RBI & Foreign Exchange for Authorized Dealers
Simple explanation
RBI just redid the rulebook for who can legally do foreign exchange business in India. Now, banks and other big Authorized Dealers (AD-I & II) can appoint small local āForex Correspondentsā to buy/sell foreign cash for travelers, under a principal-agent model. RBI also stopped giving new FFMC licences, set higher net-worth and turnover rules, and capped some transactions at ā¹25 lakh.
The core idea
- Expand reach, tighten control: RBI is replacing old franchisee/money-changer models with Forex Correspondents tied to banks, while raising financial and compliance bars for ADs.
- One-stop FX access + risk checks: More people can access forex services locally, but only strong, regulated entities can offer them.
Key concepts
- 1. New agent model ā Forex Correspondent (FxC): AD-I & II can appoint FxCs to buy/sell foreign currency notes, coins, travelersā cheques, and act as MTSS sub-agents.
- 2. FFMC licences stopped: No fresh Full Fledged Money Changer licences. Existing franchisee arrangements must end within 2 years from May 6, 2026.
- 3. AD category roles: AD-I = banks, full current + capital account access. AD-II = NBFCs/money changers, limited trade up to ā¹25 lakh per transaction. AD-III = innovative FX products.
- 4. Higher entry bars: Min net worth ā¹10 crore for AD-II, ā¹2 crore for AD-III. Must be companies under Companies Act, 2013.
- 5. Turnover requirements: Within 2 years of starting, AD-II must do ā¹50 crore annual forex turnover, FFMCs ā¹10 crore, and maintain it ongoing.
- 6. Only 3 categories now: RBI will grant fresh authorisation only as AD-I, II, or III. FFMCs continue only if already licensed.
- 7. Regulations notified: Foreign Exchange Management (Authorised Persons) Regulations, 2026, notified April 30, 2026, effective on Gazette publication.
One analogy
Think of forex services like medicine distribution. Earlier, small chemist shops (FFMCs/franchisees) could sell directly. RBI now says: only big hospitals (AD banks) can stock meds, but they can appoint trained local clinics (Forex Correspondents) as agents. And chemist licences are closed ā existing ones must upgrade or shut in 2 years.
Common confusions
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āAnyone can become a Forex Correspondentā ā No
Only companies meeting RBI criteria, appointed by an AD bank/NBFC. You canāt apply directly to RBI as FxC. -
āAD-II can do unlimited trade paymentsā ā No
AD-II is capped at ā¹25 lakh per foreign trade transaction. Full trade = AD-I banks only. -
āFFMCs are banned immediatelyā ā No
No new FFMC licences, but existing ones can operate. Franchisees get 2 years till May 2028 to wind down.
Revision table
| Aspect | Old Framework | New Framework ā FEMA (Authorised Persons) Regulations, 2026 |
|---|---|---|
| Authorisation categories | AD-I, AD-II, AD-III, FFMC, franchisees | Fresh authorisation only AD-I, II, III. No new FFMCs |
| Agent model | Franchisee model for money changers allowed | Franchisee discontinued. New āForex Correspondentā under AD-I/II principal-agent model |
| FxC permitted activities | N/A | Buy/sell foreign notes/coins/TCs for travel; act as MTSS sub-agent |
| AD-II transaction limit | Various limits | Foreign trade transactions capped at ā¹25 lakh per transaction |
| Net worth requirement | FFMC: NOF ā¹25L/ā¹50L | AD-II: ā¹10 cr; AD-III: ā¹2 cr min net worth |
| Turnover requirement | Not standardized | AD-II: ā¹50 cr/year; FFMC: ā¹10 cr/year within 2 years, maintain ongoing |
| Entity type | Various | Must be company under Companies Act, 2013 with forex objects in MoA |
| Application process | Multiple routes | Via PRAVAAH portal only |
| Aim | Legacy, fragmented | Rationalize, ease compliance, expand access, strengthen oversight |
Slide 1 ā RBI Revamps Foreign Exchange Authorisation Framework
What Happened?
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Reserve Bank of India overhauled rules for entities dealing in foreign exchange
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AD Category-I and II entities can appoint Forex Correspondents under a principal-agent model
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Forex Correspondents can buy and sell foreign currency and travellersā cheques
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AD Category-II entities face a ā¹25 lakh cap per foreign trade transaction
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RBI introduced new net worth and forex turnover requirements for authorised entities
Slide 2 ā Why It Matters
Why This Is Important
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Expands access to foreign exchange services across India
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Encourages innovation in forex-related financial products
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Strengthens regulation and financial stability in forex operations
Key Numbers
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Transaction cap for AD-II: ā¹25 lakh
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Minimum net worth for AD-II: ā¹10 crore
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Minimum net worth for AD-III: ā¹2 crore
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Annual forex turnover requirement for AD-II: ā¹50 crore
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Annual forex turnover for FFMCs: ā¹10 crore
Simple Definitions
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Authorized Dealer (AD): Entity permitted to handle foreign exchange
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Forex Correspondent (FxC): Agent conducting forex services
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Forex Turnover: Total foreign exchange business volume
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Travellersā Cheque: Prepaid instrument used abroad
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Principal-Agent Model: Business conducted through authorised agents
Q&A Table
| Question | Answer |
|---|---|
| Under RBIās revised forex framework, what transaction cap applies to AD Category-II entities? | ā¹25 lakh per transaction |
| What minimum net worth must AD Category-III entities maintain under RBIās revised norms? | ā¹2 crore |
| Within how many years must AD Category-II entities achieve prescribed forex turnover thresholds? | Within two years |
| Under RBIās new framework, what operational model governs Forex Correspondent appointments? | Principal-agent model |
| Which category of authorised dealers retains full capital account transaction access? | AD Category-I entities |