NRI Banking is the concept of providing banking and financial services to the Indian Citizens who are living and working in other countries, i.e., NRIs (Non-Resident Indians) or PIOs (Persons of Indian Origin). The word NRI is defined by the Foreign Exchange Management Act (FEMA) Notification No. 5 of May 3, 2000[1]. Since the people living abroad have different banking or investment needs and may also use foreign currency, they cannot be accommodated in the normal banking system meant for resident Indians or be given normal resident accounts according to the FEMA rules, therefore, the NRI banking system is provided by many banks which caters to their banking or investment needs.
These services include various types of bank accounts, fixed deposits, recurring deposits, portfolios and mutual funds among others. Many banks in India like the ICICI Bank, State Bank of India, HDFC Bank, IDBI Bank etc. and other financial institutions authorised by the Reserve Bank of India (RBI) provide these services to its customers which include facilities regarding currency denomination, tax, transferability of accounts etc. These services are regulated by the guidelines provided by the Reserve Bank of India (RBI) and under the Foreign Exchange Management Act (FEMA) regulations.[2]
Types of Bank Accounts
There are three types of NRI Bank Accounts that the individual can opt for to suit his/her requirements.[3] These are discussed below in detail –
Non-Resident External (NRE) Accounts
This type of account easily allows you to transfer your foreign earnings, but is dominated by the Indian Currency, i.e., Indian Rupee (₹). The source of credit in these accounts is restricted to sources like transfers from foreign accounts, NRE accounts or overseas remittances. The balance in these accounts can be converted to foreign currency on request of the account holder. These bank accounts are tax exempt in India only, i.e., no tax is levied on the interest earned on balance in these accounts in India but a tax can be levied on these accounts in the country where the NRI is currently living. NRE Accounts can be opened in the form of Current, Savings, Recurring or Fixed Deposits and are also easily transferable (repatriable) in nature. These can be opened in isolation or jointly with a close resident relative on former or survivor basis.
Non-Resident Ordinary (NRO) Accounts
These accounts are opened primarily to deposit Indian currency earned in India itself. But foreign earnings can also be deposited in these accounts. They allow credit from all sources and are ideally used for Indian Currency received locally like rents or dividends. These are the accounts that are converted from the normal resident accounts of citizens who go to foreign countries for working and with an intention to stay there. This makes it essential to the individual to inform the concerned bank about his departure so that the resident account can be converted into an NRO Account.
The NRO accounts are rupee dominated, tax deductible (only the interest amount) and can be opened in the form of Current, Savings, Recurring or Fixed Deposits. They are also non-repatriable (non-transferable) in nature and can also opened jointly with a close resident relative.
Foreign Currency Non-Resident (FCNR) Accounts
The Foreign Currency Non-Resident Accounts, as the name suggests, can be opened in various foreign currencies such as US Dollars, Australian Dollars, Canadian Dollars Euros, Japanese Yen and others. These are essentially term deposits for varied term lengths ranging from 1 to 5 years. It is essential to note that the whole amount, the principal and the interest, is tax free until the owner of the account has the NRI status. Also, these accounts are easily repatriable (transferable) in nature.
Resident Foreign Currency (RFC) Account
The RFC accounts are suitable for Indian citizens living abroad (NRIs) who have an intention of returning to the country. These are especially useful for bringing back foreign currency from overseas bank accounts. The balance can be converted back to NRE/FCNR accounts if the individual plans to leave the country again.
The Reserve Bank of India (RBI) also discontinued two other types of accounts – (i) Non-Resident (Special) Rupee (NRSR) Account, and (ii) Non-Resident (Non-Repatriable) Rupee (NRNR) Account by a notification dated 4th March, 2002.
Regulations
These banking services are regulated by guidelines issued periodically by the Reserve Bank of India (RBI) and under the Foreign Exchange Management Act (FEMA). The primary notification regarding NRI Banking in India was released by RBI under FEMA on 3rd May, 2000[4]. These are popularly known as the Foreign Exchange Management (Deposit) Regulations, 2000 and have been notified under powers conferred under the FEMA.
These regulations define various terms related to NRI Banking and also lay out the guidelines for various types of bank accounts, like NRO, NRE or FCNR, available to NRIs. It has 10 sections and 7 Schedules in total. The NRE accounts are discussed under Schedule 1, FCNR under Schedule 2 and NRO accounts under Schedule 3. This notification also deals with regulations regarding deposits from Foreign Diplomats or Indian Students studying in foreign countries. The RBI also released other notifications which regulate investment, foreign transfer etc.
Frequently Asked Questions
What is NRI Banking?
NRI Banking is a system of Banking Services provided to the Non-Resident Indians (NRIs) since they cannot hold normal resident bank accounts and have different financial and banking needs. These are provided by almost all of the major banks in India.
What are the various types of NRI Bank Accounts?
The various types of Bank Accounts that a NRI can hold are –
- Non-Resident Ordinary (NRO) Account
- Non-Resident External (NRE) Account
- Foreign Currency Non-Resident (FCNR) Account
What are the Regulations regarding NRI Banking?
NRI Banking is regulated by the Reserve Bank of India (RBI) under the Foreign Exchange Management Act (FEMA). The primary regulation is the Notification No. 5 released on 3rd May, 2000 by the Reserve Bank.
Edited by Shikhar Shrivastava
Approved & Published – Sakshi Raje
Reference
[1]Notification No.FEMA 5 /2000-RB dated 3rd May 2000, Reserve Bank of India (Exchange Control Department).
[2]Livemint, Quick guide to bank accounts for non-resident Indians(NRIs), https://www.livemint.com/Money/KRw6v957t4lakjYNnqZr7N/Bank-account-options-for-NRIs.html (last visited Feb 1, 2020, 5:49 PM (IST)).
[3]HDFC Bank, What is an NRI Account?, https://www.hdfcbank.com/personal/resources/learning-centre/save/know-nri-account-meaning-and-its-types (last visited Feb 2, 2020, 2:23 PM (IST)).
[4]supra note 1.
