The document discusses FCNR (Foreign Currency Non-Resident) bank accounts in India. FCNR accounts allow non-resident Indians and people of Indian origin to maintain fixed deposits in foreign currencies like USD, GBP, EUR, etc. and earn regular interest. Only authorized banks in India can open these accounts. FCNR accounts provide benefits like protection from currency fluctuations, tax-free interest income in India, and ability to freely repatriate both principal and interest amounts abroad. However, certain restrictions and penalties apply regarding premature withdrawals or withdrawals within one year of opening the account.
2. DEFINITION
● FCNR Account stands for Foreign Currency Non ResidentForeign Currency Non Resident Bank
Account wherein a Non Resident Individual of Indian Nationality
or Indian Origin can maintain a Fixed Deposit in Foreign
Currency and earn regular interest on the same.
●
The account should be opened by the non-resident account holderThe account should be opened by the non-resident account holder
himselfhimself and not by the holder of power of attorney in India.and not by the holder of power of attorney in India.
● These deposits can be opened with funds remitted from abroad in
convertible foreign currency through normal banking channel, which
are of repatriable nature in terms of general or special permission
granted by Reserve Bank of India.
● Only Opened by Authorized branch(PNB)
3. Who Can Open FCNR?
● An FCNR account is a term deposit account that can be maintained by
NRIs and PIOs in foreign currency. Thus, FCNRs are not savings
accounts but fixed deposit accounts.
● Entities of Bangladesh / Pakistan nationality / ownership require prior
approval of RBI)
Joint Account
● In the names of two or more non-resident individuals provided all the
account holders are persons of Indian nationality or origin
● Resident close relativeclose relative on ‘former or survivor’ basis. The resident
close relative shall be eligible to operate the account as a Power of
Attorney holder in accordance with extant instructions during the life
time of the NRI/ PIO account holder.
4. Currencies Allowed(Only For PNB)
●
US DollarUS Dollar
● British Pound
● Euro
● Japanese Yen
● Australian Dollar
● Canadian Dollar
● However, in October 2011, the RBI decided that authorised dealer banks
in India may be permitted to accept FCNR deposits in any permitted
currency. 'Permitted currency' for this purpose would mean a foreign
currency which is freely convertible and popularly include Danish
Krone, Swiss Frank and Swedish Krona among others.
5. Features of FCNR Account -IFeatures of FCNR Account -I
● FCNR Account can be opened only by NRI’s or by Person of
Indian Origin (PIO)
● FCNR Account can be opened only in the Foreign
Currencies specified above and thus the currency fluctuation
risk is eliminated
● Regular interest is paid on the FCNR Account
● Deposits with a maturity of more than 1 year and less than 5
years can only be opened
6. Features of FCNR Account IIFeatures of FCNR Account II
● FCNR account can be opened jointly with other NRI’s as well as with Residentas well as with Resident
IndiansIndians
● Nomination Facility is available and any NRI/PIO/Indian Resident can be made a
nominee
● Conversion to another designated currency is permitted at a cost to the account
holder.
●
Recurring Deposits are not accepted under this scheme
● Loan Facility against FCNR Account can also be availed of. However, the
Loans cannot be used for the purpose of relending, carrying on
agricultural/plantation activities or for investment in Real Estate Business.
7. Advantages Of FCNR IAdvantages Of FCNR I
● FCNR accounts are protected against FOREX rate risks as they are
maintained in a foreign currency.
● Interest earned on FCNR deposits in India is exempt from Income tax.
● FCNR accounts can have two or more NRIs joint account holders.
However, joint account with another person resident in India is not
permitted.
● FCNR accounts are denominated in several major currencies such as
Pound Sterling, US Dollar, Yen and Euro.
● In FCNR accounts, both principal and interest are freely
repatriable(Transferable From India To foreign Country) In other words,
the interest earned and the deposit amount on the deposits are repatriable
to the depositor’s country of residence sans restrictions.
●
8. Advantages Of FCNR IIAdvantages Of FCNR II
● FCNR accounts are offered for not less than 1 year and not more than 5 years.
● All authorized banks which offer FCNR accounts set the interest rates within
the ceiling as announced by the Reserve Bank of India.
● Interest rates on FCNR term deposits are payable after the end of first year.
Interest is compounded on a half-yearly(180) days basis subsequently.
● Rupee loans against funds held in the FCNR accounts can be provided to
account holder for any investment in India.
