JAIIB PPB Paper-2 Module-A Unit 9: Operational Aspects Of NRI Business

27/02/2023

Table of Contents

JAIIB Paper 2 (PPB) Module A Unit 9: Operational Aspects Of NRI Business (New Syllabus)

The Institute of Indian Banking and Finance (IIBF) has recently revealed the revised syllabus and examination pattern for the JAIIB Exam 2023. The JAIIB 2023 will consist of four papers, with Paper 2 (Principles & Practices of Banking ) covering the crucial topic of “Unit 9: Operational Aspects Of NRI Business.” It is essential for candidates to thoroughly understand this unit to perform well in the examination.

To assist candidates in comprehending the topic, we will provide all the necessary details related to Unit 9: Operational Aspects Of NRI Business of JAIIB Paper 2 (PPB) Module A: General Banking Operations. We highly recommend that candidates refer to this article and make use of our Online Mock Test Series to enhance their knowledge of Operational Aspects Of NRI Business.

Understanding each unit in the syllabus, especially the Marketing unit, is essential for JAIIB Certification Examination 2023 candidates. This unit plays a vital role in the banking industry, and thus, candidates must prepare well to excel in the exam and establish a successful career in the banking sector.

NRI Business

FEMA empowers RBI to frame regulations to restrict, regulate and the maintenance of deposits between a person resident in Ind Prohibition and a person resident outside India.

Non Resident External Rupee Account (NRE)

These accounts can be opened with ADs and certain other banks (including cooperative banks) authorised by RBI to maintain such accounts.
These can be: savings, current, recurring or fixed deposit account, etc.
Joint accounts are permitted for: two or more NRIs and/or PIOs or for an NRI/PIO with a resident relative(s) on ‘former or survivor’ basis.
Operations on an NRE account may be allowed by a resident in terms of PoA or other authority granted by the non-resident account holder, who can undertake: (a) Withdrawals for local payments (b) Remittance to the account holder himself through banking channels (c) Make permitted investments in India.
The resident PoA holder is not allowed to: (i) open a NRE account; (ii) repatriate outside India funds in the account except to the NRI account holder (iii) make payment as gift to a resident on behalf of the account holder; (iv) transfer funds to another NRE account.

Permitted Transactions in Savings/ Current Accounts: (NRE)

Permitted Credits:

Remittances to India in any permitted currency
Foreign currency/ bank notes tendered by account holder on temporary visit to India
Interest accruing on the funds held in the account.
Current income in India due to the account holder, subject to payment of applicable taxes in India
Transfer from other NRE/ FCNR(B) accounts.
Refund of application/ earnest money, provided the original payment was made out of NRE/ FCNR(B) account of the account holder.

Permitted Debits:

Local disbursements
Remittance outside India
Transfer to NRE/ FCNR (B) accounts of any person eligible to maintain such account.

NRE Accounts

Tenor of NRE TD: Minimum tenor of NRE TDs is one year.
The rate of interest and tenor applicable to these accounts is as laid down in RBI (Interest Rate on Deposits) Directions, 2016.
Interest on SB is credited at quarterly or shorter intervals.
Premature withdrawal is subject to penalty as per board-approved policy and penalties apply for conversion of NRE deposit into FCNR (B) deposit and vice versa. However, no penalty applies in following cases: (a) For conversion into RFC Account. (b) On transfer of business to another bank.
Tax Exemption: NRE deposits/ interest thereon are exempt from Wealth/ Income Tax.

Loan Against NRE Deposits

Loans in India

Eligible borrower: Loans can be given to the account holder/ third party in India.
Permitted Amount: There is no monetary limit on the loan amount.
Margin requirements: Usual margin requirements should be applied.
Restriction: Loan amount cannot be repatriated outside India.
Eligible Purposes: Loan shall be used for the following purposes: (a) Personal purposes or for carrying on business activities. (b) Investment as capital in Indian firms/ companies as per FEMA. (c) Acquiring flat/ house in India for own residential as per FEMA. (vi) Prohibitions on Use: Cannot be used for relending or agricultural/ plantation activities or investment in real estate business
Repayment by Holder: Loan sanctioned to the account holder can be repaid by adjusting the deposits or through inward remittances from outside India or out of balances in the NRO account of the account holder.

Loans outside India

ADs may allow their branches/ correspondents outside India to lend against NRE deposits in India.

Eligible borrower: Loans can be given to the non-resident depositor or to third parties for bona fide purpose.
Remittance of Funds from India: AD may allow remittance from India necessary for liquidating such loans.

