On 30 April 2026 the Reserve Bank of India notified the Foreign Exchange Management (Authorised Persons) Regulations, 2026, gazetted as FEMA 401/2026-RB. The notification rewires three things at once: it sunsets the Full-Fledged Money Changer category, expands what AD Category-II entities can do, and replaces the franchisee distribution model with a Forex Correspondent Scheme. Read together, this is the most significant structural change to India's authorised-persons framework since FEMA itself came into force in June 2000.
The shift matters because India's non-bank forex industry has spent two decades inside a fragmented licence regime: FFMCs for money changing, AD Category-II for a thin slice of current-account transactions, and AD Category-I (banks) for everything else with any real volume. The new framework consolidates that pyramid. AD-II is now the strategic licence. FFMC is winding down. And the distribution layer that historically held back tier-2 and tier-3 city reach has been redesigned outright.
What changed, at a glance
| What | Before FEMA 401/2026-RB | After FEMA 401/2026-RB |
|---|---|---|
| FFMC licences | Issued to non-bank money changers as the standard on-ramp into the forex business. | No new licences. Existing FFMCs continue until expiry. Category is being phased out entirely. |
| AD Category-II scope | Limited window of current-account transactions. No foreign trade. No maintenance remittances. | All non-trade current-account transactions under FEMA. Foreign trade up to ₹25 lakh per transaction. Maintenance remittances permitted. |
| Maintenance remittances | AD Category-I (banks) only. | AD Category-I and AD Category-II. |
| Foreign trade by non-banks | Effectively a banks-only domain. | AD-II can facilitate trade up to ₹25 lakh per transaction. |
| Distribution model | Franchisee model. Each franchisee needed its own AP licence to operate locally. | Forex Correspondent Scheme. An AD-II principal appoints Forex Correspondents across the country. No individual correspondent licence required. |
| PACB framework | Sole route for non-bank cross-border e-commerce and online merchant flows. | Continues for cross-border merchant flows. Coexistence with AD-II not fully spelt out in the notification. |
Source: Reserve Bank of India, Foreign Exchange Management (Authorised Persons) Regulations, 2026. Notification FEMA 401/2026-RB, gazetted 30 April 2026.
FFMC is over
The Full-Fledged Money Changer licence has been the standard non-bank entry point into Indian forex since the FERA era and was carried over into FEMA in 1999. An FFMC could buy and sell foreign exchange for private and business travel and convert legal tender notes and travellers' cheques. It could not handle trade, remittances, or any account-based transactions of consequence. For two decades it was the place small-town forex desks, currency-exchange shops at airports, and travel-agent counters sat. By number, FFMCs were the bulk of India's non-bank forex universe.
Under the new regulations the RBI will issue no new FFMC licences. Existing licences will run until their stated expiry, after which the category disappears. The implication is straightforward: the pool of non-bank entities authorised to conduct money changing will consolidate permanently. There is no longer a separate, narrower licence below AD Category-II. The on-ramp has moved up a rung.
For incumbents the question is whether to spend the run-off period applying for AD-II, partnering with an AD-II as a Forex Correspondent under the new scheme, or letting the licence lapse. For the RBI the result is fewer, deeper, better-supervised entities, which is the direction every layer of Indian financial regulation has been moving for a decade.
AD Category-II just got powerful
Until the notification, AD Category-II entities were limited to a defined set of current-account transactions. Travel, small studies abroad, certain medical remittances, and basic conversions. Anything serious sat with AD Category-I, which means banks. The new regulations move three meaningful capabilities to AD-II.
First, AD-II can now facilitate all non-trade current-account transactions under FEMA. The full menu of permissible items in Schedule III of the Current Account Transaction Rules is open. That includes overseas education payments, medical expenses, employment expenses, emigration consultancy, gifts within the LRS envelope, and the wide range of professional and consultancy fees that used to require routing through a bank.
Second, AD-II can facilitate foreign trade transactions up to ₹25 lakh per transaction. This is the meaningful one. Trade was a banks-only domain in practice. Small importers and exporters had to live with bank turnaround times, bank pricing, and bank service preferences for ticket sizes that did not move the needle on a corporate banking P&L. A ₹25 lakh per-transaction cap is large enough to cover a substantial fraction of MSME trade activity. The exporter of garments in Tiruppur, the importer of components in Pune, the small jewellery house in Jaipur: these are AD-II customers now, not bank-discretion accounts.
Third, maintenance remittances move to AD-II. Funds sent abroad for the upkeep of family members, dependants, and property maintenance abroad were the exclusive preserve of AD Category-I. India is the largest single recipient of inward remittances in the world, and the outward leg, while smaller, runs into tens of billions of dollars annually across maintenance, education, and small investments. Bringing it inside AD-II opens that flow to competitive pricing and service.
Forex Correspondents: the distribution rewrite
For all the expansion of AD-II powers, the most strategically significant change in the notification might be the Forex Correspondent Scheme. The earlier franchisee model required each partner location to hold its own authorised-person licence. That made building a nationwide forex distribution network slow, expensive, and disproportionate to the unit economics of a single counter in a tier-3 city.
