Deposit account under FEMA and also compliances under NBFC laws in India

1. FEMA –Nature of Foreign Currency A/cs Maintained in India
and
NBFC – Compliances and Issues
CA Murali Krishna G
gmk@gramdhiandassociates.in
Date: 01st Feb 2020
By

2. 01/02/2020
Act
Regulations
Master
Directions
AP (DIR) Series
Circulars
FAQs
Special
permissions
Rules Press Notes
Schematic flow of the Law
2

3. 01/02/20203
Approach to FEMA Transactions
Anti Money-Laundering
Unregulated Deposits
Exchange Control Regulations
Corporate Laws
Income Tax Act
National Interest

4. Rules at glance
Sl.
No.
O R No.
/ R R No.
(if any)
Rule Title Commonly referred as
1. 379/2000 FEM (Encashment of Draft, Cheque, Instrument and
Payment of Interest) Rules, 2000
Encashment Rules
2. 380/2000 FEM (Authentication of Documents) Rules, 2000 Authentication of Documents Rules
3. 381/ 2000 FEM (Current Account Transactions) Rules, 2000 CAT Rules
4. 382/2000 FEM (Adjudication Proceedings and Appeal) Rules,
2000
Adjudication and Appeal Rules
5. 383/2000 FEM (Compounding Proceedings) Rules, 2000 Compounding Rules
6. 677/2000 The Appellate Tribunal For Foreign Exchange
(Recruitment, Salary and Allowances and Other
Conditions of Service of Chairperson and Members)
Rules, 2000
ATFE Rules
7 FEM (Non-Debt Instrument) Rules, 2019 Non-Debt Instrument Rules (FDI
and Immovable Property)
01/02/20204

5. Regulations at Glance (1/3)
Sl. No. O R No./ R R
No. (if any)
Regulation Title Commonly referred as
1 1/2000 FEM (Permissible Capital Account Transactions) Regulations, 2000 Capital Account Transactions
2 2/2000 FEM (Issue of Security in India by a Branch, Office or Agency of a person
resident outside India) Regulations, 2000
IDR Regulations
3 3/2000
3 (R)-2018 (RB)
FEM (Borrowing or Lending in Foreign Exchange) Regulations, 2000
FEM (Borrowing and Lending) Regulations, 2018 (Revised w.e.f 17-12-2018)
ECB Regulations
4/2000 FEM (Borrowing and Lending in Rupees) Regulations, 2000
(Merged with 3/(R) above)
Rupee Borrowing Regulations
4 5/2000/
5 (R) – 2016 (RB)
FEM (Deposit) Regulations, 2016 (Revised wef 01-04-2016) Deposit Regulations
5 6/2000/
6(R) – 2015 (RB)
FEM (Export and Import of Currency) Regulations, 2015 (Revised wef 29-12-
2015)
Currency Regulations
6 7/2000/
7-(R) – 2015 (RB)
FEM (Acuisition and Transfer of Immovable Property Outside India)
Regulations, 2015 (Revised wef 21-01-2016)
Foreign Assets Regulations
7 8/2000 FEM (Guarantees) Regulations, 2000 Guarantee Regulations
8 9/2000/
9 (R) – 2015 (RB)
FEM (Realisation, Repatriation and Surrender of Foreign Exchange)
Regulations, 2015 (revised wef 29-12-2015)
Forex Realization Regulations
9 10/2000/
10 (R) – 2015 (RB)
FEM (Foreign Currency Accounts by a person Resident in India) Regulations,
2015 (Revised wef 21-01-2016)
Foreign Currency accounts
Regulations
10 10A/2014 FEM (Crystallization of Inoperative Foreign Currency Deposits) Regulations,
2014
Foreign Deposits Regulations
01/02/2020
5

