The Reserve Bank of India, after getting sick of telling banks to please not allow their clients to transfer money to forex trading accounts (forex trading outside India is not allowed for Indian residents) has decided to step it up a notch.
Now they’ve said that any bank that detects such a transaction – a payment or receipt from an online forex trading company – will immediately close the credit card and bring it to RBI’s notice. A bank that doesn’t do so will be penalized by RBI.
Forex trading by Indian residents is only allowable onshore. You can’t transfer money into a “margin account” outside India – even for stock trading, and this is because the rupee isn’t fully convertible. One of the reasons this circular comes now is because now is when the RBI is trying to stem the outflow of dollars from the country.
I believe such a rule is retrograde, and that we should free the rupee. However, as long as the rupee is not free, the RBI will try to create barriers that seem overly authoritative but are based on our feeling that we should “control” the environment. The freedom of the rupee, though, is not an RBI thing – it has to be passed through parliament.