Understanding Bank Accounts And Exchange Rates For NRIs Returning To India

1. Understanding Bank Accounts And Exchange Rates For NRIs Returning To India For NRIs, returning to India often brings along several financial considerations. Among these, banking arrangements play a vital role in ensuring a smooth transition and effective management of funds. Bank accounts are the first thing any NRI would need for investing in India. While investment can be made through inward remittances directly, a bank account makes the investment process easy, convenient and simple. This blog aims to help NRIs understand the importance of selecting the right bank, gain a brief overview of different types of bank accounts, and learn how to get better exchange rates while converting money into or out of Indian Rupees (INR). Why a bank account is essential to NRIs RBI has authorized banks to deal in foreign exchange and foreign securities as an Authorized Dealer (AD). While RBI issues directions, the actual work is being carried out by the bank and reported to RBI. Different banks may have different document requirements and/or procedures based on their internal structure and policies. Also, the permitted activities of an AD also differ based on various categories. Thus, two branches of the same bank having different AD categories would have different capacity, knowledge and experience of dealing in foreign exchange or NRI matters. As a result, it is critically important for NRIs to select the right bank and the right bank branch. While it is easy to open an account with another bank; generally, once a bank has been selected, it would be very difficult to change a bank or close an account.

2. Selecting a bank: What should NRIs look for? In todays’ highly competitive world, all the leading banks would provide almost the same features and services. However, every bank may have some unique features. For example, one bank may allow online opening of an account, while another may process transactions online or via email. One bank may give a higher interest on the savings account, while another bank may offer other products. In contrast, a bank may require the client’s physical presence for opening a bank account or another bank may require physical documents for processing transactions for security purposes. The determining factor should thus be the strength of the bank’s NRI department, tenure, knowledge and experience of persons handling NRI matters, and their ability to know, understand and apply the RBI rules in the most customer centric way while complying with all applicable rules and regulations. It is the bank which is actually doing all the work including account opening, converting foreign exchange, allowing credits, processing payments, making investments, ensuring compliance with RBI, remitting funds or transferring from NRO to NRE, making selection of a bank and bank branch is very important for an NRI’s investment journey. Overview of bank accounts available to NRIs An NRI usually maintains one of the following three accounts with the banks in India – NRO (Non-Resident Ordinary) Account, NRE (Non-Resident External) Account, or FCNR (Foreign Currency Non-Resident) Account. Nomination facility is available to the holders of these accounts. However, the funds transferred from NRE or FCNR accounts to NRO or resident accounts would lose repatriability. Moreover, banks are not allowed to give any additional interest rate benefits on any type of deposits of non-residents. Thus, NRIs cannot get the additional interest available to senior-citizens or bank employees. What happens to your accounts when you return? When there is a change in residential status, the bank needs to be notified and type of account needs to be updated accordingly. When a person resident in India becomes an NRI, the normal resident account needs to be re-designated as NRO savings account and vice versa. And, now, the person would be eligible to open NRE and FCNR accounts. When the person becomes resident in India from non-resident, the NRE account is to be closed and funds in the NRE account is to be transferred to the resident savings account or to the Resident Foreign Currency (RFC) account at the option of the account holder. FCNR deposit account is allowed to be maintained until maturity, however, on maturity, the FCNR deposit cannot be renewed and the funds in the FCNR deposit account is to be transferred to the Resident Foreign Currency (RFC) account or to the resident savings account at the option of the account holder. Premature withdrawal – What you should know NRO, NRE or FCNR deposits can be withdrawn prematurely. Banks are allowed to levy any penalty at their discretion. In the case of premature withdrawal of FCNR deposits, banks are also allowed to levy a

