The Reserve Bank of India Act (RBI) of 1934 established the incorporation of a reserve bank with central functions and procedures for conducting foreign exchange and banking transactions. The foreign exchange license under the RBI Act defines the role of authorized dealers and the provisions of the Foreign Exchange Regulation Act (FERA) of 1973.
The RBI Act governs how dealers authorize transactions in foreign currencies. Any person in India may conduct, or deal, in a foreign exchange transaction for a specified period under the FERA statute. The Reserve Bank may revoke transactions on behalf of the public interest and for reasons involving a foreign company's non-compliance to Indian law and banking procedures.
Special Directions and Declarations
The Reserve Bank of India may at times issue special instructions with regard to companies and banking institutions processing foreign exchange transactions. An authorized dealer must comply with the conditions of the instructions and any terms under the RBI statute. The dealer must also ensure that declarations from an interested party to engage in business do not constitute an evasion from fulfilling the provisions of the statute.
The Reserve Bank requires Indian citizens conducting foreign exchange transactions to request authorizations for currency services in writing. The authorization may be for a specific foreign currency or for all transactions in general. The money changer, or authorized dealer, must comply with the conditions stipulated within the authorization and applicable requirements under the RBI and FERA statutes.