Rupee lows and oil highs – records hurting India


Usually, when Rupee sees record lows, there is a spurt of advance bookings, travel for business and tourism toward India. The dampener is that petrol-diesel is retailing at record highs. As the dollar gets dearer, it is natural that imports suffer, but given the spike in oil prices, even export is sufferring. CEOs are tightening purses, and company travel, marketing, expansion etc. budget takes multiple hits, domino-ing into a delaying of growth plans and a general slowdown of the economy. From aggressively pursuing growth, businesses suddenly spin towards survivalism. It’s a catch-22 situation, and it’s hurting the Indian markets badly. There’s precious little that can be done about the oil prices in quicktime, but something certainly can be done to stabilise the USD-INR exchange rate. For that the RBI will have to step in… let’s hope it’s sooner than later. Here is where things are headed, if procrastination is what RBI prefers.

Are Bankers headed for an ‘Own Goal’?


This travel season has been excellent. Yet for the forex dealer at the corner of your shopping plaza, suddenly, things don’t look very bright.

While competition has always been welcome, of late a number of casual entrants – equally casual about complying with RBI rules – have been pouring into the system. In a bid to keep pace with the casual newbees, some of the seasoned players have jumped the gun – compromising their time-tested checks and balances – and created a fine mess for themselves. As is often the case, as a knee-jerk reaction the entire industry is now being penalised for the oversight of a few. In effect, we are staring at a sort of blanket prohibition of forex products in the eye of the storm.

Banks have been at the vanguard of penalizing Forex companies; even ahead of RBI. Understandably so, since much of their business depends on a squeaky clean reputation. A number of products, especially the cashless ones such as forex cards are being systematically withdrawn en masse, without any consideration for the reputation and/or intent of well-heeled Forex companies that have been as squeaky clean in their dealings as the banks. While it does not augur well for the forex industry, I believe there’s an even bigger picture that the bankers are missing – the reversal of the forex traders from cashless to cash heavy.

The point is moot. When we began in the winter of 2013, WorldOne Forex had a turnover of about 40 million USD. In FY 2017-18 we’ve hit 200 million USD. Goes without saying that with the government heavily investing in a cashless economy, this 5-fold growth has been almost entirely driven by cashless products such as travel money cards/ multi currency cards.

Now with banks tapping the breaks on cashless forex products, the forex traders will simply have to go back to hard foreign currency notes – certainly not the way forward for an economy that has seen growth catapulted on ‘cashless’ wings.

Clearly, the solution does not lie in ‘prohibition’. There is need for better security and stringent measures; something within the domain of RBI. The Bankers of India have it within them to handle this maturely, rather than resort to withdrawal of cashless products; something that can only be described as an ‘Own Goal’.

Forex license conundrum: RBI’s window of opportunity is here


While the GST has gone a long way in regularizing taxation and billing process across the industry, the impact on revenues has been downward, especially for the SMEs from industries such as garment, pharmaceuticals, leather etc. As a consequence, foreign exchange requirements from Industry has fallen drastically, making the forex market even more competitive. This has had the two-fold effect of reduction in total turnover, as well as erosion of profit margins.

The situation is not likely to ameliorate in the medium term, but as is always the case , this challenge also carries the seeds of an opportunity.

For quite some time now, the RBI has mandated a 25 Lakhs Net Owned Fund (NOF),   dedicated entirely to business, to issue a single branch license. The NOF has to be 50 Lakhs for a Unified Branch License for Full-Fledged Money Changers to operate multiple branches across the country. Owing to a robust growth trajectory of the Indian economy, inflationary trends, and devaluation of the rupee, these limits have long ceased to be a barrier to entry. This has resulted in the entry of a number of fly-by-night operators for short-term gains, with very little knowledge of the forex business and scant respect for rules and regulation.

On the other side of the spectrum, The Authorised Dealers 2 (AD-2) license is issued to Forex companies with a whopping NOF of 10 Crores, turning the AD-2 remittance busines into an exclusive club of big players.

Over a period of time this disparity in licensing has led to a huge gulf in the quality and intent of service in the forex industry. Amongst other ramifications, this has also led to a dearth of trained manpower and begs the question – is the forex industry growing in the right direction?

The RBI would do well to revisit these limits. To my mind, the Single Branch License should be increased to 1 Crore, with a commensurate increase in Unified Branch License. This will bring the industry closer to the median, and ensure a certain standard of service across the board. At the higher end of the spectrum, The AD2 license NOF fund should be relaxed to 5 Cr, bringing more well-heeled companies into the business of remmitance and allowing customers greater choice.

