Presentation on theme: "Cross Border Remittances"— Presentation transcript:
1 Cross Border Remittances Supriyo BhattacharjeeAGMCollege of Agricultural Banking (CAB)RBI, PUNE
2 Remittances as a payment system issue Remittance services are part of the broader retail payment systems - both domestic and cross-borderRemittances are cross-border retail payments with particular access requirements (on both the demand and supply sides)An efficient domestic payment system infrastructure is key to reduce costs of remittance services, especially in receiving countriesPayment system oversight can help to enhance transparency and improve efficiency in the retail payment sector
3 Remittances as a payment system issue An efficient domestic payment system infrastructure is key to reduce costs of remittance services, especially in receiving countriesPayment system oversight can help to enhance transparency and improve efficiency in the retail payment sector
4 Other driversRemittances are part of an individual’s access to financial servicesA good remittance product improves value to the user in the short term and access to other financial products in the long termA good remittance product increases competition and could move transactions to the formal sector
5 Characteristics of Cross Border Remittances Typically by migrant workers to their families. Especially from developed to developing countriesPerson-to person, low value – i.e. not commercial or wholesaleRecurrent – but typically made by individual transfers (e.g. not by standing order)Typically credit transfers
6 Channels of Remittances Bulk of inward remittances through banking channelOther schemes :Money Transfer Service Scheme (MTSS)Rupee Drawing Arrangements (RDA)Indo-Nepal Remittance Facility scheme
7 Money Transfer Service Scheme (MTSS) Quick and easy way of transferring personal remittances from abroad to beneficiaries in IndiaOnly personal remittances such as remittances towards family maintenance and remittances favouring foreign tourists visiting India are permissible
8 Money Transfer Service Scheme (MTSS) The system envisages a tie-up between reputed money transfer companies abroad and agents in India who would disburse the funds to the beneficiaries at ongoing exchange ratesThe system does not envisage the repatriation of such inward remittancesThe India agent is also not allowed to remit any amount on account of exchange loss to the overseas principal.
9 Money Transfer Service Scheme (MTSS) The Indian agent has to be anAuthorised Dealer,Full Fledged Money Changerregistered Non-Banking Financial CompanyIATA approved Travel agents ( having min. net worth of Rs.25 lakhs )Specific RBI approval to enter into such an arrangement
10 Money Transfer Service Scheme (MTSS) The agent is allowed to open a special rupee account with an AD through which all the remittances disbursed under the scheme, are to be routedThe Indian agent pays the beneficiaries first, on instructions from the overseas principalHe is reimbursed the amount and his commission, by the overseas principal, within a day or two through normal banking channels.
11 Criteria for selection of Overseas Principal The principal should be a registered entity licensed by the Central Bank/Government or any other regulatory authority for carrying on Money Transfer ActivitiesShould be registered with the trade/Industry bodies.Should have a good rating from one of the reputed credit rating agencies.Should submit confidential reports from two banks.Should submit a report certified by independent Chartered Accountants, regarding steps taken to comply with anti money laundering norms in the host country.
12 CollateralCollateral equivalent to 3 days' average drawings or USD 50,000 whichever is higher, may be kept by the overseas principal with the designated bank in India.The minimum amount of USD 50,000 shall be kept as a foreign currency deposit while the balance amount may be kept in the form of a Bank Guarantee.The adequacy of collateral amounts should be reviewed half yearly on the basis of remittances received during the past six months.
13 Other conditionsDonations/contributions to charitable institutions/Trusts shall not be remitted through this arrangementA cap of USD 2500 has been placed on individual transaction under the scheme.Amounts up to Rs.50,000/- may be paid in cash. Any amount exceeding this limit shall be paid by means of cheque/D.D./P.O. etc. or credited directly to the beneficiary's account only.
14 Other conditionsOnly 12 remittances can be received by a single individual during a year.In exceptional circumstances, where the beneficiary is a foreign tourist, higher amounts may be disbursed in cash. Full record of such transactions should be kept on record for scrutiny by the auditors/inspector.
15 COVERAGEAt end-April 2008, there were 26 Indian agents and 11 Overseas Principals under the MTSS
16 Rupee Drawing Arrangements (RDA) Under the RDAs Scheme, Category-I ADs are permitted by the Reserve Bank to open vostro accounts of Exchange Houses of the Gulf countries, Hong Kong and SingaporeThe purpose is to channelise cross-border inward remittances into India
17 Types of RDAs DAs fall into three categories, viz., Designated Depository Agency (DDA),non-DDASpeed Remittances.Separate vostro accounts in Indian rupees are required to be opened by the Exchange Houses for each of these arrangementsNo cash payments are made under these arrangements.
