Money Transfer Service Scheme (MTSS) In-Depth Discussion

In India, there is a provision for sending remittances to foreign countries, known as outward remittances. Similarly, remittances can also be received by individuals in India, often sent by NRIs to support their families, which are referred to as inward remittances. This led to the establishment of the Money Transfer Service Scheme (MTSS) to facilitate the process of inward remittances for individuals. Here is an in-depth discussion of the Money Transfer Service Scheme:

1. Money Transfer Service Scheme (MTSS) Defined

The Government of India (GOI) introduced the Foreign Exchange Management Act, 1999 (FEMA 1999) to regulate foreign exchange transactions within the country. Under specific regulations, the RBI permits inward remittances through a scheme called the Money Transfer Service Scheme (MTSS). The MTSS enables quick and convenient transfer of personal remittances from abroad to beneficiaries in India. This scheme is applicable for personal remittances such as family maintenance and remittances favouring foreign tourists visiting India. However, outward remittances from India are not allowed under the MTSS. The money transfer is facilitated through recognized money transfer companies based abroad, referred to as Overseas Principals, who transfer the funds to appointed agents in India, known as Indian agents. The MTSS scheme exclusively involves individuals as both remitters and beneficiaries. Indian agents are prohibited from remitting funds outside India to Overseas Principals. The RBI periodically issues circulars and guidelines concerning the operation of money transfer service schemes in India.

2. Master Direction on Money Transfer Service Scheme

In 2017, the RBI issued the Master Direction (MD) on Money Transfer Service Scheme through document No. RBI/FED/2016-17/52, FED Master Direction No.1/2016-17 dated February 22, 2017. This master direction serves as a comprehensive guideline for agents operating under the money transfer service scheme. Authorized Persons/Authorized Dealers (AP/AD) are eligible to act as agents under the scheme.

3. Operational Procedure of Money Transfer Service Scheme

The RBI has established a systematic process for the money transfer service scheme. The scheme involves collaborations between overseas principals and agents in India. Overseas principals are money transfer companies established abroad for remitting money to India, while agents are authorized banks responsible for disbursing funds to beneficiaries within India. Hence, the MTSS scheme involves four parties: the Principal (Overseas Principal), the Agent (Authorized Bank), the Remitter, and the Beneficiaries. Remitters transfer funds to India through Overseas Principals, who, in turn, transfer the funds to Authorized Dealers in India. Authorized Dealers then transfer the funds to the beneficiaries within India. The remittances are carried out at prevailing exchange rates as per the requirements. However, under the money transfer service scheme, agents are not permitted to make outward remittances to the overseas principal. Typically, MTSS companies cater to individual beneficiaries.

4. Indian Agents and Authorized Dealers

4.1 Appointment of Indian Agents

As per Section 10(1) of the Foreign Exchange Management Act, 1999, the Reserve Bank of India has the authority to appoint any person as an Indian Agent for the MTSS, also known as an Authorized Dealer. No individual can engage in cross-border money transfer to India unless specifically permitted by the Reserve Bank. Authorized Dealers are defined under the FEMA Act and include banks that regularly engage in foreign exchange transactions on behalf of customers. However, authorized dealers must adhere to the guidelines and rules set by the RBI regarding money transfers.

4.2 Framework for Indian Agents under the Scheme

To become an agent, the applicant can be from one of the following categories:

• Authorized Dealer Category – I Bank
• Authorized Dealer Category – II Bank
• Full-Fledged Money Changer (FFMC)
• Scheduled Commercial Bank

Additionally, the applicant must have a minimum net worth or net owned funds of Rs. 50 Lakhs. The calculation of net owned funds includes (Paid-up Equity Capital + Free reserves + Credit balance in Profit & Loss A/c) minus (Accumulated balance of loss, Deferred revenue expenditure, and Other intangible assets). Net owned funds are calculated by deducting the amount of investments in shares of subsidiaries, companies in the same group, all other non-banking financial companies, as well as the book value of debentures, bonds, outstanding loans, advances made to, and deposits with subsidiaries and companies in the same group exceeding 10 percent of the owned funds.

4.3 Application Process for Becoming an Indian Agent

Applicants seeking to become Indian agents must submit an application to the respective regional office of the Foreign Exchange Department of the Reserve Bank of India. The application should be accompanied by the following documents:

• Declaration confirming the absence of criminal proceedings against the applicant by the Directorate of Enforcement (DoE), Directorate of Revenue, and the Directorate of Intelligence. Furthermore, no proceedings should be enforced against any of the directors of the applicant.
• Declaration stating compliance with Know Your Customer (KYC), Anti-Money Laundering norms, Combating of Financing Terrorism, and regulatory requirements as per RBI norms.
• Information and details regarding the overseas principal with whom the MTSS transaction is conducted.
• Scheme of operation by the overseas principal.
• Comprehensive information on the address of entities present in India and the addresses of all branches where MTSS will be conducted by the applicant.
• Estimated volume of transactions conducted by the entity.
• Audited balance sheet and profit and loss statements of the entity for the past two years, if available.
• Certificate from statutory auditors regarding the Net Owned Funds position as of the application date.
• Memorandum of Association and Articles of Association, with the object clause clearly stating the applicant’s involvement in conducting money transfer operations.
• Confidentiality report of the applicant, with two copies provided by the applicant’s banker.
• Information related to any sister concerns or associated concerns with the MTSS.
• Board resolution by the company for the purpose of carrying out the money transfer service scheme.
• A letter from the proposed Overseas Principal, confirming the intent to collaborate with the applicant and provide necessary collateral.w

4.4 Additional Requirements for Initiating an MTSS

To establish an Indian Agent, the overseas principal must maintain collateral equivalent to three days’ average drawings or USD 50,000, whichever is higher, in favour of the Indian Agent with a designated bank in India. The minimum foreign currency deposit required is USD 50,000, and the remaining amount must be kept as a bank guarantee. The adequacy of collateral must be reviewed by Indian Agents on a quarterly basis, based on remittances received during the past three months. MTSS is exclusively intended for personal remittances for family maintenance and foreign tourists’ visits to India. Donations, contributions to trusts, and property purchases are not allowed through the money transfer service scheme and should be conducted through regular banking channels.

For individuals, remittances up to USD 2500 are permitted. For individuals present in India, up to INR 50,000 can be paid in cash to beneficiaries, while amounts exceeding INR 50,000 can be paid through demand drafts or account payee cheques. However, a higher amount can be disbursed in cash to foreign tourist beneficiaries. Transaction information and details must be maintained for inspection by inspectors and auditors, and