[Annex
to A. P. (DIR Series) Circular No. dated November , 2007]
MEMORANDUM
OF INSTRUCTIONS FOR OPENING AND MAINTENANCE OF RUPEE/ FOREIGN CURRENCY VOSTRO
ACCOUNTS OF NON-RESIDENT EXCHANGE HOUSES
Prior
approval of the Reserve Bank is required to be obtained by Authorised Dealer Category-I
banks for opening and maintaining rupee/ foreign currency vostro accounts of non-resident
Exchange Houses. The following is the detailed guidelines for opening and maintenance
of rupee/ foreign currency vostro accounts of non-resident Exchange Houses.
(A)
Operations of Rupee Vostro Accounts
(B) Permitted transactions
(C) Rupee
Drawing Arrangement Procedures and Collateral Cover
(D) Foreign Currency Drawing
Arrangements
(E) Miscellaneous Provisions
(F) Internal Control and Monitoring
of Accounts
(G) Reports / Statements to be submitted to the Top Management/
Reserve Bank
(A) Operations of Rupee Vostro Accounts
1.
Under Rupee Drawing Arrangements (RDAs), inward remittances are received in India
through Exchange Houses situated in Gulf countries, Hong Kong and Singapore. Prior
approval of the Reserve Bank of India is required for opening and maintaining
rupee vostro accounts of non-resident Exchange Houses. Authorised Dealer Category
- I (AD Category – I) banks should apply to the Reserve Bank of India, in the
form provided at Annex II with necessary documents for
opening and maintaining in India non – resident rupee vostro accounts of Exchange
Houses from Gulf countries, Hong Kong and Singapore.
2.
This memorandum contains various provisions pertaining to the opening and maintenance
of non-resident rupee Vostro accounts of exchange houses.
3.
General Instructions :-
i. While considering the request
of an Exchange House for opening an account, the AD Category - I banks concerned
should make necessary enquiries about the financial standing of the Exchange House,
in accordance with normal banking practice and satisfy themselves fully in all
respects. AD Category - I banks should also ensure that the Exchange Houses hold
valid licenses issued by the Local Monetary/ Supervisory Authority concerned and
have necessary authority / license to transact currency exchange/ money transfer
business.
ii. The arrangement which an AD Category - I
bank enters into with an Exchange House should be subject to comprehensive legal
documentation and duly registered. It should be ensured that all the partners
of the Exchange Houses are jointly and severally bound to honour the obligations
devolving on the Exchange Houses under the agreement.
iii.
The normal banking requirements of registration of Power of Attorney/ Specimen
signatures of signing officials of the Exchange Houses should be observed.
4.
Instructions regarding operations in the rupee vostro accounts.
i.
The accounts can be used for channeling inward remittances to India primarily
on private account. The remitter and the beneficiary (in most cases) should be
individuals. Remittances through Exchange Houses for financing trade transactions
are permitted up to Rs 2,00,000 (Rupees two lakh only) per transaction. The
accounts should not be used for outward remittances from India.
ii.
The accounts should run on a credit basis. No overdraft should be granted to the
account holders. However, in case of Designated Depository Agency (DDA) procedure,
the funds lying in the DDA A/c may be taken into account, if need be. AD Category
- I banks shall adopt value dating where on-line debit of Rupee Vostro Account
is not possible on a real time basis when any payment is made at drawee branches,
to check adequacy of funds and detect concealed overdrafts. However, the drawee
branches should be networked at the earliest.
iii. Separate
Rupee Vostro account shall be maintained for each arrangement. The accounts should
be funded by sale of permitted foreign currency to the AD Category - I banks maintaining
the account. Rupee funds transferred from another Authorized Dealer Category-I
or from another Vostro account will not be eligible for credit to the account.
iv.
