Confidential

MANUAL OF INSTRUCTIONS
FOREIGN EXCHANGE
VOLUME- IV

BANK OF INDIA HEAD OFFICE

UPDATED UPTO 31.01.2020

 FOREIGN EXCHANGECONTENTS
Chapter Subject Page
No. No.
1 PREPARATION OF ADVANCE PROPOSALS INVOLVING 4
FOREIGN EXCHANGE

2 LETTERS OF CREDIT (IMPORTS) 10

3 FOREIGN (INWARD) BILLS FOR COLLECTION 69
4 HANDLING OF EXPORTS IN GENERAL 79
5 EXPORT FINANCE 117
6 PRE-SHIPMENT FINANCE 121
7 POST SHIPMENT FINANCE 140
8 COLLECTION OF EXPORT BILLS 228
9 FOREIGN BILLS (CLEAN) SENT FOR COLLECTION 233
10 INWARD AND OUTWARD REMITTANCES 252
11 ADVANCES AGAINST TRUST RECEIPT 277
12 GUARANTEES AND FOREIGN EXCHANGE BUSINESS 281
13 RATES OF EXCHANGE 289
14 FORWARD EXCHANGE CONTRACTS 293
15 R-RETURNS 315
16 AUTHORITY TO TRANSACT FOREIGN EXCHANGE BUSINESS 319
INDEPENDENTLY
17 RECIPROCITY OF FOREIGN EXCHANGE BUSINESS 322
18 FOREIGN EXCHANGE DEALINGS AND EXCHANGE POSITION 323
19 FOREIGN EXCHANGE RISK MANAGEMENT 333
20 NON-RESIDENT DEPOSIT ACCOUNTS 346
21 RESIDENT FOREIGN CURRENCY ACCOUNTS (RFC) 406
22 RUPEE ACCOUNTS OF NON-RESIDENT BANKS (VOSTRO 418
ACCOUNTS)
23 EXCHANGE EARNERS FOREIGN CURRENCY (EEFC) ACCOUNTS 430

24 PRE - SHIPMENT / POST- SHIPMENT CREDIT IN FOREIGN 443

CURRENCY (PCFC)
25 FOREIGN CURRENCY LOANS (FCLS)OUT OF FCNR-B 475
DEPOSITS OF THE BANK
26 DERIVATIVES 491
27 RFC DOMESTIC 502
28 FCL TO HOLDERS OF FCNR-B DEPOSITS 505
29 FOREIGN CURRENCY LOAN DUAL CURRENCY SWING LIMIT 514

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30 EXPORT OF IT SERVICES & SOFTWARE 517
31 GOLD CARD SCHEME FOR EXPORTERS 520
32 INTERNATIONAL STANDARD BANKING PRACTICE 524

33 OVERSEAS DIRECT INVESTMENT IN JOINT VENTURE / WOS 532

34 EXTERNAL COMMERCIAL BORROWINGS (ECB) 558

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 CHAPTER - 1
PREPARATION OF ADVANCE PROPOSALS
INVOLVING FOREIGN EXCHANGE

GENERAL
1.1 Advance proposals must be submitted on the appropriate advance proposal forms.
The information under various heads of particulars in the form should be furnished as
required in the Manual on Advances.
1.2 However, the following additional information should be provided in all proposals
involving foreign exchange. Branches are required to give the aggregate figure of the foreign
exchange business of the borrower; if a borrower belongs to a business group, the total
foreign exchange business received from the group should also be given separately. The
aggregate figure of foreign exchange business would comprise transactions of (a) foreign
import letters of credit opened (letters of credit opened under the limit alone should be
included in the aggregate figure and not the limit), (b) foreign inward bills excluding bills
under letters of credit (bills under import letters of credit may be shown separately but must
not be included in the aggregate figure), (c) foreign outward bills received for (i) collection,
(ii) purchase and (iii) negotiation under letters of credit, (d) foreign inward outward
remittances and (e) foreign deferred payment guarantees & (f)other non fund business
involving foreign exchange.
1.3 The Branch Manager must fully consider the exchange risk aspect and in all proposals
involving foreign exchange, the question of forward cover must be dealt with. Suitable
remarks such as "Business under this proposal will, if necessary, be covered by forward
contracts", should be incorporated in the proposal so that the risk involved is considered in
its entirety taking in to account the customer's financial capacity and standing.
1.4 There is a general feeling that whether customers be required to book forward
exchange contract or not may be left to the choice of the customers; while this is true only
where the customers' obligations to the Bank are limited /small in relation to their worth, in
all large commitments expressed in foreign currency, it is obligatory on Branch Managers to
expressly state in the proposals whether forward exchange cover would be taken or not by
the customer and to seek Head Office / Zonal Office permission when customers wish to
leave their position uncovered. In certain circumstances when exchange rates fluctuate
frequently, the Bank may not undertake business when customers are not willing to cover
their exposure through forward contract. And this fact may be made known to them
beforehand. Sanction of Foreign Bills Purchase or Letter of Credit limit does not mean that
the Bank is obliged to continue these limits without appropriate forward exchange cover and
this needs to be brought out suitably while preparing sanction letters wherever foreign
exchange is involved.
1.5 Proper investigation into the track record of the importers and exporters is also
essential to safeguard bank‘s interest while undertaking the foreign exchange business.
Regulatory requirement for Imports/Exports should be ensured before considering the
request. Import/ Export trade is regulated by the Directorate General of Foreign Trade
(DGFT) and its Regional Office, functioning under the Ministry of Commerce and Industry,
Department of Commerce, Government of India. Policies and Procedures required to be
followed for imports/exports from India are announced by the DGFT. The Officers of the
DGFT regulate the physical import/export of commodities through Foreign Trade Policy. They
may prohibit under the Foreign Trade Policy, the import/ export of certain commodities,
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stipulate that the import/export of certain other commodities would be subject to licence,
prescribed minimum export prices or methods by which payments for exports of some
commodities will have to be received. This information will be
available from Foreign Trade Policy, hand-book of Procedures, wherein a unique identification
Code Number has been allotted for each item known as ITC (HS) Code Number and the
relevant information regarding the importability/exportability of the goods will be specified
against these numbers.
1.6 PROPOSALS FOR LETTERS OF CREDIT (IMPORTS)
The Letter of Credit mechanism is widely used to finance international trade as it safeguards
the interest of both the importer (buyer) and the overseas supplier (seller). The importer
knows that the negotiating Bank will not make the payment to the seller unless and until the
latter tenders the documents strictly in conformity with the Credit terms (terms of the LC).
The seller is assured of getting payment if he presents the documents to the negotiating
bank as per LC terms.

Letters of Credits (LCs) (also known as documentary credits) are governed by provisions of
Uniform Customs and Practice of Documentary Credits (UCPDC), set by International
Chamber of Commerce (ICC), Paris. At present UCPDC (2007 revision), Publication
(Brochure) No. 600 of ICC, briefly referred to as UCP 600, is operative from 1st July, 2007.

Other relevant Rules of International Chamber of Commerce are as under:

a) EUCP – Supplement to UCP 600 for Electronic Presentation.

b) URR 725 – Uniform Rules for Bank to Bank Reimbursements under Documentary
credits. (w e f 1/10/2008)
By opening a Letter of Credit, an issuing bank binds itself to honour documents
provided a complying presentation is made. Thus in the final analysis the opening bank is
committed to pay either to the nominated bank or the reimbursing bank The Opening
Bank is thus exposed to Credit Risks in opening Foreign LCs. It is, therefore, essential to
assess creditworthiness of the importer. The means and standing of the customer (i.e. the
opener of a letter of credit) should be assessed particularly with regard to the opener‘s
funds position i e whether he would have funds to pay the bills received under letters of
credit or whether he would require finance from the banks to retire the documents.
1.7 The status of the beneficiary of the letter of credit and whether he is an associate of
the importer (opener) should also be enquired into before opening a letter of credit. If they
are associate concerns, the usance bill drawn under the L/C may be an accommodation bill.
If the importer does not pay the bill, it may devolve on the bank and the bank may not have
the security to fall back upon. Such L/Cs may be opened only for creditworthy customers In
case the letters of credit facility is granted to a Limited Company, the Board of Directors
should pass the Resolution for availing the L/C facility from the Bank as per Specimen given
in Appendix ll. The draft will need to be adapted to individual cases by suitable amendments.
Branches should obtain a copy of the Board Resolution, certified by the Chairman of the
meeting at which it was passed and keep it on record.

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1.8 Where letters of credit are required to be opened on D/A (Documents against
Acceptance) terms for customers who have hypothecation arrangement with other bank(s),
Branches should obtain a suitable letter from the other bank(s) stating that their charge does
not extend to the goods received under D/A arrangements with the Bank.
1.9 D/A limits are in the nature of 'clean' limits and the normal precautions in this respect
should be taken and limits should be fixed having regard to the standing of the customers,
market conditions, etc.
1.10 In determining the margin required, it should be considered, in addition to the
abovementioned factors, whether imports are to be made under freely importable category
or whether the goods are included in the restrictive list requiring import licence with
conditions such as those of actual users' licences. In the event of a bill under a letter of credit
opened under an actual user’s licence remaining unpaid by the opener, the relative goods
cannot be sold without the permission of the Director General of Foreign Trade (DGFT). In
some licences, issued under export incentive schemes, clearance of goods is allowed only
against a bank guarantee, for specified export performance. In such cases, it is necessary to
consider, at the time of sanction of a proposal, on what terms the Bank would issue the
guarantee on arrival of the goods. The margin to be taken would depend inter-alia, upon (a)
whether the Bank can sell, in normal course, the imported goods covered by an unpaid bill
or whether the Bank is required to obtain the approval of the DGFT and (b) whether the
market for the goods to be imported is limited. Additional care is to be taken, like stipulating
higher margins, etc., in respect of merchandise with volatile domestic prices, like sugar,
pulses, etc., as any down-ward movement of domestic prices may lead to possible default.
1.11 It is important to furnish information regarding the tenor and usance of drafts to be
drawn under letters of credit proposed to be opened.

1.12 The nature of goods to be imported, whether capital goods or consumer goods, and
their market conditions should be taken into account since usually capital goods have limited
market because of limited demand, whereas consumer goods, generally speaking, have a
wider demand. Care should be taken that letters of credit limits intended for import of
industrial raw materials, consumer goods, etc., are not utilised for import of capital
equipments or vice versa.
1.13 Letters of credit facility for import of capital goods: When putting up a
proposal for letters of credit for import of machinery or plant or other movable property,
branches should enquire whether the customer has executed any legal mortgage or charge
in respect of his assets, present and future, fixed and movable, in favour of a third party
which may also cover assets including machinery or plant or other movable assets to be
imported under the letter of credit to be opened by the Bank. When the customer is a limited
company, Branches should' take search in the Office of the Registrar of Companies to verify
whether or not such a mortgage or charge is executed.
1.14 In case a customer on whose behalf a letter of credit is to be opened has already
created such a mortgage or charge in favour of a third party/Bank (which would normally
also cover assets acquired by the Company after the creation of the charge), it is necessary
to obtain written consent of the mortgagee to the creation of the pledge in favour of the
Bank and confirmation that the mortgagee would not have priority of charge in respect of
the machinery etc. to be imported.

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In such cases therefore, a letter should be obtained from the mortgagee to the effect that
the mortgagee does not claim or will not claim a mortgage or charge or other security
whatsoever on the said machinery and plant and/or any other kind of property to be
imported/purchased under the letter of credit opened or to be opened by the Bank
(Specimen-Appendix-III). The letter should be stamped as an Agreement and should be
obtained prior to the opening of the letter of credit. The draft of the letter will need to be
adapted to individual cases by suitable amendments.
1.15 In the case of a limited company customer, in addition to obtaining the said letter,
particulars of modifications of charge should also be filed with the Registrar of Companies
under Section 125 of the Companies Act, 1956, within the prescribed time. A reference should
be made to Head Office/Zonal Office to consider, in such cases, whether a Deed of
Modification of the earlier mortgage should also be executed and registered with the Sub
Registrar of Assurances.
Proposals for Foreign Bills Purchased (Exports)
1.16 The branches handling export transactions are required to be conversant with the
DGFT guidelines as well as Exchange Control Provisions relating to handling of Export Bills
and ensure compliance with the Foreign Exchange Regulations. The branches are also
required to be conversant with the operational guidelines set out in Manual of Instructions/
various Circulars / guidelines issued by Head Office from time to time. Branches are required
to handle export transactions in conformity with the Foreign Trade Policy in vogue and the
rules framed by the Govt. of India and the Directives issued by Reserve Bank from time to
time under FEMA, 1999. When submitting proposals for Foreign Bills Purchase limit, the
means and standing of the customer (the drawer) and his experience in export business, the
nature of goods to be exported, the status reports on the proposed drawees of bills, market
conditions and local regulations, country profile of the countries to which the goods are to
be exported as also warehousing facilities, noting and protesting arrangements on those
countries should be considered.
1.17 Status reports on the drawees on whom bills for large amounts are frequently drawn
should be obtained from foreign Branches or banks and revised at least once a year. Reports
on the prevalent market conditions in overseas centres on which bills are frequently drawn
should also be obtained.
1.18 When the drawer and drawee are identical or connected concerns, the bills are called
"House Bills". Particular care must be exercised in the purchase of House Bills, especially
where the terms of contract provide for delivery of documents against acceptance, in view
of the risks involved in such bills. Unless sanctioned proposal so authorises, House Bills should
not be purchased.
1.19 Status reports on drawer and drawee, together with volatility in market should prompt
the decision for purchase of bill.
1.20 The proposals for Foreign Bills Purchase limits should contain information about
insurance cover from Export Credit and Guarantee Corporation Limited (ECGC) and the type
of insurance cover obtained or to be obtained. Additionally, what type of guarantee cover,
if any, the branch is proposing to obtain should also be detailed.
1.21 In all review proposals pertaining to Foreign Bills Purchase limit, the experience about
realisation of bills should be mentioned and also occasions when they were transferred to
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"Past Due Foreign Bills Purchased" account and difficulty experienced in recovering the
amount.

Proposals for Advances under Export Trust Receipts

1.22 Packing credit limits against export trust receipts are granted on the basis of letter of
credit or a firm export order received from the importer/ buyer in the foreign country.

1.23 The advance is granted by the Bank to assist the exporters to buy, process, pack and
ship the goods earmarked for export. The form which Export Packing Credit may take
depends on the nature of the goods, track record of the borrower, as well as the financial
standing and credit-worthiness. The period of advance will depend on time needed for
manufacturing, processing, packing and forwarding the goods for shipment but should not
be beyond the expiry date of export letter of credit and/or the contract. Export credit is
required to be liquidated by purchase/ negotiation of export bills drawn under letter of credit
or a firm order and is generally sanctioned to exporters in the form of loans . An advance
by way of Loan leads to better administrative control as it is easier to calculate the duration
of each advance and find out whether a particular advance has become "overdue".
1.24 Under the existing Export Credit directives, Packing Credit advances are now allowed
to be granted for a maximum period of 360 days. However, it is important to note that this
is NOT to allow Packing Credit advance for the full maximum period of 360 days in each and
every case. The actual period may be even shorter than 360 days, depending upon the time
involved in manufacturing or processing of the commodity. The period for which a Packing
Credit Advance may be given, will depend upon the circumstances of the individual case,
such as the time required for procuring, manufacturing or processing (where necessary) and
shipping the relative goods in all case such advance should not exceed the operating cycle
of the customer (Branch Circular No. 96/94 dated 25.09.2002 which mentions that actual
period for concessional export credit would depend upon the operating cycle of the
borrower). If pre-shipment advances are not adjusted by submission of the export
documents within 360 days from the date of advance, the advances will cease to qualify for
concessional rate of interest to the exporter abinitio . Branches should ascertain in each
individual case the actual period for which such Packing Credit advance is genuinely required,
keeping in mind the special condition of trade and the process of manufacture relevant to
the particular commodity. For example, in the case of a pre-shipment advance to a
manufacturer-exporter, Branches should ascertain the length of cycle of production from the
point of acquisition of raw material to the point when the shipment is made and the relative
shipping documents tendered to the Branch for liquidation of the outstanding in the Packing
Credit account. Hence, it should be ensured that Packing Credit advance, being concessional
export finance, is made available to the exporters only for the period for which it is genuinely
required. Normally, for merchant exporters, the duration of each individual Packing Credit
should not exceed 90 days.

1.25 A suitable limit commensurate with the exporter's requirements and turnover should
be fixed, using methods of assessment as detailed in ‘Manual of Instructions‘ Advances,
under which these pre-shipment Packing Credit loans should be granted for servicing

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individual export contracts. Appropriate diary notes should be taken to ensure liquidation of
these loans before the stipulated dates and also to ensure that these are liquidated from the
export bill proceeds.
1.26 In proposals for advances under export trust receipts, the average period for validity
of letters of credit or the average period allowed for shipment under firm contracts should
be stated.
1.27 The following points are to be borne in mind while considering the proposal
for Export Packing Credit advances :-
i.Whether entire amount of Packing Credit in lump sum is needed to fulfil the export order,
or whether it should be released in stages
ii. Whether Packing Credit limits will be granted against letters of credit or firm export order
iii Whether suitable forward exchange contracts are essential to fix to avoid exchange risk
due to fluctuations in rate of exchange between foreign currency and rupee.
iv. Whether the end-use of funds is satisfactory, and credit used for genuine requirements.
v. Whether the exporters will be in position to fulfil the execution of export orders in time
/progress made by the exporters
vi. Whether appropriate pre-shipment cover of Export Credit and Guarantee Corporation
Limited namely Whole Turnover Packing Credit Guarantee (WTPCG) to cover the goods under
export is available to eliminate the political and commercial risks and other export hazards.
It is obligatory for the Bank to cover all Packing Credit advances (including those granted to
small scale industrial units) under this Guarantee i.e. WTPCG Policy of ECGC subject to
modification of policy of Head Office from time to time.
1.28 In all review proposals for advances under export trust receipts, comments regarding
the past experience of repayment of advances should be made particularly;
i) Whether export orders are executed in time and the funds are utilised for the
purpose for which they were granted;
ii) Whether the repayment is made by negotiations of export bills or occasionally
by refund without negotiations
In addition to the above, Branches should take into consideration instructions relevant to
preparation of proposals contained in Manual of Instructions Part III (Advances) and various
other Branch Circulars, Circular Letters and communications issued from time to time
including specific instructions from RBI, if any while preparing advance proposals pertaining
to Foreign Exchange.

1.29 Detailed RBI Instructions in this regard are contained in their Master Circular/Master
Directions on Rupee/ foreign Currency Export Credit and Customer services to Exporters.
Branches should refer to the updated Master Circular/Directions issued by RBI from time to
time and also referring to relevant AP DIR Circulars issued from time to time.

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 Chapter - 2

LETTERS OF CREDIT (IMPORTS)

2.1 Import Trade is regulated by the Directorate General of Foreign Trade (DGFT) under
Ministry of Commerce & Industry, Department of Commerce, Government of India.
Authorised Dealers, while undertaking import transactions, should ensure that the imports
into India are in conformity with the Foreign Trade Policy in force and Foreign Exchange
Management (Current Account Transactions) Rules, 2000 framed by Government of India
vide Notification No. G.S.R.381 (E) dated May 3, 2000 and the directions issued by Reserve
Bank under Foreign Exchange Management Act 1999 from time to time. Authorised
dealers should follow normal banking procedures and adhere to the provisions of Uniform
Customs and Practice for Documentary Credits (UCPDC), etc., while opening letters of
credit for import into India on behalf of their constituents. In respect of import of drawings
and designs, compliance with the provisions of Research and Development Cess Act, 1986
may be ensured. Authorised Dealers may also advise importers to ensure compliance
with the provision of Income Tax Act, wherever applicable. ADs may be governed by
normal trade practices and they may particularly note to adhere to ’Know Your Customer‘
(KYC) guidelines issued by Reserve Bank (DBOD), in all their dealings.

2.2 Obligation of Purchaser of Foreign Exchange:

i) In terms of Section 10 (6) of the Foreign Exchange Management Act, 1999 (FEMA),
any person acquiring foreign exchange is permitted to use it either for the purpose
mentioned in the declaration made by him to an Authorised Dealer under Section
10(5) of the Act or to use it for any other purpose for which acquisition of exchange
is permissible under the said Act, or Rules or Regulations framed there under;
ii) In addition to the permitted methods of payment for imports laid down in Notification
No. FEMA 14/2000-RB dated 3rd May, 2000, payment for import can also be made
by way of credit to non-resident account of the overseas exporter maintained with a
bank in India. In such cases also Authorised Dealer should ensure compliance with
the instructions contained in sub-paragraph (i) &
iii) Where foreign exchange acquired has been utilized for import of goods into India,
the Authorised Dealer should ensure that importer furnishes an evidence of import
and satisfies himself that goods equivalent to the value of remittance have been
imported.
iv) The directions contained in this paragraph are also applicable where payment of
imports into India is made through ACU mechanism;
2.3 Interest on Import Bills
(i) Authorised dealers may allow payment of interest on usance bills or overdue interest
for a period of less than three years from the date of shipment at the rates prescribed
for trade Credit from time to time
(ii) In case of pre-payment of usance import bills, remittance may be made only after
reducing the proportionate interest for the unexpired portion of the usance bills at
the rate at which interest has been claimed or LIBOR of the currency in which goods
have been invoiced, whichever is applicable. Where interest is not separately claimed
10
 or expressly indicated, remittances may be allowed after deducting the proportionate
interest for the unexpired portion of usance of the prevailing LIBOR of the currency
of invoice.
2.4 Remittances against Replacement Imports :
Where goods are short-supplied, damaged, short-landed or lost in transit and the
Exchange Control copy of the Import Licence has already been utilized to cover the
opening of a Letter of Credit against the original goods which have been lost, the
original endorsement to the extent of the value of the lost goods may be cancelled
by the Authorised Dealers and fresh remittance for replacement imports permitted
without reference to Reserve Bank, provided the insurance claim relating to the lost
goods has been settled in favour of the importer. It may be ensured that the
consignment being replaced is shipped within the validity period of the licence. AD
bank should ensure that proper remark/indicator is entered for ORM mark off/closure
of bills in IDPMS etc as per extant IDPMS guidelines.
Guarantee for Replacement Import :
In case replacement goods for defective import are being sent by the overseas
supplier before the defective goods imported earlier are reshipped out of India ADs
may issue guarantees at the request of importer client for dispatch/ return of the
defective goods, according to their commercial judgment.

2.5 Receipt of Import Bills and Documents :

i) Import Bills and documents should be received from the banker of the supplier to
the banker of the importer in India. Authorised Dealers should not, therefore, make
remittances where Import Bills are received directly by the importers from the
overseas supplier, except in the following cases:
a) Where the value of Import Bill does not exceed USD 300,000;
b) Import bills received by wholly owned Indian subsidiaries of
foreign companies from their principals.
c) Import Bills received by Status Holder Exporters as defined in
the foreign trade Policy, 100% EOU‘s/units in SEZ‘s/
Public Sector Undertakings and Limited Companies.
d) Import Bills received by all limited companies, viz., Public Limited,
deemed Public Limited and Private Limited Companies.
ii. At the request of importer clients, Authorised Dealers may receive bills directly
from the overseas supplier as above, provided the Authorised Dealer is fully satisfied
about the financial standing/ status and track record of the importer customer.
Before extending the facility, Authorised Dealer should obtain report on each
individual overseas supplier from the overseas banker or reputed credit agency.
However, such credit report on the overseas supplier need not be obtained in cases
where the invoice value does not exceed USD 3,00,000 provided the branch is

11
 satisfied about the bonafides of the transaction and track record of the importer
constituent.

2.7 MerchantingTrade:
Authorised Dealers may take necessary precautions in handling bonafide merchanting trade
transactions or intermediary trade transactions to ensure that:
a. For a trade to be classified as merchanting trade, goods acquired shall not enter the
Domestic Tariff Area.
b. Considering that in some cases, the goods acquired may require certain specific
processing/ value-addition, the state of goods so acquired may be allowed
transformation subject to the AD bank being satisfied with the documentary evidence
and bonafides of the transaction.
c. The MTT shall be undertaken for the goods that are permitted for exports / imports
under the prevailing Foreign Trade Policy (FTP) of India as on the date of shipment.
All rules, regulations and directions applicable to exports (except Export Declaration
Form) and imports (except Bill of Entry) shall be complied with for the export leg and
import leg respectively.
d. AD bank shall satisfy itself with the bonafides of the transactions. Further, KYC and
AML guidelines shall be scrupulously adhered to by the AD bank while handling such
transactions.
e. The entire merchanting trade is to be routed through the same AD bank. The AD
bank shall verify the documents like invoice, packing list, transport documents and
insurance documents (if originals are not available, Non-negotiable copies duly
authenticated by the bank handling documents may be taken) and satisfy itself about
the genuineness of the trade. The AD bank may, if satisfied, rely on online verification
of Bill of Lading/ Airway Bill on the website of International Maritime Bureau or Airline
web check facilities. However, the AD bank shall ensure that the requisite details are
made available /retrievable at the time of Inspection/Audit/investigation of the
transactions.
f. The entire MTT shall be completed within an overall period of nine months and there
shall not be any outlay of foreign exchange beyond four months. The commencement
date of merchanting trade shall be the date of shipment / export leg receipt or import
leg payment, whichever is first. The completion date shall be the date of shipment /
export leg receipt or import leg payment, whichever is the last.
g. Short-term credit either by way of suppliers' credit or buyers' credit may be extended
for MTT to the extent not backed by advance remittance for the export leg, including
the discounting of export leg LC by the AD bank, as in the case of import transactions.
However, Letter of Undertaking (LoU)/ Letter of Comfort (LoC) shall not be issued for
supplier’s/ buyer’s credit.
h. Any receipts for the export leg, prior to the payment for import leg, may be parked
either in Exchange Earners Foreign Currency (EEFC) account or in an interest-bearing
INR account till the import leg liability arises. It shall be strictly earmarked/ lien-
marked for the payment of import leg and the liability of the import leg, as soon as
it arises, shall be extinguished out of these funds without any delay. If such receipts
are kept in interest-bearing INR account, hedging thereof may be allowed by the AD
bank at the request of its customer, as per extant regulations. No fund/non-fund-
based facilities shall be extended against these balances.
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 i. In case of discounting of export leg LC where payment for import leg is still to be
made (even if partially), the proceeds shall be utilized in the manner prescribed at
point no. 2 (viii) above.
j. Payment for import leg may also be allowed to be made out of the balances in EEFC
account of the merchant trader.
k. Merchanting traders may be allowed to make advance payment for the import leg on
demand made by the overseas supplier. In case where inward remittance from the
overseas buyer is not received before the outward remittance to the overseas
supplier, AD bank may handle such transactions based on its commercial judgement.
It may, however, be ensured that any such advance payment for an import leg
beyond USD 500,000/- per transaction, shall be made against Bank Guarantee / an
unconditional, irrevocable standby Letter of Credit from an international bank of
repute. Overall prudential limits on allowing such advance payments by a customer
may be fixed by the AD bank.
l. Letter of Credit to the supplier for the import leg is permitted against confirmed export
order, keeping in view the foreign exchange outlay of four months and completion of
the MTT within nine months and subject to compliance with the instructions issued
by Department of Banking Regulation on “Guarantees and Co-acceptances”, as
amended from time to time.
m. AD bank shall ensure one-to-one matching in case of each MTT and report defaults
in any leg by the traders to the concerned Regional Office of the Reserve Bank, on
half yearly basis in the format as annexed, within 15 days from the close of each half
year, i.e. June and December;
n. Merchant traders with outstanding of 5% or more of their annual export earnings
shall be liable for caution listing.
o. The merchanting traders shall be genuine traders of goods and not mere financial
intermediaries.
p. Confirmed orders must be received by them from the overseas buyers.
q. AD banks shall satisfy themselves about the capabilities of the merchanting
trader to perform the obligations under the order.
r. The merchanting trade shall result in profit which shall be determined by
subtracting mport payments and related expenses from export proceeds
for the specific MTT.
s. Third party payments for export and import legs of the MTT are not allowed.

2.9 FORM A-1 :

Applications by persons, firms and companies for making payments exceeding USD 5000 or
its equivalent towards imports into India must be made on Form A-1. Variants of this Form
have been devised in different colours to be used for :
i. Remittance in Foreign Currency;
ii. Transfer of Rupees to Non-Resident Bank Accounts
iii. Remittance through Asian Clearing Union;
Care should be taken to ensure that duly filled-in A-1 Form in appropriate format has been
obtained.
ADs need not obtain any document, including Form A-1, except a simple letter from the
applicant containing the basic information viz., the name and the address of the applicant,
name and address of the beneficiary, amount to be remitted and the purpose of remittance,
13
as long as the exchange being purchased is for a current account transaction (and is not
included in the Schedules I and II of the Foreign Exchange Management (Current Account
Transactions) Rules, 2000 framed by Government of India vide Notification No. G.S.R.381
(E) dated May 3, 2000, as amended from time to time, the amount does not exceed USD
5000 or its equivalent and the payment is made by a cheque drawn on the applicant's bank
account or by a Demand Draft.

Authority to Open Letters of Credit

2.10 The instructions given below regarding the opening of documentary letters of credit
do not confer on Branches any additional authority to open letters of credit beyond the
authority which they already have. These instructions are intended to help Branches
already authorised to open letters of credit and to acquaint other Branches not yet
authorised with the procedure, so that if and when the latter are given authority to open
letters of credit, they know how the business is to be dealt with.

2.11 In principle, all business should be done under limits properly sanctioned. When there
is no regular sanctioned limit for opening a letter of credit on behalf of a customer, the
letter of credit may be opened on a casual basis, within the powers, if any, vested in the
Manager. It should be opened after obtaining a satisfactory status report on the customer
for whom the letter of credit is opened. Such casual letters of credit must be reported to
Controlling Authority after they are opened, in accordance with the procedure laid down in
this regard.

2.12 While opening import letters of credit even within the limits already sanctioned, it
must be ensured that the importer has made necessary financial arrangements to meet
the obligations under the letters of credit (i.e. payment of bills there under) either from his
own sources or in the case of borrowal accounts, from the available drawing limit so as to
avoid the compulsion of granting him post-import finance. Suitable undertaking in this
regard may be obtained from the importer-client.

Routing of foreign Letters of Credit through our foreign branches.

2.13 Head Office has repeatedly instructed Indian branches to route all their foreign
business including documentary Letters of Credit, through our foreign branches. All our
foreign branches are fully equipped with latest technology and are capable of rendering
efficient and professional services in handling all foreign exchange business. In view of
this, it should be an unremitting endeavour of Indian branches to advise import Letters of
Credit through our foreign branches and convince their corporate clients that advising such
Letters of Credit through our branches will not cause delay.

Letters of Credit - Their Function

2.14 Letters of credit are generally used to finance overseas commerce, but may
sometimes be used to finance local commerce also. A trader usually resorts to his banker
to obtain an advance in the form of an overdraft or a loan or discounting of bills. The trader
is known in his town and in the neighbouring areas and can arrange with the suppliers to
have his bills (covering goods) sent to his banker for collection. In overseas commerce, the
local trader may not be known to the foreign supplier and, therefore, the supplier may
require an assurance from a bank that it would meet the trader's commitment. The banker
14
 of the trader knows him well and is, therefore, prepared to open a letter of credit in favour
of the overseas supplier (exporter). The trader (importer) does not like to pay before he
receives the goods; so also the exporter may not like to part with the goods unless he is
assured of payment whereupon immediately he effects shipment. A letter of credit meets
the requirements of both the exporter and the importer.
2.15 A letter of credit is an undertaking given to the beneficiary of the letter of credit (i.e.,
the exporter) that on his submitting the shipping documents such as drafts, invoices,
insurance policy, bills of lading (describing the shipment of goods required in the letter of
credit), etc., the branch of the bank [which established (opened) the letter of credit] or its
correspondents (nominated bank or confirming bank) would pay him the amount stated
therein provided the documents are conforming to the terms of Letter of Credit. When the
exporter submits the required documents to the bank named in the letter of credit, the
bank examines the documents and satisfies itself that they are drawn according to the
requirements of the letter of credit if they are in order, the bank pays the exporter and
forwards the documents to the bank which opened the letter of credit. The bank which
opened the letter of credit presents the shipping documents to the importer and reimburses
the amount to the remitting bank.
2.16 Since there is an interval of time between the date of payment to the exporter and
the date of retirement of the documents by the importer, the bank which opened the letter
of credit is out of pocket for the said period. The bank, therefore, collects from the importer
the amount of the bill (value of shipment) together with interest from the date of debit to
NOSTRO A/c to the date of retirement.

FEMA Regulations

2.17 Authorisation in the form of Licence to deal in Foreign Exchange is granted by Reserve
Bank of India to the Bank, subject to compliance of conditions mentioned in the licence/
provisions of FEMA 1999, or by any Rule, Notification, directive, order made there under.
When opening Letter of Credit and effecting remittance of Bills negotiated there under,
Branches must scrupulously observe the relevant Foreign Exchange Regulations. Any
violation of Regulations is punishable under FEMA, 1999.
2.18 Authorised Dealers may freely open Letters of Credit and allow remittances for import
of goods unless they are included in the negative list requiring licence under the Foreign
Trade Policy in force. In such cases, licences marked “For Exchange Control purposes”,
should be called for and special conditions, if any, attached to such licences adhered to
Exchange Control copy of the Import Licence, submitted by importer, for opening of Letter
of Credit or making remittance, gainfully utilized, should be retained by Authorised Dealers
and may be preserved till its scrutiny by the Internal Auditors or Inspectors is completed.
Branches should also verify from the EXIM Policy book/ Public Notices, whether the
particular item is freely importable (i.e., not under negative list) or whether it is under the
negative list in which case it requires import licence.

2.19 Authorised dealers are permitted by the Reserve Bank of India to accept at their
discretion, guarantees/margins from third parties as security for opening letters of credit
for imports into India. It must, however, be ensured by Branches while opening the letter
of credit that the customer will be able to retire the bills under the letter of credit on his
own without approaching the Bank for credit facilities for the purpose. There is no objection
15
 to accept personal guarantee of the directors or the partners of a company or firm on
whose behalf a letter of credit is to be opened in form no. FE 1353 A and FE 1353 B.
Authorised Dealers may open Letters of Credit or make remittances where the Exchange
Control (EC) copy of the relative Import Licence has been issued in the name of a party
other than the applicant, provided the applicant produces a Letter of Authority obtained
from the Import Licence holder in his favour authorizing him, inter alia, to open Letters of
Credit or make remittances for payment towards import, under the licence (subject to the
terms and conditions, if any, stipulated in this regard, in the Foreign Trade Policy in force).

2.20 Branches may also open letters of credit or make remittances towards imports
covered by freely importable category on behalf of agents appointed by eligible importers,
after satisfying themselves by reference to the Foreign Trade Policy in force that the latter
are permitted to utilise agents for the purpose of opening letters of credit, etc., for the
concerned imports. In all such cases, responsibility for production of customs bills of entry,
where required, will rest on the letter of authority holder or agent and an undertaking to
this effect must be taken.
2.21 Shipping documents should not be delivered to a party other than the drawee of the
bill (i.e., actual importers including those holding valid Import Licence wherever necessary)
or holder of letter of authority.
2.22 Though LCs are considered as non-fund based facilities, it is absolutely essential for
the branches to appraise the proposals with the same diligence as in the case of fund-
based limits and obtain adequate cover by way of margin, security, etc., so that Bank can
fall back on such security in case the liability is devolved. Proper analysis of available
information relating to the importer, e.g. frequent devolvement of import LCs, non-
submission of evidence of import, non submission of stock statement, non-cooperation in
getting stock audited, high level of current liabilities and other disquieting features,
including maintenance of accounts with and routing of business through non-consortium
banks, should be done and suitably addressed. Hence, opening of a Letter of Credit
covering import of goods/services payment is nothing but commitment to make
remittance/payment of such import/services by the Bank. Therefore, branches should
carefully analyse the application/request for opening of Letter of Credit. Such request
should be entertained only from our customers who are known to be participating in the
trade. The branch should specifically consider the following to prevent fraudulent
transactions in imports:
i. Is the customer banking with the branch for a reasonably long time?
ii. Has the place of business of the importer been visited/inspected by the Bank?
iii. Are sales of importing firm (if already importing) regularly credited to its business
account or are there only occasional credits to the account?
iv. Are credits mostly by way of crossed cheques or cash deposits? Do non-cash deposits
represent pay orders/drafts/cheques drawn on importer's account(s) maintained with
other banks/branches?
v. Whether the physical import of goods/services for which Letter of Credit is being
opened is allowed in India as per Foreign Trade Policy? If such goods/services are

16
 allowed to be imported, whether trade policies/exchange control permit the payment
for such goods and services.
2.23 The branch should satisfy itself about the importer's line of business, financial standing
and frequency of imports to establish the genuineness of the imports.
2.24 Branches should also ensure to satisfy the following conditions:-
a. The goods will be allowed to be imported into the country and payment thereof will
be forthcoming from the buyer:
b. Letters of credit should be opened only in favour of the overseas supplier,
manufacturer or shipper of goods and not in favour of applicant himself or his
nominee.
c. Letter of Credit should be opened on the basis of the underlying sale contract. In
the absence of a Sale Contract, Purchase Order/Performa Invoice/ Indent or Offer is
acceptable. Such document should have the confirmation and acceptance of, both
overseas supplier and the importer.
d. While entertaining proposals, for opening Letter of Credits for large value imports, it
is advisable in the larger interest of the Bank and also of our importer-customers to
call for Status Reports on the prospective overseas suppliers from their bankers. The
report should specifically comment on whether the seller firm is ordinarily engaged in
trade (purchase/sale) of goods to be exported to India and whether the seller is good
for ordinary business engagements. However, sanctioning authorities may consider
waiver of obtaining Status Reports on the overseas suppliers in the following cases at
the specific request of the openers:
i. FLCs opened on behalf of Public Sector Undertakings/ Govt. Departments;
ii. FLCs opened with 100% cash margin;
iii. FLCs established against Commitment Letters from Term Lending Institutions,
provided the institution has not stipulated any condition requiring the Bank to call
for such report.
iv. FLCs opened on behalf of importers having a good track record;

e. In respect of Transferable LCs, transfer is restricted to specified second

beneficiaries within the country of first beneficiary or another country which conforms
to prescribed manner of payment.
f. Whenever Revolving LCs are to be opened in exceptional cases, they may be
opened with adequate safeguards, conditions, particularly with reference to
aggregate drawings under such LCs and shipment dates, etc.

Method of Payment of Import

2.25 Payments for import are to be made in a currency appropriate to the country of
shipment of the goods according to the current exchange control regulations. After
determining the country of shipment, method of settling payments would be as under:
I. A payment in foreign exchange by an authorised dealer, whether by way of remittance
from India or by way of reimbursement to his branch or correspondent outside India (Other
17
than Nepal and Bhutan) against payment for import into India, or against any other payment,
shall be as mentioned below:

Group Manner of payment

(1) Member countries a) Payment for all eligible current transactions by

of Asian Clearing Union crediting to the Asian Clearing Union (ACU)
(except Nepal) Dollar/ACU Euro A/c. in India of a Bank of the
Namely, Bangladesh, member country in which the other party of the
Myanmar, Pakistan and transaction is resident or by debit to the ACU
Sri Lanka. Dollar/ACU Euro A/c. of an authorised Dealer with
the correspondent bank in the other member
country; and
b) Trade transactions with Myanmar are allowed to be
settled in any freely convertible currency in addition
to the ACU mechanism.

c) Payment in any permitted currency in other cases.

Nepal and Bhutan –

Payment may be in Rupees

Islamic Republic of Iran

(a) Payment for import of eligible goods and services, in

any freely convertible currency and / or in accordance with
the directions issued by the Reserve Bank to the
authorized dealers from time to time.

(b) Payment in any freely convertible currency and / or in

accordance with the directions issued by the Reserve Bank
to the authorized dealers from time to time in all other
cases.

2) all countries other a) Payment in rupees from the account of a

than those mentioned bank situated in any country other than a
in (1) member country of the Asian Clearing
Union
b) Payment in any freely convertible
currency..

II. In respect of import into India,

a. Where the goods are shipped from a member country of Asian Clearing Union (other
than Nepal) but the supplier is resident of a country other than a member country of
18
 Asian Clearing Union, payment may be made in a manner specified for countries in
Group (2).

b. In all other cases, payment shall be made in a currency appropriate to the country of
shipment of goods;

c. Any other mode of payment in accordance with the directions issued by the Reserve
Bank of India to authorized dealers from time to time.

III. Authorised Dealers have been permitted to allow payments for import of goods/
software to be made to a Third Party (a party other than the supplier) as per the guidelines
issued by the Reserve Bank.

IV. A person resident in India may make payment for import of goods In foreign
exchange through an international card held by him/ in rupees from international credit
card/ debit card through the credit/ debit card servicing bank in India against the charge
slip signed by the importer/ as prescribed by Reserve Bank from time to time.

Provided that –

(a) the transaction for which the payment is so made is in conformity with the
provisions of the Act, rules and regulations made thereunder; and

(b) the import is also in conformity with the provision of the Foreign Trade Policy in
force.

Letters of Credit for Imports by Post Parcels or Air Freight

2.26 Authorised dealers may open letters of credit irrespective of the amount involved for
import by post parcel, of goods which are normally sent in this manner (e.g. watch parts),
provided the import is not included in the negative list or the importer is in possession of
valid import licence if included in the negative list. The Cases where goods to be imported
are not of a kind normally imported by post parcel or where authorised dealer is not satisfied
about the bonafides of the transaction should be referred to the Reserve Bank of India with
full particulars.
Imports through Courier:
2.27 Import through a registered courier service is permitted as per the Notification issued
by the Department of Revenue. However, importability of such items should be regulated in
accordance with the Foreign Trade Policy.

Time Limit for settlement of Import Payments:

2.28 In terms of the extant Rules, remittances against imports should be completed not later
than six months from the date of shipment except in cases where amounts are withheld
towards guarantee of performance, etc. Authorised dealers may make remittances of
amounts so withheld, provided the earlier remittance had been made through them. No
payment of interest is permissible on such withheld amounts. Deferred payment
arrangements, including suppliers and buyers credit providing for payments beyond a period
of six months from date of shipment, up to a period of less than 3 years are treated as Trade
19
Credits for which the procedural guidelines as given under Trade Credits by RBI, for imports
into India, should be followed.

1) Authorised Dealers may permit settlement of import dues delayed due to disputes,
financial difficulties, etc. Interest in respect of such delayed payments may be permitted
as under :
a) remittances against import of books may be allowed without restriction as to time
limit, provided, interest payment, if any, is as per RBI‘s instructions in force.
b) Branches may allow payment of interest on usance bills or overdue interest for a
period of less than three years from the date of shipment at the rate prescribed for
trade credit from time to time. In case of import bills negotiated under the LC and
retired by importer after expiry of six months from the date of shipment of relative
goods, settlement of the payment would be deemed to be completed within six
months from the date of shipment if reimbursement was made to the overseas bank
within that period.

Uniform Customs and Practice for Documentary Credit (UCPDC - 600) (2007
Revision)

2.29. Uniform Customs and Practice for Documentary Credit is a set of standard rules
governing letters of credit, codified by the International Chamber of Commerce.
It is a code of practice, and is neither an international convention nor a ―law
by legislation". These rules were first codified in 1933 and subsequently revised
in 1951, 1962, 1974, 1983, 1993 and the latest in 2007 which became effective
from 1st July 2007. UCPDC-600 is a document of world-wide importance which
is universally recognised by over 165 countries. India has notified to the ICC
that she would adhere to the rules of UCPDC-600 (2007 Revision) published as
ICC Brochure No 600. Hence, since 1st July 2007 all authorised dealers in India
are required to adhere to the UCPDC-600 (2007 Revision), (The provisions,
definitions and articles of the code and observations thereon are given in
Appendix I). All documentary letters of credit issued by the bank should contain
a clause "Except as otherwise stated, this letter of credit is subject to the
Uniform Customs and Practice for Documentary Credits 600 (2007 Revision) ICC
Brochure No. 600". Officers dealing with letters of credit should thoroughly
familiarise themselves with the provisions of the Uniform Customs and Practice
for Documentary Credits

Stamp Duty on Letters of Credit

2.30 A letter of credit which is not properly stamped - either not stamped at all or
insufficiently stamped - would be rendered inadmissible as evidence. Branches
should, therefore, ensure that the letters of credit opened by them are affixed with
the requisite stamp duty under Article 37 of the Indian Stamp Act, 1899. Branches
should affix the stamps in accordance with the requirements of the Indian Stamp
Act, in force.

Types of Letters of Credit

20
 2.31 Letters of Credit are classified into various categories depending upon the
functions and nature of the credit. Some of these types are discussed in the
following paragraphs :

Irrevocable Letters of Credit

2.32 Letters of credit opened by the Bank are normally irrevocable letters of credit by
which the Bank undertakes an absolute liability on behalf of the importer
customers (i.e. openers) within the terms of the letters of credit; they constitute
the engagement of the Bank to the beneficiaries or bonafide holders of the draft(s)
and/or documents drawn there under, that the provisions for payment, acceptance
or negotiation contained in the letters of credit will be duly fulfilled, provided the
draft(s) and/or documents drawn there under comply with the terms and
conditions of the letters of credit. Such undertakings can neither be modified nor
cancelled without the agreement of all concerned parties.

Revocable Letters of Credit

2.33 Revocable credit can be amended or cancelled by the issuing bank at any time
without prior notice to beneficiary. Such letters of credit should be avoided, if
possible. It should be explained to the customer seeking to open a revocable letter
of credit that in the event of revocation, he must honour all drawings negotiated
by another bank or a Branch of the Bank prior to the receipt by that bank or Branch
of the Bank (i.e., the negotiating bank or Branch of the Bank) of the advice of
revocation. When opening revocable letters of credit, a clause reading "We have
no authority from our customer to confirm this credit or guarantee the acceptance
or payment of drafts drawn there against. The credit is, therefore, subject to
cancellation at any time without notice, the above particulars being for your
guidance only" should be added. (In terms of Article 2,3 of UCP 600, all credits are
to be irrevocable. The Para may be used to understand the difference between
Revocable and Irrevocable Credits.)

2.34 The Bank's printed forms of letters of credit / SWIFT formats are for
irrevocable letters of credit; these forms must NOT be used to open revocable
letters of credit.
Revolving Letters of Credit
2.35 A revolving letter of credit is one in which, the amount available after
negotiation of documents under letter of credit reverts to the original amount as
soon as the negotiating bank receives advices from the opening bank that the
documents have been paid by the drawee. The revolving letter of credit should
always bear the following stipulation "This letter of credit being revolving, the
amount of drawings (bills) there under would not be reinstated until receipt of our
advice of payment of the bills by the drawees."
2.36 Opening of revolving letter of credit should as far as possible be avoided for
import of goods. However revolving Letter of credit facility can be used for inland
trade. As the opener may roll over a number of transactions under the revolving
letter of credit within its validity, it may cause and create unacceptable and
incalculable liability to the Bank. With a view to avoid such eventuality and bring
21
 greater control over the opener's dealings, the opener should be asked to limit the
ambit of the revolving credit to the particular contract/ transaction. In other words,
the opener should not be extended the facility of the credit over a series of
contracts/different transactions. It would be essential to ascertain the total amount
of each contract or of a specific transaction, which the opener intends to cover
under the revolving credit. Branches should, therefore, incorporate in inland
revolving letter of credit, with the opener's consent, an additional clause, to limit
the applicability of the credit to the value of particular contract/transaction, on the
following lines : "Total drawings under this credit not to exceed Rs.......",

2.37 Although opening of revolving letters of credit against import of goods into
India is not encouraged occasionally, however, importers may wish to open letter
of credit providing for payment against drafts at any one time within a fixed limit,
which is renewed automatically on the draft being honoured. In such cases,
however, Branches should ensure that the aggregate amount of drawings to be
specified on the letter of credit is covered by the balance on the import licence and
the letter of credit is otherwise in conformity with the regulations.

Without Recourse Letter of Credit

2.38 Customer may sometimes request Branches to open letters of credit "without
recourse." There is no recourse to the beneficiary. if discrepancies are discovered
subsequent to the negotiation of the draft accompanied by shipping documents.
Particular care must, therefore, be taken to ensure that the terms of a "without
recourse" letter of credit are clear, unambiguous and leave no room for
misinterpretation.

Transferable Letter of Credit

2.39 Banks can open transferable letter of credit which at the request of first
beneficiary may be transferred to a new beneficiary in whole or in part by a
nominated bank in the credit (Refer to Article 38 of the Uniform Customs and
Practice for Documentary Credits, 2007 Revision.). Credit can be transferred only
if it is specifically stated as ―transferable in the credit‖. Further, such credit can
be transferred only once and subject only to the original terms and conditions to
the credit excepting the amount of credit, unit prices, percentage of insurance
terms, period of validity and shipment. The purpose of these credits is that the first
beneficiary, who is a middleman can earn his commission by substituting his
invoices, etc.

2.40 Branches must ensure that in case a credit is made transferable, a special
stipulation should require that documents must be presented not later than the
expiry date of the credit

2.41 Unless otherwise stipulated in the credit, the first beneficiary of a transferable
credit may request that the credit be transferred to a second beneficiary in the
22
 same country or in any other country. Branches should incorporate the following
clause in any transferable letter of credit opened by them :
"This credit is transferable in (name of the country) and not in another country."

2.42 Transfer of Letter of Credit should not result in payment of Agency commission
to the first beneficiary (unless approved by Reserve Bank of India).

2.43 Care should be exercised in considering requests to issue Transferable Credit

especially when the amount does not represent a large portion of the Applicant’s
facilities as the Bank nor the Beneficiary may be aware of the standing of the
ultimate Beneficiary. Such Credits lend themselves more easily to fraudulent
transactions. Consideration should also be given to whether the customer could
stand the loss in the event of receiving fraudulent documents or a valueless cargo.

Note : A reference may be made to a standard book on letters of credit for further
Information on irrevocable, revocable, confirmed and unconfirmed letters of credit.

Back-to-Back Letters of Credit

2.44 In cases where the Credit in favour of the Seller is not transferable, or,
although transferable, cannot meet commercial requirements by transfer in
accordance with Article 38 of UCPDC, ICC Publication No.600 and the Seller is
unable to supply the goods and needs to purchase them from, and make payment
to, another supplier, a "Back-to-Back Credit" may be issued.

2.45 Under a Back-to-Back Credit concept, the Seller, as Beneficiary of the first Credit
(Master Credit), offers it as "security" to his bank for the issuance of the second
Credit (Slave Credit). As Applicant for the Slave Credit, the Seller is responsible for
reimbursing the bank for payments made under it, regardless of whether or not he
himself is paid under the Master Credit.

2.46 When handling Back-to-Back Letters of Credit business it is essential that the Master
Letter of Credit:
(a) is irrevocable.
(b) is not restricted to another bank.
(c) allows presentation of third party documents, particularly bills of lading and
insurance policies.
(d) where the shipment period to the country of destination is short, it
allows “Late presentation within L/C validity".

2.47 The Slave Letter of Credit must be in identical terms to the Master Credit apart from
the following exceptions:-
(a) The name of the Beneficiary.
(b) The name of the Applicant.
(c) The amount should be less than that of the Master Credit and in any case must not
exceed it.
23
(d) The expiry date must be prior to that of the Master Credit by a sufficient period to allow
time for transmission and the substitution of documents necessary to enable negotiation
under the Master Letters of Credit.

2.48 The Slave Credit should call for all documentation (originals and duplicates) to be
dispatched to the Issuing Branch in one lot by courier service.

2.49 The Master Letter of Credit must be held by the Bank before a Slave Letter of Credit
can be issued and applications for Slave Letters of credit must be checked with extreme
care to ensure that the terms of the Slave Letter of Credit are identical with the Master
Letter of Credit with the exception of those items listed above. No amendments to the
Master Letter of Credit should be accepted until the consequent amendments to the
Slave Letter of Credit have been accepted by the Beneficiary of the Slave Credit.
Similarly, any amendments to the Slave Letter of credit which would make it impossible
to comply with the Master Credit should only be made with corresponding amendments
to the Master Credit.

2.50 In the event of discrepancies being identified when documents drawn under the Slave
Credits are received for negotiation it is essential that :-
(a) The Presenting Bank be promptly advised by SWIFT that the documents are
unacceptable hence rejected and that the Bank is referring to the Applicant of the Credit for
instructions.
(b) The Issuing Bank for the Master Letter of Credit be requested by SWIFT to advise
whether or not the discrepancies are acceptable to the ultimate buyer.

2.51 The Applicant of the Slave Credit should never be permitted to accept discrepancies
in the documents presented for negotiation which would create discrepancies under the
Master Letter of Credit.

2.52 In those cases where discrepancies are not acceptable to the ultimate buyer the
presenting bank under the Slave Credit must be advised immediately by SWIFT at the same
time being requested to provide disposal instructions and be instructed to return any
reimbursement claimed under Slave Letter of Credit. Where the Presenting Bank under the
Slave Letter of Credit forwards discrepant documents on a collection basis, it will be
necessary to SWIFT the bank which opened the Master Letter of Credit to ascertain whether
the discrepancies are acceptable to the ultimate buyer and the Presenting Bank should be
SWIFT advised accordingly.

2.53 The proceeds of any negotiation under the Master Letter of Credit should be utilised
to retire the drawings presented under the Slave Letter of Credit, with any surplus being
passed to the Applicant Authority should be obtained to debit and credit the customer's
account in respect of each transaction.

2.54 Each transaction is to be separately assessed as to the credit-worthiness of the

borrower, status of Beneficiary of the Slave Letter of Credit and approval for the issuance of

24
such credits must be obtained, unless an approved limit exists in the customer's name
specifically for Back to Back Letter of Credit transactions.

Red Clause Letters of Credit

2.55 A Red Clause Letter of Credit is an irrevocable Letter of Credit, incorporating a clause
which permits the Advising Bank to assist the Seller to pay for the goods he is exporting by
granting him an advance of the purchase, or some part thereof, before the goods are
dispatched by him. (Traditionally the clause is printed in red type, but this is not always the
case). The advance is usually made in the form of a clean overdraft, and the Advising Bank
will recover their advance plus interest from the proceeds of the draft ultimately negotiated
upon receipt from the Seller of the complete set of shipping documents, or if shipment is not
effected any advance will be claimed from the Issuing Bank who guarantees the lending.

2.56 Whilst opening Red Clause Letters of Credit, Exchange Control Regulations governing
advance payments for imports must be strictly observed.

2.57 It will be appreciated, however, that by their nature Red Clause Letters of Credit
expose the Issuing Bank to risks beyond those normally associated with ordinary Letters of
Credit. They should, therefore, only be issued provided the Bank is in no doubt as to the
creditworthiness of the Applicant. Further, as Red clause Letters of Credit effectively allow
the provision of clean overdrafts to the Beneficiaries, they cannot be treated as falling under
normal Letter of Credit facilities and separate limits must be established specifically covering
their issue.

2.58 Prior to issuing any Red Clause Letter of Credit, it is desirable that the standing of the
Beneficiary is established though, obviously, some discretion may need to be exercised where
the Applicant is undoubted for the commitment. Also, the Branch should satisfy itself that
the relationship between the Applicant and the Beneficiary justifies the issue of such a Credit,
ensuring that the Applicant, who remains responsible for any advance made even if goods
are not shipped, is aware of the risks which he carries.

Green Clause Credit:

2.59 It is an extended version of Red Clause Credit in the sense that it not only provides
for advance towards purchase, processing and packing, but also for warehousing and
insurance charges at port when the goods are stored pending availability of ship/ shipping
space. Generally money under this credit is advanced after the goods are put in bonded
warehouses, etc. up to the period ship or shipping space is available. In such cases,
warehouse warrants are given as security.

Bank through Whom a Letter of Credit may be Advised (Advising Bank)

2.60 When a letter of credit is to be opened in favour of a beneficiary in a country where

our Bank has a Branch, it must be advised through that Branch and restricted to that Branch

25
for negotiation, unless under exceptional circumstances, it is desired to advise it through
another bank without restricting negotiation to any particular bank.

2.61 In the absence of a Branch of our Bank, a letter of credit may be advised through
any bank with whom agency arrangements are made or near the centre where the
beneficiary carries on his business, unless the customer specifically nominates a particular
bank. Reimbursement instructions should be given clearly in the letter of credit.
2.62 The overseas suppliers sometimes ask the importer customer of the Bank (i.e., the
opener) that an irrevocable letter of credit of Bank of India should be confirmed by a bank
in their own country. In such cases, instructions should be obtained in the application form
(form no, FE 1338) from the openers of letters of credit. It should be explained to the
customer that confirmation by a correspondent bank would involve additional charges made
by that bank. Clear instructions should be obtained in the application form as to who will
bear the confirmation commission and other charges.

Application for Letters of Credit

2.63 Applications for letters of credit should be made on form no. FE 1338 stamped
appropriately and signed by the importer customer (i.e., the opener). Where the opener is a
partnership firm, it is not necessary to have the application form signed by all the partners,
provided the Branch has the Partnership Letter (form no. L 438) signed by all the partners.

2.64 It must be ensured that each application is complete and gives full information, that
all the blanks in the application form are properly filled in and that the alternatives which are
not applicable are cancelled under initials of the importer customer (opener). For example,
the alternatives "air mail/cable", duplicate/triplicate", "freight paid/ freight payable at
destination", etc., which are not applicable, should be cancelled.

2.65 Application for letter of credit should be examined to ensure that the essential
particulars mentioned therein namely description, quantity, value (including unit price,
wherever applicable) and the terms of sale, etc. conform to the valid sale contract, or any of
its variants, viz.:
(a) Orders together with the order confirmation of overseas supplier,
(b) Pro-forma invoice of overseas supplier duly countersigned by the importer,
(c) Indent/offer from overseas supplier or his authorised agent.

A note of such verification should be made on the application for letter of credit. When any
amendment is required to be made in the letter of credit already opened, with regard to
description, quantity, value, unit price, etc., corresponding amendment to the sale contract
(or any of its variants) should also be perused before agreeing to the importer's request.

Beneficiary

26
2.66 The name and address of the beneficiary must be fully stated. If they are in an unfamiliar
language, it is advisable to make sure of the correct name and address by reference to a
letter-head or other document received (by the opener) from the beneficiary.

Amount of Letter of Credit

2.67 The amount of a letter of credit should not exceed the unutilised C.I.F. value of the
licence. The amount should be converted at the ruling Bill Selling rate and endorsed on the
reverse of the Import Licence (Exchange Control Copy) against the stamp and signature of
the authorised dealer (the Branch of the Bank).

2.68 Branches which are not authorised to open letters of credit have to forward stamped
application forms for letters of credit along with the enclosures to other authorised Branches
according to arrangements. The amount should be stated as Rs.................... the equivalent
of (state the foreign currency-sterling, Euro or US Dollar or other currencies).

Forward Exchange Cover

2.69 For letters of credit with large amounts in foreign currency, openers should be
informed of the advantages of forward cover to protect their own interests and advised to
enter into a forward contract simultaneously with the establishment of the letter of credit for
protection from fluctuations in exchange. The possibility of the exchange rate going against
the importer should be brought to his attention. If the exchange rate goes against the
importer, he would have to pay more rupees (when the imports arrive) than he would have
paid if the rate of exchange had been fixed when he opened the letter of credit. This would
upset the finances of the importer and in some cases, he may not be able to meet fully his
obligations to the Bank. When opening letters of credit for large foreign currency amounts
where openers do not desire to cover foreign exchange, waiver from appropriate higher
authorities should be obtained and kept on record.

2.70 The Bank, provides forward cover facility to all authorized branches, and
communication from Branches in this connection to Treasury Branch would be dealt with
promptly. When exchange is covered forward, this must be marked in bold letters on all
appropriate papers relating to the foreign currency transaction of bills and the relevant letter
of credit, so that the forward cover cannot be overlooked at the time of retirement of bills
drawn under it.

2.71 The branches should strictly follow the RBI/FEDAI guidelines governing forward
exchange cover.

Drafts / Bills of Exchange:

2.72 A Bill of Exchange (B/E) is also referred to as ―Draft or ―Hundi. In many of the
countries, a B/E is recognized as a legal document. In India, Section 5 of the Negotiable
27
Instrument Act, 1881, defines the Bill of Exchange. A, Bill of Exchange (B/E) has three basic
parties, viz. Drawer, Drawee and Payee. The drawing of B/E is not always necessary. In
certain countries, a B/E is not a recognized legal document, while in certain other countries,
it is discouraged because it attracts heavy stamp duty (even if it is drawn on sight basis) in
certain credits like Payment Credits and Deferred Payment Credit. In international trade,
generally B/Es are drawn in sets of two, each one based on the exclusion clause making
the other part the Draft invalid. B/E can be classified into two categories depending upon
the tenor or payment ordered there under -

(1) Sight Bill of Exchange or Demand Bill of Exchange – documents drawn under this
credit will be delivered to the Payee only on payment.
(2) Usance Bill of Exchange – they are also known as Tenor or Time Bills of Exchange.
In international trade, Usance Bills of Exchange are drawn in two ways, viz. (a)
Usance D.P. Basis - Documents against Payment Basis (after a stated tenor but
delivery of document only on payment of the Draft); (b) Usance D.A. Basis –
Documents against Acceptance Basis (where the documents will be delivered to the
Drawee against his acceptance of the Draft for payment at the maturity on the due
date).

B/E should be drawn on the Issuing Bank/ Confirming Bank or on the applicant, as desired
in the Letter of Credit.

As per Indian Stamp Act, Usance B/E drawn or made payable in India attracts Stamp Duty.
For the purpose of determination of Stamp Duty, Foreign Currency bill amount must be
converted into Rupees at the exchange rates announced from time to time by Ministry of
Finance, Department of Revenue under Section 20 (2) of Indian Stamp Act, 1899.

Where usance drafts are required, there must be a specific sanction in the relative proposal
to open letters of credit with usance drafts. (In determining the period of usance of drafts,
the normal period of voyage from the port of shipment to the port of destination should be
taken into consideration, unless there are special reasons to allow a longer period of usance).

Import Licence :

2.73 For the purpose of import, items are classified as those which may be freely imported,
restricted, canalized or prohibited.
Free Importability : Import shall be free, except in cases where they are regulated by the
provision of the Foreign Trade Policy or any other law for the time being in force.
Restricted Goods: Any goods, the import of which is restricted under ITC (HS) may be
imported only in accordance with a licence/ certificate/ permission or a public notice issued
in this behalf by competent authority.
Actual user condition: Capital goods, raw materials, intermediates, components,
consumables, spares, parts, accessories, instruments and other goods, which are importable
without any restriction, may be imported by any person. However, if such imports require a

28
licence/ certificate/ permission, the actual user alone, may import such goods unless the
actual user condition is specifically dispensed with by the Licensing Authority,
State Trading (canalized): Any goods, the import of which is governed through exclusive
or special privilege, granted to State Trading Enterprise(s), may be imported by the State
Trading Enterprise(s) as specified in the ITC (HS) book, subject to the condition specified
therein. The DGFT may, however, grant a licence / certificate/ permission to any other
person to import any of these goods.
Prohibited Goods: Prohibited items of imports, mentioned in ITC (HS) book, shall not be
imported.
Import of Second hand Goods: As per present Foreign Trade Policy, all second hand
goods are restricted for imports and may be imported only in accordance with the provisions
of the Foreign Trade Policy, Handbook of Procedures, Public Notice or a Licence/ Certificate/
Permission issued in this behalf.
Authorised Dealers may freely open Letters of Credit and allow remittances for import of
goods unless they are included in the restrictive list requiring licence under the Foreign Trade
Policy in force. In such cases, letters of credit should be opened only against valid import
licences marked "For Exchange Control Purposes".

2.74 Shipment and validity dates of the letter of credit should be strictly within the validity
period i.e., within the expiry date of the licence including a "grace" period, if any, permitted
under the Foreign Trade Policy in force.
Branches should verify this aspect of "grace" period by reference to the current
Hand-Book of Import-Export Procedure.

2.75 The import licence should stand in the name of the opener or the opener should hold
a letter of authority issued by the import licence holder in his favour to import goods under
the licence. The licence should bear the embossed seal of office of issue. Such seal is also
affixed on all annexures and at all places of alterations.

2.76 The description of goods in a letter of credit must correspond to that given in the
licence. Some licences limit the quantity and/or value of goods. In such cases, it must be
ensured that the conditions as regard quantity, value, etc., are not violated. In case of doubt,
a reference should be made to the Foreign Trade Policy for the current licensing period or to
the DGFT. In the case of imports under Freely Importable category, great care must be taken
to see that the goods are correctly described. The item number and the serial number of
such goods must be given and verified from the ITC (HS) classification.

2.77.Some licences state the country of origin of goods. The country of origin of goods called
for in the letter of credit should correspond to the country of origin of goods stated in the
licence.

2.78 Import licences are normally issued for c.i.f. value of the goods to be imported. The
amount of a letter of credit should not exceed the unutilised c.i.f. value of the Licence. The
amount should be converted at the ruling Bill Selling rate and endorsed on the reverse of the
import licence (Exchange Control copy) under the stamp and signature of the Branch, with
the details of Letters of Credited opened or Forward Contract booked or remittances made
in foreign currency as also the amount of insurance and freight paid by the importer locally
29
in Rupees, wherever licences have been obtained by importers. The Authorised Dealers may
likewise endorse on the Exchange Control Copy of the Import Licence, the value of the back
to back Inland Letters of Credit opened by them on behalf of Duty Free Licence Holder
(including transferees) as required in terms of the relevant provision of the EXIM policy in
force. If insurance is to be covered by openers or if freight is payable at destination, provision
must be made for this and the amount of the import licence regarded as being
correspondingly reduced. These reductions are usually made on the basis of 1% of f.o.b.
value for insurance charges and 10% of f.o.b. value for sea freight and 20% of f.o.b. value
for Air freight. At the time of retirement of bills under letters of credit opened on (a) f.o.b.
terms, the amount of freight and insurance and (b) c.f.r terms, the amount of insurance
earmarked on the relative import licence, when the letter of credit was opened should be
utilised by endorsement to that effect. (A freight memo and/or insurance premium receipt
should be seen to ascertain the exact amount payable by importers). Import Licences are
valid till the end of respective month during which it has been issued unless it is specifically
respected to a particular date.

Description of Goods

2.79 In description of goods, clarity and brevity are essential. As far as possible,
complicated descriptions or technical details of goods to be imported should be avoided.
Many overseas banks refuse to handle letters of credit which describe goods in great detail.
It is no part of the Bank's responsibility (or that of the Bank's correspondents) to ascertain
the correctness of involved specifications of goods. A letter of credit cannot be made a means
of enforcing a contract of sale. It is primarily an instrument to evidence movement of goods
and ordinarily should include only such descriptions as would enable the seller to associate
the letter of credit with the relative order.

2.80 It should be ensured that the letters of credit opened for imports into India are
complete and precise in all respects and state clearly, description, quantity and value
(indicating the unit price, wherever applicable) of the goods to be imported and terms of
contract such as f.o.b., c.i.f., c.f.r., etc. Where there are too many details which cannot be
incorporated in the credit itself, a clause to the effect that beneficiary's invoices should show
the description, quantity, value and terms of contract as per the underlying sale contract,
order/ order confirmation/ pro forma invoice or indent/offer should be superimposed, quoting
the number and date of the contract, if available. If the importer has any doubt on the point,
he should be advised to call for an inspection or a survey report as one of the documents
under the letter of credit.

2.81 The most usual terms of shipment are included in Incoterms 2010 are:-

a) CIF (i.e., cost, insurance and freight ) (………named port of destination).

Goods imported at £ 100 per ton c.i.f. means that the price quoted to the buyer
includes cost, insurance and freight.

b) CFR (i.e., cost and freight only) (………named port of destination). The opener
of a letter of credit must produce to the Bank the necessary insurance cover made

30
 out in the Bank's name. (It must be ensured that the amount of insurance is adequate
to cover the value of shipment called for in the letter of credit and the period of the
cover is sufficiently long to cover the voyage.) Under Incoterms, both CIF and CFR
are confined to ocean movement.

c) The term CIFC includes commission in addition to the cost, insurance and
freight. It permits remittance of commission to overseas buying agents of the Indian
importer, provided the rate of commission does not exceed certain percentage of
f.o.b. value of imports as per current Exchange Control Regulations in force. The
amount remitted should be endorsed on import licence.

d) FOB (i.e. free on board) (………named port of destination). Freight and

insurance are both for the opener's account. Goods imported at £ 100 per ton f.o.b.
means that the price quoted to the buyers includes only the cost to put them on
board the ship. All freight and insurance charges must be paid by the openers. This
term is now intended to be used only for ocean transport.

e) FAS (i.e., free alongside ship) (………named port of destination).. Means that
the seller fulfils his obligation to deliver when the goods have been placed alongside
the vessel on the quay or in lighters at the named port of shipment. This means that
the buyer has to bear all cost and risk of loss or damage to the goods from that
moment.

f) CPT (Carriage paid to (………named port of destination). Seller places freight

charges to the named destination. Applicable for all modes – for ocean and air.
Includes the additional freight from the port of arrival to named destination.
Expenses from named point, including Foreign Customs clearance, if applicable, are
the responsibility of the buyer.

g) CIP (Carriage and Insurance paid to (………named port of destination). Same

as CPT with the addition that seller has to procure and pay for cargo insurance.

h) DDP (Delivered Duty Paid (………named port of destination).Seller is

responsible for all charges up to delivery at the nominated place of destination
including payment of import duty. If taxes such as VAT are also required to be paid
by the seller, then this must be incorporated by adding words to this effect. INCO
terms do not recommend that these terms should be used for those destinations
where import licences are a requirement and where the seller is unable directly or
indirectly to obtain such import licence.

MODE OFTRANSPORT AND THE APPROPRIATE INCOTERM:

Any Mode of Transport EXW Ex Works (…. Named place of Delivery)

including Multimodal

31
 FCA Free carrier (…. Named place of Delivery)

Carriage paid to (…. Named Place of

CPT
destination)

CIP Carriage and Insurance Paid to (… named

place of destination)

Delivered at Terminal (named terminal at

DAT
port or place of destination

DAP Delivered at Place (named place of

destination
Delivered Duty Paid (….Named place of
DDP
destination)

Air Transport FCA Free Carrier (….named place)

Rail Transport FCA Free Carrier (….named place)

Sea and FAS Free alongside Ship (…..named port of

Inland shipment)
Waterway
Transport

FOB Free On Board (…named port of shipment)

Cost and Freight (….named port of

CFR
destination)

Cost, Insurance and Freight (…named port of

CIF
destination)

2.82 These trade terms etc., should be used with caution especially if the beneficiary of
the letter of credit is on the American Continent because in the U.S.A., the term f.o.b. does
not necessarily mean free on board the carrying vessel, as it has come to mean by usage in
India or in the U.K. In the U.S.A., the term f.o.b. car (wagon) or f.o.b. (vessel), as the case
may be, should be used since the omission of the words after f.o.b. may lead to disputes.

Shipping Documents
2.83 Banks rely on the documents tendered under letters of credit as security, the principal
document being the document of title to goods, usually the bill of lading. The bank generally
requires "full set clean shipped on board ocean bills of lading", unless it is a practice in a
particular trade that bills of lading with certain clauses are usually accepted; In such cases,
clear instructions must be obtained from the opener (that claused bills of lading - is
acceptable) under "Special Instructions" in the letter of credit application form. The bills of
32
lading are required to be drawn to the order of the Bank, notify opener (the name and
address of the opener). It should indicate name and address of the importer in India and the
Bank's name and address and also IC No. Article 19 to 27 of UCPDC ICC – 600 apply to
Transport Documents and deal with type of Bills of Lading which will be accepted/not
acceptable, etc. It must be clearly understood that a “Marine Bill of Lading” which otherwise
is also known as ”Ocean Bill of Lading” or Bills of Lading covering carriage by sea ―is one
which is issued only when the goods are being transported from one sea port to another sea
port (i.e. port to port Voyage by Sea). On the other hand, other Bills of Ladings such as
―combined Transport Bill of Lading) or ‘Port to Port Bill of Lading‘ are those which are issued
for movement of goods from one place or port to another place or port with one leg of
transaction of sea voyage. Accordingly, UCPDC lay down different norms of acceptability to
‘Marine B/L‘and other types of B/Ls.

2.84 Goods may be despatched by air freight or post parcels. In such cases, air freight
consignment notes or the post parcel receipts should show that the relative consignment or
parcel is addressed to the Bank (full address of the letter of credit opening Branch, name of
the opener and L/C No). Air freight consignments and consignment notes or post parcels and
receipts may be addressed to the openers only if 110% or such suitable margin, as prescribed
by the Bank, has been taken.

2.85 Goods are sometimes shipped in a chartered vessel and Bills of Lading may stipulate
that the payment of freight and other terms are subject to the agreement for charter called
a "Charter Party". Ordinarily, Charter Party bills of lading are not accepted unless the letter
of credit specifically permits Charter Party bills of lading. The Bank may agree to open letters
of credit calling for Charter Party bills of lading only for first class customers for whom the
entire shipload of goods is intended. The approval of the Director General of Shipping should
be obtained by openers for chartering non-resident owned vessels for specific voyage. Special
instructions must be obtained in the letter of credit application form from openers to accept
Charter Party bills of lading and the letter of credit should accordingly contain special
instructions to accept Charter Party bills of lading.

Seaworthiness Classification
2.86 In order to protect the interest of the Bank and the customer, certificate relating to
the Classification Societies / Shipping Companies regarding Classification of the vessel should
be obtained to establish its seaworthiness. The following clause, should be incorporated in
the Bank's letter of credit:
"Shipping Company's / Shipping Agent's certificate that the vessel is registered with an
approved Classification Society as per the Institute Classification Clause and Class maintained
equivalent to Lloyds l00 A 1 and the vessel is seaworthy"

2.87 Normally, letters of credit stipulate whether bills of lading should be marked "freight
paid" or "freight payable at destination". If bills of lading marked "freight payable at
destination" are required, adequate amount should be earmarked on the relative import
licence to permit payment of freight. (In such cases, at the time of clearance of relative
goods, the Bank is required to issue a certificate in favour of the shipping company, stating
that the amount of freight has been endorsed on the relative import licence).

33
2.88 The Uniform Customs and Practice for Documentary Credits (2007 Revision) also
deals with transport document other than marine Bill of Lading (ocean bill of lading) or a Bill
of Lading covering carriage by sea, commonly known as "Multimodal Transport Document"
or Combined Transport Document. Notwithstanding the provisions of this and other relevant
articles in the Uniform Customs and Practice for Documentary Credits 2000 Revision, our
bank has taken a decision not to accept the following transport documents to prevent any
misuse or marine fraud:
i) A transport document which is produced
a) By reprographic system, or
b) By or as a result of automated or computerised system, or
c) Carbon copy even if it is marked as original and/or appears to have been authenticated.
(However, bills of lading issued in set of more than one original with one typed original
and other carbon' copies signed and marked "original" and "negotiable" are acceptable).
i. Short form or blank back transport documents.
ii. A transport document bearing reference by stamp or otherwise to costs additional to
the freight charges.
iii. A transport document bearing a date of issuance prior to that of the credit.

The Transport document

(a) must contain all the conditions of carriage on the original document,
(b) must not indicate the place of final destination as being different from the port of
discharge,
(c) must not contain the indication "intended" or similar qualification in relation to the
vessel or other means of transport or port of loading or port of discharge, (d) must
be issued by the carrier or his agent and not by any freight forwarder, (e) must not
contain a provision that goods may be carried on deck.
The above clauses have been incorporated in the irrevocable letter of credit (form FE 1640)
in use at the branches as special instructions.

2.89 However, at the specific request of the opener (importer), the special instruction No.1
may be modified in the letter of credit favouring beneficiaries in Europe or USA as follows: A
transport document which is produced
a) by repographic systems or
b) by or as a result of automated or computerised systems or
c) as a carbon copy is permitted provided it is marked as original and manually signed.
Such relaxations should be considered and granted on case-to-case basis taking into
consideration the credit rating of the opener.

Insurance Policy or Certificate

2.90 It must be ensured that proper instructions are received from the importer customer
(opener of letter of credit) regarding insurance of goods. If a letter of credit does not call for
an insurance policy or certificate, openers should be asked to submit an insurance cover of
adequate value (usually 10% over the c.i.f. value of goods). In such cases, since insurance
is covered at destination, the relative import licence must be endorsed with the amount of
premium stated on the policy covering the shipment.

34
2.91 Letters of credit must not be opened specifying general insurance terms such as "All
Marine Risks", "All Marine and War Risks", "All Risks", "All Usual Risks" or "Full Insurance".
If shipment is by sea, the appropriate phrase "Institute Cargo Clauses A, War Risks as per
Institute War Clauses (Cargo), Strikes Risks as per Institute Strikes Clauses (Cargo)" OR if
shipment is by Air, the appropriate phrase "Institute Cargo Clauses (Air), War Risks as per
Institute War Clauses (Air Cargo), Strikes Risks as per Institute Strikes Clauses (Air Cargo)"
should be indicated in the Insurance Policy or Certificate. The following points should be
particularly checked / verified while scrutinizing the Insurance Documents:
i. It must be issued only by Insurance Company or Underwriters or their Agents
ii. It must be dated
iii. The currency of insurance must be same as the currency of LC
iv. It must indicate the name of the assured.
v. It must indicate brief details of the goods insured.
vi. It should be in a negotiable form.
vii. Unless otherwise specified, it should be issued for an amount of 110% of CIF/CIP
value of the goods. If such value is not determinable from the documents on their
face, it should be for the minimum amount of negotiation requested for or the amount
of invoice value whichever is greater.
viii. If it is issued in more than one original, all original must be submitted (no. of
negotiable copies issued are indicated in the insurance policy/ certificate).
ix. It should indicate the port of shipment and destination or point or insurance
coverage and point of termination of insurance coverage.
x. Claims should be made payable in India (in case of Import L/C) or at the specific
place specified in the LC.

Certificate of Origin

2.92 L/C need not provide for an appropriate Certificate of Origin as an essential
component of the documentation required for negotiation, unless of course, insisted upon
by the applicant, and also unless the import licence states the country of origin of goods.
Certificate of Origin is the document in case of import to determine the origin of goods. It
must be issued and signed by an independent authority such as a Chamber of Commerce,
etc., indicating the origin of goods. The Country of Origin certified must be as per LC
requirement and consistent with the declaration given by the beneficiary in his invoice/ other
documents. It must indicate the description of goods and should be consistent with other
documents and must indicate the name of consigner/seller and name of consignee/ buyer.
Details appearing in the documents must be consistent with the details appearing in the
other documents.

Place of Shipment and Destination

2.93 If despatch of goods is to be effected by sea, both the place of shipment and the
place of destination named in a letter of credit must be ports. If the exact port of shipment
is not known, it is sufficient to specify, for example, shipment from "any German port", but
it would be incorrect to call for shipment from an inland town.

35
2.94 For some shipments from countries in Central Europe with no coastline, it is necessary
for the goods to be shipped from a port in another country. For instance, goods coming from
Czechoslovakia are often shipped from Genoa in Italy. In such cases, it is necessary to be
satisfied that the validity date of the import licence allows sufficient time for the bill of lading
to be dated within time. If there is any doubt about this, the letter of credit should stipulate
a cross border certificate issued by an Indian Consulate or a Chamber of Commerce or a
British Consulate showing that the consignment left the country of origin within the validity
of the import licence.

Part Shipment

2.95 Under article 31 of Uniform Customs and Practice for Documentary Credits (2007
Revision), I.C.C. Publication No. 600, part shipment is allowed unless otherwise specifically
stated in the letter of credit. Specific instructions should be obtained from openers according
to their requirements. No room for doubt must be left as to how far the beneficiary is required
to arrange shipment. Instructions such as "c.i.f. Bombay in transit to Veraval" should not be
accepted, as it is not clear whether the beneficiary is to arrange freight up to Veraval. The
instructions should be "c.i.f. Bombay" or "c.i.f. Veraval". In stipulating the port of destination,
it should be made sure whether foreign vessels touch the port of destination.

Shipment and Validity Dates

2.96 The last date of shipment (given in the letter of credit as the last date of the bill of
lading) must be within the validity period of the relative import licence. In order to allow the
documents to be completed and tendered for negotiation and payment, the last date of
negotiation of documents under a letter of credit is normally 21 days beyond the last date of
shipment. The expiry date of a letter of credit must not be later than 21days beyond the final
date of shipment as stated in the relative import licence.

2.97 Sometimes, the place of shipment and the place of negotiation are not the same. For
instance, goods coming from Switzerland may be shipped from Genoa in Italy, while
negotiation of documents may be at Zurich. In such a case, the terms of the letter of credit
should allow sufficient time for the documents to be presented and the letter of credit should
be made valid for negotiation in the correct centre.

2.98 Instructions are often received from openers to extend the validity of letters of credit
after their expiry dates. Expired letters of credit, can be revived or reinstated only if (a) full
commission charges as on a fresh letter of credit are levied from the date of expiry of original
L/C till the extended validity date, (b) the relative Import licence (s) if any is valid for the
extended period of shipment.

Other Documents

2.99 A Letter of Credit may call for variety of other documents, viz. Health Certificate, Pre-
shipment Inspection Certificate, Packing List, Shipping Company‘s Certificate, Beneficiary‘s
Declaration/ Undertakings, etc., Certificate of Analysis, Phyto Sanitary Certificate, etc.

36
Whenever such documents are called for under L/C, following aspects must be checked in
the documents :
i. It is issued by the person or authority specified in the credit. If no specific mention
is made regarding issuer of the document, bank can accept document issued by any
person, provided their data content is not inconsistent with any other stipulated
document.
ii. It is dated and signed by the person/ authority concerned.
iii. Whether they relate to the goods/ shipment covered by the documents or not.
iv. Whether the document certifies the facts required as per L/C or not
v. Whether the document contains wordings or date content as specified in the L/C or
not.
vi. Whether the details mentioned in such certificates/ documents are consistent with
other documents or not.

Full Text Letters of Credit-Operative Instruments

2.100 Sometimes, at the request of the opener, letters of credit have to be established by /
swift without sending the mail confirmation and the swift advice itself is regarded as
the operative credit instrument. In such cases, Branches should send full text /swift
which will be deemed to be the operative credit instrument. The message should clearly
indicate at the end of the message "This is operative instrument and no airmail
confirmation will follow".

Amendments
2.101 Almost any clause of a letter of credit is capable of amendment, but all amendments
to irrevocable letters of credit require the beneficiary's consent.

2.102 It must be ensured that the proposed amendment is as per the terms of the sanction
and in consonance with the import licence, wherever required For example, an
amendment which seeks to increase the amount of a letter of credit beyond the letter
of credit limit sanctioned to the opener or beyond the c.i.f. value of the relative import
licence cannot obviously be accepted by the Bank. The amount of a letter of credit
cannot be reduced by an amendment to that effect without the consent of the
beneficiary; it is open to the beneficiary to reject such an amendment and utilise the
full amount of the letter of credit.

Note on Reimbursement Instructions

2.103 International Chamber of Commerce has published Uniform Rules for Bank to Bank
Reimbursement under Documentary Credits ICC Brochure No, 725, in amplification of
Article 13 of Uniform Customs and Practice for Documentary Credits (2007 Revision)
ICC Brochure No. 600. These rules have come into effect from 1st October 2008 and
authorised dealers in India have subscribed to these Rules. Please see Appendix VI.

2.104 All letters of credit established by the bank which stipulate bank-to-bank
reimbursement should contain a clause reading as under:
37
"This Documentary Credit is subject to Uniform Rules for Bank-to-Bank Reimbursements
under Documentary Credits - ICC Publication No. 725."

Needless to state, this clause is in addition to the usual clause stating that the Documentary
Credit is subject to Uniform Customs and Practice for Documentary Credits (2007Revision)
ICC Brochure No. 600.

Similarly, the relative Reimbursement Authorisation should state that the reimbursement
authorisation is subject to the Uniform Rules for Bank-to-Bank Reimbursement under
Documentary Credits -ICC Publication No. 725.

General
2.105 Head Office, have time and again, issued instructions to branches to route the L/C
business through our foreign branches and ensure that the forex income on account of
trade finance accrues to the Bank. Advising of L/C and amendments/ adding
confirmation to L/C, reimbursement under L/C and related transactions in cross border
trade related area should be routed through our foreign branches. Head Office has
issued instructions to all branches that for reimbursements of all import Letters of
credits branches should nominate our New York Branch (USD denominated L/Cs),
London Branch (GBP denominated L/Cs), Paris branch (Euro denominated L/Cs) and
Singapore and Hong Kong Branches - as the reimbursing bank.

Reimbursement Instructions
2.106 A) The following instructions should be given at the foot of the Letters of Credit:
For Letters of Credit calling for drafts drawn AT SIGHT:
i) In case of restricted Letters of Credit --
"In reimbursement, please debit the amount of the ____ (the Position Maintaining
Branch) with ____ (the foreign Branch /correspondent);
ii) In case of unrestricted Letters of Credit •
"In reimbursement, the negotiating bank should draw on A/c No ____ (of the Position
maintaining Branch) with ____ (the foreign branch/correspondent).
Reimbursement Authorisation vide MT 740 SWIFT message should be sent to
the Reimbursing Bank.

B) For Letters of Credit calling for USANCE DRAFTS:

Reimbursement instructions for usance draft should specifically state that reimbursement is
to be obtained AT MATURITY, for example, "The negotiating bank should draw in
reimbursement AT MATURITY on ______ (branch/correspondents)
Under the existing exchange control regulations, banks are permitted to open usance Letters
of Credit for the purpose of normal trade credit which overseas suppliers may extend to
importers in India for a period not exceeding six months from the date of shipment.

Charges
2.107 The scale of charges for opening Letters of Credit, Amendments, Deferred Payment
Guarantees and for other facilities, as circulated by Head Office, from time to time, should
38
be strictly adhered to. Instructions issued by the Bank in the matter of service charges on
forex related business should be complied with meticulously. Branches should keep a record
of concessions, wherever approved and the same is made available to auditors/ inspectors,
etc.
Exchange Control
2.108 Authorisation in the form of licence to deal in foreign exchange is granted by RBI to
the bank subject to compliance of conditions mentioned in the licence/provisions of FEMA
1999 or by any Rule, Notification, Directive or order made there under. When opening letters
of credit and effecting remittance of bills negotiated there under, Branches must scrupulously
observe the relevant exchange control regulations. Any violation of regulations is punishable
under FEMA, 1999.

2.109 Payment for imports against bills drawn under letters of credit and bills received from
abroad on collection basis must be made only by debit to the importer's account or by means
of a crossed cheque drawn on another bank. Payment against bills should not be accepted
in cash.

2.110 The basic rule relating to remittances against import is that they should be completed
not later than six months from the date of shipment except where amounts are withheld
towards guarantee of performance, etc. No Interest will be allowed to be remitted on
withheld amount. Deferred payment arrangement including payments beyond a period of
six months from date of Import are treated as External Commercial Borrowings (ECBs) for
which RBI laid down procedure to be followed.

Advance Remittances for Imports

2.111 Advance Remittance against imports is permitted without any ceiling subject to the
conditions indicated below:
1. Documentary evidence indicating cost of goods and request of overseas seller for
advance payment should be submitted by the importer.
2. The Exchange Control copy of valid Import Licence for import of goods if goods to be
imported are included in the Negative List of imports of the Foreign trade Policy,
should be submitted for endorsement.
3. The Remittance is made direct to the supplier.
4. For import of capital goods, certified copy of the contract or any other evidence
regarding terms of payment should be submitted by importer.
5. In the case of import of books, a list of books to be imported should be obtained by
the Authorised Dealer. This list should be attached to relevant form A-1 while
submitting it with the relevant Return.
6. Bill of Entry/postal wrapper in case of import by post parcel, evidencing import of
goods should be obtained and kept on record.
7. If the amount of advance remittance exceeds USD 200,000 (Two hundred thousand)
or its equivalent, an unconditional, irrevocable Standby Letter of Credit or a
Guarantee from an international Bank of repute, situated outside India or a guarantee
of an Authorised Dealer in India, if such a guarantee is issued against the counter-
guarantee of an international Bank, of repute, situated outside India, is obtained.
39
8. All payments towards advance remittance for imports shall be subject to the specified
conditions and AD banks are required to create Outward Remittance Message (ORM)
for all such outward remittances in IDPMS & follow other extant IDPMS guidelines

9. In cases where the importer (other than a Public Sector Company or a Department/
undertaking of the Govt. of India/ State Governments) is unable to obtain a Bank
guarantee from overseas suppliers and the Authorised Dealer is satisfied about the
track record and bonafides of the importer, the requirement of the Bank guarantee/
Standby Letter of Credit may not be insisted upon for advance remittances up to USD
5,000,000/- (US dollar five million) subject to terms & conditions. In our Bank, the
delegates have been vested with powers as per Circular Letter No.2009-10/69
dt10.07.2009.The authority approving the advance remittance will have to consider
the following aspects before waiving of Bank Guarantee/Standby letter of credit
(i) Past track record of the importer, prompt submission of bill of entries, import being
done on regular basis etc.
(ii) Amount of remittance should have a relation to total annual imports of the co.
(iii) Credit rating should be ‘A‘ or above in case the remittance is made on behalf of the
borrower account.
(iv) Importer should not be on the defaulters list of RBI or any other agency.
(v) Obtention of status report on the overseas supplier where advance remittance is
equivalent to Rs 50 lacs or above.

9. A Public Sector Company or a Department / Undertaking of the Central/ State Govt.

which is not in a position to obtain a guarantee from an international Bank of repute
against an advance payment, is required to obtain a specific waiver for the Bank
guarantee from the Ministry of Finance, Govt. of India, before making advance
remittance, exceeding USD 100,000/- as per current guidelines.
10. Physical import of goods into India is made within 6 months (3 years in case of capital
goods) from the date of remittance and the importer gives an undertaking to furnish
documentary evidence of import within 15 days from the close of the relevant period.

11. In the event of non-imports of goods, Authorised Dealers should ensure that the amount
of advance remittance is repatriated to India or is utilized for any other purposes for
which release of exchange is permissible under the Act, Rules or Regulations made
thereunder.

12. The application-cum-proposal Form for waiver of Bank Guarantee/ Standby Letter of
Credit against advance remittance upto USD 5 mn. and the specimen of Undertaking-
cum Power of Attorney for Advance Remittance, which should be duly stamped before
getting executed by the customer are provided by HO Circular letter No. FBD/2002-
2003/74 dated 21st October 2002.

Advance Remittance for the import of Services:

Branches may allow advance remittance for import of services without any ceiling subject to
the following conditions:

40
(a) If the amount of advance remittance exceeds USD 500,000 (five hundred thousand)
or its equivalent, a Guarantee from an international Bank of repute, situated outside
India or a guarantee of an Authorised Dealer in India, if such a guarantee is issued
against the counter-guarantee of an international Bank, of repute, situated outside
India, is obtained.
(b) Branches should also follow –up to ensure that the beneficiary of the advance
remittance fulfils his obligation under the contract or agreement with the remitter in
India, failing which , the amount should be repatriated to India.

2.112 Branch should record the details relating to advance remittances in a separate register
styled as "Advance Remittances for Imports" and should also introduce system of
raising Diary Card for each advance remittance to ensure timely submission of
evidence of imports by the importer.
2.113 Branches should ensure generation of ORMs and marking off in the IDPMS etc., as
per extant IDPMS guidelines.

2.114 Evidence of Imports :

2.115 In case of all imports, irrespective of the value of foreign exchange remitted / paid for
import into India, it is obligatory on the part of the AD Category– I bank through
which the relative remittance was made, to ensure that the importer submits:- within
three months from the date of remittance evidence to show that the goods for which
the payment was made have actually been imported into India. The Bank‘s internal
Inspectors/ Auditors must carry out 100% check of the evidence and the Bank has to
submit to RBI half yearly confirmation certifying obtaining of :
a. The importer shall submit BoE number, port code and date for marking evidence of
import under IDPMS
b. Customs Assessment Certificate or Postal Appraisal Form, as declared by the importer
to the Customs Authorities, where import has been made by post, or courier Bill of
Entry as declared by the courier companies to custom authorities in cases where
goods have been imported through curier.as evidence that the goods for which the
payment was made have actually been imported into India.
c. For goods imported and stored in Free Trade Warehousing Zone (FTWZ) or SEZ Unit
warehouses or Customs bonded warehouses, etc., the Exchange Control Copy of the
Ex-Bond Bill of Entry or Bill of Entry issued by Customs Authorities by any other similar
nomenclature the importer shall submit applicable BoE number, port code and date
for marking evidence of import under IDPMS.
d. Where imports are made in non-physical form, i.e. software or data through internet/
datacom channels and drawings and designs through e-mail/ fax, a certificate from a
Chartered Accountant that the software / data/ drawing/ design has been received
by the importer, is to be obtained.

Note: Authorised Dealers should advise importers to keep Customs Authorities informed of
the imports made by them under this clause.

di. In respect of imports on D/A basis, Authorised Dealers should insist on

production of evidence of import at the time of effecting remittance of import bill.
However, if importers fail to produce documentary evidence due to genuine reasons
41
 such as non arrival of consignment, delay in delivery/ customs clearance of
consignment, etc., Authorised Dealers may, if satisfied with the genuineness of
request, allow reasonable time, not exceeding three months to the importer to submit
the evidence of import. Authorised Dealers should acknowledge receipt of evidence
of import, eg. Exchange Control copy of the Bills of Entry, Postal Appraisal Form or
Customs Assessment Certificate, etc., from imports by issuing acknowledgement slips
containing all relevant particulars relating to the import transactions.
dii. Branches are required to create Outward Remittance Message(ORM) for all
such outward remittances irrespective of value and shall perform the subsequent
activity viz document submission, outward remittance data, matching with ORM,
closing of transactions etc. as per IDPMS guidelines
i. Internal Inspectors or auditors, (including external Auditors appointed by Dealers)
should carryout verification of the documents evidencing import, e.g. BOE in IDPMS,
Exchange Control copies of or Postal Appraisal Forms or Customs Assessment
Certificates, etc.

Detailed Operational Procedures for IDPMS

The operational guidelines are summarised as below:-
(i)AD banks are required to create Outward Remittance Message (ORM) for all outward
remittance/s for import payments on behalf of their importer customer for which the prescribed
documents for evidence of import have not been submitted.

Settlement of ORM with BoE

(ii) Based on the AD code declared by the importer, the banks shall download the Bill of Entry
(BoE) issued by EDI ports from “BOE Master” in IDPMS. For non-EDI ports, AD bank of the
importer shall upload the BoE data in IDPMS as per message format “Manual BOE reporting” on
daily basis on receipt of BoE from the customer/Customs office.
iii) AD banks shall enter BoE details (BoE number, port code and date) for ORM associated with
the advance payments for import transactions as per the message format “BOE settlement”.
(iv) In case of payment after receipt of BoE, the AD bank shall generate ORM for import payments
made by its importer customer as per the message format “BOE settlement”.
(v) Multiple ORMs can be settled against single BoE and also multiple BoE can be settled against
one ORM.
(vi) On settlement of ORM with evidence of import AD Category – I bank shall in all cases issue
an acknowledgement slip to the importer containing the following particulars:
a. importer's full name and address with code number ;
b. number and date of BoE and the amount of import ; and
c. a recap advice on number and amount of BoE and ORM not settled for the importer.
(vii) The importer needs to preserve the printed ‘Importer copy’ of BoE as evidence of import
and acknowledgement slip for future use.

Preservation of Documents:
viii. Documents evidencing imports into India should be preserved by Authorised Dealers
for a period of one year from the date of its verification. However, in respect of cases
which are under investigation by investigating agencies, the documents may be
destroyed only after obtaining clearance from the Investigating Agency concerned.

42
ix. Authorised Dealers may accept either Exchange Control copy of Bill of Entry for home
consumption or a certificate from the Chief Executive Officer (CEO) or auditor of the
company that the goods for which remittance was made have actually been imported
into India provided:
a. The amount of foreign exchange remitted is less than USD 1,000,000 (USD one
million) or its equivalent;
b. The importer is a company listed on a stock exchange in India and whose net worth
is not less than Rs.100 crores as on the date of its last audited balance sheet.
Or
The importer is a public sector company or an undertaking of the Government of
India or its departments.

The above facility may also be extended to autonomous bodies, including scientific bodies/
academic institutions, such as Indian Institute of Science/ Indian Institute of Technology,
etc., whose accounts are audited by the Comptroller and Auditor General of India (CAG).
ADs may insist on a declaration from the auditor/ CEO of such institutions that their accounts
are audited by CAG.
Outward Remittance Message has to be created & BoE has to be downloaded from “BoE
Master “in IDPMS (in case of EDI ports). In case of Non-EDI ports duplicate copy/customs
certified copy have to be submitted or BoE waiver obtained from RBI
1) In respect of imports of USD 100,000 and less :

Issue of Bill of Entry under EDI (Electronic Data Inter-change) :

Consequent upon implementation of the EDI system by the Customs Authorities, a revised
procedure has been introduced for issue of Bill of Entry for Ex-Bond clearance of goods.
Under this, an Exchange Control copy of the Bill of Entry for home consumption is no longer
being issued and only two copies of ‘Ex-Bond Bill of Entry‘, are generated; one copy is
required to be submitted for clearance of goods from the warehouse and the other copy is
given to the importer. It has, therefore, been advised by RBI that where EDI system has
been implemented by customs and the importer receives only one copy of the ‘Ex-Bond Bill
of Entry ‘from the customs, Authorised Dealers may advise importer to submit the photocopy
of the ‘Ex-Bond Bill of Entry‘ for home consumption after clearance of the goods from the
warehouse/ Bond which may be duly verified by the AD and accepted as final evidence of
import.
Authorised Dealers must, therefore, keep a proper watch over the receipt of such evidence
and follow-up for providing suitable columns in their Import Bills records to register the
details such as
a. Due date for submission of evidence;
b. Date of issue of reminders to importer;
c. Date of submission of documentary evidence and acknowledgement given;
d. Date of verification of documentary evidence by bank‘s internal inspectors/auditors.

2.114 On receipt of Exchange Control copy of Bill of Entry or Postal Wrapper, branches must
scrutinise it with reference to corresponding remittance so that details such as description of
goods, quantity, value of goods, invoice number and date, details of import licence (where

43
applicable) agree with the details furnished by importer at the time of remittance. If the
details agree, necessary remarks can be made in Bills register.
i. In case an importer does not furnish any documentary evidence of import, as required
under paragraphs 2.112 above, within 3 months from the date of remittance involving foreign
exchange exceeding USD 100,000, the Authorised Dealer should rigorously follow-up for the
next 3 months, including issue of registered letters to the importer.
ii. Authorised Dealers should forward to Reserve Bank a statement on half-yearly basis as at
the end of June & December of every year in respect of which importers have defaulted in
submission of appropriate document evidencing import within 6 months from the date of
remittance. The said half-yearly statement should be submitted to the Regional Office of
Reserve Bank under whose jurisdiction the Authorised Dealer is functioning, within 15 days
fr333om the close of the half-year to which the statement relates.

Book-keeping on Opening Letters of Credit

2.115 When a letter of credit is opened, the following vouchers should be passed (Taken
care by system in Finacle)
Debit: General Ledger Account "Customers Liability for Letters of Credit opened by the Bank”
Credit: General Ledger Account "Bank's Liability for Letters of Credit opened for Customers"
with the rupee equivalent of the foreign currency amount of the letter of credit calculated at
the Bill selling rate of exchange ruling on the day the letter of credit is opened and in the
case of forward contract at the contracted selling rate. Vouchers for the liability amounts
should be passed in whole rupees without decimals; Rs. 0.50P. and above should be rounded
off to the next higher rupee and less than Rs. 0.50P. should be ignored. In addition to posting
these debit and credit vouchers in the respective General Ledger Accounts, the debit
vouchers should also be posted in the Customers' Liability Ledger (form no. FE 1333A).

2.116 Where margin is to be taken, it should be recovered at the time of opening the letter
of credit. The following vouchers should be passed:
Debit: The Customer
Credit: Sundry Deposits Account "Margin against Letters of Credit".
The amount of margin should be appropriate percentage of the amount of the letter of credit
concerned and should be calculated on the rupee amount as appearing in the liability
accounts. The margin may be placed in these deposits in the name of importer with Bank‘s
lien marked on it.

2.117 Entries for commission and charges should also be passed at this time, calculated on
the amount of Letter of Credit and converting the same into rupee amount by applying TT
selling rate.

2.118 Diary notes 15 days ahead of the expiry dates of letters of credit should be taken so
that liability vouchers may be reversed in respect of unutilised amounts of letters of credit.
Also refer to paragraph no. 2.131.

Drafts and Documents Drawn under Letters of Credit

44
2.119 On receipt of a foreign currency import bill from the negotiating bank, branches should
immediately enter the bill in the "Import Bills Receivable under Letters of Credit" Register
(form no.FE 1640) recording the date of receipt of documents therein. Branches are required
to keep this Register up to date so that at any point of time an information on transit bills
awaiting payment can be immediately extracted.

Examination of Documents under Letter of Credit.

2.120 All documents negotiated under letters of credit and received from Branches and
correspondent banks must be examined as to whether they conform strictly to the terms of
the relative letters of credit and should be promptly acknowledged. They must be stored in
fireproof safes. All the documents must be examined with reasonable care to ascertain that
they appear on their face to be in accordance with the terms and conditions of the letter of
credit. Any claims for faulty negotiation should be made on the negotiating bank without
delay by telecommunication/SWIFT or by other expeditious means; there must be no delay
in examining the documents after they are received. Article 14 of the Uniform Customs and
Practice for Documentary Credits (2007Revision) provides, ―Standard for examination of the
documents‖ & article 16 deals with discrepant documents inter alia, that if, upon receipt of
the documents, the issuing bank considers that they appear on their face not to be in
accordance with the terms and conditions of the credit, it must determine, on the basis of
the documents alone, whether to take up such documents, or to refuse them and also
whether to claim that payment, acceptance or negotiation was not effected in accordance
with the terms and conditions of the letter of credit. If such claim is to be made, notice to
that effect stating the reasons thereof, must be given without delay by
telecommunication/SWIFT or by other expeditious means immediately but within a
maximum of five banking days following the date of receipt of documents from
correspondent banks and such notice must state the discrepancies for which documents are
being refused and must also state that the documents are rejected and are being held at the
disposal of such bank/waiver of the applicant or are being returned.

2.121 If the issuing bank fails to act in accordance with this procedure, it shall be precluded
from claiming that the documents are not in accordance with the terms and conditions of
the Letter of Credit.

2.122 Sometimes, the branch may like to refer the discrepancies to the opener to find out
whether the discrepancies are acceptable to the opener. If the opener wishes to accept the
documents with discrepancies, he should say so explicitly in writing without any conditions
and /or reservations immediately. Before referring to the opener, the branch should on the
basis of documents alone follow the procedure given in paragraph 2.120 and reject the
documents. Needless to add bank is not obliged to accept discrepant documents.

2.123 If the negotiating bank draws the attention of the issuing bank to any discrepancies
in the documents or advises the issuing bank that it has paid, incurred a deferred payment
undertaking, accepted or negotiated under reserve or against an indemnity in respect of such
discrepancies, the issuing bank shall not be thereby relieved from any of its obligations. Such
reserves or indemnity concern only the relations between the negotiating bank and the party

45
towards whom the reserve was made, or from whom, or on whose behalf, the indemnity
was obtained, and hence reference must be made to the applicant about discrepancies.

2.124 If the negotiating bank states that it holds a guarantee or has paid under reserve in
respect of specified discrepancies, the opener should be asked if the documents are
acceptable. After his consent in writing to accept the documents or to reject them is obtained,
the negotiating bank should be informed as to whether or not the guarantee can be released
or the reserve lifted. PROMPTNESS IS ESSENTIAL IN THIS MATTER AS NEGOTIATING BANKS
WILL NOT CONSIDER CLAIMS/REJECTION NOT MADE WITHIN prescribed period of 5
banking days.

It may happen that the applicant on whose behalf the LC was opened, may not accept the
document and refuse to pay any cost and other expenses as the documents presented under
LC were not confirming to the LC terms. There could also be instances of openers of the
L/Cs refusing to honour their commitment under LC under some pretext or other stating that
the goods shipped are not as per specifications of purchase order. In a few cases, the
openers of the LCs may approach court, seeking injunctions restraining the Bank from
effecting payment under L/Cs opened by our branches.

Looking to the increasing incidents of above nature, Law Department, Head Office has
examined the matter from a legal angle so as to protect the interest of the Bank and prevent
avoidable costs and litigation. Law Department, Head Office has drafted an omnibus
indemnity letter to be obtained from the openers of the L/C to cover L/C limits as well as
single L/C transaction. A draft of the required indemnity letter is given by way of Annexure
to this Chapter. Branches are advised to obtain Omnibus Indemnities from their borrowers
where either Import or Inland L/C limits have been sanctioned. In case the L/Cs are opened
on casual basis, the omnibus indemnity should be obtained for each such L/C opened.

Presentation of Drafts (Bills under Letters of Credit) to Openers

2.125 A sight bill should be presented to the drawee (opener) for payment promptly and in
any case, latest by the following day after receipt of the documents at the branch.

2.126 Similarly, usance drafts should be presented on receipt and the drawees acceptance
obtained. The due dates should then be entered in the Due Date Diary. Usance drafts should
be stamped by the presenting Branch with the proper stamp duty as per Stamp Act in force
before presentation and the amount of stamps recovered from openers (the drawees of the
bill).

2.127 Branches should use set of forms (form no. FE 1399) to prepare the memo of
presentation of the draft and thereafter memo of cost at the time of payment of the draft.
The set provides for carbon copies of presentation memos to be used subsequently as memo
of cost, office copy and covering schedule for relative duplicate documents. (Now generated
by the system in Finacle).

46
2.128 A clause in the Presentation Advice (form no. FE 1399) which is applicable to the bills
drawn in foreign currency reads as under:
"In the case of sight bills, if the bill is not retired on or before............ (here the actual date
must be calculated i.e. 10 days from the date of receipt of negotiated documents by the
Branch), the foreign currency liability will be converted at the Bill selling rate ruling
on............. except in those cases where forward cover has been booked in which case the
forward contract rate will be applied."
"In the case of usance bills, if the bill is not paid on the maturity date, the foreign currency
liability will be converted at the Bill selling rate ruling on the due date except in those cases
where forward cover has been booked in which case the forward contract rate will be
applied". "In case conversion of the foreign currency liability at the Forward Contract rate
results in early/ late delivery under the Forward Contract, charges for early/late delivery will
be levied."

Crystallisation of Foreign Currency Liability into Rupees upon Non-Retirement of

the sight (D/P) Bill within 10 Days from the date of receipt of documents & on
due date in case of Usance bills:
2.129 If the importer does not retire a sight (D/P) bill within 10 days from the date of receipt
of documents by the Branch, the foreign currency liability should be delinked and rupee
liability brought into the books on the 10th day. In the case of usance bills, the foreign
currency liability will be converted into rupee liability on the due date. If the 10th day in case
of sight D/P bill or due date in case of usance bill is a holiday/ Saturday/Sunday, the liability
in rupees shall crystallise on the next (following) working day.

2.130 The liability entries passed earlier should be reversed in respect of the bills where
foreign currency liability is delinked and converted into rupee liability.

Reporting of Sale of Foreign Currency

2.131 When on the 10th day in the case of sight bill or on the due date in the case of usance
bill the foreign currency liability is so converted into rupee liability, the transaction should be
reported as sale at the Bill Selling Rate ruling on the day or the contracted rate if the bill is
covered by forward contract.

2.132 Entries to be passed on the Date of Delinking of Foreign Currency Liability in respect
of Overdue Import Bills.

2.133 Drafts drawn in Foreign Currency: The following entries should be passed for bills
drawn in foreign currencies:
(i) At Branches maintaining their own foreign currency account in the
currency of the letter of credit
Debit: General Ledger Account "Bills Receivable under Letters of Credit
Credit: Nostro Account (foreign currency account) with foreign Branch/correspondent, as
the case may be, (Mirror account) – with the rupee equivalent of the draft plus
correspondent's charges calculated at the appropriate Bill Selling Rate, ruling on the 10th

47
day for the bills drawn in foreign currencies or at the contracted rate if under a forward
contract.

The debit voucher should be posted in the General Ledger Account "Bills Receivable under
Letter of Credit" and also in the Customers' Liability Ledger (form no. FE 1333 A) under the
column "Bills- Receivable under Letters of Credit".

(ii) At Branches which do not maintain their own foreign currency account in the currency
of the letter of credit:
Debit: General Ledger Account "Bills Receivable under Letters of Credit"
Credit: Nostro account (foreign currency account) of Treasury Branch with Foreign
Branch/Correspondent as the case may be (Mirror account) by crediting with the rupee
equivalent of the draft plus correspondent's charges if any calculated at the appropriate Bills
Selling Rate ruling on the 10th day for bills drawn in foreign currencies or at the contracted
rate if under a forward contract (To be effected in the Finacle system by using
prescribed menus).

The debit voucher should be posted in the General Ledger Account "Bills Receivables under
Letters of Credit" and also in the "Customers' Liability Ledger" (form no. FE 1333 A) under
the column "Bills Receivable under-Letters of Credit'. The Credit should give full particulars
of the foreign currency amount, the rate of exchange at which the calculation has been
made, the letter of credit number (under which the bill is drawn), etc. ( The finacle system
takes care of these entries after authorization)

2.134 On debiting General Ledger Account "Bills Receivable under Letters of Credit", sale of
foreign currency must be reported to the Treasury branch since sale of foreign currency is
effected on delinking of the foreign currency liability. Accordingly, the Credit Note should
also bear the remarks "Sale reported by this Credit Note" or "Sale reported by telephone
to............................on..,........................." depending upon the amount involved. (
InFinacle, entries/ reporting is taken care, once procedure relating to delinking
of liability is completed).

2.135 Drafts Drawn in Indian Rupees: In respect of drafts drawn in Indian Rupees, the
following entries should be passed:
Debit: General Ledger Account "Bills Receivable under Letters of Credit"
Credit: Vostro account maintained by Foreign Branch/Correspondent at Mumbai Overseas
Branch.
The remittances may be effected,
(a) where the account of the Foreign Branch/Correspondent is maintained at Mumbai
Overseas Branch by a Credit entry, together with the relevant form A 1 ;
(b) where the account of the Foreign Correspondent is maintained at a branch of another
bank. by a pay slip or a demand draft, depending upon whether the other bank (which
maintains the rupee account) is in the same place as the Branch effecting the
remittance or otherwise, together with the relevant form A 1.

48
Entries to be Passed on Retirement of the Drafts under Letters of Credit by the
L/C opening bank.
2.136 When a bill is retired by the opener before 10th day, the entries as detailed in
paragraph no. 2.122 should be passed at the Bill selling rate ruling on the date of
retirement of the bill. On debiting Bills Receivable under Letters of Credit account,
sale of foreign currency must be reported to Treasury Branch.

2.137 When the customer comes to retire the bill whether on or before the 10th day of
receipt of documents, a memo of cost should be prepared on the first copy of the set
of forms no. FE 1399 (the original being the Presentation Advice). The following
entries should be passed by referring to the Memo of Cost:
Debit: The Opener with
(i) Rupee equivalent of the Bill amount + Correspondent's charges
(ii) Interest
(iii) Commission
(iv) Postages
Credit: General Ledger Account "Bills Receivable under Letters of Credit" for the amount
debited earlier
Credit: Profit & Loss Account "Interest (foreign)" for amount of interest charges.
Credit: Profit & Loss Account "Commission (foreign)".
Credit: Profit & Loss Account "Postages (foreign)" for amount of postal charges.

2.138 The debit to the opener should be made at the rate of exchange as under: a) When
the bill is retired before 10th day of receipt of bill, at the Bill selling rate ruling on the
date of retirement: b) When the bill is retired on the 10th day of receipt of bill, at the
Bill Selling Rate ruling on the 10th day i.e. the date of crystallisation of foreign currency
liability into rupee liability.

2.139 Where the exchange was covered forward, the debit to the customer should be at
the CONTRACTED RATE in both the above cases.

2.140 It should be borne in mind that the amount in rupees debited to Bills Receivable under
Letters of Credit account (whether before the 10th day or on the 10th day of the receipt
of the bill) and credited (on retirement of the bill) MUST BE IDENTICAL.

2.141 At the time of retirement of a bill, the relative import licence should be endorsed for
the rupee equivalent of the foreign currency amount utilised under the letter of credit.
The amount of freight and/ or insurance, if payable at destination should also be
endorsed on the licence.

2.142 Where the bill is retired by the opener before 10th day of its receipt, the liability entries
should be reversed as follows to the extent of the draft retired:
Debit: General Ledger Account "Bank's Liability for Letters of Credit opened for Customers"
Credit: General Ledger Account "Customers' Liability for Letters of Credit opened by the
Bank".

49
This reversal should be made at the rate of exchange at which the original entries in the
liability accounts were passed. If a letter of credit expires partly or wholly unused, the liability
entries for the balance or for the full amount, as the case may be, should be reversed fifteen
days after the date of expiry; in order to allow time for the arrival of drafts, if any, negotiated
in the foreign centre before the expiry date. It is necessary to maintain a diary of expiry
dates, if a negotiation does not exhaust the full amount of a letter of credit but very nearly
does so and it is obvious that there can be no further Negotiations, then the whole amount
on liability account may be reversed. An example of this would he negotiation for, say £
997.50 against a letter of credit for £ 1,100/-.

