New restrictions on representative offices could affect FCNR deposit mobilisation from the UAE
PRAVASISAMWAD.COM
Indian banks seeking to attract more foreign currency deposits from Non-Resident Indians (NRIs) in the United Arab Emirates (UAE) may face fresh challenges following new regulatory restrictions introduced by the UAE Central Bank.
The latest circular limits the activities of representative offices, preventing them from providing certain facilitative services, including documentation support and cross-selling banking products. Bankers believe these changes could reduce the pace of mobilisation of Foreign Currency Non-Resident (Bank), or FCNR(B), dollar deposits from the large Indian expatriate community in the UAE.
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The development comes at a time when Indian lenders are aggressively seeking overseas dollar deposits after the Reserve Bank of India (RBI) temporarily relaxed rules to help banks raise foreign currency funds
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The RBI has removed the interest rate ceiling on FCNR(B) deposits until the end of September, allowing banks to offer more competitive returns to overseas Indians
Industry executives said the response from NRIs to these deposit schemes has been encouraging. However, the new UAE regulations could create operational hurdles, particularly for retail customers who rely on representative offices to complete documentation and receive guidance before opening accounts with Indian banks.
While representative offices can continue to promote their parent banks and maintain customer relationships, they will have to comply with the revised regulatory framework, which restricts direct facilitation of banking transactions. Financial institutions are now assessing alternative methods to continue serving customers without breaching the new rules.
The UAE remains one of the most important sources of remittances and foreign currency deposits for India due to its large Indian diaspora. Any slowdown in FCNR(B) deposit mobilisation could affect banks’ efforts to strengthen their foreign currency funding, although lenders are expected to adapt their operating models to comply with the revised regulations while continuing to target overseas Indian investors.
