MC Explains: How new RBI rules for foreign donations via NEFT, RTGS will impact banks and donors

The Reserve Bank of India (RBI), on February 16, made changes in the foreign donation rules via National Electronic Funds Transfer (NEFT) and Real Time Gross Settlement (RTGS) systems.

The central bank, through a notification, introduced Foreign Contribution (Regulation) Act (FCRA) related transaction code in the NEFT and RTGS systems.

It said that foreign contributions that are received directly from foreign banks through Society for Worldwide Interbank Financial Telecommunication (SWIFT) and from Indian intermediary banks through NEFT and RTGS systems, must be received only in the FCRA account of the State Bank of India (SBI), New Delhi Main Branch (NDMB).

The Ministry of Home Affairs (MHA) had asked the RBI to share details of donors, such as name, address, country of origin, amount, currency, and purpose of remittance. These details, the central bank said, are required to be captured in donation transactions; the SBI will have to report the same to the MHA daily.

With these new foreign donation rules via NEFT and RTGS systems, what changes will the banks make? And how will this impact the transaction, the donor, and the receiver? Here’s an explainer.

The RBI said that the changes in the NEFT and RTGS systems are to be incorporated by the participating banks.

“Member banks are advised to incorporate necessary changes in their core banking/middleware solutions to capture the requisite details while forwarding the foreign donations through NEFT and RTGS systems to SBI,” the RBI said.

In other words, banks will have to modify their internal payment systems and make changes in the software that facilitates payment mechanisms.

Will this bring in additional charges for transactions under NEFT and RTGS? No.

"To set up a separate account to handle foreign donations and put a system in place for reporting them, the apex bank would have to incur compliance costs," said Swapnil Jambhale, Chief Operating Officer (COO), Safexpay, a payment fintech.

The central bank had, in 2019, waived off the processing charges levied by it for RTGS transactions.

However, there is a transactional fee of up to Rs 50 on RTGS transactions of more than Rs 2,00,000. Further, banks may decide to charge a lower rate but cannot charge more than the rates prescribed by the RBI.

Also, the RBI has not instructed banks to levy additional charges on new foreign donation transaction rules.

The RBI notification also informed the participating banks that they will have to share the details of the donors daily.

“In terms of extant requirements of the Ministry of Home Affairs (MHA), Government of India, the donor details such as name, address, country of origin, amount, currency, and purpose of remittances are required to be captured in such transactions and SBI is required to report the same to MHA on a daily basis,” RBI said.

Banks will be given a format by the central bank to record and share the above-mentioned details.

“Originating banks are required to pass on donor details in the following formats of ‘Sender to remitter information’ (field no. 7495) of NEFT and ‘RmtInf’ (remittance information) tag of RTGS,” the notification said.

According to the RBI's instructions, there would be two transaction sections— one without Legal Entity Identifier (LEI) details and one with LEI details.

LEI is a 20-digit number used to uniquely identify parties to financial transactions worldwide. It has been implemented to improve the quality and accuracy of financial data reporting systems for better risk management.

Donor details for transactions without LEI numbers

Transactions of more than Rs 50 crore are accompanied by an LEI number.

Under the new rules, transactions without an LEI number must have the following details of the donor: Donor Address (twice), Name of the Donor, Purpose of the Remittance (Alphanumeric), Country of the Donor (Alphabet) and Currency and Amount (Alphanumeric).

Donor details for transactions with LEI numbers

For transactions with LEI numbers, the following details are to be recorded: SL/20-digit sender LEI, BL/20-digit beneficiary LEI, Name of the Donor, Purpose of the Remittance (Alphanumeric), Country of the Donor (Alphabet) and Currency and Amount (Alphanumeric).

Jambhale echoed the same and said that no additional charges are likely to be levied, as this is not something that is being done for customers. However, Jambhale added, there may be an added service charge at a later stage for those making payments or donations.