Authorised Dealer Banks: Their Role in Foreign Remittances from India

This article is part of our Complete Guide to Profit Repatriation & Cross-Border Payments from India. Here we dive deep into the role that Authorised Dealer banks play in facilitating every foreign remittance transaction.

What Are Authorised Dealer Banks?

Every cross-border payment that enters or leaves India passes through the hands of an Authorised Dealer (AD) bank. The Reserve Bank of India (RBI) licenses these banks under Section 10 of the Foreign Exchange Management Act (FEMA), 1999 to buy, sell, and deal in foreign exchange. Without an AD bank, no foreign remittance — inward or outward — can be legally processed in India.

For foreign companies operating in India, the AD bank is far more than a payment processor. It is your primary compliance partner for all capital and current account transactions, your reporting agent to the RBI, and your first line of defence against FEMA violations. Choosing the right AD bank and understanding its role can make the difference between smooth operations and regulatory delays that stall your business for weeks.

The Three Categories of AD Banks

The RBI classifies authorised dealers into three distinct categories, each with different permissions and transaction scopes.

AD Category I Banks

These are scheduled commercial banks — the major players like State Bank of India, HDFC Bank, ICICI Bank, Axis Bank, and foreign banks like Citibank, HSBC, and Deutsche Bank operating in India. AD Category I banks can handle the full spectrum of foreign exchange transactions:

• All current account transactions (trade payments, service fees, royalties, dividends)
• All capital account transactions (FDI inflows, ECB drawdowns, overseas investments)
• Export and import bill processing, letters of credit, and bank guarantees
• FC-GPR reporting and FLA return filing on behalf of companies
• Issuance of Foreign Inward Remittance Certificates (FIRC)

If your company has an Indian subsidiary, your AD Category I bank is your mandatory reporting channel for all FDI-related filings with the RBI.

AD Category II

These are typically urban cooperative banks, regional rural banks, and select non-banking financial companies authorised to handle limited foreign exchange business. AD Category II entities can process:

• Specified non-trade current account transactions
• Inward remittances for personal purposes
• Limited outward remittances (personal, educational, medical)
• Money transfer operations through approved channels

AD Category II banks cannot process capital account transactions such as FDI inflows, share allotments, or ECB drawdowns. Foreign companies should not use AD Category II entities for business remittances.

AD Category III

These include select financial institutions authorised to deal in foreign exchange for specific and narrow purposes, often related to money changing services. They handle over-the-counter cash transactions and traveller's cheque conversions but have no role in corporate foreign remittances.

How AD Banks Facilitate Inward Remittances

When a foreign parent company sends funds to its Indian subsidiary — whether as share capital, a loan, or a payment for services — the AD bank performs a multi-step compliance process before the funds reach the recipient's account.

Step 1: Receipt and Purpose Code Assignment

The AD bank receives the incoming SWIFT message and assigns an RBI purpose code. These codes are mandatory under the Foreign Exchange Transactions Electronic Reporting System (FETERS). Common purpose codes include:

An incorrect purpose code can trigger RBI scrutiny and delay the credit to your account by days or even weeks.

Step 2: KYC and Beneficiary Verification

The AD bank verifies the beneficiary's identity, the nature of the transaction, and the underlying documentation. For FDI-related inflows, this includes verifying the Board Resolution authorising the share allotment, the FEMA valuation report, and the share subscription agreement.

Step 3: FIRC Issuance

After processing, the AD bank issues a Foreign Inward Remittance Certificate (FIRC). This document is critical evidence that funds were received through legitimate banking channels. You will need the FIRC for:

• Filing FC-GPR with the RBI (within 30 days of share allotment)
• Income tax filings and transfer pricing documentation
• Company law filings with the MCA
• Future repatriation requests (the AD bank will cross-check original FIRC records)

Step 4: Regulatory Reporting

The AD bank reports the transaction to the RBI through FETERS. For FDI transactions, additional reporting through the FIRMS portal is required. The bank ensures that the transaction complies with automatic route norms or verifies that government approval has been obtained for restricted sectors.

How AD Banks Facilitate Outward Remittances

Outward remittances — payments leaving India — undergo even more rigorous scrutiny because they involve conversion of INR to foreign currency, which is tightly regulated under FEMA.

