DBOD No. Dir.BC 66/13.03.00/2000

January 08, 2001
Pausha 18,1922(S)

All Commercial Banks

Dear Sirs,

Safeguards for opening of and granting
loans against non-resident deposits

In order to check the instances of cases of cheating/fraud in deposit accounts of Non-Resident Indians (NRIs), banks were advised to observe safeguards while opening the deposit accounts as well as while granting loans and advances against such deposits in terms of our circulars DBOD No. Dir.BC. 8/13.01.09/97 dated 28 January 1997 and DBOD No. Dir.BC. 43/13.01.09/99 dated 5 May 1999. Banks were also advised to exercise caution while accepting non-resident deposits through agents or persons holding Power of Attorney on behalf of NRIs. Since some instances of frauds/malpractices in respect of non-resident accounts have been noticed, it has been decided that banks should observe the following safeguards meticulously:

1. Fixed deposit receipts should be handed over or sent to depositors directly against acknowledgement.
2. Loans against NRE/FCNR(B) deposits to third parties should be granted only when the depositor himself executes the loan documents in the presence of bank officials and a witness acceptable to the bank. Advances to third parties against such deposits should not be granted on the basis of Power of Attorney.
3. Where a fraud has been perpetrated in a non-resident account and there is no involvement of the concerned non-resident depositor and his innocence has been proved to the satisfaction of the bank, banks may pay the deposit proceeds to the depositor on due date even when the investigation is in progress. Banks may, however, obtain necessary documents including an indemnity bond with an acceptable surety from the non-resident depositor before releasing the amount.
4. In the event of death of non-resident depositor, banks need not insist on succession certificate as a matter of routine. Since different countries follow different procedures for issuing succession certificates, banks should take a practical view and ascertain the procedure followed in the country of residence of the depositor; and thereafter, obtain such minimum documents for their record as would satisfy the requirements of their being rightful claimant.

2. The following consequential amendment may please be carried out in the Manual of Instructions issued by DBOD, DBS & IECD.

Yours faithfully,

9.VI.3.(a)

3. Fixed deposit receipts should be handed over or sent to depositors directly against acknowledgement.
4. Loans against NRE/FCNR(B) deposits to third parties should be granted only when the depositor himself executes the loan documents in the presence of bank officials and a witness acceptable to the bank. Advances to third parties against such deposits should not be granted on the basis of Power of Attorney.
5. Where a fraud has been perpetrated in a non-resident account and there is no involvement of the concerned non-resident depositor and his innocence has been proved to the satisfaction of the bank, banks may pay the deposit proceeds to the depositor on due date even when the investigation is in progress. Banks may, however, obtain necessary documents including an indemnity bond with an acceptable surety from the non-resident depositor before releasing the amount.
6. In the event of death of non-resident depositor, banks need not insist on succession certificate as a matter of routine. Since different countries follow different procedures for issuing succession certificates, banks should take a practical view and ascertain the procedure followed in the country of residence of the depositor; and thereafter, obtain such minimum documents for their record as would satisfy the requirements of their having rightful claimant.