What changed
Previously, only AD Category-I banks could accept FCNR(B) deposits; RRBs were limited to NRO/NRE accounts. Following the Union Budget 2007-08 announcement, RBI now allows authorized RRBs to also accept FCNR(B) deposits in six major currencies. RBI also issued revised eligibility criteria for RRBs' NRO/NRE accounts, superseding earlier instructions.
What it means for you
RRBs can now offer FCNR(B) accounts, widening their NRI deposit base and rupee resources via swaps with sponsor banks. However, RRBs must rely on sponsor banks for forex risk management, treasury operations, and nostro accounts, limiting their independent forex exposure. This move aims to make foreign exchange services more accessible to NRIs/PIOs in rural areas.
What you must do
- Apply to the concerned Regional Office of RBI's Foreign Exchange Department for authorization to accept FCNR(B) deposits.
- Enter into a tie-up agreement with your sponsor bank for forex management, nostro account operations, and swap arrangements.
- Ensure FCNR(B) deposits are accepted only in USD, GBP, EUR, JPY, AUD, or CAD, per Schedule 2 of FEMA 5/2000-RB.
- Report non-resident deposit data (including FCNR(B)) in CSR format as per A.P. (DIR Series) Circular No. 55 dated May 9, 2007.
- Coordinate with sponsor banks to report currency purchases/sales in appropriate 'R' returns, as RRBs cannot maintain nostro accounts.
Who it affects
Regional Rural Banks (RRBs), Sponsor banks of RRBs, Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs), AD Category-I banks
Which currencies are allowed for FCNR(B) deposits at RRBs?
RRBs can accept FCNR(B) deposits in US Dollars, Pound Sterling, Euro, Japanese Yen, Australian Dollars, and Canadian Dollars, as per Schedule 2 of FEMA 5/2000-RB.
How should RRBs manage foreign currency risk from FCNR(B) deposits?
RRBs must enter into tie-up arrangements with their sponsor banks, which will manage the foreign currency funds, handle nostro accounts, and bear exchange and maturity mismatch risks. RRBs can swap funds with sponsor banks for rupee resources.
What reporting is required for RRBs accepting FCNR(B) deposits?
RRBs must report non-resident deposit data, including FCNR(B), in CSR format as per A.P. (DIR Series) Circular No. 55 dated May 9, 2007. Sponsor banks report currency transactions in 'R' returns.