RBI Amended FEMA Regulations to encourage use of Indian Rupee or National Currencies for Settlement of Cross Border Transactions

The Reserve Bank of India (“RBI”) is taking all the steps to encourage greater use of Indian Rupee (INR) for trade transactions. In July 2022, Special Rupee Vostro Account (SRVA) was introduced. Several foreign banks have since opened SRVAs with banks in India. RBI further signed a Memorandum of Understanding (MoU) with the central banks of the United Arab Emirates, Indonesia and Maldives, to encourage cross-border transactions in local currencies. 

To promote cross-border transactions in INR and national currencies, FEMA Regulations were further reviewed by the RBI in consultation with the Central Government and amendments are made under the following FEMA regulations:

1. Foreign Exchange Management (Deposit) Regulations, 2016 (Deposit Regulations)
2. Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) Regulations, 2015 (FCA Regulations)

1 . Amendments related to Foreign Currency Account by Person resident in India

1. As per Regulation 5(C) of FCA Regulations, following exporters, resident in India, shall be allowed to open, hold and maintain a Foreign Currency Account with a bank outside India:
   1. Exporter who has undertaken a construction project or turnkey project outside India; or
   2. Who is exporting services or engineering goods from India on deferred payment terms

2. However, exporter is required to obtain approval under FEM (Export of Goods and Services) Regulations, 2025 for undertaking the contract/ project/ export of goods or services.

3. As per amended FCA Regulations, now all the exporters, resident in India, are allowed to open, hold and maintain a Foreign Currency Account with a bank outside India, for realisation of full export value and advance remittance towards export of goods or services. 

Also Read: FEMA | Foreign Exchange Management Act

4. Funds in this account may be utilised by the exporter for paying for its imports into India. Balance in this account is to be repatriated into India by the end of the next month after adjusting for forward commitments.

5. Also, there is no requirement of prior approval under FEM (Export of goods and services) to open Foreign currency account.

2. Amendments in Deposit Regulations

2.1 Special Non Resident Rupee (SNRR) Account:

1. At per Regulation No. 5(4) of FEM (Deposit) Regulations,  Any person resident outside India (PROI) having a business interest in India may open, hold and maintain a SNRR Account with an authorised dealer in India.

2. SNRR Account permits the following transactions in Indian Rupees toa  person resident outside India:
   1. Trade (Export/Import) Invoicing;
   2. External Commercial Borrowings;
   3. Trade Credits etc.

3. Amended Deposit regulations have permitted the persons resident outside India to open SNRR Account with the foreign branches of Authorised dealer banks. Accordingly, PROI may open a SNRR Account in their home currency and can operate the same in INR. Home branches offer convenience and facilitate the coordination necessary for conducting daily transactions.

2.2 Transactions in SNRR Account

1. As per Schedule 4 of FEM (Deposit) Regulations, SNRR Account can be used to put through bona fide transactions in rupees. The business interest, apart from generic business interest, shall include the following INR transactions:
   1. Investments;
   2. Import/ Export of goods or services;
   3. Trade Credit and lending under ECBs; etc

2. Deposit regulations are amended to provide that SNRR Account (opened with AD in India or their branch outside India) can be used for permissible current and capital account transactions with a person resident in India by the rules and regulations framed under the Act and and for putting through any transaction with a person resident outside India.

3. Accordingly, now the use of SNRR Account is more liberalised to use for all permissible capital and current account transactions as compared to earlier provisions where SNRR could be used only for specified transactions.

2.3 Tenure of SNRR Account

1. As per Para No. 8 of Schedule 4 of FEM (Deposit) Regulations, The tenure of the SNRR account shall be earlier of the following period:
   1. tenure of the contract/period of operation / the business of the account holder;
   2. Period of 7 years

2. However, through amendments, the time limit of 7 years has been removed. Accordingly, the SNRR Account shall remain valid till the tenure of Contract or period of business.

2.4 Transfer of Funds between Repatriable Rupee Account:

1. As per para No. 5 of Schedule 4 of FEM (Deposit) Regulations, The debits and credits in the SNRR account shall be specific/ incidental to the business proposed to be done by the account holder.
2. Now, the Deposit Amendment provides that the transfer of funds is permitted between repatriable Rupee accounts (such as non-resident ordinary accounts, non-resident external accounts, SNRR Accounts) for all bona fide transactions. Whether such transactions are specific/incidental to the business operations of the account holder.

3. Conclusion

There is unequivocal that the government is taking all the measures to make business operations easy in India for persons resident outside India to promote cross border transactions in INR. Further, liberty to open a bank account with the Home branch of Authorised Dealer Bank is a proactive action providing easy access to banking operations to PROI. Further, removal of tenure limitation on SNRR Account shall also ease operations for PROIs.