What changed
RBI introduced a three-tier categorisation of Authorised Persons under FEMA: AD Category-I (banks), AD Category-II (upgraded FFMCs, select RRBs, select UCBs, other entities), and AD Category-III (select financial and other institutions). FFMCs remain as a separate category with no change. The new AD Category-II entities can now handle release/remittance of foreign exchange for specified non-trade current account transactions, going beyond the limited scope of FFMCs.
What it means for you
For banks, this means increased competition in retail forex business from non-bank entities like upgraded money changers and cooperative banks. Banks must now compete on service quality and pricing for common persons' current account forex needs. The move also signals RBI's intent to deepen the forex distribution network, potentially reducing the burden on bank branches for small-value transactions.
What you must do
- Review your bank's forex service offerings to ensure competitiveness against new AD Category-II players.
- Train staff on the revised categorisation and the expanded scope of AD Category-II entities.
- Update internal compliance manuals to reflect the new AD categories and their permitted activities.
- Monitor market developments and customer feedback to adjust pricing and service levels for retail forex transactions.
Who it affects
All banks authorised to deal in foreign exchange, Full-Fledged Money Changers (FFMCs), Regional Rural Banks (RRBs), Urban Cooperative Banks (UCBs), Other financial institutions seeking forex authorisation
What is the key difference between AD Category-I and AD Category-II?
AD Category-I are banks with full forex dealing powers. AD Category-II are entities (upgraded FFMCs, select RRBs, select UCBs, other entities) authorised only for release/remittance of foreign exchange for non-trade current account transactions, not for trade or capital account transactions.