India has a well-developed banking system regulated by the Reserve Bank of India (RBI), the Central Bank of India. Public and private sector banks are subject to the control and supervision of the RBI. The Reserve Bank of India Act, 1934 and the Banking Regulation Act, 1949 are the core legislations pertaining to the banking sector in India.20
A foreign company setting up in India typically opens a current (checking) account with an Authorized Dealer (AD) bank. An AD bank functions under the direction and supervision of the RBI and handles both current and capital account transactions. Current account transactions, such as payments in the course of foreign trade and banking and credit facilities in the ordinary course of business, are usually freely permitted. Capital account transactions, such as transfer or issue of any foreign security by an Indian resident, transfer or issue of a security by a nonresident, any borrowing or lending, acquisition of immovable property by a non-resident, and giving of a guarantee in respect of a debt or liability are regulated by the RBI. The ease with which banking account transactions can be carried out is also dependent on whether an entity is operating under the automatic route or government route.