The Indian Banking system is a complex system whereby there are various procedures that are required to be followed in order to commence the local banking process. At the time of setting up a company in India or during mergers and acquisitions, it is essential that the foreign investor open a bank account in a notable bank in India. Further the Banks in India also belong to various categories and are classified differently. The various types of banks in India include Commercial Banks, Cooperative Banks, Regional Rural Banks (RRB), Small Finance Banks, Payments Banks, etc. All these banks, classified under different categories, perform different functions in managing the financial condition of India. The main authority and Reserve Bank of India is Apex Bank which manages, controls and regulates all other banks in India. The Reserve Bank of India is entrusted with the duty of supervising the financial system of the country, implementing various government’s monetary policies, issuing the currency and providing guidelines to the other Bank. The next in line are the Commercial Banks which are either categorized as public banks or private banks. Public banks are banks wherein Government or the central bank owns most of the stake. The private banks are those whose majority of stakes are either owned by private organization, individual or different of entities. The third category being the foreign banks are those banks whose headquarters are present in foreign countries but have branches in India. At present there are 45 foreign banks in India and are regulated by the RBI. There is another category of banks that are seldom mentioned, and they are the Co-operative Banks, these are small banks opened in small villages and districts and their main function is to provide short term loans at concessional rates and promote social welfare. These banks are regulated and funded by NABARD, the State Govt., and the Reserve Bank of India.
TYPES OF ACCOUNTS
NRO Accounts
Foreign investors who are visiting India on a short-term basis up to a period of 6 months can open a Non-Resident Ordinary (NRO) account. These accounts allow foreign investor to deposit funds remitted from abroad through the banking channel or from the sale of foreign exchange brought to India. Foreign investor can either open a current, Savings, Recurring or Fixed Deposit account. However, Foreign investor who want to continue the use of account beyond the period of 6 months will require to obtain permission from the RBI.
Foreign Account (FA):
Foreign investors who are staying in India for a long period due to work or business reasons, would need to make and receive rupee payments would be required to open a Foreign Resident account with a bank in India provided they furnish requisite KYC documents. Banks usually accept a basic account opening form for opening the account.
The foreign investor is required to furnish copies of the following documents to open the bank account such as (1) Valid foreign investor’s passport (2) Valid employment visa (it should be a long term visa, valid for more than 182 days) (3) Copy of Foreigners Registration Office (FRO) permit (4) Overseas address proof (5) Indian address proof (6) Passport-size photograph (7) Copy of PAN card or Form 60 (8) A letter from employer or letter of contract.
It is possible for foreign investor to repatriate their earnings in India to their family abroad. To repatriate, the foreign investor must fill up the requisite repatriation form, submit his salary slip or income proof, as well as provide a copy of his passport.
The foreign investor can convert the account to NRO status when he completes his assignment in India and returns to his own country. To qualify for opening a resident savings account, one doesn’t need to fulfill the criteria of having stayed in India for more than 182 days.
SNRR ACCOUNT
Foreign Entities who are incorporated outside India and having presence in India as Liaison Office(LO)/Branch Office (BO) /Project Office (PO) or other place of business can open LO/BO/PO accounts.
Special Non-Resident Rupee Account (SNRR)Account can be opened by any person residing outside India who has business interest in India. As per governing guidelines, foreign investor can open this account with Bank which is authorised dealer. Foreign investor can do only bona-fide transactions in this account is rupees. Also in case of an outbound merger (a cross border merger where the resultant company is a foreign company), the resultant company may open SNRR Account in India.
The tenure of the SNRR Account should be concurrent to the tenure of the contract/period of operation/business of the foreign investor, in India and in no case should exceed seven years. In case of outbound merger, the account shall run for a maximum period of two years from the date of sanction of the scheme of outbound merger by National Company Law Tribunal (NCLT).
At the time of setting up a company in India, it is very essential that the foreign investor is aware of the classifications of different banks accounts in India and the manner in which the bank accounts are opened and managed.
Disclaimer：
The above content is provided for informational purposes only. The provision of this article does not create an attorney-client relationship between D’Andrea & Partners and the reader and does not constitute legal advice. Legal advice must be tailored to the specific circumstances of each case, and the contents of this article are not a substitute for legal counsel.
We at D’Andrea & Partners Legal Counsel are a legal firm with its presence in India, Pune and provide all round legal and fiscal services relating to open a company in India, legal compliance, litigation and dispute resolution, drafting of agreements and contracts, intellectual property rights protections, HR and IPR Related work and other miscellaneous services. Should you have any query or wish to know more, please reach us at info@dandreapartners.com. We are also pleased to introduce our practical guide on Foreign Direct Investment in India which you can purchase on
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