Debits of permitted types ( vide item 4 (i) above ) may be made freely and given
the same status as remittances made in foreign exchange in an approved manner
to India. Thus, such payments will be eligible for credit to Non-Resident (External)
Rupee Accounts maintained by Non-resident Indians, or for acceptance under priority
allotment etc schemes. In order that tourists (whether Indian or not) receiving
remittances through such accounts may prove the external sources of the funds
where required (such as for payment of passages in India or for re-conversion
of unutilised balances), AD Category - I banks may issue certificates in the same
form as for inward remittances received through rupee accounts of overseas banks.
v. Funds in such accounts will not be convertible, nor
will they be transferable to other AD Category - I banks or to non-resident accounts
of other such institutions or banks with the same AD Category - I bank.
vi.
Balances in rupee account will not qualify for payment of interest.
vii. The branch of the AD Category – I bank maintaining
the funding account should not credit to the account of the Exchange House, rupees
purchased by the latter unless confirmation is received to the effect that the
Nostro account of the AD Category - I bank has been credited with the counter-value
of foreign currency (cf. paragraph 3.3.1 of the Guidelines for Internal Control
over Foreign Exchange Business, December 1996);
viii. AD
Category - I banks may like to obtain suitable and adequate collateral either
in the form of a cash deposit or guarantee of a bank of international repute depending
on the type of arrangement to take care of credit and operational risks.
ix.
The tie-up of an AD Category-I bank with an Exchange House is required to be approved
by the Reserve Bank. A prudential cap of 20 on the number of arrangements and
300 on the number of drawee branches has been prescribed by the Reserve Bank as
a prudential measure. However, the above restrictions can be relaxed by the Reserve
Bank, subject to the AD Category - I banks having sound risk management systems
and regular monitoring of funds position to avoid concealed overdrafts in the
vostro accounts.
(B) Permitted transactions
Drawing
Arrangements with Exchange Houses are primarily designed to channel inward personal
remittances. Under no circumstances, donations / contributions to charitable
institutions should be routed through the Exchange Houses. The following
is the list of permissible transactions under Drawing Arrangements with Exchange
Houses.
1. Credit to Non-resident (External) Rupee accounts
maintained by Non-resident Indians in Indian Rupees.
2. Payments to families
of Non-resident Indians.
3. Payments in favour of Insurance companies, Mutual
Funds and the Post Master for premia / investments.
4. Payments in favour of
bankers for investments in shares, debentures.
5. Payment to Coop. Housing
Societies, Govt. Housing Schemes or Estate Developers for acquisition of residential
flats in India in individual names subject to compliance of regulations there-of
by the Non-resident Indians.
6. Payments of tuition/ boarding, examination
fee etc. to schools, colleges and other educational institutions.
7. Payments
to medical institutions and hospitals for medical treatment of NRIs / their dependents
and nationals of Gulf Countries in India.
8. Payments to hotels by nationals
of Gulf countries / NRIs for their stay.
9. Payments to travel agents for booking
of passages of NRIs and their families residing in India towards their travel
in India by domestic airlines / rail, etc.
10. Trade transactions up to Rs.
2 lakh per transaction.
Note : No cash disbursement
of remittances received is allowed under Rupee / Foreign Currency Drawing Arrangements.
(C) Rupee Drawing Arrangement Procedures and Collateral Cover
Rupee
Drawing Arrangements can be conducted under DDA, Non-DDA and Speed Remittance
procedures.
1. Designated Depository
Agency (DDA) Procedure
i. The Exchange
House will be required to open a bank account in a convertible foreign currency
in the name of the drawee bank (a/c- Exchange House) with an international bank
(DDA) acceptable to the drawee bank at a centre mutually agreed or with the drawee
bank itself at the branch where the corresponding rupee Vostro account is maintained,
with the prior approval of the Reserve Bank.
ii. The Exchange
House will, at the end of each day arrive at the total drawings in Indian rupees
for the day and will convert the same into a foreign currency which sum shall
be deposited into the account of the drawee bank (a/c-Exchange House) (as described
at 1(i) above) on the next working day before noon.
iii.