2.143 Acceptance Liability in respect of Bills Drawn under Bank's Usance Letters
of Credit: In case of usance bills drawn on the openers, negotiated by foreign
Branches/correspondents under Bank's letters of credit, the following entries should
be passed -
(a) at the time of acceptance of the bill by the drawee (opener)-
(i) Debit: General Ledger Account "Bank's Liability for Letters of Credit opened for
Customers"
Credit: General Ledger Account "Customer‘s Liability for Letters of Credit opened by the
Bank" and
(ii) Debit: General Ledger Account "Customers' Liability for Acceptance under Letters of
Credit opened by the Bank"
Credit: General Ledger Account "Bank's Liability for Customers' Acceptance under Letters of
Credit opened for them".
(b) at the time of retirement/delinking (as the case may be) on the due date-
Debit: General Ledger Account "Bank's Liability for Customers' Acceptance under Letters of
Credit opened for them".
Credit: General Ledger Account "Customers Liability for Acceptance under Letters of Credit
opened by the Bank".

Commission, Handling Charges, Interest, etc.

2.144 Branches should charge commission/handling charges at the rates specified by Head
Office from time to time on the bill amount at the time of converting foreign currency liability
into Indian rupees irrespective of whether the bill is retired within 10 days or on the 10th
day.

2.145 Interest should be recovered at the time of retirement of the draft or on delinking,
and credited to Profit & Loss Account "Interest (Foreign)". Interest should be charged at
the rate specified by the Reserve Bank of India / Head Office from time to time, from the
date of negotiation abroad (which is usually the date of the covering schedule) or from date
of debit to NOSTRO A/c to the date of retirement. As per present instructions, Branches
should charge interest from the date of negotiation abroad (from date of debit to NOSTRO
A/c) to the date of crystallisation of the rupee liability.

50
2.146 Interest from the date of negotiation abroad till the date of the Credit Note/date of
reporting sale to Treasury Branch, representing retirement of drafts/crystallisation of foreign
currency liability into rupee liability should be remitted to the Treasury Branch.

2.147 In case crystallisation of the foreign currency liability at the contracted rate results in
early/late delivery under the forward contract, the charges as per FEDAI Rule should be
levied.

2.148 At the time of payment of the draft by the opener, the total amount to be recovered
from the opener should be found out by entering the required particulars on the Memo of
Cost — the first copy of form no. FE 1399 (the original being the Presentation Advice). After
receiving the payment, the Memo of Cost should be attached to the paid draft and documents
(duly discharged) and delivered to the opener. The second copy, which serves as an office
copy, should be kept in a folder along with the other papers of the letter of credit. The third
copy of the set is marked "Duplicate Documents"; it should be used to forward the duplicate
documents to the opener only after the relative original draft has been paid. The duplicate
documents are usually despatched by foreign Branches and correspondents by subsequent
air mail or sea mail and are, therefore, received some days after the original documents are
received. After satisfying that the original draft is paid, the copy marked "Duplicate
Documents" should be attached to the relative duplicate documents and forwarded to the
opener.

2.149 The amount of margin received (and held in Sundry Deposits Account "Margin against
Letters of Credit" or as Term deposit) at the time of opening of letters of credit may be
refunded at the time of retirement of the bill; if only part shipment is received, proportionate
amount of margin should be refunded. NO ALLOWANCE IN THE INTEREST CHARGED
IS TO BE MADE BY REASON OF THE MARGIN HELD.

Report of Sale of Foreign Currency on Retirement of the Bill by the Drawee (i.e.
Opener) or on Crystallisation into Rupee Liability.

2.150 A report of sale of foreign currency on retirement of the bill by the opener or on
delinking and converting foreign currency liability into rupee liability, whichever is earlier,
should be made to the Treasury Branch which maintains Nostro account (foreign currency
account) in that particular currency with foreign Branch/correspondent in the computer
system. After Treasury interface, no separate reporting is required.

Disposal of Exchange Control Forms

2.151 On retirement of drafts drawn under letters of credit by the drawee (opener), the
appropriate exchange control form A1 should be completed and kept in the branch record.
The exchange control copy of the Import Licence should be endorsed with the rupee
equivalent of the bill amount at the ruling rate of exchange and the new balance struck on
the licence. The Exchange Control copy of the import licence submitted by the importer
(against which the letter of credit was opened and remittance made) should be retained by
the Branch after it is fully utilised for audit purpose.
51
Precautions to be taken in Dealing with Outstanding Bills under Letters of Credit

2.152 In case a bill is not retired on or before the 10th day, the bill should be delinked and
the rupee equivalent should be debited to the customer's account.

2.153 It might happen that goods arrive at a port before the relative drafts and documents
are received by the Bank. Openers usually receive an advance copy of the invoice from the
beneficiaries and are, therefore, in the know of the name of ship by which the goods have
been despatched, shipping marks, number of cases/ bales, etc., and the value of the goods
shipped. In the absence of the relative bills of lading, shipping companies deliver relative
goods against the shipping guarantees of the importers countersigned by their bankers. Such
guarantees should be issued promptly when required, provided 115% margin as deposit and
a counter guarantee (Form No. LG 11 or LG 12) are received from the openers. It must be
ensured that the description of goods in the copy of invoice furnished by openers relates to
the letter of credit opened by the Bank and that the amount of the invoice is within the
amount of the letter of credit. A minimum charge per shipping guarantee as per HO
guidelines may be recovered from customers, when required for bills of lading drawn under
letters of credit opened by the Branch. When the relative bills of lading are received, care
must be taken to get the guarantee back duly cancelled from the shipping company. (Also
refer relative Chapter on "Advances".)

2.154 There have been instances where fraudulent exporters have sent no goods at all, but
have presented forged shipping documents against which the banks concerned have paid in
good faith. The consequences must fall upon the importer because banks handling letters of
credit accept no responsibility for the genuineness of the document tendered. The opener of
a letter of credit should be advised to satisfy himself about the standing of the beneficiary
(exporter), since the opener depends on the beneficiary (exporter) to ship the goods of the
agreed quality and quantity; a dishonest and incompetent beneficiary might not do so.

Unpaid Bills under Letters of Credit - Sight Drafts

2.155 Sight drafts should normally be paid on presentation or latest on the arrival of the
steamer carrying the relative shipment. If the draft remains unpaid on the 10th day from
date of receipt, the rupee liability upon crystallisation should be debited to the account of
the opener maintained with the branch and a report should be made to Zonal office (if the
account is overdrawn) stating the steps taken by the branch to protect the interest of the
Bank. The first step must be to see that the insurance is extended to cover the goods after
they are discharged from the ship, until they are finally stored. Usually the insurance cover
continues for about a fortnight after the goods are landed (but this should be verified);
thereafter, the extension of the existing insurance or if necessary, fresh insurance cover
should be arranged, preferably with the same insurance company which had issued the
insurance policy or certificate for the voyage. Clearance and storage of the goods should be
arranged with an approved clearing agent. (Also refer to the relative Chapter on 'Advances'.)
The opener should be asked to give the Customs copy of the import licence to facilitate the
clearance of goods through the Customs and should be asked to pay the import duty and
other clearance charges. Zonal Office should be advised of the proposed steps to be taken
52
towards recovering the amount of the draft and charges for clearance of goods, import duty,
etc., if these are not paid earlier by the openers. Drafts should be "noted" and "protested" if
required. Progress towards recovery of the amount should be reported to Zonal Office at the
end of every month until the amount is paid off.

Unpaid Bills under Letters of Credit - Usance Drafts

2.156 Refusal to accept usance drafts should be dealt with in the same way as unpaid sight
drafts. If the draft remains unpaid on the due date, then the amount should be debited to
the Account of the opener and the General Ledger Account "Bills Receivable under Letters of
Credit" credited and the matter be reported to Zonal Office.

Procedure to be Followed for Sale of Imported Goods under Actual Users' Licence
and Pledged with the Bank

2.157 Sometimes the opener-importer of the letter of credit which covers goods under
Actual Users' Licence may not be in a position to retire the bill. In that event, the Bank may
have to sell the goods to recover its dues.

2.158 The Government of India has laid down certain procedures (as contained in the Hand
book of Import-Export Procedures which is published from time to time) to be followed by
the banks for the sale of goods imported under Actual Users' Licence which are either cleared
by them from the Customs as the joint holder of the Licence or pledged with them by the
importer-licence holder who is not in a position to take over the goods. According to the
existing directions, the sale of such goods by banks would require prior permission of the
Licensing Authority except where such sale is made to State Trading Corporation or Minerals
and Metals Trading Corporation or other similar institution or another Actual User provided
licence holder agrees to the sale or the Bank has otherwise the legal right to sell the goods
under the valid contractual terms. Branches should refer to the Hand Book referred to above
for the current directions in this regard.

2.159 Branches should, refer such cases to Controlling Authorities for guidance.

Books to be maintained (Now maintained in the computer system in Finacle)

(i) Register of Letters of Credit

2.160 The last copy of the set of forms of letter of credit (form no. FE 1640) is provided
with columns to keep a record of the amount of margin, charges (commission charged by
the Bank and the correspondent bank and the interest on the draft drawn there under), the
balance of the letter of credit in foreign currency and the equivalent amount in rupees. When
a letter of credit is opened, the last copy (with the printed columns on the reverse) should
be pasted in the Register of Outward Letters of Credit (form no. FE 1307) in serial order of
letter of credit numbers. If the number of letters of credit advised is large, it is advisable to
give different serial numbers to letters of credit advised through different Branches and
correspondents. For instance, letters of credit advised through London Branch may be given
one serial number with a prefix "L", those advised through Manchester Branch should have

53
another series with prefix "Man", etc.; separate registers may be maintained for letters of
credit advised through different Branches and correspondents. The required particulars
under the heading "Negotiations" should be entered with care. Initially when a letter of credit
is opened (or when the amount of letter of credit is increased), its amount in foreign currency
(or the increased amount in foreign currency) and its rupee equivalent' should be entered in
the columns "Balance in Foreign Currency" and "Balance in Rupees" respectively.
Subsequently, the amounts of drafts negotiated under the letter of credit should be entered
under appropriate columns of negotiation. When liability vouchers are passed, it must be
ensured that the relative foreign currency and rupee amounts agree with the corresponding
amounts in the register.

(ii) Register of Inward Bills

2.161 Branches should enter the particulars of import bills received under letters of credit
in a Register of Inward Bills. Apart from the particulars in the columns provided in the
Register, Branches should record the following information regarding (a) the date by which
the documentary evidence (in support of import of goods into India) is to be submitted by
the importing customer. Present FEMA guidelines specify that documentary evidence, i.e. the
exchange control copy of the Customs Bill of Entry/ Post Parcel Wrappers, should be
submitted within three months from the date of reporting of sale by an authorised dealer)
and (b) date on which the evidence is furnished by him. Branches should issue a reminder
to the importer, if he does not furnish the documentary evidence on the date specified in (a)
above; a second and third reminder (if necessary) should be sent to the importer by
registered post with acknowledgement due after 21 days from the date of issue of the first
reminder/ second reminder. In the event of further default on the part of the importer,
Branches should report the details of the transaction in the BEF statement (beyond USD
1,00,000) to Reserve Bank of India

2.162 The documentary evidence, when received, should be boldly marked with relative bill
number and filed along with the relevant papers of the bill so that it is readily available to
the internal auditors or the inspecting officials of the Reserve Bank of India for scrutiny.

(a)Ledger to Record Customers' Liability of Letters of Credit and Bills Receivable

under Letters of Credit

2.163 There should be a separate a/c for each customer, providing columns for maintaining
(a) Customer's Liability under Letters of Credit, (b) Bills Receivable under Letters of Credit
outstanding, and (c) total of outstanding Letters of Credit and Bills Receivable (a + b). The
purpose of having these two accounts on one page is to facilitate obtaining the total of
outstanding balances of Letters of Credit plus Bills Receivable. The total of outstanding
balances of Letters of Credit plus Bills Receivable on any day should not exceed the
sanctioned limit for letters of credit. Before opening fresh letters of credit, it must be
ensured that the amount of the proposed letter of credit is within the sanctioned limit, after
taking into account the total outstanding balances of the Letters of Credit and Bills
Receivable.

2.164 A separate page may have to be allotted for the same customer for posting his liability
under usance letters of credit, if any, under the heading "Customers Liability for Acceptance
54
under Letters of Credit Opened by the Bank". The heading "Customers' Liability for Letters
of Credit Opened by the Bank" should be neatly deleted and instead, the wording "Customers'
Liability for Acceptance under Letters of Credit Opened by the Bank" be entered. The balance
in the account "Customers' Liability for Acceptance under Letters of Credit opened by the
Bank" should be added to the figure already arrived at in order to ensure that the aggregate
amount thus arrived at plus the amount of letter of credit proposed to be opened does not
exceed the sanctioned limit of the customer.

2.165 When posting an entry in the ledger, whether in respect of a Letter of Credit or Bills
Receivable, the balance of Letters of Credit/ balance of Bills Receivable should be struck.
There should be only one posting on each line of the page (under either Letters of Credit or
Bills Receivable) and the total of Letters of Credit balance plus Bills Receivable balance should
also be struck.

2.166 Where a customer has not paid the bill/s received under Letters of Credit, and the bill
is treated as unpaid, Manager should refer to appropriate Higher Authority, before opening
any further Letters of credit, drawing his attention to the Unpaid Bills Receivable.

(b) Diary of Due Dates

2.167 The Diary of Due Dates should give the expiry dates of letters of credit and the due
dates of usance drafts drawn there under. The dates of delinking of foreign currency
liability of sight D/ P bills should also be recorded in the Diary of Due Dates.

Folders
2.168 There should be a separate folder for each individual letter of credit marked with the
letter of credit number. All the papers including the letter of credit application form
signed by the opener, copies of the letter(s) of credit, amendment(s) and the
correspondence should be kept together in the folder. Folders should be arranged in
serial order (of letter of credit numbers) and may be kept classified Branch-wise and
correspondent-wise.

Profit and Loss Account

2.169 The following accounts should be maintained as profit and Loss Accounts:
(a) Commission (Foreign) (d) Postages (foreign)
(b) Interest (Import) (Foreign) (e) Telegrams (foreign)
(c) Exchange (Foreign)

General Ledger Accounts

2.170 The following accounts should be maintained as General Ledger Accounts:

(i) "Stamps and Stamped Documents on hand" which would include
(a) Stamps on Letters of Credit application forms,
(b) Stamps on Guarantee for Letters of Credit,
(c) Foreign Bill Stamps;

55
(ii) "Sundry Deposits" which would include the various balances in Sundry Deposits Ledger
containing interalia the account "Margin against Letters of Credit"

Monthly Balancing (Separate menu is provided in Finacle system to carry out

balancing)

(a) Liability for Letters of Credit

2.171 The total of outstanding amounts against all customers in the Liability Ledger should
agree with the balance in the General Ledger Liability accounts. The total of amounts (in
rupees) outstanding under each individual letter of credit in the Register of Letters of Credit
should also agree with the General Ledger Liability accounts.

(b) Bills Receivable under Letters of Credit

2.172 The total of the rupee amounts of ALL drafts held in Bills Receivable under Letters of
Credit should agree with the balance in the relative General Ledger account and also with
the total of outstanding Bills Receivable balances in the Liability Ledger.

(c) Margin

2.173 The total of margin shown against each individual letter of credit in the Register of
Letters of Credit should agree with the balance in the Sundry Deposits Account "Margin
against Letters of Credit".

2.174 STANDBY LETTERS OF CREDIT (SBLC)

Introduction:
As the very name suggests, it is not an ordinary Letter of Credit but it is a sort of Standby or
Back-up Credit. These Credits are very much in use in certain countries like USA. These
Credits are generally used as substitutes for Performance Guarantee or for securing
repayment of loans. The document generally called for under such credits is a simple
statement of claim or proof of delivery of goods or certificate of non-performance. This type
of Letter of Credit is opened mostly by banks in countries where, by law they are precluded
from issuing guarantees and in such cases this type of Credit is issued as substitutes for
performance or other financial guarantees. Even though Standby Credit is a mere substitute
for Guarantee it has developed as an all purpose financial support instrument embracing
wider range of uses than the normal Demand Guarantee and is issued to cover situations of
non-performance. No Transport Document is called for under this Credit.

Standby L/C defers from traditional L/C. In a traditional L/C, the beneficiary is entitled for
payment once he is able to submit the documents prescribed in the L/C within the stipulated
time. In Standby L/C, the beneficiary is eligible for payment from the issuing bank when the
applicant fails to perform his obligation.

The distinction between a Standby Credit and a Commercial Letter of Credit can best be
described as an irrevocable Letter of Credit is a simple payment mechanism for a trade

56
transaction whereas an irrevocable Standby Letter of Credit is merely a backup available to
the beneficiary (from issuing bank) in case the applicant fails to pay or perform‘.

In a Standby L/C :
The Issuer, usually a Bank, at the request of its customer (Applicant) agrees that the
Beneficiary will be paid Before the credit‘s expiry Upon the Beneficiary‘s
presentment of:
i. Its Demand for Payment
ii. Any Documents evidencing the Applicant‘s Non performance

This gives the Applicant an opportunity to specify in the Credit the Documents that are to be
present by the Beneficiary for claiming payment.

It is preferable if a stipulation to the effect that the Beneficiary must present a signed
statement that the Applicant is in breach of his obligations and the nature of such breach is
included in the credit. This will provide some protection against unfair demands of the
Beneficiary.

Standby L/C can perform the functions of various Guarantees like Advance Payment
Guarantee, Performance Guarantee etc., by suitably amending the wordings. In some cases
it can be used to secure payment of outstanding invoices under on account sales or open
account system. They are particularly used in international oil trades. The Issuing Bank
undertakes to pay against the written statement of the seller that documents complying with
the underlying contract have been presented to the Buyer but payment has not been made.
Alternatively, copies of some or all the documents presented by the buyer may be required.
This assures Seller of payment for goods already supplied for which payment has not been
made.

A bank in the Applicant‘s country usually issue Standby Credits. Some Beneficiaries may feel
reluctant to accept Standby Credit arrangement as they have to depend on a bank outside
their country. This could be overcome by arranging for confirmation of the Standby Credit
by a bank in the Beneficiary‘s country.

Standby Credits are independent of the underlying contact and provide beneficiary the same
degree of protection as bank guarantee. In a Standby credit, the responsibilities of the
Issuing Bank are clearly set out as regards payment of claims.

Specifically, there is be no confusion about the validity and expiry dates unlike in Guarantees.
Laws of many countries provide that a claim could be made even after the expiry of the
Guarantee if the default under the Guarantee took place within the validity of the Guarantee.

Standby Credits can be made subject to UCPDC ICC 600 or ISP 98 of ICC. URDG 758

The mechanism of issue and operation of Standby Credits is similar to that of Guarantees.
Like Demand Guarantees, Standby Credits are also open for abuse by the Beneficiary without

57
scruples. Therefore, Applicant has to satisfy himself about the credentials of the Beneficiary
before entering into any business transactions.
However, considering the risks involved in issuance of SBLCs, bank issues guidelines from
time regarding precautions to be taken including (but not limited to) not issuing SBLC for
repayment of loans, use of format vetted by the legal department, requirement of ACC
approval for limit sanction etc. Branches to refer to latest bank directions/guidelines in this
regard.

FEDAI has issued a detailed circular for guidance of the banks regarding precautions to be
taken while issuing Standby L/Cs which is reproduced below:

FEDAI GUIDELINES ON STANDBY L/C:

Preamble:

Traditional LC governed by Uniform Customs & Practice for Documentary Credits – ICC
Publication No.600 (UCPDC) enable the Seller to obtain payment after fulfilling his obligations
are evidenced by the presentation of the documents stipulated under the LC. A Standby LC
is often used to cover the ―non-performance‖ situation. To that extent, Standby LCs act
almost like a substitute for Guarantees.

While UCPDC, inter alia, permits issuance of Standby Letter of Credit, ICC formulated a
separate set of rules relating to Standby LCs in 1998 viz. International Standby Practices
(ISP98) ICC Publication No. 590 which has come into force as on 1st January, 1999. ISP 98
reflects the generally accepted practice, custom and usage of Standby Letter of Credit.

It has been decided in consultation with RBI to adopt ISP 98 after detailed examination of
its various provisions. Hence, it will be in order for Authorised Dealers to issue Standby
Letters of Credit either under ISP 98 or UCP 600 as agreed upon mutually by the parties
concerned.

Usage of Standby LC by Authorised Dealers:

Standby LC may be undertaken for the following transactions:
i. As a document of promise in respect of ―non-performance situation especially as a
substitution to the guarantees which ADs are permitted to issue under FEMA, such
as issuing a guarantee in respect of any debt, obligation or other liability incurred by
:

a) An exporter on account of exports from India.

b) Owed to a person resident in India by a person resident outside India for a
bonafide trade transaction, duly covered by a counter guarantee of a bank of
international repute resident abroad.
ii. Exporters may opt to receive Standby Letters of Credit in respect of exports from
India.

Commercial Standby LCs for Imports into India:

58
Authorised Dealers in India are now permitted by RBI {vide AP (Dir Series) Circular No.84
dated 03.03.2003}, to issue Standby LCs towards import of goods to India. Issuance of
Commercial Standby LC covering import of goods is susceptible to certain risks in the absence
of evidence of shipment/ insurance cover. Importers should therefore be advised that
Documentary Credit under UCP 600 should be the preferred route for imports of goods into
India is to be considered on merits.

If Standby Letters of Credit are issued covering imports into India (either under UCP 600 or
ISP 98), importer customers are to be explained of the risk factors involved/ chances of
abuse in acceding to the request for establishment of Standby LCs for import of goods into
India. Appropriate safeguards and precautions some of which are illustrated below shall be
observed by Authorised Dealers where such Standby Credits are issued.

a) The facility of issuing Commercial Standby LCs shall be extended on a selective

basis and to the following categories of Importers only :

i. Where such Standbys are required by Applicants who are independent power
producers/ importers of crude oil and petroleum products.
ii. Special category of importers viz. Export Houses/ Trading Houses/Star
Trading Houses/ Superstar Trading Houses/ 100% EOUs.
iii. Public Sector Units/ Public Limited Companies with good track record.
b) Satisfactory credit report on the overseas supplier should be obtained by the Issuing
Bank before issuing Standbys.
c) Invocation of the Commercial Standby by the Beneficiary is to be supported by proper
evidence. The beneficiary of the credit should furnish a declaration to the effect that
the claim is made on account of failure of the importer to abide by his contractual
obligations, along with the following documents:
i. A Copy of Invoice
ii. Non-negotiable set of documents including a Copy of Non-negotiable Bill of
Lading/ Transport Document. iii. A copy of Lloyds/ SGS Inspection Certificate
wherever provided for as per the underlying contract.
d) Incorporation of a suitable clause to the effect that in the event of such Invoice/
Shipping Document has been paid by the Authorised Dealer earlier, provisions to
dishonour the claims quoting the date/ manner of earlier payment of such documents
may be considered.
e) The Applicant of a Commercial Standby Letter of Credit (Indian importer) shall
undertake to provide evidence of imports in respect of all payments made under
Standby L/C (Bill of Entry).

Authorised Dealers shall follow up evidence of imports as provided for under FEMA in all
cases of payments made under standby L/C covering imports into India.

Fixing Limits for SBLC/ Undertaking to be obtained from the Applicant:

59
► Banks must assess the credit risk in relation to standby LC and explain to the
Importer Customers the inherent risk in a Standby covering importation of
goods.
► Discretionary powers for sanctioning Standby LC limit for import of goods may
be delegated to Controlling Office/ Zonal Office only.
► A separate limit for establishment of Standby LC is desirable rather than
permitting it under the regular Documentary LC limit.
► Due diligence on the Importer as well as Beneficiary is essential.
► Unlike Documentary Credits, banks do not hold Original Negotiable Documents
of titles to goods (such as original B.L.) Hence while assessing and fixing credit
limits for standbys, banks shall treat such limits as clean for the purpose of
discretionary lending powers and compliance with various RBI regulations.
► Application cum Guarantee for standby should be obtained from the applicant.
► Banks may consider obtaining a suitable Indemnity/ Undertaking from the
Importer clients that all remittances towards their import of goods as per the
underlying contract (for which Standby LC is issued) will be made only through
the same branch which has issued the Standby.
► The Importer should give an undertaking that he shall not raise any dispute
regarding the payment made by the bank in Standby LC at any point of time,
and will be liable to the bank for all the amount paid therein. The Importer
should also indemnify the bank from any loss, claim, counter claims, damages,
etc., which the bank may incur on account of making payment under the
Standby LC.
► Presently, when the Documentary LC is established through SWIFT, it is
assumed that the documentary LC is subject to provisions of UCPDC.
Accordingly whenever standby LC under ISP 98 is established through SWIFT,
a specific clause must appear that standby LC is subject to provisions of ISP
98.
► It should be ensured that the Issuing Bank, advising bank, nominated bank,
etc., have all subscribed to ISP 98 in case standby is issued under ISP 98.
► When payment under Standby LC is effected, the Issuing Bank shall report
invocation/ payment to Reserve Bank of India.

Implications of some of the Articles of ISP 98 :

Implications of the provision of each of the articles of ISP 98 are to be carefully understood.
We give below a few of the articles of ISP 98 which need special attention. These are only
illustrative and not exhaustive.
Article 1.02 :
ISP 98 rule supplements the applicable law to the extent not prohibited by that law. Hence,
if there is any provision in the Rules which conflict with Indian Law, such provision would not
be applicable.
Article 1.09 – Business day :

60
 The terminologies “Business day” and “Banking day” have been defined under this article as
under:-
“Business day” means a day on which the place of business at which the relevant act is to
be performed is regularly open; and “Banking Day” means a day on which the relevant
bank is regularly open at the place at which relevant act it to be performed.

The definition of “Business Day” and ”Banking Day” may need to be properly addressed in
the course of issuance/ handling of a Standby Letter of Credit.

Article 3.13 – Expiration Date of Non-Business day

Article 3.14 – Closure on a Business Day and Authorisation of another

reasonable place for presentation
The Article is reproduced below:
a. If on the last business day for presentation the place for presentation stated in a standby is
for any reason closed and presentation is not timely made because of the closure, then the
last day for presentation is automatically extended to the day occurring thirty calendar days
after the place for presentation re-opens for business, unless the standby otherwise provides.
b. Upon or in anticipation of closure of the place of presentation, an issuer may authorize
another reasonable place for presentation in the standby or in a communication received by
the beneficiary if it does so, then
i. Presentation must be made at that reasonable place; and
ii. If the communication is received fewer than thirty calendar days before the last day for
presentation and for that reason presentation is not timely made, the last day for
presentation is automatically extended to the day occurring thirty calendar days after the last
day for presentation.

FEDAI comments:
As per Article 37of UCP 600, banks assume no liability or responsibility for the consequences
arising out of the interruption of their business by Acts of God, riots, civil commotions,
insurrections, wars or any other causes beyond their control, or by any strikes or lockouts.
Unless specifically authorised, banks will not, upon resumption of their business, pay, incur
a deferred payment undertaking, accept Draft(s) or negotiate under Credits which expired
during such interruption of their business. Provision of Article 3.13 and 3.14 have to be
taken note of while dealing with Standby under ISP 98.

Article 5.01 Timely Notice of dishonour:

The article provides for timely notice of dishonour as per the provisions contained therein.

2.175 Syndication/ Participation

Article 10.01 and 02 relating to syndication/ participation under standby LC may be taken
note of by the banks issuing such Standbys under Syndicated/ Consortium loan arrangements
among Authorised Dealers.
61
 2.176 TRADE CREDITS FOR IMPORTS INTO INDIA
Trade Credits‘(TC) refer to credits extended for imports directly by the overseas supplier,
bank and financial institution for original maturity of less than three years. Depending on
the source of finance, such trade credits include suppliers‘credit or buyers‘credit. Suppliers‘
credit relates to credit for imports into India extended by the overseas supplier, while buyers‘
credit refers to loans for payment of imports into India arranged by the importer from a bank
or financial institution outside India for maturity of less than three years. It may be noted
that buyers‘credit and suppliers‘credit for three years and above come under the category of
External Commercial Borrowings (ECB) which are governed by ECB guidelines.

(I) Amount and maturity

As per extant RBI guidelines Max amount 50 million USD(Higher limits for import transaction
for oil/gas refining & marketing, airline and shipping companies. Branches to refer to latest
RBI guidelines) per import transaction for imports permissible under the Foreign Trade Policy.
For import of capital goods –period will be more than 12 months & less than 3 years. For
non-capital goods, this period shall be up to one year or the operating cycle whichever is
less.

(II) All-in-cost Ceilings

Benchmark rate plus 250 bps. Branches should refer to RBI Master Circular on ECB duly
updated for further details.
The all-in-cost ceilings include arranger fee, upfront fee, management fee, handling /
processing charges, out of pocket and legal expenses, if any. The All-in-cost Ceilings will be
reviewed from time to time.

(III) Guarantee :
ADs are permitted to issue guarantee/ in favour of overseas supplier, bank and financial
institution, up to USD 50 million per transaction for a period up to one year for import of all
non-capital goods permissible under Foreign Trade Policy /gas refining & marketing, airline
and shipping companies) and up to three years for import of capital goods, subject to
prudential guidelines issued by the Reserve Bank from time to time. The period of such
guarantees has to be co-terminus with the period of credit, reckoned from the date of
shipment.

(IV) Reporting Arrangements :

A.Ds are required to furnish details of approvals, drawal, utilization, and repayment of trade
credit granted by all its branches, in a consolidated statement, during the month, in form TC
(format in Annex IV) from April, 2004 onwards to the Director, Division of International
Finance, Department of Economic Analysis and Policy, Reserve Bank of India, Mumbai (and
in MS-Excel file through email to [email protected]) so as to reach not later than 10th of the
following month. Each Trade Credit may be given a unique identification number by the AD.

2.177 ADs are required to furnish data on issuance of guarantees// by all its branches, for TCs
by all its branches, in a consolidated statement, at quarterly intervals on the XBRL platform at
quarterly intervals. Format of this statement is also available at Annex V of Part V of RBI Master
directions-Reporting under FEMA dated 01.01.2016 as amended from time to time.
62
2.178 Detailed RBI Instructions in respect of Imports and Trade Credits are contained in their
Master Circular on Imports and Master Circular on ECB. Branches should refer to the updated
Master Circulars.

63
Annexure I

64
65
66
67
Annexure- II
Statement on Guarantees/

Issued by Authorised Dealers

As on quarter ended ………………………

------------------------------------------------------------------------------------------
Name of the AD : contact Person:
Address:
Tel: e-mail :

Fax:

(USD million)

On behalf of Residents Guarantee/ Letter of Undertaking/ Letter of comfort

Issued

Buyer‘s Credit Supplier‘s Credit

Trade Credits (less than 3

years)

a) Up to one year

b) above one year and less

than three years**
** (Limited to Import of Capital Goods)

Place: -----------------

Date: ----------------- Signature of the Authorised Dealer

Signatory (Stamp)

68
 Chapter-3
FOREIGN (INWARD) BILLS FOR COLLECTION
Foreign (Inward) Bills for Collection
3.1 The Collection of Bills are governed by Uniform Rules for Collection 1995 Revision,
ICC publication No. 522 popularly known as URC 522. (Appendix VII)
Precautions for handling Import Bills on Collection Basis
3.2 Exchange control lays greater emphasis on Collection of Import Bills and branches
should exercise due care while handling such import bills. The Import Control and Exchange
Control regulations applicable to importers should be strictly observed in the case of
collection of bills as well. Due to their very nature, a special watch is required to be kept on
such bills to ensure that the import is for bonafide use of the importer concerned, it is genuine
and commensurate with his line of business, frequency of import, financial standing, etc. of
the importer. In the case of bills involving large values, branches should satisfy themselves
that the importer is known to be trading in items mentioned in the shipping documents or
that the items are required for his actual use. In case of importers, who are not their
constituents, branches should, at the time of acceptance of the documents/making payment,
call for Data Certificate cum-report from their bankers in support of the genuineness of
imports. While handling import documents, branches should comply with the detailed
guidelines for handling Import Bills Operating Procedure attached at the end of this chapter.
(Annexure)
3.3 Branches should not accept Import Bills received directly by the Importers from the
Overseas Sellers. Import Bills should be received from the overseas seller's banker by buyer's
banker in India. However, import bills as per current guidelines of RBI, may be received by
the bankers of the buyers direct from overseas sellers up to RBI stipulated amount (currently
US$ 300,000/-), subject to the fulfilment of the following requirements, (the decision to this
effect shall be made at Branch Manager level or by a Senior Scale IV Officer):
(a) Before agreeing to extend the facility, branches should obtain reports on each
individual Overseas Seller from Overseas Bankers or reputed Credit Agencies. The report
should be satisfactory and should, inter alia, specifically comment on whether the seller-
firm/company is ordinarily engaged in purchase/sale of goods sought to be exported to India
and whether the seller is good for ordinary business engagements. The report need not be
obtained in cases where the invoice value does not exceed USD 100,000, provided that the
branch is satisfied about the bonafides of the transaction and track record of the importer
constituent.
However, Import bills and documents should be received from the banker of the supplier
by the banker of the importer in India. AD Category – I bank should not, therefore, make
remittances where import bills have been received directly by the importers from the
overseas supplier, except in the following cases:
(i) Where the value of import bill does not exceed USD 300,000.
(ii) Import bills received by wholly-owned Indian subsidiaries of foreign companies from their
principals.
69
(iii) (iii) Import bills received by Status Holder Exporters as defined in the Foreign Trade Policy,
100% Export Oriented Units / Units in Special Economic Zones, Public sector undertakings
and limited companies.
(iv) Import bills received by all limited companies viz public limited
Deemed public limited and Private Limited.

(b) Branches should strictly adhere to the other requirements indicated in the "Guidelines
for handling Import Bills-Operating Procedure" given at the end of this chapter.
(c) Each month, the Branch Manager should select a few Exchange Control copies of Bills
of entry relating to such cases of imports on random basis and get the genuineness thereof
verified from the Customs authorities as stipulated in paragraph 8 of the Guidelines. All the
relevant documents/correspondence, etc. for extending the facility should be kept on record
for verification by the Internal and Statutory Auditors of the bank and the Inspecting Officials
of Reserve Bank.
(d) Branches should maintain a separate Import Bills Register indicating in chronological
order, full particulars of each Import Bill received by it direct from the Overseas Sellers. This
Register will be subject to special scrutiny by the Internal/Statutory Auditors of the bank and
the Inspecting officials of Reserve Bank of India.
e) At quarterly intervals, the Branch Manager should select a minimum of 15% of the
Bills of Entry on random basis and get the genuineness thereof verified from the Customs
Authorities as stipulated in the Guidelines. All relevant documents/correspondence etc.
should be kept on record for verification by the internal and Statutory Auditors of the
Authorised Dealer and the Inspecting Officials of Reserve Bank of India.
(f) Import bills up to US$ 300,000 as per current guidelines of RBI may be received
directly from overseas suppliers by all categories of importers. Branches may handle such
documents subject to safeguards/guidelines issued by the Reserve Bank of India and on
being satisfied with the bona-fides of the Importer clients.
(g) In case where documents are received/handled by “C “category branches, the
concerned “A”/ “B”Category branch which has to effect the remittance must insist on a
detailed Status Report-cum-Certificate from the “C” category branch.
(h) The Bill of Entry presented by the Importer must be scrutinised with particular
care.
Postal Imports:
3.4 Remittances against Bills received for Collection in respect of Imports by Post Parcel
may be made by Authorised Dealers, provided the goods imported are such as are normally
despatched by Post Parcel. In these cases, the relative parcel receipts must be produced as
evidence of despatch through the post and undertaking to submit Postal Appraisal Form or
Customs Assessment Certificate as evidence of imports within 3 months from the date of
remittance should be furnished by Importers. If the parcel has already been received in
India, Postal Appraisal Form or Customs Assessment certificate should be produced in
support of the remittance application. Where goods to be imported are not of a kind normally
imported by post parcel or where Authorised Dealer is not satisfied about the bonafides of
the application, the case should be referred to the Reserve Bank for prior approval with full
70
particulars together with relative parcel receipt/s and Postal Appraisal Form or Customs
Assessment Certificate.
Note: Authorised dealers may make remittances towards import of books by post parcel by
book-sellers / publishers against bills received for collection, irrespective of the amounts
involved, without prior approval of the Reserve Bank against endorsement on the Import
licence wherever applicable in the normal course. They may also make remittances even if
Import licences covering the imports have been issued subsequent to the date of import
subject to endorsement on such licences.

Procedure on Receipt of Bills: Presentation

3.5 In dealing with foreign (inward) bills for collection, the bill and other documents
received for Collection must be carefully checked with the covering letter or the schedule.
The instructions on the covering letter or schedule forwarding bills to the branch should be
carefully read. Sometimes, conditional instructions such as deliver documents on D/A
(Usance) basis against "Pour Aval", "Your Avalising the Bill of Exchange",
"Collecting Bank's Guarantee", or "on your approval to remit payment", etc. appear in the
covering schedule or letter. Such instructions cast additional responsibility on the collecting
bank and at times may result into financial outlay. Therefore, decision should be taken by
the Appropriate Authority in the branch as to whether the branch would like to handle
documents as per instructions given in the covering letter or the schedule. Banks are under
no obligation to handle either a collection or any collection instruction or subsequent related
instruction. In case the branch decides not to collect the bill, the same should be
communicated to the sender (remitting) bank from where the documents were received by
expeditious means and fresh disposal instructions should be sought. The branch should
follow up with the sender bank for response and in case of non-response or unsatisfactory
response, the branch may return the documents but in no case, the branch should violate
the instructions given in the covering letter or schedule. In case of any ambiguity or doubt
about the intent and meaning of the instructions, the branch should immediately refer back
to the sender (remitting) bank for clarification. Article 9 of URC 522 enjoins upon the Bankers
to act in good faith and exercise reasonable care in handling the documents.
NOTE: Documentary collections based on instructions on the covering letter or schedule
may be classified under one of the following types:-
a) Documents against Payment (DP)
If a documentary collection is available against payment, the commercial documents should
be handed over to the buyer upon payment only. Sometimes the payment is delayed by the
drawee till the arrival of the goods by sea/by air. If the sender bank does not wish to wait
for his money till then, they must include in the collection order a clause stipulating "payment
on first presentation of document". In this case, documents should be presented to the
drawee immediately after their arrival at the branch and if the payment is not forthcoming
within a stipulated time, the notice of dishonour should be sent to the remitting bank
immediately.
b) Documents against Acceptance
If documentary collection is available against acceptance, the commercial documents may
only be released to the drawee upon acceptance of, usually, a bill of exchange which is
71
usually drawn/payable up to 180 days after sight or at a fixed future date. (As per FEMA
guidelines in force, the maximum prescribed period of payment for imports is 180 days from
the date of bill of lading unless and until, there are specific reasons for non payment within
180 days i.e. dispute between the importer and exporter, financial difficulties etc.) In this
way, the drawee gains possession of the goods before payment is actually effected. The
seller has, in this instance, a payment risk on the buyer until date of maturity and his only
security, once goods have been released, is the acceptance obtained from the drawee. Such
collections do not cast any additional responsibility except that documents are delivered
against acceptance by authorised persons. The branch remits the proceeds upon payment
by drawee on due date (maturity date) and if the payment is not forthcoming on due date,
the notice of dishonour should be sent to remitting bank.
c) Documents against Avalisation (Co-Acceptance / Guarantee/ Approval of
Collecting Bank) of the usance bill/D.A. bills
In some instances remitting bank requests the drawee/collecting/presenting banks to have
the bill of exchange avalised by the collecting bank or another first class bank, which in fact
means that the payment of such a bill is guaranteed by such bank. The seller thereby reduces
his own risk. "Aval" means guarantee i.e. the collecting/presenting bank puts its signature
on the face of a bill with a word "Pour-Aval" or an explicit notation made on the reverse of
bill or in an appended document. If a documentary collection is received with instructions
such as "against Avalisation, Guarantee of Bank, against Bank's approval", the branch is
duty-bound to honour the bill irrespective of whether the drawee pays or not, in case, branch
decides to collect the bill. If there is no arrangement, the branch should refuse to collect the
bill and communicate immediately to remitting bank indicating reasons for refusal to collect
the bill and seek disposal instructions.
d) D/P bills (documents) on Acceptance basis
Sometimes we come across a typical type of collection with instructions i.e. "D/P bills at say,
30 days' usance". In this type of collection the Seller's Bank gives instructions that the drawee
on presentation shall accept a Bill of Exchange (draft) drawn at, say 30 days after sight. The
documents along with accepted Bill of Exchange remain at the collecting bank till maturity.
The documents may however be released to the buyer against payment on maturity. This
type of arrangement is resorted to in cases where the goods take much longer shipping time
to reach the destination and the seller wants to grant certain payment terms but still wishes
to ensure that buyer can obtain the documents only after having made payment. If the buyer
refuses to accept the Bill of Exchange, the branch should advise the remitting bank who can
give appropriate instructions to present the bill to another drawee to avoid problems in the
nick of time when the goods reach the destination.
3.6 Once the contents and the covering schedule have been verified, the bills and the
documents should be given serial numbers and details thereof should be entered in the
Foreign (Inward) Bills Register maintained in the computer system. Acknowledgement should
be sent to correspondents giving reference and the branch bill numbers. The entries in the
register should be checked and verified by an officer. All bills and documents held by
Branches must be kept in fire proof safes.
3.7 The bills should be sent out promptly (ordinarily latest by the following day after the
receipt of the bills) for being presented for payment or acceptance. Any delay in presentation
of the bill for payment or acceptance within a reasonable time according to local usage or
72
custom of the trade might discharge other parties liable on the bill. All bills are presented to
the drawee on arrival of the mail but, as most of the bills and documents are despatched
from abroad by air, they arrive well before arrival of the goods. The drawer often gives
instructions that acceptance or payment may be deferred until the goods arrive at the port
of destination. If such instructions are given, although the Bank makes presentation on the
receipt of the bill in the ordinary course, it cannot press for payment or acceptance of the
bill nor treat the bill as dishonoured until after the arrival of the goods.
3.8 A set of forms (form no. FE 1586) consisting of a presentation memo, a schedule to
cover original documents, schedules to cover remittance of proceeds, a schedule to cover
duplicate documents and office copy should be used. The information typed or written in
hand on the presentation memo is obtained and carbon impressions on all the other forms.
(Now being generated by the system). . At the time of retirement of a bill, once relevant
details are filled in the system, the schedules for remittance of proceeds is generated by the
computer system. The duplicate documents should be handed over to drawee only after the
bill is paid.
Contra Accounts-Inward Foreign Bills for Collection and Liability for Inward
Foreign Bills for Collection
3.9 Computer system maintains these General Ledger Contra Accounts in order to keep
a record of all foreign inward documentary bills received for collection from drawers and
banks, irrespective of the currency in which the collection may be expressed. (No entries
should be passed for inward foreign bills received for collection from Branches of the Bank.)
3.10 Collections expressed in foreign currencies are entered in these accounts at a suitable
"notional" rate of exchange, usually the Bill Selling rate prevalent on the date of entry.
3.11 The entries to be passed on receipt of the bills for collection are: (taken care by the
computer system, once the bill is authorized in the system).
Debit: General ledger Account "Inward Foreign Bills for Collection"
Credit: General Ledger Account "Liability for Inward Foreign Bills for Collection".
On payment of the bills, these entries get reversed at the same rate of exchange at which
the original entries were passed
3.12 It is advisable to record the amount of liability vouchers passed on the covering
schedule of each bill so that on realisation of the bills, the entries can be reversed for identical
amounts.
3.13 The Inward Foreign Bills for Collection accounts should be balanced with the total
amount of the outstanding foreign inward bills for collection in GLB at least once a month.
Commission on Import Bills
3.14 Commission on import bills should be recovered in accordance with the Schedule of
charges prescribed by the Head Office.

UsanceBills: Stamps: Acceptance: Due Date

73
3.15 If a bill is a usance bill, it should be stamped with the appropriate stamp duty as per
extant guidelines before being presented for acceptance. Cost of the foreign stamps should
be recovered from the drawee of the bill, unless there are instructions to the contrary in the
covering schedule of the remitting Branch or bank. Acceptance of a bill must be made on the
face of the bill and must bear the words "Accepted on............... payable at the Bank of
India................................. Branch". The acceptance must be dated and must be signed by
the drawee or his authorised agent and his signature verified, when necessary.
3.16 In the case of a usance bill, particular attention must be paid to see that the due date
is properly calculated and entered in the Register and the Due Date Diary and prominently
noted on the bill itself. The due dates should be carefully checked by the Manager or Deputy
Manager or the officer in charge. Accepted bill should be arranged according to the dates of
maturity and should be kept in the custody of the officer in charge. The remitting bank should
be advised of the due date of the bill. Although it is not incumbent on the Bank to advise the
due date to the drawee, a reminder (of the due date) may be sent to the drawee shortly
before the maturity of the bill.

Receipt for Documents Delivered against Acceptance

3.17 When the documents are delivered against acceptance, Branches should obtain a
receipt duly signed by the acceptor concerned.
Remittance of Proceeds and Exchange Control Requirements
3.18 Proceeds of foreign bills received by Branches for collection should be remitted
subject to the usual exchange control regulations. The drawees should complete and sign
the appropriate exchange control form i.e. The exchange control copy of the import licence
must be called for and the amount of the bill endorsed thereon under the stamp and
signature of the Branch effecting the remittance. It must be ascertained that the Import
Licence stands in the name of the drawee of the bill (or the drawee holds a letter of authority
issued by the import licence holder in his favour authorising him to import goods under the
licence), that the goods described in the documents are in accordance with the terms of the
licence and that they have been shipped within the validity date of the licence. The photocopy
of endorsed licence should be kept on record with the office copy of schedule.
3.19 Where the approval of the Reserve Bank of India is obtained for a remittance, it
should be noted that the approval is valid for one remittance only (unless otherwise stated
on the form) within the validity period mentioned therein. If the remittance is not effected
within the period of validity of the approval, an application should be submitted to the
Reserve Bank of India for revalidation, stating the reason for the delay in effecting the
remittance and giving the relevant approval number and date.
3.20 Under the existing exchange control regulations, it is not obligatory for Authorised
Dealers to verify the country of origin of goods imported or being imported into India by
reference to independent documentary evidence such as a certificate issued by a Chamber
of Commerce unless import licence states the country of origin of goods (and not the
certificate of origin prepared by the supplier) while permitting remittance towards imports of
goods into India and therefore it need not be insisted upon.

74
Unpaid Bills
3.21 If a bill is unpaid, notice of dishonour should be promptly given on Bank's standard
advice form (form no. FE 1584) by air mail or by cable / swift according to the instructions
of the remitting Branch or bank. The instructions of the remitting Branch or bank must be
sought on the disposal of unpaid bills. Usually, the covering schedule contains complete
instructions as to what action is to be taken if payment or acceptance is refused; if such
instructions are not given in the covering schedule, specific instructions for the clearance of
goods and their storage should be obtained from the remitting Branch or bank. If it be
required that the Bank should clear, store and insure the goods, the Bank's approved clearing
agents should be instructed to take charge of goods (if there are shipping documents). The
remitting Branch or bank should be informed of the steps taken and advised to remit the
charges of clearing the goods and their storage and insurance. The necessary costs (duty,
freight handling charges, etc.) and charges; should be obtained in advance.
Case of Need
3.22 If the bill is marked "case of need", Branches should advise the person named as the
"case of need" in the event of dishonour. The "case of need" may elect to pay or accept a
bill (in which case he must hold a valid import licence) but, unless power is expressly given
by the remitting Branch or bank, the "case of need" cannot authorise extension of time or
partial payment or storage or insurance of goods, etc.

3.23 International Chamber of Commerce has published Uniform Rules for Collection - ICC
Publication no. 522 which have come into effect from 1st January, 1996. These rules have
been adopted by India. They are reproduced in Appendix -VII. Branches should be guided
by these rules while handling Import Bills for Collection.

75
 (Annexure)

(Paragraph No 3.24)

GUIDELINES FOR HANDLING IMPORT BILLS - OPERATING PROCEDURE

1. The Operating Procedure is aimed at checking the incidence of fraudulent Import

Bills, i.e., where bills are drawn against non-existent imports and where almost all the
documents, notably Invoice(s), Bills of Lading/Airway Bills and Bills of Entry are fake. From
the Exchange Regulations perspective, the risk of fraudulent import bills is highest in the
case of bills received on collection basis, particularly those relating to new customers or
customers who do not avail of any credit facilities from the Authorised Dealer or customers
whose business relationship with the bank is by and large restricted only to the retiring of
import bills. Having regard to this, the business bona fides of importer-customers have to be
carefully verified. Instructions on the disposal/payment of import bills should be given at a
sufficiently senior level at the branch i.e., by Branch Manager or a Senior Officer in Scale IV.
These should be given in writing and the reasons for the decision should be clearly recorded.

2. Unless the competent senior officer of the bank i.e., Branch Manager or Senior Officer
in Scale IV, is fully satisfied about the financial status/standing of the importer by virtue of
long established track-record, the concerned Authorised Dealer should arrange to obtain a
Banker's Report or a Credit Report from a reputed credit agency on the overseas seller. The
Report from overseas bankers/reputed credit Agency (like Dun and Bradstreet) should, inter-
alia, specifically comment on whether the seller-firm is ordinarily engaged in purchase/ sale
of goods sought to be exported to India and whether the seller is good for ordinary business
engagements.

3. As a general rule, import bills and documents should be received from the banker of
the seller by the banker of the buyer in India. Authorised Dealer should not, therefore, make
remittances where import bills were received directly by the importers from the overseas
sellers, except in the following cases:
(a) Where the value of Import Bill does not exceed U.S.$ 300,000/-
(b) Import Bills received by wholly-owned Indian subsidiaries of foreign companies from
their principals.
(c) Import bills received by Premier Trading Houses, Star Trading Houses, Trading
Houses, Star Export Houses , Export Houses & 100% Export Oriented Units/Units in
Free Trade Zones, Public Sector Undertakings and Limited Companies.
(c) Import bills received by all limited companies viz. Public Limited, Deemed Public limited
and Private Limited Companies and all other cases, at the request of importer clients,
Authorised Dealers may receive import bills direct from the overseas seller up to U.S
$ 3,00,000.

76
(U.S. Dollars Three Hundred thousand only), provided the Competent Officer i.e. Branch
Manager or Senior Officer in Scale IV is fully satisfied about the financial standing/ status
and track record of the Importer Customer. Before extending the facility, Authorised Dealer
should obtain report on each individual Overseas Seller from the overseas banker or reputed
credit agency. The report need not be obtained in cases where the Invoice Value does not
exceed USD 100,000, provided that the branch is satisfied about the bonafides of the
transaction and track record of the Importer Constituent.
5. (a) As stated above, instructions on the disposal/payment of import bills should be
given at the level of Branch Manager or a Senior Officer in Scale IV taking into consideration
the following aspects:
i. The Import would be subject to the prevailing Foreign Trade Policy.
ii. The transactions are based on the commercial judgment and that the branch is
satisfied about the bonafides of the transactions.
iii. The Importer is a customer of the branch and the customer’s account is fully
compliant with extant KYC/ AML guidelines issued by the RBI.
iv. The branch should do due diligence exercise and should be fully satisfied about the
financial standing / status and track record of the Importer Customer.
v. It is customary in the trade to receive Import Documents directly from the overseas
Exporter
vi. In case the branch has suspicions about the genuineness of the transaction, it should
be reported through the Suspicious Transaction Report (STR) to FIU_IND (Financial
Intelligence Unit in India).
While carrying out due diligence the branch should consider the following:
i. Whether the Indian Customer is banking with the concerned branch for a reasonably
long period of time.
ii. Whether the Customer has availed of credit facilities from the branch.
iii. Whether the Bank has at any time examined the balance-sheet of the Customer
iv. Is the Customer an established dealer/trader/user of the goods sought to be
imported.
v. Whether the place of business/godowns etc. of the importer have been visited/
Inspected by the banks.
vi. Whether sales of the importing firm are regularly credited to its business account or
there are only occasional credits to the account. It should be also ascertained
whether credits are mostly by way of cash deposits, and also whether non-cash
deposits represent mostly pay-orders/drafts/cheques drawn on other
branches/branches of other banks by the importer; if so, whether credits represent
normal business funds or simple transfer of funds from one account to another
account.
b) Authorised Dealers should maintain a separate Import Bills Register to record full
particulars in chronological order of Import Bills received direct from the Sellers (now being
maintained in the computer system). Brief comments covering these points must be given in
the Import Bills Register so that Inspecting Officials are in a position to suitably cross-check

77
at a later date. The Register should be scrutinised by the Internal Auditors during the audit
and adverse features, if any, noticed should be incorporated in their Report.
c) Based on the above, and taking into account the track record and financial position
of the importer, the competent officer of the bank should take a decision on the
handling/retirement of the import bills. In case of doubt, the authorised dealer should, inter-
alia, insist on:
i. Detailed verification of the importer's books of accounts.
ii. Inspection of importer's place of work.
iii. Enquiries with some of the leading customers of the importer for establishing his
business bona fides.
iv. A comprehensive and wholly satisfactory Opinion Report from the bankers of the
overseas seller.
6. Authorised Dealers may consider the feasibility/desirability of restricting the business
of handling import documents to “A” and “B” category branches only. At centres where
Authorised Dealers have a number of “A” and “B” category branches, this restriction may not
lead to operational inconvenience for customers. In cases where documents are
received/handled by “C” category branches, the concerned “A”/”B” category branch which
has to effect the remittance must insist on a detailed status Report-cum-Certificate from the
Branch Manager of the “C” category branch. Where warranted, the “A”/”B” category Branch
Manager may depute an officer to make detailed enquiries at the “C” category branch to
establish bona fides of the customer.
7. Authorised Dealers should not view the above procedural precautions as being
relevant only to import bills received on collection basis. Since fraudulent import bills can be
the handiwork of cash-rich persons and their front-firms, it is not difficult for such firms to
open Letters of Credit favouring overseas nominees with cash margin even up to 100 %. In
all such cases, Authorised Dealers must note to follow the procedural drill detailed above so
that the financial antecedents of the Indian importer and the overseas seller are clearly
established.
8. Authorised Dealers must instruct the operating staff to scrutinise the Bills of Entry
submitted by importers with particular care. Though it is unlikely that a prima-facie scrutiny
can reveal the authenticity or otherwise of a bill of entry, yet on occasions obvious
inconsistencies/inaccuracies can be noticed which should put the bank-staff on further
enquiry. Branch Manager/Senior Officer in Scale IV may also, at his discretion and particularly
in respect of new/relatively new accounts through which import bills are being routed, send
copies of a few Bills of Entry (issued by non EDI ports) selected at random basis, more
particularly where they have any doubt about the authenticity of transactions, for verification
to the concerned office of Customs and follow up promptly for confirmation or report from
them. Authorised Dealers should preferably prepare and forward a list containing details of
the Bill of Entry such as serial number, date, amount, importer's name, item of import and
Tariff Heading to facilitate checking by the Customs, They may also depute their officials to
the Customs Office in such cases to get the Bills of Entry verified to ensure prompt follow-
up. All such correspondence should be kept on records for verification by the internal auditors
and inspecting officials of Reserve Bank.

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 Chapter – 4
HANDLING OF EXPORTS IN GENERAL
4.1 Export Business is a very important part of foreign exchange business and Branches
should endeavour to develop such business to the fullest extent possible. These notes
do not confer any special authority on Branches to undertake business without proper
sanction. The information and instructions contained herein cover the general aspect
of export business for the general guidance of Branches in the handling of Export Bills;
specific difficulties or problems should be referred to International Division, Head
Office., through respective Zonal Office.
Routing Business through our Foreign Branches
4.2 a) Head Office has issued repeated instructions to branches to route Foreign Exchange
Business emanating from their customers through our foreign branches to help our
foreign branches to improve their profitability and capture captive business.
b) All our Foreign Branches are fully equipped with infrastructure of latest technology
and are capable of rendering efficient and professional services in handling all foreign
exchange business including Collection of Export Bills from India. In fact, by routing
the business through our foreign branches, branches will be saving on time and cost
as our foreign branches will not levy any charges for crediting proceeds with foreign
correspondents with whom Nostro accounts are maintained. Our foreign branches can
directly advise the concerned branch about realization of bills by SWIFT as all major
branches have SWIFT Relationship Management Arrangement (RMA) arrangement with
our foreign branches. This will improve the level of service to our exporter customers.
Important FEMA guidelines relating to Export from India
4.3 a) Export Trade is regulated by the Directorate General of Foreign trade (DGFT) and
its Regional Offices, functioning under the Ministry of Commerce and Industry,
Department of Commerce, Govt. of India. Policies and procedures required to be
followed for exports from India are announced by the DGFT. Authorized Dealers may
conduct export transactions in conformity with the Foreign Trade Policy in vogue and
the Rules framed by the Govt. of India and the Directives issued by Reserve Bank
from time to time under FEMA, 1999. Regulations relating to Export of goods and
services from India vide Notification No. FEMA 23/2000 dated 3rd May, 2000, as
amended from time to time, referred to as FEMA (Exports of Goods and Services
Regulations), 2000. Exporters are required to follow the Notifications/ directions
issued by DGFT from time to time. Mostly these provisions are monitored by Customs
Authorities at the time of physical exports of commodities.
b) Authorized Dealers are required to conduct export transactions in conformity with
the Foreign Trade Policies in vogue and the Rules framed by the Govt. of India and
the Directives issued by Govt. of India from time to time.
C) An Export Transaction has two parts, viz. Export of Goods or Software (including
transmission of software through any electronic media) from India and Repatriation
of Export Proceeds into India. The repatriation of export proceeds into India is
monitored by Reserve Bank of India through Foreign Exchange Regulations under
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 FEMA Act. As an Authorized Dealer, it is our responsibility to ensure compliance with
the Foreign Exchange Regulations in respect of Export Bills handled by the Bank.
Some of the important Foreign Exchange Regulations relating to Indian Exports are
enumerated below:

i. Importer-Exporter Code No. :

Every person/ firm/ company, unless specifically exempted as per Foreign Trade
Policy, engaged in Export or Import business in India, should obtain Importer-
Exporter Code No. from the Director General of Foreign Trade and should invariably
indicate the number so allotted by DGFT on all the prescribed Export declaration
forms, and also in all correspondence of the Exporter with Authorised Dealers/ RBI.
ii. Uniform System of Numbering Export Bills
4.4 The Uniform Bill Numbering System covers all types of Export transaction, viz. (Now
taken care by computer system)
i) Negotiation of Documents under Export Letters of Credit

ii) Export Bills Purchased/Discounted.

iii) Export Bills sent for Collection,

iv) Bills pertaining to Export on Consignment Basis (Account Sale), and

ii) Shipments where part (or full) value of the Export is received in advance.
iii) All export transactions handled by an Authorised Dealer branch should be entered in
Export Bills Register (now maintained in the computer system)

iv) Bill Numbers so given to export bills should be prefixed by an alphabet to indicate
the type of bill, as per the following assignment.

Types of Bill Alphabetical Prefix

Bills Negotiated N

Bills Purchased P

Bills Discounted D

Bills Sent for Collection C

Bills pertaining to Export on

Consignment basis (Account Sale) A

Others (Miscellaneous) M

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 At the end of a financial year, the last serial number used in Export Bills Register should
be advised by each Authorised Dealer Branch to the Regional Office of Exchange Control
Department of the Reserve Bank of India. In all Statements and Returns as well as
correspondence with the Reserve Bank of India, the bill number should be indicated,
wherever required in the standard form only viz., six digits, prefixed by one of the
alphabets N, P, D, C, A or M as appropriate.
v) If it is desired to have additional specifications in the structure of the Export Bill
Number, such additional details should be kept outside the purview of the Uniform
System of Numbering of Bills by showing these details in a separate column in the Export
Bills Register.

Exchange Control (Export)

4.5 The extant FEMA guidelines require that all shipping documents covering the export
of goods from India must be passed through the medium of an Authorised Dealer in foreign
exchange. Payment for export of goods from India must be realised by exporters as
prescribed by FEMA. Exports from India are subject to an undertaking by the shipper that
foreign exchange representing the value of the merchandise shipped will be received in India
in an approved manner on the due date or within the maximum permitted time from the date
of shipment of goods whichever is earlier. The Exporter is required to invoice in free foreign
exchange and realise the exports proceeds accordingly.
4.6 As soon as the documents are Negotiated, Purchased or sent for Collection, Branches
must report the transaction to the Reserve Bank of India in ENC Statement in the prescribed
format under cover of appropriate R Supplementary Returns every fortnight to the Exchange
Control authorities.( now the submission of R Return for the entire bank has been centralized
& is being submitted by the Nodal Branch) It should be verified whether the items such as
Bill number,
Exporter's Code Number, GR/PP/SDF/SOFTEX Form Number, Customs Number, Total Invoice
Value - currency and amount, etc., are correctly filled up in the ENC Statement; Bill number
should be according to Uniform System of Numbering of Export Bills in the Export Bills
Register. (Numbering system under Finacle is amended and the branches under CBS to
follow the same).
Export Declaration Forms :
4.7 As per Foreign Exchange Regulations, every exporter of goods or software, in physical
form or through any other form, either directly or indirectly to any place outside India, other
than Nepal and Bhutan (except those exempted) should furnish a declaration in the
appropriate form, as indicated below ( Except the categories exempted from
declaration(listed as Annex-1), as per provisions of FEMA 1999:
i. GR Form – to be completed in Duplicate for exports other than by post including
export of software in physical form i.e. magnetic tapes/ disks and paper media;
ii. SDF Form to be completed in Duplicate and appended to the Shipping Bill, for exports
declared to Customs Offices, notified by the Central Govt. which have introduced
Electronic Data Interchange (EDI) system for processing shipping Bills notified by the
Central Govt.
iii. PP Form – to be completed in duplicate for export by post and
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 iv. SOFTEX form – to be completed in triplicate for declaration of export of computer
software and Audio, Video, Television Software, other than in physical software i.e.
magnetic Tapes/ Disks and Paper Media.

4. In respect of export of services, to which none of the specified forms apply, the
exporter may export such services without furnishing any declaration, but shall be liable to
realize the amount of foreign exchange which become due or accrue on account of such
exports and to repatriate the same to India in accordance with the provision of the FEMA
1999. GR/PP and SOFTEX Forms will bear specific identification numbers. In all
applications/ correspondence, with the Reserve Bank, this identification number should
invariably be cited. In the case of declaration made on SDF form, the Port Code No. and
Shipping Bill No. should be cited.
Grant of GR waiver:

(i) AD Category – I banks may consider requests for grant of EDF waiver from exporters
as under Status holders shall be entitled to export freely exportable items (excluding Gems
and Jewellery, Articles of Gold and precious metals) on free of cost basis for export promotion
subject to an annual limit of Rupees One Crore or 2% of average annual export realisation
during preceding three licensing years, whichever is lower. For export of pharma products
by pharmaceutical companies, the annual limit would be 2% of average annual export
realisation during preceding three licensing years. In case of supplies of pharmaceutical
products, vaccines and lifesaving drugs to health programmes of international agencies such
as UN,WHO-PAHO and Government health programmes, the annual limit shall be upto 8%
of the average annual export realisation during preceding three licensing years. Such free of
cost supplies shall not be entitled to Duty Drawback or any other export incentive under any
export promotion scheme.
(ii) Export of goods not involving any foreign exchange transaction directly or indirectly
requires the waiver of GR/PP procedure from the RBI

G.R. / P.P./SDF/SOFTEX PROCEDURE

4.9 (a) GR forms should be completed by the exporter in duplicate and both the copies
submitted to the Customs at the port of shipment along with the shipping bill. The exporter
should declare the discount, agency commission etc., payable in the appropriate column of
GR form. Customs will give their running serial number on both the copies after admitting
the corresponding shipping bill. The Customs serial number will have ten numerals denoting
the code number of the port of shipment, the calendar year and a six digit running serial
number. Customs will certify the value declared by the exporter on both the copies of the
GR form at the space earmarked and will also record the assessed value. They will then
return the duplicate copy of the form to the exporter and retain the original for transmission
to Reserve Bank. Exporters should submit the duplicate copy of the GR form again to
Customs along with the cargo to be shipped. After examination of the goods and certifying
the quantity passed for shipment on the duplicate copy, Customs will return it to the exporter
for submission to the Authorised Dealer for negotiation or collection of export bills.
(b) Within twenty one days from shipment of goods, exporter should lodge the duplicate
copy together with relative shipping documents and customs certified copy of the invoice
82
with the Authorised Dealer named on the GR form. After the documents have been
negotiated/ sent for collection, the Authorised Dealer should report the transaction to
Reserve Bank in statement ENC under cover of appropriate R-Supplementary Return. The
duplicate copy of the form together with a copy of invoice will be retained by the
authorised dealer till full export proceeds have been realised and thereafter reported to
Reserve Bank in appropriate R Supplementary Return.
(c) However,in cases where EC copy of shipping bill is not printed in terms of CBEC’s
Circular No. 55/2016-Customs dated November 23, 2016 and data of shipping bill is
integrated with EDPMS, requirement of submission of EC copy of shipping bill with the AD
bank would not be there. The question of disposal of EC copy of shipping bill will not arise
where EC copy of shipping bill is not printed in terms of CBEC’s Circular No.55/2016-Customs
dated November 23, 2016 and data of shipping bill is integrated with EDPMS.
(d) Authorised Dealer should however ensure by random check of the Duplicate Forms
by the Internal/ Concurrent auditors to confirm that non-realisation or short-realisation
allowed, if any, is within the powers delegated to them or has been duly approved by RBI
wherever necessary.
NOTE : In the case of exports made under Deferred Credit Arrangement or to joint ventures
abroad against equity participation or under Rupee Credit Agreement, the number and date
of Reserve Bank approval and/or number and date of the relative A.D. circulars should be
recorded at the appropriate place on the GR form.
Where duplicate copy of GR form is misplaced or lost, AD may accept another copy of GR
form, duly certified by Customs.
(e) In cases where ECGC and private insurance companies, regulated by IRDA initially
settles the claims of exporters in respect of exports insured with them and subsequently
receives the export proceeds from the buyer/buyer's country through the efforts made by
them, the share of exporters in the amount so received is disbursed through the bank which
had handled the shipping documents. In such cases, ECGC and private insurance companies
will issue a certificate to the bank, which had handled the relevant shipping documents after
full proceeds have been received. The certificate will indicate the number of declaration
form, name of exporter, name of the Authorized Dealer, date of negotiation/ bill number,
invoice value and the amount actually received by ECGC and private insurance companies
regulated by IRDA. It will be in order for Authorised Dealers to certify the Duplicate GR form
on the basis of the certificate issued by ECGC and private insurance companies and report
them to Reserve Bank.

(f) Where a part of export proceeds are credited to EEFC account, the GR Duplicate
forms may be certified as under:
"Proceeds amounting to ………..representing __% of the Export Realisation credited to EEFC
account maintained by the exporter with ………."
4.10 On receiving copies of G R forms from an Exporter Customer, Branches must ensure
that the bill of exchange is drawn for the full amount of the invoice and that any deductions
by way of discounts, commission, charges, freight or insurance charges are properly
accounted for in the invoice. The attention of Branches is invited to the extant Foreign
Exchange Regulations in terms of which Branches must check the bill and other documents
with the particulars stated on the form and satisfy themselves that the exchange control
83
requirements are met. In examining G R forms received from an exporter, Branches must
see that the word "Seller" or "Consignor" on the forms is deleted as appropriate, depending
on whether the export is an actual sale or is made on a consignment basis. The number and
date of the relative Shipping Bill should be clearly indicated in the column provided in the
form.
4.11 Trade Discount/ Agency Commission, if payable, should invariably be declared by the
exporter on both copies of G R form before submission of the form to the Customs. However
if commission is not declared on GR form commission can be remitted, as per extant FEMA
guidelines.

4.12 After the proceeds of Bill have been received in full, branches must certify on the
Duplicate of the G R form that the full invoice value of the goods exported has been received
in an approved manner. The particulars of certificate (that full proceeds of exports are
received in an approved manner) on the Duplicate Copy of the GR form should be completed
in accordance with the approved methods of payment as per extant guidelines of Reserve
Bank of India. As per present guidelines, Duplicate Copy of GR form is not sent to RBI on
receipt of payment of the bill in full but only reported in R-Return for the relevant period.
GR forms are now available on-line on the RBI‘s website. Exporters now have option to use
the GR forms available on-line as well.
PP Form:
4.13 The manner of disposal of PP forms is the same as that for GR forms. Postal
Authorities will allow export of goods by post only if the Original Copy of the form has been
countersigned by an Authorised Dealer. Exporter should therefore, first present PP forms to
an Authorised Dealer for countersignature. Authorised dealers will countersign the forms only
for their regular exporter customers in accordance with regulations explained below and
return the original copy to the exporter, who should submit the form to the Post Office with
the parcel. The duplicate copy of PP form will be retained by the Authorised Dealer to whom
the exporter should submit relevant documents together with an extra copy of invoice for
Negotiation/Collection, within the prescribed period of twenty one days.

Countersignatures on PP forms
4.14 PP Forms will be presented by the Exporter to an Authorised Dealer for
countersignature. Authorised Dealers should countersign PP forms after ensuring that the
parcel is being addressed to their branch or correspondent bank in the country of import.
The concerned overseas branch or correspondent should be instructed to deliver the parcel
to consignee against payment or acceptance of relative bill. Authorised Dealers may,
however, countersign PP forms covering parcels addressed directly to the consignees,
provided:
(a) Irrevocable Letter of Credit for the full value of the export has been opened in favour
of exporter and has been advised through Authorised Dealer concerned;
or
(b) the full value of the shipment has been received in advance by the Exporter through
an Authorised Dealer;
84
 or

(c) the Authorised Dealer is satisfied, on the basis of the standing and track record of
the exporter and the arrangements made for realisation of the export proceeds.
In such cases, particulars of Advance Payment/Letter of Credit/Authorised Dealer's
Certification of Standing etc. of the exporter should be furnished on the form under
proper authentication. Any alteration in the name and address of consignee on the
PP form should also be authenticated by the Authorised Dealer under his stamp and
signature.

4.15 SDF (Statutory Declaration Form) Procedure (Exports made otherwise than
by Post):
a) On account of introduction of Electronic Data Inter-change, (EDI) System at certain
Customs Offices where Shipping Bills are processed electronically, the existing
declaration in GR form is replaced by a Declaration in form SDF (Statutory Declaration
Form).
b) The SDF form should be submitted in Duplicate (to be annexed to the relative
shipping bill) to the concerned Commissioner of Customs.
c) After verifying and authenticating the declaration in form SDF, the Commissioner of
Customs will hand over to the Exporter, one copy of the shipping bill marked
‘Exchange Control Copy ‘to which form SDF has been appended for being submitted
to the Authorised Dealer within 21 days from the date of export.
d) The Authorised Dealer should accept the Exchange Control (EC) copy of the Shipping
Bill and form SDF appended thereto, submitted by the exporter for collection/
negotiation of Shipping documents.
e) The manner of disposal of EC copy of shipping Bill (and form SDF appended thereto)
is same as that for GR forms.
f) After the documents have been negotiated/ sent for collection, the AD branch shall
report the transaction through Export Data Processing and Monitoring System
(EDPMS) to the Reserve Bank and retain the documents at their end.
g) The Duplicate copy of the form together with a copy of invoice will be retained by the
Authorised Dealer till full Export proceeds have been realised.
h) Authorised Dealers should, however, ensure by random check of the Duplicate forms
by their Internal / Concurrent Auditors to confirm that Non-Realisation or Short
Realization allowed, if any, is within the powers delegated to them or has been duly
approved by Reserve Bank, wherever necessary.

Certification for EEFC Credits

Where a part of the export proceeds are credited to an EEFC account, the Export Declaration
(Duplicate) form may be certified as under:

85
"Proceeds amounting to ……representing ….. Per cent of the export realisation credited to
the EEFC account maintained by the Exporter with "

Exports by Air
In the absence of Negotiable Shipping Documents in case of air consignments, exporters
sending goods by air run the risk of losing value of goods, if they are consigned directly to
overseas buyer/consignee and not to the overseas branch/correspondent of an Authorised
Dealer, except where they are covered by irrevocable letter of credit opened by buyer for
the full value of the goods or payment towards the full value of the goods has been received
in advance. Exporters will, therefore, be well advised to consign the goods in such cases to
the concerned overseas branch/correspondent of the authorised dealer through whom
shipping documents will be forwarded for collection, to enable the latter to instruct the
overseas branch/correspondent to arrange for issue of delivery order in favour of buyer on
payment or acceptance of bill drawn by the shipper.

Consolidation of Air Cargo/ Sea Cargo

(a) Consolidation of Air Cargo

i. Where Air Cargo is shipped under Consolidation, the airline company‘s Master
Airway Bill will be issued to the Consolidating Cargo Agent. The Cargo Agent
in turn will issue his own House Airway Bills (HAWBs) to individual shippers.
ii. Authorized Branches may negotiate HAWBs only if the relative Letter of Credit
specifically provides for Negotiation of these documents in lieu of Airway Bills
issued by the Airline Company.

(b) Consolidation of Sea Cargo

i. AD Category – I banks may accept Forwarder’s Cargo Receipts (FCR) issued by

IATA approved agents, in lieu of bills of lading, for negotiation / collection of
shipping documents, in respect of export transactions backed by letters of credit,
if the relative letter of credit specifically provides for negotiation of this document,
in lieu of bill of lading even if the relative sale contract with the overseas buyer
does not provide for acceptance of FCR as a shipping document, in lieu of bill of
lading

ii. Further, Authorized Dealers may, at their discretion, also accept FCR issued by
Shipping companies of repute/IATA approved agents (in lieu of bill of lading), for
purchase/discount/collection of shipping documents even in cases, where export
transactions are not backed by letters of credit, provided their 'relative sale
contract' with overseas buyer provides for acceptance of FCR as a shipping
document in lieu of bill of lading. However, the acceptance of such FCR for
purchase/discount would purely be the credit decision of the bank concerned who,
among others, should satisfy itself about the bona fides of the transaction and the
track record of the overseas buyer and the Indian supplier since FCRs are not
negotiable documents. It would be advisable for the exporters to ensure due
diligence on the overseas buyer, in such cases.

86
Documents by Exporters
4.16 In cases where exporters present documents pertaining to exports after the prescribed
period of twenty one days from date of export, but within reasonable period Authorised
Dealers may handle them without prior approval of Reserve Bank, provided they are
satisfied that delay was due to reasons beyond the control of exporter.

Check-list for Scrutiny of Forms

4.17 “A”&“B” Category Branches to ensure that:

(i) The number on the Duplicate Copy of a GR form presented to them is the same as
that of the original which is usually recorded on the Bill of Lading/Shipping Bill and the
Duplicate has been duly verified and authenticated by Appropriate Customs Authorities.
(ii) The Shipping Bill No. on the SDF form should be the same as that appearing on the
Bill of Lading.
(iii) In the case of c.i.f., c.& f. etc. contracts here the freight is sought to be paid at
destination, that the deduction made is only to the extent of freight declared on GR/SDF
form or the actual amount of freight indicated on the Bill of Lading/Airway Bill, whichever is
less.
(iv) The documents submitted do not reveal any material inter se discrepancies in regard
to description of goods exported; export value or country of destination.
(v) Where the Marine Insurance is taken by the exporters on Buyer‘s account to verify,
that the actual amount paid is received from the buyer through invoice and the bill.
(vi) To accept the Bill of Lading/Airway Bill issued on ‘freight prepaid‘ basis where the sale
contract is on f.o.b., f.a.s. etc. basis provided the amount of freight has been included in the
invoice and the bill.
(vii) To Negotiate the documents, in cases where the documents are being negotiated by
a person other than the exporter who has signed GR/PP/SDF /SOFTEX Form for the Export
Consignment concerned, after ensuring compliance with Regulation 12 of Foreign Exchange
Management (Export of Goods and Services) Regulations, 2000
(viii) To accept the variations in the value declared to the customs authorities and that is
reflected on the export documents which stem from the terms of contract, on production of
documentary evidence after verifying the arithmetical accuracy of the calculations and on
confirming the terms of underlying contracts. Some such instances (where the values
declared to the customs authorities and that shown on the documents may differ) are
enumerated hereunder:

a.The export realisable value may be more than what was originally declared to/accepted
by the Customs on the GR/SDF form in certain circumstances such as where in c.i.f.
or
c. & f. contracts, part or whole of any freight increase taking place after the contract
was concluded, is agreed to be borne by buyers or where as a result of subsequent
devaluation of the currency of the contract, buyers have agreed to an increase in
price.

87
 b. In certain lines of export trade, the final settlement of price may be dependent on
the results of quality analysis of samples drawn at the time of shipment; but the
results of such analysis will become available only after the shipment has been made.
Sometimes, contracts may provide for payment of penalty for late shipment of goods
in conformity with trade practice concerning the commodity. In these cases, while
exporters declare to the Customs the full export value based on the contract price,
invoices submitted along with shipping documents for negotiation/ collection may
reflect a different value arrived at after taking into account the results of analysis of
samples or late shipment penalty, as the case may be.

c. To accept for negotiation or collection the bills for exports by sea or air which fall
short of the value declared on GR/SDF forms on account of trade, only if the discount
has been declared by the exporter on relative GR/SDF form at the time of shipment
and accepted by Customs.

Trade Discount
4.18
i) Bills in respect of exports by sea or air which fall short of the value declared on
GR/SDF forms on account of trade discount may be accepted for negotiation or collection by
Authorised dealers only if the discount has been declared by exporter on relative GR/SDF
form at the time of shipment and accepted by customs.
ii) In case of exports by post parcel against declaration on PP forms, post offices will
not undertake scrutiny of trade discount deduction, if any, declared on the forms. Authorised
dealers may accept deductions towards trade discount in such cases, provided the discount
declared is in conformity with the normal level of discount usually offered in the particular
line of export trade.
Return of Documents to Exporter
4.19 The duplicate copies of GR/PP/SDF forms and shipping documents, once submitted
to authorised dealers for negotiation, collection, etc. should not ordinarily be returned to
exporters, except for rectification of errors and resubmission.

Handing Over Negotiable copy of Bill of Lading to Master of Vessel / Trade

Representative
4.20 Authorised dealers may deliver one negotiable copy of the Bill of Lading to the Master
of the carrying vessel or trade representative, in respect of exports to certain landlocked
countries if the shipment is covered by an irrevocable letter of credit and the documents
conform strictly to the terms of the Letter of Credit which, inter alia, provides for such
delivery.

88
4.21 Export Bills Register
Authorised dealers should maintain Export Bills Register in physical or electronic form duly
entering all types of export transactions and incorporating the followingdetails :
Details of GR/SDF/PP/SOFTEX form Number;
Due date of payment, the fortnightly period of R- supplementary Return with which
ENC statement, covering the transaction was sent to Reserve bank;
And the period of R supplementary Return (reporting realization) submitted to
Reserve Bank.
i) Authorised dealers should ensure that all types of export transactions are entered in
the Bills Register and are given bill numbers on Financial year basis (i.e. April to
March). The bill numbers should be recorded in ENC statement and other relevant
returns submitted to Reserve Bank.
ii) While handling documents against exports, authorised dealers should record against
relative entry in Bills Register, the amount of commission and/or discount declared
by exporters on GR/PP/SDF forms to facilitate reference while dealing with
applications for remittance/deduction from the invoice on account of
commission/discount.

AD Category – I banks should maintain Export Bills Register, in physical or electronic

form aligned with Export Data Processing and Monitoring System (EDPMS). The bill
number should be given to all type of export transactions on a financial year basis
(i.e. April to March) and same should be reported in EDPMS.

Follow-up of Overdue Bills

4.22 (i)Authorised dealers should closely watch realisation of bills through Bills Register and,
in cases where bills remain outstanding beyond the due date for payment or 9 months
from the date of export, they should take up the matter promptly with exporter
concerned. If exporter fails to arrange for delivery of the proceeds on the due date/
within 9 months or seek extension of time beyond 9 months, the matter should be
reported to Reserve Bank stating, where possible, the reason for the delay in
realisation of proceeds of the exports. The duplicate copies of GR/PP/SDF/SOFTEX
forms should, however continue to be held by authorised dealer until full proceeds
are realised except in case of undrawn balances. Authorised dealers should follow up
export outstanding with exporters systematically and vigorously and retain copies of
reminders as record so that action against defaulting exporters does not get delayed.
Any laxity noticed in the follow up of realisation of export proceeds by authorised
dealers will be viewed seriously by Reserve Bank leading to the invocation of the
penal provision under FEMA, 1999.
(ii) The stipulation of 9 months or extended period thereof for realization of export
proceeds is applicable for units located in Special Economic Zones ( SEZs). Authorised
dealers should furnish to Reserve Bank half yearly a consolidated statement in form
XOS giving details of all export bills outstanding beyond six months from the date of
export at the end of June and December every Year within 15 days from the close
of the half year.
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 (iii) With operationalization of EDPMS on March 01, 2014, realization of all export
transaction for shipping documents after February 28, 2014 should be reported in EDPMS.

4.23 Reduction in Invoice Value on account of pre-payment of Usance Bills :

Whenever Authorised Dealers are approached by exporters for reduction in Invoice value on
account of cash discount to overseas buyers for pre-payment of Usance Bills, ADs may allow
cash discount to the extent of amount of proportionate interest of the unexpired period of
Usance, calculated at the rate of interest stipulated in the export contract or at the prime
rate/ LIBOR of the currency of invoice where rate of interest is not stipulated in the contract.

Reduction in Invoice Value in other cases

4.24 i) If after a bill has been negotiated or sent for collection, the amount thereof is desired
to be reduced for any reason, authorised dealer may approve such reduction, if satisfied
about genuineness of the request, provided :
a) the reduction does not exceed 25% of invoice value as per current guidelines of RBI.
b) It does not relate to export of commodities subject to floor price stipulations.
c) the exporter is not on the exporters' caution list of Reserve Bank, and.
d) the exporter is advised to surrender proportionate export incentives availed of, if any.

ii) In the case of exporters who have been in the export business for more than three years,
reduction in invoice value may be allowed, without any percentage ceiling, subject to the
above conditions as also subject to their track record being satisfactory i.e. the export
outstandings do not exceed 5% of the average annual export realisations during the
preceding three financial years. For this purpose, the exporters' declaration, duly certified by
his auditor or by a Chartered Accountant, indicating the total export realisation for three
financial years and the export bills outstanding beyond the prescribed period for realisation
of export proceeds and average outstandings in absolute and percentage terms would be
required to be furnished. For the purpose of reckoning the percentage of outstanding export
bills to average export realisations during the preceding three financial years, outstanding
export bills in respect of exports made to countries facing externalisation problems may be
ignored provided the payments have been made by the buyers in the local currency.

4.25 Self write-off and extension of time by the exporters:

All exporters (Including Status Holder exporters) have been allowed, subject to certain
terms and conditions to
a) Write off (including reduction in invoice value) outstanding export dues and,
b) Extend the prescribed period of realisation beyond 12 months or further period as
applicable ,

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Provided the aggregate value of such export bills written off (including reduction in invoice
value) and bills extended for realisation does not exceed 10 per cent of the export proceeds
due during the financial year and such export bills are not a subject of investigation by
Enforcement Directorate/ Central Bureau of investigation or any other investigating agencies.
4.26 Exporters dealing with more than one authorised dealer can avail of this facility
through each AD. Exporters operating under a consortium of banks or with multiple banks
can also compute the 10 per cent limit on aggregate basis with all the banks provided the
lead bank of the consortium or nodal bank in case of multiple banking undertakes to verify
the annual performance of the exporter on behalf of all the banks.
Within a month from the close of the financial year, exporters should submit a statement,
giving details of export proceeds due, realised and not realised to the concerned Authorised
Dealer. The Authorised Dealer will be required to verify the statement with his records and
review the export performance of the exporter during the financial year to ascertain that in
cases where the 10 per cent limit of self extension, write-off (including reduction in invoice
value) and non-realisation has been breached, the exporter has sought necessary approval
for write-off, reduction in invoice value or extension of time, as the case may be, for the
excess over the 10 per cent limit before the end of the financial year. Export bills due in the
financial year for which the exporter has extended the period of realization on his own (within
the 10 per cent limit) or sought extension of time from the Authorised dealer but unrealized
as at the end of the financial year will be computed for export proceeds due in the following
financial year. In cases where exporters have failed to comply with this requirement,
Authorised Dealers may promptly advise the said exporter to seek extension of time/
reduction in invoice value/ write-off in respect of non-realisation in excess of the 10 per cent
limit, failing which, the Authorised Dealers may inform the exporter about the withdrawal of
this facility of self write-off/ extension of time, within a month, under advice to the concerned
Regional Office of the Reserve Bank.
i) Requests received from exporters as above may be dealt with by the Authorised
Dealers as per the existing instructions relating to extension of time for realisation of
export proceeds, reduction in invoice value and write-off issued by the Reserve Bank.
ii) The documentary evidence received by the authorised dealer should be kept for a
period of two years or till their verification by the Reserve Bank's Inspectors,
whichever is earlier. Where there is no further amount to be realised against the
GR/PP/SDF form covered by the write off, authorised dealer should certify the
duplicate form as under:
“Write off of --------- (Amount in words and figures) permitted in terms of extant Directions
to AD Category -1 banks”
Date------ Stamp & Signature of Branch official.

Extension of Time Limit

4.27
(i) As per current directives, RBI have permitted ADs to extend without any reference to RBI
beyond 12 months from the date of export, up to a period of 6 months, at a time, irrespective
of the invoice value of the export subject to the following conditions:
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 a. The AD is satisfied that the exporter has not been able to realize export
proceeds for reasons beyond his control.
b. The exporter submits a declaration that he will realize the export proceeds
during the extended period.
c. The export transactions covered by the invoices are not under investigation
by Enforcement Directorate/Central Bureau of Investigation or other
investigating agencies.
d. While considering extension beyond one year from the date of export, the
total outstanding of the exporter does not exceed USD one million or 10 per
cent of the average export realization during the preceding three financial
years, whichever is higher.
e. All the export bills outstanding beyond six months from the date of export
may be reported in XOS statement. However, where extension of time has
been granted by the Authorised Dealer, the date up to which extension has
been granted may be indicated in the ‘Remarks‘ column.. .
f. In cases where the exporter has filed the suits against the importer abroad,
extension may be granted irrespective of the amount involved/ outstanding.
(iv) In case where an exporter has not been able to realise proceeds of a shipment made
within the extended period for reasons beyond his control, but expects to be able to realise
proceeds if further extension of the period is allowed to him, as well as in respect of cases
not covered in para (i) above necessary application (in duplicate) for the purpose should be
made to Reserve Bank of India in form ETX together with appropriate documentary evidence.
(v) Cases which are not covered by the above instructions would require prior approval
from the concerned Regional Office of the Reserve Bank.
(vi) Reporting should be done in EDPMS.

Write-off of unrealised Export Bills

4.28 (i) An exporter who has not been able to realise the outstanding export dues despite
best efforts, may either self write off or approach the AD banks, who had handled the
relevant shipping documents, with appropriate supporting documentary evidence with a
request for write off of the unrealised portion subject to the fulfillment of stipulations
regarding surrender of incentives prior to”write-off” adduced in the A.P. (DIR Series) Circular
No. 03 dated 22 July 2010.
After liberalizing and simplifying the procedure, limits prescribed for “write-offs” of unrealized
export bills are as under:
a. Self “write-off” by an exporter (Other than Status Holder Exporter) 5%*
b. Self “write-off” by Status Holder Exporters 10%*
c. ‘Write-off” by Authorized Dealer Bank- 10%*
*of the total export proceeds realized during the previous calendar year.

(ii). The above limits will be related to total export proceeds realized during the previous
calendar year and will be cumulatively available in a year.
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(iii) The above “write-off” will be subject to conditions that the relevant amount has remained
outstanding for more than one year, satisfactory documentary evidence is furnished in
support of the exporter having made all efforts to realize the dues, and the case falls under
any of the undernoted categories:
a) The overseas buyer has been declared insolvent and a certificate from the
official liquidator indicating that there is no possibility of recovery of export
proceeds has been produced.
b) The overseas buyer is not traceable over a reasonably long period of time.
c) The goods exported have been auctioned or destroyed by the Port / Customs /
Health authorities in the importing country.
d) The unrealized amount represents the balance due in a case settled through the
intervention of the Indian Embassy, Foreign Chamber of Commerce or similar
Organization;
e) The unrealized amount represents the undrawn balance of an export bill (not
exceeding 10% of the invoice value) remaining outstanding and turned out to be
unrealizable despite all efforts made by the exporter;
f) The cost of resorting to legal action would be disproportionate to the unrealized
amount of the export bill or where the exporter even after winning the Court case
against the overseas buyer could not execute the Court decree due to reasons
beyond his control;
g) Bills were drawn for the difference between the letter of credit value and actual
export value or between the provisional and the actual freight charges but the amount
has remained unrealized consequent on dishonour of the bills by the overseas buyer
and there are no prospects of realization.
iv) The exporter has surrendered proportionate export incentives (for the cases not covered
under A. P. (DIR. Series) Circular No.03 dated July 22, 2010), if any, availed of in respect of
the relative shipments. The AD Category – I banks should obtain documents evidencing
surrender of export incentives availed of before permitting the relevant bills to be written off.
v) In case of self write-off, the exporter should submit to the concerned AD bank, a Chartered
Accountant’s certificate, indicating the export realization in the preceding calendar year and
also the amount of write-off already availed of during the year, if any, the relevant GR / SDF
Nos. to be written off, Bill No., invoice value, commodity exported, country of export. The
CA certificate may also indicate that the export benefits, if any, availed of by the exporter
have been surrendered.
vi) However, the following would not qualify for the “write off” facility :
a. Exports made to countries with externalization problem i.e. where the overseas
buyer has deposited the value of export in local currency but the amount has not been
allowed to be repatriated by the central banking authorities of the country.
b.GR / SDF forms which are under investigation by agencies like, Enforcement
Directorate, Directorate of Revenue Intelligence, Central Bureau of Investigation, etc. as also
the outstanding bills which are subject matter of civil / criminal suit.

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vii) The respective AD banks may forward a statement in form EBW, to the Regional Office
of Reserve Bank under whose jurisdiction they are functioning, indicating details of write-
offs allowed under this circular.
viii) The internal inspectors or auditors (including external auditors appointed by authorised
dealers) should carry out random sample check / percentage check of “write-off” outstanding
export bills.
ix) Cases not covered by the above instructions / beyond the above limits, may be
referred to the concerned Regional Office of Reserve Bank of India.
x) Where there is no further amount to be realized against the GR/PP/SDF form, covered
by the write off, AD should certify the duplicate form as under:
―Write off of ---------- (Amount in words and figures) permitted in terms of extant
Directions to Authorised Dealers.

Date ---------------

Write off in cases of Payment of Claims by ECGC and private insurance companies
4.29 Where export has been covered by a policy issued by ECGC/ private insurance
companies, settlement of a claim by them does not absolve the exporter of the
obligation to Exchange Control undertaken on the GR/PP/SDF form to realise proceeds
of the export within prescribed period. In such cases, exporter should, in consultation
with ECGC/ private insurance companies, take all necessary steps for realising the
proceeds. Authorised dealers should also continue to hold the duplicate copies of
GR/PP/SDF forms in their custody and initiate follow-up measures in the normal manner.
AD Category – I banks shall, on an application received from the exporter supported by
documentary evidence from the ECGC and private insurance companies regulated by
IRDA confirming that the claim in respect of the outstanding bills has been settled by
them, write off the relative export bills in EDPMS. Such write off will not be restricted
to the limit of 10%, indicated in paragraph above. Surrender of incentives, if any, in
such cases will be as provided in the Foreign Trade Policy. The claims settled in Rupees
by ECGC and private insurance companies should not be construed as export realisation
in foreign exchange and claim amount should not be allowed to be credited to EEFC.
Write off in other cases
Cases which are not covered by the above instructions will require prior approval from the
Regional Office concerned of the Reserve Bank.
4.30 Export Claims :
ADs may remit export claims on application, provided the relative export proceeds have
already been realised and repatriated to India and the exporter is not on the caution list of
Reserve Bank. In all such cases of remittances, the exporter should be advised to surrender
proportionate export incentive, if any, received by him.
4.31 Change of Buyer/consignee
Prior approval of Reserve Bank is not necessary if, after goods have been shipped, they are
to be transferred to a buyer other than the original buyer in the event of default by the latter,
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provided the reduction in value, if any, involved does not exceed 25% and the realisation of
export proceeds is not delayed beyond the period of 12 months from the date of export.
Where the reduction in value exceeds 25%, all other relevant conditions stipulated in
paragraph 4.24(Reduction in Invoice Value) of this manual should also be satisfied.
4.32 Shipment Lost in Transit:
When shipments from India for which payment has not been received either by negotiation
of bills under letters of credit or otherwise are lost in transit, the AD branches must ensure
that insurance claim is made as soon as the loss is known.
In cases where the claim is payable abroad, the AD branches must arrange to collect the full
amount of claim due on the lost shipment, through the medium of his overseas
branch/correspondent and release the duplicate copy of GR/SDF/PP form only after the
amount has been collected.
A certificate for the amount of claim received should be furnished on the reverse of the
duplicate copy.

AD branch should ensure that amounts of claims on shipments lost in transit which are
partially settled directly by shipping companies/airlines under carrier‘s liability abroad are
also repatriated to India by exporters.

4.33 Netting off of export receivables against import payments – Units in special
Economic zones (SEZs):
Authorised Dealers may allow requests received from exporters for ‘netting off‘ of export
receivables against import payments for Units located in Special Economic Zones, subject
to the following :
1) The “netting off‘ of export receivables against import payments is in respect of the
same Indian entity and the overseas buyers/ suppliers (bilateral netting) and the
netting may be done as on date of balance sheet of the Unit in SEZ.
2) the details of export of goods is documented in EDF (O) Forms/ DTR as the case
may be while details of import of goods/ services is recorded through A1 / A2 form
as the case may be. The relative SDF forms will be treated as complete by the
designated Authorised Dealer only after the entire proceeds are adjusted/ received.
3) Both the transactions of sale and purchase in ‘R‘Returns under FET/ERS are reported
separately.
4) The export/ import transactions with ACU countries are kept outside the arrangement.
5) All the relevant documents are submitted to the concerned Authorised dealer, who
should comply with all the regulatory requirements relating to the transactions.
4.34 Set-off of export receivables against import payables : AD category –I
banks may deal with the cases of set-off of export receivables against import payables,
subject to following terms and conditions:
a. The import is as per the Foreign Trade Policy in force.

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 b. Invoices/Bills of Lading/Airway Bills and Exchange Control copies of Bills of Entry
for home consumption have been submitted by the importer to the Authorized Dealer
bank.
c. Payment for the import is still outstanding in the books of the importer.
d. Both the transactions of sale and purchase may be reported separately in ‘R’
Returns.
e. The relative GR EDF forms will be released by the AD bank only after the entire
export proceeds are adjusted / received.
f. The ” set-off” of export receivables against import payments should be in respect
of the same overseas buyer and supplier and that consent for ”set-off” has been
obtained from him.
g. The export / import transactions with ACU countries should be kept outside the
arrangement.
h. All the relevant documents are submitted to the concerned AD bank who should
comply with all the regulatory requirements relating to the transactions.

4.35 Payment of Agency Commission on exports

1) ADs may allow payment of commission, either by remittance or by deduction from
invoice value, on application submitted by the exporter. The remittance on agency
commission may be allowed subject to the following conditions:
a. Amount of commission has been declared on EDF/SDF/PP/SOFTEX form and
accepted by the Customs authorities or Ministry of Information Technology, Govt. of
India/ EPZ authorities as the case may be. In cases where the commission has not
been declared on EDF/SDF/PP/SFOFTEX form, remittance may be allowed after
satisfying the reasons given by the exporter for not declaring commission on Export
Declaration Form, provided a valid agreement/ written understanding between the
exporter and/or beneficiary for payment of commission exists.
b. The relative shipment has already been made.
2) Authorised Dealers may allow payment of commission by Indian exporters, in respect
of their exports covered under counter trade arrangement through Escrow Accounts
designated in U.S. Dollar, subject to the following conditions:
a. The payment of commission satisfies the conditions as at (a) and (b)
stipulated in paragraph above.
b. The commission is not payable to Escrow Account holders themselves.
c. The commission should not be allowed by deduction from the invoice value.
NOTE: Payment of commission is prohibited on exports made by Indian Partners towards
equity participation in an overseas joint venture/ wholly owned subsidiary as also exports
under Rupee Credit Route (except commission up to 10% of invoice value of export of tea
and tobacco.)
4.36 Refund of Export Proceeds:

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Authorised Dealers through whom the export proceeds were originally received, may
consider requests for refund of export proceeds of goods exported from India and being
reimported into India on account of poor quality, etc.,While permitting such transactions,
Authorised Dealers are required to :.
i. exercise due diligence regarding the track record of the exporter,
ii. verify the bonafides of the transactions
iii. obtain from the exporter a certificate issued by DGFT/Custom authorities that no
incentives have been availed by the exporter against the relevant export or the
proportionate incentives availed, if any, for the relevant export have been surrendered;
iv. obtain an undertaking from the exporter that the goods will be re-imported within
three months from the date of remittance; and
v. ensure that all procedures as applicable to normal imports are adhered to.

4.37 Exporters’ Caution List :

1) Caution Listing/ de-caution Listing of exporters is automated in EDPMS. The updated list
of caution listed exporters can be accessed through EDPMS on a daily basis. Criteria laid
down for cautioning/ de-cautioning of exporters in EDPMS are as under:

(a) The exporters would be caution listed if any shipping bill against them remains open
for more than two years in EDPMS provided no extension is granted by AD Category –I
bank / RBI. Date of shipment will be considered for reckoning the realisation period.

(b) Once related bills are realised and closed or extension for realisation is granted, the
exporter will automatically be de-caution listed.

(c) The exporters can also be caution listed even before the expiry of two years period
based on the recommendation of AD banks. The recommendation may be based on cases
where exporter has come to adverse notice of the Enforcement Directorate (ED)/ Central
Bureau of Investigation (CBI)/ Directorate of Revenue Intelligence (DRI)/ any such other
law enforcement agency or the case where exporter is not traceable or not making any
serious efforts for realisation of export proceeds. In such cases, AD may forward its
findings to the concerned regional office of RBI recommending inclusion of the name of
the exporter in the caution list.

(d) Reserve Bank will caution / de-caution the exporters in such cases based on the
recommendation of AD Category – I banks.

2) AD Category – I banks should follow the procedure mentioned below while handling
shipping documents in respect of caution listed exporters:

(a) They will intimate the exporters about their caution listing, giving the details of
outstanding shipping bills. When caution listed exporters submit shipping documents
for negotiation / purchase/ discount/ collection, etc. the AD Category – I bank may
accept the documents subject to following conditions:-

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 i. The exporters concerned should produce evidence of having received advance
payment or an irrevocable letter of credit in their favour covering the full value of the
proposed exports;
ii. In case of usance bills, the relative letter of credit should cover full export
value and also permit such drawings. Besides, the usance bills should also mature
within prescribed realisation period reckoned from date of shipment.
iii. Except under the above mentioned conditions given in 2 (a) (i) and (ii), AD
banks should not handle the shipping documents of caution listed exporters.

(b) AD Category – I banks should obtain prior approval of the Reserve Bank for issuing
guarantees for caution-listed exporters.
Branches should obtain prior approval of the Reserve Bank for issuing guarantee for caution
listed exporters.

4.38 Period within which export value of goods / software to be realised :

i. The amount representing the full export value of goods or software exported shall be
realised and repatriated to India within the stipulated period from the date of export,
as under:
i) Units located in SEZs shall realize and repatriate full value of goods / software
/ services, to India within a period of twelve months from the date of export.
Any extension of time beyond the above stipulated period may be granted by
Reserve Bank of India, on case to case basis.
ii) By Status Holder Exporters as defined in the Foreign Trade Policy: Within a
period of twelve months from the date of export;
iii) By 100 per cent EOUs & units set up under Electronic hardware Technology
parks(EHTPs), Software technology Parks( STPs) & Biotechnology parks(
BTPs) schemes: Within a period of twelve months from the date of export on
or after September 1, 2004:
iv) Goods exported to a warehouse established outside India with the permission
of the RBI: As soon as it is realized and in any case within 15 months from
the date of Shipment of goods;
v) In all other cases wef 20-05-2013 , this period of realization & repatriation to
India has been brought down to nine months from the date of export, till
September 30, 2013. Branches should refer to the RBI Master Circular on
Exports for updated guidelines.
vi) It has been decided in consultation with the Government of India that the
period of realization and repatriation of export proceeds shall be nine months
from the date of export for all exporters including Units in Special Economic
Zones (SEZs), Status Holder Exporters, Export Oriented Units (EOUs), Units
in Electronic Hardware Technology Parks (EHTPs), Software Technology Parks
(STPs) & Bio-Technology Parks (BTPs) until further notice.

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Explanation:-For the purpose of this regulation, the ―date of export” means in relation to
the export of Software, in other than physical form, shall be deemed the date of invoice,
covering such export.

4.39 Foreign Currency Account

i. Participants in international exhibition/trade fair have been granted general

permission for opening a temporary foreign currency account abroad. Exporters may
deposit the foreign exchange obtained by sale of goods at the international
exhibition/trade fair and operate the account during their stay outside India provided
that the balance in the account is repatriated to India through normal banking
channels within a period of one month from the date of closure of the
exhibition/trade fair and full details are submitted to the AD banks concerned.

ii. Reserve Bank may consider applications in Form EFC from exporters having good
track record for opening a foreign currency account with banks in India and outside
India subject to certain terms and conditions. Applications for opening the account
with a branch of an AD banks in India may be submitted through the branch at which
the account is to be maintained. If the account is to be maintained abroad the
application should be made by the exporter giving details of the bank with which the
account will be maintained.

iii. An Indian entity can also open, hold and maintain a foreign currency account with a
bank outside India, in the name of its overseas office/branch, by making remittance
for the purpose of normal business operations of the said office/branch or
representative subject to conditions stipulated in this regard.

iv. A unit located in a Special Economic Zone (SEZ) may open, hold and maintain a
Foreign Currency Account with an AD bank in India subject to conditions stipulated
in Regulation 4 (D) of Foreign Exchange Management (Foreign Currency Accounts
by a person Resident in India) Regulations dated January 21, 2016.

v. A person resident in India being a project / service exporter may open, hold and
maintain foreign currency account with a bank outside or in India, subject to the
standard terms and conditions in the Project Export Memorandum (PEM).

4.40 Diamond Dollar Account (DDA)

i. Under the scheme of Government of India, firms and companies dealing in purchase
/ sale of rough or cut and polished diamonds / precious metal jewellery plain,
minakari

and / or studded with/without diamond and / or other stones, with a track record of
at least 2 years in import/export of diamonds/coloured gemstones/diamond and
coloured gemstones studded jewellery/plain gold jewellery and having an average
annual turnover of Rs 3 crores or above during the preceding three licensing years
(licensing year is from April to March) are permitted to transact their business through
Diamond Dollar Accounts.
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 ii. They may be allowed to open not more than five Diamond Dollar Accounts with their
banks.

iii. Eligible firms and companies may apply for permission to their authorised dealer
branches in the format prescribed.

iv. AD banks are required to submit quarterly reports to the Foreign Exchange
Department, Reserve Bank of India, Central Office, Trade Division, Mumbai, giving details
of name and address of the firm / company in whose name the Diamond Dollar Account is
opened, along with the date of opening / closing the Diamond Dollar Account, by the 10th
of the month following the quarter to which it relates.
v. AD banks are required to submit a statement giving the data on the DDA balances
maintained by them on a fortnightly basis within seven days of close of the fortnight to
which it relates, to the Foreign Exchange Department, Reserve Bank of India, Central Office,
Trade Division, Mumbai.
Vi.Branches should note that Conditions for crediting and maintaining foreign currency
balances as applicable to EEFC accounts issued by Orbital also apply to DDA accounts.
Branches should refer to the updated RBI guidelines in this regard.

4.41 Exchange Earners Foreign Currency (EEFC) Account

Reserve Bank, has permitted exporters of goods and services and other beneficiaries of
inward remittances in convertible foreign currencies, other than those remittances received
pursuant to an undertaking or those received for meeting any specific obligation, to open
and maintain with all authorised dealers in India an account expressed in foreign currency
and titled "Exchange Earners Foreign Currency (EEFC) Account" and to credit to such account
an amount as stipulated by RBI in their guidelines of such remittances. For more details,
please refer to Chapter No. -25 on ―Exchange Earners Foreign Currency (EEFC) Accounts‖.

4.42 Setting up of Offices Abroad and Acquisition of Immovable Property for

Overseas Offices
i. At the time of setting up of the office, AD Category – I banks may allow remittances
towards initial expenses up to fifteen per cent of the average annual sales/income or
turnover during the last two financial years or up to twenty-five per cent of the net
worth, whichever is higher.

ii. For recurring expenses, remittances up to ten per cent of the average annual
sales/income or turnover during the last two financial years may be sent for the
purpose of normal business operations of the office (trading / non-trading) / branch
or representative office outside India subject to the following terms and conditions;

a) the overseas branch/office has been set up or representative is posted overseas

for conducting normal business activities of the Indian entity;
b) the overseas branch/office/representative shall not enter into any contract or
agreement in contravention of the Act, Rules or Regulations made there under;

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 c) the overseas office (trading / non-trading) / branch / representative should not
create any financial liabilities contingent or otherwise for the head office in India and
also not invest surplus funds abroad without prior approval of Reserve Bank. Any
funds rendered surplus should be repatriated to India.
iii. The details of bank accounts opened in the overseas country should be promptly
reported to the AD Bank.

iv. AD Category – I banks may also allow remittances by a company incorporated in

India having overseas offices, within the above limits for initial and recurring
expenses, to acquire immovable property outside India for its business and for
residential purpose of its staff.

v. The overseas office / branch of software exporter company /firm may repatriate to
India 100 per cent of the contract value of each ‘off-site‘ contract.

vi. In case of companies taking up ’on site‘ contracts, they should repatriate the profits
of such ‗on site‘ contracts after the completion of the said contracts.

vii. An audited yearly statement showing receipts under ‘off-site‘ and ‘on-site‘ contracts
undertaken by the overseas office, expenses and repatriation thereon may be sent to
the AD Category – I banks.

Advance Payment against exports

(1) In terms of Regulation 15 of Notification No. FEMA 23 (R)/2015-RB dated January

12, 2016, where an exporter receives advance payment (with or without interest),
from a buyer outside India, the exporter shall be under an obligation to ensure that
the shipment of goods is made within one year from the date of receipt of advance
payment; the rate of interest, if any, payable on the advance payment does not
exceed London Inter-Bank Offered Rate (LIBOR) + 100 basis points; and the
documents covering the shipment are routed through the AD Category – I bank
through whom the advance payment is received.

Provided that in the event of the exporter’s inability to make the shipment, partly or
fully, within one year from the date of receipt of advance payment, no remittance
towards refund of unutilized portion of advance payment or towards payment of
interest, shall be made after the expiry of the said period of one year, without the
prior approval of the Reserve Bank.

EDPMS will capture the details of advance remittances received for exports in EDPMS.
Henceforth, AD Category – I banks will have to report all the inward remittances
including advance as well as old outstanding inward remittances received for export
of goods/ software to EDPMS. Further, AD Category – I banks need to report the
electronic FIRC to EDPMS wherever such FIRCs are issued against inward
remittances.

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 The quarterly return being submitted for delay in utilization of advances received for
export stands discontinued.

(2) AD Category- I banks can also allow exporters having a minimum of three years’
satisfactory track record to receive long term export advance up to a maximum tenor of 10
years to be utilized for execution of long term supply contracts for export of goods subject
to the conditions as under:

(i) Firm irrevocable supply orders and contracts should be in place. The contract with the
overseas party/ buyer should be vetted and the same shall clearly specify the nature, amount
and delivery timelines of the products over the years and penalty in case of non-performance
or contract cancellation. Product pricing should be in consonance with prevailing international
prices.

(ii) Company should have capacity, systems and processes in place to ensure that the orders
over the duration of the said tenure can actually be executed.

(iii) The facility is to be provided only to those entities, which have not come under the adverse
notice of Enforcement Directorate or any such regulatory agency or have not been caution
listed.

(iv) Such advances should be adjusted through future exports.

(v) The rate of interest payable, if any, should not exceed LlBOR plus 200 basis points.

(vi) The documents should be routed through one Authorized Dealer bank only.

(vii) Authorised Dealer bank should ensure compliance with AML / KYC guidelines

(viii) Such export advances shall not be permitted to be used to liquidate Rupee loans classified
as NPA.

(ix) Double financing for working capital for execution of export orders should be avoided.

(x) Receipt of such advance of USD 100 million or more should be immediately reported to the
Trade Division, Foreign Exchange Department, Reserve Bank of India, Central Office, Mumbai.

(xi) In case Authorized Dealer banks are required to issue bank guarantee (BG) / Stand by
Letter of Credit (SBLC) for export performance, then the issuance should be rigorously
evaluated as any other credit proposal keeping in view, among others, prudential requirements
based on board approved policy.

a) BG / SBLC may be issued for a term not exceeding two years at a time and further rollover
of not more than two years at a time may be allowed subject to satisfaction with relative
export performance as per the contract.

b) BG / SBLC should cover only the advance on reducing balance basis.

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c) BG / SBLC issued from India in favor of overseas buyer should not be discounted by the
overseas branch / subsidiary of bank in India.

Note: AD Category – I banks may also be guided by the Master Circular on Guarantees and
Co-acceptances issued by Department of Banking Regulation.

(3) AD Category- I banks may allow exporters to receive advance payment for export of goods
which would take more than one year to manufacture and ship and where the ‘export
agreement’ provides for shipment of goods extending beyond the period of one year from the
date of receipt of advance payment subject to the following conditions:-

(i) The KYC and due diligence exercise has been done by the AD Category – I bank for the
overseas buyer;

(ii) Compliance with the Anti-Money Laundering standards has been ensured;

(iii) The AD Category-I bank should ensure that export advance received by the exporter
should be utilized to execute export and not for any other purpose i.e., the transaction is a
bonafide transaction;

(iv) Progress payment, if any, should be received directly from the overseas buyer strictly in
terms of the contract;

(v) The rate of interest, if any, payable on the advance payment shall not exceed London
Inter-Bank Offered Rate (LIBOR) + 100 basis points;

(vi) There should be no instance of refund exceeding 10% of the advance payment received
in the last three years;

(vii) The documents covering the shipment should be routed through the same authorised
dealer bank; and

(4) (i) As it has been observed that there is substantial increase in the number and amount of
advances received for exports remaining outstanding beyond the stipulated period on account
of non-performance of such exports (shipments in case of export of goods), AD Category –I
banks are advised to efficiently follow up with the concerned exporters in order to ensure that
export performance (shipments in case of export of goods) are completed within the stipulated
time period.

(ii) It is further reiterated that AD category –I banks should exercise proper due diligence and
ensure compliance with KYC and AML guidelines so that only bonafide export advances flow
into India. Doubtful cases as also instances of chronic defaulters may be referred to Directorate
of Enforcement (DoE) for further investigation. A quarterly statement indicating details of such
cases may be forwarded to the concerned Regional Offices of RBI within 21 days from the end
of each quarter.

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NOTE : Purchase of Foreign Exchange from the market for refunding advance payment
credited to EEFC account may be allowed only after utilizing the entire balances, held in the
exporter‘s EEFC accounts maintained at different branches/ banks.
ii) Authorised dealers may freely grant pre-shipment advances against 'Red clause'
letters of credit in favour of their exporter-constituents. Advances made by the letter of credit
opening bank will, however, be treated as advance remittances against exports.
iii) In the event of the exporter‘s inability to make the shipment, partly or fully, within
one year from the date of receipt of advance payment, no remittance towards refund of
unutilised portion of advance payment or towards payment of interest, shall be made after
the expiry of the said period of one year, without the prior approval of Reserve Bank of India.

4.44 GR Approval for Trade Fair/Exhibitions abroad

Firms/Companies and other organisations participating in Trade Fair/Exhibition abroad can

take/export goods for exhibition and sale outside India without the prior approval of the
Reserve Bank. Unsold exhibit items may be sold outside the exhibition/trade fair in the same
country or in a third country. Such sales at discounted value are also permissible. It would
also be permissible to gift' unsold goods up to the value of USD 5000 per exporter, per
exhibition/trade fair. AD banks may approve Form of export items for display or display-cum-
sale in trade fairs/exhibitions outside India subject to the following;

i. The exporter shall produce relative Bill of Entry within one month of re-import into
India of the unsold items.
ii. The sale proceeds of the items sold are repatriated to India in accordance with the
Foreign Exchange Management (Realisation, Repatriation, and Surrender of Foreign
Exchange) Regulations, 2000.
iii. The exporter shall report to the AD banks the method of disposal of all items
exported, as well as the repatriation of proceeds to India.
iv. Such transactions approved by the AD banks will be subject to 100 per cent audit by
their internal inspectors/auditors.

4.45 GR approval for Export of Goods for re-imports

(i) AD banks may consider request from exporters for granting GR approval in cases
where goods are being exported for re-import after repairs / maintenance / testing /
calibration etc. subject to the condition that the exporter shall produce relative Bill of Entry
within one month of re-import of the exported item from India.

