RBI: Law on foreign funds may hit banks

BS reports

The Reserve Bank of India has opposed the government’s move to bring in a law to introduce a new reporting system for inward flow of foreign contributions.

The RBI has contended that the inclusion of all foreign inward remittances in the proposed new reporting system will substantially expand the scope of transactions monitored and may place a heavy reporting burden on the banks.

The Union Cabinet had cleared the Foreign Contribution Regulation Bill last year. The Bill proposes to mandate banks to report all foreign inward personal remittances to the Financial Intelligence Unit-India.

Inclusion of personal remittances in the category of foreign contribution transactions for reporting may discourage non-resident Indians and the expatriate work force to send money home through banking channels.

Further, it may make them send money through other channels like hawala and hundi, the RBI has added.

In view of the present scenario of liberalised current account convertibility, this kind of change would mean that a large number of transactions, which have no relevance, will be reported, the RBI said.