Operational Aspects of NRI Business
Principles & Practices of Banking | Unit 9 Chapter Notes
NRE, FCNR(B) and NRO account features side by side, SNRR accounts, NRI asset remittance rules, immovable property acquisition and repatriation, and investment ceilings — all key numbers and restrictions for the JAIIB exam.
📌 Why This Chapter Matters in JAIIB
This chapter is consistently tested — expect 4–6 questions. The NRE vs FCNR(B) vs NRO comparison is almost always in the paper. Key numbers: minimum 1 year for NRE/FCNR(B), minimum 7 days for NRO, USD 1 million per FY remittance limit from NRO, 5%/10%/24% investment ceilings, and the list of countries needing RBI approval for immovable property.
Introduction — Three Permitted NRI Accounts
FEMA empowers RBI to regulate deposits between residents and non-residents. To serve the large Indian diaspora, three special account types are permitted for NRIs and PIOs (PIO includes OCI cardholders):
🧠 Mnemonic — NRE, FCNR, NRO
NRE
External Rupee
Foreign earnings IN India — Freely repatriable. Tax-free.
FCNR(B)
Foreign Currency
Foreign earnings IN foreign currency — No exchange risk. Tax-free.
NRO
Ordinary Rupee
Indian income (rent, dividends) — Limited repatriation. Taxable.
Quick Numbers to Lock In
NRE TD min
1 year
FCNR(B) TD min
1 year
FCNR(B) TD max
5 years
NRO TD min
7 days
NRO remittance
USD 1 mn / FY
SNRR max tenure
7 years
NRI indiv. limit
5% equity
NRI aggregate
10% → 24%
NRE vs FCNR(B) vs NRO — Full Comparison Table
This table is the most exam-heavy part of the chapter. The JAIIB paper frequently gives you a feature and asks you to identify the correct account.
| Feature | NRE Account | FCNR(B) Account | NRO Account |
|---|---|---|---|
| Full name | Non-Resident (External) Rupee Account | Foreign Currency (Non-Resident) Account (Banks) | Non-Resident (Ordinary) Account |
| Who can open | NRIs and PIOs | NRIs and PIOs | Any person resident outside India; foreign nationals visiting India |
| Currency | Indian Rupees (INR) | Any freely convertible foreign currency designated by RBI | Indian Rupees (INR) |
| Account types | SB, CA, RD, FD | Fixed Deposits ONLY (no RDs) | SB, CA, TD, RD |
| Min TD tenor | 1 year | 1 year | 7 days |
| Max TD tenor | No cap | 5 years | No cap |
| Interest tax | Exempt from Income Tax & Wealth Tax | Exempt from Income Tax & Wealth Tax | Taxable in India |
| Repatriability | Freely repatriable (principal + interest) | Freely repatriable (principal + interest) | Current income freely repatriable; capital up to USD 1 mn per FY |
| Source of funds | Inward remittances from abroad; FX brought during visit (with CDF); transfers from NRE/FCNR(B) | Inward remittances from abroad; transfers from NRE/FCNR(B) | Inward remittances; legitimate dues in India; transfers from other NRO accounts; INR gift/loan by resident relative (within LRS) |
| Debits | Local payments; remittances outside India; transfers to NRE/FCNR(B) | Same as NRE | Local payments; transfers to NRO accounts. Remittances abroad only for current income or up to USD 1 mn per FY |
| Joint account | Two or more NRIs/PIOs; or NRI/PIO with resident relative on 'former or survivor' basis | Same as NRE | NRI jointly with residents on 'former or survivor'; jointly by NRIs/PIOs |
| When NRI returns to India | Redesignated as RFC account or resident account | Continues till maturity; then converted to RFC or resident rupee account | Redesignated as resident account (if indicates intention to stay indefinitely) |
NRE Account — Detailed Rules
PoA Holder Permissions on NRE Account
✓ PoA holder CAN
- →Withdrawals for local payments
- →Remittance to the account holder through banking channels
- →Make permitted investments in India
✕ PoA holder CANNOT
- ✕Open a new NRE account
- ✕Repatriate funds outside India (except to the NRI account holder)
- ✕Make payment as gift to a resident on behalf of the account holder
- ✕Transfer funds to another NRE account
Loans Against NRE Deposits
Loans in India
- →To account holder or third party in India.
- →No monetary limit on loan amount.
- →Loan amount CANNOT be repatriated outside India.
- →Eligible uses: personal purposes, business, investment (non-repatriation), acquiring own residential flat/house.
- →Prohibited uses: relending, agricultural/plantation activities, real estate business.
- →Lien NOT allowed on NRE Savings deposits.
Loans Outside India
- →AD may allow branches/correspondents outside India to lend against NRE deposits in India.
