The Indian diaspora business today means lots and lots of money. And talking of money, the relevance of NRI banking comes into the big picture. Banks today offer the non-resident Indian plenty of accounts to choose from. Here we take a look at the different accounts. A Non-Resident External Rupee Account (NRE) is a savings account and it offers a premium of 4.5 percent per annum. Deposits are possible for six months to seven years and the bank holds total freedom in determining the interest rate. Both the principal and interest earned are repatriable. An NRE account can only be jointly held with another NRI.
However, RBI rules specify that an NRE account holder can give a mandate to a resident in India to operate the account. The resident cannot open an NRE account himself, he also cannot issue repatriation advice. It may also be noted that once the foreign exchange is credited to the account, it is converted to rupees immediately and held in rupees.
Further, the exchange risk has to be borne by the depositor. The bank has no role to play here. The money is converted into rupees the moment it is credited, whether or not the rupee is strong or weak.
Another option before the NRI is the Foreign Currency Non-Resident (FCNR) Account. One feature about this accounts that it isn’t a savings or current account. Deposits can be made for 1-3 years and interest rates depend on the currency. Banks have total flexibility in determining the interest rates in this regard. The principal and interest earned are repatriable. As in the case of NRE accounts, here too joint holding of the account is permitted with only another NRI.
Also, money can be held only in foreign currency and can be converted into Indian money only when the depositor wishes to. Money can be held in only five currencies such as US dollar, Japanese Yen, German Mark, Pound Sterling or the Euro.
Unlike the NRE account, the exchange risk is borne by the bank and not by the depositor. The conversion of the money put into the FCNR account takes place only when the depositor wants it to be converted. The advantage is that the depositor can wait for the rupee to fall s that he can gain more.
The Non-Resident Non-Repatriable (NRNR) account is also no savings or current account. Deposits can be made for six months to three years. As the name suggests, the principal is not repatriable, however, the interest is. And, the principal and interest earned don’t attract any tax. With regard to joint holding, a joint holding is possible with a resident who is the depositor’s close relative. And unlike an FCNR account, once the foreign exchange is credited to the account, it is converted to rupees. The exchange risk factor is similar to that of the NRE account, it is borne by the depositor and not by the bank. One important feature of this account is that it is mainly targeted at an individual who has no plans whatsoever to go back to a foreign country.
Meanwhile, the Non-Resident Ordinary (NRO) account is a rent account or savings account. This offers 4.5 percent per annum. And further, deposits to this account are similar to local term deposits. Repatriation is possible only for the interest and of course with Reserve the permission of Reserve Bank of India. However, the principal cannot be repatriated. Further, the principal and interest earned are taxable too. Joint holding is permitted with a resident, unlike the other above-mentioned accounts. Another feature is that there is no exchange risk as the money is credited in rupees here.
Another option is the Non-Resident Special Rupee (NRSR)account which is a current account and savings account at 4.5 percent per annum. Deposits to his account are identical to local term deposits. The principal nor the interest are repatriable, and they do attract tax too. Joint holding in an NRSR account s permitted with a resident, similar to the NRO account. And here too, there is no exchange risk.
Meanwhile, the Resident Foreign Currency (RFC) account is also a current account and savings account at 4.5 percent per annum. Deposits are similar to that of FCNR accounts. The principal and interest earned are repatriable. They also do not attract any tax up to certain periods. The account holder can have a joint holding with another NRI, and there is absolutely no exchange risk.