3.

4 Reserve Bank Of India (RBI) Establishment

The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937. The Central Office is where the Governor sits and where policies are formulated. Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by the Government of India.

Preamble
The Preamble of the Reserve Bank of India describes the basic functions of the Reserve Bank as: "...to regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage."

Main Functions 1. Monetary Authority:

Formulates implements and monitors the monetary policy. Objective: maintaining price stability and ensuring adequate flow of credit to productive sectors.

2. Regulator and supervisor of the financial system:

Prescribes broad parameters of banking operations within which the country's banking and financial system functions. Objective: maintain public confidence in the system, protect depositors' interest and provide cost-effective banking services to the public.

3. Manager of Foreign Exchange:

Manages the Foreign Exchange Management Act, 1999. Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.

4. Issuer of currency:

Issues and exchanges or destroys currency and coins not fit for circulation. Objective: to give the public adequate quantity of supplies of currency notes and coins and in good quality.

5. Developmental role:

Performs a wide range of promotional functions to support national objectives.

6. Related Functions:

Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker.

7. Banker to banks: maintains banking accounts of all scheduled banks Objectives of RBI Exchange control Policy
In recent years the objective of RBI is to develop an active inter-bank market in India. The advantages of this policy are: a. It enables greater matching of sales and purchases of currencies within the country, thereby reducing operating expenses. b. This helps competition finer rates to merchants as more and more Ads can have access to Indian Market than to Overseas Market. c. Need to maintain larger balances abroad is reduced

Main provisions of the Exchange Control by RBI

1. ADs (Authorized Dealers) are required to maintain square or near square position in each currency, including both spot and forward transactions 2. Foreign currency balances commensurate with normal business requirements alone are permitted 3. Lending foreign currency to branches/correspondent banks or investing them abroad is not permitted. 4. Total credit or loan facilities that can be availed from branches/correspondents globally is limited to Rs.20 lakhs, any excess must be adjusted within 5 days; 5. Purchases/sales of any permitted foreign currency both spot and forward, and swaps of any foreign currency can be done against the rupee or any other currency in the inter-bank market but such transactions should not create mismatched maturities or overbought or oversold position at the end of the day; 6. Spot purchases and sales of permitted currency against any other permitted currency (not against the rupee) can be done freely to cover genuine merchant transactions. Or for purposes of adjustment of the ADs own position. 7. Sales of Sterling, the U.S. Dollar, Deutsche Mark and Yen by the ADs to RBI is permitted only as cover for genuine merchant transactions or to dispose of counterpart funds obtained from international markets as cover for merchant transactions. Sales to RBI of currency purchase from the inter-bank market or international markets are not permitted. RBI does not sell any currency other than pound sterling. With effect from February, 87 RBI started selling U.S. Dollars to Ads to cover their genuine merchant transactions. This facility was allowed only at Bombay. 8. As far as possible banks should seek cover in the inter-bank market. ADs could take resort to International Market only as a last resort. Compared to the markets in the Developed countries of Europe, Japan and U.S. the foreign exchange market is small. But it is growing rapidly and has potential to emerge to the frontline position.

FEMA/ R.B.I. GUIDELINES

The Reserve Bank of India had issued the guidelines to all residents, non residents and foreigners for purchasing, surrendering foreign exchange. RBI (Reserve Bank of India) is the central bank of the India and that has the authority to issue guidelines regarding the Foreign Exchange Transaction. (Web site www.rbi.or.in).Contravention of any law is punishable by the provision of FEMA and other Indian laws which are applicable for that offense. We are here providing very precise information about the Foreign Exchange transaction rules. for Detailed and Updated information about the Forex facilities please visit (www.rbi.org.in>FEMA->FAQ). Whatever information we are giving here is for reference use only and need further consultation and cross check from RBI Office. We are not liable for ANY consequences, which may arise due to this information. So please visit RBI sites for updated information regularly

For Indians
Foreign exchange can be purchased from any authorized dealers, full-fledged money changers for business and private visits. If you are a Resident Indian, you can buy foreign exchange without permission from the Reserve Bank of India for:

1. Private Travel
You can avail of foreign exchange up to US$ 10,000 in any calendar year for tourism or private travel to any country other than Nepal and Bhutan on the basis of selfcertification.

2. Business Travel
You can avail of foreign exchange up to US$ 25,000 for a Business Trip to any country other than Nepal and Bhutan on the basis of certification.

3. Endorsement on passport
There is no compulsion for you to get your passport endorsed with the foreign exchange purchased for travel outside India. Should you desire to get your passport endorsed, the bank/money changer releasing foreign exchange would do it.

4. Visit to Nepal and Bhutan

You can carry any amount of Indian currency while travelling to these countries, but you are not permitted to take Indian currency notes of denomination of Rs.500 and above or buy any foreign exchange for visit to these countries.

