Local banks asked to close credit card or bank accounts of customers who deposit to foreign retail FX brokers.

LeapRate has learned that India’s central bank the Reserve Bank of India (or ‘RBI’) has sent a circular to banks and credit card issuers throughout the country, demanding that they crack down on Indian nationals who trade forex with ‘offshore’ retail forex brokers.

According to Reuters, the RBI has instructed banks to advise customers not to undertake forex trading on foreign websites, and to monitor those who deposit money with such brokers via credit card and online money transfer mechanisms. The RBI has asked the banks to close the credit card or online bank account of a customer that is found to be in violation of the rule, by depositing money to such offshore brokers.

USDINR two year chart. Source: XE.com.

India’s Rupee has declined in value dramatically since mid-2011 as per the chart above, from INR 44 per US Dollar to about INR 68 per USD, with a lot of volatility along the way. The RBI blames the decline (at least in part) on increased speculation in the Rupee by both foreign and domestic traders. While it cannot do much about the foreign speculators (when they trade the Rupee outside the country), the RBI is taking action to make it harder for both institutional and retail traders in India to trade the currency without a real hedging need to do so.

The Indian central bank has taken other measures to curb the drop of the Rupee, such as reducing the annual limit for offshore remittances made by residents to $75,000, down from $200,000 per financial year.

For more on the global Forex industry see the LeapRate-Dow Jones Forex Industry Report.