RBI fines HSBC Bank for violation of FEMA regulation

The Reserve Bank of India fined HSBC Bank Rs 36.38 lakhs for violating the provision of the  Foreign Exchange Management Act (FEMA) 1999. According to the RBI, the HSBC bank failed to follow the required reporting requirements under the Liberalised Remittance Scheme of FEMA.

What is a Liberalised Remittance Scheme?

The Liberalised Remittance Scheme was introduced by the Reserve Bank of India (RBI) in 2004 under the Foreign Exchange Management Act 1999.  Under this scheme, all resident individuals, including minors, can send up to $2,50,000 in a financial year(April to March) abroad without the permission of the Reserve Bank of India. 

However the money which is remitted (transferred) has to be for activities which are allowed under FEMA. 

It currently permits current account transactions like travelling abroad for business purposes, medical purposes, tourism or supporting relatives living abroad. 

It can also be used for permitted capital account transactions like opening a bank account in foreign countries, buying property, investing in shares of foreign companies listed abroad, etc.

When the scheme was introduced in 2004, the upper limit for fund transfer was USD 25,000 per financial year. The RBI periodically raised this limit to USD 2,50,000 per financial year.

The remittance can be made in any freely convertible foreign currency, and there is no limit on the number of transactions in a financial year. 

The scheme is only for resident individuals and is not available for corporations, partnership firms, Hindu Undivided Family (HUF), Trusts, etc.

The money is transmitted through authorised dealers, who have to report the transaction to the RBI. HSBC, an authorised foreign exchange, failed to report certain transactions to the RBI. 

Foreign Exchange Management Act (FEMA)1999

The Foreign Exchange Management Act (FEMA) was enacted in 1999 and was implemented on 1 January 2000. It replaced the Foreign Exchange Regulation Act (FERA)1973.

The FEMA Act lays down the rules and regulations regarding foreign exchange transactions. Certain sections of the Foreign Exchange Management Act (FEMA) 1999 empower the RBI regarding transactions and management of foreign exchange in India.  

Hong Kong and Shanghai  Banking Corporation(HSBC) Limited

The Hong Kong and Shanghai Banking Corporation (HSBC) is a British Bank that was established in Hong Kong in 1865. 

It started its Indian operation by buying the Mercantile Bank of India in 1959.

HSBC is registered as a foreign bank and is regulated by the RBI.

Global Headquarters: London, United Kingdom

Chief Executive Officer of HSBC India Operation: Hitendra Dave

Tagline: The world’s local bank.