International Banking

International banking is a type of banking which has branches across the national border. It is
same as the national bank but it also provides the same service to the international clients also. It
covers both the type of clients like individuals and businesses.

How International Banking Works ?

You've probably heard of offshore bank accounts and Swiss bank accounts. You may have heard
there’s great wealth to be found in these foreign bank investments.
An international bank is a financial entity that offers financial services, such as payment
accounts and lending opportunities, to foreign clients. These foreign clients can be individuals
and companies, though every international bank has its own policies outlining with whom they
do business.
According to OCRA Worldwide -- an organization that matches people and companies to
international banking -- international banks tend to offer their services to companies and to fairly
wealthy individuals, i.e., people with $100,000 and counting. But plenty of international banks,
particularly Swiss banks, open their doors to customers of any income bracket.
Companies do business with international banks to help facilitate international business, the
complexities of which can be quite costly.
Individuals work with international banks for a number of reasons, including tax avoidance,
probably the term you've heard the most in relation to offshore banking. Tax avoidance isn't
necessarily illegal, as you will learn on the pages that follow. But there are plenty of other
hazards in international banking.

Reasons to Bank Internationally

There’s a wealth of reasons for individuals and companies to bank internationally.

 Many people around the world use international banks to shelter their money from their
home country's income and estate taxes. Hosts of banks are based in countries with low
or no income and estate taxes, such as the Cayman Islands, Belize, Panama and the Isle
of Man. But you can't just put your income in Belize and not pay taxes. Customers must
report their income and work with their bank to make sure tax avoidance doesn't turn into
tax evasion.

 Some individuals use international banks to invest in the economies of booming countries
and in developing countries, the same way they might invest in a domestic corporation
or real estate venture.

 A number of wealthy individuals keep their wealth in offshore banks and other entities to
keep it safe from lawsuits. That doesn't mean these people are criminals; they simply
want to avoid losing every penny to a sudden, unexpected or predatory lawsuit.
  Since international banks lend and borrow on international markets, they’re less affected
by domestic interest rate fluctuations. For example, when Mr. and Mrs. Platinum want to
avoid sinking interest rates in their own country, one thing they might do is move their
money into an international bank.

 Also, some foreign banks might offer better interest rates than domestic banks, providing
a money-making opportunity for customers.

 International banks also make it easier for a company with an international presence to do
business around the world.

 For one, the company doesn't have to set up a million different bank accounts around the
world, then wait to receive money while the banks deal with one another.

 In addition, international banks offer many financial services to facilitate international

trade. Besides offering payroll services for companies with employees and contractors in
other countries, they offer letters of credit to ensure that companies in different countries
pay one another for goods and services. They also offer financing services to support
businesses facing the large costs of importing and exporting products.

The process of establishing an account at a reputable international bank will probably include the
following:

 The bank will confirm your identity and the identities of anyone who has an ownership
interest in your money.
 Like a good father, the bank will ask you about your intentions. Why do you need an
international bank account? What does your business do?
 The bank will inquire about the origin of your deposits, especially very large ones.
Where'd you get that $756 million, son? Hopefully not from that big heist in downtown
Rome.
 The bank will ask for references. Are you a reputable individual or company?
The bank will analyze how risky a customer you would be. Can you or your company pay back
loans?

Types of International Banking Offices

The services and operations which an international bank undertakes is a function of the
regulatory environment in which the bank operates and the type of banking facility established.

 A correspondent bank relationship- Established when two banks maintain a

correspondent bank account with one another. The correspondent banking system
provides a means for a bank’s MNC clients to conduct business worldwide through his
local bank or its contacts.
 A representative office- A small service facility staffed by parent bank personnel
that is designed to assist MNC clients of the parent bank in its dealings with the bank’s
 correspondents. It is a way for the parent bank to provide its MNC clients with a level of
service greater than that provided through merely a correspondent relationship.
 A foreign branch bank- Operates like a local bank, but legally it is a part of the
parent bank. As such, a branch bank is subject to the banking regulations of its home
country and the country in which it operates. The primary reason a parent bank would
establish a foreign branch is that it can provide a much fuller range of services for its
MNC customers through a branch office than it can through a representative office.
 A subsidiary bank- is a locally incorporated bank that is either wholly owned or
owned in major part by a foreign subsidiary. An affiliate bank is one that is only partially
owned, but not controlled by its foreign parent. Both subsidiary and affiliate banks
operate under the banking laws of the country in which they are incorporated.

