FCNR Account

By

Pranab Namchoom
Management Trainee
Punjab National Bank

DEFINITION

FCNR Account stands for Foreign Currency Non Resident Bank

Account wherein a Non Resident Individual of Indian Nationality
or Indian Origin can maintain a Fixed Deposit in Foreign
Currency and earn regular interest on the same.
The account should be opened by the non-resident account holder
himself and not by the holder of power of attorney in India.
These deposits can be opened with funds remitted from abroad in
convertible foreign currency through normal banking channel, which
are of repatriable nature in terms of general or special permission
granted by Reserve Bank of India.
Only Opened by Authorized branch(PNB)

Who Can Open FCNR?

An FCNR account is a term deposit account that can be maintained by

NRIs and PIOs in foreign currency. Thus, FCNRs are not savings
accounts but fixed deposit accounts.
Entities of Bangladesh / Pakistan nationality / ownership require prior
approval of RBI)
Joint Account

In the names of two or more non-resident individuals provided all the

account holders are persons of Indian nationality or origin
Resident close relative on former or survivor basis. The resident
close relative shall 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.

Currencies Allowed(Only For PNB)

US Dollar

British Pound

Euro

Japanese Yen

Australian Dollar

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.

Features of FCNR Account -I

FCNR Account can be opened only by NRIs or by Person of

Indian Origin (PIO)

FCNR

Account

can

be

opened

only

in

the

Foreign

Currencies specified above and thus the currency fluctuation

risk is eliminated

Regular interest is paid on the FCNR Account

Deposits with a maturity of more than 1 year and less than 5

years can only be opened

Features of FCNR Account II

FCNR account can be opened jointly with other NRIs as well as with Resident
Indians

Nomination Facility is available and any NRI/PIO/Indian Resident can be made a

nominee

Conversion to another designated currency is permitted at a cost to the account

holder.

Recurring Deposits are not accepted under this scheme

Loan Facility against FCNR Account can also be availed of. However, the
Loans

cannot

be

used

for

the

purpose

of

relending, carrying on

agricultural/plantation activities or for investment in Real Estate Business.

Advantages Of FCNR I

FCNR accounts are protected against FOREX rate risks as they are
maintained in a foreign currency.
Interest earned on FCNR deposits in India is exempt from Income tax.
FCNR accounts can have two or more NRIs joint account holders.
However, joint account with another person resident in India is not
permitted.
FCNR accounts are denominated in several major currencies such as
Pound Sterling, US Dollar, Yen and Euro.
In FCNR accounts, both principal and interest are freely
repatriable(Transferable From India To foreign Country) In other words,
the interest earned and the deposit amount on the deposits are repatriable
to the depositors country of residence sans restrictions.

Advantages Of FCNR II

FCNR accounts are offered for not less than 1 year and not more than 5 years.

All authorized banks which offer FCNR accounts set the interest rates within
the ceiling as announced by the Reserve Bank of India.

Interest rates on FCNR term deposits are payable after the end of first year.
Interest is compounded on a half-yearly(180) days basis subsequently.

Rupee loans against funds held in the FCNR accounts can be provided to
account holder for any investment in India.

Some banks may also provide loans to firms or companies against the
collateral of FCNR accounts.

Disadvantage Of FCNR-I

If FCNR deposit is withdrawn in less than one year, no interest is payable.

Foreign currency loans in India against FCNR accounts can be taken by
account holders only.
FCNR deposits are offered for term deposits only and not for current,
savings and recurring accounts.
FCNR account can be transferred to other NRE accounts before maturity.
However, penalties will apply for premature withdrawals. Also, swapping
charges are fixed by the bank in which the FNCR account is held.
FCNR accounts can be renewed within 14 days after maturity, failing
which, the bank will fix interest rate on renewal. If renewed accounts are
withdrawn before a fixed period, banks can take back the interest paid.

Disadvantage Of FCNR-II

While the interest earned on FCNR deposits is tax-free, it may be taxable in the
country of residence of NRIs.
Also, Non Resident Indians, should consult tax experts to understand the implications
of investing in India.
While RBI, under the Foreign Exchange Management Act, formulates rules of
investment for NRIs in India, the Government of India, under the Indian Income Tax Act
frames the tax rules, which are subject to change.
In the event of a financial meltdown, banks may not be able to repatriate funds. The
Greek crisis is a case in point. In some cases, Greek citizens, were reportedly,
restricted from withdrawing over 40 euros from their accounts.
If FCNR deposits are held with a weak bank, it may be unable to pay back upon
maturity. Credit guarantee in India covers accounts in India to around Rs. 100,000 or
1600 USD, which is considered low. Many experts, therefore, believe that deposit
insurance is almost non-existent in India, which could be a concern for FCNR deposit
account holders.

Docs Required For Opening FCNR Account

Copy of passport
Copy of visa
Address Proof
Passport size photos
Initial remittance
Several other documents such as cancelled cheque, overseas bank
statement, income documents may be required. Document requirements
may also vary between countries. Check with your bank for details.
*All Docs Should be self attested

Payment Of Interest

For deposits up to one year, interest at the applicable rate will be paid
without any compounding effect.
In respect of deposits for more than one year, interest can be paid at
intervals of 180 days each and thereafter for remaining actual
number of days.
With effect from March 1, 2014

Deposits of 1 year to less than 3 year maturity, interest shall be paid

within the ceiling rate of LIBOR/ SWAP rates plus 200 basis points;
Deposits of 3-5 years maturity, interest shall be paid within the ceiling
rate of LIBOR/ SWAP rates plus 300 basis points.

Interest Rate Table(PNB)

Open With Funds

These accounts can be opened as per depositors choice, in any of

the permitted currencies, with / out of the funds received as foreign
inward remittances in convertible currency through normal banking
channel.
He/she can transfer funds from overseas bank account directly to
open an FCNR account. He/she can do this either as a wire transfer
or a cheque transaction
He/she can transfer funds from an existing NRE account
He/she can open an FCNR account using foreign currency notes or
travelers Cheques when you visit India
Transfer of funds from existing FCNR (B) NRE a/c to FCNR (B) and
vice-versa permitted without the prior approval of RBI.

Premature Withdrawal of FCNR

RBI has extended the facility of premature withdrawal from

FCNR Account for the NRIs/PIOs and a penal interest is
levied on the same. The Penal Interest charged is different
by different banks and is usually 1%.
However, if the deposit is closed before the maturity for the
purpose of renewal, to avail the benefit of an increase in
the Interest Rates, for a period more than the
unexpired period and renewed under the same
scheme and in the same currency, no penal interest is
payable.

FCNR Account after change in Residential Status

NRI deposits such as the FCNR can continue till the

maturity date at the contracted rate of interest even
after the account holders resident status changes to
resident Indian.
On maturity, these accounts are converted to either an
RFC account or the Resident Rupee Deposit account.

Important Links

https://www.rbi.org.in/scripts/FAQView.aspx?Id=69
https://www.pnbindia.in/upload/En/FAQs%20FCNR.pdf

THANK YOU