6. Regulations at Glance (2/3)
Sl.
No.
O R No./ R R No.
(if any)
Regulation Title Commonly referred as
11 11/2000/
11(R) – 2015 (RB)
FEM (Possession and Retention of Foreign Currency) Regulations, 2015
(Revised wef 29-12-2015)
Possession of Foreign Currency
Regulations
12 12/2000/
12(R) – 2015 (RB)
FEM (Insurance) Regulations, 2015 (Revised wef 29-12-2015) Foreign Insurance Regulations
13 13/2000/
13(R) – 2016 (RB)
FEM (Remittance of Assets) Regulations, 2016 (Revised wef 01-04-
2016)
Remittance of Assets Regulations
14 14/2000/
14(R) – 2016 (RB)
FEM (Manner of Receipt and Payment) Regulations, 2016 (Revised wef
02-05-2016)
Receipt and payment Regulations
20/2000/
20(R) – 2017 (RB)
FEM (Transfer or issue of security by a person resident Outside India)
Regulations, 2017 (Revised wef 07-11-2017)
FDI Regulations
15 21/2000
21(R)-2018 (RB)
FEM (Acquisition and transfer of Immovable Property in India)
Regulations, 2018 (Revised wef 26-03-2018)
Acquisition of Immovable Properties
In india
16 22/2000/
22(R) – 2016 (RB)
FEM (Establishment in India of Branch or Office or other place of
business) Regulations, 2016 (Revised wef 31-03-2016)
Branch Office Regulations
17 23/2000/
23(R) – 2015 (RB)
FEM (Export of Goods and Services) Regulations, 2015 (Revised wef. 12-
01-2016)
Exports Regulations
24/2000 FEM (Investment in Firms or Proprietary concern in India) Regulations,
2000
Investments into Firm or Proprietary
concerns
18 25/2000 FEM (Foreign Exchange Derivatives Contracts) Regulations, 2000 Derivatives Regulations
01/02/2020All the Original Regulations are dated of 03/05/20006

7. Regulations at Glance (3/3)
01/02/2020
Sl. No. O R No./ R R
No. (if any)
Regulation Title Commonly referred as
19 71/2002 FEM (Off-shore Banking Units) Regulations, 2002 OBU Regulations
20 101/2003 FEM (Withdrawal of General Permission to Overseas Corporate
Bodies) Regulations, 2003
OCB Regulations
21 120/2004 FEM (Transfer or Issue of Any Foreign Security)Regulations, 2004 ODI regulations
22 10A/2014 FEM (Crystallization Of Inoperative Foreign Currency Deposits)
Regulations, 2014
Crystallization regulations
23 339/2015 FEM (International Financial Services Centre) Regulations, 2015 IFSC Regulations
24 348/2015 FEM (Regularization of Assets Held Abroad by a Person Resident in
India) Regulations, 2015
Black Money Regulations
25 389/2018 FEM (Cross Border Merger) Regulations, 2018 Cross Border Regulations
26 395/2019-RB FEM (Mode of Payment and Reporting of Non-Debt Instruments)
Regulations, 2019
Reporting of Non-Debt
Instrument Regulations
27 396/2019 FEM (Debt Instrument) Regulations, 2019 Debt Instrument Regulations
7

8. Definition of Resident in India (2 (v)) (1/2)
01/02/2020
a person residing in India for more than 182 days
during the course of the preceding financial year
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-
(a) for or on taking up employment in India, or
(b) for carrying on in India a business or vocation in
India, or
(c) for any other purpose, in such circumstances as
would indicate his intention to stay in India for an
uncertain period;
India
But does not
include
8

9. Definition of Resident in India (2 (v)) (2/2)
(ii) any person or body corporate registered or incorporated in India,
(iii) an office, branch or agency in India owned or controlled by a person resident outside India,
(iv) an office, branch or agency outside India owned or controlled by a person resident in India.
01/02/20209

10. Definition of Non Resident Indian/ PIO
 Non-Resident means a person resident outside India who is citizen of India;
 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).
Note: Clause (c) above is excluded for the purpose of acquisition of immovable property
01/02/202010

11. ACCOUNTS - NON-RESIDENTS

12. 12
 An authorised dealer may accept deposit from a non- resident Indian under the following schemes:
 Non-Resident (External) Rupee Account Scheme - (NRE Account)
 Foreign Currency (Non-Resident) Account (Banks) Scheme - (FCNR(B) Account)
 Non-Resident Ordinary Rupee Account Scheme - (NRO Account)
 Any person resident outside India having a business interest in India may open, hold and maintain
with an authorised dealer in India, a Special Non-Resident Rupee Account (SNRR Account)
 Resident or Non-Resident acquires may, subject to the terms and conditions, open, hold and
maintain Escrow Account with the Authorized Dealer.
 And other few exemptions has been prescribed by RBI.
Accounts - Non-residents
01/02/2020

13. 13
 The Non-Resident (External) Rupee Account NR(E)RA scheme, also known as the NRE scheme, was
introduced in 1970.
NRE Account
Eligible persons : Non-Resident Indians (NRI’s) & Persons of Indian Origin
(PIO’s)*
Types of Accounts : Savings, Current, Recurring or Fixed Deposit etc.
Denominated Currency : INR
Rate of Interest : As prescribed by RBI from time to time
01/02/2020
* Account should be opened by non-resident and not by the holder of power of attorney in India.