5. Bringing in Foreign Exchange

You can bring into India foreign exchange without any limit. If, however, the value of foreign currency in cash exceeds US$ 5,000 and/or the cash plus TCs exceed US$ 10,000 it should be declared to the customs authorities at the airport in the currency declaration form (CDF), on arrival in India.

Q1) How much foreign exchange can be purchased in foreign currency notes while buying exchange for travel abroad?
Travellers are allowed to purchase foreign currency notes/coins only up to USD 2000. Balance amount can be taken in the form of travellers cheque or bankers draft. Exceptions to this are (a) travellers proceeding to Iraq and Libya can draw foreign exchange in the form of foreign currency notes and coins not exceeding US$ 5000 or its equivalent; (b) travellers proceeding to the Islamic Republic of Iran, Russian Federation and other Republics of Commonwealth of Independent States can draw entire foreign exchange released in form of foreign currency notes or coins.

Q2) How much in advance one can buy foreign exchange for travel abroad?
The foreign exchange acquired for any purpose has to be used within 60 days of purchase. In case it is not possible to use the foreign exchange within the period of 60 days it should be surrendered to an authorized dealer.

Q3) Can one pay by cash full rupee equivalent of foreign exchange being purchased for travel abroad?
Foreign exchange for travel abroad can be purchased from banks against rupee payment in cash up to Rs. 50,000/-. However, if the rupee equivalent exceeds Rs. 50,000/-, the entire payment should be made by way of a crossed cheque/bankers cheque/pay order/demand draft only.

Q4) Within what period a traveller who has returned to India is required to surrender foreign exchange?
On return from a foreign trip travellers are required to surrender unspent foreign exchange held in the form of currency notes within 90 days and travellers cheques within 180 days of return. However, they are free to retain foreign exchange up to USD 2,000, in the form of foreign currency notes or TCs for future use or credit to their RFC (Domestic) Account without any limit.

Q5) On return to India can one retain some foreign exchange?

Residents are permitted to hold foreign currency up to USD 2,000 or its equivalent or credit to their RFC (Domestic) Account without any limit provided the foreign exchange was acquired by him while on a visit to any place outside India by way of payment for services not arising from any business in or anything done in India; or acquired by him, from any person not resident in India and who is on a visit to India, as honorarium or gift or for services rendered or in settlement of any lawful obligation, or Acquired by him by way of honorarium or gift while on a visit to any place outside India; or Acquired by him from an authorized person for travel abroad and represents the unspent amount thereof.

Q6) Is one required to surrender foreign coins also to an authorized dealer, money changers?
There is no restriction on residents holding foreign coins.

Q7) While coming into India how much Indian currency can be brought in?
A person coming into India from abroad can bring in with him Indian currency notes within the limits given below: a. up to Rs. 5,000 from any country other than Nepal or Bhutan, and b. any amount in denomination not exceeding Rs.100 from Nepal or Bhutan.

Q8) While going abroad how much foreign exchanges, in cash, can a person carry?
Residents are free to carry the foreign exchange purchased from an authorized dealer or money changer in accordance with the Rules. They are, however, allowed to carry foreign exchange in the form of currency notes/coins up to USD 2,000 or its equivalent only. Balance amount can be carried in the form of travellers cheque or banker/s draft. (In this connection please see item No.9).

Q9) While coming into India how much foreign exchange can be brought in?
A person coming into India from abroad can bring with him foreign exchange without any limit. However, if the aggregate value of the foreign exchange in the form of currency notes, bank notes or travelers cheques brought in exceeds USD 10,000/- or its equivalent and/or the value of foreign currency exceeds USD 5,000/- or its equivalent, it should be declared to the Customs Authorities at the Airport in the Currency Declaration Form (CDF), on arrival in India.

Q10) While going abroad how much foreign exchange can a person carry?
Residents are free to carry the foreign exchange purchased from an authorized dealer or money changer in accordance with the Rules. In addition, they can also carry up to USD 2,000, or higher amounts representing the unutilized balance of a previous trip, if already held by them (see above) in accordance with the Regulations.

 For Foreigners
A person coming into India from abroad can bring with him foreign exchange without any limit. However, if the aggregate value of the foreign exchange in the form of currency notes, bank notes or travelers cheques brought in exceeds USD 10,000/- or its equivalent and/or the value of foreign currency exceeds USD 5,000/- or its equivalent, it should be declared to the Customs Authorities at the Airport in the Currency Declaration Form (CDF), on arrival in India. And one more thing they cannot buy the foreign exchange only they can exchange the unspent Rupees into the Foreign Currency (Note: the amount which they have brought in while coming to India, maximum, only that equivalent value of the foreign exchange they can take away not more than that, in case if they haven't spent any amount in India) on production of the Encashment Certificate.