Source: Business Upturn; India Infoline.

For large Indian banks with deep corporate client bases, GIFT City IBUs allow them to capture this cross-border business without losing the client to a foreign bank.

Reason 4: Competing With Singapore and Dubai for International Finance

India's government has been explicit about GIFT City's ambition: to compete with Singapore, Dubai (DIFC), Hong Kong, and London as a financial centre.

Deutsche Bank, DBS, and other global banks have IBUs here. Their presence validates GIFT City's positioning for international clients. Their entry also puts pressure on Indian banks to establish themselves here before foreign institutions capture the NRI and corporate banking market they have traditionally served.

Deutsche Bank's CEO for India, Kaushik Shaparia, said at the IBU inauguration: "With the rising number of multinational corporations in India, we will witness an increase in the demand for cross-border banking services from hedging to financing." Source: Deutsche Bank press release.

DBS Bank, Singapore's largest, opened its GIFT City IBU in July 2023 specifically as an "enabler for the bank's growth strategy for India." Source: DBS Bank newsroom.

The competitive pressure is real. If foreign banks are offering sophisticated cross-border products to Indian corporates and NRIs from GIFT City, every major Indian bank needs a presence here to defend its client relationships.

Reason 5: A Single Regulator Makes Compliance Cleaner

Before IFSCA was established in 2020, banks operating in GIFT City dealt with multiple regulators simultaneously. Banking activities fell under RBI. Securities under SEBI. Insurance under IRDAI. For a bank wanting to offer a bundled product suite, the compliance overhead was significant.

IFSCA consolidated these functions into a single unified regulator. One authority for banking, capital markets, and insurance within the IFSC. Source: IFSCA official website.

This dramatically reduces the compliance overhead for banks. Legal teams deal with one framework. Products can be structured across asset classes without navigating inter-regulator friction. For a bank that wants to offer NRIs a USD FD, a USD mutual fund, and a USD insurance policy from the same platform, IFSCA makes this structurally clean in a way that the domestic framework simply does not.

Reason 6: The Resident Indian LRS Market

Banks are not just targeting NRIs.

Resident Indians under LRS can open Call Accounts at GIFT City IBUs and invest up to USD 2,50,000 per financial year in foreign currency assets. Source: RBI LRS Master Direction.

This creates a growing domestic investor base for IBU products. Indian HNIs, salaried professionals, and business owners increasingly want USD exposure, global equity access, and foreign currency deposits as a hedge against INR depreciation.

The rupee has depreciated from approximately Rs 43 to over Rs 85 against the dollar over the past two decades, roughly 3 to 4% annually. Source: RBI exchange rate data.

Every bank with an IBU can now offer its existing Indian resident clients a structured, regulated path to global investing. This is a significant product expansion opportunity on top of the NRI business.

👉 Tip: If you are a resident Indian with your entire portfolio in Indian assets, your bank's GIFT City IBU is now offering you a legal, regulated way to hold USD. The same HDFC or ICICI relationship manager you deal with for your domestic accounts can help you open a GIFT City Call Account under LRS.

Reason 7: Wealth Management Is Moving Offshore

NRI wealth management has historically been fragmented.

NRIs held NRE accounts at Indian banks for India savings. They held local accounts in their country of residence for daily banking. They dealt with separate advisors for each. The investment products available through Indian banks' NRI channels were limited: FDs, mutual funds, insurance. Nothing sophisticated in foreign currency.

GIFT City changes this.

Banks with full IBU capabilities can now offer NRIs a bundled USD platform: savings accounts, FDs, mutual funds, AIFs, global equity access, and USD insurance. All from one institution. All in one currency. All without converting to rupees.

HDFC IBU has tied up with Goldman Sachs, Nomura, Pine Bridge, and Robeco for global fund distribution. ICICI IBU offers its own range of USD mutual fund products. Kotak's IBU was among the early movers on AIF distribution.

For banks competing for NRI wallet share, GIFT City is where the next generation of wealth management products for the diaspora will be built.

Explore the current GIFT City mutual fund landscape through our GIFT City Mutual Funds tool. Individual fund options include the DSP Global Equity Fund, the Tata India Dynamic Equity Fund, the Edelweiss Greater China Equity Fund, and the Sundaram India Mid Cap Fund.

For higher-ticket investors, Category III AIFs are available with capital gains tax exemption. Explore options on our GIFT City AIF explorer.

Reason 8: Government Push and Policy Certainty

Banks make long-term infrastructure decisions. Regulatory certainty matters enormously.

The Indian government has consistently backed GIFT City with concrete policy commitments. Budget 2025 extended the GIFT City tax benefit framework through March 2030, providing five years of legislated certainty. Source: Finance Act 2025.

Prime Minister Modi personally inaugurated Deutsche Bank's IBU, signalling political commitment at the highest level.

IFSCA has shown a pattern of proactive regulatory expansion: reducing AIF minimums from USD 1,50,000 to USD 75,000 in February 2025, introducing V-CIP digital onboarding in July 2025, and expanding permitted product categories progressively.

For a bank evaluating whether to invest USD 20 million in IBU capital and build a team, this combination of tax certainty, regulatory dynamism, and government support is a compelling case.

What This Means for You as an Investor

If You Are an NRI

More banks in GIFT City means more competition on deposit rates, better product variety, and improving service quality.

When ICICI, HDFC, Axis, and IDFC FIRST are all competing for your USD savings, rates stay competitive and onboarding processes improve. The introduction of V-CIP digital KYC in 2025 was partly a response to the growing number of banks competing for remote NRI onboarding.

