News
FEMA Norms Amended to Facilitate Cross-Border Transactions
In a significant move to strengthen the Indian rupee and enhance India’s global economic engagement, the Reserve Bank of India (RBI), on January 14, 2025, has introduced two important amendments under the Foreign Exchange Management Act (FEMA):
- Foreign Exchange Management (Deposit) (Fifth Amendment) Regulations, 2025 to the Foreign Exchange Management (Deposit) Regulations, 2016
- Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) (Fifth Amendment) Regulations, 2025 to amend the Foreign Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) Regulations, 2015.
These amendments bring changes to how foreign exchange transactions are regulated, particularly with regard to deposits and foreign currency accounts, with the aim of easing the process for cross-border transactions, particularly for businesses and individuals involved in international trade and investment.
The amendments to Deposit Regulations introduce several key changes, including allowing authorized dealers in India or its branches outside India to open Special Non-Resident Rupee (SNRR) accounts to manage deposits and facilitate fund transfers between repatriable Rupee accounts for legitimate current & capital account transactions. Furthermore, units in International Financial Services Centres (IFSCs) are now permitted to open SNRR accounts with authorized dealers in India for conducting business transactions outside the IFSC. The regulations also feature refinements in terminology, bringing them in line with broader banking practices.
The Foreign Currency Amendments Regulations now allow Indian exporters to open, maintain, and operate foreign currency accounts with overseas banks. These accounts can be used for receiving export earnings, handling advance remittances, and making import payments. However, exporters are required to repatriate any remaining funds to India by the end of the following month, after accounting for forward commitments, provided they follow Reg. 9 of the Foreign Exchange Management (Export of Goods and Services) Regulations, 2015. These updates are designed to streamline international trade processes while ensuring continued regulatory oversight.
The RBI had, in June 2024, allowed the opening of rupee accounts outside India by persons resident outside India (PROIs) as part of its strategic action plan to internationalise the domestic currency. The amendments to the FEMA regulations come at a time when the Indian economy is looking to bolster its global standing and engage more deeply with international markets. Given the ongoing challenges faced by emerging economies, including rising inflation, capital outflows, and fluctuating exchange rates, these changes are seen as essential to improving India’s financial market stability and attracting long-term foreign capital.
Additionally, the amendments are aimed at improving the ease of cross-border financial transactions and making India a more global-friendly destination for investments. By relaxing rules around foreign currency deposits and foreign currency accounts, the amendments promote greater participation from foreign investors and NRIs, enhance financial integration, and improve India’s global competitiveness. By facilitating cross-border transactions in rupees and encouraging more repatriation of foreign investments, the RBI hopes to reduce volatility in the exchange rate and make the Indian rupee more globally competitive. Additionally, the easier access to foreign currency accounts for Indian businesses and individuals is expected to support the country’s export-driven growth strategy and enhance its participation in global trade.
