NRI BANKING

PROJECT REPORT OF

MARKETING OF BANK

UNIVERSITY OF MUMBAI

BACHALOR OF COMMERCE

(BANKING AND INSURANCE)

SEMISTER V

2014-15

SUBMITTED BY

Shilpa S. Trivedi

PROJECT GUIDE

MS

GHANSHYAMDAS SARAF COLLEGE

OF ARTS AND COMMERCE

R.S Campus, S.V road,

Malad (west),Mumbai-400 064

B.COM (BANKING AND INSURANCE) 5TH SEMISTER

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NRI BANKING

ACKNOWLEDGEMENT

I take this opportunity to thank the UNIVERSITY OF MUMBAI for

giving me a chance to do this project.

I express my sincere gratitude to the Principal; Chief Co-ordinator Mrs. Urvi Madam,

Guide Prof. Gurunathan S. Pillai and our librarian and other teachers for their constant

support and helping for completing the project.

I am also grateful to my friends for giving support in project. Lastly,

I would like to thank each and every person who helped me in completing the

especially MY PARENTS.

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NRI BANKING

DECLARATION

I MS. SHILPA SURESH TRIVEDI a student of Ghanshyamdas Saraf

College of Arts and Commerce, Malad (w) T.Y.B.C.B.I (SEMESTER V)

HEREGY DECLARE THAT I HAVE COMPLETED PROJECT ON ‘NRI BANKING

in the academic year 2013-2014. This information

Submitted is true and original to best of my knowledge.

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NRI BANKING

CHAPTERNO

TOPIC NAME PAGE

NO

01 INTRODUCTION ON NRI BANKING:-

Who is an Nri?

Pio card scheme

What is an OCB?

Key benefits

Types of accounts

Opening of NRI A/c

09

10

11

13

14

15

19

02 DEFINATION:-

Definition of NRI – under Foreign

Excange Management Act,1999

Defination of PIO

24

27

03 DEPOSITORY’S SCHME FOR

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NRI BANKING

NRI’S:-

NRE A/c

Types of Accounts

FCNR A/c

NRO A/c

Tax Benefits for NRI’s

30

30

34

36

41

04 SERVICES OFFERED BY VARIOUSBANK TO NRI’S:-

Banking Services

Services offered by ICICI Bank

Facility available as per RBI/FEMA

guidelines

43

44

45

05

06

RBI ISSUES GUIDELINES FORMONEY TRANSFER SCHEME:-

Money transfer

International SWIFT transfer

Demand (or bankers) draft

UAE Exchange

Wester union Money Transfer

Sendwise

Moneygram send money online today

ICICI & HDFC bank NRI money

transfer

48

49

49

50

50

50

51

52

5

NRI BANKING

NRI INVESTMENTS:-

Investment opportunities in India for

NRI

RBI forms

52

55

07 NRI INVESTMENT INIMMOVABLE PROPERTY ININDIA:-

Rules for acquisition 7 transfer by

foreign citizen NRI’s

Mode of payment

Repatriation of sale proceeds

56

58

59

08 PAN CARD FOR NRIs:-

Applying for pan card, necessity for

pan card,charges of pan card

Demat a/c

60

62

CASE STUDY ON NRI

CONCLUSION

ANEXXURE

FINDINGS AND SUGGESTION

BIBLIOGRAPHY

66

70

71

72

74

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NRI BANKING

NRI Banking – An Introduction:-

bank of your change of your residential status.

As per RBI guidelines, the residential status of

an Indian changes to that of the Non-Resident, in the event of his stay

abroad being more than 183 days. This period of 183 days is not

applicable in certain cases like going overseas for employment or business.

It is mandatory to inform the

7

CHAPTER 1.

INTRODUCTION

NRI BANKING

With a view to attract the savings and other remittance into India through

banking channels from the person of Indian Nationality / Origin who are

residing abroad and bolster the balance of payment position, the Government

of India introduced in 1970 Non-Resident(External) Account Rules which are

governed by the Exchange Control Regulations. The funds held in Non-

Resident (External) Accounts (NRE Accounts) qualify for certain benefits like

exemptions from taxes in India, free repatriation facilities, etc.

NRI banking facilities are available to NRIs and PIOs.

WHO IS A NON – RESIDENT INDIAN [NRI] ?

A Non Resident Indian (NRI) as per FEMA 1999 is an Indian citizen or

Foreign National of Indian Origin resident outside India for purposes of

employment, carrying on business or vocation in circumstances as would

indicate an intention to stay outside India for an indefinite period. An

individual will also be considered NRI if his stay in India is less than

182 days during the preceding financial year.

To meet the specific needs of non-resident Indians related to their

remittances, savings, earnings, investments and repatriation, the Government of

India introduced in 1970 Non-Resident (External) Account Rules which are

governed by the Exchange Control Regulations.

"Non Resident Indian" (NRI) means an Indian citizen or a foreign citizen

of Indian origin (excluding citizens of Bangladesh and Pakistan) residing

outside India. Students studying abroad are also treated as NRIs.

Indian citizen who stays abroad for an indefinite period on employment,

business or on any vocation is a Non-Resident. Diplomats posted abroad,

persons posted in UN Organizations and Officials deputed by PSU on

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NRI BANKING

temporary assignments are also treated as Non-residents.

PIO CARD SHCEME

The Government has launched a comprehensive Scheme for the

Persons of Indian Origin-called the ‘PIO Card Scheme’. Under

this Scheme, Persons of Indian Origin up to the fourth

generation (great grandparents) settled throughout the world, except

for a few specified countries, would be eligible. The Card would

be issued to eligible applicants through the concerned Indian

Embassies/High Commissions/Consulates and for those staying in

India on a long term visa, the concerned Foreigners Regional

Registration Officer (Delhi, Mumbai, Calcutta, Chennai) would do

the same. The fee for the card, which will have a validity of

20 years, would be US$1000.

In this scheme, unless the context otherwise requires-

"Person of Indian origin" means a foreign citizen (not being a

citizen of Pakistan, Bangladesh and other countries as may be

specified by the Central Government from time to time) if,

He/she at any time held an Indian passport; or

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NRI BANKING

He/she or either of his/her parents or grandparents or great

grandparents was born in and permanently resident in India as

defined in the Government of India Act, 1935 and other

territories that became part of India thereafter provided neither

was at any time a citizen of any of the aforesaid countries

(as referred to in 2(b) above); or

He/she is a spouse of a citizen of India or a person of

Indian origin covered under (i) or (ii) above.

Besides making their journey back to their roots simpler, easier

and smoother, this Scheme entitles the PIOs to a wide

range of economic, financial, educationaland cultural benefits. The

benefits envisaged under the Scheme include:-

No requirement of visa to visit India;

No requirement to register with the Foreigners Registration

Officer if continuous stay does not exceed 180 days. If

continuous stay exceeds 180 days, then registration is required

to be done within a period of 30 days of the expiry of

180 days;

Parity with Non-Resident Indians in respect of facilities available

to the latter in economic, financial, educational fields etc. These

facilities ill include:

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NRI BANKING

Acquisition, holding, transfer and disposal of immovable properties

in India except of agricultural/plantation properties;

Admission of children in educational institutions in India under

the general category quota for NRIs- including medical/engineering

colleges, IITs, IIMs etc.

Various housing schemes of Life Insurance Corporation of India,

State Governments and other Government agencies;

All future benefits that would be extended to NRIs would also

be available to the PIO Card holders;

However, they shall not enjoy political rights in India.

What is an OCB?

Overseas Corporate Bodies (OCBs) are bodies predominantly owned

by individuals of Indian nationality or origin resident outside

India and include overseas companies, partnership firms, societies

and other corporate bodies which are owned, directly or indirectly,

to the extent of at least 60% by individuals of Indian

nationality or origin resident outside India as also overseas trusts

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NRI BANKING

in which at least 60% of the beneficial interest is irrevocably

held by such persons. Such ownership interest should be actually

held by them and not in te capacity as nominees. The various

facilities granted to NRIs are also available with certain

exceptions to OCBs so long as the ownership/beneficial interest

held in them by NRIs continues to be at least 60%

What are the various facilities available to NRIs/OCBs?

NRIs/OCBs are granted the following facilities:

Maintenance of bank accounts in India.

Investment in securities/shares of, and deposits with Indian firms/

companies.

Investments in immovable properties in India.

KEY BENEFITS

NRI-Banking follows a modular structure. The various modules

render our NRI Banking solution offerings (which are stated

12

NRI BANKING

below) in a seamlessly integrated fashion.