(ii) Where the goods being exported for testing are destroyed during testing, AD banks
may obtain a certificate issued by the testing agency that the goods have been destroyed
during testing, in lieu of Bill of Entry for import

4.46 Part Drawings/ Undrawn Balances

In certain lines of export trade, it is the practice of exporters not to draw bills for the full
invoice value of the goods but to leave a small part undrawn for payment after adjustment
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due to differences in weight, quality, etc. ascertained after arrival and inspection, weighment
or analysis of the goods. In such cases, authorised dealers may negotiate bills provided,
(a) undrawn balance is in conformity with the normal level of balance left undrawn in the
particular line of export trade, subject to a maximum of 10 per cent of the full export value;
and
(b) an undertaking is obtained from exporter on the duplicate of GR/PP/SDF form that
he will surrender/account for the balance proceeds of the shipment within the period
prescribed for realisation.
Authorised dealers should obtain the above undertaking from exporter on the duplicate copy
of GR/PP form and should vigorously follow up such undertakings.
NOTE: In cases where exporter has not been able to arrange for repatriation of the undrawn
balance in spite of best efforts, authorised dealers, on being satisfied with the bona fides of
the case, should ensure that the exporter has realized at least the value for which the bill
was initially drawn ( excluding undrawn balances) or 90 per cent of the value declared on
the GR/PP/ SDF form, whichever is more and a period of one year has elapsed from the date
of shipment.
Consignment Exports
4.47
i) When goods have been exported on consignment basis at the risk of exporter for sale and
eventual remittance of sale proceeds to him by the agent/consignee abroad, authorised
dealer, while forwarding shipping documents to his overseas branch/correspondent, should
instruct the latter to deliver them only against trust receipt/undertaking to deliver sale
proceeds by a specified date which should be within the period prescribed for realisation of
proceeds of the export. This procedure should be followed even if according to the practice
in certain trades, a bill for part of the estimated value is drawn in advance against the
exports.
ii) The agents/consignees may deduct from sale proceeds of the goods expenses
normally incurred towards receipt, storage and sale of the goods, such as landing charges,
warehouse rent, handling charges etc. and remit the net proceeds to the exporter.
iii) The Account Sales received from the Agent/Consignee should be verified by the
authorised dealer. Deductions in Account Sales should be supported by bills/receipts in
original except in case of petty items like postages/cable charges, stamp duty etc.
iv) In case of goods exported on consignment basis, freights and marine insurance must
be arranged in India.
v) In the case of export of books on consignment basis, ADs may allow the exporters to
abandon the books, which remain unsold at the expiry of the period of sale contract.
Accordingly, the value of unsold books may be shown by the exporters as deduction from
the export proceeds in the Account Sales.
4.48 Opening/ Hiring of Ware houses abroad:
Authorised Dealers may consider the applications received from exporters for granting
permission of opening/ hiring warehouses abroad subject to the following conditions:

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 i. Applicant‘s export outstanding does not exceed 5% of exports made during the
previous year.
ii. Applicant has a minimum export turnover of USD 100,000 during the last financial
year.
iii. All transactions should be routed through the designated branch of the authorised
dealers.
iv. In the case of warehousing facility, the prescribed period for realisation of proceeds
of such export has been fixed up to 15 months from the date of shipment.
v. The above permissions may be granted to the exporters initially for a period of 1
year and their renewals may be considered subject to the applicant satisfying the
requirement above. ADs granting such permission/ approvals, should maintain a
proper record of the approval granted.
4.49 Direct dispatch of Shipping Documents
(i) Authorised dealers should despatch shipping documents to their overseas branches/
correspondents as expeditiously as possible preferably by internationally known courier
companies. Authorised dealer should ensure, particularly in case of exports to neighbouring
countries, that shipping documents are despatched to their overseas
branches/correspondents expeditiously so that documents reach the buyer before the
carrying steamer discharges the cargo at the port of destination.
ii) Authorised dealers may despatch shipping documents direct to the consignees or
their agents resident in the country of final destination of goods in cases where advance
payment or an irrevocable letter of credit has been received for the full value of the export
shipment and the underlying sale contract/letter of credit provides for despatch of documents
direct to the consignee or his agent resident in the country of final destination of goods.
iii) In case not covered by (ii) above, authorised dealers may accede to the request of
the exporter, for despatch of documents by the authorised dealer, for whatever reason,
direct to the consignee/agent provided the exporter is a regular customer of the authorised
dealer and the authorised dealer is satisfied, on the basis of standing and track record of the
exporter and the arrangements made for realisation of export proceeds, that the request can
be acceded to.
iv) Documents in respect of goods or software which are accompanied with a declaration
by the exporter that they are not more than Rs.25,000 in value and not declared on
GR/SDF/PP/Softex form may be directly sent by the exporter to the consignee.

v) ADs may permit ―Status Holder Exporters‖(as defined by Foreign Trade Policy (FTP)
and units in Special Economic Zones (SEZs) to dispatch the export documents to the
consignee outside India, subject to the terms and condition that -
a. The export proceeds are repatriated through the ADs named in the GR EDF form.
b. The duplicate copy of the GR EDF form is submitted to the AD for monitoring
purposes, by the exporters within 21 days from the date of export.

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iv) Authorised category branches may regularize cases of dispatch of shipping documents
by the exporter direct to the consignee or his agent resident in the country of the final
destination of goods, up to USD 1 million or its equivalent, per export shipment, subject to
the following conditions:

a) The export proceeds have been realized in full.

b) The exporter is a regular customer of AD branch for a period of at least six months.
c) The exporter‘s account with the AD branch is fully compliant with Reserve Bank‘s extant
KYC / AML guidelines.
d) The AD branch is satisfied about the bonafides of the transaction.

In case of doubt, the authorized branches may consider filing Suspicious Transaction Report
(STR) with FIU_IND (Financial Intelligence Unit in India).

4.50 Export of Computer Software

The export of computer software takes place in physical form as well as in non-physical form:

a) In physical form, software is prepared on magnetic tape/paper media, floppy

b) In non-physical form, there is direct data transmission through dedicated earth

stations or satellite links including export of Audio/Video/T.V. Software. There are
Authorised Datacom Service providers like Software Technology Parks of India (STPI),
VSNL, Dept of Tele-Communications (DOT), Internet, etc., through whom such
transmission take place.

4.51 So far as exports in physical forms are concerned, declaration should be in GR/PP/SDF
forms and the regulations as applicable to GR/PP/SDF forms should be followed. For export
in non-physical form following procedure be followed.
4.52 SOFTEX PROCEDURE:
Terms of payment –Invoicing (Software):
i. In respect of long duration contracts involving series of transmissions, the exporters
should bill their overseas clients periodically, i.e. at least once a month or on reaching
the ‘milestone’ as provided in the contract entered into with the overseas client and
the last invoice/ bill should be raised not later than 15 days from the date of
completion of the contract. It would be in order for the exporters to submit a
combined SOFTEX form for all the invoices raised on a particular overseas client,
including advance remittances received in a month.
ii. In respect of contracts involving only ‘one shot operation‘, the invoice / bill should
be raised within 15 days from the date of transmission.
iii. The declaration in Form SOFTEX in respect of export of Computer Software and
Audio/ Video/ Television software shall be submitted in quadruplicate to the
concerned designated official of Government of India, the Software Technology Parks
of India (STPs) or at the Free Trade Zones (FTZs) or Export Processing Zones (EPZs)
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 or Special Economic Zones (SEZs) in India for valuation/ certification not later than
30 days from the date of the invoice / date of last invoice raised in a month as
indicated in (i) and (ii) above. The designated officials may also certify the SOFTEX
forms in respect of EOUs which are registered with them.
iv. The invoices raised on overseas clients as at (i) to (iii) above will be subject to
valuation of export declaration on SOFTEX form by the concerned designated official
of Government of India and consequent amendment made in the invoice value, if
necessary.
v. For the purpose of this Regulation, ‘the date of export’, in relation to the export of
software in other than physical form, shall be deemed to be the date of invoice covering
such export.

4.53 Handling of Softex documents by Authorised Branches:

As stated earlier, where export is made in physical form, handling of shipping documents
with duplicate GR/SDF/PP form shall be same as applicable to export of other goods.
Where exports of software is made in non-physical form such as through satellite link, etc.,
including export of Audio/ Video/ T.V. software and all other types of software products/
packages and full advance payments is received, the exporters should submit commercial
invoice (in triplicate), duplicate SOFTEX form and original Foreign Inward Remittance
Certificate (FIRC) to the Branch.
Where the export of software, including Audio/ Video/ TV software in non-physical form is
made against irrevocable Letter of Credit, Branches can negotiate documents only under
sanctioned limits, provided the documents presented are strictly in conformity with the terms
of Letter of Credit.
Where the export of software in non-physical form is made against firm order, granting post
shipment finance should be only against credit limits sanctioned by appropriate sanctioning
authority.
Branches/ Offices should bear in mind that though bill is presented in the case of export of
software (non-physical form), there will be no documents of title to goods and the ownership
of the property is transferred once software is transmitted through satellite links. In other
words, finance to be extended, would be against the bills which do not afford any tangible
security to the bank.

Shut out Shipments and Short Shipments

4.54 (i) when part of a shipment covered by a GR EDF form already filed with Customs is
short shipped, exporter must give notice of short shipment to Customs in form and manner
prescribed. In case of delay in obtaining certified short shipment notice from Customs,
exporter should give an undertaking to the authorised dealer to the effect that he has filed
the short shipment notice with the Customs and that he will furnish it as soon as it is
obtained. Authorised dealer should keep the short shipment notice along with the duplicate
of GR/SDF form when the same is released on realisation of bill.

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(ii) Where a shipment has been entirely shut out and there is delay in making arrangements
to re-ship, exporter will give notice in duplicate to Customs in the manner and in form
prescribed for the purpose attaching thereto the unused duplicate copy of GR/SDF form and
the shipping bill. Customs will verify that the shipment was actually shut out, certify copy of
the notice is correct and forward it to Reserve Bank together with unused duplicate copy of
the GR form. In such case, the original EDF form received earlier from Customs will be
cancelled. If the shipment is made subsequently, a fresh set of EDF form must be completed.

4.55 Exports on Elongated Credit Terms:

Exporters intending to export goods on elongated credit terms may submit their proposals
giving full particulars through their banks to the concerned Regional Office of Reserve Bank
for consideration.
4.56 Export of goods by Special Economic Zones (SEZs): Units in SEZs are permitted
to undertake job work abroad and export goods from that country itself subject to the
conditions that–
i. Processing/ manufacturing charges are suitably loaded in the export price and are borne
by the ultimate buyer. ii. The exporter has made satisfactory arrangements for realisation of
full export proceeds subject to the usual EDF procedure.
Authorised Dealers may permit units in DTAs to purchase foreign Exchange for making
payment for goods supplied to them by units in SEZs . It must be ensured that in the Letter
of Approval (LoA) issued to the SEZ unit by the Development Commissioner(DC) of the SEZ,
the provisions pertaining to the goods / services supplied by the SEZ unit to the DTA unit
and for payment in foreign exchange for the same should be mentioned.
Export of goods on lease, hire, etc.
4.57 Machinery, equipment, etc. are sometimes exported on lease, hire etc. basis under
agreement with the overseas lessee against collection of hire charges and ultimate reimport
of the goods exported. Prior approval of the Reserve bank is required for such exports.
Exporters who wish to export goods on such terms should approach, through an authorised
dealer, the Reserve Bank under whose jurisdiction the exporter is situated, giving full
particulars of the goods to be exported.
Counter Trade
4.58 (i) Counter trade proposals involving adjustment of value of goods imported into India
against value of goods exported from India in terms of an arrangement voluntarily entered
into by Indian Party and the overseas party through an Escrow Account opened in India in
U.S. dollar will be considered by Reserve Bank.
ii) All imports and exports under the arrangement should be at international price and
transactions routed through the account should be in conformity with the Foreign Trade
Policy and FEMA 1999 and the rules and regulations made there under.
iii) No interest will be payable on balance standing to the credit of the Escrow Account.
The temporarily rendered surplus may be deposited in a short-term deposit up to a total
period three months in a year (i.e. in a block of 12 months) and the banks may pay interest
at the applicable rate. No fund-based or non-fund based facilities will be permitted against
balance in the account.
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iv) Application for permission for opening an Escrow Account may be made by the
overseas exporter/ organization through his authorised dealer to the office of Reserve
Bank under whose jurisdiction the authorised dealer is functioning.
Any arrangement involving adjustment of value of goods imported into India against value
of goods exported from India shall require prior approval of the Reserve Bank.

v) Counter-Trade Arrangements with Romania

Reserve Bank will consider counter trade proposals from Indian exporters with Romania
involving adjustment of value of exports from India against value of imports made into India
in terms of a voluntarily entered arrangement between the concerned parties, subject to the
condition, among others that the Indian exporter should utilise the funds for import of goods
from Romania into India within six months from the date of credit to Escrow Accounts allowed
to be opened.
4.59 Project Exports and Service Exports:
i. Export of engineering goods on deferred payment terms and execution of turnkey
projects and civil construction contracts abroad are collectively referred to a as
‘Project Exports’.
ii. Indian exporters offering deferred payment terms to overseas buyers and those
participating in global tenders for undertaking turnkey/ civil construction contracts
abroad are required to obtain approval of Authorised dealer/ Exim Bank/ Working
Group at post-award stage before undertaking execution of such contracts.
Regulations relating to’Project Exports‘and ‘Service Exports‘are laid down in the
revised Memorandum on Project Exports (PEM-October 2003 as amended from time
to time). Last amended (PEM – July 2014)

iii. In order to provide greater flexibility to project exporters and exporters of services in
conducting their overseas transactions, the guidelines stipulated vide paragraphs
B.10 (i) (f),C 1(ii), D.1 (i), D.3 and D.4(iv) of the PEM have been modified as set out
below. Project/Service exporters have also been extended the facility of deployment
of temporary cash balance as set out here under;

(i) Inter-Project Transfer of Machinery (B 10(i) (f) &D 4 (iv))

The stipulation regarding recovery of market value (not less than book value) of the
machinery, etc., from the transferee project has been withdrawn. Further, exporters
may use the machinery / equipment for performing any other contract secured by
them in any country subject to the satisfaction of the sponsoring AD Category – I
bank(s) / Exim Bank / Working Group and also subject to the reporting requirement
and would be monitored by the AD Category – I bank(s) / Exim Bank / Working
Group.

(ii) Inter-Project Transfer of Funds ( D 1 (i) & D 3)

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 AD Category – I bank(s) / Exim Bank / Working Group may permit exporters to open,
maintain and operate one or more foreign currency account/s in a currency (ies) of
their choice with inter-project transferability of funds in any currency or country. The
Inter project transfer of funds will be monitored by the AD Category – I bank(s) /
Exim Bank / Working Group.

(iii) Deployment of Temporary Cash Surpluses

Project / Service exporters may deploy their temporary cash surpluses, generated
outside India, in the following instruments / products, subject to monitoring by the
AD Category – I bank(s) / Exim Bank / Working Group :

i) investments in short-term paper abroad including treasury bills and other

monetary instruments with a maturity or remaining maturity of one year or less and
the rating of which should be at least A-1/AAA by Standard & Poor or P-1/Aaa by
Moody's or F1/AAA by Fitch IBCA etc.
ii) Deposits with branches / subsidiaries outside India of AD Category – I banks
in India. iii. Repatriation of Funds in case of On-site Software Contracts.

The requirement of repatriation of 30 per cent of contract value in respect of on-site

contracts by software Exporter Company / firm has been dispensed with. They should,
however, repatriate the profits of on-site contracts after completion of the contracts.

4.60 Export of Currency

In terms of Foreign Exchange Management (Export and Import of Currency) Regulations, 2000
notified vide Notification No. FEMA 6 (R)/2015-RB dated December 29, 2015, as amended
from time to time, permission of Reserve Bank is required for any export of Indian currency
except to the extent permitted under any general permission granted under the Regulations
as under:

(i) Any person resident in India may take outside India (other than to Nepal and Bhutan)
currency notes of Government of India and Reserve Bank of India up to an amount not
exceeding Rs.25,000 (Rupees twenty five thousand only); and

(ii) Any person resident outside India, not being a citizen of Pakistan and Bangladesh and also
not a traveler coming from and going to Pakistan or Bangladesh, and visiting India may take
outside India currency notes of Government of India and Reserve Bank of India notes up to
an amount not exceeding Rs. 25,000 (Rupees twenty five thousand only) while exiting only
through an airport.

4.61 Forfeiting

Export-Import Bank of India (Exim Bank) and AD Category – I banks have been permitted
to undertake forfeiting, for financing of export receivables. Remittance of commitment fee /
service charges, etc., payable by the exporter as approved by the Exim Bank / AD Category
– I banks concerned may be done through an AD bank. Such remittances may be made in
advance in one lump sum or at monthly intervals as approved by the authority concerned
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4.62 Exports to Neighbouring countries by Road, Rail or River
Following procedure should be adopted by exporters for filling original copies of GR / SDF
forms where exports are made to neighbouring countries by road, rail or river transport:
(a) In case of exports by barges/country craft/road transport, the form should be
presented by exporter or his agent at the Border Land Customs Station through which the
vessel or vehicle has to pass before crossing over to the foreign territory. For this purpose,
exporter may arrange either to give the form to the person in charge of the vessel or vehicle
or forward it to his agent at the border for submission to Customs.
(b) As regards exports by rail, customs staff have been posted at certain designated
railway stations for attending to Customs formalities in respect of goods consigned to
Pakistan, Afghanistan or Bangladesh. They will collect the GR EDF/SDF forms in respect of
goods loaded at these stations so that the goods may move straight on to the foreign country
without further formalities at the border. The list of designated Railway Stations is obtainable
from Railways. In respect of goods loaded at stations other than the designated stations,
exporters must arrange to present EDF /SDF forms to the Customs Officer at the Border Land
Customs Station where Customs formalities are completed.
4.63 Border Trade with Myanmar
In supersession of instructions contained in A.P. (DIR Series) Circular No. 17 dated October
16, 2000, barter system of trade at the Indo-Myanmar border has been discontinued and
replaced with normal trade with effect from December 1, 2015. Accordingly, all trade
transactions with Myanmar, including those at the Indo-Myanmar border with effect from
December 1, 2015 shall be settled in any permitted currency in addition to the Asian Clearing
Union mechanism.
4.64 Repayment of State Credit:
Export of goods & services against repayment of state credits granted by the erstwhile USSR
will continue to be governed by the extant directions issued by the RBI as amended from
time to time.
4.65 Guarantee against exports :
I. Authorised dealers have been permitted to issue guarantees in respect of any debt,
obligation or other liability incurred by a resident outside India (owned to a person
resident in India in connection with a bonafide trade transaction) provided the
guarantee so given is to be covered by a counter guarantee of a bank of international
repute resident abroad.
II. Authorised dealers may also issue a counter guarantee to cover guarantee issued by
his branch or correspondent bank outside India, on behalf of India export (in cases
where guarantees of only resident banks are acceptable to overseas buyers).
III. A person resident in India being an exporting company may give a guarantee for
performance of the project outside India or for availing of credit facilities (fund based
or non fund based) from a bank or a financial institution outside India in connection
with the execution of such projects, provided that the previous approval for
undertaking the project has been duly obtained from the appropriate approving
authority in India namely Working Group/ Exim Bank/ Authorised Dealer.

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4.66 Manner of receipt in Foreign Exchange:
The amount representing the full export value of the goods exported (other than Nepal &
Bhutan) shall be received through an authorised dealer in the manner specified below:

Group Manner of receipt of foreign exchange

1) Member countries in the Asian

Clearing Union (except Nepal) namely, a) Payment for all eligible current transactions by
Bangladesh. Islamic republic of Iran, debit to the ACU Dollar/ ACU Euro account in
Myanmar*, Pakistan and Sri Lanka. India of a bank of the member country in which
the other party to the transaction is resident or by
credit to the ACU Dollar/ACU Euro account of the
authorised dealer maintained with the
correspondent bank in the member country; and

* Trade transactions with Myanmar are allowed to

be settled in any freely convertible currency in
addition to the ACU mechanism.

b) Payment in any permitted currency in all other

cases.

(2) all countries other Payment in rupees from the account of a bank
than those mentioned in (1) situated in any country other than a member
country of Asian Clearing Union or Nepal or
Bhutan;

Or

b) Payment in any permitted currency.

ii. In respect of an export from India, payment shall be received in a currency

appropriate to the place of final destination as mentioned in the declaration form
irrespective of the country of residence of the buyer.
iii. Payment for export may also be received by the exporter in the following manner:
a. In the form of bank draft, pay order, banker‘s or personal cheques.
b. Foreign currency notes/ foreign currency travellers‘ cheques from the buyer
during his visit to India.
c. Payment out of funds held in the FCNR/ NRE account maintained by the buyer.
d. Through International Credit Cards. When payment, in respect of goods sold
to overseas buyers during their visits is received in this manner the GR/SDF
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 (duplicate) should be released by the authorised dealers only on receipt of
funds in their Nostro account or on production of a certificate by the exporter
from the Credit Card servicing bank in India to the effect that it has received
the equivalent amount in foreign exchange, if the authorised dealer concerned
is not the Credit Card servicing bank. ADs may also receive payment for
exports made out of India by debit to the credit card of an importer where
the reimbursement from the card issuing bank/ organization will be received
in foreign exchange.
e. All transactions between a person resident in India and a person resident in
Nepal may be settled in Rupees. Export of goods from India to Nepal is not
subject to declaration in GR/SDF/PP/SOFTEX form. However, in case of
export of goods to Nepal, where an importer resident in Nepal has been
permitted by the Nepal Rashtra Bank to make payment in free foreign
exchange, such payments shall be routed through the ACU mechanism.
f. Payment of export may also be received by the Gem & Jewellery units in SEZs
and EOUs in the form of precious metals i.e. Gold/ Silver/ Platinum equivalent
to value of jewellery exported on the condition that the sale contract provides
for the same and the approximate value of the precious metals is indicated in
the relevant GR/SDF/PP Forms.
g. Trade transactions with Myanmar can be settled in any freely convertible
currency in addition to the ACU mechanism.

4.67Miscellaneous Instructions:
1) Stamp Duty and Usance Bills :
The Central Government, in exercise of the powers conferred by Clause (a) of Sub-Section-
1 of Section-9 of the Indian Stamp Act, 1899, have with effect from 8th July, 2004, remitted
/ waived the whole amount of Stamp Duty chargeable on Usance Bill of Exchange, executed
by an exporter in relation to export transaction. In terms of the said notification, the export
and exporter shall have the meaning assigned to them respectively, as per the Clauses 18
and 20 of Section-2 of Customs Act, 1962.
2) Sending of documents for collection to our Branches/ correspondents:
Foreign Bills purchased/ discounted must be sent to one of our foreign branches/ foreign
correspondents at other centre, where we do not have branch, in order to have control over
the merchandise, represented by the documents, wherein Bank‘s interest by way of advance
is at stake, despite instructions of the exporters to forward the documents to the importer‘s
bank in foreign centre, to obviate problems of delivery of documents without payment by
collecting bank. The exporters should be firmly informed that the documents are being sent
to one of our branches/ foreign correspondents in his own interest/ bank‘s interest. In any
case, the Bank is the Holder in Due Course in respect of Bills purchased.
However, officers of the rank of Assistant General Manager and above, and Chief Managers
of Overseas branches who are the Chief Incumbents to approve sending purchased
documents to Banks other than our Foreign Branches/ correspondents subject to the
following:
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 a) there is specific request from the exporters to this effect; and
b) credit rating of the borrower is ‘AA’ and above.
While according such approvals, the exporter should be clearly advised the potential risk
such as non-availability of services of our branches/ correspondents for settlement of
disputes, should the need arise.

Please note that such approvals should not be given routinely and the authority should be
exercised only if it is felt that the bank may end up losing valuable business on this score.
In case documents are to be routed through such bank (non correspondents) on regular
basis, the branch should consider exchanging letter with such banks by which they should
be persuaded to handle business even though they are not our correspondents.

(Annexure-1)
Exemptions from Declaration :
The requirement of declaration of export of goods and software in GR/SDF/PP/SOFTEX form
does not apply to the cases indicated below as per extant RBI guidelines:
a. Trade samples of goods and publicity material supplied free of payment;
b. Personal effects of travellers, whether accompanied or unaccompanied;
c. Ships stores, transhipment cargo and goods supplied under the orders of Central
government or of such officers as may be appointed by the Central Government in
this behalf or of the military, naval or air force authorities in India for military, naval
or air force requirements;
d. Goods or software accompanied by a declaration by the exporter that they are not
more than US Dollar USD 25,000 (USD twenty five thousand) in value. The exporter
shall, however, be liable to realize the amount of foreign exchange, which becomes
due or accrues on account of such exports, and to repatriate the same to India in
accordance with the provisions of FEMA Regulations. .
e. By way of gift of goods accompanied by a declaration by the exporter that they are
not more than five lakh rupees in value (gift of goods exceeding Rs.5 lakhs in value
requires approval of RBI).
f. Aircrafts or aircraft engines and spare parts for overhauling and/or repairs abroad
subject to their re-import into India after overhauling/ repairs, within a period of six
months from the date of their export.
g. Goods imported free of cost on re-export basis;
h. Goods not exceeding US$ 1000 or its equivalent in value per transaction exported to
Myanmar under the Barter Trade Agreement between the Central Government and
the Government of Myanmar;
i. The following goods which are permitted by the Development Commissioner of the
Export Processing Zones, Electronic hardware Technology Parks, Electronic Software
Technology Parks or Free Trade Zones to be re-exported, namely;

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 1. imported goods found defective, for the purpose of their replacement by the
foreign suppliers/ collaborators;
2. goods imported from foreign suppliers/ collaborators on loan basis;
3. goods imported from foreign suppliers/ collaborators free of cost, found
surplus after production operations.
4. The above goods are to be re-exported by units in Special Economic Zone
(SEZs) under intimation to the Development Commissioner of SEZs /
Concerned Assistant commissioner or Deputy Commissioner of Customs.
j. Replacement goods exported free of charge in accordance with the provisions of
Foreign Trade Policy in force, for the time being.
k. Goods sent outside India for testing abroad subject to re-import into India.
l. Defective goods sent outside India for repair and re-import provided the goods are
accompanied by a certificate from an authorised dealer in India that the export is for
repair and re-import and that the export does not involve any transaction in foreign
exchange.
m. Authorised dealers may consider requests for grant or GR waiver from exporters for
export of goods free of cost, for export promotion up to 2 percent of average annual
exports of the applicant during the preceding three years subject to a ceiling of Rs.5
lakhs. For status holder exporters, the limit as per the present Foreign Trade Policy
is Rs 10 lakhs or 2 per cent of the average annual export realization during the
preceding three licencing years (April- March), whichever is higher.
n. Exports permitted by the Reserve Bank, on application made to it, subject to the
terms and conditions, if any, as stipulated in the permission.
o. Export of goods not involving any foreign exchange transaction directly or indirectly
require the waiver of GR/PP procedure from the Reserve Bank of India.

The requirement of declaration of export of goods and software in the prescribed form will not
apply to the cases indicated in Regulation 4 of 11Foreign Exchange Management (Export of
Goods and Services) Regulations dated January 12, 2016. The exporters shall, however, be
liable to realize and repatriate export proceeds as per FEMA Regulations.

4.68 Issuance of Electronic Bank Realisation Certificate (eBRC)

AD Category-I banks are required to update the EDPMS with data of export proceeds on “as
and when realised basis” and, with effect from October 16, 2017, they are required to generate
Electronic Bank Realisation Certificate (eBRC) only from the data available in EDPMS, to ensure
consistency of data in EDPMS and consolidated eBRC.

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 Chapter - 5
EXPORT FINANCE
Introduction
5.1 Exports are an "engine" of growth. A developing country like India, with large and
growing industrial complex has to undertake continuous imports of capital equipment and
critical raw materials. Besides, there are external debts which have to be serviced. For the
economy as a whole, exports play a critical role in financing imports which have the pivotal
role for the economic growth of the country and in augmenting foreign exchange resources.
Export Finance is a short term, working capital finance allowed to an exporter. The export
credit proposals are to be considered on priority basis to ensure timely and adequate facility
to the exporters to execute orders. All information/data /documents / clarifications from the
exporters are to be sought / obtained in the first instance itself and as far as possible, raising
of new issues / queries on subsequent occasions and also obtaining data on a piecemeal
basis should be avoided. As per current directives, RBI has stipulated the following
mandatory time norms for disposal of credit proposal received from the exporters which
should be complied with by all the branches / offices.

Other than
Gold Card
Sr. Description Gold Card
Holders
No. Holders
Proposals for
sanction of fresh/
I 45 days 25 days
enhanced credit
limits
Proposal for renewal
II of existing credit 30 days 15 days
limits
Proposals for
III sanction of adhoc 15 days 7 days
credit facilities

Time is reckoned from the date of receipt of proposals at the branch with the required details/
information supported by required financial / operating statements. Bank should adopt a
flexible approach to export lending and norms of lending. At the same time, it is their
responsibility to see that the exporters do not misuse their concessive and liberal finance. It
should be strictly ―purpose oriented and need-based‖. As long as requirement of credit limit
is justified on the exporter‘s performance and track record, non-availability of collateral
security alone should not be the criterion to reject the export oriented credit proposal unless
the comfort level of the Bank is very low or borrower insist for waiver of ECGC cover and for
other valid reasons.
Whenever a bank considers export finance facilities' it should take a holistic view of the entire
gamut of export activity transaction and sanction adequate facilities required, at both pre
and post shipment stages, in view of the interwoven links between the facilities.
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Banks must keep in view past performance of exporters and further potential while assessing
the credit proposals.
When a Bank deals in Export Finance, it is bound by the following guidelines/regulations:

a. Reserve Bank‘s guidelines: -

- FEMA guidelines
- IECD guidelines;
- DBOD guidelines.
b. Trade Control Regulations (Foreign Trade Policy as applicable from time to time)
c. International Chamber of Commerce (ICC) guidelines – UCPDC –ICC 600 and
URC – ICC 522 etc as revised from time to time. Branches especially AD branches to keep
track of latest ICC guidelines/regulations.
d. Export Credit Guarantee Corporation of India Ltd.
e. FEDAI guidelines.

5.2 Export finance is broadly classified into two categories, depending upon the stage of
export activity at which the finance is extended namely:
1. Pre- shipment Finance
An exporter may need financial assistance at any stage for execution of an export
order from the date of receipt of an export order till the date of realisation of the
export proceeds. Pre-shipment (Packing Credit) means any loan or advance granted
or any other credit provided by a Bank to an exporter for financing the purchase,
processing, manufacturing or packing of goods prior to shipment, on the basis of LC
opened in his favour or in favour of some other person by an overseas buyer, or a
confirmed and irrevocable order for the export of goods from India or any other
evidence of an order for export from India having been placed on the exporter or
some other person unless lodgement of export orders or LC with the bank has been
waived.
2. Post-shipment Finance
It includes any loan or advance granted or any other credit provided by a Bank to an
exporter of goods from India from the date of shipment of goods to the date of
realisation of export proceeds and includes any loan or advance granted to an
exporter, in consideration of, or on the security of any duty drawback allowed by the
Govt. from time to time.
5.3 Besides, Banks are financing exports on deferred payment basis, export of technical
knowhow and consultancy services apart from export of Turn Key Projects commonly known
as "Project Exports". The methodology of financing of deferred payment exports is quite
distinct from that of the short term exports on cash basis. Instructions contained herein are
restricted to short term exports on cash basis only.

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General lending guidelines to banks relating to export finance include:-
5.4 Banks must keep a close watch on the end-use of finance and timely fulfilment of
export orders.
RBI has allowed several relaxations in respect of export lending including relaxation of credit
norms:
5.5 a) While computing the over-all working capital gap/maximum permissible bank
finance, banks can exclude export receivables out of such computation and export sales
finance limits can be assessed and sanctioned separately over and above the permissible
bank finance.
b) Wherever exporters are unable to bring in additional contribution (margin) in respect
of additional credit facilities required for specific export transactions, banks may waive such
additional contribution required from exporters.
c) If borrowing units have substantial export activity and the bank has identified excess
finance as per applicable method of lending in respect of such limit and decided to convert
such excess finance into Working Capital Term Loan (WCTL), any excess finance in respect
of pre-shipment finance limit, should be carved out separately on notional basis, so that on
such WCTL, concessive rates of interest as applicable to export finance can be levied.
d) Banks are free to decide the levels of holding of individual items of inventory and
receivables which should be supported by bank finance, after taking into account the
production/processing cycle of the industry in question, as all other relevant factors.
e) Additional credit needs of exporters arising out of firm orders/confirmed letters of
credit should be met in full even if sanction of such additional credit limit exceeds maximum
permissible bank finance.

5.6 General Guidelines for sanctioning Export Finance:

Following factors will be taken into consideration by the bank while sanctioning credit limits
to an exporter:-
a) Export credit proposals should be disposed off promptly to ensure smooth flow of
credit to export sector;
b) Bank may adopt a flexible attitude with regard to debt equity ratio, margin and
security norms but there could be no compromise in respect of viability of the
proposal and the integrity of the borrower.
c) Exporter should be able to satisfy the Bank about their capacity to execute the orders
within the stipulated time and have proper expertise to manage the export business.
d) The quantum of finance sought for should commensurate with the expected turnover
and the cost of inputs required.
e) If the exports will be covered under the LCs, Bank would need to be satisfied about
the standing of the credit opening bank and also the acceptability of the conditions
specified in the credit.
f) Where exports are not covered by LCs and will be on the basis of firm contract, Bank
may insist for obtaining a satisfactory Status Report on the overseas buyer.
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g) The Bank may also look into the Regulations, the political and financial scenario
prevailing in the buyer‘s country.
h) In case of export of seasonal commodities, agro based products, etc., bank should
sanction peak/non-peak credit facilities to exporters.
i) Bank may permit inter changeability of pre-shipment and post-shipment credit limits
Depending upon actual need of the customer
j) Bank should have a system of Joint Appraisal by officials at branches and
administrative offices, to facilitate quicker processing of export credit proposals.

For procedureal details and specific guidelines on export finance, branches should
refer to RBI Master directions/circulars issued from time to time.

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 Chapter - 6

PRE-SHIPMENT FINANCE

Pre-shipment finance

6.1 Pre-shipment finance is working capital finance (mainly inventory finance) extended to
an exporter in anticipation of his exporting the goods. The basic purpose of extending pre-
shipment finance is to enable the eligible exporters to procure raw materials, process,
manufacture, pack, warehouse goods prior to shipment/ working capital expenses towards
rendering of services on the basis of LC opened in his favour or opened in favour of some
other person by an overseas buyer or a confirmed and irrevocable order for the export of
goods/ services from India or any other evidence of an order for export from India having
been placed on the exporter or some other person, unless lodgement of export order or LC
with the bank has been waived. Normally such advances are clean at the initial stage when
the goods are not yet acquired. Once goods are acquired and are in custody of an exporter,
Bank gets hypothecation charge on goods. Pre-shipment finance can be classified as under:

a) Packing credit in Rupees;

b) Packing credit in foreign currency; (PCFC)
c) Advances against incentives receivable from Government, covered by ECGC Guarantee;
d) Advances against duty drawback.
e) Advance against cheques/ drafts representing Advance Payment.

(A) PRESHIPMENT FINANCE - PACKING CREDIT

Packing Credit (in Rupees)

6.2 Persons eligible for packing credit

6.3 As a general rule, packing credit can be granted to an exporter who has an export
order or Letter of Credit in his own name and who will actually export the goods. However,
as an exception to this rule, packing credit can also be granted to supporting manufacturers
or suppliers of goods who do not have export orders or Letters of Credits in their own name
and are exporting through merchant exporters or export houses subject to the observance
of requirements, stipulated by the Reserve Bank of India in this regard. In cases where
manufacturing and export of goods is divided between two parties, pre-shipment credit could
be shared between them within the overall time limit prescribed and amount permissible.
The exporters should not be on the Specific Approval List (SAL) of ECGC. [See Paragraphs
6.34,

Basis / criteria for granting packing credit:

6.4 Since export-finance is a purpose-oriented finance, it is granted to the eligible exporters

or the manufacturers, against evidence/lodgement of irrevocable Letters of Credit
established/transferred through the medium of a reputed bank or confirmed orders/contracts
placed by overseas buyers for export of goods from India. At times, exporters may conclude
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contract by exchange of fax messages/ E-mails and regular orders/contracts/ Letters of
Credit may follow subsequently. In such cases, branches may accept the messages
exchanged, provided such communications contain the following minimum information:
a) Name of the overseas buyer,
b) Particulars of goods to be exported,
c) Quantity and unit price or value of order,
d) Dates of shipment,
e) Terms of sale and payments.
In the above cases, banks must follow up with the exporter for submission of final contract/
Letters of Credit, etc. and take the necessary undertaking to submit the same within a
reasonable time during the intervening period.

All the export orders/Letters of Credit, etc. against which packing credit is granted should be
retained with the branch (unless they are required by the exporter for any genuine reason
like obtaining quotas, licences, etc) and they should be endorsed/marked in token of having
granted packing credit finance.
Disbursement of Packing Credit
I) Ordinarily , each packing credit sanctioned should be maintained as a separate
account for the purpose of monitoring period of sanction and end-use of funds
II) Branches may release the packing credit in one lump sum or in stages as per the
requirement for executing the orders/ LC
III) Branches may also maintain different account at various stages of processing,
manufacturing etc. depending on the type of goods/ services to be exported e.g.
hypothecation, pledge, etc accounts and may ensure that the outstanding balance in
accounts are adjusted by transfer from one account to the other and finally by the
proceeds of relative export documents on purchase, discount etc.
IV) Branches should keep a close watch on the end use of funds and ensure that credit
at lower rates of interest is used for genuine requirements of exports. Branches
should also monitor the progress made by the exporters in timely fulfilment of the
export orders

Running Account Facility:

6.5 As stated above, Pre-shipment Credit to exporters is normally provided on lodgement of
LCs or firm export orders. It is observed that the availability of raw materials is seasonal in
some cases. In some other cases, the time taken for manufacture and shipment of goods is
more than the delivery schedule as per Export Contracts. In many cases, the exporters have
to procure raw material, manufacture the export product and keep the same ready for
shipment, in anticipation of receipt of Letters of Credit/ firm Export Orders from the overseas
buyers. Having regard to difficulties being faced by the exporters in availing adequate pre-
shipment credit in such cases, Banks are authorised to grant pre-shipment advances for
exports of any commodity, depending on their judgement regarding the needs without
insisting on prior lodgement of letters of credit/ firm export orders under "Running Account"
facility subject to the following conditions:

I. The facility may be extended provided the need for "Running Account" facility has
been established by the exporter, to the satisfaction of the branch.
II. The facility may be given to Exporter having credit rating AA/AAA and classified as
standard asset.
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 III. The branches may extend the "running account" facility only to those exporters
whose track record has been good as also the export oriented units (EOUS)/units in
free trade zone/export processing zones (EPZs) and special economic zones (SEZs).
IV. In all cases where pre-shipment credit " Running Account" facility has been extended,
letters of credit/firm orders should be produced within a reasonable period of time. In the
case of commodities covered, under Selective Credit Control, banks should insist on
production of letters of credit/firm orders within a period of one month from the date of
sanction.
V. No diversion of funds is made by exporter other than for export. In case of
diversions, the Running A/C Facility should be withdrawn.
VI. Bank should mark off individual Export Bills, as an when they have received for
negotiation/ collection, against the earliest outstanding pre-shipment credit on ‘First
in First Out‘ (FIFO) basis. Needless to add that while marking off the pre- shipment
credit in the manner indicated above, Bank should ensure that concessive credit
available in respect of individual pre-shipment credit does not go beyond the period
of sanction or 360 days from the date of advance whichever is earlier.
VII. Packing Credit can also be marked off with proceeds of export documents against
which no Packing Credit has been drawn by the exporter.
VIII. In cases where exporters have not complied with the terms and conditions, the
advance will attract interest at commercial lending rate abinitiao.
IX. Running Account facility should not be granted to sub-suppliers.

Purpose of Finance
6.6 Packing credit is granted for the specific purpose of procuring
rawmaterials/purchasing/manufacturing/transporting/warehoususing/packing/and shipping
the goods.
Form of Finance
6.7 Packing credit normally means a funded advance. However, non-funded facilities can
also be granted as may be required to enable the exporters to manufacture and export the
goods. Non-funded facilities include opening Letters of Credit both domestic as well as import
for the purchase of raw materials, issue of various types of guarantees, etc. The packing
credit loan is clean or unsecured at the initial stage when the goods are not yet acquired and
when exporter procures the raw materials and gets title to the goods, it gets converted as a
secured advance and the bank creates a charge on the goods by way of hypothecation,
pledge, etc.
Quantum of Finance
6.8 There are no specific guidelines for determining the quantum of finance to be granted
to an exporter against a specific order/Letter of Credit or an expected order. The only guiding
principle is the concept of "NEED BASED" finance. Banks can determine the percentage of
margin depending on the nature of order, commodity, capability of exporter to bring in the
requisite contribution, etc. keeping in view various relaxations suggested by the Reserve
Bank of India for export finance.
Margins are stipulated mainly to serve the following purposes:
a) To make the exporter have some stake in the business so that he
will be more business conscious;
b) To take care of erosion in the value of goods charged to the bank;

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 c) To ensure that bank finance is not extended to cover exporter's
profit margin.

Further, the finance must be disbursed in stages depending upon the length of production
cycle, time taken for procurement, operations, etc. and must correspond to export shipment
schedules.
Normally, the pre-shipment advance granted to an exporter should not exceed the FOB value
of the goods or domestic market value of the goods whichever is lower. However, the pre-
shipment advance can be made available to the extent of domestic cost of production of the
goods even though such value is higher than the FOB value of the goods, when the goods
are covered by the Export Production Finance Guarantee of ECGC. In such cases, excess
advance should be liquidated from Government receivables (such as cash incentives, duty
drawback, etc.)
Period of Finance
6.9 The period of Packing Credit Advance will depend upon the circumstances of individual
cases, such as time required for procuring, manufacturing or processing (wherever
necessary) and shipping the relative goods/ rendering of services. It is primarily for the Bank
to decide the period for which the Packing Credit Advance may be given having regards to
the various relevant factors, but it should be sufficient to enable the exporter to ship the
goods/ render the services. Pre-shipment finance being a working capital finance is basically
a short term finance. W.e.f 15.11.2008 Banks are authorised to grant pre-shipment advances
to all types of export of goods /services for a maximum period of 270 days, at concessional
rates (within overall maximum period of 360 days)
Though Reserve Bank of India has indicated the maximum periods for which bank can grant
packing credit at concessional rate of interest, branches must grant finance only for such
periods as may be actually justified in individual cases having regard to specific factors such
as the basis of shipment schedule, production cycle, etc. If pre-shipment advances are not
adjusted by submission of export documents within 360 days from the date of advance, the
advance will cease to qualify for concessive rate of interest to the exporter ab initio.
Extension of any packing credit beyond 360 days requires ECGC‘s prior approval, wherever
the Bank has covered their packing credit under WTPCG scheme.
In view of the concessional element in the rate of interest on export credit, Bank should keep
a close watch on the end-use of the funds and ensure that pre-shipment credit is used for
genuine requirements of exports. They should also monitor the progress made by the
exporter in timely fulfilment of export orders.

Rates of Interest:
General:
6.10 A ceiling rate has been prescribed for Rupee Export Credit linked to Benchmark Prime
Lending Rates (BPLRs) of individual banks, available to the domestic borrowers. Banks have
therefore freedom to decide the actual rates to be charged within the specified ceilings.
Further, the ceiling interest rates for different time buckets under any category export credit
should be on the basis of the BPLR relevant for the entire tenor of export credit. Interest
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rates on pre shipment credit, as advised by Head Office, (based on RBI‘s guidelines) from
time to time should be strictly adhered to. The Base Rate System is applicable with effect
from July 1, 2010. Accordingly, interest rates applicable for all tenors of rupee export credit
advances are at or above Base Rate. MCLR is now applicable from 01.04.2016.

I. Interest on pre-shipment credit :

Branches should charge interest on pre-shipment credit up to 270 days at the
concessional rates to be decided by the Bank from time to time within the ceiling rate
arrived at on the basis of BPLR relevant for the entire tenor of the export credit under
the category. The period of credit is to be reckoned from the date of advance.
II. If pre shipment advances are not liquidated from proceeds of bills on purchase,
discount, etc., on submission of export documents, within 360 days from the date
of advance, the advances will cease to qualify for concessive rate of interest ab initio.
III. In cases where packing credit is not extended beyond the original period of sanction
and exports take place after the expiry of sanction period, but within a period of 360
days from the date of advance, exporter would be eligible for concessional credit
only up to the sanctioned period. For the balance period, interest rate prescribed
for ECNOS (Export Credit Not Otherwise Specified), at preshipment stage will apply.
Further, the reasons for non-extension of the period need to be advised by branches
to the exporters.
IV. In cases where exports do not take place within 360 days from the date of pre
shipment advance, such credits will be termed as ‘Export Credit Not Otherwise
Specified ‘(ECNOS),branches may charge interest prescribed for ‘ECNOS Pre-
shipment, from the very first day of the advance.
V. If exports do not materialize at all, branches should charge on relative packing credit
domestic lending rate plus penal rate of interest, if any, as advised by the Bank from
time to time.

Maintenance of Accounts:
6.11 Branches must segregate and maintain separately the accounts in respect of each
pre-shipment advance ( Infinacle, system takes cares of this). In other words, branches must
maintain accounts separately from domestic accounts. The branches must treat
disbursement under each order a separate account, which should be, paid off/liquidated as
per time schedule given in paragraph 6.9 for the purpose of levying concessional rate of
interest. As an exception to this general rule, Reserve Bank of India has permitted banks to
maintain packing credit accounts on "Running Account" basis as mentioned in para 6.5
above. The accounts under Running account facility means that the first debit in the account
can be set off by the first credit. In other words, advances given for a particular transaction
need not be adjusted by means of submission of export bill, etc. pertaining to the same
transaction. However, it must be ensured that no individual packing credit is outstanding for
more than the stipulated period.

Disbursal of Loan Accounts

6.12 Since packing credit loans are concessional and specific purpose-oriented advances,
branches must ensure proper end-use of the amounts disbursed by the exporters. Advances
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should not be disbursed in lump sum amounts. Instead they should be disbursed in a
phased manner taking into account specific purpose and needs of the export shipment
schedules, production cycle and other aspects. If possible, amounts may be directly
disbursed by banks to suppliers of raw materials, services, etc. taking note of necessary
instructions from the borrowers. Where direct disbursals are not possible, the proceeds can
be credited to operative accounts of the customers and disbursals there from must be
supervised to ensure proper enduse.
Follow-up and Monitoring:
6.13 The ultimate objective of packing credit is to enable the exporter to export the goods.
Hence, branches must monitor the accounts closely to ensure that this objective is achieved.
Banks may also maintain different accounts at various stages of processing, manufacturing,
etc., depending on the types of goods to be exported. e.g. hypothecation, pledge, etc.,
accounts and may ensure that the outstanding balance in accounts are adjusted by transfer
from one account to the other and finally by proceeds of relative export documents on
purchase, discount, etc. Bank should continue to keep a close watch on the end-use of the
funds and ensure that credit at lower rates of interest is used for genuine requirements of
exports. Bank should also monitor the progress made by the exporters in timely fulfilment
of export orders.
Substitution of Export Contract
6.14 Exporters who avail of packing credit finance against an export order, etc., may be
faced with situations when on account of cancellation of concerned export order, or for any
other reason beyond their control, that particular export order cannot be executed and
consequently, they are unable to adjust the relative packing credit finance. In such cases,
the packing credit availed of can be adjusted from the proceeds of substituted export contract
subject to certain conditions, viz.
a)I) The stipulation of repayment of packing credit with export documents will continue;
however, this could be with export documents relating to any other order covering
the same or any other commodity exported by the exporter. Thus, substitution of
commodity and substitution of the buyer covered by the exporter can be allowed by
the Authorised Dealer himself without reference to RBI.
II) Existing Packing Credit may be liquidated with proceeds of any other export
documents against which no packing credit has been availed off by the exporters with
any Bank.
III) Out of balances in the EEFC a/c as also from Rupee resources of the exporter
to the extent export has actually taken place.
b) The export under substituted contract should take place within a reasonable time;
c) The branch should allow such relaxation to those exporters who have a good track
record of sustained export performance for the last two/three years and their
borrowal account has been classified under Health Code 01- Standard Asset with good
credit rating. The relaxation should not be extended to transaction of
sister/associates/group concern. In other words, an export order in the name of sister
concern cannot be used to substitute the export order for which packing credit has
been drawn by customer.

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 d) While allowing substitution of order, branches should ensure that it is commercially
necessary and unavoidable to substitute the contract. The branch should also satisfy
itself about the reasons for liquidation of packing credit advance in this manner. As
far as possible, the substitution of contract is allowed, provided the exporter
maintains account with the same bank/branch or it has the approval of the members
of consortium.
e) While allowing the exporter to repay the export, packing credit with export proceeds
of documents against which packing credit has not been availed of, it is possible that
the exporter might avail of packing credit with one bank and submit the documents
to another bank. In view of this, banks may extend such facilities after ensuring that
the exporter has not availed of packing credit from another bank against the
documents submitted. For this purpose, the branch may obtain suitable declaration
from the exporter concerned. In case an exporter is found indulging in misusing
relaxation in this way, he cannot be allowed to have the benefit of this relaxation
thereafter.
f) Buyers under substituted contract (alternate importer) can be of the same country as
that of original buyer or different country.

g) Prompt realisation of export bills and overdue export bills outstanding should not be
more of the total export proceeds realised in the previous financial year.
h) These relaxations should not be extended to transactions of sister/associate/ group
concerns.
Liquidation of Packing Credit Advances
6.15 All packing credit advances must be repaid from the funds received by the exporter
from either one or combination of any of the following sources:
a) Proceeds of export bills negotiated/purchased or discounted; thereby converting
preshipment credit into postshipment credit.
b) Proceeds of export documents against which no packing credit was drawn or is
outstanding can be utilised for liquidation of existing packing credit, even if the same
is granted against any other order or letter of credit.
c) Proceeds of export bills which were sent on collection can be used for liquidation of
packing credit.
d) Proceeds of payments receivable from Government of India, i.e. in the form of duty
drawback or payment from the market development fund of the Central Government
or from any other relevant sources.
e) Proceeds of undrawn balances that represent export earnings can also be utilised for
repayment of packing credit.
f) Subject to mutual agreement between the exporter and the Banker, it can also be
repaid / prepaid out of balances in EEFC account as also from Rupee sources of the
exporter to the extent exports have actually taken place. If not so liquidated/ repaid,
Bank should charge the rate of interest, as applicable to ECNOS Preshipment, from
the date of advance.

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 g) Packing Credit in excess of export value :
i. Where by-products can be exported –
Where the exporter is unable to tender export bills of equivalent value for
liquidating the Packing Credit due to the shortfall on account of wastage
involved in the processing of agro-products like raw cashew nuts, etc., Bank
may allow exporters, inter alia, to extinguish the excess Packing Credit by
export bills drawn in respect of by-product like cashew shell oil, etc.

ii. Where partial domestic sale is involved –

However, in respect of export of agro-based products like tobacco, pepper,
cardamom, cashew nuts, etc., the exporter has necessarily to purchase a
somewhat larger quantity of the raw agricultural produce and grade it into
exportable and non-exportable varieties and only the former is exported. The
non-exportable balance is necessarily sold domestically. For the Packing
Credit covering such non-exportable portion, Banks are required to charge
commercial rate of interest, applicable to the domestic advance from the date
of advance of Packing Credit and that portion of the Packing Credit would not
be eligible for any refinance from RBI.
iii. Export of deoiled / defatted cakes –
Branches are permitted to grant Packing Credit advances to exporters of HPS
groundnuts and deoiled/ defatted cakes to the extent of the value of raw
materials, required even though the value thereof exceeds the value of the
export order. The advance in excess of the export order is required to be
adjusted either in cash or by sale of residual bi-product oil within a period not
exceeding 30 days from the date of advance to be eligible for concessional
rate of interest.
Branches should note importantly that packing credit should not remain outstanding, once
the relative goods are exported and documents are tendered to the bank. In case the branch
is not able to purchase or negotiate the export documents tendered for any reason, it should
transfer the debit balance in the packing credit account to separate account
converting/treating it as post shipment credit. In case the branches fail to comply to the
above requirements and instead keep the account running as packing credit while sending
the documents on collection basis, the ECGC cover under WTPCG guarantee will not be
available from the time shipment has taken place and outstanding in packing credit account
will not have backing of WTPCG cover of ECGC.
6.16
Rupee Pre-shipment Credit to Specific Sectors/Segments

Rupee Export Packing Credit to Manufacturer Suppliers for Exports Routed

through STC/MMTC/Other Export Houses, Agencies, etc.

(i) Banks may grant export packing credit to manufacturer suppliers who do not have
export orders/letters of credit in their own name, and goods are exported through
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 the State Trading Corporation/Minerals and Metal Trading Corporation or other export
houses, agencies, etc.

(ii) Such advances will be eligible for refinance, provided the following requirements are
complied with apart from the usual stipulations:

a) Banks should obtain from the export house a letter setting out the details of
the export order and the portion thereof to be executed by the supplier and
also certifying that the export house has not obtained and will not ask for
packing credit in respect of such portion of the order as is to be executed by
the supplier.

b) Branches should, after mutual consultations and taking into account the
export requirements of the two parties, apportion between the two i.e. the
Export House and the Supplier, the period of packing credit for which the
concessionary rate of interest is to be charged. The concessionary rates of
interest on the pre-shipment credit will be available up to the stipulated
periods in respect of the export house/agency and the supplier put together.

c) The export house should open inland L/Cs in favour of the supplier giving
relevant particulars of the export L/Cs or orders and the outstandings in the
packing credit account should be extinguished by negotiation of bills under
such inland L/Cs. If it is inconvenient for the export house to open such inland
L/Cs in favour of the supplier, the latter should draw bills on the export house
in respect of the goods supplied for export and adjust packing credit advances
from the proceeds of such bills. In case the bills drawn under such
arrangement are not accompanied by bills of lading or other export
documents, the bank should obtain through the supplier a certificate from the
export house at the end of every quarter that the goods supplied under this
arrangement have in fact been exported. The certificate should give
particulars of the relative bills such as date, amount and the name of the bank
through which the bills have been negotiated.

d) Banks should obtain an undertaking from the supplier that the advance
payment, if any, received from the export house against the export order
would be credited to the packing credit account.

Inland Export Letter of credit system covering the sub-suppliers to an Export

Order:
Export Packing Credit:
6.17(i) Export Packing Credit can be granted to the sub-supplier of the raw materials,
components, etc. of the exported goods as in the case of Export Order Holder
(EOH) and manufacturer/ suppliers, subject to the following:
(ii) The facility for the sub-supplier will be available only on the basis of an export
order or Letter of Credit (L/C) in the name of the EOH. The Running Account
Facility isnot contemplated under the Scheme. The Scheme will cover the LC or
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 export order received in favour of Export Houses/Trading Houses/Star Trading
Houses, etc. or manufacturer exporters only. The Scheme will be made available
on the basis of good track record of the exporter. Where we are not bankers of
the exporter but are bankers to the sub-supplier, status report on the exporter
from his bankers should invariably be obtained.
(iii) The EOH will have the option to open inland L/C through his bankers in favour of
his sub-supplier/s on the basis of the export order or L/C received by him. Thus,
the banker to an EOH will open inland L/C specifying the goods to be supplied by
the sub-supplier to the EOH as a part of the export transaction. On the basis of
such an L/C, the sub-supplier's banker will grant EPC as working capital to enable
the sub-supplier to manufacture the components required for the goods to be
exported. On supplying of the goods, the L/C opening bank will pay to the sub-
supplier's banker against the inland documents received on the basis of inland
L/C opened. Such payments will thereafter become the EPC of the EOH.
(iv) It is up to the EOH to open any number of L/Cs for the various components
required with the approval of his banker/leader of consortium of banks within the
overall value limit of the order or L/C received by him. Taking into account the
operational convenience, it is for the L/C opening bank to fix the minimum amount
for opening such L/Cs. In this regard, the branches should use their discretion as
to the minimum amount of L/C depending upon requirements in each case. The
total period of EPC availed by the sub-supplier/s, individually or severally and the
EOH should be within normal cycle of production required for the exported goods.
Normally, the total period will be computed from the date of first drawal of EPC
by any one of the sub-suppliers to the date of submission of export documents
by EOH. Where we are bankers of EOH, the date of first drawal should be
ascertained from the bankers of sub-supplier and total period should be computed
accordingly.
(iv) The finance given to both the sub-supplier and EOH will be eligible for EPC at
interest rates as per RBI's interest rate directive for the specified period as
announced from time to time.
(v) The bankers of the sub-suppliers may, taking into account their commercial
judgement consider waiver of any collateral from the sub-suppliers and the credit
may be extended on the basis of the L/C opened by the banker of EOH. While
hypothecation of stock will be the primary security in such cases, stipulation of
obtention of collaterals/third party guarantees etc., should be decided by the
sanctioning authority on case to case basis.
(vii) The charges for opening of inland L/Cs will be as per Head office directive for
Inland L/Cs. The cost of opening of the L/C will generally have to be borne by the
EOH and he may recover the same from his sub-suppliers depending on their terms
of sale.
(viii) The EOH will be responsible for exporting the goods as per export order or overseas
L/C and any delay in the process will subject him to the penal provisions issued
from time to time. Once the sub-supplier makes available the goods as per inland
L/C terms to the EOH, his obligation of performance under the Scheme will be
treated as complied with and penal provisions will not be applicable to him for
delay by EOH, if any.

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(ix) The Scheme will be an additional window and the existing system of sharing of
EPC between EOH and manufacturer in respect of exported goods will continue to
be in operation. The Scheme will cover only the first stage of production cycle. For
example, a manufacturer exporter will be allowed to open domestic L/C in favour
of his immediate suppliers of components etc. that are required for manufacture
of exportable goods. The Scheme will not be extended to cover suppliers of raw
materials components, etc. to such immediate suppliers. In case the EOH is merely
a trading house, the facility will be available commencing from the manufacturer
to whom the order has been passed on by the Trading House.
(x) EOUs/EPZ/SEZ units supplying goods to another EOU/EPZ/SEZ unit for export
purposes are also eligible for rupee pre-shipment export credit under the above
Scheme. However, the supplier EOU/EPZ/SEZ Unit will not be. eligible for any post-
shipment facility as the Scheme does not cover sale of goods on credit terms.
(xi) The Scheme does not envisage any change in the total quantum of advance or
period. Accordingly, the credit extended under the system will be treated as export
credit from the date of advance to the sub-supplier to the date of liquidation by
EOH under the inland export L/C system and up to the date of liquidation of EPC
by shipment of goods by EOH and will be eligible for refinance from RBI by the
respective banks for the appropriate periods. It has to be ensured that no double
financing of the same leg of the transaction is involved.
(xii) The EPC granted to sub-supplier will be covered under Whole Turnover Packing
Credit Guarantee (WTPCG) of ECGC.
(xiii) The Scheme does not envisage extending credit by a sub-supplier to the
EOH/manufacturer and thus the payment to sub-suppliers has to be made against
submission of documents by L/C opening bank treating the payment as EPC of the
EOH.
Packing Credit Facilities for Deemed Export
6.18 Deemed exports involving supplies made to IBRD/IDA/ADB or any multilateral funds
aided projects and programmes under orders secured through global tenders which are paid
for in free foreign exchange are eligible for concessive financial facilities at both pre-supply
and post-supply stages. Packing credit facilities can be extended to eligible deemed exporters
on lines similar to physical exports with necessary precautions. The period of post-supply
credit is restricted to 30 days in all such cases. Export packing credit facilities are also
available to other categories of deemed exports, indicated under current Foreign Trade
Policy.
Packing Credit facilities for Export of Goods meant for Exhibition and Sale:
6.19 Indian exporters may participate or exhibit their goods in international exhibitions
abroad. Exhibited goods may be sold by them directly (or through Indian Trade Promotion
Organisation) or other sponsor. In such cases, banks can provide both pre-shipment and
post-shipment finance at concessive rate. Such concessive rates can be applied only when
the goods are sold and foreign exchange is earned.
6.20 Banks can extend packing credit finance for goods meant for exhibition and sale
abroad, in the first instance as a normal domestic credit and after the sale is completed, they

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can allow the benefit of concessive rate of interest up to the stipulated eligible period by way
of rebate. Such advances should be given in separate accounts.
Packing Credit facilities for Service Export:
6.21 Pre-shipment and post-shipment finance may be provided to exporters of all the 161
tradable services covered under the General Agreement on Trade in Services where payment
for such services is received in free foreign exchange as stated in Foreign Trade Policy 2015-
20 All provisions of this circular shall apply mutatis mutandis to export of services as they
apply to export of goods unless otherwise specified. A list of services is given in Appendix 10
of Handbook (vol.I) of the Foreign Trade Policy 2015-2020. The financing bank should ensure
that there is no double financing and the export credit is liquidated with remittances from
abroad. Banks may take into account the track record of the exporter / overseas counter
party while sanctioning the export credit. The statement of export receivable from such
services providers may be tallied with the statement of payables received from the overseas
party.

Exporters of services qualify for working capital export credit (pre and post shipment) for
consumables, wages, supplies etc.

Branches may ensure that-

 The proposal is a genuine case of export of services.
 The item of service export is covered under Appendix – 10 of the Hand Book
(Vol.1) of Foreign Trade Policy 2015-2020 or any subsequent version
applicable/in vogue at particular time..
 The exporter is registered with the Export Promotion Council for services
 There is an Export Contract for the export of the service
 There is a time lag between the outlay of working capital expense and actual
receipt of payment from the service consumer or his principal abroad.
 There is a valid Working Capital gap i.e. service is provided first while the
payment is received some time after an invoice is raised.
 Banks should ensure that there is no double financing/ excess financing
 The export credit granted does not exceed the foreign exchange earned less
the margins if any required, advance payment/credit received.
 Invoices are raised
 Inward remittance is received in Foreign Exchange
 Company will raise the invoice as per the contract where payment is received
from overseas party, the service exporter would utilize the funds to repay the
export credit availed of from the bank.

Rupee Pre-shipment Credit to Construction Contractors

(i) The packing credit advances to the construction contractors to meet their initial
working capital requirements for execution of contracts abroad may be made on the
basis of a firm contract secured from abroad, in a separate account, on an
undertaking obtained from them that the finance is required by them for incurring
preliminary expenses in connection with the execution of the contract e.g., for

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 transporting the necessary technical staff and purchase of consumable articles for the
purpose of executing the contract abroad, etc.
(ii) The advances should be adjusted within 365 days of the date of advance by
negotiation of bills relating to the contract or by remittances received from abroad in
respect of the contract executed abroad. To the extent the outstandings in the
account are not adjusted in the stipulated manner, banks may charge normal rate of
interest on such advance.
(iii) The exporters undertaking project export contracts including export of services may
comply with the guidelines/instructions issued by Reserve Bank of India, Foreign
Exchange Department, Central Office, Mumbai from time to time.
Packing Credit facilities for imports meant for export production:
6.22 Exporter may often import raw materials, etc. required for the production of goods
meant for exports. Such imports of permissible goods may be permitted as per terms of
current Foreign Trade Policy without licence or under duty free licences or dutiable licences
obtained against specific export orders. Banks can extend packing credit finance against such
imports for payment for goods/import duties provided such requests comply with all other
conditions of granting packing credit.
Pre-shipment Credit to Floriculture, grapes and Other Agro-based Products -
(i) In the case of floriculture, pre-shipment credit is allowed to be extended by banks
for purchase of cut-flowers, etc. and all post-harvest expenses incurred for
making shipment.
(ii) However, with a view to promoting export of floriculture, grapes and other agro
based products, banks are allowed to extend concessional credit for working
capital purposes in respect of export-related activities of all agro-based products
including purchase of fertilizers, pesticides and other inputs for growing of
flowers, grapes, etc., provided banks are in a position to clearly identify such
activities as export related and satisfy themselves of the export potential thereof,
and the activities are not covered by direct/indirect finance schemes of NABARD
or any other agency, subject to the normal terms & conditions relating to packing
credit such as period, quantum, liquidation, etc.
(iii) Export credit should not be extended for investments, such as, import of foreign
technology, equipment, land development, etc. or any other item which cannot
be regarded as working capital.

Export Credit to Processors/Exporters-Agri-Export Zones

(i) Government of India have set up Agri- Export Zones in the country to promote Agri
Exports. Agri- Export Oriented Units (processing) are set up in Agri- Export zones as
well as outside the zones and to promote such units, production and processing are
to be integrated. The producer has to enter into contract farming with farmers and
has to ensure supply of quality seeds, pesticides, micro-nutrients and other material
to the group of farmers from whom the exporter would be purchasing the products
as raw material for production of the final products for export. The Government,
therefore, suggested that such export processing units may be provided packing

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 credit under the extant guidelines for the purpose of procuring and supplying inputs
to the farmers so that quality inputs are available to them which in turn will ensure
that only good quality crops are raised. The exporters will be able to purchase/import
such inputs in bulk which will have the advantages of economies of scale.
(ii) Branches may treat the inputs supplied to farmers by exporters as raw material for
export and consider sanctioning the lines of credit/export credit to
processors/exporters to cover the cost of such inputs required by farmers to cultivate
such crops to promote export of agri products. The processor units would be able to
effect bulk purchases of the inputs and supply the same to the farmers as per a
predetermined arrangement.

(iii) Branches have to ensure that the exporters have made the required arrangements
with the farmers and overseas buyers in respect of crops to be purchased and
products to be exported respectively. The financing banks will also appraise the
projects in agri export zones and ensure that the tie-up arrangements are feasible
and projects would take off within a reasonable period of time.
(iv) They also have to monitor the end-use of funds, viz. distribution of the inputs by the
exporters to the farmers for raising the crops as per arrangements made by the
exporter/main processor units.
(v) They have to further ensure that the final products are exported by the
processors/exporters as per the terms and conditions of the sanction in order to
liquidate the pre-shipment credit as per extant instructions.

Operational Features: Sanction of packing credit limits:

6.23
1) Packing Credit limits should be sanctioned in accordance with guidelines of the
Reserve Bank of India and the bank's usual norms, policies and internal procedures.
2) Export credit facilities should be sanctioned to bona-fide exporters, who are regular
customers of the bank;
3) While sanctioning the limits, past performance of the exporters for the last two or
three years and potential for the future years is considered. In case the customer is
new to the export business, his experience in the domestic market in dealing with the
relative export commodities and other background factors should be considered.
4) Since packing credit loans have to be liquidated out of export proceeds, they should
be considered along with appropriate and adequate post-shipment facilities.
Documentation:
6.24 The following documents should be obtained before disbursal:
1) D/P Note
2) Export Trust Receipt L461;
3) Hypothecation/Pledge Agreement;

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4) Corporate/Individual guarantees from company/firm/partners/ directors/sureties, etc.
as applicable.
5) Composite document -516

6) Insurance policy to cover stock, etc.

Necessary undertakings (e.g. for payment of insurance premium, non-encumbrance of

stocks, payment of ECGC premium, waiver of interest, charge, etc.) and/or any other
document as per legal requirement/as prescribed by the bank from time to time as per the
nature of the facilities granted..

6.25 Formalities connected with Registration of charges where necessary,

Inspection of Stocks:
i) Branches should ensure, while disbursing export finance at concessional rate that
these advances are backed by adequate stocks of raw material, semi-finished goods
and finished products which are meant for export only. Branches should, wherever
possible, have the stocks which are covered by the Packing Credit facilities segregated
from the stocks covered under other domestic finance facilities, such as Cash Credit.
This would be particularly essential when such Packing Credit advances are covered
by Packing Credit Guarantees of ECGC. Where such physical segregation is not
feasible and the advance is either not backed by ECGC policy or backed by such policy
and exemption obtained, segregation in stock statements should be attempted and
efforts made to correlate turnover of such stocks to the turnover in Packing Credit
account.
ii) It must be ensured that borrowers do, in fact, procure the goods for export within a
reasonable time and submit stock statements promptly as laid down in the relative
sanctioned proposals at least once a month. The goods should be inspected
periodically as stipulated by the terms of the sanction. The frequency of submission
of stock statements and inspection of stocks depends upon the period of individual
trade cycle. Borrowers should submit stock statements accordingly in the form of
stock statement (form no.CC 535). Stock statements must contain precise information
as to the quantity, quality, price, value, location, insurance, etc. If the goods are in
the custody of a person other than the borrower (about which it is necessary to be
fully satisfied in every respect), a certificate from such person that he holds the goods
in his custody on account of the borrower without any lien or claim thereon, present
or future, should be obtained. At the time of inspection, it should be verified that the
goods purchased are in conformity with the description of the goods in the relative
letters of credit as regards quality, gradation, price, quantity etc.
iii) The prices in the stock statement should be in keeping with those stipulated in the
letters of credit/ export order.
iv) All the instructions given regarding inspection of hypothecated goods also apply to
inspection of goods under export trust receipts.
6.26 If the goods are not shipped by the stipulated date in the relative letter of credit,
the relative advance should be recalled, unless (i) the letter of credit is further

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 extended or (ii) another export order or letter of credit, subject to satisfaction of
the branch/with a later shipment date is tendered. In any case, the Manager should
personally satisfy himself that the advance is safe and if necessary, he should
arrange to have the goods inspected immediately. Moreover, the maximum period
of the Packing Credit advance should not exceed the period permitted by the
Reserve Bank of India.
6.27 It is of paramount importance that goods should be shipped by the stipulated dates
in the relative letters of credit, and the documents are negotiated within the validity
period of the letters of credit. Irrespective of the period of trust receipt, such
advances must be repaid by negotiation of documents under the relative letters of
credit.
6.28 When a letter of credit remains unutilised, it is a danger signal and steps must be
taken promptly to have the advance liquidated. The goods should be immediately
inspected and the causes for non-shipment found out; if the borrower tenders a
fresh letter of credit, it should be accepted only after ascertaining that (i) the goods
already purchased could be exported under the fresh letter of credit and that (ii)
the description, quality and quantity of goods in the fresh letter of credit permit the
shipment of the goods on hand.
Export credit insurance for Banks-ECIB (Pre Shipment) of the export credit and
Guarantee Corporation Limited (ECGC)
The Export Credit and Guarantee Corporation Limited (ECGC), under its Whole Turnover
Packing Credit Guarantee (WTPCG), now referred to as ECIB-Preshipment, provides
guarantee cover to banks at a concessional rate of premium for covering all their eligible
pre-shipment advances granted all over India on short term basis to exporter-borrowers
normally against firm contract of sale or irrevocable letter of credit. All Packing Credit
advances granted by the Bank (except as under) as per Reserve Bank of India guidelines
issued from time to time are covered under WTPCG (Now ECIB-Pre-Shipment).
a) Advances granted for exports made on deferred terms of payment, turn-key projects,
construction works and service contracts;
b) Advances granted to wholly owned Govt. of India enterprises;
(However, if there is a need to cover advances falling under the above categories, it should
be covered separately. The extent of cover and premium rate will be the same as applicable
to other advances under WTPCG (Now ECIB-Pre-Shipment).
Risk Coverage and Period of Advance
6.30 Under WTPCG (Now ECIB-Pre-Shipment) cover the Bank gets protection against any
loss that may arise due to failure of the exporter-borrower to repay advances on account of-
(i) Insolvency of the Exporter;
(ii) protracted default by the exporter to repay the insured debt to Bank;
Other Requirements:
Forward Exchange Cover

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6.31 In the case of packing credit advances granted against letters of credit/firm orders,
expressed in foreign currencies, Branch Managers must consider, in the light of exchange
fluctuations in the particular currency and the amount of foreign currency involved, whether
the borrower must cover forward exchange. At the time of negotiation of documents, should
the rate of exchange of the currency (in which the letter of credit/ firm order is expressed)
move against the exporter-borrower (i.e. he were to get lesser amount of rupees than at the
previous rate of exchange when the advance was granted), the rupee equivalent of the bill
tendered for negotiation would fall short of the amount of packing credit advance granted.
Hence, if the letters of credit/firm orders are expressed in foreign currency and are of large
amounts, it must be ensured that exporter-borrowers sell forward exchange to the Bank. If
this is not possible for any reason, approval for the waiver of forward cover for any particular
transaction should be obtained from the appropriate authority.
Status Reports on the Buyers
6.32 Status reports should be obtained periodically on the foreign buyers, the means of
the buyers should be satisfactory and adequate to meet their commitment to buy.
Registration of Charge
6.33 In the case of packing credit advances with export trust receipt to limited company
borrower, banks' charge should be registered with the Registrar of Companies within 30 days
of the date of creation of charge or any period prescribed under the prevalent Company Law.
Status of Issuing Bank
6.34 It is essential to ascertain the status of letter of credit opening bank, its financial and
business background by reference to the Bankers Almanac / Google site as also to ascertain
the genuineness of the letter of credit. Similarly, the financial position of the country to which
the export is being made should be considered (country risk).

(B) RECEIVABLES FROM GOVERNMENT OF INDIA:

6.35 Advance against Government receivables are generally granted at post-shipment
stage. However, in exceptional cases, when the value of material to be procured for export
is more than the FOB value of the contract and considering the availability of receivables
from Government of India, advances are granted for a maximum period of 90 days for more
than FOB value. These advances are, of course, to be liquidated by negotiation of export
bills and out of proceeds of government receivables. Concessive rate of interest which is
applicable to packing credit advances is also applicable to this type of advance and the
eligibility for lower interest rate is restricted to the extent the relative claims are actually
admitted and received from the concerned authorities. Any advance or part of advance not
adjusted from proceeds of incentives or relative export bills will attract domestic rate of
interest from the date of original advance till the date of its payment. Normally, such
advances are granted against execution of loan documents such as promissory note, power
of attorney, etc. and application made to disbursing authorities in prescribed forms
accompanied by original bank certificate of export, export promotion copy of shipping bill,
etc.
6.36 Advances against Government receivables at pre-shipment stage are required to be
covered under Export Production Finance Guarantee of ECGC.
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(C) ADVANCES AGAINST DUTY DRAWBACK:
6.37 Where the domestic cost of production of certain goods is higher in relation to
international price, the exporter may get support from the Government, so that he may
compete effectively in the overseas market. The Govt. of India and other agencies
provide export incentives under the Export Promotion Scheme in the form of refund of
excise and customs duties, known as Duty Drawback. The Duty Drawback Scheme is in
operation since 1976 by virtue of the ―Customs and Central Excise Duties Drawback
Rules 1976‖. The basic objective of this Scheme is to allow refund of excise and customs
(import) duties paid on indigenous / imported raw-materials, components, etc., used in
the export products. But the process of assessment and refund of duties by Customs
may take 1 to 15 weeks' time from the date of export. Banks may grant advances to
exporters against their Duty Draw Back (DDB) entitlements provisionally certified by
Customs and adjust the loans when the final assessment is made by Customs and duties
are refunded by them (to banks directly). Such Duty Draw Back loans are normally
granted by banks at post-shipment stage for a period not exceeding 90 days at lower
interest rate as specified in interest rate directive.
6.38 However, in cases where the domestic prices of goods exceed the value of export orders,
the difference representing the Duty Draw Back entitlement, banks can grant Duty Draw
Back advances at pre-shipment stage subject to the condition that the loan is covered
by Export Production Finance Guarantee of ECGC.

6.39 Banks have to extend credit to the exporters against the DDB entitlements provisionally
certified by the Customs authorities on DDB shipping bill (a form of export declaration-
cum-application for Customs). Banks have to ensure that the exporter has
nominated/indicated their names on the shipping bills as the agent to receive the
proceeds directly.
6.40 These advances being in the nature of unsecured advances, cannot be granted in
isolation and could be granted only if all other types of the export finance are extended
to the exporter by the same Bank.
6.41 Advance against cheques/ drafts received as advance remittance :
1. Where exporters receive direct remittances from abroad by means of cheques, drafts,
etc., in payment for exports, banks may grant export credit at concessive interest
rate to exporters of good track record till the realisation of proceeds of the cheque,
draft, etc., received from abroad, after satisfying themselves, that it is against an
export order, is as per Trade practices, in respect of the goods in question and is an
approved method of realisation of export proceeds as per extant rules. Rules
applicable for collection of cheques, drafts etc to be strictly followed.
2. If, pending compliance with the above conditions, an exporter has been granted
accommodation at normal commercial interest rate, banks may give effect to
concessive export credit rate retrospectively once the aforesaid conditions have been
complied with and refund the difference to the exporter.

Pre-shipment Credit to Diamond exporters- Conflict Diamonds- Implementation of Kimberly

Process certification Scheme(KPSC):Trading in conflict diamonds has been banned by U.N.
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Resolutions Nos.1173 and 1176 as the conflict diamonds play a large role in funding the
rebels in the civil war torn areas of Sierra Leone. There is also a Prohibition on the direct
/indirect import of all rough diamonds from Sierra Leone and Liberia in terms of UN
Resolution No. 1306(2000) and 1343(2001) respectively. India, among other countries, has
adopted a UN mandated new Kimberley Process Certification Scheme to ensure that no rough
diamonds mined and illegally traded enter the country. Therefore, import of diamonds into
India should be accompanied by Kimberley Process Certificate (KPC). Similarly, exports from
India should also be accompanied by the KPC to the effect that no conflict/rough diamonds
have been used in the process. The KPCs would be verified/ validated in the case of imports/
exports by the Gem and Jewellery Export Promotion Council. In order to ensure the
implementation of Kimberley Process Certification Scheme, branches should obtain an
undertaking in the prescribed format, from such of the clients who have been extended credit
for doing any business relating to diamonds.

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 Chapter - 7
POST SHIPMENT FINANCE

INTRODUCTION:

DEFINITION:

7.1 ‘Post-shipment Credit’ means any loan or advance granted or any other credit provided
by a Bank to an exporter of goods from India from the date of extending credit after shipment
of goods to the date of realisation of export proceeds as per the period of realization
prescribed by the RBI and includes any loan or advance granted to an exporter, in
consideration of, or on the security of any Duty Drawback allowed by the Government from
time to time. As per the current instructions of the RBI, the period prescribed for realization
of export proceeds is 9 (nine) months from the date of shipment.
Post-shipment finance is essentially an advance against receivables, which will be in the form
of shipping documents. The responsibility of an Authorised Dealer will be felt more in case
of Post-shipment advances because Reserve Bank will be monitoring realisation of full
proceeds of individual shipments through AD. Some of the major FEMA Regulations
concerning Export Finance at the Post-shipment stage are as follows:
a) Exporter should have IEC number and each shipment should accompany the
prescribed declaration in Form EDF (Export Declaration Form) to declare all types of
export of goods from non-EDI ports and SOFTEX Form to declare single as well as
bulk software exports. EDF has replaced GR/PP forms. Procedure for export of goods
through EDI ports remains same and SDF form is applicable as hitherto. [Ref: AP (Dir
Series) Circular no. 43 dated 13.09.2013].
b) Shipping documents along with relative declaration form must be submitted to an AD
within 21 days from the date of shipment. If there is any genuine delay beyond the
control of the exporter, AD is delegated with powers to condone the delay and accept
the shipping documents even after 21 days from the date of shipment.
c) The payment should be received in approved manner within the prescribed time.

PERIOD OF POST SHIPMENT ADVANCE:

i) In the case of demand bills, the period of advance shall be the Normal
Transit Period (NTP) as specified by FEDAI

ii) In case of usance bills, credit can be granted for a maximum duration
of 365 days from date of shipment inclusive of Normal Transit Period
(NTP) and grace period, if any. However, branches should closely
monitor the need of extending post-shipment credit up to the
permissible period of 365 days and they should persuade the exporters
to realize the export proceeds within a shorter period.

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 iii) ‘Normal transit period’ means the average period normally involved
from the date of negotiation/ purchase/ discount till the receipt of bill
proceeds in the Nostro account of the bank concerned, as prescribed
by FEDAI from time to time. It is not to be confused with the time
taken for the arrival of goods at overseas destination.

iv) An overdue bill

a) In the case of a demand bill, is a bill which is not paid before the
expiry of the normal transit period, plus grace period and

b) In the case of a usance bill, is a bill which is not paid on the due
date.

INTEREST ON POST-SHIPMENT CREDIT:

Early payment of export bills
a) In the case of advances against demand bills, if the bills are realized before the expiry
of the normal transit period (NTP), interest at the concessinal rate shall be charged
from the date of advance till the date of realisation of such bills, The date of realization
of demand bills for this purpose would be the date on which the proceeds get credited
to the bank‘s Nostro accounts.

b) In the case of advance/ credit against usance export bills, interest at concessinal rate
may be charged only up to the notional /actual due date or the date on which export
proceeds get credited to the bank‘s Nostro account abroad, whichever is earlier,
irrespective of the date of credit to the borrower‘s/ exporter‘s account in India. In
cases where the correct due date can be established before / immediately, after
availment of credit due to acceptance by overseas buyer or otherwise, concessinal
interest can be applied only up to the actual due , date irrespective of whatever may
be the notional due date arrived at, provided the actual due date falls before the
notional due date.

c) Where interest for the entire NTP in the case of demand bills or up to notional/ actual
due date in the case of usance bills as stated at (b) above, has been collected at the
time of negotiation/ purchase/ discount of bills, the excess interest collected for the
period from the date of realization to the last date of NTP/ notional due date/ actual
due date should be refunded to the borrowers.

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OVERDUE EXPORT BILLS

i)In case of export bills, the rate of interest decided by the bank within the
ceiling rate stipulated by RBI will apply up to the due date of the bill (up to
NTP in case of demand bill and specified period in case of usance bills)

ii) For the period beyond the due date viz. for the overdue period, the rate
fixed for ECNOS at Post-shipment stage will apply and no penal interest should
be charged additionally.

INTEREST ON POST-SHIPMENT CREDIT ADJUSTED FROM RUPEE RESOURCES

Banks should adopt the following guidelines to ensure uniformity in charging interest on post-
shipment advanced which are not adjusted in an approved manner due to non-accrual of
foreign exchange and advances have to be adjusted out of the funds received from the
Export Credit Guarantee Corporation of India ltd. (ECGC) in settlement of claims preferred
on them on account of the relevant export consignment:
a) In case of exports to certain countries, exporters are unable to realize export
proceeds due to non-expatriation of the foreign exchange by the
Governments/Central Banking Authorities of the countries concerned as a result
of their balance of payment problems even though payments have been made
locally by the buyers. In these cases ECGC offer cover to exporters for transfer
delays. Where ECGC have admitted the claims and paid the amount for transfer
delay, banks may charge interest as applicable to ‘ECNOS‘-post-shipment even if
the post-shipment advance may be outstanding beyond six months from the date
of shipment. Such interest would be applicable on the full amount of advance
irrespective of the fact that the ECGC admit the claims to the extent of 90 percent/
75 percent and the exporters have to bring the balance 10 percent / 25 percent
from their own rupee resource.
b) In a case where interest has been charged at commercial rate of ‘ECNOS‘, if export
proceeds are realized in an approved manner subsequently, the bank may refund
to the borrower the excess amount representing difference between the quantum
of interest already charged and interest that is chargeable taking into account the
said realization after ensuring the fact of such realization with satisfactory
evidence. While making adjustments of accounts it would be better if the
possibility of refund of excess interest is brought to the notice of the borrower.

CLASSIFICATION OF POST SHIPMENT FINANCE

Post-shipment Finance can be classified as under:

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 a) Purchase / discount of export documents under confirmed orders/export contracts,
etc.
b) Negotiation/payment/acceptance of export documents under Letters of credit;
c) Advances against export bills sent on collection basis;
d) Advances against exports on consignment basis;
e) Advances against undrawn balance on exports;
f) Advances against duty drawback receivables from Government of India;
g) Advances against retention money relating to exports;
h) Export bills rediscounted in foreign currency.
(A) FOREIGN BILLS PURCHASED
Purchases without Letters of Credit
7.2 The bulk of export business takes place without the formality of letters of credit. It
may not always suit an exporter to wait for payment until the bill has been paid at the foreign
centre and proceeds are received. Often, foreign buyers are reluctant to open letters of credit
in favour of the exporter partly because additional expenses of commission on letters of
credit etc. are involved. The exporting customers nonetheless, require finance for goods
shipped abroad and may request their bankers to negotiate (i.e. purchase) their export bills.
If the Bank agrees to purchase the bill, it is an advance and should only be undertaken with
proper sanction. The Branches may purchase bills of small value on casual basis, within their
delegated authority as per delegation of powers, for customers of undoubted worth, but the
facility should generally be limited to customers who have been sanctioned regular limits for
the purpose.
7.3 In deciding upon the advisability of purchasing a bill, the integrity of the customer
offering the bill is of the most importance. Status reports should be compiled on exporter
customers for whose account foreign export bills are required to be purchased. Also, status
reports on regular drawees or on whom large amounts are drawn should be obtained. The
status reports on the drawers and the drawees should be revised periodically, at least once
a year, and must be kept up to date.
7.4 In the case of purchase of a documentary bill, the nature of the merchandise and the
price at which it is sold to the foreign buyer must receive the Bank's consideration since the
merchandise is to become the Bank's security. If the merchandise has been manufactured
to meet a special need or is marked with the foreign buyer's name and packed in a special
way with special markings according to the buyer's wishes, it has very limited marketability;
should the buyer decline or find himself unable to pay, the Bank would find it extremely
difficult to sell such merchandise to other traders.
7.5 Even if the reports on the drawers and the drawees are satisfactory, regard must be
had to the prevailing exchange control restrictions at the place of destination of goods. In
countries like Sudan, Nigeria, etc., bills are normally paid on arrival of goods, but It takes a
long time, say, often 180 days or more to obtain the permission from the Exchange Control
to remit the proceeds out of the country.

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7.6 It is advisable to obtain periodically reports on the market conditions at foreign
centres at which the bills purchased are collected. The up to date information regarding the
market conditions in particular commodities is useful in deciding to purchase bills of large
amounts or granting consignment loans.
7.7 Branches should exercise caution and selectivity in undertaking business on countries
which face foreign exchange difficulties and problems in meeting their financial commitments
in view of the extensive delays which may occur in obtaining payments in convertible
currencies from these countries.
7.8 In certain cases, it may be desirable to consider a rupee advance against foreign
currency bills drawn payable at countries where payment in foreign exchange is likely to be
delayed.
DOCUMENTS AGAINST PAYMENT AND DOCUMENTS AGAINST ACCEPTANCE BILLS.
Export bills may be purchased on one of the following basis:
7.9 DOCUMENTS AGAINST PAYMENT BASIS : In the case of a documentary bill drawn
against payment (D/P) basis, the Bank retains full control over the merchandise represented
by the documents until such time as the bill is paid (i.e., the Bank's advance is secured by
constructive possession of the goods). Such bills are normally drawn payable at sight.
Occasionally, a bill providing for delivery against payment may be drawn at a usance. In such
a case, enquiries must be made for the reasons for this procedure and it must be ascertained
that the period of usance does not exceed the normal period required for the carrying vessel
to reach the destination.
7.10 DOCUMENTS AGAINST ACCEPTANCE BASIS: An export bill purchased may be drawn on
D/A (documents against acceptance) basis. In such a case, the Bank retains control of the
goods until the relative bill is accepted. Once the acceptance of the drawee is obtained, the
documents are released to him and, thereafter, the Bank's security is the undertaking of the
drawee, evidenced by his acceptance on the bill, to pay it on maturity. THE PURCHASE OF A
D/A BILL IS THUS, IN EFFECT, A CLEAN ADVANCE and the moral standing and financial
position of both the drawer and the drawee of such a bill should be such as to justify a clean
advance. The drawee of a D/A bill can take the goods into his possession on his acceptance
of the bill; the bank has only the signed undertaking of the drawer and of the acceptor as
security (for what they are worth). The tangible security of the goods is no longer available
to the banker. One can sue the importer who is primarily liable on the bill but he is abroad.
The machinery of law may be cumbersome and unwelcome. Bank has to rely on the drawer.
However good he may be, his position is weakened by the fact that he has parted with the
goods. In the circumstances, when the world price of a commodity undergoes a sharp slump
causing the best of firms in that trade to be hard hit by the turn of the market, the acceptor
may fail to meet his engagements, in view of the foregoing, Branches must adhere to the
following instructions given in regard to the purchase of D/A bills.
a) The Branch must see that drawings on D/A basis are usual in the particular trade at
the destination concerned and that the period of usance proposed does not exceed
the normal period customary in that particular trade at the destination.
b) It must be borne in mind that purchase of documents drawn against
acceptance i.e. on D/A basis constitutes a clean advance and the standing of the

144
 customer must be such that the Bank would grant him a clean advance with a second
good signature. Where D/A bills are frequently offered for purchase, Branches must
obtain status reports on drawees and keep them up-to-date, so that information as
to the creditworthiness of the "second" signature is always readily available.
c) If the merchandise represented by the documents giving cover to the export bills
offered for purchase is of a perishable nature, such as grain, flour, meat, etc., the
documents should usually be drawn deliverable against payment.
d) House Bills: A bills purchase limit does not authorise purchase of house bills, unless
specifically authorised by the terms of sanction. House bills are bills drawn by one
firm on another intimately connected, THE IMPLICATION BEING THAT HOUSE BILLS
ARE NOT TRULY TWO SIGNATURE (NAME) BILLS. Care must be exercised with
regard to the purchase of house bills, particularly D/A house bills. Since the advance
would virtually have been made on ONE SIGNATURE ONLY, such a situation must
always be clearly pointed out in any proposal made for the purchase of export bills.
PLEASE NOTE IMPORTANTLY ECGC guarantee cover under WTPSG is not available
on house bills drawn on associates/collaborators etc.
RATES OF EXCHANGE
7.11 If a bill is expressed in foreign currency, rupee equivalent is to be calculated at the
Bill Buying rate ruling on the day of purchase or the contracted rate, if under a forward
contract. However, Branches should note that Bill Buying rates are quoted only for bills in
foreign currency drawn on Sight (D/P) basis. The rates of exchange for usance bills in foreign
currency must be obtained from the Treasury Branch.
TRANSIT PERIOD:
7.12 The transit period to be calculated for bills is fixed by the Foreign Exchange Dealers'
Association of India. The Normal Transit Period (NTP) is taken into consideration for
calculating notional due date (in case of sight bills) and due date in case of usance bills.
However where due dates are reckoned from date of shipment or bill of exchange, no normal
transit period will be applicable.
FORWARD EXCHANGE COVER:
7.13 In the case of bills drawn and payable in foreign currencies, Branch Managers must
consider in the light of exchange fluctuations in the particular foreign currency and the
amount of foreign currency involved, whether the borrower must cover forward exchange.
In respect of bills of large amount, it must be ensured that the exporter sells forward
exchange to the Bank. If this is not possible for any reason, approval for waiver of the
forward cover for any particular transaction should be obtained from the appropriate
authority.
7.14 Applications in Bank's format for forward cover should be made to the Treasury
Branch.
7.15 When a customer's transactions are covered forward, a note to this effect should be
prominently made on all papers connected with the customer's export bills, so that there is
no possibility of the forward cover being overlooked. Special attention should be paid to

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comply with exchange regulations as laid down in FEMA 1999 before entering into forward
contracts with customers.
SHARING OF EXCHANGE EARNINGS:
7.16 Branches are normally entitled to a share in exchange earnings on their foreign
exchange transactions under Foreign Bills Purchase. Branches should follow the procedure
laid down by Head Office in this regard.

COVERING SCHEDULE AND CONTENTS THEREOF:

7.17 The bills must be sent with a covering schedule of instructions which must be
absolutely clear and must protect the interest of the Bank. The instructions should correctly
convey the directions of the customer and his instructions must, therefore, be taken in writing
in a special form (Form no. FE 1583). Branches may have to advise their customers regarding
giving such instructions and must, in any case, see that the customer's instuctions do not
conflict with the safety of the advance. It is for the exporter customer to indicate to the Bank
the procedure to be followed under all circumstances which are likely to arise. If the drawer's
instructions conform to established usage and commercial practice, the Bank cannot question
such instructions. If the instructions accompanying the bills offered are unsatisfactory to the
Bank or conflict with the safety of the Bank's advance, the Manager should politely decline
to purchase the bills and inform the customer that the bills can be accepted for collection
only. (Covering schedules are now generated by Finacle system, based on the data fed by
the Branches for respective Bills.)
COLLECTING BRANCH OR CORRESPONDENT:
7.18 Unless the customer requires the bills to be sent to a particular bank, they should be
sent to the Bank's Branches or approved correspondent banks at the centres where the
drawees of the bills reside.
7.19 If a bill is payable at a foreign centre where the Bank has a Branch, the bill should
preferably be sent to the Branch for collection.
7.20 If no Branch of the Bank is established at the foreign centre and the bill is drawn in
foreign' currency, it should be sent to the correspondent bank at the drawee's place with
which the Bank maintains its agency arrangement. If a bill is drawn on a place where the
Bank has neither a Branch nor a correspondent, the bill should be forwarded to the best
available agent at that place, at the risk and responsibility of the drawer. The customer's
instructions to this effect should always be taken in writing.
7.21 In some instances, where the available banking facilities at the place on which the
bill is drawn are not satisfactory, the bill may be sent for collection to the Bank's Branch or
established correspondent nearest to the centre on which the bill is drawn. The Bank's Branch
or correspondent would select the ultimate collecting agent in the drawee's town.
7.22 It may be noted that the exporter customer may designate a particular foreign
collecting bank at the instance of the foreign drawee. Such a request must be taken in
writing. A difficulty arises in case the bank designated by the customer at the suggestion of
the drawee is unknown or has not the requisite financial and business background. (A reason
why the drawee desires the drawer to route the bills through a particular designated

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collecting bank in his town may be that the drawee maintains an account with that bank and
may therefore wish to reciprocate the courtesies received by him from that bank.)
7.23 Notwithstanding what is stated in paragraph above, it is the responsibility of each
and every officer to ensure that the business emanating from our Branches should be routed
through our Branch at other centre where the drawees of bills reside and should ensure to
provide prompt, efficient and complaint-free services in collecting the bills expeditiously.
INSTRUCTIONS TO BRANCH OR CORRESPONDENT:
7.24 The instructions given to the Branch or correspondent should cover the following
points (The list is only indicative and NOT EXHAUSTIVE):
i) DOCUMENTS AGAINST ACCEPTANCE OR PAYMENT: The drawer must instruct whether
the documents are to be delivered against acceptance or payment. Delivery of
documents against acceptance refers to usance D/A bills. The documents attached to
bills drawn at sight or on demand are deliverable only against payment.
ii) INSTRUCTIONS AS TO PROTEST: The drawer should give definite instructions as to
whether the bills are to be protested for dishonour, by non-payment or non-
acceptance or if protest is to be waived. (If the bills insured by the ECGC Ltd. are not
accepted or not paid, they must be protested for non acceptance or non-payment.)
iii) NOTICE OF DISHONOUR (ADVICE OF FATE OF BILLS): The drawer must instruct if the
fate of the bill is to be advised by cable or by air-mail/SWIFT. In the case of a
documentary bill, the drawer may wish to extend the insurance on the refused
shipment or have the goods returned promptly or sold in the locality of the original
buyer. The goods may be of a perishable nature and may require prompt clearance
and storage. The Bank for its own protection should, therefore, insist upon
telegraphic/SWIFT advice of fate. (Irrespective of whether the drawer desires to know
the fate of his bill by SWIFT/ cable or air-mail, the Bank may like to receive the fate
advice of a bill expeditiously for credit reasons.)
iv) COLLECTION OF CHARGES AND INTEREST: The drawer should clearly indicate (instruct)
as to who should bear the Collecting Bank's Charges (local as well as outside India)
and interest in case of delay in retiring the bill and repatriation of proceeds. Such
instructions should be prominently conveyed to the collecting bank. [Incidentally the
drawer should not request the collecting bank to collect charges and interest from the
drawee, unless the contract of sale specifically provides that the drawee is to pay
them. Many exporters give little consideration to this matter when sale negotiations
are in progress and when offering the bills for purchase, request the Bank to collect
the charges from the drawee and, should he refuse to pay, to waive them. Such a
practice is not only embarrassing to the Bank, but is not conducive to good business
relations betweenthe exporter customer and his foreign importer. Misunderstandinga
and delay can often be avoided by definite agreement between the buyer and the
seller in the sales contract indicating clearly if the interest and collection charges to
be paid by the buyer or absorbed by the seller.]
v) DRAWEE IN CASE OF NEED: The drawer may insert the name of any person in addition
to the drawee to resort to in case of dishonour by the drawee. The "case of need" is
in the nature of an alternative drawee. If the drawee refuses to honour the bill, it
should be presented to the "case of need" mentioned on the face of the bill who is to
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 honour the bill in place of the drawee and adjust the payment with the drawer at a
future time.
The "case of need" is the representative of the drawer in the drawee's centre who
would, if necessary, assist in obtaining payment of the bill. The "case of need" may
elect to pay or accept the bill but unless the power is clearly given by the customer
(drawer), the "case of need" is not authorised to allow extension of time or partial
payment or storage or insurance of goods, etc. The extent of his authority must,
therefore, be clearly defined in the schedule covering the bill and the full name and
address of the "case of need" must be stated. (The extent of authority of the "case
of need" is normally limited to advice and assistance. Wider powers should not usually
be given to the "case of need' - to do so might jeopardise the security.)
vi) PROTECTION OF GOODS ON NON-PAYMENT OR NON-ACCEPTANCE: It is essential that
instructions regarding protection of goods in respect of a bill purchased by the Bank
are given in the covering schedule in the first instance. As the Bank has advanced
money against the bill, the goods which form the security for the advance must be
protected from the time the bill is purchased till it is paid. Branches should, in all
cases of bills purchased, consider whether instructions given are adequate to protect
the goods at all times.
The drawer should give clear instructions regarding the action to be taken to clear,
store and insure the goods on their arrival at the destination, if the bill is dishonoured.
In most parts of the world, the clearance of goods is permitted against import
licences, unless they are covered by Open General Licence. If goods are not cleared
in time, they may be confiscated by the Customs authorities. In some countries,
however, goods may be cleared in bonded warehouses without import licences;
import licences are required only when the' goods are to be taken out of bonded
warehouses. If the bonded warehouses are full or there are no facilities of bonded
warehouses at the destination, the collecting bank can take no action to protect the
goods unless the drawee submits a valid import licence.
In such cases, the drawers may have to extend the original insurance policy to cover
the goods after they are discharged from the ship and in order to arrange this, they
should be advised immediately of any delay in clearance. Full instructions must also
be given by the drawer as to the amount and risks for which the goods are to be
insured. (The value of goods as shown in the invoice is usually c.i.f. Since after
clearance, the value of goods is increased by the amount of customs duty paid and
the collection charges, the drawers might require insurance to be effected for higher
amount.
vii) PRESENTATION OF BILLS: The drawer must instruct in writing if the acceptance or
payment of a bill is to be deferred until the arrival of the steamer. All bills are
presented to the drawee on arrival of the mail; but, as most bills and documents
reach the collecting bank much earlier before the relative goods, drawers often give
instructions that acceptance or payment may be deferred until the goods reach the
port of destination. If such instructions are given, (although the collecting bank will
make formal presentation on receipt of the bills), it will not press for payment or
acceptance or treat the bill as dishonoured until the arrival of the goods.

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viii) DISPOSAL OF PROCEEDS: A schedule must give instructions for disposal of proceeds
by the collecting foreign Branch or bank. This should be done by asking for credit of
proceeds to the Nostro Account of Treasury Branch with our foreign branches or with
the correspondents as the case may be, according to the Agency Arrangements.
SHIPPING DOCUMENTS
7.25 Shipping documents accompanying the bills purchased form the Bank's security and
must be examined with care to see that they are prima facie in order and that there
are no obvious discrepancies in them.
The essential documents which must be examined are:
7.26 DRAFT: Drafts should be drawn to the order of the Bank and endorsed by the Bank in
favour of the correspondent (in case the bill is required to be collected by a
correspondent). The drawer is liable to the Bank for his signature on the draft. The
signature of the drawer should be verified with the specimen signature on Bank's
record; where a draft(s) is signed by holder of a power of attorney, it must be ensured
that the power of attorney authorises him to borrow from the Bank.
7.27 BILL OF LADING: This is a document of title to the goods and must be drawn or
endorsed to the order of the Bank and where necessary, endorsed by the Bank to the
order of the foreign correspondent. It should be issued by a well-known shipping
company or agent and all the negotiable copies of the bill of lading making a complete
set must be submitted. The bill of lading must be clean and must bear no clauses
derogatory to the goods or packaging.
7.28 If goods are despatched by post parcel or air freight, the post parcel receipts or the air
freight consignment notes must show that the parcels have been addressed or
consigned to the foreign Branch of the Bank or correspondent, as the case may be.
Post parcel receipts or air freight consignment notes are not documents of title and do
not give that control over the goods which is afforded by a bill of lading. If it be desired
that the Bank has control over the goods, post parcel receipts or air freight consignment
notes must show that the parcel is addressed or consigned to the Bank's foreign Branch
or correspondent. Advances against exports made by post or air freight may only be
granted when such business is normal, as, for example, in the case of small articles
from the interior of India. (If the parcels are addressed to the drawees, the relative
advances are clean as the parcels are not held at the disposal of the Bank's foreign
Branch or correspondent.)
7.29 CERTIFICATE OR POLICY OF INSURANCE AND OTHER DOCUMENTS: Insurance certificate
or policy should be issued by a known insurance company of standing and must be in
the currency of the bill with claims payable in the same currency. The amount of the
insurance must be adequate. It should be issued in the name of the drawer and should
be endorsed in blank (by the drawer).
7.30 Other documents may be included and some, such as, the invoice would be present in
all transactions. Some countries require that invoices for imports should be on specified
forms of combined invoice and certificate of origin; the exporter has to fill in the
certificate of origin over his signature. It should be ensured that invoices in the required
form with the signature(s) of exporter thereon are submitted. If invoices in proper form

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 are not submitted, some countries do not allow the imported goods to be cleared or
they are likely to be charged with higher rate of import duty etc. It should be seen that
the shipping marks on the invoice, bill of lading and insurance policy and other
documents are identical and that the case/bale numbers etc., in the invoice, bill of
lading and insurance policy are in agreement.
7.31 The shipping documents should be submitted within 21 days from the date of bill of
lading. In case of delay the branch should satisfy itself with the reasons stated in
writing and that they are beyond control of exporter.
PREPARATION OF SCHEDULES COVERING DOCUMENTS:
7.32 All documents should bear the round stamp of the Bank with the bill number (FBP
number) entered within the stamp. The drafts, bills of lading and insurance policies are
usually blank endorsed or endorsed to the order of the Bank. Where necessary, these
documents should be endorsed appropriately in favour of the collecting bank. (If the
documents are sent for collection to a Branch of the Bank, they should be endorsed in
favour of the Bank.) The bill number should be in terms of Uniform System of
Numbering of Export Bills introduced by the Reserve Bank of India or as required under
Finacle system.
7.33 The covering schedules (Form no. FE 1621) for foreign bills purchased are in sets of
six forms. The required particulars on the original of the set (marked "Office Copy")
should preferably be typed (Now generated by the System), . The copies of schedules
marked "Original Documents" and "Duplicate Documents" should be attached to the
original and duplicate sets of documents respectively. The office copy, the copy marked
"Tracer" and the copy marked "Advice of Payment" should be kept together till the bill
is paid. The copy marked "Serial Copy" should be filed in a separate file in the serial
order of bill numbers. These serial copies must not be removed from the file at any
time. The Authorised Dealer branches under Core Banking Solutions to follow the
procedure as per ‘Finacle System‘ as follows :
Two copies of scheduled marked as original/ duplicate with sets of ‘original‘
and‘duplicate‘ documents.
Third Copy for customer on P or N or C
Fourth Copy – Tracer
Fifth Copy for customer on realization.
Sixth Copy – Office Copy.
7.34 The office copy maintains a complete record of the bill amount in foreign currency and
its rupee equivalent with the rate of exchange, the EDF/SDF/SOFTEX Form number
and the dates of lodgement. At the time of checking the covering schedule and the
attached documents, particular care should be taken to see that the correct foreign
currency amount with the rupee equivalent EDF/SDF/SOFTEX. form number are
entered on the office copy.
7.35 When releasing the tracer (now a days SWIFT enquiry is being sent to ascertain the
fate of a bill), the date on which the tracer is released (i.e., sent to the collecting Branch
or correspondent bank,) should be entered on the office copy.
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7.36 When the bill is paid, the amount of interest and other charges collected from the
drawee/ drawer should be entered on the office copy. The "Advice of Payment" copy
should be marked with the date of payment and should be despatched to the drawer;
if any interest and other charges are recovered from him, an advice should be sent to
him along with the "Advice of Payment". The office copy should be marked "Paid" with
the date and the date of Return on which the duplicate EDF/SDF/SOFTEX. form is
released should also be entered therein.
7.37 Documents should be sorted into two full sets - one full set of original shipping
documents with the required number of copies of invoices etc. (as required by the
drawer} and the other set consisting of the remaining documents. The full set of
original shipping documents should be sent to the Bank's Branch or correspondent bank
with the covering schedule of instructions by the approved courier company of the Bank
and the duplicate documents should be sent separately by air mail at later date.
7.38 It is imperative that Branches must process export bills very promptly and despatch
them without any delay so as to avoid customer complaints which may lead to interest
claims. In any case the export bills must be despatched within a day of its receipt at
the counter of the Bank. In case of exports to neighbouring countries, the Branches
should see that shipping documents are despatched to the overseas correspondents
expeditiously so that documents reach the buyer before the goods reach their
destination or before the carrying steamer discharges the cargo at the port of
destination.
ECGC LIMITED
7.39 Branches should study the requirements of the policies issued by the Corporation and
rigidly adhere to the warranties of the policies (please see Annexure I & II for details).

GENERAL POINTS AND PRECAUTIONS TO BE TAKEN IN RESPECT OF OUTSTANDING BILLS

PURCHASED
7.40 A record of progress and history of each bill should be kept in the office copy of the
schedule. The office copies of the schedules covering outward bills are part of the
Bank's books of accounts in addition to the Bills Register (FE 1653). They must,
therefore, be kept up to date and in perfect order at all times.
7.41 It is essential that the position of the outstanding bills purchased is periodically
examined (say, at least once a week) and appropriate action taken to safeguard the
interest of the Bank. Managers must devote as much attention to the position of
outstanding bills as they would to Branch advances. In deciding upon the action to be
taken, the following points should be constantly kept in mind.
7.42 PROTECTION OF GOODS : As soon as it is known that the goods have reached
destination, steps should be taken to protect the goods, since the goods form the
security of the advance against bills. In some countries such as the Gulf countries, it is
a practice to dispose of the consignment by public auction if delivery thereof is not
taken within a specified period of time. Moreover, some countries do not have a
provision for clearing and storing the goods in bonded warehouses. Branches should
keep themselves abreast of the customs and practices prevailing in such countries in

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 order to ensure that goods are fully protected until such time as the delivery is taken
against acceptance or payment by the importer.
7.43 ADVICE OF THE POSITION OF THE BILL TO DRAWER: Drawer of the bill must be kept
informed of the developments at all stages. Instructions of the drawer which conflict
with the interest of the Bank and the FEMA regulations should not be accepted. If such
conflicting instructions are given by the drawer, he should be advised of the position
and requested to give revised instructions. Depending upon whether payment is to be
made by drawees on arrival of shipment and the normal period taken for payment of
bills at different centres, tracers should be released to ascertain their fate and, if
necessary, the position of the goods.
7.44 If the reasons for non-payment/non-acceptance are advised by the collecting Branch
or bank, they should be conveyed to drawers promptly and further instructions sought.
If it is the practice at the collecting centre to pay sight bills or accept usance bills on
arrival of relative shipment, it may not be necessary to demand refund of the amount
advanced against the bill (with the interest thereon) till the shipment reaches
destination. In such cases, the collecting Branch or bank should be asked to advise the
arrival date of shipment at the destination; when the non-payment/ non-acceptance
advice is received, the drawer should be asked to take immediate steps to have the bill
paid/ accepted by the drawee. Additional margin, if required, may be obtained from
the drawer. If the bill is not paid/ not accepted within a reasonable time, the drawer
should be asked to refund the amount advanced together with interest thereon up to
the date of refund.
7.45 Where the bills are not retired in time, Branches, while ensuring that the relative goods
are protected must also ensure that they do not allow the bills/relative goods to be
held for any unspecified/indefinite period which otherwise may result in accumulation
of demurrage, clearing, storage, insurance charges, etc., to a level higher than the
amount of the bill and the value of goods covered by such bills.

7.46 Branches should keep a close watch on their bills portfolio and in the event of any bill
remaining unpaid/ unaccepted must immediately inquire about the position of the
goods, as well as demurrage, clearing, storage, insurance and other charges. Branches
should also immediately convey to the drawers the fact of non-payment/non-
acceptance of the bill and seek their instructions for the disposal of goods. They should
draw the attention of the drawers to the fact of charges involved in storage/ demurrage
of goods and should follow up the matter regarding expeditious disposal of goods. If
drawers of the bills do not care to furnish disposal instructions, the Bank should arrange
to have the goods disposed of after obtaining specific prior approval of the Reserve
Bank of India and after giving due notices to all concerned but specifically to both the
drawers and the drawees. In no case, should Branches allow unpaid bills covering
merchandise to be held for unspecified period unless there are satisfactory
arrangements made by the parties concerned to defray the cost involved.
DISHONOUR
7.47 THE LIABILITY OF THE EXPORTING CUSTOMER (DRAWER) IS FIXED BY HIS
SIGNATURE AS DRAWER OF A BILL OF EXCHANGE. In the event of dishonour of a bill
purchased by the Bank, the drawer is liable, not only for the principal amount advanced,
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 but also for any interest, commission, warehouse or insurance charges, or any other
charges that may arise. The drawer would be liable in case reshipment of the goods
becomes necessary, as he would be liable for any loss if there be a forced sale of the
goods.
PARTY-WISE LIABILITY LEDGER
7.48 A party-wise liability ledger is maintained in Form no. FE 1389 ( Now in computer).
The amount of a bill purchased should be debited to the account of the drawer; when
the bill is realised, the amount should be credited. . This is readily available in the
system.
7.49 It is important that bills purchased under limits are fairly well distributed amongst
several drawees. Where drawee-wise limits are assigned, it may be necessary to
maintain a drawee-wise ledger. The limits assigned to the drawees should be recorded
. The amount of a bill purchased should be debited to the account of the drawee and
credited when the bill is realised.
7.50 Care must be taken to see that the outstanding against any individual drawer or drawee
does not exceed the limit assigned to him under the sanction.
BOOK-KEEPING
BILLS DRAWN PAYABLE IN FOREIGN CURRENCIES
7.51 The rupee equivalent of the foreign currency amount should be calculated at the
appropriate Bill Buying rate - Sight Bill buying rate for sight bills and Usance Bill Buying
rate for usance bills which should be obtained from the Treasury Branch which
maintains Nostro account (foreign currency account) in that particular currency. If there
is a forward contract for the particular transaction, the rupee equivalent should be
calculated at the contracted rate.
7.52 The entries to be passed on purchase of a bill are:
Debit: General Ledger Account "Export Bills Purchased" (with the amount advanced
against the bill i.e. the amount of the bill less margin, if any).
Credit: Loan Packing Credit Acct or Customer if no P/C has been availed
The export bill number, the name of the customer, the usance of the bill, the rate of exchange
and the foreign currency amount with its rupee equivalent must be entered in the debit
voucher. Branches with large business of export bills purchased may use set of forms of debit
and credit vouchers and advice to customer (Form no.FE 1585) to eliminate duplication of
work.
7.53 Simultaneously, the interest amount for the normal transit period or up to the notional
due date, as appropriate, should be recovered separately from the customer at the rate
of interest as advised by Head Office from time to time 'for the period as specified
below:

Sight bills: for the normal transit period (NTP), prescribed by FEDAI.

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 Usancebills: for the period up to the notional due date, i.e. usance plus normal transit
period, wherever applicable.
Interest on Post-shipment Credit:

Early payment of export bills:

a) In the case of advances against demand bills, if the bills are realized before the expiry
of the normal transit period (NTP), interest at the concessional rate shall be charged
from the date of advance till the date of realisation of such bills, The date of realization
of demand bills for this purpose would be the date on which the proceeds get credited
to the Bank‘s Nostro account.

b) In the case of advance/ credit against usance export bills, interest at concessional
rate may be charged only up to the notional /actual due date or the date on which
export proceeds get credited to the Bank‘s Nostro account abroad, whichever is
earlier, irrespective of the date of credit to the borrower‘s/ exporter‘s account in India.
In cases where the correct due date can be established before / immediately, after
availment of credit due to acceptance by overseas buyer or otherwise, concessional
interest can be applied only up to the actual due date, irrespective of whatever may
be the notional due date arrived at, provided the actual due date falls before the
notional due date.

c) Where interest for the entire NTP in the case of demand bills or up to notional/ actual
due date in the case of usance bills as stated at (b) above, has been collected at the
time of negotiation/ purchase/ discount of bills, the excess interest collected for the
period from the date of realization to the last date of NTP/ notional due date/ actual
due date should be refunded to the borrowers.

Interest on post-shipment credit adjusted from Rupee Resources:

Banks should adopt the following guidelines to ensure uniformity in charging interest on post-
shipment advances which are not adjusted in an approved manner due to non-accrual of
foreign exchange and advances have to be adjusted out of the funds received from the ECGC
Ltd. in settlement of claims preferred on them on account of the relevant export
consignment:
a) In case of exports to certain countries, exporters are unable to realize
export proceeds due to non-expatriation of the foreign exchange by the
Governments/Central Banking Authorities of the countries concerned as a
result of their balance of payment problems even though payments have been
made locally by the buyers. In these cases ECGC offer cover to exporters for
transfer delays. Where ECGC have admitted the claims and paid the amount
for transfer delay, Branch may charge interest as applicable to ‘ECNOS‘-post-
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 shipment even if the post-shipment advance may be outstanding beyond six
months from the date of shipment. Such interest would be applicable on the
full amount of advance irrespective of the fact that the ECGC admit the claims
to the extent of 90 percent/ 75 percent and the exporters have to bring the
balance 10 percent / 25 percent from their own rupee resource.

b) In a case where interest has been charged at commercial rate of ‘ECNOS‘, if

export proceeds are realized in an approved manner subsequently, the bank
may refund to the borrower the excess amount representing difference
between the quantum of interest already charged and interest that is
chargeable taking into account the said realization after ensuring the fact of
such realization with satisfactory evidence. While making adjustments of
accounts it would be better if the possibility of refund of excess interest is
brought to the notice of the borrower.

While charging interest for usance bills, Branch should keep itself fully informed with the
'mode and rate of interest' structure applicable to the Post Shipment Advances from time to
time
a) for bills with usance, normal transit period and grace period together not exceeding
180 days, interest will be charged at the applicable concessional rate. For exporters under
Gold Card Scheme concessional rate of interest is applicable for maximum 365 days.
b) Branches should keep abreast of the rate of interest to be charged as per the
instructions of the Reserve Bank of India/Head Office.

