AD Category-II: Forex Prepaid Cards & Nostro Accounts
Current · Source: Reserve Bank of India · RBI/2011-12/488 · issued 04 Apr 2012 · ~2 min read
Quick answerRBI now permits AD Category-II entities to issue forex prepaid cards for residents travelling abroad and to open Nostro accounts (one per currency) for settling permissible remittances, subject to KYC/AML/CFT norms and reporting requirements.
The rule, in the simplest words
AD Category-II (special banks and finance companies) can now give forex prepaid cards (cards loaded with foreign money) to people going abroad for personal or business trips.
These cards must be settled (paid for) through AD Category-I (big banks).
AD Category-II can open one Nostro account (a bank account in a foreign country) for each foreign currency, but only to settle allowed money transfers, not for prepaid card payments.
No idle money (unused balance) should stay in the Nostro account.
All rules about knowing your customer (KYC), stopping money laundering (AML), and fighting terror funding (CFT) must be followed.
How it plays out — a real example
Priya, a KYC & compliance officer in Indore working for an AD Category-II NBFC, now issues a forex prepaid card to Mr. Sharma for his family trip to Dubai. She settles the card's transactions through a tie-up with a nearby AD Category-I bank, and opens a single USD Nostro account to handle other remittances, making sure no extra money sits idle.
What changed
Previously, only AD Category-I banks could issue forex prepaid cards to residents for private/business travel. Now, AD Category-II entities are also allowed to issue such cards, with settlement routed through AD Category-I banks. Additionally, AD Category-II can open Nostro accounts (one per currency) to facilitate remittance settlements, but these accounts cannot be used for prepaid card settlements and must not maintain idle balances.
What it means for you
This expands the forex product suite for AD Category-II entities, enabling them to offer prepaid travel cards directly to customers, which can boost fee income and customer stickiness. However, they must manage Nostro accounts efficiently to avoid idle balances and comply with strict reporting, while relying on AD Category-I banks for card settlement.
What you must do
Update internal forex product policies to include issuance of prepaid cards for residents travelling abroad.
Ensure KYC/AML/CFT compliance for all prepaid card issuances and Nostro account operations.
Open only one Nostro account per currency and monitor balances to prevent idle funds.
Establish settlement arrangements with AD Category-I banks for prepaid card transactions.
Set up reporting mechanisms as per RBI's prescribed formats and timelines.
Who it affects
AD Category-II entities (e.g., select NBFCs, regional rural banks), AD Category-I banks (as settlement partners), Resident travellers using forex prepaid cards
❓ Common questions
Can AD Category-II entities issue forex prepaid cards for all purposes?
No, only for residents travelling on private or business visits abroad. Other purposes remain restricted.
How many Nostro accounts can an AD Category-II open under this circular?
Only one Nostro account per currency is permitted, and balances must be used solely for settling permissible remittances, not for prepaid card settlements.
What happens if idle balances are maintained in the Nostro account?
The circular explicitly prohibits idle balances, so AD Category-II must actively manage the account to avoid any such situation, or risk non-compliance.
📜 Read the original circular — full text as issued by RBI
RBI/2011-12/488
A. P. (DIR Series) Circular No. 104
April 04, 2012
To
All Authorised Persons in Foreign Exchange
Madam/Sir,
Authorised Dealer Category II – Permission for
additional activity and opening of Nostro account
Attention of all the Authorised Persons in foreign exchange is invited to Para 3 and Para 5 of Annex I to the A. P. (DIR Series) Circular No. 25 [A.P. (FL/RL Series) Circular No. 02] dated March 6, 2006 .
2. At present, only Authorised Dealer Category – I (AD Category-I) banks are permitted to issue forex pre-paid cards to residents travelling on private / business visit abroad. It has now been decided to permit Authorised Dealers Category-II also to issue forex pre-paid cards to residents travelling on private/business visits abroad, subject to adherence to KYC / AML / CFT requirements. However, the settlement in respect of forex pre-paid cards may be effected through AD Category-I banks.
