Why does India’s RBI strictly regulate incoming overseas payments?
Payments
Asked by Question Bot09/Mar/20131 answer
1 Answer
F
Faisal Khan
Answered 09/Mar/2013
The goal for RBI to regulate in coming payments is to ensure that it comes via the proper remittance channels and gets classified as such. The current PayPal model via which payments would be coming in, were P2P without the reporting going to RBI under which accounting head the payments are being received.
The imminent threat at the time was that the countries regulated banks like SBP, ICICI, etc., who have invested a lot of time and money in establishing their relationship with foreign money transmitters (i.e. tie-ups) to channel remittances back home, see PayPal having an unfair advantage over their system.
Every inward remittance channel has to be approved by RBI. So for example, if a money transfer service by the name of ABC Money Transfer from say Chicago, Illinois (with say a 30 branch setup) and ties up with ICICI bank for channeling the inward remittance, these tie-up would specifically would have to be packaged and then approved by RBI, before ICICI Bank and ABC Money Transfer can go into business.
PayPal's IBFT model (Inter-bank funds transfer) sidelines this arrangement, and to discourage PayPal from becoming the de facto channel or a significant channel for funding payments, that otherwise should have been classified as remittance payments, many bank and other setups like Times of Money (Remit2India, ICICI partners) cried foul and won.
The circumnavigation clause as Aloke Majumder (অলোক মজুমদার) cites was one of the many factors used by the local banks to flag PayPal's business model and to force RBI to take a decision to stop PayPal from stealing a part of their market share.
You must also understand very few international companies have the money transmitter licenses in all the 44 states like PayPal has (amongst other countries) and to compete head-on with PayPal was just not possible. So if they could not compete, they went back to the law and found various banking clauses that PayPal was violating and hence the intervention by RBI.
The imminent threat at the time was that the countries regulated banks like SBP, ICICI, etc., who have invested a lot of time and money in establishing their relationship with foreign money transmitters (i.e. tie-ups) to channel remittances back home, see PayPal having an unfair advantage over their system.
Every inward remittance channel has to be approved by RBI. So for example, if a money transfer service by the name of ABC Money Transfer from say Chicago, Illinois (with say a 30 branch setup) and ties up with ICICI bank for channeling the inward remittance, these tie-up would specifically would have to be packaged and then approved by RBI, before ICICI Bank and ABC Money Transfer can go into business.
PayPal's IBFT model (Inter-bank funds transfer) sidelines this arrangement, and to discourage PayPal from becoming the de facto channel or a significant channel for funding payments, that otherwise should have been classified as remittance payments, many bank and other setups like Times of Money (Remit2India, ICICI partners) cried foul and won.
The circumnavigation clause as Aloke Majumder (অলোক মজুমদার) cites was one of the many factors used by the local banks to flag PayPal's business model and to force RBI to take a decision to stop PayPal from stealing a part of their market share.
You must also understand very few international companies have the money transmitter licenses in all the 44 states like PayPal has (amongst other countries) and to compete head-on with PayPal was just not possible. So if they could not compete, they went back to the law and found various banking clauses that PayPal was violating and hence the intervention by RBI.