Tuesday, August 9, 2022

Banking blues in India

"How can they do this to me?" asked my angry friend Dildar Singh over the telephone from London. His bank account in India had been debited for not maintaining a minimum balance.

A few months earlier during a trip to New Delhi, Dildar Singh had been pleased with the same bank when they sent a photographer to click his photo at home after he opened his account with this private bank.

He had opened two accounts - an NRI account for foreign currency and, since he could not deposit the rent he received from his tenant and other dividend income from his stocks, an Indian rupee account for his local deposits.

A few days later, two sets of colourful cheque books with his name printed on each cheque arrived by courier. You can transfer your funds out of India whenever you want.

What's more, you are neither taxed on the funds nor on the interest in this account. The bank also sent him an ATM card that he could use whenever he was in India - or even abroad!

Every three months, the bank sent him a statement. The latest one showed a debit balance in his account due to a payment he made but forgot to deposit more foreign currency in his account. Now he was being penalized.

He perhaps was better off with his old foreign exchange account in a state-owned bank. OK, that bank still has the look of old 'babudom' and not-so-slick interiors or young and appealing staff but they had never penalised any NRI for not maintaining a minimum balance.

Selecting a bank in India to open your account is a crucial decision for your mental health. First, the bank must have overseas branches so that an NRI can personally interact with the bank wherever he lives.

This is not always possible with Indian banks although many state-owned banks have opened their overseas branches in countries with sizeable NRI or Indian populations ranging from Hong Kong to Britain, the US to East Africa.

Thus the NRIs usually go for their own British or American banks that have their operations in India for convenience. In the last decade, some private Indian banks have entered the NRI market to attract their deposits with slick websites and some advertising abroad.

After surfing their sites or seeing their smart offices on their visits to India, many NRIs have opted to open their NRE accounts with these private banks. These banks have different regulations for NRI accounts and maintaining a minimum balance is just one of them.

To be fair to them, they do offer a whole range of additional services that the state-owned banks do not. These include managing one's portfolio for mutual funds and equity advice; telegraphic or wire transfer and funds transfer; daily quotations for fixed deposit rates; investments and insurance; payment services for making fixed regular payments as in the case of relatives; forex exchange rates and so on.

The account holder can also access his/her account on a PC from anywhere in the world. Before the Internet, much of this information was not readily available to NRIs, leave alone Net-banking services.

Now these banks offer a special account for returning NRIs. Called an RFC Savings account, it allows you to hold your deposit in any one of four currencies (USD, pounds sterling, euro and Japanese yen).

This account protects your funds from exchange rate risks by holding the monies in one of the four foreign currencies. You can convert your deposit into Indian rupees as and when you require.

For India's income tax purposes, TDS (tax deducted at source) exemption can be claimed on interest earned basis on declaration of RNOR (Resident but Not Ordinarily Resident) status, if eligible, at the start of the financial year.

If needed, your funds can be sent abroad for bona fide reasons. Your account balances can be transferred to NRI Accounts (rupee/foreign currency), on regaining NRI status when you start living abroad again.

You can withdraw money in Indian rupees from your RFC Account. There is the free 24-hour phone banking to carry out a variety of transactions.

Back to Dildar Singh's problem: If he had a non-resident savings account with the private bank in question, all he needed was to keep an average quarterly balance of Rs.10,000.

On his next visit to New Delhi, he closed his accounts and moved to a state-owned bank.

Before you make a decision, check out Indian banks on the Reserve Bank of India website and then surf their individual sites to assess what suits your personal needs.