Banking Awareness : Types of Foreign Accounts in India

In this post, we would be covering one of the very important topics of the banking awareness section : Types of Foreign Accounts In India. We would be defining all types of foreign accounts.

This is to aid your preparation for the banking awareness related questions for the upcoming IBPS exams. You can save this article as a PDF to keep these notes handy for revision.

1. Non-Resident Ordinary Accounts (NRO)

Non-resident ordinary accounts can be opened either by money received from abroad in foreign exchange or out of rupees earned in India. When an Indian resident goes abroad for job / employment his local account will automatically be designated into a non resident ordinary account by bank. Funds held in the account can normally be utilized only in India. NRO accounts can be maintained in any form like savings account, fixed deposit, recurring deposit account, etc. One important point to note is that even pure non residents who are neither Indians nor Persons of Indian Origin can maintain NRO accounts.

2. Non-Resident External Rupee Accounts  (NRE)

The NRE account can be opened only with money received from abroad and not from local rupee sources. There can be joint holder to the account but not with residents. The joint account holder should also be a non resident. The funds held in the account can be freely repatriated outside India without limit and without any approval from RBI. Since the account is maintained in rupee, for repatriation purpose the Rupee will be converted into the desired foreign currency at the prevailing rate of ex­change.

Interest earned on the account is free from income tax. The account can be main­tained as savings bank account, fixed deposit, recurring deposit, etc. The fixed de­posit account should be for a minimum period of one year and for a maximum period of 3 years.

3. Foreign Currency Non-Resident Accounts

FCNR Accounts are term deposit accounts. They can be maintained in four currencies: US Dollar, Pound Sterling, and Japanese Yen. Presently it can be main­tained in the new European Currency “Euro” also. They can be maintained for period ranging from one year to 3 years.

They are paid back in the same currencies and are reparable. The account is maintained in foreign currency and paid back in the same currency. Hence, there is no conversion of currency when balance is repatriated outside India.

Resident Foreign Currency Accounts

Usually residents are required to maintain their bank ac­counts in Indian rupee only. However the  Reserve Bank has permitted to maintain foreign currency accounts. The main advantage of resident foreign currency account is that depositor can use the funds for personal and business purposes without buying foreign currency from banks at the ongoing market rate. These are mainly of the following type:-

1. Resident Foreign Currency Accounts

These are accounts of resident individuals, who had come back to India after being abroad as NRIs for some time. He/she may sell his foreign assets like securities, property etc., at the time of return to India. This foreign exchange can be used to open the RFC accounts.

These accounts can be maintained in any foreign currency of the choice of depositors. No permission from Reserve Bank is necessary for maintaining this account.

2. Resident Foreign Currency (D) Accounts

RFC (D) account can be maintained by any resident individual even when he had not been abroad at any time. One can open a foreign currency account with a bank in India out money received from your relatives living outside India.

3. Exchange Earners’ Foreign Currency Accounts

These accounts can be maintained by residents who happen to receive money from abroad in foreign currency. This account can be opened by individuals or corporates. One important difference between this account and the RFC account is that the EEFC account can be opened only out of foreign exchange earned.

Hope this helps.

All the best!