The Exchange House will send to the drawee bank information about the total number
and the aggregate value of drafts drawn and daily deposits in and transfer from
the DDA account as frequently as possible.
iv. The DDA
account will hold the funds under lien to the drawee bank. The DDA account will
allow debits only (a) on account of transfer to the Nostro account of the drawee
bank where the DDA account is maintained with a bank other than the drawee bank,
(b) for crediting the Rupee vostro account of the Exchange House by selling permitted
foreign currency to the drawee bank where the DDA account is maintained with the
drawee bank.
v. It will be the responsibility of the
Exchange House to arrange for the transfer of the sum collected on any particular
day to the DDA account. The float period for the funds with DDA account will be
decided by the drawee bank in consultation with the Exchange House subject to
a maximum of three days.
vi. The interest earned
on the amount deposited by the Exchange House with the DDA as provided for at
1 (ii) above up to the date of transfer to the Nostro account of the drawee bank
will accrue to the Exchange House.
vii. To ensure compliance
of the above, the drawee bank in India will appoint a firm of practicing Chartered
Accountants/ Auditors operating in the country concerned to examine the daily
drawings and deposits in the accounts with the DDA as well as transfer to the
Nostro account of the drawee bank. For this purpose, the Exchange House will undertake
to allow the auditors to inspect the books, pay in vouchers, etc., of the Exchange
House in so far as they pertain to rupee drawing arrangement. Such inspections
will be done at least once or twice in every week by the auditors.
viii.
As an alternative to the appointment of auditors as mentioned in paragraph 1 (vii)
above, the AD Category - I bank may depute a suitable official as their representative
to the Exchange House to take up such functions so as to safeguard the interests
of the AD Category - I bank.
ix. The auditors
/ representative will promptly report the findings to the drawee bank. In case
of default on the part of the Exchange House, the drawee bank will as per terms
and conditions of agreement, terminate the agency arrangement under notice to
the Exchange House. The termination will also be promptly reported to the Reserve
Bank of India.
x. So long as the Exchange
House complies with the guidelines the drawee bank will ensure that the drafts
issued are honoured at the branches mutually agreed to.
xi.
The remuneration payable to auditors will be borne by the drawee banks.
xii. Drafts drawn by the Exchange House should have a validity
of only three months from the date of issue thereof.
xiii.
AD Category - I banks should satisfy themselves that the books of accounts of
Exchange Houses are regularly audited by auditors approved by the local supervisory
authorities.
xiv. AD Category - I banks should call for
periodical credit reports, audited balance sheet and profit and loss account of
the Exchange House and other relevant information so as to take a decision regarding
continuance of accounts in their books.
xv. Valid copies
of all licenses should also be kept on record by the AD Category - I bank.
xvi.
Since the books of accounts of the Exchange House cannot be inspected, AD
Category - I banks should periodically review the arrangement by paying visits
to the Exchange Houses and / or by periodical review of opinion reports. The visits
of officials from Authorized Dealers Category-I should be at a sufficiently senior
level, fully conversant with the conduct of the Non-resident Rupee Accounts of
the Exchange House.
Collateral Cover : For Exchange
Houses which have not completed three years of operation, collateral cover in
cash deposit or guarantee from a bank of international repute equivalent to one
month’s projected drawings may be obtained for DDA/ Non-DDA/ Speed Remittance
arrangements. For Exchange Houses which have completed three years of successful
operations, no collateral is prescribed. However, AD Category - I banks may secure
their position by requiring adequate collateral cover. Cash deposit or a guarantee
from a bank of international repute equivalent to 15 days’ estimated drawings
may be obtained as collateral cover where it is not possible to appoint auditors
as mentioned at 1(vii) above.
2. Non- DDA procedure
As
an alternative to maintaining a DDA account and appointment of auditors as above,
the AD Category - I bank may opt for Non-DDA procedure.
Under
Non – DDA procedure, the Exchange House funds their vostro account with the AD
Category - I bank by purchasing Rupees from the AD Category - I bank against USD
for the total of drafts issued by them at periodic intervals and sends a weekly
statement of drawing and funding to the AD Category - I bank.
