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 Implications of Debits of Accounts of Non-resident Banks
5A.5 Forms A1 and A2
5A.6 Rupee Traveller Cheques
5A.7 Form A3
5A.8 Funding of Accounts of Non- resident Banks
5A.9 Transfers from other Accounts of the same Bank
5A.10 Transfers from one Overseas Bank to Another
5A.11 Conversion of Rupees into Foreign Currencies
5A.12 Responsibilities of Paying and Receiving Banks
5A.13 Disposal of Forms
5A.14 Refund of Rupee Remittances
5A.15 Overdraft/Loans to Overseas Branches/Correspondents
5A.16 Deleted
5A.17 Rupee Accounts of Exchange Houses
PART B - INTER-BANK DEALINGS
5B.1 Position
5B.2 Balances Abroad
5B.3 Maturity Mismatches
5B.4 Inter-bank Sales and Purchases
5B.5 Sales and Purchases in Overseas Bank to Another
5B.6 Investments Abroad
5B.7 Inter-bank Foreign Currency Deposits
5B.8 Loans/Overdrafts from Overseas Branches and Correspondents
5B.9 Investments of foreign currency funds
5B.10 Adherence to FEDAI Rules
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
5C.4 Overdrafts/Loans to/form Overseas Branches/Correspondents in ACU Countries
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 in the names
of branches and correspondents outside India, other than those in Nepal and
Bhutan, maintained by authorised dealers, are laid down in this section. Rupee accounts maintained by
foreign Governments and Government organisations outside India with authorised dealers in India are
treated on par with accounts maintained by non-resident banks.

Opening and Closing of Accounts

5A.2 (i) Authorised dealers may open non-interest bearing rupee accounts in their books

in the names of their branches and correspondents outside

India without prior reference to
Reserve Bank. However, when a new account of a non-resident branch or correspondent is opened, an
advice giving the name and address of the foreign bank, the purpose for which the account will be used and
the manner in which it will be kept in funds should be sent to the concerned office of Reserve Bank. A
report should also be sent giving the name and address of the foreign correspondent bank and the date of
closure of the account when an account is closed. A copy of the advice should also be sent to the Central
Office of Reserve Bank (Central Statistical Division).

NOTES: A. Rupee accounts opened in the names of authorised dealers' branches/

correspondents in Pakistan should be used for financing only permissible
transactions with that country. Opening of rupee accounts in the names of
branches of Pakistani banks operating outside Pakistan requires specific
approval of Reserve Bank.

B. Authorised dealers should not permit any arrangement under which non-
resident private exchange houses/companies can operate on the rupee
accounts of non-resident banks maintained with them.

(ii) The Head/Principal Office of each authorised dealer should furnish an up-to-date list
(in triplicate) of all its offices/branches which are maintaining rupee accounts of non-resident banks as at
the end of December every year giving their addresses and code numbers allotted by Reserve Bank. The
list should be submitted before 15th January of the following year to the Central Office of Reserve Bank
(Central Statistical Division). The offices/branches should be classified according to area of jurisdiction of
Reserve Bank Offices within which they are situated.

Implications of Rupee Credits to Accounts of Non-Resident Banks

5A.3 (i) Reserve Bank has permitted credit of rupees to accounts of non-resident banks as one

of the methods of payment to persons resident outside India (See paragraph 2.6). This
permission is subject to the condition that payment made in such manner by any person for the purpose
declared by him on the appropriate application form viz. A1 or A2, as the case may be, shall actually be
towards that purpose and not any other purpose. If the payment is used towards any other purpose, it will
amount to a breach of the condition subject to which permission has been granted.

NOTE: The above provision is also applicable to payments through Asian Clearing Union
(See Chapter 2)

(ii) Credits to the rupee account of a non-resident branch or correspondent of an authorised

dealer are equivalent to a remittance of foreign currency from India and are, therefore, subject to the same
regulations as are applicable to transfers in foreign currency. Such transfers may be made by authorised
dealers, without approval of Reserve Bank, only in those cases where they could have remitted funds to the
country concerned under powers delegated to them. Applications for rupee transfers which are not covered
by powers delegated to authorised dealers should be forwarded to Reserve Bank on form A1 or A2, as the
case may be, for approval together with appropriate documentary evidence.
Implications of Debits to Accounts of Non-resident Banks

5A.4 Debits to the rupee account of a non-resident branch or corespondent of an authorised

dealer are equivalent to an inward remittance in foreign currency. Such debits are governed by the same
regulations as are applicable to inward remittances of foreign exchange set out in paragraph 3A.2.

