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TMI BlogMaster Circular on Memorandum of Instructions for Opening and Maintenance of Rupee/ Foreign Currency Vostro Accounts of Non-resident Exchange Houses (As updated on May 20, 2015)X X X X Extracts X X X X X X X X Extracts X X X X ..... circulars/ notifications for detailed information, if so needed. Yours faithfully, (B. P. Kanungo) Principal Chief General Manager INDEX PART-A SECTION I Operations of Rupee Vostro Accounts of Non-resident Exchange Houses SECTION II Permitted Transactions SECTION III Rupee Drawing Arrangement Procedures and Collateral Cover SECTION IV Foreign Currency Drawing Arrangements SECTION V Miscellaneous Provisions SECTION VI Internal Control and Monitoring of Accounts PART-B Reports / Statements Annex- I Application for obtaining permission to enter into Rupee /Foreign Currency Drawing Arrangements with Exchange Houses Annex-II Statement A Annex- III Statement B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts in India of non-resident Exchange Houses. 3. General Instructions (a) While considering the request of an Exchange House for opening an account in India, the AD Category-I banks concerned should make necessary enquiries about the financial standing of the Exchange House, in accordance with the normal banking practices and satisfy themselves fully in all respects. AD Category-I banks should also ensure that the Exchange Houses hold valid licenses issued by the Local Monetary/ Supervisory Authority concerned and have necessary authority / license to transact currency exchange/ money transfer business. (b) The requirement of registration of the Agreement between the AD Category-I banks and Exchange Houses under the Rupee Drawing Arrangement/ Foreign Currency Drawing Arrangement has been made optional. However, such arrangements should be subjected to comprehensive legal documentation and AD Category-I banks should take care of all necessary legal requirements in this regard. Further, it should be ensured that all the partners of the Exchange Houses are jointly and severally bound to honour the obligations devolving on the Exchange Houses under the agreement. (c) T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible, nor will they be transferable to other AD Category-I banks or to other non-resident accounts maintained with the same AD Category-I bank. (f) Balances in such accounts will not qualify for payment of interest. (g) The branch of the AD Category I bank maintaining the Rupee vostro account of the Exchange House should not credit to the account, Rupees purchased by the latter unless confirmation is received to the effect that the nostro account of the AD Category-I bank has been credited with the counter-value in foreign currency (cf. paragraph 3.3.1 of the Guidelines for Internal Control over Foreign Exchange Business, February, 2011). (h) AD Category-I banks may like to obtain suitable and adequate collateral either in the form of a cash deposit in any convertible foreign currency or guarantee of a bank of international repute, depending on the type of arrangement to take care of the credit and operational risks. (i) A cap of 300 on the number of drawee branches has been prescribed by the Reserve Bank as a prudential measure. However, AD Category-I banks may designate drawee branches beyond 300, provided such branches are under the Core Banking Solution where on-lin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant countries, ii.KYC/AML/CFT and other due diligence concerns should be taken care of by AD banks, iii.Individual Exchange houses which are frequently sending large value trade related remittances must be reviewed and reported to the Reserve Bank of India, iv.AD banks must contact their correspondents that maintain accounts for, or facilitate transactions on behalf of Exchange Houses in order to request additional information regarding high value trade related transactions and the parties involved. The collected details should be kept on record and it may be made available for scrutiny, v.AD banks must ensure that the proceeds of export payment through RDA is applied to the outstanding export finance if any, availed by the exporter from any bank for the concerned export transaction and obtain a declaration to that effect from the exporter. (xi) Payments to utility service providers in India, for services such as water supply, electricity supply, telephone (except for mobile top-ups), internet, television, etc. (xii) Tax payments in India. (xiii) EMI payments in India to Banks and Non-Banking Financial Companies (NBFCs) for repayment of loans. (xiv) Remitta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ECTION III Rupee Drawing Arrangement Procedures and Collateral Cover Rupee Drawing Arrangements can be conducted under the Designated Depository Agency (DDA), Non-Designated Depository Agency (Non-DDA) and Speed Remittance procedures. 