Foreign Currency (Non-resident) Account

Deposits may be in any of the currencies designated by RBI. Currently, are permitted in any freely convertible currency.
Deposit is permitted only as TDs. RDs are not permitted.
Tenor of Deposit is minimum one year and maximum five years.
Both floating rate and fixed rates are permitted.
Interest on the death of the depositor: the interest to be determined as follows: (a) Paid on the maturity: Contracted rate (b) Paid before maturity: Rate for the period for which the deposit remained, no penalty.
Interest on Return of NRI to India: Can continue till maturity at the contracted rate. (convert into RFC Account)
Penalty to be levied on premature withdrawal on return to India for permanent settlement, or for conversion of FCNR (B) to NRE or vice-versa.

Non-Resident (Ordinary) Account

Any person resident outside India (as per Sec. 2 (w) of FEMA), may maintain account for bona fide transactions denominated in Indian Rupees under Non- Resident (Ordinary) Account Scheme.
These can be: savings, current, recurring or fixed deposit account, etc.
Joint accounts: NRI jointly with residents on ‘former of survivor’ basis. Jointly by NRIs/PIOs.
The minimum tenor of fixed deposits should be seven days.
Interest on Deposits: The rate and tenor as per RBI (Interest Rate on Deposits) Directions, 2016.
Permissible Credits: Inward remittances from outside India; legitimate dues in India; and transfers from other NRO accounts; rupee gift/ loan by a resident relative within LRS limit.
Permissible Debits: Only local payments; and transfers to other NRO accounts. Remittances abroad not permitted, except: current income; for NRIs/ PIOs up to USD 1 million per financial
Loans: Loans in India to the account holder or third party against NRO deposits.
Return of NRI to India: NRO account is designated as resident account if indication to stay in India for an uncertain period.
Resident becomes Non-resident: Existing resident accounts to be designated as NRO accounts.
Permissible Credits: Inward remittances from outside India; legitimate dues in India; and transfers from other NRO accounts; rupee gift/ loan by a resident relative within LRS limit.
Permissible Debits: Only local payments; and transfers to other NRO accounts. Remittances abroad not permitted, except: current income; for NRIs/ PIOs up to USD 1 million per financial
Loans: Loans in India to the account holder or third party against NRO deposits.
Return of NRI to India: NRO account is designated as resident account if indication to stay in India for an uncertain period.
Resident becomes Non-resident: Existing resident accounts to be designated as NRO accounts.

Difference Between NRE And NRO Account

BASIS FOR COMPARISON	NRE ACCOUNT	NRO ACCOUNT
Acronym	Non-Resident External Rupee Account.	Non-Resident Ordinary Rupee Account.
Meaning	A bank account in which NRI’s can deposit income generated from external sources is known as NRE Account.	A bank account opened by NRI to deposit income mainly generated from an Indian source is known as NRO account.
Joint account	Can be opened by two NRI’s together.	Can be opened by NRI along with an Indian resident.
Deposit and withdrawals	Deposits in foreign currency and withdrawals in Indian rupee.	Deposits in both foreign currency and Indian rupee and withdrawals in Indian rupee.
Rate of interest	Low	Comparatively high
Interest	Tax free	Taxable
Repatriability	Freely repatriable	Interest is freely repatriable but the principal is not freely repatriable, however, there are cetain exceptions.

Accounts In India Of Foreign Nationals Visiting India

Foreign National of Non-Indian Origin Visiting India – NRO Account

NRO (current/ savings) account can be opened for foreign nationals of non-Indian origin visiting India with funds remitted from outside India through banking channel or by sale of foreign exchange brought by him to India.
The balance in the NRO account may be paid to him when leaving India if held for not exceeding six months.
No credit of any local funds, except interest accrued thereon.

Accounts of Foreign Nationals Leaving India

Permitted to be re-designated as NRO account, for collection of pending bona fide dues in India.
AD Cat-I banks to satisfy that the credits are bona fide dues when she/ he was a resident in India.
The funds credited to be repatriated abroad immediately, on payment of applicable income tax and other taxes in India.
The amount repatriated abroad should not exceed USD one million per financial year.
The debit to the account only for repatriation to the account holder’s account maintained abroad.
The account to be closed soon after all the dues have been received and repatriated as per the declaration made by the account holder.