NOTE: A. Where payments to be made amount individually to Rupees one lakh or its
equivalent or more, the purpose of inward remittance should be ascertained
and reported in the supplementary statement annexed to R Return.

B. Authorised dealers may issue certificates against payments made to residents

by debit to non-resident bank accounts in accordance with the procedure laid
down in paragraph 3A.6.

Forms A1 and A2

5A.5 Applications from residents for purchase of rupee drafts or TTs on places outside India should
be made on form A1 bearing the legend 'Application for transfer of Indian rupees to account of

a non-resident bank' or on form A2 bearing a similar legend depending upon whether the payment is for
imports or for purposes other than imports, stating full particulars and supported by appropriate
documentary evidence.

NOTE: Forms A2 should also be completed in case of permitted transfers from Ordinary
Non-resident Rupee accounts and Non-resident (External) accounts to accounts of
non-resident banks.
Rupee Travellers Cheques

5A.6 Authorised dealers may freely credit non-resident rupee accounts of their overseas

branches or correspondents in reimbursement of the value of paid rupee travellers cheques received from
them, provided the cheques were valid for encashment anywhere in the world.

Form A3

5A.7 Form A3 should be used for reporting all credits to accounts of non-resident banks arising from
permitted transfers from accounts of other non-resident banks and remittances received from

abroad. Likewise, form A3 should be used for reporting all debits to accounts of non-resident banks for
permitted transfers to accounts of other non-resident banks and remittances in foreign currency.

Funding of Accounts of Non-resident Banks

5A.8 (i) Authorised dealers may freely purchase any permitted currency from their overseas

branches and correspondents to enable the latter to lay down funds in their rupee accounts

in India for meeting their bonafide needs for payments against exports and other commitments in India.
Acquiring of spot rupees by overseas banks for building open positions in the currency or for holding as
cover against their forward commitments is not permitted. If authorised dealers observe that rupee funds
acquired by any of their branches or correspondents are abnormal or disproportionate to latter's normal
turnover in India, they should immediately bring the above regulation to the notice of the bank concerned
and dissuade them from undertaking such operations. Such cases should also be promptly brought to the
notice of Reserve Bank. The intention is to prevent speculation in rupees by overseas banks.

(ii) While quoting rates for selling or buying rupees against foreign currencies to their
overseas

branches/Head Offices/correspondent banks, authorised dealers should ensure that the rates quoted to them
are under no circumstances better than the prevailing market rates. Offering of two-way quotes for the
Indian rupee to the overseas branches/correspondents by authorised dealers is prohibited.

Transfers from other Accounts of the same Bank

5A.9 Transfer of rupees from the account at one centre in India of an overseas branch or
correspondent to another account of the same branch or correspondent at the same

centre or at any other centre in India may be freely made under report to Reserve Bank on form A3.

Transfers from one Overseas Bank to Another

5A.10 Transfer of rupees from the account of an overseas branch or correspondent to another
is permissible. All such transfers should be reported to Reserve Bank on form A3.

Conversion of Rupees into Foreign Currencies

5A.11 Balances in rupee accounts of branches and correspondents may be converted into any
permitted currency without approval of Reserve Bank. All such transactions should be reported

to Reserve Bank both on form A2 for the foreign currency leg and on form A3 for the rupee leg of the
transaction under cover of relevant R Returns.

Responsibilities of Paying and Receiving Banks

5A.12 (i) In the case of credits to accounts of non-resident banks, the receiving banker i.e. the
authorised dealer who maintains the non-resident account which is to be credited should

ensure that the funds are eligible to be credited to such an account and should submit the form A1 or A2. A
cheque or draft received for credit of a non-resident account, unless accompanied by form A1 or A2 (as
well as, where necessary, by a permit issued by Reserve Bank authorising the transfer of rupees) should not
be passed through clearing but sent back to the bank from whom it was received stating that a non-resident
account is being credited and requesting a pay slip accompanied by form A1 or A2 duly completed by
drawer, or by his bank on his behalf, and supported by the Reserve Bank permission where applicable. The
paying banker should ensure that all Exchange Control requirements are met and that the particulars in
form A1 or A2 are correct and should sign the certificate on the reverse of the relative form in token of
having fulfilled the above requirements. These provisions are also applicable where an able where an
authorised dealer tenders a payment to another authorised dealer for credit to the rupee account of a non-
resident bank maintained by latter.
 (ii) In the case of debits for transfer to accounts of non-resident banks with other

authorised dealers, form A3 must be submitted to Reserve Bank by both authorised dealers.

