The Hindu Business Line : Exchange control: Implementing bankable solutions

AFTER more than four decades of a rigorous regime, exchange control was considerably liberalised by the Reserve Bank of India (RBI) as part of the New Economic Policy ushered in 1991. The adoption of current account convertibility in 1993 has freed current account payments from erstwhile restrictions. A variety of such payments has been allowed to be made by banks authorised to deal in foreign exchange — called authorised dealers (ADs) — within RBI-prescribed ceilings.

The Foreign Exchange Regulation Act, 1973, was replaced by the Foreign Exchange Management Act (FEMA), 1999, its title itself indicating a shift in regulatory emphasis, from control over the use of foreign exchange to its management. The RBI has consistently vested more power with the ADs to improve customer service. In this context, the RBI has been paying considerable attention to issuing modified or new circular instructions to banks in line with statutory and regulatory changes. With the help of external consultants, it has been periodically issuing master circulars (consolidated and updated circulars issued over a period), with a sunset clause. The circulars have been posted on the RBI's Web site to facilitate easier access to, and wider public awareness of, the regulatory framework.

The RBI should also be commended for its continuing efforts to rationalise and simplify rules and procedures. Nevertheless, there is scope for further delegation and simplification to help regional offices (ROs) of the RBI grant approvals in more cases without reference to the central office and also to expedite approvals by the ADs within their authority.

For instance, the power to approve the opening of a liaison office of a foreign company is still centralised at the RBI's Central Office. On one occasion, the Central Office raised a few queries about an application, but its letter, mailed to the applicant by ordinary post, was not received by the representative of the company in Chennai for nearly a month.

All attempts to ascertain the queries from the dealing official in Central Office were in vain. Resolving the issue was possible only with the intervention of the head of the department in the RBI.

Such centralisation of approving authority in respect of applications by foreign companies results in considerable delay in their processing and disposal. Expeditious disposal of the applications calls for decentralisation of authority to the respective regional offices.

In another instance, a resident Indian sought approval from an RO of the RBI for a gift remittance to his son in the US. As the application stated, a reference to the RBI was required since the proposed remittance exceeded the annual ceiling within which ADs were free to make such remittances.

The RO asked that the application be submitted through the authorised dealer through whom the remittance was to be made, indicating the amount already remitted and the occasion for the remittance. The RO also indicated that the application might have to be referred to the Central Office of the department. Going by the relevant RBI instructions in this regard, the RO could have straightway approved the remittance to be made through an AD.

In another instance, where some current income was to be remitted to a non-resident Indian, the applicant approached a leading private sector bank for information on the application form prescribed for the purpose, along with the documentation required, since the application form given in the RBI's master circular dated July 1, 2005 was apparently not the right one.

The bank took 72 hours, after consulting its head office in Mumbai, to confirm that the form given in the circular should be used. This application form has been designed for remittance to a non-resident (not necessarily of Indian origin) for various types of services rendered in India, and not for remittance of current income.

So, naturally, there was difficulty in filling up this form as the important columns were not relevant for remittance of current income from the NRI account of a non-resident Indian or a person of Indian origin.

When remittance of current income was first allowed almost a decade ago (to begin with, a third of the annual current income could be remitted in the first year, two-thirds by the second year, and the entire income by the third year), the RBI had prescribed an appropriate application form. Unfortunately, this seems to have been done away with.

In the light of the above instances, the following initiatives by the RBI will help ensure that the foreign exchange regulations are understood correctly and applications processed smoothly and promptly.

The RBI has to ensure that a good number of applications required to be made to it by ADs are available at the ROs. For example, applications for remittances to current accounts should be taken care of by the ROs. The Central Office need not spoon-feed them with elaborate instructions. The ROs, headed by officers of sufficient seniority and with the requisite knowledge and experience, should be able to deal with such applications using their judgment.

In the context of globalisation, various types of services would be sought by overseas individuals, firms, and companies and so regional heads have to be equipped with the right knowledge and expertise to deal with such requirements.

The RBI's Central Office would do well to inspect periodically the working of the ROs to ensure that applications have been processed and cleared promptly, without raising unnecessary queries.

The RBI's Web site should segregate the current from the superseded master and other circulars on each subject, retaining the obsolete ones only in the archives. Simple application forms for various purposes would be a better alternative to merely leaving the task to the ADs. This would make things easier for customers as well.

In the context of current account convertibility and the ongoing gradual liberalisation of capital account transactions, there seems to be no alternative for the RBI to accord anymore authority to the ADs.

Since customer service largely depends on the ADs' efficient handling of the powers vested in them, the RBI must conduct a periodical inspection of the ADs to ensure that their operations are in accordance with the central bank. In particular, the RBI should assess how effectively controlling offices of banks guide their branches in dealing with applications under FEMA, and whether they have authorised sufficient number of branches to deal with applications for personal remittances of a current account nature. The RBI's ROs should not entertain applications falling within the delegated authority of the ADs and should bring to the notice of their controlling offices branches mishandling applications.

(The author is a retired Executive Director of the Reserve Bank of India.)

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Setback for SEBI

RBI's Annual Report 2004-05 — Pervading optimism, major concerns

The myth of a global savings glut

Exchange control: Implementing bankable solutions

Towards meaningful self-development

GAIL gas pipeline