Collateral
Cover : The Exchange House shall keep a cash deposit of USD equivalent
to 15 days drawings on moving average basis in India or abroad. The deposit should
be in the name of the AD Category - I bank with interest thereon at market rates
payable to the Exchange House placing the deposits. The Exchange House shall also
furnish a bank guarantee from an international bank of repute for an equivalent
amount. The amount of deposit and guarantee should be periodically reviewed and
properly monitored by the AD Category - I banks to ensure that the collateral
adequately cover the drawings and account for the pipeline debits evaluated. Where
there is a restriction on Bank’s right to depute its own staff for examination
of books of the Exchange House, as in case of Exchange Houses in Kuwait, additional
cash deposit/ guarantee from a bank of international repute equivalent to 15 days
estimated drawings may be obtained.
3. Speed
Remittance Procedure
AD Category - I banks are
permitted to enter into RDA under speed remittance procedure wherein-
i)
The Exchange House sends payment instructions with complete details like name
address, etc via SWIFT or internet.
ii) The Exchange House
funds the rupee account through the Nostro account of the AD Category - I bank
well in advance before issuing payment instructions.
iii)
On verification of data and availability of balance in the Vostro account of the
exchange house the AD Category - I bank issues drafts in favour of the beneficiary
or credit the account of the beneficiary.
iv) The Exchange
House shall address all payment instructions to the account holding branch of
the AD Category - I bank irrespective of the beneficiaries’ centre.
v)
The branch shall make no payment unless clear funds are available in the account.
vi)
The AD Category - I bank shall obtain date-wise information regarding number and
aggregate value of such transfers from the Exchange House.
vii)
Where facility of speed remittance is extended to existing rupee drawing arrangements
the exchange house shall open a separate rupee account with the prior approval
of the Reserve Bank and no payment instructions shall be executed unless there
are clear funds available in this account. However, where the operations in the
existing rupee drawing arrangements under DDA/ Non-DDA procedure are satisfactory,
ADs Category-I banks can extend facility of speed remittance to the same Exchange
House without prior approval of the Reserve Bank, subject to usual terms and conditions
and after obtaining all the necessary documents from the Exchange House. However,
the Reserve Bank may be informed immediately.
Collateral
Cover : The Exchange House shall keep with the AD Category - I bank a cash
deposit in any convertible foreign currency equivalent to 3 days’ estimated drawings
on which market interest may be paid. The Exchange House can also keep the said
collateral in the form of guarantees from a bank of international repute. The
adequacy of collateral should be reviewed by the AD Category - I bank at regular
intervals.
(D) Foreign Currency Drawing Arrangements
AD
Category - I banks may enter into foreign currency drawing arrangements under
DDA or Non-DDA procedure with those Exchange Houses with whom they have Rupee
Drawing Arrangements (RDAs).
i) Exchange Houses shall draw
drafts in any convertible currency on ‘A’ or ‘B’ category branches of AD Category
- I bank. No ‘C’ category branch is allowed to participate in the arrangement.
ii)
The foreign currency arrangement shall be kept distinct from the rupee drawing
arrangement.
iii) A separate foreign currency vostro account
of the Exchange House shall be opened with the Account Holding Branch. Payment
of such drafts shall be made by debit to this account maintained by the Exchange
House and not to the Nostro Account of the AD Category - I bank.
iv)
The aggregate amount of drafts drawn in foreign currency by the Exchange House
on any day should be credited to the Nostro Account of the drawee bank latest
by close of business on the second working day.
v) The Account
Maintaining Branch of the drawee AD Category - I bank should credit foreign currency
vostro account of the Exchange House on receipt of confirmation regarding credit
to their nostro account.
vi) AD Category - I banks should
ensure that foreign currency accounts are funded at all times.
If
the arrangement is under Non-DDA procedure the Exchange House should communicate
to the Account Maintaining Branch by any electronic mode, before close of the
following working day, the number and aggregate value of drafts drawn in foreign
currency. Under DDA procedure such information may be obtained frequently, at
least on a bi-weekly basis.
