What changed
RBI inserted a new clause (Para 5.4.II.vi) in the Master Directions on compounding of contraventions under FEMA, 1999. It allows the compounding authority to cap the maximum compounding amount at ₹2,00,000 per regulation/rule for contraventions under row 5 of the computation matrix, subject to satisfaction based on nature, exceptional circumstances, and wider public interest.
What it means for you
Banks and their customers facing minor FEMA contraventions under row 5 can now benefit from a reduced maximum penalty of ₹2 lakh, instead of potentially higher amounts. This provides a clear ceiling for such cases, reducing uncertainty and encouraging timely compounding. However, the cap is discretionary and applies only when the compounding authority deems it appropriate.
What you must do
- Update internal FEMA compounding procedures to reflect the new ₹2 lakh cap for row 5 contraventions.
- Train compliance staff to identify eligible cases under row 5 and document exceptional circumstances for cap consideration.
- Advise customers with pending compounding applications about this potential relief and assist in submitting relevant details.
- Monitor RBI updates to the Master Directions for any further changes to the compounding matrix.
Who it affects
All Authorised Dealer Category-I banks, Authorised banks, Customers/entities with FEMA contraventions under row 5 of the compounding matrix
What is row 5 of the FEMA compounding matrix?
The circular does not define row 5 explicitly, but it refers to a specific category of contraventions in the computation matrix under the Master Directions. Banks should refer to the Master Directions dated April 22, 2025 for the exact classification.
Does the ₹2 lakh cap apply automatically to all row 5 contraventions?
No, it is subject to the compounding authority's satisfaction based on the nature of contravention, exceptional circumstances, and wider public interest. It is not automatic.
When does this change take effect?
The circular was issued on April 24, 2025, and the Master Directions are updated accordingly from that date.