FEM (Deposit) Amendment Regulations 2026

 

RBI Expands the Scope of Special Non-Resident Rupee (SNRR) Accounts: Key Highlights of the Sixth Amendment to FEMA Deposit Regulations, 2026

The Reserve Bank of India (RBI), through Notification No. FEMA 5(R)(6)/2026-RB dated June 18, 2026, has amended the Foreign Exchange Management (Deposit) Regulations, 2016. While the amendments appear technical, they represent another significant step towards simplifying the regulatory framework governing Special Non-Resident Rupee (SNRR) Accounts, facilitating cross-border transactions, and strengthening India's aspirations of making the Indian Rupee a more globally accepted currency.

Historical Background

India's foreign exchange regulatory framework has evolved considerably since the enactment of the Foreign Exchange Management Act, 1999 (FEMA), which replaced the restrictive Foreign Exchange Regulation Act (FERA). FEMA shifted the regulatory philosophy from one of control to one of facilitation, enabling greater participation of foreign investors and businesses in the Indian economy.

As international trade and investment expanded, the RBI introduced the Special Non-Resident Rupee (SNRR) Account in 2016 to facilitate permissible current and capital account transactions by non-residents. Over time, the account has become an important instrument for foreign investors, multinational corporations, overseas financial institutions and entities operating in India's International Financial Services Centres (IFSCs).

The present amendment continues this gradual liberalisation by enhancing operational flexibility and removing procedural constraints.

Key Changes

The Sixth Amendment introduces several important changes:

• Recognition of IFSCs: The regulations now expressly recognise branches of authorised dealers operating in an International Financial Services Centre (IFSC), allowing SNRR accounts to be maintained through such branches.

• Expanded Scope of SNRR Accounts: The amended provisions permit SNRR accounts to be used not only for permissible transactions with residents in India but also for bona fide transactions with persons resident outside India, subject to the applicable FEMA framework.

• Simplification of Schedule 4: Several existing paragraphs governing SNRR accounts have been deleted, indicating RBI's intent to streamline the regulatory framework and reduce unnecessary operational prescriptions.

• Greater Flexibility in Fund Transfers: The amendments expressly permit transfers between NRO, NRE and SNRR accounts within the limits prescribed under the FEMA Remittance of Assets Regulations, providing greater flexibility in fund management for eligible non-residents.

• Transactions Between Non-Residents: A new provision enables authorised dealer banks to process transactions between two non-residents involving SNRR accounts based on the account holder's mandate specifying the underlying purpose, where such transactions are otherwise outside FEMA compliance requirements.

Why These Amendments Matter

The amendments align with the RBI's broader objective of promoting ease of doing business, encouraging greater use of the Indian Rupee in international transactions, and strengthening India's position as a global financial centre through IFSCs.

For banks, the revised framework simplifies account operations. For foreign investors and multinational businesses, it provides greater flexibility in managing rupee-denominated transactions. The changes also complement India's ongoing efforts to deepen cross-border financial markets and enhance the attractiveness of IFSCs as international financial hubs.

Conclusion

Although the Sixth Amendment does not introduce an entirely new regulatory framework, it represents another incremental yet meaningful step in the continuing liberalisation of India's foreign exchange regime. By simplifying the operation of SNRR accounts, recognising the growing importance of IFSCs, and facilitating a wider range of permissible transactions, the RBI has reinforced its commitment to creating a more efficient, flexible and internationally competitive financial ecosystem.

SNRR account

 

Legal Analysis and Professional Review

Document: Circular F. No. IFSCA-FMPP0BR/4/2024-Banking
Issuing Authority: International Financial Services Centres Authority (IFSCA)
Date: 19 June 2026
Subject: Amendment to the Circular titled "Permissible transactions through the Special Non-Resident Rupee (SNRR) accounts of IFSC units – Amendment"

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Executive Summary

The Circular is a regulatory amendment issued by the International Financial Services Centres Authority ("IFSCA") to harmonize the operational framework governing Special Non-Resident Rupee (SNRR) Accounts maintained by financial institutions established in an International Financial Services Centre (IFSC).

Rather than introducing an entirely new regulatory regime, the Circular substitutes Clause 3 of an earlier circular dated 29 January 2025 in light of subsequent amendments made to the Anti-Money Laundering, Counter-Terrorist Financing and Know Your Customer (AML/CFT/KYC) Guidelines on the same date, namely 19 June 2026.

The amendment principally seeks to:

• facilitate smoother conduct of business transactions undertaken outside the IFSC;
• maintain regulatory oversight over the movement of funds;
• preserve India's foreign exchange management framework; and
• balance operational flexibility with AML/CFT safeguards.