14. 14
 Remittances in any permitted currency
 Personal cheques drawn by the account holder on his foreign currency account
 Travellers cheques
 Bank drafts payable in any permitted currency (including instruments expressed in INR) for which
reimbursement will be received in foreign currency, deposited by the account holder in person
during his temporary visit to India
 Proceeds of foreign currency/ bank notes tendered by account holder during his temporary visit to
India provided:
 The amount was declared on a Currency Declaration Form (CDF), where applicable
 The notes are tendered to the authorised dealer in person by the account holder himself and
the authorised dealer is satisfied that account holder is a person resident outside India.
NRE Account - Permitted Credits (1/3)
01/02/2020

15. 15
 Transfers from other NRE/FCNR(B) accounts
 Interest accrued on the funds held in the account
 Current income in India due to the account holder, subject to the payment of applicable taxes in
India
 Maturity or sale proceeds of any permissible investment in India which was originally made by
debit to the account holder’s NRE/ FCNR (B) account or out of the remittances received from
outside India through banking channels
 Refund of share/ debenture subscriptions to new issues of Indian companies or portion thereof, if
the amount of subscription was paid from the same account or from other NRE/ FCNR (B) account
of the account holder or by remittance from outside India through banking channels
NRE Account - Permitted Credits (2/3)
01/02/2020

16. 16
 Refund of application Money/EMD
 Refund of purchase consideration made by the house building agencies/ seller:
 on account of non-allotment of flat/ plot/ cancellation of bookings / deals for purchase of
residential/ commercial property, together with interest, if any (net of income tax payable
thereon)
 provided the original payment was made out of NRE/ FCNR(B) account of the account holder or
remittance from outside India through banking channels and the AD is satisfied about the
genuineness of the transaction.
 Any other credit if covered under general or special permission granted by RBI
NRE Account - Permitted Credits (3/3)
01/02/2020

17. 17
 Local Disbursements
 Remittances outside India
 Transfer to NRE/ FCNR(B) accounts of the account holder or any other person eligible to maintain
such account
 Investment in shares/ securities/ commercial paper of an Indian Company or for purchase of
immovable property in India provided such investment/purchase is covered by the regulations
made or the general/special permission granted by RBI
 Any other transaction if covered under general or special permission granted by RBI
NRE Account - Permitted Debits
01/02/2020

18. 18
 Change in Residential Status:
In case if the Non-Resident becomes Resident then the :
 NRE account will be re-designated as residents account
 Funds held in the accounts may be transferred to the RFC accounts (if the person is eligible for
maintaining RFC Account).
 If the account holder is only on a short visit to India, the account may continue to be treated as NRE
account even during his stay in India
 NRE Account can be opened jointly by two or more NRIs and/or PIOs.
 NRE Account can also be opened jointly with resident relative(s). However the said relative(s) can operate
the account as a power of Attorney.
 Temporary overdrawing upto ₹ 50,000 is allowed for a period of not more than two weeks.
 Income from interest on balances standing to the credit of NRE Accounts is exempt from Income Tax.
NRE Account - Other Points
01/02/2020

19. 19
 Non-resident individuals may open a separate sub-account of Non-Resident (External)
Rupee A/c (NRE A/c) for Portfolio Investment Scheme (PIS) w.e.f 20.08.2013 for investment
on repatriation basis under the scheme.
Eligibility to open: Same as NRE account
Purpose of the account: To deal with the stock exchange(s) for buy/ sell securities
 It shall ensure that sale proceeds of shares / convertible debentures which have been
acquired by modes other than PIS do not get credited/debited in the accounts opened
exclusively for routing the PIS transactions.
NRE Account - Portfolio Investment Scheme
01/02/2020

20. 20
Eligible persons : NRI & PIO
Types of Accounts : Term Deposit [Recurring Deposits are not accepted under FCNR
(B)]
Denominated Currency : Permitted Foreign Currency as per Regulation 2(v) of FEMA
14/2000-RB dated May 3, 2000
Rate of Interest : As specified by RBI from time to time
FCNR(B) Account - (1/3)
 These accounts can be opened only with the below mentioned funds:
 Funds remitted from outside India through banking channels
 Funds received in rupees by debit to the account of a Non-Resident bank account maintained with
the Authorized dealer in India
 Funds which are repatriable nature in terms of the regulations made by RBI.
 Transfer of funds from existing NRE/ FCNR (B) Accounts
01/02/2020

