RBI Eases Rules for Exporters Holding Foreign Currency Accounts in IFSCs

Headline: RBI Amends Foreign Exchange Rules for Exporters' Foreign Currency Accounts

Summary: The Reserve Bank of India (RBI) has introduced the Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) (Seventh Amendment) Regulations, 2025, effective October 6, 2025. This amendment aims to streamline foreign currency account management for Indian exporters and bolster India's International Financial Services Centres (IFSCs).

Key Amendments:

* **IFSC Definition**: A new definition for "International Financial Services Centre" (IFSC) has been added, aligning it with the IFSCA Act, 2019. This formally integrates IFSCs into the FEMA framework. * **Exporter Accounts**: Regulation 5(CA) has been substituted. Exporters can now open, hold, and maintain foreign currency accounts outside India. * **Extended Retention Period**: A major change is the extended period for holding export proceeds in foreign currency accounts. For accounts maintained with banks located in an IFSC, the retention period is extended to **three months** from the date of receipt. For accounts in other jurisdictions, the previous limit of the end of the next month (one month) continues. * **Clarification on IFSC as "Outside India"**: An explanation has been added to Regulation 5, explicitly stating that foreign currency accounts permitted to be opened 'outside India/ abroad' can also be opened in IFSC. This resolves ambiguity about whether IFSCs, though geographically in India, are considered "outside India" for FEMA purposes. * **Dynamic Cross-Referencing**: The regulations now refer to export regulations "as amended from time to time," reducing the need for frequent technical updates.

Impact: This amendment is expected to significantly benefit Indian exporters by providing greater operational flexibility and improved cash flow management. By extending the retention period for IFSC accounts, the RBI aims to incentivize the use of domestic IFSC banking facilities over offshore ones, thereby deepening India's foreign exchange ecosystem and enhancing the competitiveness of IFSCs like GIFT City. This also aligns India's regulations more closely with international trade practices. The move is strategic, aiming to attract more foreign exchange business to India's onshore financial centers.

Impact Rating: 8/10

Difficult Terms:

* **RBI**: Reserve Bank of India, the central bank of India responsible for monetary policy and regulation of the banking system. * **FEMA**: Foreign Exchange Management Act, a law that consolidates and amends the law relating to foreign exchange management with the objective of facilitating the development and maintenance of the foreign exchange market in India. * **IFSC**: International Financial Services Centre, a special economic zone for financial and trade operations. GIFT City in Gujarat is India's first IFSC. * **Principal Regulations**: The main set of rules or laws that are being amended. In this context, it refers to the Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulations, 2015. * **Repatriated**: To bring foreign currency or assets back into the home country. * **Forward commitments**: Agreements to buy or sell a currency or other asset at a specified price on a future date.