Form 15CA and 15CB Requirements

Before any outward remittance exceeding INR 5 lakh in a financial year, the remitter must comply with Form 15CA and 15CB requirements under Section 195 of the Income Tax Act:

• Form 15CA Part A: Self-declaration when aggregate remittances do not exceed INR 5 lakh in the financial year
• Form 15CA Part B: When remittances exceed INR 5 lakh and a certificate under Section 195(2)/195(3)/197 has been obtained from the Assessing Officer
• Form 15CA Part C: When remittances exceed INR 5 lakh and a Chartered Accountant's certificate in Form 15CB has been obtained
• Form 15CA Part D: When the remittance is not chargeable to tax under the Income Tax Act

The AD bank verifies the submitted Form 15CA against Form 15CB before processing the remittance. If there are discrepancies, the bank will reject the transaction until the forms are corrected.

Withholding Tax Compliance

The AD bank ensures that applicable withholding tax (TDS) has been deducted before processing the outward remittance. For payments to non-residents, TDS rates depend on the nature of the payment:

If the company claims DTAA benefits for a lower rate, the AD bank will require a Tax Residency Certificate (TRC) from the recipient's country and a valid Form 10F.

LRS for Individual Remittances

For individual outward remittances (not corporate), the AD bank processes transactions under the Liberalised Remittance Scheme (LRS). The annual limit remains USD 250,000 per person per financial year. As of Budget 2025 (effective 1 April 2025), the TCS threshold for LRS transactions was increased from INR 7 lakh to INR 10 lakh per financial year, below which no TCS is collected. TCS on education remittances funded by a loan from a specified financial institution has been removed entirely; self-funded education and medical remittances above INR 10 lakh continue to attract TCS at 5%.

Choosing the Right AD Bank for Your Indian Entity

Not all AD Category I banks offer the same level of service for foreign-owned companies. Here are the key factors to evaluate:

Foreign Exchange Expertise

Choose a bank with a dedicated forex desk staffed by officers who understand FDI reporting requirements, FEMA compliance timelines, and RBI regulatory filings. Banks with a large corporate banking division — particularly those with international presence — tend to process remittances faster.

Processing Speed

The time between receiving a SWIFT message and crediting your account varies significantly. Tier-1 banks with automated systems can credit funds within 24-48 hours. Smaller banks may take 3-5 working days, especially for first-time FDI transactions.

Digital Infrastructure

Check whether the bank offers online filing for Form 15CA, real-time forex rate feeds, and digital FIRC issuance. Some banks still require physical branch visits for certain forex transactions, which can slow down operations.

DTAA and TRC Handling

If your parent company remits royalties, technical fees, or dividends from India, the AD bank must be comfortable processing payments at DTAA rates. Some banks require extensive documentation and multiple approvals before applying treaty rates, while others have streamlined processes.

Common AD Bank Compliance Challenges

Foreign companies operating in India frequently encounter these issues with their AD banks:

• Delayed FIRC issuance: Some banks take 2-4 weeks to issue FIRCs, which can jeopardize the 30-day deadline for FC-GPR filing
• Incorrect purpose codes: If the bank assigns the wrong purpose code, the transaction data reported to the RBI will be inaccurate, potentially triggering a show-cause notice
• Excessive documentation requests: Conservative bank compliance teams may request documents beyond what FEMA requires, especially for the first few transactions
• Rejection of DTAA rate applications: Banks may insist on the full 20% TDS rate if the TRC, Form 10F, or no-PE declaration is not in perfect order
• Conversion rate disputes: The INR credit amount depends on the exchange rate applied by the bank. Always confirm whether the bank applies the card rate, TT buying rate, or a negotiated rate

RBI's 2026 Draft Directions for AD Banks

On 17 February 2026, the RBI released draft directions on "Foreign Exchange Dealings of Authorised Persons" with public comments invited until 10 March 2026. Key proposed changes include:

• Modernisation of the regulatory framework governing AD operations to align with international best practices
• Greater operational flexibility for AD Category I banks in processing routine transactions
• Enhanced digital reporting and real-time transaction monitoring requirements
• Revised FEMA (Export and Import of Goods and Services) Regulations, 2026, notified on 13 January 2026, effective 1 October 2026, empowering AD banks to provide faster service

These reforms signal the RBI's intent to streamline foreign exchange operations while maintaining robust compliance oversight.

Key Takeaways

• Only AD Category I banks can process corporate foreign exchange transactions including FDI, ECBs, and trade payments — do not use Category II or III entities for business remittances
• Every inward remittance must be tagged with the correct RBI purpose code; errors can trigger scrutiny and delays of weeks
• Outward remittances exceeding INR 5 lakh per year require Form 15CA/15CB compliance, and the AD bank will verify withholding tax deduction before processing
• Choose an AD bank with strong forex expertise, fast FIRC issuance, and streamlined DTAA processing to avoid compliance bottlenecks
• The RBI's 2026 draft directions signal upcoming modernisation — stay updated through your FEMA compliance advisor