RBI introduces new forex scheme to make transactions easier. Details here

The Reserve Bank of India (RBI) has recently set the ball rolling for the licensing framework for authorised persons under the Foreign Exchange Management Act (FEMA). In other words, a new set of rules are being drafted to give permission to authorised persons to become money changers.

It was first announced in the statement on Development and Regulatory Policies dated June 8, 2023.

Following this, the draft licensing framework for authorised persons under Foreign Exchange Management Act has been placed on the RBI’s portal.

The banking regulator has invited comments and feedback on the draft framework.

Forex Correspondents Scheme

In order to enhance the ease of doing business, the Reserve Bank of India has proposed to introduce a new category of money changers (under the scheme namely Forex Correspondents Scheme).

These money changers may conduct “Money changing business through any agency model by becoming forex correspondents of Category-I and Category-II authorised dealers,” reads the draft uploaded on RBI’s portal.

What is interesting to note is that such entities will not be required to seek authorisation from the Reserve Bank.

The transactions carried out by the forex correspondents on AD’s behalf will be reflected in the books of the principal AD.

A general permission will be available to the forex correspondents and to any customer dealing with them to deal in foreign exchange as permitted under the FCS.

The forex correspondents will be permitted to buy and sell foreign currency notes/ travellers’ cheques for foreign private and business travel.

They will be allowed the distribution of forex prepaid cards in accordance with the terms and conditions stipulated by the principal AD.

At any given instance, an entity will not have a forex correspondent relationship with more than one principal AD. Additionally, the forex correspondents will deal in foreign exchange only with the public or with its principal AD.

Perpetual authorisation

As of now, the authorisation to entities which are keen to operate as AD Category-II is given for a period of one year in the beginning and it is subsequently renewed for a period between 1 to 5 years.

However, to bring the regulatory burden down as well as to increase the ease of doing business, it is suggested to renew an existing authorisation as an AD Category-II on a perpetual basis. This will be subject to meeting the revised eligibility criteria laid down in the new framework.