Banks must pass on foreign remittances in their original currency unless conversion is requested, under new guidance aimed at protecting exporters and improving exchange-rate transparency.
Indian banks have been told they must stop acting as unsolicited middlemen in the conversion of overseas payments into rupees, in a move that could improve returns for small exporters and other recipients of foreign funds.
According to The Economic Times, the Foreign Exchange Dealers’ Association of India, or FEDAI, has instructed member banks not to convert inward foreign currency remittances into rupees unless the sender or the beneficiary has specifically asked for that to happen. The guidance is aimed at preventing an intermediary bank from stepping in between the remitting bank and the recipient bank, a practice that could leave customers with a worse exchange rate than they expected.
The issue has long been a grievance for smaller exporters and individuals receiving money from abroad, where limited bargaining power often meant they accepted whatever amount eventually landed in their accounts. In the cases described by The Economic Times, some intermediary banks were converting dollars at a weaker rate before passing the funds on, while the recipient’s own bank would have been in a better position to handle the conversion. That not only reduced the final rupee amount, but in some cases also forced exporters to unwind forward contracts, adding extra cost.
Under the new guidance, if there is no clear instruction to convert the money, the remittance should be passed on in the original currency. When conversion is requested, FEDAI said it should be carried out at the prevailing exchange rate and in line with the converting bank’s policy and rules. Banks have also been told to ensure their branches and operating units comply fully with the instructions when processing inward remittances.
In a further push for transparency, banks have been told to align foreign exchange service charges with the nature and complexity of the work involved. From October, they must also publish card rates for currency conversion on their websites and provide links that allow customers to compare buy and sell rates across banks. The Reserve Bank of India’s broader directions on foreign exchange activity already set the framework for authorised dealers and money-changing operations, underscoring the regulatory emphasis on cleaner and more consistent handling of currency transactions.
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