More banks also means more distribution of GIFT City mutual funds and AIFs through familiar existing relationships. If your relationship manager at SBI or HDFC knows you, they can now offer you GIFT City products without you needing to start a relationship from scratch somewhere else.

Use our NRI FD rates tool to compare current GIFT City FD rates across banks before committing. Read our GIFT City banks guide for a detailed breakdown of which IBU suits which investor profile.

You can also participate in GIFT City IPOs denominated in USD as the ecosystem matures. Browse available IPO products on Belong.

Track real-time market sentiment through our GIFT Nifty live tracker.

If You Are a Resident Indian

More banks with LRS-compatible GIFT City Call Accounts means your path to USD diversification is getting easier and more competitive.

Your existing bank relationship is increasingly likely to include a GIFT City product. You do not need to open accounts with a new institution or navigate unfamiliar processes. The same bank, a cleaner product.

If your entire portfolio is in Indian equity and debt, this is the most important structural shift happening in Indian financial services right now. The INR has depreciated over 3% annually against the USD for two decades. Holding even 10 to 15% of your savings in USD through a GIFT City account at your existing bank is now a straightforward option, not a complicated offshore manoeuvre.

Explore Indian and global mutual fund options side by side through Belong's mutual funds platform.

👉 Tip: If you are a resident Indian and your bank now has a GIFT City IBU, ask your RM specifically about opening a Call Account under LRS. Many bank customers do not know this product exists within their existing relationship. The conversation takes five minutes. The benefit of USD exposure over a ten-year horizon is significant.

The Competitive Picture: Indian Banks vs Global Banks in GIFT City

Source: Federal Bank IBU page; Deutsche Bank press release; DBS Bank newsroom; Indian Masterminds; Business Upturn.

The Risks of a Fast-Growing Ecosystem

The growth of GIFT City banking is genuinely encouraging. But a rapidly expanding ecosystem also carries risks worth naming clearly.

Regulatory change without advance notice: In 2024, IFSCA prohibited certain US ETF investments through GIFT City funds without significant prior warning. NRIs who had planned portfolios around those products had to restructure. Source: Goodreturns. Rules will keep evolving as the ecosystem matures.

Limited track records on new products: Most GIFT City mutual funds launched between 2022 and 2025. You have two to three years of data at most. Evaluate AMC reputation and underlying strategy carefully. Source: Belong GIFT City mutual funds risk guide.

No deposit insurance: All IBU deposits, regardless of which bank, remain outside DICGC coverage. This applies to SBI's IBU as much as to IDFC FIRST's. Source: IFSCA regulations.

For a balanced view on the risks specifically, see our risks of investing in GIFT City mutual funds guide. For the full framework on what GIFT City regulation looks like from an investor standpoint, see our GIFT City vs RBI regulations guide.

Our broader GIFT City pros and cons article covers the investor-level trade-offs in full.

FAQs

Do banks make more money from GIFT City IBUs than from regular branches?

Potentially yes, in the early years. The 10-year tax holiday under Section 80LA means IBU profits face zero income tax. For a bank generating meaningful volumes of trade finance, ECBs, and NRI deposits, the tax saving is substantial. This is a primary driver of IBU expansion. Source: Income Tax Act Section 80LA.

Is my money safer at an IBU of a large bank like SBI or HDFC?

The bank itself is the same creditworthy institution. But the DICGC deposit insurance that protects domestic accounts up to Rs 5 lakh does not apply to IBU accounts. You are relying on the bank's own creditworthiness rather than a government backstop. For SBI and HDFC, the credit risk is low. But the insurance protection is genuinely absent. Source: DICGC framework; IFSCA regulations.

Can foreign banks open IBUs in GIFT City?

Yes. Foreign banks already operating in India can set up IBUs with prior RBI approval. Deutsche Bank and DBS are live examples. They operate under the same IFSCA framework as Indian bank IBUs. Source: GIFT CFO IBU FAQs; Banking Regulation Act Section 23.

Why do banks need RBI approval if IFSCA is the regulator?

IFSCA is the unified regulator for operations within the IFSC. But the establishment of an IBU by an Indian or foreign bank still requires prior RBI approval under the Banking Regulation Act. Both approvals are needed. Source: Banking Regulation Act 1949 Section 23; GIFT CFO IBU FAQs.

What does more banks in GIFT City mean for NRI deposit rates?

Competition generally keeps rates competitive. When multiple IBUs are actively seeking USD deposits from the same NRI base, they cannot afford to offer significantly below-market rates. Use our NRI FD rates tool to compare current rates across IBUs before you book a deposit.

How do I know which bank's IBU to choose for my GIFT City account?

Read our full GIFT City bank accounts comparison guide for a detailed breakdown by account type, FD rates, onboarding process, and support quality. Alternatively, Belong lets you access GIFT City FDs and mutual funds from multiple institutions through a single onboarding, without needing to choose and open a separate IBU account.

Disclaimer: This article is for informational purposes only and does not constitute personalised investment or tax advice. Please consult a SEBI-registered advisor before making investment decisions. Sources: IFSCA official data, Income Tax Act Section 80LA, RBI LRS Master Direction, Finance Act 2025, Deutsche Bank press release, DBS Bank newsroom, Bank of India IBU inauguration, Business Upturn, India Infoline, Indian Masterminds, GIFT CFO IBU FAQs, Federal Bank IBU page, DICGC framework.