R Krishnan, an employee at a supermarket chain in Dubai, urgently needed to send money home for his father's heart surgery in Tamil Nadu. But, he had exhausted the permitted 12 transactions for cash transfer for a year. The family had to pawn their jewellery to raise the money.
He could have sent the money through his bank account, but his family preferred cash (a service provided by money transfer companies). The latter mode is faster and easier, the family insists.
For non-resident Indians (NRIs), the recent relaxation in the inward remittances guidelines by the Reserve Bank of India (RBI) comes as a relief. The central bank has increased the number of remittances that can be received by a beneficiary, through the money transfer service scheme, from 12 to 30. Although the cap on the amount per transaction has been kept at $2,500 or Rs 1.25 lakh, the total amount that can be received during the year has more than doubled from $30,000 to $75,000. At today's rupee value, one can remit Rs 4.12 lakh from Rs 1.65 lakh earlier ($1 = Rs 55).
| TWO SIDES OF A COIN | |
| Bank transfer | Money transfer service |
| Need to open bank account | No need to have bank account |
| Money will be debited from bank account | Money will be received in cash |
| Can transfer money any number of times | Money can be transferred 30 times a year |
| Needs KYC as specified by bank | One photo ID of receiver number generated during the transaction |
Says Kiran Shetty, managing director of Western Union in India, “The norm of 12 transactions has been in place since 2000. While other costs have gone up several times, this limit remained.”
The relaxation allows NRIs to send money according to their convenience and not just during specific occasions. “With just 12 transactions permitted a year, one would plan one transaction a month. Now customers can structure the remittance in accordance with need, such as a medical emergency. It has become more convenient,” says Harsh Lambah, regional director, South Asia, at MoneyGram International.
Those using the money transfer service largely belong to the working class. They try and send their savings when the rupee is weak, say experts.
This mode is advantageous for those who do not have a bank account or whose work sites are far away from cities or towns, such as an offshore oil rig. Or, the beneficiaries might be living in remote villages or towns, which might not have access to net banking or a bank branch might not be close by.
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“RBI's move would also help those who receive salary more frequently; for instance, salaries are paid every week in the US. NRIs there would be able to send money more frequently,” says Shetty.
While there is no restriction on the number of bank-to-bank transfers, you require a bank account and Know-Your-Customer norms need to be met. But as the kind of customers using the bank route are different from those using money transfer, there is no competition between the two, says a senior public sector banker. But banks charge a foreign exchange conversion fee. “People sending money through bank accounts do it mainly to save money. While money remitted through money transfer services is to relatives for consumption,” he says.
Lambah says the charges levied for transfer are usually comparable between banks and money transfer service given the competition.
For instance, MoneyGram charges $11 for every $100 and Bank of Baroda $3 for $50-200, at the exchange rate applicable. Next, he feels RBI might want to increase the amount that can be transferred in one go.
Madhavan Menon, MD of Thomas Cook (India) says this step will positively impact the dependant families in India as also the Indian economy. “This increase in frequency will also enhance foreign exchange inflows in India and help curtail unauthorised channels,” he says.