The Reserve Bank of India (RBI) has issued a circular to all Authorised Dealer Category-I banks and Authorised banks regarding amendments to the directions on compounding contraventions under the Foreign Exchange Management Act (FEMA), 1999. This circular, dated April 24, 2025, refers to previous directions and Master Directions issued on October 1, 2024, and April 22, 2025, respectively. The key change introduced is the insertion of a new clause in the Master Directions concerning the capping of the maximum compounding amount.
The newly added clause, Para 5.4.II.vi, states that subject to the satisfaction of the compounding authority, the maximum compounding amount imposed for contravention of each regulation or rule within a compounding application can be capped at ₹2,00,000. This capping applies specifically to contraventions listed under row 5 of the computation matrix mentioned in the Master Directions. The RBI clarifies that this decision was made after a review of the existing directions. Authorised Dealer Category-I banks and Authorised banks are instructed to bring these updated guidelines to the attention of their constituents. The RBI confirms that the Master Directions on compounding contraventions under FEMA, 1999, will be updated to reflect this amendment.
This amendment provides a potential relief or limit on the financial penalty for certain FEMA contraventions, contingent upon the compounding authority’s assessment of the nature of the contravention, the specific circumstances involved, and broader public interest considerations. The RBI’s directive aims to ensure that Authorised Dealers are aware of this revised capping mechanism when dealing with cases of FEMA contraventions and processing compounding applications for their clients. The circular is issued under the authority granted by sections 10(4) and 11(1) of FEMA, 1999.
RESERVE BANK OF INDIA
www.rbi.org.in
RBI/FED/2025-26/32
A.P. (DIR Series) Circular. No 04/2025-26 Dated: April 24, 2025
To,
All Authorised Dealer Category-I banks and Authorised banks
Madam / Sir,
Amendments to Directions – Compounding of Contraventions under FEMA, 1999
Attention of Authorised Dealer (AD) Category – I banks is invited to
i. Directions for compounding of contraventions under FEMA, 1999, issued vide A.P. (DIR Series) Circular No. 17/2024-25 dated October 1, 2024 and
ii. Master Directions on compounding of contraventions under FEMA, 1999, dated April 22, 2025
2. On a review, it is decided that the following clause shall be inserted as Para
5.4.II.vi in aforementioned Master Directions.
“vi. Subject to satisfaction of the compounding authority, based on the nature of contravention, exceptional circumstances/ facts involved in case, and in wider public interest, the maximum compounding amount imposed may be capped at INR 2,00,000/- for contravention of each regulation/ rule (applied in a compounding application) with respect to contraventions under row 5 of the above computation matrix.”
3. The aforesaid Master Directions shall accordingly be updated to reflect the above change.
4. All AD Category-I banks and Authorised banks may bring the guidelines contained in this circular to the notice of their constituents.
5. The Directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and/or without prejudice to permissions/approval, if any, required under any other law.
Yours faithfully,
(Dr. Aditya Gaiha)
Chief General Manager in Charge