1. Designated Depository Agency (DDA) Procedure (a) The Exchange House will be required to open a bank account in a convertible foreign currency (known as DDA account) in the name of the drawee bank (a/c- Exchange House) with an international bank acceptable to the drawee bank at a centre mutually agreed upon or with the drawee bank itself at the branch where the corresponding Rupee vostro account is maintained, with the prior approval of the Reserve Bank. (b) The Exchange House will, at the end of each day, arrive at the total drawings in Indian Rupees for the day and will convert the same into foreign currency which shall be deposited into the account of the drawee bank (a/c-Exchange House) [known as DDA account, as described at 1(a) above] on the next working day before noon. (c) The Exchange House will send to the drawee bank information about the total number and the aggregate value of drafts drawn and daily deposits in the DDA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk 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 Category-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 Category-I banks should call for periodical credit reports, audited balance sheet and profit and loss account of the Exchange House and other relevant information so as to take a decision regarding continuance of accounts in their books. (o) Valid copies of all licenses should also be kept on record by the AD Category-I bank. (p) Since the books of accounts of the Exchange House cannot be inspected, AD Category-I banks should periodically review the arrangement by paying visits to the Exchange Houses and / or by periodical review of opinion reports. The visits of officials from AD Category-I banks should be at a sufficiently senior level, who are fully conversant with the conduct of the Non-resident Rupee A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wait, additional cash deposit in any convertible foreign currency / guarantee from a bank of international repute equivalent to 15 days estimated drawings may be obtained. The deposit should be in the name of the AD Category-I bank with interest thereon at market related rates payable to the Exchange House placing the deposits. The amount of deposit and guarantee should be periodically reviewed and properly monitored by the AD Category-I banks to ensure that the collateral adequately covers the drawings and account for the pipeline debits evaluated. 3. Speed Remittance Procedure (a) AD Category-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 funds the Rupee account through the nostro account of the AD Category-I bank 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 Category-I bank issues drafts in favour of the beneficiary or credits the account of the beneficiary. (iv) The E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank with an Exchange House under Foreign Currency Drawing Arrangements is required to be approved by the Reserve Bank. (a) Exchange Houses shall draw drafts in any convertible foreign currency on A or B category branches of AD Category-I bank. No C category branch is allowed to participate in the arrangement. (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 with the account maintaining branch. Payment of such drafts shall be made by debit to this account maintained by the Exchange House and not to the nostro Account of the AD Category-I bank. (d) The aggregate amount of drafts drawn in foreign currency 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 Category-I bank should credit foreign currency vostro account of the Exchange House on receipt of confirmation regarding credit to their nostro account. (f) AD Category-I banks should ensure that foreign currency accounts ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cated 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 such as issuance of drawing advices and stop payment instructions on their behalf and AD Category-I banks should not act on the instructions of such service providers. However, Exchange Houses can establish liaison offices in India and back office operations in India and activities such as printing of drafts, issuance of drawing advices and stop payment instructions can be undertaken by the liaison offices in India with the prior approval of the Reserve Bank. 7. AD Category-I banks should obtain approval of the Reserve Bank for maintaining accounts of Exchange Houses whose name and constitution, etc., undergo changes. SECTION VI Internal Control and Monitoring of Accounts 1. AD Category-I banks should put in place adequate internal controls and a system of monitoring of accounts as per the extant instructions. Dealings with Exchange Houses should be strictly on credit basis at all times and no overdraft should be granted to the account holders. 2. Self-inspection of the vostro accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the applicant falls before 15th of the succeeding month to which the quarter relates. 6. Annual Review: AD Category-I banks should submit to the respective Regional Office of the Foreign Exchange Department of the Reserve Bank of India, under whose jurisdiction the registered office of the applicant falls by 30th June every year an annual review note covering the period January 1 to December 31 of the previous year, on the vostro accounts of the Exchange Houses maintained by them under the Rupee/ Foreign Currency Drawing Arrangements (RDAs/ FcyDAs) duly approved by their Board. The Review Note should cover various aspects like (a) credit-worthiness of the Exchange House (based on financial statements and market reports), (b) validity of licenses of Exchange Houses and compliance of home country KYC/ AML /CFT Guidelines by Exchange Houses (c) financial losses suffered if any by the AD category I bank on account of transactions, events, disputes, etc., (d) business turnover separately under each arrangement, (e) funding arrangements in respect of vostro accounts, (f) half-yearly inspection of the account of the Exchange House, (g) supervision (system in vogue to monitor ope ..... X X X X Extracts X X X X X X X X Extracts X X X X
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