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Master Circular on Memorandum of Instructions for Opening and Maintenance of Rupee/ Foreign Currency Vostro Accounts of Non-resident Exchange Houses

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..... ully, (B. P. Kanungo) Principal Chief General Manager INDEX PART-A SECTION I Operations of Rupee Vostro Accounts of Non-resident Exchange Houses SECTION II Permitted Transactions SECTION III Rupee Drawing Arrangement Procedures and Collateral Cover SECTION IV Foreign Currency Drawing Arrangements SECTION V Miscellaneous Provisions SECTION VI Internal Control and Monitoring of Accounts PART-B Reports / Statements Annex- I Application for obtaining permission to enter into Rupee / Foreign Currency Drawing Arrangements with Exchange Houses Annex-II Statement A Annex- III Statement B Annex- IV Statement C Annex- V Statement D Annex- VI Statement E Appendix PART-A SECTION I Operations of Rupee Vostro Accounts of Non-Resident Exchange Houses 1 . Introduction Authorised Dealer Category-I (AD Category-I) banks may obtain prior approval of the Reserve Bank the first time they enter into Rupee Drawing Arrangements (RDAs) with non-resident Exchange Houses from Gulf countries, Hong Kong, Singapore, Malaysia and all other countr .....

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..... ) The requirement of registration of the Agreement between the AD Category-I banks and Exchange Houses under the Rupee Drawing Arrangement/ Foreign Currency Drawing Arrangement has been made optional. However, such arrangements should be subjected to comprehensive legal documentation and AD Category-I banks should take care of all necessary legal requirements in this regard. Further, 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. (c) 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 (a) The accounts can be used for channeling cross- border inward remittances into India primarily on private account. The remitter and the beneficiary should be individuals barring a few exceptions. Remittances through Exchange Houses for financing of trade transactions are permitted up to ₹ 15,00,000(Rupees fifteen lakhs only) per transaction. The accounts should not be used for cross-bord .....

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..... usiness, February, 2011). (h) AD Category-I banks may like to obtain suitable and adequate collateral either in the form of a cash deposit in any convertible foreign currency or guarantee of a bank of international repute, depending on the type of arrangement to take care of the credit and operational risks. (i) A cap of 300 on the number of drawee branches has been prescribed by the Reserve Bank as a prudential measure. However, AD Category-I banks may designate drawee branches beyond 300, provided such branches are under the Core Banking Solution where on-line monitoring of funds position is ensured to avoid concealed overdrafts in vostro accounts, subject to the terms and conditions of Reserve Bank s approval for the tie-up with an Exchange House and the instructions pertaining to RDA issued by the Reserve Bank from time to time. The AD Category-I banks should obtain necessary Board approval before increasing the number of drawee branches beyond 300 and should inform the position to the Reserve Bank, immediately. SECTION II Permitted Transactions 1. Drawing Arrangements with Exchange Houses are primarily designed to channel cross-border inward personal remittanc .....

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..... st ensure that the proceeds of export payment through RDA is applied to the outstanding export finance if any, availed by the exporter from any bank for the concerned export transaction and obtain a declaration to that effect from the exporter. (xi) Payments to utility service providers in India, for services such as water supply, electricity supply, telephone (except for mobile top-ups), internet, television, etc. (xii) Tax payments in India. (xiii) EMI payments in India to Banks and Non-Banking Financial Companies (NBFCs) for repayment of loans. (xiv) Remittances to the Prime Minister s National Relief Fund subject to the condition that the remittances are directly credited to the Fund by the banks and the banks maintain full details of the remitters. Note: No cash disbursement of remittances received is allowed under Rupee / Foreign Currency Drawing Arrangements. 3. Foreign inward remittances received by the AD Category-I Bank (termed as Partner Bank ) having RDA with Non Resident Exchange Houses may be credited directly to the account of the beneficiary held with a bank other than the AD Category-I Bank (termed as Recipient Bank ) through electronic mode, .....

