Home CAIIB Bank Financial Management Correspondent Banking & NRI Accounts

Correspondent Banking & NRI Accounts

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Correspondent Banking

¨It is relationship between two banks having mutual accounts with each other or one of them is having account with each other.

¨A relationship and servicing of banking needs, as agent without having account relationship.

¨ ¨Correspondent banking is the practice whereby a bank establishes a presence in an over costly or otherwise inaccessible market by means of relationship with a local bank.

Correspondent Banking Services 

¨Clearing house functions.

¨Payment and collection.

¨Letter of credit and banker’s acceptances, guarantees.

¨Trade developments and referrals.

¨Credit services – loans and placements.

¨Foreign exchange services.

¨Travel services.

Types of Accounts

¨Nostro Account

    This is an account of a bank in another country in F/C

¨Vostro Account

    This is an account of a foreign bank in our currency in India

¨Loro Account

    This is an account of a bank in another country which is used by 3rd bank

¨Mirror Account

    This is a shadow account, used for reconciliation purpose

Electronic Modes of Transmission/Payments

¨ferSWIFT : Society for Worldwide Interbank Financial Telecommunication

¨CHIPS : Clearing House Interbank Payment System

¨Fedwire : Payment system operated by Federal Reserve Bank in USA

¨ABA No. : It is the number allotted by Federal Reserve of USA to banks participating in Fedwire to identify the senders/receivers of payment

¨CHAPS : Clearing House Automated Payment System in UK

¨RTGS : Real Time Gross Payment Settlement

¨NEFT : National Electronic Fund Trans

Merchant Banking

Introduction :

¨Merchant banking stands for providing various services relating to capital market  to corporate sector.

Merchant Banking Services :

¨Project counseling ¨Loan syndications

¨Technology tie-ups

¨Raising of funds from capital market

¨Portfolio management

¨Mutual funds

¨OTC market operation

¨Merger and amalgamations or acquisition

Accounts of Non-Residents –  Definitions

Non-Residents Person :

¨As per FEMA, a person who is not a resident, is called a non- resident.

Person Resident in India :

¨A person residing in India for more than 182 days during the course of the preceding financial year.

Non-Resident Indians (NRI) :

¨A person holding Indian passport, who has gone abroad for an indefinite period of stay outside India.

Peron of Indian Origin (PIO) :

    1) A foreigner, whose parents or grand parents were citizen of India.

    2)A foreigner spouse of Indian citizen.

    3) A person , who held Indian passport at any time.

Non-Resident (External) Rupee Account

¨Eligibility :

     NRIs are permitted to open and maintain these account

¨Types of Accounts :

     S/F, C/A,RD,FD

¨Operation :

     Joint Accounts with non resident

     Operation by Power of attorney

¨Change of resident status of the account holder :

     A/c should be re-designated as resident account

¨Loan against security of funds held in account :

    To account holder

    To third party

    To loans outside India

     Permitted  credits and debits :

     Nomination facility :


     No tax in India on interest income :

Foreign Currency Non-Resident (Banks) Accounts (FCNR)

¨Currencies for opening the account :


¨Eligibility :

     NRIs can open such accounts

¨Type of account :

     Fixed Deposit – Min. one year, max. five years,no interest if cancelled before one year

¨Repatriation :

     Repatriation of funds in foreign currency permitted. Exchange risk on account of customer

¨Loan against security of FD :

     Advance will be adjusted from remittance from  abroad/proceeds of FD

¨Nomination facility :


     No Tax in India on interest income :

Non-Resident (Ordinary) Rupee Account


     Any person resident outside India may open NRO Account

¨Type of Account

     S/F, C/A, RD, FD


     Joint account can be held with resident/non-resident, with resident as former or survivor

¨Permissible Credits/Debits

¨Remittance of Assets

     Outward remittance up to 1 Mio  per FY is available

¨Nomination Facility


¨Tax is applicable on interest income

NRO Accounts of Foreign Nationals

¨ ¨NRO (S/F and C/A ) can be opened by foreign national of non-Indian origin visiting India with funds remitted from outside India or by sale of foreign exchange brought by them

¨ ¨The balance in NRO accounts may be remitted back in foreign currency on departure provided account has been maintained for a period not exceeding 6 months and the account has not been credited with local funds ¨

Investments by NRIs

Purchase of immovable property in India :


Transfer of immovable property :


Payment for acquisition of property :

    By way of remittance from outside India

    By debit to his NRE/FCNR account

Purchase of Securities :

    NRI can invest on repatriation/non-repatriation basis. Payment for acquisition by way of inward remittance ar to the debit of NRE/FCNR account

Housing Loans :

    Allowed as applicable to resident Indian

Prohibition for Investment :

    NRIs are not permitted to make investment in Small saving schemes and PPF.

Status on Return to India

Bank Accounts : ¨NRO account to Resident account ¨NRE Rupee account to either Resident Rupee account or Resident Foreign Currency account ¨FCNR Account to Resident Rupee account or RFC account

Foreign Currency Accounts at Foreign Centre :

Investment in Foreign Securities/Immovable Properties outside India : ¨In both the above cases, NRIs who have returned to India after a minimum stay of one year abroad as NRI, can now continue to maintain their foreign currency account  and continue to hold foreign securities and immovable properties abroad. ¨Sale of such assets and acquiring another set of assets is also permissible. ¨ ¨

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