3. To ensure greater flexibility in sending remittances, it has now also been decided to allow Authorised Dealers Category-II to open Nostro accounts subject to following terms and conditions:
i) Only one Nostro account for each currency may be opened;
ii) Balances in the account should be utilized only for the settlement of remittances sent for permissible purposes and not for the settlement in respect of forex prepaid cards;
iii) No idle balance shall be maintained in the said account; and
iv) They will be subject to reporting requirements as prescribed from time to time.
4. All the other instructions contained in the A.P.(DIR Series) Circular No.25 {A.P.(FL/RL Series ) Circular No.2} dated March 6, 2006 shall remain unchanged.
5. Authorised Persons may bring the contents of this circular to the notice of their constituents concerned.
6. The directions contained in this Circular have been issued under Sections 10(4) and 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,
(Rudra Narayan Kar)
Chief General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2011-12/488 · issued 04 Apr 2012. The plain-English explanation above is BankPulse’s own independent summary.
Ensure KYC/AML/CFT compliance for all prepaid card issuances and Nostro account operations.
Establish settlement arrangements with AD Category-I banks for prepaid card transactions.
📜 Compliance
Update internal forex product policies to include issuance of prepaid cards for residents travelling abroad.
Open only one Nostro account per currency and monitor balances to prevent idle funds.
Set up reporting mechanisms as per RBI's prescribed formats and timelines.
Grouped from the action items above — a single circular may involve more than one team.
Worked example & action-note template
Example: if you are a Compliance officer at a bank this circular applies to (AD Category-II entities (e.g., select NBFCs, regional rural banks), AD Category-I banks (as settlement partners), Resident travellers using forex prepaid cards), your first concrete step on “AD Category-II: Forex Prepaid Cards & Nostro Accounts” is: “Update internal forex product policies to include issuance of prepaid cards for residents travelling abroad.” (RBI issued this 04 Apr 2012).
Action required: Update internal forex product policies to include issuance of prepaid cards for residents travelling abroad.
Action required: Ensure KYC/AML/CFT compliance for all prepaid card issuances and Nostro account operations.
Action required: Open only one Nostro account per currency and monitor balances to prevent idle funds.
Action required: Establish settlement arrangements with AD Category-I banks for prepaid card transactions.
Action required: Set up reporting mechanisms as per RBI's prescribed formats and timelines.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
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.
💬 Banker Discussion
Discuss this circular with fellow bankers — reply, upvote what helps, report what doesn’t belong. Be professional; no client data. Views are the commenter’s own, not BankPulse’s.
BankPulse Compliance Evidence Pack — generated 03 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly). Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=7112&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.
Help us keep this accurate
Found an inaccuracy or have an improvement? Tell us. Every report is reviewed by our team before any change is made — nothing goes live unverified.
Public beta — plain-English informational summaries. Always verify against the official RBI source (circular number cited on every page) before making compliance, credit, treasury, audit, or operational decisions. · Join our WhatsApp channel ↗
BANKPULSE · FREE DAILY BRIEF
Get RBI updates for your role
Every important RBI update, decoded in plain English — for your career, exams & financial awareness.
We collect only your email, name and role, used solely to send your brief — never sold or shared. Withdraw anytime via the unsubscribe link in any email. Independent platform, not affiliated with the RBI. Information, not legal advice.
REPORT AN ERROR · BETA
Spotted an error? Earn 500 BankPulse Credits
Help us stay accurate. If your correction is verified true and approved by our founder, you earn 500 BankPulse Credits — redeemable when the platform monetises.
Reviewed by a human before any credit is awarded. We never change the site from crowd input without verification.
WANT A NEW FEATURE · BETA
What would make BankPulse more useful for you?
Tell us what to build next — a tool, a data view, a role page, anything. We read every suggestion.
Thank you — your ideas directly shape what we build.