Those NRIs sending money across to India, for them the possibility of foreign exchange risk exists. This may be at the time of conversions done from investment and again at the time of repatriation. This currency fluctuation has made the Foreign Currency Non Resident (FCNR) account a better option for NRIs looking to invest in India without worrying about currency risks. FCNR account is a term deposit account that can be maintained by NRIs and PIOs in foreign currency. Remember such accounts are not Savings Accounts, but Fixed Deposit Accounts. The duration of such deposits ranges from one year to a maximum of up to five years.
Prior to 2011, FCNR deposits were allowed to be maintained in six currencies: US dollar, Pound Sterling (GBP), Euro, Japanese Yen, Australian dollar and Canadian dollar. However, in October 2011, the RBI decided that authorised dealer banks in India may be permitted to accept FCNR deposits in any permitted currency. ‘Permitted currency’ for this purpose would mean a foreign currency which is freely convertible and popularly include Danish Krone, Swiss Frank and Swedish Krona among others.
You might want to read the Comparison between NRE, NRO and FCNR Bank accounts
How to Open FCNR Deposit?
To open a FCNR deposit, most banks prescribe the following set of documents:
1) Completed application form for the deposit as per banks requirement.
2) Passport and Visa
3) Initial Remittance
4) Other commonly asked enclosures are cheque drawn on bank account abroad, latest overseas bank statement in original, copy of telephone / electricity bill, and cancelled paid cheque of your overseas bank A/c, copy of proof of drawing income / employee ID / labour card.
Can I hold FCNR accounts jointly?
Yes, of course. In 2011 RBI permitted NRIs to hold FCNR accounts jointly with other NRIs or with residents who are close relatives. NRE / FCNR Accounts opened / held jointly with resident close relative (relative as defined in Section 6 of the Companies Act 1956), can be operated only on ‘Former or Survivor’ basis. The resident close relative will be eligible to operate the account as a Power of Attorney holder in accordance with extant instructions during the life time of the NRI/ PIO account holder.
FCNR accounts/deposits can also be nominated either an NRI or a resident Indian.
How can one transfer funds to FCNR accounts?
The funds in an FCNR account must necessarily come from a overseas funds. There are several ways in which you can open an FCNR account, such as;
1) You can transfer funds from your overseas bank account directly to open an FCNR account. You can do this either as a wire transfer or a cheque transaction
2) You can transfer funds from an existing NRE account
3) You can open an FCNR account using foreign currency notes or travelers cheques when you visit India
What is the interest rate on FCNR Deposits?
The interest rates vary between terms and from currency to currency. Rates may also vary between banks. For example, the rate for a 1 year FCNR deposit in US dollar would be in the range of 2.5-3% where the same for a deposit in Australian dollar would be 5-6%. But the best part here is, these interest incomes are tax free in India. However, you may be subject to tax in the country of your residence for such interest.
Is it possible to repatriate funds in FCNR account?
Yes, The principal and the interest earned on a FCNR deposit is fully repatriable abroad.
Is premature withdrawal available?
Yes, you can withdraw your FCNR before completion of the selected term. Premature withdrawal is subject to a penal interest of 1%. Moreover, no interest is payable if the deposit is closed within a year.
Can funds in the FCNR account be used for local India payments?
Since there is no such restriction of utilising funds in FCNR account for making local payments in India, but it is always advisable to transfer the maturity proceeds to NRE account and then use it.
Is there any Loan facility of FCNR Deposits?
Yes, loan can be availed out of FCNR deposits. Rupee loans and foreign currency loans can be taken in India against the security of the deposit. “Presently such loans are restricted to Rs 10 million. These loans can be repaid out of maturity proceeds and/or local resources.
What happens if an NRI changes his Residential Status before maturity of the deposits in FCNR account?
If an NRI changes his/her residential status i.e. he/she becomes Resident of India, then deposits may be allowed to continue till maturity at the contracted rate of interest, if so desired by him/her. However, excepts the provisions relating to rate of interest and reserve requirements as applicable to FCNR(B) deposits, for all other purposes such deposits shall be treated as resident deposits from the date of return of the account holder to India.