Wednesday, July 29, 2015

VOSTRO ACCOUNTS OF NON RESIDENT EXCHANGE HOUSES



Operations of Rupee Vostro Accounts of Non-Resident Exchange Houses

Introduction
RBI may enter into Rupee Drawing Arrangements (RDAs) with non-resident Exchange Houses from FATF countries for opening and maintaining Rupee vostro accounts in India. Prior approval of RBI is required when they enter into such an arrangement for the first time, subsequently, they may enter into RDAs and inform RBI immediately.  Once the total number of RDAs reaches twenty, based on the satisfactory report from auditors, banks may authorize more such arrangements and inform RBI accordingly. The following are the detailed guidelines for opening and maintaining vostro accounts:

 General Instructions

(a)        The AD-I banks should make necessary enquiries  about the financial standing of the Exchange House and ensure that the Exchange Houses hold valid licenses issued by the Local authorities to transact currency exchange/ money transfer business.

(b)        The registration of the RDA Agreement between the AD-I banks and Exchange Houses is optional. However AD-I banks should take care of all necessary legal requirements,in this regard.

(c)        The registration of Power of Attorney/ specimen signatures of signing officials of the Exchange Houses should be done.

4. Instructions regarding operations in the Rupee vostro accounts

(a)        The accounts can be used for channeling cross- border inward remittances up to Rs. 15,00,000/- into India and not for outward remittances. The remitter and the beneficiary should be individuals barring a few exceptions.

(b)        No overdraft should be granted to the account holders. Funds lying in the Designated Depository Agency A/c may be used if required. Value dating may be allowed, where on-line debit to Rupee vostro account is not possible on a real time basis.  

(c)        Separate Rupee vostro account shall be maintained for each arrangement. The accounts should be funded by sale of permitted foreign currency. Rupee funds will not be eligible for credit to the account.

(d)        Debits for permitted types of inward remittances may be allowed freely. Such payments will be eligible for credit to NRE Accounts or for acceptance under priority allotment schemes. In order to facilitate  tourists, AD-I banks may issue certificates of receipt of foreign exchange in the same form as obtaining for inward remittances received through Rupee accounts of overseas banks.

(e)        Funds in such accounts will not be convertible, nor will they be transferable to other AD-I banks or to other non-resident accounts maintained with the same AD-I banks.

(f)        Balances in such accounts will not qualify for payment of interest.

(g)        AD-I banks should not credit the rupee purchased from the exchange houses into their vostro account unless the nostro account of the Bank has been credited with the counter-value in foreign currency.

(h)        To take care of  the credit and operational risks, AD-I banks may like to obtain adequate collateral either in the form of a cash deposit or bank guarantee.

(i)         RBI has permitted the opening of 300 drawee branches. However, AD-I banks may obtain necessary approval from the board for opening more than 300 drawee branches provided such branches are under Core Banking Solution where on-line monitoring of funds can be ensured. RBI should be informed of such approvals immediately.

 

 

SECTION II


Permitted Transactions


1. Drawing Arrangements with Exchange Houses are designed to channel cross-border personal inward remittances and not Donations or contributions to charitable institutions.
2.Permissible transactions under such Arrangements are:

(i)Credit to NRE accounts maintained by NRIs in Indian Rupees.

(ii)Payments to families of Non-resident Indians.

(iii)Payments in favour of Insurance companies, Mutual Funds and the Post Master.

(iv)Payments in favour of bankers for investments in shares, debentures.

(v)Payment to Co-operative Housing Societies, Government Housing Schemes or Estate Developers for acquisition of residential flats in India in individual names.

(vi)Fee payment to schools, colleges and other educational institutions.

(vii)Payments for medical treatment of NRIs, their dependents and nationals of FATF compliant countries.

(viii)Payments to hotels by nationals of FATF compliant countries / NRIs for their stay.

(ix)Payments to travel agents for booking of passages of NRIs and their families residing in India towards their travel in India by domestic airlines / rail, etc.

(x)Trade transactions up to Rs.15,00,000 (Rupees Fifteen lakhs only)[1] per transaction.  Payments exceeding such limit may be approved subject to the following additional steps:
                      i.        Remittances received under RDA are from FATF compliant countries,
                     ii.        KYC/AML/CFT and other due diligence concerns should be taken care of,
                    iii.        Exchange houses, which are frequently sending high value trade related remittances, must be reviewed and reported to the RBI,
                   iv.        AD banks must collect additional information regarding high value trade related transactions and keep them on record for scrutiny,
                    v.        AD banks must ensure that the proceeds of export payment through RDA is applied to the outstanding export finance of the exporter if any.

(xi)Payments to utility service providers in India except for mobile top-ups.

(xii)Tax payments in India.

(xiii)EMI to Banks an NBFCs, for repayment of loans in India.

(xiv)Direct remittances to the Prime Minister’s National Relief Fund subject to the banks maintaining full details of the remitters.

Note: No cash disbursement of remittances received is allowed under Rupee / Foreign Currency Drawing Arrangements.

