DBOD No. Dir. BC. 13/13.03.00/2002-03

July 31 , 2002
Shravana 9 ,1924(Saka)

All Commercial Banks
(excluding RRBs and LABs)

Dear Sirs,

As you are aware Reserve Bank of India has issued Master Directive on Interest Rates on Deposits held in FCNR(B) Accounts, vide DBOD No. Dir.BC. 09/13.03.00/2001-02 dated August 11, 2001. Certain amendments have also been made thereto from time to time. In order to enable the banks to have all existing instructions on the subject at one place a Master Circular has been prepared by incorporating the instructions issued upto 30 June 2002 and has been placed on the RBI website (http://www.rbi.org.in).

2. It may be noted that the instructions contained in the directives/circulars listed in Annexure VI have been incorporated in the Master Circular.

Yours faithfully,

( M.R. Srinivasan)
Chief General Manager-in-Charge

Commercial bank which is an Authorised Dealer in foreign exchange should not pay interest on deposits of money accepted by it or renewed by it under the Foreign Currency (Non-Resident) Accounts (Banks) Scheme, which came into force from 15 May 1993, except in accordance with the rates as specified in the Annexure I hereto and on the terms and conditions specified in the paragraphs below :

The deposits under the Scheme mean "term deposits" received by the bank for a fixed period and withdrawable only after the expiry of the said fixed period and shall also include Reinvestment Deposits and Cash Certificates or other deposits of similar nature.

1. The Scheme covers deposits in Pound Sterling, US Dollar, Japanese Yen and EURO from non-resident individuals of Indian nationality or origin (NRIs), overseas companies, firms, societies and other corporate bodies which are owned directly or indirectly to the extent of at least 60 per cent by NRIs and overseas trusts in which at least 60 per cent of the beneficial interest is irrevocably held by such persons (OCBs).
2. Repatriation of funds in foreign currencies is permitted.
3. The deposits should be accepted under the Scheme for the following maturity periods:

1. One year and above but less than two years.
2. Two years and above but less than three years.
3. Three years only.

Note: Recurring Deposits shall not be accepted under FCNR (B) Scheme.

4. Transfer of funds from the existing NRE accounts to FCNR(B) accounts and vice versa, of the same account holder, is permissible without the prior approval of Reserve Bank of India.
5. A bank should obtain prior approval of its Board of Directors for the interest rates will be offering on deposits of various maturities. Board of Directors of a bank may authorise the Asset Liability Management Committee to fix interest rates on deposits subject to reporting to the Board immediately thereafter.

3. Manner of payment of interest

1. The interest on the deposits accepted under the scheme should be paid on the basis of 360 days to a year.
2. The interest on FCNR (B) deposits should be calculated and paid in the manner indicated below :

1. For deposits upto one year, at the applicable rate without any compounding effect,
2. In respect of deposits for more than 1 year, at intervals of 180 days each and thereafter for remaining actual number of days. However, the depositor will have the option to receive the interest on maturity with compounding effect.

4. Discretion to pay additional interest not exceeding one per cent on deposits of bank's staff

In respect of a deposit accepted in the name of -

1. a member or a retired member of the bank's staff, either singly or jointly with any other member or members of his/her family, or
2. the spouse of a deceased member or a deceased retired member of the bank's staff,

a bank may, at its discretion, allow additional interest at a rate not exceeding one per cent per annum over and above the rate of interest prescribed by the bank subject to following conditions:

1. The depositor or all depositors of a joint account is/are non-resident/s of Indian nationality or origin, and;
2. The bank should obtain a declaration from the depositor concerned that the moneys so deposited or which may, from time to time, be deposited, shall be moneys belonging to the depositor as stated in clauses (a) or (b) above.

5. Premature withdrawal of deposits

i) Banks on request from the depositor should permit premature withdrawal of deposit under the FCNR(Banks) Scheme. Banks are free to levy penalty for such premature withdrawal at their discretion. Banks may also, at their discretion, levy penalty to recover the swap cost in the case of premature withdrawal of FCNR(B) deposits. Where premature withdrawal of FCNR(B) deposits take place before completion of the minimum stipulated period in which case no interest is payable, banks may at their discretion levy penalty to cover the swap cost. However, the components of penalty should be clearly brought to the notice of the depositors at the time of acceptance of the deposits. If the depositors are not informed of the penalty provisions at the time of acceptance of deposits, the exchange loss arising out of premature withdrawal will have to be borne by the banks.

ii) Conversion of FCNR(B) deposits into NRE deposits or vice-versa before maturity should be subject to the penal provision relating to premature withdrawal.