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..... orresponding Rupee vostro account is maintained, with the prior approval of the Reserve Bank. (b) 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 foreign currency which shall be deposited into the account of the drawee bank (a/c-Exchange House) [known as DDA account, as described at 1(a) above] on the next working day before noon. (c) 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 the DDA account. Transfer from the DDA account should be as frequently as possible and is subject to the stipulation as at 1(e) below. (d) The funds will be held in the DDA account under lien to the drawee bank. The only debits allowed from the DDA account will be (i) 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, (ii) 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. (e) It will be the respons .....

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..... other relevant information so as to take a decision regarding continuance of accounts in their books. (o) Valid copies of all licenses should also be kept on record by the AD Category-I bank. (p) 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 AD Category-I banks should be at a sufficiently senior level, who are fully conversant with the conduct of the Non-resident Rupee Accounts of the Exchange Houses. (q) Collateral Cover for DDA: For Exchange Houses which have not completed three years of operation, collateral cover in cash deposit in any convertible foreign currency or guarantee from a bank of international repute equivalent to 7 days projected drawings may be obtained. 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 acquiring adequate collateral cover. Cash deposit in any convertible foreign currency or a guarantee from a bank of international repute .....

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..... 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 balances in the vostro account of the exchange house the AD Category-I bank issues drafts in favour of the beneficiary or credits 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 .....

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..... is account maintained by the Exchange House and not to the nostro Account of the AD Category-I bank. (d) 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. (e) 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. (f) AD Category-I banks should ensure that foreign currency accounts are funded at all times. (g) If the arrangement is under the Non-DDA procedure, the Exchange House should communicate to the account maintaining branch by any electronic mode, the number and aggregate value of drafts drawn in foreign currency before close of the following working day. Under DDA procedure, such information may be obtained frequently, at least on a bi-weekly basis. (h) Collateral cover: Exchange Houses should keep a deposit of not less than USD 50,000 with the drawee AD Category-I bank. Adequacy of quantum of deposit kept with the bank should be reviewed every six months on the .....

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..... India with the prior approval of the Reserve Bank. 7. AD Category-I banks should obtain approval of the Reserve Bank for maintaining accounts of Exchange Houses whose name and constitution, etc., undergo changes. SECTION VI Internal Control and Monitoring of Accounts 1. AD Category-I banks should put in place adequate internal controls and a system of monitoring of accounts as per the extant instructions. Dealings with Exchange Houses should be strictly on credit basis at all times and no overdraft should be granted to the account holders. 2. 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 AD Category-I banks so that prompt corrective action is initiated. Observations thereon shall be included in the annual review of the accounts submitted to the Board. PART-B Reports / Statements 1. Statement A: This statement (as at Annex-II) is designed to elicit details of operations in Rupee/ foreign currency vostro a .....

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..... rd. 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 /CFT Guidelines by Exchange Houses (c) financial losses suffered if any by the AD category I bank 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) that the 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 Ar .....

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..... erever necessary. Part I- Particulars of the applicant bank and its existing arrangement(s), if any 1. Name of the applicant bank 2. Existing arrangements(s) (i) Name of Exchange House (EH) (ii) Since (iii) No. of drawee branches (iv) Business turnover for the previous three calendar years 3(a) Details of branches having multiple EH drawing arrangements 3(b) Furnish comments with regard to adequacy of internal control systems put in place at those branches. (Attach a sheet if necessary) 4. Financial losses sustained if any during last five years (April-March) (i) Year (ii) Name of the EH (iii) Amount of loss (iv) Particulars of loss (v) Ref. Nos. and dates lodged with RBI and RBI s permission to write off 5. Financial disputes if any with EH(s) pending settlement (i) Name of EH (ii) Expected amount of loss (iii) Particulars of loss (iv) Ref. No. dated of report lod .....

