Module: General Practice
Q53: Consider the following statements:
Assertion (A): AD Category-II entities are not permitted to open "Nostro Accounts" directly with overseas banks.
Reason (R): AD Category-II entities are prohibited from undertaking any capital account transactions or trade-related current account transactions.
Reason (R): AD Category-II entities are prohibited from undertaking any capital account transactions or trade-related current account transactions.
✅ Correct Answer: C
1. Analysis of Assertion (A): This is technically True.
AD Category-II entities typically maintain foreign currency accounts with AD Category-I banks in India (who act as their correspondents) rather than holding direct Nostro accounts for independent clearing, although specific permissions vary.
2. Analysis of Reason (R): This is False.
AD-IIs are indeed prohibited from Trade (Export/Import) transactions.
However, the blanket statement that they are prohibited from any capital account transaction is incorrect.
They facilitate remittances under LRS (Liberalised Remittance Scheme), some of which can be capital in nature (e.g., investment in equity/debt abroad is allowed under LRS, though AD-IIs focus on the remittance aspect). More importantly, the primary reason they don't hold Nostro accounts is that they are not Scheduled Commercial Banks with full access to the SWIFT clearing network, not solely because of the transaction types.
AD Category-II entities typically maintain foreign currency accounts with AD Category-I banks in India (who act as their correspondents) rather than holding direct Nostro accounts for independent clearing, although specific permissions vary.
2. Analysis of Reason (R): This is False.
AD-IIs are indeed prohibited from Trade (Export/Import) transactions.
However, the blanket statement that they are prohibited from any capital account transaction is incorrect.
They facilitate remittances under LRS (Liberalised Remittance Scheme), some of which can be capital in nature (e.g., investment in equity/debt abroad is allowed under LRS, though AD-IIs focus on the remittance aspect). More importantly, the primary reason they don't hold Nostro accounts is that they are not Scheduled Commercial Banks with full access to the SWIFT clearing network, not solely because of the transaction types.