Thursday, July 30, 2015

Interest Rates on FCNR (B) Accounts

Definition of the term “Deposit”
Deposits received by the bank for a fixed period.
Foreign Currency (Non-resident) Accounts (Banks) Scheme
FCNR (B) Scheme came into force from May 15, 1993.  The scheme is governed by FEMA directives since 2000. An Authorised Dealer Bank shall pay interest on deposits accepted or renewed by it under the scheme as per terms and conditions specified below:

Maturity of deposit
(a)           One year and above but less than two years
(b)           Two years and above but less than three years
(c)           Three years and above but less than four years
(d)           Four years and above but less than five years
(e)           Five years only
Note: Recurring Deposits should not be accepted under the FCNR (B) Scheme.

Interest Rates on Deposits accepted under FCNR (B) Scheme
The board of directors will approve the rate of interest within the ceiling prescribed by RBI. Alternately BOD may authorise the Asset Liability Management Committee to fix the interest rates and report it to the Board immediately thereafter.
          The interest rates ceiling on FCNR (B) deposits are as under:
1 year to less than 3 years
3 – 5 years
With effect from March 1, 2014 till date
LIBOR/ Swap plus 200 basis points
LIBOR/ Swap plus 300 basis points

Notes: a) On floating rate deposits, interest shall be paid within the ceiling of Swap rates for the respective currency/ maturity plus 200 basis points/ 300 basis points as the case may be and in case of fixed rate deposits interest shall be paid as above.

     b) For floating rate deposits, the interest reset period shall be six months.

c) The interest rate will be fixed on the basis of the LIBOR/SWAP rates as on the last working day of the preceding month.

Benchmark Rates
Since February 2006, FEDAI has been quoting the LIBOR / Swap rates for arriving at the interest rates on NRI deposits.

Manner of payment of interest
   i)       The interest should be paid considering 360 days in a year.
ii)       The interest will be calculated and paid at intervals of 180 days and thereafter for the remaining number of days. However, the depositor may opt to receive the interest on maturity with compounding effect.

Rounding of the interest on deposits
The interest rates should be rounded off to the nearest two decimal points.

Payment of interest on term deposit maturing on Saturday/Sunday/ holiday/non-business working day 
Banks should pay interest at the contracted rate on the principal deposit for the holiday period if it happens to fall on the date of maturity, upon payment of the proceeds on the succeeding working day.
In case of reinvestment deposits, banks should pay interest for the intervening holiday on the maturity value.

Payment of interest on overdue FCNR (B) deposits
Banks may renew an overdue deposit if it is received within 14 days of maturity. The applicable rate of interest should be the prevailing rate as on the date of maturity or on the date when the depositor seeks renewal, whichever is lower.

Where the overdue period exceeds 14 days, banks may fix their own rates for the overdue period. Banks may however recover the interest so paid if the deposit is withdrawn before completion of the minimum stipulated period under the Scheme.

Interest payable on the deposit of a deceased depositor
            In the case of a term deposit standing in the name/s of -
i)      a deceased individual depositor, or  
ii)             two or more joint depositors, where one of the depositors has died, interest should be paid in the manner indicated below :
            (a)        at the contracted rate on the maturity of the deposit;
(b)        in case of payment before maturity, interest should be paid at the rate applicable to the period for which the deposit remained with the bank, without charging penalty;
(c)        Where the depositor expires before the date of maturity and the deposit is claimed after maturity, interest till maturity will be paid as per contract and thereafter simple interest at the rate prevailing at the time of maturity for the actual period that the deposit remained with the bank.
Where the death happens after the date of maturity, interest beyond maturity will be paid at the rate payable to savings deposits held under Resident Foreign Currency (RFC) Account Scheme;
(d)        At the request of claimants, bank may agree to split the term deposit into two or more receipts. This will not be construed as premature withdrawal provided the period and aggregate amount of the deposit do not undergo any change.
Note: Where the claimants are residents, the maturity proceeds may be converted into Indian rupees on the date of maturity and interest thereafter shall be paid at the rate applicable to domestic deposit scheme.

