BNK 632: International Finance &banking

BNK 632: International Finance &Banking
Course:

Post Graduate Diploma in Banking & Relationship Management
Term III
Assignment
On
FCNR DEPOSITS RBI GUIDELINES
Under the guidance of
Professor Mr. ALOK KUMAR
Submitted by:
Shubham Srivastava
Anu K Varghese
Gaurav Chatterjee
Lisba Annie Cyril
Pretty Sara Paul
S Akhil
September 22, 2016
Page 1 of 18
Table of Contents
Abstract
Introduction
Maturity of deposit :
Interest Rates on Deposits accepted under FCNR (B) Scheme

Benchmark Rates
Manner of payment of interest
10
Rounding of the interest on deposits
10
Payment of interest on term deposit maturing on Saturday/Sunday/ holiday/non-business

working day
10
Payment of interest on overdue FCNR (B) deposits
11
Interest payable on the deposit of a deceased depositor
12
Payment of interest on FCNR (B) deposits of NRIs on return to India
13
Prohibition on payment of additional interest not exceeding one per cent on deposits of banks
staff
13
Premature withdrawal of deposits
14
Advances against FCNR (B) deposits - Manner of charging interest
14
Advances granted in foreign currency out of the resources of FCNR (B) deposits
Addition or deletion of name/s of joint account holders
15
15
Conversion of FCNR (B) Accounts of Returning Indians into RFC Account - Waiver of
penalty 15
Conversion of FCNR (B) Accounts of Returning Indians into RFC Accounts/Resident Rupee
Accounts- Payment of interest
15
Prohibitions
16
Compliance with Foreign Exchange Management (Deposit) Regulations, 2000

Conclusion-
17
Bibliography-
18
16
September 22, 2016
Page 2 of 18
September 22, 2016
Page 3 of 18
Introduction
The deposits under the Scheme mean term deposits received by the bank for a fixed period and
withdrawable only after the expiry of the said fixed period and includes Reinvestment Deposits
and Cash Certificates or other deposits of similar nature.
What is an FCNR account?
An FCNR account is a term deposit account that can be maintained by NRIs and PIOs in foreign
currency. Thus, FCNRs are not savings accounts but fixed deposit accounts. Foreign Currency
(Non-resident) Accounts (Banks) Scheme came into force from May 15, 1993 in terms of
directions contained in AD (MA Series), Circular No. 11 dated April 29, 1993. These directions
have since been replaced by the regulations contained in the Foreign Exchange Management
(Deposit) Regulations, 2000 which came into force on June 1, 2000. A scheduled commercial
bank which is an Authorised Dealer in foreign exchange shall pay interest on deposits of money
accepted by it or renewed by it under the Foreign Currency (Non-Resident) Accounts (Banks)
Scheme except in accordance with the terms and conditions specified in the guidelines
What foreign currencies can one maintain in FCNR accounts?
Prior to 2011, FCNR deposits were allowed to be maintained in six currencies: US dollar, Pound
Sterling (GBP), Euro, Japanese Yen, Australian dollar and Canadian dollar. However, in October
2011, the RBI decided that authorised dealer banks in India may be permitted to accept FCNR
deposits in any permitted currency. 'Permitted currency' for this purpose would mean a foreign
currency which is freely convertible and popularly include Danish Krone, Swiss Frank and
Swedish Krona among others.
What terms are available?
You can open an FCNR account for a minimum term of 1 year and maximum term of 5 years.
Is premature withdrawal available?
Yes, you can withdraw your FCNR before completion of the selected term. Premature
withdrawal is subject to a penal interest of 1%. Moreover, no interest is payable if the deposit is
closed within a year.
What is the current interest rate on FCNR account?
The interest rates vary between terms and from currency to currency. Rates may also vary
between banks. For instance, the rate for a 1 year FCNR deposit in US dollar would be in the
range of 2.5-3% while the same for a deposit in Australian dollar would be 5-6%.
It is important to note that this interest is tax free in India. However, you may be subject to tax in
the country of your residence for such interest.
September 22, 2016
Page 4 of 18
Are balances in the FCNR accounts freely repatriable?
Yes, balances in FCNR can be freely repatriated outside India.
September 22, 2016
Page 5 of 18
Maturity of deposit :
The deposits should be accepted under the Scheme for the following maturity periods:
1 year and above but less than 2 years;
2 years and above but less than 4 years;
4 years and above but less than 5 years;
5 years only
Recurring Deposits are not being accepted under the Scheme. Repatriation of funds in foreign
currencies is permitted. Transfer of funds from existing NRE accounts to FCNR (B) accounts and
vice versa of the same account holder is permissible without prior approval of RBI.
September 22, 2016
Page 6 of 18
Interest Rates on Deposits accepted under FCNR (B)

Scheme
A bank should obtain prior approval of its Board of Directors for the interest rates that it will offer
on deposits of various maturities, within the ceiling prescribed by Reserve Bank of India. The
Board of Directors of a bank may authorise the Asset Liability Management Committee to fix
interest rates on deposits subject to reporting to the Board immediately thereafter.
The interest rates ceiling on FCNR (B) deposits are as under:
Duration
1 year to less than 3
3 5 years
years
With effect from March 1,

LIBOR/ Swap plus 200 basis
2014 till date
points
point
With effect from August 14,