3. penalty to recover the swap cost. However, the penalty provisions should be clearly disclosed to the depositor at the time of acceptance of the deposits. Many banks may not charge any penalty for premature withdrawal after 1 year. If there is no premature penalty, the interest rate applied on the pre-matured deposit would be the lower of the interest rate of the deposit or the interest rate of the deposit for the term pre-matured deposit kept at the time of initial deposit. For example, if Mr. Chandrakant Desai, from Hong Kong invested Rs. 10,000,000 in an NRE bank deposit in April 2025 for 5 years at 9%. However, he prematurely withdraws the deposit after 12 months in May 2026. In April 2025, the interest rate on 1 year deposit was 8%. If the bank does not charge any premature penalty, he would get interest @ 8%, lower of the interest rate on the deposit of 9% or interest rate on the tenure for which the deposit is kept (1 year) at the time of the initial deposit (April 2025) of 8%. If bank charges 1% penalty, he would get interest of 7%. Loans and overdraft facilities against NRI deposits RBI allows loans and overdraft facility against the balances in the NRE, NRO or FCNR accounts to the account holders or to the third party. The loan amount is to be utilized for meeting the borrower’s or third party’s personal requirements and/or for business purposes. However, the borrowed money cannot be used for carrying on agricultural or plantation activities, investment in real estate business or re- lending. All the rules and regulations of RBI related to margin, rate of interest, etc. are required to be complied with. Moreover, loans can be made in foreign currency against NRE or FCNR deposit accounts, and the funds are also allowed to be utilized outside India by the account holder or by the third party at the request of the depositor for bona fide purposes. How to get a better exchange rate for converting money into or out of INR? Conversion of foreign currency is a very lucrative business for banks and money exchangers. The foreign exchange rates are determined based on the demand and supply of currencies in the whole world and change in real time. The bank’s treasury tracks these rates and, based on the currency requirements for the day, determines IBR (Inter Bank Rate), which is also real time and closely follows the international rates. IBR usually indicates the bank’s cost for buying and selling foreign exchange and may be different among banks. Every bank publishes card rates for the respective currency on a daily basis. Card rates are derived based on the previous day’s closing rate, any fluctuations after the market was closed and expected fluctuations during the day. This is the rate at which, if any foreign exchange is converted, the bank would make the maximum profit. If the spread between the card rates for buying and selling USD is 3 rupees (which generally is the case), it would be reasonable to assume that the IBR is at centre and there is a profit of Rs. 1.50 per USD on either side. During high volatility periods, the spread could be even higher. While the card rate reflects maximum margin for banks, they do negotiate for a better rate based on the type of client and amount of remittance. For example, if Mr. Biswajit transfers US $8,000 every

4. month, he may not get any beneficial rate and the remittance may be converted at the card rate only. However, if Ms. Shuk, a PIO from China, transfers US $100,000, she could get a better rate because of the volume. If she is not aware about the IBR, she would be satisfied with even 20 paisa better than the card rate instead of conversion at IBR-10 paisa, which is usually the case. If the difference between the card rate and IBR is 150 paisa, she could have saved 140 paisa i.e. an additional INR 140,000. Even if Ms. Shuk is smart or has the right advisor who negotiates with the bank and the bank agrees for IBR-10 paisa, Ms. Shuk can never be sure whether the rate given to her is actually IBR-10 paisa. It is very important to have the right contacts inside the bank’s treasury department to be assured that you get the rate that you were promised. However, to get the right contacts is very difficult. In short, for ANY amount of transfer, negotiate with the bank for a better exchange rate. If the amount is higher, negotiate more. Banks do convert at IBR -0.05 or IBR-0.03 to initiate, maintain and sustain relations depending on the amount of remittance and forex requirement of the bank. Also, get in touch with bank’s treasury to know the live IBR when (actual time) the conversion is made. For any NRI returning to India, establishing the right banking relationship is the foundation of effective financial management. From selecting a bank with the right NRI expertise to understanding account types and optimizing foreign exchange conversions, every decision can significantly impact convenience, returns, and compliance. ExpertNRI, trusted NRIs returning to India consultants, provide personalized guidance to ensure smooth account transitions, optimal remittances, and full compliance with RBI regulations. By staying informed, proactive, and well-connected with both your bank and the prevailing forex market, you can make your transition to India smooth, profitable, and financially secure. Read more article: Understanding Bank Accounts And Exchange Rates For NRIs Returning To India