21. 21
 Permissible Debits/ Credits:
 All Debits/ Credits permissible in respect of NRE Accounts shall be permissible in respect of
FCNR(B) Accounts.
 Conversion of FCNR(B) Accounts to Other Accounts & Vice-Versa:
 Conversion before maturity is also permitted
 No penal provisions for premature conversion into RFC Accounts, but the same will attract for
premature conversion into NRE deposits.
 Transfer of funds from 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
FCNR(B) Account - (2/3)
01/02/2020

22. 22
 Other Points:
 Repatriation of funds in foreign currencies is permitted.
 Interest on balances held in these accounts may be credited on half-yearly or on an annual basis
as desired by the depositor to a new FCNR (B) account or an existing/new NRE/NRO account in
the name of the account holder, at the option of holder.
FCNR(B) Account - (3/3)
01/02/2020

23. 23
Eligible persons : Any Person resident outside India (individuals/entities of
Bangladesh/Pakistan requires prior approval from RBI)
Types of Accounts : Current, Savings, Recurring or Fixed Deposits (Permitted joint
accounts with Residents/ Non- Residents)
Denominated Currency : Indian Rupees
NRO Account - (1/3)
 Permissible Credits:
 Proceeds of remittances received in any permitted currency from outside India
 Legitimate dues in India of the account holder
 Transfers from other NRO accounts
 Any amount received by the account holder in accordance with the rules or regulations made
under the Act
01/02/2020

24. 24
 Permissible Debits:
 All local payments in rupees including payments for investments subject to compliance with the
relevant regulations made by the Reserve Bank.
 Remittance outside India of current income in India of the account holder net of applicable taxes.
 Transfers to other NRO accounts.
 Settlement of charges on International Credit Cards issued by authorised dealer banks in India to
NRIs or PIOs, subject to the limits for repatriation of balances held in NRO accounts specified in
regulation 4(2) of Foreign Exchange Management (Remittance of Assets) Regulations, 2016
NRO Account - (2/3)
01/02/2020

25. 25
 Change in Residential Status:
 When NRO account holder return to India for taking up the employment, or for carrying
on business or vocation or for any other purpose indicating his intention stay in India for
an uncertain period then the NRO account will be designated as resident rupee account.
 Other Points:
 Balances in NRO accounts are eligible for remittance outside India only with the general
or specific approval of RBI .
 Funds received by the way of remittance from outside India in Foreign Exchange which
have not lost their identity as remittable funds will only be considered by RBI for
remittance outside India.
NRO Account - (3/3)
01/02/2020

26. 26
 Non-resident individuals may open a separate sub-account of Non-Resident Ordinary
Rupee A/c (NRO A/c) for Portfolio Investment Scheme (PIS) w.e.f 20.08.2013 for
investment on repatriation basis under the scheme.
Eligibility to open: Same as NRO account
Purpose of the account: To deal with the stock exchange(s) for buy/ sell securities
 It shall ensure that sale proceeds of shares / convertible debentures which have been
acquired by modes other than PIS do not get credited/debited in the accounts opened
exclusively for routing the PIS transactions.
NRO Account - Portfolio Investment Scheme
01/02/2020

27. 27
Eligible persons : Any Person resident outside India, having business interest in
India
Types of Accounts : Current
Denominated Currency : Indian Rupees
SNRR Account - (1/4)
 Conditions for opening the SNRR Account:
 SNRR account should carry the nomenclature of the specific business for which it is in operation.
 The operations in the SNRR account should not result in the account holder making available
foreign exchange to any person resident in India against reimbursement in rupees or in any other
manner.
 The debits and credits in the SNRR account should be specific/ incidental to the business
proposed to be done by the account holder.
01/02/2020

28. 28
 Balances in the account should commensurate with the business operations of the account holder.
 All the operations in the SNRR account should be in accordance with the provisions of the Act,
rules and regulations made thereunder.
 Opening of SNRR accounts by Pakistan and Bangladesh nationals and entities incorporated in
Pakistan and Bangladesh requires prior approval of RBI.
 Change in the Residential Status:
 SNRR account may be designated as resident rupee account on the account holder becoming a
resident.
 Other Points:
 The balances in the SNRR account shall be eligible for repatriation.
 Transfers from any NRO account to the SNRR account are prohibited.
SNRR Account - (2/4)
01/02/2020

29. 29
 The tenure of the SNRR account should be concurrent to the tenure of the contract/ period of
operation/ the business of the account holder and should not exceed seven years from the date of
opening of the account.
 The transactions shall be reported to the RBI in accordance with directions issued by RBI from
time to time.
 In case of decease of account holder, the amount can be credited to the NRO account of the
nominee with an AD/ authorised bank in India.
SNRR Account - (3/4)
01/02/2020

