ARMY INSTITUTE OF LAW

NRI BANKING
SUBMITTED IN PARTIAL FULLFILMENT OF THE REQUIREMENT FOR THE
DEGREE OF B.A.L.L.B FOURTH YEAR 2017-18

SUBMITTED TO: SUBMITTED BY:

ASST. PROF RAMNEEK KAUR PALLAVI SUPEHIA
1442
 Acknowledgement

This is to acknowledge that I have not done this project entirely on my own and would have
never been able to finish it had it not been for the internet primarily. The human brain is a
beautiful thing given to us by god and it is to the creations made by the greatness of this brain
that I am very thankful. I would of course like to thank my Land Laws Professor Mrs.
Ramneek Kaur for letting me do my project on the topic that taught me so much. It is also
acknowledged that this project wouldnt have been a possibility without my parents and
friends who constantly breathed me to life during the course of my life and otherwise.

SUBMITTED TO: SUBMITTED BY:

Mrs. RAMNEEK KAUR PALLAVI SUPEHIA
ASST .PROF BANKING LAWS 1442

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 Index
S.no Heading Page no
1. Introduction 3

2. Definition of an NRI 4

3. 5

4. 7

5. 8

6. 9

7. Conclusion 10

8. Bibliography 12

2
1. INTRODUCTION

NRI accounts are maintained by banks which hold authorized dealers' licences from the
Reserve Bank of India. Some cooperative and commercial banks have also been specifically
permitted to maintain NRI accounts in rupees even though they are not authorized dealers.
The financial budget for 2007-08 extends NRI accounts to regional rural banks (RRBs) as
well. This would boost remittances from NRIs particularly in Bihar, Kerala, Uttar Pradesh
and Gujarat where a large number of persons from rural areas from these states are employed
overseas.

The Oxford Dictionary defines Remittance as A sum of money sent in payment or as a

gift.1 In business terms it means, Transfer of funds, usually from a buyer to a distant seller,
instrument of transfer (such as a check or draft), or funds so transferred.2 In general
parlance, Remittances are the money injected into the economy by the NRIs while they are
living outside the country.

Remittances are generally undertaken to facilitate maintenance of families which live in India
or for the property. NRIs send $70 billion approx (Rs 4.2 Lakh crores) every year to India.
This amount is just 25% far away to the contribution that the Central Government itself
makes. The fact that the remittances made are in the form of dollars, they act as cushions to
currency risks by making sure that there is no shortage of money for the economy.

India is the highest remittance receiving country, 3 America being the highest remittance
source country. NRIs are often seen as a source of Brain Drain and a weight on the economy
of the nation, but truly they have a bigger role to play than what they have been most
popularly portrayed to have.
It is injection in the economy made by these non-resident players that schemes of NRI
banking exist. Easily repatriable monetary accounts are a win- win situation for all which it
the main motive of NRI banking. Truly, NRIs are the unspoken champions of the Indian
Economy.

1
Remittance, OXFORD DICTIOANRIES, Available at: https://en.oxforddictionaries.com/definition/remittance (Last
seen on 13 September 2017).
2
Remittance, BUSINESS DICTIONARY, Available at:
http://www.businessdictionary.com/definition/remittance.html, (Last seen on 13 September 2017).
3
India top remittance receiving country in 2016, THE HINDU 15 June 2017, Available at :
http://www.thehindu.com/news/international/india-top-remittance-receiving-country-in-2016-un-
report/article19053537.ece (Last seen on 13 September 2017)

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2. DEFINITION OF AN NRI?
The definition of NRI can be derived from 2 different authorities.

a. Income Tax Act, 1961

Section 6 of Act states that there are 3 types of Residential statuses. One must keep in
mind that a Residential status has nothing to do with the Nationality of a person; these
statuses are only for the purpose of evaluation of tax and other fiscal purposes.
1. Resident and Ordinarily Resident (ROR)
2. Resident and Not Ordinarily Resident (RNOR)
3. Non-Resident Indian (NRI)
One is a resident (ROR/RNOR) if he falls in any of the following 2 categories:

1. You are in India for 182 days in the financial year; OR

2. You are in India for 365 days in 4 preceding financial years AND 60 days in the
financial year

This doesnt apply to people who have left India for employment or are a member of crew
of Indian merchant ship. This also doesnt apply to people who are Persons of Indian
Origin (PIO).

