New Delhi, 26 December 2023: The Reserve Bank of India (RBI) has taken a significant step towards streamlining foreign exchange (forex) transactions in India by releasing a draft framework for licensing authorised persons (APs) under the Foreign Exchange Management Act (FEMA), 1999. The draft proposes rationalizing the existing framework, introducing new categories of APs, and simplifying authorisation processes.
Key Highlights of the Draft Framework:
- Rationalisation of Money Changers: Recognizing the widespread availability of banking services, the draft proposes consolidating the existing three categories of money changers into a single category with revised net-owned funds (NOF) requirements. This aims to create a more level playing field and reduce regulatory burden.
- Introduction of Forex Correspondents (FxCs): To enhance ease of doing business, the draft introduces a new category of APs called FxCs. These entities, acting as agents of Category-I and Category-II Authorized Dealers (ADs), can conduct money changing business without requiring separate RBI authorisation.
- Enhanced Scope for AD-Category II Entities: The draft proposes expanding the scope of services offered by AD-Category II entities to include inward remittances under liberalised remittance scheme and outward remittances for specified purposes. This will provide greater convenience to customers and boost cross-border transactions.
- Streamlined Authorisation Process: The draft outlines a simplified application process for obtaining AP licenses, with reduced documentation requirements and faster turnaround times. This is expected to promote greater participation in the forex market.
Benefits of the New Framework:
The proposed framework is expected to offer several benefits, including:
- Increased Access to Forex Services: The streamlined framework and new categories of APs are likely to improve access to forex services, particularly in rural and remote areas.
- Enhanced Efficiency and Transparency: The simplified processes and clearer regulations are expected to improve efficiency and transparency in the forex market.
- Boosted Economic Activity: Improved access to forex services and streamlined regulations can potentially boost economic activity by facilitating cross-border trade and investment.
Stakeholder Feedback Invited:
The RBI has invited comments and feedback on the draft framework from all stakeholders until January 31, 2024. This open feedback process is expected to ensure that the final framework incorporates the diverse needs and perspectives of market participants.
The RBI’s draft framework for licensing APs under FEMA marks a significant step towards creating a more efficient and inclusive forex market in India. The proposed changes are likely to benefit a wide range of stakeholders, from individuals and businesses to the broader Indian economy.
It is important to note that the draft framework is subject to change based on stakeholder feedback. The final framework is expected to be released in due course.
This news article is based on the official press release issued by the RBI and publicly available information. It does not constitute financial advice.
