Opening of NRO Accounts

13A.1

Authorised dealers may open accounts in the names of non-resident individuals/entities

without approval of Reserve Bank for the purpose of putting through bona fide transactions in rupees not involving any violation of the provisions of FERA 1973 and Exchange Control regulations framed thereunder. The operations on the accounts do not allow, inter alia, making available foreign exchange to any person resident in India against reimbursement in rupees or in any other manner in India. At the time of opening of the account, the account holders should give an undertaking that in cases of debits to the accounts for the purpose of investment in India and credits representing sale proceeds of investments, they would ensure that such investments/disinvestments would be covered either by the general or special permission of Reserve Bank. Once this undertaking has been obtained, authorised dealers need not verify the particulars of approvals for investments/disinvestments while permitting individual credits/debits to the account.

NOTES:

A.

Opening of and operations on the accounts of individuals/entities of Pakistani/Bangladesh nationality/ownership require approval of Reserve Bank.

B.

Post Offices have been authorised to maintain savings bank accounts in the names of persons resident outside India and to allow operations on these accounts subject to the same rules as are applicable to NRO accounts maintained by authorised dealers.

Joint Accounts with Residents

13A.2

Accounts of non-residents may be held jointly with residents.

Change of Status from Resident to Non-resident

13A.3

When a person resident in India leaves India for a country (other than Nepal or Bhutan) for taking up employment, business or vocation outside India or for any other purpose

indicating his intention to stay outside India permanently or for an uncertain period, he becomes a person resident outside India. His account should, therefore, be designated as non-resident. Doubtful cases should be referred to Reserve Bank by letter in duplicate giving full particulars.

Change of Status from Non-resident to Resident

13A.4

NRO accounts may be re-designated as resident accounts on the return of the account holder to India, provided authorised dealers are satisfied that the account holder has

returned to India for taking up employment, business or vocation or for any other purpose indicating his intention to stay in India for an uncertain period. Where the account holder is only on a temporary visit to India, the account should continue to be treated as non-resident even during such visit.

Types of Accounts

13A.5

NRO accounts may be maintained in the nature of current, savings, recurring or fixed deposit accounts. The requirements laid down in the directives issued by Reserve

Bank in regard to resident accounts shall apply to NRO accounts.

Operations on the Accounts

13A.6

The undernoted credit and debit transactions may be allowed in the accounts by

authorised dealers.

Credits:

(a)

Proceeds of remittances received in any permitted currency from abroad through normal banking channels or any permitted currency tendered by the account-holder during his temporary visit to India or transfers from rupee accounts of non-resident banks.

(b)

Legitimate dues in rupees of the account holder in India.

Debits:

All local payments in rupees (See paragraph 13A.1 for instructions relating to debits

for investments).

Form A4

13A.7 While form A4 should be completed in respect of operations on the account where the credit transactions are for Rs.1,00,000/- and above (except interest earned on funds in the account or on deposits held by the account holder), in respect of debit transactions, Form A4 should be completed only if the transaction relates to investment in shares/securities/commercial paper of Indian companies or for purchase of immovable property in India, and the amount involved is Rs.1,00,000/- or more. Forms A4 need not be forwarded to Reserve Bank but should be retained with authorised dealers for scrutiny at the time of audit/inspection. Form A4 need not be forwarded to the non-resident constituent for completion. As far as possible, authorised dealers should have the form completed by the resident party to the transaction or complete it themselves after obtaining requisite particulars from resident beneficiary or remitter as the case may be.

Authorised Dealer's Responsibilities

regarding Non-resident Accounts

13A.8

Authorised dealers should report to Reserve Bank any transactions in the NRO accounts which may appear to represent reimbursement in rupees against foreign exchange made

available to person resident in India other than an authorised dealer. Any other transactions of suspicious nature should also be reported to Reserve Bank.

Remittance of Balances

13A.9

Balances in NRO accounts are not normally eligible for remittance abroad and requests for such remittance should not be acceded to without securing approval of Reserve Bank.

