At present, the conversion of foreign currency or travellers' cheques designated in foreign currency into Indian Rupees and vice versa is possible through AD Category-I banks, ADs Category-II and Full Fledged Money Changers (FFMCs). Further, AD Category-I banks, ADs Category-II and FFMCs may appoint franchisees (also known as agents) to undertake purchase of foreign currency.

The objective of the Scheme is to provide easier foreign exchange conversion facilities for travellers and tourists, including Non Resident Indians (NRIs), by enlarging the network of money changing facilities in the country. It is expected that the facility of Franchisee arrangement will enable AD Category-I banks, ADs Category-II and FFMCs to provide such facilities at all tourist centres and major cities during extended hours and on holidays.

Under the Scheme, the Reserve Bank permits ADs Category - I , ADs Category - II and FFMCs to enter into agency or franchisee agreements at their option for the purpose of carrying restricted money changing business i.e. conversion of foreign currency notes, coins or travellers' cheques into Indian Rupees.

A franchisee can be any entity which has a place of business and a minimum Net Owned Funds of Rs.10 lakh. Franchisees can undertake only restricted money changing business.

An AD Category-I Bank / AD Category-II / FFMC, as the franchiser, is free to decide on the tenor of the arrangement as also the commission or fee through mutual agreement with the franchisee. The Agency / Franchisee agreement to be entered into should include the following salient features:

1. The franchisees should display the names of their franchisers, exchange rates and that they are authorised only to purchase foreign currency, prominently in their offices. Exchange Rate for conversion of foreign currency into Rupees should be the same or close to the daily exchange rate charged by the AD Category – I Banks / ADs Category - II / FFMC at its branches.

2. The foreign currency purchased by the franchisee should be surrendered only to its franchiser within 7 working days from the date of purchase.

3. The maintenance of proper record of transactions by the franchisee.

4. The on-site inspection of the franchisee by the franchiser should be conducted at least once a year.

An AD Category – I Bank / AD Category - II/ FFMC should apply to the respective Regional Office of the Reserve Bank, in Form RMC-F (as given in Part I: Annex-II of the FED Master Direction No.18/2015-16 on Reporting under FEMA 1999) for appointment of franchisees under this Scheme. The application should be accompanied by a declaration that while selecting the franchisees, adequate due diligence has been carried out and that such entities have undertaken to comply with all the provisions of the franchising agreement and prevailing Reserve Bank regulations regarding money changing. Approval would be granted by the Reserve Bank for the first franchisee arrangement. Thereafter, as and when new franchisee agreements are entered into, these would have to be reported to the Reserve Bank in Form RMC-F on a post-facto basis along with similar declaration as indicated above.

A franchiser, i.e. AD Category–I Bank/ AD Category–II / FFMC should undertake the following minimum checks while conducting due diligence of its franchisees:

1. existing business activities of the franchisee/ its position in the area

2. minimum Net Owned Funds of the franchisee

3. Shops & Establishments / other applicable municipal certification in favour of the franchisee

4. verification of physical existence of location of the franchisee, where restricted money changing activities will be conducted

5. conduct certificate of the franchisee from the local police authorities (certified copy of Memorandum and Articles of Association and Certificate of Incorporation in respect of incorporated entities)
   
   Note: Obtaining of Conduct Certificate of the franchisee from the local police authorities is optional for the franchisers. However, the franchisers may take due care to avoid appointing individuals/ entities as franchisees who have cases / proceedings initiated / pending against them by any law enforcing agencies.

6. declaration regarding past criminal case, if any, cases initiated / pending against the franchisee or its directors / partners by any law enforcing agency, if any

7. PAN Card of the franchisee and its directors / partners

8. photographs of the directors / partners and the key persons of franchisee

The above checks should be done on a regular basis, at least once in a year. The franchiser should obtain from the franchisees proper documentary evidence confirming the location of the franchisees in addition to personal visits to the site. The franchiser should also obtain a Chartered Accountant's certificate confirming the maintenance of minimum Net Owned Funds of the franchisee, i.e., Rs.10 lakh on an ongoing basis.

The franchiser, i.e. AD Category–I Bank / AD Category–II / FFMC may appoint franchisees within a distance of 100 kilometres from their controlling branches concerned.

However, this distance criterion is relaxed in case of a recognised group/ chain of hotels appointed as franchisees, provided the headquarters of the group/ chain of hotels falls within a distance of 100 kilometres of the controlling branch of the franchiser concerned.

Further, in case of areas declared as hilly areas (as defined by the respective State Governments/ Union Territories) and the North-Eastern States, the distance restriction given in point (i) above is not applicable.

Franchisers are expected to impart training to the franchisees as regards operations and maintenance of records.

The franchisers, i.e. ADs Category–I Banks / ADs Category–II / FFMCs are expected to put in place adequate arrangements for reporting of transactions by the franchisees to the franchisers on a regular basis (at least monthly). Regular spot audits of all locations of franchisees, at least once in six months, should be conducted by the franchiser. Such audits should involve a dedicated team and incognito visits should also be used to test the compliance level of the franchisees. A system of annual inspection of the books of the franchisees should also be put in place. The purpose of such inspection is to ensure that the money changing business is being carried out by the franchisees in conformity with the terms of the agreement and prevailing Reserve Bank guidelines and that necessary records are being maintained by the franchisees.

Franchisees are required to strictly adhere to the AML / KYC/ CFT guidelines, as applicable to ADs Category–I Banks / ADs Category – II / FFMCs.

Franchisees are required to strictly adhere to the AML / KYC/ CFT guidelines, as applicable to ADs Category–I Banks / ADs Category – II / FFMCs.

Note: No licence for appointment of franchisees will be issued to any FFMC / non-bank AD Category - II, against whom any major DoE / DRI / CBI / Police case is pending. In case where any FFMC / non-bank AD Category - II has received one-time approval for appointing franchisees and subsequent to the date of approval, any DoE / DRI / CBI / Police case is filed, the FFMC / non-bank AD Category - II should not appoint any further franchisees and bring the matter to the notice of the Reserve Bank immediately. A decision will be taken by the Reserve Bank regarding allowing the FFMC / non-bank AD Category - II to appoint franchisees.

Authorised Dealers Category-II can issue forex pre-paid cards to residents travelling on private/business visit abroad, subject to adherence to KYC/AML/CFT requirements. However, settlement in respect of forex pre-paid cards has to be effected through AD Category-I banks.