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..... lly satisfied about a) the competence of the company/firm/people managing the EH b) the financial strength of the shareholders of the EH c)the financial strength of the EH d)the internal control systems operating in EH with regard to issue of drafts? 9. Furnish details of collateral arrangements negotiated with the EH (viz.. amount of deposit, bank guarantee, etc.) and the justification thereof Part III- Details of the proposed arrangement 1. Details/description of proposed arrangement 2(a) Reasons for entering into RDA (b) Projections of business turnover (quantify monthly projections) 3. The procedure under which the proposed RDA will be conducted (DDA/Non-DDA/Speed) 4. Name and address of the account maintaining Branch 5. No of drawee branches to be included in the proposed RDA 6. Whether EH is prepared to provide additional collateral cover equivalent to 7 d .....

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..... ll payment advices received during the month from our paying branches have been taken into account for raising debits in the Rupee accounts of the Exchange House. 26 B) We have received confirmation from our nostro account maintaining banks abroad for having credited counter value (foreign currency) funds to our nostro account before crediting Rupee funds to the account of the Exchange House. C) We confirm that the Rupee accounts of the Exchange Houses are conducted strictly in accordance with the guidelines issued by RBI and in terms of the relative agreements with the Exchange Houses concerned. D) Copy of the statement has been sent to the General Manager-in-charge, Foreign correspondent relationship and department / Officer in Charge, nostro account of our bank. E) We confirm that we have not received any adverse report / warning signals from the General Manager of our International Department whose accounts are maintained by us at the time of submitting the statement. Statement countersigned by certifying that it has been internally reviewed in the bank and the conduct of the account is considered satisfactory. Chief Manager of the Account Mai .....

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..... ouse account held at overseas branches of Indian banks (ADs Category-I) Sr. No. Date of Opening the account Name of the Exchange House Name of the overseas branch Nature of account Why it was opened (quote H.O. authority if any) Balance as at the end of the previous month Balance as at the end of the month to which the statement relates Outstanding liabilities, if any 1. 2. 3. 4. 5. 6. 7. 8. 9. Annex- V [See PART B , Paragraph 4] Statement D Name of the AD Category-I :_________________ No. of drawee branches : ___ Full Address : ____________________ Type of Account : ____________ RBI Approval No. and date : _______ Name of the Exchange House : ________________________ Partic .....

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..... ly reviewed in the bank and that the conduct is considered satisfactory. Signature of the General Manager-in-Charge of International Division/ International Operations of the AD Category-I Annex- VI [See PART B , Paragraph 5] Statement E Statement showing inflows of foreign currency through Exchange Houses during the quarter ended _______ (Amount in US Dollars) Sl. No. Name of Exchange House and country No. of branches covered Foreign currency received during last year ended December Inflows of foreign currency during current year Growth(+)/ deceleration (-) between last quarter and the quarter under report (%) Out flow foreign currency (amount) Jan-Mar April-June Jul-Sept. Oct-Dec 1 2 3 4 5 6 7 8 9 10 Notes:(a) .....

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..... vations on record with us to report to the Reserve Bank. Name of the bank Address Date Signature Name Designation Appendix List of A.P.(DIR Series) Circulars which have been consolidated in the Master Circular on Memorandum of Instructions for Opening and Maintenance of Rupee / Foreign Currency Vostro Accounts of Non-resident Exchange Houses Sl. No. Notification/ Circular Date 1. A.P. (DIR Series) Circular No. 28 [ A.P.(FL/ RL Series) Circular No. 02] February 6, 2008 2. A.P. (DIR Series) Circular No.11 [ A.P.(FL/ RL Series) Circular No. 01] August 22, 2008 3. A.P. (DIR Series) Circular No.37 [A.P.(FL/ RL Series) Circular No. 02] December 2, 2008 4. A.P. (DIR Series) Circular No. 16 [ A.P.(FL/ RL Series) Circular No. 3] November 27, 2009 5. A.P. (DIR Series) Circular No. 09 .....

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