A matter of change

The fortunes of India’s money changers have been hit by both the post-covid fall in overseas travel and an unequal regulatory regime, reports Raghu Mohan

Since nearly $2.5 billion in physical foreign exchange is handled by India’s money changers each year, you may think it’s a lucrative business. That is not the case — the industry has lobbied the government for direct-benefit transfers to protect the salaries of those employed by firms that ply the trade. Reason: The steep post-covid fall in corporate and leisure travel alike has seen their fortunes plummet.

Money changers are a key cog in the travel and tourism market, which guesstimates suggest employs nearly 11 million people countrywide. The near-washout of two consecutive leisure travel seasons in the wake of the pandemic, dull corporate travel and fewer students enrolling for admissions abroad has meant that there is much less to live by. The downturn is seen lasting longer despite the current easing of the lockdown and quarantine restrictions.

The decision by the Ministry of Home Affairs on October 7 to begin fresh tourist visa issuances in a phased manner — starting with foreigners arriving on chartered flights from October 15 on, and extending to those arriving on other flights from November 15 — is expected to help business. The next few months will be crucial, though to expect traffic to reach pre-covid levels anytime soon will be misplaced.

Give us a break, please

The money-changing business was by no means booming before the pandemic; it has been evident for some time now that technology will reshape the business. You may be entitled to carry $3,000 in foreign currency when you travel abroad, but a good number of seasoned corporate travellers stay well within this limit. Then there are pre-paid travel cards issued by banks, and, of course, credit cards. Not many money changers issue pre-paid cards, even though there is nothing in the Reserve Bank of India’s regulations that explicitly bars them from applying for a licence for this.

“There are practical issues in going completely digital when you are abroad. What if your mobile phone does not work? Or your card is not accepted?” asks Rajneesh Bansal, managing director of Paul Merchants. “And, how many senior citizens know how to operate the card? You will be left stranded without cash. Remember, all those who go abroad are not well-heeled. This is a myth.” He has a point, but the thinking behind it is also that as long as the old way of taking physical forex still thrives, why bother?

The ability to hawk physical forex is constrained by the fact that money changers do not have enough free play when importing it. The central bank allows them to import it only for their own retail sales. Banks are subject to no such curbs, and can sell forex to money changers. This has created an uneven playing field, even though money changers’ rates are much lower.

“The norms on the import of forex have to be revisited. Banks can import and sell to money changers, but we can import only for our retail consumption. We can’t sell them to other FFMCS (full-fledged money changers). This restriction on the supply chain increases the costs for all. In the process, customers are deprived of a fair deal,” notes Bhaskar Rao, managing director of Orient Exchange.

He is taking off from the fact that in all major global markets, forex is imported by money changers and not banks — that if in the bullion market, you can have wholesale importers, or for that matter, private firms can transport thousands of crores daily in cash to load automated teller machines, then forex as a commodity is no different.

That said, and surprisingly for a trade that handles so much forex, hard numbers are difficult to come by. There is no aggregated data on how much forex money changers and banks import annually. Industry sources put the ball-park figure at $5 billion — split roughly 50:50 between money changers and banks. In the case of the former, a good amount of the non-utilised forex (of the $3,000 limit) surrendered to money changers, or what is exchanged for rupees by tourists, is peddled back into the trade. To that extent, reliance on forex imports is slashed.

One way to ease the pain is to let money changers offer more facilities. As on date, they service all needs of a personal nature under the RBI’S liberalised remittance scheme — $250,000 per individual annually. But maintenance of close relatives, gifts and donations are not allowed.

“Ï feel the RBI should promote overseas education-based remittances. It can be done by bringing down the net-worth criteria for us from ~10 crore to ~2 crore. This way, students will have access to a larger network to remit abroad, and not be dependent only on banks,” says Dev Mehta, director at FRR Forex. It’s another matter that in the case of education, many colleges abroad insist that the payment be routed through big multinational wire firms like Flywire or Western Union. (Both have tie-ups with money changers.)

The norms on import of forex have to be revisited. We can import only for our retail consumption. This increases the costs for all

BHASKAR RAO Managing Director Orient Exchange

There are practical issues in going completely digital when you are abroad. What if your mobile phone or credit card is not accepted?

RAJNEESH BANSAL Managing Director Paul Merchants

RBI should promote overseas study-based remittances. It can be done by reducing the net-worth criteria for us from ~10 crore to ~2 crore

DEV MEHTA Director FRR Forex

The new order

What is unfolding in the money changing business is almost akin to the plot that played out in the oldworld forex brokerage business. The number of firms has dwindled from 40-odd just a few years ago (and 125 in 1998) to about 15. In the forex market (spot plus forwards), only about seven per cent is put through them. Furthermore, five firms corner 75 per cent of the volumes — Kanji Pitamber, F R Ratnakar & Co, Vrijlal Thakar & Co, Govindram & Sons, and Mecklai & Mecklai, most with a vintage in excess of 60 years.

And the only reason why some 15 players have survived is the lack of clarity on regulation. In the aftermath of the Harshad Mehta fiasco of 1992, Mint Road capped banks’ exposure to money and securities’ dealerships at five per cent per firm. It was not meant to cover forex brokerages, but banks (to be on the safe side) used a similar yardstick of their own volition — not five per cent, but, say, not more than 20-25 per cent exposure to a single entity.

If these firms had played it well, there is no reason why they couldn’t have morphed into voice-brokers like Tullet Prebon, ICAP or an Exco; or the web-based Fxall, Fxconnect, Atriax, Hotspotfx and Lavafx. And, in the case of money changers, into Orient Express, moneycorp, Unimoni or a Travelex.

Money changers may believe the comparison with old-world forex brokerages is unfair; and it’s not that they are blind to technology. “The RBI does not allow E-KYC for us. But fintechs are allowed to do it. Many of them are losing money and pay no taxes, but have big valuations to show. At least, we are making profits and pay taxes,” argues Bansal.

A shakeout is on the cards. It may well be that integrated players will survive — tourism and forex. Like a Thomas Cook out here. A case in point is the Nasdaq-listed Ebix’s purchase of the Centrum Group’s forex business — Centrum Direct — for about ~1,300 crore in 2018. But then, Centrum Direct was also into overseas remittances, prepaid travel cards and traveller’s cheques.

Or, look at it in another way — in the forex brokerage business, the last deal among voice-brokers was in May 2018, when Crest Ventures acquired the 48 per cent stake held by Prebon Holdings BV in Tullett Prebon (India) for ~4.52 crore in cash. What this points to is that many in the money changing business will soon be short of change.