The Masters module permits maximum parameterization to be done,

enabling the end user to make all changes with regard to

Interest Rates or with regard to any changes as per directives

from Head Office / RBI.

Maintains Bank, Branch and holiday details

Facilitates maintenance of Instrument, Interest rate and overdue

interest rate details Masters. Inventory, Currency, Country, Exchange

rate and return reason details are also maintainedFavors opening,

authorization and freezing of AccountsTransaction entry and passing

is made easy

Provisions availed for issuing, passing and stop payment of

cheques.

Supports Account closure, Preclosure, Renewal & overdue renewal

of Deposits.

Aids Day Begin, Day End & Month End Processing

Processes Quarterly, and transfer to Inoperative & Half Yearly -

SB Interest Calculation.

Hastens Deposit Receipt Printing, Changing to RFC, Interest

Payment & Overdue Process.

Supports Acceptance and Execution of standing instruction.

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NRI BANKING

Types of accounts

NRI accounts are maintained by banks which hold authorized

dealers' licences from the Reserve Bank of India. Some

cooperative and commercial banks have also been specifically

permitted to maintain NRI accounts in rupees even though they

are not authorized dealers. The financial budget for 2007-08

extends NRI accounts to regional rural banks (RRBs) as well.

This would boost remittances from NRIs particularly in Bihar,

Kerala, Uttar Pradesh and Gujarat where a large number of

persons from rural areas from these states are employed overseas.

Banking Laws for NRIs allow for accounts with authorized

dealers to be maintained in Indian rupees and in foreign

currency.

Various accounts:-

NRE A/c - non residential (external) rupee account.

FCNR-B A/c - foreign currency non residential account.

NRO A/c - non resident ordinary account.

RFC A/c - resident foreign currency account.

All NRIs can open such accounts, with the exception of

individuals residing in Pakistan and Bangladesh, who require

special permission from the RBI. Joint accounts of two or more

14

NRI BANKING

non-residents and nomination facility are permitted.

While the FCNR (B) is a term deposit only, the NRE and

NRO accounts can be operated as either savings, current,

recurring or fixed deposit accounts. As for interest rates, FCNR

(B) and NRE are subject to a cap, and should not exceed the

LIBOR/SWAP rates. In the case of NRO accounts, rates are

determined by the banks. The interest rates, currently at 3.5%

apply to a period of 1 to 3 years.

The total NRE/ FCNR deposits during 2006-2007, as per RBI

statistics, are USD 37,751 million and are expected to grow with

regional rural banks also mopping up funds. Banks are expected

to offer lucrative interest rates to bolster NRI funds.

Banks offer two types of accounts to NRIs, based on their

reparability.

Repatriable Accounts

Funds that can be transferred or repatriated abroad are

maintained in a Non Resident External Bank account. Generally,

funds remitted from outside India are credited to this account.

Investments made from foreign funds can be repatriated overseas,

and such investments are maintained in a Repatriable Demat

account.

Non-Resident (External) Rupee (NRE) Accounts

Both Principal and Interest can be repatriated/transferred out of

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NRI BANKING

India

Savings rate on NRE accounts is at par with savings rates in

resident accounts

Term deposits can be made for 1 to 3 years.

The interest rates on (NRE) Term deposits cannot be higher

than LIBOR/SWAP rates as on the last working day of the

previous month, for US dollar of corresponding maturity plus 50

basis points.

The interest rates on three year deposits also apply in case thematurity period exceeds three years. The change in interest ratealso applies to NRE deposits renewed after their present maturityperiod.

FCNR (B) Accounts

As in NRE accounts, both principal and interest are repatriable.

Presently, deposits can be made in 6 specific foreign currencies

(US Dollar, Pound Sterling, EURO, Japanese Yen,

Australian Dollar and Canadian Dollar).

Interest rate- Fixed or floating within the limits of

LIBOR/SWAP rates for the respective currency/corresponding term

minus 25 basis points (except Japanese Yen).

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NRI BANKING

The term of deposits can range between 1 to5 years.

NRO Accounts

Only current earnings are repatriable.

Savings NRO accounts are normally operated to credit rupee

income from shares, interest, rent from property in India, etc.

In case of term deposits, banks are allowed to determine their

own interest rates.

Banks can allow remittance up to USD 1 million per financial

year for bonafide purposes from balances in the NRO accounts

once taxes are paid out. This limit includes the sale proceeds

of immovable properties held by NRIs and PIOs.

Resident Foreign Currency (RFC) Account

NRIs and PIOs returning to India can maintain an RFC account

with an authorized bank in India to transfer funds from their

NRE/FCNR (B) accounts. Proceeds of assets held outside India

17

NRI BANKING

before their return to India can be credited to the RFC account.

These funds are free from all restrictions as to their utilization

or in investment in any form outside India.

Non-Repatriable Accounts

Non-repatriable funds are those which cannot be taken out of

India. These have to be maintained in a separate bank account

i.e. a Non Resident Ordinary Bank account. Investments made

from non-repatriable accounts cannot be repatriated but have to be

maintained in a Non-Repatriable Demat account. Money once

transferred from an NRE account to an NRO account cannot be

transferred back to an NRE account.

Non Resident Ordinary (NRO) Account

When a resident becomes an NRI, his existing savings account

is designated as a Non-resident Rupee (NRO) account.

The NRO accounts could be maintained in the nature of

current, saving, recurring or term deposits. NRIs can also open

NRO accounts for depositing their funds from local transactions.

The interest earned from NRO accounts is accountable to tax

laws.

NRO accounts can be opened in the name of NRIs who

have left India to take up employment or business temporarily

or permanently in a foreign country.

Funds from NRO accounts are not repatriable or transferred to

18

NRI BANKING

NRE accounts without the prior approval of the RBI.

However, NRIs, PIOs, Foreign Nationals, retired employees or non-

resident widows of Indian citizens can remit, through the

Authorized Dealer, up to USD one million per calendar year

from the NRO account or from income from sale of assets in

India

OPENING OF NRI ACCOUNT

HOW TO OPEN NRI ACCOUNTS WITH A BRANCH IN

INDIA

To open an NRE account please complete the account opening

form and mail it to the branch of your choice along with ;

Passport copy

Visa/residence permit

2 photographs

initial money remittance

Your signature may be verified by anyone of the following;

Indian Embassy/consulate

Any person known to the Bank

Notary public

Any of our offices abroad

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NRI BANKING

You can open

NRE Saving Bank a/c / Current Accounts

Fixed Deposits in Indian Rupees

Fixed Deposits in Foreign Currency

NRO accounts (Rupee accounts for crediting income in India )

You can authorize a resident to operate your account through a Power of Attorney or

Letter of Authority

Nomination Facility available (Nominee can be a resident Indian

also)

Procedures & Benefits:

Non-Resident accounts can be opened along with your

remittances through Banking channel.

Photograph shall be enclosed with the opening form.

There is no ceiling on the amounts remitted for your credit

in Non-Resident account.

When the NRI depositor returns to India, the NRE account

will be automatically treated as Resident account. However NRE

term deposit will continue to earn same rate till maturity even

after such conversion.

NRE accounts earn more interest than domestic deposits.

Nomination facilities are available for registration in favor of a

non resident or resident.

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NRI BANKING

Loans against deposits are allowed for purposes other than

investment up to 90% of the deposit.

The income from deposit is free from Indian Income Tax.

It is also free from Gift tax for one time gifting.

Documents Required:-

In case account opened in person:

Indian passport with overseas resident address or work permit (i.e.

Green Card as residence permit for USA, H1 Visa as work

permit for USA or Hongkong ID card for residence of

Hongkong)

Separate proof of Non Resident status if the passport holds

Indian address and resident Visa permit is not included in

passport. Photograph of individual account holder

For persons employed with foreign shipping company

Initial work contract

Last wage slip

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NRI BANKING

For contract employees

Last work contract

Letter from local agent confirming next date of joining the

foreign vessel (not more than six months from date of last

return to India)

Principal's overseas address or current work contract

In case of documents sent by mail

All the relevant above mentioned documents / signatures to be

attested by any one of the following:

Indian embassy overseas notary

Local bank

Minimum balance in which one can open an account (Differs

from bank to bank):-

NRO – Saving Account – Rs.5,000/-

NRO - Current Account – Rs.10,000/-

NRO – Term Deposit Account – Rs.5,000/-

NRE – Savings Account – Rs.5,000/-

NRE – Current Account – Rs.10,000/-

NRE – Term Deposit Account – Rs.10,000/-

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NRI BANKING

FCNR – Term Deposit Account – USD 500/- or its equivalent

in GBP or Euro

If you submit the money for opening/credit to an account.

