What changed
Previously, only AD Category-I banks could issue forex prepaid cards to residents for private/business travel. Now, AD Category-II entities are also allowed to issue such cards, with settlement routed through AD Category-I banks. Additionally, AD Category-II can open Nostro accounts (one per currency) to facilitate remittance settlements, but these accounts cannot be used for prepaid card settlements and must not maintain idle balances.
What it means for you
This expands the forex product suite for AD Category-II entities, enabling them to offer prepaid travel cards directly to customers, which can boost fee income and customer stickiness. However, they must manage Nostro accounts efficiently to avoid idle balances and comply with strict reporting, while relying on AD Category-I banks for card settlement.
What you must do
- Update internal forex product policies to include issuance of prepaid cards for residents travelling abroad.
- Ensure KYC/AML/CFT compliance for all prepaid card issuances and Nostro account operations.
- Open only one Nostro account per currency and monitor balances to prevent idle funds.
- Establish settlement arrangements with AD Category-I banks for prepaid card transactions.
- Set up reporting mechanisms as per RBI's prescribed formats and timelines.
Who it affects
AD Category-II entities (e.g., select NBFCs, regional rural banks), AD Category-I banks (as settlement partners), Resident travellers using forex prepaid cards
Can AD Category-II entities issue forex prepaid cards for all purposes?
No, only for residents travelling on private or business visits abroad. Other purposes remain restricted.
How many Nostro accounts can an AD Category-II open under this circular?
Only one Nostro account per currency is permitted, and balances must be used solely for settling permissible remittances, not for prepaid card settlements.
What happens if idle balances are maintained in the Nostro account?
The circular explicitly prohibits idle balances, so AD Category-II must actively manage the account to avoid any such situation, or risk non-compliance.