RBI Revises FEMA Regulations to Encourage Rupee Cross-Border Transactions

The Reserve Bank of India (RBI), in collaboration with the central government, has taken significant steps to promote cross-border transactions in Indian rupees (INR) and other local or national currencies. These measures aim to enhance the flexibility of foreign exchange management while fostering international trade and investment.

Amendments to FEMA Guidelines

Under the revised Foreign Exchange Management Act (FEMA), 1999 guidelines, several key changes have been implemented to support cross-border transactions:

• Authorised dealer banks’ overseas branches can now open INR accounts for non-residents, enabling settlements for permissible current and capital account transactions with residents in India.
• Non-residents holding repatriable INR accounts, such as the Special Non-resident Rupee Account (SNRA) and Special Rupee Vostro Account (SRVA), can use these balances to settle legitimate transactions with other non-residents.
• Balances in repatriable INR accounts can also be utilised for foreign investments, including Foreign Direct Investment (FDI) in non-debt instruments.
• Indian exporters are permitted to open foreign currency accounts abroad to manage trade transactions, receive export proceeds, and pay for imports using these funds.

Expanding the Scope of Local Currency Transactions

To encourage the use of the INR in international trade, the RBI introduced the SRVA in July 2022. Foreign banks have actively opened SRVAs with Indian banks, facilitating bilateral trade. Additionally, the RBI has signed agreements with the central banks of the UAE, Indonesia, and the Maldives to promote cross-border transactions in local currencies.

In December 2023, the Foreign Exchange Management (Manner of Receipt and Payment) Regulations were updated, permitting cross-border transactions in all foreign currencies, including the local currencies of trading partners and the INR.

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