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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....uitably indicated. 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 Annex- IV Statement C Annex- V Statement D Annex- VI Statement E Appendix PART-A SECTION I Operations of Rupee Vostro Accounts of Non-Resident Exchange Houses 1. Introduction Authorised Dealer Category-I (AD Category-I) banks may obtain prior approval of the Reserve Bank the first time they enter into Rupee Drawing Arrangements (RDAs) with non-resident Exchange Houses from Gulf countries, Hong Kong, Singapore, Malaysia and all other countries which ar....
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....ent 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) The normal banking requirements of registration of Power of Attorney/ specimen signatures of signing officials of the Exchange Houses should be observed. 4. Instructions regarding operations in the Rupee vostro accounts (a) The accounts can be used for 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. 15,00,000(Rupees fifteen lakhs only) per transaction. The accounts should not be used for cross-border outward remittance....
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....1). (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-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-I 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. SECTION II Permitted Transactions 1. Drawing Arrangements with Exchange Houses are primarily designed to channel cross-border inward personal remittances. Under no circumstanc....
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.... 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) Remittances to the Prime Minister's National Relief Fund subject to the condition that the remittances are directly credited to the Fund by the banks and the banks maintain 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 AD Category-I Bank (termed as 'Partner Bank') having RDA with Non Resident Exchange Houses may be credited directly to the account of the beneficiary held with a bank other ....
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....ble 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 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 cur....
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....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 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-I banks may secure their position by acquiring adequate colla....
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....rawings 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 Exchange House shall address all payment instructions to the account holding branch of the AD Category-I bank irrespective of the beneficiaries' centre. (v) The branch shall make no payment unless clear funds are available in the account. (vi) The AD Category-I 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....
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....rate 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 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. (h) Collateral cover: Exc....
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....ces 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 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 authorities in AD Category-I banks so that prompt corrective action is initiated. Observations thereon shall be included in the annual review of the accounts subm....
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....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 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) that the AD Catego....
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.... for entering into the arrangement. (vii) Copy of letter from the Exchange House regarding the proposal to enter into the Rupee/ Foreign Currency Drawing Arrangement along with the provision of collateral, wherever necessary. Part I- Particulars of the applicant bank and its existing arrangement(s), 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. 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 ....
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.... Reasons for entering into RDA (b) Projections of business turnover (quantify monthly 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. No of drawee branches to be included in the proposed RDA 6. Whether EH is prepared to provide additional collateral cover equivalent to 7 days' projected drawings? (Applicable to EHs which have not completed three 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. ....
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....charge, Foreign correspondent relationship and department / Officer in Charge, nostro account of our bank. E) We confirm that we have not received any adverse report / warning signals from the General Manager of our International Department whose accounts are maintained by us at the time of 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. Annex- III [See PART B , Paragraph 2] Statement B 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. No. Name of the Exchange House Centre/ Country Opening balance in the account Credits if any, during the month Debits if any, during the month Closing balance Any collateral Any other liability detected When the account is likely to be closed Remarks (i.e. brief resume of correspondence to....
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.... progressing annual debit summations or by item 3 above, whichever estimate is higher ) 5 (a) The amount of actual payments made by the principal encashing branches/ offices during the last one week (for adding to estimated pipeline) 6. Funds held abroad either as collateral by the bank or under procedure 7. Surplus/ deficit in balance (s)/ collaterals in the account to cover item 5 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. (d) We confirm that we have not received any adverse report/ warning signals from the General Manager of our International Department about the Exchange....
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.... to the following reasons: iv) The outflows reported above are on account of _______________ and have the approval of RBI vide its letter No. ________________dated ________________. v) The above accounts had all through in credit balances during the quarter under report. vi) Funds in the accounts were sufficient to cover estimated pipeline transactions. vii) Our overseas branches have not extended any line of credit / advances to above/ any of the above exchange houses viii) We are regularly submitting the statements 'A', 'B', 'C', and 'D', as at Annex- II, Annex-III, Annex-IV and Annex-V, respectively to the top management. ix) We have not come across any adverse features about operations in the account of the above / any of the above exchange houses and / or the Rupee and/ or Foreign Currency Drawing arrangement with these Exchange Houses: x) We are keeping a close watch on the means and financial standing of the above exchange houses(s) and as on the date of this report we have no adverse observations on record with us to report to the Reserve Bank. Name of the bank Address Da....