30. 30
 Recent Amendment
RBI vide AP (DIR Series) Circular No 09, Dated November 22, 2019 permitted a person resident outside
India to open SNRR account for below purposes in order to promote usage of INR products:
 External Commercial Borrowing in INR
 Trade Credit in INR
 Trade (Export / Import) Invoice in INR
 Business related transactions outside IFSC by IFSC units at GIFT City, like admin expenses in
INR outside IFSC, INR amount from sale of scrap, etc
 The restriction of seven years tenure is not applicable if SNRR is opened for above purposes.
SNRR Account - (4/4)
01/02/2020

31. FC ACCOUNTS - RESIDENTS

32. 32
 The Resident persons are permitted to open the deposit accounts in the foreign currency with
the Authorised Dealer under the following schemes:
 Exchange Earner’s Foreign Currency Account- EEFC
 Resident Foreign Currency Account- RFC
 Resident Foreign Currency (Domestic) Account – RFC (D)
 Foreign Currency Account - FCA
 Diamond Dollar Account- DDA
 FC Account by Branch Abroad
 FC Account for Project Exports
 FC Account for ODI Transactions
FC Accounts - Residents
01/02/2020

33. 33
Eligible persons : Any resident
Types of Accounts : Only in Non-Interest bearing Current Accounts
Location of the Bank : India
EEFC Account - Permissible Credits (1/2)
 100% of Forex Earning can transferred to the account, subject to
 Inward remittance through banking channel (other than loans or investments)
 Payments received by EOU/EPZ/STP/EHTP for supply of goods to EOU/EPZ/STP/EHTP or to DTA Unit
 Payments received by DTA Units for supply of goods to SEZ Unit
 Payments received by an exporter for the purpose of counter trade in accordance with the relevant
approvals granted
 Advance remittance received by an exporter towards export of goods or services;
01/02/2020

34. 34
 Professional earnings by an Individual (director’s fees, consultancy fees, lecture fees, honorarium
and similar other earnings)
 Exports/ sales made by the Indian start up or its overseas subsidiary (if any) – w.e.f. 01-06-2016
 Interest earned on the funds held in the account;
 Re-credit of unutilised foreign currency earlier withdrawn from the account;
 Amount representing repayment by the customer, of trade related loans/ advances granted
 Representing the disinvestment proceeds received by the resident accountholder on conversion of
shares held by him to ADRs/ GDRs
EEFC Account - Permissible Credits (2/2)
01/02/2020

35. 35
 Current account transactions
 Permissible capital account transactions
 Purchases from a 100% EOU or Units of EPZ/STPI/EHTP
 Customs duty payments
 Trade related loans/ advances, by an exporter to his importer customer outside India
 Payment in foreign exchange to a person resident in India for supply of goods/ services including
payments for air fare and hotel expenditure.
EEFC Account - Permissible Debits
01/02/2020

36. 36
 Withdrawals are non-fungible
 Cheque books will be issued for such accounts with the superscription “EEFC Account”.
 Resident Individuals can include their relatives (as defined in section 2(77) of Companies Act,
2013) as joint holders.
 In case of change in the residential status of the account holder the balances in the EEFC account
may be allowed to be credited to NRE account at the option/request of the account holder.
 A SEZ unit is not allowed to open a EEFC account whereas a SEZ developer is allowed to open EEFC
account.
 International Credit Card payments are eligible credits to the EEFC Account
 Sum total of the accruals during a calendar month should be converted into Rupees on or before
the last day of the succeeding calendar month after the adjustments towards utilization for
approved purposes or forward commitments.
EEFC Account - Other Points
01/02/2020

37. 37
Eligible persons : Any resident person i.e., Individual, Company, Firm, HUF etc.
Types of Accounts : Current, Savings & Term Deposits
Location of the Bank : India
RFC Account - Permissible Credits
 Permissible Credits
 Pension or any other superannuation or other monetary benefits from his employer outside India
 Realisation of Capital Account Transactions held in Foreign Countries and repatriated to India
 Received as gift or inheritance from Non Residents
 Proceeds of life insurance policy claims/ maturity/ surrender values settled in foreign currency from
an insurance company in India
01/02/2020

38. 38
RFC Account - Other Points
 Other Points:
 ODI/ Current Account Transaction limits are not applicable for RFC Transactions.
 Resident Individual can be a Joint Holder.
 Nominee of the account could be a resident as well as non-resident.
01/02/2020