3.       Foreign inward remittances received by the Partner Bank may be credited directly to the account of the beneficiary, held with another bank through NEFT, IMPS, etc., subject to:

i. The beneficiary’s account should be KYC compliant.  
ii. In case of KYC non compliant account, recipient Bank shall carry out KYC/CDD before the remittance is credited or allowed to be withdrawn.
iii. The Partner Bank shall appropriately mark the direct-to-account remittances to indicate to the Recipient Bank that it is a foreign inward remittance.
iv. The Partner Bank shall ensure that accurate originator and beneficiary information is included in the electronic message. This information should be available, throughout the payment chain.
v. The identification and other documents of the recipient shall be maintained by the Recipient Bank.
vi. Recipient Banks will report suspicious transactions to the FIU-IND with details of the Partner Bank through which they received the remittances.



SECTION III


Rupee Drawing Arrangement Procedures and Collateral Cover

1.         Designated Depository Agency (DDA) Procedure

(a)        The Exchange House will be required to open a bank account in a convertible foreign currency in the name of the drawee bank. The account will be opened with an international bank at a centre mutually agreed upon.  However with the prior approval of the RBI, the account can also be opened with the drawee bank itself at a branch where the corresponding Rupee vostro account is maintained,.

(b)        The Exchange House will convert the total drawings in Indian Rupees to foreign currency at the end of each day and deposit it into the account of the drawee bank  on the next working day before noon.

(c)        The Exchange House will inform the drawee bank about the total number/value of drafts drawn and daily deposits in the DDA account. Transfer from the DDA account should be as frequently as possible

(d)        The funds will be held in the DDA account under lien to the drawee bank. The only debits allowed from the DDA account will  be (i) for transfer to the nostro account of the drawee bank (ii) for crediting the Rupee vostro account of the Exchange House.

(e)        It will be the responsibility of the Exchange House to transfer the sum collected on any particular day to the DDA account. The float period for the funds with DDA account will be decided by the drawee bank in consultation with the Exchange House subject to a maximum of five days.

(f)        The interest earned on the amount deposited by the Exchange House with the DDA, up to the date of transfer to the nostro account of the drawee bank, will accrue to the Exchange House.

(g)        To ensure compliance, the drawee bank in India will appoint Auditors, operating in the country concerned to examine the account with the DDA. Such inspections will be done at least once or twice every week.

(h)        Alternately, the AD-I banks may depute an official as their representative to the Exchange House.

(i)         In case of default on the part of the Exchange House, the drawee bank may terminate the agency arrangement. The termination will be promptly reported to the RBI.

(j)         So long as the Exchange House complies with the guidelines, the drawee bank will ensure that the drafts issued are honoured at the branches mutually agreed to.

(k)        The remuneration payable to the auditors will be borne by the drawee banks.

(l)         Drafts drawn by the Exchange House should have a validity of only three months from the date of issue thereof.

(m)      AD-I banks should satisfy themselves that the books of accounts of Exchange Houses are regularly audited by auditors approved by the local supervisory authorities.

(n)        AD-I banks should call for periodical credit reports, audited balance sheet and profit and loss account etc. of the Exchange House.

(o)        Valid copies of all licenses should be kept on record by the AD-I banks.

(p)        Since the books of accounts of the Exchange House cannot be inspected, AD-I banks should periodically review the arrangement by way of visits to the exchange house or periodical review of opinion reports.

(q)        For Exchange Houses which have not completed three years of operation, collateral cover in cash or bank guarantee equivalent to 7 days’ projected drawings may be obtained.  Though no collateral is prescribed for others, AD-I banks may acquire adequate collateral cover if they wish to.  Cash deposit or bank guarantee equivalent to 15 days’ estimated drawings may be obtained as collateral cover where it is not possible to appoint auditors. The deposit should be in the name of the AD-I banks with interest payable to the Exchange House. The amount of deposit and guarantee should be periodically reviewed so as to cover the drawings adequately.


2.         Non- DDA procedure

(a)        As an alternative to maintaining a DDA account and appointment of auditors, the AD-I banks may opt for the Non-DDA procedure.

(b)        Under Non–DDA procedure, the Exchange House funds their vostro account by purchasing rupees from the AD-I banks against USD for the total value of drafts issued by them at periodic intervals.

(c)        For Exchange Houses which have not completed three years of operation, collateral cover in cash deposit or bank guarantee equivalent to 7 days’ projected drawings may be obtained. For others, no collateral is prescribed. Further, under Non-DDA arrangement, a collateral cover in cash deposit or bank guarantees equivalent to 10 days’ projected drawings may be obtained. In addition, if there is a restriction on the bank’s right to depute its own staff for examination of books of the Exchange House, additional cash deposit or bank guarantee equivalent to 15 days’ estimated drawings may be obtained. The deposit should be in the name of the AD-I banks with interest payable to the Exchange House. The amount of deposit and guarantee should be periodically reviewed to ensure that the collateral adequately covers the drawings and pipeline debits.