If one doesnt qualify for any of these conditions he is an NRI under the Income Tax Act.

b. Foreign Exchange Management Act , 1999

FEMA only categorizes people into either Residents or Non-residents. FEMA defines
persons resident in India it reads similar to the Income Tax Act.4 A negative definition
of Non- residents is given i.e. a person who is not resident in India.5 Those who qualify
as NRIs under the FEMA definition are eligible for availing NRI banking options, as the

4
Section 2 (v), Foreign Exchange Management Act, 1999: Person resident in India" means
a person residing in India for more than one hundred and eighty-two days during the course of the preceding
financial year but does not include
a person who has gone out of India or who stays outside India, in either case
(a) for or on taking up employment outside India, or
(b) for carrying on outside India a business or vocation outside India, or
(c) for any other purpose, in such circumstances as would indicate his intention to stay outside India for an
uncertain period;
a person who has come to or stays in India, in either case, otherwise than
for or on taking up employment in India, or for carrying on in India a business or vocation in India, or
for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain
period;
(a) any person or body corporate registered or incorporated in India,
(b) an office, branch or agency in India owned or controlled by a person resident outside India,
(c) an office, branch or agency outside India owned or controlled by a person resident in India;
5
Section 2 (w), Foreign Exchange Management Act, 1999: "person resident outside India" means a person who is not
resident in India.

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 definition of an NRI under Income Tax act is generally only used to assess the tax
liability of an Individual.

The schemes of NRI banking are available to Persons of Indian Origin (PIO) also. A
Person of Indian Origin (PIO) means a citizen of any country other than Bangladesh or
Pakistan who had (a) at any time held Indian passport or (b) he or either of his parents or
any of his grandparents was a citizen of India by virtue of the Constitution of India or the
Citizenship Act, 1955 or (c) the person is a spouse of an Indian citizen or a person
referred to in (a) or (b).6

3. TYPES OF ACCOUNTS
Once a resident becomes an NRI, he cant hold a regular resident account. Banks have a
special type of banking system for NRIs. There are three major kinds of Accounts that an
NRI can hold:

1. Non-Resident External Account (NRE)

Such an account caters to the needs of the people who want savings in INR so that they are
easily repatriable (i.e. returning to the country of origin) and people who want to park their
earnings ready to be converted into Indian rupees. This account helps to maintain savings in
rupee and still keep them in liquid.

This is a type of account which can be made by a person as soon as his status changes from a
resident to an NRI.

There are different variants of such an account like saving and fixed accounts. Such an
account can be held jointly with a resident (close relative only)/ non-resident. The holder of
such accounts can transfer the authority of the account via a Power of Attorney. The interest
earned on the principal amount is Tax free in India till repatriated.7

2. Foreign Currency (Non- Resident Indians) FCNR (B) Account

The account can be opened with funds remitted from abroad, or transferred from an existing
NRE/FCNR account. FCNR accounts can be opened with designated currencies, which are:

6
Regulation 2 of FEMA Notification No.13 dated May 3, 2000.
7
Banking Accounts, ICICI BANK, Available at: https://www.icicibank.com/nri-banking/bankAccounts/bankacount-
overview.page (Last seen on: 13 September 2017)

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GBP, USD, Deutsche Mark, Japanese Yen and the Euro. Conversion to another designated
currency is permitted at a cost to the account holder. Only term deposits can be maintained in
FCNR accounts, in a time range of 6 months to 3 years.

For conversion of currencies, from designated currency to rupees and vice versa, the days
rate of conversion will apply. Funds from the FCNR account are allowed to move within the
country at no extra cost to the account holder. For loans and overdrafts against FCNR
accounts, the same conditions as the NRE accounts apply.8

On maturity, these accounts are converted to either an RFC account or the Resident Rupee
Deposit account. As for joint accounts, the same rules as those for NRE accounts apply to
FCNR deposits too.

3. Non- Resident Ordinary Account (NRO)

Such an account caters to the need of people who still have money being accrued in India
while they are in the foreign land e.g. via property rent etc.

The money held in such accounts is not as easily repatriable as the one in NRE Accounts.
Reparability usually extends only to the interest earned on the principal amount.

The money put in such accounts is taxable under Indian law. Such accounts can be held
jointly with residents and non- residents. Making payments in INR is relatively easy through
this account.

The only difference between NRI Accounts and Resident accounts is that the average
monthly balance to be maintained is way higher in NRI Accounts.

Once the holder of the account repatriates, the accounts too are converted into resident
accounts. Funds can easily be transferred from a resident account to either of the two
accounts and also mutual transfers are possible.