39. 39
 Permissible Credits:
 Earning through export of goods/ services, or as royalty, honorarium or by any other lawful means
 From Non-Resident as honorarium or gift or for services rendered or in settlement of any lawful
obligation
 Honorarium or gift while on a visit to outside India
 Gift from a relative
 Other Credits in line with RFC Account.
 Sum total of all accruals during a calendar month shall be converted into rupees on or before the last
day of succeeding calendar month.
RFC (Domestic)
Eligible persons : Any resident Individual
Types of Accounts : Non-Interest bearing current accounts
Location of the Bank : India
01/02/2020

40. 40
 Permissible Credits:
 Amount of pre-shipment and post-shipment finance availed in US Dollars
 Realisation of export proceeds from shipments of rough, cut, polished diamonds and
diamond studded jewellery
 Realisation in US Dollars from local sale of rough, cut and polished diamonds
DDA - Permissible Credits
Eligible persons : Firms and Companies (to be opened in the name of exporter)
Types of Accounts : Non-Interest bearing current accounts
Location of the Bank : India
Denominated Currency : US Dollars only
01/02/2020

41. 41
 Permissible Debits:
 Payment for import/purchase of rough diamonds from overseas/local sources
 Payment for purchase of cut and polished diamonds, coloured gemstones and plain gold
jewellery from local sources
 Payment for import/purchase of gold from overseas/nominated agencies and repayment of
US Dollar loans availed from the bank
 Transfer to rupee account of the exporter
Note: The above transactions are subject to the provisions of Foreign Trade Policy of India issued from
time to time.
DDA - Permissible Debits
01/02/2020

42. 42
 Other Points:
 Exporter should comply with the eligibility criteria stipulated in the Foreign Trade Policy
 No intra-account transfer should be allowed between the DDAs maintained by the account
holder
 Maximum DDA accounts - 5 (Five)
 Balances held in the accounts shall be subject to Cash Reserve Ratio (CRR) and Statutory
Liquidity Ratio (SLR) requirements
 Exporter firms and companies maintaining foreign currency accounts excluding EEFC account
in India or abroad are not eligible to open DDA
DDA - Other Points
01/02/2020

43. 43
 All FC funds received by SEZ can be credited.
 FC purchased against rupees can be credited with the prior permission of RBI.
 Funds should be used for the bona fide transactions of SEZ.
 No restrictions on the balances in these accounts.
 Funds in this account should not be lent or made available to any resident person not being a SEZ.
FC Account by SEZ Unit
Eligible persons : SEZ Units
Types of Accounts : Current Account
Location of the Bank : India
01/02/2020

44. 44
 Initial expenses :
 Up to 15% of average annual sales during last two financial years or 25% of net worth; whichever
is higher
 Recurring expenses:
 Up to 10% of average annual sales during last financial year.
 The details of bank accounts opened in the overseas country should be promptly reported to the AD
Bank.
 The office can acquire land within the above limits, to set up the required infrastructure.
 Remittances of “off-site” and “on-site” contracts - 100% of profits of each contract
FC Account by Branch Abroad
Eligible persons : Any Exporter
Types of Accounts : As per host country regulations
Location of the Bank : Outside India
01/02/2020

45. 45
 The contract shall be executed in terms of approvals under FEM (Export of Good and Services)
Regulations, 2015.
 The contractor need to obtain approval from AD for each contract.
FC Account for Project Exports
Eligible persons : Any Exporter
Types of Accounts : As per host country regulations
Location of the Bank : Outside India
01/02/2020

46. 46
 The Indian Party is eligible for making investment under ODI regulations.
 The host country regulations stipulate that the investment need to be routed through a designated
account
 Such remittances shall be utilised only for ODI Transactions.
 Corporate benefits need to be repatriate to India within 30 days from the date of credit to the
designated FC Account.
 The Indian party should submit a Certificate from Statutory Auditor on annual basis to AD bank
confirming that the transactions have been taken place in accordance with the FEMA Regulations.
 The account need to be closed within 30 days of complete disinvestment.
FC Account for ODI Transactions
Eligible persons : Any Indian Party
Types of Accounts : As per host country regulations
Location of the Bank : Outside India
01/02/2020

