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The application in the prescribed form is to be made for opening the account. Foreign currency initial deposit must accompany the application form; the signatures should be verified by a bank abroad/Indian embassy/Notary public abroad. The account can also be opened by an NRI during his temporary visit to India by tendering foreign currency travellers cheques/notes.
The account holder has to furnish an undertaking on the account opening form that he would promptly send an intimation to his bank, if and when he returns to India for permanent residence.
Joint holdings
Opening of NRE accounts jointly in the names of two or more non-residents is permitted provided
(a) all the account holders are persons of Indian nationality or origin; and
(b) the account holders are resident either in the same country or in different countries belonging to the External Group. Opening of NRE account jointly with a person resident in India, is not permitted.
Source of funds
For opening these accounts, the funds are required to be remitted to India through any bank from the country of residence of the prospective account holder or from any other country except Czechoslovakia and Romania, which are classified as bilateral group countries (Poland is no longer a bilateral group country). Proceeds of foreign currency travellers cheques/notes can also be used. Further, the account can also be opened by transfer of funds from any existing NRE/FCNR account of the same person.
As per A. D. (G.P.) Circular No. 20, dated 17th August, 1992, it has been decided to extend the facilities of opening and maintaining NRE rupee accounts (with repatriation in any permitted currency) / FCNR account in the names of NRIs in Czechoslovakia and Romania (which are still in the bilateral group) as also in some of the republics of CIS (erstwhile USSR) which continue to be in the bilateral group.
Persons of Indian nationality or origin resident in the Bilateral Group countries named above can open NRE accounts in non-convertible rupees. If the funds for opening and maintaining accounts have been remitted from abroad in any of the permitted currencies, the repatriation facility in the country’s foreign exchange will be allowed to such account holders.
Funds can also be tendered in the form of foreign currency notes, travellers cheque, etc., while on a visit to India. However, credits exceeding US $ 10,000 or its equivalent representing proceeds of foreign currency notes/travellers cheques will be allowed provided they were declared to the customs in the currency declaration form at the time of entry into India.
Credits
Proceeds of remittances arranged by the account holder through banking channels from any country in the External Group can be credited to this account. Similarly, income from the account holder’s investments from the funds in the account can be credited to it, except in cases where the investments are permitted on non-repatriation basis. Remittances from the account to the country of residence of the account holder or any other country are freely allowed. Account holders are supplied special type of cheque forms for operation on these accounts.
However, in case if accounts are opened and fed with non-convertible rupees by Indians resident in Bilateral Group countries, remittances are allowed only to the country of residence of the account holder in non-convertible rupees. It has been clarified by RBI vide Circular No.7, dated February 21, 1992 that remittances received from bilateral group of countries in non-convertible rupees are not to be credited to NRE account of NRIs, resident in the external group countries. Similarly, remittances from NRE accounts maintained by persons resident in the bilateral group are to be permitted in non-convertible rupees to the country concerned only.
Operations
Operation of NRE accounts in the name of two or more NRIs is permitted provided all the account holders are resident in the same country or in different countries belonging to the external group. NRE accounts cannot be opened by a non-resident jointly with a resident; however, NRE accounts can be operated by a resident in terms of power of attorney granted in favour of the resident by the NRI, provided the powers are restricted to withdrawls for local payments.
Transfer of funds between NRE accounts
Authorised dealers may allow freely, on application, the transfer of funds from NRE account of one person to NRE account of another person for genuine purposes even if the transferor and transferee are not close relatives. However, the transferor and transferee should be both in external group of countries. If the transferor account holder is resident in a bilateral group country, the transferee account holder should also be resident in the same bilateral group country.
Loans / overdrafts to NRI against security of NRE / FCNR account holder
Loans /overdrafts to NRI against security of NRE / FCNR fixed deposits are governed by certain parameters as explained below.