2013 up to February 28, 2014
points
points
With effect from May 4, 2012

up to August 13, 2013
points
points
With effect from November

23, 2011 up to May 3, 2012
points
points
November 15, 2008 to

November 22, 2011
points
points
Notes:
a) On floating rate deposits interest shall be paid within the ceiling of Swap rates for the respective
currency/ maturity plus 200 basis points/ 300 basis points as the case may be and in
September 22, 2016
Page 7 of 18
case of fixed rate deposits interest shall be paid within the ceiling of LIBOR rates for the
respective currency/ maturity plus 200 basis points/ 300 basis points as the case may be.
For floating rate deposits, the interest reset period shall be six months.
The LIBOR/SWAP rates as on the last working day of the preceding month would form the base
for fixing ceiling rates for the interest rates that would be offered effective the following month.
September 22, 2016
Page 8 of 18
September 22, 2016
Page 13 of 18
Premature withdrawal of deposits
Banks on request from the depositor shall permit premature withdrawal of deposits under the
FCNR(B) Scheme. Banks are free to levy penalty for such premature withdrawal at their
discretion. Banks may also, at their discretion, levy penalty to recover the swap cost in the case
of premature withdrawal of FCNR(B) deposits. Where premature withdrawal of FCNR(B)
deposits takes place before completion of the minimum stipulated period of one year, in which
case no interest is payable, banks may at their discretion levy penalty to cover the swap cost.
However, the components of penalty should be clearly brought to the notice of the depositors at
the time of acceptance of the deposits. If the depositors are not informed of the penalty
provisions at the time of acceptance of deposits, the exchange loss arising out of premature
withdrawal will have to be borne by the banks.
Conversion of FCNR (B) deposits into NRE deposits or vice-versa before maturity should be
subject to the penal provision relating to premature withdrawal.
September 22, 2016
Page 15 of 18
Prohibitions
No bank should:
accept or renew a deposit over five years.
discriminate in the matter of rate of interest paid on the deposits, between one deposit and
another accepted on the same date and for the same maturity, whether such deposits are accepted
at the same office or at different offices of the bank, except on the size group basis. The
permission to offer varying rates of interest based on size of the deposits will be subject to the
following conditions:
Banks should, at their discretion, decide the currency-wise minimum quantum on which
differential rates of interest may be offered. For term deposits below the prescribed quantum with
the same maturity, the same rate should apply.
The differential rates of interest so offered should be subject to the overall ceiling prescribed.
Interest rates paid by the bank should be as per the
schedule and not subject to negotiation between the depositor and the bank.
(iii) pay brokerage, commission or incentives on deposits mobilized under FCNR(B) Scheme in
any form to any individual, firm, company, association, institution or any other person.
(iv) employ/ engage any individual, firm, company, association, institution or any other person
for collection of deposit or for selling any other deposit linked products on payment of
remuneration or fees or commission in any form or manner.
(v) accept interest-free deposit or pay compensation indirectly.
Compliance with Foreign Exchange Management (Deposit)

Regulations, 2000
Banks should note to adhere to the directions contained in Schedule 2 to the Foreign Exchange
Management (Deposit) Regulations, 2000 as amended from time to time.
September 22, 2016
Page 16 of 18
Conclusion-
Any disturbances in the market due to the upcoming FCNR (B) redemptions will only be
"transient" as RBI will dip into forex reserves to smoothen forex reserves.
"While some disturbances are expected, they are likely to prove transient," it said in a note,
adding that the Reserve Bank will temporarily draw down its reserves to smoothen market
volatility. The note said at USD 366 billion, the forex reserves are USD 40 billion above the top
end of the range suggested by IMF as being essential for the country to respond to shocks and
prevent disorderly market conditions and undue economic dislocation. It added that the RBI has
been buying dollars in the forwards market intending to neutralise the redemptions by banks'
USD delivery under the forwards deals at maturity. The RBI had opened a special dollar swap
window in the aftermath of the pressures on currency following the taper tantrums of 2013,
under which banks had raised USD 27 billion in three-year foreign currency deposits from the
diaspora which are up for redemptions between September and November. The RBI has said that
it expects an outflow of up to USD 20 billion because of the redemptions and has stressed on
being able to manage it through its forward contracts and the reserves. "But mismatches in the
profiles of its (RBI's) forwards and FCNR(B) deposits are conceivable," the note said, adding
that the redemptions can also also "temporarily crimp" the financial account under the balance of
payments. The brokerage, however, joined its peers in expecting the country to report a current
account surplus for the first quarter of the fiscal year 2016-17 at USD 1 billion or 0.2 per cent of
the GDP. "It would be the first quarterly surplus India has chalked up on its current account since
Q4 FY2007," it said. Japanese brokerage Nomura had last week estimated the country to report a
surplus of USD 4 billion or 0.8 per cent of the GDP for the April-June period on a sharp
narrowing of the merchandise trade deficit.
September 22, 2016
Page 17 of 18
Bibliography-
http://www.moneycontrol.com/news/bonds-news/fcnr-redemption-pressures -
will-be-transient-bnp-paribas_7435741.html?utm_source=ref_article
https://www.rbi.org.in/Scripts/BS_ViewMasterCirculardetails.aspx?did=335
https://rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=9846
iibf.org.in/documents/fcnrb-deposits.pdf
September 22, 2016
Page 18 of 18

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