Did you know that overseas Indians send almost $10 billion back home annually? That India is the largest recipient of remittances in the developing world?
This money is sent to near and dear ones by the non-resident Indians for meeting expenses, be it maintenance of aged parents or property, buying a house, education, marriage, hospitalisation, or an unforeseen emergency.
What are channels available to an overseas Indian to send money home? There are two options -- the banking channel or the services of money transfer firms.
Banks account for almost 90 per cent of the remittances made into India! Funds can be transferred either through a demand draft in rupees, resort to telegraphic or wire transfers, or send draft and cheques foreign currency. Further a person may send into India foreign exchange unlimited via banks.
The balance 10 per cent remittance into India is routed through money transfer firms like Western Union, Moneygram, FirstRemit, and a few Middle-East based Exchange Companies.
Though a remittance made through money transfer firms can reach a receiver in India within 15 minutes there are limitations in the sense that the Reserve Bank of India has stipulated that no single remittance should exceed Rs 1.2 lakh (or $ 2500) per transaction and in a calendar year a receiver can receive a maximum of only 12 transactions.
Let's take the banking channel first. An NRI makes out a rupee-denominated demand draft, which is payable at the branch where the receiver is maintaining an account, from an Indian bank's overseas office/correspondent bank and mail it to the branch.
For obvious reasons this mode takes some time. If the DD is payable at the same center where the receiver is holding account, funds are credited to the account on the same day of receipt but subject to clearance.
If the DD is payable at a place other than where the branch is, the beneficiary can receive it immediately on payment of prescribed charges.
Remittances can also be made through foreign currency-denominated demand drafts or cheques payable abroad.
However, the duration taken for clearance of funds is relatively long, almost a month. This would not do in an emergency. Postal delays and transit losses are the bane of funds transfer effected through demand drafts, especially if the DD is payable at a place other than where the receiver's branch is situated.
There is also the risk of loss of interest during the demand draft's transit period. A quicker method is wire transfer or telex transfer messages through an Indian bank's overseas offices or correspondent banks.
Facility of transfer by wire or telex is available at branches having Society for Worldwide Interbank Financial Telecommunication or telegraphic transfer drawing arrangements.
Money can be transferred to India by a NRI in a day's time from anywhere in the world via this mode.
A NRI can have a joint account (non-resident ordinary account) with a relative residing in India and the relative can operate this account under a power of attorney.
The NRI can also issue standing instructions to the branch where he has an NRO account to make payments like property maintenance bills at regular intervals.
Lets come to the money transfer firms. Transfer of funds via money transfer firms is fast gaining acceptance in India.
Speed, safety and wide network of agent locations, which includes post-offices, bank branches, non-banking finance companies, travel agencies, courier firms, has enabled this mode of funds transfer to gain popularity.
What happens here? An NRI fills in a 'to send form' giving details about the receiver and deposits the cash to be remitted with a branch of a money transfer firm.
The branch generates a 10 digit secret code, which the sender conveys to the receiver. The receiver in India can take the money from any of the agent locations by producing the 10-digit secret codee, an identity card and further answering three questions pertaining to the sender.
And this method takes only a few minutes - but, sometimes due to time-zone differentials a receiver may be in a position to collect the money in a day. The speed at which money is transferred comes at a cost.
If an NRI wants to send $1000 from the US to a relative in India, the former may have to cough up almost $ 20 as transaction processing charges.
The transaction processing charges depends on the volume of traffic from that area, competition from other money transfer firms and geographical location.
According to Anil Kapur, senior regional director - south Asia, Western Union Financial Services International, remittances made via money transfer firms are mainly for personal use and where the quantum remitted is not high. The maximum cash amount paid out to the receiver is Rs 50,000, with the balance amount being paid by cheque.
Recent trends, including tighter restrictions on informal transfers and lower banking fees mean that remittances through the banking system are likely to continue to rise.
COST VS NECESSITYIf both the sender and the receiver are not in a hurry then the banking channel is ideal as transaction costs are minimal. Money transfer firms offer speed, which is necessary if there is an emergency and funds are urgently required. The trade-off is between cost and necessity.
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