Bank Accounts for Foreign Currency Transaction
Dealing in foreign exchange is not an easy task to manage. RBI (Reserve Bank of India) is very strict when it comes to foreign exchange reserve. An individual person or even company be it private limited company, public limited company or Listed companies can not deal in foreign currency freely. For every transaction, they have to approach authorised dealers as prescribed by the RBI.
This is even more important when you are dealing in foreign currency loan or investment on behalf of the company. Private Limited Company is the one which attracts a very heavy flow of FDI.
Being an Indian resident if you have current accounts, saving accounts and fixed deposit accounts are sufficient to conduct any type of transaction domestically but may not be for those transactions which involve dealing in foreign currency.
So, these types of accounts are suitable if you are not into the business of importing or exporting of goods or services and your business is limited to the boundaries of countries.
But, if you are importing or exporting goods, or involve in a foreign financial transaction then you have to follow laws related to foreign exchange.
Purchase or sale of whether goods or shares in India must be undertaken through bank accounts that are permitted to route the transaction under the Foreign Exchange Management Act, 1991 (FEMA).
Therefore, you must understand what are the different types of accounts which must be opened to undertake foreign exchange transactions.
You must consider the following points before opening any bank account in India:
- Currency in which the account can be opened.
- The Manner in which the account shall be operated.
- Whether the foreigner can send the money back to his home country.
An Exchange Earner’s Foreign Currency (EEFC) Account can be opened for keep foreign exchange. Exporters can hold the proceeds in foreign exchange instead of converting it which definitely save the transaction cost. But you can’t hold the foreign currency in this account infinitely.
So, this type of strategy can be adopted to save the transaction cost only but can be used hedge currency risk. Hedging is technique through which you can minimise loss in currency transactions.
EEFC account is like a current account, therefore, no interest is payable on its balance.
Bank Accounts opened by Foreigners
A non-resident can open a Non-resident Ordinary account Rupee Account (NRO account). This is rupee account. This account can be used for investing in Indian companies to invest in Indian companies and making other payments in India. But, all these transactions must be done as per rules and regulations made in this regard by RBI.
This account can also be opened by the NRIs (Non-resident Indian).