CHAPTER 38 UNION SMART FOREIGN CURRENCY SCHEME

CHAPTER 38 UNION SMART FOREIGN CURRENCY SCHEME

CHAPTER 38 38 Para No UNION SMART FOREIGN CURRENCY SCHEME INDEX TOPIC Page No Introduction 3 38 1 Salient features of the scheme 3 38 2 Advantages of the scheme 3 38 3 Modalities of the Scheme 4 38 4 Branches permitted to implement this scheme 5 38 5 Account Opening Form and Undertaking 5 38 6 Deposit Receipt 5 38 7 Illustration 6 38 8 Operational Guidelines 7 38 9 Guidelines to 'C category Branches 7 38 10 Guidelines to 'B' category Branches 8

38. INTRODUCTION Mostly NRIs place their repatriable funds in the following term deposits with the banks either in Indian Rupees or in Foreign Currency with certain objectives. NRE Rupee Term Deposits - To avail of comparatively higher rate of interest. FCNR (B) Term Deposit - To safe guard themselves from exchange rate risk. However; both these schemes have inherent disadvantages. In case of NRE Rupee Term Deposit the depositor is exposed to possible exchange rate fluctuations though returns are comparatively higher. It is also possible that any advantage in rate of interest can be wiped out due to depreciation of rupee at the time of repatriation. In case of FCNR (B) deposit though depositor is guaranteed against adverse fluctuation of exchange rates, interest rates are comparatively low. Therefore, as a better investment option for NRIs which not only ensures better returns but also insulates / mitigates exchange rate risk, bank has devised a new deposit scheme in the name and style of Union Smart Foreign Currency Scheme. 38.1. Salient features of the scheme are Inward remittance in foreign currency is converted into rupees at the on going TT buying rate and placed in NRE Rupee Deposit Reinvestment Scheme (NRE-DRC), in order to take advantage of higher rate of interest on NRE deposit. Simultaneously, forward cover is booked for reconverting the maturity value of the NRE-DRC term deposit into the respective foreign currency so as to insulate from possible exchange depreciation. 38.2. Advantages of the Scheme i) Earn higher returns as compared to FCNR (B) deposit. ii) Protects against exchange loss. iii) Interest earned is totally free from Indian Income Tax (as per existing norms). iv) Maturity proceeds (both principal + Interest) can be repatriated. NOTE:

The scheme will be beneficial only if the difference between rate of interest offered on NRE Deposit Reinvestment Scheme less forward premium for the currency for the corresponding period of deposit is higher than the rate of interest offered on FCNR (B) deposit scheme. 38.3. Modalities of the Scheme 3.1. Who can open the account 3.2. Purpose Non-Resident Indians of Indian Nationality/Origin (NRI/PIO) To enable the NRIs to maximize the yield of the Foreign Currency Resources / funds. 3.3. Period of Deposit Period of deposit will be for 12 months. 3.4. Currency and Minimum foreign Currency Amount Inward Remittance in any convertible foreign Currency equivalent to USD 10,000/- 3.5. Rate of Interest As applicable to NRE Term deposit. 3.6. Other Conditions The Deposit should be placed under NRE-DRC Scheme only to avail maximum benefit under this scheme. All rules relating to NRI deposits viz. Joint Accounts, Nominations, Additions / Deletions of names, Interest application etc are the same as applicable to NRE Term Deposits. No premature extension is permitted. No credit facility or loan/overdraft is permitted. Premature withdrawal of the deposit will not be permitted. Under exceptional circumstances (to be decided by the branch head), if premature withdrawal is permitted then the depositor will be required to bear the losses both by way of penalty for premature closure and on account of cancellation of forward contract in addition to other charges / fees incurred by the bank. However, gains, if any, made by the bank on

account of cancellation of forward contract will not be passed on to the depositor. Branch (which has accepted the subject deposit) should arrange to send the forward contract confirmation agreement received from Treasury Branch, Mumbai to the depositor for his/her/their signature, with a request to return the same after signing by return post. Further branches should ensure that within 30 days of receipt of signed forward contract confirmation agreement from the depositor, it should be got stamped according to the state stamp act. 38.4. Branches permitted to implement this scheme All NRI Branches All 'B' Category branches Other branches designated to accept FCNR (B) deposits in the close vicinity of 'B' category branch in Ahmedabad, Bangalore, Baorda, Chennai, Cochin, Ernakulam, Hyderabad, Jalandhar, Kolkata, Kozhikode, Mala, Mangalore,Mumbai, Napgur, New Delhi, Pune, Tiruvalla, Udupi and Valiabh Vidhyanagar. 38.5. Account Opening Form and undertaking Branches should obtain the NRI account opening form containing the underta -king and ensure that the necessary details are filled up in the undertaking at the time of opening the account. The undertaking should b duly signed by all the depositors. Branches should simultaneously obtain request for booking forward contract. 38.6. Deposit Receipt Deposit Receipt as applicable to NRE-DRC should be used for this deposit scheme. Branches should get a rubber stamp prepared mentioning "UNION SMART FOREIGN CURRENCY SCHEME". This should be affixed on the face of the Deposit Receipt. Branch should retain at its possession a photo copy of the subject Deposit Receipt. 38.7. ILLUSTRATION

