India’s financial regulators, led by The Reserve Bank of India (“RBI”), have been fairly vocal in trying to discourage global Forex firms from taking Indian clients. The latest volley in this effort is a warning to India’s own domestic financial institutions, not to process cash or credit card transfers to Forex firms.
Based on a circular sent last week to all banks in India (to see the circular click here), it seems as though the RBI’s main beef is that Forex firms have been aggressively advertising to Indian clients, making claims and promises of guaranteed high returns from Forex trading.
By law, Indian residents are not allowed to trade off-market margin Forex, whether online or offline, based on a 1999 Indian law called the Foreign Exchange Management Act (“FEMA”). Residents are, however, permitted by FEMA to trade in currency futures and options contracts traded on certain stock exchanges recognized by the Securities and Exchange Board of India (“SEBI”) – but these involve much less leverage than “Forex” trading.
Despite the FEMA law, and the best efforts (so far) of the RBI, India has become a focal point for several global Forex firms. Indian traders still open smaller-than-average accounts and trade smaller-than-average ticket sizes. However, given the absolutely huge potential size of the market based on India’s estimated 1.2 billion population (and growing), increasing income levels, urban migration, and increased Internet use, it is simply a market which cannot be ignored. (See Research & Market’s new report on the growth of India’s online ad market.)