Disposal of Forms

5A.13 All forms A1, A2 and A3 covering credits as well as debits to non-resident rupee accounts of
banks must be forwarded to Reserve Bank as enclosures to the R Return covering the period
during which the transaction was put through.

Refund of Rupee Remittances

5A.14 Authorised dealers may comply with requests from their overseas branches or correspondents
for cancellation of inward remittances received by debit to non-resident rupee accounts

and refund the amounts by credit to their accounts without reference to Reserve Bank subject to the
regulations laid down for refund of inward foreign currency remittances, vide paragraph 3A.7.

Overdrafts/Loans to Overseas Branches/Correspondents

5A.15 (i) Authorised dealers may grant to their overseas branches/correspondents, who maintain

rupee accounts with them, loans, overdrafts or other types of fund-based credit facilities to

the maximum extent of Rs.150 lakhs for meeting normal business requirements for temporary periods. This
limit applies to the aggregate amount that may remain outstanding at any given time against all overseas
branches and correspondents of the authorised dealer in the books of all offices/branches of the authorised
dealer in India.

(ii) Authorised dealers should ensure that this facility is not used by overseas

branches/correspondents to postpone funding of their accounts or to build up oversold positions in the

rupee.

(iii) Authorised dealers should report to the Reserve Bank if overdrafts in excess of the

above limits are not adjusted within five days. Such a report is not necessary if arrangements exist for value
dating the debits that resulted in the overdraft. The reports should be submitted to the Central Office of
Reserve Bank (Forex Markets Division) within 15 days from the close of the month in which the limits
were exceeded.

(iv) Authorised dealers, who wish to extend credit facilities in excess of the above limits

or for purposes other than meeting normal business requirements should apply to the Central Office of
Reserve Bank (Forex Markets Division) with full particulars including the purpose and the period for
which funds are to be lent, rate of interest and manner in which the credit will be liquidated.

5A.16 Deleted
Rupee Accounts of Exchange Houses

5A.17 At times, private overseas exchange houses may approach authorised dealers for opening
rupee accounts for facilitating private remittances to India mainly on behalf of non-resident

Indians. Opening of rupee accounts in the names of such exchange houses in the books of authorised
dealers requires approval of Reserve Bank. Remittances through exchange houses for financing trade
transactions are permitted up to Rs.2,00,000 per transaction. [See Paragraph 6A.6(iii)]

PART B - INTER-BANK DEALINGS

Position

5B.1 (i) Authorised dealers should fix open position limits in each currency in accordance
with the Guidelines given in Annexure. Before laying down such limits authorised dealers

should get them approved by Reserve Bank. Net overnight position in the rupee should not exceed the
limits laid down by Reserve Bank from time to time.

(ii) The Head/Principal Office of each authorised dealer should forward to

the Chief General Manager, Exchange Control Department (Forex Markets Division), Reserve Bank of
India, Central Office, Mumbai 400 001, a weekly statement in form POS, as at the close of business on
every Friday. The statement should be sent by the morning of the following Tuesday. The consolidated
position for the bank as a whole in the following currencies as well as the net rupee position should be
reported in the statement.

(a) Pound sterling

(b) U.S. dollar
(c) Deutsche mark/Euro
(d) Japanese yen

Balances Abroad

5B.2 (i) (a) Authorised dealers may maintain balances in foreign currencies with their
overseas correspondents up to the levels approved by the Top Management.
They are free to manage the surplus in these accounts through overnight
placements/investments with their overseas branches and correspondents subject
to adherence to the gap limits approved by Reserve Bank.

(b) Authorised dealers are permitted, subject to approval by their Board to invest up
to 15% of their unimpaired Tier I capital or US $ 10 million or its equivalent,
whichever is higher, in overseas money market instruments rated as A 1 + by
Standard & Poor or P1 by Moody's. This cap does not apply to the investments
permitted in terms of paragraph 5 B.9 (i).
 (ii) The Head/Principal Office of authorised dealers should submit to the Regional Office of

Reserve Bank under whose jurisdiction it is situated, a statement in duplicate in form BAL, giving details
of their holdings of all foreign currencies in the form of balances in current accounts, fixed deposits,
treasury bills, securities and loans as at the end of each month by 10th of the following month. Whenever
two or more foreign currency accounts are maintained in any country only the net balance (credit or debit)
of all such accounts in the country concerned should be furnished.