At the time of opening of account Sr.No. Procedure invoiced Illustration A. Inward Remittance Say USD 10000.00 by TT is received. OR Clear credit is received in our Nostro account. 1. Foreign Currency is USD 10000 @ Rs 61.00/- converted into Rupees at TT Buying Rs 6,10,000/- rate 2. Foreign Currency so converted into Rupees is kept as NRE- DRC and maturity value is arrived at 3. On the date of deposit, Book a Forward Contract for conversion of maturity value arrived at Sr.No.3 to USD At maturity of NRE-DRC 4. Convert Maturity Value of NRE DRC deposit at forward contract rate into USD B. If the deposit is kept in FCNR(B) Deposit Scheme C. Net Gain /Loss @ 8.95 (NRE 1year deposit rate prevailing on 25.11.2014) Rs 6,10,000/- for 12 months Rs 6,66,455/- Forward rate for 1 year as on 25.11.2014 1 USD = INR 65.60 MV Rs 6,66,455/- will be converted into USD 10,159.40 One year rate of interest on FCNR (B) deposits designated in USD is 1.84 % MV of FCNR (B) deposit for 1 year is USD 10186.55 Maturity value for original deposit of USD 10,000/-as per S.No. A works out to USD 10159.60 and the yield at the end of one year is 1.60 % i.e.(10,159.60-10,000)/100.whereas maturity value for the original deposit of USD 10,000/- as per S.No. B works out to USD 10,186.55 and the yield at the end of one year is 1.87 % only i.e.(10,186.55-10,000)/100 Net Loss 0.27 %( i.e.1.87 % - 1.60 %) As premium on USD forward is very high for 1 year, so this scheme is not beneficial at this stage.

The yield on above deposit in USD terms equals to 1.60 %. Thus by placing the above funds in "UNION SMART FOREIGN CURRENCY SCHEME", the deposit earns a return of 1.60 % for 1 year, as against 1.87 % if placed under FCNR (B) deposit. (Branches may take the help of UNION SMART SCHEME chart which is loaded on UBINET on daily basis. It clearly indicates the arbitrage available for different currencies and under which scheme and currency, there will be gain or loss) 38.8. Operational Guidelines After receipt of funds in Nostro Account and on receiving Account Opening Form containing the undertaking / Authorisation from NRI customer the designated branches to follow the-procedures stated below: 1. Obtain TT buying rate from the dealing room for conversion of the foreign currency into Rupees. Place the same in NRE-DRC Deposit for maturity period of 12 months. 2. Calculate the maturity value of the NRE-DRC Rupee amount. 3. Simultaneously book a forward contract on the date of deposit for reconversion of the maturity value into USD by informing the following details to the dealing room. Deposit Account Number/ Receipt Number Name of the Depositor Maturity Value Period Due date Mention the B-Cat. Branch which will control the contract 38.9. GUIDELINES' TO C CATEGORY BRANCHES (Designated to Accept FCNR (B) deposits): Branches should take the rate directly from Dealing room (mentioning the name of the B category branch which will control the amount) and calculate the yield as per the illustration. In case of any doubt, they should get the same confirmed through B category branches through

whom their foreign exchange transactions are routed. After-taking the rate and booking the forward contract, C category branches will report the same to the B category branch through whom their forex transactions are routed, Inter alia, informing them the following details: Deposit Account Number/ Receipt Number Name of the Depositor Maturity Value Period Due date Contract No. Forward Rate On due date the maturity proceeds will be sent to the 'B' category with appropriate instruction for the disposal of the USD amount. 38.10. GUDELINES TO 'B' CATEGORY BRANCHES They will hold confirmation received from C category branches stating that the branch is holding the NRE-DRC deposit receipt duly marked in their records. Diarise the due date for fulfillment of the contract. B category branches will also ensure that statement of outstanding forward contracts received from A category Branch on a monthly basis is also reconciled and follow up is also done for contracts falling due in the immediate future with the respective C category branch. Branch can dispose off the USD so obtained by way of i. Fresh FCNR (B) deposit ii. Converting at spot rate for creating NRE-DRC to continue under Union Smart iii. Converting at spot rate for crediting NRE/NRO SB / term account as the case be.