Frequency of Interest payment on accounts:

NRO – Term Deposit Account – Half yearly

NRE – Savings Account – Quarterly

NRE – Term Deposit Account – Half yearly

FCNR – Term Deposit Account – Quarterly

Opening of JOINT ACCOUNTS:-

Type of account Joint Account with

Resident Indians

Joint Account with

Non-Resident

Indians

NRO Yes Yes

NRE No Yes

FCNR No Yes

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NRI BANKING

NRI definition- under Foreign Exchange Management Act, 1999

24

CHAPTER

2.

NRI BANKING

Definition of an NRI :

Introduction:

An Indian abroad is popularly known as an NRI – but the

same has two important definitions - one coined under the

Foreign Exchange Management Act, 1999 – [FEMA] and the

other as per the Income Tax Act, 1961.

FEMA definition:

The most relevant definition concerning an NRI's various bank

accounts and investments in movable and immovable properties in

India is the one provided by Foreign Exchange Management

Act, 1999 – [FEMA], which has replaced the Foreign Exchange

Regulation Act , 1973- [FERA] with effect from June 1,2000.

Person Residing Outside India is the term used for an

NRI , being a person who has gone out of India or

who stays outside India for the purpose of employment or

carrying on business or vocation outside India or any other

circumstances which indicate his intention to stay outside India

for an uncertain period.

Section 2(v) of FEMA,1999

Person resident in India" means—

a person residing in India for more than one hundred and

eighty-two days during the course of the preceding financial

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NRI BANKING

year but does not include—

a person who has gone out of India or who stays outside

India, in either case—

(a) for or on taking up employment outside India, or

(b) for carrying on outside India a business or vocation outside

India, or

(c) for any other purpose, in such circumstances as would

indicate his intention to stay outside India for an uncertain

period;

a person who has come to or stays in India, in either case,

otherwise than—

for or on taking up employment in India, or

for carrying on in India a business or vocation in India, or

for any other purpose, in such circumstances as would indicate

his intention to stay in India for an uncertain period;

(a) any person or body corporate registered or incorporated inIndia,

(b) an office, branch or agency in India owned or controlledby a person resident outside India,

(c) an office, branch or agency outside India owned orcontrolled by a person resident in India;

2(w) "person resident outside India" means a person who is notresident in India;

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NRI BANKING

Non Resident Indian, the phrase is for the first time defined

in the regulations as “a person resident outside India who is

either a citizen of India or a person of Indian Origin".

Recently RBI has clarified that students studying abroad also be

treated as NRIs under FEMA and accordingly be eligible for

foreign investments and NRE/FCNR a/cs

And the definition of "a person resident outside India " is

simply put as " a person who is not Resident in India."

NOW, reading both the definitions together, it can be

summarized that both:

an Indian Citizen residing outside India and also

a Foreign Citizen of Indian origin residing outside India are

defined as Non-Resident Indians.

Person of Indian Origin:

F.E.M.(Deposit) Regulations define a Person of Indian Origin

(PIO) as:

a person, being a citizen of any country other than Pakistan

and Bangladesh, who at any time held an Indian

Passport. or

a person who himself or either of his parents or any of his

grandparents were citizens of India, or

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NRI BANKING

a spouse of an Indian citizen, or

a spouse of a person covered under (i) or (ii) above.

2(xii) 'Person of Indian Origin' means a citizen of any country

other than Bangladesh or Pakistan, if

he at any time held Indian passport; or

he or either of his parents or any of his grand- parents was

a citizen of India by virtue of the Constitution of India or

the Citizenship Act, 1955 (57 of 1955) or

the person is a spouse of an Indian citizen or a person

referred to in sub-clause

Person of Indian Origin (PIO) defined under Regulations re:

Immovable Property in India:

This definition is further narrowed when it comes to rules

regarding acquisition and transfer of immovable property in India.

Probably with an intention of ensuring & restricting control of

immovable properties in the hands of strictly defined persons of

Indian Origin only, this definition is further narrowed to exclude

individuals being citizens of Pakistan, Bangladesh, Sri Lanka,

Afghanistan, China, Iran, Nepal and Bhutan.

As regards immovable property transactions it may be noted that

herein the person's father or grandfather is included unlike parents

or grandparents and spouse in earlier definition.

Accordingly a Person of Indian Origin is defined herein as:

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NRI BANKING

a) Who held an Indian Passport at any time?

An individual other than citizens of Pakistan, Bangladesh, Sri

Lanka, Afghanistan, China, Iran, Nepal and Bhutan, or

b) Who himself or his father or grandfather was a citizen of

India.

[Regulation 2(c) of F.E.M. (Acquisition and Transfer of Immovable

Property in India) Regulation 2000]

2(c) 'a person of Indian origin' means an individual (not being

a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan

or China or Iran or Nepal or Bhutan), who

(a) at any time, held Indian passport; OR

(b) who or either of whose father or whose grandfather was a

citizen of India by virtue of the Constitution of India or the

Citizenship Act, 1955 (57 of 1955);

Conditions of number of days stay in India :-

No doubt, Foreign Exchange Management Act, 1999 definition

has also incorporated an NRI's stay of 182 days or less

during a year in India, but simply speaking if a person of

Indian origin has gone out of India for settlement he is to

be treated as an NRI irrespective of number of days he has

29

NRI BANKING

stayed in India.

Stay in India during visits:

The Act also lays down that such a person will continue to

be an NRI during his visit/stay in India provided he has not

returned to India for taking up employment or carrying on

business or vacation or any other circumstances as would

indicate his intention to stay in India for an uncertain period.

Accordingly, an NRI settled abroad, irrespective of the number

of days stay in India will continue to be an NRI during his

visit to India provided he has not returned to India for

permanent settlement.

"Overseas Corporate Body" (OCB) means a Company, Partnership

Firm, Society etc. wherein 60 % or more ownership lies with

NRIs or a Trust wherein 60 % or more financial interest is

irrevocably held by NRIs.

2(xi) " Overseas Corporate Body (OCB)" means a company,

partnership firm, society and other corporate body owned directly

or indirectly to the extent of at least sixty per cent by Non-

Resident Indians and includes overseas trust in which not less

than sixty per cent beneficial interest is held by Nonresident

Indians directly or indirectly but irrevocably.

Conclusion:

At the cost of repetition, it is once again said that an NRI

permanently settled and residing outside India will continue to be

30

NRI BANKING

treated as an NRI under F.E.M.A.irrespective of the number of

days of his stay in India or otherwise.

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NRI BANKING

Non-Resident (External) Account - NRE Account

Eligibility -

Non Resident Indians (NRIs) and Persons of Indian Origin (PIOs)

can open and maintain NRE accounts with authorized dealers and

with banks (including co-operative banks) authorized by the

32

CHAPTER 3

DEPOSITORY’S

SCHEM

NRI BANKING

Reserve Bank of India (RBI) to maintain such accounts.

The account has to be opened by the Non Resident account

holder himself and not by the holder of the power of attorney

in India.

Opening NRE accounts in the names of individuals/entities of

Bangladesh/Pakistan nationality/ownership requires approval of RBI

Types of Accounts - Savings, Current, Recurring or Fixed

Deposit accounts.

Debits & Credits:

Payments for local expenses and investments are allowed freely.

Credits to an account, of funds emanating from a local source

would be permissible only if the funds are of a repatriable

nature.

Permitted Credits

Proceeds of remittances to India can be in any permitted

currency.

Proceeds of personal cheques drawn by the account holder on

his foreign currency account and of travelers cheques, bank

drafts payable in any permitted currency including instruments

expressed in Indian rupees for which reimbursement will be

received in foreign currency, deposited by the account holder in

person during his temporary visit to India provided the

authorized dealer/bank is satisfied that the account holder is still

resident outside India, the travelers’ cheques/drafts are

33

NRI BANKING

standing/endorsed in the name of the account holder and in the

case of travelers’ cheques, and they were issued outside India.

Proceeds of foreign currency/bank notes tendered by account

holder during his temporary visit to India, provided

(i) the amount was declared on a Currency Declaration Form

(CDF), where applicable, and

(ii) the notes are tendered to the authorized dealer in person

by the account holder himself and the authorized dealer is

satisfied that account holder is a person resident outside India.

