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Indian Banking Regulations and guidelines are way more strict when it comes to Non-Resident Indian (NRI) Banking. The definition of NRI itself has two different versions in the Income Tax Act and the FEMA (Foreign Exchange Management Act) guidelines.
In Layman’s terms, a Non-Resident Indian is an Indian citizen who has stayed in India for less than 182 days in a financial year, or who has an intention to stay abroad for an indefinite period. This might be for family, job, marriage, and other valid reasons. NRI accounts can also be opened by a PIO (Person of Indian Origin) and/or OCI (Overseas Citizen of India) cardholders.
NRI accounts are quite different than ordinary bank accounts in India. They have higher restrictions and flags in place to prevent money laundering and other financial crimes. To help you, we have curated a list of things that should help you know more about opening an NRI account:
Types of NRI accounts
Well, mainly two types of NRI bank accounts are there – NRE (Non-Resident External), and NRO (Non-Resident Ordinary). Both of these accounts are held in INR (Indian Rupee). Other than these, you can also have an FCNR (Foreign Currency Non-Resident) deposit account, a PIS (Portfolio Investment Scheme) account and a few others.
Non-Resident External (NRE)
NRE can be opened as a savings, current, or fixed/term deposit account. This account can only hold funds from foreign income or another NRE account. The main advantage of this account is that it is freely repatriable, i.e. the money held in this account can be sent to any country without restrictions or further documentation.
Non-Resident Ordinary (NRO)
NRO can also be opened as a savings, current or fixed/term deposit. It accepts income generated in India through legal sources, and the money is not freely repatriable. Restrictions are there as to who can deposit money in this account. A resident Indian account can be changed into NRO account, if the person has become an NRI.
The interest generated from funds held in an NRE account is exempted from taxes in India. The same does not hold true for an NRO account.
Restrictions on Demat Accounts?
Yes, an NRI customer is allowed to open multiple Demat accounts with the same name, with different brokers. However, only a single Demat account is allowed per depository participant i.e. a stockbroker. These NRI Demat Accounts cannot be linked directly to your normal NRE or NRO savings/current accounts. A separate account needs to be created for funds that you would like to invest in equities and secondary markets. It is known as the Portfolio Investment Scheme (PIS) account.
Being an NRI, you can open one NRE PIS account and another NRO PIS account, depending on which funds you are using and their repatriable issue. Say you want to use your NRE funds for investing in the Indian Stock Markets, then open an NRE PIS account. Similarly, use an NRO PIS account for using your NRO funds.
There are no limitations for opening NRI trading accounts. NRIs, in general, are not allowed to invest in particular sectors or hold more than a certain share of a company. So do keep that in mind before investing.
KYC Documentation and Updation Norms
As you might have figured out already, KYC (Know Your Customer) for opening Indian bank accounts is more rigorous and have tight checks. There’s a large list of documents that you would require for the same. So you must have up-to-date documents and address proofs in place. PAN Card, Adhaar Card, Passport, Indian Address Proof, VISA are some of the main documents required.
Overseas Address proof is not mandatory, but since most NRIs prefer getting bank statements and debit/credit cards delivered to their residential address abroad, it is advisable to update it.
NRIs are also considered High-Risk Individuals in financial lingo, and hence KYC updation is more frequent in the bank, roughly at an interval of two years, whereas for normal Indian citizens it is five to eight years.
Banking via a Power of Attorney (POA)
As an NRI, you might be abroad for a longer period than you anticipated. There could be so many things that require your presence in India like registering a property, sale of a property, rental agreements, etc. So it is always good to have a trusted friend or family member have the power of attorney rights.
A POA holder cannot open a new bank account in your name or close it. He/she can do almost all other financial tasks like operating your bank accounts, sign cheques, and tax forms, etc.
Types of VISA accepted for opening NRI accounts
The person in consideration should have an intent to stay abroad for an uncertain time. Hence Business Visas or tourist visas are not applicable in opening an NRI account. Student VISAs also are not eligible for opening NRI accounts.
Residency permits, IKAMA, Green Card are also accepted in place of VISA.
Fixed Deposits for NR Customers?
For NR Customers, in addition to having INR fixed and recurring deposit facility, banks also allow fixed deposits in foreign currency or an FCNR (Foreign Currency Non-Resident) deposit account. The interest rates offered, vary from one bank to another. There are also forward covers and derivate products offered in foreign currencies by some banks which are unavailable to Indian citizens.
Other than the ones stated above, there are many restrictions and facilities in place for NRI Banking. You should always be in touch with your Relationship Manager or the Bank to know more about more such details.
Over to you
This article was written in a move to help our readers know about the NRI bank accounts such as the types of NRI accounts, norms, documentation etc to help them add value to their financial literacy. Did you find this article informative, or do you have any suggestions or questions, please let us know in the comments below.
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The first part of this article is very well-written – the language is simple, and you explain all the jargon clearly. That changes with the section “Restrictions on Demat accounts”. I hope you can explain these aspects also in simple language. Thank you.