7.54 The entries to be passed are :

Debit: the customer (with the amount of the interest calculated as above)
Credit: Profit and Loss Account "Interest - Foreign (Export)".
7.55 Sometimes, a bill is purchased on behalf of the beneficiary who may not be the Bank's
customer. This is rare. However, in such cases, only the net amount should be paid to
the customer after deducting interest and other charges from the bill amount. Details
of interest, charges, etc., so deducted should be advised to him with a stipulation that
claim will be made in respect of overdue interest, if any. Branches should insist on
guarantee of the beneficiary's bank for payment of such bills on presentation/due date.
Branches may consider withholding part of the proceeds as margin to cover the
contingency of overdue interest being required to be charged.
In the case of bills where margin is required to be maintained, the General Ledger
Account- 'Export Bills Purchased' should be debited with the amount advanced against
the bill after deducting margin. For the purpose of maintaining exchange position, the
amount advanced against the bill in foreign currency (and not the full amount of foreign
currency bill) should be reported to Treasury branch (taken care by the system in
Finacle)
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PURCHASE MADE UNDER A FORWARD CONTRACT
7.56 When the purchase of foreign currency is effected under forward contract with the
Treasury branch, the computer system (Under interface with the Treasury)
automatically takes care of reporting.
REALISATION OF BILLS: BOOK-KEEPING
7.57 On receipt of advice of realisation of bills, Branches should debit in the computer system
Treasury Branch, (whose foreign currency account is credited by the foreign Branch or
correspondent with the proceeds of the bill) with the rupee equivalent of the bill
calculated at the rate of exchange at which the bill was purchased from the customer.
The entries passed on realisation of export bills purchased are :
Debit : Treasury Branch Account Nostro Account
(Mirror Account) with the rupee equivalent of the amount of the bill
purchased.
Credit: General Ledger Account "Export Bills Purchased" with an amount
IDENTICAL to the amount originally debited. (Export Bill Purchased
Number, name of the customer, rate of exchange and the foreign
currency amount with its rupee equivalent must be entered in the
credit voucher.)
Credit: Customer's account with difference between bill amount realised and
the rupee equivalent of the foreign currency amount
advanced.Margin amount, if any, should be taken into consideration.
(Overdue interest, where applicable, should be recovered at the time
of realisation/ refund of the bill at the rate(s) of interest as advised
by Head Office from time to time.)
It should be borne in mind that the amount in rupees debited to General Ledger
Account(when a bill was purchased) and subsequently credited (on realisation of the bill)
MUST BE IDENTICAL.

REPORT ON REFUND
7.58 When the rupee amount of a bill is refunded by the drawer, the Treasury Branch should
be advised of the sale of foreign currency arising on account of the refund of the bill
amount. Such bills should thereafter be treated as bills for collection.
REPORT ON DELINKING
7.59 In case, the foreign currency liability in respect of export bills purchased which has
remained unpaid is delinked and converted into rupee liability, sale of foreign currency
at the TT selling rate ruling on the date of delinking should be reported to the Treasury
Branch as per the menu prescribed for delinking the liability In the computer system..

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REDUCTION IN FOREIGN CURRENCY BILL AMOUNT
7.60 Where the amount of a foreign currency bill purchased is reduced (for cases beyond
the delegated authority to the Authorized Dealer, the approval of the Reserve Bank of
India must be obtained wherever necessary), the foreign currency amount of the
reduction (i.e. reduced amount) should be reported as sale to the Treasury branch .
The rupee equivalent of this reduced amount in foreign currency converted at the T.T.
selling rate ruling on the date of reduction, together with interest on the reduced
amount from the date of purchase to the date of reduction, should be recovered from
the drawer of the bill out of this rupee amount.
Further,
a) the rupee equivalent of the reduced foreign currency amount converted at the rate
at which the bill was purchased should be credited to the General Ledger Account
“Export Bills Purchased" and
b) The balance amount which represents the exchange should be credited to the
Treasury Branch.
REALISATION OF PROCEEDS OF BILL
7.61 In those cases where the foreign currency amount realised is less than the amount of
the bill purchased, Branches should debit Treasury Branch stating the foreign currency
bill amount converted at the same rate of exchange at which the bill was purchased;
the difference (in foreign currency amount) should be reported as a ready sale The
difference between the foreign currency amount of the bill, the rupee equivalent of
which was debited to "Export Bills Purchased" account when the bill was originally
purchased and the foreign currency amount realised should be recovered from the
customer at the T.T. selling rate, with interest thereon, and charges, if any.
7.62 In those cases where the foreign currency amount realised is more than the amount of
the bill purchased, Branches should Debit Treasury Branch stating the foreign currency
amount realised; the bill amount should be converted at the original buying rate and the
excess amount at the T.T. buying rate; the difference in foreign currency amount should
be reported as ready purchase with a remark "Excess amount (state the foreign currency
and the excess amount realised) realised now reported as purchase"
7.63 The difference between the foreign currency amount originally purchased and the
amount realised, whether more or less, should be settled with the customer, or if the
difference represents charges which, the Bank usually bears or earns, should be debited
or credited to the appropriate Profit and Loss account of the Branch.
7.64 All export contracts with foreign buyers in General Currency Area countries are to be
denominated in convertible currencies and the earlier practice of quoting the sale price
in Rupees has been discontinued.
7.65 OVERDUE EXPORT BILLS :
i) In case of export bills, the rate of interest decided by the bank within the ceiling rate
stipulated by RBI will apply up to the due date of the bill (up to NTP in case of demand
bill and specified period in case of usance bills).

157
ii) For the period beyond the due date, viz. for the overdue period, the rate fixed for ‘Export
Credit Not Otherwise Specified‘ (ECNOS) at post-shipment stage will apply and no penal
interest should be charged additionally.
iii) Branches should ensure that the additional interest by way of overdue interest (ECNOS)
should not be levied where there has been no advance (pre or post shipment) taken by
the exporter.
DELINKING OF FOREIGN CURRENCY LIABILITY IN RESPECT OF OVERDUE EXPORT
BILLS PURCHASED/NEGOTIATED
7.66 At present, FEDAI Rule 2 ’Crystallisation and Recovery’ and ‘Dishonour of Bills’,
respectively, reads as under :
Crystallisation and Recovery:
i) Authoried Dealers should formulate own policy for crystallisation of foreign currency
liability into rupee liability, in case of non-payment of bills on the due date.
ii) The policy in this regard should be transparently available to the customers.
iii) For crystallisation into Rupee liability, the Authorised Dealer shall apply its TT selling
rate of exchange. The amount recoverable, thereafter, shall be the crystallised Rupee
amount along with interest and charges, if any.
iv) Interest shall be recovered on the date of crystallisation for the overdue period at
the appropriate rate; and thereafter till the date of recovery of the crystallised amount.
v) Export bills payable in countries with externalisation issues shall also be crystallised
as per the policy of the Authorised Dealer, notwithstanding receipt of advice of payment
in local currency.

The unpaid export bills will be treated as outstanding under the sanctioned limit of the
customer with the exchange risk open against him.

7.67 DISHONOUR OF BILLS:

In case of dishonour of a bill before crystallisation, the Bank shall recover.
i) Rupee equivalent amount of the bill and foreign currency charges at TT selling rate.
ii) Appropriate interest and rupee denominated charges.
iii) Interest at appropriate rate as prescribed by Reserve Bank of India/ H.O. from time
to time.

7.68 REALISATION OF BILL AFTER CRYSTALLIZATION :

After receipt of advice of realisation, the Authorised Dealers will adjust the Rupee liability on
the bill crystallized, as above, by applying the TT buying rate of exchange or the contracted
rate in case a forward contract has been booked by the customer after crystallization. Any
difference shall be recovered from/ paid to the customer. Interest for the period from the
date of crystallisation to the date of realisation of the bill shall be recovered from the
customer at the appropriate rate of interest for overdue export bills, as prescribed by Reserve
Bank of India/ Head Office.
REFUND OF NEGOTIATION PROCEEDS OF UN-PAID BILL :

158
In case refund of negotiation proceeds of a foreign currency bill is required to be made to
the negotiating bank by the customer, the rate of exchange for conversion shall be the ready
TT selling rate of the negotiating bank, ruling on the date of refund. In addition, the
customers shall be required to pay interest as per the guidelines issued by RBI from time to
time.
7.69 As per the revised FEDAI guidelines, exchange difference recoverable due to
crystallization, i.e. if the amount crystallized is the less than amount originally advanced at
the time of purchased/ discounted/ negotiation, shortfall will have to be recovered from the
customer. The exchange difference, payable due to crystallization, i.e., if the crystallised
Rupee liability is higher than the amount originally advanced by purchase/ discount/
negotiation, Branches should be passed on to the customer by reducing his overdue bill
liability. The interest should also to be recovered on the date of crystallization for the period
from the date of expiry of the normal transit period/ notional due date or actual due date,
as the case may be, till the date of crystallization at the appropriate rate of interest, directed
by RBI/ Head Office for overdue export bills.
7.70 The Branch should remove the item from its outstanding Foreign Bills Purchased or
Negotiated( It is taken care by the system at the time of delinking of bill by the Branch). In
case the 30th day happens to be a holiday or Saturday, it should be reversed on the next
working day. Swap costs for the above period of 30 days should not be recovered from the
exporter customer. Branches should note importantly that delinking of the foreign exchange
liability of the export bills as per procedure outlined above is mandatory and holding of
overdue bills beyond 30 days of their due date must not be permitted.
7.71 Branches must incorporate the following clause in the schedule covering bill offered
for purchase/ negotiation from customers.
"We agree that in case sight bills remain unpaid for a period of 30 days after the
transit period and in case usance bills remain unpaid for a period of 30 days after the
due date, the foreign currency amount shall be converted at the T.T. selling rate
ruling on the 30th day and in case the 30th day happens to be a holiday or Saturday,
the TT selling rate ruling on the next working day. We also agree that in case usance
bills remain unaccepted for a period of 30 days after the transit period, the foreign
currency amount shall be converted at the TT selling rate ruling on the 30th day after
the transit period and in case the 30th day happens to be holiday or Saturday, the
TT selling rate ruling on the next working day. We agree to repay the rupee equivalent
of the foreign currency bill amount so arrived at, together with interest thereon."
7.72 After the overdue bills are transferred to General Ledger Account "Past Due Foreign
Bills Purchased', Branches should vigorously endeavour to obtain refund of the amount of
these past due bills (i.e. the rupee amount transferred to this account) together with overdue
interest at the appropriate rate(s) of interest and terminate the advance against such bills.
These bills should henceforth be held on collection basis. Thereafter when these collections
are paid, the customer should be paid the proceeds thereof at the prevailing T.T. buying rate
and purchase of the foreign currency amount of such bill should be reported to the Treasury
Branch. In case refund of a bill transferred to "Past Due Foreign Bills Purchased" account
cannot be obtained for any reason, the advance against such bill continues to remain in the
books of the Branch as a rupee liability since the foreign currency liability has already been
delinked. If the bill is finally paid i.e. if the proceeds are either received from overseas or
recovered locally from the customer, "Past Due Foreign Bills Purchased" account has to be
159
credited with the rupee equivalent at the T.T. buying rate prevailing on the day and the
balance, if any, should be either recovered from or paid to the customer, as the case may
be, after recovering overdue interest at the appropriate rate.
EXTENSION OF PERIOD FOR REALISATION OF EXPORT PROCEEDS
7.73 Extension of Time

(i) The Reserve Bank of India has permitted the AD Category – I banks to extend the
period of realization of export proceeds beyond 9 months from the date of export, up
to a period of six months, at a time, irrespective of the invoice value of the export
subject to the following conditions:

a. The export transactions covered by the invoices are not under investigation by
Directorate of Enforcement / Central Bureau of Investigation or other investigating
agencies,
b. The AD Branch is satisfied that the exporter has not been able to realise export
proceeds for reasons beyond his control,
c. The exporter submits a declaration that the export proceeds will be realised during
the extended period,
d. While considering extension beyond one year from the date of export, the total
outstanding of the exporter does not exceed USD one million or 10 per cent of the
average export realizations during the preceding three financial years, whichever is
higher.
e. Details of all the export bills outstanding beyond six months from the date of export
is captured in the EDPMS.. However, where extension of time has been granted by
the AD Branch, the date up to which extension has been granted may be indicated in
the ‘Remarks’ column.
f. In cases where the exporter has filed suits abroad against the buyer, extension may
be granted irrespective of the amount involved / outstanding.

(i) In cases where an exporter has not been able to realise proceeds of a shipment
made within the extended period for reasons beyond his control, but expects to be
able to realise proceeds if further extension of the period is allowed to him, as well
as in respect of cases not covered under Para (i) above necessary application (in
duplicate) should be made to the Regional Office concerned of the Reserve Bank in
form ETX through his AD Branchwith appropriate documentary evidence.

(ii) Details of `All the export bills outstanding beyond six months from the date
of export for the amount in excess of the amount stipulated by RBI, is captured in
EDPMS. However, where extension of time has been granted by the AD, the date up
to which, extension has been granted, may be indicated in the ‘Remarks‘ column.
7.74 Branches must ensure that the fate of each of the overdue bills purchased by them is
ascertained by follow-up with Foreign Branches/correspondents at regular intervals.
COMPOUNDING OF INTEREST ON OVERDUE EXPORT BILLS
7.75 Interest for the overdue period at the rate of interest, as advised by Head Office from
time to time, is to be recovered at the time of realisation or refund of the bill. However, the
calculation of interest should be done as per guidelines issued by Head Office in this regard.
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Overdue interest in all cases shall be recovered from the customer in case payment is not
received on or before the expiry date of Normal Transit Period for Demand Bills, and on or
before the notional due date / actual due date, as the case may be in case of Usance Bills as
per RBI directives/ HO guidelines.
In case of Bills payable at sight or on demand basis, concessional rate of interest, as advised
by HO on export bill is applicable for the normal transit period. In case of Usance Bills, rates
of interest as advised by HO on export bills applicable for the normal transit period plus
Usance period. Thus, an export bill are payable e.g. at 60 days after sight, will be eligible
for concessional rate of interest for 60 days usance plus Normal Transit Period of 25 days,
i.e. a total of 85 days. The above rule is not applicable to export transactions on deferred
payment terms.
For the overdue period i.e. period beyond the due date, the rate of interest fixed for ECNOS
at post-shipment stage will apply and no penal interest should be charged additionally.
7.76 Compounding of interest is applicable only to overdue export bills. It is not applicable
to bills paid within the transit period in the case of sight bills and on or before the notional
due dates in the case of usance bills.
7.77 RUPEE ADVANCES AGAINST FOREIGN CURRENCY BILLS DRAWN ON COUNTRIES WHERE
PAYMENT IN FOREIGN EXCHANGE IS LIKELY TO BE DELAYED.
7.78 Where bills drawn payable at countries where payments are unduly delayed are required
to be purchased, Branches may suggest to the customers that they would be prepared to
grant a rupee advance against foreign currency bills at the prevalent (Bill Buying) rate without
taking the foreign currency in the exchange position, provided the customer/drawer gives
his consent in writing to that effect.
7.79 On realisation, proceeds of the bill calculated at the T.T. buying rate ruling on the day
the foreign currency is received, will be adjusted towards the rupee advance granted plus
interest. If the proceeds are more than the rupee advance plus interest, the excess will be
paid to the customer and if the proceeds are less than the rupee advance plus interest, the
shortfall will be recovered from the customer.
7.80 This procedure would obviate the necessity of delinking of foreign currency liability in
respect of overdue bills. Foreign exchange risk, if any, will be borne by the customer.
Branches must obtain the consent if the customer to this arrangement in writing.
EXPORT CREDIT INSURANCE
7.81 The risks attendant on export business and finance thereof may be broadly divided
into following categories:

a) Commercial risks of the foreign buyer going bankrupt or losing his capacity to pay.
b) Political risks of the buyer's country, e.g. political changes like outbreak of war with
other countries, civil war or economic difficulties or balance of payments problems,
which may lead to imposition of restrictions by the Government of the buyer's country
or any Government action which may block or delay the transfer of payment made
by the buyer.

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 c) Exchange risks arising out of variation in the external value of rupee and the currency
in which exports will be paid for.

d) Bankruptcy of LC opened in Bank and failure of LC Opening Bank to make the

payment.
ECGC Ltd. is a Corporation set-up by the Govt. of India for providing export credit insurance
and guarantee facilities to India‘s exporters. It functions under the administrative control of
the Ministry of Commerce. It has evolved a different credit insurance products to suit the
requirements of Indian Exporters and Commercial Banks. ECGC is essentially an export
promotion organization, seeking to improve the competitive capacity of Indian Exporters by
giving them credit insurance and guarantee support comparable to those available to their
competitors from most other countries.
Our Bank has covered its Packing Credit Advances and Post Shipment advances (excluding
foreign bills negotiated under Letters of Credit) under ECGC‘s following policies -
i) Whole Turnover Packing Credit Guarantee (WTPCG);
ii) Whole Turnover Post Shipment Guarantee (WTPSG).

Branches should follow the instructions contained in Head Office Circular No. 98/226
dated 08.02.2005 as modified from time to time on Export Credit covered under WTPCG
and WTPSG (Annexure –I (A)
ECGC issues several Policies, viz., Standard Policy, Small Exporters Policy, Specific Shipment
Policies, Exports (Specific Buyers) Policy, Exposure Turnover Policy, Buyer Exposure Policy,
IT Enabled Services Policy, Software Project Policy, etc.
Annexures No. II to this Chapter provides the salient features of the various policies issued
by ECGC and the Branches are advised to contact the nearest ECGC office for further details
about policies specific to their requirement.
COUNTRY RISK
7.82 While purchasing bills Branches should bear the "country risk" in the forefront of their
minds. Country risk is the risk that a sovereign state or a sovereign entities in a particular
country may be unwilling and her entities unable to fulfil their obligations for macro rather
than micro reasons i.e. beyond the usual risks in relation to all lending. When the foreign
entity is in the private sector the risk is known as the "transfer risk". 'When the entity in
question is part of the public sector it is known as "Sovereign risk", a special risk arising from
sovereign immunity from legal process.
7.83 BANK EXPOSURE LIMIT/COUNTRY EXPOSURE LIMIT: Branches are advised that before
entertaining any fund based/ non fund based exposure on any bank/country, Branches
should necessarily obtain exposure limit from Head office, Risk Management Department,
through their Zonal offices

OFFICE OF FOREIGN ASSET CONTROL (OFAC):

OFAC updates are issued by the US Department of Treasury at frequent intervals and hence
it is imperative that the Dealing Officials at the Branch log-on to the websites at

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www.ustreas.gov/offices/enforcement/OFACand also www.fatf-gafi.org on the regular basis.
Payments or transactions involving OFAC sanction countries, goods originating or shipped to
/ from / through these countries or parties established or residing in these countries, should
not be routed through our New York Branch/ San Francisco Agency/ Correspondent banks in
USA, as transactions routed through in respect of OFAC listed countries are likely to be
blocked / impounded / rejected. Banks/ Financial Institutions operating in the USA are
required to strictly comply with OFAC rules of USA and hence it is important that the Branches
follow the OFAC guidelines meticulously when routing their transactions through New York
Branch, San Francisco Agency, Correspondent banks in USA.
7.84 Branches should advise their constituents not to draw bills in US dollars on such
customers but to request their exporter customers to draw their bills in currencies other than
US dollars and the proceeds of the bill should be collected without involving United States
entities.
(B) NEGOTIATIONS UNDER EXPORT LETTERS OF CREDIT
7.85 Banks in India associate themselves with the export letters of credit in various
capacities such as Advising Bank, Confirming Bank, bank nominated for effecting settlement
under LC, Transferring bank, Reimbursing Bank or as Remitting Bank. In every case the
Bank will be rendering services not only to issuing bank as its agent/correspondent bank but
also to the exporter in advising and financing his export activity.
7.86 Banks or Branches of the Bank abroad may open letters of credit in favour of Indian
exporters. Such letters of credit fall into two main divisions:
IRREVOCABLE LETTERS OF CREDIT
7.87 Irrevocable letters of credit carry the irrevocable commitment of the opening bank to
reimburse negotiations made in accordance with the terms of such letters of credit. Bills
drawn under irrevocable letters of credit may be freely negotiated, provided that the opening
bank is a prime bank of international repute and the signatures of such a bank are known or
the letters of credit are advised through a known bank in India and or the authenticity of the
Letter of Credit is established beyond doubt. A reference should be made to the Banker's
Almanac to ascertain the financial status of banks which are not known. The signatures of
Advising Bank should be verified beyond doubt before handling documents under letter of
credit.
7.88 ACCEPTABLE BANKS
There is a tendency for new banks to be formed in many parts of the world, particularly in
the under-developed countries which are politically independent, for the first time. Now all
such banks have the financial and business background usually considered adequate for a
banking house. Such banks sometimes issue documents purporting to be irrevocable letters
of credit which may sometimes be advised through Branches of Bank of India. When the
issuing banks are not known, Branches, unless they are fully satisfied in every respect, should
make enquiries before advising their letters of credit to beneficiaries or before negotiating
documents under them. (The enquiries made should include an enquiry to Head Office,
Foreign Business Department, which may have particular information;' enquiries to Head
Office, Foreign Business Department, should be accompanied by a copy of the relative letter
of credit.)

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7.89 Instances of issuance of spurious letters of credit emanating from certain countries are
common. Branches should exercise considerable caution while handling letters of credit
covering exports to such countries by satisfying themselves as to the genuineness of the
letters of credit. One common feature of such spurious letters of credit is that the letters of
credit call for the Airway bill/post parcel receipt showing goods consigned to the opener
instead of to the opening bank, thus depriving the beneficiary of the security of letter of
credit and the negotiating bank of the control over the goods. Such a stipulation should put
the Branches on guard.
7.90 Branches should advise their exporter-customers, whilst dealing with exports to such
countries, to take the following precautions before effecting shipments against letters or
credit:
i) ascertain the existence of the bank;
ii) Establish authenticity of Letter of Credit;
iii) obtain status report on the opener especially when the exporter is dealing with them
for the first time and
iv) Seek an amendment to the letter of credit when the letter of credit stipulates Airway
bill/post parcel receipt showing goods consigned to the opener.
7.91 If documents are tendered for negotiation under letters of credit issued by the banks
about which the Branches are unable to obtain satisfactory information, such documents
should not be negotiated but sent for collection with the consent of beneficiary. If there is a
serious doubt about the standing and status of the issuing bank, then the documents should
be sent for collection to a correspondent bank in the same centre. Sometimes the issuing
bank may state in the letter of credit that documents received through another bank will not
be honoured. If this be so, then the documents should be accepted ONLY on a collection
basis.
7.92 Particular care must be exercised in handling such situations that may arise with tact
and discretion and do nothing that might be interpreted as a reflection on the opening bank.
(In practice, it is usually possible to find a reason, if need be, for declining to negotiate
documents tendered under letters of credit. The foregoing remarks are by way of caution
against negotiation of bills drawn under letters of credit issued by unknown banks and are
not to be interpreted as intended to hamper in any way the normal export business under
letters of credit issued by banks of standing, whether or not such banks are our
correspondents.) It must be emphasised that the Bank is under no obligation to negotiate
the documents tendered under a letter of credit to which the Bank has not added its
confirmation, even if the letter of credit is advised through the Bank and is irrevocable on
the part of the opening Bank.
REVOCABLE LETTERS OF CREDIT
7.93 Great care must be exercised in the negotiation of bills under revocable letters of
credit opened by foreign banks. The general practice is that such letters of credit are
regarded as negotiable until notice of revocation has been received by the advising bank,
i.e., by the concerned branch of the bank in India, but this is likely to lead to confusion unless
the letter of credit is restricted for negotiation to one particular Branch of the Bank. Bills
drawn under revocable letters of credit, therefore, may only be negotiated for customers of
164
UNDOUBTED STANDING. It should be borne in mind that Bank of India is in no way bound
to negotiate bills and documents tendered under letters of credit opened by foreign banks
and advised through us unless the confirmation of Bank of India has been added thereto.
THE CONFIRMATION OF THE BANK SHOULD NOT BE ADDED TO A REVOCABLE LETTER OF
CREDIT. (In terms of Article 2,3 of UCP 600, all credits are to be irrevocable.
Branches may not come across receipt of revocable credits now.)

7.94 It should be ensured that the letter of credit does not contain any clause which is not
in conformity with the FEMA and FEDAI Rules in force. In case any of the substantive
information has been omitted, it should be obtained from the opening bank immediately.
UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS (2007 REVISION):
7.95 All ADs in India w.e.f. 01.07.2007 subscribe to the Uniform Customs and Practice for
Documentary Credits (2007 Revision), International Chamber of Commerce Publication
no.600. Documentary transactions relating to exports should be governed by the provisions,
definitions and articles of the code unless otherwise expressly stated or unless the country
of the letter of credit issuing bank is not a party to the code. The provisions, definitions and
articles of the code are given in Appendix I.
ADVISING OF EXPORT LETTERS OF CREDIT
7.96 Every advice of a letter of credit issued, confirmed or advised-to which the Uniform
Customs and Practice for Documentary Credits (2007 Revision) applies-addressed to the
beneficiary and every acknowledgement of such credit addressed to the correspondent/
Branch on whose behalf or at whose request it is issued, confirmed or advised, must contain
a notation to the effect that the credit is subject to the Uniform Customs and Practice for
Documentary Credits (2007 Revision), International Chamber of Commerce Brochure No.
600. The said notation may, at the option of banks, include the words "except otherwise
expressly stated' or any similar phrase."
7.97 It is not necessary to know whether the letter of credit has been issued from a
bank/country which appears or not on the adherence list to Uniform Customs and Practice
for Documentary Credits (2007Revision). The statement in the credit that it is subject to
Uniform Customs and Practice for Documentary Credits (2007 Revision) affords all parties
the protection of principles of Uniform Customs and Practice for Documentary Credits (2007
Revision).
7.98 In the case of "hand on credits", the notation should be included only in the covering
letter addressed to the beneficiary and in the acknowledgement addressed to the issuing
bank or Branch, and should not be added in the actual credit instrument/advice of the issuing
bank or Branch addressed to the beneficiary. (Hand on credit is one where the first intimation
to the beneficiary is a mere passing on of the original letter of credit received by mail from
abroad.)
EXPORT LETTERS OF CREDIT ADVISED BY FOREIGN BRANCHES AND BANKS IN FAVOUR OF
EXPORTERS
7.99 The basic responsibility of an advising bank is to advise the credit received from its
overseas branch / correspondent only after checking the apparent authenticity of the credit
established by the Issuing Bank. As a prudent bank, it must also go through the Letter of
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Credit, try to understand the underlying transaction, terms and conditions of the credit and
advise the beneficiary in the matter. Though the matter is apparently very simple and does
not entail much effort on the part of the Bank, as a responsible bank, it must take the matter
seriously and try to give efficient and professional service to the exporters and their branches
/ correspondents. However, no LC, by whatever mode it is opened, should be advised to the
beneficiary unless the bank is in a position to check the authenticity of the same. Under
Article 9 of the Uniform Customs and Practice for Documentary Credits (2007 Revision), a
credit may be advised to a beneficiary through another bank (the advising bank) without
engagement on the part of the advising bank, but that bank shall take reasonable care to
check the apparent authenticity of the credit which it advises. Further, under article 9(b), it
has to certify that the advice accurately reflects the terms & conditions of the credit or
amendments received. It is, therefore, necessary that the Branches, when advising credits
of other banks, should satisfy themselves of the apparent authenticity of the credit i.e. the
signatures thereon/ authenticity of the SWIFT message, if opened by SWIFT mode. If the
LC is an air-mail copy, verify the signatures appearing on the LC; in case of any problem in
either case, the matter should be taken up with the beneficiary bank, keeping the beneficiary
informed of the same. If, however, they choose not to advise the credit, they are obliged
to inform the issuing bank without delay accordingly.
7.100 ADVISING OF L/C BY SWIFT
(a) Operative credit instrument advised by SWIFT :
When the full text letter of credit is established by full text authenticated SWIFT, it should
be deemed to be the 'Operative credit instrument" or 'Operative amendment'. The operative
credit instrument should clearly indicate that the letter of credit is issued subject to Uniform
Customs and Practice for Documentary Credits (2007 Revision), ICC Publication no. 600. No
mail confirmation of the SWIFT is necessary.
(b) Letters of Credit Received by Air Mail :
Signatures on the letters of credit established by foreign Branches and correspondents should
be verified with the specimen signatures on record. Thereafter the letters of credit should be
forwarded to the beneficiary with a covering letter (Form no. FE 1360). However, if the Letter
of Credit is advised to a beneficiary without the signatures of the opening bank's officials
being verified, the covering letter for forwarding the letter of credit (Form no. FE 1360) must
specifically state:
"Letter of Credit not authenticated"'
In the meantime, the opening bank should be requested to confirm the signatures.
7.101 A register (Form no. FE 1543) should be maintained to keep a record of all letters of
credit advised by the Branch.
7.102 Branches should charge commission to the correspondent banks / beneficiary as
advised by Head Office from time to time.
ADVISING OF REGULAR FULL OPERATIVE TELE-COMMUNICATION/ AIRMAIL LCS.
1) Check the authenticity of the telecommunication message/ airmail copy.

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 2) Check whether the issuing Bank has indicated our Bank‘s name as the Advising
Bank.
3) Read the instructions for advising of LCs. Normally LCs contains one of the
following instructions :
a) Advise the LC without adding your confirmation.
b) Advise the LC only after adding your confirmation
c) Advise the LC and add confirmation to the credit if desired by beneficiary.
Verify the nature and type of credit (irrevocable or irrevocable (a credit is
irrevocable if issued under UCPDC 600 even if there is no indication to that
effect) and whether payment/ acceptance/ negotiation/ deferred payment
credit and whether the Branch/Bank is nominated as the Bank for effecting
settlement under the credit. If so, reimbursement instructions must be
properly understood and decide whether Branch would be able to effect
settlement under the credit. In case of any difficulties or problems, the matter
may be taken up suitably with the issuing Bank and if necessary, the
beneficiary may also be advised in the matter.
4) Go through the whole LC and understand the nature of transaction, terms and
conditions imposed, documents called for, etc. Also find out whether there
are any inconsistent or ambiguous instructions / clauses in the LCs.
5) If the LC is in order, the same may be assigned a chronological serial number
and advised under a covering letter to the beneficiary.
6) Collect the LC advising charges as per guidelines of the Bank, either from
beneficiary or Issuing Bank, as stipulated in the LC.
7) Mail the copy of the Advice of Credit to the Issuing Bank in token of having
advised the credit.
8) File the copy of LC together with copy of LC advising covering letter in the file
in serial order.
STAMP DUTY ON LETTERS OF CREDIT ADVISED
7.103 Before advising export letter of credit received from foreign Branch/correspondent to
the beneficiary in India, the letter of credit should be affixed with adhesive revenue stamp
of appropriate value (at present, Rs. 2/-). Preliminary cable advices need not be stamped;
only the mail confirmation should be stamped as also the full text SWIFT/ cable which is
deemed to be the operative credit instrument.
FOLDERS
7.104 Copies of letter(s) of Credit, covering letter(s), amendment(s) and relative
correspondences should be kept together in a folder; there should be a separate folder for
each credit. The name of bank/ Branch and number of letter of credit should be superscribed
on folders in pencil (so that the same folder can be used for another credit by erasing the
superscription). It is advisable to arrange folders bank-wise/Branch-wise to facilitate location
of the required folder.
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ADVISING OF AMENDMENTS
7.105 For various reasons LC may be amended. The amendments are normally advised
either by telecommunication or SWIFT/ airmail directly without any prior cable advice. All
the procedures outlined for advising the original LCs must be followed for amendments also.
Before advising the LC amendment, ensure that relative credit is advised by the Branch and
the details given in the amendment advice match with the LC. Before advising the
amendment, it has to be ensured that no previous amendment is missing. The advising bank
must go through the provision of LC and the amendments, to ensure that on account of such
amendments, no inconsistency arises in the LC. If the amendment is not clear, preliminary
information can be given to the beneficiary and necessary clarifications sought for from the
Issuing Bank. Only on receipt of satisfactory information/ clarification, the relevant
amendment may be advised. Charges for amendments should be collected as per Head
Office guidelines.

ADDING CONFIRMATION TO LETTERS OF CREDIT

7.106 Branches may sometimes be asked to add confirmation of Bank of India to an
irrevocable letter of credit of a foreign bank, so that the letter of credit then becomes the
Bank's (Bank of India's) own absolute commitment. The Bank's confirmation may be added
only where the foreign bank is well known and where exposure limit is set out for foreign
bank for adding confirmation to its letters of credit and the amount of the commitment is
within that limit. Request for adding confirmation should be referred to Head Office, Risk
Management Department, for allocation of exposure limit. On no account, the confirmation
of the bank be added to letters of credit issued by unknown banks or to revocable letters of
credit or where no exposure limit is available on the Issuing Bank.
In terms of Reserve Bank of India Directives, Banks are required to set up realistic exposure
limits on other banks/foreign correspondents. Accordingly, Head Office has fixed exposure
limits on banks which are reviewed from time to time.
7.107 Adding confirmation to another bank's letter of credit amounts to stepping into the
shoes of that bank, assuming its liability and taking a risk-exposure on that bank. Branches
are, therefore, required to ascertain the availability of the limits from Head Office,Risk
Management Department, giving full details of the transaction before undertaking exposure
on another bank by way of adding confirmation to its letter of credit. While confirming the
availability of limits, Head Office, Risk Management Department would allocate a separate
serial number transaction-wise which should be invariably quoted in any correspondence
relating to the transaction. Further, before acceding to any request for extending the validity
and/or enhancing the amount of the exposure taken, the availability of the limit should be
confirmed from the Head Office. It would be the responsibility of the branches to advise the
Head Office and obtain its concurrence before permitting any material change in the
exposure taken.
7.108 Adding confirmation to letters of credit will continue to be governed by Delegation of
Powers and the sanctioning authority should ensure that adequate exposure limit is available
on a particular bank before according sanction. Further, there could be occasions where after
ascertaining the availability of the exposure limits, the proposal is declined by the sanctioning
authority. In such cases, the concerned Branch should send intimation of the same to Head
Office in order to enable Head Office to reinstate the amount already earmarked.

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7.109 Branches other than "A" and "B" Category should not undertake letter of credit
confirmation business but route it through the respective "A" and "B" category branches.
7.110 When it is decided to add the confirmation of the Bank to a letter of credit, the
following clause should be typed on the letter of credit itself and issued over the signatures
of the Authorised signatories of the Branch:
"Bank of India hereby confirms this credit and engages with drawers, endorsers and bona
fide holders that drafts drawn under this credit shall be duly honoured on presentation,
provided such drafts are drawn and presented strictly in accordance with the terms of
this credit accompanied by all documents enumerated here and compliance of conditions
stated therein."
While confirming the credit, following precautions may be taken:
1. The relative LC should be/should have been advised through its medium. (Very
rarely the LCs advised by a bank are confirmed by another bank).
2. All precautions/steps must be taken while advising the credit.
3. There must be arrangements with the Issuing Bank for confirmation of their
credits. Normally, banks set up separate credit confirmation lines or exposure
limits. The request made should be within the limit set-up. Otherwise the matter
may be taken up with higher authorities for the setting up of limits or authorizing
the branch to add confirmation. LC should be free from inconsistencies,
ambiguities and should not contain any clause which puts the Bank in jeopardy.
4. LC should not contain any provision which are likely to contradict Trade and
Exchange Control Regulations.
5. Reimbursement instructions must be clear and as far as possible there should be
automatic reimbursement.
6. If the credit is on usance basis, the usance period should not be too long.
7. Credit should be irrevocable (revocable credits are not confirmed).
8. Issuing Bank must request or authorize the Bank to add its confirmation. If the
credit issuing bank states ―You are authorised to add confirmation to the credit if
desired by Beneficiary etc., there must be specific request from the beneficiary.
9. It should be clear, as to who will bear the confirmation charges-whether
beneficiary or the Issuing bank. If instructions are not clear, the Issuing Bank may
be asked to clarify.
10. If credit is opened by a bank in a country which has severe Exchange Control
restrictions or shortage of foreign exchange resources, the Issuing Bank may be
asked to confirm that it holds necessary approval for remittance of funds from the
Central Bank of the country concerned.
11. If the Branch feels that risk of confirmation should be covered with ECGC, their
prior concurrence for issuance of transfer guarantee, terms thereof and premium
payable may be ascertained.

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7.111 The confirmation to letter of credit issued by another bank should be added only at
the request of issuing Bank article 8(d) of UCP 600). Branches should refrain from
adding "Silent Confirmation" to L/Cs, i.e., confirmation added at the request of the
beneficiary and not at the request of the issuing bank.
7.112 Branches should also advise the beneficiary the date up to which the confirmation
so added is valid and inform them to obtain the Bank's consent for future
amendments, if any, to the letter of credit. It should be indicated that the
confirmation added will not be valid for future amendments without Bank’s consent.
The confirmation commission should be recovered from the Letter of Credit opening bank
according to the Rules of the Bank.
7.113 Sometimes, the issuing bank may instruct the advising bank to add its confirmation
to a Letter of Credit and collect the commission for adding such confirmation from
the beneficiary. Where no such specific instructions are contained in the credit, the
commission should be collected from the issuing bank under whose instructions the
confirmation is added to the Letter of Credit. In case of doubt, such matters should
be taken up with the beneficiary of the Letter of Credit or the opening bank before
adding confirmation to the Letter of Credit and it should be ascertained from them
as to who will bear the commission.
7.114 The following entries should be passed:
Debit: General Ledger Account "Customers Liability for Confirming Credits".
Credit: General Ledger Account "Bank's Liability for Confirming Credits"
These entries should be reversed to the extent of drafts negotiated. If a Letter of Credit
expires partly or wholly unutilised, the liability entries for the balance or for the full amount,
as the case may be, should be reversed.
7.115 A special liability ledger or a pass book should be maintained and an account opened
for each foreign Letter of Credit opening bank which has been sanctioned a limit up
to which confirmation of Bank of India may be added to irrevocable letters of credit
opened by it. The liability ledger or pass book should show the total amount of
commitment of the Bank on Letter of Credit opened by different foreign banks to
ensure that the Bank's commitment in respect of each foreign Letter of Credit
opening bank is kept strictly within the limit set for it. The liability ledger should be
maintained alphabetically and kept indexed.
DOCUMENTS TO BE EXACTLY AS REQUIRED BY THE LETTER OF CREDIT
7.116 Although an irrevocable Documentary Credit is an excellent instrument, it is
nonetheless a high precision instrument and must be properly handled. "There is
no room for documents which are almost the same or which will do just as well."
This widely quoted judgement by Lord Sumner clearly indicates what requirements
the documents must meet when they are tendered. They must be precisely those
documents specified in the credit. Documents, which although different, amount to
the same thing, do not meet the requirements laid down by the credit. One of the
characteristics of documentary credit is its extremely formalistic nature. (In a
judgement of points at issue under a documentary credit, consideration of equity

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 will play a subordinate role; a decision which is formally correct cannot be countered
by an appeal to equity). The documentary credit is not intended to cover nuances,
it recognises only two variants "Good" and "not Good". It does not recognise "almost
perfect" or "almost on time".
7.117 Negotiation of bill(s) under letter(s) of credit should be authorised by the
appropriate sanctioning authority.
The Letter of Credit: Verification as Regards its Genuineness
7.118 Now a days majority of LC‘s are issued over SWIFT, which is a secure mode of
transmission of financial transactions. When LC‘s are received in MT 700, it need
not be authenticated again as the system takes care of the same. In other cases,
the original Letter of Credit must be called for and examined to ensure that the
instrument is a genuine one. The signatures on the letter of credit should be verified
with those supplied in the Book of Authorised Signatures of the bank concerned.
Ordinarily an Advising Bank, before advising a letter of credit, examines the
signatures on the letter of credit (except SWIFT messages). But, where in doubt,
the Issuing Bank may be contacted with a view to confirm the signatures and the
genuineness of the letter of credit. In extreme cases, the confirmation of the letter
of credit can be obtained directly by sending a cable to the opening bank. If the
letter of credit opening bank is not known, enquiries must be made with Head Office,
Foreign Business Department. (A reference may also be made to the Bankers'
Almanac to find out the financial standing of such a bank.)
7.119 Documents should not be negotiated only against preliminary cable advice of a
Letter of Credit which is different from the full text authenticated SWIFT/ cable i.e.
the operative credit instrument - as there is the danger of double negotiation. The
original Letter of Credit (i.e.SWIFT/ Air mail confirmation of the letter of credit
established following a preliminary cable, as the case may be). As per article 11 of
UCP 600, an authenticated tele transmission of a credit or amendment will be
deemed to be the operative credit & any subsequent mail confirmation shall be
disregarded..
7.120 The Letter of Credit under which documents are tendered for negotiation must be
irrevocable (on the part of the letter of credit issuing bank) and should either not
be restricted at all (i.e. should permit negotiation of documents by any bank) or be
restricted to Bank of India.
7.121 The Letter of Credit must be valid on the date of negotiation.
SCRUTINY OF DOCUMENTS OFFERED FOR NEGOTIATION
7.122 The previous LC rules required documents that were ―on their face, inconsistent
with one another to be rejected as discrepant. Article 14(d) of UCP 600 provides
the standard for examination of documents generally. It seeks to resolve the
problem of inconsistency in data by clarifying that there is no need for a mirror
image, but rather ― Data in a document, when read in context with the credit, the
document itself and International Standard banking practice, need not be identical
to, but must not conflict with, data in that document or any other stipulated
document.

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Regarding addresses on the various documents, article 14 indicates that they do not have to
exactly match as long as the country is the same. The only exception is when addresses
appear as part of the consignee or notify party details on a transport document, in which
case they must be the same as stated in the credit. Banks deal with documents only and not
with goods represented thereby. [Articles 5 Uniform Customs and Practice for Documentary
Credits (2007, Revision).]
GUIDELINES FOR SCRUTINY OF DOCUMENTS UNDER EXPORT LETTER OF CREDIT :( REFER
ARTICLE 14 OF UCP 600)

Scrutiny of documents presented under a Letter of Credit is a crucial and sensitive function
of banks in entire credit operations, particularly for the Issuing Bank and the Confirming
Bank. Decision to make payment or not against the documents presented will depend solely
on the result of this scrutiny. Hence, the person scrutinizing the documents must be vigilant
and give his undivided attention to the matter. He should have complete and comprehensive
information and knowledge of the conditions of the relative credit, provisions of UCPDC and
their implications. Since in credit operations the basis of dealing is only documents (and not
goods) a small omission, commission or negligence can lead to substantial losses and
embarrassment to the Bank. His primary responsibility is to scrutinize the documents vis-à-
vis the conditions of credit and applicable UCPDC provisions only and decide whether they
appear on their face to be in accordance with the terms and conditions of the credit &
applicable rules (i.e.UCP 600 & ISBP 2007 revision for UCP 600) or not. If they are
discrepant, he must give the details thereof (all at a time) and inform the presenter of the
documents (within 5 banking days as per article 14 b of UCP 600) accordingly and hold the
documents at his end at presenter‘s disposal or return the documents as per terms of article
16 of UCP 600.
He must also have a comprehensive knowledge of banking operations and provisions of
Trade & Exchange Control Regulations. This is equally important because, at times banks
may refer to discrepancies seeking his authority to waive or the applicant may authorize him
to waive certain discrepancies. In such situations he must be in a position to decide which
discrepancy can be waived and which discrepancy cannot be waived.
7.123 STEPS PRECEDENT TO SCRUTINY OF DOCUMENTS:
a) As soon as the documents are presented, identify the letter of credit against which
the relative documents are presented. Generally, it will be apparent from the
forwarding schedule of the remitting bank or beneficiary. Even if it is omitted
(particularly in case of documents sent on collection basis) the relative LC number
can be identified from the notations appearing on draft or invoice or transport or
other documents.
b) Take out the relative LC together with all the amendments effected and prior
authorizations given for waiver of discrepancies. Arrange all of them in
chronological order and go through them so that a broad idea of operative
(amended) terms and conditions of LC is formed.

c) Check whether all documents listed in the forwarding schedule are received or not.
If not, inform the same to the presenting party.

7.124 SCRUTINY OF DOCUMENTS – GENERAL:

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Before scrutiny of individual documents presented, an overall scrutiny of documents with
reference to the general conditions of the credit and the basic necessities of documents
should be verified. (maximum time permissible for examination of documents is 5 banking
days as per terms of article 14 b of UCP 600). Rules for examination of documents are
prescribed in article 14 of UCP 600.
Check Whether:
 All documents called for are submitted.
 All documents are submitted in the requisite number of copies (Take into account for
duplicate set/ second mail that may be following),
 Documents are issued by the persons specified/ required to issue.
 Documents, where necessary and stipulated, are dated or not. If they are dated, the
dates should be consistent with the terms of LC or otherwise.
 Documents, whether necessary and stipulated, are manually signed.
 Material alterations/ additions on documents are properly authenticated.
 The requisite and stipulated documents are originals or marked as originals and
appear to be signed
 All documents, on their face appear to be in compliance with the terms and conditions
of the credit & applicable rules under UCP 600. Shipments is effected within the time
stipulated or not. If it is an instalment credit whether the requisite quantity is shipped
within the stipulated schedule
 Any partial shipment is effected? If so, whether it was permissible under LC

 Documents are presented at the place of expiry stipulated.

 Documents are presented within the expiry date (validity) of the credit. .

DRAFT

7.125 Draft must be drawn according to the stipulation in the Letter of Credit; if the letter
of credit requires the draft to be drawn on the Letter of Credit opening bank or on the buyer,
it must be drawn accordingly.
7.126 The draft should be drawn by the beneficiary or any other person authorised in this
regard to the order of Bank of India (unless otherwise stipulated in the Letter of Credit),
dated and signed. The draft should not be dated later than the validity date of the Letter of
Credit.
7.127 The draft should be superscribed with the clause "Drawn under Letter of Credit
No_________dated _________of__________Bank", unless the Letter of Credit stipulates
some other similar wording, in which case the clause must be worded accordingly.

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7.128 The usance and tenor of the draft(s) should be as stipulated in the Letter of Credit;
usance draft(s) should be adequately stamped, according to the stamp duty of the place
(state) in which it is drawn.
7.129 The amount of the draft should correspond to the FULL invoice value (as required in
the letter of credit), unless it is drawn for less than full invoice value as may be stipulated in
the letter of credit. The amount in figures must correspond exactly to the amount in words.
The amount in the draft and the invoice amount must not be in excess of the unutilised
amount of the Letter of Credit.
INVOICE : ( REFER ARTICLE 18 OF UCP 600)
 It is made out by the beneficiary ( except as provide in article 38 for transferable
credit)
 It should unless otherwise specified ( article 38 g), be made out in the name of the
applicant.
 It need not be signed.
 Description of goods specified must correspond with the description in the LC.
 It should be drawn in the same currency as LC
 A bank may accept a commercial invoice in excess of the amount permitted by the
credit, provided the bank has not honoured or negotiated for an amount in excess of
the amount permitted by the credit( article 18 (b) of UCP 600
 It should show deduction towards advance payments made, agency Commission
payable, etc., as applicable.
 Arithmetic calculations in the invoice need not be accurate.
 If partial shipments are effected, amount of drawings should preferably correspond
to proportionate quantities shipped (where only quantity is mentioned without unit
prices, etc.).
 Invoice being a ―document of contents, the details stated therein must
correspond/be consistent with details appearing in the credit (refer Art.21).
7.130 BILL OF LADING
Bill of Lading (B/L) is one of the most common transport documents called for under the LCs.
However, there are various types of Bills of Lading. Articles 19-27 of UCPDC 600 apply to
Transport Documents and deal at length with various types of transport documents which
will be accepted and what will not be acceptable, etc. It must be clearly understood that a
―Marine B/L which otherwise is also known as an ―OCEAN BILL OF LADING or ―Bill of
Lading covering carriage by sea is one which is issued only when the goods are being
transported from one sea port to another sea port (i.e. port to port voyage by sea). On the
other hand other Bills of Lading such as ―Multimodal or combined transport document are
those which are issued for movement of goods from one place or port to another place or
port with one leg of transaction by sea voyage. Accordingly, UCPDC lays down different
norms of acceptability or otherwise to ―Marine Bill of Lading and other types of B/Ls. Hence,

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in the checklist given below the specific features applicable to ―Marine Bills of Lading‖ are
explained separately.( article 20 of UCP 600)
A bill of lading must indicate name of the carrier & be signed by the carrier or a named
agent or the master or the named agent. Any signature by the carrier, master or agent
must be identified as that of the carrier, master or agent. Any signature by the agent
must indicate whether the agent has signed on behalf of the carrier/ master. Indicates
that the goods have been shipped on board a named vessel at the port of loading
mentioned in the credit. The date of issuance of bill of lading shall be deemed to be
date of shipment. However where on board notation is there, on the bill of lading than
date of on board notation shall be considered as date of shipment. Indicates shipment
from the port of loading to the port of discharge stated in the credit. Be the sole original
bill of lading or if issued in more than one original, it should be full set as indicated in
the bill of lading. Contains terms & conditions of carriage or make reference to other
source containing the terms & conditions of carriage. Contents of the terms &
conditions need not be examined .Contains no indication that it is subject to charter
party.

A bill of lading may indicate that goods will or may be transhipped provided the that the
entire carriage is covered by one & the same bill of lading. Further, even if credit prohibits
transhipment, it is acceptable if the goods have been shipped in a container, trailer or LASH
barge as evidenced by the bill of lading.
Clauses in the bill of lading stating that carriers reserves the right to tranship will be
disregarded.
7.132 A bill of lading should not be subjected to terms and conditions of an extraneous
contract, such as, conditions of charter party. A "charter party" bill of lading must not be
accepted unless specifically permitted in the letter of credit.
7.133 FULL SET: Letter of Credit generally stipulates a full set of bills of lading. All the copies
of the full set must bear signatures manually inscribed (bills of lading with rubber stamp
signature should not be accepted); it must be seen that they are fully negotiable copies and
that no unsigned "Not Negotiable" copy is included in the set to make it complete. (A bill of
lading indicates the number of negotiable copies in the set and a reference should be made
to determine whether a full set is submitted.) The common practice is for a bill of lading to
be drawn in a set of two or three negotiable copies. In order to avoid possible dispute by
reason of one of the copies falling into the hands of unauthorised persons, letters of credit
usually stipulate tender of the full set. (The shipping company usually delivers goods at
destination to the person who first tenders the bill of lading; the shipping company is not
liable to the holder(s) of the other negotiable copies if the goods are delivered to the person
who first presents a negotiable copy of the bill of lading, provided the shipping company acts
in good faith and has no notice of conflicting claims. As soon as one of the negotiable copies
of the bill of lading has been presented and the goods delivered, the other copies are void.
It is, therefore, necessary that all the negotiable copies of the bills of lading are held by the
Bank.) Even if a letter of credit may not call for a full set of bill of lading, it is NOT
the practice of the Bank to accept anything less than a complete set.

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7.134 The date of shipment as evidenced by the date of an "On Board" bill of lading should
not be prior to the date of issue of the licence (if any, stated in the Letter of Credit) nor
subsequent to the date of shipment stipulated in the letter of credit.
7.135 CLEAN BILL OF LADING: as per terms of article 27 of UCP 600, a bank will only accept
clean transport document. A clean transport document is one bearing no clause or notation
expressly declaring a defective condition of the goods or other packaging. The word ‘Clean’
need not appear on the transport document, even if credit has a requirement for the
transport document to‘clean on board’.
7.136 Freight should be prepaid when the terms of a Letter of Credit are c.i.f. or c.f.r. "If a
credit stipulates that the transport document has to indicate that freight has been paid or
prepaid, banks will accept a transport document on which words clearly indicating payment
or prepayment of freight appear by stamp or otherwise, or on which payment of freight is
indicated by other means. The words "freight prepayable" or "freight to be prepaid" or words
of similar effect, if appearing on transport documents, will not be accepted as constituting
evidence of the payment of freight. The port of shipment and the port of discharge indicated
on the bill of lading must be those mentioned in the Letter of Credit.
7.137 In respect of letters of credit opened by banks in countries which subscribe to Uniform
Customs and Practice for Documentary Credits (2007 Revision), "Unless transhipment is
prohibited by the terms of the credit, banks will accept transport documents which indicate
that the goods may or will be transhipped, provided the entire carriage is covered by one
and the same transport document." In all other cases, bills of lading evidencing transhipment
should be accepted only if definitely permitted by the terms of the letter of credit. Refer to
Article 20 of Uniform Customs and Practice for Documentary Credits (2007 Revision).
7.138 The bill of lading must cover the whole of the journey so as to give the buyer (or the
banker) a right as against the ship-owner or the shipping company in respect of the WHOLE
transit. The bill of lading must be valid and effective at the time of tender and must cover
only goods which are subject of the sale. If a Letter of Credit calls for a bill of lading to the
order of a particular person or a firm, the bill of lading to the order of that person or firm
must be presented and should be legibly and properly endorsed where necessary.
7.139 Where the bill of lading is required to be marked "Notify Messrs.
......................................" in the letter of credit, the bill of lading must be tendered so
marked. (The notification clause is inserted so that shipping companies can notify the
consignees on the arrival of goods. Such notification is useful where a bill of lading is delayed
in transit and clearance of goods has to be arranged against guarantees issued by the bank
to the shipping company.)
7.140 Every Bill of Lading must:
 Be issued by a named carrier or his agent.
 Bear a distinct number.
 Indicate the place of issuance.
 Indicate the date of issuance.
 Be signed by named carrier/master or their agent for or on behalf of the
carrier/master.
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  Indicate the name of consignor.

 Indicate the name of consignee.

 Indicate brief description of goods being carried.

 Indicate port of loading or taking charge (incase of Marine B/L, it must show/ indicate
a definite port of loading and in other cases it can be shown as an ‘intended’ port).
 Be presented in full set of originals (full set comprises two or more originals issued to
consignor of goods, all of which are marked as ‘ORIGINALS’ and signed. The number
of copies of originals issued is indicated on the B/L itself).
 Meet all other stipulations of the credit.
 Must indicate whether ’Freight Prepaid’ or‘Freight Payable’.
Bill of Lading should not (Unless Otherwise specified by Terms of LC):
 Be a Charter party Bill of Lading (Art 20a) (iv)
 Be issued by a freight forwarder (unless he is himself acting as a carrier or his agent)
(Art 20).
 Be a claused Bill of Lading.
Bill of Lading can (Unless Otherwise Prohibited or is inconsistent with other Terms of LC).
 Be a short form of Blank backed B/L
 Indicate a place of taking charge different from the port of loading and/or a place of
final destination different from the port of discharges.
 Indicate that the goods are carried in containers, trailers/ or ―LASH barges.
 Be issued by a freight forwarder provided it is issued in his capacity as a carrier or his
agent
 Indicate that the goods will or may be trans shipped provided the same B/L covers
the entire carriage
 Be a ―Freight Payable B/L
 Evidence freight prepayment by a stamp or otherwise on B/L to that effect like
―Freight Prepaid
 Bear reference by stamp or otherwise to costs additional to freight charges.
 Be deemed as ―Clean on Board if it is an on board B/L without any super imposed
clauses or notations expressly declaring the defective condition of the goods and or
the packaging
7.141 Other Aspects of B/L
 If a B/L is issued as an ―On Board B/L it must indicate the name of the carrying
vessel

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  A transport document issued by a freight forwarder can be accepted provided freight
forwarder has issued the same in his capacity as a carrier or his agent and all other
requirements are met with
 A B/L ―Received for Shipment‖ can be treated as an ‘On Board’ B/L if ‘Received for
Shipment’ B/L is affixed with ‘ON BOARD’ notation duly signed or initialled and dated
by the carrier or his agent.
 If LC calls for a ‘Marine B/L’ without specifying whether it should be ‘On Board’ or
Received for shipment, only ‘ON BOARD’ B/L will be accepted
 Date of issue of B/L or ‘On Board’ notation should be dated prior to the shipment date
permitted under the LC.
 Shipping marks, Gross/ net weight etc., specified on B/L must correspond to those
specified in other documents.
7.142 Air transport Document (article 23 of UCP 600):
 It must show the name of the carrier
 It must be issued by a named carrier or his agent
 It must indicate the date of issuance. This date will be deemed to be the date of
shipment unless it contains a specific notation of the actual date of the shipment. In
that case the date of notation shall be deemed to be the date of shipment.
 Any other information appearing on the document relative to the flight number and
date shall not be considered in determining the date of shipment.
 It must be signed by a named carrier or his agent for or on behalf of the carrier. (In
case of HAWB by the Air Cargo consolidator himself).
 Indicate that goods have been accepted for carriage
 An air transport document may indicate that goods will or may be transhipped
provided the that the entire carriage is covered by one & the same air transport
document.
 An air transport document indicating that transhipment will or may take place is
acceptable, even if the credit prohibits transhipment.
 Be the Original for shipper/ consignor, even if the credit stipulates a full set of
originals. Requirement of full set is satisfied by the presentation of a document
indicating that it is the original for consignor or shipper
 It must indicate the airport of departure and the airport of destination as stated in
the credit. The identification of airports by the use of IATA codes instead of writing
the names in full is not a discrepancy.
 Contains terms & condition of carriage or make reference to another source
containing the terms & conditions of carriage. However, Contents of terms &
conditions of carriage will not be examined.
 It must not be a charter party

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  It should not be claused (It should be ‘CLEAN‘).
 An air transport should not be issued ‘to order’ or ‘to order of the named party’,
because it is not a document of title.
 A goods description in the air transport document may be shown in general terms
not in conflict with that stated in the credit.
7.143 Unless prohibited by the terms of LC.
 It can be short form AWB / Blank backed AWB provided it satisfies the terms &
conditions as stated in article 23 of UCP 600
 It can bear reference by stamps of otherwise to cost anything additional to freight
charges provided credit specifically does not bar the same
 It can contain words like ―said by shipper to contain or ―shipper load and count,
etc.
 It can show the consignor as a third party other than beneficiary.
 It must indicate whether freight prepaid or payable at destination.
 It should be remembered that unless credit calls for flight date, even if flight date is
shown on AWB, the date of issue of AWB is considered as date of shipment (Art. 23
OTHER TRANSPORT DOCUMENTS
 UCP 600 has also provided details about the following transport documents
 Non-Negotiable Sea waybill (article 21)
 Charter party Bill of lading (article 22)
 Rail , Road or Inland waterway Transport Documents (article 24)
 Courier receipt, Post Receipt or Certificate of posting ( article 25)
Branches should refer to these articles, as and when they are required to deal with any of
the above mentioned transport document. Bank will accept only clean transport document
(article 27).
INSURANCE POLICY OR CERTIFICATE (COVERED BY ARTICLE 28 OF UCP 600)
Article 28 has prescribed that insurance documents viz insurance policy, insurance certificate
or a declaration under open cover can be accepted subject to compliance of terms &
conditions of the article 28.
7.144 The insurance policy must be issued by a well-known insurance company. Unless
permitted by the terms of the Letter of Credit, a certificate of insurance should not be
accepted in lieu of an insurance policy. However, insurance policy can be accepted in lieu of
an insurance certificate or a declaration under an open cover. (Insurance certificate must
not be confused with a cover note issued by insurance brokers. A cover note is not a
document upon which the holder can bring an action against underwriters - it is a simple
statement that insurance has been effected. It is not an acceptable document under UCP)
The insurance policy should be adequately stamped.
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When the insurance document (Policy/certificate or a declaration under open cover) is issued
in more than one original, all original must be presented.
7.145 (i) the date of the insurance document must not be later than the date of shipment,
unless it appears from the insurance document that the cover is effective from a date not
later than the date of shipment.
(ii) The Insurance document must indicate the that risks are covered at least between the
place of taking in charge or shipment and the place of discharge or final destination as stated
in the credit.
(iii) A requirement in the credit for insurance coverage to be for a specified percentage of
the value of goods, of the invoice value or similar is deemed to be the minimum amount of
coverage required. If there is no indication in the credit of the insurance coverage required,
the amount of insurance coverage must be at least 110% of the CIF or CIP value of the
goods.
(iv)The insurance document must indicate the amount of insurance coverage & be made out
in the same currency as the Letter of Credit.
(v) A credit should state the type of insurance required and, if any, the additional risks being
covered. An insurance document shall be accepted without regard to any risk that are not
covered if the credit uses imprecise terms such as ―usual risks or ―Customary risks.

(vi) When a credit requires insurance against ―all risks and an insurance document is
presented containing any ―all risks notation or clause, whether or not bearing the heading
―all risks, the insurance document will be accepted without regard to any risks stated to be
excluded.
(vii) An insurance document may contain reference to any exclusion clause.
(viii) An insurance document may indicate that the cover is subject to a franchise or excess
(deductible).
(ix)Insurance documents must appear to have been issued and signed by insurance
companies or underwriters or their agents or proxies. If required by the insurance document
or in accordance with the credit terms, all originals must appear to have been countersigned.
(x) An insurance document is acceptable if issued on an insurance broker‘s stationery,
provided the insurance document has been signed by an insurance company or its agent or
proxy, or by an underwriter or its agent or proxy. A broker may sign as agent for the named
insurance company or named underwriter.
(xi) If it is apparent from the credit or from the documents that the final invoice amount only
represents a certain part of the gross value of the goods (e.g. due to discounts, pre-payments
or the like, or because part of the value of the goods is to be paid at a later date), the
calculation of insurance cover must be based on the full gross value of the goods.
(xii)An insurance document must be in the form as required by the credit and, where
necessary, be endorsed by the party to whose order claims are payable. A document issued
to bearer is acceptable where the credit requires an insurance document endorsed in blank
and vice versa.

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(xiii) If a credit is silent as to the insured party, an insurance document evidencing that claims
are payable to the order of the shipper or beneficiary would not be acceptable unless
endorsed. An insurance document should be issued or endorsed so that the right to receive
payment under it passes upon, or prior to, the release of the documents.
(xiv)The corrections, additions or modifications to the policy conditions must be duly
authenticated by the signatory to the policy.
7.146 OTHER DOCUMENTS:
A letter of credit may call for variety of other documents like Health Certificate, Pre shipment
Inspection Certificate, Packing List, Shipping Company‘s Certificate, Beneficiary‘s
Declarations/undertaking, etc. Whenever such documents are called for under L/C, following
aspects must be checked in the documents.
 It is issued by the person or authority specified in the credit. It no specific mention
is made regarding issuer of the documents, Branch can accept document issued by
any person provided their data content is not inconsistent with any other stipulated
document presented.
 It is dated and signed by the person/ authority concerned.
 Whether they relate to the goods/ shipment covered by the documents or not.
 Whether the document certifies the facts required as per L/C or not.
 Whether the document contains wordings or data content as specified in the L/C or
not.
 Whether the details mentioned in such certificates/ documents are consistent with
other documents or not.
7.147 CERTIFICATE OF ORIGIN:
 Certificate of Origin is the document in case of imports to determine the Origin of
goods.
 It must be issued by the party stated in the credit. However, if a credit require a
certificate of origin to be issued by the beneficiary, the exporter or the manufacturer,
a document issued by a chamber of commerce will be deemed acceptable, provided
it clearly identifies the beneficiary, the exporter or the manufacturer as the case may
be. If a credit does not state who to issue the certificate, then a document issued by
any party, including the beneficiary is acceptable.
 The Country of Origin certified must be as per L/C requirement and consistent with
the declaration given by the Beneficiary in his invoice/ other documents.
 It may indicate the description of goods in general terms and should be consistent
with other documents.
 It must indicate the name of consignor/ seller and name of consignee/ buyer.
 Details appearing in the document must be consistent with the details appearing in
the other documents.
7.148 GENERAL POINTS RELATING TO MARINE CARGO INSURANCE:
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In terms of Section 25 of the marine Insurance Act, a marine policy must specify:
1. the name of assured, or of some person who effects the insurance on his behalf.
2. the subject matter insured and the risk insured against;
3. the voyage or period of time or both, as the case may be, covered by the insurance;
4. the sum or sums insured;
5. the name or names of the insurer or insurers;
7.149 ASSIGNMENT OF MARINE CARGO POLICIES:
In terms of section 52 and 53 of the Marine Insurance Act, a Marine Cargo Policy is freely
assignable to anyone, who may acquire insurable interest as there are no terms in the Marine
Cargo Policy prohibiting assignment. A Marine Cargo Policy can be assigned either before or
after a loss.
7.150 WHO CAN INSURE?
The shippers/exporters have an insurable interest by virtue of their ownership of goods and
they can insure. Similarly, the buyer to whom the goods are sent can also insure by virtue
of his acquiring an interest in the goods at a later date. In practice, insurance is effected
either by shippers/ exporters or buyer depending upon their contract of sale of goods. There
are mainly three types of sale of goods in the overseas trade.They are
1. CIF (Cost. Insurance, Freight)
2. C&F (Cost and Freight)
3. FOB (Free on Board)
These terms of sale are agreed upon mutually by both the parties to the contract. Under (1)
above the shipper/exporter has to take insurance on the goods and under (2) and (3) the
buyer has to effect insurance.

7.151 STANDARD CLAUSES IN MARINE INSURANCE POLICY

A marine insurance contract is evidenced by the basic marine policy form together with the
various (Institute) Clauses which are attached thereto. There are several Institute Cargo
Clauses in use in marine insurance but the clauses which are of primary concern to bankers
and merchants are the revised Institute Cargo Clauses 'A', 'B' and 'C' which provide cover for
"marine" risks and the Institute War Clauses (Cargo) and the Institute Strikes Clauses
(Cargo).
7.152 Institute Cargo Clauses 'A' "provides the best cover. It is more comprehensive cover
providing for all risks except those listed under Exclusions as shown in the table appearing
later in this chapter. Institute Cargo Clauses 'B' and 'C' provide the least comprehensive
cover. Institute Cargo Clauses 'A', 'B' and 'C', however, have to be supplemented by obtaining
additional cover for Institute War Clauses (Cargo) and Institute Strikes Clauses (Cargo) as
these exclude War and Strikes risks.

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7.153 The tables should serve as a guide for comparing the protection accorded by Institute
Cargo Clauses 'A', 'B', and 'C' respectively. (A reference may be made to a standard text book
on marine insurance for further particulars of the various Institute Cargo Clauses and other
risks.)

MALICIOUS DAMAGE CLAUSE

7.154 Institute Cargo Clauses 'B' and 'C' specifically exclude the risk of "deliberate damage
or destruction by the wrongful act by any person", which can be covered by adding "Malicious
Damage Clause" to 'B' and 'C' Clauses at an extra premium. The risk is, however, covered
under Institute Cargo Clauses 'A'.
INSTITUTE WAR CLAUSES (CARGO)
7.155 Institute Cargo Clauses 'A', 'B' and 'C' exclude War Risks. On payment of additional
premium, these risks may be covered by attachment of Institute War Clauses (Cargo) to the
marine policy.
7.156 RISKS COVERED: These clauses cover loss of or damage to the cargo insured caused
by:
(i) War, civil war, revolution, rebellion, insurrection, or civil strife arising there from or
any hostile act by or against a belligerent power;
(ii) Capture, seizure, arrest, restraint or detainment arising from risks covered under
above and the consequences thereof or any attempt thereat;
(iii) Derelict mines, torpedoes, bombs or other derelict weapons of war.
The clauses also provide cover for general average and salvage charges incurred to avoid
loss from a risk covered under these clauses.
7.157 RISKS EXCLUDED: The risks excluded are the same as under the Institute Cargo
Clauses 'A' with the following additional exclusion: 'Any claim based upon loss of or frustration
of the voyage or adventure'. War risks insurance contemplates only physical loss of or
damage to cargo by war and kindred perils and not any loss caused by the frustration, i.e.
non-completion of the voyage due to the operation of war and kindred perils.

INSTITUTE STRIKES CLAUSES (CARGO)

7.158 Institute Cargo Clauses 'A', 'B' and 'C' exclude Strike Risks. On payment of additional
premium, this set of Clauses is attached to the basic marine policy form.
7.159 RISKS COVERED : The insurance covers loss of or damage to the cargo insured caused
by
(i) strikers, locked-out workmen, or persons taking part in labour disturbances, riots or
civil commotions and
(ii) Any terrorist or any person acting from a political motive.
This extension also covers general average and salvage charges incurred to avoid loss from
a risk insured under this set of clauses.
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7.160 RISKS EXCLUDED: The risks excluded are the same as those under the Institute Cargo
Clauses 'A'. However, two additional exclusions are incorporated. These are:
(i) loss, damage or expense arising from the absence, shortage or
withholding of labour resulting from any strike, lock-out, labour
disturbance, riot and civil commotion and
(ii) any claim based upon loss of or frustration of the voyage or adventure.
Accordingly, whereas direct loss of or damage by strikes etc. would be covered, the indirect
loss arising from consequences of strikes would not be covered. Similarly, the financial losses,
such as, additional expenses for storage of goods or for reshipping them resulting from
strikes are not covered.

INSTITUTE CARGO CLAUSES COVER:

CARGO INSTITUTE INSTITUTE INSTITUTE

CARGO CARGO CLAUSES C
CLAUSES A CLAUSES B
All risks of Only the risks Only the risks as
loss or as listed below listed below
damage
except as
provided in
Exclusions
Loss or damage due Yes Yes Yes
to/arising from Fire
or explosion
Vessel or craft being Yes Yes Yes
stranded, grounded,
sunk
or capsized
Overturning or Yes Yes Yes
derailment of land
Conveyance
Collision or contact Yes Yes Yes
of vessel, craft or
conveyance with an
external object
other
than water
Discharge of cargo Yes Yes Yes
at a port of distress

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Earthquake, volcanic Yes Yes Yes
eruption or lightning
Genera) average Yes Yes Yes
sacrifice
Jettison or washing Yes Yes Yes
aboard
Entry of sea, lake or Yes Yes Yes
river water into
vessel, craft, hold
conveyance
container, lift van or
place of Storage
Deliberate damage Yes No (can be No (can be
or destruction by covered by covered by
the wrongful act by adding 'Malicious adding
any person (damage Damage ‗Malicious
by malicious acts, Clause') Damage‘
vandalism or Clause)
sabotage, arson or
scuttling).
Total loss of any Yes Yes Yes
package lost
overboard or
dropped while
loading or unloading
from vessel or craft
General average or Yes Yes Yes
salvage charges
adjusted/determined
according to the
contract of a
freightment and/or
the governing law
and practice

INSTITUTE CARGO CLAUSES EXCLUDE: (EXCEPT AS INDICATED)

INSTITUTE INSTITUTE INSTITUTE
CARGO CARGO CARGO
CLAUSES A CLAUSES B CLAUSES C

185
Loss or damage due Not covered Not covered Not covered
to/arising from Wilful
misconduct of the
assured
Ordinary leakage, loss in Not covered Not covered Not covered
weight or volume, wear and
tear
Insufficiency or unsuitability Not covered Not covered Not covered
of packing

Inherent vice or nature of the Not covered Not covered Not covered
subject-matter

Delay ' Not covered Not covered Not covered

Insolvency or financial default Not covered Not covered Not covered

of the owners, managers,
charterers or operators of the
vessel
Use of any weapon of war Not covered Not covered Not covered
employing atomic or nuclear
fission or fusion or other like
reaction or radio-active force
or matter
Un seaworthiness and/or Not covered Not covered Not covered
unfitness of vessel or craft

War, civil war, revolution, Not covered [can Not covered [can Not covered [can be
rebellion, or detainment or be covered be covered covered separately by
civil strife arising there from separately by separately by 'Institute War Clauses
or any hostile act by or 'Institute War 'Institute War (Cargo)']
against a belligerent power Clauses Clauses
(Cargo)'] (Cargo)']
Capture, seizure, arrest, Not covered Not covered Not covered
restraint (piracy covered)
or detainment and the
consequences thereof or any
attempt thereat
Derelict mines, torpedoes, Not covered Not covered Not covered
bombs or other derelict
weapons of war

186
Caused by strikers, locked- Not covered [can Not covered [can Not covered [can be
out workmen! or persons be covered be covered covered separately by
taking part in labour separately by separately by 'Institute Strikes
disturbances, riots or civil 'Institute Strikes 'Institute Strikes Clauses (Cargo)']
commotions Clauses Clauses (Cargo)']
(Cargo)']
Resulting from strikes, lock-
outs, labour disturbances,
riots or civil commotions
caused by any terrorist or any
person acting from a political
motive
Sentimental Not covered Not covered Not covered
damage including
ungrounded tear
of damage

TRANSIT CLAUSE: DURATION OF COVER

7.161 a) All the three Institute Cargo Clauses -'A', 'B' and 'C' contain Transit Clause providing
the warehouse to warehouse cover. The Insurance starts from the time the goods leave the
warehouse or place of storage at the place named in the policy for the commencement of
the transit and continues during the ordinary course of transit and terminates when the
goods are delivered to the consignees or other final warehouse or place of storage at the
destination named in the policy or on the expiry of 60 days after completion of discharge at
the final port, whichever shall occurs first.
b) The Transit Clause in Institute War Clauses (Cargo) differs from the Transit
Clause of the Cargo Clauses 'A', 'B' and 'C'. It provides for commencement and termination
of cover as follows: The insurance attaches when the cargo insured is loaded on an overseas
vessel and terminates when the cargo is discharged from an overseas vessel at the final port
of discharge or on expiry of 15 days counting from midnight of the day of arrival of the vessel
at the final port of discharge, whichever shall occur first.
c) The Transit Clause in Institute Strike Clauses (Cargo): The cover for strikes,
etc. commences and terminates in the same manner as under the Institute Cargo Clauses
'A', 'B' and 'C', that is, on warehouse to warehouse basis according to the terms of the Transit
Clause. In other words, the duration of cover under Strikes insurance coincides with the
duration of cover under marine cargo insurance, whereas duration of cover under war risk
insurance is confined to when the cargo is 'waterborne'. (War risks on land are considered
as uninsurable in the commercial insurance markets because of the catastrophe hazard
involved.)
7.162 In conformity with the requirements of the letter of credit, Branches should insist
upon the specific enumeration of all the risks or perils to be super-added to the normal perils.

187
7.163 The most common extraneous risks encountered in policies of cargo insurance are
given below:
(i) Theft and Pilferage: The assured is protected in respect of all the types of thefts
and pilferage.
(ii) Short-delivery and/or non-delivery: Many instances of short-delivery and/or
non-delivery are by theft or pilferage, but short-delivery and non-delivery may arise, at times,
otherwise. The expressions cover all failure to deliver quantities in accordance with those set
out in the shipping documents. Claims under these perils would be admitted when goods "go
missing" after off-loading to repair damage to the ship or goods are missing after
transhipment.
(iii) Shortage: Some policies of insurance specifically include shortage as a peril insured
against. It implies that the insurance is extended to cover shortage by risks additional to
theft and pilferage and short-delivery and non-delivery and probably shortage from any other
cause (i.e., any disparity between the quantities despatched and the quantities delivered).
(iv) Damage by other cargo: A number of commodities giving offensive odours and
chemical reactions may at times be set up by the proximity of cargos with which others have
a natural affinity. The other cargo damage is often separately enumerated to include denting,
chipping, scratching, bending, change and bruising, grease and oil.
(v) Damage by grease, oil, mud: If damage by grease, oil, mud is specifically covered,
no enquiry can be directed as to how the damage was caused.
(vi) Freshwater, rain, flood, etc.: Where these risks are specifically stated in the policy,
the matter is removed beyond dispute as to whether the damage to the cargo was caused
by freshwater, seawater, floods, etc.
(vii) Acid and other extraneous substances: In practice, loss or damage by these
perils may be indistinguishable from loss or damage caused by the other perils.
(viii) Bursting of bags, mouth bursting : Losses from these causes really arise from
defective packing, but if the policy specifically mentions these risks, insurers would probably
be liable for the loss irrespective of whether there was default in preparing the bags for
shipment.
INSURANCE OF AIR FREIGHT
7.164 Air freight consignments are covered under three sets of clauses viz. (a) Institute
Cargo Clauses (Air) (excluding sending by post)
(b) Institute War Clauses (Air Cargo) (excluding sendings by post)
(c) Institute Strikes Clauses (Air Cargo)
The risks covered, the risks excluded as well as the duration of cover is set out in the
following table:

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7.165 INSURANCE OF AIR FREIGHT
Institute Cargo Institute War Clauses Institute Strikes Clauses
Clauses (Air) (Air cargo) (Excluding (Air Cargo)
(Excluding sendings sendings by post)
by post)
Risks (i) All risks of
covered loss of or
damage to the
cargo insured
subject to
specified
exclusions.
(ii) Similar to Same as under Similar to Institute Strikes
Institute institute Cargo Clauses Clauses (Cargo) except
Cargo Clauses 'A' 'A' except that there is that there is no reference
except that there is no reference to to general average and
no reference to general average and salvage charges for similar
losses in the nature salvage charges for reasons.
of general average similar reasons.
and salvage charges
which arise under
maritime law and are
not applicable to air
transits.
Risks (i) Same as under (i) Same as under Similar to Institute Strikes
Excluded Institute Cargo Institute Clauses (Cargo)
Clauses 'A' except Cargo Clauses 'A' and
that there is no Institute War Clauses
reference to un (Cargo).
seaworthiness etc.
clause as it is not
applicable to air
transit.
(ii) This does not (ii) This does not
cover loss, damage cover loss, damage or
or expense arising expenses arising from
from unfitness of the unfitness of the
aircraft, etc. and aircraft, etc. and
insolvency or insolvency or financial
financial default of default of the owners
etc. of the aircraft.
189
 the owners etc., of
the aircraft.

Duration of Same as under War insurance The cover expires after 30

cover Institute Cargo attaches only as the days after unloading the
Clauses 'A' except cargo is loaded on the cargo from the aircraft at
that the period of aircraft for the the final place of discharge
cover after unloading commencement of air (as against 60 days under
of cargo from the transit insured and Institute Cargo Clauses
aircraft at the final terminates either as 'A').
place of discharge is the cargo is
limited to 30 days (as discharged from the
against 60 days aircraft at the final
under Institute Cargo place of discharge or
Clauses 'A'). on expiry of 15 days
of the final place of
discharge, whichever
shall first occur.

7.166 a) Other Documents: The beneficiary must tender such other documents as may be
required under the letter of credit. Some of the documents usually required are:
(i) Weight notes (iii) Certificate of origin and
(ii) Packing lists (iv) Certificate of quantity or quality or inspection.
b) These documents must correspond exactly to the description, if any, given in the Letter
of Credit or where such description is not stated or is in general terms, they must be such
documents as are usually accepted in the trade. The documents must bear the shipping
marks and bale/case numbers, so that the goods described in the documents can be
identified with those described in the invoice, bill of lading and insurance policy.
7.167 The following examples illustrate the care necessary in scrutinising these documents:
(i) In Equitable Trust Company of New York vs. Dawson Partners, the letter of credit
called for a "Certificate of quality signed by experts". Owing to ambiguity in the code, the
correspondent bank in Batavia informed the sellers that "Certificate signed by expert" would
be required. Consequently, amongst the documents tendered was a "Certificate of quality
signed by one expert only". In an action for reimbursement claimed from the buyers, the
bank failed on the ground that "the conditions on which it is authorised to accept are, in the
matter of accompanying documents, not strictly observed".

190
(ii) In Re Reinhold & Co. and Hansloh, the letter of credit called for "Legalised Chamber
of Commerce Certificate". The beneficiary tendered his bills of lading describing goods as in
bags "marked and numbered as in the margin, i.e., with the letter F". The accompanying
Chamber of Commerce Certificate did not state that the bags referred to in the certificate
were those marked F. The buyer was held entitled to reject the document, i.e., the Chamber
of Commerce Certificate, as it did not correspond to the bill of lading.
(iii) In Bank Melli Iran vs. Barclays Bank (Dominion, Colonial and Overseas), the Letter of
Credit called for an American Government certificate to the effect that the goods were
new.The certificate which was tendered testified to purchase of "100 new, good Chevrolet
6, 4.4 trucks". It was held that this was not the document that was called for, on the ground
that "new" and "new, good" were not necessarily, the same. Moreover, as the certificate
did not relate to specific trucks - it might have related to any- it was not a good tender.

7.168 DISCREPANCIES IN DOCUMENTS

Documents drawn under letters of credit in exactly the correct form may not be tendered in
the first instance in all cases. Wherever possible, the beneficiary may be asked to have the
discrepancies rectified. In some cases, it is not possible for the beneficiary to do so. The
negotiating bank may then decide to return the documents to the beneficiary (stating the
discrepancies in the documents) or to pay the beneficiary:
(i) under an indemnity signed by his banker, or
(ii) under an indemnity of the beneficiary, or
(iii) after obtaining the authority of the Letter of Credit opening bank accept the
documents in spite of the discrepancies, or
(iv) through his banker "under reserve'.
7.169 Where the Manager decides to pay the bills even though the documents do not
conform to the terms of the letter(s) of credit, the responsibility will be his to satisfy himself
about the means, standing and respectability of the beneficiary and to obtain the usual
indemnity from the beneficiary and, where necessary, a guarantee of a third party before
the amount is paid out.
7.170 Negotiation under indemnity of the beneficiary's banker: It should be borne
in mind that an indemnity is usually intended to cover only specific loss derived from the
cause of action in respect of which such indemnity is given. For instance, an indemnity in
respect of claused bills of lading may give no protection against loss resulting from some
other cause, and perhaps, not against the loss emerging from some source which is a natural
though incidental consequence of payment against claused bills of lading.
7.171 Where a beneficiary of a letter of credit (i.e., the exporter) is not a customer, it is
safe to insist on a draft and documents being tendered for negotiation through his own
banker; the indemnity of the banker should be demanded for any discrepancy noticed in the
documents. (The usual practice is to return the documents to the banker of the beneficiary
enumerating the discrepancies noticed. The banker of the beneficiary may return the
documents duly rectified, where possible, and offer his indemnity.) In such cases, the
discrepancies in the documents should be listed in the indemnity form (Form no. FE 1364).
The signature(s) of the banker on the indemnity form should be verified. Alternatively, the
191
draft and the documents may be negotiated and payment made to the beneficiary's banker
"under reserve". The reserve should not be lifted unless and until the confirmation of
acceptance of discrepancies is received from the opening bank.
7.172 Negotiation under indemnity of beneficiary: Often customers of a Branch have
to give indemnities to the Branch for discrepancies in documents tendered for negotiation.
Branches should be satisfied that in the event of the documents being rejected by the letter
of credit opening bank, the customer will be in a position to refund on demand the amount(s)
of draft(s) negotiated under the indemnity.
7.173 Branches should obtain an appropriately stamped Omnibus Indemnity as per
specimen given in Appendix XVIII signed by customers while negotiating/collecting
documents under letters of credit. The Omnibus Indemnity should be stamped according to
the requirements of the State in whose jurisdiction Branches are situated. Branches should
first ascertain from their respective Zonal Authorities, the stamp duty payable on the
Omnibus Indemnity before obtaining it from the customers.
7.174 Once the Omnibus Indemnity is obtained, a diary note should be taken to ensure that
it is renewed before expiry. It is advisable to obtain a fresh Omnibus Indemnity every year
from the customers so as to keep the liability in force.
7.175 It should be noted that the Omnibus Indemnity is an additional precaution while
handling documents under Letter of Credit particularly those with discrepancies. Branches
should not slacken their scrutiny of documents tendered for negotiation.
7.176 Negotiation under authority of the letter of credit opening bank: In cases
where it is considered that the beneficiary's indemnity cannot be accepted for the
discrepancies or the beneficiary is not prepared to give his banker's indemnity, a cable/SWIFT
(stating the discrepancies) may be sent with the consent of the beneficiary (at his cost) to
the letter of credit opening bank, seeking its permission to negotiate the documents. It may
be made clear to the beneficiary that the documents held (pending the reply to the
cable/SWIFT) are at his risk and that the Bank is not responsible‘ if there is any delay in
receiving a reply from the letter of credit opening bank. Branches should not negotiate
documents under expired Letters of credit but should seek the authority of the issuing bank
to negotiate the documents ascertaining that the authority extends the commitment of the
issuing bank to the documents in question.
7.177 Payment made to beneficiary's banker under reserve: When a draft is paid
under reserve, the permission of the beneficiary's banker should be obtained for effecting
the payment under reserve, owing to the discrepancies in the documents. The letter
addressed to the beneficiary's bank covering the pay order of the Bank (issued in payment
of the beneficiary's draft) must describe the discrepancies and state that the payment is
made under reserve.
7.178 Guarantees (indemnities) given by banks who received payment (on behalf of their
customers) to negotiating banks in regard to payments received under reserve should be
specific as to amount, period and reasons, and according to the Rules of Foreign Exchange
Dealers' Association of India, such guarantees should be valid only for a period of six months.

192
DISCREPANCIES IN DOCUMENTS TO BE ADVISED TO LETTER OF CREDIT OPENING BANKS
7.179 When a draft drawn under a Letter of Credit is negotiated against an indemnity of
the beneficiary or his banker or payment is made to his banker under reserve, owing to the
discrepancies in the relative documents, the fact should be advised to the opening bank in
the schedule covering the documents; the discrepancies in the documents should be listed
in the schedule and the letter of credit opening bank requested to advise the release of
indemnity or reserve. The specific consent of the letter of credit opening bank must be
obtained before the bank or customer concerned is advised of the release of the liability
under the indemnity or the reserve. When this consent has been obtained, the bank or
customer who has given the indemnity or the bank to which the payment was made "under
reserve" should be so informed.
PAYMENT TO BENEFICIARY
7.180 While making payment against the stipulated documents under a letter of credit, in
order to secure protection under Article of the Uniform Customs and Practice for
Documentary Credits (2007 Revision), ICC Publication no.600, the following clause should
be typed or rubber stamped on the covering letter (Form no. FE 1599) forwarding the pay
order or the relative credit advice when the amount is credited to the account of the
beneficiary.
"The payment is made to you on the strict understanding that (i) if the bill is not
realised during the normal period, you will pay us interest for the delayed period; (ii)
if the said documents are not acceptable to the letter of credit opening bank, you will
repay without demur on demand, the bill amount at T.T. selling rate ruling on that
day together with interest and charges. If the above conditions are not acceptable,
please return the pay order unencashed."
REIMBURSEMENT
7.181 Strict attention must be paid to the instructions with regard to reimbursement which
appear in the Letter of Credit. Such instructions indicate from whom and how reimbursement
is to be obtained and to whom the documents are to be sent.
7.182 In some cases, the reimbursement clause is not incorporated in the letter of credit.
Branches should, in such cases, ascertain the position from the Letter of Credit opening bank
(by SWIFT/cable, air mail) before the documents are tendered for negotiation.
7.183 Reimbursement instructions may not appear in Letters of Credit restricted for
negotiation to a particular bank and, in such cases, the documents must be tendered to the
bank in whose favour the restriction has been made. (This would only arise when the Bank's
own exporting customer tenders to the Bank documents drawn under a letter of credit
restricted to another bank.) Branches should bear in mind that they may often be asked to
negotiate documents drawn under Letters of Credit advised through other banks. There is
no objection to this, so long as the principles governing negotiation under Letters of Credit
are followed and the method of reimbursement is clearly indicated.
7.184 At times, the reimbursing bank may not honour the reimbursement claim promptly
for want of reimbursement authority from the opening bank. Before negotiating documents
under letters of credit, especially when the amount involved is large, Branches should
ascertain from the reimbursing bank mentioned in the letter of credit whether they hold

193
reimbursement authority in respect of the letter of credit and if possible obtain
reimbursement undertaking from them through the issuing bank

BOOK-KEEPING AND GENERAL LEDGER ACCOUNTS:

7.185 All amounts advanced against export bills as negotiations under Letters of Credit
should be debited to General Ledger Account "Export Bills Negotiated".
BILLS IN FOREIGN CURRENCIES
7.186 Processing charges should be charged as per H.O. guidelines. Besides, out of pocket
expenses such as postages, SWIFT charges etc., should also be recovered. The entries to be
passed are :
(iii) At the time of negotiation:
Debit: General Ledger Account "Export Bills Negotiated"
Credit: Loan Packing Credit Account or the customer
Interest for the transit period, in the case of sight bills or up to the notional due date, in case
of usance bills should be recovered separately and simultaneously from the customer at the
time of negotiation
(ii) On receipt of Advice of Reimbursement:
Debit: Treasury Branch Nostro Account with foreign Branch or correspondent
(mirror account) to which the reimbursing/issuing bank has remitted proceeds - with
the rupee equivalent of the foreign currency amount of bill at the rate it was
negotiated.
Credit: General Ledger Account "Export Bills Negotiated".
It should be borne in mind that the amount in rupees debited to General Ledger Account
(when the bill was negotiated) and subsequently credited (on realisation of the bill) MUST
BE IDENTICAL.
7.187 Sometimes, a bill drawn under letter of credit submitted to the Bank is negotiated on
behalf of the beneficiary who may not be the Bank's customer. In such cases, only the net
amount should be paid after deducting interest postages and other charges, if any, from the
bill amount. Details of amounts so deducted should be advised to the beneficiary with a
stipulation that claim will be made by the Branch in respect of overdue interest, if any.
RATES OF EXCHANGE
7.188 Rates to be applied while negotiating bills under letters of Credit are dealt with in the
topic on "Foreign Bills Purchased".
REPORT ON PURCHASE
After interface of all authorised dealer branches (Category B) with the Treasury Branch,
System takes care of reporting, once the transaction is completed over computer as per
prescribed menus. Now there is no need of sending DN/DO etc as was prevalent prior to the
interface of forex branches with the Treasury Branch.

194
PREPARATION OF SCHEDULES COVERING DOCUMENTS
7.189 All documents should bear the Bank's round stamp with the bill number (viz. F.B.N.
no.) entered within the stamp. The drafts, bills of lading and insurance policies are usually
blank endorsed or endorsed to the order of the Bank; where necessary, these documents
should be endorsed appropriately in favour of the collecting bank.
7.190 The covering schedules are generated by the System. The copies of the schedule
marked "Original Documents" and "Duplicate Documents" should be attached to the original
and duplicate sets of documents respectively.
7.191 Documents should be sorted out in one or two sets (as called for in the letter of credit
under which the documents are drawn). The terms of the Letter of Credit vis-a-vis the mode
of despatch of documents to the letter of credit opening bank or Branch providing
reimbursement etc., must be meticulously followed.
7.192 Bills under Letters of Credit are ordinarily paid/accepted after they are presented to
(received by) the Letters of Credit opening bank. If after taking into account the time of
transit (please refer to paragraph no. 7.12 for details of transit time) for documents to reach
their destination, it is considered that the payment/ acceptance is delayed/ overdue, the
tracer copy of the schedule (requesting fate advice) should be sent promptly to find out the
fate of the bill/ Bank may send SWIFT for fate enquiry for quick reply.
7.193 When releasing the tracer, the date on which the tracer is released (i.e. sent to the
collecting Branch or correspondent) should be entered on the office copy.
7.194 When the bill is paid, the office copy should be marked "Paid" A print-out of register,
on realization should be taken and kept on record for realization details.
PRESENTATION OF DOCUMENTS NEGOTIATED BY BRANCHES TO THE ISSUING BANK
PRECAUTIONS TO BE TAKEN

7.195 Negotiation of documents under Letters of Credit (L/Cs) is governed by the Articles of
the Uniform Customs and Practice for Documentary Credit, 2007 Revision, 1C Brochure No.
600. In a letter of credit transaction, the undertaking of the L/C opening bank to pay/accept
the draft is conditional upon conformity with the terms and conditions of the L/C.
7.196 Where documents are presented by the beneficiary and are found to be in conformity
with the terms and conditions of the L/C, negotiating bank sends them to the opening bank
and claim reimbursement either from the opening bank or from a designated reimbursing
agent as specified in the L/C. It is very important to note that in a Letter of Credit transaction,
credits are separate transactions from the sales or other contracts on which they may be
based and banks are in no way concerned with or bound by such contracts (Art. 4), banks
deal in documents and not with goods (Art.5).
7.197 Consequently, the instructions in the covering schedule despatching documents to the
opening bank should not concern itself with delivery of goods; conditions regarding safety of
the goods (like storage and insurance). Moreover, since the opening bank is committed under
Letter of Credit to accept / pay the drafts there under irrespective of whether the opener
accepts / pays them the covering schedule must not contain instructions regarding delivery
of documents to the opener or deferment of payment till the arrival of the steamer, noting
and protesting of bills for non-payment, etc., which are applicable only to documents sent

195
for collection. Such instructions are totally against the spirit of the UCPDC and vitiate /
undermine an otherwise good tender of documents, exposing the bank to unnecessary risk
of non-payment / rejection of documents.
7.198 Branches should use a proper covering schedule applicable to negotiation as per
specimen given in Appendix X or schedule available under Finacle system while presenting
documents negotiated by them to the issuing bank.
(C) POST SHIPMENT ADVANCES - OTHER FACILITIES
ADVANCES AGAINST EXPORT BILLS SENT ON COLLECTION BASIS
7.199 a) Sometimes, it is possible that there is a shortfall in sanctioned Bill Purchase or
Negotiation limits, etc. to cover the entire amount of a bill tendered by exporter for purchase
or negotiation or the documents drawn under Letter of credit have some discrepancies and
the bank is reasonably sure that the same will be acceptable to the buyer and that the bill
will be paid. Under such situation, considering the immediate need and financial requirement
of the exporter, the bank may send the bill on collection basis and finance him to some
extent out of the total bill amount, under the heading such as "Advance Against Bills sent on
Collection Basis". The amount advanced will be liquidated out of the proceeds of the export
bill and the balance paid to the exporter. The advances against bills sent on collection-bank
would attract interest rate as applicable for post-shipment credit, i.e. concessional rate of
interest can be charged for these advances up to the transit period in case of DP Bill and
transit period plus usance period in the case of Usance Bill depending on the type of drawing.
Beyond this period, the interest rate will be subject to the various rates prescribed by
RBI/Head Office, depending upon the usance of the bills. For computing the eligible transit
period (NTP), the period will commence from the date of acceptance of the Export
Documents at the branch for collection and not from the date of advance. The EPC should
not be continued till the realisation of export proceeds and it should be converted into post-
shipment credit.
b) These advances are covered under the Whole Turnover Post-Shipment Export Credit
Guarantee of ECGC.
7.200 ADVANCES AGAINST EXPORTS ON CONSIGNMENT BASIS
(a) When goods are exported on consignment basis at the risk of the exporter for sale
and eventual remittance of sale proceeds to him by the agent/consignee, banks may
finance against such transactions subject to the customer enjoying specific limit for
that purpose. However, the Branch should ensure that while forwarding shipping
documents to its overseas Branch/correspondent, it instructs them to deliver the
documents only against Trust Receipt/Undertaking to deliver the sale proceeds by a
specified date, which should be within the time prescribed for realisation of export
proceeds (even if according to the practice in certain trades, a bill for part of the
estimated value is drawn in advance against the exports). Export on consignment
basis lends scope for a lot of misuse in the matter of repatriation of export proceeds.
(b) Therefore, export on consignment basis should be at par with exports on outright
sale basis on cash terms in matters regarding the rate of interest to be charged by
banks on post-shipment credit. Thus, in the case of exports on consignment basis,
even if extension in the period beyond 180 days is granted for repatriation of export

196
 proceeds, banks will charge appropriate concessional rate of interest only up to the
notional due date (depending upon the tenor of the bills), subject to a maximum of
180 days.
7.201 EXPORT OF PRECIOUS AND SEMI-PRECIOUS STONES:
Precious and semi-precious stones, etc., are exported mostly on consignment basis and the
exporters are not in a position to liquidate pre-shipment credit account with remittances
received from abroad within a period of 180 days from the date of advance. Bank may,
therefore, adjust packing credit advances in the case of consignment exports, as soon as
export takes place, by transfer of the outstanding balance to a special (post-shipment)
account which in turn, should be adjusted as soon as the relative proceeds are received
from abroad but not later than 180 days from the date of export or such extended period
as may be permitted by Reserve Bank of India, Foreign Exchange Department. Balance in
the special (post-shipment) account will not be eligible for refinance from RBI.
Extension of realization of export proceeds for period up to 9/15 months.
RBI (FED) has been allowing in deserving cases, on application by individual
exporters with satisfactory track record, a longer period of up to 12 months from the
date of shipment for realisation of proceeds of export in case of following categories
of exporters
i) Consignment exports to CIS and East European counters.
ii) Consignment exports to Russian federation against repayment of
State credit in rupee.
iii) Exporters who have been certified as ‘status Holders‘ in terms of
Foreign Trade policy.
iv) 100 per cent EOU‘s and units set up under Electronic Hardware
technology Park, software technology park and Bio-Technology Park
Schemes.
Further, in case of exports through the Warehouse-cum Display centres abroad realization
of exports proceeds has been fixed up to 15 months from the date of shipment.
Branches may extend post shipment credit to such exporters for a longer period ab initio.
Refinance to banks against export credit would, however, be available from RBI up to a
period of 180 days only each at pre-shipment and post shipment stages.
ADVANCES AGAINST UNDRAWN BALANCES
7.202 In certain lines of export, it is the trade practice that bills are not to be drawn for the
full invoice value of the goods but to leave small parts undrawn for payment after adjustment
due to difference in rates, weight, quality, etc. Final amounts are normally ascertained after
approval and inspection of the goods. Banks do finance against the undrawn balance if the
undrawn balance is in conformity with the normal level of balance left undrawn in the
particular line of export, subject to a maximum of 10% of the value of export and an
undertaking is obtained from the exporter that he will surrender the balance proceeds of the
shipment within the period prescribed for realisation. Since the actual amount to be realised
out of the undrawn balance may be less than the undrawn balance, it is necessary to keep

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a margin on such advances. A proper follow-up should be made for the realisation of the
undrawn balance.
Payment of undrawn balance is contingent in nature. Banks may consider granting advances
against undrawn balances at concessional rate of interest based on their commercial
judgement and the track record of the buyer. Such advances are, however, eligible for
concessional rate of interest for a maximum period of 90 days only to the extent these are
repaid by actual remittances from abroad and provided such remittances are received within
180 days after the expiry of NTP in the case of demand bills and due date in the case of
usance bills. For the period beyond 90 days, the rate of interest specified for the category
‘ECNOS‘ at post-shipment stage may be charged.
7.203 EXPORT OF GOODS FOR EXHIBITION AND SALE:
Branches may provide finance to exporters against goods sent for exhibition and sale abroad
in the normal course in the first instance, and after the sale is completed, allow the benefit
of the concessive rate of interest on such advances, both at the pre-shipment stage and at
the post-shipment stage, up to the stipulated periods, by way of a rebate. Such advances
should be given in separate accounts.
POST-SHIPMENT CREDIT ON DEFERRED PAYMENT TERMS:
7.204 Branches may grant post-shipment credit on deferred payment terms for a period
exceeding one year, in respect of export of capital and producer goods as specified by RBI
(FED) from time to time.
DEEMED EXPORTS – CONCESSIVE RUPEE EXPORT CREDIT
7.205 Banks are permitted to extend rupee pre-shipment and post-supply rupee export credit
at concessional rate of interest to parties against orders for supplies in respect of projects
aided/financed by bilateral or multilateral agencies/funds (including World Bank, IBRD, IDA),
as notified from time to time by Department of Economic Affairs, Ministry of Finance under
the Chapter ‘Deemed Export’ in Foreign Trade Policy, which are eligible for grant of normal
export benefits by Government of India.
Packing Credit provided should be adjusted from free foreign exchange representing
payment for the suppliers of goods to these agencies. It can also be repaid/prepaid out of
balances in Exchange Earners Foreign Currency account (EEFC A/c), as also from the rupee
resources of the exporter to the extent supplies have actually been made.
Branches may also extend rupee –
(i) pre-shipment credit, and
(ii) post-supply credit (for a maximum period of 30 days or up to the actual date of
payment by the receiver of goods, whichever is earlier), for supply of goods specified
as ‘Deemed Exports‘ under the same Chapter of Exim Policy from time to time.
The post-supply advances would be treated as overdue after the period of 30 days. In cases
where such overdue credits are liquidated within a period of 180 days from the notional due
date (i.e. before 210 days from the date of advance), the banks are required to charge, for
such extended period, interest prescribed for the category ‘ECNOS‘ at post-shipment stage.

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If the bills are not paid within the aforesaid period of 210 days, banks should charge from
the date of advance, the rate prescribed for ‘ECNOS‘- Post shipment.
Banks would be eligible for refinance from RBI for such rupee export credit extended both
at pre-shipment and post-supply stages.
ADVANCES AGAINST RECEIVABLES FROM GOVERNMENT OF INDIA
7.206 a) Various export incentives and duty drawback entitlements, etc. are provided as part
of Export Promotion Measures by the Government of India, and other agencies to the
exporters to compensate them for the loss incurred in the export business. The loss arises
mainly because the domestic cost of production and prices of some export items are much
higher than their international prices as stated before, Advances against the receivables from
Government are made available to the exporters by the Banks at the pre-shipment as well
as the post-shipment stage. However, the major part of the advance is given at the post-
shipment stage.
b) Banks may grant post-shipment advances against their Duty Drawback entitlement
as provisionally certified by Customs Authorities pending final sanction and payment.
Generally, such finances against Government receivables are sanctioned with about 10% to
20% margin. Application for receivables to the concerned authorities should be routed by
the exporter, through the bank/branch granting the advance.
c) The advance against Duty Drawback receivables can also be made available to
exporters against Export Promotion copy of the shipping bill containing the EGM No. issued
by the Customs Department. Where necessary, the financing Bank may have its lien noted
with the designated Bank and arrangements may be made with the designated Bank to
transfer funds to the financing Bank as an when Duty Drawback is credited by the Customs.
d) Normally, an Irrevocable Power of Attorney is required to be executed by the
customer, in favour of the advancing bank, empowering the bank to receive payments
directly from Government Authorities. It is always advisable to obtain relevant Government
notifications and keep the same for record and guidance. After submission of the necessary
documents to the appropriate disbursing authorities with proper endorsement on all the
documents including that the bank has advanced against the claim, an acknowledgement
shall be obtained and kept with the loan documents. The disbursing authority pays the
proceeds to the bank which has issued the Bank Certificate of Export (i.e. the bank which
has handled the relative export bill). The advance granted to exporter should be liquidated
out of the proceeds of the cheque received from the authorities and the balance shall be
paid to the exporter customer. In the case of shortfall in the amount received, the same shall
be recovered from the exporter at the commercial rate of interest. Advance against duty
drawback etc. is subject to concessive rate of interest. The advance is treated as regular if
liquidated within 90 days if the advance remains outstanding beyond 90 days. It shall be
treated as overdue advance and should be charged with interest at commercial rates. In case
the advance is not liquidated out of receivables disbursed but is liquidated by recovery of
funds from the exporter, the rate applicable on the advance shall be the penal rate of interest,
from the date of advance, till the date of liquidation of advance.
e) Advances against Government receivables are required to be covered under Export
Production Finance Guarantee of ECGC, when it is given at the pre-shipment stage. If it is
given at post-shipment stage, Export Finance Guarantee of ECGC can be obtained. It is very
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essential that all overdue advance are reported in time to ECGC, if covered under their
guarantees, failing which, ECGC may not entertain the claims made by the bank.
ADVANCES AGAINST RETENTION MONEY RELATING TO EXPORTS
7.207 In the case of turnkey projects/construction contracts, progressive payments are made
by the overseas employer in respect of services segment of the contract, retaining a small
percentage of the progressive payments as retention money which is payable after expiry of
the stipulated period from the date of the completion of the contract, subject to obtention of
certificate(s) from the specified authority.

i) Retention money may also be sometimes stipulated against the supplies portion in
the case of turn-key projects. It may like-wise arise in the case of sub-contracts. The
payment of retention money is contingent in nature.
ii) The following guidelines should be followed in regard to grant of advances against
retention money:
(a) No advances may be granted against retention money relating to services portion
of the contract.
(b) Exporters may be advised to arrange, as far as possible, provision of suitable
guarantees, instead of retention money.
(c) Banks may consider, on a selective basis, granting of advances against retention
money relating to the supplies portion of the contract taking into account, among
others, the size of the retention money accumulated, its impact on the liquid funds
position of the exporter and the past performance regarding the timely receipt of
retention money.
(d) The payment of retention money may be secured by L/C or Bank Guarantee where
possible.
(e) Where the retention money is payable within a period of one year from the date of
shipment, according to the terms of the contract, banks should charge prescribed
concessional rate of interest up to a maximum period of 90 days. The rate of interest
prescribed for the category 'ECNOS' at post-shipment stage may be charged for the
period beyond 90 days.
(f) Where the retention money is payable after a period of one year from the date of
shipment, according to the terms of the contract and the corresponding advance is
extended for a period exceeding one year, it will be treated as post-shipment credit
given on deferred payment terms exceeding one year, and the rate of interest for
that category will apply
(g) Advances against retention money will be eligible for concessional rate of interest
only to the extent the advances are actually repaid by remittances received from
abroad relating to the retention money and provided such payments are received
within 180 days from the due date of payment of the retention money, according to
the terms of the contract.

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 Annexure –I

Customised Export Credit Insurance Cover for Banks

a) Whole Turnover Packing Credit (ECIB – WT-PC)
b) Whole Turnover Post Shipment Credit (ECIB-WT-PS)
of ECGC Ltd. (ECGC)

The salient features of the ECGC Insurance Cover and its terms have been
communicated to branches vide Circulars and communications issued by Head Office from
time to time. Further, the copies of ECGC cover are also being circulated to branches every
year, which covers the relevant provisions thereof.

However, in spite of the above, while examining the staff accountability aspects
pertaining to the monitoring process, it has been observed that branches do not take due
care and required action by way of reporting of default to ECGC and lodging of bank‘s claim
with ECGC under their covers. On several occasions, some branches have released export
packing credit, purchased or discounted export bills without checking the Specific Approval
List (SAL) of ECGC. The officers at operating level are either not aware of the various
provisions of ECGC guarantees or they have perhaps ignored the provisions to the detriment
of the bank‘s interest. In order to avoid recurrence of such instances in future, the salient
features of covers and procedural aspects there under are enumerated below:

A) Whole Turnover Packing Credit Guarantee (ECIB-WT-PC)

This is a contract between ECGC and the Bank, whereby the Corporation gives
protection to the Bank against losses sustained in the process of granting pre shipment
finance to exporters. ECGC, under its policy provides cover at a concessional rate of premium
for covering all their eligible pre-shipment advances granted all over India, on short term
basis, to exporter- borrowers normally against firm contract of sale or irrevocable letter of
credit. All Packing Credit advances granted as per Reserve Bank guidelines issued from time
to time are covered under this policy EXCEPT

a. Advances granted for exports made on deferred terms of payment, turn key
projects, construction works and service contracts
b. Advances granted to Government Companies.
c. Advances granted to exporters against their export entitlements like Duty
Draw back etc., at pre-shipment stage.
It is however, open for Bank to obtain separate cover for each account falling under the
above mentioned categories.

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1) Risk Coverage:

The following risks are covered

a. Insolvency of the exporter
b. Protracted default by the exporter to repay the
insured debt to bank

The following advances are covered

Packing credit under Export LC/ orders
Packing Credit to Manufacturers for orders received from EH/TH/STH/SSTH
(Export House/ Trading House/ Star Trading House/ Super Star Trading
House)
Packing credit to sub-suppliers
Packing credit for deemed exports
Packing credit to meet import bills covering goods meant for re-export

However, it does not cover the following

advances: Advances against Duty Draw Back
Packing credit to Government companies
Packing credit for Project/ Service exports deferred terms of payment, Turnkey
project etc.

Any loss arising from the occurrence of any of the risks covered under the cover is
claimable from ECGC up to 65% to 75% of the loss subject to a maximum liability fixed under
the WTPCG for the bank as a whole. 90% cover is available in the case of Small Scale
Exporters (SSEs). (Therefore, audited Balance Sheet and Registration Certificate of SSE
should be kept on record to claim higher guarantee cover.)

2) Period of advance and its extension:

Although Packing Credit advances are normally liquidated by submission of export

documents, in most cases, at this stage, the advances are converted into post-shipment
advances. However, there are occasions when an exporter seeks extension of time limit for
adjustment of the advances due to extension in the date of shipment etc. Under WTPCG, it
is not necessary for the bank to seek the approval of ECGC for agreeing to extension of
period of a Packing Credit advance, unless the total period allowed exceeds the prescribed
time limit of 360 days. Where extension is to be granted beyond this time limit, prior approval
from ECGC should be obtained in writing from their Regional Office/ nearest Branch, by
sending an application in the prescribed format.

3) Advice to ECGC:

At the time of sanction of New/ Review/ Addition/ Reduction of limits or change in

terms of advance account, the branch should inform/ notify in writing to ECGC about the
sanction/ disbursement of limits within 30 days. Even casual disbursements should be

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intimated. No prior approval of ECGC is required for granting the limits to the customers, if
they do not exceed the agreed value known as ‗Discretionary limits‘. Discretionary Limit is a
limit up to which the bank can allow packing credit advance to any of its exporter client
without ECGC prior approval. The discretionary limit is stated in the policy document issued
by ECGC (At present- Rs. 100 lacs)

4) Advances to exporter-borrowers above the discretionary limit (DL)

For all new limits in excess of the DL approval of the corporation is necessary.
However, accounts of exporter which have been classified as standard as per RBI guidelines,
do not require prior approval of the ECGC.These accounts should be notified to the nearest
office of the ECGC, within 30 days of from the date of the sanction/ enhancement of limits.
Accounts classified as substandard/ Bad & doubtful require the prior approval of the ECGC
irrespective of limits.

5) Advances against Duty Draw back etc: Advances against receivables in the form
of cash assistance and duty draw back at pre shipment stage are not covered under
the policy. However, Packing Credit Advances as well as advances against cash
assistance and duty drawback granted at the pre shipment stage can be separately
covered under Export Production Finance Guarantee. The percentage of cover and
the rate of premium under this guarantee (EPFG) will be the same as agreed for
WTPCG. The declarations in respect of such advances have to be submitted
separately in the prescribed form. The banks holding this policy are eligible for
concessions with regard to premium as well as higher percentage of cover under
Export Production Finance Guarantee (s).

6) Advances in respect of exports to “Restricted Cover Countries”

The Corporation from time to time advises the names of countries placed under
restricted cover. The branch should ensure before granting post-shipment advances
that the exporter, exporting to country placed in Restricted Cover, has obtained
Corporation‘s specific approval under Policy issued to him. If the exporter is not a
policy holder, the branch should obtain ECGC‘s approval before granting Post-
Shipment Advances. If no such approval is obtained, the guarantee will not provide
cover for the post-shipment advances granted by the bank in respect of exports to
these countries. Branches should not normally entertain requests for packing credit
for exports to the―Restricted Cover Countries‖ without obtaining Corporation‘s
approval for granting post-shipment advance.

7) Monthly Declarations & Payment of Advance Premium

Branches should note to submit their monthly declarations in the prescribed format
covering all eligible Packing Credit advances to the designated office of ECGC not later
than the last day of the subsequent month together with a pay order for the premium
payable to ECGC calculated on the basis of average daily products at the prescribed
rate. If no advances are granted under WTPCG and/or no credits are outstanding in
the guaranteed accounts in a particular month, a `nil‘declaration should be sent.

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 Branches should importantly note that any default in submission of the monthly
declaration and/or payment of premium or omission in reporting eligible accounts
may result in depriving the Bank from the benefits of WTPCG cover.

The schemes of corporation are governed by the Insurance Act which prescribes
under Section 64 (VB) that the premium of a risk assured shall be available with the
corporation well before assumption of the risk. Hence, branch should remit at least
one month premium in advance on an estimated basis. The amount of advance
premium may be worked out on the basis of limits sanctioned or on the basis of the
outstanding for June 2009.

8) Report of Default (ROD)

If an overdue advance is not liquidated within 4 months of the due date, or the
extended due date, it is to be classified as being in default and reported to ECGC. This
―Report of Default‖ (ROD) has to be submitted to the concerned Branch Office/ Regional
Office of the Corporation in the prescribed form within one month from the date of calling
up of an advance by the Bank or within four months from the due date or the extended due
date as the case may be, whichever of the two is earlier in point of time. This obviously
implies that advances reported to be in default need not necessarily have been called up and
should be so reported even if they are unlikely to result in a claim, as long as the advance
has remained overdue for 4 months. There may be cases where the bank proposes to
continue giving advances. The reasons for the same should be clearly explained in column
12 of the Report of Default and the Corporation‘s prior approval for such advances should be
obtained. Premium should be paid up to and including the month of filing of ROD.

o Points to be noted in respect of Report of Default (ROD):

o Branch to obtain approval from appropriate authority before filing
ROD
o Recall of advance is not a must
o Recovery steps are to be initiated
o Steps to be taken to safeguard primary securities
o Arrange for sale of goods
o Invoke personal guarantees, if any, held
o Recommend placing exporter on SAL
o Appropriate cash securities, if any, held
o If filing of ROD is to be deferred for any valid reason, ECGC prior
approval to be obtained
o No further advance to be granted without ECGC approval

9) Nursing programme.

Exporters who have defaulted in repaying packing credit advances may sometimes
approach the branch for fresh packing credit facilities, with promise to repay the overdues
out of the profits expected from the business that would be handled with the help of fresh
packing credit facilities. If the bank is satisfied that such a nursing programme is workable
and that it offers better chances of recovering the overdues, it should submit its detailed

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 nursing programme to the Corporation for its approval. The application for a nursing
programme can be made to the concerned office of the Corporation by the branch handling
the account or the Regional Office or Head Office depending on the procedure being
followed. No specific format has been prescribed for this application, as nursing programme
differs from case to case The application should, however, contain the following particulars
(care should be taken to ensure that no material information is omitted.)

