When it comes to foreign exchange, the Reserve Bank of India cannot carry forward all transactions on its own. This is why the RBI delegates its powers to what it refers to as “Authorised Personnel” or any authorised person under FEMA. This personnel has the jurisdiction to deal with foreign securities and foreign exchanges. This brings us to FEMA. What is it?
What is FEMA?
FEMA stands for the ‘Foreign Exchange Management Act’ which delegates how India’s foreign exchange is required to be carried out. Under Section 10 of FEMA, the RBI has authorized which individuals or parties can deal with foreign securities. According to FEMA’S Section 2(c), any individual authorized under Section 10 (1) such as an offer shore banking unit, money changer, or the authorised dealer has the jurisdiction to deal in foreign securities and foreign exchange of the country.
Categories of Authorised Persons
FEMA has divided the authorised persons into four categories. Each category captures one segment of those who are authorised persons under FEMA. They are as follows:
1. Category I: Authorised Person Under FEMA
Category I includes entities like State Banks, Commercial Banks, Co-op and Urban Co-op Banks. From time to time, they are permitted to follow RBI issued directions for all their capital account and current account transactions.
2. Category II: Authorised Person Under FEMA
Category II is inclusive of Coop Banks, Regional Rural Banks, and Upgraded FFMCs among other such entities. These entities are permitted certain non-trade related transactions from their current accounts. When it comes to FFMCs though, all activities are permitted. These include the following:
– Remittances of tour operators.
– Business or private visits abroad.
– Participation in specialized training, global conferences, and international events.
– Remittance of international exam fees such as the TOEFL, GRE, and more.
– Any medical treatment that needs to be carried out abroad due to lack of availability of treatments and technology nationally.
– Overseas education.
– Any overseas employment or job applications.
– Emigration overseas, as well as the consultancy fees for emigrating.
– Any fees or payments for registering one’s documents.
– Fees for one’s international visa.
– Fees for any international organizations.
3. Category III: Authorised Person Under FEMA
Entities such as some selective financial institutions and others are included in Category III of authorised persons under FEMA. All transactions that are incidental to foreign exchange are permitted to these entities by the Reserve Bank of India.
4. Category IV: Authorised Person Under FEMA
The final category of authorised persons under FEMA includes entities like Full-fledged money changers. These include urban cooperative banks, the department of post, and other full-fledged money changers. When it comes to permissible activities under Category IV, as per RBIs regulations such entities can purchase foreign exchange securities for business visits abroad or private purposes.
How to become an Authorised Person Under FEMA?
Authorised persons have the jurisdiction from the Reserve Bank to deal in foreign exchange of the country. To become an authorised person, you have to submit the necessary application along with all the relevant documents to the Reserve Bank of India. If you are approved as an authorised person, keep in mind that you do not have a free hand in foreign exchange. You will be required to furnish any documents of your transactions to the RBI depending upon the Category of authorised personnel you fall under and as and when they request these documents.
Functions of RBI under FEMA
The FEMA act envisages that the Reserve Bank of India play a key role in the management of foreign exchange in India. Some of its main functions are as follows:
– Monitoring and controlling foreign exchange dealings by offering either general or specific permission to entities.
– No restrictions can be imposed by the RBI on current account transactions. These restrictions can only legally be imposed by the Central Government where RBI is consulted. In rare cases, prior approval of the RBI is necessary before one carries out a transaction from their current account.
– The RBI is also responsible for specifying the conditions for payment when it comes to capital accounts.
– RBI has the authority to regulate or restrict the transfer or issuing foreign securities, import/export, borrowing or lending foreign securities, or transferring immovable securities.
As per FEMA, the RBI authorizes four categories of personnel to deal with foreign securities. These include state banks, co-op banks, FFMCs, RRBs, financial institutions, and more.