Foreign Exchange Control Manual, Chapter-5, Accounts of Non-Resident Banks and Inter Bank Dealings.

CHAPTER 5
ACCOUNTS OF NON-RESIDENT
BANKS AND INTER-BANK DEALINGS

PART A - RUPEE ACCOUNTS OF NON-RESIDENT BANKS
5A.1 General
5A.2 Opening and Closing of Accounts
5A.3 Implications of Rupee Credits to Accounts of Non-resident Banks
5A.4 Form A3
5A.5 Funding of Accounts of Non- resident Banks
5A.6 Transfers from other Accounts
5A.7 Conversion of Rupees into Foreign Currencies
5A.8 Responsibilities of Paying and Receiving Banks
5A.9 Refund of Rupee Remittances
5A.10 Overdraft/Loans to Overseas Branches/Correspondents
5A.11 Rupee Accounts of Exchange Houses
 
PART B - INTER-BANK DEALINGS
5B.1 General
5B.2 Position and Gaps
5B.3 Inter-bank transactions
5B.4 Foreign currency accounts
5B.5 Loans/Overdrafts
5B.6 Reports to Reserve Bank

PART C - ACU DOLLAR ACCOUNTS
5C.1 Opening of ACU Dollar Accounts
5C.2 Funding of ACU Dollar Accounts
5C.3 Settlement through ACU treated as Payment in Convertible Currency
ANNEXURE
Guidelines for Foreign Exchange Exposure Limits of Authorised Dealers

ACCOUNTS OF NON-RESIDENT BANKS AND INTER-BANK DEALINGS

PART A - RUPEE ACCOUNTS OF NON-RESIDENT BANKS

General

5A.1 Rules and regulations governing the opening of and operations on rupee accounts of overseas branches and correspondents, other than those in Nepal and Bhutan, are laid down in this section.

Opening and Closing Accounts

5A.2 (i) Banks may open/close rupee accounts (non-interest bearing) in the names of their overseas branches and correspondents without prior reference to Reserve Bank.

Implications of Rupee Credits/Debits to Accounts of Non-Resident Banks

5A.3

1. Credit to the accounts is a permitted method of payment to non-residents and is, therefore, subject to the regulations applicable to transfers in foreign currency.
2. Debit to the accounts is in effect an inward remittance in foreign currency.

   NOTES:

   In the case of individual payments of Rupees one lakh or more, the purpose of remittance should be reported in the statement annexed to R Return. Banks may issue encashment certificates in accordance with the procedure laid down in paragraph 3A.6

 Form A3

5A.4 All debits/credits to the accounts of non-resident banks should be reported in form A3.

Funding of Accounts of Non-resident Banks

5A.5

1. Banks may freely purchase foreign currency at ongoing market rates to lay down funds in the accounts of their correspondents for meeting their bonafide needs in India.
2. Transactions in the accounts should be closely monitored to ensure that overseas banks do not take a speculative view on the rupee. Any such instances should be brought to the notice of Reserve Bank.
   
   NOTE: Forward purchase or sale of foreign currencies against rupees and offer of two-way quotes to non-resident banks are prohibited.
   

Transfers from other Accounts:

5A.6 Transfer of funds between the accounts of the same bank or different banks is freely permitted.

Conversion of Rupees into Foreign Currencies

5A.7 Balances may be freely converted into foreign currency. All such transactions should be reported on Form A2 for the foreign currency leg and on form A3 for the rupee leg under the relevant R Returns.

Responsibilities of Paying and Receiving Banks

5A.8 In the case of credit to accounts the paying banker should ensure that all Control requirements are met and are correctly furnished in form A1/A2 as the case may be. The receiving banker after ensuring that the funds are eligible for credit should submit form A1/A2 under cover of the R Return.

Refund of Rupee Remittances

5A.9 Requests for cancellation of inward remittances may be complied with subject to the regulations laid down in paragraph 3A.7.

Overdrafts/Loans to Overseas Branches/Correspondents

5A.10

1. Banks may permit their overseas branches/correspondents temporary overdrawals not exceeding Rs.500 lakhs in the aggregate, for meeting normal business requirements. This limit applies to the amount outstanding against all overseas branches and correspondents in the books of all the branches of the bank in India. This facility should not be used to postpone funding of accounts. If overdrafts in excess of the above limit are not adjusted within five days a report should be submitted to the Central Office of Reserve Bank (Forex Markets Division) within 15 days from the close of the month, stating the reasons therefor. Such a report is not necessary if arrangements exist for value dating.
2. Banks wishing to extend any other credit facility in excess of (i) above to overseas banks should seek prior approval from the Central Office of Reserve Bank (Forex Markets Division).

Rupee Accounts of Exchange Houses

5A.11 Opening of rupee accounts in the names of exchange houses for facilitating private remittances into India requires approval of Reserve Bank. Remittances through exchange houses for financing trade transactions are permitted upto Rs.2,00,000 per transaction. [See Paragraph 6A.6 (iii)].

PART B - INTER-BANK DEALINGS

General

5B.1 The Board of Directors of banks should frame an appropriate policy and fix suitable limits for various Treasury functions.

Position and Gaps

5B.2 The overnight open exchange position (vide Annexure I) and the aggregate gap limits are required to be approved by the Reserve Bank.

Inter-bank transactions

5B.3 Subject to compliance with the provisions of paragraphs 5B.1 and 5B.2, banks may freely undertake foreign exchange transactions as under:

1. With banks in India:
   
   1. Buying/Selling/Swapping foreign currency against rupees or another foreign currency
   2.  Placing/Accepting deposits in foreign currency
2. With banks overseas :
   1. Buying/Selling/Swapping foreign currency against another foreign currency to cover client transactions or for adjustment of own position
   2. Initiating trading positions in the overseas markets subject to Reserve Bank approval. Applications in this regard should be made to the Chief General Manager, Exchange Control Department (Forex Markets Division), Reserve Bank of India, Central Office, Mumbai 400001.

