Hidden charges on foreign exchange transactions will soon be known in advance; RBI issues draft proposal
Dec 24, 2025
Synopsis
The Reserve Bank of India has proposed new regulations mandating banks to disclose all foreign exchange transaction costs upfront. This aims to bring transparency to cross-border payments, addressing issues like hidden charges and opaque pricing that have long troubled retail users. The move will empower customers to better understand and compare costs before committing to transactions.
A large number of people struggle with cross-border payments due to complex processes and high service costs. This happens largely due to hidden charges and a lack of transparency in the process. Whether it’s for education fees, living expenses, travel payments, or overseas investment, the actual cost usually becomes apparent only after the transaction is done. Being informed beforehand about the various costs involved can really help people compare charges and make the right choice that suits their requirements.
With this in mind, the Reserve Bank of India has recently proposed new regulations that would require banks and financial institutions to disclose the full cost of foreign exchange transactions upfront, making it clearer and more transparent than it is today.
What’s the RBI's new proposal on foreign exchange transaction costs?
The circular proposed to mandate Authorized Dealers, such as commercial banks, to provide the details of transaction costs like remittance fees, foreign exchange rate, currency conversion charges, etc., before the customer agrees to the deal.
This applies to three commonly used transactions: Foreign exchange cash (Immediate exchange of currencies on the same day, T+0), Tom (settles on the next business day after the trade, T+1), and Spot contracts (Settles within 2 business days after the trade date, T+2).
In January 2024, Authorised Dealers were mandated to provide the mid-market mark/bid and ask price of the foreign exchange derivative contract / foreign currency interest rate derivative contract before entering into the contract with a retail user, and include it in the deal confirmation/term sheet to instill improved transparency on the pricing mechanism.
What are all the charges under “total transaction cost” in foreign exchange?
Before entering into a foreign exchange transaction, authorized dealers such as banks will now be required to provide a complete cost breakdown.
Hemal Shah, Partner and Leader – Treasury and Commodity Advisory; Risk Consulting, EY India, has pointed out the charges, which include:
• Foreign exchange rate applied
• Currency conversion charges
• Sending fees (e.g., outward remittance fees)
• Receiving fees (if applicable)
• Charges of intermediaries (correspondent banks, overseas banks, etc.)
• Any other fee or cost linked to executing the forex transaction
Importantly, this information must not only be shared upfront but also be included in the final deal confirmation, ensuring customers can verify what they were told against what they were charged.
These instructions shall be applicable within three months from the date of issuance of these instructions.
What were the problems faced by retail users in foreign exchange transactions?
Due to the high transaction costs, many retail customers may feel that international money transfers are costly, complex, and opaque compared to domestic transactions.
Customers are often shown only an exchange rate, while additional costs, such as remittance fees, currency conversion charges, and intermediary bank fees, are either not disclosed upfront or are deducted later without a clear explanation.
Shah has pointed out some more issues, which are as follows:
• Banks often embed margins and fees inside the rate and bundled multiple charges, such as FX margins, currency conversion charges, and SWIFT processing fees into the transaction, leading to opacity.
• Earlier, retail users often had no visibility into how Cash, Tom, Spot, FX and Interest derivatives were priced. Authorized Dealers (ADs) could quote wide-spreads without transparency. By showing the mid-market mark, customers can see the prevailing market rate and understand the dealer’s margin (difference between mid-market and bid/ask).
• On the recipient side, charges such as Short Realisation and cases where all charges were borne by the beneficiary (BEN) rather than the remitter are commonly observed (OUR). These charges were opaque in nature and impacted Indian exporters.
• Another opaque yet impactful cost component is often the Correspondent Bank Fee, which can vary significantly from transaction to transaction. These fees arise when the remitting bank lacks a direct presence in the beneficiary’s jurisdiction and routes the payment through one or more intermediary banks, each of which may deduct charges.
• Banks often position these fees as being outside their control, but this is an area where transparency is weak and disclosure expectations are the highest, a gap that RBI has explicitly sought to address.
How will this RBI move practically benefit retail customers?
Enhanced visibility and transparency of charges will help the retail users to accurately assess the true cost of cross-border transactions. It will also improve their understanding of the pricing mechanisms and margins applied by authorized dealers across cash, tom, spot, foreign exchange, and interest rate derivative transactions.
“Enhanced visibility on the 'hidden charges' allows retail users to make better decisions on the pricing offered by ADs,” says Shah.
“The benefit lies in improved transparency, provided the disclosures are implemented well and communicated in a manner that is easy for customers to understand and compare,” says Vijay Mani Partner, Banking and Capital Markets Leader, Deloitte India.
What is the timeline for feedback on the RBI’s draft circular?
Feedback on the draft circular on transaction costs for foreign exchange transactions can be submitted by January 9, 2026.
Who are the Authorised Dealers under RBI regulations?
An Authorised Dealer is a bank or financial institution that has RBI approval to conduct foreign exchange transactions. For these rules, the RBI defines Authorised Dealers as Authorised Dealer Category-I banks and Standalone Primary Dealers that are authorised under Category-III.
Who qualifies as a "retail user"?
Under RBI rules, authorised dealers must classify customers as retail or non-retail when offering foreign exchange derivatives and foreign currency interest rate derivatives.
Non-retail users include large or regulated entities such as financial institutions and NBFCs, insurance companies, pension funds, mutual funds, and alternative investment funds, as well as Indian entities with a net worth of ₹500 crore or more or a turnover of ₹1,000 crore or more. Non-residents of India, other than individuals, also fall under this category.
Any customer who does not meet these criteria is classified as a retail user.
[The Economic Times]
