Foreign Banks Curb Credit Cards for Indians: Smart Ways to Save on Travel

Several offshore banks in financial hubs like Zurich, Singapore, London and parts of West Asia are reportedly becoming hesitant to issue or renew international credit cards for wealthy Indian residents. According to media reports, the reluctance is not due to customers' creditworthiness but rather India's foreign exchange regulations.

The issue stems from the Liberalised Remittance Scheme (LRS) under which resident Indians can remit up to $250,000 annually for permissible purposes. However, a key condition applies to funds sent overseas. Under the 180-day deployment requirement, money remitted under LRS must be spent or invested within the stipulated period. Unused amounts must be brought back to India. Simply parking the money in a foreign savings or checking account, or as a fixed deposit, does not count as deployment.

Cards linked to overseas accounts are particularly affected when they come up for renewal. Some foreign banks are reportedly wary of continuing these cards because Indian residents have limited flexibility to maintain large idle balances abroad.

For Indian travellers, understanding the costs associated with international transactions is crucial. A purchase worth Rs 1 lakh abroad may appear straightforward at the shop counter, but the final amount on an Indian bank statement can differ significantly. International card transactions often involve a forex markup, cross-currency conversion charges, and ATM withdrawal fees. One particularly sneaky charge is Dynamic Currency Conversion (DCC).

When given a choice abroad, travellers should check the cost before selecting Indian rupees (INR). In many cases, paying in the local currency is more economical. However, the exact cost depends on the card and its fee structure, so one should not assume all cards work the same way. The right option depends on spending amount, destination, and the card's specific charges.

Here are some practical ways to manage travel costs:

1. Prepaid Forex Cards: Good for Planned Trips

For travellers who know roughly how much they will spend, a prepaid forex card can simplify budgeting. Money is loaded before leaving India, and depending on the product, one may lock in an exchange rate at the time of loading. This provides greater certainty about the travel budget and reduces the temptation to carry large amounts of physical currency.

Deepesh Varma, Chief Business Officer - Foreign Exchange at Thomas Cook (India) Limited, said prepaid forex cards remain one of the most cost-effective options for planned international travel because they allow travellers to lock in exchange rates before departure. He stressed that travellers should look beyond the headline exchange rate. "The real savings often come from understanding the total cost of how one spends on ground, while abroad," he said, adding that checking the entire fee structure before buying a card is essential.

2. Zero-Forex Cards: Useful for Frequent Travellers

If one travels abroad regularly, a credit or debit card with a low or zero forex markup can be beneficial. But one should not stop at the words "zero forex." Reading the fine print is essential. Check for cross-currency charges, ATM fees, DCC-related charges, annual fees, and other costs. A card may be inexpensive in one area but expensive in another.

3. Mobile Payments

Tap-and-pay and mobile wallets have made overseas payments easier. However, the payment method does not automatically eliminate forex costs. If the underlying card carries a forex markup, that charge may still apply. The question is not just "Can I pay using my phone?" but "What card is behind my phone payment, and what does it charge?" Varma noted that travellers are increasingly looking for cardless payments and the convenience of managing cards and limits through mobile apps.

Ultimately, planning forex requirements based on the trip's nature and spending patterns can help Indian travellers avoid unexpected costs. Comparing cards, understanding fee structures, and being mindful of DCC can lead to significant savings.