I've previously covered the basics and introduction to FEDAI. Starting today, I'll delve into the specific rules set by FEDAI. If you haven't read my earlier posts, I encourage you to check them out here: Demystifying FEDAI: How Does It Shape India's Forex Market?
Rule 1.1 In India, you can carry out foreign currency and Indian Rupee transactions in the inter-bank forex market and with clients from 9:00 a.m. to 5:00 p.m. IST on all working days.
Note:
What is the interbank forex market?
The interbank forex market is a financial system where banks exchange currencies such as the US Dollar, European Euro, or Japanese yen. This market is not open to the public. As the word "interbank" suggests, these transactions involve transactions among banks. The primary purposes of this market are to set exchange rates for global trade, provide liquidity in foreign currency, and manage exposure to currency fluctuations.
In simple terms, when a bank needs a particular foreign currency to facilitate a transaction for a client or for itself, it goes to the interbank market to buy this currency. Here, banks can trade currencies at competitive rates that are typically better than those available to individual clients or companies in the retail market. This market is crucial for managing the flow of money in various currencies across the globe and ensuring that businesses and governments can carry out international transactions smoothly.Rule 1.2 (A) Authorized dealers can handle transactions for customers (both those living in India and those living abroad) and carry out transactions with other banks on all working days, even after regular market hours.
Note: what does it mean by the word "Authorised Dealers"?
"Authorised dealers" generally refer to financial institutions, including banks, that have received official permission from the Reserve Bank of India (RBI) to deal in foreign exchange. These dealers are licensed to conduct foreign exchange transactions, such as buying and selling foreign currencies, facilitating foreign trade through letters of credit, issuing foreign currency travel cards, and more.Type | Examples | Responsibilities |
Authorised Dealer Category 1 | These are primarily commercial banks authorized by the RBI to deal in foreign exchange. This category includes major public sector banks, private sector banks, and foreign banks operating in India. | AD Category-I banks can undertake all types of foreign exchange transactions including the sale and purchase of foreign currencies, remittances abroad, and opening and maintaining accounts of non-residents |
Authorised Dealer Category 2 | financial institutions, and other entities permitted by the RBI. Examples include cooperative banks, NBFCs (Non-Banking Financial Companies), and other financial institutions | They are authorized to conduct specific foreign exchange transactions that include currency exchange for private and business travel, foreign currency cheques, and similar non-trade-related foreign exchange services. |
Authorised Dealer Category 3 | These are other market participants that include certain select financial institutions and other organizations that are allowed to deal in foreign currency for specific purposes. | Their activities are usually limited to handling foreign exchange transactions related to their clients or members. For example, regional rural banks and other entities falling in this category can offer foreign currency services to tourists and are permitted to handle very specific and limited types of foreign exchange transactions. |
Important note: Full Fledged Money Changers (FFMC)Money Changers: Although not categorized directly under Authorized Dealers, FFMCs are licensed by the RBI to deal exclusively in currency exchange for travellers. They buy foreign exchange from residents and non-residents visiting India and sell foreign exchange for private and business travel purposes only.(B) Transactions with people outside India can also happen on all working days, even after the usual market hours, through their foreign branches and companies.
(C) Banks can process transactions, including cash transactions, for individuals (including those with joint accounts or personal businesses) on Saturdays, Sundays, and holidays, based on the bank's own rules.
(D) If a bank carries out any transactions outside of the regular market hours mentioned in Rule 1.1, it must make sure that:
They must always keep their Net Overnight Open Position (NOOP) within the set limit. This includes transactions from the end of the day until 9:00 am the next working day.
The renewal of the spot date for foreign currency to Indian Rupee transactions happens at midnight IST.
Rule 1.3 For the purpose of Foreign Exchange business, Saturday will not be treated as a working day except for transactions as stated in 1.2 ( C) above.
1.4 “Known holiday” is one which is known at least 3 working days before the date.
Note: Suppose days Monday, Tuesday, Wednesday and Thursday are all working days.If day Thursday is declared as a holiday on or after day Monday, it will be a suddenly declaredholiday.If day Thursday is declared as a holiday before day Monday, it would be a known holiday.
Comments