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All you need to know about the FCNR account and loan benefits

What is an FCNR account?

An FCNR (Foreign currency Non- Resident account) is a type of deposit account which can be used by NRIs and PIOs. As the name suggests, you can only deposit foreign currency in this type of account. Only certain foreign currencies are eligible for deposit in the FCNR accounts. The currencies that are allowed are the –
1. US dollar
2. Euro
3. British pound
4. Australian dollar
5. Canadian dollar
6. Japanese Yen

The FCNR account eliminates the risk of fluctuations in currency conversion, and earn a fixed rate of interest.

Features of a FCNR account

1. FCNR accounts can be only opened by NRIs and PIOs.
2. A regular interest amount is paid on the deposit.
3. You can only deposit foreign currency in the account.
4. The deposit should have a maturity period between 1 – 5 years.
5. It offers nomination facilities.
6. You can convert your deposits into a different currency against an implied cost.
7. This scheme does not permit recurring deposits schemes.
8. You can avail loan facility against an FCNR account.
9. The interest earned on this account is not taxable in India.

Requirements for opening a FCNR account are

1. A copy of Visa
2. A copy of passport
3. An updated bank statement of the foreign country
In case of a premature withdrawal from a FCNR account, a penalty charge of 1% is levied on the account.

FCNR loan

A FCNR loan is usually issued to corporates as per the guidelines issued by RBI. Corporates sometimes prefer FCNR loans as they have lower interest costs. This also does not require the borrower to go to international market for raising funds.

Advantages of FCNR loan –

1. FCNR loans come with very low interest rates.
2. You can use it to hedge currency exposure risk.
3. FCNR loans are easy to obtain.

Eligibility for an FCNR loan

These loans are generally only provided to well-established businesses that operate as a limited or a private limited company. The company should have a good track record of loan payment i.e. a good credit score. This loan can be availed for purposes like purchase of capital equipment or working capital requirement. Most banks usually have a minimum loan requirement amount of USD 100,000 for a loan application.

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