Forex Management

Module 3 Eldo Geevarghese Zacharia Kayyalath Asst. Professor/ Placement Officer LEAD College of Management, Palakkad, Kerala LEAD College of Management Mobile No: +91 9497713693

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Module Content
Finance Function: Financial Institutions in

International Trade. 5 Non resident Accounts: Repatriable and Non Repatriable, Significance for the Economy and Bank Methods of in Trade Settlement: Open Account, Clean Advance, Documentary Credit, Documentary, Collection Documentary Credits (Letter of Credit): Types of LC Parties, Mechanism with Illustration
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Thunder Words
Repatriability: The ability to move an asset from

a foreign country to an investor's home country. Assets such as cash are repatriable assets such as real estate are not. Some countries have laws that prohibit repatriation of certain assets.
Non- Repatriablity: Not allowed to move the cash to

another country by that countries law

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Non Residents Accounts

1.

Non-Resident Ordinary (NRO) Accounts

2. Non-Resident External Rupee (NRE) Accounts 3. Foreign Currency Non-Resident (Bank) (FCNR (B)) Accounts 4. Non-Resident Non-repartable Rupee Account (NRNR Accounts)

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. But

..These accounts can be classified into two categories..

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A. Rupee Accounts
NRO Accounts: 2. NRE Accounts: 3. NRNR Accounts:
1.

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NRO Accounts
Non-resident ordinary accounts can be opened

either by money received from abroad in foreign exchange or out of rupees earned in India.
When an Indian resident goes abroad for job /

employment his local account will automatically be designated into a non resident ordinary account by bank.
For this the bank should be informed of his / her

departure outside India for job.

This account can be maintained jointly with
7 LEAD College of Management 9/12/2013 residents. Funds held in the account can normally

 Repatriation (the right to take the money outside

India is known as 'Repatriation Right') of money outside India is allowed

However, with the introduction of current account

convertibility, Reserve Bank permitted remittances even out of NRO accounts.

As per instructions prevalent in May 2003, account

holder can remit money up to one million dollar per year.

NRO accounts can be maintained in any form

like savings account, fixed deposit, recurring deposit account, etc. LEAD College of Management

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Conditions regarding repatriation of balances in NRO accounts

Repatriation is allowed up to US dollars 1 million per

calendar year for any purpose from the balances in NRO accounts subject to payment of applicable taxes
Limit of US dollars 1 million includes sale proceeds of

immovable properties held by NRIs / PIOs for a period of 10 years

In case a property is sold after being held for less than

10 years, remittance can be made if the sale proceeds have been held by the NRI/PIO for the balance period
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NRE Account
These are again rupee accounts. The NRE account can be opened only with money

received from abroad only

There can be joint holder to the account but not with

residents. (The joint account holder should also be a non resident)

The funds held in the account can be freely repatriated

outside India without limit and without any approval from RBI.
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 Since the account is maintained in rupee, for

repatriation purpose the Rupee will be converted into the desired foreign currency at the prevailing rate of exchange.
Interest earned on the account is free from income

tax.
The account can be maintained as savings bank

account, fixed deposit, recurring deposit, etc.

However, fixed deposit account should be for a
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minimum period of one year and for a maximum LEAD College of Management 9/12/2013 period of 3 years.

NRNR Accounts
When India faced the balance of payment difficulty in

1991 / 92, RBI introduced this new NRI account with a view to increase our foreign exchange reserves with a higher rate of interest. The account is a term deposit (fixed deposit) account maintained in rupee. Money should be remitted from abroad for opening the a/c. The funds held in the account were originally exempted from CRR / SLR requirements and the banks were offering very high rate of interest (as much as 18% ) initially in 1993.
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 The balance in the account is not repartable.

Reserve Bank has withdrawn this scheme since April 1,

2002.
new accounts cannot be opened after April 2002. Further as part of relaxation in convertibility of rupee,

Reserve Bank now permitted to allow repatriation of funds including interest amount, out of this account

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B. Foreign Currency Accounts

1.

2.
3. 4. 5.

