RBI flags gaps in customer transaction policies, tells banks to fix them

Jain said a customer does not experience the Foreign Exchange Management Act (FEMA) as an Act or a Master Direction, but through his lived experience with the AD bank in terms of the documents a branch asks for, the quoted price, the time taken, and the quality of the explanation when a transaction cannot be done.

“As part of our supervisory exercise, we have found multiple documentation requirements and cases of delay in executing cross-border remittances,” Jain said while addressing the Annual Day of Foreign Exchange Dealers’ Association of India (FEDAI).

“Accordingly, we have advised AD banks through FEDAI to put in place a clear policy governing documentation, process and approving authority, charges, timelines, escalation, and grievance redress to be displayed on their websites and at branches offering cross-border services. The progress on this needs to be better,” Jain said.

Similarly, transparency is not a one-time disclosure exercise, he said. “Policies must be complete, current, intelligible and actually followed at the bank’s counter; compliance tested through internal or concurrent audit; staff trained, with proper succession planning so that capability does not sit with one officer; and customer feedback taken regularly and examined by people with requisite authority to change the process. No customer should suffer for a delay that arises from internal processing at the AD end,” he said.

Settlement of cross border transactions

On cross-border trade in local currencies, Jain said local currencies will play an ever increasing role in cross-border trade and payments. The Special Rupee Vostro Account (SRVA) framework for invoicing, payment and settlement of international trade in rupees has been implemented keeping in view the evolving dynamics of our international trade, he said.

“Its success will depend on commercial viability, emphasis on trade settlement in local currencies, offering market-determined rates, and strengthening confidence in the settlement ecosystem. Opening a SRVA account is the easy part,” Jain said.

Jain said the harder task is identifying corridors with genuine two-way flows, building reliable correspondent relationships, quoting competitive conversion and hedging solutions, explaining the mechanics to first-time users, and finding avenues for the productive deployment of rupee balances — all resting on robust internal processes, AML/CFT controls, operational resilience and, above all, a willingness to facilitate these transactions, he said.

“I would encourage you not to see it only as a way of reducing reliance on international currencies. The settlement of cross border transactions in local currencies results in lower transaction costs, fewer currency mismatches, better settlement efficiency, and the ability to trade where correspondent banking is costly or constrained,” he said. “Policy can create the option. It is the authorised dealers who will determine whether this happens. I am confident that our banks can, and will rise to the occasion.”