CAIIB BFM Unit 3 - Correspondent Banking and NRI Accounts

1. Corresponding Banking is the relationship between two banks which have mutual accounts with each other, r one of them having account with the other.

2. Functions of Corresponding Banks:
A. Account Services
i. Clearing House Functions
ii. Collections
iii. Payments
iv. Overdraft and loan facility
v. Investment Services
B. Other Services
i. Letter of Credit Advising
ii. LC confirmation
iii. Bankers Acceptance
iv. Issuance of Guarantees – Bid-bond, Performance
v. Foreign Exchange services, including derivative products
vi. Custodial Services etc.

3. Types of Bank Accounts: The foreign account maintained by a Bank, with another bank is classified as Nostro, Vostro, and Loro Accounts.

4. Nostro Account: “Our Account with you”. DLB maintains an US $ account with Bank of Wachovia, New York is Nostro Account in the books of DLB, Mumbai.

5. Vostro Account: “Your account with us”. Say American Express Bank maintain a Indian Rupee account with SBI is Vostro Account in the books of American Express bank

6. Loro Account: It refers to accounts of other banks i.e. His account with them. E.g. Citi Bank referring to Rupee account of American Express Bank, with SBI Mumbai or some other bank referring to the USD account of SBI, Mumbai with Citi Bank, New York.

7. Mirror Account: While a Bank maintains Nostro Account with a foreign Bank, (Mostly in foreign currency), it has to keep an account of the same in its books. The mirror account is maintained in two currencies, one in foreign currency and one in Home currency.

8. Electronic Modes of transmission/ payment gateways
SWIFT, CHIPS, CHAPPS, RTGS, NEFT

9. SWIFT: Society for Worldwide Interbank Financial Telecommunications.

10. SWIFT has introduced new system of authentication of messages between banks by use of Relationship Management Application (RMA) also called as SWIFT BIC i.e.Bank Identification Code.

11. CHIPS: (Clearing House Interbank Payment System) is a major payment system in USA since 1970. It is established by New York Clearing House. Present membership is 48. CHIPS are operative only in New York.

12. FEDWIRE: This is payment system of Federal Reserve Bank, operated all over the US since 1918. Used for domestic payments.

13. All US banks maintain accounts with Federal Reserve Bank and are allotted an “ABA number” to identify senders and receivers of payment

What Does ABA Transit Number Mean?
A unique number assigned by the American Bankers Association (ABA) that identifies a specific federal or state chartered bank or savings institution. In order to qualify for an ABA transit number, the financial institution must be eligible to hold an account at a Federal Reserve Bank. ABA transit numbers are also known as ABA routing numbers, and are used to identify which bank will facilitate the payment of the check.

14. CHAPS: Clearing House Automated Payments system is British Equivalent to CHIPS, handling receipts and payments in LONDON

15. TARGET: Trans-European Automated Real Time Gross Settlement Express Transfer System is a EURO payment system working in Europe. And facilitates fund transfers in Euro Zone.

16. RTGS + and EBA: RTGS+ is Euro German Based hybrid Clearing System. RTGS+ has 60 participants.

17. EBA-Euro 1 is a cross Border Euro Payments

18. RTGS/NEFT in India: The RTGS system is managed by IDRBT- Hyderabad. Real Time Gross Settlement takes place in RTGS. NEFT settlement takes place in batches.

19. NRI: (Non- resident Indian) definition: As per FEMA 1999
A person resident outside India who is a citizen of India i.e.
a) Indian Citizen who proceed abroad for employment or for carrying on any business or vocation or for any other purpose in cirucumstances indicating indefinite period of stay outside India.
b) Indian Citizens working abroad on assignment with Foreign government, government agencies or International MNC
c) Officials of Central and State Governments and Public Sector Undertaking deputed abroad on assignments with Foreign Govt Agencies/ organization or posted to their own offices including Indian Diplomatic Missions abroad.

20. NRI is a Person of Indian Nationality or Origin, who resides abroad for business or vocation or employment, or intention of employment or vocation, and the period of stay abroad is indefinite. And a person is of Indian origin if he has held an Indian passport, or he/she or any of his/hers parents or grandparents was a citizen of India.

21. A spouse , who is a foreign citizen, of an India citizen or PIO, is also treated at a PIO, for the purpose of opening of Bank Account, and other facilities granted for investments into India, provided such accounts or investments are in the joint names of spouse.

22. NRE Accounts – Rupee and Foreign Currency Accounts

23. NRI has provided with various schemes to open Bank A/cs an invest in India.
1) Non Resident (External) Rupee Account (NRE);
2) Non- Resident (Ordinary) Rupee Account (NRO);
3)Foreign Currency (Non-Resident) Account (Banks) {FCNR(B)}

When resident becomes NRI, his/her domestic rupee account, has to be re-designated as an NRO account.
For NRE – Rupee A/cs , w.e.f 15-3-2005 an attorney can withdraw for local payments or remittance to the account holder himself through normal banking channels.