● Some banks may also provide loans to firms or companies against the
collateral of FCNR accounts.
9. Disadvantage Of FCNR-IDisadvantage Of FCNR-I
● If FCNR deposit is withdrawn in less than one year, no interest is payable.
● Foreign currency loans in India against FCNR accounts can be taken by
account holders only.
● FCNR deposits are offered for term deposits only and not for current,
savings and recurring accounts.
● FCNR account can be transferred to other NRE accounts before maturity.
However, penalties will apply for premature withdrawals. Also, swapping
charges are fixed by the bank in which the FNCR account is held.
● FCNR accounts can be renewed within 14 days after maturity, failing
which, the bank will fix interest rate on renewal. If renewed accounts are
withdrawn before a fixed period, banks can take back the interest paid.
10. Disadvantage Of FCNR-IIDisadvantage Of FCNR-II
● While the interest earned on FCNR deposits is tax-free, it may be taxable in the
country of residence of NRIs.
● Also, Non Resident Indians, should consult tax experts to understand the implications
of investing in India.
● While RBI, under the Foreign Exchange Management Act, formulates rules of
investment for NRIs in India, the Government of India, under the Indian Income Tax Act
frames the tax rules, which are subject to change.
● In the event of a financial meltdown, banks may not be able to repatriate funds. The
Greek crisis is a case in point. In some cases, Greek citizens, were reportedly,
restricted from withdrawing over 40 euros from their accounts.
● If FCNR deposits are held with a weak bank, it may be unable to pay back upon
maturity. Credit guarantee in India covers accounts in India to around Rs. 100,000 or
1600 USD, which is considered low. Many experts, therefore, believe that deposit
insurance is almost non-existent in India, which could be a concern for FCNR deposit
account holders.
11. Docs Required For Opening FCNR AccountDocs Required For Opening FCNR Account
●
Copy of passportCopy of passport
●
Copy of visaCopy of visa
●
Address ProofAddress Proof
●
Passport size photosPassport size photos
●
Initial remittanceInitial remittance
Several other documents such as cancelled cheque, overseas bank
statement, income documents may be required. Document requirements
may also vary between countries. Check with your bank for details.
*All Docs Should be self attested
12. Payment Of InterestPayment Of Interest
● For deposits up to one year, interest at the applicable rate will be paid
without any compounding effect.
● In respect of deposits for more than one year, interest can be paid at
intervals of 180 days each and thereafter for remaining actual
number of days.
With effect from March 1, 2014
● Deposits of 1 year to less than 3 year maturity, interest shall be paid
within the ceiling rate of LIBOR/ SWAPLIBOR/ SWAP rates plus 200 basis points;
● Deposits of 3-5 years maturity, interest shall be paid within the ceiling
rate of LIBOR/ SWAPLIBOR/ SWAP rates plus 300 basis points.
14. Open With FundsOpen With Funds
● These accounts can be opened as per depositor’s choice, in any of
the permitted currencies, with / out of the funds received as foreign
inward remittances in convertible currency through normal banking
channel.
● He/she can transfer funds from overseas bank account directly to
open an FCNR account. He/she can do this either as a wire transfer
or a cheque transaction
● He/she can transfer funds from an existing NRE account
● He/she can open an FCNR account using foreign currency notes or
travelers Cheques when you visit India
● Transfer of funds from existing FCNR (B) NRE a/c to FCNR (B) and
vice-versa permitted without the prior approval of RBI.
15. Premature Withdrawal of FCNRPremature Withdrawal of FCNR
● RBI has extended the facility of premature withdrawal from
FCNR Account for the NRI’s/PIO’s and a penal interest is
levied on the same. The Penal Interest charged is different
by different banks and is usually 1%.
● However, if the deposit is closed before the maturity for the
purpose of renewal, to avail the benefit of an increase in
the Interest Rates, for a period more than the
unexpired period and renewed under the same
scheme and in the same currency, no penal interest is
payable.
16. FCNR Account after change in Residential StatusFCNR Account after change in Residential Status
● NRI deposits such as the FCNR can continue till the
maturity date at the contracted rate of interest even
after the account holder’s resident status changes to
resident Indian.
● On maturity, these accounts are converted to either an
RFC account or the Resident Rupee Deposit account.
17. Important LinksImportant Links
● https://www.rbi.org.in/scripts/FAQView.aspx?Id=69
https://www.pnbindia.in/upload/En/FAQs%20FCNR.pdf