How RBI watches flow of transactions carefully – a lesson in supervision

In a recent notification, RBI pointed how financial flow of transaction is leading to violation of FEMA rules.

As per FEMA guidelines, Foreign airline companies can open foreign currency account for managing its revenues and expenses. This  account is opened by Authorised Dealers Category-I (AD Category-I) banks for the airline company. The airline can 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.

RBI notes that some flow of transactions is not as per rules:

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.

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.

🙂

Watching any flow of transactions is critical. You just don’t know what is going on. Companies and organisations keep finding ways to circumvent the law. And this is where the quality of regulator and supervisor comes in picture.

Another lesson is role of central bank in financial regulation. It should be a central body in the financial regulation space as it is the one which understands these linkages better than anybody else. It has a natural comparative advantage linking economy with financial markets and vice-versa..

One Response to “How RBI watches flow of transactions carefully – a lesson in supervision”

  1. SRINIVASAN Says:

    nice pdate

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