RBI Mandates Banks to Seek Prior Approval for Foreign Currency Deposit Schemes

Banks will need to seek prior approval before extending any foreign currency deposit scheme to customers as per the Reserve Bank of India’s (RBI) mandate. RBI expressed concerns regarding bank advertisements concerning lack of appropriate disclosure on behalf of mutual funds.

Several foreign banks operating in India and Indian banks have sought foreign currency deposits via advertisements from residents under the Liberalised Remittance Scheme (LRS).

The bank advertisements might not always comprise proper disclosures to guide probable depositors resulting in concerns in safeguarding the interest of the resident individuals. The marketing of schemes in India canvasing foreign currency deposits offered by foreign entities but with no operational presence in India lead to supervisory concerns.

Banks would need to provide the following information to RBI while seeking approval:

• The bank’ name and its head office location and local offices (if applicable) along with the complete address.
• The identity proof of the primary bank supervisory authority (or authorities) who is in charge of supervising the bank’s head office.
• A long-term rating given by an internationally acceptable rating agency.
• Complete scheme details which are being marketed.

With this regard, the application can be submitted to the Chief General Manager-in-Charge, Department of Banking Operations and Development, Reserve Bank of India. Nevertheless, the instructions mentioned above do not limit the freedom of a resident individual from investing in allowed capital account transactions under the scheme.

This initiative has been undertaken to ensure only banking institutions solicit foreign currency deposits from the public and such entities bring forth minimum disclosures. Residents should always understand the risks before investing in foreign currency deposits at overseas centres.

For any clarifications/feedback on the topic, please contact the writer at bhavana.pn@cleartax.in