- →Borrower: the non-resident depositor or third parties for bonafide purpose.
- →Premature withdrawal of NRE deposit charged as security is not allowed.
FCNR(B) Account — Detailed Rules
Interest Rate Rules
Types of rate
Both floating and fixed rates permitted
Floating reset period
6 months
Reference rate
Overnight ARR / FBIL swap rates
Interest calculation
360-day year basis; at 6-monthly rests
| Tenor | Maximum Mark-up (above reference rate) |
|---|---|
| Less than 3 years | Up to 250 basis points above Overnight ARR / FBIL swap rate |
| 3 years to 5 years | Up to 350 basis points above Overnight ARR / FBIL swap rate |
Tenor Blocks
Premature Withdrawal — No Penalty Cases
- →Conversion into RFC Accounts on return to India
- →For splitting the deposit, if the period and aggregate amount remain unchanged
- →Consequent to the transfer of business of the branch to another bank
NRO Account & Accounts for Foreign Nationals
NRO — Key Rules
- →Minimum TD tenor: 7 days (much lower than NRE/FCNR).
- →Interest is taxable in India (unlike NRE/FCNR which are tax-free).
- →NRIs/PIOs can remit up to USD 1 million per FY from NRO (including transfers to their NRE accounts).
- →Loans against NRO deposits are permitted at usual norms; cannot be used for relending, agriculture/plantation, or real estate.
- →When a resident becomes non-resident: existing resident account is re-designated as NRO account.
- →When an NRI returns to India: NRO account is re-designated as resident account if they indicate intention to stay indefinitely.
Accounts for Foreign Nationals — Special Rules
Non-Indian origin visiting India
NRO (current/savings) account. Balance may be paid when leaving India if held ≤ 6 months with no local credits (except accrued interest).
Foreign nationals leaving India
Resident account re-designated as NRO. Credits must be bonafide dues earned as a resident. Repatriation not to exceed USD 1 mn per FY. Account closed after all dues collected.
Pakistan nationals / entities
Prior RBI approval required to open any account.
Bangladesh nationals
Allowed with valid visa and residential permit issued by FRO/FRRO.
Bangladesh entities
Prior RBI approval required.
Minority communities from Bangladesh/Pakistan (LTV holders)
AD may open only ONE NRO account. Can be opened for 6 months, renewed at 6-monthly intervals if LTV application pending. Reported to MHA quarterly. Converted to resident account on acquiring Indian citizenship. Minority communities: Hindus, Sikhs, Buddhists, Jains, Parsis, Christians.
Special Non-Resident Rupee (SNRR) Account
SNRR accounts are for foreign nationals or entities with business relationships in India — essentially a business-purpose rupee account for non-residents.
⚠️ Exam trap — SNRR vs NRO
SNRR is for business purposes; NRO is for personal/bonafide dues. The SNRR account pays zero interest. Transfers from NRO to SNRR are prohibited. Maximum tenure is 7 years (not indefinite).
Remittance of Assets Held by NRIs/PIOs
General Permission — Up to USD 1 mn per FY
ADs can allow NRIs/PIOs to remit up to USD 1 million per financial year on production of documentary evidence from the following assets:
- →Assets from NRO account balances.
- →Assets acquired by way of inheritance/legacy.
- →Assets under a deed of settlement by either parent or a relative (per Companies Act 2013), effective on the death of the settler.
All instalments must be remitted through the same AD. For NRO account remittances, an undertaking that the funds are not from borrowings in India must be obtained.
RBI Prior Approval Required for
- →Remittances in excess of USD 1 mn in a FY — for legacy/bequest/inheritance to a citizen of a foreign state residing outside India; or by NRIs/PIOs from NRO accounts/sale proceeds of assets.
- →Hardship cases — where refusal of remittance would cause hardship to the remitter.
- →Sale proceeds of assets in India held by any person, if not covered under existing RBI directions.
Acquisition & Transfer of Immovable Property
What NRIs/PIOs/OCIs Can Acquire
- →Purchase from, or receive as gift from, a resident in India or another NRI/OCI (who is a relative per Companies Act 2013).
- →Inheritance from any person resident in India or a person resident outside India who acquired it as per foreign exchange laws.
- →EXCEPT: agricultural land, plantation property, and farm houses — these cannot be acquired.
Repatriation of Sale Proceeds — Restrictions
- →AD may allow repatriation if: property was acquired as per foreign exchange laws; and consideration was paid by inward remittance from abroad through banking channels or by debit to FCNR(B)/NRE account.
- →Repatriation of sale proceeds of RESIDENTIAL properties is restricted to a maximum of TWO properties.
- →All transactions involving transfer of immovable property by a non-resident must be through banking channels in India.
