What changed
Previously, RRBs were only authorized to open and maintain non-resident rupee accounts. The Union Budget 2007-08 announced permission for RRBs to accept FCNR(B) deposits, and the eligibility criteria for NRO/NRE accounts were also revised. The new circular supersedes the earlier April 2000 circular, setting updated conditions for both account types.
What it means for you
RRBs can now expand their product suite to include foreign currency deposits, potentially attracting NRI customers and increasing deposit mobilization. However, they must manage foreign currency and maturity risks by placing funds with sponsor banks or swapping into rupees, ensuring no risk remains on their books. Compliance with KYC/AML norms and NABARD inspection reports is mandatory, raising operational standards.
What you must do
- Review your RRB's eligibility against the criteria: positive net worth, no more than 3 CRR/SLR defaults in 2 years, net profit last year, net NPAs ≤5%, and satisfactory NABARD inspection compliance.
- Enter into a formal tie-up agreement with your sponsor bank for FCNR(B) deposit operations, covering fund placement, currency risk management, and accounting procedures.
- Submit an application to your regional RBI Foreign Exchange Department office with necessary details to obtain authorization for NRO/NRE/FCNR(B) accounts.
- Ensure robust KYC/AML processes are in place and that staff have the requisite skills to handle non-resident and foreign currency accounts.
Who it affects
Regional Rural Banks (RRBs), Sponsor banks of RRBs, NRI customers of RRBs, RBI Foreign Exchange Department regional offices
What are the key eligibility criteria for an RRB to offer NRO/NRE/FCNR(B) accounts?
The RRB must have positive net worth, not defaulted on CRR/SLR more than three times in the last two years, earned net profit in the preceding year, net NPAs below 5% as of March 31, adhere to KYC/AML norms, possess necessary skills, and have satisfactory NABARD inspection compliance.
How should an RRB manage foreign currency risk from FCNR(B) deposits?
The RRB must place the foreign currency funds as deposits with its sponsor bank or swap them into rupees with the sponsor bank. This ensures the RRB does not carry any foreign currency or maturity mismatch risk on its books.
What steps must an RRB take to start offering these accounts?
First, ensure eligibility criteria are met. Then, enter a tie-up agreement with the sponsor bank for FCNR(B) operations. Finally, submit an application to the regional RBI Foreign Exchange Department office for authorization.