Non-Resident Indian (NRI) – Different type of Bank Accounts

Just became a Non-Resident Indian (NRI)? One of the first practical issues you face is regarding
your bank accounts in India. What kind of bank account can be maintained and operated – NRO /
NRE / FCNR account? Note that NRI for the purpose of bank accounts is as defined under
FEMA.

NRIs / PIOs / OCBs are permitted to open bank accounts in India out of funds remitted from
abroad, foreign exchange brought in from abroad or out of funds legitimately due to them in
India, with an authorised dealer. Such accounts can be opened with banks specially authorised by
the Reserve Bank in this behalf. NRIs can open and operate the following five types of Bank
accounts.

NRI :- An Indian citizen who is ordinarily residing outside India with Indian Passport. (No need
for VISA to visit India).

PIO :- A person who or whose ancestors was an Indian National Nation and who is presently
holding another country's citizenship/nationality (VISA needed to visit India, but a PIO Card
holder can visit India without visa for 15 years from the date of issue of PIO Card).

OCI :- A person registered as Overseas Citizen of India (OCI) under Section 7A of the
Citizenship Act, 1955.(Can visit India without visa lifelong).

1. Ordinary Non-Resident Rupee Accounts (NRO Accounts)Non Resident Ordinary[NRO]

These are Rupee denominated non-repatriable accounts and can be in the form of savings,
current recurring or fixed deposits. These accounts can be opened jointly with residents in India.
When an Indian National / PIO resident in India leaves for taking up employment, etc. outside
the country, his bank account in India gets designated as NRO account.

The deposits can be used to make all legitimate payments in rupees. Interest income, from NRO
accounts is taxable. Interest income, net of taxes is reportable. NRO account can be funded
through any of the following sources:

 By proceeds of foreign exchange remittance from abroad through banking channels in an

approved manner
 By proceeds of foreign currency notes and traveler cheques brought into India by the
non-resident while on a temporary visit to India
 By transfer from an existing non-resident account in the name of the same person
 By funds from a local source representing bonafide transactions in rupees

Conditions regarding repatriation of balances in NRO accounts:

 Repatriation is allowed up to US dollars 1 million per calendar year for any purpose from
the balances in NRO accounts subject to payment of applicable taxes
 Limit of US dollars 1 million includes sale proceeds of immovable properties held by
NRIs / PIOs for a period of 10 years
 In case a property is sold after being held for less than 10 years, remittance can be made
if the sale proceeds have been held by the NRI/PIO for the balance period

2. Non-Resident (External) Rupee Accounts (NRE Accounts) Non Resident External [NRE]

NRIs, PIOs, OCBs are eligible to open NRE Accounts. These are rupee denominated accounts
and can be in the form of savings, current, recurring or fixed deposit accounts. Accounts can be
opened by remittance of funds in free foreign exchange. Foreign exchange brought in legally,
repatriable incomes of the account holder, etc. can be credited to the account. Joint operation
with other NRIs/PIOs is permitted. Power of attorney can be granted to residents for operation of
accounts.

The deposits can be used for all legitimate purposes. The balance in the account is freely
repatriable. Interest lying to the credit of NRE accounts is exempt from tax in the hands of the
NRI. Funds held in NRE accounts may be freely transferred to FCNR accounts of the same
account holder. Likewise, funds held in FCNR accounts may be transferred to NRE accounts of
the same account holders.

Immediately upon return of the account holder to India and on his becoming a resident in India,
NRE Account will be re-designated as Resident Rupee Account or converted to RFC account as
per the option of the account holder. However, if the account holder is only on a short visit to
India, the account will continue to be treated as NRE account.