3.         Speed Remittance Procedure  

(a)        AD-I banks are permitted to enter into RDA under speed remittance procedure wherein:

(i) The Exchange House sends payment instructions with complete details like name, address, etc., via SWIFT or internet.

(ii)The Exchange House credits the nostro account of the AD-I banks with Rupee fund well in advance before issuing payment instructions.

(iii)On verification of data and availability of balances in the vostro account of the exchange house the AD-I bank makes the payment to the beneficiary.

(iv)The Exchange House shall address all payment instructions, to the account holding branch irrespective of the beneficiaries’ centre.

(v)The branch shall make no payment unless clear funds are available in the account.

(vi)The AD-I banks shall obtain date-wise information regarding number and aggregate value of such transfers from the Exchange House.

(vii)      Where facility of speed remittance is extended to existing Rupee drawing arrangements, the Exchange House shall open a separate Rupee account with the prior approval of the RBI. No such approval is required where the operations in the existing Rupee drawing arrangements under DDA/ Non-DDA are satisfactory. However, the RBI should be informed in the matter immediately.

(b)        For Exchange Houses, which have not completed three years of operation, collateral cover in cash deposit or bank guarantee equivalent to 7 days’ projected drawings may be obtained. For others, no collateral is prescribed. Further, the Exchange House shall keep with the AD-I banks an additional cash deposit or bank guarantee equivalent to 1 day’s estimated drawings. The deposit should be in the name of the AD-I banks with interest payable to the Exchange House. The amount of deposit and guarantee should be periodically reviewed and properly monitored in order to ensure adequacy of cover.



SECTION IV


Foreign Currency Drawing Arrangements


AD-I banks may enter into foreign currency drawing arrangements under DDA or Non-DDA procedure with those Exchange Houses with whom they have Rupee Drawing Arrangements (RDAs), with prior approval of the RBI. Each tie-up arrangement of an AD-I bank with an Exchange House is required to be approved by the RBI. The conditions are:

(a)        Exchange Houses shall draw drafts in any convertible foreign currency only on ‘A’ or ‘B’ category branches of AD-I banks.

(b)        The foreign currency drawing arrangement shall be kept distinct from the Rupee drawing arrangement.

(c)        A separate foreign currency vostro account of the Exchange House shall be opened. Payment of drafts shall be made by debit to this account.

(d)        The aggregate amount of drafts drawn by the Exchange House on any day should be credited to the nostro Account of the drawee bank latest by close of business on the second working day.

(e)        The account maintaining branch of the drawee AD-I banks should credit foreign currency vostro account of the Exchange House on receipt of confirmation regarding credit to their nostro account.

(f)        AD-I banks should ensure that foreign currency accounts are funded at all times.

(g)        If the arrangement is under the Non-DDA procedure, the Exchange House should communicate the number and value of drafts drawn, to the account maintaining branch, before close of the following working day. Under DDA procedure, such information may be obtained at least twice a week.

(h)        Exchange Houses should keep a deposit of not less than USD 50,000 with the drawee AD-I bank. The amount of deposit should be reviewed every six months in order to ensure adequacy of cover and if found necessary the quantum of the deposit should be increased. AD-I banks should allow interest on this deposit.

(i)         AD-I banks are allowed to keep the amount of deposit in all cases, with the Account maintaining branch.



SECTION V


Miscellaneous Provisions


1. AD-I banks should adhere to the KYV/AML/CFT Guidelines issued by the RBI, while undertaking any transaction under Rupee/ Foreign Currency Drawing Arrangements, as applicable.

2. AD-I banks should keep RDA/FCDA under concurrent audit  to ensure that credit to the vostro account of the Exchange House takes place before payments are made.

3. Exchange Houses should submit an annual compliance report duly certified by their auditors to the AD-I banks  regarding adherance to the home country KYC/ AML/ CFT regulations.

4. AD-I banks should inform RBI of any unusual operations by exercising constant vigil.

5. AD-I banks shall ensure that expired licenses of the Exchange Houses, are renewed and copies of authenticated English versions placed with them for their record.

6.The Exchange Houses should not enter into any arrangement with service providers for their back office operations in India. However, they can establish liaison offices in India. Operations such as printing of drafts, issuance of drawing advices and stop payment instructions can be undertaken by such offices with the prior approval of the RBI.


7.         AD-I banks should obtain approval of the RBI for maintaining accounts of Exchange Houses whose name and constitution, etc., undergo changes.


SECTION VI


Internal Control and Monitoring of Accounts


1.         Dealings with Exchange Houses should be strictly on credit basis at all times and no overdraft should be granted to the account holders.

2.         AD-I banks are required to inspect the vostro accounts of Exchange Houses on a half-yearly basis through experienced officers. Observations thereon shall be included in the annual review of the accounts submitted to the Board.



Based on RBI master circular dated 1/7/2015. Please refer www.rbi.org for further details if required……………….Poppy