Introduction: The International Financial Services Centres Authority (IFSCA) has issued a crucial circular (IFSCA-FMP P0BR/9/2023-Banking) on January 22, 2024, addressing the rerouting of transactions within AD banks and their International Banking Units (IBUs). The circular aims to streamline reporting procedures and prevent the need for rerouting funds credited erroneously to the Nostro account of the Parent bank.
Detailed Analysis:
1. Reporting by AD Bank (R-Return):
- AD banks should report such transactions as purchases from overseas Banks (in QE file under P0093 purpose code).
- The outward transaction to IBU should be reported as a reversal of wrong entries (under S1 502 purpose code in BOP file).
- Transactions between DTA and IFSC should be reported with country code ‘FC’ (not ‘IN’).
2. Reporting by IBU (R-Return):
- IBUs receiving remittances from AD banks instead of the non-resident remitter’s bank must follow specific reporting procedures.
- For resident accounts, report in BOP file under appropriate economic purpose code.
- For non-resident accounts, report as a purchase from other ADs in India under P0092 in QE file.
3. Instructions to IBUs:
- IBUs are urged to notify their AD Banks about the circular and ensure compliance with the reporting procedures outlined.
Conclusion: In conclusion, the IFSCA circular provides a comprehensive framework for reporting procedures to avoid rerouting transactions. AD banks and IBUs must adhere to the guidelines outlined to facilitate the seamless flow of remittances from overseas banks, preventing delays, and minimizing the need for rerouting erroneously credited funds. The circular emphasizes the importance of accurate reporting and compliance with RBI guidelines, contributing to the efficiency and integrity of international financial transactions.
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International Financial Services Centres Authority
Circular No. IFSCA-FMP P0BR/9/2023-Banking Dated: January 22, 2024
To
All Banking Units
Dear Sir/Madam,
Avoiding rerouting of transactions to IBUs that have been wrongly credited in the parent AD bank’s Nostro account – Reporting in R-Return
As advised by the Reserve Bank of India (RBI), AD banks and their IBUs are directed to adhere to the following reporting procedures so as to ensure flow of remittance from overseas bank to IBUs without delay and to avoid the need of rerouting funds that have been wrongly credit to the Nostro account of the Parent bank.
2. Reporting by the AD Bank in R-Return
a) AD banks on receipt of such remittances, can be advised to report such transactions as purchases from overseas Banks / correspondents (in QE file under P0093 purpose code).
(b)The corresponding outward transaction of AD bank to IBU can be reported as reversal of wrong entries (under S1 502 purpose code in BOP file).
(c) However, to identify the transactions between DTA and IFSC, AD banks have been instructed to report all transactions with IBUs under country code ‘FC’ (and NOT ‘IN’). Therefore, transaction indicated in (b) above will be reported with country code ‘FC’.
3. Reporting by the IBU in R-Return:
a) In the above scenario, IBU would receive the remittance from AD bank instead of the bank of the non-resident remitter (an overseas bank). Depending upon the beneficiary in IBU, being resident or non-resident, the reporting would be in different files (BOP or QE).
b) If the beneficiary at IBU is a resident account, this will become a non-resident (overseas counterparty) to resident (IBU/or IBU’s resident account) and hence is classified as BOP transaction. Hence the inward remittance transactions (routed through the parent AD bank) shall be reported in BOP file under appropriate economic purpose code as per the extant guidelines of RBI.
c) If the beneficiary at IBU is a non-resident account, this will become a non-resident (overseas counterparty) to non-resident (non-resident client of IBU) non-BOP Hence the said inward remittances (from parent AD bank) shall be reported as purchase from other ADs in India under P0092 in QE file.
d) For reporting the transaction in BOP file (as indicated in (b)), IBUs shall use country of the non-resident remitter.
4. IBUs are requested to bring the contents of this circular to the notice of their AD Banks.
Yours faithfully
(Supriyo Bhattacharjee)
Chief General Manager
Department of Banking Regulation and Development