Payment of interest on FCNR (B) deposits of NRIs on return to India 
Banks may allow FCNR (B) deposits of returning NRIs to continue at the contracted rate till maturity.  Such deposits should be treated as resident deposits from the date of return of the account holder to India. Premature withdrawal of such FCNR (B) deposits should be subject to penal provisions of the Scheme. Upon maturity, these accounts should be converted into Resident Rupee Deposit Account or RFC Account (if eligible) at the option of the account holder. The rate of interest on the new deposit should be that which is applicable to such deposit account.

Prohibition on payment of additional interest not exceeding one per cent on deposits of bank’s staff 
With effect from July 18, 2012, no additional interest will be paid on FCNR (B) deposit accounts of Banks’ own staff members.

Prohibition on payment of additional interest on deposits of Senior       Citizens
Banks are prohibited from paying additional interest on non-resident deposits of senior citizens including FCNR (B) deposits.  

 Premature withdrawal of deposits
    (i)     Banks shall permit premature withdrawal of deposits under the Scheme and levy penalty at their discretion. Banks may also levy penalty to recover the swap cost. Where premature withdrawal is before the minimum stipulated period of one year, no interest shall be paid and the bank may levy penalty to cover the swap cost. If the depositors are not informed of the penalty provisions at the time of acceptance of deposits, the exchange loss arising out of premature withdrawal will have to be borne by the banks.
   (ii)     Conversion of FCNR (B) deposits into NRE deposits or vice-versa before maturity should be subject to the penal provision relating to premature withdrawal.

Advances against FCNR (B) deposits - Manner of charging interest

Rupee advance against FCNR (B) deposits 
           Bank would be free to charge a rate of interest without reference to its own Base Rate on advances granted against an FCNR (B) term deposit.

Rupee advances against FCNR (B) deposit to a third party or out of the resources mobilised under the scheme
            When a loan is granted against the deposit to a third party or out of resources mobilised under the Scheme, interest should be at the rate prescribed in terms of RBI’s directive relating to Interest Rates on Advances.

Advances granted in foreign currency out of the resources of FCNR (B) deposits
Banks have the freedom to determine the interest rates on Loans in foreign currency out of eligible resources of FCNR (B) deposits.

Addition or deletion of name/s of joint account holders
A bank if satisfied by the reasons, may allow the addition/ deletion of names of joint account holders or allow an individual to add the name of another person as a joint holder. However, the amount or duration of the original deposit should not undergo a change. FCNR (B) accounts, jointly with a resident or with a Pakistani/Bangladeshi nationals of Indian origin, will be subject to the instructions issued by Foreign Exchange Department, Reserve Bank of India from time to time.

Conversion of FCNR (B) Accounts of Returning Indians into RFC Account - Waiver of penalty 
The penal provisions would not be applicable in the case of premature conversion of balances held in FCNR (B) deposits into RFC Accounts by Non-Resident Indians on their return to India.

Conversion of FCNR (B) Accounts of Returning Indians into RFC   Accounts/Resident Rupee Accounts- Payment of interest
A bank should pay interest, at the time of conversion of FCNR(B) Account into RFC/Resident Rupee Account even if it has not run for a minimum maturity period, subject to the condition that the rate of interest should not exceed the rate payable on savings bank deposits held under RFC Account Scheme.

 No bank should:
(i)         accept or renew a deposit over five years.
(ii)      discriminate in the matter of rate of interest paid on the deposits accepted on the same date and for the same maturity, except on the size group basis which will be subject to the following conditions:
a)    Banks should decide the currency-wise minimum quantum on which differential rates of interest may be offered.
b)    The differential rates should be subject to the overall ceiling prescribed.
c)    Interest rates paid by the bank should not subject to negotiation.
(iii)       pay brokerage/commission/incentives on deposits mobilized under FCNR(B).
(iv)       employ/ engage anybody for collection of deposit or for selling any other deposit linked products on payment of remuneration in any form or manner.
(v)        accept interest-free deposit or pay compensation indirectly.

Compliance with Foreign Exchange Management (Deposit) Regulations,    2000
Banks should adhere to the directions contained in Schedule 2 of the Foreign Exchange Management (Deposit) Regulations, 2000 as amended from time to time.

Based on RBI master circular dated 1/7/15.Refer for any clarification if needed…. Poppy