Permitted Debits

Local disbursements

Remittances outside India

Transfer to NRE/FCNR accounts of the account holder or any

other person eligible to maintain such account.

Investment in shares/securities/commercial paper of an Indian

company or for purchase of immovable property in India within

prescribed regulations.

Any other transaction if covered under general or special

permission granted by the Reserve Bank.

Rate of Interest - as per the directives of the Reserve Bank

of India.

Loans against Security of Funds held in the Accou

To the account holder

34

NRI BANKING

i) For personal purposes or for carrying on business activities

(except agricultural/plantation activities/investment in real estate

business).

ii) For making direct investment in India on non-repatriation

basis.

iii) For acquisition of flat/house in India for his own residential

use.

In January 2007, the RBI imposed a restriction on loans against

deposits and securities for NRIs to a maximum of up to Rs.

20 lakh

To third parties

The loan should be utilized for personal purposes or for

carrying on business activities (other than agricultural/plantation

activities/real estate business). The loan should not be utilized

for re-lending.

Loans outside India

Authorized dealers may allow their overseas branches/correspondents

to grant fund based and/or non-fund based facilities to Non

Resident depositors against the security of funds held in the

NRE accounts and also agree to remittance of funds from India

if necessary, for liquidation of debts.

Change of Resident Status of Account Holder

NRE Accounts should be re designated as resident account or

the funds held in these accounts may be transferred to the

35

NRI BANKING

Resident Foreign Currency (RFC) Accounts (if the account holder

is eligible for maintaining RFC Account) at the option of the

account holder immediately upon the return of the account

holder to India (except where the account holder is on a short

visit to India).

Repatriation of funds to Non Resident Nominee can be permitted

by the authorized dealer or bank in the case of an account

holder who is deceased.

Other Features -

Joint Accounts - in the names of two or more Non Resident

individuals may be opened provided all the account holders are

persons of Indian nationality or origin. When one of the joint

holder become residents, the authorized dealer may either delete

his name or allow the account to continue as NRE account

or redesignate the account as resident account at the option of

the account holders. Opening of these accounts by a Non

Resident jointly with a resident is not permissible.

An Account may be opened in the name of eligible NRI

during his temporary visit to India.

Operation by Power of Attorney - Resident Power of Attorney

holder can operate on the NRE accounts but only for local

payments to be made on behalf of the account holder. The

Power of Attorney (POA) holder cannot credit proceeds of

foreign currency notes/bank notes and travellers cheques to the

NRE accounts.

36

NRI BANKING

In cases where the account holder or a bank designated by

him has been granted permission by Reserve Bank to make

investments in India, the POA holder is permitted to operate

the account to facilitate such investments. POA holders cannot,

however, make gifts from NRE accounts.

Foreign Currency (Non-Resident Indians) FCNR (B) Account

Eligibility to Open and Maintain FCNR A/c

With the exception of persons of Indian origin from Bangladesh

and Pakistan, all NRIs and PIOs are eligible to maintain an

FCNR account with an authorised bank in India.

Accounts may be opened with funds remitted from outside,

existing NRE/ FCNR accounts, etc.

Remittances should be in the designated currency.

Conversion to currency other than the designated currency also

permitted at the risk and cost of the remitter.

Features of FCNR Account

The account can be opened with funds remitted from abroad,

or transferred from an existing NRE/FCNR account.

FCNR accounts can be opened with designated currencies, which

37

NRI BANKING

are: GBP, USD, Deutsche Mark, Japanese Yen and the Euro.

Conversion to another designated currency is permitted at a cost

to the account holder.

Only term deposits can be maintained in FCNR accounts, in a

time range of 6 months to 3 years.

As per RBI guidelines, banks are free to offer interest on

FCNR deposits below LIBOR rates, less 25 basis points for

deposits between 6 months to one year, and LIBOR rates plus

50 basis points for deposits over a year.

Banks are also free to decide on a fixed or a floating rate

of interest on FCNR term deposits.

Interest rates are reviewed periodically and determined by

directives from the Reserve Bank (Department of Banking

Operations and Development).

The account holder can choose the periodicity of interest, from

half-yearly to annual payments. The interest can be credited to

a new FCNR (B) account or a NRE/NRO account.

For permissible debits and credits, the regulations for FCNR

accounts are similar to the NRE accounts.

For conversion of currencies, from designated currency to rupees

and vice versa, the day’s rate of conversion will apply.

Funds from the FCNR account are allowed to move within the

country at no extra cost to the account holder.

38

NRI BANKING

For loans and overdrafts against FCNR accounts, the same

conditions as the NRE accounts apply.

In case of premature withdrawal of the FCNR Term Deposit, a

penalty is levied. Interest paid on the account is calculated at

a

1% below the committed rate if accounts are closed

prematurely.

However, no interest is paid on deposits held for less than 6

months, and a penalty would have to be paid as per

directives from the apex bank. The RBI guidelines prevail on

these terms, issued as and when required.

FCNR A/c after Change in Resident Status

NRI deposits such as the FCNR can continue till the maturity

date at the contracted rate of interest even after the account

holder’s resident status changes to resident Indian.

However, except for interest rates and reserve requirements of

FCNR deposits, these accounts are treated as resident accounts

effective from the account holder’s date of return to India.

On maturity, these accounts are converted to either an RFC

account or the Resident Rupee Deposit account.

As for joint accounts, the same rules as those for NRE

accounts apply to FCNR deposits too.

For repatriation of funds from the FCNR account, the same

39

NRI BANKING

conditions as those for NRE accounts apply.

The RBI does not provide any guarantee on foreign exchange.

Other Features -

Reserve Bank will not provide foreign exchange guarantee.

Lending of resources mobilized by authorized dealers under these

accounts are not subject to any interest rate stipulations.

Non-Resident Ordinary Rupee (NRO) Account

Eligibility

Any person or entity residing outside India is entitled to open

a NRO account with an authorised dealer or an authorised

bank for transactions conducted in Indian Rupees.

Individuals or entities of Bangladeshi or Pakistani nationality or

ownership require approval from the RBI.

Types of Accounts

NRO accounts can be opened as current, savings, recurring or

fixed deposit accounts. The RBI determines the rate of interest

on these accounts and issues guidelines for opening, operating and

maintaining them.

Joint Accounts with Residents/Non-residents

Joint accounts are permitted with resident and non-residents.

40

NRI BANKING

Permissible Credits/Debits -

Credits -

Remittances from outside India through normal banking channels

received in freely convertible foreign currency.

Any freely convertible foreign currency can be deposited into

the account during the account holder's visit to India. Foreign

currency exceeding USD 5000/- or its equivalent in the form

of cash has to be supported by a Currency Declaration Form.

Rupee funds must be supported by an Encashment Certificate,

if they are funds brought from outside India.

Current income earned in India, such as rent, dividend, pension

or interest. Even proceeds from sale of assets including

immovable property acquired out of rupee or foreign currency

funds or through inheritance.

Debits -

All payments towards expenses and investments in India

Payment outside India of current income like rent, dividend,

pension, interest etc. in India of the account holder.

Repatriation up to USD One million, per calendar year, for all

bonafide purposes with the approval of the authorised dealer.

41

NRI BANKING

Remittance of Assets

NRIs and PIO may remit upto USD One million per calendar

year, out of balances held in the NRO account which could be

acquired from the sale proceeds of assets acquired in India out

of rupee or foreign currency funds or by way of inheritance

from a resident Indian, provided:

Assets acquired in India out of rupee/foreign currency funds

(a) Immovable property: NRIs and PIO may remit sale proceeds

of immovable property purchased by them when they were

resident or out of Rupee funds as NRI or PIO.

(b) Other financial assets: There is no lock-in period for

remittance of sale proceeds of other financial assets

Assets acquired by way of inheritance:

Sale proceeds of assets acquired through inheritance can be

remitted. No lock-in period applies here if the authorised dealer

is satisfied that the proceeds are from inherited property.

Remittance of assets out of NRO account by a person resident outside India other than NRI/PIO A foreign national who is not a citizen of Pakistan, Bangladesh, Nepal or Bhutan and who

has retired as an employee in India,

has inherited assets from a resident Indian, or

is a widow residing outside India and has inherited assets of

her deceased husband who was a resident Indian can remit

upto USD one million per calendar year on production of

42

NRI BANKING

documentary evidence to support the acquisition by way of

inheritance or legacy of assets to the authorised dealer.