I.Grounds on which the bank feels that the proposed further assistance would enable
the exporter to generate enough profits to pay overdue advances (Viability of Nursing
Programme)
ii.The time limit within which the nursing programme would succeed
iii. Financial position of the exporter and the net-worth of the proprietor/
partners/ directors/ guarantors.
iv. The amount of overdue advances in relation to business turnover of the
exporter (Present overdues)
v. Position of export orders on hand and prospects of further export orders
(Export orders on hand)
vi. The manner in which the exporter proposes to liquidate the overdue advances

vii. Programme for adjustment of overdues.

Any nursing programme agreed to and implemented by the Bank without the approval of
ECGC will not be binding on the Corporation and it may provide sufficient reason to ECGC to
reject any claim relating to such an account.

10) Monitoring of nursing programme

Once ECGC approves a nursing programme, the concerned account will be delinked from the
Whole Turnover Guarantee. A separate Packing Credit Guarantee will be issued and two
separate monthly declarations, one for the blocked account and the other for the new packing
credit account will have to be submitted. This procedure enables the bank as well as the
Corporation to closely watch the progress of the nursing programme and to institute such
action as may be necessary to keep the programme on course.

11) CLAIMS

Claims should be filed by banks in the prescribed form with the office of the
Corporation servicing the concerned branch of the Bank. . A) Waiting Period
The waiting period for settlement of a claim is as follows:
(a) Where the loss is due to insolvency, unless otherwise agreed to in writing by the
Corporation, immediately after the expiry of four months from the due date of payment

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 or one, month after the loss has been admitted to rank against the insolvent‘s estate in
favour of the bank in any insolvency proceedings, whichever of the two dates is earlier.
(b) Where the loss is due to protracted default, immediately after the expiry of four months
from the due date of payment

B) Time Limit

The branch should file a claim within six months from the date of Report of Default‘,
unless before the expiry of the said time limit, the time limit for filing the claim is extended
in writing by ECGC at the written request made by the Branch

C) Documents to be submitted alongwith Claim Form

The following documents should be attached to the claim form:

i. Copy of the letter sanctioning the limit

ii. Copy of the communication by which limit was reported to the Corporation or
the communication from ECGC approving the limit
iii. Copies of orders/ letters of credit against which the overdue advances have
been granted
iv. Copy of the ledger account for the period commencing six months prior to the
date of granting the first advance in default, upto-date.
v. Stock statements and inspection reports for the 12 months preceding the
date of granting the first advance in default and for the subsequent period.
vi. Copy of communication in which default was first notified to ECGC.
vii. Copies of the letter recalling the overdue advances and copies of
correspondence with the exporter
viii. Copies of the legal notice and of the plaint, if a suit has been filed and the
exporter‘s reply thereto.

ix. If the exporter has gone insolvent,

a. Proof of insolvency
b. Copy of the claim file

c. Copy of the letter issued to the Bank by the receiver/ liquidator to the
effect that the bank‘s claim has been admitted to rank against the insolvent‘s
estate.If such letter has not been received, a declaration should be attached
to the effect that the bank has done or omitted nothing whereby its claim is
liableto be rejected by the court

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 x. Certificate from a Chartered Accountant as to the business and export
turnover of the exporter (to be given if the exporter is a small scale exporter).

12) Some important requirements:

A claim can be paid expeditiously by the Corporation if the prescribed terms and
conditions of the guarantee have been complied with and if the claim form has been properly
filled in. A few aspects which are considered by ECGC are as under:

i) Whether the exporter for whose default the bank has filed the claim is included in the
Specific Approval List:- If the name of the exporter is in the list at the time the bank
wants to grant advances to the exporter, the bank should obtain the prior approval
of the Corporation irrespective of the fact whether or not the limit is within its
Discretionary Limit. Failure to obtain such approval is considered a serious lapse and
the claim becomes inadmissible. In case the name of the exporter is included in the
list subsequent to the grant of the advance, the bank should report the matter to
the Corporation immediately after the receipt of the relative circular and seek the
approval of the Corporation for granting of fresh advances.Whether the limit granted
to the exporter has been notified to the Corporation: Banks are required to submit to
the Corporation a consolidated statement of limits once a year and to notify any
additions, deletions and changes within 30 days. If this has not been complied with,
the bank‘s claim will become inadmissible.

ii) Whether approval for limits higher than the discretionary limit has been obtained:
Banks are required to obtain the Corporation‘s approval for limits higher than the
discretionary limit fixed under the guarantee (except in the case of Health Code 1
Accounts). If such approval has not been obtained, the guarantee will not provide
the cover.

iii) Whether the advances in the account have been declared: Banks are required to
declare packing credit advances and pay premium thereon in time. It is necessary
for the Banks to provide alongwith claim form adequate documentary evidence that
the premium has been paid regularly on the advances in question.

iv) Whether the bank has obtained Corporation‘s approval for any extension granted by
the bank in due date for period beyond 360 days. If the Corporation‘s approval has
not been obtained, the claim will be inadmissible.
v) Whether the bank has granted advances when earlier advances were overdue: In
terms of the guarantee, the Bank has to take all steps necessary to minimise and
prevent losses. If it is found while scrutinizing the claim papers that the bank has
granted further advances after earlier advance becoming overdue, the Corporation
will not admit the claim.
vi) Whether the bank has notified default in time: Delay on the part of the bank to notify
default results in serious problems as the Corporation would have been forced to face
a higher claim. If there are any delays, the claim will not be admitted.

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vii) Whether the bank has filed claim within the time limit prescribed under the guarantee:
Branches should ensure that they file the claims within the prescribed time limit. If
the bank has filed the claim after the expiry of the time limit, the Corporation will not
admit the liability.
viii) Whether the bank has taken steps to safeguard the security obtained by it: The
obligation of the bank to exercise normal care and prudence will also include its duty
to safeguard all securities taken, primary as well as collateral, in good and enforceable
condition. If the scrutiny of the claim papers reveal any lapse on the part of the
bank, the Corporation will not admit the claim.

ix) The Bank must comply with all the terms and conditions contained in the WTPCG
document. (Circulated through the Zonal Offices)

13) Payment of claims

After examining the claim and obtaining necessary clarifications from the bank, the
Corporation decides on the claim and arranges payment. The claim remittance is made by
cheque which is forwarded to the bank with a covering letter containing the following:

i. The ratio in which recovery is to be shared

ii. Request to the bank to send a stamped receipt for the remittance.

14) Action after payment of claim

Even after the payment of claim by the Corporation under the guarantee, branch
should maintain its recourse to the exporter for the full amount owed by him and effective
action for recovering the amount, including such action as may be suggested by the
Corporation including legal proceedings, should be initiated against the exporter or such
other person against whom action can be taken.

15) Recovery expenses

The bank shall incur all expenses necessary for recovering the debt. The recovery expenses,
as approved by the Corporation, shall be first charged on any amount recovered.

16) Sharing of recovery

All amounts recovered after payment of claim by the Corporation, net of recovery
expenses, are to be shared between the Corporation and the bank in the ratio in which the
loss admitted by the Corporation was borne by them. Therefore, the bank should give the
Corporation details of every amount recovered promptly on its recovery and remit the
Corporation‘s share immediately. Any delay on the part of the bank in making such payment
shall entitle the Corporation to claim interest thereon at 5 % over Bank Rate.

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17) Writing off bad debts.

If the bank (in a case where the Corporation has paid a claim) feels that the whole
or part of the amount due from the exporter cannot be recovered, the fact and circumstance
of the case should be reported to the Corporation. If the Corporation agrees to the bank‘s
proposal, it will convey its decision and the amount could be written off by the bank.

18) SPECIFIC APPROVAL LIST (SAL)

Specific Approval List (SAL) (maintained by the Corporation and circulated among all
banks/available on ECGC‘s website to authorized persons) contains names and addresses of
the exporters to whom packing credit advances granted by a bank can be covered under
WTPCG only if the Corporation has given its approval in writing. The list provided to banks is
an important source of information for identifying exporters who have defaulted. The list is
mainly aimed at advising banks to exercise caution while dealing with such exporters.

Generally, an exporter is placed in SAL in the following cases:

(i) Exporter has defaulted to a bank: This default to a bank may be reflection of
the financial difficulties of the exporter or some serious problems in his
business.

(ii) A claim has been filed under a guarantee on account of the exporter by any
bank: The intention of the Corporation is to avoid undertaking further liability
on account of the exporter.

iii) The exporter is purported to be involved in a fraud: When it comes to the

knowledge of the Corporation that an exporter is involved in fraud, he ceases
to be a desirable customer and all banks have to be cautioned in regard to
the potential danger in dealing with such an exporter.
iv) The exporter is in financial difficulties: If an exporter is in serious financial
difficulties, a close monitoring of his account is called for.

While placing the name of an exporter under SAL, Corporation may also consider
including the names of sister concerns as the financial difficulties of the exporter might
adversely affect their financial position as well. Names of proprietor/ partners and
guarantors/ directors are also included in SAL with a view to prevent them from obtaining
finance in the names of some other concerns floated by them. Updated SAL is available on
ECGC‘s website www.ecgc.org.inwhich can be accessed by having ID and password from
them.

Delivery of Export documents-liquidation of packing credit liability:

In terms of the guarantee, delivery of documents evidencing export of goods for which the
bank had given the packing credit advances shall be deemed to be the payment by the
exporter to the bank, and the liability of the Corporation for the packing credit advance shall
cease on such delivery of documents. Thereafter, the liability has to be transferred by the
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 bank to the post-shipment account. Subject to the bank preserving recourse against the
exporter and paying necessary premium, the liability can be covered under post shipment
guarantee.

19) Payment of premium under Pre Shipment Credit:

It should be noted that the bank has to pay the premium upto the month in which the
report of default is submitted to the Corporation in accordance with the requirements or in
the case of insolvency of the exporter (if it is earlier) upto the month in which the insolvency
occurred. Please note that branches should remit the premium amount in time so that ECGC
guarantee issued to Bank is not affected adversely

20) Records to be Maintained

Branches having Packing Credit advances should maintain the following records:

i) A Loan Register

ii) A Register giving the necessary details month-wise , for preparation of statement
and for verification at a later date, in the proforma given below:
Premium
Name No.
Limit Total Average on
of of
sanctioned Products Products average
Account days
Rs. products

(i) A separate Register for individual policies if Branches have obtained

individual policies
(ii) A Register for claims lodged giving the columns mentioned
below, if necessary.

Amount When
Name of sent Amount Claim
Remarks
of Claim to settled settled
Account Rs. ECGC Rs. on

21) Status Reports on the Buyers

Status reports should be obtained periodically on the foreign buyers. The means of the buyers
should be satisfactory and adequate to meet their commitment to buy.

22) Operational Guidelines: Branches should-

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  Ensure strict compliance to sanction terms particularly those pertaining
to documentation, primary/ collateral security etc.
 Obtain ratification of over limit granted beyond 10 %. If the overlimits
are granted on regular basis, it is advisable to get limit enhanced on
merits.
 Timely review of credit limits. Any advance granted after the expiry of
limits are treated as unauthorised.
 Inspect stock regularly/ periodically. Even in the event of non-
submission of stock statements, branch should visit shop/ godown and
compile inspection report and not defer inspection of shops.
 Not grant further advance when earlier advances are overdue.
 Notify limits to ECGC in time (including adhoc and temporary overlimits
beyond 10 %)
 Obtain prior approval if DL norms are applicable
 Submit monthly declaration and pay premium promptly. If by oversight
an account is omitted, premium arrears can be paid to ECGC with a
certificate that concerned account is of standard category and ECGC‘s
condonation sought.
 Extension of time is obtained, wherever necessary.
 Obtain ‗No overdue‘ confirmation if account is taken over from
another Bank.
 Obtain NOC from other Banks, if limits are sanctioned under multiple
banking arrangements.
 Take effective recovery steps in the event of default.
 Notify ECGC if exporter is in financial difficulty.

B) Wholeturnover Post Shipment Guarantee (ECIB-WT-PS):

This policy protects the bank to whom the guarantee is issued, against losses that
the bank may suffer while granting post-shipment advances to its exporter clients. The risks
covered under the guarantee are: i.) insolvency of the exporter and ii) Protracted default by
the exporter to pay the post-shipment advances due to the bank. The guarantee is issued
on Whole turnover basis and covers all post shipment advances granted by the Bank by way
of purchase/ discount/ negotiation of export documents or advances granted against export
bills which are sent on collection basis as per RBI guidelines. The said policy covers advances
granted by the bank to all its exporter clients subject to certain exclusions which may be
agreed upon. These exclusions, in our case, are as under:-

i. advances granted for exports made on deferred terms of payment, turn key
projects, construction works and service contracts;
ii. advances granted to Government Companies

iii. advances granted against Letter of credit.

iv. Advance granted to exporters against their export entitlements like duty Draw
back. Cash Compensatory Support( CCS).

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 It is however, open for the Bank to obtain Post-Shipment Guarantee separately for
each account falling in the above-mentioned categories.

1) Risk Coverage

This provides cover to the bank in respect of post-shipment advances granted to

exporters by way of purchase/ discount/ negotiation of export documents or advances
granted against export bills which are sent on collection basis. However, interest and
exchange loss is not eligible for cover under the policy. The percentage of cover available to
the

Bank under ECIB-WT-PS is as under( Within overall maximum limit fixed for the Bank):.
Policy holder 95%
Non Policy holder 75%
Associates: Policy holder 60%
Associates: Non Policy Holder 50%

Under this Policy, a concession has been made to banks and advances to non
policyholders are covered, though for a lower percentage. If a policyholder opts for cover
under the Shipments Policy for all his shipments against Letters of Credit and the bank also
covers all its advances, the extent of cover under the guarantee will be 95 %. If, however,
the exporter does not cover shipments under the Shipments Policy but nevertheless the
bank decides to cover all the advances( except excluded categories) under the guarantee,
the extent of cover will be 75 %.

2) Premium- Premium under the said policy is borne by the bank.

3) Discretionary Limit

For all new export limits financed by the bank will stand covered automatically under the
guarantee for post shipment limits not exceeding Rs 100 lacs, without any prior approval(
except a notification of such limits in prescribed format to be filed within 30 days of the
sanction), limits in excess of the DL( Rs 100 lacs) approval of the corporation is necessary.
However, accounts of exporter which have been classified as standard as per RBI guidelines,
do not require prior approval of the ECGC. These accounts should be notified to the nearest
office of the ECGC, within 30 days of from the date of the sanction/ enhancement of limits.
Accounts classified as substandard/ Bad & doubtful require the prior approval of the ECGC
irrespective of limits.

4) Cover for advances against receivables

Advances against receivables (cash compensatory support or duty drawback) granted at

postshipment stage will not be covered under the said policy and the bank should seek cover
under Export Finance Guarantee of the Corporation. Similarly, advances granted by banks to
exporters of engineering goods against their claims for reimbursement of difference between
domestic and international prices of steel, etc, will also qualify for cover under the Export
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Finance Guarantee. The banks holding this policy are eligible for concessions with regard to
premium as well as higher percentage of cover under the Export Finance Guarantee.

5) Bank’s Responsibilities:

The bank must comply with all the terms and conditions contained in the policy
document. The Bank, while giving advances and until these are repaid, must exercise due
diligence and prudence as a banker is expected to, in the normal course of business. The
bank must also observe utmost good faith at all times. In respect of bills that are remaining
unpaid, bank as holders for value should follow up with their correspondent bank (s) and
take all steps that are necessary to safeguard their interest. As regards buyers who have
defaulted to the exporter, bank should not handle further bills drawn on them without the
prior approval of the Corporation. However, if the bank considers that the basic soundness
of the account is not affected and the borrower is creditworthy, it can continue to handle
bills drawn on other buyers. The bank is expected to inform the Corporation as soon as it
comes to know that:
i. The exporter is in difficulties, and/or
ii. There have been certain adverse changes in the circumstances, which have
abetting on the risk insured.

The bank must take all such steps that are required to prevent or minimise losses, including,
if necessary, the institution of legal proceedings against the exporter. If the Corporation
under the said policy pays a claim, the bank must take all the necessary steps to recover the
advances against bills from the exporter and/or guarantor or from the overseas buyer (s) or
from any other source from where such recoveries may be effected. Whenever a recovery is
made, it shall be shared between the bank and the Corporation in the same proportion in
which they shared the loss. Any recovery expenses incurred by the Corporation or by the
bank with the consent of the Corporation will be a first charge on the amounts recovered.
The bank shall, at the request of the Corporation, supply to the Corporation any information
in its possession and take at its own cost reasonable steps to obtain for the Corporation any
information or any document in the possession of any third party relating to or connected
with the accounts under the guarantees. The bank shall also extend all cooperation to the
Corporation when it decides to examine, verify or take copies of any letters, accounts of
other documents in the possession or control of the bank relating to or connected with the
account. In cases, where post shipment facility is also covered under buyer wise policy of
ECGC, branches should obtain & keep on record originals approvals granted by the ECGC to
the customers & should not accept photocopies of the approvals.

6) Cancellation/ Reduction of cover:

The Corporation may, at its sole discretion, give notice to the Bank reducing the
percentage of cover on a particular exporter or canceling cover given in respect of a particular
exporter and such reduction or cancellation shall apply to advances granted after the receipt
of the notice by the Bank

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7) Advances in respect of exports to “Restricted cover countries”

The Corporation from time to time advises the names of countries which are placed
under restricted cover. Before granting post-shipment advances to the exporter, bank should
ensure that the exporter has obtained Corporation‘s specific approval under Policy issued to
him. If the exporter is not a policyholder, the branch should obtain Corporation‘s prior
approval before granting post-shipment advances. If no such approval is obtained, the
guarantee will not cover the post-shipment advances granted by the branch in respect of
exports to these countries.

8) Disputed Liability :

The Corporation‘s cover to the bank is in the nature of an indemnity and therefore,
the bank has to exhaust all possibilities of recovering losses from the borrower. The amount
of loss to the bank should be admitted and not disputed by the exporter. While examining
the bank‘s claim, the Corporation will consider the genuineness or otherwise of the dispute,
on the basis of facts presented.

9) Interest & Exchange Loss

Interest payable by the exporter in respect of post shipment advances is not eligible
for cover under the guarantee. Exchange loss on bills returned unpaid is also not
eligible for cover under the guarantee.

10) Specific Approval List :

The Corporation issues a ‗Specific Approval List‘ to all banks holding Whole Turnover
Guarantees. This list contains the names of exporters to whom the advances granted
by the bank are covered under the guarantee only in cases where specific prior
approval of the Corporation has been obtained. The Corporation‘s approval is a must
even if the limit in question is within the discretionary limit of the Bank. Additions to
or deletions from the list are notified on ECGC website from time to time.

11) Important obligations of the bank

i. Limits covered under the guarantee should be reported within the time limit
prescribed
ii. The approval of the Corporation should be obtained for limits on individual exporters
which are in excess of the discretionary limit, excepting Health Code 1 accounts. Such
approvals should also be obtained in respect of the exporters who are placed under
the Specific Approval List irrespective of the limits sanctioned.
iii. Monthly declarations should be submitted, with premium due thereon, within the
prescribed time limit
iv. The Corporation should be informed of any default on the part of the exporter
v. In the event of a default, suitable recovery actions should be initiated in consultation
with the Corporation
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 vi. A claim under the guarantee should be filed in the prescribed form within the
stipulated time limit.
vii. Renewal proposal should be submitted for further renewals.

12) Reporting of limits:

Annual statement should be furnished through respective Zonal Offices to Head Office,
Foreign Business Dept, giving particulars of all limits in force as on 31st March. The
consolidated statements are submitted in two parts, one for accounts within Discretionary
Limit and limits to exporters who have been classified as Health Code 1 and the other for
limits in excess of Discretionary Limit. In addition to these, at the time of submission of
renewal proposal, a statement of accounts in default indicating the position as on 31st March
is submitted. Whenever new limits are sanctioned or existing limits enhanced, reduced or
cancelled, these should be reported to the Corporation immediately but in any case within
30 days. These reports should be sent, case by case, by the branch maintaining the account
to the nearest office of the Corporation servicing the concerned branch.

13) Approval of limits in excess of discretionary Limit:

The application for the approval of the limit of an individual exporter which is in excess
of the Discretionary Limit is required to be made to the Corporation by the branch which
maintains the account to the nearest office of the Corporation The application is required
to be made within 60 days from the date of sanction of the limit. The branch should also
send all required annexures such as copies of latest audited balance sheet and provisional
financial statements, Board Memorandum or other internal notes sanctioning the limit, etc.
If any additional conditions are considered necessary by the Corporation, these will be
indicated in the communication. It may be noted, however, that losses in respect of advances
granted to exporters against limits which exceed the Discretionary Limit shall not attract the
Corporation‘s liability unless the Bank, as stated above, has obtained the Corporation‘s
approval. The procedure outlined above applies to those accounts having Health Code 2
(irregular) and also to those which are new accounts. As regards Health Code 1
(satisfactory) accounts, no such approval of the Corporation is necessary. In respect of
Health Code 3 (sick: viable/ under nursing) and Health Code 4 (sick : nonviable/ sticky)
accounts, prior approval of the Corporation is necessary, irrespective of whether or not the
limit sanctioned is within the Discretionary Limit.

14) Monthly Declaration:

Timely submission of monthly declarations by the bank, with premium due thereon,
is one of the prime conditions to be complied with under the guarantee. Any delay in
submission of declarations and payment of premium could absolve the Corporation of its
liability and jeopardize the interest of the bank as a whole. The monthly declarations are to
be submitted in the prescribed format by the concerned branch of the bank, to the designated
office of the Corporation. Details of accounts together with premium due thereon should also
be sent alongwith monthly declaration as per the format prescribed.

The branch should verify the following particulars before filing the declarations:-

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i. whether the guarantee has been renewed by the Corporation

ii. whether all accounts under the guarantee have been included
iii. whether declarations submitted earlier have been acknowledged by the Corporation
by returning the duplicate copy of the declaration, (if earlier declarations have not
been acknowledged, the reasons therefore should be ascertained) and
iv. Whether the correct rate of premium has been applied on the average daily products.

The branch should remit premium in respect of an account upto and inclusive of the
month of report of default and not thereafter.

15) Extension of due date

Branches at their discretion and best judgement may allow extension in the due date
(s) of payment of bill(s) financed by them uptoa maximum period of 180 days. For any
extension in the period beyond 180 days, the branch has to obtain the prior approval of the
Corporation. For this purpose, the branch has to apply to the Corporation giving reasons in
support of their decision to extend the due date(s). The application is required to be made
in duplicate in the prescribed format to the nearest office of the Corporation. In addition,
branch should also ensure that the exporter has made necessary application to RBI for
extension of time for realisation of overdue bills and RBI approval has been received.

Thus, in respect of all bills remaining unpaid beyond 180 days, the branch should
ensure that the Corporation‘s approval is obtained for extensions. When such extensions for
overdue bills have been approved by the Corporation, the branch may grant further post
shipment advances. However, in respect of buyers who had defaulted to the exporter and
the relative bills had become overdue, the branch should not purchase/ discount further bills
without prior approval of the Corporation. The branch may grant further advances on bills
drawn on other buyers it the account is moving satisfactorily and there is no reason to doubt
the creditworthiness and/or honesty of the exporter. In cases where the Corporation
specifically advises the branch to obtain its approval before granting further advances, the
branch should do so.

16) Report of Default:

If the overdue advances are not liquidated within 4 months of the respective due
dates or the extended due date (s)., they are required to be classified as being in default
and reported. This report of Default has to be submitted to the nearest Branch/ Regional
office of the Corporation in the prescribed format within one month from the date of calling
up of the advances by the bank or within four months from the due date (s) or the extended
due date (s) as the case may be, whichever of the two is earlier. This implies that advances
reported to be in default need not necessarily have been called up and should be reported
even if they are unlikely to result in a claim, as long as the advances have remained overdue
for 4 months. There may be cases where the bank may feel that the account is basically
sound and that it does not cause anxiety. If the branch proposes to continue giving further
advances, the reasons for the same should be clearly explained in Column 12 of the Report
of Default. The Corporation‘s prior approval for such advances should be taken.

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17) NURSING PROGRAMME

Exporters who have defaulted in repaying post-shipment advances may approach the
bank for fresh packing credit and post-shipment credit facilities, with the promise that they
would repay the overdue bills out of the profits expected from the business that would be
handled with the help of the fresh credit facilities. If the bank is satisfied that such a nursing
programme is workable and that it offers the best chances of recovering the overdues, it
should submit its detailed nursing programme to the Corporation for its approval. The
application for a nursing programme can be made to the nearest office of the Corporation
by the branch handling the account or the Regional Office or Head Office. This application
should contain the following particulars (care should be taken to ensure that no material
information is omitted)

i. Grounds on which the branch feels that the proposed further assistance would
enable the exporter to generate enough profits to pay overdue advances
ii. The time within which the nursing programme would succeed
iii. Financial position of the exporter and the networth of the proprietor/partners/
directors/ guarantors
iv. The amount of overdue advances in relation to business turnover of the exporter.
v. Position of export orders on hand and prospects of further export orders.
vi. The manner in which the exporter proposes to liquidate the overdue advances
vii. Security available for the overdue advances as well as fresh advances.
viii. Viability of the programme- Any nursing programme agreed to and implemented by
a branch without the approval of the Corporation will not be binding on the Corporation and
the Corporation shall not be liable for losses incurred by the bank in respect of the account.

18) Monitoring of nursing programme:

Once the Corporation approves a nursing program, it will not ask the branch to include the
transactions in the account in the monthly declarations submitted under the Whole Turnover
Guarantee. Instead, it will issue a separate Post-shipment Guarantee and ask for two
separate monthly declarations one for the blocked account and the other for the new post-
shipment account to enable the bank as well as the Corporation to closely watch the progress
of the nursing programme and to institute remedial action, if need be.

19) CLAIMS AND TIME LIMIT

Claims should be filed by banks in the prescribed form. The bank should file a claim in respect
of an account within six months from the date of submission of the `Report of Default‘
unless, before the expiry of the said time limit, the time limit for filing of the claim is extended
in writing by the Corporation at the request of the Bank.

The following documents should be attached to the claim form:

(i) Copy of letter sanctioning the limit.

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(ii) Copy of the communication in which the limit was reported to the Corporation
(applicable if the account is covered under Wholeturnover Post-shipment Guarantee)
or the communication from ECGC approving the limit.
(iii) Copies of confirmed orders/LCs relating to bills against which overdue advances had
been granted.

(iv) Copies of bills of exchange, invoices, airways bills/ bills of lading relating to advances
in default and advices of non-payment received and correspondence made with the
collecting banks.
(v) A copy of ledger account for the period commencing six months prior to the date of
granting first advance in default upto date.
(vi) Copies of RBI‘s communication approving the extension of due dates of the bills, if
any.
(vii) Copies of the Corporation‘s letters approving advances against shipments to
Restricted Cover Countries.
(viii) Copy of the communication in which the default was first notified to the Corporation.
(ix) Copy of the letter recalling the overdue advances and copies of further
correspondence with the exporter
(x) Copies of legal notice and plaint if a suit has been filed and the exporter‘s reply
thereto.
(xi) If the Exporter has gone insolvent

a. Proof of insolvency
b. copy of claim filed by the bank with the receiver/ liquidator
c. copy of the letter issued to the bank by the receiver/ liquidator to the
effect that the claim has been admitted to rank against the insolvent‘s
estate.
(xii) Certificate from a Chartered Accountant as to the business and export turnover of
the exporter (to be given only if the exporter is a small-scale exporter).

20) Waiting Period:

The waiting period for settlement of a claim is as follows:

(a) where the loss is due to insolvency, unless otherwise agreed to in wiring by the
Corporation, immediately after the expiry of four months from the due date of payment
or one month after the loss has been admitted to rank against the insolvent‘s estate in
favour of the bank in any insolvency proceedings, whichever of the two dates is earlier.
(b) Where the loss is due to protracted default, immediately after the expiry of four months
from the due date of payment.

21)Payment of Claims:
After examining the claim and obtaining necessary clarification from the bank, the
Corporation decides whether or not to pay the claim. If the claim is payable, the remittance

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is made by cheque which is forwarded to the bank with a covering letter containing the
following:
Information on the ratio in which the recovery is to be shared -Request to the bank
to send a stamped receipt for the remittance.

22) Action after Payment of Claim:

The payment of claim by the Corporation under the guarantee does not in any way
take away the responsibility of the exporter to repay the entire amount of outstandings to
the bank. Further, the exporter is not absolved of his obligations to RBI under GR form to
repatriate the bill proceeds. The bank should maintain its recourse to the exporter for the
full amount owned by him and effective action for recovering the amount, including such
action as may be suggested by the Corporation, including legal proceedings, should be
initiated against the exporter or such other persons including the overseas buyer (s) against
whom such action can be taken.

23) Recovery Expenses:

The bank is expected to incur all expenses necessary for recovering the debt. The
recovery expenses, as approved by the Corporation, shall be the first charge on any amount
recovered.

24) Sharing of recovery:

All amounts recovered after payment of claim by the Corporation, net of recovery
expenses, are to be shared between the Corporation and the bank in the ratio in which the
loss admitted by the Corporation was borne by them. The bank should give the Corporation
details of every amount recovered promptly after its recovery and remit the Corporation‘s
share immediately. The bank shall be liable to pay interest to the Corporation at 5 % Over
Bank Rate (OBR) if the amount (s) are not appropriated within 7 days from the date (s) of
recovery.

25) Write-off of bad debts:

If the bank (in a case where the Corporation has paid a claim) feels that the whole or part
of the amount due from the exporter cannot be recovered, the facts and circumstances of
the case should be reported to the Corporation. If the Corporation agrees to the bank‘s
proposal, it will convey its decision and the amount could be written off by the bank

C) Grounds on which ECGC may reject Bank‟s claim under ECIB-WT-PC &
ECIB-WTPS (Indicative only) - Report of Default is not submitted by the branch within
the stipulated time. End-use of funds not ascertained as per instructions from Controlling
Office. Drawing Power worked out from stock statement and not from contract, hence excess
packing credit was disbursed. Fresh packing credits given when earlier packing credit has
become overdue Branch has not called for latest credit report though it was one of the
sanction terms. Branch has purchased bill in respect of which there is no drawee-wise ECGC
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cover. The limit was sanctioned when the account of sister concern was irregular. Second
advance was released when no shipment was effected against the first advance. Branch has
not obtained monthly stock statement and has not conducted inspection of stock as per
sanction terms. Branch has not initiated any legal action against the exporter. Fresh advance
was ranted after issuing letter of recall. At the time of giving advance, the account was NPA
Copy of sanction letter pertaining to the period of advances in default not furnished Copy of
orders/ LCs against which overdue advances were granted not furnished. Copies of stock
statements and inspection reports were not furnished. Claim is time-barred i.e. not lodged
within 6 months from the date of filing ROD. Bank has not issued any sanction letter to the
exporter indicating terms of sanction. Limit sanctioned is not notified to the Corporation.
Nursing Programme is undertaken without obtaining approval of the Corporation. No
collateral security has been obtained by the Bank though stipulated. Branch has not furnished
non-payment advice/ accepted copy of Bill of Exchange. Enhanced limits were released
without recovering earlier overdues. Bank has released EPC to suppliers without ensuring
receipt of material by the exporter. Bank has not taken utmost care and has not closely
monitored the account. PC is to be allowed for procuring goods for exports. However, branch
has allowed exporter to transfer huge amounts from PC account to CC/CD account without
any justification. Branch has not taken prior approval of the Corporation before granting
advances when the Exporter/ Guarantor/ Sister Concern was under Specific Approval List of
ECGC.

D) In order that such lapses are not committed by the branches and to comply with the
terms and conditions of these policies, we append below some DO‘s and DON‘Ts which are
to be strictly followed by the branches.

1. Check whether the exporter or its partner/ guarantor, associate concerns, their
proprietor/ partners/ directors is/ are in Specific Approval List (SAL) of the
Corporation. If in SAL, obtain ECGC‘s prior approval for granting any advance under
the guarantee.
2. Complete documentation as per sanction stipulations and adhere to the terms and
conditions of sanction.
3. Give credit to clean customers with good track record.
4. Notify limit (fresh/ enhancement/ reduction/ modification/ cancellation/adhoc) within
30 days from the date of sanction in respect of Health Code I account to ECGC. Also
notify limits which are within the discretionary limit of the bank within 30 days where
Health code of the exporter is 2 (standard) The same procedure is applicable to `New‘
accounts also.
5. Obtain prior approval of ECGC for limits sanctioned in excess of Discretionary Limit
in respect of Health Code 2 accounts
6. Obtain prior approval of ECGC for limits sanctioned to exporters whose asset
classification is doubtful/ or loss making or whose Health Code is 3 and above.
7. Submit monthly declaration and premium due thereon for any month on or before
the last day of subsequent month. Ensure that all accounts are included and all
advances are declared and premium paid.
8. Grant advances within the validity period of LC/ Order and within limit.
9. Obtain necessary approval from your Component Authority for continuation of limits
beyond the period of validity or for granting advances in excess of limit
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10. Ensure compliance of all sanction terms and in case of non-compliance for valid
reasons, obtain necessary approval from the Competent Authority.
11. Obtain approval from ECGC for extension in due dates beyond 360/180 days under
the aforesaid policies respectively.
12. Submit ROD within 4 months of the due date/ extended due date or within one month
from date of recall of advances, whichever is earlier.
13. File the claim completed in all respects alongwith stipulated documents within 6
months from the date of filing of ROD
14. Take steps to safeguard the securities stipulated as per sanction.
15. Take steps wherever necessary to minimise loss.
16. Take effective steps for recovery including filing of suit in DRT
17. Share the recovery effected from exporter with ECGC as per the claim paid ratio.

DON’Ts
1. Do not extend credit to those exporters whose names appear in SAL without prior
approval of ECGC
2. Do not extend credits for exporters to Restricted Cover Countries without prior
permission of ECGC.
3. Do not flout any sanction stipulations.
4. Do not fail to declare any account of the exporter and payment of monthly premium
regularly.
5. Do not grant further advances when advances given earlier are overdue.
6. Do not purchase export bills drawn on the same buyer which have not been paid
earlier and became overdue.
7. Do not enter into compromise settlement with the borrower without obtaining
permission from ECGC.

8. Do not grant advances to the exporter whose name or that of proprietor/ partners/
guarantors, associate concern, their proprietor/ partners/ directors/ guarantors
appear/s in SAL notification without the prior specific approval of the Corporation for
covering the limit/ advances.

E) Branches are advised to take a careful note. Further, the copies of the ECIB-WT-PC & PS
cover sent/ circulated through the respective Zonal Offices should be studied thoroughly and
the important provisions/ requirements thereunder complied with.

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(PLEASE REFER THE LATEST ECGC POLICY)

Annexure – II

ECGC Schemes for exporters and banks

SHORT-TERM EXPORTS

POLICY SCHEMES

1. Standard Policy

An exporter whose annual export turnover is more than Rs.50 lakhs is eligible for this Policy
to cover all his exports.

2. Small Exporters Policy

An exporter whose annual export turnover is not more than Rs.50 lakhs is eligible for this
Policy.

3. Specific Shipment Policies-Short Term (SSP-ST)

These policies can be availed of by exporters who do not hold Standard Policy or by exporter
having Standard Policy, in respect of shipments permitted to be excluded from the purview
of the Standard Policy. Exporter can pick and choose the contract/shipment to be covered
and indicate the type of cover required.

4. Exports (Specific Buyer) Policy

The Specific Buyer Policy provides cover for shipments made to a particular buyer. An
exporter not holding the Standard Policy can avail of this to cover their shipments to any
selected buyer. Exporters holding Standard Policy can also avail this policy for covering
shipments to an individual buyer, if all shipments to such buyer have been permitted to be
excluded from the purview of the Standard Policy.

5. Exports Turnover Policy

Turnover Policy is for the benefit of large exporters who contribute not less than Rs.10 lakhs
per annum towards premium. The policy envisages projection of the export turnover of the
policyholder for a year and the initial determination of the premium payable on that basis,
subject to adjustment at the end of the year based on actuals.

6. Buyer Exposure Policy

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The Buyer Exposure Policy is to insure the exporters having large number of shipments with
simplified procedure and rationalized premium. An exporter can choose to obtain exposure
based cover on a selected buyer. The cover would be against commercial and political risks.
If the exporter has opted for commercial and political risks cover, failure of LC opening bank
with World Rank up to 25000 as per latest Bankers Almanac is available. If exporter opts for
only political risks for LC exports premium at a less rate is offered.

7. Multi-Buyer Exposure Policy

Some exporters export to large number of buyers. The number of shipments made by them
is also quite high. In order to meet the needs of such exporters, Multi-buyer Exposure Policy
is introduced. Cover would be available for exports to the buyers in countries listed under
open cover category as long as the buyer is not in ―the list of buyers who have come to the
adverse notice of the Corporation‖ maintained by the Corporation and available on its website
www.ecgcindia.com. If the transaction is on LC terms, failure of the LC opening bank in
respect of exports against LC will also be covered, for banks with World Rank up to 25000
as per latest Banker's Almanac. Cover in respect of exports to restricted cover countries
would not be available under this policy.

8. Software Projects Policy

The Software projects policy will provide protection to exporters of software projects and
related services where the payments will be received in foreign exchange on deferred basis
based on the milestones completed.

9. Consignment Exports Policy (Global Entity)

Indian exporters ship goods to their own branch office overseas ready for sale to overseas
buyers, as and when orders are received. This is known as Consignment exports. A separate
credit insurance policy is introduced to cover exclusively shipments by the exporters to their
branches overseas on consignment basis taking into account their special features, providing
adequate incentives and simplifying the procedures considerably.

10. Consignment Exports Policy (Stockholding Agent)

Economic liberalization and gradual removal of international barriers for trade and commerce
are opening up various new avenues of export opportunities to Indian exporters of quality
goods. A method increasingly adopted by Indian exporters is consigning goods to an agent
overseas who holds the stock ready for sale to overseas buyers, as and when orders are
received. Thus, a separate credit insurance policy is introduced to cover exclusively
shipments on consignment basis through agents taking into account their special features,
providing adequate incentives and simplifying the procedures considerably.

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11. Services Policy

Services Policy offer protection to Indian firms against payment risks involved in rendering
services to foreign parties. A wide range of services like technical or professional services,
hiring or leasing can be covered under these policies.

12. Maturity Factoring

The Maturity Factoring Scheme as designed by ECGC has certain unique features and does
not exactly fit into the conventional mould of maturity factoring. The changes devised are
intended to give the clients the benefits of full factoring services through the Maturity
Factoring Scheme, thus effectively addressing the needs of exporters to avail of pre-finance
(advance) on the receivables, for their working capital requirements. One important feature
is the special benefits envisaged for banks under the scheme by which the banks get
reimbursed in a non payment situation irrespective of any payment problems with the
overseas buyers.
13. IT – Enabled Services (Specific Customer) Policy

IT-enabled Services (Specific Customer) Policy would be given in respect of contracts for
rendering IT services during a defined period with billing on the basis of services rendered
during a period say, a week, a month or a quarter.

GUARANTEE SCHEMES

14. Export credit Insurance for Banks (ECIB) - PC

Under the scheme the bank is protected against non payment due to default or insolvency
of the any of the exporter clients availing packing credit for short-term exports from any of
its branch offices.

15. Export credit Insurance for Banks (ECIB) -PS

Under the scheme the bank is protected against non payment due to default or insolvency
of the any of the exporter clients availing post shipment export credit for Short-term exports
from any of its branch offices.

16. PACKING CREDIT GUARANTEE - BRANCH

A branch of the bank (not having WTPCG) can avail this guarantee to protect itself against
non payment due to default or insolvency of any of its exporter clients to whom packing
credit has been extended by the branch.

17. PACKING CREDIT GUARANTEE - SECTORAL

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A zonal/regional office of a bank can avail this guarantee to protect against non payment
due to default or insolvency of any of its exporter clients to who are availing packing credit
from any of the branch offices reporting to them.

18.INDIVIDUAL PACKING CREDIT GUARANTEE (IPCG)

A bank branch can avail cover for packing credit facility extended to a specific exporter client
against non payment by the exporter due to insolvency or default.

19. INDIVIDUAL POST SHIPMENT CREDIT GUARANTEE (IPSG)

A bank branch can avail cover for post shipment credit facility extended to a specific exporter
client against non payment by the exporter due to insolvency or default.

20. EXPORT PERFORMANCE GUARANTEE (EPG)

Wherever banks are called upon to execute a bank guarantees on behalf of their exporter
clients to facilitate exports, banks can protect themselves under this cover in case of non
payment by the exporter due to insolvency or default due to invocation of the bank guarantee
by the beneficiary.

21. EXPORT PRODUCTION FINANCE GUARANTEE (EPFG)

Under the scheme, banks can avail cover for additional credit extended to an exporter client
at the pre shipment stage where the raw material cost exceeds the export order value, the
difference being made good by the government by way of incentives or duty draw back after
shipment.

22. EXPORT FINANCE GUARANTEE (EFG)

Where the banks extend advances at the post shipment stage to their exporter clients against
export incentives receivable from the Government of India and need cover against non
payment in case of insolvency or default of the exporter, they can seek protection under the
scheme.

MEDIUM AND LONG-TERM EXPORTS

POLICY SCHEMES

23. SPECIFICT CONTRACT /SHIPMENTS POLICY

For covering supply contracts and Turnkey Projects, Specific Contract / Shipments Policy can
be taken. This Policy can be for covering only political risks or for covering comprehensive
risks i.e. both commercial and political risks.

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24. CONSTRUCTION WORKS POLICY

For covering construction contract, a Construction Works policy can be obtained. This policy
can be for either Political Risks alone or for Comprehensive Risks. The Comprehensive Risks
Policy provides protection against commercial risks such as Insolvency of Buyer, protracted
default, non-acceptance of goods shipped in addition to covering political risk of war, civil
war, exchange transfer delay etc. The political risk policy on the other hand provides
protection against political risk policy.

25. SPECIFIC SERVICES CONTRACT POLICY

For covering services contract, which involves only technical and / or professional services,
a Services Policy can be obtained. This also can be either for political or comprehensive
risks.

GUARANTEE SCHEMES

26. Guarantees for Funded Facilities:

[a] Packing Credit

[b] Post Shipment

[c] Overdraft

[d] Rupee Loan

27 Guarantees for Non – Funded facilities (Counter Guarantees to bank

guarantees):

[a] Bid Bond

[b] Advance payment

[c] Due Performance

[d] Retention Money

[e] Overseas Borrowings

SPECIAL SCHEMES

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28. Buyer's Credit / Lines of Credit cover:

Financial Institutions in India extend Buyer's Credit / Lines of Credit to overseas buyers /
institutions to facilitate export of goods & services from India. Institutions like Exim Bank
often seek ECGC cover for Buyers Credit / Lines of Credit cover. Buyers Credit / Lines of
Credit cover can be obtained either for covering political risks or for comprehensive risks.

29. Overseas Investment Insurance (OII) cover:

OII provides cover for the investments made by Indian Corporates abroad in Joint Ventures
or their wholly owned subsidiary (WOS) either in the form of equity or untied loans.

30. Exchange fluctuation Risk cover scheme:

The Scheme is operated by the Corporation for and on behalf of the Government of India
protecting the exporters of project exports and supply contracts involving deferred payment
terms against the exchange fluctuation risks between the currency of invoice and Indian
rupees. The scheme is available for select convertible currencies.
31. Transfer Guarantee:

At times banks in India are required to add their confirmation to Letters Credit (LC) opened
by banks in buyer‘s country. The confirming bank can avail protection against non payment
by the LC opening bank due to default/insolvency of the LC opening bank or political risk in
the LC opening bank‘s country under the scheme.

32. Export finance( Overseas lending) Guarantee:

If a bank financing an overseas project provides a foreign currency loan to the contractor, it
can protect itself from the risk of non-payment by the contractor by obtaining the above
policy.

******************************************

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 Chapter 8
COLLECTION OF EXPORT BILLS
General
8.1 When a customer does not need immediate finance for his exports, he may tender
his documentary export bills to the Bank for collection. When bills are collected, no advance
is made and the Bank has no financial liability. No sanction is needed for such business.
However, as the Bank is liable to the customer for the correct implementation of h
instructions, for the disposal of the goods and for the receipt of the proceeds, due care must
be taken in preparing the schedule of instructions, which should correctly convey the
instructions of the customer to the Branch or correspondent bank to whom the documents
are sent for collection. Such Instructions should be obtained in writing on a special form
(form no. FE 1583).
8.2 Bills may be collected only for persons of good standing, who maintain satisfactory
accounts with the Bank. Managers should not permit themselves to be imposed upon by the
high sounding names which very small concerns sometimes adopt. When an unknown person
seeks the Bank's services, proper enquiries should be made. After a satisfactory introduction
is obtained, the Bank may collect his bills.
8.3 Instructions given in paragraphs 7.18 to 7.23 regarding the selection of the collecting
agent also apply to export bills received for collection. When forwarding the instructions of
the drawer to the collecting Branch or bank, care must be taken to keep it strictly within the
exchange control regulations.
Preparation of Schedules Covering Collection Documents
8.4 Branches should note that from the FEMA point of view, there is no difference
between the export bills handled on collection basis and those against which post shipment
finance is granted (under any Scheme). Once an export bill is handled by the Bank whether
on collection basis or otherwise, the Bank is responsible and accountable to RBI till proceeds
are realised.
All documents should bear the round stamp of the Bank with the bill number entered within
the stamp. The bill number should be the six-digit running serial number given in terms of
the Uniform System of Numbering Export Bills introduced by the Reserve Bank of India for
easy identification of the transaction. Drafts, bills of lading and insurance policies or
certificates are usually endorsed in favour of the Bank or blank endorsed. Wherever
necessary, these documents should be endorsed in favour of the collecting bank. (If the
documents are to be sent for collection to a Branch of the Bank, they should be endorsed in
favour of the Bank.)
8.5 The covering schedules for foreign bills for collection are generated by the Finacle
System. The copies of, schedules marked "Original Documents" and "Duplicate Documents"
should be attached to the original and' duplicate sets of documents respectively. The office
copy should be filed in a separate file in the serial order of bill numbers. These copies must
not be removed from the file at any time.
8.6 The office copy serves as a complete record of the bill amount in foreign currency
and the rupee equivalent (correct to the nearest rupee) converted at the Bill buying rate of
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exchange. Contra Liability vouchers should be passed (passed by the system), for this rupee
amount and entered on the office copy of the schedule. At the time of checking the covering
schedule and the attached documents, particular care should be taken to see that the correct
foreign currency amount with the rupee equivalent, G.R. or P.P. form number are entered
on the office copy.
8.7 When releasing the tracer (Now SWIFT/wire reminder sent to ascertain the fate of a
bill), the date on which the tracer is released (i.e., sent to the collecting Branch or
correspondent bank) should be entered on the office copy.

The Uniform Rules for Collections

8.8 a) In the course of time various formalities, expressions and terms have arisen among
banks in connection with documentary collection business. In order to ensure uniform
interpretations in international trade, the International Chamber of Commerce in Paris has
formulated "Uniform Rules for Collection (URC) which have been published in ICC Publication
No.522 and came into effect from 1st January, 1996. With the approval of the Reserve Bank
of India, FEDAI, on behalf of its member banks has subscribed to these rules.
b) All documentary collections are therefore, subject to Uniform Rules for Collection, ICC
Publication No.522 and therefore, the covering schedules must include reference to these
rules of incorporating the clause "This collection is subject to Uniform Rules for Collection,
ICC Publication 522 except as otherwise expressly stated' (Please see Appendix VII)
8.9 Documents should be sorted into two full sets - one full set of original shipping
documents with the required number of copies of invoices etc. (as required by the drawer)
and the other set consisting of the remaining documents. The full set of original shipping
documents should be sent to the Bank's Branch or correspondent bank with the covering
schedule of instructions by courier / air mail and the duplicate documents should be sent
separately by a later mail.
8.10 Branches should ensure that shipping documents are despatched to foreign Branches
/ correspondents expeditiously so that the documents reach the buyer before the carrying
steamer discharges the cargo at port of destination. Delay in transmission of shipping
documents may result in avoidable demurrage payments at destination and also quite often
in refusal of the consignments or claims for reduction from overseas buyers on grounds of
delayed delivery.
8.11 When a bill is paid, the amount of interest, if any, collected from the drawee should
be entered on the office copy. Where commission and other charges are to be recovered
from the customer, their particulars should also be entered on the office copy and deducted
from the proceeds of the bill. These particulars of interest collected from drawees and the
charges to be recovered from the customers should be recorded on "Advice of Payment"
copy as carbon impressions of the office copy. Both the office copy and the "Advice of
Payment" copy should show date of R-return in which it is reported to RBI.
8.12 A record of the progress and history of each bill should be noted on office copies of
schedules. Office copies of the schedules covering foreign bills for collection are part of the
Bank's books of accounts in addition to the Bills Register. They must be kept up to date and
in perfect order at all times. Outstanding bills for collection should be gone through
periodically and the fate of unpaid bills ascertained from the collecting Branch or bank.
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Advices received from the collecting Branch or bank regarding the progress of the collection
should be conveyed to the drawer promptly.
8.13 Where the bills are not retired in time, while ensuring that the relative goods are
protected, Branches must ensure that the bills/relative goods are not held for any unspecified
period which otherwise may result in accumulation of demurrage, clearing, storage,
insurance charges, etc. to a level higher than the amount of the bill and the value of goods
covered by such bills.
8.14 Branches should keep a close watch on their bills portfolio and in the event of any bill
remaining unpaid/ unaccepted, must immediately inquire about the position of the goods, as
well as demurrage, clearing, storage, insurance and other charges. Branches should also
immediately convey to the drawers the fact of non-payment/non-acceptance of the bill and
seek their instructions for the disposal of goods. In no case should unpaid bills covering
merchandise should be held for an unspecified period unless there are satisfactory
arrangements made by the parties concerned to defray the cost involved.
Commission and Charges on Bills Sent for Collection
8.15 Commission on Collection Bills should either be collected from the exporter or from
the drawees, as per instruction of the customer. In cases where our charges are for
exporter‘s account, it shall be collected upfront while lodging the Bill. In cases where the
drawees refuse to bear our charges, commission should be deducted from the proceeds
before crediting the proceeds to the account of the customer. The scale of commission/
postages/ telegrams/ SWIFT charges/ out of pocket expenses, etc., shall be recovered as
advised by Head Office from time to time.
8.16 Commission and postages should be recovered from the drawee or from the proceeds
of the bills, as instructed by the customer.
8.17 When proceeds of bills are realised, the necessary credits should be made to the
customer after recovery of out of pocket expenses, if any.
Goods Exported on Consignment Basis
8.18 In some trades, for example, tea or mineral ore business, goods are exported on
consignment basis. This means that the goods are shipped abroad unsold and are eventually
sold on arrival at their destination by an agent of the exporter. All the usual shipping
documents are present in a consignment collection, except the draft. In handling collection
on a consignment basis, it is essential that the customer's instructions should he carried out
exactly, particularly with regard to the terms and conditions under which goods are to be
released to the agent or buyers. It is only on some occasions that the Bank may sanction an
advance against goods shipped on a consignment basis. Branches should never grant such
an advance without obtaining prior sanction of competent authority.
8.19 Instructions for preparation of schedules of FBC also apply to preparation of schedules
of documents in respect of exports on consignment basis.
8.20 When goods have been exported on consignment basis for sale and eventual
remittance of sale proceeds, Branches should instruct the collecting branch or bank that the
documents should be delivered only against a trust receipt/undertaking to deliver the sale
proceeds by a specified date which should be within the period prescribed for realisation of
the proceeds of the export.

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8.21 A complete record of the amounts received from consignees from time to time should
be kept in the register/on the office copies of the relative bill schedules and the Account
Sales received preserved. Branches should watch realisation of proceeds and follow the
procedure laid down in relative para of Exchange Control Manual.

Commission and Charges on Consignment Collections

8.22 Bank charges should be recovered upfront.
Exchange Rates Applied to Bills for Collection
8.23 In respect of bills sent for collection, since payment to the customer would only be
made after proceeds have been received by the Bank, the rate of exchange applicable should
be the buying rate for telegraphic transfers (T.T. buying rate). On receipt of realisation
advices of bills, Branches should debit the Nostro account of the Treasury Branch( after
ensuring credit in the account) with the rupee equivalent of the foreign currency amount of
the proceeds of the bill at the T.T. buying rate and credit the customer ( net of our charges)
.After treasury Interface in the computer system, the reporting aspect is taken care by the
system, once transaction is completed in the Finacle system at the branches.

Contra Accounts-Outward Foreign Bills for collection and liability for outward
Foreign Bills for collection
8.24 Branches should maintain these General Ledger Contra Accounts(now maintained in
the computer system) (i.e. Outward Foreign Bills for Collection & Liability for Outward Foreign
Bills for Collection) in order to keep a record of all export bills for collection or forwarded on
a consignment basis, irrespective of the currency in which the collection or consignment may
be expressed.
8.25 Entries to these accounts should be made to the nearest rupee. (Paise should not
appear in the accounts. A collection for Rs. 847.62 would appear in the accounts as Rs. 848/-
.) Collections expressed in foreign currencies are entered in these accounts at prevailing Bill
buying rate of exchange. Now the entries are generated by the computer system
automatically, once transaction is completed in the system.
8.26 The entries passed on forwarding a bill for collection are (generated by the system)
Debit: General Ledger Account "Outward Foreign Bills for Collection"

Credit: General Ledger Account "Liability for Outward Foreign Bills for Collection" to
the nearest rupee.
On receipt of payment, these entries should be reversed.
8.27 Documents drawn under Letter of Credit:
The documents drawn under LC, even though presented on collection basis, should be
scrutinised as per guidelines applicable and all discrepancies should be noted down on the
reverse of the covering schedule. This would assist the branches, if the customer requests
for post shipment finance at a later date.

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8.28 Compensation for delayed credit of export proceeds:
Branches are required to compensate the exporters, without any demand from the exporters
as per compensation policy of the bank (available on Bank‘s website), wherever the Export
Bill proceeds are credited to their accounts after the expiry of the period fixed by FEDAI for
providing such credit, provided the exporter has complied with the Exchange Control
requirement and the credit advices/ statements received from the correspondent banks
contained correct and full details. The compensation is by way of payment of interest for
the delayed period excluding execution period.
Branches are therefore advised to ensure that the credit entries with correct particulars in
Nostro accounts are identified without delay by ‘A‘ /’B‘ category branches and the payment
effected immediately. In cases branches may not be able to identify the credits immediately
due to insufficient data, every effort should be made to get the necessary details promptly,
avoiding delay and inconvenience to the customers.
Branches should maintain a register for recording payment of interest for delayed credit of
export proceeds. This register should be reviewed by the Branch in-charge from time to
time who should be satisfied that the reason for delay was not on account of staff lapse.

Branches handling Exports are advised to be guided by the instructions/ guidelines issued by
RBI in their Master Circulars on Export of Goods & services, Export Credit ,Customer Service,
etc& APDIR circulars on the subject, issued from time to time.

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 Chapter 9

FOREIGN BILLS (CLEAN) SENT FOR COLLECTION

(A) Collection Clean bills, Cheques, etc.

(a) Precautions to be taken while entertaining collection of clean instruments: There
have been number of instances of fraud/ attempted fraud in collection of clean
instruments where the branches have collected instruments especially payable
in USA for larger value and such instruments were returned by New York
correspondent Banks much after completion of Hold period and long after
parting with the money to the customers. Hence, following precautions to be
observed while collecting instruments especially drawn in USD currency:

i. The depositor of the foreign instrument should be well known to the branch, and not a
walk in customer. Branches should strictly comply with KYC/AML guidelines issued
by bank from time to time.

ii. Instrument should be in the name of the depositor, endorsed cheque should not be
collected.

iii. Before sending the cheque for collection, it should be properly examined to ensure that
it has not been altered. The instrument should be examined under ultra violet lamp to
detect alteration or erasures.

iv. If the cheque is received by the exporter as advance payment towards export or
payment of export bill, the drawer of the cheque should be the buyer abroad.

v. Branches should educate their customers about the prevailing law in USA in respect of
return of cheque and its consequences. Exporters should be invariably advised to get
advance payment by TT/SWIFT, when the buyer is not well known to the exporter or
where the transactions are concluded on internet.

vi. Branches should advise the customers to insist upon the settlement of trade payments
by way of SWIFT instead of payment by way of cheques payable in USA due to inherent
risks involved.

vii. Branches should be on guard when the instruments for large value are presented for
collection especially towards advance payments/trade payments.

viii. The branch officials have to use their prudence /due diligence while collecting large
value foreign currency cheques payable abroad.

ix. While issuing FIRC for inward remittance where the instrument is handled under
Collection, branches should advise the customer that if the cheque is returned unpaid

233
 for any reason, the proceeds of the cheque will be recovered from the account along
with charges, interest, if any and FIRC, issued earlier, should be returned back to the
branch for cancellation.

In order to further safeguard bank‘s interest and prevent fraudulent transactions being
routed, branches are advised that the details of banks (on whom the instruments are
drawn) should be verified by referring to the Bankers Almanac or Website through
internet and should confirm whether the drawee bank is actually in existence
before crediting the proceeds of the foreign currency instruments to the
Depositor’s account.

9.1 The particulars of cheques, dividend warrants, demand drafts, traveller‘s cheques, etc.,
sent for collection should be entered in a register (Register of remittances lodged
(Outward) with Foreign branches and Agents-form No. FE 1303) . Now maintained in
Finacle System under Foreign Bills maintenance module & authorized by the official of
the branch.

9.2 The liability vouchers for outward foreign bills sent for collection (clean) are now
automatically passed by the system, once entries of the bill are entered in the system &
authorized by the branch official.

9.3 The particulars of instruments should also be entered in the covering schedule, generated
by the system or under a deposit letter, wherever applicable, after they are properly
endorsed in favour of the collecting agent.

9.4 Branches should send cheques, dividend Warrants, demand drafts, travellers‘cheques and
other clean instruments expressed in Foreign currency and payable outside India direct
to the foreign branches/ correspondents for collection. Branches should instruct Foreign
branches/ Correspondents to credit the Nostro accounts of the Treasury Branch in that
currency (for list of nostro accounts see appendix VIII). Branches should retain photo
copies of clean instruments sent under cash letter service/ collection to
Foreign correspondents/branches as a safe guard against the possibility of
their loss in postal transit.

9.5 Branches should send cheques and other clean instruments for collection to the foreign
correspondents in the country where it is payable irrespective of the currency in which it
is expressed e.g. US dollar drafts drawn on Frankfurt should be sent for collection directly
to our correspondent in Frankfurt, which should be instructed to remit the proceeds in
US dollars for credit of the nostro or foreign currency account of the branch maintaining
the position in that currency. In other words, proceeds should be received in the
same currency on which the instrument is expressed (ie.in US dollars in the
instant case) to avoid any loss by way of exchange.

9.6 On receipt of credit advice from a foreign branch/ correspondent for the proceeds of the
bill realized & after ensuring that the amount has been credited to the Nostro account of
the Treasury Branch, the TT buying rate should be applied. The card rates are made

234
 available daily by the treasury branch in the computer system, better rates to collected
from the Treasury branch & transaction to be completed in the computer system. Once
transaction is completed in the system, the reporting aspect is taken care automatically.
Following aspects to be taken care while completing the transaction in the computer
system.

Name of the foreign branch/correspondent Reference number and date of credit note/
advice of foreign branch /correspondent, Amount of foreign currency of the credit note/
advice and the correct description of foreign currency viz. USD (US dollars) CAD (
Canadian Dollars) , SEK ( Swedish Kroner) etc. The relevant bill no. i.e. Branch reference
number of the transaction ( Now this is given by the computer system).

9.7 The purchase of foreign currency should be reported depending on the amount of the
bill. (Now no need of separate reporting as after treasury interface of the branches with
the treasury branch, reporting aspect is taken care by the system automatically, once
transaction is completed in the system).

9.8 The customer‘s account should be credited with the rupee equivalent of the bill less
charges and postage, if any. Please also refer to the chapter on ‘Inward Remittances’
regarding instructions for affording credit to customers.

9.10 The liability vouchers for outward foreign bills sent for collection (Clean) get reversed
on completing the transaction of realization of the proceeds of the bill in the computer system

(b) Purchase of Clean Bills, Cheques, etc,

Note on Encashment of Foreign Currency Travellers‟ Cheques

9.11 While encashing foreign currency travellers‘cheques, the following precautions should
be taken:

(i) The paying officer must ensure that the person presenting encashment makes the
second signature (counter signature) thereon in his presence only. The paying officer
must carefully compare this second signature or counter signature with the original
signature on the travellers‘cheques to ensure that both the signatures are exactly the
same and that there is no variation in the signatures. Only if the signatures are made
in the presence of the officer and found to agree in entirety, should the
travellers ‘cheques been cashed.
(ii) The passport of the presenter should be scrutinised to establish his identity. It must
be ensured that the photograph in the passport is of the person encashing the
travellers‘cheques. The signature on the passport should tally with the signature on
the travellers‘cheques. The passport number, place of issue, date of issue as well as
expiry date of the passport should be noted on the reverse of the voucher. Branches
should also record the entry visa particulars of the tourist/encasher wherever
available in the passport.

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(iii) A person presenting the travellers cheques for encashment should be asked to write
his permanent and local address on the reverse of the voucher
(iv) When in doubt regarding the self-identifying signature, branches should ask customer
for Purchase Agreement Copy (PAF). Most anti-social individuals attempting a
fraudulent encashment will usually not be in possession of (PAF).
(v) Encashment of foreign currency travellers cheques is fraught with certain perils,
chiefly amongst them fraudulent encashment. In the recent past Bank had come
across instances where foreign currency travellers cheques encashed by our
branches were returned unpaid with the Reason: 'Reported lost/Stolen’ resulting in
possible financial loss to the bank.
(vi) Therefore, at the cost of repetition we would like to emphasise the following
precautions to be followed by the staff encashing the Foreign Currency Travellers
Cheques (FTC) to avoid loss to the Bank and also to render efficient service to the
visiting persons to boost the image of our bank as well as the quality of services
rendered. Most of the Foreign Currency Travellers Cheques (FTC), Producers/issuers
have suspended/stopped issuance of periodical lists of lost/stolen traveller‘s cheques.
Therefore, the system to be followed is ‘Watch and Compare’, in view of which it is
imperative that the encashing staff has to be more careful and vigilant while
encashing the same.
(vii) Under ―Watch and Compare, the following precautions should be taken.
a. Flip through the traveller‘s cheques to ensure that the customer has not presented
you with the cheques already countersigned, where it is specified on the cheque
‘Countersign here in the presence of person cashing’.
b. Make sure that original signature made at ‘ signature of the holder/purchaser‘s
signature in full’, does not appear to have been erased, or does not appear to be
written over with felt tip pen (i.e. signatures with broad strikes)
c. Ensure and insist that the customer countersigns with ball point pen/fountain pen in
your presence.
d. Watch carefully when your customer is countersigning each traveller‘s cheque.
e. Do not let your view be obstructed by the customer‘s other hand.
f. Do not get involved doing something else while the customer is countersigning.
g. Do not lose sight of cheques for even a moment.
h. Now compare the countersignature with the original Signature.
i. Make sure whether the original signature and counter signature match and is about
the same size?
j. Also ensure that the countersignature has the same slant and spellings are identical.
k. Ensure that first name does not appear to be changed from masculine to feminine or
vice-versa and signature has not been changed from masculine to feminine by
adding Mrs.
l. Make sure that the signature has been extended on either end (i.e. Mr. Johns has not
become Mr. Johnson).
m. The list is not exhaustive. The encashing staff should take maximum care to see the
travellers cheques presented are genuine (bonafide) one, by referring to the security
features as per details supplied by travellers cheques issuing institutions. Branches
authorized to encash traveller‘s cheques should ensure that they have such details
on their file by approaching their controlling office.

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n. In rare cases where the cheques have already been countersigned, request the
customer to sign on the back of the cheque. Also request for proof of identification
(i.e. Passport/Driving Licence etc.) and compare the signatures. Please record the
details of proof of identification.
o. Where cheques bear specimen signature made with a sketch/felt pen they should be
tactfully &politely refused to avoid possible encashment of stolen/forged
cheques.
p. In case of doubt ask the customer for the purchase agreement, encashment may be
refused politely.
q In case of doubt branches should make reference on phone to their respective
international 24 hours Help line --- collect call --- where call charges will be borne
by them, or alternatively contact their nearest centre in India to ensure that the
Cheques presented are not registered with them as stolen/lost or forged ones.
Branches should note the Docket No./ Reference No. given by the institutions while
making reference.

viii) Telephonic Charges may be recovered from the customer.

ix) When encashing foreign currency travellers cheques with denominations of over USD
100/- from non- customers, branches should be on guard and obtain clearance from
the issuing agencies. Branches should also be extra careful when big lot is presented
or same person (s) comes to the Branch for foreign currency traveller‘s cheques
encashment on successive days/repeatedly.

x) Branches should not encash foreign currency travellers cheques exceeding USD 500/-
from one person on any day. No deviation from this instruction is permitted except
in cases where the proceeds of travellers cheques are being invested in a deposit
account (Savings and Fixed) subject to proviso that no withdrawal / premature
payment/loan against such deposits are allowed till final credit in the Nostro account
. In such cases the requirement of seeking prior approval from the FTC issuing
company for instruments with denominations of USD 100 and above mentioned in
ix) above is also waived.

xi) It must be emphasized that under no circumstances should foreign

travellers’ cheque be encashed if there is the slightest variation between
the countersignature and the holder’s original signature. Branches must take
the additional precaution by asking for production of the passport, for identification.
However, it must be importantly noted that taking this additional precaution is no
safeguard if the primary requirement, i.e., witnessing and tallying the signature, is
not fulfilled. It is the counter signature on the travellers cheques, on which
Branches must focus their watchful attention.

xii) ‘Pay to the order of’ line on the travellers‘cheque should be filled in with ‘Bank of
India’. If this line is left blank, unethical persons can take advantage leading to loss
to the Bank.

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xiii) Please always put restrictive endorsement stamp reading ‘For deposit only to
our/Bank of India Treasury Br. account with (correspondent bank)’. Endorsement in
blank can lead to fraudulent collection by unscrupulous elements.

Encashments on Saturday

9.12 Unlike other commercial transactions which are not conducted on Saturdays
owing to non-availability of exchange rates, Branches should note that encashment of
travellers‘ cheques is permitted on Saturdays. Branches may encash foreign currency
travellers‘ cheques and foreign currency notes from foreign tourist on Saturdays,
applying the exchange rate ruling on the previous working day.

9.13 Only ‘A’&‘B’ Category branches should encash travellers‘ cheques. Other branches
should route the foreign currency traveller‘s cheques through the designated branches.
In exceptional cases, ‘C’ Category branches should obtain specific sanction from
Corporate Credit (FBD), Head Office or from Zonal Office, for encashing traveller‘s
cheques.

9.14 Branches may purchase foreign currency cheques, dividend warrants, demand drafts,
etc.(after taking exposure limit on the bank concerned from Zonal office/ Head office),
at Clean Cheques buying rate, and travellers‘ cheques at T/C buying rate, and forward
them for collection to foreign Branches or correspondents under a covering schedule(
generated by the computer system) (form no. FE 1334), or under a check deposit
service/cash letter service wherever applicable & Final Credit Service (FCS) of Wells
Fargo Bank N.A. for collection of instruments in US Dollars payable in USA, subject to
the terms & conditions of the arrangement entered by the Bank with the Wells Fargo
Bank N.A. (This service is not available for collection of Travellers Cheque), after they
are properly endorsed in favour of the collecting agent. The particulars of these
cheques, dividend warrants, demand drafts etc., should be entered in a Register of
Remittances Lodged (Outward) with Foreign Branches and Agents (form no. FE 1303)
and should be checked by an Officer. Now maintained in Finacle System under Foreign
Bills maintenance module & authorized by the official of the branch. Branches should
retain photo copies of the instruments (Both front and reverse).

9.15 The technical correctness of the instrument to be purchased and previous experience of
the type of item, together with knowledge of regulations in the country drawn on are
important factors to be considered before authorizing the transaction. However the
prime consideration must be whether the party fr om whom the cheque is being
purchased may be considered undoubted for recourse, in the event that the cheque is
returned unpaid for any reason. In any case of doubt the cheque should be sent
on a collection basis.

9.16 The following entries should be passed on purchase of clean bills( passed by
the System):
Debit: Foreign Bill Purchase
Credit: PL account towards various charges

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 Credit: the Customer
Credit: Sundry Credit- Advance interest
Further, transaction towards purchase of currency to be effected using Treasury interface on
the applicable rates. There is no need of separate reporting, as taken care by the system.

9.17 On receipt of Credit Note/Credit Order, advice of realization of proceeds of clean bills
purchased, Branches should initiate the procedure of realization of the bill in the Finacle
system by entering full details of realization & authorising the transaction in the system.
If any charges are deducted by the collecting Branch or correspondent from the
proceeds, they should be recovered from the customer at the T. T. Selling rate and
required procedure of reporting of currency to be effected in the computer system with
the Treasury Branch.

9.18 Charges and Postages for Outward Clean Bills Purchased or Sent for
Collection

9.19 Charges and postages should be recovered in accordance with Head Office instructions
issued from time to time.

9.20 Mode of Despatch of Clean Collection Instruments and Clean Foreign

Currency Cheques, Dividend Warrants etc.

9.21 Branches should take the following precautions while sending the clean instruments to
foreign Branches / correspondents for collection -

(a) Affix Bank‘s crossing stamp on the face of all the instruments, taking care not to
obliterate the magnetic characters at the foot of the instruments or encroach upon
the signature;

(b) Affix Bank‘s round stamp (with reference number i.e. collection number), on the
reverse of instruments; it should be sharp and legible and

(c) Send instruments loose without being stapled together but kept in a special
transparent envelope. This envelope should then be stapled to the collection
schedule (form no. FE 1334), or to a deposit letter, wherever applicable, carefully so
as not to staple through the instruments. The transparent envelope, containing the
instruments and the collection schedule stapled to it, should be put into usual
envelope for dispatch.

Instruments drawn in USD & Payable in USA

9.23 Branches should examine the instruments thoroughly to make sure that they qualify for
bank clearing and are denominated in US Dollars and are payable in United States of
America. The U. S. Domestic Postal Money Orders are not eligible for clearing

239
 since the negotiability of these instruments has been restricted in the U. S. A. However,
International Postal Money Orders can be sent for collection/clearing.

9.24 Collection of instruments below USD 2500:

1. Authorised Dealer branches are required to send USD denominated cheques payable
in USA below USD 2500 to our New York Branch for collection. The amount of the instruments
are credited to our USD Nostro account immediately upon its presentation for payment to
drawee bank by New York Branch, through clearing or collection as appropriate within USA.
Though amount is credited to our USD Nostro account immediately the same is only on
conditional basis and not a final credit. Such instruments are treated as realized, only upon
completion of the prescribed waiting period. Branches release the proceeds of the
instruments to the Depositors after expiry of the prescribed Hold/Cooling period as stated
below:
i. 7 New York business days, after credit to the Nostro Account, for cheques
drawn on New York City area (New York, Connecticut and New Jersey).
ii. 11 New York business days, after credit to the Nostro Account, for cheques
drawn on banks in other places in USA.

2. However, despite adhering to Cooling or Hold period before release of credit to the
beneficiaries, there have been several instances, where instruments are returned unpaid by
US banks after the expiry of the Cooling period. In the following cases, banks in USA can
return the cheques presented for payment, in the time frame given below:

Sr. No. Category of Period during which the cheque

Cheque can be returned

1 Altered cheque One year

2 Forgeries Three years

U.S. Treasury
3 cheques Seven years

There should be no pins or staples on the instruments. If there are any, the instruments
tend to get torn as they are passed through high speed cheque readers and sorters.

9.25 Collection of Instruments of USD 2500 and above Under Final Credit
Service arrangement with Wells Fargo Bank N.A:

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 Our Bank has entered into an arrangement with Wells Fargo Bank N.A. , wherein
Wells Fargo Bank offers Final Credit of the instruments collected under the
arrangement - Head office Branch Circular No 103/76 dt 31.07.2009 (Annexure-IV)
and also refer latest Circular Letter No. 2019-20/87 dated 30.11.2019

Most common reasons for cheque returns:

9.26 The return items are a by-product of cheque clearing. The most common reasons for
cheque returns observed by some of our foreign correspondents are
_missing/improper endorsements, insufficient funds. Travellers Cheques are retuned
with reason __ already paid, lost or stolen. Most of the cheques are also returned
unpaid with reason ___ "Cheque not payable in US" or "Not payable in US currency".
Therefore, branches should take care to verify whether the instruments are
drawn/payable in U.S.A. before sending for collection and should make proper
endorsement on the back of cheque. Please see Para 9.25 below.

Identification of cheque payable in United States of America (How to identify?)

9.27 Branches should note the following points for identification of cheques payable in
U.S.A.

STEP ONE: If the cheque is denominated in US Dollars, look for the magnetic routing number
at the bottom of the cheque. The nine place number between the brackets is the routing
code for the bank the cheque is drawn on. (Please see Annexure No. II A).

i) The bank routing number (Fedwire ABA number is nine digits).

ii) The first two numbers indicate which of the 12 Federal Reserve Districts the
bank is located. (Please see Annexure No. II B).

iii) The third number is the branch of the Federal Reserve that has jurisdiction
over the bank.
iv) The fourth number in the set is a clearing coder - through a clearing house,
a Federal Reserve Bank etc.
v) The last five digits of the bank routing number tell the identity of the bank.

STEP TWO: If the cheque does not have the MICR routing number, see if any address is
available. Rarely cheques without routing number may not show the complete address. In
such cases see if it has the name of any states in the US or its code.

Endorsing Norms

The endorsement norms are prescribed by a Federal Legislation in the US for all banks.

241
Endorsements on the back of the cheques should be done at either ends; leaving about three
inches entirely blank at the centre. That blank space is for the use of our correspondent bank
in New York. Ideally our branch endorsement should be:

"Pay to the order of

________________ (Name of foreign Correspondent Bank to
whom the collection is sent)
For Bank of India
Account _____________ (Please give appropriate NOSTRO A/c)
Payee's A/c has been/will be credited. Prior Endorsement
Guaranteed.

(Signature of authorised official)___________________Branch

In the process of collection, the endorsement as prescribed will speed up the

process.
9.28 The collection items, which are not realised within a reasonable time, should
be followed up promptly till they are realised. If the customers require the fate to be
obtained by telex or telegram in order to ensure prompt realisation instructions in this
regard, should be clearly mentioned in the forwarding schedule. Of course, foreign
correspondent's charges/branch out-of-pocket expenses if any, should be recovered.

Note on Encashment of Foreign Currency Notes

Handling of foreign currency notes is governed by FEMA regulations as amended from time
to time by Reserve Bank of India.

Encashment/Sale/Disposal/Reporting Purchase and Sale/by Branches

Encashment and Sale

ONLY branches which are authorised to handle foreign exchange business may encash
foreign currency notes from bonafide tourists and customers expressed ONLY in GBP (Pound
Sterling) and USD (US Dollar) after due verification of their authenticity. The rates of
exchange for purchase of these currency notes are given separately by the Treasury Branch.
As such, branches should strictly apply these rates and NOT the clean or T.C. Buying rates
while purchasing foreign currency notes. However, SALE of foreign currency notes to
customers/travellers will be undertaken only by branches which are specifically authorised
by Head Office to hold stock in foreign currency notes in US Dollars and Pound Sterling.
Other branches will off-load the currency purchased by them to Bank's approved, authorised
money changers preferably on the day of purchase or immediate next working day at best
possible competitive rate. Alternatively, it will forward the same to position Maintaining
Branch.

Currency Notes Other Than GBP & USD.

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9.29 Foreign Currency notes expressed in currencies other than Pound Sterling and US Dollar
should be accepted from customer on collection basis. Such currencies may be off-loaded to
bank's approved authorised money changers at best possible competitive rate. Alternatively,
such notes should be forwarded on collection basis to our foreign correspondents. The
proceeds, on realisation of these notes, should be credited at the T.T. Buying rate to the
customer's account.

9.30 Before encashing foreign currency notes and making cash payment to the tourists,
Branches should observe the normal precautions enumerated in the "Note on Encashment
of Foreign Currency Travellers' Cheques" such as noting down the particulars of tourist
passport, viz. name of the tourist, Nationality, Passport Number, date of issue, valid up to,
name of the issuing country, permanent address, visa, if applicable, etc. It is advisable to
have xerox copy of relevant pages of the passport on record including the page which has
endorsement of tenderer entering Indian airport. If available, the currency declaration form
should be obtained and an endorsement made thereon endorsing the amount of currency
encashed by the branch.

9.31 Purchases against Currency Declaration Forms

i) At present incoming passengers are required to declare foreign currency

brought in by them where the aggregate value of bank notes/foreign currency notes
and travellers cheques exceeds USD 10.000/- or their equivalent and/or the value
of foreign currency notes brought in by them exceeds USD 5,000/- or its equivalent.
ii) Where foreign exchange was brought into India by the tendered against
declaration on Currency Declaration Form (CDF), he should be asked to produce the
form. The production of CDF need not be insisted upon if the tenderer is unable, for
any reason, to produce it.

Where CDF is produced, particulars of purchases made should be endorsed on the reverse
of the form giving number and date of the encashment certificate issued to the tenderer
under the stamp and signature of authorised official of the branch. If the entire foreign
exchange covered by the CDF is encashed, CDF should not be returned to the tenderer, but
retained by the branch on its records.

Note: In case where foreign exchange offered for sale by traveller had been originally
obtained from an authorised dealer/exchange bureau/authorised money-changer in India,
the repurchase thereof should on request be endorsed on the travellers‘ passport in red ink.

9.32 Encashment Certificates

When requested by the customer, branches should issue encashment certificates in form ECF
in all cases of purchase from the public, irrespective of whether CDF has been submitted or
not by the tenderer of foreign exchange. These certificates should be issued on letter-head
of the branch (with Bank‘s ‘Logo’ printed on it), irrespective of the amount. Certificates should
be serially numbered. Duplicate copies of all such certificates should be preserved in book
form for production to Reserve Bank as and when required.

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9.33 Reporting of Purchase/Sale To Position Maintaining Branch

Branches will report purchase/sale of foreign currency notes to Treasury Branch ( In

cases where currency is not disposed to the Money changers) by fax/telephone, if the amount
of transactions exceeds equivalent INR 2,50,000/- in the aggregate, to be followed by relative
DN/CN-DO/CO as the case may be & credit/ debit their relevant account. Transactions up to
and including cut-off limit equivalent of INR 2,50,000 should be reported by the branches
by DN/CN-DO/CO as the case may be, at card rates.

9.34 Disposal/Despatch of foreign currency notes

i) Despatching of foreign currency notes by ―Registered Insured Post is not only very
expensive but also risky because of the possibility of pilferage. However, despatch of
foreign currency notes from one place to another, is not always avoidable.

ii) In order to minimise the physical transportation of foreign notes from one branch to
another branch, the branches which are not authorised to hold stock, explore the
possibility of disposing of foreign currency notes encashed by them to the authorised
money changers if available at the local centre, on the same day or immediate next
working day, at a mark-up of 50/60 paise per US Dollar and about 40/50 paise per
GBP over the price at which it was acquired or depending upon market position, the
price which is normally being offered by the authorised money changers. Branches
should send credit note/Credit order for full proceeds reporting sale to Treasury
Branch along with debit note/ debit order for reporting purchase for having encashed
foreign currency notes.

iii) If, however no authorised money changer is available at that centre, branches which
are not authorised to hold stock, should, after encashment, send foreign currency
notes along with relative DN/DO by Registered Insured Post to Treasury Branch
possibly on the same day/next working day as per the instructions contained in the
Manual of Instructions – Volume-1, Chapter 12 11 :/Cash and Clearing‘, Volume-II,
Chapter 21: ‗Miscellaneous Service‘. Such Registered insured parcel must be
addressed ‘to the Cash Department’ of the Treasury Branch marked ‘Private &
Confidential’. Branches should also ensure that acknowledgments are promptly
obtained from the Treasury Branch. Non-receipt of acknowledgment must be followed
up quickly with Treasury Branch.

Branches which are authorised to hold stock in foreign currency notes should also
despatch the excess stock held, beyond the limit, along with DN/DO by Registered
Insured Post to The Treasury Branch in the same manner as stated above, only if
they are not able to off load the same to approved money changers at the centre.

iv) Despatch of foreign currency notes by Registered Insured Post will have to be
effected by upcountry branches which are not located in the city of Position
Maintaining Branch (Treasury Branch). If, branches which are located in Mumbai are
unable to dispose of foreign currency notes to the authorised money changer, locally,
they will have to forward the foreign currency notes along with DN/DO to the Treasury
244
 Branch in a secured/safe manner as prescribed in the Manual of Instructions –
Volume-I, Chapter 11 : ‘Cash and Clearing‘ and Volume – II, Chapter 21:
‘Miscellaneous Services‘.

v) Treasury Branch, depending upon the accumulation of stock in foreign currency notes
with them, will decide to off-load the foreign currency notes to the authorised money
changers at periodic intervals at prevailing market rates applicable, plus 50/60 paise
per USD and 40/50 paise GBP (or depending upon market position), normally being
offered by the authorised money changers.

vi) Branches should dispose of the foreign currency notes after negotiating the best price
with bank‘s approved authorised money changers to ensure that the bank does not
lose, but makes at least marginal profit on such transactions. For list of approved
Money Changers, please see Annexure No. III.

vii) Branches would deliver foreign currency notes to the authorised money changers only
after receipt of equivalent Indian Rupees from them.

Acquiring stock of foreign currency notes for the sale by stock holding branch
either from other branch or from authorised money changer:

9.35 When stock holding branch acquires stock in foreign currency notes for sale to its
customers from other branch, it will have to send credit note/credit order to that branch by
debiting its General Ledger Account ‘Foreign Cash on hand‘ for the amount of foreign
currency notes at 100% market rate plus Rs. 0.20 paise per US Dollar/Pound Sterling and
report purchase by ‘Reporting Memo‘ to Position Maintaining Branch stating very specifically
that this reporting is for acquiring stock from other branch. Similarly, the branch which
supplies foreign currency notes, should also report sale of foreign currency notes by
‘Reporting Memo‘to its Position Maintaining Branch stating clearly that this reporting pertains
to stock supplied to the branch.

9.36 Similarly, when stock holding branch acquires stock from the authorised money
changer, it should pay the amount to them by debiting its General Ledger Account ‘Foreign
Cash on Hand‘ and report purchase to its Position Maintaining Branch by ‘Reporting Memo‘
stating clearly that this purchase pertains to the stock in foreign currency notes acquired
from the authorised money changers.

9.37 Accounting Procedures

Branches (i.e. ‘A’ & ‘B’ Category) which are authorised to hold stock of foreign currency notes
will encash/sell foreign currency notes by routing every transaction through its General Ledger
Account.
Accounting Entry – For encashment of foreign currency notes

DR. G/L Account Foreign Cash (US Dollars, Pound Sterling, as the case may be) on hand

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CR. Customer.

Accounting Entry – For sale of foreign currency notes

DR. Customer
CR. G/L Account Foreign Cash (US Dollars, Pound Sterling, as the case may be) on hand.

If branches are holding foreign currency notes after encashment in their stock, they will
report purchase to Treasury Branch by telephone/telegram/Reporting Memo as the case may
be, advising specifically that the stock of foreign currency notes is held with them.

If excess stock is disposed of locally to the Authorised Money changers (@ 100% market
rates), branches should send their credit note (for sale proceeds) to Treasury Branch
reporting the sale as usual. In such cases, branches should send their debit note/DO for
excess stock and credit note/CO for sale proceeds pinned together with Reporting Memo to
Treasury Branch.

Accounting entries:

1) (For excess stock) 2) (For off loading to Money

Changer)

DR. Treasury Branch DR. Money Changer.

CR. G/L Account Foreign Cash on Hand CR. Treasury Branch
(USD, Pound Stg., as the case may be)

NOTE: However, Reporting Memo for purchase reporting and Reporting Memo for sale
reporting should be prepared separately along with relative debit note/credit note separately.
If branches are not able to dispose of excess stock locally to the authorised money changer,
they will forward the excess stock at the end of the day to Treasury Branch by Registered
Insured Post along with debit note/DO following the procedure prescribed hereinabove.
However, if for the circumstances beyond control, the branches are not able to either dispose
of foreign currency notes to local authorised money changers or to despatch foreign currency
notes to Treasury Branch on the same day, they should complete the transaction on the next
day and advise Treasury Branch accordingly, under advice to their respective Zonal Office.

Accounting Entry:
DR. Treasury Branch (Debit Note/Debit Order)
CR. G/L Account Foreign Cash (US Dollars, Pound Stg., as the case may be) on hand.

9.38 Branches will have to report purchase or sale of every transaction of foreign currency
notes handled during the day separately in debit notes/credit notes and send Reporting
Memo to Treasury Branch.

246
 9.39 Branches will also advise the balances of foreign currency notes held at the beginning
of the day and at the end of that day in the Reporting Memo sent to Treasury Branch by way
of notation.

i) Branches which are authorised to hold stock in foreign currency notes will have to
maintain, separate shadow account of G/L Account (currency wise) in a pass
book/ledger with the department handling foreign currency notes. This will enable
them to know the balance in foreign currency notes at any point of time. The concerned
officials in such department will periodically tally the balances held in such shadow
ledger with G/L Account Foreign Cash (US Dollar, Pound Sterling as the case may be)
on hand.

A monthly comprehensive certificate in terms of Head Office instructions should also

be provided by the Branch Manager.

ii) Treasury branch will have to maintain ‘Foreign cash accounts‘ in General Ledgers as
prescribed above. They will also maintain branch-wise and currency-wise Exchange
Component Ledger titled as ‘Foreign Currency Notes on Hand with Branches‘, for stock
holding branches which report their purchases/sales in foreign currency notes but hold
currency notes with them or sell currency notes from their stock. Such exchange
position component maintained for each branch must be individually tallied with the
balances advised by these branches in their Reporting Memo and total balanced with
the aggregate exchange position component of Foreign Currency Notes on hand with
Branches.‘

Any variation in the balances in foreign currency notes advised by the branches, with
that of the exchange position Suspense/Component figure, must be sorted out
immediately with the concerned branch.

iii) Treasury branch, being ‘A’ branch should continue showing the balances held by them
as well as by stock holding branches, in foreign currency notes, in column III ‘Opening
Balance‘ –‘Cash Balance‘ in their ‘R‘ Return as required by FEMA Regulations. (Other
branches need not report such balances in foreign currency notes held, in their ‘R‘
Returns.)

Foreign Currency Notes Reporting Memos

9.40 Branches which hold stock in foreign currency notes are presently required to send to
their position branch, periodic statement of balances held by them in foreign currency notes.
It is observed, branches do not send such statement regularly resulting in non-balancing of
foreign currency notes on hand with the exchange position component held by position
maintaining branch. In order to remedy this situation, Head Office has introduced Foreign
Currency Notes Reporting Memos, in which the branches are required to advise the balances
in foreign currency notes held at the beginning and at the end of that day, (i.e. the day on
which the sale/purchase transactions take place). This will facilitate balancing of the accounts
maintained by the braches with the Exchange Position components of ‘Foreign Currency notes

247
on hand with branches‘ held at Treasury branch. Debit note/ Debit Order/Credit note/Credit
order for purchases/sale reporting should be attached to the ‘Foreign Currency Noted
Reporting Memo‘ wherever necessary.

9.41 Evaluation/Revaluation of foreign currency notes on hand by the branches:

(Revaluation of Foreign Currency Assets and Liabilities is taken care by the Finacle system
now. Branches should ensure that the revaluation is taking place as per the extent guidelines.)

Encashment of Miscellaneous Foreign Currency Notes (i.e. other than US.Dollar and
Pound Sterling)

9.42 Branches are specifically authorised to encash/sell currency notes in USD and Pound
Sterling only. Exchange rates are also quoted by our Treasury branch only in these currencies.
If notes in any currency other than US.Dollars and Pound Sterling are presented for
encashment, the branches as far as possible, should advise the presenter to approach the
nearest authorised money changers, who normally encash miscellaneous currency notes too.
If however, the branch is required to accept such miscellaneous currency notes, they should
accept such currency notes on collection basis with clear understanding with the
presenter/depositor that they will have to bear the cost incurred for collection of such currency
notes. These currency notes should be forwarded by Registered Insured Post to Treasury
Branch for collection. Proceeds should be paid to the presenter/credited to the account of
customer only on realisation of such currency notes from their PMB. Cost incurred for collecting
such miscellaneous currency notes will have to be recovered from the proceeds before the
payment is effected to the concerned depositor/presenter. Purchases of such Misc. Foreign
currency notes on realisation will be dealt with by PMB. Branch should
handle/accept/foreign currency notes in miscellaneous currencies for encashment
from their most valued and first class, known customers only, considering the
inherent risk involved in handling such currency notes.

Acceptance of foreign currency notes for issuance of FCNR deposits-from the non-
resident depositors

9.43 Branches should not accept foreign currency notes directly for the credit of FCNR
Accounts. However, proceeds of currency notes can be credited to NRE A/c. And FCNR deposit
receipt may be issued to the debit of NRE A/c. For further details please refer to chapter 20
on Non-Resident Deposits.

Claim of share of Exchange Profit by branches

9.44 Branches which encash/sell foreign currency notes will continue to receive their claim of
share of Exchange Profit on purchase/sale of foreign currency notes every half-year from
Treasury branch in terms of FBD.H.O.circular.FBD:89:8 dated 14h Feb.1989- Subject:
Exchange.

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Note : Stock holding branches should not claim share of exchange profit on sale of foreign
currencies where the sale proceeds have not been remitted to Treasury branch by credit note
but credited to their G/L Account Foreign Cash (USD, GBP as the case may be) on hand.

General

9.45 At present only certain selected branches are authorised to hold stock of foreign currency
notes, where the need exists to hold such stock. Therefore, if any Branch (already authorised
to deal in foreign exchange) feels that there is a need to hold stock of foreign currency notes,
it should route its request for authorised through its respective controlling office.

Annexure No. I
(Specimen of Letter of Indemnity to be obtained, appropriately stamped as an Agreement)

The Chief Manager/Manager Place:

_____________________ Branch Date :

Dear Sir,
Re : Indemnity Letter towards Cheque/Instrument Lodged for collection
irretrievably lost in the process of collection.
Full details of cheque / instrument :

1 We had deposited the above referred cheque with your Branch for collection. However,
we understand that the same has been reported lost, stolen or destroyed while in the
regular course of bank collection. Therefore, you may be required to collect the
proceeds on the strength of photocopy of the cheque/Instrument, by providing
necessary indemnity to collecting bank abroad.

2 We declare that the particular cheque/instrument was not endorsed or assigned by

me/us in favour of any person/party.

3 We irrevocably authorise you to collect the proceeds on the strength of photocopy of

cheque/instrument and irrevocably indemnify you against any claims/cost, etc. if they
arise in future, upon collecting the proceeds.

4 I/We irrevocably undertake to pay to you/authorise you to debit our account with you
for the same with cost, interest, and expenses equivalent of foreign currency amount
at the prevailing rate of exchange at the time of return, upon claim.

5 This indemnity is binding on all my/our successors/assigns.

Yours faithfully,

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 Annexure No.II
Example A
ABSA BANK 096684

TREASURY AND INTERNATIONAL BANKING Johannesburg/008876 08-12-1995

Pay to the order of_______________________________________________________________

The sum of ____________________________________________________________________

_________________________________________ US $ **************266.05
for ABSA BANK LTD.Reg.No.XX
Paying Bank: _____________________________
FIRST WISCONSIN-MIL WAUKEE Authorised Signature
First Wisconsin national Bank of Mil Waukee _____________________________
Mil Wisconsin 53202 Authorised Signature

096684 075000022 112901 452

The routing number of this check is ― 075 000 022. ‘096684’ is the check number.

Example B
BANK OF INDIA 9448
Branch, BOMBAY Johannesburg/008876.08-12-1995

Pay
To the order of ____________________________________] $ [1610/-] the sum of
_______________________________________ DOLLARS

Bankers Trust Company

280 Park Avenue, New York,
New York – 100 017
For ________________ _____________ ______________
009448 021001033 01 04041037

―021 001 033 is the Fedwire ABA number of Bankers Trust Company. 04041037 is BOI‘s A/c No.
With BTCo.

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 Annexure No. III

LIST OF FULL FLEDGED MONEY CHANGERS(FFMCs)

------------------------------------------------------------------------------
HO Circular Letter No. 2019-20/58 dated 26.08.2019.
(Branches are advise to refer to latest list of FFMCs reviewed by Head
Office from time to time)

1. EBIXCASH World Money Ltd.

2. R. R. Sen &Bros (P) Ltd.
3. Thomas Cook (India) Ltd.
4. Prithvi Exchange (India) Ltd.
5. S.P.Securities Ltd
6. FRR Forex Pvt. Ltd.
7. BFC Forex & Financial Services Pvt. Ltd.
8. Paul Merchants Ltd.
9. Wall Street Finance Ltd.
10. Orient Exchange & Financial Services (P) Ltd.
11. Transcorp International
12. Zenith Leisure Holidays Limited
13. Relcon Forex Pvt. Ltd.

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 Chapter-10

INWARD AND OUTWARD REMITTANCES

Inward Remittances
General
10.1 Foreign Inward Remittances received into India constitute inflow of Foreign Exchange into the
country which in turn has a positive impact on country‘s Balance of Payments position and
helps to boost FOREX Reserves.

10.2 Resident individuals, firms and companies can freely receive foreign Inward Remittances
through normal banking channels, either for settlement of their trade transactions or clean
remittances towards savings / personal purposes. FEMA does not restrict remittances into
India, which are bonafide, genuine transactions such as Savings, Gift, Family maintenance,
Trade settlements, Transfer of capital, Transfer of profit, etc. Branches are required to ensure
compliance with the various provisions of ‘foreign contribution (regulation) Act 2010’ in
connection with the foreign contribution received by association/ agencies. Branches in
particular are required to ensure that prior permission of govt of India has been obtained by
the recent of donations/ contribution before actually affording credit to their bank account.
Further, in terms of International AML standards and FATF recommendations, all incoming
wire transfers of funds must include full payer information i.e.
(i) Name of wire transfer originator
(ii) Wire transfer originator‘s account number( or where no account number exists,
such other unique reference number assigned by the ordering institution) and
(iii) Wire transfer originator‘s address or unique identification number or date & place
of birth or date & place of registration in the context of business entities.

10.3 Inward Remittances may be of various modes, viz., (1) SWIFT Payment Orders, (2) Telex/
Telegraphic Transfers, (3) Mail Transfers, (4) International Money Orders, (5) Bank Drafts/
Personal Cheques payable abroad.

10.4 The fastest and most prevalent mode of receiving Inward Remittances from abroad is by
SWIFT payment orders.

10.5 All inward remittances must receive prompt attention to ensure that the proceeds are made
available to beneficiaries without delay to avoid complaints.

10.6 Particular care must be exercised to ensure that funds are paid away precisely in accordance
with instructions received. Loss of the principal sum, late payment interest claims and the
administrative costs of rectifying errors are apparent consequences of misplaced funds and
also damages the Bank's image.

10.7 It is essential before any inward remittance is paid or draft is honoured, that cover has either
been received or the branch is satisfied that it will be forthcoming. Consideration should be
given both to the standing of the instructing bank and also to any known foreign exchange
shortages in the country the instruction emanates from the Credit Ratings of Banks may be of
assistance. Care should also be taken to avoid duplicated payment ensuring that funds
forwarded in cover of a direct remittance are not mistaken for an original payment instruction.

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10.8 Branches may purchase foreign currency amounts of demand draft, mail transfer or telegraphic
transfer drawn in any foreign currency against rupees. There are no exchange control
restrictions on receipts into India of any foreign currency. Branches should, however, take the
normal precautions of examining the genuineness of such inward remittances by verification
of the signature etc., on the demand draft and mail transfer with those supplied in the Book
of Authorised Signatures of the banks/correspondents concerned. Inward telegraphic transfer
should be paid only after verification of the test number provided on the telex message by the
foreign Branch/correspondent for authentication or upon downloading a SWIFT message or
receiving a SWIFT message authenticated by the branch downloading it and as far as possible
after receiving cover in Nostro A/c. Branches may also credit proceeds of the inward
remittances to FCNR /RFC accounts in case of eligible customers, where purchase /conversion
of foreign currency shall not be involved.

10.9 Procedure for application of fund:

Bank deals with number of foreign correspondents spread all over the world.
On the basis of past experience, H.O. has issued Standard Operating Procedure (SOP) to
branches for handling clean remittances received by them.

The branches should follow these instructions meticulously to avoid complaints from the
customers.

Branch should identify the credit entry in Nostro A/c and the reference number, if any, before
making payment to the beneficiary.

As per the procedure, the branch should not part with funds unless it is conclusively established
that the remittance is received for the particular beneficiary, whether he is customer of the
bank or not. Parting funds without complete details is fraught with risk.

Before applying funds, Branch must wait for proper instruction from the remitting bank in the
form of MT -103 or a tested message.

If the message is not received or received with incomplete details, then complete details must
be sought from the foreign correspondent before acting on the message.

Whenever complete details are not received or they are sought from foreign correspondent,
the Branch should inform the Treasury Branch that they are in correspondence with remitting
bank for clarification & they should not return the funds till the matter is sorted out.

Following procedure should be followed when SWIFT message is received at Mumbai Swift
Cell (Overseas Branch):

Normally Mumbai Overseas Branch or SWIFT cell may forward the SWIFT message - original
MT-103- to authorised branch, so that the concerned branch may make the payment to the
beneficiary, if it is otherwise in order.

The branch may receive MT-103 from SWIFT cell, for the beneficiary which is maintaining a/c
with other branch or bank either at the same centre or elsewhere. The same should be

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responded immediately and the message should not be returned back to the Mumbai Overseas
Branch.

Branches should obtain instructions from the beneficiary for inward remittance, before
converting foreign currency into Indian RUPEES.

Sometime the remittance may be delayed due non-availability of swift connectivity/ test key
arrangement or for want of correct address or due to incorrect MT format.

In exceptional cases, the branches can still make payment of the remittance to the customer
on the basis of credit in Nostro a/c, provided the remittance is received for the customer by
adopting following procedure:

1. The customer should be good for the amount of remittance.

2. Sufficient details are tallied such as name, a/c number and branch.
3. The customer gives the indemnity.
4. Transaction reported immediately to the Dealing Room.

The following procedure to be adopted by branches paying such DD/MT/ TT. Wef 1/10/2007
CBS branches not to draw VSCS on Mumbai Overseas Branch but instead post vostro account
debits through Finacle (CBS) only. Drawee/Paying branches under CBS may directly debit the
Rupee account of the Drawer maintained at MOSB. The following details will be given by the
Paying Branches:

i) Account ID, i.e., 15 digit vostro account number, name of the Issuing
Branch/PEH/ Correspondent Bank
ii) Instrument No.
iii) Date of the instrument/Value date.
iv) Payee‘s name and amount of the instrument.
v) Purpose of the remittance

All draft paying branches to compulsorily keep handy the following :

i) The specimen signatures of authorised persons to sign the cheques /
DDs.
ii) Stop Payment instructions conveyed by MOSB.
iii) Instructions in regard to drafts in excess of Rs.100,000/- drawn by
PEHs and conveyed by MOSB.
iv) List of purpose codes as circulated by RBI.

10.10 Remittance received in foreign Currency:

On receipt of Advice of Drawing (AOD) / MT 110 for foreign currency DD, the drawee branch
should not pass any voucher but , the DD should be paid on presentation with usual care as
we do in case of inland DD.

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 TT Buying Rate should be applied when cover is received in Nostro a/c. However, Clean Cheque
Buying Rate should be applied when cover is not received or is to be claimed from other bank/
branch.

Posting to be done through Treasury interface module.

Purchase is reported as per card rate if remittance is up to Rs.2,50,000.00 (earlier it was US $
5000.00) and as per confirmed rate if the remittance is over Rs.2,50,000.00 which should be
obtained from the dealer of Treasury Branch Wherever forward purchase contract has been
booked, the transaction should be done with forward rate.

10.11 Issue of Bank Certificate

Foreign Inward Remittance Certificate (FIRC) should be issued in form BCI on letterhead for
all amounts. No such certificate should be issued for remittance in Non Resident Deposit A/c.
The FIRC should be serially numbered and contain full particulars of the remittance received.
Inward Remittance may be refunded back to the remitter after ensuring that it is not of
compensatory nature Exchange Rates.

10.12 Unless there is a forward exchange contract, which a customer desires to use, the appropriate
exchange rate should be applied. In the case of forward exchange contract, the rate contracted
for should be applied, within the validity period of the contract.
10.13 Rates to be applied for purchase of inward demand drafts, mail transfers, Foreign traveller‘s
cheques/currency and telegraphic transfer are dealt with in the topic on "Rates of Exchange"
“Buying rates”.

10.14 Compensation for delayed payment

As per FEDAI Rule no. 4.5 Authorised Dealers shall pay or send intimation, as the case may
be, to the beneficiary in two working days from the date of receipt of credit advice / Nostro
statement. On receipt of disposal instruction complying with guidelines, required documents
from the beneficiary the Bank shall transfer funds for the credit of beneficiary‟s account
immediately but not exceeding two business days from date of such receipt. In case of delay,
the bank shall pay the beneficiary interest @ 2 % over its savings bank interest rate. The bank
shall also pay compensation for adverse movement of exchange rate, if any, as per its
compensation policy specifying the reference rate and date applicable for calculating such
exchange loss. In case, the beneficiary does not respond within five working days from receipt
of credit intimation as above, the bank shall initiate action to crystallize the remittance

a. Bank notify due action to the remitting bank and the beneficiary
b. Bank shall crystallize the remittance within certain period as per their policy, not exceeding
the time allowed for surrendering of foreign currency under any Stature or Regulation or RBI
Directions.

10.15 Registers for Inward Remittances

A record of inward demand drafts should be maintained in the Register of Demand Drafts
Payable (form no. BR 639). A record of inward mail transfer and telegraphic transfers should
be maintained in the M.T. Register (Inward) from foreign Branches and Agents (form no. FE

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 1326) and Register of T.T.s (Inward) from Branches and Agents (form no. FE 1301)
respectively. (Now being maintained in the computer system, as per CBS procedure).

10.16 Foreign Inward Remittance Certificate

1) The person who has received the foreign inward remittances may be issued
a FIRC. The FIRC is required by the recipient for various purpose such as for filing
Income Tax Return or claiming some benefits / incentives etc.

2) FIRCs may be issued at the specific request of the beneficiary only in cases
where such FIRCs are needed either for utilization at a later date for repatriation of the
proceeds or for providing as documentary evidence for availing of certain benefits of
fulfilling certain obligations to Regulatory Authorities/Government bodies. Accordingly,
member banks may consider issuance of FIRCs in its present form on security
stationery only in respect of the following cases –
a) Advance Payment for Exports. (electronic form – eFIRC))
b) Receipts of exports proceeds by AD Banks other than one who
handles GR form. (electronic form – eFIRC))
c) Inward Remittances covering FDIs / FIIS. (printed FIRC )

In all other cases, at the specific request of the beneficiaries, member branch may
issue a suitable certificate, on their Letter Head, duly signed by authorized officials,
incorporating full particulars of the remittances

3) The validity of FIRCs /certificates, must be restricted to one year from the
date of its issuance.
Requests for revalidation may be considered only after the expiry of the validity period
and upon production of the relative original FIRC

4) The certificate should be serially numbered giving details of the name and
address of the remitter and the beneficiary, currency of remittance, rate of conversion
& the date of payment etc. The branch should maintain proper record of FIRCs for
inspection by the auditors.

5) The Certificate may be issued by the Branch, which received the remittance
or by the branch where the account was credited. But care should be taken to avoid
duplication in issue of certificate. Charges for issue of certificate should be recovered
from the beneficiary as prescribed by the bank.

6) In case the beneficiary wants a proof of remittance to be produced to Income

Tax authorities, then the Certificate may be issued in Form 10H.

7) FIRC should not be issued for the remittance received for NRE/FCNR accounts.

8) Whenever duplicate FIRCs is to be issued – i.e. in cases covered under items

No.2 (c) above, the duplicate FIRC issued may clearly indicate the name of the
Authority or Government Department to whom such duplicate FIRC is to be produced.
In the absence of satisfactory reasons, possibility of marking the duplicate FIRC with

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 a suitable notation that ―The FIRC is issued for record purposes only and is not to be
utilized for repatriation purpose‖ may be considered.

9) Whenever eFIRC is utilized for purposes like release of GR Forms or

Repatriation wherever permitted, with Authorized Dealer Bank other than the one who
had issued the eFIRC, the Authorised Dealer Bank with whom eFIRC is utilized should
mark-off the same on RBI EDPMS portal.

10) RBI has directed that FIRCs should be issued only after incorporating full
particulars of the inward remittances and no items/column in FIRC should be left blank
or incomplete. Any misuse or non-adherence to the directives / guidelines will be
viewed seriously and penal action will be taken against the bank.
10.17 Issuance of Duplicate Foreign Inward Remittance Certificates (FIRCs):
Branches may come across instances of loss of original FIRCs by the beneficiaries. FEDAI has
advised that the following guidelines be followed by Banks while considering issuance of
duplicate FIRCs :
i) The loss of FIRC should be reported immediately to HO-FBD for uploading the
details of lost FIRC on FEDAI website.
ii) The duplicate FIRC will be issued by the concerned branch on their being
satisfied about the track record of the beneficiary.
iii) An appropriate indemnity should be obtained from the customer, indemnifying
the bank against any consequences or loss arising out of issuance of a duplicate
FIRC.
iv) If the beneficiary of FIRC is not a customer of the issuing bank an indemnity
counter signed by the beneficiary‘s bank may be obtained.
v) The duplicate FIRC should be suitably superscribed and bear the same number
as that of the original.
vi) A general letter of caution to the beneficiaries may be sent with original FIRC
for safe keeping of the FIRC with instructions that the duplicate may be issued at
the discretion of the bank.
There are certain inherent risks in possible misuse of both the original and the duplicate
FIRCs, especially where the amounts involved are large.

Branches are also advised to educate the beneficiaries at the time of issuance of FIRCs, the
importance of preserving such original FIRCs carefully so as to ensure that the instances of
loss of original FIRCs are kept to the barest minimum.

Outward Remittances General

10.18 All foreign Outward Remittances are governed by the Exchange Control Regulations as per
Foreign Exchange Management Act (FEMA), 1999 and are to be effected through Authorised
Persons only (viz. Authorised Dealers i.e. Banks Authorised to deal in Foreign Exchange and
Authorised Money Changers (AMCs). ADs have been delegated with powers to effect certain
categories of remittances. In all other cases, Outward Remittances require specific approval
of Reserve Bank of India or government of India, as the case may be.

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 Outward Remittances will be generally made in the form of Foreign Demand Drafts, Foreign
Telegraphic Transfers and release of exchange in the form of Travellers Cheques/ Foreign
Currency Notes for travel abroad.

In terms of Section 5 of FEMA, 1999, any person may sale or draw foreign exchange through
or from an Authorised person if such sale or drawal is a Current Account Transaction. All
transactions undertaken by a resident that do not alter his assets or liabilities outside India are
Current Account Transaction. The proviso to Section 5 of FEMA 1999 empowers Government
of India, in consultation of Reserve Bank of India, to impose reasonable restrictions on certain
Current Account Transactions. All requests for drawal of foreign exchange to be supported by
A-2 form unless specifically exempted. The Authorised Person is required to obtain a
declaration and such other information from the applicant on whose behalf the transaction in
foreign exchange is being undertaken and reasonably satisfy himself that the transaction is
not designed to contravene or evade the provisions of the Act or any of the rules or regulations
made or notifications or directions or orders issued under the Act.
Authorised Dealers are advised to acquaint themselves thoroughly with the various provision
of FEMA, 1999 in this regard.

10.19 All applications for outward remittances must be verified as to authenticity and, in the case
of customers where an account is to be debited, correctness of signatures. Remittances of
any nature must not be effected until good value covering funds is irrevocably assured.
Prompt attention to all applications is essential, and applicant should be immediately informed
, if for any reason action cannot be taken on an application.

10.20 Officers handling remittances must ensure that exchange cover is arranged, and where
applicable delivered, and that value dates are clarified with applicants.

10.21 When using the services of a Correspondent Bank, reference must be made to the Agency
Arrangements Handbook and the terms contained therein fully complied with.

10.22 All outward remittances (demand drafts, mail and telegraphic transfers, issue of Foreign
currency/travellers cheques) are subject to FEMA regulations in force. The FEMA 2000
Exchange Control Manual lays down the exchange control requirements for outward
remittances on account of residents, non-resident Indians and foreigners respectively. These
exchange control requirements must be met and the approval of the Reserve Bank of India
must be obtained, wherever necessary.

10.23 While exercising the delegated authority granted in the FEMA, care should be taken to obtain
the required documents and declarations, from the remitters. Branches should not entertain
requests for remittances to such institutions and for such purposes which are prohibited by
the Reserve Bank of India. Further, in terms of International AML standards and FATF
recommendations, all outgoing wire transfers of funds must include full payer information i.e.
(i) Name of wire transfer originator
(ii) Wire transfer originator‘s account number( or where no account number exists, such
other unique reference number assigned by the ordering institution) and
(iii) Wire transfer originator‘s address or unique identification number or date & place of
birth or date & place of registration in the context of business entities.

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10.24 Bank‘s Policy guidelines for KYC (Know Your Customer), and provisions of PML Act 2002
(Prevention of Money Laundering Act 2002) should be strictly adhered to, while effecting
remittances. Where remittances are being effected to USA, Due Diligence as per US Patriot
Act 2001 should also be observed.

USA Patriot Act, 2001:

United States of America has enacted USA Patriot Act in the year 2001-02 for strengthening
Anti-Money Laundering measures and detect terrorist funds. In consultation with Reserve
Bank of India, our Bank has decided to abide by the following :
i) All drafts issued by our branches should invariably carry on the back of the instrument
the name of the remitter and the address with a view to trace the remitter of funds, if
required.
ii) Our branches authorised to maintain FCNR Deposits to ensure that the payments
which are routed through New York branch do not violate anti-money laundering
provision, such as remitting money to an offshore shell (a bank without a physical
existence in any country) with special emphasize to US citizen.
iii) Our branches will scrutinize the inward remittances received through our
correspondents more carefully from money laundering angle and report the same
wherever a case for suspicion is aroused in suspicious transaction report.

10.25 Payment in Rupees

a)Authorised Dealers may accept payment in cash up to Rs. 50,000 (Rupees fifty thousand
only) against sale of foreign exchange for travel abroad (for private visit or for any other
purpose). Wherever the sale of foreign exchange exceeds the amount equivalent to Rs.50,000,
the payment must be received only by

(i) a crossed cheque drawn on the applicant’s bank account, or

(ii) crossed cheque drawn on the bank account of the firm/company sponsoring the visit
of the applicant, or
(iii) Banker’s Cheque / Pay Order / Demand Draft or
(iv) Debit / credit / prepaid cards provided a) KYC/AML guidelines are complied with
b) Sale of foreign currency / issue of foreign currency TCs is within the limits (credit /
prepaid cards) prescribed by the bank and
c) The purchaser of foreign currency / foreign currency TCs and the credit/debit/prepaid
card holder is one and the same person.

Where the rupee equivalent of foreign exchange drawn exceeds Rs 50,000 either for any single
drawal or more than one drawal reckoned together for a single journey/visit, it should be paid
by cheque or draft. Branches are also required to keep on record any information /
documentation, on the basis of which the transaction was undertaken, for verification by the
Reserve Bank. In case the applicant refuses to comply with any such requirement or makes
unsatisfactory compliance therewith, the Authorised Dealer shall refuse, in writing, to
undertake the transaction and shall, if he has reasons to believe that any contravention /
evasion is contemplated by the person, report the matter to Reserve Bank.

10.26 Outward Demand Drafts

While issuing demand drafts on foreign Branches in connection with outward remittances,
Branches should not issue drawing advices in respect of demand drafts drawn by them on
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 foreign Branches, if they are issued in the currency of the country of the foreign Branch (e.g.
a draft expressed in Pound Sterling drawn on our London Branch). Where, however, the
drafts are drawn in a currency other than the currency of the country where the foreign Branch
is situated (e.g. U.S. Dollar draft drawn on our London Branch), Branches should issue the
relative draft drawing advices by swift (MT 110) indicating there in the mode of
reimbursement. Draft drawing advices should be issued to the other banks as usual,
irrespective of the currency in which they are drawn, with the mode of reimbursement
specifically stated therein, as per arrangements with respective banks /correspondents,
circulated by Head Office.

Branches should invariably send advice of drawing(AOD’s) by SWIFT (MT110) to

NEW YORK Branch, while issuing DDs on NEW YORK.

10.27 The validity of an outward demand draft should be limited to three months from the date of
issue. Branches should affix on all demand drafts issued on foreign Branches/correspondents
, rubber stamps,
"Valid for three months from the date of issue" and ‘ Not Over------- ‘ if it is not already printed
thereon.

10.28 A demand draft presented for payment to a drawee Branch/correspondent at a foreign centre
after the expiry of the validity period, will be returned by it with the following remark:-
"Draft is stale; requires revalidation by the issuing Branch".

10.29 Requests for revalidation can be made to the issuing Branch only by the purchaser. The issuing
Branch should obtain a letter duly signed by the purchaser requesting revalidation of the draft.
The Branch should revalidate the draft after verifying the signature of the purchaser by
comparing it with his signature on the demand draft application form (form no. FE 1596)
submitted while obtaining the draft.

10.30 Revalidation of the draft should be effected by entering the date of validation thereon, prefixed
by the words "Revalidated on (date)" in RED INK under the authorised signature of two officers
who should also append their authorised signature code numbers thereto.

10.31 A revalidated demand draft, when Presented for payment at the drawee branch at a foreign
centre may be paid by it, if the draft is so presented within THREE months from the date of
revalidation, provided it is in order.

