Money exchanges deprive NRIs of zero fund transaction charges

NRIs ‘shortchanged’ after introduction of the Reserve Bank of India’s free electronic transfer rule

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Though India’s central bank the Reserve Bank of India (RBI) has just made certain fund transactions free of cost, NRIs are unlikely to gain from it unless the money exchanges pass on the benefit.

The central bank has waived charges on fund transfers by banks through the National Electronic Funds Transfer (NEFT) and Real Time Gross Settlement System (RTGS).

Consumer banks have been directed to pass on this benefit to customers, the new rules for which came into effect from July 1, 2019.

“Unless NRIs make a hue and cry about this denial, they will continue to be shortchanged in the hands of the money exchanges,” said an official from Hadi Exchange, who preferred not to be named.

Internet banking customers will gain

The apex bank had reviewed various charges levied by its member banks for online transactions processed under RTGS and NEFT.

RTGS is used for real time transfers of funds above INR 200,000 ($2,901; £2,303; €2,570), while NEFT is used for fund transfers of up to INR 200,000. Both are available for internet banking customers.

Charges for NEFT and RTGS transactions vary from bank to bank. India’s largest commercial bank State Bank of India and the new generation bank ICICI charge between INR 1 and INR 50 for NEFT or RTGS transactions, depending on the amount and mode.

The RBI said it used to levy minimum charges on banks for transactions routed through the RTGS and NEFT system, and banks, in turn, recover the charges from their customers.

Now that the transactions are made free of charge, banks will be required to pass on the benefits to their clients.

NRIs denied benefits

However, NRIs do not get this benefit though they use the systems, indirectly through the money exchanges, while remitting funds to India.

The money exchange houses and the banks, in principle, should pass on this saving to customers while transferring funds to India using the systems.

Now that these services are made free, exchanges stand to benefit. However, they quietly pocket the benefit without passing it on to their customers.

Though negligible for each individual customer, as the average transfer size is less than AED5,000 at a time, the gain is sizeable for the exchanges who transfer a bulk amount collected from their customers for onward transfer to India.

“Though comparatively negligle, as low as less than one UAE dirham for small remittances, the exchanges should ideally pass on this benefit when the transactions sizes are large,” said the same official from Hadi Exchange.

Boosting digital transactions

The central bank said it was scrapping the RTGS and NEFT transaction charges to encourage digital transactions and online payments through bank accounts.

The biggest benefit of the decision are the lower fund transfer charges for bank customers using internet banking or online payments for services.

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