Restrictions

The above facility of repatriation from sale of immovable

property is not extended to citizens of Pakistan, Bangladesh, Sri

Lanka, China, Afghanistan, Iran, Nepal and Bhutan. Remittance of

sale proceeds from other financial assets is not extended to

citizens of Pakistan, Bangladesh, Nepal and Bhutan.

Foreign Nationals of non-Indian origin on a visit to India

Foreign nationals of non-Indian origin are permitted to open a

NRO account (current/savings) on their visit to India with funds

remitted from outside India through normal banking channels or

by foreign exchange brought to India. The balance in the NRO

account is converted by the bank into foreign currency for

payment to the account holder when he leaves India, provided

the account was maintained for less than six months. The

account should not be credited with any local funds during the

term, except for interest accrued on it.

Grant of Loans/ Overdrafts by Authorised Dealers/ Bank to

Account Holders and Third parties

Loans to NRI account holders and to third parties is granted in

Indian Rupees by authorized dealers (banks) against the security

of fixed deposits provided:

The loans are utilized only for meeting the borrower's personal

requirements or for business and not for agricultural/plantation

43

NRI BANKING

/real estate or relending activities

RBI regulations pertaining to margin and rate of interest will

apply

All norms and considerations which apply to loans to trade

and industry will apply to loans and facilities granted to third

parties.

The authorized dealer/bank may allow an overdraft to the account

holder subject to his commercial discretion and compliance with

the interest rate directives.

Change of Resident Status of Account holder -

(a) From Resident to Non-resident

When a resident Indian leaves India for taking up employment

or for carrying on business outside India, his existing account is

designated as a Non-Resident (Ordinary) Account, except in the

case of persons shifting to Bhutan and Nepal. For the latter,

the resident accounts do not change to NRO accounts.

(b) From Non-Resident to Resident

NRO accounts may be re-designated as resident rupee accounts

once the account holder returns to India for taking up

employment, or for carrying on business or for any other

purpose indicating his objective to stay in India for an uncertain

period. Where the account holder is only on a temporary visit

to India, the account continues to be treated as non-resident

44

NRI BANKING

during the visit.

Treatment of Loans/ Overdrafts in the Event of Change in

the Resident Status of the Borrower

In case of a resident Indian who had availed of loan or

overdraft facilities while resident in India and who subsequently

becomes a NRI, the authorised dealer may at its discretion allow

the loan facility to continue. In this case, payment of interest

and repayment of loan may be made by inward remittance or

out of bonafide resources in India.

Payment of funds to Non-resident/Resident Nominee

The amount payable to a non-resident nominee from the NRO

account of a deceased account holder is credited to the NRO

account of the nominee.

Facilities to a person going abroad for studies

Students going abroad for studies are treated as Non-Resident

Indians (NRIs) and are eligible for all the facilities enjoyed by

NRIs. All loans availed of by them as residents in India will

continue to be extended as per FEMA regulations.

International Credit Cards

45

NRI BANKING

Authorized dealers are allowed to issue International Credit Cards

to NRIs and PIO, without the permission of the RBI. Such

transactions can be made by inward remittance or out of

balances held in the cardholder's FCNR/NRE/NRO Accounts.

Income Tax

The remittances, after payment of tax are allowed to be made

by the authorized dealers on production of a statement by the

remitter and a Certificate from a Chartered Accountant in the

formats prescribed by the Central Board of Direct Taxes, Ministry

of Finance, Government of India

TAX BENEFITS for NRIs

Interest on NRE & FCNR deposits are free of income tax.

Tax @ 30% will be deducted at source on all interest

income in NRO accounts.

On permanent return to India, income on all investments out

of foreign exchange funds would be eligible for a flat tax

rate of 20% (excluding surcharge) till maturity of the

46

NRI BANKING

investments.

BANKING SERVICES

47

CHAPTER 4

SERVICES OFFERED BY

VARIOUS BANK TO

NRI’S

NRI BANKING

NRI banking services including deposits, savings accounts, finance

like home loans, personal loans etc. Various banks like ICICI

Bank, Citibank, HDFC Bank and many other nationalized and

private banks that hold authorized dealer's licenses from the

Reserve Bank of India (RBI) provide remittances, savings, earnings,

investments and repatriation services.

Besides the major commercial banks, certain cooperative and

regional rural banks (RRB's) have also been specifically permitted

to maintain NRI accounts. This would increase NRI remittances in

Bihar, Kerala, U.P. and Gujarat where a large chunk of the

rural population have settled abroad.

The banks also offer finance services to the NRI's that cover

home loans for buying new residential property, housing renovation

loans for constructing or modifying on the existing properties,

personal loans and other loan products.

Another FDI (Foreign Direct Investment) magnet has been the

various money transfer services provided. Various banks provide

quick, convenient and economical fund remit to India. These

include:

Online remittance services

Remittance of funds to partner exchange houses in India

Telegraphic or wire transfer

Fund transfer through cheques/ DD's and Travelers' cheques.

Many banks also offer Demat account services to the NRI's that

48

NRI BANKING

enable NRI's online stock investment and share trading services.

Special NRI credit cards acceptable globally are available with

various banks. These specialized services and banking accounts

have drawn enormous NRI funds to India.

SERVICE OFFERED BY ICICI BANK:-

Rupee plus plan :- At ICICI Bank, we believe in providing

you with the most competitive returns on your hard earned

money. Now you can earn even higher returns on your deposits

by investing in Rupee plus plan.

What does the Rupee plus plan offer you :- NRE-FD

interest rates rate being regulated by RBI, is nearly same across

banks. In Rupee plus plan we have devised a way to make

your money work harder and smarter and earn higher returns in

terms of NRI as compared to a NRE FD.

Currencies :- you can being funds in any convertible currency,

which will be converted to USD (if not in USD already).

Minimum Deposit :- USD 25,000 or equivalent.

Tenor: - for 1 year only.

How does the Rupee plus plan work? Instead of putting the

money in NRE FD directly, the money is put in USD

denominated FCNR. This FCNR earns interest as per prevailing

FCNR interest rates.

49

NRI BANKING

Additionally, at the time of booking the FCNR a Forward

Agreement is also drawn to exchange the maturity amount of

USD to Rupees at a given rate (Forward Rate).

Rupee plus plan advantage :- on a average the returns are

significantly higher compared to putting your money in NRE FD

as per the prevailing market rates. Returns in rupee terms are

assured once the deal is booked irrespective of the future

movements in currency markets.

The following banking facilities are available to NRIs, as per

the current RBI/FEMA guidelines.

Particulars

Foreign

Currency (Non-

Resident)

Account (Banks)

Scheme(FCNR(B)

Account)

Non-Resident

(External)

Rupee Account

Scheme(NRE

Account)

(Non-Resident

Ordinary Rupee

Account

Scheme(NRO

Account)

Who can open

an account

NRIs/PIOs NRIs/PIOs Any person

resident outside

India (other than

a person resident

in Nepal and

Bhutan)Joint account In the names

of two or

NRIs

In the names

of two or

more NRIs

May be held

jointly with

residents

50

NRI BANKING

Nomination Permitted Permitted Permitted

Currency in

which account

is denominated

Pound Sterling,

US Dollar, Jap.

Yen or Euro.

Australian Dollar,

Canadian Dollar

Indian Rupees Indian Rupees

Repatriability Repatriable Repatriable Non-repatriable*

Type of Account Term Deposit

only

Savings,

Current,

Recurring, Fixed

Deposit

Savings, Current,

Recurring, Fixed

Deposit

Rate of Interest Subject to cap:

LIBOR minus

25 basis points

except in case

of Japanese Yen

where the cap

would be based

on at the

prevailing LIBOR

rates

Rate of interest

on domestic

savings account

will also be

applicable to

NRE savings

account. For

Fixed Deposits,

the rates can

be fixed by

banks subject

to ceilings

prescribed by

Rate of interest

on domestic

savings account

will also be

applicable to

NRO savings

account. For

Fixed Deposits,

the rates can

be fixed by

banks subject to

ceilings prescribed

51

NRI BANKING

RBI by RBI

Tax Aspects Interest income

tax free and no

tax deduction at

source.

Interest income

tax free and

no tax

deduction at

source.

Interest income

taxable and

liable for TDS

@30% plus

applicable

surcharge subject

to conditions.

DTAA benefit

may be available

subject to

fulfillment of

conditions.