NOTE: Authorised dealers should make standing arrangements with their overseas
branches/ correspondents for advising the balances in foreign currency accounts
etc. (irrespective of the amounts involved) so that the statements may be submitted
within the prescribed time schedule.

(iii) Authorised dealers should also report in the statement, the country-wise net balances (credit
or debit) in the rupee accounts maintained with them by overseas branches and
correspondents. Wherever two or more accounts of banks resident in the same country are
maintained with the authorised dealer, the net balance (credit or debit) of all accounts in the
country concerned taken together should be furnished.

(iv) Authorised dealers should regularly reconcile the balances in the foreign currency accounts
maintained abroad by them as appearing in their local books with the balances actually advised
by their respective overseas correspondents and maintain records to show that such reconciliation
has been made. All entries in foreign currency accounts should be followed up vigorously and
reconciled as early as possible. Authorised dealers should particularly ensure that in no case any
entry above U.S.$ 10,000/- each (or its equivalent) remains unreconciled beyond six months. A
statement in form REC showing the position of unreconciled entries in all the foreign currency
accounts as on 31 March and 30 September should be submitted to Reserve Bank so as to reach
on or before 30 April and 31st October respectively.

(v) Authorised dealers may write off/transfer to unclaimed deposits/balances account, old
unreconciled debit/credit entries in foreign currency accounts up to and including the value of
U.S.$ 1,000/- (or its equivalent) in each case provided:

(a) each such entry not exceeding U.S.$ 1,000 (or its equivalent) is outstanding in
the books for a period of two years or more;

(b) the authorised dealer has taken all the possible steps to reconcile the outstanding
items and has come to the conclusion that it will not be worthwhile to pursue
them further.

(c) approval from the Board/Competent Authority for such write off/transfer has
been obtained.

(d) such unreconciled debit entries in the foreign currency accounts are then
transferred to Profit and Loss Account;

(e) such unreconciled credit entries in the foreign currency accounts are then
transferred to unclaimed deposit/balances account;

(f) a separate record of all such entries so adjusted is maintained for future
 reference and

(g) the transactions are appropriately reported in the respective R Returns.

Applications for write off/transfer of unreconciled individual entries in excess of U.S.$ 1,000/- (or its
equivalent) should be referred to the concerned Regional Office of Reserve Bank.

Maturity Mismatches

5B.3 Authorised dealers should, as far as possible, avoid outright forward or swap transactions
which will result in maturity mismatches which are in excess of their aggregate gap limits.

Inter-bank Sales and Purchases

5B.4 (i) Subject to compliance with the provisions of paragraphs 5B.1, 5B.2 and
5B.3, authorised dealers may freely buy and sell, for both spot and forward

deliveries, any permitted currency against rupees or any other permitted currency from and to other
authorised dealers in India.

(ii) Form A2 need not be completed for sales in the inter-bank market but all
inter-bank transactions should be reported to Reserve Bank in R Returns.

Sales and Purchases in Overseas Exchange Markets

5B.5 (i) Subject to compliance with the provisions of paragraphs 5B.1, 5B.2 and
5B.3 authorised dealers may purchase and sell any permitted foreign currency from

and to overseas banks and branches to cover a transaction with a customer in India or for the adjustment of
the authorised dealers' own position. There is no objection to authorised dealers liquidating, in overseas
markets positions taken in the foreign exchange markets in India. Authorised dealers having the requisite
infrastructure, risk control mechanism and satisfying capital adequacy norms will be permitted to initiate
positions in the overseas markets. Authorised dealers intending to undertake such transactions will have to
fix specific limits for the purpose and get them approved by Reserve Bank. Applications for such approval
should be made to the Chief General Manager, Exchange Control Department, Reserve Bank of India,
Forex Markets Division, Central Office, Mumbai.

(ii) Authorised dealers should, before undertaking operations with overseas banks and branches,
explore all possibilities of securing the necessary cover in the inter-bank market in India.

(iii) Forward purchase or sale of foreign currency against rupees with overseas banks and branches is
prohibited.

(iv) Transactions should be reported in the appropriate R Returns. In the case of sales, form A2 need
not be submitted but but details of sale transactions should be furnished in a Supplementary
Statement with the R. Returns.

