RBI Modifies FEMA Rules to Encourage INR Payments in International Transactions
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Synopsis
On January 16, the RBI introduced updated FEMA regulations to facilitate greater use of INR accounts by NRIs, enhancing cross-border transactions in Indian and partner nation currencies. The revisions aim to streamline payment processes and encourage international trade.
Key Takeaways
- RBI updates FEMA regulations for NRIs.
- INR accounts can be used for cross-border payments.
- Overseas branches can open INR accounts for non-residents.
- Indian exporters can open foreign currency accounts abroad.
- Regulations revised after consultations with the Central Government.
Mumbai, Jan 16 (NationPress) The Reserve Bank of India (RBI) on Thursday revealed updates to the Federal Emergency Management Agency (FEMA) regulations, enabling a more flexible utilization of INR accounts maintained by NRIs for payments, aimed at enhancing cross-border transactions in the Indian rupee and the national currencies of trading partner nations.
Under the updated guidelines, overseas branches of Authorised Dealer banks can now establish INR accounts for individuals residing outside India, facilitating the settlement of all allowable current account and capital account transactions with residents in India.
“Individuals living outside India can also engage in legitimate transactions with other non-residents using the funds in their repatriable INR accounts like Special Non-resident Rupee Account and SRVA,” the statement noted.
The new regulations further empower individuals residing abroad to deploy their balances in repatriable INR accounts for foreign investments, including FDI in non-debt instruments.
Moreover, Indian exporters can now open accounts in various foreign currencies abroad to facilitate trade transactions, which includes receiving export proceeds and utilizing these funds to cover imports.
The RBI statement confirmed that the revised regulations and directives to implement these modifications have been published.
These adjustments to the existing FEMA regulations were made following discussions with the Central Government.
To foster greater use of the Indian Rupee (INR) in trade dealings, a new arrangement known as Special Rupee Vostro Account (SRVA) was introduced in July 2022. A number of foreign banks have since established SRVAs with Indian banks.
The Central Bank has also entered into memorandums of understanding (MoUs) with the central banks of the United Arab Emirates, Indonesia, and Maldives to promote cross-border transactions in local currencies.
Additionally, in December 2023, the Foreign Exchange Management (Manner of Receipt and Payment) Regulations were updated to allow cross-border transactions in all foreign currencies (including local currencies of trading partner countries) as well as INR.