The new scheme borrows the banking-correspondent template that took rural banking and direct-benefit transfer payouts to scale after 2010. An AD-II entity appoints Forex Correspondents. The correspondents operate under the AD-II's licence umbrella, conducting permitted forex transactions on the principal's behalf. The principal is liable for KYC, AML, and compliance at every counter, and is responsible for training and supervision. The correspondent themselves does not need a separate licence.
Two practical consequences follow. First, capital expenditure to enter a market drops by an order of magnitude. A serious AD-II can build a 500-touchpoint network across India without 500 licence applications. Second, the geography of permissible forex shifts. Every district headquarters, every tier-2 and tier-3 city, every transit hub becomes addressable. The implicit subsidy of the existing bank branch network in handling small forex transactions ends, because there is now a viable non-bank alternative.
Where the PACB framework fits
The Payment Aggregator Cross-Border framework, introduced by RBI in 2023 and operationalised through 2024, was the primary route for non-bank players moving cross-border e-commerce and online merchant flows. It sits in a different lineage from authorised persons. PACBs are regulated as payment system operators under the Payment and Settlement Systems Act, 2007. They are built for digital, online, merchant-acquiring use cases. They are not built for cash, cards, drafts, branch counters, or any of the legacy money-changing rails.
The PACB regime continues. The notification does not amend or sunset it. What is left unclear from the regulations as written is how AD-II and PACB authorisations coexist when a single entity operates across both digital cross-border merchant flows and physical forex services. Most likely the two regimes will continue in parallel, with the RBI clarifying overlap through subsequent circulars or operating guidelines. For a fintech building cross-border infrastructure for Indian SMBs, the practical answer is that AD-II is the broader, more durable licence, and PACB is the specialist add-on for online merchant acquiring.
The market the rewrite is aimed at
The structural changes are not happening in a vacuum. India's forex market is one of the largest in Asia by every relevant measure, and the non-bank slice of it is large enough that the regulator's attention is overdue.
On the inward side, India was the world's largest recipient of remittances in 2024, taking in roughly $125 billion by the World Bank's Migration and Development Brief 41 (November 2024). The corridor has grown every year of the last five and shows no sign of plateauing. The bulk arrives through banks and a handful of large fintech remittance partners; tier-2 and tier-3 distribution remains underserved.
On the trade side, India's MSMEs account for nearly 40% of merchandise exports per the Ministry of MSME's most recent annual report. Total MSME-related cross-border trade flow, when both legs are counted, runs in the vicinity of $260 billion annually. Most of that is intermediated through banks today, often at pricing and service levels calibrated to corporate clients ten times the size.
On reserves, India's foreign exchange reserves sat near record highs entering 2026, comfortably above $670 billion per the RBI's Weekly Statistical Supplement. USDINR has traded in the 84 to 86 range through the first half of the year, with the RBI's intervention pattern indicating a clear preference for managed volatility over level-defence. The underlying current-account picture is steady; the capital-account picture is more flow-sensitive, which is exactly the kind of environment where a deeper non-bank distribution layer adds resilience rather than fragility.
Daily over-the-counter foreign exchange turnover in India has crossed $100 billion in the most recent BIS Triennial Central Bank Survey, with the rupee now firmly in the top tier of emerging-market currencies by liquidity. The non-bank share of that turnover, while still small, is the segment with the most room to grow under FEMA 401.
Implications for non-bank players
For any serious non-bank entrant building for the long term in Indian forex, three implications follow directly from the notification.
One. AD Category-II is the strategic licence. The breadth of permitted activity, the distribution leverage of the Forex Correspondent Scheme, and the regulatory durability of the framework all point one way. If you are still operating on an FFMC, the migration path is the priority strategic question of the next twelve months.
Two. Distribution is a buildable moat now in a way it was not before. The Forex Correspondent Scheme rewards the few players willing to invest in physical reach. The economics of a 50-correspondent network are achievable for a well-capitalised AD-II; the economics of 500 are achievable for the few that move first.
Three. The pricing wedge in maintenance remittances and small trade transactions has just opened. AD-II entities competing in these segments can price below the corporate-banking benchmark for ticket sizes the banks were never optimised to serve. The customer benefit is real and the unit economics, at scale, are intact.
Sources
- Reserve Bank of India, Foreign Exchange Management (Authorised Persons) Regulations, 2026. Notification FEMA 401/2026-RB, 30 April 2026.
- Reserve Bank of India, Weekly Statistical Supplement (April 2026 release) for foreign exchange reserve figures.
- World Bank, Migration and Development Brief 41, November 2024, for India inward remittance figures.
- Ministry of MSME, Government of India, Annual Report 2024-25, for MSME share of merchandise exports.
- Bank for International Settlements, Triennial Central Bank Survey 2022, for India foreign exchange turnover.
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