When it comes to transferring money from India to US and vice-versa, Indian laws are quite redundant and in dire need of overhaul. The laws are extremely strict because RBI, India’s central bank and regulatory authority, likes to keep a close check on inflation and other factors that affect the country’s economy. The RBI also helps to keep a check on any illegal money transfer from India to US such as black money being parked abroad or ‘hawala’ channels being used for illegal activities.
In such a situation, how can you fulfil the monetary requirements of your family or friends living abroad and remit money from India to US? Most people who have never done any money transfer from India to US in the past but may need to do so in the future are of the opinion that they can use the services of Western Union, when the need arises. What they don’t know is that using cash to cash services such as Western Union and MoneyGram can only be used to transfer money from other countries to India and NOT to remit money from India to US.
The next thought that would occur to most people is to approach their bank, which is actually the correct approach. The banking instruments that one can use for money transfer from India to US are wire transfer (swift transfer) or foreign currency demand drafts (money orders). In fact these are the only legitimate ways to send money from India to US.
To elaborate on the first option of wire-transfers to send money from India to US, it is probably the easiest and best way to remit money from India to US. Though wire transfers are actually done by banks, it works out cheaper to go through external forex companies since they get preferential rates from banks. However, the flip side is that wire-transfers can be expensive, considering Banks in India charge anywhere from Rs. 500 to Rs. 1000 to process a wire transfer. Moreover, most foreign banks that receive the money also charge a foreign correspondent fee ranging from USD 10 to USD 40.
To add to the customer’s woes, banks have their own set of challenges when it comes to doing wire-transfers to send money from India to US. Most banks process foreign remittances and wire transfers from very few branches, and even at the limited branches where they do, customers are turned away unless they have an account with the bank. Much to the customer’s plight, the staff at most banks is not adequately trained on how to do wire-transfers and many banks don’t even have the necessary systems in place. Even basic knowledge regarding the documentation required is lacking and there is inconsistency regarding the same not just between different branches of the same bank, but also between different staff members of the same branch. Things couldn’t be worse…
The second option is to send foreign currency demand drafts, also known as foreign currency money orders or foreign currency pay orders. These are physical paper drafts, issued in a specific foreign currency in lieu of a specific beneficiary. Demand drafts work out to be much cheaper than wire-transfers because other than paying Rs. 300 to Rs. 1000 to your bank or service provider, you need not pay any fee to the foreign bank receiving the money. This helps you save considerably. However, the challenge with demand drafts is that the process takes much longer to send money from India to US. It can take longer for the recipient to actually receive the money because the demand draft needs to be physically mailed abroad and then encashing the demand draft can take a few days. The total number of days combined creates a large gap (maximum upto 10 days) in actually receiving the funds. So demand drafts work out better if there is no emergency and you need to remit money from India to US on a planned basis with sufficient notice.