   NOTES:

   Funding of accounts of Non-resident banks - Refer to paragraph 5A.5. Form A2 need not be completed for sales in the inter-bank market but all such transactions should be reported to Reserve Bank in R Returns.

Foreign currency accounts
5B.4

1. Inflows into foreign currency accounts arise primarily from client-related transactions, swap deals, deposits, borrowings etc. Banks may maintain balances in foreign currencies upto the levels approved by the Top Management. They are free to manage the surplus in these accounts through overnight placement or investments with their overseas branches/correspondents subject to adherence to the gap limits approved by Reserve Bank.
2. Banks may invest upto 15% of their unimpaired Tier I capital or US$ 10 million whichever is higher, and the entire amount representing foreign currency deposit liabilities in overseas money market instruments rated at least A1 + by Standard and Poor or P1 by Moody's.
3. Foreign currency funds representing deposit liabilities may be utilised for:
   
   1. making loans to resident constituents for meeting their foreign exchange requirements or for the rupee working capital/capital expenditure needs subject to the prudential/interest-rate norms, credit discipline and credit monitoring guidelines in force.
   2. extending credit facilities to Indian wholly owned subsidiaries/ joint ventures in which at least 51% equity is held by a resident company, subject to the guidelines issued by Reserve Bank (Department of Banking Operations & Development).
4. Banks should regularly reconcile the balances in the foreign currency accounts as appearing in their books with the balances advised by the correspondents and maintain records to show that such reconciliation has been made.
5. Banks may write off/transfer to unclaimed balances account, unreconciled debit/credit entries up to the value of US.$.1,000 or its equivalent provided:
   1. the entry has been outstanding in the books for two or more years and
   2. approval from the Competent Authority has been obtained,
   3. a separate record of all such entries is maintained and the transactions reported in the respective R Return.
   Applications for adjustment of an entry in excess of US$ 1,000 or its equivalent should be referred to the concerned Regional Office of Reserve Bank.

Loans/Overdrafts

5B.5

1. Banks may avail of loans/overdrafts from their overseas branches and correspondents up to 15% of their unimpaired Tier-I capital or US$ 10 million or its equivalent, whichever is higher. The funds may be used for purposes other than lending in foreign currencies and repaid without reference to Reserve Bank. The aforesaid limit applies to the aggregate amount availed by all the offices and branches in India from all their branches/correspondents abroad.
2. If drawals in excess of the above limit are not adjusted within five days, a report should be submitted to the Forex Markets Division in the Central Office of Reserve Bank within 15 days from the close of the month in which the limit was exceeded. Such a report is not necessary if arrangements exist for value dating.
3. Banks may avail of loans in excess of the limits prescribed in sub-paragraph (i) above solely for replenishing their rupee resources in India without prior approval of Reserve Bank. Such rupee funds may be used only for financing the banks' normal business operations and should not be deployed in the call money etc. markets. A report on each borrowing should be immediately forwarded to the Forex Markets Division, in the Central Office of Reserve Bank whose prior permission will be required for repayment of such loans. Such permission will be given only if the bank has no borrowings outstanding either from Reserve Bank or other bank/financial institution in India and is clear of all money market borrowings for a period of at least four weeks before the repayment.
4. Interest on loans/overdrafts may be remitted (net of taxes) without the prior approval of Reserve Bank.

Reports to Reserve Bank

5B.6

1. The Head/Principal Office of each bank should submit to the Chief General Manager, Exchange Control Department (Forex Markets Division), Reserve Bank of India, Central Office, Mumbai 400 001 the following:
   1. Daily statements of foreign exchange turnover in Form FTD and Gaps position and cash balances in Form GPB. These statements should be transmitted online through wide area network.
   2. Monthly statement ( in USD million) indicating:
      1. Aggregate Gap Limit (AGL) approved
      2. Maximum AGL on any day in the month
      3. Value at Risk (VaR) limit approved and
      4. Maximum VaR on any day in the month
2. The Head/Principal Office of each bank should submit a statement in duplicate in form BAL giving details of their holdings of all foreign currencies on fortnightly basis so as to reach the Regional Office of Reserve Bank under whose jurisdiction the Head/Principal Office is situated within seven calendar days from the close of the reporting period to which it relates. If the 15th or the last day of the month is a holiday the statement should be submitted as at the close of business on the preceding working day.

PART C - ACU DOLLAR ACCOUNTS

Opening of ACU Dollar Accounts

5C.1 Value wise, ACU dollar is on par with U.S. dollar. In order, however, to keep ACU
transactions distinct and separate from other transactions, authorised dealers may open
in their books ACU dollar accounts in the names of their branches/correspondent banks in ACU countries for putting through transactions through ACU mechanism. Likewise, they may open ACU dollar accounts with their branches/correspondents in other ACU countries.

Funding of ACU Dollar Accounts

5C.2 Funding of ACU dollar accounts or repatriation of surplus funds in these accounts
should be arranged either through the respective central bank of the participating
country or through the commercial banks among themselves in the same participating country, in the manner laid down in Memorandum ACM [cf. Rules 6(b) and 6(c) of the Asian Clearing Union (Procedure) Rules].

Settlement through ACU treated as Payment in Convertible Currency

5C.3 Receipts and payments channelled through ACU mechanism are deemed to have
been received or paid, as the case may be, in U.S. dollar or in any other convertible currency.