In the past few months, banks have refined their online platforms to make outward remittances as simple as transferring funds to someone within India. Kotak Mahindra Bank, for example, recently enabled outward remittances on its mobile banking app. It’s the first bank to do so.
Even the RBI is evaluating new technologies via its regulatory sandbox. It has accepted entries from fintech firms working on new tech in the remittance space. You can also use newer companies such as Transferwise, which charge a fraction of what banks do.
There is a difference in regulations and charges when you receive money from another country than sending funds abroad. The RBI tightly controls outward remittances.
When sending money to another country, a person can use banks’ online platforms only if the transfer is under the liberalized remittance scheme (LRS). The scheme allows an individual to make international transfers only for specific purposes. You can freely send up to $250,000 in a financial year under the LRS for maintenance of close relatives, education, medical treatment, emigration, employment, investment, gift or donation and travel.
But if you are making a transfer online under the LRS, there is a cap of $25,000 each FY. Some banks could have restrictions on the daily transfer amount. For higher amounts, the sender needs to visit the branch.
For commercial transfers such as payment to freelancers, you first need to submit the required documents at a bank’s branch.
But if you are buying goods online from another country and paying using your card, you are free to do it without paperwork. It’s the card company and the merchant that have to fulfil the government’s regulations in such cases.
Inward remittances are not as tightly controlled. The sender can use any service as long the money is coming into the bank account. For inbound transfers, most banks don’t charge a fee. However, they have a forex mark-up. It is the difference between the prevailing currency exchange rates and the bank’s rates.
For example, if the exchange rate for $1 is ₹72.55, the bank would convert it at, say, ₹71.85. If the sender transfers $100, the beneficiary should receive ₹7,255 based on the exchange rate. However, due to the forex mark-up, the beneficiary gets ₹7,185—a difference of ₹70. On a smaller amount, the mark-up may look small. But on higher amounts, the difference is significant.
The remittance charges are high due to costs that banks incur. “They use the traditional transfer mechanism called SWIFT, wherein they have to park money with foreign banks in Nostro accounts. If someone from India sends money to the US, the bank there will deduct money from the Nostro account. That money depreciates due to exchange rates and doesn’t earn any interest, which is a cost to the bank,” said Navin Gupta, managing director of South Asia and MENA, Ripple.
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