Remittances and card rates

The rate a family sees on a remittance or a card statement is not the indicative rate. The receiving bank converts the dollars at its own board, which is below the indicative rate for a remittance and above it for a card purchase. The day the money is converted matters, and fees are stated separately from the rate. This page explains why the rate differs and what to ask before sending money. A street or 'hundi' rate is not published, and this site does not quote one.

The receiving bank's board sets the rate

When a remittance arrives in dollars, the receiving bank converts it to rupees at the bank's buy rate, which is below the indicative rate. The bank is buying the dollars from the sender, and it pays the sender in rupees at its buy rate. The difference between the buy rate and the indicative rate is the bank's spread, and it is paid by the receiver.

The sender may have paid a fee to the sending bank or remittance firm, and that fee is separate from the rate. The receiving bank may also charge a fee, which is separate from the rate. The rate is the bank's board, and it is set by the bank, not by the Central Bank.

The day of conversion matters

The rate is applied on the day the money is converted, not on the day it is sent. If the remittance takes a day to arrive, the rate may have moved. The indicative rate is published once per business day, and the bank's board is set at the opening of the business day. The rate on the remittance is the bank's board on the day of conversion.

The sender may be quoted a rate when sending, but the actual rate is the receiving bank's board on the day the money arrives. The difference can be small or large, depending on the market. A reader who wants to know the rate before sending should ask the receiving bank for its board, not the sender.

Fees are separate from the rate

A remittance involves fees at both ends: the sending bank or remittance firm charges a fee, and the receiving bank may charge a fee. The fees are stated separately from the rate. The rate is the bank's board, and the fees are the bank's charges for the service. The total cost of the remittance is the fees plus the spread.

The spread is the difference between the bank's buy rate and the indicative rate. The fees are the charges for sending and receiving. A reader should ask for both the rate and the fees before sending, because the total cost is the sum of the two. A low fee with a wide spread can cost more than a high fee with a narrow spread.

Card statements use the card network's rate

When a card is used abroad, the card network converts the transaction at its own rate, which is not the indicative rate. The card network's rate is usually close to the interbank rate, but it may include a foreign transaction fee. The card statement shows the rate and the fee separately.

The card network's rate is not the Central Bank's indicative rate. The indicative rate is a weighted average of the previous business day's interbank deals; the card network's rate is the rate at which the network settles the transaction. The difference can be small, but it is not zero. A reader who uses a card abroad should check the statement for the rate and the fee.

What to ask before sending money

Before sending a remittance, ask the sending bank or remittance firm: which rate will be applied, on which day, and what fees will be charged. Ask the receiving bank: what is its buy rate for dollars today, and what fee will it charge for receiving. The total cost is the spread plus the fees.

A street or 'hundi' rate is not published, and this site does not quote one. A reader who is offered a rate by an informal dealer should be aware that the rate is not published and may not be honoured. The only published rates are the Central Bank's indicative rate and the banks' boards.

Why the indicative rate is not the rate you get

The indicative rate is a reference, not a price. It is a weighted average of the previous business day's interbank deals, and it is not a rate at which a retail customer can deal. The rate a family sees on a remittance or a card statement is the bank's board or the card network's rate, which includes a spread or a fee.

The difference between the indicative rate and the rate you get is the cost of changing money. The cost is paid by the person on the other side of the bank's board: the remittance receiver pays the spread when the dollars are converted to rupees, and the card user pays the spread or fee when the transaction is converted. The indicative rate is the reference, and the bank's board is the transaction.