52

NRI BANKING

MONEY TRANSFER

Money can be transferred either through on line or drafts or

telegraphically or by wire transfer or Cheques. E-Transfer is

completely online, paperless money transfer service which enables

the customer to send money directly from one bank account in

foreign country to India. Drafts in Indian rupees can be

53

CHAPTER 5

RBI issues guidelines

for money transfer

scheme

NRI BANKING

purchased from exchange companies of one country and mailed to

the branch of another country where the customer has the

account. Telegraphic or wire transfers can be made through branch

to branch. Cheques can be deposited for credit of the customer’s

accounts and the Cheques will be collected and credited to their

accounts.

International SWIFT Transfer

This is a secure, quick and efficient method of transferring

funds, which enables you to send money easily to any bank

which is part of the SWIFT network. There is a flat-rate

charge of Rs 500 for each SWIFT transfer made from your

account. There is no charge when you make a transfer from

your Barclays NRI account in India to a Barclays account in

UK or UAE.

54

NRI BANKING

Demand (or Banker's) Draft

This is a means of initiating a transfer from your account to

a named payee. You can send the Demand Draft to your

intended payee, who will then be able to take the Draft into

their bank – following presentation of this Draft, he/she will

then receive payment.

A Demand Draft made payable to a non-Barclays account will

incur a charge of Rs 3.5 per Rs 1,000 sent (minimum charge

Rs 100).

A Demand Draft made payable to a Barclays account and a

Foreign currency DD will incur a flat-rate charge of Rs 300.

UAE EXCHANGE

PROVIDING speed, convenience and security of transactions, the

Xpress Money Service of UAE Exchange company is proving to

be a modern and reliable way of sending and receiving money

55

NRI BANKING

from anywhere in the world, especially among the immigrant

Indian in Gulf countries. With an extensive network of branches

in UAE and a global presence in Australia, India, Kuwait,

Oman, Qatar, UK, USA, Fiji, Sri Lanka and Bangladesh, the

UAE Exchange Centre specializes in Fund Transfer across the

globe and enjoys a numerous uno status in the industry. UAE

Exchange and Financial Services Ltd makes 80,000 remittances a

month. The average amount of remittances per transfer is Rs

1,25,000.

Western Union Money Transfer

Western Union is a global leader in money transfer services,

with a history of pioneering dating back more than 150 years.

Non-resident Indians can now transfer their funds to India through

the Money Transfer Service offered by Western Union. This

service is currently available for inward remittances in India.

"Credits to NRE/FCNR accounts are not permitted to be routed

through Money Transfer Service Scheme (MTSS)"

SENDWISE:-

A rupee demand draft delivered to the recipient’s doorstep within

three to four working days and can be encashed at any

nationalized bank in India.

56

NRI BANKING

MONEYGRAM Send money online today:-

You can send money around the world online to over 84,000

moneygram agent locations, in more than 170 countries. Not only

is sending money with moneygram safe and convenient, you’ll

find the same day services to be one fastest way to send your

money online-usually arriving within minutes. Send money online

or at a moneygram agent location near you. Moneygram is a

global leader in international money transfers and the largest

processor of money orders in the U.S. We help people and

business by providing affordable, reliable and convenient payment

services.

ICICI Bank NRI Money Transfer:-

ICICI Bank, the leading bank in India offering financial

services to the NRI community through NRI saving account, NRE

Accounts, Fixed Deposit, FCNR deposits, and the quickest way to

send money online to India.

57

NRI BANKING

The Government of India has adopted a liberal policy, with

respect to investment by NRIs and OCBs in India, such

investment are allowed, both, through the RBI route and also

through the Government route, i.e., through the Foreign Investment

Promotion Board (FIPB) NRIs and OCBs are permitted to invest

up to 100% equity in real estate development activity and civil

aviation sectors. Investment, made by the NRIs and OCBs, are

fully repatriable, except in the case of real estate, which has a

3 year lock-in period on original investment and, 16% cap on

dividend repatriation.

Various investment opportunities in India available to NRIs:-

58

CHAPTER 6

NRI

INVESTMENTS

NRI BANKING

If one is NRI, the following investment opportunities are open

to you:

Maintenance of bank accounts in India.

Investment in securities/shares and deposits of Indian

firms/companies.

Investment in mutual funds in India.

Investment Policy for Non-resident Indians (NRIs):-

Recognizing the investment potential of the Non-resident Indians, a

number of steps are being taken by the government on an

ongoing basis to attract from them in Indian companies. Some

of the investment schemes presently available to Non-resident

Indians (NRIs) include the facility to invest upto 100 percent

equity with full benefits of repatriation of capital invested and

income accruing thereon in high priority industries mentioned in

the Annexure-III to the industrial policy 1991, 100 percent export

oriented units, sick units under revival, housing and real estate

development companies, etc,. NRIs/PIOs/OCBs are also permitted to

make portfolio investments through secondary markets. In terms of

the relaxations announced in 1998-99, investment limits for an

individual NRI has been revised upwards from 1% to 5%,

59

NRI BANKING

aggregate portfolio investment limits by all NRIs increased from

55 to 10% of the issued and paid-up capital of the company.

The aggregate investment limit would be separate and exclusive

of FII portfolio investment limits.

FOR NRI’S INVESTMENT:-

In order to help the tax-payers to plan their Income-tax affairs

well in advance and to avoid long drawn and expensive

litigation, a scheme of Advance Rulings has been introduced

under the Income-Tax Act, 1961. Authority for advance rulings

has been constituted. The tax-payer can obtain a binding ruling

from the Authority on issues which could arise in the

determination of his tax liability. A non-resident or certain

categories of resident can obtain binding rulings from the

Authority on any question of law or fact arising out of any

transaction/proposed transactions which are relevant for the

determination of this tax liability.

PORTFOLIO INVESTMENT

NRIs/OCBs are permitted to make portfolio investment in

shares/debentures (convertible and non-convertible) of Indian

companies, with or without repatriation benefit provided the

purchase is made through a stock exchange and also through

designated branch of an authorized dealer. NRIs/OCBs are required

to designate only one branch authorized by Reserve Bank for

60

NRI BANKING

this purpose.

NRI’S INTEREST:-

NRIs invested only 5% of their investible assets in India with

the balance being parked overseas. A major reason for this was

that the Indian banking system was not a very preferred and

trusted mode of investment for the NRI. The customer was

looking for convenience, speed, high yield on investment with

manageable risks, reasonable costs and quality services – A face

of India he could associate with. Competition was not only from

India based banks, but also from local banks based overseas;

conventional and non conventional routes of money transfer.

FACILITATION AGENCIES

The main regulatory and facilitation agencies involved in the

matters related to NRIs/OCBs investment are Reserve Bank of

India (RBI), Securities and Exchange Board of India (SWBI),

Authority for Advance Rulings (AAR), Secretariat for Industrial

Assistance (SIA), Ministry of Commerce and Industry; and Office

of the Chief Commissioner (Investments & NRIs).

RBI FORMS

NRIs/OCBs/PIOs do not have to seek specific permission for

61

NRI BANKING

approved activities covered under ‘General permission’ schemes. The

activities relating to NRIs/OCBs/PIOs not covered under those

schemes either require declaration to RBI or permission from

RBI. The activities requiring Declaration/Permission along with

corresponding forms are as under;

TS

1

Transfer of Shares/Debentures by Non-residents to Residents

FNC

1

Permission to establish a branch office in India by an

Overseas Company establishing a Representative Office by

Overseas Company for Liaison Activities to open a

Project/Site Office in India.

IPI Company/Individual (declaration) acquiring property

62

NRI BANKING

NRIs, irrespective of their citizenship can freely acquire and

transfer residential as also commercial properties in India barring

agricultural land and plantation, with repatriation of foreign

exchange equivalent of cost of acquisition (maxi. two in case of

resi.houses) and no restrictions as regards holding period.

Rules for Acquisition & Transfer by NRIs being:

Indian citizen & Foreign citizen

Mode of Payment

Joint Holding / Restrictions

63

CHAPTER 7

NRI Investment In

Immovable Property In

India

NRI BANKING

Repatriation of Sale Proceeds

Taxation of Capital Gains & Wealth-Tax

Rules for Acquisition & Transfer by Foreign Citizen

NRIs

Purchase / Acquisition:

There is a general permission to acquire any immovable

property (other than agricultural land, plantation or farm-house

property) by way of purchase, provided the payment is made out

of foreign exchange inward remittance or any Non Resident bank

account in India, i.e.NR(E),FCNR(B) or NRO a/c..

