Foreign individuals and tourists visiting India often face challenges in managing their financial transactions due to limited funds. Moreover, their available funds hold no practical value unless exchanged into Indian currency. This is where Foreign Exchange Dealers play an important role. FFMCs are the exclusive registered entities in India authorised to offer foreign exchange services to those in need. In this article, we shall see the different aspects of FFMCs and elucidate why they carry significant importance for foreigners travelling to India. Additionally, we shall see the objectives of FFMC Licence in India in conducting their business.
Concept of FFMC Licence
Before going into the objectives of FFMC licence in India, let us see the concept of FFMC first. Full Fledged Money Changers in India operate within the regulatory framework set by the Reserve Bank of India and are responsible for conducting foreign exchange trading activities. Entities engaging in such activities must hold a valid FFMC licence issued by the RBI, failure to do so can result in significant penalties.
Obtaining an FFMC licence is a prerequisite for conducting foreign exchange transactions in India. The primary role of authorised money changers is to purchase foreign currency from both foreigners and Indian nationals and provide it to individuals visiting India. This key function forms the core objective behind permitting FFMCs to operate in the country.
Types of Authorised Money Changers in India
There are three distinct categories of authorised money changers in India:
1. Authorised Dealer Category-1 Banks (AD Category 1)
Presently, India has 102 entities functioning as Authorised Dealer Category-1 banks, which include notable institutions such as Canara Bank, State Bank of India, and Axis Bank. These banks are authorised to conduct foreign exchange transactions and adhere to specific regulations set by the RBI.
2. Authorised Dealer Category-2 Banks (ADs Category-2)
Authorised Dealer Category-2 banks also have the authorisation to engage in foreign exchange activities. These banks, however, operate under a different set of guidelines compared to Category-1 banks and so their functions also differ accordingly.
3. Full Fledged Money Changers (FFMCs)
FFMCs are specialised entities that exclusively focus on foreign exchange services. They operate under RBI and are responsible for facilitating the purchase and sale of foreign currency for individuals visiting India. Obtaining a valid FFMC licence is mandatory for such entities.
Objectives of FFMC Licence in India to Conduct Business
The establishment and operation of Full Fledged Money Changers in India serve several key objectives. The objectives of FFMC licence in India are as follows:
1. Access to Foreign Exchange Facilities:
One of the primary objectives of FFMC licence in India is that FFMCs play a crucial role in providing individuals visiting India with convenient access to foreign exchange services. This ensures that travellers can readily obtain the currency they need for their financial transactions while in the country.
2. Promotion of Forex Exchange Activities:
By permitting FFMCs to operate, the Indian government encourages and facilitates foreign exchange activities on a larger scale, thus serving as important objectives of FFMC licence in India.
3. Access to Home Currency:
The objectives of FFMC licence in India lies in facilitating the exchange of foreign currency notes, coins, and travellers’ cheques into the Indian rupee. This service is open to both residents and non-residents, allowing them to convert their foreign currency into the local currency. By doing so, visitors can conveniently utilise the Indian rupee for their expenditures during their stay.
4. Store Value Card/Charge Card/Smart Card Services:
The objectives of FFMC licence in India also help in the issuance and usage of Store Value Cards, Charge Cards, and Smart Cards for residents traveling abroad. These cards provide a secure and efficient means of making transactions and managing finances while abroad.
5. Facilitation of Cross-Border Transactions:
Another important objective of FFMC licence in India is that they contribute to the ease of cross-border transactions by offering a range of foreign exchange services. This not only benefits travellers but also supports international trade and commerce by ensuring the availability of necessary currencies.
The objectives of FFMC licence in India serves as a vital intermediary in the foreign exchange market, promoting accessibility and convenience for both residents and visitors while contributing to the overall growth of forex-related activities in the country.
Eligibility Criteria for Obtaining an FFMC Licence in India
Entities seeking to obtain an FFMC licence in India must meet the following eligibility criteria:
1. Legal Entity:
The applicant company must be a legal entity and operate in accordance with the provisions of the Companies Act of 2013. This ensures that the entity is duly registered and recognised under Indian law.
2. Net Owned Fund for Single Branch:
If the entity intends to operate a single branch as an FFMC, it is required to have a minimum net owned fund of Rs. 25 Lakhs. The net owned fund is calculated as follows:
Net Owned Fund = (Paid-up Equity Capital + Credit balance in Profit & Loss Account + Free reserves) – (Aggregated value of loss + intangible assets + Deferred revenue expenditure).
3. Net Owned Fund for Multiple Branches:
In the case of entities planning to operate multiple branches as FFMCs, the minimum threshold for the net owned fund is Rs. 50 Lakhs. The same formula mentioned above is used to calculate the net owned fund.
It’s important to note that meeting these eligibility criteria is essential for obtaining an FFMC licence in India and to fulfil the objectives of FFMC licence in India. These criteria ensure that entities have the necessary financial stability and legal standing to engage in foreign exchange transactions as authorised money changers within the country.
Documentation Requirements for FFMC Licence
To fulfil the objectives of FFMC licence in India, certain documentation is necessary, including:
1. Copy of Company’s Incorporation Certificate
2. Copy of Commencement Certificate for Business
3. Copy of Memorandum of Association with Relevant Clause
4. Confidential Bank Report in CIR Format
5. Audited Balance Sheet Copy
6. Certificate from Chartered Accountant Validating Net Owned Funds of the Company
7. Declaration of Non-Involvement in Felonies and Pending Cases
8. Company Operation Overview Write-up by Owner
9. Proof of Previous Involvement in FFMC Business (if applicable)
Post-Approval Prerequisites for FFMC Licence Holders
After obtaining the FFMC licence, applicants need to fulfil specific post-approval requirements before commencing their business operations. These are:
1. Lease Agreement Copy
2. Copy of the Shops Act
3. Rent Receipt
4. Display of FFMC Licence
5. Financial Affairs Scrutiny
6. Submission of Audited Balance Sheet
Key Points to Keep in Mind for FFMC Licence
Some important pointers to remember concerning objectives of FFMC licence in India are:
1. International Debit/Credit Cards for Indian Nationals
Indian nationals can acquire international debit or credit cards from the respective Authorised Money Changer office to meet their financial requirements while abroad.
2. RBI Authorisation for Money Changing Activities
Only entities authorised by the Reserve Bank of India are permitted to engage in money changing activities within India. Conducting such business without RBI approval is considered an offense.
3. Audited Balance Sheet for Registration
During the initial phase of the registration process, applicants must attach a copy of the audited balance sheet validated by the company secretary.
4. Mandatory Documentation Post-FFMC Licence
After obtaining the FFMC licence, applicants must provide essential documents such as a copy of the shop act and rent receipt before commencing business activities. Non-compliance with this requirement can result in significant penalties.
5. FFMC Licence Application Process
Individuals aspiring to obtain an FFMC licence must initiate the process by acquiring the application available on the RBI’s official website.
Final Thoughts
Hence, the objectives of FFMC licence in India are very important in providing foreign exchange services to individuals visiting the country. The main objectives of FFMC include ensuring access to foreign exchange facilities, promoting forex exchange activities, offering access to home currency, international card services, and facilitating cross-border transactions. These collectively enhance the financial experience for both residents and tourists.To become an FFMC, entities must meet specific eligibility criteria, including being a legal entity under the Companies Act of 2013 and maintaining the necessary net owned funds. Meeting these criteria is essential for obtaining the required FFMC licence, which allows entities to operate in this regulated sector. As FFMCs continue to contribute to the financial infrastructure of India, they uphold standards of transparency and financial integrity to ensure the smooth functioning of foreign exchange services in the country.
