Analysis of Regulatory and Supervisory Risks under Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026

The notification of the Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026^[1] (the “Notification”) which will come into force on October 01, 2026, constitutes a significant development in India’s foreign exchange regulatory framework. It seeks to facilitate ease of doing business, particularly for small exporter and importer entities engaged in international trade of goods and services. The Notification enhances the efficiency of Authorised Dealer Banks (“AD Banks”) by shifting discretionary powers to AD Banks and introducing greater operational flexibility in cross-border transactions. Despite this apparent liberalisation, notable procedural gaps persist.  

Discretion Granted to AD Banks

The operational framework of the Notification rests on a recurring requirement that AD Banks need to be “satisfied as to the genuineness” of the transaction before exercising the discretion conferred upon them. However, the Notification does not define the standard against which genuineness is to be assessed, nor does it identify the documentary indicators that establish authenticity. It is also silent on the evidentiary threshold against which AD Banks’s determination is to be evaluated. For instance, where an exporter fails to realise export proceeds within the prescribed period of 15 months (or 18 months in case of rupee dominated exports) an AD Bank may grant an extension only if it is satisfied with the justification provided. The Notification does not clarify what constitutes acceptable justification.

A similar evaluative role arises where export receivables are proposed to be set off against import payables or other cross-border obligations. In such cases, the AD Bank must be satisfied that the underlying commercial transaction is valid before permitting the adjustment. Likewise, where receipts or payments involve third parties, or where the invoicing and settlement chain departs from the conventional bilateral relationship between exporter and importer, the AD Bank must determine whether the arrangement is legally permissible and commercially sound, without the benefit of defined regulatory benchmarks.

The same approach extends to merchanting trade transactions. Here too, the AD Bank is required to assess the commercial structure and risk profile of the transaction before granting approval to monitor its realisation within the prescribed time. In the absence of an articulated regulatory test, the assessment of genuineness is left to the internal risk policies and compliance practices of individual banks.

As a result, despite the existence of a uniform regulatory text, there is a possibility that different AD Banks may interpret and apply the same standard differently, potentially leading to inconsistent compliance outcomes across institutions.

Operational Monitoring Role and Supervisory Responsibilities of AD Banks

AD Banks are responsible for ensuring that import and export transactions are tracked and documented via appropriate electronic platforms, such as the Import Data Processing and Monitoring System (“IDPMS”) and the Export Data Processing and Monitoring System (“EDPMS”). The Notification mandates AD Banks to maintain internal standard operating procedures and escalation mechanisms for managing foreign trade transactions in addition to these operational responsibilities. This entails keeping an eye on past-due export realisations, contacting exporters when revenues are not received within the specified time, and deciding whether to impose additional stringent transactional requirements in such situations.

The significance of these bank-level decisions is further reinforced by the lack of a clear external review process. The legal remedies are mostly limited to the banking channel itself when an exporter contests an AD Bank's determination of authenticity, its choice to reject an extension, or its categorization of a specific transaction. Since the Foreign Exchange Management Act of 1999, (“FEMA”) does not offer a specific dispute resolution mechanism for such disputes, exporters may have to approach a separate AD Bank or request re-evaluation from the same AD Bank. Consequently, even though there is a consistent regulatory framework, exporters are nevertheless subject to institution-specific compliance procedures and documentation requirements that may differ throughout institutions.

Conclusion

Although the Notification delegates extensive discretion to AD Banks, the framework simultaneously consolidates RBI’s supervisory visibility through system based reporting. AD Banks are required to route export and import transactions through monitoring platforms such as the EDMPS and the IDMPS, and to report foreign exchange flows under FEMA through mechanisms such as the Foreign Exchange Transactions Electronic Reporting System (FETERS) and related regulatory returns. These reporting systems enable the RBI to access up-to date information on cross-border activity, including invoicing currency, realisation status, extensions granted, reductions permitted, and patterns of overdue obligations. As a result, while transactional decision making is distributed across more than two hundred AD Banks, the RBI retains the capacity to observe and respond to aggregate behaviours through mandatory electronic reporting and closure protocols.

Non-compliance with FEMA or the Notification, including failures to realise or repatriate export proceeds within prescribed timelines, continues to attract the general enforcement framework under FEMA. Exporters may therefore be exposed to penalties under the Act including those contemplated under section 13^[2] of FEMA, which prescribes monetary penalties linked to the amount involved in the contravention. In practice, AD Banks function as the initial screeners and follow up agents in monitoring compliance, while the RBI has the authority to initiate enforcement where systemic or material breach become visible through the reporting mechanism.  

When read together the delegation of discretionary authority to AD Banks and the mandatory electronic reporting framework reveal that the Notification does not prescribe transaction-specific regulations, ; instead, it anchors regulatory requirements at a reasonably high degree of abstraction. By requiring electronic reporting and data aggregation, it maintains the RBI’s systemic oversight while assigning significant classification and monitoring responsibilities to AD Banks without creating a distinct institutional forum for settling disagreements between importers and exporters and their AD Banks.

This regulatory framework makes the practical interpretation of open-ended standards specifically, the requirement that AD Banks to be “satisfied as to the genuineness” of underlying transactions more significant. Therefore, how the RBI in the furture harmonises different interpretations through future directions, circulars, FAQs or enforcement actions will be crucial in determining how the system functions. If classification or timing decisions made by the AD Banks have downstream repercussions under FEMA’s penalty provisions, including section 13 of FEMA, exporters and importers operating close to the edges of established transaction structures may face increased compliance risk.

References

[1] Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026, Notification. No. FEMA 23(R)/2026 RB, Gazette of India, Ext., Pt. III, Sec. 4 (Jan. 13, 2026)

[2] Foreign Exchange Management Act, No. 42 of 1999, §13

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