Forex in the backdrop of ‘Note ban’

At the outset, let me place on record that while the implementation has not been as smooth, the intent behind ‘note ban’ by the Indian government is truly commendable. The fake currency racket has been hit the hardest, impacting cross-border terrorism, militancy, and a series of nefarious activities. Much of the stashed away black money has had to come out into the open or in bank accounts, certainly serving the purpose of the government to cast a wider tax net. However, these are short term gains, and if not followed by quick measures within a span of 6 months, the advantage will be lost; because the propagators of the parallel economy must be working overtime to re-amass black money, as must anti-national elements on counterfeiting the new currency notes.
The truly long term gain has been the steep learning curve for the entire nation in digital transactions. As a nation known for its world-beating IT industry, the usage of IT as an enabler has remained dismally low. Almost overnight the exposure and adaptation to IT and digital platform has grown manifolds. In my opinion, for both these short and long term gains to sustain, the ceiling for withdrawal in cash should continue. Also, rather than go slow, the government should step on the gas as far as implementation of GST is concerned. It is also critical that private banks – especially the large ones – should look beyond the current gains and bolster the RuPay gateway, rather than stick to Visa, MaterCard, AmEx etc. These moves will ensure that clean business with good intent will flourish, leading to strengthening of the national core.
Let me point out that in strict terms, this mega-event cannot be termed as ‘Demonetisation’. What we’ve seen is a replacement of currency. Demonitisation typically would imply taking the concerned denomination i.e. 500 and 1000 Rupee notes, out of circulation altogether. In this case, the 500 Rupee note is back, the 1000 Rupee note is scheduled to be back shortly, while there has been an introduction of a higher denomination i.e 2000 Rupee note.
As for the impact on forex business, it has been significant. More often than not, Forex companies are the first touch-points for foreign nationals in India. Since the new currency notes were not available internationally, foreign tourists, NRIs etc. were dependent on coming into India and exchanging currency. This lead to a difficult situation, and many postponed/ cancelled their trips, resulting in a steep drop in incoming tourists/ visitor traffic to India. As a result, there was a huge shortfall in flow of all types of foreign currency into India. Since all major banks were completely immersed in ‘note ban’ management, normal import of foreign currencies interrupted. On one hand, this cascaded into a limited amount of foreign currency, which was available at a higher exchange rate. This adversely affected Indians travelling abroad. On the flip side, foreign travellers within India had a tough time exchanging foreign currency. Forex changers were unable to service these visitors owing to unavailability of new Indian currency. This cannot be construed as a pleasant situation for a traveller.
One big positive that one has observed out of this entire episode, is that the awareness of the formalities of forex trade, KYC and paperwork involved has grown immensely.

Can the global traveller have the same please, Mr. Raghuram Rajan?


In a move of far reaching consequence, RBI recently increased the individual remittance limit from $1 lac to $2.5 lacs (USD),  encouraging those looking to buy property abroad. In effect this means that if you are a family of 4, can can now remit upto $10 Lacs, as compared to $4 lacs earlier. This is bound to increase the transactions between the INR and USD, and augers well for the economy. My suggestion is that the RBI should consider increasing the limit for business and leisure trips as well, with a hike in the cash-carrying component. Apart from having the same resultant USD-INR transactional influence, it will generate greater turnover in the Indian forex industry.



In India, the festive season is a respite of sorts for those of us in the Forex business. It starts around Dusshehra/ Diwali, runs through Christmas and New Year, and culminates at the end of January. It is the time when NRI’s visit their folks back home in India. This is a major source of forex inflow in India. Surprisingly, this year, the average NRI has stayed away, leading to a shortage of forex inflow. This in turn has led to forex being purchased at a rather high premium. The phenomenon is not just restricted to the US Dollar, but almost all currencies.

 However, this is not where it ends. November to March is also the “lean period” for the Indian traveller, with April to October being the “peak season”. With the fast approaching peak travel season (April), there are clear indications of a sort of crisis brewing because of this huge shortage of forex inflow. Indications are that a huge amount of forex imports will be resorted to, so as to meet the tremendous purchase pressure during the peak seasons.

Rupee set to grow stronger… atleast in the short term


There have been quite a few interesting moves on part of the government, which bode well for the INR in the near future. First ofcourse is that the government has specified that NRI’s and portfolio investment is allowed in the 26% FDI cap in insurance. This was not specified earlier. Now that this has been done, the Insurance sector is likely to attract some more investment. However, the real clincher for this sector still remains elusive. The government has been trying to raise the FDI limit in the sector to 49%, but has not managed to do so because of political opposition. Since the limit is mentioned in law, only a parliamentary process can raise the cap on FDI in Insurance. Majority insurance companies operating in the country are joint ventures between Indian companies and foreign partners.

Another interesting development was the INR gaining two straight session on Thursday the 6th of Feb. This was clearly on the back of the announcement by RBI, late on Wednesday, that the government had cancelled its previously deferred bond sale of 150 billion rupees. This is no doubt a show of confidence on the part of the government of meeting its fiscal deficit target of 4.8 percent of GDP for 2013-14. Add to this the ongoing mobile spectrum option, and you may well see the rupee strengthening further, even trading below 62-to-a-dollar in the near term. The spectrum option will certainly improve the government’s cash position… a crucial event considering we are on the verge of the General Elections.