8
Compare NRI accounts, HSBC; Available at: http://www.hsbc.co.in/1/2/personal/nri-services/compare-nr-accounts
(Last seen on: 13 September 2017)

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 4. NRI Loans

NRI loans are no different than any other loans. Following enumerate the steps for NRI loans:

I. Loan Eligibility

The NRI should be aged 18 years or above and must hold a valid Indian passport. He/She
should be employed abroad for 2 years or more or should have any other steady source of
income. He must also possess a valid work permit.9

II. Evaluate Interest Rates

One should carefully evaluate interest rates of different banks and then fill out the loan
application. The interest rates are generally higher for NRIs/PIOs availing loans than
residents of India. Interest rates can vary from bank to bank.10

III. Loan Application

The applicant is required to submit the following documents:

1. Know Your Customer (KYC) which will include passport and visa forms.
2. Proof of identify
3. Proof of residence in India and foreign land address proof, verified by your employer
4. Property tax receipt/ Passport/ Voters ID card
5. Proof of business address for non-salaried individuals
6. Statement of Bank Account, Non-Resident External and Non-Resident Ordinary
7. Signature identification from present bankers
8. Personal Assets and Liabilities statement
9. Details about the employment: Work permit appointment letter, work experience
certificate, a qualification certificate is also very important
10. A notarised General Power of Authority (GPA)

9
NRI laons, ONLINE SBI, Available at: https://www.onlinesbi.com/nri/loans/sbinri_lon_homlon.html (Last seen on:
13 September 2017)
10
NRI banking, ICICI, Available at: https://www.icicibank.com/nri-banking/loans/homeLoans.page Last seen
on: 13 September 2017)

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IV. Appraisal by Bank

The bank will go through the loan application and check for the documents
annexed. If the application is full and complete the applicant will be referred to
the next step of availing a loan.

V. Legal Evaluation of Documents

All the documents annexed are legally evaluated, ground checks are undertaken to check if
the documents provided are legally correct or not.

VI. Valuation Check

The valuation of the securities and collaterals is checked, i.e. what is the value of the regular
source of income that is submitted as a security for the purpose of availing the loan.

VII. Loan Agreement

The terms of the loan are agreed upon, as in how will the loan be disbursed etc.

VIII. Loan Sanction

The bank will sanction the loan i.e. give approval to the money demanded for, subject to the
prior completion of the previous step and legal evaluation of the documents attached.

IX. Loan Disbursement

The repayment of the loan has to be done in Indian currency and can be paid only through
NRE or NRO accounts with remittance from abroad.
The GPA holder has to be present in person, in the bank premises, at the time of
disbursement of the loan.

Co-applicant
A co-applicant and General Power of Authority are compulsory. A GPA holder either has to
be a co-applicant or guarantor to the loan, with certain exceptions. The guarantor to the loan
is a must when a local resident is not available as a co-applicant.

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Tenure

While a resident can get maximum loan tenure of 30 years, for an NRI, it ranges between five
and 20 years.

CONCLUSION

Non resident Indians have a huge part to play in the growth of the economy. They help not
only by promoting the Indian culture and tourism but also by introducing world methods of
employment and labour to India. They bring in more advance technology and a rather
superior work culture.

They inject the Indian economy with remittances and give an unprecedented and unparallel
boost to the economy. Remittances refer to the money transferred from a distant place as a
gift or otherwise. Mainly the remittance being for the maintenance of the properties and
family members left behind there are no negative repercussions to the amount so received by
via remittances.

To facilitate remittance and reparability of the money put into bank accounts NRI banking
services are a must. Also, the chances of the money being in dollars in these bank accounts is
very high the need for world class services is even more increased.

There isnt too much of difference between NRI banking and resident banking except for few
main differences like the interest rate is often higher for NRI loans and bank accounts, the
account can be jointly held by a resident and a Non- resident. The resident is more than often
allowed to hold General power of Attorney on behalf the NRI and he is allowed to act on
behalf of the NRI by stepping into the shoes of the NRI himself. This is often encouraged in
the case of NRI accounts so that it is easy to book someone in case of any default or
difficulty. Loan disbursements are also undertaken by the GPA holders, they have almost all
the rights as the true owner himself.

The minimum maintenance amount in case of an NRI account is more than what is for a
regular resident account. The penalties and amounts of other charges can also be very high in
case of an NRI account holder.

Otherwise NRI banking is very similar to resident banking where by Savings, Current,
Recurring or Fixed Deposit accounts are possible to be held by the owners of the account,
jointly or by their own selves

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There are 3 basic kinds of bank accounts that can be held by an NRI. They can also hold as
many number of accounts as they please and can hold them in multiple number of countries
as well.

Banking laws for NRIs are directly governed by either the regulations of Reserve Bank of
India or Foreign Exchange Management Act, 1999 which deliberates on how are foreign
investments made in India.

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BIBLIOGRAPHY

ACTS
1. Income Tax Act, 1961
2. Foreign Exchange Management Act, 1999

DICTIONARIES

1. OXFORD DICTIOANRY, 8 th Edition, Available at: https://en.oxforddictionaries.com

2. BUSINESS DICTIONARY, Available at: http://www.businessdictionary.com/ ,

NEWSPAPERS

1. THE HINDU, 15 June 2017

WEBSITES

1. ICICI Bank, Available at: https://www.icicibank.com/

2. HSBC Bank, Available at: http://www.hsbc.co.in/
3. SBI Bank, Available at: https://www.onlinesbi.com /

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