Country-wise Restrictions — Exam Hotspot
Restricted countries (11 total): Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Macau, Hong Kong, DPRK — need prior RBI permission except for lease ≤ 5 years.
Investments by NRIs/PIOs — Prohibited Sectors & Ceilings
Prohibited Investment Sectors (even for NRIs/OCIs)
- 1.Lottery business (Government, private, online)
- 2.Chit funds (NRIs/OCIs can invest on non-repatriation basis — this is an exception)
- 3.Gambling and betting including casinos
- 4.Nidhi company
- 5.Trading in Transferable Development Rights (TDRs)
- 6.Real estate business or construction of farm houses
- 7.Manufacturing of cigars, cheroots, cigarillos and cigarettes (tobacco products)
- 8.Atomic energy
- 9.Railway operations (activities not open to private sector)
⚠️ Exception to remember
Chit funds — while prohibited generally, NRIs/OCIs CAN invest on a non-repatriation basis. This exception is a common MCQ trap.
Investment Ceilings in a Listed Indian Company — Exam Critical
| Investor | Equity Capital Ceiling | Debentures / Pref Shares / Warrants |
|---|---|---|
| Individual NRI / OCI | Up to 5% of total paid-up equity capital (fully diluted) | Up to 5% of paid-up value of each series of debentures / preference shares / warrants |
| All NRIs + OCIs combined | Up to 10% of total paid-up equity capital (fully diluted) | Up to 10% of paid-up value of each series — can be raised to 24% by special resolution of the company |
The aggregate 10% ceiling can be raised to 24% if the Indian company passes a special resolution to that effect at its General Body meeting.
NRE (PIS) Account — Dedicated Account for Stock Exchange Investments
For NRI/OCI investments in capital instruments of listed Indian companies on repatriation basis (through a stock exchange), a dedicated NRE (PIS) Account must be maintained at a designated AD branch.
Permitted Credits
- →Inward remittances from abroad
- →Transfers from NRE/FCNR(B) accounts
- →Sale proceeds (net of taxes) of capital instruments on stock exchange
- →Dividend/income on repatriation basis investments
Permitted Debits
- →Purchase of capital instruments on stock exchanges
- →Outward remittances of dividend/income
- →Charges on sale/purchase of capital instruments
- →Remittances outside India or transfer to NRE/FCNR(B) accounts
Non-Repatriation Basis Investments — Key Restrictions
- →Sale/maturity proceeds must be credited ONLY to the NRO account — not remittable abroad.
- →Amount invested and capital appreciation CANNOT be repatriated abroad.
- →Deemed as domestic investment.
- →Prohibited from: Nidhi company, real estate, agricultural/plantation activities, farm house construction, dealing in TDRs.
- →Payment may be from inward remittance or NRE/FCNR(B)/NRO account funds.
Chapter at a Glance — Key Numbers
| Rule / Threshold | Figure | Context |
|---|---|---|
| NRE TD minimum tenor | 1 year | No maximum ceiling |
| FCNR(B) TD minimum tenor | 1 year | Maximum is 5 years |
| NRO TD minimum tenor | 7 days | Much lower than NRE/FCNR |
| NRO remittance limit (general) | USD 1 mn per FY | Includes transfer to own NRE accounts |
| NRO remittance >USD 1 mn | Prior RBI approval | For inheritance/legacy to foreign citizens |
| FCNR interest mark-up (< 3 years) | Up to 250 bps | Above overnight ARR / FBIL swap rate |
| FCNR interest mark-up (3–5 years) | Up to 350 bps | Above overnight ARR / FBIL swap rate |
| FCNR floating rate reset period | 6 months | For floating rate FCNR deposits |
| SNRR maximum tenure | 7 years | Renewal needs RBI approval |
| SNRR interest | NIL | No interest paid on SNRR |
| Individual NRI/OCI equity ceiling | 5% | Of total paid-up equity of listed Indian company |
| Aggregate NRI+OCI equity ceiling | 10% (→ 24%) | 24% by special resolution of General Body |
| Repatriation of residential property | Max 2 properties | Proceeds of sale of residential property |
| Countries needing RBI for property | 11 countries | Pak, Ban, SL, Afg, China, Iran, Nepal, Bhutan, Macau, HK, DPRK |
| Lease exception for restricted countries | ≤ 5 years | No prior RBI needed for short-term lease |
| Foreign national NRO account | ≤ 6 months | Paid back on departure if no local credits |
| LTV minority community NRO | 6 months + renewals | One NRO account; renewable if LTV pending |
Practice Test
Chapter 9 Mock Test — Coming Soon
Exam-standard MCQs on NRE/FCNR/NRO, SNRR, investment ceilings, immovable property rules — timed, graded, PRO.
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