10.32 USD denominated DD drawn on New York Branch:

Branches to ensure that The DD invariably contain the following vital information:-
i. DD Number is printed at the top right hand corner as also at the bottom
left hand corner of the draft.
ii. New York Branch ABA Routing No. (i.e. 026005458) is printed just after
the DD printed Number (at the foot of the draft) on MICR band.
iii. The date of draft should be written as mmddyy as applicable in USA
(e.g. 02022002 for February 2nd, 2008)

10.33 Cancellation of foreign currency demand Drafts:

Branches to take following precautions while cancelling the DD‘s :
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 i. The branches issuing and cancelling the Foreign currency Demand Drafts need
to have physical possession of the original draft.
ii. The issuing branch, before cancellation of the draft, will advise the
foreign branch (draft paying branch) giving details of Demand Draft and obtain
confirmation that they have not made payment of the said draft and also that the
said draft will not be paid in future, if presented in Inter Bank clearing in truncated
form or otherwise.
iii. The Draft issuing branch, before refunding the funds upon cancellation, will confirm
from Treasury branch that they have not received debit in their account for payment
of the said draft by our foreign branch.

10.34 Issue of Foreign Currency Travellers Cheques / Currency (since discontinued)

Branches may release exchange in the form of Foreign Travellers cheques /currency to its
customers for visits abroad.The release attracts exchange control provisions which the
branches should adhere to.

10.35 Exchange Rates for Outward Remittances

Unless there is a forward exchange contract, which a customer desires to use, the appropriate
exchange rates should be applied. In the case of forward exchange contract, the rate
contracted for should be applied, within the validity period of the contract.

10.36 Rates to be applied for sale of outward demand drafts, mail transfers and telegraphic
transfers, traveller‘s cheques and currency are dealt with in the topic on "Rates of Exchange".

Reimbursement
10.37 Cover for demand drafts, mail transfers and telegraphic transfers drawn on foreign
correspondents should be effected strictly in accordance with the terms of Agency
Arrangements entered into with correspondents.
10.38 When Branches are not aware of the Agency Arrangements, they should verify the mode of
providing cover from the Treasury Branch. Delay in providing reimbursement should be
avoided at all costs, as otherwise the Bank may have to pay interest/charges for any delay.

Book-keeping
10.39 The rupee equivalent of the foreign currency amounts of the outward demand drafts, mail
transfers, telegraphic transfers and travellers cheques should be recovered at the appropriate
selling rate of exchange from the customers and credited to the Treasury Branch maintaining
the foreign currency account of the foreign Branch or correspondent. The following entries
should be passed ( to be effected as per procedure of the Finacle menu, in the computer
system through treasury interface) :
Debit : The customer
Credit : The Treasury Branch providing reimbursement which maintains
the foreign currency account of the foreign Branch or correspondent).

10.40 There is no need of separate reporting as this is being taken care by the system.

Liberalised Remittance Scheme (LRS) of USD 2,50,000 for resident individuals

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10.41 Resident Individuals may freely remit up to USD 250,000/- per financial year for any approved
purpose for which a Scheme has been formulated by RBI. All resident individuals are eligible
to avail of this facility under the Scheme. This facility will not be available to corporates,
partnership firms, HUF, Trusts, etc. This facility is available for making remittance up to USD
250,000/- per financial year for any permissible Current or Capital Account Transaction or a
combination of both. Particulars of the Scheme are provided in Annexure I to this Chapter.

International Credit Cards/ Debit cards – Payments there under :

10.42 International Credit Cards

The restrictions contained in Rule 5 of the Foreign Exchange Management (Current Account
Transactions) Rules, 2000 will not be applicable for use of International Credit Cards (ICCs) by
residents for making payment towards expenses, while on a visit outside India. Residents can
use ICCs on internet for any purpose for which exchange can be purchased from an authorised
dealer in India, e.g. for import of books, purchase of downloadable software or import of any
other item permissible under Foreign Trade Policy (FTP). ICCs cannot be used on internet or
otherwise for purchase of prohibited items, like lottery tickets, banned or proscribed
magazines, participation in sweepstakes, payment for call-back services, etc., since no drawal
of foreign exchange is permitted for such items/activities. There is no aggregate monetary
ceiling separately prescribed for use of ICCs through internet.

10.43 Resident individuals maintaining foreign currency accounts with an authorised dealer in India
or a bank abroad, as permissible under extant Foreign Exchange Regulations, are free to obtain
ICCs issued by overseas banks and other reputed agencies. The charges incurred against the
card either in India or abroad, can be met out of funds held in such foreign currency account/s
of the card holder or through remittances, if any, from India only through a bank where the
card-holder has a current or savings account. The remittance for this purpose, should also be
made directly to the card-issuing agency abroad, and not to a third party. The applicable limit
will be the credit limit fixed by the card issuing banks. There is no monetary ceiling fixed by
the Reserve Bank for remittances, if any, under this facility.

10.44 International Debit Cards

Banks authorised to deal in foreign exchange are issuing International Debit Cards (IDCs)
which can be used by a resident for drawing cash or making payment to a merchant
establishment overseas during his visit abroad. It is clarified that IDCs can be used only for
permissible current account transactions and the item-wise limits as mentioned in the
Schedules to Rules as amended from time to time, are equally applicable to payments made
through use of these cards. The IDCs cannot be used on internet for purchase of prohibited
items like lottery tickets, banned or proscribed magazines, participation in sweepstakes,
payment for call-back services, etc., i.e. for such items/activities for which drawal of foreign
exchange is not permitted.

Undertaking / Certificate regarding payment of Income Tax :

10.45 The Government of India has amended Section 195 vide Finance Act, 2008 to allow CBDT
to prescribe rules for electronic filing of the undertaking. Accordingly, CBDT has vide their
Circular No.4/209 (F.No.142/19/2007-TPL dated 29.06.2009) has prescribed the format of the
undertaking (Form 15CA) which is to be filed electronically and the format of the certificate of
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 the accountant (Form15CB). The revised procedure for furnishing information regarding
remittances made to Non-Residents has come into force w.e.f. 01.07.2009 (please refer H.O.
Circular No. INTL(FBD)/MSK/09-10/15 dated 30.09.2009, duly updated.

The branches have to follow the following guidelines.

i) The remitter will obtain a certificate in Form 15CB, from an Accountant (An
‘Accountant‟ means a Chartered Accountant within the meaning of the Chartered
Accountants‟ Act 1949, and includes, in relation to any State, any Person who by
virtue of the provisions of the subsection (2) of Section 226 of the Companies Act,
1956 is entitled to be appointed to act as an Auditor of the companies registered
in that state.)

ii) The remitter will be then access to the CBDT website to electronically upload
the remittance details to I.T. Department in Form 15CA (undertaking). The
information to be furnished in Form 15CA (undertaking) is to be filled, using the
information contained in Form 15CB (certificate).

iii) The remitter will take out a print out of the Form 15CA which will bear an
acknowledgement number generated by the system and sign it. The Form 15CA
(undertaking) should be signed by the person authorized to sign the
return of the Income of the remitter or a person so authorized by him in
writing.

iv) The Branches will collect the Form 15CA (undertaking) which bears an
acknowledgement number generated through system and the Form 15CB
(certificate) duly signed by the Chartered Accountant from the remitter and the
copies of aforesaid forms would be required to send to the Assessing Officer
concerned.

v) 15CA and 15CB forms are available on the CBDT website www.tin-
nsdl.com.

10.46 Prohibition on drawal of Foreign Exchange :

Drawal of foreign exchange by any person for the following purpose is prohibited, namely :
a. a transaction specified in the Schedule I; or
b. a travel to Nepal and/or Bhutan; or
c. transaction with a person resident in Nepal or Bhutan.

Provided that the prohibition in clause (C) may be exempted by RBI subject to such terms and
conditions as it may consider necessary to stipulate by special or general order.

10.47 Prior approval of Govt. of India : No person shall draw foreign exchange for a transaction
included in the Schedule II without prior approval of the Government of India; Provided that
this Rule shall not apply where the payment is made out of funds held in Resident Foreign
Currency (RFC) Account of the remitter.

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10.48 Prior approval of Reserve Bank : No person shall draw foreign exchange for a transaction
included in the Schedule III without prior approval of the Reserve Bank; Provided that this
Rule shall not apply where the payment is made out of funds held in Resident Foreign Currency
(RFC) Account of the remitter.

i) Nothing contained in Rule 4 or Rules 5 shall apply to drawal made out of

funds held in Exchange Earner‘s Foreign Currency (EEFC) account of the remitter.
ii) Notwithstanding anything contained in sub-rule (1), restrictions imposed
under rule 4 or rule 5 shall continue to apply where the drawal of foreign exchange
from the Exchange Earners, Foreign Currency (EEFC) Account is for the purpose
specified in items 10 and 11 of Schedule II, or item 3,4,11, 16 & 17 of Schedule III as
the case may be.

10.49 USE of International Credit Card while outside India

Nothing contained in Rule 5 shall apply to the use of International Credit Card for making
payment by a person towards meeting expenses while such person is on a visit outside India.

Schedule I
Transactions which are Prohibited (see rule 3)
1. Remittance out of lottery winnings.
2. Remittance of income from racing/riding etc. or any other hobby.
3. Remittance for purchase of lottery tickets, banned /proscribed magazines, football pools,
sweepstakes, etc.
4. Payment of commission on exports made towards equity investment in Joint Ventures / Wholly
Owned Subsidiaries abroad of Indian companies.
5. Remittance of dividend by any company to which the requirement of dividend balancing is
applicable.
6. Payment of commission on exports under Rupee State Credit Route, except commission up to
10% of invoice value of exports of tea and tobacco.
7. Payment related to "Call Back Services" of telephones.
8. Remittance of interest income on funds held in Non-Resident Special Rupee (Account) Scheme.

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 Schedule II
Transactions which require prior approval of the Central Government
(see Rule 4)
(Purpose of Remittance Ministry / Department of Govt. of
India whose approval is required
1. Cultural Tours Ministry of Human Resources
Development, (Department of
Education and Culture)
2. Advertisement in foreign print media Ministry of Finance, (Department of
for the purposes other than promotion of Economic Affairs)
tourism, foreign investments and
international bidding (exceeding USD
10,000) by a State Government and its
Public Sector Undertakings
3. Remittance of freight of vessel Ministry of Surface Transport,
chartered by a PSU (Chartering Wing)
4. Payment of import through ocean Ministry of Surface Transport,
transport by a Govt. Department or a PSU (Chartering Wing)
on c.i.f. basis (i.e. other than f.o.b. and
f.a.s. basis)
5. Multi-modal transport operators Registration Certificate from the
making remittance to their agents abroad Director General of Shipping
6. Remittance of hiring charges of Ministry of Information and
transponders by Broadcasting
(a) TV Channels Ministry of Communication and
(b) Internet Service providers Information Technology

7. Remittance of container detention Ministry of Surface Transport (Director

charges exceeding the rate prescribed by General of Shipping)
Director General of Shipping
8. omitted

9. Remittance of prize Ministry of Human Resources

money/sponsorship of sports activity Development (Department of Youth
abroad by a person other than Affairs and Sports)
International / National / State Level
sports bodies, if the amount involved
exceeds USD 100,000.
10. omitted

11. . Remittance for membership of P&I Ministry of Finance (Insurance

Club Division)

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Facilities for individuals—
1. Individuals can avail of foreign exchange facility for the following purposes within the limit
of USD 2,50,000 only. Any additional remittance in excess of the said limit for the following
purposes shall require prior approval of the Reserve Bank of India.
(i) Private visits to any country (except Nepal and Bhutan).
(ii) Gift or donation.
(iii) Going abroad for employment.
(iv) Emigration.
(v) Maintenance of close relatives abroad.
(vi) Travel for business, or attending a conference or specialised training or for meeting
expenses for meeting medical expenses, or check-up abroad, or for accompanying as
attendant to a patient going abroad for medical treatment/ check-up.
(vii) Expenses in connection with medical treatment abroad.
(viii) Studies abroad.
(ix) Any other current account transaction

Provided that for the purposes mentioned at item numbers (iv), (vii) and (viii), the individual
may avail of exchange facility for an amount in excess of the limit prescribed under the
Liberalised Remittance Scheme as provided in regulation 4 to FEMA Notification 1/2000-RB,
dated the 3rd May, 2000 (here in after referred to as the said Liberalised Remittance Scheme)
if it is so required by a country of emigration, medical institute offering treatment or the
university, respectively:

Provided further that if an individual remits any amount under the said Liberalised Remittance
Scheme in a financial year, then the applicable limit for such individual would be reduced
from USD 250,000 (US Dollars Two Hundred and Fifty Thousand Only) by the amount so
remitted:

provided also that for a person who is resident but not permanently resident in India and –

(a) is a citizen of a foreign State other than Pakistan; or

(b) is a citizen of India, who is on deputation to the office or branch of a foreign company or
subsidiary or joint venture in India of such foreign company,may make remittance up to his
net salary (after deduction of taxes, contribution to provident fund and other deductions).

Explanation: For the purpose of this item, a person resident in India on account
of his employment or deputation of a specified duration (irrespective of length
thereof) or for a specific job or assignments, the duration of which does not
exceed three years, is a resident but not permanently resident:

provided also that a person other than an individual may also avail of foreign exchange
facility, mutatis mutandis, within the limit prescribed under the said Liberalised Remittance
Scheme for the purposes mentioned herein above.

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 Facilities for persons other than individual -
2. The following remittances by persons other than individuals shall require prior approval of
the Reserve Bank of India.
(i) Donations exceeding one per cent. of their foreign exchange earnings during the previous
three financial years or USD 5,000,000, whichever is less, for-
(a) creation of Chairs in reputed educational institutes,
(b) contribution to funds (not being an investment fund) promoted by educational
institutes; and
(c) contribution to a technical institution or body or association in the field of activity of
the donor Company.

(ii) Commission, per transaction, to agents abroad for sale of residential flats or commercial
plots in India exceeding USD 25,000 or five percent of the inward remittance whichever is
more.

(iii) Remittances exceeding USD 10,000,000 per project for any consultancy services in
respect of infrastructure projects and USD 1,000,000 per project, for other consultancy
services procured from outside India.

Explanation:—For the purposes of this sub-paragraph, the expression

“infrastructure’ shall mean as defined in explanation to para 1(iv)(A)(a) of
Schedule I of FEMA Notification 3/2000-RB, dated the May 3, 2000.

(iv) Remittances exceeding five per cent of investment brought into India or USD 100,000
whichever is higher, by an entity in India by way of reimbursement of pre-incorporation
expenses.”

3.Procedure

The procedure for drawal or remit of any foreign exchange under this schedule shall be the
same as applicable for remitting any amount under the said Liberalised Remittance Scheme.

10.50 Collection of cheques / drafts drawn on Banks in USA Release of proceeds

to depositors “HOLD PERIOD”.
The hold period presently in force for USD cheques drawn on Banks in USA is as under:
i) 7 New York business days, after credit to Nostro Account, for cheques drawn
on New York city Area (New York, Connecticut and New Jersey).
ii) 11 New York business days, after credit to Nostro Account, for cheques drawn
on USA but outside New York city area (tri-state area as mentioned above).
Business days means week days i.e. Monday to Friday and excludes holidays in New York.
Branches should, however, note that USD denominated cheques can be returned by US banks
even after the hold period, for reasons such as fraud, forgery in cheques, alterations or stolen
cheques. Branches are advised to be guided by instructions contained in Head Office Circular
letter No.2005-06/25 dated 04.06.2005 and circular letter no.2009-10/40 dated 29.05.2009.

10.51 Collection of cheques / drafts sent for collection to Paris branches Release of
proceeds to Depositor “HOLD PERIOD”

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 1. At present, many of our branches are sending cheques drawn in Euro currency and
payable in the following countries which form part of European Union (EU) to Paris, France,
Germany, Australia, Belgium, Netherlands, Spain, Greece, Ireland, Italy, Luxemburg, Sweden
and Portugal.
2. Cheques drawn on banks in France.
The credits are passed on to the branches within six working days after presentation with
appropriate value date.
3. Cheques drawn on other EU countries: Our Paris branch has tied-up with Societe
Generale for collection of cheques drawn outside France using their Cash Letter (CL). Under
this system, the credit will be afforded in 5 days after receipt of the instrument at Societe
Generale Office. Paris branch will pass on the credit to the branches upon receiving the
accelerated credit from Societe Generale. However, please note that the credit is revocable
and can be reversed if the cheque is returned. The normal coding/ hold period for various EU
countries after which returns are not expected – other than reasons like fraud – is as under :

Country hold period in working days

Germany 27
Austria 27
Belgium 12
Spain 12
Ireland 14
Italy 30
Luxembourg 12
Portugal 10
Sweden 14

10.52 SWIFT Arrangements:

Society for Worldwide Interbank Financial Telecommunication (SWIFT):

SWIFT is an international organization which works in partnership with its member

banks. It has Head Office at Brussels, Belgium. SWIFT provides low cost, competitive financial
processing and communication services of assured quality, integrity and reliability. Our Bank
is one of the founder members of SWIFT in India and went live on SWIFT network in 1991.

10.53. In the present context, telex and test keys have become redundant, and therefore, the
functions thereof have been taken over by Swift. Most of the banks are now members of
SWIFT. All our Authorized Dealers (AD) branches are provided with Branch Identification
Codes (BIC).

Relationship Management Application (Erstwhile SWIFT BKE):

SWIFT has shifted over from SWIFT bilateral key Exchange (BKE) to Relationship Management
Application (RMA) from September 2008. RMA is a kind of activity where the bank seeking to
establish SWIFT message sends a request over the RMA module for processing at the
receiver‘s end. This request must be processed within one day and responded to within six
business days of request, failing which it will be cancelled by the system. RMA has no expiry
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date, but can be specified for a particular period, if required. In case Bank wishes to
discontinue the facility, a simple revocation/deletion will suffice. RMA can be established with
8 letter BICs only.

Establishment of RMA with Banks:

In order to carry out business activity and send/ receive authenticated financial
messages, it becomes necessary to exchange RMA with other banks/ financial institutions
exclusively meant for use on the SWIFT network.

A.D. branches can receive/send authenticated SWIFT messages from/to correspondent

banks with whom Bank has set up RMA arrangements.

Like our correspondent banks, non-correspondent banks also need to exchange RMA
to ensure smooth and faster flow of authenticated communications. We are, therefore,
required to exchange RMA with correspondent as well as non-correspondent banks.

Who can establish RMA :

RMA is established with correspondent and non-correspondent banks by HO-Swift Cell

only after seeking approval from the competent authority.

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 (Annexure-I)

1. Under the Liberalised Remittance Scheme, Authorised Dealers may freely allow remittances
by resident individuals up to USD 2,50,000 per Financial Year (April- March) for any
permitted current or capital account transaction or a combination of both. The Scheme is
not available to corporates, partnership firms, HUF, Trusts, etc.

2. The LRS limit has been revised in stages consistent with prevailing macro and micro
economic conditions. During the period from February 4, 2004 till date, the LRS limit has
been revised as under:

(Amount in USD)
Date Feb 4,2004 Dec May Sept Aug June May
20.2006 8,2007 26, 2007 14, 2013 3, 2014 26, 2015
LRS 25,000 50,00 1,00,000 2,00,000 75,000 1,25,000 2,50,000
Limit 0
(USD)

3. The Scheme is available to all resident individuals including minors. In case of remitter being
a minor, the Form A2 must be countersigned by the minor’s natural guardian.

4. Remittances under the Scheme can be consolidated in respect of family members subject to
individual family members complying with its terms and conditions. However, clubbing is not
permitted by other family members for capital account transactions such as opening a bank
account/investment/purchase of property, if they are not the co-owners/co-partners of the
overseas bank account/ investment/property. Further, a resident cannot gift to another
resident, in foreign currency, for the credit of the latter’s foreign currency account held
abroad under LRS.

5. All other transactions which are otherwise not permissible under FEMA and those in the
nature of remittance for margins or margin calls to overseas exchanges/ overseas
counterparty are not allowed under the Scheme.

6. The permissible capital account transactions by an individual under LRS are:

(i) opening of foreign currency account abroad with a bank;
(ii) purchase of property abroad;
(iii) making investments abroad- acquisition and holding shares of both listed and unlisted
overseas company or debt instruments; 5acquisition of qualification shares of an
overseas company for holding the post of Director; acquisition of shares of a foreign
company towards professional services rendered or in lieu of Director’s remuneration;
investment in units of Mutual Funds, Venture Capital Funds, unrated debt securities,
promissory notes;
(iv) setting up Wholly Owned Subsidiaries and Joint Ventures (with effect from August 05,
2013) outside India for bonafide business subject to the terms & conditions stipulated
in Notification No FEMA.263/ RB-2013 dated March 5, 2013;
(v) extending loans including loans in Indian Rupees to Non-resident Indians (NRIs) who
are relatives as defined in Companies Act, 2013.

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7. The limit of USD 2,50,000 per Financial Year (FY) under the Scheme also includes/subsumes
remittances for current account transactions (viz. private visit; gift/donation; going abroad
on employment; emigration; maintenance of close relatives abroad; business trip; medical
treatment abroad; studies abroad) available to resident individuals under Para 1 of Schedule
III to Foreign Exchange Management (Current Account Transactions) Amendment Rules,
2015 dated May 26, 2015. Release of foreign exchange exceeding USD 2,50,000 requires
prior permission from the Reserve Bank of India.

a. Private visits

For private visits abroad, other than to Nepal and Bhutan, any resident individual can obtain
foreign exchange up to an aggregate amount of USD 2,50,000 from an Authorised Dealer or
FFMC, in any one financial year, irrespective of the number of visits undertaken during the
year.
Further, all tour related expenses including cost of rail/road/water transportation; cost of Euro
Rail; passes/tickets, etc. outside India; and overseas hotel/lodging expenses shall be
subsumed under the LRS limit. The tour operator can collect this amount either in Indian
rupees or in foreign currency from the resident traveller.

b. Gift/donation

Any resident individual may remit up-to USD 2,50,000 in one FY as gift to a person residing
outside India or as donation to an organization outside India.

c. Going abroad on employment

A person going abroad for employment can draw foreign exchange up to USD 2,50,000 per
FY from any Authorised Dealer in India.

d. Emigration

A person wanting to emigrate can draw foreign exchange from AD Category I bank and AD
Category II up to the amount prescribed by the country of emigration or USD 250,000.
Remittance of any amount of foreign exchange outside India in excess of this limit may be
allowed only towards meeting incidental expenses in the country of immigration and not for
earning points or credits to become eligible for immigration by way of overseas investments
in government bonds; land; commercial enterprise; etc.

e. Maintenance of close relatives abroad

A resident individual can remit up-to USD 2,50,000 per FY towards maintenance of close
relatives [‘relative’ as defined in Section 2(77) of the Companies Act, 20137 abroad.

f. Business trip

Visits by individuals in connection with attending of an international conference, seminar,

specialised training, apprentice training, etc., are treated as business visits. For business trips
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 to foreign countries, resident individuals can avail of foreign exchange up to USD 2,50,000 in
a FY irrespective of the number of visits undertaken during the year.
However, if an employee is being deputed by an entity for any of the above and the expenses
are borne by the latter, such expenses shall be treated as residual current account transactions
outside LRS and may be permitted by the AD without any limit, subject to verifying the
bonafides of the transaction.

g. Medical treatment abroad

Authorised Dealers may release foreign exchange up to an amount of USD 2,50,000 or its
equivalent per FY without insisting on any estimate from a hospital/doctor. For amount
exceeding the above limit, Authorised Dealers may release foreign exchange under general
permission based on the estimate from the doctor in India or hospital/ doctor abroad. A person
who has fallen sick after proceeding abroad may also be released foreign exchange by an
Authorised Dealer (without seeking prior approval of the Reserve Bank of India) for medical
treatment outside India.
In addition to the above, an amount up to USD 250,000 per financial year is allowed to a
person for accompanying as attendant to a patient going abroad for medical treatment/check-
up.

h. Facilities available to students for pursuing their studies abroad.

AD Category I banks and AD Category II, may release foreign exchange up to USD 2,50,000
or its equivalent to resident individuals for studies abroad without insisting on any estimate
from the foreign University. However, AD Category I bank and AD Category II may allow
remittances (without seeking prior approval of the Reserve Bank of India) exceeding USD
2,50,000 based on the estimate received from the institution abroad.

8. Remittances under the Scheme can be used for purchasing objects of art subject to the
provisions of other applicable laws such as the extant Foreign Trade Policy of the
Government of India.

9. The Scheme can be used for outward remittance in the form of a DD either in the resident
individual’s own name or in the name of beneficiary with whom he intends putting through
the permissible transactions at the time of private visit abroad, against self-declaration of
the remitter in the format prescribed.

10. Individuals can also open, maintain and hold foreign currency accounts with a bank outside
India for making remittances under the Scheme without prior approval of the Reserve Bank.
The foreign currency accounts may be used for putting through all transactions connected
with or arising from remittances eligible under this Scheme.

11. Banks should not extend any kind of credit facilities to resident individuals to facilitate capital
account remittances under the Scheme.
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12. The Scheme is not available for remittances for any purpose specifically prohibited under
Schedule I or any item restricted under Schedule II of Foreign Exchange Management
(Current Account Transaction) Rules, 2000, dated May 3, 2000, as amended from time to
time.

13. The Scheme is not available for capital account remittances to countries identified by
Financial Action Task Force (FATF) as non-co-operative countries and territories as available
on FATF website www.fatf-gafi.org or as notified by the Reserve Bank. Remittances directly
or indirectly to those individuals and entities identified as posing significant risk of
committing acts of terrorism as advised separately by the Reserve Bank to the banks is also
not permitted.

14. Documentation by the remitter

The individual will have to designate a branch of an AD through which all the remittances
under the Scheme will be made. The resident individual seeking to make the remittance should
furnish Form A2 as at Annex for purchase of foreign exchange under LRS.

15. It is mandatory for the resident individual to provide his/her Permanent Account Number
(PAN) to make remittance under the Scheme.

16. Investor, who has remitted funds under LRS can retain, reinvest the income earned on the
investments. At present, the resident individual is not required to repatriate the funds or
income generated out of investments made under the Scheme. However, a resident
individual who has made overseas direct investment in the equity shares; compulsorily
convertible preference shares of a JV/WoS outside India, within the LRS limit, shall have to
comply with the terms and conditions prescribed by the overseas investment guidelines
under Notification No. FEMA 263/RB-2013 dated March 5, 2013.

17. Facility to grant loan in rupees to NRI/ PIO close relative under the Scheme

Resident individual is permitted to lend to a Non-resident Indian (NRI)/ Person of Indian Origin
(PIO) close relative [‘relative’ as defined in Section 2(77) of the Companies Act, 2013] by way
of crossed cheque/ electronic transfer subject to the following conditions:
(i) the loan is free of interest and the minimum maturity of the loan is one year;
(ii) the loan amount should be within the overall limit under the Liberalised Remittance
Scheme of USD 2,50,000 per financial year available for a resident individual. It would
be the responsibility of the resident individual to ensure that the amount of loan granted
by him is within the LRS limit and all the remittances made by the resident individual
during a given financial year including the loan together have not exceeded the limit
prescribed under LRS;
(iii) the loan shall be utilized for meeting the borrower’s personal requirements or for his
own business purposes in India.

273
 (iv) the loan shall not be utilized, either singly or in association with other person for any
of the activities in which investment by persons resident outside India is prohibited,
namely:
a. The business of chit fund, or
b. Nidhi Company, or
c. Agricultural or plantation activities or in real estate business, or construction of
farm houses, or
d. Trading in Transferable Development Rights (TDRs).
Explanation: For the purpose of item (c) above, real estate business shall not
include development of townships, construction of residential/ commercial
premises, roads or bridges.
(v) the loan amount should be credited to the NRO a/c of the NRI / PIO. Credit of such
loan amount may be treated as an eligible credit to NRO a/c;
(vi) the loan amount shall not be remitted outside India; and
(vii) repayment of loan shall be made by way of inward remittances through normal
banking channels or by debit to the Non-resident Ordinary (NRO) / Non-resident
External (NRE) / Foreign Currency Non-resident (FCNR) account of the borrower or out
of the sale proceeds of the shares or securities or immovable property against which
such loan was granted.

18. A resident individual can make a rupee gift to a NRI/PIO who is a relative of the resident
individual [‘relative’ as defined in Section 2(77) of the Companies Act, 2013] by way of
crossed cheque /electronic transfer. The amount should be credited to the Non-Resident
(Ordinary) Rupee Account (NRO) a/c of the NRI / PIO and credit of such gift amount may
be treated as an eligible credit to NRO a/c. The gift amount would be within the overall limit
of USD 250,000 per FY as permitted under the LRS for a resident individual. It would be the
responsibility of the resident donor to ensure that the gift amount is within the LRS limit and
all the remittances made by the donor during the financial year including the gift amount
have not exceeded the limit prescribed under the LRS.

Operational instructions to Authorised Persons

1. Authorized Persons may carefully study the provisions of the Act / Regulations /
Notifications issued under Foreign Exchange Management Act, 1999.

2. The Reserve Bank will not, generally, prescribe the documents which should be verified by
the Authorised Persons while releasing foreign exchange for current account transactions.
In this connection, attention of authorized persons is drawn to sub-section (5) of Section
10 of the FEMA, 1999 which provides that an authorised person shall require any person
desiring to transact in foreign exchange to make such a declaration and to give such
information as will reasonably satisfy him that the transaction will not involve and is not
designed for the purpose of any contravention or evasion of the provisions of the FEMA or
any rule, regulation, notification, direction or order issued there under.

3. With a view to maintaining uniform practices, Authorized Dealers may consider

requirements or documents to be obtained by their branches to ensure compliance with
provisions of sub-section (5) of section 10 of the Act.
274
4. Authorised Dealers are also required to keep on record any information / documentation,
on the basis of which the transaction was undertaken for verification by the Reserve Bank.
In case the applicant refuses to comply with any such requirement or makes unsatisfactory
compliance therewith, the Authorised Dealer shall refuse, in writing, to undertake the
transaction and shall, if he has reasons to believe that any contravention / evasion is
contemplated by the person, report the matter to the Reserve Bank.

5. Reserve Bank of India will not issue any instructions under the FEMA, regarding the
procedure to be followed in respect of deduction of tax at source while allowing remittances
to the non-residents. It shall be mandatory on the part of Authorised Dealers to comply
with the requirement of the tax laws, as applicable.

6. While allowing the facility to resident individuals, Authorised Dealers are required to ensure
that “Know Your Customer” guidelines have been implemented in respect of bank accounts.
They should also comply with the Anti-Money Laundering Rules in force while allowing the
facility.

7. The applicants should have maintained the bank account with the bank for a minimum
period of one year prior to the remittances for capital account transactions. If the applicant
seeking to make the remittances is a new customer of the bank, Authorised Dealers should
carry out due diligence on the opening, operation and maintenance of the account. Further,
the Authorised Dealers should obtain bank statement for the previous year from the
applicant to satisfy themselves regarding the source of funds. If such a bank statement is
not available, copies of the latest Income Tax Assessment Order or Return filed by the
applicant may be obtained.

8. The Authorised Dealer should ensure that the payment is received out of funds
belonging to the person seeking to make the remittances, by a cheque drawn on the
applicant’s bank account or by debit to his account or by Demand Draft / Pay Order. Authorised
Dealer may also accept the payment through credit /debit/prepaid card of the card holder.

9. The Authorised Dealer should certify that the remittance is not being made directly or
indirectly by /or to ineligible entities and that the remittances are made in accordance with
the instructions contained herein.

10. AD bank should not extend any kind of credit facilities to resident individuals to facilitate
remittances for capital account transactions under the Scheme.

11. Authorised Dealer may keep a record of the countries identified by FATF as non- co-
operative countries and territories and accordingly update the list from time to time for
necessary action by their branches handling the transactions under the Liberalised
Remittance Scheme. For this purpose, they may access the website www.fatf-gafi.org to
obtain the latest list of non-co-operative countries notified by FATF.
12. The remittances made under this Scheme will be reported in FETERS in the normal course.
The Authorised Dealers may also prepare and keep on record dummy Form A2, in respect
of remittances less than USD 25,000. In addition, AD banks may be guided by FED Master
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 Direction No. 18/2015-16 dated January 01, 2016 (as updated from time to time) on
Reporting under FEMA, 1999 for reporting related instructions under the Scheme.14

13. A number of foreign banks operating in India as well as Indian banks have been soliciting
(through advertisements) foreign currency deposits (from residents under LRS) [on behalf
of overseas mutual funds] or for placing at their overseas branches. These advertisements
may not always contain appropriate disclosures to guide potential depositors giving rise to
concerns from the point of view of protecting the interest of the resident individuals.
Further, marketing in India of schemes soliciting foreign currency deposits by foreign
entities, not having operational presence in India, also raises supervisory concerns.
Therefore, all banks, both Indian and foreign, including those not having an operational
presence in India, should seek prior approval from RBI for the schemes being marketed by
them in India to residents either for soliciting foreign currency deposits for their
foreign/overseas branches or for acting as agents for overseas mutual funds or any other
foreign financial services company. The applications in this regard may be addressed to
the Chief General Manager-in-Charge, Department of Banking Regulations, Reserve Bank
of India, Central Office, 12th Floor, Fort, Mumbai -400001.

(Subsequent to formation of our policy, RBI has issued various operational guidelines in
respect of LRS. Branches are advised to refer to Circular No.2019-20/20 dated 16.05.2019
regarding Liberalised Remittance Scheme - Operational guidelines. Further, branches are
advised to be guided by latest guidelines issued by RBI from time to time in this regard)

276
 Chapter 11
ADVANCES AGAINST TRUST RECEIPTS

11.1 Managers should be fully acquainted with the procedures of Import and Export
business since this type of business bristles with pitfalls.

11.2 Trust Receipt Advances for imports and exports should be considered only for
customers of undoubted integrity and of good standing, who should be well conversant with
and well established in the import/export business.

11.3 The entire business of trust receipt advance is based on trust and the ability of the
borrower to pay promptly within the stipulated time limit. Delay in payment indicates lack of
adequate funds or at least a shortage of ready cash. Such situations must be investigated. If
the situation warrants, a Branch should not hesitate to withdraw or scale down the sanctioned
trust receipt facilities.

11.4 Periodical submission of stocks statements and inspection of stocks, unless waived
by the sanctioned terms, are necessary for both the import and export trust receipt advances.
The frequency of stock statements and inspection of stocks should be at least once in a month.

11.5 When granting trust receipt facilities to limited companies, enquiries must be made
to ascertain if there are any changes on their assets; if so, such facilities must be referred to
Controlling Authority,

IMPORT TRUST RECEIPTS

11.6 This facility should not normally be extended to importers who desire to hold the
goods on their own account for long periods. (In such cases, cash credit or loans against
pledge of imported goods are more appropriate).

11.7 Import trust receipt facility is granted to importers dealing in goods for sale within
short periods. The period of advance is essentially of short duration, say 30 or 60 or in special
cases 90 days. The duration would depend upon the import control regulations, the nature of
goods, general conditions governing the transfer of goods by the importer to the buyer and
the usage of trade in the particular type of goods. It is necessary to study these points and
decide in the case of each borrower what would be a reasonable time for the import trust
receipt advance to or manufacturing concerns which import goods for their own consumption,
trust receipt arrangement for clearance of goods only is permissible; thereafter they should
borrow against hypothecation or pledge of goods. Proposals for import trust receipt advances
must state the period of trust receipts. In review proposals, the experience of the Branch
regarding the payment of trust receipts on or before due dates or otherwise should be stated.

11.8 For advances against import trust receipts, Branches should maintain a General
Ledger Account ‘Import Trust Receipts‘.

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LOAN AGAINST IMPORT TRUST RECEIPTS ON A CASUAL BASIS

11.9 There should be a separate import trust receipt (form No L 460) for each set of
documents delivered and a separate import trust receipt account for each such trust receipt.
For example, A B & Co Account No 1, A B & Co Account No 2, A B & Co Account No 3 with the
corresponding due dates for each loan account and so on. Shipping documents may be
released to the borrower only after stamped import trust receipts on form no. L 460
(Specimen=Appendix IX) duly completed and signed by borrowers are obtained.

LOAN AGAINST IMPORT TRUST RECEIPTS ON A REGULAR BASIS

11.10 Where the borrowers require loan against Import Trust receipts on a regular basis
and have been sanctioned each facility under regular overall limits, they may execute an
Omnibus i.e. Running Import Trust Receipt Agreement (form no. CC 536) – Specimen-
Appendix X besides executing other security documents. The Running Import Trust Receipt
Agreement (form no. CC 536) is obtained, there is no need to obtain separate import trust
receipt (form no. 460) for each transaction.

11.11 The rate of stamp duty payable on the Running Import Trust Receipt Agreement will
vary from State to State. Branches which are required to obtain running Import Trust Receipt
Agreement should first ascertain from their respective Zonal Offices the stamp duty payable
on the document before obtaining it from the borrower. Zonal Offices should arrange to get
the stamp duty on the Running Import Trust Receipt Agreement adjudicated in every State
and Union Territory falling in its Zone, and advise the concerned Branches suitably under
intimation to the concerned functional Departments in Head Office.

11.12 Branches should note that the Running Import Trust Receipt Agreement (form no.
CC 536) or a Casual Import Trust Receipt (form no. L 460) is not meant to be obtained in
cases where the borrower does not sell the imported goods but retains them for his own use
i.e machinery imported by a borrower for his own use. In such cases, proper documents to be
obtained would be an Agreement of Hypothecation of Tangible Movable Machinery and Plant
(form no.L 448A) in the case of movable machinery or security by way of mortgage in respect
of immovable properties, where available and considered necessary.

11.13 Branches are also required to obtain a receipt as per proforma given in Appendix XI
from the borrower at the time of delivery of each set of shipping documents against which
advance is sought by the borrower. Although the receipt has been adjudicated as not being
chargeable with stamp duty, Branches should, as a matter of abundant caution, affix a revenue
stamp of Rupee one to the receipt before the signature of the borrower is obtained thereon.
If the borrower is a partnership firm or a limited company, the receipt may be obtained duly
signed by any one partner or the director respectively, provided such partner or director is
specifically authorized by the firm/company to sign the receipt singly on behalf of the firm or
the company as the case may be. The set of shipping documents should be delivered strictly
against exchange of this receipt and the receipt when obtained, should be safely kept attached
to the Running Import Trust Receipt Agreement obtained in the account. In respect of each
such stamped receipt the due date from the date of stamp receipt will have to be calculated
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depending upon the number of days the Import Trust Receipt facility is granted. When the
relative advance is repaid in full, a suitable remark to the effect, indicating the date of
repayment, should be made on the receipt.

11.14 The period of each transaction under an import trust receipt advance begins to run
from the date on which the shipping documents are released to borrowers. The advance
should be liquidated on or before the completion of the stipulated period. Interest at the
stipulated rate should be calculated from the date of advance to the date of its payment, and
should be charged, as in the case of other advances, with monthly rests.

11.15 Borrowers must appropriate the sale proceeds (of goods delivered to them on trust)
to liquidate the trust receipt advance and only the surplus may be used for other purposes.
Careful enquiries should be made if a borrower frequently liquidates the advance by his own
cheques or by cash; it is possible that the purchasers have paid the borrower before the due
date of the trust receipt but the borrower, instead of appropriating the funds to liquidate the
trust receipt advance, has used the funds for some other purpose.

11.16 It is necessary to watch the position of Import Trust Receipt account from the day to
day and keep track of the business under each individual transaction. An Import trust Receipt
advance outstanding beyond the due date should be immediately looked into, the causes
ascertained and suitable action taken if undesirable features come to light.

11.17 The terms in the sanctioned proposal for submission of the stock statement by
borrowers and periodical inspection of stocks must be adhered to. The instructions regarding
inspection of hypothecated stocks also apply to inspection of goods under import trust receipt.

11.18 Where a regular limit is sanctioned to a borrower for advance granted against
Running Import Trust Receipt, branches should open and maintain one import trust receipt
account per borrower showing distinctly individual disbursements and repayments in respect
of each and every import transaction eligible for advances under the limit. It should be strictly
ensured that for every disbursement (debit entry, except of course interest debits) made in
the account, there is an identifiable stamped receipt obtained from the borrower evidencing
delivery of the relative set of shipping documents.

11.19 A register should be maintained (a) for the sake of convenience in keeping track of
and follow up for repayment of outstanding advances pertaining to each set of shipping
documents, (b) for charging additional of penal interest on advances overdue for repayment
and (c) for transfer of overdue advances from General Ledger Account “Import Trust Receipt”
to General Ledger Account “Overdue Import Trust Receipt”. The register should have the
following particulars regarding disbursements of individual advances made against each set of
documents covered by the Running Import Trust Receipt Agreement in each account.

(1) Serial Number of advance disbursed

(2) Date of disbursement

(3) Brief particulars of the set of shipping documents delivered to the borrower

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 (4) Amount of Bill covered by the shipping documents

(5) Number (if any) and date of receipt obtained from the borrower

(6) Amount of advance disbursed

(7) Due date for repayment

(8) Repayment made, if any, with the date and amount of repayment

(9) Balance outstanding

(10) Remarks

The totals of column (9) should be tallied at regular intervals say once in a fortnight,
with the principal amount outstanding in the regular ledger account of the borrower.

11.20 The amount of an Import Trust Receipt which is not paid on the due date should be
transferred from the General Ledger Account ―Import Trust Receipt‖ to the General Ledger
Account ―Overdue Import Trust Receipt‖ under advice to Head Office/ Zonal Office. In
addition, branches should send a detailed statement to Head Office/ Zonal Office by way of
special memorandum of the overdue Import Trust Account and furnish the under mentioned
particulars:

(i) Name of Account

(ii) Letters of Credit/Import Trust Receipts limits
(iii) Sanction
(iv) Total Trust Receipt outstanding
(v) Overdue Import Trust Receipts

Due Date Amount TOTAL

(vi) Action taken and other remarks

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 Chapter 12
GUARANTEES AND FOREIGN EXCHANGE BUSINESS
12.1 Guarantees given by an Authorised Dealer are subject to the provisions of Foreign
Exchange Management (Guarantees) Regulations, 2000. Except with the permission of RBI,
giving a guarantee or a surety or undertaking any transaction which has the effect of
guaranteeing a debt or obligation or other liability owed by a person resident in India to or
incurred by a person resident outside India, requires approval of Reserve Bank except where
issue of such a guarantee or surety is permissible under the applicable rules.
12.2 General permission has been granted by Reserve Bank of India to Authorised Dealers
to issue guarantees in respect of the following transactions:

12.3 Bid bonds and performance bonds or guarantees for exports

i. Authorised Dealer branches have the permission to give performance bond or
guarantee in favour of overseas buyers on account of bona fide exports from India.

ii. Prior approval of RBI should be obtained by the Authorised Dealer Branch
for issue of performance bonds/ guarantees in respect of caution-listed
exporters. Before issuing any such guarantees, they should satisfy themselves with the
bona fides of the applicant and his capacity to perform the contract and also that the value
of the bid/ guarantee as a percentage of the value of the contract/tender is reasonable and
according to the normal practice in international trade, and that the terms of the contract
are in accordance with the Foreign Exchange Management regulations.

iii. Authorised Dealer Branches can also subject to what has been stated above, issue
counter guarantees in favour of Branches/correspondents abroad in cover of guarantees
required to be issued by the latter on behalf of Indian exporters, in cases where guarantees
of only resident banks are acceptable to overseas buyers in accordance with local
laws/regulations..

(i) Bank Guarantee in favour of Foreign Airlines/IATA

Indian agents of foreign airline companies who are members of International Air Transport
Association (IATA), are required to furnish bank guarantees in favour of foreign airline
companies/IATA, in connection with their ticketing business. As this is a standard
requirement in this business, Authorised Dealer Branch in its ordinary course of business
can issue guarantees in favour of the foreign airline companies/IATA on behalf of Indian
agents of foreign airline companies, who are members of IATA, in connection with their
ticketing business.
(ii) Bank Guarantee on behalf of Service Importers

AD Category-I /II banks have been permitted to issue guarantee on behalf of their resident
customers importing services, provided:
(a) the guarantee amount does not exceed USD 500,000/- or its equivalent

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(b) the AD Category-I /II bank is satisfied about the bona fides of the transaction;

(c) the AD Category-I /II bank ensures submission of documentary evidence for import
of services in the normal course; and

(d) the guarantee is to secure a direct contractual liability arising out of a contract
between a resident and a non-resident.

In the case of a Public Sector Company or a Department/ Undertaking of the Government of

India/ State Governments, approval from the Ministry of Finance, Government of India for
issue of guarantee for an amount exceeding USD 100,000 (USD One hundred thousand) or
its equivalent would be required.
(iii) Bank Guarantee-Commodity hedging

An Authorised Dealer Branch in India may give guarantee or standby Letter of Credit in
respect of an obligation incurred by a person resident in India and owed to a person resident
outside India in connection with payment of margin money in respect of approved commodity
hedging transaction of such person residing in India subject to terms and conditions as may
be stipulated by the Reserve Bank from time to time. Branches are advised to refer to the
latest/updated Master Circular on ‘ Risk Management & Inter Bank Dealings’ issued by RBI
for the conditions and guidelines based on which a standby letter of credit/bank guarantee
under the facility may be issued by Authorised Dealer Branch.
(iv) Unconditional Guarantees in favour of Overseas Employers /Importers on
behalf of Indian Exporters

i. While agreeing to give unconditional guarantee in favour of overseas

employers/importers on behalf of Indian Exporters, Branches should obtain an undertaking
from the exporter to the effect that when the guarantee is invoked, the bank would be
entitled to make payment, notwithstanding any dispute between the exporter and the
importer. Although, such an undertaking may not prevent the exporter from approaching the
Court for an injunction order, it might weigh with the Court in taking a view whether
injunction order should be issued.

ii. Branches should, while issuing guarantees in future, keep the above points in view
and incorporate suitable clauses in the agreement, in consultation with Zonal Legal
Departments. This is considered desirable as non-honouring of guarantees on invocation
might prompt overseas banks not to accept guarantees of Indian banks, thus hampering the
country's export promotion effort.

(v) Other Guarantees regulated by Foreign Exchange Management Rules

Issue of the following types of guarantees are governed by the Foreign Exchange
Management Regulations:
i. Minor Guarantees
ii. Bank Guarantee-Import under foreign Loans/Credits
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 iii. Guarantees for Trade Credits for import into India
iv. Guarantees for loans abroad against securities provided in India
v. Guarantees for Non-residents
i. Minor guarantees

Authorised Dealer Branches may give on behalf of their customers and overseas Branches
and correspondents, guarantees in the ordinary course of business in respect of missing or
defective documents, authenticity of signatures and for other similar purposes.

ii. Bank guarantees - Import under foreign loans/credits

Banks are not permitted to issue guarantees/ standby letters of credit or letters of comfort
in favour of overseas lenders relating to External Commercial Borrowing (ECB). Applications
for providing guarantees/ standby letters of credit or letters of comfort by banks relating to
ECB in the case of SMEs will be considered by the Reserve Bank on merit under the Approval
Route, subject to prudential norms. Applications by banks for issue of guarantees, standby
letters of credit, letters of undertaking or letter of comfort in respect of ECB by textile
companies for modernization or expansion of the textile units, after the phasing out of Multi
Fibre Agreements, will be considered by Reserve Bank under the Approval Route subject to
prudential norms.
iii. Guarantees for Trade Credits for imports into India: AD Branches are not
permitted to issue Letter of Undertaking (LoU) or Letter of Comfort (LoC) favouring
overseas supplier/bank/financial institution to secure trade credit (Ref: AP (Dir Series)
Circular no. 20 dated 13.03.2018). AD Branches can issue Bank Guarantee favouring supplier
(for Suppliers’ Credit) or overseas Branch/bank/financial institution (for Buyers’ Credit)
subject to Foreign Trade Policy in vogue and extant directives issued by RBI. Refer to Branch
Circular no. 114/51 dated 01.06.2020 on Trade Credit against Bank Guarantee. AD Branches
are advised to refer to RBI’s Master Direction no. 5 dated 26.03.2019 (updated as on
08.08.2019) amended/updated from time to time on ‘External Commercial Borrowings, Trade
Credits and Structured Obligations’ for latest directions while issuing Bank Guarantee for
Trade Credit.

iv. Guarantee for Loans abroad against securities provided in India

An AD Branch may give guarantee in respect of any debt, obligations or other liability incurred
by a person resident outside India, among others, where such debt, obligation or liability is
owed to a person resident in India in connection with a bona fide trade transaction, provided
that the guarantee is covered by a counter guarantee of a bank of international repute
resident abroad.
v. Guarantees for non-residents
a) To give guarantees in favour of persons resident in India in respect of any debt or
other obligation or liability of a person resident outside India, subject to such instructions as
may be issued by RBI from time to time.

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b) Authorised Dealer branches may, accordingly, give on behalf of their overseas
Branches/ correspondents or a bank of international repute, guarantees/performance bonds
in favour of residents of India in connection with genuine transactions involving debt, liability
or obligation of non-residents, provided the bond/guarantee is covered by a counter-
guarantee of the overseas Head Office/ branch/ correspondent or a bank of international
repute.

c) Authorised Dealer Branches should ensure that counter-guarantees are properly

evaluated and their own guarantees against such guarantees are not issued in a routine
manner. Before issuing a guarantee against the counter-guarantee from an overseas Head
Office/Branch/ correspondent/ bank of international repute, Authorised Dealer Branches
should satisfy themselves that the obligations under the counter-guarantee, when invoked,
would be honoured by the overseas bank promptly. If the Authorised Dealer bank desires to
issue guarantee with the condition that payment will be made, provided reimbursement has
been received from the overseas bank which had issued the counter-guarantee, this fact
should be made clearly known to the beneficiary in the guarantee document itself.

d) Authorised Dealer Branch may make rupee payments to the resident beneficiaries
immediately when the guarantee is invoked and, simultaneously, arrange to obtain the
reimbursement from the overseas bank concerned, which had issued the counter-guarantee.

e) Cases where payments are not received by the Authorised Dealer Branches, when
the guarantees of overseas banks are invoked, should be reported to RBI (through Head
office), indicating the steps being taken by the Branch to recover the amount due under the
guarantee.

f) Authorised Dealer Branches may issue guarantees in favour of overseas organisations

issuing travellers cheques in respect of blank travellers cheques stocked for sale by them or
on behalf of their constituents who are full-fledged money changers holding valid licences
from Reserve Bank, subject to suitable counter-guarantee being obtained from the latter. In
the event of the guarantee being invoked, Authorised Dealer Branches may effect remittance
but should send a separate report thereon furnishing full details to the RBI, through Head
office.

(vi) Overseas Investment – Guarantee on behalf of Wholly Owned

Subsidiaries(WOSs) / Joint Ventures (JVs) abroad
Guarantees issued by banks in India in favour of WOS/ JVs outside India would be subject
to prudential norms issued by RBI from time to time & as per rules applicable from time to
time for overseas investments.
NOTE: Only selected AD Branches are permitted to handle transactions related to
Overseas Direct Investments (ODI) in WOSs/JVs. Only such AD Branches should
undertake transactions related to ODI. AD Branches not permitted to undertake
ODI transactions must refer such transactions to nearest AD Branch permitted to
undertake ODI transactions.

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12.4 Certain Precautions in case of Project Exports
i. Branches are aware that the Working Group mechanism has been evolved for the
purpose of giving package approvals in principle at post-bid stages for high value overseas
project exports. The role of the Working Group is mainly regulatory in nature, but the
responsibility of project appraisal and that of monitoring the project lies solely on the sponsor
bank.

ii. As the Working Group approvals are based on the recommendations of the sponsor
banks, the latter should examine the project proposals thoroughly with regard to the capacity
of the contractor/ sub-contractors, protective clauses in the contracts, adequacy of security,
credit ratings of the overseas sub-contractors, if any, etc.

iii. Therefore, the need for a careful assessment of financial and technical demands
involved in the proposals vis-à-vis the capability of the contractors (including sub-
contractors) as well as the overseas employers can hardly be under-rated to the financing of
any domestic projects. In fact, the export projects should be given more attention, in view
of their high values and the possibilities of foreign exchange losses in case of failure, apart
from damage to the image of Indian entrepreneurs.

iv. While bid bonds and performance guarantees cannot be avoided, it is to be

considered whether guarantees should be given by the banks in all cases of overseas
borrowings for financing overseas projects. Such guarantees should not be executed as a
matter of course, merely because of the participation of Exim Bank and availability of
counter-guarantee of ECGC. Appropriate arrangements should also be made for post-award
follow-up and monitoring of the contracts.

12.5 Authorised Dealers shall ordinarily not be parties to any guarantees for an unlimited
amount and/or an unlimited period. Authorised Dealers shall ensure to include a specific
clause in all the guarantees stating the exact period within which claims must be made under
the guarantee besides the expiry date for the guarantee.

12.6 Branches to note importantly that as per Head Office directions, they
should not issue any advance payment guarantee for export purposes which
involve companies such as Bunge Group of Companies, Cargill International,
Rochester trade Links- DMCC and Dubai Exchange Centre LCC. Further, branches
to note importantly not to issue assignable guarantee or letters of comfort in
favour of overseas lenders.

Precautions to taken while issuing guarantees in favour of Shipping Companies

to Obtain Delivery of Goods in the Absence of Relative Bills of Lading.
12.7 These guarantees enable customers to obtain delivery of goods without surrendering
the relative bills of lading. Such guarantees should not, ordinarily, be given unless the import
bills of the Customer are usually routed through the Branch. The Manager should be satisfied
that the relative documentary bill covering goods for which the guarantee is to be issued
would be received by the Branch for collection. On receipt of the customer's request, the
285
Branch should write to the remitting bank/shipper (as applicable) seeking permission to issue
guarantee. An invoice or a letter from the shipper must be carefully examined; the invoice
usually shows the value of the shipment, the shipping marks and numbers, name of the ship
carrying the goods and the bank through which the relative bill is sent for collection. In cases
where an invoice or a letter from shipper is not available for inspection, confirmation in
writing should be taken from the customer that the invoice when received, would be
produced.

12.8 A deposit of 115% of value stated in the invoice should be obtained from the
customer for the guarantee. The name of the ship, the shipping marks and description of
goods and the value mentioned in the invoice should be checked with those stated in the
shipping guarantee.

12.9 When a guarantee is required in respect of a bill of lading to be received under a D/P
letter of credit opened by the Branch, a full deposit should be taken, after the necessary
adjustment is made for any margin taken while opening the letter of credit.

12.10 In case of usance L/Cs, Branches may waive the requirement of full deposit for their
very good customers but they must obtain (a) a stamped Agreement (Specimen - Appendix
XV) duly signed by the customer, (b) a counter guarantee from the customer every time a
shipping guarantee is issued wherein a reference should be made to the Agreement, (c) a
stamped undertaking-cum-acceptance letter which inter alia provides for acceptance of
documents on presentation, acceptance of all the discrepancies whatsoever, and making the
payment on due date. Needless to add, the issue date of shipping guarantee/delivery order
should be reckoned as date of acceptance/delivery of documents to the customer for the
purpose of calculating due date if the same is linked to the acceptance/delivery, (d) to advise
the negotiating bank having issued the guarantee requesting them to expedite despatch of
documents, (e) to earmark the stocks declared for cash credit facility to avoid double
financing.

12.11 Shipping guarantees issued in respect of missing bills of lading must be limited as to
the period of the Bank's liability and amount for which the Bank is liable. The amount of
guarantee should be equivalent to the invoice amount of the shipment in question and the
guarantee should not normally be valid for more than three and a half years. In the likelihood
of some resistance from shipping companies in accepting such guarantees restricted as to
amount and period, Branches should address a letter to the concerned shipping company
(Specimen - Appendix XVI) and persuade them to accept guarantee specifying the amount
and the period thereon. The amount of guarantee and validity period should be clearly
defined in the guarantee.

12.12 In all cases (whether a shipping guarantee is given for bill under letters of credit or
for bills for collection) where guarantees are given to shipping companies for release of goods
without surrendering the relative bills of lading, the drawee must be advised in writing that
the acceptance of the deposit does not constitute a contract for the sale of exchange and

286
the relative bill will eventually be retired at the rate of exchange ruling on the date of
retirement of the bill, or the contracted rate in case forward contract has been booked for
the underlying transaction.

Issuance of guarantees on behalf of our foreign correspondents.

12.13 Branches often receive requests from our foreign correspondents to issue guarantees,
against their counter guarantee, in favour of beneficiaries in India. Issuance of such
guarantees will be governed by Delegation of Powers.

12.14 Before undertaking exposure on banks, branches should ascertain the availability of
room in the exposure limit on the banks fixed by Head Office, giving the full details of the
transaction so as to enable Head Office to earmark the same against the limits approved on
the respective banks. While confirming the availability of limits Head Office would allocate a
separate serial number transaction wise which should be invariably quoted in any
correspondence relating to the transaction. Further, before acceding to any request for
extension/enhancement of the guarantee, the availability of the limit should be ascertained
from Head Office giving necessary details regarding extension/enhancement. On cancellation
of the guarantee Branches should advise Head Office for reinstatement of the amount
earmarked there against.

12.15 This business should be undertaken only by ‘A’ and ‘B’ Category Branches. The ‘C’
Category Branches should route the same through their respective ‘B’ Category Branches.

Release of Guarantees
12.16 In every case, confirmation from the beneficiaries of redemption of guarantees should
be obtained unless the guarantees are received back duly cancelled directly from the
beneficiaries. When the guarantees are to be redeemed on the production of bills of lading
etc. steps should be taken and followed up for receipt of such documents from the parties
concerned and their being handed over to the shipping companies etc. in whose favour the
guarantees have been issued.

12.17 It is possible that many a time, in spite of repeated reminders, the beneficiaries of
guarantees (including Government Departments) neither return the original guarantees for
cancellation nor advise the Bank to cancel the expired guarantees. In such case, where the
original guarantee or an advice to cancel it is not received from the beneficiaries, Branches
should adopt the following procedure.

(i) Soon after the expiry of the claim period stipulated in the guarantee, a 'Registered
Acknowledgment Due' letter as per specimen given in Appendix XVII should be sent to the
beneficiary requesting him to return the original guarantee for cancellation or to confirm to
the Bank that the guarantee stands cancelled at his end, within a month. A copy of such
letter should be sent to the concerned customer on whose behalf the guarantee was issued,
advising him to follow up the matter with the beneficiary for early return of the original
guarantee for cancellation or for confirmation that guarantee stands cancelled.

287
(ii) If the expired guarantee or the confirmation to the effect that the guarantee stands
cancelled at his end or an advice to cancel it is not received from the beneficiary within one
month from the date of the 'Registered Acknowledgment Due' letter, the guarantee should
be treated as cancelled and the liability entries should be reversed without insisting on
execution of an indemnity by the customer.

(iii) The relative correspondence and the acknowledgement of the registered letter should
be kept on record.

12.18 The procedure for cancellation of expired guarantees and reversal of relative liability
entries outlined above should not be applied in the cases where inclusion of the limitation
clause in the guarantees favouring Government Departments or other parties is waived by
the sanctioning authorities.

In all cases of doubt (including return/release of margin money) where the Manager feels
that claim may arise in future against the Bank, the matter should be referred to Head Office
through Zonal Office for necessary guidance.

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 Chapter-13

RATES OF EXCHANGE
GENERAL
13.1
The exchange rates for currencies are fixed by Treasury Branch and card rates are provided
daily to all Branches in the computer system. The card rates are applicable for individual sale
/ purchase transactions up to INR 2,50,000. Branches are not authorised to quote any rate(s)
other than those provided to them. On no account should any variation be allowed in the
rate(s) circulated by the Treasury Branch. The Authorised Branches are required to collect
special rates for purchase/sale transactions exceeding INR 2,50,000/- per individual
transaction by means of telephone / fax system from the Treasury Branch on the same day.
These special rates are applicable for that day only. After interface of all category B branches
with the Treasury Branch, there is no need of separate reporting of the transaction as system
takes care of reporting, in cases, where transaction is completed & authorized in the system
by the branches.
The rate at which one currency is converted into another is called exchange rate. The
exchange rate can be quoted in two ways viz.
Direct Quote- In a Direct Quote, unit of foreign currency is kept constant against the home
currency e.g. USD 1= INR 65.50
Indirect Quote- In an Indirect Quote, unit of home currency is kept constant against the foreign
currency e.g. INR 100 = USD 1.5267.

13.2 In India, it was the practice to use the indirect method of quotation till 01-08-1993. The
unit in India was Rs.100.00. However, with effect from 2nd August, 1993, Direct quotations
are being used. The exchange rate for Indian Rupee is now quoted against one unit of foreign
currency. However, Japanese Yen, Indonesian Rupiah, and Kenyan Shillings are quoted in
terms of 100 units of foreign currency in quotation.

13.3 The following table gives the rates to be quoted for different transactions unless a forward
contract is booked by a customer. In that case, the forward exchange contract rate will be
applicable within the validity period and for the specific transaction in the contract.
I. T.T. selling rate II. T.T. buying rate
(direct (direct quotation
quotation basis)
basis)-
A. Outward Demand Drafts A. Inward Demand Drafts
Outward Mail Transfers Inward Mail Transfers
Outward Telegraphic Inward Telegraphic Transfers
Transfers - where cover is received at
the time of effecting payment
B. Cancellation of purchase B. Outward bills sent for
made in foreign currency. collection and realised.

289
 (i) When refunding in
foreign currency, mail
transfers and
demand drafts
converted into rupees
(ii) Delinking /refund of
foreign bills
purchased /
negotiated expressed
in foreign currency.
C. Cancellation of
outward demand
drafts and mail
transfers i.e.
those issued and
later purchased
by the Bank.
III. Bills selling rate (direct IV. Bills buying
quotation basis) rate (direct
quotation
basis)-

A. Retirement of import A. Bills in foreign currency

(documentary/clean) bills negotiated under export
received under import Letters of Credit or export
letters of credit or for bills purchased/Discounted
collection.
V. Clean cheques
buying rate
(direct quotation
basis)
A. Purchase of all inward
remittances such as demand
drafts, mail transfers and
telegraphic transfers for
which cover is not received
in our nostro account at the
time of payment.
B. Purchase of clean
instruments such as

290
 cheques, dividend warrants,
etc.
VI. Travellers' Cheques VII. Travellers' Cheques buying
selling rate rate (direct quotation basis)
(direct quotation basis)

Purchase of travellers'
-Sale of travellers' cheques in any foreign
cheques in any foreign currency. No extra charges
currency. are to be levied.
VIII. Foreign Currency Notes IX. Foreign Currency Notes
selling rate buying rate (direct quotation
(direct quotation basis) basis)

-Sale of foreign currency -Purchase of foreign

notes. currency notes.
No extra charges are to be
levied.

Sharing of Exchange Profit:

13.4 A list of Branches authorised to operate upon foreign currency accounts of the Treasury
Branch is given in Appendix VIII. Branches should follow the guidelines issued by Head Office
in this regard from time to time.

13.5 Branches are required to debit/credit foreign currency accounts of Treasury Branch for
their purchases/sales of foreign currencies at the same rates of exchange at which they
purchase/sell foreign currencies from/to their customers. No exchange profit, therefore,
accrues to Branches on their foreign exchange transactions. However, the Treasury Branch
will calculate the share of exchange profit of each Branch on the foreign currency transactions
in all foreign currencies once every half year. Branches should maintain for this purpose a
foreign currency wise record of their every foreign currency transaction in the following tabular
form in a pass book or a Register divided into separate sections to keep a record of each
currency separately.

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 13.6Name of Foreign Currency (State whether GBP/USD/EUR etc.)
DT. AMOUNT OF FOREIGN CURRENCY RUPEE EQUIVALENT
PURCHASES SALES PURCHASES SALES

EXPORT INWARD IMPORTS REMITTANCES EXPORT INWARD IMPORTS

REMITT OUTWARD REMITTANCES
-ANCES

FBN + FBP FBC UNDER LC COLLECTIONS FBN FBC UNDER

+ LC COLLE-
PBP CTIONS

Note: Paise should be omitted.

13.7 Entries should be made in the Register daily as soon as the transaction takes place and
the summary drawn at the end of the half year i.e. August and February.

13.8 The Treasury branch will calculate the proportionate share of profit of each branch and
will arrange to send Credit Note/Credits to the respective branches during the month of
September and March every year. Under no circumstances should Branches send Debit Notes
to the Treasury branch for claiming their share of exchange profit. Branches should respond
to Credit Notes and credit the amount to Profit and Loss Account "Exchange (Foreign)".

13.9 Branches should be aware that no claim of exchange profits on their rupee transactions
and FCNR business is admissible and these are excluded from the turnover.

13.10 No exchange profit is also admissible in the case of

(i) interest on travellers' cheques purchased by them, as they send Debit Notes
immediately to Treasury Branch:

(ii) interest on export bills purchased/negotiated, since as per revised procedure effective
from 1.1.1984, Branches are collecting interest separately at their end consequent upon
delinking of interest element from exchange rates.

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 Chapter-14
FORWARD EXCHANGE CONTRACTS

14.1General Guidelines

( Branches should refer to the updated instructions available in RBI Master Circular
on Risk Management and Inter Bank Dealings as there are frequent changes on
the instructions in respect of forward contract and related areas.)

i) Proper due diligence should be done in case of a new customer before booking
forward contracts for them and to be satisfied on the appropriateness and capability of the
customer to execute the transactions successfully on time.

ii) The request letter to book forward contract should be signed by authorized official of the
customer, supported by an appropriate Board Resolution in case of a corporate client.
However, when regular limit is sanctioned, the request letter will suffice the purpose. On
booking of Forward Contracts, a stamped confirmation (contract) is to be obtained from the
customer duly signed by authorized signatories having necessary authority to enter into
the contract. Please refer to Circular letter No. 2010-11 dtd. 10-03-2011 and No.2011-12/234
dtd. 16-03-2012,for instructions in the matter.

iii) The forward contract may be offered to the individuals I firms I company/ies who
understand the nature of the risk, inherent in these transactions and further that
products being offered are consistent with the individual I firm's I company's business,
financial operation, risks and sophistication, internal policies as well as risk appetite.

14.2 The following categories of persons are permitted to access the OTC foreign
exchange market in India for forward foreign exchange contracts for managing their foreign
exchange risks. Detailed guidelines are given under the respective heads.

I.Persons resident in India (other than AD category I Banks)

A) Contracted exposures

B) Probable exposures based on past performance

C) Special dispensation:

i Small and Medium enterprises (SMEs)

ii Resident Individuals, Firms and Companies
iii Simplified Hedging Facility

II. Persons resident outside India

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A) Foreign Institutional Investors (FIIs)

B) Persons having Foreign Direct Investment (FDI) in India

C) Non-Resident Indians (NRIs).

D) Hedging Trade Exposures, invoiced in INR in India.

E) Hedging ECBs, designated in INR in India.

14.3 Persons resident in India

Facilities for Persons resident in India (other than AD Category-I Banks) for undertaking
forward foreign exchange contracts are detailed under the respective sub-heads.

General Instructions for contracts entered by Residents in India.

i) Branches must take a declaration from the resident clients that the exposure is un-
hedged and has not been hedged with another AD Category I bank. The client should provide
an annual certificate to the Bank certifying that the derivative transactions are authorized and
that the Board (or equivalent forum in case of partnership or proprietary firm) is aware of the
same.

ii) In any forward contract the notional amount should not exceed the actual underlying
exposure at any point in time. Similarly, the tenor of the contract should not exceed the tenor
of the underlying exposure. The notional amount for the entire transaction over its complete
tenor must be calculated and the underlying exposure being hedged must be commensurate
with the notional amount of the contract.

iii) Only one hedge transaction can be booked against a particular exposure/part thereof
for a given time period.

iv) Sharing of information on derivatives between banks is mandatory and as detailed

vide RBI circular DBOD No. BP.BC.46/08.12.001/2008-09 dtd.19-09-2008 and DBOD No.
BO.BC. 94/08.12.001/2008-09 dtd. 08-12-2008.

v) The provisions of comprehensive guidelines on derivatives issued vide RBI

circularDBOD No. BP.BC. 86/21.04.157/2006-07 dtd. 20-04-2007 as amended from time to
time are also applicable to forex derivatives.

vi) In the case of contracted exposure, AD Branches must obtain:-

a) An undertaking from the customer that the same underlying exposure has not been
covered with any other AD Category Banks. Where hedging of the same exposure is
undertaken in parts with more than one AD Category I Bank, the details of amounts
294
already booked with other AD Category I Bank/s should be clearly indicated in the
declaration. This undertaking can also be obtained as a part of the deal confirmation.

b) Quarterly Certificate from the statutory auditors of the users, that the contracts outstanding
at any point of time with all AD category I Banks during the quarter did not exceed the value
of the underlying exposures.

A) Contracted Exposures-

In this case, branches have to verify the underlying documents so that the existence of
underlying foreign currency exposure can be clearly established and should be satisfied about
the genuineness of underlying exposure, irrespective of the transaction being a current or
capital account. Full particulars of the contract should be marked on the original documents
under proper authentication and retained for verification. In case, submission of original
documents is not possible, a copy of the original documents duly certified by an authorized
official of the firm/ company has to be obtained. In either of the cases, before offering
the contract, the Branch should obtain an undertaking from the customer and also obtain
quarterly certificates from statutory auditors of the customers as detailed in Para 5(vi) (a)
(b).

While details of the underlying have to be recorded at the time of booking of contract,
in view of logistic issues, the maximum period of 15 days may be allowed for the production
of documents. However, if the firm/company does not submit the requisite documents within
15 days, the contract should be cancelled and the exchange gain, if any, should not be
passed on to the customer. Moreover, in case of non-submission of the documents by the
customer within 15 days on more than three occasions in a financial year, the branches should
book a forward contract in future, only against production of the underlying documents, at
the time of booking of the contract.

Purpose:

i) To hedge exchange rate risk in respect of transactions for which sale and/or purchase
of foreign exchange is permitted under the FEMA 1999, or in terms of the
rules/regulations/directions/orders made or issued there under.

ii) To hedge exchange rate risk in respect of the market value of Overseas Direct
Investments -ODI-(in equity and loan).

a) Contracts covering ODI can be cancelled or rolled over on due dates.

b) If a hedge becomes naked, in part or full owing to contraction (due to price movement
I impairment) of the market value of ODI, the hedge may be allowed to continue until
maturity, if the customer so desires. Rollovers on due date shall be permitted up to the extent
of market value as on that date.

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iii) To hedge exchange rate risk of transactions denominated in foreign currencies but settled
in INR, including hedging the economic (currency indexed) exposure of importers in respect
of customs duty payable on imports.

a) Forward foreign exchange contracts covering such contracts will be settled in cash
on maturity.

b) These contracts once cancelled, are not eligible to be rebooked.

c) In the event of any change in rate/s of customs duties due to Govt.

notifications subsequent to the date of forward contract, importers may be allowed to cancel
and/or rebook the contracts before maturity.

Operational Guidelines, Terms and Conditions:

The following are the operational guidelines, terms and conditions which have to be followed
scrupulously by the branches, while booking forward exchange contracts under contracted
exposure by persons resident in India;

a. The maturity of hedge should not exceed the maturity of the underlying transaction.
The currency of hedge and tenor, subject to above restrictions, are left to the
customers. Where the currency of hedge is different from the currency of the
underlying exposure, the Risk Management policy of the corporate, approved by the Board
of Directors, should permit such type of hedging.

b. Where the exact amount of underlying transaction is not ascertainable, the

contract may be booked on the basis of reasonable estimates. However, there should
be periodical review of the estimates.

c. Foreign currency loans I bonds will be eligible for hedge only after final approval is
accorded by RBI, where such approval is necessary or Loan Registration Number (LRN)
is allotted by RBI.

d. Global Depository Receipts (GDRs) I American Depository Receipts (ADRs) are eligible
for hedge only after the issue price has been finalized.

e. Balances in the Exchange Earner’s Foreign Currency (EEFC) accounts sold forward by
the account holders shall remain earmarked for delivery and such contracts shall not be
cancelled. However, they can be rolled over on maturity.

f. Forward contracts booked by residents irrespective of the type and tenor of the underlying
exposure, once cancelled, cannot be rebooked. However, exporters are allowed to cancel and

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rebook forward contracts to the extent of 25 percent of the contracts booked in a financial
year for hedging their contracted export exposures.

g. In case of forward contracts, involving rupee as one of the currencies, booked

by residents to hedge capital account transactions for tenor greater than one year if
cancelled with one AD bank, can be rebooked with another AD bank, subject to the following
conditions –

i) The switch is warranted by competitive rates on offer, termination of banking relationship

with the AD bank with whom the contract was originally booked;

ii) The cancellation and rebooking are done simultaneously on the maturity date of the
contract; and

iii) The responsibility of ensuring that the original contract has been cancelled rests

With AD Bank who undertakes rebooking of the contracts.

h. All non-INR forward contracts can be rebooked on cancellation subject to condition (i)
below.

i. The facility of rebooking should not be permitted unless the corporate has submitted
the exposure information as prescribed in Annexure -1.

ii. Substitution of contracts for hedging trade transactions may be permitted by

AD Branches on being satisfied with the circumstances under which such substitution has
become necessary. Branches should verify the amount and tenor of the underlying
substituted.

B) Probable Exposures based on past performance

Purpose:

Importers and Exporters of goods and services can hedge currency risk on the basis of a
declaration of an exposure and based on past performance up to the average of the previous
three financial years' (April to March) actual import/export turnover or the previous year's
actual import/export turnover whichever is higher. Probable exposure
based on past performance can be hedged only in respect of trade in merchandise goods as
well as services.

Operational Guidelines, Terms andConditions:

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a) The contracts booked during the current financial year (April - March) and
the outstanding contracts at any point of time should not exceed the ELIGIBLE LIMIT.

i) ELIGIBLE LIMIT FOR EXPORTS: The average of the previous three financial
years'actual export turnover or the previous years' actual export turnover, whichever is
higher.

ii) ELIGIBLE LIMIT FOR IMPORTS: 100% of the average of the previous three
financial Years' actual imports turnover or the previous year's actual import turnover
whichever is higher.

Importers, who have already booked contracts up to previous limit of fifty per cent in the
current financial year, shall be eligible for difference arising out of the enhanced limit

b) Contracts booked up to 75 percent of the eligible limit mentioned at paragraph (a) (i)
and (ii) above may be cancelled with the exporter/importer bearing/being entitled to the loss
or gain as the case may be. Contracts booked in excess of 75 percent of the eligible limit
mentioned at paragraph (a) (i) and (ii) above shall be on a deliverable basis and cannot be
cancelled, implying that in the event of cancellation, the exporter/importer shall have to bear
the loss but will not be entitled to receive the gain.

c) These limits will have to be computed separately for import and export transactions.

d) Higher limits will be permitted on case - by - case basis on application to the Foreign
Exchange Dept., Central Office, Reserve Bank of India. The additional limits, if sanctioned,
shall be on a deliverable basis.

e) Any contract booked without producing documentary evidence is to be marked off

against this limit. These contracts once cancelled, are not eligible to be rebooked. Relievers
are also not permitted.

f) AD Branches should permit their clients to use the past performance facility only after
satisfying themselves that the following conditions are complied with.

i) An undertaking may be taken from the customer that supporting documentary

evidence will be produced before the maturity of all the contracts booked.

ii) Importers and exporters should furnish a quarterly declaration to the AD branches, duly
certified by the Statutory Auditor, regarding amounts booked with other AD category banks
under this facility (Annexure - II).

iii) For an exporter customer to be eligible for this facility, the aggregate of overdue bills
should not exceed 10% of the turnover.

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iv) Aggregate outstanding contracts in excess of 50% of the eligible limit may be
permitted by AD branches on being satisfied about the genuine requirements of their
customers after examination of the following documents :-

i) A certificate from the Statutory Auditor of the customer that all guidelines have been
adhered to while utilizing this facility.
ii) A certificate of import / export turnover of the customer during the past
three years' duly certified by their Statutory Auditor.

g) The past performance limits once utilised are not to be reinstated either on
cancellation or on maturity of the contracts.

h) AD Branches must arrive at the past performance limits at the beginning of every
financial year. The drawing up of audited figures (previous year) may require some time
at the commencement of the financial year. However, if the statements are not submitted
within 3 months from the last date of the financial year, the facility should not be provided
until submission of the audited figures.

i) AD Branches must institute appropriate systems for validating the past

performance limits at pre-deal stage. In addition to customer's declaration, AD branches
should also assess the past transactions with the customers, turnover etc.

j) AD Branches are required to submit a monthly report (as on the last Friday of every
month) on the limits granted and utilized by their constituents under this facility (Annexure -
IV).

C) Special Dispensation

i) Small and Medium Enterprises (SMEs)

Purpose: To hedge direct and/ or indirect exposures of SMEs to foreign exchange risk

Operational Guidelines, Terms and Conditions:

SMEs having direct and/or indirect exposures to foreign exchange risk are permitted to
book I cancel I rollover forward contracts without production of underlying documents to
manage their exposures effectively subject to the following conditions:-

a) AD branches may book the forward contracts for SMEs having credit facilities with them.
The total forward contracts booked should be in alignment with the credit facilities availed
of by them for their foreign exchange requirements or their working capital requirements or
capital expenditure.

b) AD Branches should carry out due diligence regarding "user appropriateness" and

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"suitability' of the forward contracts to the SME customers.

c) The SMEs availing this facility should furnish a declaration to the AD branches
regarding the amounts of forward contracts already booked, if any, with other AD banks
under this facility.

ii) Resident Individuals

Purpose:

Resident individuals can book forward contracts to hedge their foreign exchange
exposures arising out of actual or anticipated remittances, both inward and outward,
without production of underlying documents, up to a limit of USD 100,000 based on self
declaration.

Operational guidelines, terms and conditions:

a) The contracts booked under this facility should be normally on deliverable basis.
However, in case of mismatches in cash flow or other exigencies, the contracts booked
under this facility may be allowed to the cancelled and rebooked. The notional value
of the outstanding contracts should not exceed USD 100,000 at any time.

b) The contracts may be permitted to be booked up to tenors of one year only.

c) Resident individuals can book forward contracts with the banks with whom they have
banking relationship, on the basis of an application-cum-declaration (Annexure -
V). AD Branches should satisfy themselves that resident individuals understand the nature
of risk in booking of forward contracts and should carry out due diligence regarding "user
appropriateness" and "suitability' of the forward contracts to such customer.

AD branches are required to submit a quarterly report on the forward contracts booked and
cancelled by SMEs and residential individuals within the first week of the following
month, as per Annexure -VI.

iii) For ‘Simplified Hedging Facility’ branches to be guided by HOBC 112/105 dated 06.10.2018
Branches are advised to follow the instructions and procedure while assessing limits under
SHF.

14.4: Persons resident outside India:

For persons resident outside India, only capital account transactions as enumerated
hereunder, subject to verification of underlying exposure are permitted to be hedged.

A) Foreign Institutional Investors (FII)

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 Purpose:

To hedge currency risk on the market value of entire investment in equity and/or debt in
India as on a particular date.

Operational guidelines, terms andconditions:

a) The eligibility for cover may be determined on the basis of the declaration of the FII

b) AD branches may undertake periodical reviews, at least at quarterly intervals, on the

basis of market price movements, fresh inflows, amount repatriated and other relevant
parameters to ensure that the forward cover outstanding is supported by underlying
exposures.

c) If a hedge becomes naked in part or in full owing to contraction of the market value
of the portfolio, for reasons other than sale of securities, the hedge may be allowed to continue
till the original maturity, if so desired.

d) Forward contracts, once cancelled cannot be rebooked. The forward contracts

may however, be rolled over on or before maturity.

e) The cost of hedge should be met out of repatriable funds and / or

inward remittance through normal banking channel.

f) All outward remittances incidental to the hedge are net of applicable taxes.

B) Foreign Direct Investments (FDI)

Purpose:

i) To hedge exchange rate risk on the market value of investments made in India
sinceJanuary 1, 1993, subject to verification of the exposure in India

ii) To hedge exchange rate risk on dividend receivable on the investments in Indian
companies

iii) To hedge exchange rate risk on proposed investment in India

Operational Guidelines. Terms and Conditions:

a) In respect of contracts to hedge exchange rate risk on the market value of investments
made in India, contracts once cancelled are not eligible to be rebooked. The contracts may,
however, be rolled over.

b) In respect of proposed foreign direct investments, following conditions would

301
 apply :
i) Contracts to hedge exchange rate risk arising out of proposed investment in Indian
Companies may be allowed to be booked only after ensuring that the overseas
entities have completed all the necessary formalities and obtained necessary
approvals (wherever applicable) for the investment.
ii) The tenor of the contracts should not exceed six months at a time
beyond which permission of the Reserve Bank would be required to continue with
the contract.
iii) These contracts, if cancelled, shall not be eligible to be rebooked for
the same inflows.
iv) Exchange gains, if any, on cancellation shall not be passed on to
the overseasinvestor.

C) Non-Resident Indian (NRI) Purpose:

a) To hedge the exchange rate risk on the market value of investment made under the
portfolio scheme in accordance with provisions of FERA, 1973 or under notifications issued
there under or in accordance with provisions of FEMA, 1999.

b) To hedge the exchange rate risk on the amount of dividend due on shares held
inIndian companies.

c) To hedge the exchange rate risk on the amounts held in FCNR (B) deposits. d) To hedge
the exchange rate risk on balances held in NRE account.

Products:

a) Forward foreign exchange contracts with rupee as one of the currencies.

b) Additionally, for balances in FCNR (B) accounts- Cross currency (not involving the rupee)
forward contracts to convert the balances in one foreign currency to other foreign currencies
in which FCNR (B) deposits are permitted to be maintained.

Operational Guidelines. Terms and Conditions:

The operational guidelines as outlined for FIIs would be applicable to all the facilities provided
to non-residents. All foreign exchange derivative contracts permissible for a resident outside
India once cancelled, are not eligible to be rebooked.

D)Facilities for Hedging Trade Exposures. invoiced in lndin Rupees in India

Purpose

To hedge the currency risk arising out of genuine trade transactions involving exports from
and imports to India, invoiced in Indian Rupees, with AD Banks in India.
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Operational Guideline, Terms and conditions

The AD Branches can book contracts using either Model I or Model II as given below:

Model-l

Non-resident exporter I importer dealing through their overseas bank (including overseas
branches of AD banks in India)

a) Non-resident exporter I importer approaches his banker overseas with appropriate

documents with a request for hedging their Rupee exposure arising out of a confirmed import
or export order invoiced in Rupees.

b) The overseas bank in turn approaches its correspondent in India (i.e. the AD bank inIndia)
for a price to hedge the exposure of its customer along with documentation furnished by
the customer that will enable the AD bank in India to satisfy itself that

there is an underlying trade transaction (scanned copies would be acceptable). The

following undertakings also need to be taken from the customer:

That the same underlying exposure has not been hedged with any other AD Category I
bank/s in India.

If the underlying exposure is cancelled, the customer will cancel the hedgecontract
immediately.

c) A certification on the end client KYC may also be taken as a one time document from the
overseas bank by the AD bank in India.

d) The AD branches in India, based on documents received from the overseas

correspondent should satisfy itself about the existence of the underlying trade
transaction and offer a forward price (no two-way quotes should be given) to the
overseas bank who, in turn, will offer the same to its customer. The AD bank,
therefore, will 'not be' dealing directly with the overseas importer I exporter.

e) The amount and tenor of the hedge should not exceed that of the underlying
transaction and should be in consonance with the extant regulations regarding tenor of
payment I realisation of the proceeds.

f) On due date, settlement is to be done through the correspondent bank's Vostro

orAD bank's Nostro accounts.

g) The contracts, once cancelled, cannot be rebooked.

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h) The contracts may, however, be rolled over on or before maturity subject to maturity
of the underlying exposure.

i) On cancellation of the contracts, gains may be passed on to the customer subject

tothe customer providing a declaration that he is not going to rebook the contract or that the
contract has been cancelled on account of cancellation of the underlying exposure.

j) In case the underlying trade transaction is extended, rollover can be permitted

once based on the extension of the underlying trade transaction for which suitable
documentation is to be provided by the overseas bank and the same procedure
followed as in case of the original contract.

Model -II

Non-resident exporter I importer dealing directly with the AD Bank in India

a) The overseas exporter I importer approached the AD branch in India with a request for
forward cover in respect of underlying transaction for which he furnishes, appropriate
documentation (scanned copies would be acceptable), on a pre-deal basis to enable the AD
branch in India to satisfy itself that there is an underlying trade transaction, and details of his
overseas banker, address etc. The following undertakings also need to be taken from the
customer

 That the same underlyingexposure has not been hedged with any other AD
Category I bank/s in India.
 If the underlying exposure is cancelled, the customer will cancel
the hedge contract immediately.

b) The AD branch should obtain certification of KYC / AML in the format in Annex-VIII.The
format can be obtained through the overseas correspondent I bank through SWIFT
authenticated message. In cases where we have a presence outside India, the KYCIAML
should be completed through our respective offshore branches.

c) AD branches should evolve appropriate arrangements to mitigate credit risk. Credit

limits can be granted based on the credit analysis done by self I overseas branch.

d) The amount and tenor of the hedge should not exceed that of the
underlyingtransaction and should be in consonance with the extant regulations regarding
tenor of payment I realisation of the proceeds.

e) On due date, settlement is to be done through the correspondent bank'svostro or theAD

bank'sNostro accounts. AD branches in India may release funds to the beneficiaries
only after sighting funds in Nostro/Vostro accounts.

f) The contracts, once cancelled, cannot be rebooked.

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g) The contracts may, however, be rolled over on or before maturity subject to maturity of
the underlying exposure.

h) On cancellation of the contracts, gains may be passed on to the customer subject to the
customer providing a declaration that he is not going to rebook the contract or thatthe contract
has been cancelled on account of cancellation of the underlying exposure.

i) In case the underlying trade transaction is extended, rollover can be permitted once
based on the extension of the underlying trade transaction for which suitable documentation
is to be provided by the overseas bank and the same procedure followed as in case of
the original contract.

E) Facilities for Hedging of ECBs, designated in Indian Rupees, in India

Purpose

To hedge the currency risk arising out of ECBs designated in INR with AD banks in India.

Operational Guidelines, Terms and Conditions

a) The foreign equity holder / overseas organisation or individual approaches the AD branch
in India with a request for forward cover in respect of underlying transaction for which he
needs to furnish appropriate documentation (scanned copies would be acceptable), on a pre-
deal basis to enable the AD branch in Indiato satisfy itself that there is an underlying
ECB transaction, and details of his overseas banker, address, etc. The following
undertakings also need to be taken from the customer -

 That the same underlying exposure has not been hedged with any other AD
Category I bank/s in India.
 If the underlying exposure is cancelled, the customer will cancel the
hedge contract immediately.
b) The amount and tenor of the hedge should not exceed that of the underlying transaction
and should be in consonance with the extant regulations regarding tenor of payment I
realization of the proceeds.

c) On due date, settlement is to be done through the correspondent bank's Vostro or the AD
bank's Nostro accounts. AD branch in India may release funds to the beneficiaries only after
sighting funds in Nostro/Vostro accounts.

d) The contracts, once cancelled, cannot be rebooked.

e) The contracts may, however, be rolled over on or before maturity subject to

maturity of the underlying exposure.

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f) On cancellation of the contracts, gains may be passed on to the customer subject to the
customer providing a declaration that he is not going to rebook the contract or that the
contract has been cancelled on account of cancellation of the underlying exposure.

g)Operational Guidelines, Terms and Conditions: The operational guidelines as outlined for
FIIs would be applicable to all the facilities provided to non-residents. All foreign exchange
derivative contracts permissible for a resident outside India once cancelled, are not eligible
to be rebooked.

AD banks should carry out due diligence, regarding “user appropriateness” and “suitability”
of the forward contracts to various categories of customers and also monitor and report the
same as per 'Comprehensive Guidelines on Derivatives' issued by RBI,vide A.P.(DIR Series
) Circulars and FEMA notifications from Time To Time.

Security for Forward Exchange Contracts

14.5 Forward exchange contract is a definite commitment on the part of a customer and
the covering deal is a definite commitment on the part of the Bank. No contract must,
therefore, be made beyond a customer's known capacity. Branches are entitled to ask for a
cash margin from customers against forward contracts if they consider it advisable.

14.6 In proposals involving foreign exchange submitted to the Controlling Authority for
sanction, the question of forward cover must be dealt with and suitable remarks, for
example, "Business under this proposal will, if necessary, be covered by forward contracts",
should be included so that the risk involved is considered by the Bank in its overall view of
the customers' standing and financial capacity. The Bank will usually ask a customer to cover
by appropriate contracts any business involving large amounts of foreign currency and, if
the amounts are very large, forward cover must be made a condition of the business. This
is necessary in order that the exact commitment in the local currency can be ascertained.
Where large forward contracts are proposed for customers who do not enjoy credit limits
with the Bank, sanction of the Controlling Authority should be sought, if necessary, by
telegram or telephone or e-mail. Such a situation can arise where a customer regularly
makes large cash remittances in a foreign currency and wishes to cover his commitments
forward to a considerable extent. The converse is equally true. Where a credit facility for
foreign business has been sanctioned, Branches cannot forgo the requirement of forward
cover without the specific permission of Higher Controlling Authority, particularly where such
business is for large amounts or for long period or where there are special circumstances
indicative of risk to the Bank. In such a case, it is not sufficient to say that "the customer
does not wish to cover exchange forward". A satisfactory reason must be given.

Forward Contracts for Customers Enjoying Foreign Bills Purchase Limits

14.7 Customers entering into forward contracts to cover their export bills often get an
impression that the bank would automatically purchase bills under such contracts. Branches
must take into account the Foreign Bills Purchase Limit sanctioned to the customers and the
outstandings thereunder at the time of booking forward exchange contracts or entertaining

306
 such requests. When booking a forward exchange contract, the amount of contract should
not exceed the unutilised limit of Foreign Bill Purchase. Branches should not allow a position
to arise whereby solely for utilisation of the contract, they are obliged to undertake
substantial overlimitbusiness, since due to non-availment of the contract, the customer may
be involved in heavy cancellation charges which he may quite conceivably refuse to pay.

Limits for Forward Contracts

Bank has, vide HOBC 109/97 and 110/79 issued operational guidelines for approval
of CEL to customers for booking of forward contracts by C&IC Department. Branches
are advised to follow the instructions and procedure while assessing Forward Contract
Limits.

14.8 No forward contract should be entered into for a customer for whom the appropriate
limit for forward contract has not been sanctioned. Branches must set limits on the extent
of the risk they propose to run on every customer on its books and this credit assessment
must be done in the normal manner with regard to customer's credit worthiness and his
past record in meeting his commitments under the contracts, if any.

14.9 Forward contract limit which may be incorporated in proposals for limits for Foreign
Bills Purchase and Import Letters of Credit must be sanctioned at the appropriate level and
reviewed periodically as per instructions from Head Office from time to time. Branches
should take the Foreign Bill Purchase or Import Letters of Credit limit sanctioned to a
customer as the limit for booking forward exchange contracts so that the risk involved is
considered by the Bank in its overall view of the customer's standing and financial capacity.

14.10 Forward contracts for other export transactions such as Foreign Bills for Collection
(FBC) and -Negotiations under Export Letters of Credit (FBN): Branch Managers are
authorised to sanction limits for forward contracts to the same extent as the authority to
sanction Foreign Bills Purchase Limits.

14.11 Forward contracts for other import transactions such as Foreign Inward Bills for
Collection (FIBC): Branch Managers are authorised to sanction limits for forward contracts
to the same extent as the authority to sanction Import Letters of Credit Limits.

14.12 Branches must maintain a customer wise record of limits for forward contracts and
the outstanding thereagainst.

Application for Forward Contracts

14.13 Branches should apply on behalf of their customers to the Treasury Branch for the
requisite forward cover only after they are thoroughly satisfied that the forward exchange
cover is required for genuine , trade transactions. For this purpose, Branches must obtain
the necessary documentary evidence such as letter of credit, firm order and/or any other
document required for forward contracts as called for in the exchange control regulations
in force. Branches must make sure that all applications for forward exchange cover strictly
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 comply with exchange control requirements and Rules of the Foreign Exchange Dealers
Association of India, and guidelines given by Reserve Bank of India from time to time.

14.14 Branches should not consider that the forward cover will be made available
automatically, the moment they convey their applications for forward exchange cover to the
Treasury Branch on the understanding that the treasury Branch will do all that is required
to be done in obtaining forward cover. If applications for forward cover create any doubt or
difficulty, Branches must immediately refer for clarification to the Treasury Branch and
where necessary, for approval of the Reserve Bank of India( through Head Office).

14.15 Branches should submit applications for forward cover to the Treasury Branch as per
specimen in Appendix XI. 'Application form calls for the certificate to be given by the Branch
Manager of having documentary evidence verified by him. Particulars of documentary
evidences to be seen are given below

(A) For Forward Purchases (Exports)

(i) In the case of an export letter of credit; the name of the letter of credit opening bank with
number, date, amount, expiry date of the letter of credit and the reimbursement instructions.

(ii)In the case of a firm export order; the name of the foreign buyer and other details of the
order with its number, date, amount and shipment delivery stipulated therein.

(iii) In the case of a clean/documentary bill sent for collection:

(a) Whether drafts are to be drawn at sight or usance

and(b) country of destination

(a) FBC number and date sent for collection.

(b) date of the relative bill of lading/air freight consignment note/post parcel receipt and
(c) country of destination

(iv) In the case ofP.P.forms signed by the Branch or in respect of documents sent direct by
the exporter to the overseas buyer.

(a) date and number of P.P. Form signed,

(b) date of Post Parcel Receipt and

(c) country of destination

(B) For Forward Sales (Imports)

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(i) In the case of an import letter of credit; the date and number of the letter of credit,
the import licence number (with its date of issue and period of validity) or OGL number and
reimbursement instructions.

(ii) In the case of an import letter of credit (or guarantee) issued on deferred payment
basis; in addition to the information required under (i) above, the approval number(s), and
date(s) of the Reserve Bank of India approving opening of the letter of credit (or guarantee)
on deferred payment basis and authorising sale of foreign currency.

(iii) In the case of a firm order; the date and number of the firm order (which has been
accepted by the seller), name of the seller and the import licence number (with its date of
issue and period of validity).

(iv) In the case of a foreign inward bill received for collection and outstanding; the import
licence number (with its date of issue and period of validity), the number, date and tenor
(whether sight or usance) of the bill with the date of the relative bill of lading/air freight
consignment note. (In the case of usance bills, the due date should also be stated).

Documentary Evidence for Forward Cover for Exports and Imports

14.16 The contract entered into by the exporters with the foreign buyers for the shipment
stating quantity, price and the approximate date of shipment must be seen and should be
marked "Seen" under the stamp and the initials of the Branch. Branches must keep a record
of such documentary evidence seen.

14.17 Branches must keep a record of documentary evidence of import transactions verified
while booking forward sale contracts with their customers. The evidence should be marked
"Seen" under stamp and initial of the Branch.

14.18 Forward cover booked on the strength of a firm export order, in some cases, may be
followed by a letter of credit in confirmation of the export order. Such letters of credit may be
unrestricted or restricted to some other bank; if the letter of credit is restricted for negotiation
of documents to another bank, the customer may not be in a position to deliver the foreign
currency contracted for. Branches must, therefore ascertain from their customers (when
application is made for forward cover against export orders), whether letter(s) of credit
confirming the export order is expected to be received. If so, customers should be advised to
have the restriction (if any) on the negotiation of documents in the letter of credit removed
immediately on its receipt. Branches must not entertain requests for forward cover against
letters of credit restricted to other banks.

Procedure for Forward Contracts at Treasury Branch and at the Branches where
Customers' Accounts are kept.

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14.19 Application for the purpose of booking of forward exchange contracts as per specimen
given in Appendix XIX should be sent to the Treasury Branch by the Branches where
customer's account are kept.

14.20 At the Treasury Branch for the purpose of recording the forward contracts, a set of
forms for sale/purchase (No. FE 1349 A) are in use. The set consists of:

(i) Original contract addressed to the customer duly signed by the authorised officers of the
Treasury Branch.

(ii) Carbon copy of the original (item no.(i) above) sent to customer alongwith the contract
for his confirmation (to be returned duly signed by him to the Branch where his account
is maintained). This Branch, in turn will forward to the Treasury Branch the confirmation
copy duly signed by its customer. (Signature on the confirmation of the contract should
be verified by the Branch concerned before forwarding it to the Treasury Branch).

(iii) A copy to be retained by the Treasury Branch for its use.

(iv) A copy forwarded to the Branch maintaining the customer's account for keeping a record
of utilisation of contract.

14.21 On booking of a forward contract, the Treasury Branch will send the original
confirmation copy and the Branch copy to the Branch where the account of the customer is
kept. The Branch should forward the original contract and the confirmation copy to the
customer and obtain the latter duly signed by him as confirmation of the contract which should
be returned to the Treasury Branch, after verifying the signature of the customer thereon.

At the Branch Where the Account is Kept

14.22 A Register for forward sales and purchases should be maintained( Now maintained
by the computer system), separately date-wise with particulars such as:
Date:
Name of the Customer :
Number of contract:
Usance :
Rate :
Maturity date :
Amount of contract :
Balance :

Relative copies of the contract as and when received from the Treasury Branch should be filed
in a separate customer wise file and in order of maturity dates of the contracts. A frequent
reference should be made to the Register and the file so as to remind the customer of the
outstanding amount of the contract and the date of maturity well in advance.

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14.23 Diary notes should be taken which should be for 15 days prior to maturity date of the
contract.

14.24 Whenever sale or purchase is made to the customer who has entered into a forward
contract for such sale or purchase, the amount utilised under the contract should be marked
in the Register and on the memo of cost pertaining to the particular transaction and the
customer should be advised of the unutilised portion, if any, of the contract.

14.25 When the amount of forward contract has been utilised, Branches should report the
Treasury Branch by telephone / fax immediately on utilisation stating the Forward contract
number of the transaction, the amount utilised and the balance outstanding if any, to enable
the Treasury Branch to mark the deliveries thereunder.

Monitoring of Forward Contracts

14.26 Branches where the accounts of the customers who have entered into forward contract
are kept, are required to send advices to them of the outstanding amount of the contract and
the date of maturity. Since Branches are required to maintain record of due dates fifteen days
prior to the expiry dates of the contract, Branches should be in a position to send such advices
to the customer by that time. The customers should be advised in writing that-
(i) They must send instructions through the Branch regarding extension or cancellation
of the contract so as to reach the Branch before the maturity of the contract (Branches should
note to convey instructions regarding extension or cancellation of the forward contracts to the
treasury Branch by telephone/ Fax/E-mail.
(ii) Depending upon the customer's instructions, the contract will be either cancelled or
cancelled &rebooked by the Treasury Branch.
(iii) If no such instructions are received by the Treasury Branch within 7 days from the
date of maturity of the contract, the contract will be automatically cancelled on the 7th day(
auto cancellation) from the date of the maturity and the overdue interests, exchange
difference and swap cost will be recovered from the customer. (This 7 days' time is allowed
as lead time for pipeline transactions from branches to reach Treasury Branch and is not
meant for customers who must give instructions regarding utilisation or otherwise or on before
the due date).
(iv) When the customer does not give any instructions whatsoever, the contract will be
cancelled by the Treasury Branch immediately on the 7th day from the date of maturity. In
case the 7th day falls on a Saturday or holiday, the contract will be cancelled on the day next
succeeding.
(v) Where the contract is cancelled, overdue interest, swap cost, cancellation charges,
etc. will be recovered by the Treasury Branch by sending a Debit Note to the Branch
concerned.
(vi) Where the contract is rolled over (is cancelled and rebooked), the Treasury branch
will send the new contract to the branch advising new expiry date and the amount extended.
In this case, the old contract will be cancelled at T.T. buying or T.T. selling rate and a new
contract will be booked at the current forward rate.
(vii) In case of automatic cancellation of the contract on the 7th day from the maturity
date in absence of customers instruction, exchange difference and swap cost should be

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 recovered from the customer but no benefit should be passed on to customer since this is a
default situation.

14.27 Authorised dealers are permitted by Reserve Bank of India to cancel the unutilised
portion of forward contracts without reference to the Reserve Bank of India, irrespective
of amount involved.

14.28 FORWARD EXCHANGE CONTRACTS - VERIFICATION OF DOCUMENTS

Particulars Forward Purchases Forward Sales (Imports)
(Exports)
1 Against Forward purchase may be Forward Sale may be made
export/ made provided provided
Import (a) Foreign exchange (a) Foreign exchange to be sold
offered does not exceed (i) does not exceed the
the proceeds of shipment value of the goods to be
made imported OR
(ii) does not exceed the
In case shipment is value of letter of credit
already effected, forward opened. (b) Imports are
purchase should not covered by valid import
exceed the value of the licence or by the Open
bills negotiated /sent for General Licence
collection
In case of exports on
consignment basis,
forward purchase may be
made only
after shipment is made
(a) Documents The basic documents will Original exchange control copy of
and procedures be the original sale the import licence should be
contract showing obtained and vended by the
description of goods, authorised dealer or in case the
quantity, agreed price goods are covered under OGL the
value of goods, authorised dealer should satisfy
approximate date of himself that the proposed import is
shipment etc. The in fact covered by a current Open
customer should also give General Licence. Additionally the
a written undertaking that authorised dealer should verify
he will produce to the whether a letter of credit has been
authorised dealer the sale obtained through his medium
contract, when received Occasionally, in place of a letter of
In case of irrevocable credit, firm order accepted by the
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 letters of credit, the overseas exporters may be
customer should not book presented Under sale contracts
any other forward
contract against the

same shipment. The appropriate remittance forms

position maintaining should be completed by Branches
Branch normally prefers to when the relative foreign exchange
book a single contract is actually delivered and not at the
against different firm time when the forward contracts
export orders provided the are fixed. If remittance requires the
transactions are financed prior approval of the Reserve Bank
in the same currency and of India, forms completed by the
the delivery period is as customers should be forwarded to
per the norms laid down the Reserve Bank of India before
effecting actual delivery of foreign
exchange even though the contract
might have been fixed with their
prior approval
(b)Verification Where letters of credit are The original exchange control copy
Of documents incomplete in any respect of the licence should be verified
such as unit price or with utmost precaution Appropriate
description or quantity, remarks indicating the date and
the firm order/contact amount of the contract should be
should be vended,
made on the licence under the
Order/contract should be
stamp and initials of the Branch. A
marked "seen" alongwith
the date and amount of datewise register of particulars of
the contract mentioned contract booked referred to in
under stamp and paragraph no 14 28 should also
initials of the Branch contain the full particulars of the
licence

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A record of documentary A record of documentary evidence
evidence should be kept in should be kept in a systematic
systematic manner in the manner in the Branch record
Branch record

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 Chapter-15

R-RETURNS

[Branches to refer RBI/2018-2019/145 A.P. (DIR Series) Circular No. 25 dated 20 March 2019,
A.P (DIR Series) Circular No.50 dated February 11, 2016, A.P. (DIR Series) Circular No.15
dated July 28, 2014 and also A.P. (DIR Series) Circular No.84 dated February 29, 2012, giving
guidelines for compilation of R-Returns for reporting under the Foreign Exchange Transactions
Electronic Reporting System (FETERS) Or such directions issued from RBI from time to time.]

Submission of R-Returns

General

15.1 All foreign exchange transactions effected by Authorised Dealers, including

transactions passed through the rupee accounts of Non-Resident banks, are required to be
reported to the Reserve Bank of India through appropriate R Returns.

15.2 The system of R Returns prescribed by the Reserve Bank of India is an important
means for monitoring the foreign exchange transactions put through by Authorised Dealers.
It has been so designed as to serve as a primary source of data on the inflow and outflow of
foreign exchange. As a member of International Monetary Fund. IMF, India has an obligation
to present the quarterly Balance of Payment (BOP) statistics to IMF. R Returns should,
therefore, be compiled with utmost care and should reflect correctly and completely all the
relevant transactions undertaken during the relevant reporting period and should be submitted
to the Reserve Bank of India within the prescribed time schedule without fail.
The R returns also serve a means of post facto scrutiny by Reserve Bank of India to ensure
that ADs have correctly exercised the powers delegated to them under general or specific
authority.

Office/branches of Authorised Dealers handling foreign exchange business

Office/branches of Authorized Dealers, which are authorised to transact foreign business, are
classified into three categories, which are as follows:

CATEGORY ‘A ‘:

These are the Offices and branches, maintaining in their own name independent foreign
currency accounts with overseas correspondents/branches.

CATEGORY ‘B’:

Office/branches not maintaining independent foreign currency account but having powers of
operating on the accounts maintained by their head/principal office or any other link office.
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 CATEGORY ’C’:

These Branches are not allowed to transact foreign exchange business independently. However,
they are routing forex transactions through AD- Category ‘B’ Branches.

Maintenance of Records
Accuracy and strict observance of the periodicity is of great importance in the system of R
Returns reporting. The Authorised Dealers should maintain proper records of all Purchases
and Sales of foreign currencies made by them in systematic manner on daily basis.

15.3 Uniform code number allotted to AD branches

Part 1 (7 digits) of the uniform code number allotted to the reporting office branch of
Authorized Dealer should be indicated on the top of R-Returns. Any existing branch having
code number but which is not transacting foreign exchange business may use the number
allotted to it as and when it starts transacting such business at a future date.

15.4 Types of R Returns

Every transaction, which causes In-flow of foreign exchange in India or Outflow of foreign
exchange from India, affects the position of foreign currency assets or liabilities, which is
required to be reported to Reserve Bank of India. As these transactions take place by way of
debits and credits to the Nostro accounts maintained by authorised dealers and Vostro account
of non-resident banks maintained with the authorized dealers, every debit and credit to these
accounts are required to be reported. Thus there are two types of R returns:

1. R return (Nostro)
2. R return (Vostro)

A separate R return (Nostro) for each currency and a separate R return (Vostro) is required to
be submitted irrespective of number of accounts operated upon in that currency.

Time limit for submission of R – Return

R-Returns should be submitted twice in a month as on 15th and the last day of the month. If
15th or the last day of the calendar month is a holiday, then the return should be submitted
as on the preceding working day. The R-Returns must reach RBI within 7 calendar days from
the close of period to which they may relate. Authorised Dealer Branches should, however,
make all efforts to submit the R-Return as quickly as possible, without waiting for the last day
and avoid delay in submission of returns to Reserve Bank of India.

If in any fortnight, there are no transactions to report, a NIL return should be submitted in the
prescribed time period. Authorised dealers should ensure that the R Returns are submitted to
RBI reflecting the correct and complete position of the transactions. All the relevant
transactions should be reported in the statement with all supporting documents and forms.

316
Any contravention of Reserve Bank of India directions or failure to file returns as specified may
attract fine from RBI.

Reserve Bank of India may take a serious view of the failure of any branch of Authorised
Dealer to furnish returns and statements if not submitted regularly or promptly. If they find
irregularities during compilation and where it deems fit, it may impose financial penalty or
even direct the authorized dealer concerned to refrain from transacting foreign exchange
business at the branch concerned.

15.5 Who should submit R-Return

The Bank-wide ‘R‘ Returns (Nostro&Vostro) are now generated at Head Office and submitted
to Reserve Bank of India from BandraKurla Complex Branch (Nodal Branch). The Nodal Branch
uses the data available in the Finacle system, already fed by the AD Branches.

15.6 Some important points for posting of transactions for generation of error free
R Returns :

The ADBranches should note that –

No decimal places should be posted. Only foreign currency / INR amounts, in rounded whole
units of the currency, should be posted for all forex transactions.

15.7 Sales and Purchases of foreign currencies notes and coins should also be shown as sales
(Payments) and Purchases (Receipts)

15.8 The important major items to be reported in the R RETURNS (Nostro)

i. Sales
ii. Purchases
iii Opening balance
iv Closingbalance

It should be ensured that the R Return balances are arithmetically correct i.e. Item iii +
Item ii – Item I = Item iv.

The important major items to be reported in the R Returns (Vostro)

Col. 2 Opening balance
Cols. 3, 4 and 5 Credits
Col. 6 Total Credits
Cols.7, 8 and 9 Debits
Col. 10 Total Debits
Col.11 Closing Balance

317
Care should be taken to ensure that the opening balances shown in the R Return are exactly
the same as the closing balances in the previous period‘s R Return. It should also be ensured
that the R Return balances arithmetically, i.e. Col.2 + Col. 6 – Col.10 = Col.11.

15.9 Internal Auditors / Inspectors / Concurrent Auditors of Authorised Dealers are not only
required to carry out 100% checking of form A-1 but also to issue a certificate about the
bonafides of the forex transactions undertaken by the branch indicating that the transactions
have been carried out as per internal guidelines/ instructions issued vis-à-vis FEMA provisions.
A summary of major deviations/ irregularities observed during above verification may be
reported to Head Office through concerned Zonal Office for the putting up to the Board of the
Bank on quarterly basis for necessary action. The Auditors should also certify that due
diligence exercise has been carried out while dealing with forex transactions. The above
certificate may be kept with the branches, which should be made available to the inspecting
officers of the Reserve Bank for verification.

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 Chapter 16
AUTHORITY TO TRANSACT
FOREIGN EXCHANGE BUSINESS INDEPENDENTLY

16.1 Although the overall discretionary powers to Branch Managers to undertake casual
business and/or to sanction limits for purchase of export bills, establish import letters of credit,
etc. are embodied in the general scheme of delegation of powers, as given in the booklet
containing the Scheme of Delegation of Powers, yet this itself does not confer on Branch
Managers authority to transact directly foreign exchange business on their own for the
following reasons :
(i) Head Office is required to submit annually to the Reserve Bank of India a list
of Branches authorised to transact directly foreign exchange business and also to
advise them any changes in such authority.
(ii) It is necessary to advise correspondent banks when Branches are authorised
to operate on foreign currency accounts maintained with them.
(iii) Availability of experienced and trained personnel is an essential pre-requisite
for undertaking specialised business.
16.2 Administratively, therefore, it is essential for Head Office to decide from time to time
the authority for the Branches as also the limits for them to transact foreign exchange business
(as distinct from authority to sanction limits in respect of such business) directly with the
foreign Branches/correspondents.
16.3 Branches should not handle any type of foreign exchange transaction independently
unless they are specifically authorised to do so by Head Office with a view to ensuring that
exchange control requirements are complied with and the experienced and trained personnel
are made available to undertake this specialised business. Besides, the Reserve Bank of India
is of the view that the Branches whose foreign business turnover is small should not handle
such business independently.

Branches Desirous of Operating Directly: Permission of Head Office

16.4 Whenever the existing/potential foreign exchange business at the Branch warrants an
independent authority or enhancing of the existing authority to transact foreign exchange
business, Branches should submit a detailed memorandum to Foreign Business Department
at Head Office through the Zonal Manager / NBG with his recommendations and furnishing,
inter alia, the following information :
(i) Brief particulars on availability of experienced and trained staff to handle foreign
business at the Branch.

(ii) Types of transactions for which the authority is sought and amount upto which such
authority is proposed to be exercised for a single transaction (e.g. Export Bills Purchased
(DA/DP), Export Bills Negotiated, Import Letters of Credit (DA/DP), Remittances-inward and
outward, etc.

319
(iii) Details of foreign business handled- In the case of existing authorised Branches
seeking enhancement of limits/new limits for other types of business: Details of foreign
exchange business transacted on their own.

(iv) In the case of Branches newly seeking authority to transact foreign exchange
business directly:

16.5 Such details should be given in the following tabular form for the last three years.
( Rs. In lakh )
YYYY YYYY YYYY
Say

Type of No. Amount No. Amount No. Amount

Business
Exports

Export Bills
Purchased
DP

Export Bills
Negotiated
Export Bills for
Collection
Imports

Letters of
Credit
established
DP

DA

Bills
Receivable
under L/C

320
Foreign
Inward Bills
for Collection
Remittances

Inward

Outward

(Rupees in lakh)

Export Import Remittances

Expected
business
during next
one year

(iv) In case of authority to open Foreign Currency Non-Resident Accounts: Deposits held at
the Branch under Non-Resident External Accounts during last three years (No. and amount)
and expected deposits under Foreign Currency Non-Resident Accounts Scheme. FCNR/NRE
deposits of other 2/3 leading banks for the last three years shall also be furnished.

16.6 Depending upon the merits, Head Office will authorise selectively to undertake on
their own, foreign exchange business. Branches not so authorised should route their foreign
exchange business through authorised Branches nominated by Head Office.

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 Chapter -17
RECIPROCITY OF FOREIGN EXCHANGE BUSINESS

17.1 Branches should take care to note the amounts of business that they pass to and receive
from the correspondents of the Bank and to report the amounts accurately in a statement of
reciprocity of business in the under mentioned form. Branches should submit their statements to
their Zonal Office as of March 31st each year so as to reach them within 30 days. The Zonal Offices
should consolidate and submit the Zonal statement to International Division, Head Office.
________________ Branch

__________________ Zone /NBG/Divisional Office/LCB

(In thousands of Dollars)

Amount of business sent out Amount of business received in
Name Import Export Out Others Total Export Import Inward Others Total Net
of Letter of Bills ward Letters of Bills remittan Busines
foreign Credit Remitta Credit ces s
correspo nces
ndent

( ( (B)-(A)
A B
) )

SINCE DISCOUNTINUED

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 Chapter 18
FOREIGN EXCHANGE DEALINGS AND EXCHANGE POSITION

Branches Authorised to maintain Foreign Currency Accounts and Authorised Dealer

Branches Authorised to operate upon them.

18.1 The instructions given herein (not exhaustive) provide general guidelines in Exchange
Dealing Operations for Branches maintaining independent Exchange Position in the specified
currencies, a list of which is given in Appendix VIII.

18.2 At present, Treasury Branch only maintains independent foreign currency accounts
and exchange position.

18.3 The list (Appendix VIII) also gives names of Foreign Branches and correspondents with
whom foreign currency accounts are maintained and names of Branches (Zonewise)
authorised to operate on these accounts.

