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RBI bars foreign airlines from using overseas banks for INR ticket sales

Current · Source: Reserve Bank of India · RBI/2010-11/460 · issued 05 Apr 2011 · ~2 min read
Quick answerRBI has clarified that foreign airlines cannot use overseas acquiring banks to settle INR credit/debit card transactions for air tickets sold in India. This practice violates FEMA rules. AD Category-I banks must immediately advise foreign airlines to stop this arrangement.
The rule, in the simplest words
How it plays out — a real example

Priya, a compliance officer at a large bank in Mumbai, reviews her bank's list of foreign airline clients. She notices that AirFly, a foreign airline, has been settling its Indian rupee ticket sales through a bank in Singapore. Priya immediately calls the airline's finance team and explains that this violates RBI rules. She advises them to switch to an Indian authorized dealer bank for all future INR transactions, ensuring compliance with FEMA and avoiding any regulatory trouble.

What changed

RBI issued a clarification that foreign airlines' practice of using overseas banks as acquiring banks for INR-denominated credit/debit card transactions for air tickets sold in India is not compliant with FEMA. Previously, some airlines were routing these payments through overseas banks, allowing them to choose the settlement currency and country. The circular directs AD Category-I banks to instruct foreign airlines to discontinue this practice immediately.

What it means for you

Banks must ensure that all INR transactions for air tickets sold in India by foreign airlines are settled through authorized dealer banks in India, not through overseas acquiring banks. This reinforces existing FEMA regulations that require repatriation of surplus from ticket sales only after paying local expenses and taxes. Non-compliance could lead to regulatory action against the banks or airlines involved.

What you must do

Who it affects

AD Category-I banks, Foreign airlines operating in India, Card acquiring banks and card companies handling INR transactions for foreign airlines

❓ Common questions

Why is RBI stopping foreign airlines from using overseas banks for INR ticket sales?

RBI found that this practice violates FEMA regulations, which require that surplus from air ticket sales in India be repatriated only after paying local expenses and taxes. Using overseas banks for settlement allows airlines to bypass these rules by choosing the currency and country of settlement.

What should AD Category-I banks do if a foreign airline continues this practice?

Banks must advise the airline to discontinue immediately. If the airline persists, banks should consider it a compliance issue and may need to report it to RBI, as the circular is issued under FEMA sections 10(4) and 11(1).

Does this circular affect all credit/debit card transactions for foreign airlines?

It specifically targets INR transactions for air tickets sold in India where the acquiring bank is an overseas bank. Transactions settled through an AD bank in India remain compliant.

📜 Read the original circular — full text as issued by RBI
RBI/2010-11/460 A.P. (DIR Series) Circular No. 48 April 05, 2011 To All Category - I Authorised Dealer Banks Acquisition of credit card/debit card transactions in India by overseas banks - payments for airline tickets Attention of the Authorised Dealers Category-I (AD Category-I) banks is invited to Regulation 6 of the Foreign Exchange Management (Foreign currency accounts by a person resident in India) Regulations, 2000, notified vide Notification No. FEMA 10/2000-RB, dated May 3, 2000 , read with para 7(v) of Annexure I to the A.D. (M.A. Series) Circular No. 11 dated May 16, 2000, in terms of which airline companies incorporated outside India are permitted to repatriate the surplus arising from sale of air tickets through their agents in India after payment of the local expenses and applicable taxes in India. 2. It has come to our notice that in certain cases where the payment for the tickets are made by the residents using credit /debit card, Card Companies have been providing arrangements to the foreign airlines operating in India to select the country and currency of their choice, in respect of transactions arising from the sale of the air tickets in India in Indian Rupees (INR). In such transactions, the overseas bank as the acquiring bank receives the funds from Card Issuing Company in its Vostro account maintained with an Authorised Dealer bank in India or in its foreign currency account maintained abroad and makes the payment in foreign currency overseas to the foreign airline. 3. It is clarified that the practice adopted by foreign airlines, as mentioned above, is not in conformity with the extant provisions of the Foreign Exchange Management Act, 1999. AD Category- I banks may, therefore, advise the foreign airlines to discontinue immediately the practice of using overseas banks for settlement of INR transactions on account of sale of air tickets in India. 4. AD Category -I banks may bring the contents of this circular to the notice of their constituents / customers concerned (foreign airlines). 5. The directions contained in this circular have been issued under sections 10(4) & 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law. Yours faithfully, (Dr. Sujatha Elizabeth Prasad) Chief General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2010-11/460 · issued 05 Apr 2011. The plain-English explanation above is BankPulse’s own independent summary.
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Who does what — compliance checklist
⚙️ Operations
  • Advise all foreign airline clients to immediately stop using overseas banks for settlement of INR credit/debit card transactions for air tickets sold in India.
  • Report any instances of non-compliance observed in your bank's operations to the RBI as per reporting requirements.
📜 Compliance
  • Review existing arrangements with card companies and foreign airlines to ensure compliance with FEMA regulations on repatriation of ticket sale proceeds.
  • Update internal compliance manuals and training materials to reflect this clarification for staff handling forex transactions.
Grouped from the action items above — a single circular may involve more than one team.
Worked example & action-note template

Example: if you are an Operations officer at a bank this circular applies to (AD Category-I banks, Foreign airlines operating in India, Card acquiring banks and card companies handling INR transactions for foreign airlines), your first concrete step on “RBI bars foreign airlines from using overseas banks for INR ticket sales” is: “Advise all foreign airline clients to immediately stop using overseas banks for settlement of INR credit/debit card transactions for air tickets sold in India.” (RBI issued this 05 Apr 2011).

  1. Circular: RBI/2010-11/460 -- RBI bars foreign airlines from using overseas banks for INR ticket sales
  2. Issued: 05 Apr 2011
  3. Action required: Advise all foreign airline clients to immediately stop using overseas banks for settlement of INR credit/debit card transactions for air tickets sold in India.
  4. Action required: Review existing arrangements with card companies and foreign airlines to ensure compliance with FEMA regulations on repatriation of ticket sale proceeds.
  5. Action required: Report any instances of non-compliance observed in your bank's operations to the RBI as per reporting requirements.
  6. Action required: Update internal compliance manuals and training materials to reflect this clarification for staff handling forex transactions.
  7. Owner: ____________ Target date: ____________
  8. Board/committee approval needed? Y / N
  9. Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.

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Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=6324&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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