47. NBFC Compliances and Challenges

48. 48
 A Company or a Body Corporate
 Engaged into Financial intermediation, investments, Lending, leasing, hire-purchase, insurance business, chit
business etc.
 having principal business of receiving deposits under any scheme or arrangement in one lump sum or in installments
by way of contributions or in any other manner
 But does not include:
 agriculture activity,
 industrial activity,
 purchase or sale of any goods (other than securities), or
 providing any services and sale/purchase/construction of immovable property
 Critical difference between banks and NBFCs
 NBFC cannot accept demand deposits;
 NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself;
 deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of
NBFCs, unlike in case of banks.
What is NBFC
01/02/2020

49. 49
Overview of Regulators
01/02/2020

50. 50
 Asset Finance Company (AFC)
 Asset Reconstruction Companies (ARC)
 Investment Company (IC)
 Infrastructure Finance Company (IFC)
 Systemically Important Core Investment Company (CIC-ND-SI)
 Infrastructure Debt Fund: Non- Banking Financial Company (IDF-NBFC)
 Non-Banking Financial Company - Micro Finance Institution (NBFC-MFI)
 Non-Banking Financial Company – Factors (NBFC-Factors)
 Mortgage Guarantee Companies (MGC)
 NBFC- Non-Operative Financial Holding Company (NOFHC)
Types of NBFCs
01/02/2020

51. 51
Nature of Activity No. of NBFCs
registered
with RBI
Nature of Activity No. of NBFCs
registered with
RBI
Deposit accepting NBFCs 81(1) CIC 64(1)
NBFC-ND-SI 278(1) AFC 278(2)
Non-Deposit accepting Non ND-
SI category
9131(1) IFC 8(1)
NBFC-MFI 96(1) P2P Lending 20(1)
NBFC-IDF 4(1) ARC 28(1)
Factoring 7(1) Investment and Credit
Companies (ICC)
9355(1)
Sub Total 9597 Sub Total 9753
Total 19350
Gist of NBFCs registered with RBI
01/02/2020
Source: https://www.rbi.org.in/Scripts/BS_NBFCList.aspx
(1) As on October 31, 2019
(2) As on March 27, 2019

52. 52
 Principal Business Criteria
 Financial Assets > 50% of total Assets; and
 Income from Financial Assets > 50% of gross income
 Public Funds
 Includes Funds raised either directly or indirectly through public deposits, commercial paper, debentures, inter-corporate
deposits and bank finance
 Excludes funds raised by issue of instruments compulsorily convertible into equity shares within a period not exceeding 10
years from the date of issue as defined in Regulatory Framework for Core Investment Companies issued vide Notification No.
DNBS (PD) CC.No. 206/03.10.001/2010-11 dated January 5, 2011.
 Customer Interface
 means interaction between the NBFC and its customers while carrying on its NBFI business as defined in Non-Systemically
Important Non-Banking financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank)
Directions, 2015 issued vide Notification No. DNBR. 008/CGM (CDS) -2015 dated March 27, 2015.
Key definitions (1/2)
01/02/2020

53. 53
 Owned Funds
 aggregate of the paid-up equity capital+ [CCPS + free reserves + balance in share premium account + capital
reserves representing surplus arising out of sale proceeds of asset (excluding reserves created by revaluation
of asset)] – (accumulated balance of loss, deferred revenue expenditure and other intangible assets)
 Net Owned Funds
 Owned Fund minus the amount of investments of such company in shares of its subsidiaries, companies in
the same group and all other NBFCs and the book value of debentures, bonds, outstanding loans and
advances including hire purchase and lease finance made to and deposits with subsidiaries and companies in
the same group, to the extent it exceeds 10% of the owned fund
Key definitions (2/2)
01/02/2020

54. 54
 Companies which are registered with
 SEBI
 IRDAI
 Chit Funds registered with state level authorities
 Funds registered with PFRDA
 Nidhi Companies registered with MCA

NBFC – Exempted from Registration with RBI
01/02/2020

55. 55
 Simplified Process
 RBI has introduced the simplified process vide the Press Release dated 17/06/2016
 The NBFCs are segregated into two types
 Type I - NBFC-ND not accepting public funds / not intending to accept public funds in the future and
not having customer interface / not intending to have customer interface in the future
 Type II - NBFC-ND accepting public funds/ intending to accept public funds in the future and/or
having customer interface/intending to have customer interface in the future
 To be applied online through https://cosmos.rbi.org.in
 To be applied to the Central Office, Department of Non Banking Regulation
NBFC - Registration
01/02/2020