Opening of Accounts of Individuals/ Entities of Certain Countries

Individuals/ Entities of Pakistan Nationality/ Ownership: Prior approval of RBI is required.
Individuals of Bangladesh Nationality: Allowed to open accounts subject to a valid visa and valid residential permit issued by Foreigner Registration Office (FRO)/ Foreigner Regional Registration Office (FRRO) concerned.
Entities of Bangladesh Ownership: Prior approval of RBI is required.
Citizens of Bangladesh or Pakistan Belonging to Minority Communities: AD may open only one NRO Account for such person residing in India and granted a Long Term Visa (LTV) by the Central Government.

Special Non-resident Rupee Account – SNRR Account

SNRR accounts are essentially for foreign nationals or entities with business relationships with individuals/ entities in India.
Tenure of the Account is concurrent to the tenure of the contract/ period of operation/ the business of the account holder, maximum for seven years. RBI approval required for renewal.
Should not make available foreign exchange to any person resident in India.
Transfers from NRO account to SNRR account are prohibited.
No interest should be paid.
The balances in the account can be repatriated.
All transactions are subject to payment of applicable taxes in India.

Remittance Of Assets Held By NRIS/PIOS

ADs can allow NRIs/ PIOs, on documentary evidence, to remit up to USD mn in a FY.from these assets:

Balances in NRO accounts; sale proceeds of their assets, or assets from inheritance/ legacy;
Assets under a deed of settlement by either of the parents or a relative (as per Companies Act, 2013), effective on the death of the settler.

All instalments of a remittance should be made through the same AD. For remittance from the NRO account, an undertaking that it is not from borrowings in India should be taken.

Remittance of Assets Requiring RBI Approval

Prior approval of RBI is necessary for following remittances:

In excess of USD 1 mn in a FY: (a) on account of legacy, bequest or inheritance to a citizen of foreign state, resident outside India; (b) by NRIs/ PIOs from NRO accounts/ sale proceeds of assets/ the assets from inheritance/ legacy.
Hardship will be caused to a person if remittance is not made. (iii) Sale proceeds of assets in India held by any person, if not covered under the directions.

Income-tax Clearance

The remittances are subject to payment of applicable taxes in India.

Acquisition And Transfer Of Immovable Property In India By NRI

NRIs/ PIOs/ OCIs are permitted to purchase immovable property (other than agricultural land/ plantation property/ farm house) in India, and acquire immovable property by way of gift and inheritance from relatives.
A non-resident may transfer immovable property held in India to a resident in India if transaction takes place through banking channels in India and the resident is not prohibited from acquisition.
There are restrictions on repatriation outside India of the sale proceeds of immovable property held by non-residents in India, and requires prior RBI approval.
NRIs on returning to India for permanent stay become resident in India are permitted to either repatriate their sale proceeds of assets (held abroad) to India or hold them overseas in accordance with the FEMA.
Citizens except OCIs, of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Macau, Hong Kong and Democratic People’s Republic of Korea need prior RBI permission to acquire or transfer immovable property in India, except on lease of not more than five.

Investment By NRIs/PIOs

A resident outside India may invest in an Indian company either as Foreign Direct Investment or as Foreign Portfolio Investment.

Sectors Prohibited for Investments

Lottery Business
Gambling and betting
Chit funds
Nidhi company.
Trading in Transferable Development Rights (TDRs).
Real Estate Business or Construction of Farm Houses.
Manufacturing of Cigars, cigarettes, tobacco or tobacco substitutes.
Activities/ sectors not open to private sector investment viz., (i) Atomic energy and (ii) Railway operations.
Foreign technology collaboration is also prohibited for Lottery Business and Gambling and Betting activities.

NRI or OCI can purchase/ sell capital instruments of a listed Indian company on repatriation basis, on a stock exchange through a designated AD branch.
Holding Ceilings:

(i) Holdings by any individual NRI or OCI: (a) Upto 5% of the total paid-up equity capital (on a fully diluted basis), or (b) Upto 5% of the paid-up value of each series of debentures or preference shares or warrants.

(ii) Total holdings of all NRIs and OCIs put together: (a) Upto 10% of the total paid-up equity capital (on a fully diluted basis), or (b) Upto 10% of the paid-up value of each series of debentures or preference shares or warrants.

The aggregate ceiling of 10% can be raised to 24%, if a special resolution to that effect is passed by the General Body of the Indian company.

NRI/ OCI holding securities of an Indian company on a non-repatriation basis may transfer the securities to a person resident outside India as gift with prior RBI approval subject to certain conditions