The initial deposit in NRE account can be made in any of the following manners:

 By proceeds of foreign exchange remittances from abroad through banking channels in

an approved manner
 By proceeds of foreign currency notes and traveler cheques brought into India by the
non-resident while on a temporary visit to India
 By transfer from an existing NRE Account of the same person

3. Foreign Currency (Non –Resident) Accounts (Banks) (FCNR (B) Accounts)

NRIs / PIOs / OCBs are permitted to open such accounts in US Dollars, Sterling Pounds,
Australian Dollars, Canadian Dollars, Japanese Yen and Euro. The account may be opened only
in the form of term deposit for any of the following maturity periods; (a) one year and above but
less than two years, (ii) two years and above but less than three years, (iii) three years and above
but less than four years, (iv) four years and above but less than five years, and (v) five years.

Interest income is tax free in the hands of NRI until he maintains a non-resident status or a
resident but not ordinarily resident status under the Indian tax laws. Money lying in FCNR (B)
accounts can also be utilised for local disbursements including payment for exports from India,
repatriation of funds abroad and for making investments in India, as per foreign investment
guidelines.

4. Non-Resident (Non-Repatriable) Rupee Deposit Accounts (NRNR Accounts)

NRIs / PIOs / OCBs, other non-resident Individuals/entities are permitted to open these accounts
by transfer of freely convertible foreign currency funds from abroad, or from NRE / FCNR
accounts. Non-residents can open joint accounts with other Non-Residents (except Pakistan and
Bangladeshi nationals) or resident close relatives in India. Deposits can be held jointly with a
resident. Deposits can be for a period from 6 months to 3 years, and can be renewed further.
Accounts may also be opened by transfer of funds from the existing NRE/FCNR accounts of the
non-resident accounts holders.

The principal is non-repatriable; interest can be repatriated. There is no income tax on the
interest. Accounts under the Non-Resident (Non-Repatriable) Rupee Deposit Scheme may be
opened in Indian rupees out of the funds in freely convertible foreign exchange transferred for
the purpose to India in an approved manner from the country of residence of the prospective non-
resident account holder or from any other country. Transfer of funds from the existing NRE /
FCNR Accounts of the non-resident account holder may also open accounts.
 5. Non-Resident (Special) Rupee Accounts with banks in India

NRIs/PIOs presently have the facility of maintaining bank accounts and undertaking financial
transactions in India subject to certain exchange control regulations.

In order to simplify the procedures and to provide greater freedom to NRIs/PIOs for putting
through financial transactions in India, NRIs and PIOs are now permitted to open bank accounts
in India, which will be at par with rupee accounts, maintained by residents. They can now open
Non-Resident (Special) Rupee Accounts with banks in India which will have the same facilities
and restrictions as are applicable to rupee accounts maintained in India by residents relating to
repatriation of funds held in these accounts and/or income/interest earned on them. The
procedure for opening such accounts is the same as that of domestic accounts of resident
individuals. The existing facilities for NRIs / PIOs to maintain and operate NRO, NRE and
FCNR accounts also continues. The repatriation facilities available under these accounts will
continue as before.

Given below is comparison between NRO, NRE and FCNR (B) accounts:

Accounts and
NRO NRE FCNR(B)
features
To park overseas savings To park overseas savings
Purpose of To park Indian earnings like rent,
remitted to India after without converting into
Account Indian salary, dividend etc
converting to INR INR
Any person resident outside India
(other than a person resident in NRIs(individuals / NRIs (individuals
Nepal and Bhutan). Individuals / entities of Bangladesh/ /entities of Bangladesh/
Who can open
entities of Bangladesh/ Pakistan Pakistan nationality/ Pakistan nationality/
an account
nationality / ownership as well as ownership require prior ownership require prior
erstwhile OCBs require prior approval of RBI) approval of RBI)
approval of RBI)
Nomination Permitted Permitted Permitted
Pound Sterling, US
Currency in
Dollar, Japanese Yen,
which account Indian Rupees Indian Rupees
Euro, Canadian Dollar
is denominated
and Australian Dollar
Savings Bank Account Savings Bank Account
Account Types Fixed Deposit Fixed Deposit Fixed Deposit
Current Account Current Account
Joint Holding Both with resident / non-resident Only with NRIs Only with NRIs
Tax deducted at Exempt from tax Exempt from tax
Subject to tax deducted at source
source deducted at source deducted at source
The principal amount is not
repatriable and can be used only
for local payments. Funds up to
USD 1 million (or equivalent) per
Repatriation of
financial year can be repatriated Freely Repatriable Freely Repatriable
Principal
out of the balance held in NRO
accounts for theeducation of your
children, for medical expenses for
your family and you, etc
Repatriation of
Freely Repatriable Freely Repatriable Freely Repatriable
Interest
For terms not less than 1
Period for fixed At the discretion of the
As applicable to resident accounts. year and not more than 5
deposits bank
years.
Subject to cap :
Banks are free to
LIBOR / SWAP rates +
determine the interest
Banks are free to determine their 200 basis points for
rates of saving’s and term
interest rates on savings deposits tenor of 1 year to less
deposits of maturity of
under NRO Accounts. However, than 3 years & LIBOR /
one year and above.
interest rates offered by banks on SWAP rates + 300 basis
Rate of Interest Interest rates offered by
NRO deposits cannot be higher points for tenor of 3
banks on NRE deposits
than those offered by them on years to 5 years (w.e.f.
cannot be higher than
comparable domestic rupee May 4, 2012) for the
those offered by them on
deposits. respective currency /
comparable domestic
corresponding
rupee deposits.
maturities.
Operations on the account Operations on the
Operations by in terms of Power of account in terms of
Operations on the account in terms
Power of Attorney is restricted to Power of Attorney is
of Power of Attorney is restricted
Attorney in withdrawals for restricted to withdrawals
to withdrawals for permissible
favour of a permissible local for permissible local
local payments or remittance to
resident by the payments or remittance to payments or remittance
the accountholder himself through
non-resident the account holder to the accountholder
normal banking channels.
account holder himself through normal himself through normal
banking channels. banking channels.
Loans i) Permitted i) Permitted up to Rs.100 i) Permitted up to Rs.100
a. In India ii) Permitted lakhs lakhs
i) to the ii) Permitted up to Rs.100 ii) Permitted up to
Account holder lakhs Rs.100 lakhs
ii) to Third
Parties
i) Permitted
i) Permitted (Provided no funds are
(Provided no funds are remitted back to India
b.Abroad
remitted back to India and and are used abroad
i) to the
i) Not Permitted are used abroad only) only)
Accountholder
ii) Not Permitted ii) Permitted ii) Permitted
ii) to Third
(Provided no funds are (Provided no funds are
Parties
remitted back to India and remitted back to India
are used abroad only) and are used abroad
only)
c.Foreign
Currency Loans
in India i) Permitted up to Rs.100
i) NotPermitted i) Not Permitted
i) to the lakhs
ii) Not Permitted ii) Not Permitted
Account holder ii) Not Permitted
ii) to Third
Parties
i) Personal purposes or i)Personal purposes or
for carrying on business for carrying on business
activities. * activities. *
ii) Direct investment in ii)Direct investment in
India on non-repatriation India on non-repatriation
Purpose of Loan basis by way of basis by way of
a.In India Personal requirement and / or contribution to the capital contribution to the
i) to the business purpose * ofIndian firms / capital ofIndian firms /
Account holder companies companies
iii) Acquisition of flat / iii)Acquisition of flat /
house in India for his own house in India for his
residential use. (Please own residential use.
refer to para 6(a) of Sch.1 (Please refer to para 9 of
toFEMA 5) Sch. 2 to FEMA5)
Fund based and / or non- Fund based and / or non-
ii) to Third Personal requirement and / or fund based facilities for fund based facilities for
Party business purpose * personal purposes or for personal purposes or for
carrying on business carrying on business
 activities *. (Please refer activities *. (Please refer
to para 6(b) of Sch. 1to to para 9 of Sch. 2
FEMA 5) toFEMA 5).
b. Abroad
Fund based and / or non- Fund based and / or non-
To the account
Not permitted. fund based facilities for fund based facilities for
holder and
bonafide purposes. bonafide purposes.
Third Party