What changed
RBI explicitly confirmed that FIIs and other foreign investors are free to route remittances for any FEMA-permitted transaction through any bank of their choice, not only through their designated AD Category-I custodian bank. The funds can subsequently be transferred to the custodian bank through normal banking channels. This clarification addresses market queries on whether cash/TOM/spot remittances could be made to a non-custodian bank.
What it means for you
Banks can now receive foreign remittances from FIIs even if they are not the investor's designated custodian, expanding business opportunities for non-custodian AD Category-I banks. However, both the remittance-receiving bank and the final recipient bank share joint KYC responsibility, requiring robust coordination and documentation. The remittance-receiving bank must issue a Foreign Inward Remittance Certificate (FIRC) to the custodian bank to confirm the foreign currency nature of the funds.
What you must do
- Update internal KYC and AML procedures to handle joint responsibility when receiving remittances for FIIs not your customers.
- Ensure your bank issues FIRC to the custodian bank for every foreign currency remittance received for an FII.
- Train staff on the flexibility allowed—FIIs can remit via any AD Category-I bank, not just their custodian.
- Coordinate with custodian banks to establish clear information-sharing protocols for KYC and transaction details.
Who it affects
All AD Category-I banks, Foreign Institutional Investors (FIIs), Custodian banks handling FII investments, Compliance and KYC teams in banks
Can an FII now remit funds through a bank that is not its designated custodian?
Yes, RBI clarifies that FIIs can remit funds through any AD Category-I bank for any FEMA-permitted transaction, and then transfer those funds to their designated custodian bank via banking channels.
What are the KYC responsibilities when a non-custodian bank receives the remittance?
Both the remittance-receiving bank and the final recipient (custodian) bank share joint KYC responsibility. The first bank knows the remitter and purpose, while the second bank has the recipient's perspective. The receiving bank must also issue an FIRC to the custodian bank.
Does this circular change any other conditions for FII hedging?
No, all other conditions from the earlier A.P. (DIR Series) Circular No.45 dated October 22, 2012, regarding FII hedging of currency risk, continue to apply unchanged.