Rupee Drawing Arrangement (RDA): Easy Explanation - Jupiter

As more and more people travel abroad for work, there is a growing need to send money back to India for various purposes. There are many modes to transfer money from abroad to India, like online wire transfers or foreign currency demand drafts. The rupee drawing arrangement is an innovative and convenient way to remit money to India from abroad.

If you are working in a foreign country and have to often send money to India, the arrangement allows you to do so conveniently and cost-effectively without an upper limit on personal transfers. In the write-up below, we have explained what a rupee drawing arrangement is and how you can use it.

What is the Rupee Drawing Arrangement?

The rupee drawing arrangement is a mechanism set up by the Reserve Bank of India (RBI) for the transfer of personal remittances from abroad. In most cases, the sender and the beneficiary are both individuals.

Remittances through exchange houses for facilitating trade transactions are also allowed up to a certain limit.

However, it must be noted that this arrangement is primarily for personal remittances to India from abroad. Outward cross-border remittance is not done through this arrangement.

Under the rupee drawing arrangement, Category-1 banks are authorised to enter into a tie-up with non-resident exchange houses (in detail, later) in countries that are compliant with the FATF ( Financial Action Task Force).

The agreement is entered into as per the provisions of the Foreign Exchange Management Act (FEMA). Category-I authorised banks are the banks that are authorised by RBI to engage in such transactions.

Some countries that are FATF compliant and from which the rupee drawing arrangement is available to include the UAE, Singapore, Hong Kong, and all Middle Eastern countries.

What are Non-Resident Exchange Houses?

Non-resident exchange houses are companies or financial institutions established abroad to carry out the process of remitting money and exchange activities.

These non-resident exchange houses are regulated by competent authorities in their home countries for sourcing money from remitters.

These exchange houses enter into arrangements with the authorised Category-I banks, i.e., the banks authorised by the Reserve Bank of India, and facilitate the transfer of money to India in a rupee-drawing arrangement.

A bank authorised by RBI or an authorised bank can enter as many as twenty rupees drawing arrangements with non-resident exchange houses in various jurisdictions.

If the bank intends to enter into more than twenty such arrangements, then it needs to get permission from the RBI regarding the audit requirements in such cases.

Before signing an agreement with an exchange house, the authorised bank has to get permission from the RBI.

There is no upper limit on the amount that can be remitted through this arrangement in the case of a private remittance. In trade-related remittances, however, there is an upper cap of Rs 15 lakh per transaction.

All the remittances need to be credited to the bank accounts of the beneficiaries, no cash transfers are allowed under the RDA.

You do not need to have an account with the authorised bank, even if you have an account with a bank that does not have a tie-up with a non-resident exchange house, the money of remittance can be credited into your account.

Only after permission is obtained from the RBI, the authorised bank for the category, can the bank agree with the non-resident exchange house.

So, if you are an Indian resident working abroad and have to send money to India from time to time, a rupee drawing arrangement through an authorised bank is a secure and convenient way to do the same.

Rupee Drawing Arrangements with an Authorised Bank

In rupee drawing arrangements with an authorised bank, a non-resident exchange house maintains a Vostro account of the bank and facilitates inward remittance in India from a FATF-compliant country.

Frequently asked questions (FAQs)

Is there an upper limit on the amount that can be remitted through RDA?

There is no upper limit if the money is being transferred in a personal transaction, in trade-related transactions, however, there is an upper limit of INR 15 lakhs.

Can the amount be remitted in cash or it will be only transferred to the bank under a Rupee Drawing Arrangement?

The amount can only be credited to your bank account; no cash can be remitted under this arrangement.

If I do not have an account with an Authorised bank, can the amount be credited to my existing bank account?

Even if your existing bank does not have an agreement with the non-resident exchange house, the amount can be credited to your bank account.

What is a Vostro account?

A Vostro account is an essential part of correspondent banking. Under this arrangement, a foreign correspondent bank acts as an agent, providing banking services on behalf of the domestic bank. Under the rupee drawing arrangement, the non-resident exchange house acts as the agent of the authorised bank and provides currency exchange services.

What is a Nostro account?

A Nostro account is a bank account that a bank maintains with a foreign bank to store foreign currency. The currency stored in the Nostro account is the domestic currency of the country of the bank in which the account is being maintained.

What is the difference between the Vostro account and the Nostro account?

The term "Vostro" in Latin means "yours," i.e., your account. A Vostro account at a bank means your money is being kept on deposit by a third party (a foreign correspondent bank).

While the term Nostro in Latin means "ours," it is the opposite of Vostro, which means "yours." A Nostro account is an account that a foreign bank maintains with our bank in our currency.