18 Designated Depository Agency (DDA) The Exchange house issues rupee drafts to the beneficiaryAt the end of each day, the Exchange house arrives at the total drawings and deposits their daily collections on the next working day in the DDA account
19 Designated Depository Agency (DDA) The DDA account is a designated account opened in the name of the drawee bank by the Exchange House with a bank acceptable to the drawee bank at a centre mutually agreed uponAuditors are appointed by the bank to ensure that daily drawings are deposited by the Exchange House in the DDA account on the next working day
20 Designated Depository Agency The funds so deposited are transferred to the nostro account of the bank within the float periodInterest earned on the funds till the date of transfer to the nostro account accrues to the Exchange HouseNo collateral security is to be placed by the Exchange House under this kind of arrangement in the normal course.
21 Designated Depository Agency (DDA) By April 2008, 39 banks and 69 Exchange Houses were having tie-ups under RDA.Out of the 69 Exchange Houses, 66 were incorporated in Gulf countries, one in Hong Kong and two in Singapore
22 Non-DDA procedureThe Exchange House directly credits the nostro account of the bank with the total of daily drawingsAs no auditors are appointed to oversee the transfers to the nostro accounts, collateral deposits equivalent to one month projected drawings are insisted upon (15 days cash and 15 days bank guarantee).
23 Speed Remittancethe Exchange House sends instructions electronically to the bank with complete details of the beneficiaryFunds their rupee account through the bank’s nostro account well in advance before issuing payment instructionsOn verification of data and availability of balance in the vostro account, the bank issues drafts in favour of the beneficiary or directly credits the beneficiary’s account
24 Speed RemittanceNo payments are made unless clear funds are available in the accountA collateral deposit equivalent to 15 days’ drawings is prescribed for operation of this arrangement.
26 Indo-Nepal Remittance Facility scheme Cross-border one-way remittance facility scheme facilitating remittance from India to NepalRemitter can transfer funds up to INR 50,000 from any of the NEFT branches to NepalThe beneficiary would receive funds in Nepalese rupees
27 Indo-Nepal Remittance Facility scheme Remitter need not have an account with the bankEven a walk-in customer can deposit cash up to Rs.50,000 and remit it to the beneficiary
28 Indo-Nepal Remittance Facility scheme Credit goes to Beneficiary’s bank account in NepalIf the beneficiary resides in area not serviced by a bank branch, Nepal SBI Ltd. has tied up with a money transfer company in Nepal who would make arrangements for delivery of cash to the beneficiary.
29 Documents/Identification to be produced by Remitter If the remitting customer is maintaining an account there is no further need for additional identificationOtherwise, the remitter has to produce proof of identification document like Passport /PAN / Driving License/Telephone Bill/ certificate of identification issued by employer with details and photograph etc.The complete address and telephone/mobile number of the beneficiary in Nepal will also be required.
30 Transaction flowRemittances can be originated from any of the NEFT enabled branches in India (Transaction code: 51)The transactions would flow to the designated branch of State Bank of IndiaThe branch will consolidate all such remittance information received during the dayAt the end of the day the remittance information would get passed on to Nepal SBI Bank Ltd, in a secured mode
31 Transaction flow Nepal SBI would make arrangements for either credit to the bank account ordisburse the funds to the beneficiary through their authorised money transfer agent.If the beneficiary’s account details are available, Nepal SBI would make arrangements for credit of the account.
32 Transaction flowIn other cases , Beneficiary has to get in touch with the outlet of the Money Transfer agency, after getting the Unique Transaction Reference (UTR) number from the remitterHas to produce details of the remitter and a photo identity document, (generally citizenship certificate) to prove his / her identityIf the beneficiary does not approach the money transfer agency even up to one week, the money transfer agency would make arrangements for return of the remittance to the originator.
33 ChargesOriginating bank – Maximum Rs 5/- per transaction – aligned with NEFTState Bank of India – Rs 20/- per transaction. SBI would share this Rs.20/- with NSBL at Rs.10 each. NSBL would not charge any additional amount for crediting the beneficiary, if he maintains an account with it.In case the beneficiary does not maintain an account with NSBL then, an additional amount would be charged- Rs 50/- for remittances up to Rs 5,000/- and Rs 75/- for remittance above 5,000/-Originating branches of participating banks to recover the entire charges and pass on the appropriate amount to SBI after retaining their share
34 Other conditionsAny remitter is allowed to remit maximum of 12 remittances in a year under this SchemeIn case the funds are not delivered to the beneficiary :The amount of remittance will flow back to the originating branch through NEFTthe bank to communicate to the remitter about the return of the remittance
35 Other conditions In case of cash remittance : Remitter has to produce some evidence as a proof of remittance like the counterfoil of the remittance application form and receive itIn case of remittance from account :credit will flow to the concerned account.