56. 56
 KYC and CDD Compliances
 Fair Practices Code
 Nodal Officer for Grievance Redressal system
 Permissible Pricing of Credit for MFIs
 Average Interest rate on loans sanctioned during a Quarter <= average borrowing cost during the
quarter plus permissible margin cap.
 Permissible Margin Cap
 Large MFIs with loan portfolio exceeding Rs. 100 Crore – maximum 10% margin or the average base rate of
the five largest commercial banks by assets multiplied by 2.75 times, whichever is lower
 Other MFIs – 12%
Key Compliances
01/02/2020

57. 57
 Deposit taking NBFCs
 NBS-1 Quarterly Returns on deposits in First Schedule, within 15 days from end of the quarter
 NBS-2 Quarterly return on Prudential Norms is required to be submitted by NBFC accepting public deposits , within
15 days from end of the quarter
 NBS-3 Quarterly return on Liquid Assets by deposit taking NBFC, within 15 days from end of the quarter
 NBS-6 Monthly return on exposure to capital market by deposit taking NBFC with total assets of ₹ 100 crore and
above.
 Half-yearly ALM return by NBFC holding public deposits of more than ₹ 20 crore or asset size of more than ₹ 100
crore, within 30 days
 Audited Balance sheet and Auditor’s Report by NBFC accepting public deposits, within 30 days of finalisation of B/s,
but not later than December 31.
 Branch Info Return, Quarterly, within 15 days from end of the quarter
 Reporting to Central Repository of Information on Large Credits (CRILC), Quarterly, within 21 days
 Reporting of Special Mention Account status (SMA-2 return), Weekly, on Every Friday
Summary of Returns to be filed (1/3)
01/02/2020

58. 58
 Returns to be submitted by NBFCs-ND-SI
 NBS-7 A Quarterly statement of capital funds, risk weighted assets, risk asset ratio etc., for NBFC-ND-SI, within 15
days
 ALM returns
 (i) Statement of short term dynamic liquidity in format ALM [NBS-ALM1] -Quarterly, within 15 days
 (ii) Statement of structural liquidity in format ALM [NBS-ALM2] Half yearly, within 30 days
 (iii) Statement of Interest Rate Sensitivity in format ALM -[NBS-ALM3], Half yearly, within 30 days
 Branch Info Return, Quarterly, within 15 days from end of the quarter
 Returns to be submitted by NBFCs having assets between Rs. 50 – 100 Crore
 Basic information like name of the company, address, NOF, profit / loss during the last three years has to be
submitted quarterly by non-deposit taking NBFCs with asset size between ₹ 50 crore and ₹ 100 crore
Summary of Returns to be filed (2/3)
01/02/2020

59. 59
 Returns to be submitted by NBFCs having FDI
 Half Yearly based certificate from the Auditor certifying about the compliance of existing terms and
conditions of FDI, to the RO of RBI, within 30 days
 Overseas Investment Return
 Prescribed Overseas Investment return on a Quarterly basis, within 15 days, to the RO of RBI and DSIM,
CO, Mumbai
 Returns to be submitted by other NBFCs - Due date 60 days of closing of the financial year (May 30)
 NBS 8 for NBFCs-ND with assets size between Rs. 100 – 500 Crore, and
 NBS 9 for NBFCs-ND with assets size below Rs. 100 Crore
 Statutory Auditor Certificate (SAC) – within 30 days of closing of financial year but not later than
December 31.
Summary of Returns to be filed (3/3)
01/02/2020

60. 60
 RBI has conceived the Idea of Regulatory Sandbox for enabling FinTech in Financial Sector to foster responsible innovation in financial
services, promote efficiency and bring benefit to consumers
 IT has set up Inter-Regulatory Working Group in July, 2016
 RBI has released the report of Working Group for public comments on 08/02/2018
 Released draft regulations for public comments on 18/04/2019
 Final regulations have been issued on 13/08/2019
 Meaning of Regulatory Sandbox –
 usually refers to live testing of new products or services in a controlled/test regulatory environment for which regulators may (or may
not) permit certain regulatory relaxations for the limited purpose of the testing
 Eligibility Criteria – Fintech Companies, Banks, Fis and any other company partnering with financial services businesses
 for use in the Indian market in areas where:
 i. there is absence of governing regulations;
 ii. there is a need to temporarily ease regulations for enabling the proposed innovation;
 iii. the proposed innovation shows promise of easing/effecting delivery of financial services in a significant way.
Introduction to Regulatory Sandbox
01/02/2020

61. 01/02/202061
CA Murali Krishna
M.Com,F.C.A.,F.C.S.
PH: +91 9849992493
gmk@grandhiandassociates.in
Partner of Grandhi and Associates
Thank you!!!