Cross Border Remittances Supriyo Bhattacharjee AGM College of Agricultural Banking (CAB) RBI, PUNE
Remittances as a payment system issue • Remittance services are part of the broader retail payment systems - both domestic and cross-border • Remittances are cross-border retail payments with particular access requirements (on both the demand and supply sides) • An efficient domestic payment system infrastructure is key to reduce costs of remittance services, especially in receiving countries • Payment system oversight can help to enhance transparency and improve efficiency in the retail payment sector
Remittances as a payment system issue • An efficient domestic payment system infrastructure is key to reduce costs of remittance services, especially in receiving countries • Payment system oversight can help to enhance transparency and improve efficiency in the retail payment sector
Other drivers • Remittances are part of an individual’s access to financial services • A good remittance product improves value to the user in the short term and access to other financial products in the long term • A good remittance product increases competition and could move transactions to the formal sector
Characteristics of Cross Border Remittances • Typically by migrant workers to their families. Especially from developed to developing countries • Person-to person, low value – i.e. not commercial or wholesale • Recurrent – but typically made by individual transfers (e.g. not by standing order) • Typically credit transfers
Channels of Remittances • Bulk of inward remittances through banking channel • Other schemes : • Money Transfer Service Scheme (MTSS) • Rupee Drawing Arrangements (RDA) • Indo-Nepal Remittance Facility scheme
Money Transfer Service Scheme (MTSS) • Quick and easy way of transferring personal remittances from abroad to beneficiaries in India • Only personal remittances such as remittances towards family maintenance and remittances favouring foreign tourists visiting India are permissible
Money Transfer Service Scheme (MTSS) • The system envisages a tie-up between reputed money transfer companies abroad and agents in India who would disburse the funds to the beneficiaries at ongoing exchange rates • The system does not envisage the repatriation of such inward remittances • The India agent is also not allowed to remit any amount on account of exchange loss to the overseas principal.
Money Transfer Service Scheme (MTSS) • The Indian agent has to be an • Authorised Dealer, • Full Fledged Money Changer • registered Non-Banking Financial Company • IATA approved Travel agents ( having min. net worth of Rs.25 lakhs ) • Specific RBI approval to enter into such an arrangement
Money Transfer Service Scheme (MTSS) • The agent is allowed to open a special rupee account with an AD through which all the remittances disbursed under the scheme, are to be routed • The Indian agent pays the beneficiaries first, on instructions from the overseas principal • He is reimbursed the amount and his commission, by the overseas principal, within a day or two through normal banking channels.
Criteria for selection of Overseas Principal • The principal should be a registered entity licensed by the Central Bank/Government or any other regulatory authority for carrying on Money Transfer Activities • Should be registered with the trade/Industry bodies. • Should have a good rating from one of the reputed credit rating agencies. • Should submit confidential reports from two banks. • Should submit a report certified by independent Chartered Accountants, regarding steps taken to comply with anti money laundering norms in the host country.
Collateral • Collateral equivalent to 3 days' average drawings or USD 50,000 whichever is higher, may be kept by the overseas principal with the designated bank in India. • The minimum amount of USD 50,000 shall be kept as a foreign currency deposit while the balance amount may be kept in the form of a Bank Guarantee. • The adequacy of collateral amounts should be reviewed half yearly on the basis of remittances received during the past six months.
Other conditions • Donations/contributions to charitable institutions/Trusts shall not be remitted through this arrangement • A cap of USD 2500 has been placed on individual transaction under the scheme. • Amounts up to Rs.50,000/- may be paid in cash. Any amount exceeding this limit shall be paid by means of cheque/D.D./P.O. etc. or credited directly to the beneficiary's account only.
Other conditions • Only 12 remittances can be received by a single individual during a year. • In exceptional circumstances, where the beneficiary is a foreign tourist, higher amounts may be disbursed in cash. Full record of such transactions should be kept on record for scrutiny by the auditors/inspector.
COVERAGE • At end-April 2008, there were 26 Indian agents and 11 Overseas Principals under the MTSS
Rupee Drawing Arrangements (RDA) • Under the RDAs Scheme, Category-I ADs are permitted by the Reserve Bank to open vostro accounts of Exchange Houses of the Gulf countries, Hong Kong and Singapore • The purpose is to channelise cross-border inward remittances into India
Types of RDAs • DAs fall into three categories, viz., • Designated Depository Agency (DDA), • non-DDA • Speed Remittances. • Separate vostro accounts in Indian rupees are required to be opened by the Exchange Houses for each of these arrangements • No cash payments are made under these arrangements.
