Indian Banks

01 Nov 2022 - Tanmay Jha

Depending on how long you have been away, you may not be fully familiar with the quirks of opening and managing bank accounts in India. Banks in India are slow and bureaucratic, even the big private ones. Here are some things to keep in mind to ease your transition -

1. NRE/NRO accounts
2. Resident Foreign Currency (Savings) Accounts
3. Bank Insurance/SBI Wealth
4. Address Proof
5. UPI

1. Nonresident accounts (NRE and NRO)

Convert your nonresident (NRE/NRO) accounts to resident accounts, as mandated by law. Depending on your city, the process may take a while. For instance, in Lucknow, banks were not super familiar with non-resident regulations, and it took a good month from start to finish to get my accounts converted.

• Open at least two NRE accounts while in the US (likely ICICI and HDFC), and get them converted one after the other to resident accounts. This way you always have at least one functioning account for writing checks or using your debit card.

Note - Once you convert your NRE account to a resident account, your money loses repatriability (i.e., the ability to freely take money out of India). You will need a CA certificate showing source of funds to take money out of India in the future. See point 2 regarding RFC accounts to help with this.

2. Resident Foreign Currency (Savings) Accounts

RFC Savings accounts (different from RFC current accounts) are relatively new, and you are only eligible to open one as a returning NRI. These accounts let you hold USD or GBP funds at Indian banks in the form of savings accounts and fixed deposits. The funds held in RFC accounts stay freely repatriable forever, meaning you can freely take your money out of India if you want to for any reason. The money held in these accounts can also be withdrawn in rupees at anytime. The main advantage of holding dollars here instead of in a foreign bank account is the ease of access. If you need money in an emergency, it will be tough to wait for an international wire transfer. RFC accounts are more accessible due to proximity. ICICI webpage describing RFC savings account.

In my experience, even experienced forex bankers are not aware of these accounts. Show them the above link from ICICI. You will need copies of your passport, visa, entry stamp showing return date, Aadhaar and PAN card to open this account. Because these accounts are quite uncommon, account opening for is still paper based and all documents have to be processed by head offices in Bombay. It takes a good 2-3 months to open these. You can only open these once you have returned permanently to India.

3. Bank insurance/SBI wealth

Most Indians prefer to use state owned banks for a good reason, despite their atrocious service. Unlike in the US where all bank accounts are insured for $250,000 in case of bank failure under the FDIC scheme, in India the deposit insurance guarantee is only INR 5,00,000. If your life savings are in a private bank, and the bank fails due to bad loans (e.g. Yes Bank and PMC bank in recent memory), you could potentially lose all your money over the 5 lakh limit. This is an important problem, and you should understand how to navigate it.

• State owned banks - these are the safest options, especially the big ones like SBI. There is an implicit guarantee that the state will bail these out in case of trouble, and this has been done multiple times in the past. Their service can be atrocious though. There are two methods you can use with SBI to reduce the pain -

  1. SBI Wealth - If you and your immediate family (father, mother, sister, brother, wife etc.) have more than combined 50 lakhs in deposits with SBI, you can all upgrade your accounts to SBI wealth. This will get you a dedicated relationship manager with some special privileges. You can get most banking services done at your doorstep including KYC. In my experience so far, the level of service is pretty close to using a private bank with a dedicated RM, not including occasional glitches resulting from SBI’s systems being down. This is a really good solution, because it lets you combine the safety of a state owned bank with the service quality of a private bank. It also lets you do doorstep KYC or online KYC. KYC has to be done every 3-5 years, so this is really important. Before I had SBI wealth, I had once experienced SBI blocking some family members’ accounts due to pending KYC without any notice.

  2. Personal Banking Branch - If you do not have a combined balance of 50 lakhs in your SBI accounts, you can still ease some of the pain by opening your account in a personal banking branch (usually referred to as PBB branches). These typically have more professional staff than regular branches, but you would still have to go to the branch for most things and wait.
     
     

• Private banks - Two private banks (ICICI and HDFC) along with SBI are considered systemically important banks (D-SIBs) by RBI. There is an implicit implication that these are too-big-to-fail and will be bailed out in case of failures, since their collapse would significantly destabilize India’s banking system and economy. These banks are subject to greater oversight and liquidity requirements. I would consider these two banks to be the safest bets when using private banks.

4. Address Proof

Opening a bank/brokerage account in India always requires an address proof, and changing your address requires submitting a copy of the new address proof. It’s not possible to simply change your address online like you do it in the US. If you don’t have a notarized rent agreement at your new address (e.g. you will be staying in a hotel or with some relatives), you will have trouble opening a new account and receiving cards/checks. It’s best to open NRE accounts while already in the US and get them converted once in India. Try to start the conversion process while you are in your hometown (where you will likely have a permanent address and address proof).

If you do choose to open new accounts when you are residing in a temporary address, most private banks will send someone over for address verification and ask for local references. Be warned though, that even with “good” private banks like ICICI, HDFC etc., the process is slow and error prone.

5. UPI

UPI is everywhere now. In fact in cities like Bangalore, it’s quite hard to use cash because vendors don’t have change anymore. Unfortunately, this does not work with NRE/NRO accounts since they use non-Indian phone numbers. Once you get your accounts converted, you will be able to use UPI. Until then, carry a debit card and cash with you.

For the uninitiated, UPI stands for Unified Payments Interface. It is a payments standard that works by using your phone number (linked to your bank accounts) as your identity, and QR codes to send and receive money. While I was initially skeptical (as I am about anything linked to my bank account), I am quite impressed by how well it works. Once you enable UPI for your bank account, you can use any of the payment apps like Paytm or Google pay. They are all interchangeable. On the security end, there are some really nice design decisions like -

1. Pin - Having a security pin to authorize each transaction
2. Outbound verification instead of OTP - Your phone number is crucial to UPI transactions. It has to be the number linked to your bank account. To sign up/sign in/validate anything, you have to send an automated (and very long) text message simultaneously to two different numbers within seconds of initiation. This makes it significantly harder for someone to fool you into sharing an OTP.
3. Single device login - Only login to one device at a time (so you cant be logged into google pay on two separate devices)

Based on a combination of these 3, it seems at least as secure as using a debit card to me.