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In the 1970s, whenever an Indian working in the Gulf came home on his annual holiday, he would carry a bunch of bank demand drafts (DDs) drawn on different banks, along with the usual gifts. The DDs were meant for the families of his friends. He would post these drafts and then wait for confirmations that the DDs had been received.
Even encashing DDs wasn't easy, as not all bank branches had the facility. So, if the friend's family members lived in a small village, they would have to wait for up to a week to receive the money in hand, after receiving the DD.
Recounting this, A Krishnakumar (name changed), a retired bank official from Alwaye, Kerala, says banks were wary while encashing DDs since the Know Your Customer norms were not very stringent then. So, banks used to take time to clear DDs. And, if the DD was drawn on another bank, clearing and settlement took additional time.
Inward remittances
Those who had bank accounts could get money faster. If it was through telegraphic transfer (TT), the money would reach the second or third day. It would take 10-15 days in case of mail transfer (MT). In case of TT, the bank would send the message for transfer of funds telegraphically, or what used to be known as cable. While in case of MT, the message was sent by post. "But not all bank branches had the facilities of TT or MT or clearing. So, unless you had an account with a big branch in a central location, it was difficult to receive money," Krishnakumar says.
This lack of accessibility to banking services and high conversion fee were the reasons why illegal means of remitting money, such as hawala, thrived in the 1970s and 1980s. In case of a hawala transfer, those working abroad would pay money to a local there. He, in turn, would authorise his contact to pay the equivalent of the amount in rupees to the non-resident Indian's family in India. It was entirely illegal, but many people preferred it because they got better conversion rates, as compared to the official rate charged by banks. Krishnakumar says, "People built houses and set up businesses using money received through these illegal methods."
The changes that have happened since then are momentous. While the method of remittance still continues to be TT (MT is not available anymore), the money sent reaches in a matter of a few hours, as all bank branches are connected through Core Banking.
Money transfer companies have also changed the game. Firms such as Western Union started operations which helped unbanked people. Although they followed the same method used by the illegal money transfer agents, there was complete transparency. The advantage was that neither the sender nor the receiver need to have a bank account. Thanks to money transfer companies, you can send money from and receive it in almost any corner of the world.
Currently, a resident working abroad can remit money 30 times in a calendar year. The cap on each transaction is $2,500 per person. As against this, if you remit money inwards through bank account, there is no limit.
But you cannot remit abroad through money transfer agents. For this, the only available methods are DDs, bank cheques or bank accounts. In the '70s, sending money abroad was very tough. In fact, bank personnel used to discourage people from sending money for fear of being persecuted under stringent laws like the COFEPOSA (Conservation of Foreign Exchange and Prevention of Smuggling Activities) Act. Many a time, personnel at branches were not even aware of details like the limit and so on. If one branch said the limit was Rs 2 lakh, another branch would say it is Rs 3 lakh.
The procedure for outward remittance remains the same over the years. You have to fill a form with your bank and state the purpose for which you are sending money. The only difference is that the limit for outward remittance has increased over the years. Today, under the Liberalised Remittance Scheme, a resident Indian can send up to $250,000 every year. The Reserve Bank of India increased this limit recently.
"Liberalisation provided the much-needed infusion of foreign funds in Indian economy. In the last one year, there has been a steady increase in forex reserves. This has provided much-needed confidence to the government to relax restrictions on outward forex flows," says Sumit Naib, Nangia & Company.
For bank transfer of funds abroad, the technology used is Swift, a standard format of Bank Identifier Codes (BIC) and a unique identification code for a particular bank. These codes are used when transferring money between banks, particularly for international wire transfers. Banks also used the codes for exchanging other messages between them.
"We have been using Swift technology for the past 20 years to remit money overseas. While the message hits the system instantly, the amount taken for the funds to be transferred is much less now, thanks to technology. Swift is now integrated with our CBS. Earlier, there were international cheque collection cells. But these cells are more or less closed, because hardly anyone sends money through cheques," a State Bank of India (SBI) official says.
One big difference is that until 2000, under the Foreign Exchange Regulation Act, 1973, banks could receive payment from those wanting to send money abroad only through banker's cheque/pay order or DD. Payment in cash was not permitted. After 2000, under the Foreign Exchange Management Act, 1999, banks were allowed to accept payment for forex by way of cheque or even debit or credit or pre-paid cards, says Naib.
State Bank of India now offers outward remittance through its internet banking platform. This is as easy as transferring money domestically. But it is not available for all of SBI's locations abroad and the amounts are restricted to about $2,000.
