The Reserve Bank of India (RBI) has released draft norms aimed at providing Authorized Dealers (ADs) with more discretion in trade-related transactions. This move is seen as a response to the evolving financial landscape and the need to streamline operations under the Foreign Exchange Management Act (FEMA).
The new guidelines propose a framework where ADs will have increased flexibility in their operations, including the introduction of a forex correspondent model. This model allows certain entities, like full-fledged money changers and NBFCs, to act as agents for ADs without requiring direct RBI authorization. These forex correspondents (FxCs) will operate under the supervision of ADs, ensuring compliance with regulatory standards while extending the reach of foreign exchange services.
One significant change is the requirement for a mandatory tail period, accounting for 15% of a project’s economic life, to secure additional top-up loans. This adjustment is expected to impact funding strategies, particularly for infrastructure projects. Additionally, the draft norms suggest an 8-10% increase in equity requirements for Hybrid Annuity Model (HAM) based road projects, aligning loan tenures with 85% of the economic life of concessions.
The RBI also proposes renewing existing authorizations for AD Category-II entities on a perpetual basis, reducing regulatory burdens, and enhancing business ease. Furthermore, the draft includes provisions for trade-related transactions up to Rs 15 lakh per transaction for AD Category-II entities, aimed at increasing the reach and efficiency of foreign exchange services.
These proposed changes are part of RBI’s broader strategy to improve the ease of foreign exchange transactions, ensure robust regulatory oversight, and adapt to the digital and financial integration advancements witnessed in recent years.