TaxTMI 
TaxTMI 
Master Circular on Memorandum of Instructions for Opening and Maintenance of Rupee/ Foreign Currency Vostro Accounts of Non-resident Exchange Houses
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....tions 6 Miscellaneous Provisions SECTION III.......... Rupee Drawing Arrangement Procedures and Collateral Cover. SECTION IV .... Foreign Currency Drawing Arrangements SECTION V ................ SECTION VI....... Internal Control and Monitoring of Accounts. PART-B............... Reports/Statements. Annex- ................ Application for obtaining permission to enter into Rupee / 7 ..7 13 13 .15 15 17 17 Foreign Currency Drawing Arrangements with Exchange Houses Annex-II --------------- Statement A.... Annex-III Statement B. Annex- IV... Statement C. Annex- V.. Statement D. Annex- VI Statement E. Appendix 8222222222222553 .29 29 .31 .31 **** 33 ... 18 18 ..20 .20 20 ...25 27 .27 2 of 34 PART-A SECTION I Operations of Rupee Vostro Accounts of Non-resident Exchange Houses 1. Introduction Prior approval of the Reserve Bank is required to be obtained by Authorised Dealer Category-I (AD Category-1) banks for opening and maintaining Rupee/ foreign currency vostro accounts in India of non-resident Exchange Houses. The follo....
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....channeling cross-border inward remittances into India primarily on private account. The remitter and the beneficiary should be individuals barring a few exceptions. Remittances through Exchange Houses for financing of trade transactions are permitted up to Rs 2,00,000 (Rupees two lakh only) per transaction. The accounts should not be used for cross-border outward remittances from India. (b) 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-l 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, in such cases, it may be ensured that the drawee branches are networked at the earliest. (c) 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-l bank, which maintains the acco....
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....k, subject to the AD Category-l banks having sound risk management systems and on-line monitoring of funds position to avoid concealed overdrafts in the vostro accounts. Similarly, AD Category-l banks may designate drawee branches beyond 300, provided such branches are under the Core Banking Solution where on-line monitoring of funds position is ensured to avoid concealed overdrafts in vostro accounts, subject to the terms and conditions of Reserve Bank's approval for the tie-up with an Exchange House and the instructions pertaining to RDA issued by the Reserve Bank from time to time. The AD Category-l banks should obtain necessary Board approval before increasing the number of drawee branches beyond 300 and should inform the position to the Reserve Bank, immediately. 6 of 34 SECTION I| Permitted Transactions Drawing Arrangements with Exchange Houses are primarily designed to channel cross-border 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 wit....
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....unt, 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 account. Transfer from the DDA account should be as frequently as possible and is subject to the stipulation as at 1(e) below. (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) on account of transfer to the Nostro account of the drawee bank where the DDA account is maintained with a bank other than the drawee bank, (ii) for crediting the Rupee vostro account of the Exchange House by selling permitted foreign currency to the drawee bank where the DDA account is maintained with the drawee bank. (e) It will be the responsibility of the Exchange House to arrange for the transfer of the sum collected on any particular day to the DDA account. The float period for 8 of 34 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 ....
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....the books of accounts of the Exchange House cannot be inspected, AD Category-l 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-l banks should be at a sufficiently senior level, who are fully conversant with the conduct of the Non-resident Rupee Accounts of the Exchange Houses. (q) Collateral Cover for DDA: For Exchange Houses which have not completed three years of operation, collateral cover in cash deposit in any convertible foreign currency or guarantee from a bank of international repute equivalent to 7 days' projected drawings may be obtained. For Exchange Houses which have completed three years of successful operations, no collateral is prescribed. However, AD Category-l banks may secure their position by acquiring adequate collateral cover. Cash deposit in any convertible foreign currency or a guarantee from a bank of international repute equivalent to 15 days' estimated drawings may be obtained as collateral cover where it is not possible to appoint auditors as mentioned at 1(g) above. The deposit....
