No more RBI licences for FFMCs, bks to appoint agents

MUMBAI: Licences for fullfledged money changers (FFMCs), long the high-street face of India’s forex market handling travellers’ currency trades, will no longer be issued as the RBI replaces them with a new class of intermediaries, forex correspondents, to be appointed by authorised dealers.

The new rules bar fresh franchisee tie-ups by FFMCs and force a two-year winddown of existing networks. Earlier, authorised dealers and FFMCs could appoint franchisees, limited to buying foreign currency from the public. RBI has now shifted to a principal-agent model via the Forex Correspondent Scheme. Under it, authorised dealers (largely banks) can appoint forex correspondents.

These agents can buy/sell foreign currency notes and travellers’ cheques for travel, and act as sub-agents under the Money Transfer Service Scheme. Existing franchisees can shift to the new regime and become forex correspondents after the sunset window closes.

The revised framework creates three-tier authorisations, lifting entry barriers from the 2017 regime where FFMCs needed Rs 25 lakh–Rs 50 lakh net owned funds.

The new norms keep AD Category-I licences for only banks that have full current/ capital account play. It opens AD Category-II to banks/ NBFCs/FFMCs/forex correspondents with a two-year track record, and set a Rs 10 crore net-worth bar.

These entities can undertake non-trade current account transactions, excluding gifts and donations, and handle foreign trade transactions up to Rs 25 lakh. AD Category-III is a new category for entities offering innovative forex products or those with incidental forex exposure, and requires a minimum net worth of Rs 2 crore.
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