Foreign airlines cannot settle rupee transactions overseas: RBI

The Reserve Bank on Tuesday asked banks to ensure that foreign airlines do not use overseas banks for settling India ticket sale transactions in rupees.

RBI has found that in certain cases where ticket payments are made using credit or debit cards, card companies allow foreign airlines to select the country and currency of their choice for rupee transactions. In such transactions, overseas banks receive the funds from card companies in their Vostro accounts and make payments in foreign currency to the airlines.

This practice is not in conformity with the provisions of the Foreign Exchange Management Act, 1999, RBI said in a statement.

“AD Category-I banks may, therefore, advise the foreign airlines to discontinue immediately the practice of using overseas banks for settlement of rupee transactions on account of sale of air tickets in India,” RBI said.

Airlines incorporated outside India are allowed to repatriate the surplus from ticket sales through their agents after local expenses and taxes applicable in the country.

Vostro account is an account that a bank holds on behalf of another bank in another country.