Funds derived by remittances from abroad and which cannot be said to have lost their identity as remittable funds will only be considered for remittance abroad. Where an account (current/savings) is opened by a foreign tourist visiting India, with funds remitted from abroad in an approved manner or by sale of foreign exchange brought by him to India, authorised dealers may convert the balance in the account at the time of departure of the tourist from India provided the account has been maintained only for a short period not exceeding six months. Form A2 needs to be completed in such cases.

Note:

See paragraph 10C.24A regarding repatriation of income/interest earned during the financial year 1994-95 and onwards.

Grant of Loans/Overdrafts to Account holders

13A.10

Loans/overdrafts to non-resident account holders may be granted on the security of fixed deposits held by them subject to usual norms as are applicable to resident accounts, except

for the purpose of relending, carrying on agricultural/plantation activities or for investments in real estate business.

Grant of loans/overdrafts to third parties

against security of NRO deposits

13A.10A

Authorised dealers may grant loans/overdrafts to resident individuals/firms/companies in India against the security of deposits held in NRO accounts, subject to the following terms

and conditions.

(a)

The loans should be utilised only for meeting borrower's personal requirements and/or business purpose and not for relending or investment in shares/securities/real estate or for undertaking agricultural and plantation activities.

(b)

The funds held in NRO accounts of the lender should be his own funds and not borrowed funds.

(c)

Regulations relating to normal margin, rate of interest as stipulated by Reserve Bank from time to time should be complied with.

Before granting such loans authorised dealers may obtain an undertaking from the resident borrower to the effect that the loan amount will be utilised for meeting his personal/business requirements and not for other purposes referred to in (a) above.

Authorised dealers should apply the usual norms and considerations as they do in the case of advances to trade/industry and satisfy themselves as to the acceptability of purpose, genuineness of credit needs of the borrower and end-use of funds and need not be guided solely by the availability of security.

Temporary Overdrawings

13A.11

Authorised dealers may allow temporary overdrawings in NRO Savings Bank accounts, up to a limit of Rs.20,000 subject to the condition that the overdrawings together with the

interest payable thereon are cleared/repaid within a period of two weeks either by way of remittances from abroad or out of legitimate funds of the account holder or transfer from his NRE/FCNR accounts. However, Authorised dealers may exercise their own discretion/commercial judgement while allowing ovedraft under this provision.

Continuance of Loans/Overdrafts to

Residents who become Non-residents

13A.12

In case of persons who had availed of loan or overdraft facilities while resident in India and who subsequently become non-resident, authorised dealers may allow continuance of the

loan/overdraft facilities granted to them subject, inter alia, to the following conditions:

(a)

The borrower is an Indian citizen or a person of Indian origin.

(b)

The rupee loan/overdraft was granted for business purposes or to meet the borrower's personal requirements while he was resident in India and not for investment.

(c)

The loan or overdraft will be restricted to the period originally fixed or up to one year from the date of the borrower's departure from India, whichever period is longer, and must not exceed the amount outstanding when he became non-resident.

(d)

So long as the borrower continues to be a non-resident, repayment of the loan/overdraft as also payment of interest accruing thereon will be made out of remittance from abroad through normal banking channels or from the funds held in his Non-redsident (External) FCNR/NRNR account. Loan/overdraft can be allowed to be repaid out of local rupee resources held in the NRO account of the borrower subject to the condition that the loan so repaid would be charged interest at commercial rate as in force from time to time.

(e)

In case a person of Indian nationality/origin resident in India who had granted loan to another resident subsequently becomes a non-resident, the repayment of the loan by the resident borrower should be made by credit to the NRO account of the lender maintained with a bank in India.

Before according their approval, authorised dealers should obtain from such borrowers an application stating, inter alia, (i) the date of the borrower's departure from India, (ii) country to which he has gone, (iii) the purpose and probable duration of his stay abroad, and (iv) reasons for continuing the rupee loan/overdraft.

Transfer of Funds to Non-resident Nominees

13A.13

The Banking Companies (Nomination) Rules, 1985 framed under the Banking Regulation Act, 1949, enable banks to pay the amount standing to the credit of the deceased

depositor to his nominee. There is, therefore, no objection to the registration of nomination either in favour of a resident or non-resident. In the case of non-resident nominee, the amount entitled to him from the account(s)/deposit(s) of a deceased person will be credited to his NRO account and shall not be allowed to be remitted outside India.