Acquisition by way of Gift:

General permission is granted to acquire any immovable

property (other than agricultural land, plantation or farmhouse

property) by way of gift from a person (donor) who is

A person resident in India, or

Aperson resident outside India (an NRI )who is Indian

citizen or foreign citizen of Indian origin.

Acquisition by way of inheritance :

General permission is granted for inheritance of

immovable property including agricultural land, plantation or farm-

64

NRI BANKING

house property from

A person resident in India, or

A person resident outside India who may be an Indian citizen

or foreign citizen of Indian origin provided such person had

acquired said property in accordance with the provisions of

Foreign Exchange Law in force at the time of acquisition. i.e.

FERA, 1973 or FEMA 1999.

Hence Agricultural land, plantation or farmhouse property

can be acquired by way of inheritance only.

Transfer / Sale:

General permission is granted for sale of any immovable property

(other than agricultural land, plantation or farmhouse property) to

a person who is resident in India.

Transfer of residential or commercial property by way of gift:

General permission is granted to gift residential or commercial

property to

A person resident in India, or

A person resident outside India who may be an Indian citizen

or foreign citizen of Indian origin,

Transfer of agricultural land, plantation or farmhouse property

by sale/ gift

65

NRI BANKING

General permission is granted to sell or gift such property to

a person who is resident in India and also an Indian citizen.

Mode of Payment :-

The payment for purchase of immovable properties is required

to be made from NRI's bank account, being:

a) Non Resident External Account (NRE);

b) Foreign Currency Non Resident (B) Account (FCNR) (B), or

c) Non Resident Ordinary Account (NRO), or

d) Foreign Exchange Inward Remittance from abroad.

It is advisable to retain records of payment made i.e. banker’s

certificate

All incidental expenses such as stamp duty, registration fees

etc. should also be paid through bank only.

Repatriation of Sale proceeds

An NRI being an Indian citizen or a foreign citizen of

Indian origin is allowed to repatriate the sale proceeds of an

immovable property subject to the following conditions:

66

NRI BANKING

a) . the acquisition should be in accordance with the existing

Foreign Exchange Laws (i.e. FERA, ‘73 or FEMA ‘99).

b) the purchase price was met out of Foreign Exchange Inward

Remittance or NRE / FCNR (B ) account, and

c) in case of residential properties, repatriation is restricted to a

maximum of two properties.

It may be noted that the eligibility criteria of

holding period of 3 years for repatriation is removed w.e.f. 29-

06-02.[ vide notification no FEMA 65/2002 RB dated 29-06-02.]4

It may be noted that there are no restrictions as re:

repatriation of sale proceeds vis-a-vis number of commercial or

industrial properties.

The amount of repatriation is restricted to foreign exchange

equivalent of the purchase price i.e. profits / gains are not

allowed to be repatriated.

67

NRI BANKING

For all Indian citizens who are liable to pay tax under

the Income Tax Act, 1961, or are required to enter into

financial transactions in India, it is mandatory to have a

Permanent Account Number.

The Permanent Account Number (PAN) is a combination of 10

alphanumeric numbers issued by the Income Tax Department. The

Department has entrusted UTI Investor Services Ltd. (UTIISL) with

the task of managing IT PAN Service Centers wherever the IT

department has an office in the country. The National Securities

Depository Limited (NSDL) has also been engaged to allot PAN

cards from TIN Facilitation centers.

68

CHAPTER 8

PAN Card for NRIs

NRI BANKING

Applying for a PAN

Form 49A, which is the application form for a PAN, can be

downloaded from the Income Tax, UTIISL and NDSL websites:

www.incometaxindia.gov.in & www.utiisl.co.intin.nsdl.com

The forms care also available at the IT PAN Service Centers

and TIN Facilitation Centers. A “tatkal” or priority service has

been provided for, to enable speedy allotment of the PAN card

through the Internet. The PAN is allotted through e-mail on

priority in 5 days as against the normal 15 days to the

applicant upon online payment through a credit card. The PAN

has lifetime validity.

The necessity for a PAN Card to NRIs

Apart from income returns which must carry the PAN, it is

mandatory to submit the PAN in all financial transactions, like

the purchase and sale of property in India, payments for

purchase of vehicles, foreign visits, securing a telephone

connection or making time deposits in a bank worth over

Rs.50,000.

For NRI’s, PAN is necessary to conduct monetary transactions in

India, invest in stocks, and pay tax on their Indian income.

The application for a PAN must be accompanied by:

a recent colored photograph of size 3.5 cms x 2.5 cms on

the application form .

a proof of residence and identity (attested school

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leaving/matriculation certificate/degree/credit card/voter

identity/ration/passport/driving license/telephone/electricity bill/employer

certificate .

code of the concerned Assessing Officer of the IT Department

obtainable from the IT office where form is submitted .

DEMAT ACCOUNT :-

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A demat account facilitates buying and selling shares, precluding

cumbersome paperwork and meaningless delays.

Advantages of a Demat Account -

It is a safe, secure and convenient mode of transacting in

shares.

Minimizes brokerage charges

Ensures immediate liquidity

Removes uncertainty on ownership title of securities

Allows quick allotment of public issues

Enables smooth process in pledging shares

Avoids delays due to wrong/incorrect signatures, post, and

misplacement of certificates

Prevents risks like forgery and counterfeit, theft or damage to

documents

Saves on stamp duty, paperwork on transfer deeds

Gives immediate benefits from bonus shares and stock splits

Who offers Demat Facility?

Depository Participants or DPs offer demat account services, which

would include banks. Holding a demat account with a bank

enables quick on-line dealings, ensuring credit of a transaction to

the account holder’s savings account by the third day. Banks

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have an added advantage over other DPs with their large

network of branches.

How to Open a Demat Account in India

Fill up the demat account opening form at the nearest

Depository Participant

You may refer to either

CDSLathttp://www.cdslindia.com/demat_acct/open_demat.jsp or

NSDLathttps://nsdl.co.in/for the list of DPs in India.

Joint demat accounts can be opened, retaining the same order

of names

Separate demat accounts have to be opened for different

combinations of names in the case of three or more joint

holders.

Any number of demat accounts and DPs are permitted

A multiple-sign demat is feasible, operated by several holders

DPs charge a fee for switching shares from electronic to

physical form and vice-versa, which varies from a flat fee to

a variable fee. Remat and demat charges may also show a

discrepancy between DPs.

Some DPs offer a discount to frequent traders.

It is advisable to maintain all demat accounts with the same

DP to keep track of capital gains liabilities. Different DPs

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follow dissimilar methods of computing the capital gains, which

is determined by the period of holding.

The charges on a demat account vary between DPs. Broadly,

they are: account opening fee, an annual folio maintenance

charge paid in advance, a monthly custodian fee, and a charge

on transactions, which may either be charged every month or

as a flat fee per transaction, and its nature. Some DPs may

skip the account opening fee but charge a re-opening fee for

the account. Account holders are also subject to a service tax.

No opening balance is required for a demat account.

Supporting documents to open a demat account

Passport-size photograph

Proof of identity, address and date of birth

DP-client agreement on non-judicial stamp paper

PAN Card

The applicant receives an account number and a DP ID

number which are required for all future communication with

the DP.

NRI Demat Accounts

NRIs need to fill in “NRI” in the type and “repatriable or

“non-repatriable” in the sub-type on the form. No special

permission from the RBI is required by NRIs to open a demat

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account, though specific cases may require authorization from the

designated authorised dealers.

NRIs require separate demat accounts for securities under the

foreign direct investment (FDI) scheme, which is repatriable; and

the Portfolio Investment Scheme and Scheme for Investment which

can be either repatriable or non-repatriable. Repatriable and non-

repatriable securities cannot be held in a single Demat account.

Resident Indians can continue to hold non-repatriable demat

accounts they hold even after they acquire non-resident Indian

status. However, when a NRI returns to India permanently, he

must inform his designated authorised dealer of his new status,

and a fresh account would have to be opened. The securities

held in the NRI Demat account would have to be transferred

to the new resident demat account, and the NRI Demat account

closed. The Demat account would have to be linked with the

NRI’s NRO account for non-repatriable accounts and NRE accounts

for repatriable accounts to credit dividends and interest.

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CASE STUDY ON NRI BANKING

Increasingly at Personal we are meeting Indians living abroad

who are relocating to India. Usually such individuals have a

significant portion of their assets in the foreign country;

investments in India are usually linked to inheritance or savings

made before shifting abroad

The task we are entrusted with is to help such individuals plan

their finances. Here's how we assisted one such family.

