What changed
Previously, credits to NRE accounts from demand drafts or bankers' cheques issued against foreign currency encashment were not explicitly permitted. This circular liberalizes the rules by allowing such credits when supported by an encashment certificate from an AD Category-I or Category-II bank. It also references existing AML guidelines that cap cash payments from FFMCs at USD 3000 or equivalent.
What it means for you
Banks can now process NRE account credits for instruments like demand drafts from foreign currency encashment more smoothly, reducing customer friction. This aligns with anti-money laundering norms by ensuring larger amounts are routed through traceable instruments. Lenders must verify the encashment certificate before crediting to avoid compliance gaps.
What you must do
- Update internal NRE account credit policies to include proceeds of demand drafts or bankers' cheques from foreign currency encashment, subject to encashment certificate verification.
- Train staff to check for valid encashment certificates issued by AD Category-I or Category-II banks before crediting such instruments to NRE accounts.
- Ensure compliance with AML guidelines: cash payments from FFMCs remain capped at USD 3000 or equivalent; larger amounts must be via demand draft or bankers' cheque.
Who it affects
AD Category-I banks, Authorised banks, NRE account holders (NRIs), Full-fledged Money Changers (FFMCs)
What is the key change in this circular for NRE accounts?
It permits AD Category-I banks to credit proceeds of demand drafts or bankers' cheques from foreign currency encashment to NRE accounts, provided the instruments are supported by an encashment certificate from an AD Category-I or Category-II bank.
Does this circular affect the USD 3000 cash limit for FFMCs?
No, the existing AML guideline remains: FFMCs can only make cash payments up to USD 3000 or equivalent; amounts above that must be paid via demand draft or bankers' cheque.
What document must banks verify before crediting such instruments?
Banks must verify the encashment certificate issued by an AD Category-I or Category-II bank that supports the demand draft or bankers' cheque.