Residents can open forex a/cs now

MUMBAI: Moving a step closer to full convertibility of the rupee, the Reserve Bank of India (RBI), on Friday, allowed resident Indians to maintain foreign currency accounts.

The accounts, to be known as resident foreign currency (domestic) accounts, can be used to park forex received while visiting any place abroad by way of payment for services, or money received from any person not resident in India, or who is on a visit to India, in settlement of any lawful obligations.

Forex received by way of honorarium or gift, while on a visit outside the country, and unspent forex from overseas travel can also be kept in this account. Until now, resident Indians were necessarily required to surrender foreign currency in excess of $2,000 by converting it into rupees.

The central bank has now said that “as long as the foreign exchange is acquired through permissible channels, there will be no overall limit on balances kept in resident foreign currency (domestic) accounts�. In other words, a resident cannot buy dollars paying an equivalent rupee amount and park the money in a dollar account. The balances maintained in such accounts may be used for any purpose permissible under current foreign exchange regulations for resident Indians like travel, medical treatment or education abroad, gifts, or purchase of books and other items either directly or through the internet.

These accounts will be maintained in the form of current accounts with a cheque facility which means no interest will be paid on balances in these accounts.

“Resident Indians, who undertake regular forex transactions, stand to benefit from such a facility, as it saves them the cost and bother of converting rupees to dollars and then reconverting them to rupees,� said K Harihar, treasurer, Development Credit Bank.

Bankers say RBI’s decision to introduce such a facility could be the first step towards ultimately letting resident Indians acquire assets overseas.

“The working of this new facility will be reviewed after one year and the scheme may be further modified-liberalised in the light of actual experience,� the RBI has said.

There is a feeling that banks will need to closely follow the know your customer rules in regard to dollar accounts. “Abnormal spurt in inflows in any such account should be immediately spotted and enquired to prevent possible money laundering,� said a banker.

RBI’s decision to allow such a facility has been well timed. The rupee, which has been ruling steady over the last few months, shows little signs of depreciating sharply and interest rates on rupee fixed deposits are far higher than that on dollar deposits. And that is going to keep punters away.

“Anybody looking to profit by keeping forex in a resident foreign currency (domestic) account in the hope that the rupee will depreciate is going to gain little,� says the treasurer of a foreign bank.

However, in the event of the rupee depreciating at a later stage and the gap between domestic and overseas interest rates further narrowing, the foreign currency (domestic) account may seem attractive to punters.