Collateral cover : Exchange
Houses should keep a deposit of not less than USD 50000/- with the drawee AD Category
- I bank. Adequacy of quantum of deposit kept with the bank should be reviewed
every six months on the basis of operations under this arrangement and if necessary
the Exchange House should increase the quantum of deposit. AD Category - I banks
should allow interest on this deposit at an appropriate rate.
AD
Category - I banks are allowed to keep the amount of deposit required to be kept
under foreign currency draft drawing arrangements and Non-DDA procedure of Rupee
Drawing Arrangement in India with the Account maintaining branch.
(E)
Miscellaneous Provisions
(i) AD Category-I banks
should adhere to the KYC/ AML Guidelines issued by the Reserve Bank, as applicable,
while undertaking any transaction under Rupee/ Foreign Currency Drawing Arrangements.
(ii)
AD Category - I banks should include in their concurrent audit the Rupee/ Foreign
Currency Drawing Arrangement to ensure that credit of funds to the vostro account
of the Exchange House takes place before payments are made to the beneficiaries.
(iii)
AD Category - I banks should undertake a ‘due diligence’ exercise in respect of
remittances received through Rupee/ Foreign Currency Drawing Arrangements so that
regulations relating money laundering are complied with scrupulously. AD Category
- I banks should call for an annual compliance report from the Exchange Houses
duly certified by their auditors that they are adhering to the home country regulations
on Anti Money Laundering.
(iv) AD Category - I banks should
keep the Reserve Bank informed of the unusual feature(s) in the operations of
the Rupee/ Foreign Currency Drawing Arrangement exercising constant vigil in the
matter.
(v) AD Category - I banks shall ensure that licenses
of the exchange houses which have expired are renewed and copies of authenticated
English versions placed with them for their record.
(vi)
The Exchange Houses should not enter into any arrangement with service providers
for their back office operations in India such as issuance of drawing advices
and stop payment instructions on their behalf and AD Category - I banks should
not act on the instructions of such service providers. However, Exchange Houses
can establish liaison offices in India and their back office operations in India
such as printing of drafts, issuance of drawing advices and stop payment instructions
can be conducted by the liaison offices in India with prior approval of the Reserve
Bank.
(vii) AD Category - I banks should obtain approval
of the Reserve Bank for maintaining accounts of such exchange houses whose name
and constitution etc. undergo change.
(F) Internal Control and Monitoring
of Accounts
(i) AD Category - I banks should put
in place adequate internal control and a system of monitoring of accounts as per
the extant instructions. Dealings with Exchange Houses should be strictly on a
credit basis at all times.
(ii) Self-inspection of the
vostro accounts of Exchange Houses :- AD Category - I banks are required to cause
inspection of the vostro accounts of Exchange Houses on a half-yearly basis through
experienced officers. The inspection reports should be carefully gone through
by the competent authorities in ADs Cat-I so that prompt corrective action is
initiated. Observations thereon shall be included in the annual review of the
accounts submitted to the Board.
(G) Reports / Statements to be submitted
to the Top Management/ Reserve Bank
(i) Statement
A : This statement (as at Annex-III) is designed
to elicit details of operations in rupee/ foreign currency vostro accounts of
Exchange Houses and has to be prepared every month Exchange House-wise. This statement
should be critically examined to ascertain whether funds held in the account are
adequate to cover estimated pipeline debits. The Top Managements of the ADs Cat-I
may work out the pipeline data and set their own limits, the adherence to the
limits set should be informed to the Top Management on a quarterly basis.
(ii)
Statement B : A consolidated half-yearly statement(as at Annex-IV)
showing position of rupee/ foreign currency vostro accounts of Exchange Houses
which are to be closed/ are in the process of closure.
(iii)
Statement C : A monthly statement (as at Annex- V)
giving information regarding Exchange House’s account held at overseas branches
of Indian banks under DDA/ Non-DDA procedures for holding collection proceeds
and additional collaterals.
(iv) Statement D : This
monthly statement(as at Annex- VI) provides information
about operations in the foreign currency vostro account of the Exchange House.
