Reserve Bank of India Deputy Governor M Rajeshwar Rao said the banking regulator often gets information that MSMEs and retail sector charge high fees from banks on foreign currency exchange. He said that it is a matter of concern that there is no transparency regarding the fees charged from small customers.
Rao said at the 17th annual conference of the Foreign Exchange Dealers Association of India (FEDAI) in Egypt’s capital Cairo on March 5, “While large companies enjoy the competitive pricing backed by cash in our markets, this is reflected in the fees charged to smaller customers.” It is not visible and the cost of small transactions is high. The Reserve Bank released Rao’s speech on its website on Thursday.
‘The FX Retail platform was introduced to enable price discovery to be done from an automated platform,’ he added. However, banks are not encouraging customers to use this platform.
He appealed to FEDAI and all the banks to ensure a fair and transparent pricing mechanism in the foreign exchange market for the resource-poor customers. He said that Self Regulatory Organizations (SROs) like FEDAI can play an important role in this.
Rao said India needs to manage exchange rate volatility as the country moves on the path of rupee internationalization and free capital account convertibility.
He also said that the internationalization of the rupee has its advantages as well as challenges and risks that the country and the RBI have to deal with. Rao said that as the economy grows and becomes more developed, the scope of participation in foreign exchange markets will change. “With the increasing integration of the economy with the rest of the world, more and more entities are expected to be exposed to foreign exchange risks, directly or indirectly,” he added. In such a situation, a demand can be made to allow hedging of economic risks.
A new market has opened up with a new set of market participants, he said. Rao said that as the country moves on the path of internationalization of the rupee, more dynamics are likely to come and we need to gear up to manage it.