Role of Exchange Dealer

18.4 The role of Exchange Dealer in the Bank is to provide the service of sale and purchase
of foreign currencies to bank's customers through the network of Branches authorised to deal
in foreign exchange business. (Branches authorised to operate on the foreign currency
accounts are classified as 'B' category Branches under the classification of Reserve Bank of
India.)

18.5 The Dealer is continuously involved in sale and purchase of foreign currencies and must,
therefore, be conversant with the various directives of the Reserve Bank of India and the Rules
of Foreign Exchange Dealers' Association of India.

18.6 The Treasury branch and Branches authorised to operate upon the foreign currency
accounts must keep the FEMA 2000 and Rules of FEDAI up to date and the staff handling
foreign exchange business and routine work must keep abreast of changes from time to time
in aforesaid Act and FEDAI guidelines.

Exchange Position
18.7 Like any commodity, the prices of foreign currencies (which may be purchased by Indian
Rupees) vary from day to day, depending on various factors such as current and future
demand and supply, and the future expectations. In order to avoid any risk of making a loss
due to fluctuation in the rates of foreign currencies, a daily record is maintained of:

a) what amount of foreign currency is in stock (i.e. balance with Foreign Branch
or correspondent)

b) what amount of foreign currency is to be delivered (i.e. sale) there from (i.e.in ( a )
above)
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c) what amount of foreign currency is going to be received from others i.e. purchase;

d) What amount is expected to be delivered to others in future, month by month,

(forward sales).

e) What amount is expected to be received from others in future, month by month

(forward purchases).

18.8 When the items (a) to (e) are added (for purchases) and deducted (for sales), the
net position of the stock i.e. the "Exchange Position" is arrived at. The position is overbought
if more stocks are purchased and held than the stocks sold; oversold position means more
stocks are sold than what is purchased and held.

18.9 In both the cases, there is an element of risk. In the case of overbought position, if
the price of the overbought currency goes down in terms of the home currency, there is a
loss. For example US Dollar bought at Rs.55.20 now goes down to Rs. 55.00 per Dollar. Bank
incurs a loss of Rs 0.20 per Dollar. Similarly. in oversold position, if the price of the oversold
currency goes up, there is a loss. For example, US Dollar oversold at Rs.55.00goes upturns.
55.20, Loss is Rs. 0.20 per Dollar. When the total of sales is more or less equal to purchases,
it is called a square position i.e. should there be variation in price of sale of the currency, that
variation is offset by purchase of almost same amount of currency, at relatively similar price
as of sale. There is no element of risk in a square position.

18.10 The main point to be noted is that for every transaction of sale or purchase, when a
firm currency rate is quoted and the buyer/seller accepts the rate, irrespective of whether it is
cash (transaction to be carried out the same day) or TOM (to be carried on the first succeeding
business day) or Spot (on the 2nd succeeding business day), or future date/month, the amount
of purchase/sale enters in the exchange position.

18.11 : The exchange position may be looked from two different angles :

I. Cash Position: The Cash position (on a given day) means balance of the currency with
foreign Branch or correspondent. In order to avoid the account in foreign currency getting
overdrawn (which may result in payment of interest) or the account may have large balance,
which has no use immediately (which may result in idle funds not earning any interest), it is
necessary to examine the following :

a) Commitments made by the Bank to pay on various future dates. These may arise due
to payment of (import letters of credit), bills negotiated by the Branch or correspondent,
payment of Demand Drafts or Telegraphic Transfers or payment made under contracts of sale,
the amounts and dates of delivery being known.

b) Commitments made by others to the Bank to deliver foreign currency by way of

purchase/ negotiation of foreign currency export bills, Inward Demand Drafts and Telegraphic
Transfers, cover for which is credited to the account, or under bank's forward purchase
contracts for receipt of foreign currency on different future dates.
324
II. Exchange Position: It may happen that whereas the exchange position may be 'square',
the balance with foreign Branch or correspondent may be inadequate or too large. Due to the
confusion of the exchange position with cash position, often the cash position gets ignored.
This must be avoided.

When there is inadequate fund position to meet the immediate drawings on the account
(debits) due to payment of Telegraphic/Swift Transfers (at the foreign centers) or likely debits
due to negotiation of bills under Bank's import letters of credit, there is the need to buy the
currency 'value cash' for remittance for the credit of the foreign currency account, thereby the
position becoming overbought, (when the exchange position before the purchase was square).
It will, therefore, be necessary to sell forward, the same amount: in deciding the period of
sale (i.e. delivery period), an estimate of the flow of cash (by way of realisation of export bills
purchased/ negotiated etc., or deliveries by third parties of forward purchases made from
them) will have to be made. This purchase in cash leg & sale in forward leg is to be done
simultaneously with the help of buy/sell Swap. Thus affecting the fund position only & not the
exchange position.

18.12 Similarly, if it is noticed that there is a large balance likely to remain 'unutilized' for
short period (say, more than a week), even if the position is square, it becomes necessary to
make a cash sale (and reduce the foreign currency balance), thereby making the position
'oversold' by the amount of cash sale. This 'oversold' position will have to be corrected by
entering into a forward purchase; the period of forward purchase will depend upon how much
surplus funds will be available and when and also what will be likely need of funds then. This
transaction is sell /buy Swap.

18.13 It may, sometimes happen, that the cash position is satisfactory, but the exchange
position is overbought/oversold, in which case, forward purchase/sale may have to be effected
to make the position square

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18.15 The net exchange position is arrived at by subtracting the smaller total (A/B) from the
larger total (A/B). If the larger total is sales, the difference B-A is oversold position, also known
as 'short' position: if the larger total is purchases, difference A-B is overbought position, also
known as 'long position.'

18.16 In order to correct the position, an amount more or less equal to the
overbought/oversold position will have to be sold/purchased respectively. At this juncture, it
will have to be seen, having regard to the likely deployment/source of funds, what will be the
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suitable period of purchase/sale forward contract(s), so that mismatching of funds position
and exchange position is kept to a minimum. Therefore comprehensive view of funds and
exchange position has to be taken for optimum utilization of funds.

Purchase or Sale Transactions-Ready and Forward.

18.17 They may be:

"Ready" or" Cash" merchant contract shall be deliverable on the same day.
"Value next day" or “Value TOM”contract shall be deliverable on the day immediately
succeeding the contract date.

A spot contract shall be deliverable on second succeeding business day following the day when
the transaction is closed.

A forward contract is a contract deliverable at a future date, duration of the contract being
computed from spot value date at the time of transaction.

Forward Contracts and Option Forward contracts

18.18 A Forward transaction is one in which the exchange of currencies takes place at a future
date, though the rate is already fixed at the time of making contract with a customer or a
Bank. In certain cases, the delivery date is not a fixed date, but an option is given to the other
party to take the delivery in full or in parts within a certain period as per his requirements.
These are called Option Forward Contracts. The maximum option period in Option forward
Contracts can be one calendar month.

18.19 The main components of Exchange position briefly referred to under simplified form
(paragraph number 18.14) are given below:

I. ON PURCHASE SIDE:

A. Remittances:

1) Inward Remittances (Inward TT/DD/MT)

2) Encashment of Travellers' cheques/Currency notes
3). Purchase of clean instruments
4) Conversion Of FCNR deposit/Interest on FCNR Deposit paid in Indian Rupees

B. Exports:

5) Purchase/Negotiation of Export Bills

6) Purchase of proceeds of Collection Bills Realised

C. Forward Purchases of Merchant Transactions

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D. Purchases From Exchange Market :

7) Purchases of Spot/Forward Value

E. Reversal of earlier Sales:

8) Cancellation of Forward Sale

9) Reversal of erroneous sale transaction.

II. On SALES Side:

A. Remittances

1) Outward Remittances (Outward TT/MT/DD). 2) Issuance of Travellers' Cheques & Currency

notes 3) Repatriation of NRE Funds abroad.

B. Imports:

4) Retirement/Delinking of Import Bills under collection and under letters of credit opened

C. Forward Sale:

5) Forward Merchant Sale Transactions

D. Sales in Exchange Market:

6) Sales of Spot/Forward value

E. Reversal of Earlier Purchases:

7) Cancellation of Forward Purchase

8) Delinking of Export Bills
9) Reversal of erroneous purchase transaction.

Balancing of Currency Position

18.20 Balancing of Currency position should be done daily by the Treasury Branch preparing
a statement of Assets and Liabilities of each foreign currency position with each foreign
currency equivalent rupees as detailed below :-

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 Currenc Rupees Liabilities
y (Balance
against us i.e.
(+)
Actual Nostro balances
(foreign currency balances
in Indian Branch books i.e.
Mirror
accounts)
PLUS Purchase remittances (i.e.
foreign currency purchase
pipeline transactions taken
into the
exchange position for which
debit notes have not been
received from Branches).(In
our Bank with Treasury
interface, pipeline
transaction are nil)
PLUS Foreign currency export bills
purchased/ negotiated but
not yet paid

PLUS Undelivered forward

purchase (i.e.
outstanding
forward contracts of
purchases)
Sub Total

Assets (Balance in) our favour i.e.(-)

MINUS Undelivered forward sales (i.e. outstanding forward contracts of sale)

MINUS Sale remittances (i.e. foreign currency sales, pipeline transactions taken into
the exchange
position for which credit notes have not been
received from Branches) ______ _______
EQUALS Net exchange position - Overbought/over sold
(+) (-) ====== =======

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Net Exchange Position -

18.21 The Exchange Dealer is required to function in such a manner that his dealing operations
ensure maximum profit, with minimum exchange risk. Since exchange rates are highly volatile
in the present conditions due to economic, political and various other factors, Branches should
see that their sale/purchase transactions are immediately communicated to the Treasury
Branch, as soon as transactions are done.

Exchange Position and Fund Position

18.22 All Purchase/Sale transactions that enter into exchange position do not affect
immediately the funds position in that currency. An exchange position is different from the
funds position in any currency.

i) Foreign Bills Purchased/Negotiated enter exchange position immediately as a 'Firm

Rate' has been quoted, but these will come in the funds position only after these bills are paid
and proceeds are received in our account.
ii) Foreign Bills sent on Collection, when paid and proceeds credited to our account,
affect the funds position first and thereafter come in exchange position, when the proceeds
are purchased by the Bank.

iii) Our Nostro account is debited, when the reimbursement is claimed under the letter
of credit opened by our Bank. Thus, the funds position is affected first and when the relative
sale transaction is done with the customer, the exchange position gets affected.

iv) Forward Sale as well as Forward Purchase Contracts enters the exchange position
immediately, as the firm rate is quoted. They will affect funds position subsequently on
maturity dates of these contracts.

A. Overdraft in Nostro Account

18.23 An Overdraft in Nostro Account may arise due to:
a) Letter of credit reimbursement claimed under letter of credit opened by our Bank
b) Early delivery under Forward Sale
c) Merchant Forward Purchase contract being extended
d) Exercise of customer's option in forward contract contrary to expectations.

To liquidate the overdraft in the account, the Swap (refer to paragraph below) is undertaken,
Spot Purchase of foreign currency against Forward Sale for a suitable date. Funds received
under Spot Purchase will cover the overdraft. Since both Spot and Forward deals are put
through for same amount, the exchange position is unaltered.

B. Excess funds in Nostro Account

Excess funds may get accumulated in the Nostro Account due to: a) early realisation of Export
bills
b) Early utilisation of Forward Purchase Contracts
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c) Extension of Merchant Forward Sale Contracts
d) Exercise of customer option contrary to expectation in option forward contracts.

18.24 Since the excess funds in Nostro accounts normally do not earn any interest, Bank
does a Swap deal by selling the foreign currency for spot value and buy forward same currency
at a suitable forward rate. Bank receives Rupees under Spot Sale which can be profitably
utilized locally. The net Exchange position, however, remains unaltered.An another way of
utilizing these excess fund is to give deposits in foreign currency/ Placements in FC Term
markets with overseas banks.

Swaps

18.25 In foreign exchange dealing operations, besides the Outright Spot/Forward Purchase
and Sales, Swap Transactions are also undertaken by the Dealers according to their
requirements.

18.26 A Swap deal is a simultaneous purchase of currency for Spot value against Forward
sale of same currency or vice-versa, that is, a simultaneous sale of currency for spot value
against forward purchase of same currency. In "Swap" deals, the NET Exchange-positions
remain unchanged because the sale and purchase of foreign currency take place at the same
time and for the same amount. Swap deals are generally undertaken to correct the funds
position or to correct the maturity mismatch.

Exchange Profit

18.27 The Treasury branch should work out the exchange profit, if not on daily basis at
least at the end of each month to gauge the performance of their Dealing Room. The Treasury
branch should follow the uniform system for revaluation of exchange position and booking
exchange profit devised by Foreign Exchange Dealers' Association of India. The exchange
Profit figures are taken into Profit and Loss account only at the end of each quarter in March,
June, September and December when the Profit and Loss vouchers are passed after revaluing
the foreign currency positions. The monthly evaluation of exchange profit without passing the
vouchers gives the Branches an opportunity to study whether reasonable profit is being
generated or not and whether it is commensurate with the volume of operations. If there are
large variations in the transaction of that month, branches should look into the transactions
of that month and satisfy themselves. The maturity pattern of contracts may distort the profits,
in such cases a rough reconciliation would reveal the real profits for the purpose of comparison.
As per the guidelines given by Head office, the Treasury branch should distribute the share of
their exchange profit to other Branches which are reporting the transactions to them.

18.28 The revised procedure to be followed under the revised Accounting Standard w.e.f.
23.03.2012 is as follows:

i) The foreign currency transactions (both assets and liabilities) which are presently being
recorded in Indian Rupees using Notional rates will now be recorded at the date of the
transaction by using weekly average closing rates of the preceding week published by

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FEDAI.These rates are available on FEDAI websitewww.FEDAI.Org.in .These rates will be
uploaded by Treasury Branch in Finacle under advise to Data Centre.

(ii) Every week and on Quarterly balance-sheet dates Data Centre will revalue foreign currency
assets and liabilities at the rates announced by FEDAI on the closing date after the same is
uploaded in Finacle by Treasury Branch. As per the revised procedure, the difference is
to be accounted through P&L account instead of G/L Revaluation Account and no reversal
voucher is to be passed on the next working day as is done hereto before. The transactions
are to be routed through Control Account "FC Portfolio Revaluation Control account (AS 11)
being opened with BKC Branch by HO Finance Department. After routing the revaluation
transactions of Treasury Branch through the control account, the Finance department will
absorb the difference to P & L account.

iii) Any reversals /payments of foreign currency assets and liabilities (which are
presently being recorded using same notional rate as applied at the time of originating
transaction), will be done at the weekly average closing rates of the preceding week
and the difference between the outstanding figure and the amount calculated as above is
to be reflected through Control Account "FC Portfolio Revaluation Control account (AS
11) being opened with BKC Branch by HO Finance Department. (w.e.f. March 23, 2012)

iv) Any credit or debit to P & L account in respect of interest on foreign currency assets and
liabilities shall be booked at the weekly average closing rate instead of Notional Rate. (w.e.f.
March 23, 2012)
To summarise, for assets and liabilities in foreign currency with the domestic branches:

i) Discontinue usage of Notional rates which were being used hereto before and instead,
transactions to be recorded at weekly average rates published by FEDAI on all related
transactions for respective week. (w.e.f. March 23, 2012)

ii) To revalue all the foreign currency assets and liabilities on weekly basis/ Balance sheet
dates at the rates announced by FEDAI. The process of revaluation will be run by the Data
Centre and the difference will be parked in the Control Account “FC Portfolio Revaluation
Control account (AS 11) being opened with BKC Branch by HO Finance Department. Similar
exercise will also be done for Treasury Branch parking their revaluation in the same control
account. Final difference in the control account will be absorbed in P & L account.

iii) The weekly average rates shall be uploaded by our Treasury branch under advise to Data
Centre w.e.f. March 23, 2012.

Most of these processes are automated at our Data Centre and is based on the FEDAI
rates entered by our Treasury branch; branches should ensure that 'their
transactions are reflected properly at the time of entering the transaction in FINAGLE and
also at the stage of authorising the same in FINACLE.

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 Chapter 19
FOREIGN EXCHANGE RISK MANAGEMENT
PART I-RISKS
19.1 The effective control of foreign exchange operations requires determination of a risk
profile which sets out the bank's overall attitudinal stance to risk and in particular, to the
extent to which the Bank is to be a risk-taker.
19.2 Foreign exchange dealing risks can be substantial and results are not always profitable.
A bank's involvement can be minimal as a strict service conduit with virtually no open
positions or a bank can conduct business on a large scale with sizable exposures.
19.3 Our Bank recognizes the need for a judicious blend of being both a user of the market
as well as a contributor to the market to give depth to a market that has a degree of
interdependence amongst its participants. This stance is reflected in the level of our foreign
exchange dealing activity.
19.4 Managing the risk profile requires a comprehensive structure of limits and their
codification in writing and communication to the foreign exchange dealer. The levels at which
limits are set have regard to the capital available to the bank besides being consistent with
the guidelines laid down by the Reserve Bank of India.
19.5 Foreign exchange operations can function properly only if the risks associated with
such operations are identified and measures taken to manage these risks. The establishment
of proper internal guidelines, limits and controls is dependent on a full understanding of the
risks involved and common-sense and integrity. The formal identification of risks is a
necessary first stage in the analysis of risk management.
19.6 The risks to which any foreign exchange operation is exposed may be summarised in
four broad categories:
A) Financial risk;

B) Regulatory risk;

C) Operational risk.

D) Systemic risk

Effective management of operations encompasses the management of all these risks.

A) FINANCIAL RISK
19.7 Foreign Exchange Risk (Currency Risk/Position Risk)

a) The foreign exchange risk can be defined as the risk incurred as the result of foreign
currency exposure, the risk of loss on open forex positions. It is a twin-edged sword. There
is a risk of being long (overbought) in a currency that is liable to depreciate in relation to
one's own. The reverse risk is that of being short (oversold) in an appreciating currency.

b) Risk factors are size of the position and volatility of exchange rates.

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19.8Interest rate risk.
This is the risk of loss on mismatched forward cash flows due to adverse movements in
interest rates.

19.9 Maturity Mismatch/Time Gap

(a) The Treasury Branch daily receives foreign currencies in their accounts, being proceeds of
various export bills or cover for inward remittances or similar other transactions. Similarly,
the branch has to pay out every day foreign currencies through its accounts. If the incoming
amounts take care of the outgoing, there is a proper match involved. If these do not match,
there is a chance of having a large inflow in one month and an excessive outflow in another.
Such a situation creates a "Gap" in the flow of funds although the overall exchange position
may be square. Following are the examples of "Gap":
(i) A 30 days D/A export bill with a notional transit period of 30 days should be normally covered
by a 2- month forward sale in order to avoid any gap, but if it is covered by a spot sale, it
will lead to a forward position gap in the 2nd month.
(ii) If a 3- month forward merchant sale transaction is covered by a one month forward purchase,
it will lead to a positive gap in the 1st month and a negative gap in the 3rd month.
19.10 The positions in the above mentioned examples remain square but these mismatched
maturities involve a risk. Another reason for "gapping" is the nature of availability of market
quotations. For example, in the International Foreign Exchange Market, quotations for
forward and swaps are available for standard periods of 1,2,3 and 6 months; if a customer
is to be provided with a 5 month forward contract, the dealer will have to cover his position
either by a 3 month or 6 month forward contract thereby creating a gap which is unavoidable.
In Indian market, forward cover is available for 1, 2, 3, 4, 5 and 6 months and no gaps are,
therefore, created. The fluctuations in forward premiums or discounts are, sometimes, so
wide and erratic that the cost of closing the gaps may prove very expensive and may even
erode the profitability of the transaction. The "gap" risk factor must be taken into account
seriously by Treasury Branch.

Credit Risk
19.11 A foreign exchange transaction is confirmed by a contract which stipulates that on
a specific date both parties to the contract will deliver to each other specific amounts of
currency in a designated bank for the account of a specific beneficiary. The risks concerned
are that one counter party may be unable or unwilling to execute his side of the contract
before the due date or unable to execute his side of the contract on the due date.
b) The risk associated with default in foreign exchange contract is a credit risk. There
are two elements of risk associated with foreign exchange contracts- (i) revaluation risk,
which can be defined as the cost in the event of a counter party default, of replacing non-
settled contracts and (ii) settlement risk which arises where the defaulting counter party has

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 received settlement payments from the solvent party but has not made the requisite
countervailing payment.

c) Settlement risk is distinct from revaluation risk and encompasses aspects of credit
risk, liquidity risk, systemic risk and temporal risk. Credit risk exists where obligations are not
met at all. It has a liquidity risk dimension since if a party did not receive the currency it
purchased when due, it would need to cover and to finance this shortfall until its counter
party honoured its obligation. It has a systemic risk dimension where one party's failure to
meet obligations causes other party to fail thereby causing a domino effect of a string of
defaults. And it has temporal risk dimension - related to the time and duration of exposure.

d) Temporal risk or Herstatt Risk, named after the 1974 failure of the ‘Bankhaus
Herstatt’, concerns the complexities of assuring the settlement of both ends of a cross-border
currency deal covering different time zones. Herstatt Risk is the chance that a bank will
deliver currency on one side of a foreign exchange deal only to find that its counter party
cannot reciprocate and this can happen because banks operate in different time zones. The
so-called "Herstatt Risk" is a capital risk similar to a default on a loan.

Country Risk
19.12 Country risk is the possibility that a sovereign state or sovereign borrowers of a
particular country may be unable or unwilling and other borrowers unable to fulfil their
obligation for reasons beyond the usual reasons which arise in relation to all lending and
investment. Country risk is thus composed of political risk as well as transfer risk.
(a) Political Risk
Political risk is the risk incurred by lenders and/or investors that the repatriation on their loan
and/or investment in a particular country is restricted by that country for political reasons
only.
(b) Transfer Risk

Transfer risk is the risk that a particular country may impose restrictions on remittance as
part of its economic policy.
(c) Sovereign Risk

A sub-category of country risk is "Sovereign Risk" which may be defined as the special risk
arising from a sovereign borrower's immunity from legal process ("Sovereign Immunity")
rendering it impossible to secure redress through legal action.
Volume Risk/Overtrading Risk
19.13 An unusual increase in the activity of the dealing room accompanied by a general
increase in operating cost, without a corresponding increase in earnings and without any
cogent explanation.
Regulatory Risk
19.14 Regulatory risk is the risk of excessively restrictive regulatory actions. It is also the
risk that the authorities might change the ground rules — "move the goal posts".

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 19.15 Regulatory risk is also the risk of loss arising from failure to comply with the Reserve
Bank‘s requirements on various issues viz:
 Systems and control
 Capital Adequacy
 Submission of Returns
 Other controls

Operational Risks
19.16 Operational Risks are the risks which arise from the way in which banking business
is carried out. The principal types of operational risk are set out below:
19.17 Transaction Risk
 Failure to record a deal,
 Failure to settle a deal
 Settlement with the wrong person
 Failure to collect amount due.

Documentation /Contract Risk -

Incomplete, missing or incorrect documents impeding the ability to enforce a valid claim
against a customer

Legal Risk -
Risk that a transaction is not valid and enforceable under applicable law, a risk that the
customer does not have the power and authority to transact.
19.18 Operational Control Risk
Operating Efficiency Risk -
Inadequate cost control, sub-optimal, operating policies.
Internal & External Authorisation Risk -
Risk that transactions have not been adequately authorized by the bank/customer.
 Exceeding limits,

 Rogue Trading,

 Fraud,

 Money Laundering,

 Security risk,

 Processing risk.

19.19 Systems Risk

 Programming error,

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 Model /Methodology error,

 Production disruption risk - software, equipment failure.

19.20 Technology Risk

The risk of investing in the wrong technology or being "left behind" and the risk of
technological failure or breakdown or obsolescence or inadequate network security in place

19.21 Business/Event Risk -

 Currency convertibility risk,

 Shift in credit rating,

 Reputation risk

 Disaster risk- natural disaster, war, collapse/suspension of markets.

 Market Strategy risk-Moving into inappropriate market segments, the risk of

developing wrong product at the wrong time for the wrong segment.

Systemic Risk
19.22 Risks that cause financial difficulties in one institution or a major market disruption
will cause uncontrollable detriment to other institutions or prevent the effective operation of
the financial system generally.

19.23 The risk that the failure of one participant in a transfer system or in financial markets
generally to meet its required obligations when due will cause other participants or financial
institutions to be unable to meet their obligations when due, causing significant liquidity or
cash problem and might threaten the stability of financial market.

Part II - Risk Management

General
19.24 The principal technique of controlling risk in foreign exchange dealing is the use of
limits, based on appropriate economic, financial, managerial, size and profitability criteria -
parameters set by the Management delineate the dealer's field and thereby the management
of his portfolio.

19.25 Head Office stipulates limits for Daylight Open Position and Overnight Position in each
currency for Treasury Branch for e.g..

Position
Treasury Branch Daylight Overnight
- U.S. Dollars ±2,000,000 ±200,000

- Euro +1,500,000 +150,000

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19.26 Daylight Limits also called intra-day limits are the maximum amount the bank is
willing to put at risk at any point of time during the dealing day to meet the needs of
customers and correspondents. Daylight limits are usually larger than overnight limits to
facilitate undertaking of large merchant transactions and also because more awareness of
the markets exists during working hours than outside them. Daylight limit therefore should
be large enough to cover customers‘ transactions but should not be too large to allow scope
for the Dealers to speculate.

19.27 Overnight Limits are set low because political and economic event occurring
outside the country's business hours may have an important effect on exchange rates and
the trader, not working at night, cannot react immediately to those changes and is particularly
vulnerable.

Aggregate/Overall/Position Limits (Daylight/Overnight)

19.28 Besides these two limits, an aggregate daylight/overnight limit is set by Head Office
overriding the individual daylight/overnight limit in each currency. This is a limit for aggregate
position in all currencies traded, which is lower than the sum of individual currency limits, to
prevent the dealer from reaching the limits prescribed for each of the currencies and ensure
that long and short positions in various currencies do not result in excessive exposures.

Calculation of the Overall Net Position involves measurement of risks inherent in the bank's
mix of long and short position in different currencies and is calculated as follows:
Calculation of the Net Open Position in a Single Currency
The open position must first be measured separately for each foreign currency. The open
position in a currency is the sum of (a) the net spot position, (b) the net forward position
and (c) the net options position.
a) Net Spot Position

The net spot position is the difference between foreign currency assets and the liabilities in
the balance sheet. This should include all accrued income/expenses.
b) Net Forward Position

This represents the net of all amounts to be received less all amount to be paid in the future
as a result of foreign exchange transactions which have been concluded. These transactions,
which are recorded as off-balance sheet items in the bank‘s books, would include:
(i) spot transactions which are not yet settled;

(ii) forward transactions;

(iii) guarantees and similar commitments denominated in foreign currencies which are
certain to be called;

(iv) net of amounts to be received/paid in respect of currency futures, and the principal
on currency futures/swaps.

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The options position is the ―delta-equivalent‖ spot currency position as reflected in the
authorized dealer‘s options risk management system, and includes any delta hedges in place
which have not already been included under 3(a) or 3(b) (i) and (ii) above.
Calculation of the Overall Net Open Position
This involves measurement of risks inherent in a bank‘s mix of long and short position in
different currencies. It has been decided to adopt the ―shorthand method‖ which is accepted
internationally for arriving at the overall net open position. Banks may, therefore, calculate
the overall net open position as follows
(i)Calculate the net open position in each currency
(ii) Calculate the net open position in gold.

(iii) Convert the net position in various currencies and gold into Rupees in terms of
existing RBI/FEDAI Guidelines. All derivative transactions including forward exchange
contracts should be reported on the basis of Present Value (PV) adjustment.

(iv) Arrive at the sum of all the net short positions.

(v) Arrive at the sum of all the net long positions.

Overall net foreign exchange position is the higher of (iv) or (v). The overall net foreign
exchange position arrived at as above must be kept within the limit approved by Reserve
Bank/ Head Office.
Note : Authorised Dealer banks should report all derivative transactions including forward
exchange contracts on the basis of PV adjustment for the purpose of calculation of the net
open position. The following yield curves may be used to arrive at the discount factors:
i) In respect of Forward Exchange Contracts with tenor up to 12 months: Applicable LIBOR
rate.
ii) In respect of Forward Exchange Contracts with tenor beyond 12 months and up to 13
months:
LIBOR rates for 11 months & 12 months may be considered; the difference between these 2
months can be added to the LIBOR rate for 12 months to arrive at the 13 months LIBOR
rate.
iii) In respect of Forward Exchange Contracts with tenor beyond 13 months and all other
derivative contracts:
The discount factors for arriving at the net present value may be computed on the basis of
the current swap curve and SWAQ of the REUTERS screen on a consistent basis (i.e. adopting
a specified time at which the same is to be determined). The methodology to be adopted/
selection of the rate/cut-off time etc. are to be a part of bank‘s laid down policy guidelines
by the Management.

Forward Gap/Mismatch Limits

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 19.29 a) Head Office also fixes limits for "gaps" for each currency for each forward month
and an aggregate limit for all the currencies combined and the Treasury branch must work
within the framework of these Individual Gap Limits and Aggregate Gap Limits.
Needless to say, the mismatched maturity risk must be kept to the minimum since gaps may
result in higher loss to the bank. As far as possible, all sales and purchases reported by
Treasury branch must be covered with appropriate maturities.
b) Control of gaps provide the Management with a macro view of the level of mismatch at
periodical intervals so that timely corrective steps can be taken in order to reduce
unreasonably large gaps. Closer control is, however, required on mismatches arising in the
nearer term on a daily ongoing basis as large mismatches in cash inflows and outflows can
create liquidity problems for the bank. The official in-charge of Funds Desk in the Back-office
Section- should, therefore, prepare a daily liquidity report in each currency showing the
expected closing cash balance in Nostro account on the day-to-day inflows and outflows
arising from maturing inter bank/Reserve Bank contracts and the larger customer contracts
over the next five working days and also the effects thereof on the local currency.

Counter Party Limits

19.30 To control the credit risk, the bank has prescribed limits for each bank for inter bank
transactions and the Treasury branch should ensure that the total outstanding contracts with
each counter party bank does not exceed the limit fixed. Similarly, the bank has also
prescribed forward contract limit for customers. The limit for such forward contracts for
customers should be fixed after reckoning the customer's standing, the volume of his
business and his requirements. To control settlement risk, Treasury branch should:
i) have a thorough grasp on the settlement process,
ii)have a firm grasp on the settlement exposure,
iii) review and upgrade correspondent services to ensure that the services provided give the
bank maximum control over its NOSTRO account.
iv) Complete reconciliation as early as possible so as to significantly reduce the amount of
time that the settlement receivable due from each counter party is considered at risk.

v) Monitor non-receipt and establish and practice clear follow-up procedure to evaluate
non- receipt of payments and to alert all concerned parties to potential problem
situations.Ensure that confirmation of contracts entered into with concerned
party(banks/customers) are obtained without fail.

Stop loss limits

These limits are established to avoid unrealized loss in a position from exceeding a specified
level. When these limits are reached, the position will either be liquidated or hedged. Typical
stop loss limits include those relating to accumulated unrealized losses for a day, a week or
a month.
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Banks also establish management action trigger (MAT) limits in addition to stop loss limits.
These are for early warning purposes. For example, management may establish a MAT limit
at 75 percent of the stop loss limit. When the unrealized loss reached 75 percent of the stop
loss limit, management will be alerted of the position and may trigger certain management
actions, such as close monitoring of the position, reducing or early closing out the position
before it reaches the stop loss limits.
Value-at-risk limits
These limits are designed to restrict the amount of potential loss from certain types of
derivatives products or the whole trading book to levels (or percentages of capital or
earnings) approved by the board and senior management. To monitor compliance with the
limits, management calculates the current market value of positions and then uses statistical
modelling techniques to assess the probable loss (within a certain level of confidence) given
historical changes in market factors. There are three main approaches to calculating value-
at-risk: the correlation method, also known as the variance/covariance matrix method;
historical stimulation and Monte Carlo stimulation.
The advantages of value-at-risk (VAR) limits is that they are related directly to the amount
of capital or earnings which are at risk. Among other thing, they are therefore more readily
understood by the board and senior management. The level of VAR limits should reflect the
maximum exposures authorized by the board and senior management, the quality and
sophistication of the risk measurement systems and the performance of the models used in
assessing potential loss by comparing projected and actual results. One drawback in the use
of such models is that they are only as good as the assumptions on which they are based
(and the quality of the data which has been used to calculate the various volatilities,
correlations and sensitivities).
Options limits
These are specifically designed to control the risks of options. Options limits may include
Delta, Gamma, Vega, Theta and Rho limits. Delta is a measure of the amount an options
price would be expected to change for a unit change in the price of the underlying instrument.
Gamma is a measure of the amount delta would be expected to change in response to a unit
change in the price of the underlying instrument.
Vega is a measure of the amount an option‘s price would be expected to change in response
to a unit change in the price volatility of the underlying instrument. Theta is a measure of
the amount an option‘s price would be expected to change in response to changes in the
options time to expiration. Rho is a measure of the amount an option‘s price would be
expected to change in response to changes in interest rates.

19.31 Control of Operational / Business Risks

i) Segregation of Dealing, Accounting (Backup), Control (Audit)
There is a trinity of major functions involved in foreign exchange transactions dealing,
accounting (Backup) and control (audit). Each of these functions is well delineated and must
be segregated to ensure the reliability of the foreign exchange performance and to obviate
costly problems and complication. The dealing function includes the proper recording of all
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 transactions, the upkeep and monitoring of all positions and compliance with foreign
exchange guidelines and limits. Dealers should have no immediate responsibility beyond the
dealing desk. The Back office function includes the checking and confirming of transaction,
the processing of contracts, the preparation and processing of settlements on the maturity
date, the investigation of operational problems, the monitoring of foreign currency accounts
used for currency settlement and reconciliation of these accounts and filing of matured,
maturing and outstanding contracts. The back-office thus provides logistic support to the
dealing room and should be the area where errors are caught and brought to the attention
of the dealers. The control function is totally separated from the dealing room and the back
office. It is assumed internally by the audit department and externally by the Reserve Bank
examiners.
ii) Reporting:
It is only through proper reporting of information on exchange transaction that the risks can
be kept under control and minimized. The effective preparation and presentation of reports
are closely linked with a proper system of collecting, recording and storing information and
the ability to retrieve the information quickly.
The following reports are considered to be key reports:
a) Summary of open spot and forward positions in each currency together with
the aggregate.
b) Mismatch (gap) report.
c) Liquidity report - cash inflows and outflows within the next five days by currency.

d) Limit excesses - details of all limits which have been exceeded (annotated with
justification therefore and the level of approval sought for such excesses and the corrective
action taken). e) Overdue items - details of all items which are overdue for payment and
settlement Outstanding counterparty confirmation.

e) The level of reconciliation of items in Nostro account.

f) Exceptions reports

iii) Revaluation of Position:

Revaluation should be undertaken as per the Procedure to be followed under the revise
Accounting Standard wef 23.03.2012 vide Circular Letter no. 2011-12/242 dated 28.03.2012
issued by Head Office, International Division, Foreign Business Department.
iv) To detect signs of overtrading, it is necessary for the Management to keep a watch on
the volume of dealing activity.
v) Reconciliation of Nostro Accounts :
Each Position Maintaining Branch maintains Nostro accounts in foreign currencies in which it
keeps position. A large number of transactions, particularly all inter-bank deals are "value
dated" transactions and it is essential that delivery of foreign currency is made to the
"counterparties" in the foreign centre on the agreed date. Any delay in such payments put
the bank to a loss because the bank is required to pay interest for the late delivery. Similarly,

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the amounts which the Position Maintaining Branch is expected to receive should be checked
every day in the daily statements of foreign branches/correspondents with whom the account
is kept in order to ensure that these are received as per the agreed "value dates". Position
Maintaining Branch should, therefore, do the job of instant reconciliation, if possible, every
day to check their daily receipts and payments in various currencies. Any erroneous credit or
debit entry for a large amount in the Nostro account should be immediately taken up with
the correspondent banks or branches. If wrong entries are not cleared at the earliest, the
correspondent banks may later on adjust these entries with back-dated value, resulting in
payment of overdue interest. As far as possible, such instances should be avoided.
Furthermore, if outstanding items are not followed up immediately, it becomes a difficult job
later to obtain details from these correspondent banks who are generally reluctant to
undertake archive research and attend to old items. Reconciliation also helps in effective fund
management and therefore, there should be a close co-ordination among the staff of Dealing
Room, Funds Management Section and Reconciliation Department of the Treasury Branch.
Reconciliation Department should ensure that Statements of Accounts are regularly received
from correspondents/branches. They should promptly advise the details of unreconciled
entries to concerned branches within seven days of receipt of statement.
vi) Nostro Account Management:
Nostro accounts maintained with correspondent banks may be charged on a fee basis related
to transactions processed or may require a specific level of compensation or other forms of
credit balance to be maintained. A large or excessive balance above that required, left in a
Nostro account, is generally a sign of bad funds management rather than a planned treasury
operation. Conversely, it is equally important that there is a sufficient balance maintained in
the account to service the business transacted across the account. Nostro account
management is an important aspect of treasury operation.
It is imperative that the exchange control or other mandatory requirements of the host
country or the account holding correspondent are adhered to, the most common being to
ensure that the amount is kept in credit. It is normal for the authorities abroad to permit
temporarily resultant overdrafts where the bank with which the account is held is aware that
funds are on the way but have not yet been received to cover a payment order which would
otherwise overdraw the account. Apart from contravening the requirements of the authorities
in some countries by overdrawing a Nostro account, the bank would be charged with
overdraft interest by the bank with whom the account is held. Such a charge may well be at
penal rate and as such, it is neither desirable nor necessarily an economic practice to adopt.
An essential function of an international bank is the reconciliation of its Nostro accounts and
the daily identification of balances held thereon. Time differences in various centres around
the world, coupled with the different practices of banks and dissimilar computer systems
employed by them give rise to the management of Nostro accounts being less than a perfect
science. Payment received as a result of export transactions may not be advised to the
account holding bank before one or more days have elapsed. Many payments issued or
authorized by a bank may not be debited to its Nostro account for a while and the debit date
cannot be determined at the time the transaction is originated.
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Credits paid into Nostro accounts with value before the credit advices are received are a
regular occurrence which can give rise to excessive balances on a bank's various Nostro
accounts. Delays in receipt of information vary, sometimes only during the course of a day
or for one day but sometimes for a large period depending on the communication established
between the two banks and of course, their own internal systems, various cash management
or both internal and external cash management purposes. 'A proliferation of Nostro accounts
is usually uneconomic and can lead to funding problems, misunderstanding and reconciliation
difficulties
vii) Procedure for protection of all documents and dual control of test key and SWIFT
passwords
viii) Regular back-ups of all computerized data and arrangements for use of back-up facilities
to guard against failure of computer system
ix) The bank's dealing rooms are its service centres as well as profit centres. Increase in
the operational efficiency of this area can translate directly into enhanced quality of service
to the bank's customers and increased profit for the bank. Accordingly, a great deal of
emphasis has been placed on improving the efficiency being derived from an increased use
of technology. So, the quality of the equipment must be maintained to guard against
technological malfunction.
x) Treasury Branch should strictly adhere to the Internal Control Guidelines of the Reserve
Bank of India.
xi) Security arrangements for computer and communication systems should also be
established and defined. Dealing areas are generally dependent upon the degree of
sophistication of their communication and computerized systems. The necessity of dealing
room to be at secure areas cannot be overemphasized. Level of access to computerized
facilities needs to be considered and systems so designed so as to ensure that audit trails
are available and appropriate levels of computer security are maintained with adequate back-
up arrangements.
xii) Proper selection, training and periodical rotation of personnel. xiii)Control over Inward
and Outward messages regarding operation of Nostro / Vostro Accounts. There should be
adequate audit trail to ensure that balances & accounts have been properly reconciled.

xiii) Control over confirmation of deals and verification of rates& to provide audit trail for
deals effected. Similarly to provide document trail that supports the Bank‘s position in the
event of disputes.
xiv) Control over evaluation of foreign exchange profit and loss.
xv) Review of panel of brokers, brokerage payments.
xvi) Periodical view of systems and procedures.
xvii) Prompt investigation into losses.
xviii) Problems of operating difficulties and their osculation.

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 xix) Control over Dealer‘s Profit and Losses: Management should not set unrealistic targets
for profit / turnover, etc. for dealers as may entice them into speculation which may prove
counter productive.
Role of Internal Audit
19.32 Effective audits control function is essential since it comprises preventive, detective
and forensic actions - prevention of errors and irregularities, detection of irregularities which
have occurred and tracking what went wrong and making sure it does not happen again
(financial forensics). This should be achieved through implementation of formal internal audit
programmes which should be fully documented with formal report being prepared and
submitted to management.
19.33 These programmes should ensure, inter-alia, that
 Appropriate division of responsibility is maintained between dealing, processing and
accounting and control function.
 Counter party limits are established and the system caters to the judicious management -of
such limits.
 Dealing positions are maintained within established limits and that all other regulations
imposed on trading are complied with.
 Line dealing management assesses or reviews position throughout the day.
 Any excesses created either over counter party or dealing position limits are reported to
senior management.
 Dealing is only transacted by persons authorized to do so within the authority delegated to
them and in the interest of the bank in accordance with its dealing policy.
 All deals undertaken are properly and accurately recorded. Deal Confirmations are exchanged
and agreed.
 Broker notes are recorded, examined and verified and the charges are closely monitored and
analysed.
 Revaluations are properly undertaken at appropriate current market rates and accounting
and profit figures are correctly completed and reported.
 Nostro and other reconciliations are performed accurately and all unreconciled items are
under prompt investigation.
 Returns reflect an accurate and true representation of the actual transactions/positions, etc.
 Regular reviews of limits are undertaken.
 Periodic reviews of systems and procedures are undertaken.
 Any losses, positions and operational difficulties are thoroughly and promptly investigated
and resolved.
 Settlement procedures are being complied with.
 Payment receipt and delivery procedures are being complied with.
 Staff are properly trained.
Our Bank has a well documented policy and suitable limits – AGL, IGL, VaR, Stop loss, Single
Deal, Daylight, Overnight, etc., have been set-up for effective management of foreign
exchange risks.
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 Chapter - 20

NON-RESIDENT DEPOSIT ACCOUNTS

Introduction

20.1 The accounts of persons, who are not considered to be resident in India, are
designated as "non-resident accounts". Accounts of such non-resident persons, firms,
companies, organisations and banks are opened strictly in conformity with the regulations
framed under Foreign Exchange Management Act, 1999 and the directives issued by the
Reserve Bank of India from time to time. Branches should take particular care to keep a copy
of FEMA guidelines dealing with Non Resident Deposit Accounts and refer to its various
sections for fuller information and compliance of FEMA requirements. In addition, wherever
the Reserve Bank of India leaves certain matters to the discretion of the Bank appropriate
decisions are conveyed by Head Office. The branches should keep their records/Manuals
updated with changes advised by Reserve Bank of India and Head Office from time to time.

20.2 Various facilities are available in India to persons of Indian nationality or Indian origin
living abroad (NRIs). The facilities include maintenance of bank accounts in rupees and in
foreign currency and investment in shares and securities, immovable properties, etc.

20.3 Non-Resident Indians generally fall into one of the following broad categories:

a)- Indian citizens who stay abroad for employment or for carrying on a business or vocation
or for any other purposes in the circumstances indicating an indefinite period of stay outside
India.
b) Indian citizens working abroad on assignment with Foreign Government, Government
Agencies or International/Regional Agencies like United Nations Organization (UNO) and Its
affiliates IMF, IBRD, etc. and Government officials (both Central and State) and other officials
of public sector undertakings deputed abroad on assignment or posted abroad (including
Diplomatic Missions)

20.4 Persons of Indian Origin

a) For the purpose of being eligible for the facilities of opening and maintenance of
various types of bank accounts and making investments in shares and securities in India, a
foreign citizen (not being a citizen of Pakistan or Bangladesh) is deemed to be a person of
Indian origin if he at any time held an Indian passport or he or either of his parents or any of
his grand parent was a citizen of India by virtue of the Constitution of India or Citizenship Act,
1955 (57 of 1955) or who belonged to a teriroty that became part of India after the 15th day
of August, 1947 . A spouse (not being a citizen of Pakistan or Bangladesh) of an Indian citizen
or of a person of Indian origin is also treated as a person of Indian origin for the above
purpose.

b) For investments in immovable properties

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 A foreign citizens (other than a citizen of Pakistan, Bangladesh, Afghanistan, Bhutan, China,
Iran, Sri Lanka, or Nepal) is deemed to be of Indian origin if,

(i) he held an Indian passport at any time, or

(ii) he or his father or paternal grand-father was a citizen of India by virtue of the
Constitution of India or the Citizenship Act, 1955 (57 of 1955).

c) Indian Students studying in abroad:

Indian students studying abroad can be treated as Non-Resident Indian (NRIs) having
regard to the circumstances stated as under:

i) Their stay abroad for more than 182 days in the preceding financial year; and
ii) Their intention to stay outside India for an uncertain period when they go abroad for
their studies.
Accordingly, students going abroad for studies are treated as Non-Resident Indian (NRIs)
and are eligible for all the facilities available to NRI under FEMA.

20.5 These persons become resident in India only when they come back to the country
for employment or carrying on in India any business or vocation or for any other purpose
indicating an intention for indefinite duration of stay in India. They are not regarded as persons
resident in India when they come on a visit to India for a short period.
20.6 The accounts of Indian citizens who proceed abroad for business visits, medical
treatment, higher studies and such other purposes, without indicating any intention to stay
out of India for an indefinite period, should continue to be treated as accounts of persons
resident in India even during the absence of the account holders from the country.

20.7 Overseas Corporate Bodies (OCBs) are bodies predominantly owned by individuals
of Indian nationality or origin resident outside India and include overseas companies,
partnership firms, societies and other corporate bodies which are owned, directly or indirectly,
to the extent of at least 60 per cent by individuals of Indian nationality or origin resident
outside India as also overseas trusts in which at least 60 per cent of the beneficial interest is
irrevocably held by such persons. Such ownership interest should be actually held by them
and not in the capacity as nominees (Presently RBI has banned to accept NRI deposits
from OCBs).

20.8 The various facilities granted to NRIs (with certain exceptions) were
hitherto, available to Overseas Corporate Bodies (OCBs). As per Foreign Exchange
Management (withdrawal of general permission to Overseas Corporate Bodies
(OCBs) Regulations 2003, all permissions with respect to investments and
transactions allowed under various FEMA regulations have been withdrawn. No
new NRE / FCNR/NRO accounts in the names of OCBs shall be opened and no
renewal of deposits shall be made.

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 20.9 Where there is a doubt regarding the resident status of a person, reference should
be made to the Reserve Bank of India through Head Office by letter giving full particulars for
their decision.
Note: Opening of and operations on the accounts of individuals/entities of
Pakistan and Bangladesh nationality/ownership require prior approval of Reserve
Bank of India.
Types of Non-Resident Accounts

20.10 Non-resident accounts broadly come under one of the following

categories:

a. Non-resident (Ordinary) Accounts [NR(0)]

b. Non-resident (External) Accounts [NR(E)]
c. Foreign Currency Non-Resident Accounts (FCNR)

20.11 The type of a/c should be properly incorporated in the Finacle System.
Opening of Accounts

20.12 At the time of opening the account, full particulars of the account holder and
declaration/ undertaking should be obtained in Account opening form along with the other
appropriate documents depending upon the type of deposit account opened. (Branches should
also follow the instructions given in Chapter "Deposits - General" Manual No-1 on deposits, in
respect of opening and maintenance of deposit accounts in general.)
20.13 The prospective account holder will have to furnish proper identification & proof which
is acceptable to the Bank. (Also refer to the instructions regarding introduction in deposit
accounts given in Chapter "Deposits - General" in Manual No1).
20.14 Person(s) desirous of opening a non-resident account of the type as mentioned above
should submit the application in the prescribed form duly completed and signed. The
application should inter alia contain an undertaking of the account holder(s) to promptly inform
the Bank of his (their) return to India for permanent residence. Necessary documentary
evidence like Passport (First and last 4 pages of the Passport showing name, address, date of
birth, date & place of issue, expiry date, photograph and signature)/ Visa and Employment
Certificate wherever necessary, to confirm the Non Resident status.
20.15 ―The Know Your Customer‖ (KYC) procedure and guidelines issued from time to time
should be complied with while opening the account. As per the provision contained in
subsection (5) of Section 10 of FEMA, 1999, authorised person is required to obtain a
declaration and such other information from the person (applicant) on whose behalf the
transaction in foreign exchange is being undertaken and reasonably satisfy himself that the
transaction is not designed to contravene or evade the provisions of FEMA 1999 or Know your
customer norms/ Anti Money Laundering(AML) standards/ combating of Terrorism/obligations
of Banks under Prevention of Money Laundering Act(PMLA),2002 or any of the Rules and
Regulations made or Notifications of directions or orders issued under the Acts. Branch should
also obtain FATCA / CRS Annexure Declaration along with required documents from the
individual account holders and keep on record. (CBDT Notified Rules 114F to 114 H, as part of
IT Rules, 1962). Authorised Dealers should preserve the information/ documents obtained by
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them from the applicant before undertaking the transactions for verification by the Reserve
Bank. If the said person refuses to comply with any such requirement or makes only
unsatisfactory compliance therewith, the authorised person shall refuse in writing to undertake
the transaction and shall, if he has reason to believe that any such contravention or evasion
as aforesaid is contemplated by person, report the matter to the Reserve Bank through Zonal
Office/ Head Office.
20.16 Nomination facility is available in non-resident accounts in respect of deposits made
by the individuals). However, the deceased non-resident account holders' nominees (who
could also be residents of India) would not be automatically entitled to the right of repatriation
which is governed by provisions in FEMA.

Registers

20.17 ( Now maintained separately in the Finacle system as different account codes allotted
to these accounts)..
20.18 Standing instructions given by the account holder and/or the special
instructions/conditions laid down by the Reserve Bank of India/our bank, if any, should be
recorded in the computer system.

The Data Centre (Core Banking Solution) shall do the needful for complying with various
provisions / requirements relating to Non Resident Accounts.

Preparation and Issue of Term Deposit Receipt

20.19 Term deposit receipts,, reflect the high quality of the Bank's service which is the key
factor in mobilising deposits from the non-residents in the face of increasing competition and
in -boosting the Bank's image abroad. Branches should, therefore, issue System
GeneratedTerm Deposit Receipts signed in blue or black ink by the authorised officials.

Value-dating of deposits In NRO/NRE/ Accounts and Applicable Exchange Rate

20.20 Whenever deposits are created out of remittances in foreign currency by way of
Swift/ Demand Draft, the value-date for deposit is to be given as of the date of credit to our
Nostro account. The rate of interest prevalent on such "Value Date" will be applicable.
However, exchange rate for conversion would be the one prevailing on the date of conversion.

20.ATM – CUM - International Debit Card (EMV Chipbased):

The NRO/ NRE Saving Bank/ current Account holders may be issued our ATM – CUM -
International Debit- Card (EMV Chipbased). The application for issue of card is to be
signed by all the accountholders. The cardholders should restrict the use of card to various
monetary ceilings and terms and conditions subject to which card is issued.

349
 The cardholder agrees to indemnify and hold harmless the bank from any and all the
consequences arising from the card holder not complying with the Foreign Exchange
Regulations of the RBI and provisions of Foreign Exchange Management Act, 1999 and or any
other Act or Authority. Card transactions may be settled by inward remittance or out of
balances held in the cardholder‘s FCNR(B)/ NRE/NRO Accounts.

Automatic Renewal:

20.22 The instructions for automatic renewal of deposit receipt can be given by depositor
authorizing the bank to automatically renew the deposit on due date for an identical period
unless the instructions to the contrary are received from the depositor before the due date.
Such renewals will be in accordance with the provisions of the Reserve Bank of India's Scheme
or Bank's rules in force at the time of the renewal and interest applicable at the ruling rates
on the date of maturity.

20.23 In all such cases, depositors should be requested to keep their deposit receipt in safe
custody with the Bank so that the same can be renewed on the due date. Branches should
advise depositors about the facility for keeping deposit receipt in safe custody which can be
paid/renewed on the due date as per depositor's instructions.

20.24 Branches should not wait for the original receipt for renewal in case of instructions
for automatic renewal are given by the depositor. However, the original of the renewed receipt
should be delivered only against the original of previous (matured) receipt. If the matured
receipt was under lien, appropriate steps be taken for liquidation of dues or continuation of
lien.

20.25 All the existing term deposits other than overdue deposits should be brought into
―automatic renewal‖ as per the instructions issued vide branch Circular No. 93/104 dated
31.08.1999. All Deposit Receipts under Automatic Renewal Scheme should be stamped with
―Under Automatic Renewal Scheme‖. Foreign branches, while forwarding Account Opening
forms for opening NRE/ FCNR accounts should ensure that the same are accompanied by
Automatic Renewal Instructions. (No fresh circular found, FBD PLEASE VET IT)

Non-Resident (Ordinary) Rupee Accounts (NRO)

Change of Status from Resident to Non-Resident

20.26 When a person resident in India leaves India for a country (other than Nepal or
Bhutan), for taking up employment, business or vocation outside India or for any other purpose
indicating his intention to stay outside India permanently or for an uncertain period, he
becomes, a person resident outside India. His existing account if any, should therefore, be
designated as non-resident (Ordinary Account). Doubtful cases should be referred to Reserve
Bank of India, through Zonal Office/ Head Office giving full particulars.

20.27 Opening of NRO accounts

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 a. The existing resident accounts of persons whose status has changed to Non-Resident
as mentioned above, should be designated as Non-Resident Ordinary Accounts. NRO Term
Deposits can be from 7 days to 120 months.
b. Fresh NRO accounts may be opened in the names of non-resident individuals/entities
without approval of Reserve Bank for the purpose of putting through bona-fide transactions in
rupees not involving any violation of the provisions of FEMA, 1999, Rules and Regulations
made there under. Accordingly, prior to opening of such accounts and immediately upon
redesignation of resident accounts as NRO accounts as in case a) above, branches should
obtain following undertakings from the depositors:
i) that the account holder shall not make available to any person resident in India,
foreign currency, against reimbursement in rupees or in any other manner in India.
ii) that in cases of debits to the accounts for the purpose of investment in India and
credit representing sales proceeds of investments, they would ensure that such investments/
disinvestments will be in accordance with the Regulations made by RBI in this regard. (Once
this undertaking has been obtained, branches need not verify the particulars of approvals
obtained, while permitting individual credits/debits relating to investments, to the account).
These undertakings are to be taken either on the account opening form itself or separately.
Branches should ensure that either they use the account opening form with these undertakings
printed thereon or they take these undertakings separately but attach them with the account
opening form for reference by auditors/inspectors.

NOTE: Opening of and operations on the accounts of individuals/entities of

Pakistani/Bangladesh nationality/ownership require prior approval of Reserve
Bank.

Joint Accounts with Residents

20.28 Accounts of non-residents may be held jointly with non-residents as well as resident
Indians.

Change of Status from Non-resident to Resident

20.29 NRO accounts may be re-designated as resident accounts on the return of the account
holder to India, provided the branches are satisfied that the account holder has returned to
India for taking up employment, business or vocation or for any other purpose indicating his
intention to stay in India for an uncertain period. Where the account holder is only on a
temporary visit to India, the account should continue to be treated as non-resident even during
such visit.

Types of Accounts
20.30 NRO accounts may be maintained in the nature of current, savings, recurring or term
deposit accounts. The requirements laid down in the directives issued by Reserve Bank in
regard to resident accounts shall apply to NRO accounts. Rules regarding premature closure,
renewal of overdue receipts, rate of interest are the same as those for resident accounts.

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 Operations on the Accounts

20.31 The undernoted credit and debit transactions may be allowed in the accounts by the
branches.
20.32 Permissible Credits
(i) Proceeds of remittances from outside India through normal banking channels received
in any permitted currency.
(ii) Any foreign currency, which is freely convertible, tendered by the account holder during
his temporary visit to India. Foreign currency exceeding USD 5000 or its equivalent in the form
of cash should be supported by currency declaration form. Rupee funds should be supported
by encashment certificate, if they represent funds brought from outside India.
(iii) Transfers from rupee accounts of non-resident banks.
(iv)Legitimate dues in India of the account holder. This includes current income like rent,
dividend, pension, interest, etc.
(v) Sale proceeds of assets including immovable property acquired out of rupee / foreign
currency funds or by way of legacy /inheritance.
(vi) Resident individual may make a rupee gift to a NRI/PIO who is a close relative of the
resident individual [close relative as defined in Section 2(77) of Indian Companies Act, 2013
as amended from time to time by way of crossed cheque /electronic transfer. The amount
shall be credited to the Non-Resident (Ordinary) Rupee Account (NRO) a/c of the NRI / PIO
and credit of such gift amount may be treated as an eligible credit to NRO a/c. The gift amount
would be within the overall limit of USD 250000/- per financial year as permitted under the
Liberalised Remittance Scheme (LRS) (updated 13-08-2018 by RBI) for a resident individual.
(vii) Resident individual to lend to a Non-resident Indian (NRI)/ Person of Indian Origin
(PIO) close relative [means relative as defined in] Companies Act, 2013 as amended from time
to time by way of crossed cheque /electronic transfer, subject to conditions within the overall
limit under the Liberalised Remittance Scheme of USD 250000/-per financial year available for
a resident individual. The loan amount should be credited to the NRO a/c of the NRI /PIO.
Credit of such loan amount may be treated as an eligible credit to NRO a/c;
20.33 Permissible Debits:
(i) All local payments in rupees including payments for investments in India subject to
compliance with the relevant regulations made by the Reserve Bank.
(ii) Remittance outside India of current income like rent, dividend, pension, interest, etc. in
India of the account holder.
(iii) Remittance up to USD one million, per financial year (April- March), for all bona fide
purposes, to the satisfaction of the Authorised Dealer bank.
(iv) Transfer to NRE account of NRI within the overall ceiling of USD one million per financial
year subject to payment of tax, as applicable.

Branches' Responsibilities regarding Non-resident Ordinary Accounts

20.34 Branches should report to Reserve Bank any transactions in the NRO accounts which
may appear to represent reimbursement in rupees against foreign exchange made available

352
to person resident in India other than an authorised dealer. Any other transactions of
suspicious nature should also be reported to Reserve Bank.

Remittances of Assets by NRI/ PIO

20.35 Remittance of NRIs/ PIO :

NRIs/ PIOs may remit through an Authorised Dealer, an amount not exceeding USD One
million per financial year, out of balances held in the NRO account/ sale proceeds of assets/
the assets in India acquired by him by way of inheritance/ legacy, on production of
documentary evidence in support of acquisition, inheritance or legacy of assets by the remitter,
and an undertaking by the remitter and certificate by the chartered accountant in the format
prescribed by the CBDT. of assets by the remitter, or settlement from a person who was
resident in India subject to conditions outlined below:

It is clarified that the deed of settlement is also a mode of inheritance from the parents or
a close relative, the only difference being that the property under the deed of settlement
passes to the beneficiary on the death of the settler without any legal procedures/ hassles and
helps in avoiding delay and inconvenience in applying for probate, etc.

(a) Assets acquired in India out of rupee/ foreign currency funds-

(b) Immovable property/ other assets

NRI/PIO may remit sale proceeds of immovable property/ other assets purchased by him
as resident or out of Rupee funds as NRI/PIO, without any lock in period, subject to the above
limit of USD 1 million, per financial year, provided such remittance is traced to the sale
proceeds of the immovable property/ other assets to the satisfaction of the authorised dealer.

Restrictions

a) The remittance facility in respect of sale proceeds of immovable property is not

available to citizens of Pakistan, Bangladesh, Sri Lanka, China, Afghanistan, Iran, Nepal and
Bhutan.

b) The facility of remittance of sale proceeds of other financial assets is not available to
citizens of Pakistan, Bangladesh, Nepal, and Bhutan.

Remittance of assets out of NRO account by a Foreign National of Non-Indian

Origin
A citizen of a foreign state not being a citizen of Nepal or Bhutan or a person of Indian
Origin(PIO),who
(i) has retired from an employment in India, or
(ii) has inherited assets from a person who was resident in India, or
(iii) is a widow resident outside India and has inherited assets of her deceased husband
who was an Indian citizen resident in India.
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 May remit an amount up to USD One million, per financial year, on production of
documentary evidence in support of acquisition, inheritance or legacy of assets and an
undertaking by the remitter and certificate by a Chartered accountant in the format prescribed
by the CBDT to the authorised dealer.
Foreign nationals of non-Indian origin on a visit to India

NRO (current/savings) account can be opened by a foreign national of non-Indian origin

visiting India, with funds remitted from outside India through banking channel or by sale of
foreign exchange brought by him to India. The balance in the NRO account may be converted
by the Authorised Dealer bank into foreign currency for payment to the account holder at the
time of his departure from India provided the account has been maintained for a period not
exceeding six months and the account has not been credited with any local funds, other than
interest accrued thereon. In case the account has been maintained for a period more
than six months, applications for repatriation of balance will have to be made by the account
holder concerned on plain paper to the Regional Office concerned of the Reserve Bank.

Grant of Loans/Overdrafts to Account Holders

20.36 The regulations regarding grant of loans/overdrafts to Account Holders are as under:

20.37 Loans/overdrafts to non-resident account holders may be granted on the security of

term deposits held by them subject to usual norms as are applicable to resident accounts,
except for the purpose of relending, carrying on agricultural/plantation activities or for
investments in real estate business or Chit Funds, Nidhi Companies, Trading in Transferable
Development Rights {TDRs} or investment in Capital Market including Margin Trading and
Derivatives.

Grant of Loans/Overdrafts to third parties

20.38 Branches may grant loans/overdrafts to resident individuals/firms/companies in India

against the security of deposits held in NRO accounts, subject to the following terms and
conditions:-
a. The loans shall be utilised only for meeting borrower's personal requirements and/or
business purpose and not for carrying on agricultural/plantation activities or real estate
business or for re-lending or Chit Funds, Nidhi Companies, Trading in Transferable
Development Rights {TDRs} or investment in Capital Market including Margin Trading and
Derivatives.
b. Regulations relating to normal margin, rate of interest as stipulated by Reserve
Bank our Bank from time to time should be complied with.

Before granting such loans branches may obtain an undertaking from the resident
borrower to the effect that loan amount will be utilised for meeting his personal/business
requirements and not for other purposes referred to in (a) above.

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 Branches should apply the usual norms and considerations as they do in the case of
advances to trade/industry and satisfy themselves as to the acceptability of purpose,
genuineness of credit needs of the borrower and end-use of funds and need not be guided
solely by the availability of security.

Branches may allow temporary overdrawings in NRO Savings Bank Accounts, up to a limit
of Rs. 50,000/- (FBD PLEASE CONFIRM) subject to the condition that the overdrawings
together with the interest payable thereon are cleared/ repaid within a period of two weeks
either by way of remittances from abroad or out of legitimate funds of the account holder or
transfer from his NRE/FCNR accounts.

Continuance of Loans/Overdrafts to Residents who become Non-residents

20.39 In case of persons who had availed of loan or overdraft facilities while resident in
India and who subsequently become non-resident, branches may allow continuance of the
loan/overdraft facilities granted to them subject, inter alia, to the following conditions :

a) The borrower is an Indian citizen or a person of Indian origin.

b) So long as the borrower continues to be a non-resident, repayment of the
loan/overdraft as also payment of interest accruing thereon will be made out of remittance
from abroad or out of legitimate resources in India of the person concerned.
Before according their approval, branches should obtain from such borrowers an application
stating, inter alia, (i) the date of the borrower's departure from India, (ii) country to which he
has gone, (iii) the purpose and probable duration of his stay abroad, and (iv) reasons for
continuing the rupee loan/overdraft. Change of resident status of account holder.

(a) From Resident to Non-resident

When a person resident in India leaves India for a country (other than Nepal or Bhutan) for
taking up employment or for carrying on business or vocation outside India or for any other
purpose indicating his intention to stay outside India for an uncertain period, his existing
account should be designated as a Non- Resident (Ordinary) Account. When a person resident
in India leaves for Nepal or Bhutan for taking up employment or for carrying on business or
vocation or for any other purposes indicating his intention to stay in Nepal or Bhutan for an
uncertain period, his existing account will continue as a resident account. Such account should
not be designated as Non-Resident (Ordinary) Account (NRO).

(b) From Non- resident to Resident

NRO accounts may be re-designated as resident Rupee accounts on return of the account
holder to India for taking up employment, or for carrying on business or vocation or for any
other purpose indicating his intention to stay in India for an uncertain period. Where the
account holder is only on a temporary visit to India, the account should continue to be treated
as non-resident during such visit.
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 Transfer of Funds to Non-resident/ Resident Nominees

20.40 The Banking Companies (Nomination) Rules, 1985 framed under the Banking
Regulation Act, 1949, enable banks to pay the amount standing to the credit of the deceased
depositor to his nominee. There is, therefore, no objection to the registration of nomination
either in favour of a resident or non-resident. In the case of non-resident nominee, the amount
entitled to him from the account(s) / deposit(s) of a deceased person will be credited to his
NRO account with an Authorised Dealer/ Authorised Bank in India. The amount payable to
resident nominee from the NRO account of a deceased account holder shall be credited to
resident account of the nominee.

Operation of NRO account by Power of Attorney holder

Banks have been authorized to allow operations on an NRO account by Power of Attorney
granted in favour of a resident by the non-resident individual account holder provided such
operations are restricted to:

(i) All local payments in Rupees including payments for eligible investments subject to
compliance with relevant regulations made by the Reserve Bank; and

(ii) Remittance outside India of current income in India of the non-resident individual
accountholder, net of applicable taxes.

(iii) The resident Power of Attorney holder is not permitted to repatriate outside India
funds held in the account other than to the non-resident individual account holder nor to make
payment by way of gift to a resident on behalf of the non- resident account holder or transfer
funds from the account to another NRO account.

Facilities to a person going abroad for studies

Persons going abroad for studies are treated as Non-Resident Indians (NRIs) and are
eligible for all the facilities available to NRIs. Educational and other loans availed of by them
as residents in India will continue to be available to them as per FEMA Regulations.

International Credit Cards

Branches are authorized to issue International Credit Cards to NRIs/PIO, without prior
approval of Reserve Bank. Such transactions may be settled by inward remittance or out of
balances held in the cardholder‘s FCNR (B) / NRE / NRO Accounts.

Tax Deduction at Source

20.41 Interest payment on NRO deposit account is subject to Tax Deduction at Source
(TDS)/and related education cess / charges and shall be done in accordance with the
guidelines of Head Office, Income Tax Department from time to time. However, the NRO
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deposits made by Non-Resident Indians with convertible foreign exchange remittances from
Overseas in a Banking Company which is not a private company are to be treated as Foreign
Exchange Assets u/s 115 C (b) of the Income Tax Act and would be treated as ―Investment
Income‖ u/s 115 C(c) of the Income Tax Act and would be liable to tax @ 20% u/s 115E. Bank
paying interest on NRO deposits is therefore, required to deduct TDS @20%‖.
Double Taxation Avoidance agreement(DTAA)
Government of India has entered into Double Taxation Avoidance Agreement (DTAA) with
several countries. Branches are required to passing on the benefit of DTAA to NRI customers,
as per the Agreements entered in to by Government of India with respective countries. The
Branches are advised to go through the Income Tax Department web-site
www.allindiataxes.com / www.incometax.dtaa-phs from time to time and before deducting
TDS on interest income in NRO accounts.

3. A list of 85 countries along with the TDS rate to be deducted from NRO accounts as
per DTAAI ( as applicable on 31-12-2018 is enclosed as Annex-II).

4. While deducting tax at DTAA rate for NRIs from Greece, Libya and UAR (Egypt), the
branches should ensure that the deposits were received in convertible foreign currencies. In
addition to that, Surcharge & Education Cess should also be deducted along with TDS.

5. While deducting TDS at DTAA rates, please ensure the following -

a) The account should be in the name of NRI individuals.
b) The Branch should obtain Residency Certificate issued by Foreign Tax Authorities
towards residential proof. However, if it is not available a self declaration to be obtained in
place of Tax Residency Certificate and benefit of DTAA may be extended, subject to such
declaration is obtained every year.
c) Branch should obtain a request letter from the NRI account holder seeking to avail of
the benefit of DTAA in respect of the NRO A/c. However, if some depositor is reluctant to give
a request letter, then on a case to case basis; obtention of request letter from the NRI
customer may be waived by the chief Incumbent of the Branch.

20.42 The tax deducted at source should be paid to the credit of the Central Government
into the Government Treasury or Office of the Reserve Bank of India or State Bank of India or
other bank authorised to accept Income-Tax within one week from the day of deduction,
accompanied by a completed Income-tax challan.

20.43 Branches may issue to the concerned account holders a certificate of deduction of
tax (Form FE 294) for tax deducted at source from the interest payable on their deposits.

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 NON-RESIDENT EXTERNAL ACCOUNTS (NRE)

General

20.44 These accounts are permitted to be opened in the names of Non Resident Individuals
of Indian nationality or origin (NRIs). Opening of NRE account in the names of individuals of
Bangladesh /Pakistan nationality requires approval of RBI.

Repatriation of Balances
20.45 NRE account holders are permitted to repatriate balances held in such accounts along
with interest accrued thereon outside India at any time without approval of Reserve Bank.
Currency of Account: Indian Rupees

Tax Exemptions

20.46 Income from interest on balances standing to the credit of NRE accounts is exempt
from Income Tax. Likewise, balances held in such accounts are exempt from Wealth Tax.
Branches should keep themselves updated in this regard by referring to the directives issued
by Income Tax Department/ Government of India.

Opening of Accounts in the Names of NRIs

20.47 Branches may freely open NRE accounts in the names of NRIs provided funds for the
purpose are transferred to India in an approved manner in freely convertible foreign currency.
20.48 NRIs as defined in Notification No. FEMA 5/2000-RB dated May 3, 2000
may be permitted to open NRE account with their resident close relatives (relative
as defined in Section 6 of the Companies Act, 1956) on ‘former or survivor ‘ basis.
The resident close relative shall be eligible to operate the account as a Power of
Attorney holder in accordance with the extant instructions during the life time of
the NRI/PIO account holder.
20.49 While opening an account, branches should obtain an undertaking from the account
holder that he would intimate the branches about his return to India immediately on his coming
to India for permanent residence. This undertaking should be obtained in the account form
itself. The account should be opened by the non-resident account holder himself and not by
the holder of power of attorney in India on behalf of the non-resident.
Opening of Accounts during Temporary Visits to India
20.50 Accounts may be opened in the name of any eligible NRI during his temporary visit
to India against tender of foreign currency travellers cheques issued in his own name or notes
and coins tendered, provided the branches are satisfied that the person has not ceased to be
non-resident. The amount so tendered should be endorsed on the Currency Declaration Form,
where applicable. Branches should, however, ensure that the travellers cheques and currency

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notes tendered by the account holder have in fact been brought by him from abroad and not
acquired locally.
Joint Accounts
20.51 Opening of joint NRE accounts in the names of two or more non-resident individuals
is permitted provided all the account holders are persons of Indian nationality or origin. NRIs
as defined in Notification No. FEMA 5/2000-RB dated May 3, 2000 may be permitted to open
NRE account with their resident close relatives (relative as defined in Section 6 of the
Companies Act, 1956) on ‘former or survivor ‘ basis. The resident close relative shall be eligible
to operate the account as a Power of Attorney holder in accordance with the extant instructions
during the life time of the NRI/PIO account holder.
20.52 Addition or deletion of the names of Joint Account Holders:
A bank may at the request of all the joint account holders allow the addition or deletion of
name/s of joint account holder/s if the circumstances so warrant or allow an individual
depositor to add the name of another person as a joint account holder.
Provided that in no case shall the amount or duration of the original deposit undergo change
in any manner in case the deposit is a term deposit.
A bank may, at its discretion, and at the request of all the joint account holders of a deposit
receipt, allow the splitting up of the joint deposit, in the name of each of the joint account
holders only, provided that the period and the aggregate amount of the deposit do not undergo
any change.
20.53 Types of Accounts:
i. Savings Bank Account
ii. Current Account
iii. Recurring Deposit Account
iv. Term Deposit (At the discretion of the Bank)

Operations by Residents under Powers granted by Non-residents

20.54 Branches may allow operations on NRE accounts by residents in terms of Power of
Attorney or other authority such as a Mandate Letter (Annexure I )granted in the resident's
favour by the non-resident account holders, provided they are restricted to withdrawals for
local payments. In cases where the account holder or a bank designated by him has been
granted permission by Reserve Bank to make investments in India, the Power of Attorney
holder may be permitted by branches to operate the account to facilitate such investments.
The resident power of attorney holders should not, however, be allowed to repatriate outside
India funds held in the accounts under any circumstances to other than the Depositor‘s own
Account or make payment of gifts on behalf of the account holder or transfer funds from the
account of another NRE account

20.55 As far as possible, Branches should require customers to execute Power of Attorney
when they desire to authorise their agent to operate on their account on a more or less
permanent basis. Mandate letters may be accepted in the following types of accounts:

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 a) Accounts of individuals.
b) Joint accounts in the names of two or more individuals. (Mandate letter should be
signed by all the joint account holders).
A proforma of a Mandate Letter is given in Annexure I. The proper mode of signature by
agents acting under the Mandate letter is "Per Pro" followed by the principal's name, which
should be followed by the agent's signature.
20.55 A Managers may, at their discretion, obtain fresh Mandate Letters after say, two years
or other appropriate period. Where Mandate letters are held, the account holder(s) must
confirm the balance in the account on the usual balance confirmation letter (form No. CD 58).

20.56 The procedure of obtaining Mandate letters instead of Power of Attorney should, as
far as possible, be restricted to deposit accounts and in respect of Term Deposit Receipts
against which there is no advance granted.
20.57 While accepting Powers of Attorney and Mandate Letters, Branches should also follow
the instructions contained in relevant paragraph/Chapter in Manual of Instructions on Deposits.

Free Transferability between NRE and Foreign Currency (Non-Resident)

Accounts (FCNR Accounts)
20.58 Funds held in NRE accounts (other than those in the names of persons resident in
the erstwhile bilateral group countries) may be freely transferred to FCNR accounts of the
same account holder. Likewise, funds held in FCNR accounts may be transferred to NRE
accounts of the same account holder.

LOANS AND OVERDRAFTS AGAINST NRE DEPOSITS

20.59 Amount Ceiling- Banks have been permitted by the RBI to grant loans in
India in Indian Rupees to depositor/third party without any ceiling subject to usual margin
requirements against NRE deposits.

20.60 Loan/ overdrafts can be granted for personal purposes or for carrying on
business activities except for the purpose of relending or carrying on agricultural/ plantation
activities or for investment in real estate business. The advance should be fully secured by
Term Deposit Receipts. Regulations regarding interest rates, margin requirements, etc., are
complied with. The advance should be repaid either by adjustment of the deposit or by fresh
inward remittance from abroad. The loan can also be repaid out of local Rupee resources of
the borrower from NRO account. But in such cases, interest applicable will be commercial rate
of interest and as advised by RBI/ Head Office from time to time.

20.61 Loans and overdrafts can be granted for direct investment in India on non-
repatriation basis by way of contribution to the capital of Indian firms and companies subject
to compliance with the provisions of the FEMA (transfer of Indian security by a person resident
outside India) Regulations, 2000 and Foreign Exchange Management (investment in
proprietary or a partnership firm) Regulations 2000

20.62 Acquisition of Flat/House in India for his own residential use subject to the provisions
of relevant regulations made under FEMA 1999.

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 To Residents against the Security of Term Deposits in NRE Accounts

20.63 Branches may grant fund based or non fund based facilities to resident individuals /
firms / companies in India against the collateral of term deposits held in NRE accounts subject
to the following conditions:-
a. Amount of loan/ overdrafts etc- No limit.
b. There should be no direct or indirect foreign exchange consideration for the non-
resident depositor agreeing to pledge his deposits to enable the resident
individual/firm/company to obtain such facility.
c. The period of the loan shall not exceed the unexpired period of maturity of the fixed
deposit accepted as security. In addition, the non-resident depositor should furnish an
irrevocable undertaking to the branch not to withdraw the deposit during the period of the
loan/overdraft.
d. Regulations relating to margin, interest rate, purpose of loan, etc. as stipulated by
Reserve Bank and our Bank from time to time should be complied with.
e. The loan should be utilised for personal purposes or for carrying on business activities
other than agricultural/plantation activities or real estate business or for relending. The usual
norms & considerations as applicable in case of advances & to the trade/ industry shall be
applicable to such facilities.
f. i) The loan should be granted by the bank against the NRE fixed
deposit(s) issued by the same bank (irrespective of its branch) and not by any other bank.
ii) The branch giving the loan should hold the original deposit receipt(s) against which
the loan is granted and the branch which has issued the receipt should be advised of the lien.
iii) Non Resident depositor himself should execute the loan documents in presence of
the bank officials and a witness acceptable to the bank
iv) Advances to the third parties should not be granted on the basis of Power of attorney.

B. Outside India against the Security of Term Deposits in NRE Accounts

20.64 Loans /overdrafts may be required by non-resident account holder outside India or
he may like to offer the fixed deposit receipt as a collateral for the loan granted to third parties.
Branches may allow the overseas branches / correspondents to grant any type of fund-based
or non-fund-based facilities to (without any ceiling subject to usual margin requirements
against NRE deposits.), or in favour of non-resident or to third parties at the request of the
depositor for bonafide purposes against the security of funds held in NRE accounts in India
and also agree to remittance of the funds from India, if necessary for liquidation of the
outstandings. Remittance of the proceeds of the deposit for the purpose of liquidation for the
outstandings should be reported to Reserve Bank of India.

20.65 Advances against NRE Savings bank Deposits: RBI has clarified that since the
Account holder can withdraw the Savings Deposits at any time, Bank should not mark any type
of lien, direct or indirect, against these deposits.
20.66 Premature Withdrawals of Term Deposits - Premature payment of NRE Term
Deposits may be permitted subject to any of the following conditions as may be applicable

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 i. If the deposit has not run for a minimum stipulated maturity (presently twelve
months), no interest is payable.

ii. In other cases of premature payments, interest will be payable at a rate applicable,
on the date of deposit, to the period for which deposit remained with the Bank or the
contracted rate, whichever is lower, less penalty of 1% if deposits are Rs. 5 Lakhs and above.
No penalty to be levied, if deposits are below Rs. 5 Lakhs).

iii. If the deposit is prematurely withdrawn for the purpose of reinvesting under the same
scheme (NRE) for a period longer than the original maturity date, applicable rate will be as
stated in preceding paragraph without imposition of 1% penalty.

iv. If the deposit is prematurely withdrawn for investment under RFC scheme, penalty
of 1% is not applicable. If the deposit is prematurely withdrawn, for reinvestment under FCNR
scheme, penalty of 1% is leviable.

v. Provision regarding "premature withdrawal of deposits renewed before maturity" as

given in Manual on Domestic Deposits will also apply to NRE Deposits.

20.67 Overdue Deposits:

I. Where overdue period is 14 days (date of maturity and date of renewal inclusive),
the deposit will be renewed retrospectively from due date. The rate of interest payable on the
amount of deposit, so renewed, will be appropriate rate for the period of renewal as prevailing
on the date of maturity or on the date when the depositor seeks renewal (i.e. date of renewal),
whichever is lower.
II. If the overdue period, as calculated above, exceeds 14 days, the renewal will be
treated as fresh deposit from prospective date i.e. date of renewal. For overdue period, simple
interest will be payable at Savings bank rate or minimum rate of interest for the currency,
operative on the date of renewal whichever is lower. Further, bank is free to recover the
interest so paid for the overdue period, if the deposit is withdrawn before completion of
minimum period prescribed under the scheme, after the renewal.
The above rules are subject to change and hence Branches should take note of changes
from time to time, as and when advised by Head Office.

Special Series of Cheques for NRE Account Holders

(NOW THERE IS NO SUCH PRACTICE. NORMAL CHEQUE BOOK WITH ACCOUNT NUMBER
IS ISSUED, WHICH CAN BE IDENTIFIED AS NRE ACCOUNT THROUGH ITS CODES)

Transfer of Funds from one NRE Rupee Account to Another

20.69 Branches are permitted to transfer funds from the NRE account of one person to the
NRE account of another person. Branches are also allowed to effect transfer of funds between
NRE account of different persons held with our branches or different banks for any purpose.
In case of transfer of funds between NRE accounts held with different branches/ different
authorised dealers, the branch/the authorised dealer transferring the funds should issue a
certificate confirming the non-resident status of the transferor.

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 TemporaryOverdrawings

20.70 Authorised dealers may at their discretion/ commercial judgment allow temporary
overdrawings in NRE Savings Bank Accounts, up to a limit of Rs. Rs.50,000 subject to the
condition that the overdrawings together with the interest payable thereon are cleared/repaid
within a period of two weeks, either by fresh remittance in foreign exchange from abroad
through normal banking channel or out of transfer of funds held in other NRE/FCNR accounts.

Permitted Credits:

20.71 Undernoted credit transactions may be allowed in NRE accounts by branches in

conformity with conditions, if any, laid down against each item.

NOTE: Funds remitted from abroad in fulfilment of an undertaking given by the account
holder should not be credited to the account
a. Proceeds of remittances to India in any permitted currency in an approved manner
from abroad;
b. Proceeds of foreign currency traveller cheques, drafts and personal cheques drawn
by account holder on a foreign currency account maintained abroad by him (including
instruments expressed in Indian rupees for which reimbursement will be received in foreign
currency or in rupees from the account of a non-resident bank) deposited by account holder
during his temporary visit to India, provided branch is satisfied that the account holder is still
normally resident abroad, the travellers cheques/drafts are standing/endorsed in the name of
account holder and in the case of travellers cheques, they were issued outside India.
c. Proceeds of foreign currency bank notes tendered by account holder during his
temporary visits to India, provided these are tendered to the branches in person by the account
holder himself and the branch is satisfied that account holder is still person resident outside
India. Proceeds of demand drafts/bankers cheque issued against encashment of foreign
currency to the NRE account of the NRI account holder, where the instrument issued to the
NRE account holder are supported by encashment certificate issued by an authorized dealer.

NOTE: The following precautions should be exercised while permitting credit of foreign
currency travellers' cheques issued in depositor's own name and/or foreign currency/bank
notes and coins tendered by him, to NRE accounts, whether new or existing:
i. The bank should endorse the foreign currency amount, proceeds of which are
credited to NRE account, on the currency declaration form where applicable and a photocopy
of the currency declaration form should be kept on record. (At present, incoming passengers
are required to declare foreign currency brought in by them where the aggregate value of
bank notes/foreign currency notes and travellers cheques exceed US $ 10,000/- or equivalent
and/or the value of foreign currency notes brought in by them exceeds US$ 5,000/- or its
equivalent.)
ii. branches should be on guard as and when frequent credits of foreign currency
travellers cheques, foreign currency/bank notes are made to the NRE account and make
suitable inquiries with the account holder to determine his residential status. Doubtful cases
may be referred to Reserve Bank of India.
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 iii. Credit of rupee proceeds of foreign currency/bank notes or travellers cheques
tendered to a bank other than the one maintaining NRE account or to money changer on the
strength of encashment certificates issued by them not to be permitted to the credit of NRE
Accounts.

d.Transfers from other NRE / FCNR accounts.

e. Interest accruing on the deposit account.

f.Interest on Government securities and dividend on Units of Unit Trust of India/Mutual

Funds, provided the securities/units were purchased by debit to account holder's NRE account
or FCNR account or out of inward remittance through normal Banking channels.

g.Maturity proceeds of Government securities including National Plan/Savings Certificates

as well as proceeds of Government securities and units of mutual funds sold on a recognised
Stock Exchange in India and sale proceeds of Units received from mutual funds, provided the
securities/units were originally purchased by debit to account holder's NRE account or FCNR
account or out of remittances received from outside India in free foreign exchange.
NOTE: While crediting interest/dividend on securities/units or maturity/sale proceeds
thereof in terms of (f) and (g) above, branches should satisfy themselves that the investments
were originally made from out of account holder's funds in NRE/FCNR accounts with them.
Suitable notes of the original debits should be taken in the ledger folios to facilitate verification
of the transactions by Reserve Bank. In the case of units purchased directly from the Unit
Trust of India, the payment should be received from the Trust with a confirmation that the
units were purchased by the non-resident investor either out of remittances sent from abroad
in an approved manner or out of funds in NRE/FCNR accounts

h.Refund of share/debenture subscriptions to new issues of Indian companies or portion

thereof if the amount of subscription was paid earlier from the same account or from another
NRE/FCNR account of the account holder or by remittance from abroad through normal
banking channels

i.Refund of application/earnest money/ purchase consideration made by the house building

agencies/seller on account of non-allotment of flat(s)/plot(s), cancellation of bookings/ deals
for purchase of residential/ commercial property , together with interest , in any (net of Income
tax payable thereon) provided the original payment was made by debit to the NRE/FCNR
accounts of the concerned NRI or by direct remittance from outside India through normal
banking channels and the branch is satisfied about about the genuineness of the transaction
with reference to the documentary evidence such as receipts issued by the house building
agency and/or copy of agreement/sale deed/letter from the house building agency indicating
non-allotment of flat/plot. Before allowing the credit of such refunds branches may call for
inward remittance certificate evidencing receipt of funds from abroad by the agency concerned
or a certificate from the concerned bank with whom the NRE/FCNR account is maintained to
the effect that payment of application/earnest money was made by debit to the FCNR/NRE
account of the applicant. A declaration from the account holder to the effect that he continues
to be a non-resident with his overseas address should be obtained. Interest, if any, paid by

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the house building agency on the application/earnest money may also be credited to NRE/
FCNR account.

j.Transfer of balances from EEFC/ RFC/ RFC(D) accounts consequent to change in status
from Resident to Non-Resident.

k.Current income like rent, dividend, pension, interest, etc., of NRIs provided ADs are
satisfied that the credit represents current income of Non-resident Account holders and income
Tax thereon has been deducted/ paid/ provided for as the case may be.

l. Transfer from NRO account: NRI as defined in Foreign Exchange Management (Deposit)
Regulations, 2000 contained in Notification No. FEMA.5/2000-RB dated 3rd May 2000, as
amended from time to time, shall be eligible to transfer funds from NRO account to NRE
account within the overall ceiling of USD one million per financial year subject to payment of
tax, as applicable (i.e. as applicable if funds were remitted abroad).

m. Any other credit, if covered under general or special permission granted by RBI.

Permitted Debits

20.72 Undernoted debit transactions may be allowed in NRE accounts by branches.

a) Local disbursements/payments.

b) Remittances outside India

c) Transfer to NRE/FCNR accounts of the same account holder.

d) Transfers to NRE/FCNR accounts of persons other than the account holder, who is
eligible to maintain such account..

e) Investment in shares/securities/commercial paper of Indian companies or for

purchase of immovable property in India provided such investment is covered by
general/special permission granted by the Reserve Bank of India.

f) Any other transaction if covered under general or special permission granted by the
Reserve Bank of India.

Nomination Facilities

20.73 The nomination can be made by the account holders in single name and/or by all the
joint account holders together in respect of an account held by them. The nomination can be
made only in respect of a deposit held in the individual capacity of the depositor/s and not in
any representative capacity as a holder of an office or otherwise. The nomination can be made
in favour of one individual. Nominees can either be a resident in India or a resident outside
India. The nomination facilities to NRE account holders are governed by Provisions of the
Banking Companies (Nomination) Rules, 1985. (Also, refer to relevant Paragraphs under
Deposits General).
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 Remittance/Transfer of funds to Non-Resident Nominees In case of NRE/FCNR
Accounts

20.74 Branches may allow remittance of funds lying in the NRE/FCNR accounts of the
deceased account holder to their non-resident nominees subject to the following conditions:

i. Application in Form LEG is submitted by the nominee(s).

ii. A valid nomination has been registered on the bank's records in favour of the
nominee/s in conformity with the provisions of the Banking Companies (Nomination) Rules,
1985.

iii. The nominee continues to be non-resident at the time of the claim/remittance sought
for from India and that the deceased depositor was non-resident at the time of his/her death.
iv. All the legal heirs are non-residents. A signed declaration to the effect duly witnessed
may be submitted by the nominee to the authorised dealer. Application in form LEG together
with the documents/particulars mentioned therein, received from the nominees should be
scrutinised and after satisfying themselves about the legality of the claim, branches may settle
the claim and allow transfer of funds to the nominees to the extent of balances held in the
deceased depositor's NRE/FCNR accounts. A copy of the Form LEG and the relevant document
should be kept on records for verification by the inspecting officials of the Reserve Bank of
India. All other cases which do not fulfil the aforesaid terms and conditions or where the
amount in NRE/FCNR account is claimed by a person other than the nominee should be
referred to the concerned Regional Office of the Reserve Bank of India for prior approval by
authorised dealer in Form LEG supported by documents indicated therein together with the
legal representation issued by the Indian Court. Authority to permit payments in such cases
(i.e. to persons other than nominees) should be exercised as per Delegation of power.

v. Remittances abroad by Resident Nominee. Application from a resident nominee for

remittance of funds outside India for meeting the liability of the deceased account holder or
for similar other purposes, should be forwarded to Reserve Bank of India for consideration
through Zonal Office/ Head Office.

Change of status from Non-Resident to Resident

20.75 NRE account should be re-designated as resident Rupee A/c or RFC account
immediately upon the return of the account holder to India if the Branch is satisfied that he
has returned to India for taking employments or for carrying on a business or vacation or any
other purpose with the intention of residing in India for an uncertain period. Where account
holder is only on a short visit to India, the account may continue to be treated as Non-Resident
(External) Account even during his stay in this country. In respect of funds held in NRE fixed
deposit interest will be paid at the originally agreed rate, provided the deposit is held for the
full agreed term even after conversion as resident deposit.

20.76 When one of the account holders becomes a resident, there are two options available
to the account-holder.

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 i. To delete the name of the account holder who has become resident and continue
the account as NRE account.
ii. To re-designate the account as a resident Rupee account or RFC account.

20.77 Payment of Interest for the Intervening holidays between the date of
maturity and date of payment.

20.78 Whenever due dates of FCNR/NRE deposits fall on Saturdays/Sundays/non-business

working days/holidays, banks are permitted to pay interest at the originally contracted rates
for the intervening period between the due date and the date of payment, so that no interest
loss is suffered by the depositors. These instructions are also applicable mutatis mutandis in
case of holidays at Overseas Centres where payment has to be effected.

Rate of Interest

20.79 Rate of interest applicable to these accounts shall be in accordance with

H.O.guidelines issued vide circular letter every month by H.O. International Division, Foreign
Business Dept.,

(*) In case of our Bank, the NRE term deposits are accepted for a maximum period of 120
MONTHS or 10 years. However, as per RBI guidelines, the period for acceptance of NRE Term
Deposits is at the discretion of the Banks and rate of interest on NRE Savings as well as Term
Deposit a/cs are also delinked and can be decided by individual Banks, with effect from
December 16, 2011. However, interest rates offered by banks on NRE and NRO deposits
cannot be higher than those offered by them on comparable domestic rupee deposits.

Payment of 1% additional interest to staff/ ex-staff members on their NRI deposits: RBI
has clarified that

(i) The interest rates on NRE and FCNR/RFC term deposits advised every month are
ceiling rates for those deposits and hence staff members who are maintaining NRE and FCNR/
RFC term deposits accounts will not get 1% additional interest over and above the ceiling
interest rates advised to branches every month.

(ii) Similarly NRE Savings Deposits is also a ceiling rate and no additional interest will be
payable on NRE savings deposits of the staff members.

Forward Cover:

20.80 Forward Exchange Cover facilities should not be provided against balances held in
NRE Savings/ Current Accounts, which are payable on demand. Any request for booking of
Forward Contract should not be acceded to even an undertaking is given by the NRI account
holders to hold balances in Savings/ Current accounts for a specified period. A Non Resident
Indian, may however, enter into forward contract with an AD in India to hedge the balances
held in NRE Rupee Term deposit account.

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 Interest payable on the deposit of deceased depositor:

1) In the case of term deposit standing in the name/s of a deceased individual depositor,
or two or more joint depositors, where one of the depositors has died, interest shall be paid
in the manner indicated below:

At the contracted rate on the maturity of the deposit;

In the event of payment of deposit being claimed before the maturity date, the bank
shall pay interest without charging the penalty.

In the event of death of the depositor before the date of maturity of the deposit and the
amount of the deposit is claimed after the date of maturity, the bank shall pay interest at the
contracted rate till the date of maturity. From the date of maturity to the date of payment,
the bank shall pay simple interest at the applicable rate operative on the date of maturity, for
the period for which the deposit remained with the bank beyond the date of maturity.

However, in the case of death of the depositor after the date of maturity of the deposit, the
bank shall pay interest at savings deposit rate operative on the date of maturity from the date
of maturity till the date of payment.

If on request from claimant/s the bank agrees to split the amount of term deposit and
issues two or more receipts individually in the names of the claimant/s, it shall not be construed
as premature withdrawal of the term deposit, provided the period and aggregate amount of
the deposit do not undergo any change.

2) In the case of balances lying in current account standing in the name of a deceased
individual depositor, interest shall be paid only from 1st May, 1983 or the date of death of the
depositor, whichever is later, till the date of repayment to the claimant/s at the rate of interest
applicable to savings deposit as on the date of payment.

Note: When the claimants are residents, on maturity, the deposit shall be treated as
domestic Rupee deposits and interest will be paid for the subsequent period at a rate applicable
to the domestic deposit of a similar maturity.

20.81 Deleted

FOREIGN CURRENCY (NON-RESIDENT) SCHEME (BANKS) - FCNR (B)

20.82 Foreign Currency (Non-Resident) Account Scheme (FCNR) was introduced by

Government of India with effect from 1st November, 1975 with a view to encourage the inflow
of inward remittances from non-resident Indians and persons of Indian origin.

20.83 The FCNR Scheme has undergone a number of changes over the years. The hall-
mark of the scheme were denomination of the deposits in foreign currencies, free repatriability,

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tax exemptions and protection from exchange risk which was being borne by the Reserve Bank
of India &Govt of India.

20.84 A major step taken by the Reserve Bank of India after floating the Rupee for trade
transactions in March, 1993 was the progressive shedding of its burden to provide exchange
cover for FCNR deposits. As a first step towards this, a new FCNR Scheme known as "FCNR
(B)" was introduced on 15th May 1993 under which, the banks were required to manage the
exchange risk themselves. Simultaneously, maturities under the old FCNR Scheme labelled as
FCNR (A) Scheme under which exchange guarantee was provided by the Reserve Bank of
India were progressively abolished, culminating in the termination of the FCNR (A) Scheme in
August, 1994.

20.85 This Chapter is divided in two parts. Part -1 deals with the salient features of the
FCNR-B Deposit Scheme. Part - II deals with the accounting procedure which branches
authorised to handle FCNR(B) deposits are required to follow.

PART - I
FCNR(B) accounts are opened and maintained in terms of Non-Resident (External) Accounts
Rules 1970. The provisions applicable to NRE Accounts and detailed in the Chapter on NRE
accounts apply mutatis mutandis to FCNR(B) accounts as well, except where specific provisions
are made.

Who can open Accounts

20.86 NRIs can open FCNR(B) account in their own name or jointly with any other non-
resident Indian
As per revised guidelines of RBI W.E.F.15-09-2011,Non-Resident Indian (NRI), as defined
in FEMA Notification No. 5, ibid, may be permitted to open NRE / FCNR(B) account with their
resident close relative (relative as defined in Section 2(77) of the Companies Act,2013 as
amended from time to time) on ‘former or survivor’ basis. The resident close relative shall be
eligible to operate the account as a Power of Attorney holder in accordance with extant
instructions during the life time of the NRI/ PIO account holder.

Type of Accounts
20.87 FCNR-B Deposit Accounts can be opened only as Term Deposit Accounts
(DBD/MIC/QIC/FDR) allowed under the The deposits can be, at present, accepted for
minimum maturity of 1 year and maximum maturity of 5 years. These accounts cannot be
opened by way of Current or Savings Bank accounts or Recurring Deposit Account.

Currencies in which Deposits are accepted and Minimum Amount.

20.88 FCNR-B Deposits can be, accepted in any permitted currency i.e. a foreign
currency which is freely convertible.

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 We, at present, accept deposits in six currencies viz. US Dollars, Pound Sterling, Euro,
Japanese Yen, Canadian Dollar and Australian Dollar,. Deposits are to be accepted in minimum
amount of USD 1500, GBP 1000, EURO 2000 and JPY 50,000. AUD 1000 & CAD 1000.

Advantages of the Scheme:

Inland Movement of Funds:

20.89 Any inland movement of funds for the purpose of operating FCNR Accounts as well
as for repatriation abroad of balances held in FCNR accounts will be free of inland exchange
or commission for the non-resident depositors. Authorised dealers receiving foreign currency
remittances under the Scheme will also on request pass on the foreign currency to another
authorised dealer if FCNR account has to be opened with the latter, at no extra cost to remitter.

Easy Repatriation:
20.90 Principal and/or interest accrued thereon are easily repatriable without any exchange
control formalities.

Exchange Risk:

20.91 The principal and interest payable in foreign currency are not affected by fluctuation
in the exchange rates.

Tax Exemption:

20.92 In terms of section 10(15)(iv)(fa) of the Income-tax Act, 1961, the interest payable
by a scheduled bank to a non-resident or to a person who is not ordinarily resident within the
meaning of sub-section (6) of section 6 on deposits in foreign currency where the accepatance
of such deposits by the bank is approved by the Reserve Bank of India, is exempt from Income
tax. Gifts made from balances in the account to specified relatives as defined under section 56
of the Income-tax Act, 1961 are exempt from Income-tax Act, 1961.

FCNR (B) Deposits of NRIs on Return to India

20.93 FCNR deposits are required to be converted into resident deposits (rupee account or
RFC account) at the option of the account holder immediately on his return to India. The
account holder may be allowed to continue to maintain FCNR (B) deposits at the contracted
rate of interest till maturity on return to India, if he so desires. However, except the provisions
relating to rate of interest and reserve requirements as applicable to FCNR (B) deposits, for all
other purposes such deposits would be treated as resident deposits from the date of return of
the accountholder to India. In case the FCNR (B) deposit is withdrawn before maturity the
directions issued in this regard by Reserve Bank/our Bank including directions, if any, about
levy of penalty would be applicable. Branches should convert the FCNR (B) deposits on
maturity into resident rupee deposits or RFC account (if eligible), at the option of the
accountholder.
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 20.94 If the depositor opts to convert FCNR (B) deposit into Rupee Account or Resident
Foreign Currency (RFC) A/c, immediately on his return to India, interest on the new deposit
would be payable at the relevant rate applicable for such new deposit.

Loans/Overdrafts to FCNR account holders In India for purposes other than

investment:

20.95 Please refer to the provisions for Loans / Overdrafts against NRE Deposits (Para
20.59 20.63).

PART II

Accounting Procedure

In view of the operational complexities of FCNR(B) Scheme, the scheme is limited to certain
authorised branches only. The Branches can accept FCNR-B Deposits, only after receiving
approval to do so from Head Office. The Branches should submit their request for authority to
accept FCNR-B Deposits (depending upon potentials/merits/justification) to their controlling
office. List of presently authorised Branches is given in Annexure No. III.
20.96 Mumbai NRI Branch is the link branch for FCNR(B) Scheme. All deposits received
under FCNR(B) Scheme are routed through Control accounts maintained at of Mumbai NRI
branch for six currecies viz USD, GBP, EUR, JPY, CAD, AUD:

20.97 Deleted

20.98 FCNR term deposits may be opened (in acceptable currencies) with funds remitted
from abroad in convertible foreign currency through normal banking channel or funds received
in Rupee by debit to the accounts of non-resident banks or funds which are of repatriable
nature in terms of general or special permission granted by Reserve Bank of India.
Special NOSTRO Accounts for FCNR Deposits

20.99 Under the scheme, Mumbai NRI Branch maintains separate Control accounts in the
designated currencies, viz. Pound Sterling, U.S.Dollars, Euro, AUD and CAD and Japanese Yen
at Overseas Centres. All FCNR remittances must pass through these accounts. It is, therefore,
imperative to note that under no circumstances should FCNR transactions be mixed up with
the regular/normal foreign business transactions in foreign currencies.
Mumbai NRI Branch is maintaining Nostro accounts in six currencies as per following details:

Currency Accounts
USD 01070FCNRUSD
GBP 01070FCNRGBP
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 EUR 01070FCNREUR
Jap Yen 01070FCNRJPY
CAN $ 01070FCNRCAD
AUD $ 01070FCNRAUD

Some of the existing important Foreign Currency accounts / schemes of the Bank are
FCNR(B) Deposit, Diamond Dollar & RFC Accounts. With blocking of direct message creation
in SWIFT SAM, it has become time-consuming at AD branch level for transmitting funds
transfer message through Finacle. In order to overcome the various operational complexities
/ difficulties faced by AD branches, Head Office has introduced Control Account Concept (in
FC) for each scheme.

Details of operational process and accounting procedure is captured in Head Office Branch
Circular No. 112/110 dated 26-102-18.

Mode of Remittance:
Foreign inward remittances by means of cheques, drafts, money order and
payment order drawn on banks abroad expressed in designated currencies:
20.100 a) Cheques, drafts, payment orders drawn on foreign banks should be accepted
only for collection. Instruments accepted for collection under the scheme should be
acknowledged and sent for collection on immediate credit basis to the foreign branches /banks
(i.e. Our London/New York/Tokyo, Paris Branch, ANZ Bank, Melbourne, Toronto Dominion
Bank, Toronto./) stating specifically that the amounts realised should be credited to the
respective FCNR account of Mumbai NRI Branch. Branches should address all fate enquiries
pertaining to FCNR(B) transactions directly to the concerned foreign branches/banks and/or
Mumbai NRI Branch. Branches should ensure before issuing FCNR deposit receipt that
instrument sent for collection to foreign branch/correspondent bank is honoured and amount
correctly credited to our designated FCNR accounts irrevocably. Mumbai NRI Branch inputs all
incoming credit from Nosto Link Branches into the system. For every credit entry, system will
generate a Nostro Identification Number(NID)
b) As regards instruments expressed in a particular currency but drawn outside the
country of currency in which the same is drawn, branches should send such instruments for
collection on immediate credit basis to the drawee banks, instructing them to remit the
proceeds to our London Branch, New York, Paris Branch, our Tokyo Branch, ANZ Bank,
Melbourne and TD Bank, Toronto for the credit of our, Mumbai NRI Branch, FCNR Account
No....................(give account number) as the case may be.
c) In both the cases above if the drawee/collecting bank levies charges, such charges
should be borne by concerned branch to the debit of its Profit & Loss Account • Miscellaneous
Charges. The deposit receipt should be issued as of the date of credit in Nostro account for
the entire amount of the instrument tendered by the depositor. . d) In case of TTs, MTs where
cover has already been credited to one of any non-FCNR accounts abroad, branches should
instruct our concerned foreign branches/correspondent banks directly or through Treasury
branch to transfer the funds to London Branch/ New York Branch/ Paris branch /Tokyo Branch,
ANZ Bank, Melbourne and TD Bank, Toronto mentioning the account number. The term deposit
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receipt should be issued as of the date of original credit to Nostro account of Treasury Branch
Value date can be given for funds deposited in our foreign branches, e.g. in case of DD.s, MTs,
TTs issued by our foreign branches drawing on our Indian branches, FCNR deposit receipts
can be issued from the date of DD, MT, TT.

Drafts drawn on banks In India expressed In Sterling "Pounds, US Dollars,

Japanese Yen, Euro, CAD and AUD:
20.101 a) Drafts drawn on banks in India expressed in designated foreign currencies should
not be purchased under any circumstances but should be forwarded to the drawee bank
directly, instructing them either to :
i) Issue their reimbursement draft in Sterling Pounds /US Dollars/ /Euro/ Japanese Yen
drawn on their foreign correspondents in U.K. /U.S.A. /Germany /Japan/ Canada and Australia
and on receipt of reimbursement draft, it should be forwarded to the respective designated
foreign branch/bank for the credit of our FCNR account, or

ii) to arrange to credit our designated FCNR account of the currency in which the
instrument is drawn by TT/ SWIFT. The drawee bank charges if any, should be borne by the
branch as referred to above.

Foreign Currency Travellers Cheques expressed in Sterling Pounds/US Dollars

/Japanese Yen / Euro, CAD and AUD tendered during the visit of account holder to
India:

20.102 Branches should follow the same procedure as in the case of instruments for
collection mentioned above.

Foreign Inward Remittance received in currencies other than Sterling

Pounds/US Dollars/Japanese Yen / Euro, CAD and AUD:

20.103 Branches may receive foreign remittance in currencies other than those in
which the deposit is required to be kept. In such cases, branches should first send these
instruments to our foreign correspondents requesting them to credit the proceeds of the
instrument to the Nostro account of our Treasury branch with them in the currency of the
instrument. On realization, branches should instruct the Treasury branch to convert the
amount into equivalent Sterling Pounds/ US Dollars/Japanese Yen/ Euro, CAD and AUD as the
case may be by using cross rates and remit the same to the designated FCNR(B) account of
Mumbai NRI Branch under advice to the branch by telex/cable/SWIFT. Branches should obtain
a declaration from the customer to the effect that exchange risk on such conversion will be for
his/ her account.

Foreign Currency Notes

20.104 Branches should not accept foreign cash-currency notes for credit of FCNR(B)
deposits. However, Non-Resident Indian customers are at liberty to deposit foreign cash-
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currency notes for credit of their NRE S/B account at the ruling exchange rate for currency
notes. The Branches should follow normal procedure for disposal of currency notes. FCNR(B)
deposit receipt can be issued by converting Rupee funds in NRE S/B account at prevailing
exchange rates into foreign currency by following the prescribed procedure for sale reporting
the transaction appropriately and arranging for transfer of funds from the Nostro account of
Treasury branch to applicable FCNR Nostro account of Mumbai NRI Branch. Thus, in such
cases, instead of issuing FCNR(B) deposit receipt for face value of foreign cash currency notes
deposited by a customer, FCNR(B) deposit receipt would be issued for such resultant foreign
currency amount.

Issue of Deposit Receipt:

20.105 On realisation of the collection in the manner stated above and other
remittances where the cover is provided & amount is credited to the Nostro account of Mumbai
NRI branch, branches should issue the term deposit receipt in designated currency as of date
of credit in designated FCNR account / as per Instructions of the depositor and route the
transaction through FCNR Link Module ( refer- Annexure -IV)

Re-designation of Non-Resident Ordinary Account into FCNR:

20.106 The designation of Ordinary Non-Resident Accounts as FCNR(B) accounts and
conversion of Rupees into foreign currency by transfer of funds from ordinary Non-Resident
Account to FCNR(B) require prior approval of the Reserve Bank of India.

Notional Rates:
20.107 With the introduction of FCNR(B) scheme, the fixation of notional rate is left
to individual banks. ,
However w.e.f. March 23,2012, revised procedure is as under:
For all assets and liabilities in foreign currency with the domestic branches:
i) Discontinue usage of Notional rates which were being used hereto before and
instead, transactions to be recorded at weekly average rates published by FEDAI on all
related transactions for respective week. (w.e.f. March 23, 2012)
ii) To revalue all the foreign currency assets and liabilities on weekly basis/ Balance sheet
dates at the rates announced by FEDAI. The process of revaluation will be run by the Data
Centre and the difference will be parked in the Control Account "FC Portfolio Revaluation
Control account (AS 11) being opened with BKC Branch by HO Finance Department.
Similar exercise will also be done for Treasury Branch parking their revaluation in the same
control account. Final difference in the control account will be absorbed in P & L account.

iii) The weekly average rates shall be uploaded by our Treasury branch under advise to
Data Centre w.e.f. March 23, 2012.

Most of these processes are automated at our Data Centre and is based on the FEDAI
rates entered by our Treasury branch; branches should ensure that 'their
transactions are reflected properly at the time of entering the transaction in FINAGLE and
also at the stage of authorising the same in FINACLE.
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 Calculation And Provision of interest and submission of half yearly interest
statement:

20.108 Branches should follow the following instructions in this regard.

20.109 Data Centre will make provision of interest at the applicable rates of interest
at periodic intervals. The interest will be calculated in foreign currency and then converted into
Rupees at the applicable rate. The amount of interest is to be debited to a P & L Account
Interest on FCNR (B) Scheme.

20.110 Deleted

20.111 For the purpose of deciding the period, one year will be taken on the basis of
365/366 days and for the purpose of payment of interest on a deposit, interest should be paid
on the basis of 360 days to a year. That is to say, the depositor is eligible to earn interest for
actual number of days for which deposit remained with the Bank. Interest is compounded on
half yearly basis in FCNR deposits.

20.112 The branches should follow the procedure mentioned below for calculation of
interest of FCNR(B)deposit:

i) For deposits kept for twelve months (minimum period for which deposits under FCNR
(B) can be accepted), interest should be calculated for actual number of days during the twelve
months without any compounding effect.

ii) For deposit of more than twelve months, interest shall be calculated for every block
of 180 days and thereafter for the remaining actual number of days with compounding effect
illustrations of the methodology of calculations and compounding the interest are given in
Annexure VII. The interest should be first calculated in foreign currency and then converted
into rupees at the notional rate. Unlike domestic deposit, half yearly interest amount, both in
foreign currency and in equivalent rupees should be credited to the respective accounts of the
depositor and not to Sundry Account.

Payment of Interest: Pl refer to the accounting Procedure in Annexure-IV

Payment of interest for intervening Saturdays, Sundays and holidays:

20.113 Whenever due dates of FCNR(B) / NRE deposits fall on
Saturdays/Sundays/non-business working days/holidays in India or in overseas centres, banks
are permitted to pay interest at the originally contracted rates for intervening period between
due date and date of payment.

Repayment:

Payment before maturity:

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 20.114 No interest will be payable on premature payment within a minimum period
of twelve months from the date of deposit. On other premature withdrawals, interest is payable
at a rate 1% less than the rate of interest applicable on the date of deposit, for the period for
which the deposit remained with the bank. The forfeited interest amount should be calculated
at the notional rate at which the interest was credited to the deposit amount and should be
credited to P & L.
Repayment of deposit on maturity in foreign currency:

20.115 The proceeds of the deposit and interest should be paid to the depositor in
the same foreign currency in which the deposit stood or in any other designated currency‘ or
in Rupees, if he so desires. If payment is to be made in foreign currency, remittance may be
effected to the depositor by sending SWIFT/ tested message to the foreign correspondent as
per procedure explained in annexure-iv by undertaking transaction through FCNR Link Module.
Following precautions to be observed while transferring the funds from the account of the
customer
(i) No transfer of funds should be made on the basis of request received through e-mail.
(ii) In case of fax messages, branch should get confirmation from the customers through e-
mail and/ or phone number as available on the banks record, before acting on fax messages.
Branch should create/ keep proper record for such telephonic conformation obtained (iii) Chief
Incumbent of the branch is the sole authority to approve such remittances.
(iv) No payment to be made to the third party on the basis of fax message in respect of
premature withdrawal on NRE/FCNR B term deposits. However, maturity proceeds may be
permitted to third party outside India after complying with RBI instructions, which are (a)
The transaction is specifically authorized by the account holder and, (b) The authorized
dealer is satisfied about the bonafides of the transaction.
(v) Branches should obtain an undertaking from the NRI depositor while opening the
account to indemnify the bank from losses that may arise on account of transfer of funds on
the basis of facsimile messages received from their NRO/ NRE/FCNR account holder. Further,
such indemnity should also be obtained from the existing depositors wherever request of
transfer of funds on the basis of fax messages is received from any NRI depositors.

20.116 Renewal of Overdue Deposit Where overdue period is 14 days (date of maturity
and date of renewal inclusive) the deposit may be renewed retrospectively from due date. The
rate of interest payable on the amount of deposit so renewed, will be appropriate rate for the
period of renewal as prevailing on the date of maturity or on the date when the depositor
seeks renewal (i.e date of renewal), whichever is lower.

20.117 If the overdue period, as calculated above exceeds 14 days, the renewal will be
treated as fresh deposits from prospective dates i.e. date of renewal. For overdue period,
simple interest at 3.5% i.e. per annum or minimum rate of interest for the currency operative
on the date of renewal, whichever is lower,.

In view of the above, branches should take appropriate instructions from the depositors
either for renewal or for payment well before the due date.

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 Transfer of FCNR(B) deposit from one branch to another:

20.118 Transfer of FCNR receipt from one branch to another will be done at Data Centre
after receiving the request from both the branches i.e. transferor branch and transferee
branch.

Discretion to pay additional interest not exceeding 1% to Bank's Staff:

i) A member or a retired member of the Bank‘s staff , either singly or jointly with any
other member or members of his/her family; or

ii) The spouse of a deceased member or a deceased retired member of the bank‘s staff.

The bank may at its discretion allow additional interest at a rate not exceeding one per cent
per annum over and above the rate of interest prescribed by the bank subject to following
conditions:

a) the depositor or all depositors of a joint account is / are non-resident/s of Indian

nationally or origin; and
b) The bank should obtain a declaration from the depositor concerned that the money
so deposited or which may, from time to time, be deposited , shall be moneys belonging to
the depositor, as stated in Clauses (a) or (b) above.

iii) The rates fixed by the Bank for deposits of staff members, existing or retired, should
not exceed the ceiling rate prescribed by RBI,

It, therefore, follows that whenever the rates of interest on FCNR (B) deposits are fixed by
the Bank, at the ceiling level, no additional interest will be payable in respect of deposits in
the name of Bank‘s staff.

Addition/Deletion of name/s of Joint Account Holders:

20.119 A bank may, at the request of all the joint holders, allow the addition or deletion
of name/s of joint account holder/s if the circumstances so warrant or allow an individual
depositor to add the name of another person as a joint holder. However, in no case the
amount or duration of the original deposit should undergo a change in any manner whatsoever,
and all the joint account holders are non-residents of Indian nationality or origin. The bank
should ascertain the reasons from the applicants for doing so and also satisfy themselves about
the bonafide nature of the request. Further, opening of accounts in the names of Pakistani/
Bangladeshi nationals though of Indian origin will require approval of Reserve Bank from the
exchange control angle.

