RBI slams high fees on retail forex transactions
Mumbai, Mar 10, 2023
The Reserve Bank of India (RBI) has pulled up banks for high charges on foreign exchange transactions and for a complete lack of transparency.
“We have had many occasions of customers of authorised dealers, especially from the MSME and retail segments, approaching us and expressing concerns about the ‘high’ charges for foreign exchange transactions levied by authorised dealer banks,” said RBI deputy governor M Rajeshwar Rao. He was addressing the Foreign Exchange Dealers’ Association of India (FEDAI).
Rao said that while large corporates enjoy the benefits of tighter pricing thanks to the liquidity in the forex markets, charges recovered from smaller customers do not appear to be justified by higher costs.
“The FX-Retail platform was introduced in a bid to shift price discovery to an automated platform. Banks do not, however, appear to have made efforts to encourage customers to use that platform. What is worrisome about the higher charges is the complete lack of transparency,” said Rao. The deputy governor asked banks, individually or collectively through FEDAI, to make efforts so that the benefits of simplification, rationalisation and procedural ease reach every customer. “An open issue is whether the changes in regulatory framework are being reflected in the conduct of inter-bank and customer transactions,” said Rao.
Rao highlighted the cost barriers on retail transaction at a time when the RBI is promoting internationalisation of the rupee. Rao said that while internationalisation and a freer capital account comes with benefits, it is not without risks.
“Freer capital flows come with their own set of challenges, the primary one being that of volatility and we need to gear up to manage that,” said Rao. “We are seeing a good amount of interest in the rupee-trading arrangements that we have been endeavouring to put in place. If our efforts towards rupee invoicing bear fruit, domestic exporters and importers will not need to hedge, but there will be other opportunities in the form of their non-resident counterparts who may need to hedge,” he added.
[The Times of India]
