(a) Non-Resident ordinary accounts (NRO Accounts).
(b) Non-Resident External Rupee Accounts (NRE Accounts).
(c) Foreign Currency Non-Resident (Bank) Accounts (FCNR (B) Accounts).
(d) Non-Resident (Non-reparable) Rupee Account (NRNR Accounts). These accounts can be classified into two categories. They are
(A) Rupee Accounts
1. 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 residents. Funds held in the account can normally be utilized only in India.
Repatriation (the right to take the money outside India is known as ‘Repatriation Right’) of money outside India is normally rot 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.
One important point to note is that even pure non residents who are neither Indians nor Persons of Indian Origin can maintain NRO accounts.
2. NRE Accounts
These are again rupee accounts. The NRE account can be opened only with money received from abroad and not from local rupee sources. 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. 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 minimum period of one year and for a maximum period of 3 years.
3. 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 albeit with a higher rate of interest. The account is a term deposit (fixed deposit) account maintained in rupee.
However, money should be remitted from abroad for opening the account. 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.
The balance in the account is not reparable. Reserve Bank has withdrawn this scheme since April 1, 2002. Hence, 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
B. Foreign Currency Accounts
1. FCNR Accounts
FCNR Accounts are Term Deposit Accounts. They can be maintained in four important currencies, viz., US Dollar, Pound Sterling, and Japanese Yen. Presently it can be maintained in the new European Currency “Euro” also. They can be maintained for period ranging from one year to 3 years.
They are paid back in the same currencies and are reparable. 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 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.
In case rupee value is fallen ( say $ 1 = Rs. 40.00 when account is opened and $ 1 = 47.00 when account is matured) at the time of conversion, account holder will gain an extra 7 rupees per dollar for the principal as well as for interest since both are paid in currency of deposit. 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.
OCBs can maintain all types of Non Resident accounts mentioned above. Further depositors can avail of loan facility against the security of NRI deposits for personal and business purposes. It should be remembered that RIs and PIOs are permitted to invest in agricultural, plantation and real estate business in India.
2. 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) and Exchange Earners’ Foreign Currency Accounts (EEFC Accounts).
3. RFC Accounts
These are accounts of resident individuals, who had come back to India after being abroad as NRIs for some time. It is natural that when an NRI / PIO comes back to India for settlement he may bring with him the foreign exchange earned by him while abroad.
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. As such, funds held in NRE / FCNR accounts, on return to India, can be utilized to open RFC accounts.
These accounts can be maintained in any foreign currency of the choice of depositors. Further, he/she should have come back to India after April 1992. No permission from Reserve Bank is necessary for maintaining this account. 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.
4. RFC (D) Accounts
RFC (D) account is different from RFC account although the nomenclature of the accounts is similar. 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 out money received from your relations living outside India.
It can be opened with gift given in foreign exchange by non residents / NRIs when they visited India or sent from abroad. Supposing you went to Singapore with $ 10000/ purchased from bank for sightseeing, etc., and on your return if you are left with unspent foreign exchange, RFC (D) account can be opened with such left over cash.
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 purposes as may be approved by RBI. The funds cannot be utilized in the way as in the case of RFC accounts. This account scheme was introduced from January, 2003.
5. 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. They can be individuals or corporate like Exporters. However, 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 foreign currency will be allowed to be credited into the account and not the full money. The balance money can be exchanged for rupee.
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 like Madras Export Processing Zone 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. The main advantage of resident foreign currency account is that depositor can use the funds for personal and business purposes without buying foreign currency from banks at the ongoing market rate.
Even if the rupee value goes down against foreign currency ( $ 1 = Rs.45 and later becomes Rs. 48. 50), depositors can draw down balance from account without buying from market (banks) at Rs. 48.50. It should also be remembered that in case rupee value goes up as happened during April / May 2003, the depositor, when he / she withdraws funds for conversion into rupees will get rupees only at the rate prevailing at that point of time.
The above type of foreign currency accounts cannot be maintained by all banks. Only those commercial Banks, (also few co-operative banks) which have obtained licence from Reserve Bank under Foreign Exchange Management Act (FEMA), 1999 are permitted to open and operate these accounts.
Such banks are known as authorized dealers or authorized person in Foreign Exchange. However, RBI permitted few non-authorized dealer bankers also to maintain NRO/NRE accounts but not foreign currency accounts like FCNR accounts.