Note :- While statements A to D are not required
to be submitted to RBI, ADs Cat-I should prepare these statements and cause inspections
at the prescribed periodicities. The relative statements/ reports should invariably
be submitted to their respective Top Managements with suitable explanatory notes
indicating corrective measures taken/ being initiated.
(v)
Statement E : This statement (as at Annex- VII)
is designed to collect statistical information on total remittances every quarter
and growth of business. This quarterly statement is required to be submitted to
the Chief General Manager, Reserve Bank of India, Foreign Exchange Department,
Central Office, Forex Markets Division, Mumbai- 400001 before 15th
of succeeding month to which the quarter relates.
(vii)
Annual Review : AD Category - I banks should submit to the Chief General
Manager, Reserve Bank of India, Foreign Exchange Department, Central Office, Forex
Markets Division, Mumbai- 400001 by 30th June every year an annual
review note covering the period January 1 to December 31 of the previous year,
on the vostro accounts of the Exchange Houses maintained by them under the Rupee/
Foreign Currency Drawing Arrangements (RDAs) duly approved by their Board. The
Review Note should cover various aspects like (a) credit worthiness of the exchange
house (based on financial statements and market reports), (b) validity of licenses
of Exchange Houses and compliance of home country KYC/ AML Guidelines by Exchange
Houses (c) financial losses suffered if any on account of transactions, events,
disputes etc., (d) business turnover separately under each arrangement, (e) funding
arrangements in respect of vostro accounts, (f) half-yearly inspection of the
account of the Exchange House, (g) supervision (system in vogue to monitor operations
in the account), (h) internal control and risk management system, (i) overdrafts
and interest collected. An extract of directions, if any issued by the Board should
be forwarded to the Reserve Bank along with the Annual Review note. While submitting
the annual review note, the particulars such as (a) complete particulars of Drawing
Arrangements (DDA/ Non-DDA / Speed Remittance) AD Category - I banks have with
Exchange Houses with the date of approval by RBI and opening of the vostro accounts
(b) dates of termination of Drawing Arrangements, if any (including Drawing Arrangements
which could not be concluded), (c) number of drawee branches under each arrangement
should be included.
Annex- II
[Annex
to A. P. (DIR Series) Circular No. dated November , 2007]
Application
for obtaining permission to enter into
Rupee / Foreign Currency Drawing Arrangements
with Exchange Houses
(a) The application for
obtaining permission to enter into Rupee / Foreign Currency Drawing Arrangements
with Exchange Houses should be completed and submitted in the prescribed format
(given below), to the Chief General Manager, Foreign Exchange Department, Forex
Markets Division, Reserve Bank of India, Central Office, Mumbai- 400001. The application
should be signed by the General Manager (or an officer of equivalent rank), International
Banking Division/ Foreign Department of the applicant AD Category - I bank.
(b)
Documentation :
AD Category - I banks should submit
the following documents along with the application:
(i)
Certified copy of the license (English version) issued by the Central Bank/ any
other Supervisory Authority of the country where the Exchange House is situated.
(ii)
Certified copy/ ies of license(s) issued by Municipal Authorities and / or
any other Government regulatory/ controlling authority in the country of the Exchange
House. (applicable to the Exchange Houses in U.A.E.)
(iii)
A Certificate from a Chartered Accountant, regarding compliance with anti money
laundering norms in the home country by the Exchange House.
(iv)
Certified copies of confidential opinion/ report recorded by (a) Embassy of India
in the country concerned and (b) two bankers of the Exchange House.
(v)
Audited Balance Sheets and Profit and Loss Account Statements of the Exchange
House for the previous three years.
(vi) Copy of the Board
Resolution of the AD Category - I bank for entering into the arrangement.
(vii)
Copy of letter from the Exchange House regarding the proposal to enter into the
Rupee/ Foreign Currency Drawing Arrangement along-with the provision of collateral,
whereever necessary.
Part A- Particulars of the applicant bank and
its existing arrangement(s), if any