Designated Depository Agency (DDA) • The Exchange house issues rupee drafts to the beneficiary • At the end of each day, the Exchange house arrives at the total drawings and deposits their daily collections on the next working day in the DDA account
Designated Depository Agency (DDA) • The DDA account is a designated account opened in the name of the drawee bank by the Exchange House with a bank acceptable to the drawee bank at a centre mutually agreed upon • Auditors are appointed by the bank to ensure that daily drawings are deposited by the Exchange House in the DDA account on the next working day
Designated Depository Agency • The funds so deposited are transferred to the nostro account of the bank within the float period • Interest earned on the funds till the date of transfer to the nostro account accrues to the Exchange House • No collateral security is to be placed by the Exchange House under this kind of arrangement in the normal course.
Designated Depository Agency (DDA) • By April 2008, 39 banks and 69 Exchange Houses were having tie-ups under RDA. • Out of the 69 Exchange Houses, 66 were incorporated in Gulf countries, one in Hong Kong and two in Singapore
Non-DDA procedure • The Exchange House directly credits the nostro account of the bank with the total of daily drawings • As no auditors are appointed to oversee the transfers to the nostro accounts, collateral deposits equivalent to one month projected drawings are insisted upon (15 days cash and 15 days bank guarantee).
Speed Remittance • the Exchange House sends instructions electronically to the bank with complete details of the beneficiary • Funds their rupee account through the bank’s nostro account well in advance before issuing payment instructions • On verification of data and availability of balance in the vostro account, the bank issues drafts in favour of the beneficiary or directly credits the beneficiary’s account
Speed Remittance • No payments are made unless clear funds are available in the account • A collateral deposit equivalent to 15 days’ drawings is prescribed for operation of this arrangement.
Indo-Nepal Remittance Facility scheme • Cross-border one-way remittance facility scheme facilitating remittance from India to Nepal • Remitter can transfer funds up to INR 50,000 from any of the NEFT branches to Nepal • The beneficiary would receive funds in Nepalese rupees
Indo-Nepal Remittance Facility scheme • Remitter need not have an account with the bank • Even a walk-in customer can deposit cash up to Rs.50,000 and remit it to the beneficiary
Indo-Nepal Remittance Facility scheme • Credit goes to Beneficiary’s bank account in Nepal • If the beneficiary resides in area not serviced by a bank branch, Nepal SBI Ltd. has tied up with a money transfer company in Nepal who would make arrangements for delivery of cash to the beneficiary.
Documents/Identification to be produced by Remitter • If the remitting customer is maintaining an account there is no further need for additional identification • Otherwise, the remitter has to produce proof of identification document like Passport /PAN / Driving License/Telephone Bill/ certificate of identification issued by employer with details and photograph etc. • The complete address and telephone/mobile number of the beneficiary in Nepal will also be required.
Transaction flow • Remittances can be originated from any of the NEFT enabled branches in India (Transaction code: 51) • The transactions would flow to the designated branch of State Bank of India • The branch will consolidate all such remittance information received during the day • At the end of the day the remittance information would get passed on to Nepal SBI Bank Ltd, in a secured mode
Transaction flow • Nepal SBI would make arrangements for either • credit to the bank account or • disburse the funds to the beneficiary through their authorised money transfer agent. • If the beneficiary’s account details are available, Nepal SBI would make arrangements for credit of the account.
Transaction flow • In other cases , Beneficiary has to get in touch with the outlet of the Money Transfer agency, after getting the Unique Transaction Reference (UTR) number from the remitter • Has to produce details of the remitter and a photo identity document, (generally citizenship certificate) to prove his / her identity • If the beneficiary does not approach the money transfer agency even up to one week, the money transfer agency would make arrangements for return of the remittance to the originator.
Charges • Originating bank – Maximum Rs 5/- per transaction – aligned with NEFT • State Bank of India – Rs 20/- per transaction. SBI would share this Rs.20/- with NSBL at Rs.10 each. NSBL would not charge any additional amount for crediting the beneficiary, if he maintains an account with it. • In case the beneficiary does not maintain an account with NSBL then, an additional amount would be charged- Rs 50/- for remittances up to Rs 5,000/- and Rs 75/- for remittance above 5,000/- • Originating branches of participating banks to recover the entire charges and pass on the appropriate amount to SBI after retaining their share
Other conditions • Any remitter is allowed to remit maximum of 12 remittances in a year under this Scheme • In case the funds are not delivered to the beneficiary : • The amount of remittance will flow back to the originating branch through NEFT • the bank to communicate to the remitter about the return of the remittance
Other conditions • In case of cash remittance : • Remitter has to produce some evidence as a proof of remittance like the counterfoil of the remittance application form and receive it • In case of remittance from account : • credit will flow to the concerned account.