DBOD. No. Dir.BC. 28/13.01.09/98

April 4, 1998
Chaitra 14, 1920 (Saka)

All Commercial Banks

Dear Sir,

Premature withdrawal of FCNR (B) deposit - Recovery of swap cost

Please refer to our Directive DBOD No. BC.115/13.01.09/93 dated 29 April 1993. In terms of paragraph V thereof, banks have been given discretionary powers to levy Penalty in case of premature withdrawal of a deposit under FCNR (Banks) Scheme.

2. A few banks have sought clarification whether they could recover swap cost in case of premature withdrawal of FCNR (B) deposits. The matter has been examined by us and it is advised that since exchange risk under the Scheme is to be borne by the banks and they also have the discretion to levy Penalty, the banks may levy penalty to recover the swap cost at their discretion in instances of premature withdrawal of FCNR(B) deposits. Where premature withdrawal of FCNR(B) deposits takes place before completion of the minimum stipulated period of six months in which event no interest is payable, banks may at their discretion levy Penalty to cover the swap cost. However, the components of Penalty should be clearly brought to the notice of the depositors at the time of acceptance of the deposits.

3. If the depositors are not informed of the Penalty provisions at the time of the acceptance of the deposit, the exchange loss arising on account of premature withdrawal will have to be borne by the banks.

Yours faithfully

(M.P. Kothari)

General Manger