Investments Abroad
5B.6 (i) Authorised dealers should not lend foreign currencies to their overseas

branches or correspondents or invest them in Treasury Bills, Call or Fixed Deposits or

in any other manner, without specific approval of Reserve Bank (See paragraph 5 B.9).

(ii) Authorised dealers may arrange with their overseas branches or correspondents for

transfer of surplus funds on a day-to-day basis to special interest-bearing accounts with the facility of
automatic retransfer to their current accounts. This relaxation is meant only to enable authorised dealers to
get a return on temporary surpluses.

Inter-bank Foreign Currency Deposits

5B.7 Authorised dealers may freely place and accept deposits in permitted currencies with and from other
authorised dealers in India at market-related rates of interest.

Loans/Overdrafts from Overseas Branches/Correspondents

5B.8 (i) Authorised dealers may, subject to the approval of their Board, avail of loans, overdrafts
and other types of funds based credit facilities from their overseas branches and correspondents

upto 15% of their unimpaired Tier-I capital or U.S. $ 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 the overseas branches and correspondents of the authorised dealer.

(ii) Authorised dealers should report to Reserve Bank if the overdraft etc. in excess of

the above limit is not adjusted within five days. Such a report is not necessary if arrangements exist for
value dating the debits that resulted in the overdraft. The reports should be submitted to the Central Office
of Reserve Bank (Forex Markets Division) within 15 days from the close of the month in which the limits
were exceeded.

(iii) Authorised dealers may avail of loans/overdrafts from their overseas branches

and correspondents 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 in India and should not be deployed in the call money
etc. markets. A report on each borrowing should be immediately forwarded to Reserve Bank whose prior
permission will be required for repayment of such loans. Such permission will be given only if the
authorised dealer 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. Authorised dealers may also remit interest on such loans/overdrafts net of income-tax to
their overseas branches/correspondents without prior approval of Reserve Bank subject to obtaining No
Objection/Tax Clearance Certificate from the Income-tax authorities. A copy of No Objection/Tax
Clearance Certificate should be submitted to the Reserve Bank while reporting the transaction on form A2
with the R Returns.
Investment of Foreign Currency Funds

5B.9 (i) Authorised dealers may invest funds in accounts permitted to be held in foreign

currency in their books in India in respect of which they have to manage the exchange risk viz.

FCNR (Banks) Scheme, FCONR, EEFC, RFC, etc., in foreign currency treasury bills and/or with banks
abroad in terms of the guidelines in this regard laid down by the Board of Directors. The funds may also be
utilised for sale in domestic markets to other authorised dealers or Reserve Bank, lending to other
authorised dealers or to resident constituents for meeting their genuine foreign exchange requirements
towards imports or other purposes or to exporters by way of Pre-shipment Credit in Foreign Currency
(PCFC) for financing domestic inputs or for granting foreign currency loans to FCNR(B) account holders.

(ii) FCNR(B) funds as well as deposits accepted in terms of paragraph 5B.7 may be used

for making foreign currency loans for meeting the working capital/capital expenditure needs of resident
clients subject to the prudential norms, credit discipline and credit monitoring guidelines in force. Banks
will be free to decide the tenor as well as interest rates on such lendings. Authorised dealers should ensure
that mismatches do not arise on account of such lendings/investments. However, under exceptional
circumstances, mismatches may occur. Managements in banks may, therefore, fix limits for such
mismatches. A copy of the Board/Management Committee sanction note approving these limits should be
submitted promptly to the Chief General Manager, Exchange Control Department (Forex Markets
Division), Reserve Bank of India, Central Office, Mumbai-400 001 for information.

NOTES: A. Resident constituents borrowing in foreign currency will not require

Reserve Bank's approval under FERA, 1973. Similarly, repayment of loans availed of under
FCNR(B) Scheme may be allowed out of borrowers' EEFC account without Reserve Bank's
permission provided other conditions as stipulated above are complied with.

B. Under no circumstances should personal loans and loan for consumer durables be provided.

C. Authorised dealers should not initiate swaps to generate funds for lendings.

Adherence to FEDAI Rules

5B.10 Authorised dealers should ensure strict compliance with the relevant FEDAI rules relating to
inter-bank contracts and transactions with overseas branches/correspondents.

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.

Overdrafts/Loans to/from Overseas Branches/Correspondents in ACU Countries

5C.4 Regulations laid down in paragraph 5A.15 and 5B.8 will apply, mutatis mutandis, to

granting/availing of overdrafts/loans to/from overseas branches/correspondents of authorised dealers in

ACU countries.