We recently met a Person of Indian Origin (PIO) who was

based in the United States (US); he has now shifted permanently

to India. Let's call this individual Rajeev.

Almost all of rajeev's savings are in the US; in US mutual

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funds and bonds. He has no exposure to India in his asset

allocation, although he does expect to inherit some Indian assets

over time.

More about Rajeev -

He is 44 years of age and was settled in US for many years

before relocating to India

He is married and has a 8-yr old daughter

Although he is not sure, there is a likelihood that his daughter

might want to go back to US for further studies

Rajeev's investment details are as follows:

His combined investment in stocks and funds in the US

accounts for 50% of his net assets. Remaining 50% of his

investments are in short-term deposits, again in the US. Important

to note that he does not own any residential property, either in

the US or in India.

As mentioned earlier, since the client is now settled in India,

and is certain to be here for the rest of his life, in our

view, it makes sense to shift his assets back to India. Why do

we say that? Well, if you know you are going to be in

India, and all your future incomes and expenses are going to

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be in Indian Rupees, why take on the risk of being invested

in US Dollars? In case the US Dollar were to depreciate vis-a-

vis the Rupee, the value of your US assets would effectively

erode. This is not to say that no one should have money

invested in other currency assets. From our perspective, one

should evaluate such investment opportunities only when one has

completed their investment plans for domestic assets. Importantly,

you should have that much money in another currency asset that

is required to meet future needs (that need to be provided for

in the other currency).

In order to reallocate his assets, Sanjeev will need to liquidate

his assets in the US and transfer the proceeds to India. Since

his daughter might go back to US for higher education in

future he will require money (US Dollars) at that point of

time. Therefore, in his case, the liquidation and then allocation

of assets must be based on his needs in India as well as in

the US.

Keeping this in mind we proposed to conduct his entire financial

planning exercise in two phases. The first phase involved

understanding of his needs in India and the US and accordingly

liquidating his investments. The second phase involved, investing

the proceeds in India.

Liquidation process:

We first started with liquidation of his investments in US, and

for this, demarcating his needs in India and US became the

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starting point for us. Since the client has no prior investments

in India, it gave us a good opportunity to define a well-

diversified portfolio for him.

The next step was to decide the quantum of investment to be

liquidated based on his needs. In US, he has to continue with

some of his investments for his daughter's future education. We

found that around 10% of the client's total wealth will be

sufficient for this purpose and rest he can liquidate. Thus, we

advised him to liquidate 90% of his total investments in US.

The next step was to transfer the proceeds to India. Normally,

people who have foreign currency (in this case US Dollar) get

apprehensive about the exchange rate at which their proceeds are

to be transferred. In this particular case, since the client is

already settled in India, we advised him not to pay much heed

to the exchange rate and instead start transferring the funds.

Asset allocation based on the client's needs in India:

Given that the client has no investment in property (he was

living in a rented premise), the top priority was to invest in a

property. About 40% of his assets were allocated for the

purpose. Given the hype about property, Sanjeev was keen to

consider a higher exposure; however we recommended otherwise.

In our view, and this holds true for most individuals, the

number of properties you own should be linked to your 'real'

needs i.e. property which you need to give as inheritance or

property for self use.

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The fact that the client is financially very sound and in a

position to take some risk, we recommended that he invest upto

35% of the surplus in well-managed diversified equity funds in

a disciplined manner based on his needs and objectives. The

portfolio consisted of no more than six schemes.

Equities as an asset class are best equipped to generate high

returns over longer time frames (3-5 years). Thus, his investment

in equities should be well equipped to cater his future needs

such as his daughter's marriage, his retirement planning or any

other need as and when required.

Another 10% of the surplus cash inflows could be invested in

debt funds (short-term debt funds, as at present interest rates are

on the rise). Inclusion of debt funds in the portfolio will ensure

that the portfolio becomes well diversified across asset classes.

The balance (5%) could be maintained in liquid assets for any

immediate requirement or for contingency.Rajeev was also advised

to take up a term insurance policy for himself. This is a pure

risk cover plan that enables the individual to opt for a high

insurance cover at relatively lower premiums.

It goes without saying that our recommendation to Rajeev

(although very critical) was just a starting point. First and

foremost, it needs to be executed (investing in mutual funds,

buying property) and then the plan needs to be monitored

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regularly. This is necessary as over time, Rajeev's risk profile

will change, as he gets older, he may not be comfortable with

a higher allocation to equity, so a portion of his money will

have to be shifted to lower risk assets. Also the performance of

the mutual fund schemes will have to be monitored. Given the

nature of the task, it is best for Rajeev that he engages the

services of a professional and competent financial planner who

can actively monitor his financial plan

CONCLUSION

NRI Banking today stands as one of the most profitable business

for banks. With India having one of the largest NRI populations

and a very prosperous one too, NRI banking is one hot

business no bank can afford to ignore today. India needs foreign

exchange reserves for its developing economy. Realizing this, banks

are shaping up their strategies in order to attract this NRI

money. Further with India pushing for Capital Account

Convertibility, and the success of Pravasi Bharatiya Diwas,

prospects for NRI banking has never been so good than today.

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PRIMARY DATA QUESTIONARIES :-

VISITED ICICI BANK ANDGERI BRANCH

MET MR. KALPESH DHANJI MOTA

ANNEXURE :-

Can I break my deposit before the maturity period?

If I am visiting India, can I use travelers cheques or currency

to open an account or credit my existing NRE Account?

Can any person in India be authorised to operate the NRI's

account?

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Can an FCNR deposit in one currency be converted to a

deposit in another currency

Can FCNR/NRE deposits be value dated?

How much money can an NRI remit abroad annually from his

NRO accounts?

Can an NRI repatriate sale proceeds of his property purchased

by him by remittance from abroad?

What is the frequency of interest payment in an NRE savings

account?

What is the limit on the international ATM-cum-Debit card for

NRI customers?

What are the charges applicable for debit card?

Can I repatriate money out of balances held in my NRO

accounts?

FINDINGS & SUGGESTIONS :-

Yes.deposits can be broken before the maturity period but the

interest payable would be the applicable interest rate prevailing

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for that period at the time of opening the deposit. The

minimum period for NRE and FCNR would be 1 year. A

penalty charge as applicable will be levied.

Travelers cheques can be used to credit/open the account. If

you are bringing foreign currency notes & travellers cheques,

you will have to submit a Currency Declaration Form (CDF)

to the Customs authorities on arrival in India if the foreign

currency notes exceed USD 5,000 or travellers cheques and

notes exceed USD 10,000. You must produce the CDF for

endorsement by the bank when you submit the money for

opening/credit to an account.

Yes. The mandate facility is available for NRI customers. The

mandate form duly completed (with Form 60 or PAN card,

proof of identity, proof of address, and photo) may be handed

over to the branch when the account is opened to authorise

a person in India to operate the account. This is possible

only in the case of savings accounts.

Yes. However, you may consider doing so only on maturity of

the deposit so that there is no loss of interest.

Deposits are value dated. The date will be the date on which

the funds are received by Barclays (India) in its Nostro

accounts.

A NRI can remit up to USD 1 million (or equivalent) per

calendar year for any bonafide purpose subject to payment of

tax and furnishing the required documents.

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Yes. However the amount repatriated should not exceed theamount

paid for acquisition i.e.

Amount received in foreign exchange through normal banking

channel

The foreign currency equivalent as on date of payment of

amount paid by debit to NRI a/c

The frequency of interest payment would be half yearly.

The International ATM-cum-Debit card offers Rs 50,000 of cash

withdrawal per day and transactions worth Rs 50,000 at

merchant establishments.

There are no withdrawal charges for cash withdrawn from any

VISA ATM network across the world. For purchases and ATM

transaction(s) outside India there is a 2.5% currency conversion

charge, at all VISA enabled POS and ATM machines. Service

Tax (currently 12.36%) on these charges will be levied.For

details of charges on Domestic debit cards, kindly refer the

schedule of charges for Consumer banking.

Interest earnings can be repatriated. In addition to this,

remittance/s up to USD 1 million per calendar year from

balances in NRO accounts subject to payment of applicable

taxes is allowed.

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Bibliography

Website

www. Google.com

www.icici.com

www.google.com

www.wikipedia.com

Books/Journal

Nri Banking

Articles in Newspapers

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Libraries referred

College library

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