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 :
Available
No tax in India on interest income :
Foreign Currency Non-Resident (Banks) Accounts (FCNR)
¨Currencies for opening the account :
USD , GBP, EURO, JPY, CAD, AUD
¨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 :
Available
No Tax in India on interest income :
Non-Resident (Ordinary) Rupee Account
¨Eligibility
Any person resident outside India may open NRO Account
¨Type of Account
S/F, C/A, RD, FD
¨Operation
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
Available
¨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 :
Allowed
Transfer of immovable property :
Allowed
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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