Authorised dealers may grant loans through overdraft to the account-holders up to any limit (earlier the limit was Rs. 10 lakhs, i.e. 1 million; the limit has been removed by RBI’s AD (MA Series) Circular No. 50, dated 22nd September, 1992). The loan can be granted against the security of NRE / FCNR deposits, after complying with normal margin requirements. Repayment from proceeds of NRE / FCNR / foreign exchange remittance / local NRO funds is permitted.
Authorised dealers may also grant loans / overdrafts in India upto any limit to the account holders themselves against the security of NRE / FCNR fixed deposits for purposes of making direct investment in India on non-repatriation basis by way of contribution to the capital of Indian firms / companies engaged in manufacturing /industrial activities, export oriented trading activites, hospitals, three star hotels or those of higher grades, shipping development of computer software and oil exploration services subject to compliance with the following conditions:
(a) The concerned Indian investee company has obtained approval in principle from Reserve Bank under section 19(1)(d) of FERA for issue of shares to NRIs on non-repatriation basis; it may be mentioned that a notification, dated 27th April, 1992 has been issued by RBI granting general exemption to companies issuing shares on a non-repatriation basis to NRIs / OCBs.
(b) The period of loan shall not exceed the unexpired period of maturity of the NRE / FCNR fixed deposit accepted as security.
(c) The loan amount shall be disbursed to the investee firm / company on behalf of the NRI account holder.
(d) Neither the investment made out of the loan nor the income accruing therefrom shall be allowed to be repatriated outside at any time in future.
(e) Repayment of the loan and the payment of interest accrued thereon shall be made either by fresh remittances from abroad or out of the maturity proceeds of the borrower’s NRE / FCNR fixed deposits against which the loan was granted or out of the NRO account.
(f) Requirements regarding margin, interest rate, etc. as stipulated by Reserve Bank from time to time are complied with.
Applications not covered by foregoing provisions should be referred to the Regional office of the RBI in Form LOV 4 for prior approval together with the relevant documents. No loan / overdraft facility can be granted against deposits held under FC (ordinary non-repartiable) deposit scheme.
Loans / overdrafts to residents against security of fixed deposits in NRE / FCNR accounts
Authorised dealers may themselves grant loans / overdrafts to residents agains security of fixed deposits in NRE / FCNR Accounts upto any limit, without referring to Reserve Bank subject to the following conditions:
(a) There should be not direct or indirect foreign exchange consideration for the non-resident depositor agreeing to pledge his fixed deposists to enable the resident individual / firm / company to obtain the facility.
(b) The period of loan shall not exceed the unexpired period of maturity of NRE / FCNR fixed deposit accepted as security. In addition, the non-resident depositor should furnish an irrevocable undertaking to the authorised dealer not to withdraw the deposit at least during the period of the loan / overdraft.
(c) Regulations relating to normal margin, interest rate depending on the purpose of loan, etc. as stipulated by RBI from time to time should be complied with. Additionally, in case of loans / overdrafts against FCNR fixed deposits, the margin requirements should be calculated on the rupee equivalent of the deposits at the prevailing notional rate of exchange for the relative currency.
(d) The loan could be utilised for personal purposes or for carrying on business activities other than agricultural / plantation activities or real estate business.
Authorised dealers shold be apply the usual norms and consideration as they do in the case of normal advances to trade / industry and satisfy themselves as to acceptability of purpose, genuineness of credit needs as well as the borrower and end-use of funds and not be guided solely by availability of security.
Loans / overdrafts outside India against NRE / FCNR deposits
Banks may also arrange loans / overdrafts through their overseas branches to NRIs against security of the funds held in their NRE / FCNR accounts in India. Loans / overdrafts may be granted to third parties at the request of the NRI depositor. Remittance of funds from India for liquidation of outstanding in such loans may also be made. Loans / overdrafts can be granted to NRIs in bilateral group countries only in the country of residence. No loan / overdraft shall be granted to the NRI in a country other than the country of residence.
Taxability of interest on NRE accounts
Interest earned by
individuals on NRE accounts is exempt from income tax vide section 10(4)(ii)
of the Income-tax Act. The exemption is not available to OCBs as the relevant
section refers only to individuals.
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