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
- 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.
- Review existing arrangements with card companies and foreign airlines to ensure compliance with FEMA regulations on repatriation of ticket sale proceeds.
- Report any instances of non-compliance observed in your bank's operations to the RBI as per reporting requirements.
- Update internal compliance manuals and training materials to reflect this clarification for staff handling forex transactions.
Who it affects
AD Category-I banks, Foreign airlines operating in India, Card acquiring banks and card companies handling INR transactions for foreign airlines
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.