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Informist, Wednesday, May 6, 2026

 

MUMBAI – The Reserve Bank of India on Wednesday notified the Foreign Exchange Management Regulations, 2026, which introduce a revamped framework for licensing, renewal, and operations of entities dealing in foreign exchange. The rules follow consultations with stakeholders through a draft framework released in December 2023.

 

Under the final norms, full-fledged money changers, which were under authorised dealer category-III, are now included under category-II. Full-fledged money changers in category-II should have been functioning for at least two years and have an average annual foreign exchange turnover of INR 500 million during the previous two financial years, the RBI said.  

 

Category-III has been renewed to accommodate entities that require forex access incidental to their business or seek to offer innovative forex-linked products and services. The other two categories, authorised dealer category-I and category-II, continue with the existing criteria. 

 

The RBI also introduced a minimum net worth of INR 100 million for authorised dealer category-II and INR 20 million for category-III. Banks licensed by the RBI will continue to qualify as category-I entities and will undertake all permissible current and capital account transactions. Category-II licences may be granted to banks, non-banking financial companies, and eligible money changers or forex correspondents with sufficient operational track record, the RBI said. 

 

The RBI also said fresh applications for full-fledged money changer licences will no longer be considered, except those already in process at the time the regulation comes into force. Existing money changers can continue operations subject to renewal conditions, including minimum net worth requirements ranging from INR 2.5 million to INR 5 million depending on branch network size.

 

A key feature of the new framework is the expansion of the forex correspondent model, under which authorised dealers can appoint agents to conduct money-changing activities. Both category-I and category-II entities will be allowed to appoint correspondents under a principal-agent structure. These agents can buy and sell foreign currency notes and travellers' cheques and act as sub-agents under the Money Transfer Service Scheme.

 

The RBI has placed responsibility squarely on the principal entity to ensure governance, customer protection, compliance and data security. All transactions undertaken by the correspondents must be reflected in the books of the principal.  

 

The regulations also mandate a gradual shift away from the existing franchisee model. Authorised persons are barred from entering into new franchisee arrangements, and existing agreements must be discontinued within two years. These franchisees may instead transition into forex correspondents, subject to regulatory conditions.  

 

Authorised persons — excluding banks and NBFCs — must meet minimum annual forex turnover thresholds, such as INR 500 million for category-II entities and INR 100 million for money changers, within two years of starting operations. They are also required to maintain ongoing compliance with net worth, turnover, and governance norms, and to report changes in management, ownership, or regulatory status to the RBI in a time-bound manner.

 

Further, non-bank entities must commence operations within six months of receiving authorisation and must seek prior approval for any significant changes in ownership or control.  End

 

Reported by Kabir Sharma

Edited by Saji George Titus

 

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