TaxTMI 
TaxTMI 
Memorandum of Instructions for Opening and Maintenance of Rupee / Foreign Currency Vostro Accounts of Non-resident Exchange Houses
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....tenance of rupee / foreign currency Vostro accounts of non-resident Exchange Houses. Accordingly, the Memorandum of Instructions containing procedural instructions has been rationalized. The revised instructions are annexed (Annex-I). 3. AD Category - I banks may bring the contents of this circular to the notice of their constituents concerned. 4. The directions contained in this circular have been issued under Section 10(4) and Section 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and is without prejudice to permissions / approvals, if any, required under any other law. Yours faithfully, (Salim Gangadharan) Chief General Manager Annex-I [Annex to A. P. (DIR Series) Circular No. 28 dated February 06, 2008] MEMORANDUM OF INSTRUCTIONS FOR OPENING AND MAINTENANCE OF RUPEE/ FOREIGN CURRENCY VOSTRO ACCOUNTS OF NON-RESIDENT EXCHANGE HOUSES Prior approval of the Reserve Bank is required to be obtained by Authorised Dealer Category-I banks for opening and maintaining rupee/ foreign currency vostro a....
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....e rupee vostro accounts. i. The accounts can be used for channeling inward remittances to India primarily on private account. The remitter and the beneficiary (in most cases) should be individuals. Remittances through Exchange Houses for financing of trade transactions are permitted up to Rs 200,000 (Rupees two lakh only) per transaction. The accounts should not be used for outward remittances from India. ii. The accounts should run on a credit basis. No overdraft should be granted to the account holders. However, in case of Designated Depository Agency (DDA) procedure, the funds lying in the DDA A/c may be taken into account, if need be. AD Category - I banks shall adopt value dating where on-line debit to Rupee Vostro Account is not possible on a real time basis when any payment is made at drawee branches, to check adequacy of funds and detect concealed overdrafts. However, the drawee branches should be networked at the earliest. iii. Separate Rupee Vostro account shall be maintained for each arrangement. The accounts should be funded by sale of permitted foreign currency to the AD Category - I bank, which maintains the account. Rupee funds transferred from another Autho....
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....s are primarily designed to channel inward personal remittances. Under no circumstances, donations / contributions to charitable institutions should be routed through the Exchange Houses. The following is the list of permissible transactions under Drawing Arrangements with Exchange Houses. 1. Credit to Non-resident (External) Rupee accounts maintained by Non-resident Indians in Indian Rupees. 2. Payments to families of Non-resident Indians. 3. Payments in favour of Insurance companies, Mutual Funds and the Post Master for premia / investments. 4. Payments in favour of bankers for investments in shares, debentures. 5. Payment to Coop. Housing Societies, Govt. Housing Schemes or Estate Developers for acquisition of residential flats in India inindividual names subject to compliance of regulations thereof by the Non-resident Indians. 6. Payments of tuition/ boarding, examination fee etc. to schools, colleges and other educational institutions. 7. Payments to medical institutions and hospitals for medical treatment of NRIs / their dependents and nationals of Gulf Countries in India. 8. Payments to hotels by nationals of Gulf countries / NRIs for their stay. ....
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.... for at 1 (ii) above up to the date of transfer to the Nostro account of the drawee bank will accrue to the Exchange House. vii. To ensure compliance of the above, the drawee bank in India will appoint a firm of practicing Chartered Accountants/ Auditors operating in the country concerned to examine the daily drawings and deposits in the accounts with the DDA as well as transfer to the Nostro account of the drawee bank. For this purpose, the Exchange House will undertake to allow the auditors to inspect the books, pay in vouchers, etc., of the Exchange House in so far as they pertain to rupee drawing arrangement. Such inspections will be done at least once or twice in every week by the auditors. viii. As an alternative to the appointment of auditors as mentioned in paragraph 1 (vii) above, the AD Category - I bank may depute a suitable official as their representative to the Exchange House to take up such functions so as to safeguard the interests of the AD Category - I bank. ix. The auditors / representative will promptly report the findings to the drawee bank. In case of default on the part of the Exchange House, the drawee bank will as per terms and conditions of agreem....
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....House funds their vostro account with the AD Category - I bank by purchasing Rupees from the AD Category - I bank against USD for the total of drafts issued by them at periodic intervals and sends a weekly statement of drawing and funding to the AD Category - I bank. Collateral Cover : The Exchange House shall keep a cash deposit of USD equivalent to 15 days drawings on moving average basis in India or abroad. 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 Exchange House shall also furnish a bank guarantee from an international bank of repute for an equivalent amount. The amount of deposit and guarantee should be periodically reviewed and properly monitored by the AD Category - I banks to ensure that the collateral covers adequately the drawings and account for the pipeline debits evaluated. If there is a restriction on the bank's right to depute its own staff for examination of books of the Exchange House, as was in case of Exchange Houses in Kuwait, additional cash deposit/ guarantee from a bank of international repute equivalent to 15 days estimated drawings ma....