6. Payment of interest on overdue FCNR(B) Deposits :

Banks may, at their discretion, renew an overdue deposit or a portion thereof provided the overdue period from the date of maturity till the date of renewal (both days inclusive) does not exceed 14 days. The rate of interest payable on the amount of the deposit so renewed should be the appropriate rate of interest for the period of renewal as prevailing on the date of maturity or on the date when the depositor seeks renewal, whichever is lower. In the case of overdue deposits where the overdue period exceeds 14 days and if the depositor places the entire amount of overdue deposit or a portion thereof as a fresh FCNR (B) deposit, banks may fix their own interest rates for the overdue period on the amount so placed as a fresh term deposit. Banks will have freedom to recover the interest so paid for the overdue period if the deposit is withdrawn before completion of minimum stipulated period under the scheme, after renewal.

7. Advances against FCNR(B) deposits - Manner of charging interest

(a) When a loan or an advance is granted against a FCNR(B) term deposit which stands in the name of:

1. the borrower either singly or jointly;
2. one of the partners of a partnership firm and the advance is made to the said firm;
3. the proprietor of a proprietary concern and the advance is made to such a concern;
4. a ward whose guardian is competent to borrow on behalf of the ward, and where advance is made to guardian of the ward in such a capacity;

a bank would be free to charge a rate of interest without reference to its own Prime Lending Rate (PLR).

A bank, at its discretion, may charge a rate of interest less than what was prescribed above in the case of advances upto Rs.3 lakhs, when converted notionally in Rupees at the time of granting advance, to a member or a retired member of the bank's staff or the spouse of a deceased member/retired member of the bank's staff against his/her term deposit specified in paragraph (4) above.

(b) When an advance is granted against a term deposit which is not in the nature of sub-clause (a) above

1. a bank would be free to charge a rate of interest without reference to the Prime Lending Rate, provided the advance is upto Rs. 2 lakhs, and
2. if the advance exceeds Rs. 2 lakhs, the bank should charge interest at the rate prescribed in terms of Reserve Bank of India's directive relating to interest rates on advances issued from time to time.

If the term deposit against which an advance was granted is withdrawn before completion of the prescribed minimum maturity period, such an advance should not be treated as advance against term deposit and interest should be charged as prescribed in terms of Reserve Bank of India's directive on interest rates on advances issued from time to time.

(c) When a loan or advance is granted out of resources mobilized under the scheme, interest rate chargeable should be at the rate as prescribed in terms of Reserve Bank of India’s directive relating to Interest Rates on Advances.

A bank may determine the margin on a case-to-case basis.

9. Interest payable on the deposit of a deceased depositor

In the case of a term deposit standing in the name/s of -

1. at the contracted rate on the maturity of the deposit;
2. in the event of the payment of the deposit being claimed before the maturity date, the bank should pay interest at an applicable rate prevailing on the date of placement of the deposit, without charging the penalty;
3. In the event of death of the depositor before the date of maturity of the deposit and the amount of the deposit is claimed after the date of maturity, the bank should pay interest at the contracted rate till the date of maturity. From the date of maturity to the date of payment, the bank should pay simple interest at the applicable rate operative on the date of maturity, for the period for which the deposit remained with the bank beyond the date of maturity.

However, in the case of death of the depositor after the date of maturity of the deposit the bank should pay interest at a rate operative on the date of maturity in respect of savings deposits held under RFC Account Scheme, from the date of maturity till the date of payment.

4. if, on request from the claimant/s, the bank agrees to split the amount of term deposit and issues two or more receipts individually in the name/s of the claimant/s, it should not be construed as premature withdrawal of the term deposit for the purpose of levy of penalty provided the period and aggregate amount of the deposit do not undergo any change.

In the case of claimant/s being residents, the maturity proceeds may be converted into Indian rupees on the date of maturity and interest be paid for the subsequent period at a rate applicable to the deposit of similar maturity under domestic deposit scheme.

10. Addition or deletion of name/s of joint account holders

13. Conversion of FCNR(B) Accounts of the Returning Indians into RFC Accounts/Resident Rupee Accounts - Payment of interest

15. Prohibitions

1. accept or renew a deposit over three years;
2. discriminate in the matter of rate of interest paid on the deposits, between one deposit and another accepted on the same date and for the same maturity, whether such deposits are accepted at the same office or at different offices of the bank, except on the size group basis. The permission to offer varying rates of interest based on size of the deposits will be subject to the following conditions:

1. Banks should, at their discretion, decide the currency wise minimum quantum on which differential rates of interest may be offered. For the term deposits below the prescribed quantum with same maturity, the same rate should apply.
2. The differential rates of interest so offered should be subject to the overall ceiling prescribed.
3. Interest rates paid by the bank should be as per the schedule and not subject to negotiation between the depositor and the bank.

3. pay brokerage, commission or incentives on deposits mobilized under FCNR(B) Scheme in any form to any individual, firm, company, associations, institution or any other person.
4. employ/engage any individual, firm, company, association, institution or any other person for collection of deposit or for selling any other deposit linked products on payment of remuneration or fees or commission in any form or manner.

ANNEXURE-II