RBI revises FEMA guidelines to boost cross-border transactions in rupee and local currencies

The Reserve Bank of India, in consultation with the Government, has made changes certain changes in the extant Foreign Exchange Management Act (FEMA) regulations to promote cross border transactions in Indian rupee (INR) and local / national currencies.

This move comes in the backdrop of the rupee coming under pressure amid a strengthening dollar, weakening Chinese currency, and rising crude oil prices, among others.

As per the changes in FEMA, overseas branches of banks, which are authorised to deal in foreign exchange (Authorised Dealer), will be able to open INR accounts for a resident outside India for settlement of all permissible current account and capital account transactions with a resident in India.

Further, residents outside India will be able to settle bona fide transactions with other residents outside India using the balances in their repatriable INR accounts such as Special Non-resident rupee account and Special rupee Vostro Account (SRVA) .

Persons resident outside India will be able to use their balances held in repatriable INR accounts for foreign investment, including FDI, in non-debt instruments, per the FEMA changes.

Moreover, 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.

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

The Reserve 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.