The Hindu Business Line : Foreign inward remittance — Getting rid of the stumbling blocks

With the increase in inward remittances, individuals need to have a thorough understanding of all the options available to them, weighing all the pros and cons, before finally deciding the system through which they can remit their payments.

THE spectacular growth of the Indian IT industry on the global stage has a greater part of the country's population living and working abroad. Consequent to this is the phenomenal growth of inward remittances. However, the spoke in the wheel of fortune is the undue delay in crediting the account of the beneficiary.

Money sent by children working abroad to their parents in India on auspicious occasions often do not reach on time. Or if they do, it is only after considerable delay and constant follow-ups. What are the reasons for such delays and how can we mitigate them?

Remittance by way of TT

The quickest mode of remittance is by way of TT (telegraphic transfer). Here's how it works: An NRI wants to remit a TT from Austin (Texas) to his parents in Gandhi Nagar, Thanjavur in Tamil Nadu, through Bank "A". For prompt payment, the NRI has to give his bank the following details:

Name of the American bank that maintains the American account of Chennai branch of Bank "A", as Thanjavur branch gets payment through them.

Along with this, he has to furnish, Chips UID NO of bank "A" Chennai, to facilitate speedy payment, name of the destination branch, A/C No and name of the beneficiary.

Bank "A" should have an arrangement with the American bank to ensure that the credit advices are received by both Chennai and Thanjavur branches, so that payment can be made expeditiously.

American Banks charge a fee for all messages sent. The longer the message, the higher the fee, naturally. But these few extra bucks will go a long way in saving a lot of time and unpleasantness over delays.

Personal cheques

For historical reasons, this has been the preferred route of many of the NRIs. It is a well-known fact that rupee was depreciating against the dollar for almost two decades, except for a brief spell in between. Hence, the logic is, the longer the delay the more money on realisation of the cheque.

For the same reason, many NRIs used to take housing loans from banks in India and send cheques in the names of their parents who would send them again to US through their bankers for collection for payment of EMI. However, in the last two years, the rupee has started appreciating marginally against the dollar, throwing the NRIs' calculations out of kilter — they would have speculated the movement of the Rupee vis-à-vis the dollar.

The solution is to send the EMI by TT in rupees. Some Indian Banks have made arrangements for quick money transfer from abroad, details of which are being made available to the customers.

If the NRI insists on sending the TT only in dollars, then he should understand that the bank in India will apply the rate prevalent on the date of conversion and not when his account is debited. Similarly, if he wants to send the cheque in dollars, it should at least in the name of the bank from where he has borrowed the money. If there are fears of an exchange risk, then the respective bank could be requested to buy the cheque.

Let us examine the rules governing the foreign currency cheques sent on collection:

The Indian banks enter into an arrangement with the American banks for collection of various instruments including cheques.

Cheques are generally sent for collection, under the Cash Letter Service (CLS) provided by the American banks.

Under CLS, the cheques are sent to the clearing bank in New York. The branches send the cheques to their central hub for onward transmission to the US.

The clearing bank gives provisional credit to the Indian bank concerned as per the arrangement. Credit in the Nostro Account does not signify collection of cheque, but it is purely an advance by the American bank.

The US Clearing House return window is 2/7 working days, depending upon whether they are drawn on Banks located in New York or upcountry.

If cheques are returned the correspondent bank reserves the right to debit the account of the Indian Bank.
Taking into account the above, American banks usually advise their customers that final credit takes about 21 days or more depending on the number of national holidays in between. Depending on the arrangement with the foreign bank, Indian banks take anywhere from 14 to 21 days for granting final credit. This period is called the `cooling period' to protect the Indian bank from being debited by the correspondent bank.
Some of the banks release 50 per cent of the value of the money before the cooling period, when customers offer to deposit the remaining amount in a fixed deposit. But there have been cases where the bank has lost money to the customer or incurred an exchange loss. Here are some precautions for customers:

Do not speculate if cannot absorb the exchange risk.

If you are particular about saving interest on loans taken in India, please send the remittance directly to the concerned bank, preferably in Indian rupees.

If you have received a foreign currency cheque, check up with your bank, the approximate time by which credit will be given. If you are afraid that there can be adverse movement in exchange rate, find out whether cheque could be purchased, which will result in paying some interest.

Make sure you fully understand the collection mechanism to avoid unnecessary and unforeseen hitches.

In cases where NRIs are particular about not taking the exchange risk, such as when they are sending money for medical expenses, it is better to send the money in Indian rupees.
Clean collection

If the customer is averse to the cooling period under CLS, he can opt for clean collection, in which case, credit will happen between 30 and 45 days.
Here also the drawee bank reserves the right, under US law, to revert for funds in all cases that are outside the purview of drawee bank's responsibility.
Clean collection may attract more charges, as the collecting bank in India, the correspondent bank and the drawee bank in the US will need to recover their cost of collection.
Small value cheques

Small value cheques say for $20, $50 or $ 10 may end up in negative figure by taking into account the collection charges payable to the banks. Hence it is better to avoid sending them for collection.
Right of recourse

As per existing US regulations, the return liability would last for the following time period:

One year for altered cheques

Three years for forgeries

Seven years for US treasury Cheques
Individuals need to have a thorough understanding of all the options available to them weighing all the pros and cons before finally deciding the system through which they can remit their payments.
(The author is former Chairman and MD of Vijaya Bank.)

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