8 banks get nod to float forex plans under $25,000 scheme

The Reserve Bank of India (RBI) has given approval to eight banks to float foreign exchange products for resident Indians under the $25,000 scheme.

While the government has permitted residents to invest up to $25,000 annually overseas, a letter issued by the central bank to banks remains silent on permitting them to float mutual fund-based products, restricting them to offer only deposit-based products.

HSBC, Standard Chartered Bank, Citibank, State Bank of India, ICICI Bank, Bank of India ABN Amro Bank and UCO Bank are the banks to get the RBI approval. Bank of Baroda is awaiting for the RBI nod.

"We are seeking clarity from the RBI on whether we can offer mutual fund products," said Vikram Issar, head of wealth management at StanChart.

The country's largest foreign bank is keen to offer an array of mutual fund-based products. Both HSBC and Stanchart had launched a range of offshore funds some time before the RBI came out with a circular "" 'Liberalised Remittance Scheme of USD 25,000 for Resident Individuals-Investor Protection Disclosure Requirements' "" dated March 18, forcing banks to put all global product offerings on hold.

Banks were asked to seek permission from the central bank before launching any such products.

The central bank issued letters to individual banks earlier this week granting them approval to float only deposit-based forex products.

The letter also stated that banks have to clearly spell out the risks related to foreign exchange investments.

The RBI pointed out that advertisements soliciting foreign currency deposits at specified interest rates, to be placed at overseas centers, have failed to contain appropriate disclosures to guide potential depositors.

Banks also need to specify customer care centre numbers, where customers can contact in case of any difficulties. To ensure transparency of funds flowing out of the country, banks will have to specify the domicile in terms of where the funds will be invested.

"These are basic precautions to safeguard the interest of investors," said bank officials. On seeking the RBI approval banks have been asked to provide the location of where the funds will be invested, identity of the primary bank supervisory authority responsible for the supervision of the bank's head office as well as the long-term rating given by an internationally acceptable rating agency.

Banks can invest only in banking entities which are properly regulated by supervisory authority in the host country.

The central bank is not comfortable with foreign entities not having operational presence in India, soliciting foreign currency deposits, as this raises supervisory concerns.

This explains why it has decided to permit only licensed banking companies to solicit forex deposits from Indian residents.