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....y have Rupee Drawing Arrangements (RDAs). i) Exchange Houses shall draw drafts in any convertible currency on 'A' or 'B' category branches of AD Category - I bank. No 'C' category branch is allowed to participate in the arrangement. ii) The foreign currency arrangement shall be kept distinct from the rupee drawing arrangement. iii) 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. iv) 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. v) 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. vi) AD Category - I banks should ensure that foreign currency accounts are funded at all times. If the arrangement is under Non-DDA procedure, the Exchange Ho....
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....uch 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 their back office operations in India such as printing of drafts, issuance of drawing advices and stop payment instructions can be conducted by the liaison offices in India with prior approval of the Reserve Bank. (vii) AD Category - I banks should obtain approval of the Reserve Bank for maintaining accounts of such Exchange Houses whose name and constitution etc. undergo change. (F) Internal Control and Monitoring of Accounts (i) AD Category - I banks should put in place adequate internal control and a system of monitoring of accounts as per the extant instructions. Dealings with Exchange Houses should be strictly on a credit basis at all times. (ii) Self-inspection of the vostro accounts of Exchange Houses :- AD Category - I banks are required to cause inspection of the vostro accounts of Exchange Houses on a half-yearly basis through experienced officers. The inspection reports should be carefully gone through by the competent a....
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....he 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) 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 Guidelines by Exchange Houses (c) financial losses suffered if any 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 operations in the account), (h) internal control and risk management system, (i) overdrafts and interest collected. An extract of directions, if any issued by the Board should be forwarded to the Reserve Bank along with the Annual Review note. While submitting the annual review note, the particulars such as (a) complete particulars of Drawing Arrangements (DDA/ Non-DDA / Speed Remittance) AD Category - I ba....
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....; if any 1. Name of the applicant bank 2. Existing arrangements(s) (i) Name of Exchange House (EH) (ii) Since (iii) No. of drawee branches (iv) Business turnover for the previous three calendar years 3(a) Details of branches having multiple EH drawing arrangements 3(b) Furnish comments with regard to adequacy of internal control systems put in place at those branches. (Attach a sheet if necessary) 4. Financial losses sustained if any during last five years (April-March) (i) Year (ii) Name of the EH (iii) Amount of loss (iv) Particulars of loss (v) Ref. Nos. and dates lodged with RBI and RBI's permission to write off 5. ....
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....ued by the Central Bank/ Supervisory Authority of the country concerned : a) License no b) Date of issue c) Validity period d) Special conditions, if any 6. Particulars of licenses issued by Municipal Authorities and/or any other Government regulatory/ controlling authority (Applicable to EHs in UAE) a) Licence No b) Date of issue c) Validity period d) Special conditions if any 7. Confidential opinion in brief recorded by a) Embassy of India in the country b) Bankers of the EH i) -------------------------------------- Name of the banker ii) ------------------------------------ Name of the banker 8. Is the applicant bank fully satisfied about a) the competence of the company/firm/people managing&nbs....
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.... firms / companies associated with the EH. (ii) our branches already having DD drawing arrangements with other EH(s) and which are now proposed to be covered under the proposed arrangement with the above EH viz……………………… have sufficient expertise to handle business emanating from one more EH. iii) We have put in place adequate internal control and risk management system which are working satisfactorily. iv) The particulars given above are true and correct to the best of our knowledge and belief. ( ) General Manager Address Place Date Annex-III [Annex to A. P. (DIR Series) Circular No. 28 dated February 06, 2008] Statement A Name of the Authorized Dealer Cat-I : Full address : Name of Exchange House : Particulars of oper....
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.... the statement. Statement countersigned by certifying that it has been internally reviewed in the bank and the conduct of the account is considered satisfactory. _________________________ ______________________________________ Chief Manager of the Account Signature of the General Manager - in-Charge of Maintaining Branch International Division /International Operations in &nb....
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.... have been duly suspended and closure of the accounts is being followed up. __________________________ General Manager-in-Charge of International Division/ International Operations in the AD Cat-I Annex- V [Annex to A. P. (DIR Series) Circular No. 28 dated February 06, 2008] Statement C Monthly statement regarding particul....
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.... of Exchange Houses are conducted strictly in accordance with the guidelines issued by RBI and in terms of the relative agreements with the Exchange Houses concerned. (c) Copy of the statement has been sent to the General Manager-in-Charge foreign correspondent relationship and Department/ Office-in-Charge- Nostro account of our bank. (d) We confirm that we have not received any adverse report/ warning signals from the General Manager of our International Department about the Exchange House whose accounts are maintained by us at the time of filing the statement to RBI. ________________ Chief Manager of Statement countersigned certifying that Account Maintaining it has been internally reviewed in the Branch  ....