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RBI eases FEMA rules to boost rupee payments in cross-border deals

IANS January 16, 2025 408 views

The RBI has just dropped some game-changing financial regulations that make cross-border transactions way easier for businesses and NRIs. They're basically opening up INR accounts to be more flexible, allowing settlements in national currencies and making international trade smoother. This move is part of a broader strategy to promote rupee transactions and strengthen India's financial connectivity globally. It's a smart play that could potentially reduce dependency on traditional hard currencies and boost India's economic interactions.

"Persons resident outside India will also be able to settle bona fide transactions with other persons resident outside India" - RBI Statement
RBI eases FEMA rules to boost rupee payments in cross-border deals
Mumbai, Jan 16: The Reserve Bank of India (RBI) on Thursday announced the issuing of revised Federal Emergency Management Agency (FEMA) regulations to permit more liberal use of INR accounts held by NRIs to make payments, in order to promote cross border transactions in the Indian rupee and national currencies of trading partner countries.

Key Points

1

RBI liberalizes FEMA regulations for more flexible INR account usage

2

Enables cross-border transactions in national currencies

3

Supports international trade settlements through new banking mechanisms

According to new regulations, overseas branches of Authorised Dealer banks will be able to open INR accounts for a person resident outside India for settlement of all permissible current account and capital account transactions with a person resident in India.

"Persons resident outside India will also be able to settle bona fide transactions with other persons resident outside India using the balances in their repatriable INR accounts such as Special Non-resident Rupee account and SRVA," according to the statement.

The new rules further allow persons resident outside India to be able to use their balances held in repatriable INR accounts for foreign investment, including FDI, in non-debt instruments.

Besides, Indian exporters will be able to open accounts in any foreign currency overseas for settlement of trade transactions, including receiving export proceeds and using these proceeds to pay for imports.

The revised regulations and directions to effect these changes have been issued, the RBI statement said.

According to the RBI statement, these changes have been made in the extant FEMA regulations after holding consultations with the Central Government.

To encourage greater use of Indian Rupee (INR) for trade transactions, in July 2022, an additional arrangement in the form of Special Rupee Vostro Account (SRVA) was introduced. Several foreign banks have since opened SRVAs with banks in India.

The Central Bank has also signed memorandum of understanding (MoU) with the central banks of the United Arab Emirates, Indonesia and Maldives, to encourage cross-border transactions in local currencies.

Further, in December 2023 the Foreign Exchange Management (Manner of Receipt and Payment) Regulations were revised to enable cross border transactions in all foreign currencies (including local currencies of trading partner countries) and INR.

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