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....wherein: (i) The Exchange House sends payment instructions with complete details like name, address, etc., via SWIFT or internet. 11 of 34 (ii) The Exchange House funds the Rupee account through the Nostro account of the AD Category-l bank well in advance before issuing payment instructions. (!!!) On verification of data and availability of balances in the Vostro account of the exchange house the AD Category-l bank issues drafts in favour of the beneficiary or credits the account of the beneficiary. (iv) The Exchange House shall address all payment instructions to the account holding branch of the AD Category-l bank irrespective of the beneficiaries' centre. (v) The branch shall make no payment unless clear funds are available in the account. (b) (vi) The AD Category-l bank 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 Reserve Bank and no payment instructions shall be ex....
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....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-l bank should credit foreign currency vostro account of the Exchange House on receipt of confirmation regarding credit to their nostro account. (f) AD Category-l 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 to the account maintaining branch by any electronic mode, the number and aggregate value of drafts drawn in foreign currency before close of the following working day. Under DDA procedure, such information may be obtained frequently, at least on a bi-weekly basis. 14 of 34 (h) Collateral cover: Exchange Houses should keep a deposit of not less than USD 50,000 with the drawee AD Category-l bank. Adequacy of quantum of deposit kept with the bank should be reviewed every six months on the basis of operations u....
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....p payment instructions can be undertaken by the liaison offices in India with the prior approval of the Reserve Bank. 16 of 34 7. AD Category-l banks should obtain approval of the Reserve Bank for maintaining accounts of Exchange Houses whose name and constitution, etc., undergo changes. 17 of 34 SECTION VI Internal Control and Monitoring of Accounts 1. AD Category-l 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 accounts of Exchange Houses : AD Category-l 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 authorities in AD Category-l banks so that prompt corrective action is initiated. Observations thereon shall be included in the annual review of the accounts submitted to the Board. 18 of 34 PART-B Reports/Stat....
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....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 licences 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 - 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 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 Arrangemen....
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....al, wherever necessary. 21 of 34 Part - Particulars of the applicant bank and its existing arrangement(s), if any Name of the applicant bank 1. 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. 5. 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 Financial disputes if any with EH(s) pending settlement (i) Name of EH (ii) Expected amount of loss (iii) Particulars of loss (iv) Ref. No. & dated of report lodged with RBI 6. Furnish an EH-wise summary of the major irregularities observed in the existing existing drawing arrangements during inspections by Internal Auditors, RBI Inspectors as....
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....nthly projections) 3. The procedure under which the proposed RDA will be conducted (DDA/Non-DDA/Speed) 4. Name and address of the account maintaining Branch 5. 6. No of drawee branches to be included in the proposed RDA Whether EH is prepared to provide additional collateral cover equivalent to 7 days' projected drawings? (Applicable to EHS which have not completed three 24 of 34 years of its operations) 7. Any other information which the bank wishes to furnish in support of this application We hereby certify that - i) the proposed arrangement with.... has been considered by us carefully taking into account the means and standing of the aforesaid EH and we are fully satisfied about the credentials and competence of the persons / 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 s....
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....submitting 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 Maintaining Branch Signature of the General Manager-in-Charge of International Division /International Operations in the bank. 27 of 34 Statement B Annex-III [See PART B, Paragraph 2] Consolidated statement of position of Exchange Houses' accounts to be closed/ under closure (to be submitted by the Account maintaining office through the International Division) Sr. Name of Centre/ Opening Credits Debits Closing Any Any Country balance if any, if any, balance collateral other No. the Exchange House in the during during account the the month month When Remarks the (i.e. brief liability account resume of detected is likely correspondence to be to effect closure closed of the account and item in Col. 8) 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. (a) Notice has been issued to all Exchange Houses regarding closure of the account. (b) There are no pipeline debits or items of recovery in respect of th....
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....cover item 5 (Amount in USD) (Amount in GBP) 8(a) All payment advices received during the month from our paying branches have been taken into account for raising debits in the USD/ GBP accounts of Exchange House. (b) We confirm that the USD/ GBP accounts 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. 30 of 34 (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 Account Maintaining Branch Statement countersigned certifying that it has been internally reviewed in the bank and that the conduct is considered satisfactory. Signature of the General Manager-in-Charge of International Division/ International Operations of the AD C....