Banking · NRI Accounts
A Non-Resident Indian (NRI) has maintained a Foreign Currency Non-Resident (Bank) account, commonly referred to as FCNR(B), with your branch for a period of three years in US Dollars. Upon maturity of the deposit, the customer requests that the proceeds, including the interest accrued, be converted into Pound Sterling (GBP) and then reinvested into a new FCNR(B) deposit for another two-year term. According to the operational guidelines issued by the Reserve Bank of India, what is the specific regulatory requirement regarding the exchange rate risk and the conversion process for such a cross-currency reinvestment in FCNR(B) accounts?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The bank must obtain prior approval from the Regional Office of the Reserve Bank of India before allowing any cross-currency conversion for FCNR(B) deposits exceeding a value of one hundred thousand US Dollars.
- 2The bank is permitted to perform the conversion at the current market rate but must ensure that the new deposit is created as an NRE account first before being converted back into the new foreign currency.
- 3The conversion from the existing currency to the new currency must be performed at the prevailing market rate on the date of maturity, and the bank is prohibited from charging any commission or spread on this specific transaction.✓
- 4The bank must provide the conversion at the historical exchange rate that existed at the time of the original deposit to ensure the customer does not suffer any exchange loss during the reinvestment period.
Correct answer
The conversion from the existing currency to the new currency must be performed at the prevailing market rate on the date of maturity, and the bank is prohibited from charging any commission or spread on this specific transaction.
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