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Historical Background

Genesis of the SNRR Account Framework

The Special Non-Resident Rupee (SNRR) Account was originally conceptualized under the foreign exchange regime administered by the Reserve Bank of India.

Unlike ordinary rupee accounts, SNRR accounts enable eligible non-resident entities to undertake specific rupee-denominated transactions connected with legitimate business activities.

With increasing internationalisation of IFSC operations, practical difficulties arose because many business transactions generated rupee receipts outside the IFSC ecosystem.

Accordingly:

• regulatory amendments notified on 14 January 2025 permitted IFSC units to maintain SNRR accounts with authorised dealers outside the IFSC;
• the present Circular further refines that framework by prescribing the permissible utilisation and remittance of such funds.

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Legislative Framework

The Circular derives statutory authority from:

• Sections 12 and 13 of the International Financial Services Centres Authority Act, 2019, empowering IFSCA to regulate financial institutions and financial services within the IFSC.

It also operates alongside:

• Foreign Exchange Management regulations governing SNRR Accounts;
• IFSCA AML/CFT/KYC Guidelines;
• Earlier SNRR Circular dated 29 January 2025.

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Detailed Legal Analysis

1. Nature of the Amendment

The Circular does not create a fresh regulatory framework.

Instead, it expressly substitutes Clause 3 of the earlier SNRR Circular.

Legally, substitution replaces the previous provision in its entirety, ensuring that the revised clause becomes the operative regulatory text.

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2. Recognition of Business Outside IFSC

The amendment expressly recognises that an IFSC financial institution may undertake:

• business-related activities outside the IFSC; and
• receive monetary consideration through an SNRR account maintained with an authorised dealer in India outside the IFSC.

This represents an important policy shift towards operational flexibility.

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3. Permissible Credits

The Circular clarifies that the SNRR account may receive:

• fees;
• funds;
• monetary consideration;
• other amounts arising from business transactions outside the IFSC.

The language is deliberately broad, reducing interpretational disputes regarding permissible credits.

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4. Mandatory Repatriation Requirement

The principal regulatory safeguard introduced is the obligation that amounts received must be transferred to the financial institution's account maintained with an IFSC Banking Unit (IBU) in a specified foreign currency within 30 working days of receipt.

From a legal perspective, this requirement serves multiple objectives:

• limiting prolonged retention of domestic rupee balances;
• preserving foreign exchange discipline;
• strengthening regulatory audit trails; and
• mitigating money laundering risks.

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5. Administrative Expense Exception

The Circular carves out an express exception:

Amounts credited solely for administrative expenses are exempt from the mandatory remittance requirement.

This is a pragmatic provision recognising that routine operational expenditure—such as salaries, rent, utilities, professional fees, or statutory payments—may legitimately require the maintenance of rupee balances.

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6. Immediate Effect

The Circular comes into force immediately upon issuance.

Accordingly, all regulated entities are expected to comply without any transitional period.

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Legal Significance

The Circular advances several regulatory objectives:

Operational Efficiency

Financial institutions are no longer required to adopt cumbersome mechanisms for routing business receipts generated outside the IFSC.

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Regulatory Consistency

The amendment aligns the SNRR framework with contemporaneous amendments made to the AML/CFT/KYC Guidelines.

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Foreign Exchange Discipline

The 30-working-day remittance requirement ensures that domestic rupee balances remain temporary rather than permanent.

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AML/CFT Compliance

Prompt remittance to IFSC Banking Units creates a transparent audit trail, thereby reducing opportunities for misuse.

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Practical Implications for Regulated Entities

Financial institutions operating in IFSCs should:

• review treasury policies;
• monitor SNRR account balances regularly;
• establish internal controls to ensure remittance within the prescribed timeframe;
• document administrative expense payments separately;
• maintain adequate records to demonstrate regulatory compliance.

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Overall Professional Review

From a legal and regulatory perspective, this Circular is a well-crafted, narrowly tailored amendment that reflects the continuing evolution of India's IFSC regulatory framework. Rather than imposing additional compliance burdens, it provides greater operational flexibility while reinforcing safeguards essential to foreign exchange management and anti-money laundering compliance.

The amendment strikes a measured balance between facilitating legitimate commercial activity and preserving regulatory oversight. By allowing IFSC financial institutions to receive business-related receipts through SNRR accounts while mandating their timely remittance to IFSC Banking Units—subject to a sensible exemption for administrative expenses—it enhances both commercial efficiency and supervisory transparency.

Overall Assessment: The Circular represents a pragmatic and progressive refinement of the existing regulatory framework. It aligns with the broader legislative objective of positioning India's IFSC as a globally competitive financial jurisdiction while maintaining robust standards of financial integrity, regulatory compliance, and foreign exchange discipline. It is an example of principle-based regulation that facilitates business without compromising supervisory control.