FCNR Accounts Foreign Currency Accounts for Residents RFC Accounts RFC (D) Accounts EEFC Accounts

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FCNR Accounts
FCNR Accounts are Term Deposit Accounts for a period

ranging from 1 year to 3 years It can be maintained in four important currencies, viz.,
US Dollar
Pound Sterling, Japanese Yen Euro

They are paid back in the same currencies and are

repartable. These accounts are now known as FCNR (B) Accounts. 'B' stands for Banks. Since the account is maintained in foreign currency and paid back in the same currency, there is no conversion of currency takes place when LEAD College of Management 9/12/2013 15 balance is repatriated outside India.

 However if the account holder decides to convert the

balance into rupees at maturity, the conversion takes place at exchange rate ruling at the time of conversion.
Interest earned on the account is tax exempted.
NRE Accounts and FCNR Accounts can be opened by

receiving the money from abroad in foreign currency or out of any money that is permissible for remittance abroad.

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Foreign Currency Accounts for Residents

Usually residents (those living in India) are required to

maintain their bank accounts in India in rupee only. However, in respect of certain categories of residents Reserve Bank has permitted to maintain foreign currency accounts. These are
Resident Foreign Currency accounts (RFC Accounts), Resident Foreign Currency (Domestic) accounts (RFC (D)

accounts) Exchange Earners' Foreign Currency Accounts (EEFC Accounts).

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RFC Accounts
These are accounts of resident individuals, who had

come back to India after being abroad as NRIs for some time.
Similarly he may sell his foreign assets like securities,

property etc., at the time of return to India. The Returning Indian / PIO may use such foreign exchange to open the RFC accounts.
It is a rule when an NRI / PIO returns to India for

permanent settlement i.e. when he / she has no intention to go back abroad, their existing NRE / FCNR accounts should be converted into resident accounts.
These accounts can be maintained in any foreign
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 The funds in this account can be used by the account

holders practically for all purposes.

To illustrate, the account holder can use the RFC

balance again to:

acquire some asset abroad while being in India, open fresh bank account outside India, spend the money for his travel / business purposes, he can gift it to anyone in the world, use it for educational purposes of his relations etc.

In fact the depositor can decide about the purpose of

use of such funds without the permission of RBI.

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RFC (D) Accounts

This account scheme was introduced from January, 2003. RFC (D) account can be maintained by any resident

individual even when he had not been abroad at any time.

Thus you can open a foreign currency account with a bank in

India with money received from your relations living outside India.
The account can also be opened with export proceeds

received or foreign exchange earned through consultancy, etc., services rendered to non residents.
The funds held in the account can be utilized for personal
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purposes as may be approved by RBI. The funds cannot be LEAD College of Management utilized in the way as in the case of RFC accounts. 9/12/2013

EEFC Accounts
These accounts can be maintained by residents who happen

to receive money from abroad in foreign currency as in the case of RFC (D) account.
Normally EEFC accounts are opened by exporters out of sale

proceeds of exports.
One important difference of this account from RFC account is

that EEFC account can be opened only out of foreign exchange earned.
Thus, the cannot open EEFC account out of unspent foreign

exchange taken for foreign tour.

Further only up to 50 per cent of the money received in
21 LEAD College of Management 9/12/2013 foreign currency will be allowed to be credited into the

 Reserve Bank varies the percentage of money that can

be put into EEFC Accounts depending upon its policy.

Currently RBI permitted big exporters, professionals and

companies operating from Special Economic Zones to credit 100 per cent of foreign exchange to credit into the accounts.
Funds held in EEFC Accounts can be used by the

depositors for personal and business purposes as approved by RBI from time to time. Exporters can maintain this account only in the form of current account without any interest.

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.But..

..For University Exam...

at least study the following

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1. 2. 3. 4.

5.

NRO Account Non-Resident (External) Rupee Accounts (NRE Accounts) Foreign Currency (Non Resident) Accounts (Banks) (FCNR (B) Accounts) Non-Resident (Non-Repatriable) Rupee Deposit Accounts (NRNR Accounts) Foreign Currency Accounts for Residents

Refer Devesh Pandey Corporate Law (Forex in India, 5 Edition)

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