20.120 Prohibitions:

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 No Bank / branch should –
i) accept or renew a deposit over five years;

ii) discriminate in the matter of rate of interest paid on the deposits, between one
deposit and another accepted on the same date and for the same maturity, whether such
deposits are accepted at the same office or at different offices of the bank, except on the size
group basis.( Branches to charge interest as per rates advised by the Head office). Interest
paid by the branch should be as per rate schedule and not subject to the negotiation between
the depositor and the bank.

iii) Pay brokerage, commission or incentives on deposits mobilized under FCNR (B)
Scheme in any form to any individual, firm, company, association, institution or any other
person.

iv) Employ/ engage any individual, firm, company, association, institution or any other
person for collection of deposit or for selling any other deposit linked products on payment or
remuneration or fees or commission in any form or manner.
v) Accept interest–free deposit or pay compensation indirectly.

20.121 Payment of interest on FCNR (B) deposits of NRIs on return to India:

Banks may allow FCNR (B) deposits of persons of India nationality/ origin who return to
India for permanent settlement to continue till maturity at the contracted rate of interest, if
desired. Except the provision relating to rate of interest and reserve requirements as
applicable to FCNR (B) deposits, for all other purposes, such deposits should be treated as
Resident Deposits from the date of return of Account holder to India. Premature withdrawal
of such FCNR (B) deposits should subject to penal provision of the Scheme. Banks should
convert the FCNR (B) deposits on maturity into Resident Rupee Deposit Account or RFC
Account (if eligible) at the option of the account holder. The rate of interest on the new
deposit (Rupee account or RFC Account) should be the relevant rate applicable for such deposit
account.

20.122 Conversion of FCNR (B) Account of the Returning Indians into RFC
Account- Waiver of Penalty : Penal provision in case of premature conversion of balances
held in FCNR (B) deposits into Resident Foreign Currency Accounts by Non-Resident Indians
on their return to India would not be applicable

20.123 Conversion of FCNR (B) Accounts of the Returning Indian into RFC
Accounts/
Resident Rupee Accounts – Payment of interest:
A bank should pay interest at its discretion at the time of conversion of FCNR (B) Account
into RFC/ Resident Rupee Account even if the same has not run for a minimum maturity period,
subject to the condition that the rate of interest should not exceed the rate payable on Savings
Bank Deposits, held under RFC Accounts Scheme.

378
 20.124 Interest payable on the deposit of a deceased depositor:

In the case of a term deposit standing in the name/s of –

i) a deceased individual depositor, or

ii) two or more joint depositors, where one of the depositors has died, interest should
be paid in the manner indicated below:

a) at the contracted rate on the maturity of the deposit;

b) in the event of the payment of the deposit being claimed before the maturity date,
the bank should pay interest at an applicable rate prevailing on the date of placement of the
deposit, without charging the penalty;

c) in the event of death of the depositor before the date of maturity of the deposit and
the amount of the deposit is claimed after the date of maturity, the bank should pay interest
at the contracted rate till the date of maturity. From the date of maturity to the date of
payment, the bank should pay simple interest at the applicable rate operative on the date of
maturity, for the period for which the deposit remained with the bank beyond the date of
maturity. However, in the case of death of the depositor after the date of maturity of the
deposit, the bank should pay interest at rate operative on the date of maturity in respect of
savings deposits held under RFC Account Scheme, from the date of maturity till the date of
payment;
d) if, on request from the claimant/s, the bank agrees to split the amount of term deposit
and issues two or more receipts individually in the name/s of the claimants/ it should not be
construed as premature withdrawal of the term deposit for the purpose of levy of penalty
provided the period and aggregate amount of the deposit do not undergo any charge.
Note: In the case of claimant/s being residents, the maturity proceeds may be converted
into Indian rupees on the date of maturity and interest be paid for the subsequent period at a
rate applicable to the deposit of similar maturity under domestic deposit scheme.

General

20.125 Under FCNR(B) scheme, third party travellers cheques should not be accepted
for deposit.

20.126 No foreign inward remittance/encashment certificate should be issued against

surrender of traveller’s cheques/cheques/drafts, etc. for issue of FCNR(B) deposits.

20.127 Foreign travellers cheques issued in India against blanket permit/exchange

permit of Reserve Bank of India and subsequently surrendered should not be accepted for
issue of FCNR(B) deposits.

20.128 Purchases and Sales of designated currencies under the scheme should be
reported in appropriate fortnightly "R" return.
379
 20.129 Permitted Credits :

a. Proceeds of remittances to India in any permitted currency.

b. Proceeds of personal cheques drawn by the account holder on his foreign currency
account and of travellers cheques, bank drafts payable in any permitted currency including
instruments expressed in Indian rupees for which reimbursement will be received in foreign
currency, deposited by the account holder in person during his temporary visit to India,
provided the authorised dealer is satisfied that the account holder is still resident outside India,
the travellers‘ cheques/ drafts are standing/ endorsed in the name of the account holder and
in the case of travellers‘ cheques, they were issued outsider India.

c. Proceeds of foreign currency/ bank notes tendered by account holder during his
temporary visit to India, provided (i) the amount was declared on a Currency Declaration Form
(CDF), where applicable, and (ii) the notes are tendered to the authorised dealer in person by
the account holder himself and the authorised dealer is satisfied that account holder is a person
resident outside India.

d. Transfers from other NRE/ FCNR accounts.

e. Interest accruing on the funds held in the account.

f. Interest on Government securities and dividend on units of mutual funds, provided

the securities/ units were purchased by debit to the account holder‘s NRE/ FCNR account or
out of inward remittance through normal banking channels.

g. Maturity proceeds of Government securities and units of mutual funds sold on a

recognized stock exchange in India and sale proceeds of units received from mutual funds,
provided the securities/ units were originally purchased by debit to the account holder‘s NRE/
FCNR account or out of remittances received from outside India in free foreign exchange.

h. Refund of share/ debenture subscriptions to new issues of Indian companies or

portion thereof, if the amount of subscription was paid from the same account or from other
subscription was paid from the same account or from other NRE/FCNR account of the account
holder or by remittance from outside India through normal banking channels.

i. Refund of application/ earnest money/ purchase consideration made by the house

building agencies/ seller on account of non-allotment of flat/ plot cancellation of bookings/
deals for purchase of residential/ commercial property, together with interest, if any (net of
income tax payable, thereon), provided the original payment was made out of NRE/ FCNR
account of the holder or remittance from outside India through normal banking channels and
the authorised dealer if satisfied about the genuineness of the transaction.
j. Transfer of balances from EEFC/ RFC/ RFC (D) Accounts consequent to change in
status from resident to non-resident.

380
 k. Any other credit if covered under general or special permission granted by Reserve
Bank.

20.130 Permitted Debits:

a. Local Disbursements

b. Remittances outside India

c. Transfer to NRE/ FCNR accounts of the account holder or any other person eligible
to maintain such account.

d. Investment in shares/ securities/ commercial paper of an Indian company or for

purchase of immovable property in India provided such investment/ purchase is covered by
the regulations made, or the general/ special permission granted, by the Reserve Bank.

e. Any other transaction if covered under general or special permission granted by the
Reserve Bank.

20.131 Repatriation:

Repatriation of deposit amount and interest freely permitted.

If the account holder opts, funds held in the account shall be converted into Rupees by the
ADs at TT buying rate for the concerned currency ruling on the date of withdrawal and can be
credited to his NRE account.

20.132 Safeguards in making payments of FCNR / NRE / NRO Deposits:

a) No transfer of funds should be made on the basis of request received
through email.
b) In the case of fax messages, branch should get confirmation from the
customer through e-mail (registered with the branch) and/or over
telephone, before processing the request. The branch should keep proper record
for such telephonic conversation I confirmation.
c) The Chief Incumbent of the branch will have sole authority to approve such
remittances
d) No payment should be made to the third party on the basis of fax message
in respect of premature withdrawal of NRI deposits. However, maturity proceeds
of FCNR deposits may be remitted to the third party outside India after complying
with RBI instructions A.P. (Dir. series) Circular No.57 dated 15.05.2007.
e) The branches should obtain an undertaking (as per specimen)
from NRI depositors while opening the accounts, indemnifying the Bank of the
losses that may arise on account of transfer of funds from their NREINRO/FCNR
accounts on the basis of fax messages. Such indemnity letters should also be
381
obtained from existing depositors whenever request for transfer of funds on the
basis of fax messages is received. The branches should also note that the indemnity
obtained is by way of comfort only and cannot be treated as a security.
f) The Branches should avoid disclosure of any details of accounts to third
parties who are not involved.
g) The Branches can disclose the details if there is specific mandate such as
mandate letter I power of attorney, etc. The disclosure can be made only for
restricted purposes.
h) While effecting payments in term deposits etc. on the basis of instructions
not received directly from the depositors in person, the depositors should be
contacted over phone to ascertain the genuineness of the transaction.

RFC Savings Account for Returning NRIs

A Resident Foreign Currency Savings Account can be opened by NRIs who have returned
for permanent settlement after being resident outside India for a continuous period of not less
than one year. These funds can be transferred to an NRE/FCNR account upon change of status
to NRI again.

Joint Account facility

Account can be held jointly by eligible Returning NRI with a Resident Indian (Former or
Survivor basis). The Resident Indian must be a close relative as defined in Section 6 of the
Companies act, 1956.

Currency in which account maintained US Dollar (USD), Great Britain Pound (GBP)

Repatriation
Funds are repatriable for bonafide purposes

Taxation
Interest earned is exempted from Tax in India provided Resident but Not Ordinarily Resident
(RNOR) status is held as per the Income Tax Act
Cheque Book
Free 50 Cheque leaves per annum
Fund Transfer
Free fund transfer within bank (Self A/c or Third Party) Free collection of NEFT/RTGS Free
NEFT/RTGS through Net banking
Ancillary Services
 Free Internet banking
 Missed Call alert facility for obtaining account balance
 Online Income Tax return filing facility
 Free utility bills payment facility through E-pay
 ATM cum International Debit Card (EMV chip based)

382
 RFC Term Deposits account may also be opened.
Currency permitted : USD,GBP
Taxation : Exempt till individual continues to be ‘Resident but not ordinarily resident’.
Thereafter TDS is required to be deducted @10% plus surcharge as applicable.
Period : 12 to 36 months.
Nomination available.
Joint account & repatriation permitted.
(Source : Bank’s Site = 14.4.2020)

Special Non-Resident Rupee Account (SNRR account)

1. Attention of Authorized Dealer Category-I (AD Category-I) banks is invited to
paragraph 3 of Statement on Developmental and Regulatory Policies of the Fourth Bi-Monthly
Monetary Policy Statement for 2019-20 dated October 04, 2019.

2. In terms of paragraph 7 of Part II of Master Direction No.14 dated January 01, 2016
on "Deposits and Accounts", as amended from time to time, any person resident outside India,
having a business interestin India, may open a Special Non-Resident Rupee Account (SNRR
account) with an authorised dealer for the purpose of putting through bona fide transactions
in rupees.

3. With a view to promote the usage of INR products by persons resident outside India,
it has been decided, in consultation with the Government of India, to expand the scope of
SNRR Account by permitting person resident outside India to open such account for:
i. External Commercial Borrowings in INR;
ii. Trade Credits in INR;
iii. Trade (Export/ Import) Invoicing in INR; and
iv. Business related transactions outside International Financial Service Centre (IFSC) by
IFSC units at GIFT city like administrative expenses in INR outside IFSC, INR amount from sale
of scrap, government incentives in INR, etc. The account will be maintained with bank in India
(outside IFSC).

4. It has also been decided, in consultation with the Government of India, to rationalise
certain other provisions for operation of the SNRR Account, as under:
i. Remove the restriction on the tenure of the SNRR account opened for the purposes given
at paragraph 3 above as the proposed transactions are more enduring in nature.
ii. Apart from Non-Resident Ordinary (NRO) Account, permit credit of amount due/ payable
to non-resident nominee from account of a deceased account holder to Non-Resident External
(NRE) Account or direct remittance outside India through normal banking channels.

5. All other provisions of the policy on Deposits and Accounts remain unchanged. AD
Category - I banks should bring the contents of this circular to the notice of their constituents
and customers.

6. The aforesaid Master Direction No. 14 dated January 01, 2016 is being updated to
reflect the changes.

383
 7. The directions contained in this circular have been issued under section 10(4) and 11(2)
of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to
permissions / approvals, if any, required under any other law.

(Ref : HO BC 113/158 dated 02-12-2019)

384
385
386
Non-Resident Deposit Accounts
Annexure I

Proforma of Mandate Letter

NON-RESIDENT EXTERNAL ACCOUNT NO.

Current/Savings Account

Bank Of India,

Dear Sirs,

Referring to the Current/Savings Account opened at your Bank's Branch at in the name
of___________________________
I/We hereby request you to honour all cheques/orders
drawn on the said account by whose specimen signature is given below, notwithstanding
that such cheques may create an overdraft or increase it to any extent, and I/We further
authorise the said person on my/our behalf to make, draw, endorse, accept or otherwise
sign any Bills of Exchange, Promissory Notes or other Negotiable instruments and to
discount the same with your Bank or otherwise, and also to endorse cheques or other
negotiable instruments of any description.

This authority shall continue in force until I/We shall have expressly revoked it by a notice
in writing delivered to you.

Dated this day of

Specimen signature of the person

authorised to sign

Yours faithfully,

( )

Account-holder/s
(Authorised Signatory)

387
 ( AnnexureII)
Non Resident( ordinary) Accounts

Non-Resident Deposit Accounts

A total of 85 countries currently have DTAA agreements with India. The following
countries having Double Taxation Avoidance Agreement with India. TDS rates on interests
are listed below. (Listed alphabetically)

Sl
Country TDS Rate
No.

1 Armenia 10%

2 Australia 15%

3 Austria 10%

4 Bangladesh 10%

5 Belarus 10%

6 Belgium 15%

7 Botswana 10%

8 Brazil 15%

9 Bulgaria 15%

10 Canada 15%

11 China 15%

12 Cyprus 10%

13 Czech Republic 10%

14 Denmark 15%

15 Egypt 10%

16 Estonia 10%

17 Ethiopia 10%

388
18 Finland 10%

19 France 10%

20 Georgia 10%

21 Germany 10%

As per
22 Greece
agreement

Hashemite kingdom of
23 10%
Jordan

24 Hungary 10%

25 Iceland 10%

26 Indonesia 10%

27 Ireland 10%

28 Israel 10%

29 Italy 15%

30 Japan 10%

31 Kazakhstan 10%

32 Kenya 15%

33 South Korea 15%

34 Kuwait 10%

35 Kyrgyz Republic 10%

As per
36 Libya
agreement

37 Lithuania 10%

38 Luxembourg 10%

389
39 Malaysia 10%

40 Malta 10%

41 Mauritius 7.50-10%

42 Mongolia 15%

43 Montenegro 10%

44 Morocco 10%

45 Mozambique 10%

46 Myanmar 10%

47 Namibia 10%

48 Nepal 15%

49 Netherlands 10%

50 New Zealand 10%

51 Norway 15%

52 Oman 10%

53 Philippines 15%

54 Poland 15%

55 Portuguese Republic 10%

56 Qatar 10%

57 Romania 15%

58 Russia 10%

59 Saudi Arabia 10%

60 Serbia 10%

390
61 Singapore 15%

62 Slovenia 10%

63 South Africa 10%

64 Spain 15%

65 Sri Lanka 10%

66 Sudan 10%

67 Sweden 10%

68 Swiss Confederation 10%

69 Syrian Arab Republic 7.50%

70 Tajikistan 10%

71 Tanzania 12.50%

72 Thailand 25%

73 Trinidad and Tobago 10%

74 Turkey 15%

75 Turkmenistan 10%

76 UAE 12.50%

77 UAR (Egypt) 10%

78 Uganda 10%

79 UK 15%

80 Ukraine 10%

81 United Mexican States 10%

82 USA 15%

391
83 Uzbekistan 15%

84 Vietnam 10%

85 Zambia 10%

392
 Annexure III

List of Branches authorised to accept FCNR (B) Deposits (as on (31-12-2019)) :

LIST OF BRANCHES AUTHORIZED TO ACCEPT FCNR (B) DEPOSITS

as on 31-12-2019
CATEGOR
BRANCH Y ZONE
AGRA B AGRA Y
AHMEDABAD B AHMEDABAD Y
NAVRANGPURA B AHMEDABAD Y
AHMEDABAD NRI B AHMEDABAD Y
NADIAD B AHMEDABAD Y
KRISHI UPAJ MANDHI C BHOPAL Y
TATYA TOPE NAGAR B BHOPAL Y
GWALIOR B BHOPAL Y
BHUBANESHWAR B BHUBANESHWAR Y
CHANDIGARH M B CHANDIGARH Y
FARIDABAD B CHANDIGARH Y
MYLAPORE C CHENNAI Y
THEAGAROYANAGAR B CHENNAI Y
EGMORE C CHENNAI Y
ADYAR B CHENNAI Y
CATHEDRAL ROAD B CHENNAI Y
CHENNAI M B CHENNAI Y
CHENNAI OVERSEAS B CHENNAI Y
MOUNT ROAD B CHENNAI Y
USMAN ROAD* NO CHENNAI Y
PONDICHERRY B CHENNAI Y
SALEM B COIMBATORE Y
COIMBATORE B COIMBATORE Y
COONOOR B COIMBATORE Y
MADURAI B COIMBATORE Y
TIRUCHIRAPALLY C COIMBATORE Y
SUKHPAR C GANDHINAGAR Y
GANDHINAGAR B GANDHINAGAR Y
BHUJ C GANDHINAGAR Y
BALADIA C GANDHINAGAR Y
DAHISARA C GANDHINAGAR Y
BHARASAR C GANDHINAGAR Y
MADHAPAR C GANDHINAGAR Y
GODPAR C GANDHINAGAR Y
393
KERA C GANDHINAGAR Y
GANDHIDHAM B GANDHINAGAR Y
BHUJ NRI B GANDHINAGAR Y
KUTCH MANDVI C GANDHINAGAR Y
NARANPAR (KUTCH) C GANDHINAGAR Y
SALIGAO C GOA Y
VASCO-DA-GAMA B GOA Y
MAPUCA B GOA Y
MARGAO B GOA Y
PANAJI B GOA Y
HYDERABAD OVERSEAS B HYDERABAD Y
HYDERABAD B HYDERABAD Y
SECUNDERABAD B HYDERABAD Y
KACHIGUDA C HYDERABAD Y
KHAIRATABAD B HYDERABAD Y
INDORE MAIN B INDORE Y
JABALPUR B JABALPUR Y
KANPUR B KANPUR Y
RICHMOND TOWN B KARNATAKA Y
BANGALORE B KARNATAKA Y
MALLESWARAM B KARNATAKA Y
CANTONMENT B KARNATAKA Y
RAJAJINAGAR C KARNATAKA Y
MANGALORE B KARNATAKA Y
ERNAKULAM N.R.I. B KERALA Y
ERNAKULAM B KERALA Y
CALICUT B KERALA Y
THIRUVALLAM C KERALA Y
TRIVANDRUM B KERALA Y
KOTTAYAM B KERALA Y
TRICHUR C KERALA Y
THIRUVALLA* NO KERALA Y
PATHANAMTHITTA C KERALA Y
KOLKATA OVERSEAS B KOLKATTA Y
LUCKNOW B LUCKNOW Y
JALANDHAR INDUSTRIAL
AREA C LUDHIANA Y
JALANDHAR M C LUDHIANA Y
JALANDHAR OVERSEAS B LUDHIANA Y
MODEL TOWN B LUDHIANA Y
BANGA C LUDHIANA Y

394
NAWANSHAHAR C LUDHIANA Y
AMRITSAR B LUDHIANA Y
PHAGWARA B LUDHIANA Y
NAKODAR C LUDHIANA Y
LUDHIANA B LUDHIANA Y
MOGA C LUDHIANA Y
MUMBAI
ANDHERI (WEST) B [NORTH] Y
MUMBAI
GHATKOPAR (WEST) B [NORTH] Y
MUMBAI
RAMDAS NAYAK MARG B [NORTH] Y
MUMBAI
KHAR C [NORTH] Y
MUMBAI
SION B [NORTH] Y
MUMBAI
SEEPZ B [NORTH] Y
MUMBAI
BULLION EXCHANGE B [SOUTH] Y
MUMBAI
C.P. TANK B [SOUTH] Y
MUMBAI
DADAR (WEST) B [SOUTH] Y
MUMBAI
MUMBAI N.R.I B [SOUTH] Y
MUMBAI
NARIMAN POINT B [SOUTH] Y
MUMBAI
OPERA HOUSE B [SOUTH] Y
MUMBAI
KALBADEVI B [SOUTH] Y
MUMBAI
MAHALAXMI B [SOUTH] Y
MUMBAI
MAHIM B [SOUTH] Y
MUMBAI
MANDVI B [SOUTH] Y
MUMBAI
NEPEAN SEA ROAD B [SOUTH] Y
NAGPUR B NAGPUR Y
KHARGHAR B NAVI MUMBAI Y
CONNAUGHT CIRCUS B NEW DELHI Y
KAROL BAGH B NEW DELHI Y
KHAN MARKET B NEW DELHI Y

395
KIRTI NAGAR B NEW DELHI Y
LAJPAT NAGAR B NEW DELHI Y
NEHRU PLACE B NEW DELHI Y
JANPATH B NEW DELHI Y
ASHOK VIHAR (WAZIRPUR) C NEW DELHI Y
GREATER KAILASH II B NEW DELHI Y
NEW FRIENDS COLONY C NEW DELHI Y
VIKASPURI C NEW DELHI Y
NEW DELHI OVERSEAS B NEW DELHI Y
NEW DELHI NRI B NEW DELHI Y
SAKET NO NEW DELHI Y
PATNA B PATNA Y
PUNE B PUNE Y
PIMPRI B PUNE Y
JAIPUR B RAJASTHAN Y
RAJKOT B RAJKOT Y
BHAVNAGAR B RAJKOT Y
JAMNAGAR B RAJKOT Y
JUNAGADH C RAJKOT Y
PORBANDAR B RAJKOT Y
DIU C RAJKOT Y
RANCHI B RANCHI Y
FREEGANJ B UJJAIN Y
ANAND NRI B VADODARA Y
SURAT M B VADODARA Y
UNIVERSITY ROAD C VADODARA Y
VADODARA M B VADODARA Y
21.12.200
BILLIMORA C VADODARA Y 5 MRW
ALKAPURI C VADODARA Y
MAHATMA GANDHI ROAD
VADODARA B VADODARA Y
BARDOLI C VADODARA Y
ANAND C VADODARA Y
DHARMAJ C VADODARA Y
KARAMSAD C VADODARA Y
NAVSARI C VADODARA Y
BHARUCH C VADODARA Y
VARANASI B VARANASI Y
VISAKHAPATNAM VISAKHAPATNA
OVERSEAS B M Y

396
 VISAKHAPATNA
VISAKHAPATNAM B M Y

LIST OF DESIGNATED BRANCHES FOR RFC ACCOUNTS

BRANCH ZONE
HYDERABAD HYDERABAD OVERSEAS
VISAKHAPATNAM VISAKHAPATNAM
KARNATAKA BANGALORE (MAIN)
PATNA PATNA
RANCHI RANCHI
KOLKATA KOLKATA OVERSEAS
AHMEDABAD AHMEDABAD (MAIN),AHMEDABAD NRI
VADODARA VADODARA (MAIN),SURAT (MAIN)
GANDHINAGAR BHUJ NRI
RAJKOT RAJKOT (MAIN)
INDORE INDORE (MAIN)
RAIPUR JABALPUR
GOA MARGAO,VASCO-DA-GAMA,PANAJI
ANDHERI (WEST),GHATKOPAR
MUMBAI NORTH
(WEST),R.N.MARG,SION
MUMBAI SOUTH MUMBAI OVERSEAS,MUMBAI NRI,MAHALAXMI
PUNE PUNE (MAIN)
KOLHAPUR KOLHAPUR
NAGPUR NAGPUR (MAIN)
RAJASTHAN JAIPUR
CHANDIGARH CHANDIGARH (MAIN)
NEW DELHI NEW DELHI OVERSEAS,NEW DELHI NRI
LUDHIANA (MAIN),AMRITSAR (MAIN),JALANDHAR
LUDHIANA
OVERSEAS,
PHAGAWARA LUDHIANA (MAIN)
BHUBANESHWAR BHUBANESHWAR
KERALA ERNAKULAM NRI,TRICHUR,TRIVANDRUM
CHENNAI CHENNAI OVERSEAS
LUCKNOW LUCKNOW

397
 Annexure IV

Non-Resident Deposit Accounts

FCNR(B) Deposits
Posting of FCNR „B‟ transactions by Branches authorised to accept FCNR‟B‟
Deposits

Mumbai NRI Branch is maintaining Pool accounts in six currencies as per following details:

Currency Accounts
USD 01070FCNRUSD
GBP 01070FCNRGBP
EUR 01070FCNREUR
Jap Yen 01070FCNRJPY
CAN $ 01070FCNRCAD
AUD $ 01070FCNRAUD

FCNR (B) Deposit, Diamond Dollar & RFC Accounts

PROPOSED Operational Process & Accounting Procedure

1. FCNR(B) Deposit:

AD Branch Level:

I. New FCNR(B) Deposit creation:

 Receive advice about funds in Treasury Nostro meant for new FCNR (B)
deposit.
 Check the nostro credit from NOSTRPT in Finacle and take note of nostro Ref.
No.
 Open new FCNR(B) a/c (OAAC & OOACAU)
 Execute IRM menu and pickup Ref. No. of Nostro while debiting control a/c.
Accounting entries are:

398
 Dr. 01070FCNRXXX (Currency) – Control a/c with Mumbai NRI branch
Cr. FCNR Deposit a/c (Currency) – Customer a/c with branch.

II. FCNR(B) Deposit Full Repatriate

 Close FCNR(B) Deposit ( CAAC & CACCAU)

Dr. FCNR Deposit a/c (Currency) – Customer A/c with branch

Cr. SOLIDSUNDEP021XX (Currency) – Term Deposit Control a/c with Br.

 TM entry
Dr. SOLIDSUNDEP021XX (Currency) – TD control account
Cr. SOLIDSCRFCXXX (Currency) – Sundry Credit Foreign Currency
account

 Execute ORM

Dr. SOLIDSCRFCXXX (Currency) – TD control a/c with Br.

Cr. 01070FCNRXXX (Currency) – Control a/c with MNRI

Make payment to Beneficiary by SWIFT transfer (MT103) through ORM by

mentioning Nostro a/c no. of Treasury Br. in Field 53.

III. FCNR(B) Deposit Full Conversion

 Execute Step-II but NO SWIFT message to be sent/generated.

 Take TTB rate from Treasury and execute IRM

Dr. SOLIDHOAC001 (INR) – HO a/c of Treasury Br. with Ref. No ORTT

Cr. Customer NRE or NRO a/c with branch.

IV. FCNR(B) Partial conversion & Partial Deposit:

 Close FCNR(B) Deposit ( CAAC & CACCAU)

Dr. FCNR Deposit a/c (Currency) – Customer A/c with branch
Cr. SOLIDSUNDEP021XX (Currency) – Term Deposit Control a/c with Br.

a. For partial conversion amount

 TM entry

Dr. SOLIDSUNDEP021XX (Currency) – TD control account

Cr. SOLIDSCRFCXXX (Currency) – Sundry Credit Foreign Currency
account
399
  Execute ORM but NO SWIFT message to be sent/generated

Dr. SOLIDSCRFCXXX (Currency) – Sundry Credit Foreign Currency

account
Cr. 01070FCNRXXX (Currency) – Control a/c with MNRI

 Take TTB rate from Treasury for partial conversion amount and execute IRM
(mention relative ORM reference)

Dr. SOLIDHOAC001 (INR) – HO a/c of Treasury Br. with Ref. No ORTT

Cr. Customer NRE or NRO a/c with branch

b. For partial Deposit amount

 Open new FCNR(B) a/c (OAAC & OOACAU)

 TM Entry

Dr. SOLIDSUNDEP021XX (Currency) – TD control account

Cr. FCNR Deposit a/c (Currency) – Customer a/c with branch.

V. FCNR(B) Partial conversion & Partial Repatriate:

 Close FCNR(B) Deposit ( CAAC & CACCAU)

Dr. FCNR Deposit a/c (Currency) – Customer A/c with branch
Cr. SOLIDSUNDEP021XX (Currency) – Term Deposit Control a/c with Br.

 TM entry
Dr. SOLIDSUNDEP021XX (Currency) – TD control account
Cr. SOLIDSCRFCXXX (Currency) – Sundry Credit Foreign Currency
account

a. For partial conversion amount

 Execute ORM but NO SWIFT message to be sent/generated

Dr. SOLIDSCRFCXXX (Currency) – TD control a/c with Br.

Cr. 01070FCNRXXX (Currency) – Control a/c with MNRI

 Take TTB rate from Treasury for partial conversion amount and execute IRM
(mention relative ORM reference)

Dr. SOLIDHOAC001 (INR) – HO a/c of Treasury Br. with Ref. No ORTT

Cr. Customer NRE or NRO a/c with branch

b. For partial repatriation amount

400
 Execute ORM

Dr. SOLIDSCRFCXXX (Currency) – TD control a/c with Br.

Cr. 01070FCNRXXX (Currency) – Control a/c with MNRI
Make payment to Beneficiary by SWIFT transfer (MT103) through ORM by
mentioning Nostro a/c no. of Treasury Br. in Field 53.

VI. FCNR(B) Partial Deposit & Partial Repatriate:

 Close FCNR(B) Deposit ( CAAC & CACCAU)

Dr. FCNR Deposit a/c (Currency) – Customer A/c with branch

Cr. SOLIDSUNDEP021XX (Currency) – Term Deposit Control a/c with Br.

a. For partial Deposit amount

 Open new FCNR(B) a/c (OAAC & OOACAU)

 TM Entry

Dr. SOLIDSUNDEP021XX (Currency) – TD control account

Cr. FCNR Deposit a/c (Currency) – Customer a/c with branch.

b. For partial repatriation amount

 TM entry
Dr. SOLIDSUNDEP021XX (Currency) – TD control account
Cr. SOLIDSCRFCXXX (Currency) – Sundry Credit Foreign Currency
account

Execute ORM

Dr. SOLIDSCRFCXXX (Currency) – TD control a/c with Br.

Cr. 01070FCNRXXX (Currency) – Control a/c with MNRI

Make payment to Beneficiary by SWIFT transfer (MT103) through ORM by

mentioning Nostro a/c no. of Treasury Br. in Field 53.

VII. FCNR(B) Deposit creation from NRE a/c fund

 Open new FCNR(B) a/c (OAAC & OOACAU)

 Take TTS rate from Treasury and execute ORM

Dr. Customer NRE a/c with branch.

401
 Cr. SOLIDHOAC001 (INR) – HO a/c of Treasury Br.

Execute IRM for FCNR(B) Deposit (mention the above ORM number as per step
1)
Dr. 01070FCNRXXX (Currency) – Control a/c with Mumbai NRI branch
Cr. FCNR Deposit a/c (Currency) – Customer a/c with branch.
Mumbai NRI branch level:

For Debit transactions of Control a/c:

 At the end of the day, take Total Debits (consolidated amount) of control a/c
01070FCNRXXX
 Send one MT202 message for transfer of Total consolidated amount from Treasury
Nostro to Mumbai NRI Nostro.

Dr. 01070BOIXX (Currency) – Mumbai NRI Mirror a/c

Cr. 01070FCNRXXX (Currency) – Control a/c with MNRI

For Credit transactions of Control a/c:

 At the end of the day, take Total Credits (consolidated amount) of control a/c
01070FCNRXXX(Currency)
 Send one MT202 message for transfer Total consolidated amount from Mumbai NRI
Nostro to Treasury Nostro.

Dr. 01070FCNRXXX (Currency) – Control a/c with MNRI

Cr. 01070BOIXXX (Currency) – Mumbai NRI Mirror a/c

Treasury branch level:

For Debit transactions of Control a/c:

Treasury branch FX back office generates FCNR transaction Debit report on daily basis
from Finacle and post the individual mirror Debit entry with consolidated Credit to Treasury
Mirror a/c in TCS BaNCS.
Treasury Nostro reconciles the Nostro credit with individual mirror Debits of TCS BaNCS.
Also Treasury Nostro reconciles the Nostro consolidated Debit induced by Mumbai NRI
with consolidated Credit of Treasury Mirror a/c.

For Credit transactions of Control a/c:

Treasury branch FX back office generates FCNR transaction Credit report on daily basis
from Finacle and post the individual mirror Credit entry with consolidated Debit to Treasury
Mirror a/c in TCS BaNCS.
Treasury Nostro reconciles the Nostro Debit with individual mirror Credits of TCS BaNCS.

402
 Also Treasury Nostro reconciles the Nostro consolidated Credit induced by Mumbai NRI
with consolidated Debit of Treasury Mirror a/c.

Non-Resident Deposit Accounts

(Annexure V)

To be used while transferring FCNR deposit from one Branch to another

Branch To be completed by transferor Branch

Name of the Branch Br. Code No.

Currency Scheme (DBD/FDR/MIC)

CMP No. Deposit No.

(at transferor branch)

Principal Amt. interest Amt.

(FC) (FC)

Total Amt. (FC)

Name of the let Depositor

The above deposit has been transferred to Branch

Officer Officer
Sign. Code No. Sign. Code No.

403
 Non-Resident Deposit Accounts
Annexure VI

To be submitted by a transferee Branch of FCNR deposit

Name of the Branch Br. Code No.

Currency Scheme (DBD/FDR/MIC) ,

CMP No. Deposit No.

(Given by Transferee Branch)

Effective date Period

Rate of Interest Maturity period

Principal Amt. (FC) Mat. Value (FC)

Name of the let Depositor

Officer Officer
Sign. Code No Sign. Code No.

404
 Annexure VII

Statement of Half-yearly interest of FCNR deposits for the Half-year ended

Branch : _____________ Zone: _____________

Curr Principal amount Amount of Amoun of Amount of Amount of Total amount National
ency in foreign currency interest interest interest in interest in of interest in Rate
and i.e. the accrued & in foreign foreign foreign foreign
Log amount unpaid till currency currency currency currency
No. for which deposit the for which paid at recovered accrued &
receipt was issued previous provision the time of during paid during
half year is made at payment the half the current
e.g. all the / renewal of year on half year
amount end of deposit account of (Total of D+E-
ofinterest current receipt to premature F)
provided half-year. the payment
& unpaid debit of of deposit
on deposit PI L A/c
receipts during the
before current
making half year
provisions plus
for the interest on
current MIC paid
half-year during the
current
half year to
the
debit of P/L
A/
c.

a b c d e f g h

405
 Chapter - 21

RESIDENT FOREIGN CURRENCY ACCOUNTS (RFC)

GENERAL

21.1 Returning Indians i.e. those Indians who were non-residents earlier, are returning now
for permanent stay, are permitted to open, hold and maintain with an Authorised Dealer, in
India, a foreign currency account to be known as Resident Foreign Currency (RFC) Account.

21.2 The gist of the scheme is as under:-

i) The scheme is called the Resident Foreign Currency Accounts Scheme (RFC).

ii) RFC account means an account expressed in any permitted currency,

opened and maintained pursuant to this scheme, by an eligible person with an
authorised dealer.

iii) Permitted Currency means any of the foreign currencies in which

authorised dealers have been permitted to maintain balances abroad. In our Bank,
RFC accounts are opened in US Dollars and GBP currencies only.

iv) Eligible person- Returning Indians i.e. those Indians, who were non-
residents earlier, and are returning now for permanent stay, are permitted to open,
hold and maintain with an AD bank in India, a foreign currency account to be
known as Resident Foreign currency (RFC) account.

v) Eligible Assets:

(i) Foreign currency assets held outside India and brought to India at the time
of returning for permanent stay.
(ii) Foreign exchange received as pension or any other superannuation or other
monetary benefits from his employer outside India
(iii) Foreign exchange received or acquired when he was resident outside India
as gift or inheritance from a person resident outside India.
(iv) Resident beneficiaries of insurance claims/ maturity/ surrender value settled
in foreign currency may be permitted to credit in the RFC account.

21.3 Opening of RFC Accounts

a) Subject to the provisions of this Scheme, any eligible person may open and maintain,
with our designated branches (list enclosed Annexure I) RFC accounts expressed in U.S.
Dollars and GBP.
b) No RFC Account shall be opened unless the eligible person makes an application to
an authorised dealer in the form (specified in Annexure II) duly signed by him and containing
all information specified therein, supported by required documents.

406
 c) Designated branch on being satisfied that the applicant for the RFC Account is an
eligible person and that the funds being credited to the account represent remittances out
of eligible assets, may open the RFC Account.
d) RFC Account can be held singly or jointly in the name/s of the eligible person/s.
Addition of names (other than eligible persons) is not permissible.
e) RFC Account can be maintained in the form of current/Saving Bank A/c and Term
deposits for maximum period of three years and minimum period of twelve months.
f) The interest rates on RFC term deposits are being advised by the Head office every
month & to be charged accordingly.

Minimum Amount of Term Deposit: US$ 10,000 and GBP 5,000

Minimum Balance in Savings A/c. : US$ 1000 and GBP 1000
RFC Term Deposits may be issued in the form of FDR and DBD, as in the case of FCNR (B)
deposits.

g) Premature Payment of Term Deposits As applicable to FCNR (B) Deposit.

h) Renewal of Overdue Term Deposit As applicable to FCNR (B) Deposit.

i) Calculation / compounding of interest in RFC Term Deposit:

As applicable to FCNR (B) deposits.

Accounting Procedure
21.4 Designated branches are advised to route all RFC transactions through NOSTRO
accounts of Treasury Branch. Such branches will have to open new General Ledger accounts
titled Resident Foreign Currency Accounts (RFC) Savings Bank or Term Deposit as the case
may be. Branches not designated to open RFC account must direct their customers to
designated branches and make arrangement for transfer of funds to designated branch.
Eligible persons can transfer the balances in their NRE/FCNR A/c to RFC A/c (balances to be
converted at market rates). In case such transfer involves premature payment of NRE/FCNR
deposit, no penalty is to be levied.
At AD Branch Level:
I. New RFC Deposit creation:

 Funds are received in Treasury Nostro meant for new RFC deposit.
 Check the nostro credit from NOSTRPT and take note of nostro Ref.No.
 Open new RFC a/c (OAAC & OOACAU)
 Execute IRM menu and pickup Ref.No. of Nostro while debiting control a/c.
Accounting entries are:

Dr. 01500RFCUSD (USD) – Control a/c with Mumbai Overseas branch

Cr. RFC Deposit a/c (USD) – Customer a/c with branch.
407
 II. New RFC Deposit creation from NRE a/c balance:

 Take TTS rate from Treasury and execute ORM

Dr. Customer NRE a/c with branch.

Cr. SOLIDHOAC001 (INR) – HO a/c of Treasury Br.

 Execute IRM for RFC Deposit

Dr. 01500RFCUSD (USD) – Control a/c with Mumbai Overseas branch

with Ref.No ORTT
Cr. RFC Deposit a/c (USD) – Customer a/c with branch.

III. New RFC Deposit creation from FCNR Deposit:

 Close FCNR Deposit ( CAAC & CACCAU)

Dr. FCNR Deposit a/c (USD) – Customer A/c with branch

Cr. SOLIDSUNDEP021US (USD) – Term Deposit Control a/c with Br.

 Execute ORM

Dr. SOLIDSUNDEP021US (USD) – TD control a/c with Br.

Cr. 01070FCNRUSD (USD) – Control a/c with MNRI

 Execute IRM for RFC Deposit

Dr. 01500RFCUSD (USD) – Control a/c with Mumbai Overseas branch

with Ref.No ORTT
Cr. RFC Deposit a/c (USD) – Customer a/c with branch.

IV. RFC Deposit Repatriate

 Close RFC Deposit ( CAAC & CACCAU), execute TM for SB a/c

Dr. RFC Deposit a/c (USD) – Customer A/c with branch

Cr. SOLIDSUNDEP021US (USD) – Term Deposit Control a/c with Br.

 Execute ORM

Dr. SOLIDSUNDEP021US (USD) – TD control a/c with Br.

Cr. 01500RFCUSD (USD) – Control a/c with Mumbai Overseas branch

Make payment to Beneficiary by SWIFT transfer (MT103) through ORM by

mentioning Nostro a/c no. of Treasury Br. in Field 53.

408
V. RFC Deposit Conversion

 Close RFC Deposit ( CAAC & CACCAU), execute TM for SB a/c

Dr. RFC Deposit a/c (USD) – Customer A/c with branch

Cr. SOLIDSUNDEP021US (USD) – Term Deposit Control a/c with Br.

 Execute ORM but NO SWIFT message to be sent/generated.

Dr. SOLIDSUNDEP021US (USD) – TD control a/c with Br.

Cr. 01500RFCUSD (USD) – Control a/c with Mumbai Overseas branch

Take TTB rate from Treasury and execute IRM

Dr. SOLIDHOAC001 (INR) – HO a/c of Treasury Br. with Ref.No ORTT

Cr. Customer a/c with branch.

VI. RFC Deposit Interest payment – Repatriation

 Credit interest amount to SOLIDSUNDEP021US (USD) – Term Deposit Control

a/c with Br.
 Execute ORM

Dr. SOLIDSUNDEP021US (USD) – TD control a/c with Br.

Cr. 01500RFCUSD (USD) – Control a/c with Mumbai Overseas Br.

Make payment to Beneficiary by SWIFT transfer (MT103) through ORM by

mentioning Nostro a/c no. of Treasury Br. in Field 53.

VII. RFC Deposit Interest payment – Conversion

 Credit interest amount to SOLIDSUNDEP021US (USD) – Term Deposit Control

a/c with Br.
 Execute ORM but NO SWIFT message to be sent/generated.

Dr. SOLIDSUNDEP021US (USD) – TD control a/c with Br.

Cr. 01500RFCUSD (USD) – Control a/c with Mumbai Overseas Br.

Take TTB rate from Treasury and execute IRM

Dr. SOLIDHOAC001 (INR) – HO a/c of Treasury Br. with Ref.No ORTT

Cr. Customer NRE or NRO a/c with branch.

409
At Mumbai Overseas branch level:
For Debit transactions of Control a/c:
 At the end of the day, take Total Debits (consolidated amount) of control a/c
01500RFCUSD
 Execute ORM and send one MT202 message for transfer of Total consolidated amount
from Treasury Nostro to RFC Nostro.

Dr. 01500BOICY002 (USD) – Mumbai Overseas branch RFC Mirror a/c

Cr. 01500RFCUSD (USD) – Control a/c with Mumbai Overseas branch.
For Credit transactions of Control a/c:
 At the end of the day, take Total Credits (consolidated amount) of control a/c
01500RFCUSD
 Execute ORM and send one MT202 message for transfer Total consolidated amount
from RFC Nostro to Treasury Nostro.

Dr. 01500RFCUSD (USD) – Control a/c with Mumbai Overseas branch.

Cr. 01500BOICY002 (USD) – Mumbai Overseas branch RFC Mirror a/c
At Treasury branch level:
For Debit transactions of Control a/c:
Treasury branch FX back office generates RFC transaction Debit report on daily basis from
Finacle and post the individual mirror Debit entry with consolidated Credit to Treasury Mirror
a/c in TCS BaNCS.
Treasury Nostro reconciles the Nostro credit with individual mirror Debits of TCS BaNCS.
Also Treasury Nostro reconciles the Nostro consolidated Debit induced by Mumbai Overseas
branch with consolidated Credit of Treasury Mirror a/c.
For Credit transactions of Control a/c:
Treasury branch FX back office generates RFC transaction Credit report on daily basis from
Finacle and post the individual mirror Credit entry with consolidated Debit to Treasury Mirror
a/c in TCS BaNCS.
Treasury Nostro reconciles the Nostro Debit with individual mirror Credits of TCS BaNCS.
Also Treasury Nostro reconciles the Nostro consolidated Credit induced by Mumbai Overseas
branch with consolidated Debit of Treasury Mirror a/c.
Important instructions:
 Branches to advise/instruct their NRI/Overseas customers to remit the funds only to Treasury
branch Nostro account.
 Where ever the conversion of fund that involves ORM & IRM, the relative ORM Ref.No. should
be entered in IRM in Ref.No. field of Realisation A/c.
 In the transactions (ORM & IRM) that involves NO Outflow & Inflow of foreign currency fund,
the “Report Purchase/Sale” field should be mentioned as “N.

Bank Charges
21.5 Whenever a request is received from customer for remittance in foreign currency by way
of demand drafts/foreign travellers cheques, in addition to our normal charges for remittances

410
branches should recover a charge of US. $ 5/- per transaction and the same should be credited
to its P/ L Misc. Receipts at Market Rate

21.6 The funds in RFC account shall be free from all restrictions regarding utilisation of
Foreign Currency balances, including any restriction on investment in any form, by whatever
name called, outside India.

21.7 If RFC account holders become Non-Resident i.e. they go abroad subsequently for
employment, etc. they would be free either to transfer the balances held in RFC accounts to
accounts outside India or to convert these balances into NRE/FCNR accounts with banks in
India.
Operation in the Accounts

a) 21.8The funds in the RFC Account can be freely utilised by the account holder for any
bonafide remittance outside India through normal banking channels including for investments
abroad provided the cost of such investments and/or any subsequent payments required
therefore are met out of RFC account.
b) Withdrawals/payments from such accounts, other than for remittances outside India,
or for payments in foreign currency authorised to be made in India by Reserve Bank shall be
permitted by the branches only in equivalent Indian rupees at market exchange rate.

21.9 Loans/ advances against RFC Deposit in USD and GBP:

With the introduction of FEMA, there have been fundamental changes in Exchange Control
Notifications under FEMA and subsequent clarifications given by RBI, enable Banks to consider
loans/ advances against RFC deposits. It is decided by the Bank that branches designated for
maintaining RFC accounts, may consider requests, for Rupee Loans against RFC Deposits
maintained by them as per following operational guidelines:

Eligibility: RFC Account holders / third parties

Purpose: Personal use or business purposes.

Type of Advance: Rupee Loans/ Overdrafts

Quantum :Up to 75% of the principal amount + accrued interest; maximum amount – Rs.25
lakhs, for calculating Rupee equivalent, branches should take TT buying rate.

Relaxation in quantum/margin to be considered by competent delegatee, as given in Branch

Circular No. 95/50 of 23.07.2001.

For details on interest, repayments, documentation, please refer to the aforesaid Circular.

Nomination Facility

411
21.10 RFC accounts will have the nomination facility as in the case of resident rupee account.

Death of Account holder

21.11 On the death of an RFC Account holder, the balance in the account may be repatriated
to the nominee/beneficiaries to the extent of his/their entitlement, on production of
satisfactory proof of entitlement, if on the date of death of the account holder such
nominee/beneficiaries are resident outside India. To the extent any nominee/beneficiaries is
a person resident in India on the date of the death of account holder, on proof of entitlement,
the amount may be paid to them in equivalent Indian rupees. The resident nominee, who is
desirous of remitting funds outside India of his share for meeting the liabilities abroad of the
deceased, may apply to RBI for such remittances.

Interest to staff

21.12 Governed by Provisions as applicable to FCNR (B) deposits.

21.13 Taxation:
During ‘Not Ordinary Resident‘ status, no TDS on RFC account is applicable. However, during
Resident‘ status, TDS on such accounts is applicable.
21.14 Branches, while approaching Treasury branch/ Mumbai Overseas Branches to
undertake transactions in RFC accounts, should invariably provide suitable certificate, covering
that:

i) The Paying party mentioned, is maintaining account with them which is properly
identified/ introduced.
ii) The transactions requested to be put through, is commensurate with their business
transactions to enable them to send the same to New York branch/ Cayman Islands branch /
London branch.

21.15 Loans / Advances against RFC Deposits :

Branches designated for maintaining RFC accounts may consider requests for Rupee Loans
against RFC deposits as per following guidelines:
Eligibility : I) to individuals holding RFC accounts with us
II) to third parties against the pledge of deposit receipt
III)by the RFC Account holder Purpose For personal use or for
business purposes.
Type of Advance : Rupee Loans / Overdraft
Margin : 25% of the face value + accrued interest.
Competent Delegaties may reduce margin in deserving cases.

412
Repayment : Advance can be repaid by Rupee Deposits, fresh remittances
from abroad or out of the maturity proceeds of the RFC
deposits.
For rate of interest and other operational instructions, please be guided by instructions issued
by Head Office from time to time.

413
Resident Foreign Currency Accounts

Annexure I

LIST OF DESIGNATED BRANCHES FOR RFC ACCOUNTS

ZONES BRANCHES

Hyderabad Hyderabad Overseas, Hyderabad

Visakhapatnam Visakhapatnam

Karnataka Bangalore (Main)

Patna Patna

Ranchi Ranchi

Kolkata Kolkata Overseas

Ahmedabad Ahmedabad (Main), Ahmedabad NRI

Vadodara Vadodara (Main),Surat(Main),

Gandhinagar Bhuj NRI,

Rajkot Rajkot (Main)

Indore Indore (Main)

Raipur Jabalpur

Goa Margao, Vasco-da-Gama, Panaji

Andheri (West), Ghatkopar (West),R.N.Marg,

Mumbai North
Sion, Seepz

414
Mumbai South Mumbai Overseas, Mumbai NRI, Mahalaxmi

Pune Pune(Main)

Kolhapur Kolhapur

Nagpur Nagpur (Main)

Rajasthan Jaipur

Chandigarh Chandigarh (Main)

New Delhi New Delhi Overseas, New Delhi NRI

Ludhiana Ludhiana (Main), Amritsar (Main), Jalandhar

Overseas, Phagwara

Bhubaneshwar Bhubaneshwar

Kerala Ernakulam NRI, Trichur, Trivandrum

Chennai Chennai Overseas

Lucknow Lucknow,

415
 Annexure II
FORM - RFC APPLICATION FOR OPENING AN RFC ACCOUNT
To
The Manager,
Please open an RFC Account in my name. The relevant particulars are as under:

1. Name and address of the applicant

2. Nationality

3. Origin (State whether you are of Indian

origin)
4. Passport particulars

No.:
Issuing Authority
Expiry Date

*5. Date of arrival in India to become a

resident in India.

*6. Particulars of residence outside India :Country:

Period :From ____
to_____ Nature of
Occupation:
* (An attested copy of the relevant pages
of the passport must be enclosed).

7. Do you continue to have any

employment or business or vocation
outside India?
If so please give full particulars.

8. Foreign Currency/ies in which RFC

Account/s is/are to be opened
9. Type of Account desired (State whether
fixed deposit, current or savings Account).
I hereby declare that I have gone through the provisions of the RFC Accounts Scheme. I
declare that the particulars stated hereinabove are correct and I am eligible to open and
maintain RFC Account under the Scheme as applied. I agree that the RFC Account shall
be governed by the RFC Accounts scheme and the directions issued by the Reserve Bank
under FEMA from time to time.
Date: (Signature)
Place :
416
 Annexure II Page 2

Resident Foreign Currency Accounts

Annexure II Instructions to the Applicant

1. Applicant is advised to read carefully the RFC Accounts Scheme before making the
application.

2. Account will not be opened unless full particulars are furnished in the application
form.
3. Application form duly filled in and signed must be accompanied by copies of the
relevant pages of the passport duly certified by the applicant as true copies. The
passport should be submitted alongwith the application for verification.

4. Furnishing any false information in the application amounts to a contravention of

FEMA 1999.
5. Applicant should furnish such other particulars or documents, as may be required
by the authorised dealer for the latter to satisfy himself that the applicant is an eligible
person and the funds proposed to be credited to the RFC Account are eligible for the
purpose.
6. Nomination facility is available to the RFC accountsas in the case of resident Rupee
accounts.

417
 Chapter - 22

RUPEE ACCOUNTS OF NON-RESIDENT BANKS

(VOSTRO ACCOUNTS)

Exchange Control Regulations

22.1 General:-

i) Credit to the account of a non-resident bank is a permitted method of payment to non

residents and is, therefore, subject to the regulations applicable to transfers in foreign
currency. Such transfer, may be without prior approval of Reserve Bank of India only in
those cases where Authorised Dealers could have remitted funds to the country concerned
under the power delegated to them. Application for Rupee transfers which are not covered
by powers delegated to Authorised Dealers should be forwarded to the RBI on form A-1 or
A-2, as the case may be with appropriate documentary evidence.

ii) Debit to the account of a non-resident bank is in effect an inward remittance in foreign
currency

22.2 AD Banks may open / close Rupee Accounts (non-interest bearing) in the names of their
overseas branches or correspondents without prior reference to Reserve Bank. Opening of
Rupee Account in the names of branches of Pakistani Banks operating outside Pakistan
requires specific approval of Reserve Bank of India.

All debits/ credits to the accounts of non-resident banks should be reported in Form A3.

22.3 Conversion of Rupees into Foreign Currencies:

Balance held in Rupee accounts of non-resident banks may be freely converted into foreign
currency. All such transactions should be reported in Form A2 and the corresponding debit to
the account should be in Form A3.

22.4 Refund of rupee Remittances :

Requests for cancellation or refund of inward remittances may be complied with, without
reference to Reserve Bank after satisfying themselves that the refunds are not being made in
cover of transactions of compensatory nature.

22.5 Transfers from other accounts :

Transfer of funds between the accounts of the same bank or different banks is freely permitted.

418
22.6 Funding of accounts of non resident banks

Authorised dealers are permitted to freely purchase permitted currency from their overseas
branches/correspondents at ongoing market rates to enable the latter to lay down funds in
their rupee accounts in India for meeting their bonafide needs for payments against exports
and other commitments in India. Forward purchase or sale of foreign currencies against rupees
for funding is prohibited. Transactions in the accounts should be closely monitored to ensure
that overseas banks do not take a speculative view on the rupee. If it is observed that rupee
funds acquired by any of their branches or correspondents are abnormal or disproportionate
to their normal turnover in India, authorised dealers should immediately bring the above
regulation to the notice of the bank concerned and dissuade them from undertaking such
operations. Such cases should also be promptly brought to the notice of the Reserve Bank of
India. The Intention is to prevent speculation in rupees by overseas banks.

22.7 While quoting rates for selling or buying rupees against foreign currencies to their
overseas branches/Head Office/correspondent banks, authorised dealers should ensure that
the rates quoted to them are under no circumstances better that the prevailing market rates.
Offering of two-way quotes for the Indian Rupees to the overseas branches/correspondents
by authorised dealers is prohibited.

22.8 Overdrafts/ Loans to Overseas branches/ Correspondents :

i) Banks may permit their overseas branches/ correspondents temporary overdrawals not
exceeding Rs.500 lakhs in the aggregate, for meeting normal business requirements. This
limit applies to the amount outstanding against all overseas branches and correspondents in
the books of all the branches of the bank in India. This facility should not be used to postpone
funding of accounts. If overdrafts in excess of the above limit are not adjusted within five
days a report should be submitted to the Chief General Manager, Financial Markets Regulation
Department, Reserve Bank of India, Central Office, 9th floor, Central Office Building, Shahid
Bhagat Singh Road, Fort, Mumbai – 400 001 within 15 days from the close of the month,
stating the reasons thereof. Such a report is not necessary if arrangement exist for value
dating.

ii) Banks wishing to extend any other credit facility in excess of (i) above to overseas banks
should seek prior approval from the Chief General Manager, Financial Markets Regulation
Department, Reserve Bank of India, Central Office.

Vostro Accounts maintained by Banks abroad with our Bank

22.9 Any request received for opening a Vostro account should be referred to Corporate
Credit Dept, Head Office. Similarly, any request received from an overseas bank/branch for
overdraft facilities should be referred to Corporate Credit Dept, Head Office. The account
maintaining branches should meticulously comply with the exchange regulations and Head
Office instructions. List of Vostro account maintained by foreign banks with our Mumbai
Overseas Branch is given in Annexure.

419
Management of Risks arising in Vostro Accounts
22.10 The maintenance of rupee accounts for overseas correspondent banks is a very
important activity of the bank.
22.11 Just the same way the bank's control over Nostro accounts extends over several
aspects viz. maintenance of adequate balances to meet unexpected needs, interest rate
considerations (in the event of overdrafts), establishment of credit lines and- reconciliation
apart from periodical evaluation of credit risks, the control over Vostro accounts too extend
over various aspects viz. funds flows in the accounts, observance of credit lines extended to
the correspondent bank, concealed overdrafts (and recovery of interest there against) apart
from periodical evaluation of credit risks.
22.12 Accounts maintaining branches should assess their credit risks periodically vis-a-vis
the Vostro accounts maintained with them. Credit risks arise out of several factors, principally:
a) Spot contracts where settlement is yet to take place involving two foreign
currencies or one foreign currency and the rupee.
b) Outstanding forward contracts involving two foreign currencies or one foreign
currency and the rupee (FEMA 2000).
c) Overdrafts availed of in Vostro accounts.
d) Confirmation of letters of credit and issue of guarantees on behalf of
correspondents.
e) Drafts, TTs and other drawings made by the correspondent on a branch of the
authorised dealer and paid but not debited to the Vostro accounts.
22.13 Account maintaining branches should adhere to the instructions issued by Head Office
from time to time to monitor these risks.
22.14 The exchange regulations require a close monitoring of the funds flow in Vostro
accounts with a view to averting hot money flows on the one hand and speculative dealing in
the rupee on the other. Apart from this, the accounts should be monitored for quickly
identifying sudden changes in volume of operations, changes in the nature of operations, etc.
so that discreet inquiries can be made about the causes for the changes. Any unusually large
operations (whether credits or debits) in inactive or the less active Vostro accounts should be
promptly looked into to ensure that they are genuine operations of the foreign correspondent.
Secrecy of Inward Messages
22.15 The branches having Vostro Accounts of correspondent banks shall have SWIFT BKE
arrangements with correspondent banks, wherever feasible. Bank‘s instructions /
requirements for establishing SWIFT arrangement with correspondent banks should be
complied with meticulously.

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Confirmation of balances

22.16 It is an essential feature of customer service to the overseas banks maintaining

Vostro accounts to send out certificates of balances and obtain confirmation thereof from the
overseas banks, periodically. The receipt of confirmation of balance should be carefully
watched/ followed

22.17 Internet Based Operation on Vostro accounts

Banks are permitted to allow internet based operations on Rupee Vostro Accounts maintained
by exchange houses or banks outside India with them, provided the banks in India ensure
that the software will prevent any unauthorised operation. The internet based operations on
vostro accounts are permitted subject to the conditions that:

(i) Banks will remain responsible for secrecy, confidentiality and integrity of data.

(ii) Banks should strictly comply with FEMA rules/regulations issued in connection with
operations / maintenance of vostro accounts in India.

(iii) Banks should strictly adhere to KYC and AML standards and procedures relating to
correspondent banking/exchange houses

22.18 Rupee Accounts of Exchange House:

Opening of rupee accounts in the names of exchange houses for facilitating private
remittances into India requires prior approval of Reserve Bank. RBI has issued detailed
instructions regarding maintaining & operations of these accounts, which are as under.

A. Instructions regarding operations in the rupee vostro accounts.

i. The accounts can be used for channelling inward remittances to India primarily on
private account. The remitter and the beneficiary (in most cases) should be
individuals. Remittances through Exchange Houses for financing of trade
transactions are permitted up to Rs.15,00,000 (Rupees Fifteen laks only) per
transaction. The accounts should not be used for outward remittances from
India.

ii. The accounts should run on a credit basis. No overdraft should be granted to the
account holders. However, in case of Designated Depository Agency (DDA)
procedure, the funds lying in the DDA A/c may be taken into account, if need be.

iii. Separate Rupee Vostro account shall be maintained for each arrangement. The
accounts should be funded by sale of permitted foreign currency to the AD Category
- I bank, which maintains the account. Rupee funds transferred from another

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 Authorized Dealer Category-I or from another Vostro account will not be eligible for
credit to the account.

iv. Debits of permitted types ( vide item (i) above ) may be made freely and given the
same status as remittances made in foreign exchange in an approved manner to
India. Thus, such payments will be eligible for credit to Non-Resident (External)
Rupee Accounts maintained by Non-resident Indians, or for acceptance under
priority allotment etc. schemes. In order facilitate tourists (whether Indian or not)
receiving remittances through such accounts may prove the external sources of the
funds where required (such as for payment of passages in India or for re-conversion
of unutilised balances), AD Category - I banks may issue certificates in the same
form as for inward remittances received through rupee accounts of overseas banks.

v. Funds in such accounts will not be convertible, nor will they be transferable to other
AD Category - I banks or to non-resident accounts of other such institutions or banks
with the same AD Category - I bank.

vi. Balances in rupee account will not qualify for payment of interest.

vii. The branch of the AD Category – I bank maintaining the Rupee Vostro account of
the Exchange House should not credit to the account, rupees purchased by the
latter unless confirmation is received to the effect that the Nostro account of the AD
Category - I bank has been credited with the counter-value in foreign currency.

viii. AD Category - I banks may like to obtain suitable and adequate collateral either in
the form of a cash deposit or guarantee of a bank of international repute, depending
on the type of arrangement to take care of credit and operational risks.

ix. A cap of 300 on the number of drawee branches has been prescribed by the Reserve
Bank as a prudential measure. However, AD Category-I banks may designate
drawee branches beyond 300, provided such branches are under the Core Banking
Solution where on-line monitoring of funds position is ensured to avoid concealed
overdrafts in vostro accounts, subject to the terms and conditions of Reserve Bank’s
approval for the tie-up with an Exchange House and the instructions pertaining to
RDA issued by the Reserve Bank from time to time. The AD Category-I banks should
obtain necessary Board approval before increasing the number of drawee branches
beyond 300 and should inform the position to the Reserve Bank immediately.

B. Permitted Transactions

22.19 Drawing Arrangements with Exchange Houses are primarily designed to channel inward
personal remittances. Under no circumstances, donations / contributions to
charitable institutions should be routed through the Exchange Houses. The following
is the list of permissible transactions under Drawing Arrangements with Exchange Houses.

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1. Credit to Non-resident (External) Rupee accounts maintained by Non-resident Indians in
Indian Rupees.
2. Payments to families of Non-resident Indians.
3. Payments in favour of Insurance companies, Mutual Funds and the Post Master for premia /
investments.
4. Payments in favour of bankers for investments in shares, debentures.
5. Payment to Coop. Housing Societies, Govt. Housing Schemes or Estate Developers for
acquisition of residential flats in India in individual names subject to compliance of regulations
thereof by the Non-resident Indians.

6. Payments of tuition/ boarding, examination fee etc. to schools, colleges and other
educational institutions.

7. Payments to medical institutions and hospitals in India, for medical treatment of NRIs / their
dependents and nationals of all FATF countries.

8. Payments to hotels by nationals of all FATF compliant countries / NRIs for their stay.

9. Payments to travel agents for booking of passages of NRIs and their families residing in India
towards their travel in India by domestic airlines / rail, etc.

10. Trade transactions up to Rs. 15 lakhs per transaction.

11. Payments to utility service providers in India, for services such as water supply, electricity
supply, telephone (except for mobile top-ups), internet, television, etc.

12. Tax payments in India

13. EMI payments in India to Banks and Non-Banking Financial Companies (NBFCs) for
repayment of loans.

14. Remittances to the Prime Minister’s National Relief Fund/Chief Minister’s Distress Relief Fund-
Kerala subject to the condition that the remittances are directly credited to the Fund by the
banks and the banks maintain full details of the remitters

Note : No cash disbursement of remittances received is allowed under Rupee /

Foreign Currency Drawing Arrangements.

C) Rupee Drawing Arrangement Procedures and Collateral Cover

Rupee Drawing Arrangements can be conducted under Designated Depository Agency (DDA),
Non-Designated Depository Agency (Non-DDA) and Speed Remittance procedures.

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22.20 1. Designated Depository Agency (DDA) Procedure

i. The Exchange House will be required to open a bank account in a convertible foreign currency
in the name of the drawee bank (a/c- Exchange House) with an international bank (DDA)
acceptable to the drawee bank at a centre mutually agreed or with the drawee bank itself at
the branch where the corresponding rupee Vostro account is maintained, with the prior
approval of the Reserve Bank.

ii. Exchange House will, at the end of each day arrive at the total drawings in Indian rupees
for the day and will convert the same into a foreign currency which sum shall be deposited
into the account of the drawee bank (a/c-Exchange House) (as described at 1(i) above) on
the next working day before noon.

iii. The Exchange House will send to the drawee bank information about the total number
and the aggregate value of drafts drawn and daily deposits in and transfer from the DDA
account as frequently as possible.

iv. The DDA account will hold the funds under lien to the drawee bank. The DDA account
will allow debits only (a) on account of transfer to the Nostro account of the drawee bank
where the DDA account is maintained with a bank other than the drawee bank, (b) for crediting
the Rupee vostro account of the Exchange House by selling permitted foreign currency to the
drawee bank where the DDA account is maintained with the drawee bank.

v. It will be the responsibility of the Exchange House to arrange for the transfer of the sum
collected on any particular day to the DDA account. The float period for the funds with DDA
account will be decided by the drawee bank in consultation with the Exchange House subject
to a maximum of five days.

vi. The interest earned on the amount deposited by the Exchange House with the DDA as
provided for at 1 (ii) above up to the date of transfer to the Nostro account of the drawee
bank will accrue to the Exchange House.

vii. To ensure compliance of the above, the drawee bank in India will appoint a firm of
practicing Chartered Accountants/ Auditors operating in the country concerned to examine the
daily drawings and deposits in the accounts with the DDA as well as transfer to the Nostro
account of the drawee bank. For this purpose, the Exchange House will undertake to allow
the auditors to inspect the books, pay in vouchers, etc., of the Exchange House in so far as
they pertain to rupee drawing arrangement. Such inspections will be done at least once or
twice in every week by the auditors.

viii. As an alternative to the appointment of auditors as mentioned in paragraph 1 (vii)

above, the AD Category - I bank may depute a suitable official as their representative to the
Exchange House to take up such functions so as to safeguard the interests of the AD
Category - I bank.

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 ix. The auditors / representative will promptly report the findings to the drawee bank. In
case of default on the part of the Exchange House, the drawee bank will as per terms and
conditions of agreement, terminate the agency arrangement under notice to the Exchange
House. The termination will also be promptly reported to the Reserve Bank.

x. So long as the Exchange House complies with the guidelines, the drawee bank will
ensure that the drafts issued are honoured at the branches mutually agreed to.
xi. The remuneration payable to auditors will be borne by the drawee banks.

xii. Drafts drawn by the Exchange House should have a validity of only three months from
the date of issue thereof.

xiii. AD Category - I banks should satisfy themselves that the books of accounts of Exchange
Houses are regularly audited by auditors approved by the local supervisory authorities.

xiv. AD Category - I banks should call for periodical credit reports, audited balance sheet
and profit and loss account of the Exchange House and other relevant information so as to
take a decision regarding continuance of accounts in their books.

xv. Valid copies of all licenses should also be kept on record by the AD Category - I bank.

xvi. Since the books of accounts of the Exchange House cannot be inspected, AD Category
- I banks should periodically review the arrangement by paying visits to the Exchange Houses
and / or by periodical review of opinion reports. The visits of officials from Authorized Dealers
Category-I should be at a sufficiently senior level, fully conversant with the conduct of the
Non-resident Rupee Accounts of the Exchange House.

22.21 Collateral Cover : For Exchange Houses which have not completed three years of
operation, collateral cover in cash deposit in any convertible foreign currency or guarantee
from a bank of international repute equivalent to 7 days’ projected drawings may be
obtained. For Exchange Houses which have completed three years of successful operations,
no collateral is prescribed. However, AD Category - I banks may secure their position by
requiring adequate collateral cover. Cash deposit in any convertible foreign currency or a
guarantee from a bank of international repute equivalent to 15 days‘ estimated drawings may
be obtained as collateral cover where it is not possible to appoint auditors as mentioned at
1(vii) above. The deposit should be in the name of the AD Category-I bank with interest
thereon at market related rates payable to the Exchange House placing the deposits. The
amount of deposit and guarantee should be periodically reviewed and properly monitored by
the AD Category-I banks to ensure that the collateral covers adequately the drawings

22.22. 2. Non- DDA procedure

As an alternative to maintaining a DDA account and appointment of auditors as above, the a

AD Category - I bank may opt for Non-DDA procedure.

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 Under Non – DDA procedure, the Exchange House funds their vostro account with the AD
Category - I bank by purchasing Rupees from the AD Category - I bank against USD for the
total of drafts issued by them at periodic intervals and sends a weekly statement of drawing
and funding to the AD Category - I bank.

Collateral Cover: For Exchange Houses which have not completed three years of operation,
collateral cover in cash deposit in any convertible foreign currency or guarantee from a bank
of international repute equivalent to 7 days’ projected drawings may be obtained. For
Exchange Houses which have completed three years of successful operations, no collateral
is prescribed. Further, under Non-DDA arrangement, a collateral cover in cash deposit in any
convertible foreign currency or guarantee from a bank of international repute equivalent to
10 days’ projected drawings may be obtained from Exchange Houses. In addition to the
above, if there is a restriction on the bank’s right to depute its own staff for examination of
books of the Exchange House, as was in case of Exchange Houses in Kuwait, additional cash
deposit in any convertible foreign currency / guarantee from a bank of international repute
equivalent to 15 days’ estimated drawings may be obtained. The deposit should be in the
name of the AD Category-I bank with interest thereon at market related rates payable to the
Exchange House placing the deposits. The amount of deposit and guarantee should be
periodically reviewed and properly monitored by the AD Category-I banks to ensure that the
collateral adequately covers the drawings and account for the pipeline debits evaluated.

22.23 3. Speed Remittance Procedure

AD Category - I banks are permitted to enter into RDA under speed remittance procedure
wherein-

i) The Exchange House sends payment instructions with complete details like name address,
etc via SWIFT or internet.

ii) The Exchange House funds the rupee account through the Nostro account of the AD
Category - I bank well in advance before issuing payment instructions.

iii) On verification of data and availability of balance in the Vostro account of the exchange
house the AD Category - I bank issues drafts in favour of the beneficiary or credit the account
of the beneficiary.

iv) The Exchange House shall address all payment instructions to the account holding branch
of the AD Category - I bank irrespective of the beneficiaries‘ centre.

v) The branch shall make no payment unless clear funds are available in the account.

vi) The AD Category - I bank shall obtain date-wise information regarding number and
aggregate value of such transfers from the Exchange House.

vii) Where facility of speed remittance is extended to existing rupee drawing arrangements
the Exchange House shall open a separate rupee account with the prior approval of the
426
Reserve Bank and no payment instructions shall be executed unless there are clear funds
available in this account. However, where the operations in the existing rupee drawing
arrangements under DDA/ Non-DDA procedure are satisfactory, ADs Category-I banks can
extend the facility of speed remittance to the same Exchange House without prior approval of
the Reserve Bank, subject to usual terms and conditions and after obtaining all the necessary
documents from the Exchange House. However, the Reserve Bank may be informed
immediately.

22.24 The AD Category - I banks are free to determine the requirement of collateral, if any,
based on factors such as whether the remittances are pre-funded, the track record of the
Exchange House, whether the remittances are effected on gross (real-time) or net (file
transfer) basis, etc. and may frame their own policy in this regard. (Please refer to Bank policy
on Speed Remittance under Rupee Drawing Arrangement)

4. Foreign Currency Drawing Arrangements

AD Category - I banks may enter into foreign currency drawing arrangements under DDA or
Non-DDA procedure with those Exchange Houses with whom they have Rupee Drawing
Arrangements (RDAs)., with prior approval of the Reserve Bank, subject to the following
conditions. Each tie-up arrangement of an AD Category-I bank with an Exchange House under
Foreign Currency Drawing Arrangements is required to be approved by the Reserve Bank.

i) Exchange Houses shall draw drafts in any convertible currency on ’A‘ or ‘B‘ category
branches of AD bank. No ‘C‘ category branch is allowed to participate in the arrangement.

ii) The foreign currency arrangement shall be kept distinct from the Rupee drawing
arrangement.

iii) A separate foreign currency vostro account of the Exchange House shall be opened with
the account maintaining branch. Payment of such drafts shall be made by debit to this
account maintained by the Exchange House and not to the Nostro Account of the AD
Category - I bank.

iv) The aggregate amount of drafts drawn in foreign currency by the Exchange House on any
day should be credited to the Nostro Account of the drawee bank latest by close of
business on the second working day.

v) The account maintaining branch of the drawee AD Category - I bank should credit foreign
currency vostro account of the Exchange House on receipt of confirmation regarding
credit to their nostro account.

vi) AD Category - I banks should ensure that foreign currency accounts are funded at all
times.

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22.26 If the arrangement is under Non-DDA procedure, the Exchange House should
communicate to the account maintaining branch by any electronic mode, before close of the
following working day, the number and aggregate value of drafts drawn in foreign currency.
Under DDA procedure, such information may be obtained frequently, at least on a bi-weekly
basis.

22.27 Collateral cover : Exchange Houses should keep a deposit of not less than USD
50,000/- with the drawee AD Category - I bank. Adequacy of quantum of deposit kept with
the bank should be reviewed every six months on the basis of operations under this
arrangement and if necessary the Exchange House should increase the quantum of deposit.
AD Category - I banks should allow interest on this deposit at an appropriate rate.

AD Category - I banks are allowed to keep the amount of deposit required to be kept under
foreign currency draft drawing arrangements and Non-DDA procedure of Rupee Drawing
Arrangement in India with the Account maintaining branch.

22.28 5. Miscellaneous Provisions

(i) AD Category-I banks should adhere to the Know Your Customer (KYC)/ Anti Money
Laundering (AML) / Combating the Financing of Terrorism (CFT) Guidelines issued by the
Reserve Bank, while undertaking any transaction under Rupee/ Foreign Currency Drawing
Arrangements, as applicable

(ii) AD Category - I banks should include in their concurrent audit the Rupee/ Foreign
Currency Drawing Arrangement to ensure that credit of funds to the vostro account of the
Exchange House takes place before payments are made to the beneficiaries.

(iii) AD Category - I banks should undertake a ‘due diligence‘ exercise in respect of

remittances received through Rupee/ Foreign Currency Drawing Arrangements so that
regulations relating money laundering are complied with scrupulously. AD Category - I banks
should call for an annual compliance report from the Exchange Houses duly certified by their
auditors that they are adhering to the home country regulations on KYC/AML/CFT .

(iv) AD Category - I banks should keep the Reserve Bank informed of the unusual
feature(s) in the operations of the Rupee/ Foreign Currency Drawing Arrangement exercising
constant vigil in the matter.

(v) AD Category - I banks shall ensure that licenses of the Exchange Houses which have
expired are renewed and copies of authenticated English versions placed with them for their
record.

(vi) The Exchange Houses should not enter into any arrangement with service providers
for their back office operations in India such as issuance of drawing advices and stop payment
instructions on their behalf and AD Category - I banks should not act on the instructions of
such service providers. However, Exchange Houses can establish liaison offices in India and
their back office operations in India such as printing of drafts, issuance of drawing advices and
428
stop payment instructions can be conducted by the liaison offices in India with prior approval
of the Reserve Bank.

(vii) AD Category - I banks should obtain approval of the Reserve Bank for maintaining
accounts of such Exchange Houses whose name and constitution etc. undergo changes.

22.29 6. Internal Control and Monitoring of Accounts

(i) AD Category - I banks should put in place adequate internal control and a system of
monitoring of accounts as per the extant instructions. Dealings with Exchange Houses should
be strictly on a credit basis at all times and no overdraft should be granted to the account
holders.

(ii) Self-inspection of the vostro accounts of Exchange Houses: AD Category-I banks are
required to cause inspection of the vostro accounts of Exchange Houses on a half-yearly basis
through experienced officers. The inspection reports should be carefully gone through by the
competent authorities in AD Category-I banks so that prompt corrective action is initiated.
Observations thereon shall be included in the annual review of the accounts submitted to the
Board.

Annexure
LIST OF VOSTRO ACCOUNTS OF FOREIGN CORRESPONDENT BANKS
MAINTAINED WITH MUMBAI OVERSEAS BRANCH AS ON 31.03.2020
Sr. Name of account Date of opening
No.
1 AZIZI BANK 01/11/2006
2 BANK AL BILAD 11/05/2005
3 AHLI UNITED BANK K.S.C. 16/03/1984
4 UNION BANK OF SWITZERLAND 16/03/1984
5 COMMERZ BANK 16/03/1984
6 HABIB BANK AG ZURICH, DEIRA, DUBAI 03/12/1983
7 HABIB BANK ZURICH, PLC 31/03/2016
8 HABIB BANK AG ZURICH, NAIROBI 03/12/1983
9 HABIB CANADIAN BANK 20/10/2001
10 INDO ZAMBIA BANK LTD. 03/01/1996
11 P T BANK OF INDIA, INDONESIA-TBK 10/08/2007
12 REPUBLIC BANK LTD. 16/03/1984
13 SAUDI HOLLANDI BANK renamed as 16/03/1984
ALAWWAL BANK
14 SPAR NORD BANK 01/01/1991
15 UNI CREDITO ITALIANO 16/03/1984

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 Chapter - 23

EXCHANGE EARNERS FOREIGN CURRENCY

(EEFC) ACCOUNTS

General

23.1 In terms of Regulation 4 of the Notification No. FEMA/10/2000-RB dated 3rd May,
2000 as modified from time to time, a person resident in India may open, hold and maintain
with an Authorised Dealer in India, a Foreign Currency Account to be known as Exchange
Earners Foreign Currency (EEFC) Account, subject to the terms and conditions of the EEFC
account Scheme specified in the Schedule to the said notification.

23.2 All categories of foreign exchange earners are allowed to credit up to 100% of their
foreign exchange earnings, received through normal banking channel( other than the
remittance received pursuant to any undertaking given the RBI/or received for meeting
specific obligations by the account holder or which represents foreign currency loan or
investment received from outside India by the account holder), to their EEFC account
(Annexure-I & II). EEFC Account can be opened/ held or maintained only in the form of non-
interest bearing Current Account. No credit facility whether funded / non-funded should be
made available against EEFC balances.

23.3 Our bank has approved opening of EEFC accounts in the following currencies for the
present:

i) US Dollar ii) EURO iii) GBP

23.4 From 01.01.2008 Mumbai Overseas Branch is functioning as sole designated/ Nodal
Branch for EEFC transactions of all authorized dealer branches. . The particulars of Nostro
Accounts maintained by the Mumbai Overseas Branch are as under :

Currency Branch Account No

USD Cayman Island 0005525000
GBP London 1001014532
EUR Paris 4317-000-844

Branches should note the following carefully :

Minimum Balance
23.5 The minimum amount required for crediting EEFC account on each occasion is as under
in case of recipients of inward clean remittance.
Currency Minimum Amount
US Dollar 1000
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 Euro 1000
GBP 1000
No stipulation of minimum amount limit is prescribed for crediting export proceeds.
Date of Credit
23.6 Credit to the EEFC account will not be given at the time of purchasing
cheques/D.Ds/bills etc. and only upon their realisation and after adjusting the outstanding
advance taken, if any. ,
Facilities against the Security of Deposits
23.7 No credit facilities, whether fund based or non-fund based either in India or abroad,
shall be entertained against the security of funds in the EEFC accounts. Similarly, request for
lien on such balances shall also not be entertained.
Funds held in EEFC account can be freely converted into Indian rupee, however, the amount
withdrawn in rupees shall not be eligible for conversion into foreign currency and re credit to
the account.
Account opening form
23.8 The branches should obtain the account opening form from the customer and forward
to the Mumbai Overseas branch with signatures thereon duly verified for opening EEFC account
in the name of their customer along with following documents (Annexure I & II):
Board Resolution, if account is in the name of the company.
EEFC Current account opening form.
FEMA declaration form
Any other relevant document.

Application of Cross Currency Exchange Rate

23.9 In case of receipt of foreign exchange in different currencies, the branches should
apply the cross currency rate for arriving at USD/GBP/EUR equivalent for crediting the EEFC
account.

Utilisation of Funds for approved purposes only

23.10

a) Payment outside India towards a current account transaction in accordance

with the provisions of the Foreign Exchange Management (Current Account
Transactions) Rules, 2000 and towards a capital account transaction permissible under
the Foreign Exchange Management (Permissible Capital Account Transactions)
Regulations, 2000.

b) Payment of customs duty in accordance with the provisions of Foreign Trade

Policy of the Central Government in force.

c) Payment in foreign currency to a person resident in India for supply of goods/

services including payments for airfare and hotel expenditure.

431
 d) Trade related loans/ advances, without ceiling by an exporter holding such
account to his importer customers outside India, subject to compliance with the
Foreign Exchange Management (Borrowing and Lending in Foreign Exchange)
Regulations, 2000. In such cases, if the amount of loan/ advances exceeds US$
100,000, a guarantee of a bank of international repute situated outside India is to be
provided by the overseas borrower in favour of the lender.

e) The transaction relating to loans and advances from EEFC accounts are to be
reported on
a quarterly basis to the concerned regional office of RBI.

f) Payment in foreign exchange towards cost of goods purchased from a 100 percent
Export Oriented Unit or a Unit in (a) Export Processing Zone or
(b) Software Technology Park or (c) Electronic Hardware Technology Park

g) Payment in foreign exchange to a person resident in India for supply of goods/

services including payments for airfare and hotel expenditure.

h) For overseas investments in JV/WOS.

i) To repay packing credit advances, whether availed in Rupee or in foreign currency

to the extent exports have actually taken place.

j) The sale proceeds, received by residents, i.e. receipt of disinvestments proceeds

under sponsored ADRs/ GDRs Scheme approved by FIPB are permitted to be credited
to their Exchange Earners‘ Foreign Currency (EEFC) accounts or to their Rupee
accounts in India at their option.

23.11 Foreign Exchange received by a Unit in Domestic Tariff Area (DTA)

Reserve Bank of India has clarified that the payments received in foreign exchange by a unit
in Domestic Tariff Area (DTA) for supply of goods to a unit in Special Economic Zone (SEZ)
out of its foreign currency account are to be treated as eligible foreign exchange earnings for
the purpose of credit to the EEFC Account. It will, therefore, be in order for authorised dealers
to credit such payments received in foreign exchange by a unit in DTA to its EEFC Account.

23.12 Change of status from Resident to Non-Resident :

The Balances in EEFC accounts may be allowed to be credited to NRE account, at the option/
request of the account holders consequent upon change of their residential status from
Resident to Non-Resident.

23.13 Withdrawal from EEFC account :

There is no restriction on withdrawal in Rupees of funds held in EEFC account. However, the
amount withdrawn in Rupees shall not be eligible for conversion into foreign currency and for
re credit to the account.

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23.14 The designated branches should furnish quarterly statement in Form-STAT-7 to the
RBI at the end of each quarter.

Procedure for opening EEFC Account

23.15 (I) On receipt of Inward remittance/proceeds of export of services

(a) Branches should obtain specific instructions from the beneficiary/recipients of the
foreign currency remittance before conversion into Indian rupees for the disposal instructions.
If the beneficiary wishes to retain a part of the remittance in EEFC account, Branches should
obtain specific instructions in the account opening form.
(b) The branches should directly credit & debit the EEFC account of the customer
maintained at the Mumbai overseas branch by following the revised procedure circulated vide
Head office Branch circular 101/174 dt 20.12.2007 ( Annexure-I )
(c) In case remittance is received in convertible foreign currency, the requested amount
should be converted into USD/ GBP/ Euro (at the request of the account holder) by applying
cross currency rates and report the sale/purchase of currencies to the dealing room.

(II) On receipt of export bills

(a) The exporter customer should give specific instructions to the Bank while tendering
the export bills for retaining specified percentage of the bill amount in EEFC account.
(b) If bills are tendered for negotiation or purchase, the branch should negotiate or
purchase such bills only to the extent of balance amount net of amount to be credited in
EEFC account. If the export bills are tendered for collection, branch should obtain specific
instructions from the customers for retaining the specified percentage of the bill amount
on realisation.
(c) Upon realisation of the export bills purchased or negotiated/ sent for collection, the
branches should effect credit to the EEFC account of the customer with Mumbai Overseas
Branch as per revised procedure (Annexure-IV).
(d) Notional Rates: Branches are following revised procedure for revaluation as under
w.e.f. 23-03-2012 :

i) Discontinue usage of Notional rates which were being used here to before and
instead, transactions to be recorded at weekly average rates published by FEDAI on all
related transactions for respective week. (w.e.f. March 23, 2012)

ii) To revalue all the foreign currency assets and liabilities on weekly basis/ Balance sheet
dates at the rates announced by FEDAI. The process of revaluation will be run by the
Data Centre and the difference will be parked in the Control Account "FC Portfolio
Revaluation Control account (AS 11) being opened with BKC Branch by HO Finance
Department. Similar exercise will also be done for Treasury Branch parking their
revaluation in the same control account. Final difference in the control account will be
absorbed in P & L account.

iii) The weekly average rates shall be uploaded by our Treasury branch under advise to
Data Centre w.e.f. March 23, 2012.
433
Most of these processes are automated at our Data Centre and is based on the FEDAI
rates entered by our Treasury branch; branches should ensure that ‘their
transactions are reflected properly at the time of entering the transaction in FINACLE
and also at the stage of authorising the same in FINACLE.

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 ANNEXURE -I
Bank of India

EXCHANGE EARNER’S FOREIGN CURRENCY (EEFC)

ACCOUNT OPENING FORM

_______________________________ Branch Customer ID No:

______________________
(Please indicate the name of the Branch where application is being submitted)
Account No :

Mumbai Overseas Designated Branch Date :

______________________
(Name of the Branch where EEFC /c will be maintained)

(Note: Branch should take usual care while opening account of firm / Company / Corporate
Body under EEFC Scheme)

Type of Account : CD A/c. Currency : USD / EURO /

GBP

Title of
Account
Mailing
Address of
Customer
Telephone,
Fax/
e-mail
address

(Write in capital letters)

SPECIAL INSTRUCTIONS: (Please tick the boxes)

 The Account will be operated upon

 By _______________________________________________________
 Balance payable to __________________________________________

(To be accompanied by Resolution of Board, in case of Pvt. Ltd/Ltd companies)

________________________________________________________________________

435
 Customer ID No: _________

Existing A/c No. of the applicant: __________________with _________________Branch

EEFC A/c No: ______________________________

FULL NAME(S) IN BLOCK SPECIMEN

LETTERS WITH SIGNATURE(S)
DESIGNATION(S)

Signature of Branch Official _____________________Code No:________ Date:

_________

Stamp of Branch Verifying Signature

Approved

Senior Manager
Mumbai Overseas Branch

(ON COMPANY‘S LETTER HEAD)

436
EEFC ACCOUNT FEMA DECLARATION
Dear Sir,

I/We hereby declare that any transaction to be undertaken by me/us in the EEFC Account
being opened by me/us with the Bank of India, does not/will not involve and is not/will not
be designed for the purpose of any contravention of evasion of the provision of the Foreign
Exchange Management Act, 1999 or of any rules, regulation, direction, notification,
direction or order made thereunder, including any amendments made/to be made from
time to time.

I/We also hereby agree and undertake to give such information/document, before the
Bank undertakes the transaction/(s) and as may be required from time to time as will
reasonably satisfy the Bank about the transaction/(s) in terms of the above declaration. I
also understand that if I refuse to comply with any such requirement or make unsatisfactory
compliance herewith, the Bank shall refuse in writing to undertake the transaction/(s) and
shall, if it has reason to believe that any contravention/evasion is contemplated by me/us,
report the matter to the Reserve Bank of India.

I/We have gone through and understood the terms and condition of EEFC Account and
also the regulation laid down by Reserve Bank of India under Foreign Management Act,
1999 and the notification relating to EEFC Account. I/We undertake to operate the
Exchange Earner‘s Foreign Currency Account in accordance with Exchange Control
Regulation as laid down by Reserve Bank of India as well as terms and conditions spelt out
by Bank of India from time to time.

I/We authorise you unconditionally to furnish details of all our account/deposit on any of
the transaction relating to the above noted EEFC Account to the Reserve Bank of India or
any other Authorised Person (AP) dealing in Foreign Exchange or any authority/ person
duly constituted for this purpose as the Bank of India may deem fit without obtaining oral
or written prior consent from me/us.

I/We confirm that the information/declaration provided by me/us in this application is true
and correct to the best of any/our knowledge and belief and I/we shall be held responsible
for the same at all times.

In the event of any default or breach committed by me/us of any of the aforesaid provision,
guidelines, rules, regulation, notification, direction, order or conditions or any law of the
land, I/We shall indemnify the Bank against any loss or damage that may be caused to it.
The Bank may also adopt such action as it deems fit in event of such a happening.

Thanking you,

Yours faithfully,

437
 ANNEXURE-II

Bank of India
INTER-OFFICE MEMORANDUM
From: To: The Assistant General
Manager, Mumbai
______________________Branch Overseas Branch,
EEFC Section.

Our ref.: Date:

Re: OPENING OF EEFC ACCOUNT

We forward herewith an account form duly filled in and certified by us for opening an EEFC
Account in USD / GBP / EURO in the name of __________________ (write full name of
customer and address).

We certify that __________________(name of customer) is maintaining a Current Account

with us which is properly introduced. We are enclosing the following documents:

(1) Photocopy of Account opening form (Know your Customer format). The original
copy is with us for our record.
(2) Board Resolution
(3) EEFC Account opening form
(4) FEMA declaration form

The transaction requested to be put through will be commensurate with their

business volume and is genuine business transaction.

(Authorised signatory with signature code)

Encl: As above

438
 ANNEXURE-III

Statement showing the details of trade related loans And advances by exporters to overseas
importers from EEFC account

(Quarter ending _________________ )

Name of the Bank, branch

A.D. Code No.

Name Name Amount Schedule/ mode of repayment Remarks

and and of Loan/ Month Amount Amount
address address advance & of of
of the of year Principal Interest
EEFC overseas (if any)
account importer
holder customer

Signature of Authorised Official

Stamp

Date :

439
 ANNEXURE - IV

Centralization of EEFC Current Accounts and at

Mumbai Overseas branch (MOSB)
Implementation of on line posting of EEFC
Current Account transactions by A.D. branches
------------------------------------------------------------------

The revised procedure for EEFC transaction have been implemented w.e.f.
01.01.2008 (Circular No. FBD/APD/07-08/21 dated 20.12.2007).

We give below the particulars of EEFC Pool accounts presently maintained by

Mumbai Overseas Branch:

Branch Currency EEFC Pool accounts

maintained with
Mumbai Overseas USD Cayman Island Branch
branch (A/C No.0005525000)
GBP London Branch
(A/C No. 1001014532)
EUR Paris Branch
(A/C No. 4317-000-844)

Accounting Procedure for EEFC Current Accounts:

(i) The currency-wise Sundry A/Cs (EEFC Control A/Cs) viz. 01500EEFCUSD,
01500EEFCGBP, 01500EEFCEUR, etc. have been opened at Mumbai Overseas
branch.

(ii) The EEFC Current Accounts are carrying A/c.No. CD-204 for designated
branches and CD 203 for Mumbai Overseas Branch.

a. Credits to EEFC Current Accounts of the customers:

All A.D. branches on Finacle CBS system, while crediting EEFC Current Account of
their customer with a notional rate, will directly credit EEFC Current Account of the customer
(under Scheme Code CD 203/ CD 204) maintained by MOSB by making entry in Inward
Remittances Maintenance (IRM) for the clean remittances or Foreign Bills Maintenance
(FBM) for the Export Bill proceeds. A.D. branch will invariably input the foreign currency
amount received in Nostro account in ―Tran Code‖ field of IRM/FBM as ―part of (specify
currency & F.C. amount)‖

440
 Mumbai Overseas branch will ensure the transfer of funds from nostro accounts of
Treasury branch to their (MOSB) EEFC Pool accounts on the basis of debits received through
system in EEFC Control Accounts and draw corresponding CN and DN on Treasury branch
by enclosing the debit list of EEFC control accounts.

b. Debits to EEFC Current Accounts of the customers:

Similarly all A.D. branches on Finacle CBS system, while debiting EEFC Current
Account of their customer with a notional rate, will directly debit EEFC Current Account of
the customer (under Scheme Code CD 203 /CD 204) maintained by MOSB by making entry
in Outward Remittances Maintenance (ORM) for clean remittances or Foreign Bills
Maintenance (FBM) for Import Bill payments. A.D. branch will invariably input the foreign
currency amount to be remitted in ―”Tran Code” field of ORM/FBM as ― “part of (specify
currency & F.C. amount)”

Mumbai Overseas branch will ensure the transfer of funds from EEFC Pool accounts
to nostro account of Treasury branch on the basis of credits received in EEFC Control
Accounts and will draw corresponding DN and CN on Treasury branch by enclosing the
credit list of EEFC control accounts.

(i) Withdrawal of EEFC deposits for Outward remittances:

After following the procedure as in (b) above, A.D. branches will send swift message
to the Foreign Correspondent Bank for debiting specific nostro account of Treasury
branch (where MOSB has transferred the funds) in order to make the payment to
the beneficiary and advise the sale of currency to Funds Manager of Treasury
branch.

(ii) Withdrawal of EEFC deposits for crediting to customer’s current

account:
A.D. branches will follow the procedure as given in (b) above. However, A.D.
branches will not send any swift message as the foreign currency amount is to be
credited to customer‘s account at market rate. The A.D. branches will, therefore,
take the exchange rate from Treasury branch for the purchase of foreign currency
amount withdrawn from EEFC Current Account of customer & transferred by MOSB
in specific nostro account of Treasury branch and will make entry in Finacle CBS in
Inward Remittances Maintenance (IRM) for crediting to the customer‘s Current
Account by debiting the nostro account of Treasury branch as hitherto. A.D.
branches, however, will invariably enter the ―Part of nostro amount in ‘ Tran Code’
field.
Mumbai Overseas branch will ensure that the balance in EEFC Control Accounts becomes
‘NIL‘ at the end of each day after drawing DN and CN on Treasury branch. The accounting
procedure for deposit & withdrawal of amount to/from EEFC Current Account for US dollar
currency is attached by way of Annexure-II. The same accounting procedure is to be
followed for other currencies viz. GBP, EUR etc.

441
All A.D. branches to ensure that, as far as possible, they will apply/ utilize full amount of
credit received in nostro accounts of Treasury branch (on behalf of their customers) on the
same day for smooth reconciliation of these entries.

442
 Chapter – 24
PRE-SHIPMENT CREDIT IN FOREIGN CURRENCY (PCFC), FOREIGN CURRENCY
BILLS DISCOUNTED (FCBD)/ FOREIGN CURRENCY BILLS NEGOTIATED (FCBN)
(Branches may refer to the updated guidelines available in RBI Master Circular
Direction on Rupee/FC Export Credit and Customer services.)

GENERAL GUIDELINES
24.1 Following the liberalisation of exchange control regulations, there has been a constant
demand from the exporters for making available finance for exports and export related area
at competitive interest rates, in line with the International rates, so that they will be able to
compete in the International Market. With this end in view the Reserve Bank of India had
permitted banks to lend the Foreign Currency amounts mobilised under EEFC/RFC/FCNR (B)
Schemes and also against foreign currency lines of credit, to the exporters/importers against
their genuine foreign exchange requirements
24.2 In order to have effective control over deployment of foreign currency funds, it has
been decided to restrict the operation of both the schemes to a limited number of designated
branches. A list of such authorised branches is enclosed as per-ANNEXURE I. The Zonal
Manager may recommend to FBD, Corporate Credit, HO name of any branch situated in the
major cities, metropolitan centres having requisite expertise and sizable forex business for
inclusion in the list of designated branches.
24.3 To meet the customer requirements of foreign currency funds branches are required
to contact Treasury Branch (back office) & ascertain availability of funds. Once Treasury
Branch confirms availability of funds, they will allot serial number to the designated Branch.
24.4 For regular monitoring of the resources and deployment, designated branches will
send by email details of disbursement to MSOB with copy to Treasury. When export credit in
foreign currency is to be disbursed on the same day as that of the date of the request, the
LIBOR rate announced on the previous working day by BBA is to be considered as the
applicable benchmark LIBOR. Whenever exporters indicate their intention of drawing foreign
currency funds on spot value date, LIBOR announced at 11.00 am London time on each day
by BBA can be made applicable for the transactions to be effected on the spot basis.

Payment of Interest by Designated Branches.

24.5 The designated branches, availing of Foreign currency funds from Treasury branch,
need not pay the funding cost to them.
24.6 IT MUST BE NOTED THAT THE EXPORTERS WILL HAVE THE FOLLOWING
OPTIONS TO AVAIL OF EXPORT FINANCE:

The exporter will have the following options to avail of export finance:

443
 a) to avail of pre-shipment credit in rupees and then the post-shipment
credit either in rupees or discounting/ rediscounting of export bills under
EBR Scheme mentioned in paragraph 2.2.
b) to avail of pre-shipment credit in foreign currency and discount/
rediscounting of the export bills in foreign currency under EBR Scheme.
c) to avail of pre-shipment credit in rupees and then convert drawals into
PCFC at the discretion of the bank.
24.7 Before allowing PCFC, branches must ensure that customers enjoy the appropriate
FCBD or FCBN (D/A) facility to enable the designated branch to discount bills either under L/C
or otherwise. In case separate and sufficient limit under FCBD or FCBN (D/A) is not available,
the branch should earmark such outstandings in Pre shipment Limit (i.e. PCFC limit) so that
total outstandings together in PCFC/FCBN (D/A) is within the overall Export Credit limit
sanctioned. The branches should take care of this aspect while proposing and sanctioning the
limits for their constituents.
PRESHIPMENT IN FOREIGN CURRENCY (PCFC)
SALIENT FEATURES

General

24.8 With a view to making credit available to exporters at internationally competitive

rates, authorised dealers have been permitted to extend Pre-shipment Credit in Foreign
Currency (PCFC) to exporters for domestic and imported inputs of exported goods at
LIBOR/EURO LIBOR/EURIBOR related rates of interest as detailed below.

a) The Pre-Shipment credit in Foreign Currency (PCFC) will be an additional window to the
existing exporters along with the existing method of export packing credit. This facility is
available in our bank in US Dollar/Euro only (for the time being) and will cover cash exports
only.
b) The PCFC will be available to cover both the domestic and imported inputs of the goods to
be exported from India.
c) The facility will be self-liquidating in nature and accordingly it is mandatory that after the
shipment of goods, the export bill shall be discounted in foreign currency to liquidate the
Foreign Currency Packing Credit.
c) Banks may extend PCFC in one convertible currency in respect of an export order invoiced
in another convertible currency. The risk and cost of cross currency transaction will be that of
the exporter.
d) Banks are permitted to extend PCFC for exports to ACU countries.
e) The applicable benefit to the exporters will accrue only after the realisation of the export
bills or when the resultant export bills are rediscounted on ‗without recourse‘basis.
Source of Funds for Banks

444
i) The foreign currency balances available with the bank in Exchange Earners Foreign Currency
(EEFC) Accounts, Resident Foreign Currency Accounts RFC (D) and ForeignCurrency (Non-
Resident) Accounts (Banks) Scheme could be utilised for financing the pre-shipment credit in
foreign currency.
ii) Banks are also permitted to utilise the foreign currency balances available under
Escrow Accounts and Exporters Foreign Currency Accounts for the purpose, subject to ensuring
that the requirements of funds by the account holders for permissible transactions are met
and the limit prescribed for maintaining maximum balance in the account under broad based
facility is not exceeded.

iii) Foreign currency borrowings

a) In addition, banks may arrange for borrowings from abroad. Banks

may negotiate lines of credit with overseas banks for the purpose of grant of
PCFC to exporters without the prior approval of the RBI, provided the rate of
interest on the borrowing does not exceed the rate prescribed by the RBI from
time to time.
b) Banks should draw on the line of credit arranged only to the extent of
loans granted by them to the exporters under the PCFC. However, where the
overseas bank making available the line of credit stipulates a minimum amount
for drawals which should not be very large, the small unutilised portion may
be managed by the bank within its foreign exchange position and Aggregate
Gap Limit (AGL) limit. Similarly, any pre-payment by the exporter may also be
taken within the foreign exchange position and AGL limits.
c) Banks may avail of lines of credit from other banks in India if they
are not in a position to raise loans from abroad on their own, subject to the
condition that ultimate cost to the exporter should not exceed the ceiling
prescribed by the Reserve Bank of India in this regard, provided the bank does
not have a branch abroad. The spread between the borrowing and lending
bank is left to the discretion of the banks concerned.
iv) In case the exporters have arranged for the suppliers‘credit for procuring imported
inputs, the PCFC facility may be extended by the banks only for the purpose of financing
domestic inputs for exports.
vi) Banks are also permitted to use foreign currency funds borrowed in terms of para
4.2(i) of Notification No. FEMA.3/2000 RB dated May 3, 2000 as also foreign currency funds
generated through buy-sell swaps in the domestic forex market for granting Pre-shipment
Credit in Foreign Currency (PCFC) subject to adherence to Aggregate Gap Limit (AGL)
approved by RBI (FED).
Spread
(As per RBI directions dated May 5, 2012, Banks are free to determine the interest rates
on export credit in foreign currency. Branches are advised to be guided by prevailing
HOBC on ROI issued by HO from time to time.

i. LIBOR/EURO LIBOR/EURIBOR rates are normally available for standard period of 1,

2, 3, 6 and 12 months. Banks may quote rates on the basis of standard period if PCFC
445
 is required for periods less than 6 months. However, while quoting rates for non-
standard period, banks should ensure that the rate quoted is below the next upper
standard period rate.
iii. Banks may collect interest on PCFC at monthly intervals against sale of foreign
currency or out of balances in EEFC accounts or out of discounted value of the export
bills if PCFC is liquidated.

Eligibility
24.9 PCFC in USD/ Euro will be extended on the basis of Letters of Credit (L/C)/firm orders.
The Running Account Facility (RAF) is also allowed under PCFC as per the details under
MISCELLANEOUS ASPECTS (please see para 26.16 below). Though PCFC is extended only in
USD/Euro in our Bank for the time being the same can also be extended to cover export orders
in other permitted currencies. For calculating quantum of advance the branches should use
cross currency rate with USD on that day.

MINIMUM AMOUNT OF DISBURSAL

24.10 Minimum amount of loan USD 10,000 and in multiples of USD 1000/- thereafter.
Period of Credit
24.11 The PCFC will be available for a maximum period of 360 days. as in the case of Rupee
Credit, initially for a period of 180 days. The period of Packing credit will vary according to
manufacturing cycle/trade cycle and should be strictly according to the terms of the sanction
and conditions. Any extension of period will be subject to same terms & conditions as
applicable to extension of period in rupee packing credit and it will also have additional interest
cost of 2 percent above the rate for the initial period of 180 days prevailing at the time of
extension. Continuing of packing credit in foreign currency is purely the discretion of the Bank
and customer shall be bound by the Bank's decision. If no exports take place within 360 days,
the PCFC along with interest will be adjusted at TT Selling rate for USD/EUR, as the case may
be. In such cases, banks can arrange to remit foreign exchange to repay the loan or line of
credit raised abroad and interest without prior permission of Reserve Bank of India.
For extension of PCFC within 180 days, banks are permitted to extend on a fixed roll over
basis of the principal amount at the applicable LIBOR/EURO LIBOR/EURIBOR rate for extended
period plus permitted margin (over LIBOR/EURO LIBOR/EURIBOR).
MARGIN
24.12 As per the sanctioned terms, the lending branch should have enough margin at least to
recover the interest on packing credit foreign currency loan and discount at Post-shipment
stage.
RATE OF INTEREST AND CHARGES
24.13 Rate of interest & charges should be levied as per extant H.O. guidelines. Present
applicable rate are:
a) Upto 180 days : 350 bps over LIBOR/EURO LIBOR/EURIBOR
446
 b) Beyond 180 days and: Rate for initial period of upto 180 days prevailing at360
days the time of extension plus 200 bps.
c) The interest is to be collected in USD/Euro only.
d) Interest should be collected at monthly intervals either:-
(i) against the sale of foreign currency at TT selling rate without reporting sale or out of
the balances in EEFC accounts. If interest is paid from EEFC a/c, the branch should directly
debit EEFC account of the customer maintained with Mumbai Overseas Branch as per
procedure explained in the annexure to the chapter 23 on EEFC accounts. OR
(ii) Out of discounted value of export bills, if PCFC is liquidated within the monthly rest
for collection of interest.
(e) Rate of interest shall be as per Head Office instructions prevailing on the date of
release of PCFC. (Since PCFC/FCBD/FCBN is being financed out of FCNR 'B' funds the payment
of withholding tax does not arise).However, upfront commission as applicable from time to
time shall be chargeable. LIBOR rates will be advised by Treasury Branch, Mumbai, on daily
basis, as available in Reuter, at the opening hours of business.
(f) In case of extension of PCFC beyond 180 days rate of interest shall be as advise by
RBI/Head Office from time to time. Branches should satisfy themselves about the genuineness
of the reasons for extension at each stage. Extension of packing Credit will be decided by
designated branch and if no foreign currency funds are available, designated branch will
convert Packing Credit into Rupee Packing Credit and transfer it to the originating branch at
interest rates, applicable to Rupee Packing Credit.

(g) PCFC will be available for a maximum period of 360 days. Any extension will be subject
to the same terms & conditions as applicable for extension of rupee credit. Branches should
closely monitor such facility. At any point of time, if a branch feels that the borrower is not in
a position to fulfil his export obligation, foreign currency loan should be converted into Rupee
Loan, at TT selling rate to keep the risk on account of foreign exchange exposure to the
minimum.
(h) In case of cancellation of export contract/export not taking place, interest will be
payable on rupee equivalent converted at TT selling rate prevailing on the date of cancellation
at the applicable rate as advised by Head Office from time to time. In case of cancellation of
contract, it should be ensured that no fresh rupee packing credit should be granted to the
exporter against the particular order. In addition, the branch should withdraw the Running
A/c. facility if any, granted to the exporter customer with immediate effect.
For extension of PCFC within 180 days, banks are permitted to extend on a fixed roll over
basis of the principal amount at the applicable LIBOR/EURIBOR/EURO LIBOR rates for
extended period plus permitted margin as applicable from time to time, over LIBOR/ EURO
LIBOR/ EURIBOR.

Other charges
24.14 Transaction charges, postages, swift charges and bill handling charges, commission,
etc., are required to be recovered as per Head Office instructions applicable from time to time
447
Since this transaction does not involve conversion of foreign currency into Indian rupees the
designated branches should recover commission in lieu of exchange at the rate applicable in
case of Rupee Bills as per Head Office instructions. Interest and all charges except
postages/telegram charges are to be reckoned in USD/EUR only. USD/EUR thus reckoned is
to be converted into rupee at the TT Selling rate (without reporting sale) and rupee equivalent
thereof should be recovered immediately to the debit of exporter's CD/OD/CC A/c and credited
to respective P & L Heads. No sale is to be reported for such conversion and recovery.
Postages/ telegram/swift charges are to be recovered in rupees.

MODE OF REPAYMENT
24.15 a) As the facility of PCFC is of self liquidating in nature, it should be liquidated
by submission of export documents for Negotiation/ discounting/ rediscounting under EBR
scheme or by grant of foreign currency loans ( DP Bills). The PCFC must not be liquidated with
the foreign exchange acquired from other sources.

b) Liquidation/Adjustment of PCFC advance may be allowed with proceeds of advance

remittance, provided, the branch is able to link particulars of the advance remittance to the
PCFC drawal allowed.
c) The outstanding in PCFC granted under running account facility should not be
liquidated with the proceeds of export bills sent on collection basis
d) Subject to mutual agreement between the exporter and the banker, it can also be
repaid / prepaid out of balances in EEFC Account as also from Rupee resources of the exporter
to the extent exports have actually taken place.
e) In certain cases, (viz. agro based products like HPS Groundnut, defatted & deoiled
cakes, tobacco, pepper, cardamom, cashew nuts, etc.) where packing credit required is in
excess of FOB value, PCFC would be available only for exportable portion of the produce.

Substitution of Order/Commodity

f) Repayment/liquidation of PCFC could be with export documents relating to any

other order covering the same or any other commodity exported by the exporter.
While allowing substitution of contract in this way, banks should ensure that it is commercially
necessary and unavoidable. Banks should also satisfy about the valid reasons as to why PCFC
extended for shipment of a particular commodity cannot be liquidated in the normal method.
As far as possible, the substitution of contract should be allowed if the exporter maintains
account with the same bank or it has the approval of the members of the consortium, if any.

Cancellation/ Non-execution of Export Order:

i.In case of cancellation of the export order for which the PCFC was availed of by the
exporter from the bank, or if the exporter is unable to execute the export order for
any reason, it will be in order for the exporter to repay the loan together with accrued
interest thereon, by purchasing foreign exchange (principal + interest) from domestic
market through the bank. In such cases, interest will be payable on the rupee
equivalent of principal amount at the rate applicable to `Export Credit Not
448
 Otherwise Specified'(ECNOS) at pre-shipment stage plus a penal rate of interest
to be decided by the bank from the date of advance after adjustment of interest of
PCFC already recovered. Banks are free to decide the rate of interest for ECNOS at
pre-shipment stage, subject to PLR and spread guidelines.
ii. It will also be in order for the banks to remit the amount to the overseas bank,
provided the PCFC was made available to exporter from the line of credit obtained
from that bank.
iii. Banks may extend PCFC to such exporters subsequently, after ensuring that
the earlier cancellation of PCFC was due to genuine reasons.
MISCELLANEOUS ASPECTS:
Running Account facility
24.16 The Running Account facility will also be allowed under PCFC on the same terms and
conditions as applicable to Rupee Packing Credit Advances. The Reserve Bank of India had
communicated the conditions which are reproduced below for allowing Running A/c facility to
the exporters. The facility may be extended provided the need for ‗Running Account‘ facility
has been established by the exporters to the satisfaction of the Bank.
i. The bank will extend Running A/c facility only to those customers whose track
record has been good
ii. The drawings made under existing Rupee packing credit should not be
converted into PCFC.
iii. PCFC is available only to those exporters, who have a track record of sustained
good export performance for last 2/3 years and whose borrowal accounts have been
classified under Health Code 01 and Credit Rating AAA/AA. The relaxations should not
be extended to transactions of sister/associate/group concerns.
iv. In all cases, where PCFC under Running A/c facility is extended, LC/firm
order/s should be obtained within a period of one month from the date of
disbursement/ within a reasonable period of time.
v. It is also to be ensured by the branches who seek Running A/c facility for their
exporters through the designated branches, that no diversion of funds is made for
purposes other than export. In case of non-utilisation of PCFC drawings for export
purposes for some reason or other, the penal provisions as stipulated above-will
apply. In addition, the branch should withdraw the Running a/c facility allowed to
such exporter.
vi. Individual export bills as and when they are received for discounting as per
the PCFC scheme, should be marked off against earliest outstanding in the PCFC a/c
on FIRSTIN-FIRST-OUT basis. When the branch handles the bills for discount, the
designated branch should be advised of the same immediately to enable them to
adjust the respective customer's PCFC a/c. under Running A/c facility by disbursing
the amount from FCBD/ FCBN.
vii. PCFC can also be marked off with proceeds of export documents against which
no PCFC has been drawn by the exporter.
449
 viii. Banks should closely monitor the production of firm order or L/C subsequently
by exporters and also the end-use of funds. It has to be ensured that no diversion of
funds is made for domestic use. In case of non-utilisation of PCFC drawals for export
purposes, the penal provisions stated above should be made applicable and the
‘Running Account‘ facility should be withdrawn for the concerned exporter.
ix. Banks are required to accept any prepayment by the exporters under PCFC
scheme within their foreign exchange position and Aggregate Gap Limit (AGL) as
indicated in paragraph 1.1.4 (iii) (b) above. With the extension of ‘Running Account‘
facility, mismatches are likely to occur for a longer period involving cost to the banks.
Banks may charge the exporters the funding cost, if any, involved in absorbing
mismatches in respect of the prepayment beyond one month period.
24.17 Reserve Bank of India has granted operational flexibility to the Banks and accordingly
branches may extend the following relaxations to their exporter-clients:-
1 The stipulation for repayment of packing credit with export documents will continue.
However, this could be with export documents relating to any other order covering the
same or any other commodity exported by the exporter. Thus, substitution of
commodity covered by the export can be done without prior approval of the Reserve
Bank of India.
ii. The existing PCFC may also be marked off with discounting export bills against
which no packing credit has been drawn by the exporter.

iii. While permitting the above relaxations to the exporter-clients, the branches
should note to comply with the following:-
a) The above relaxations are applicable both under Rupee export packing
credit and PCFC schemes, only to those exporters who have track record of
sustained good export performance for last 2/3 years and their borrowal
accounts have been classified under Health Code 01 and Credit Rating AAA/AA.
The relaxations should not be extended to transactions of
sister/associate/group concerns.
b) While allowing the exporter to repay the PCFC/export packing credit
by discounting of documents against which packing credit has not been availed
of, it is possible that the exporter might avail of PCFC/EPC with one bank and
submit the documents to another bank. As such, the branches should extend
the above relaxations only after ensuring that the exporter has not availed of
packing credit in rupee/PCFC from another bank against documents submitted
for discounting/negotiation. For this purpose, the branches may obtain suitable
declaration from the exporter concerned. In case any of the exporter is found
indulging in misusing the relaxations in this way, he may not be allowed to have
benefit of these relaxations thereafter.
c) While allowing substitution of contract, the branch should ensure that it is
commercially necessary and unavoidable. The branch should also satisfy itself about the
valid reasons as to why packing credit extended for shipment of a particular commodity
cannot be liquidated in the normal method. As far as possible, the substitution of contract
450
 is allowed, provided the exporter maintains account with the same bank/branch or it has
the approval of the members of the consortium.
Supplier from one EOU/EPZ/SEZ unit to another EOU/EPZ/SEZ unit.
24.18
i.PCFC may be made available to both the supplier EOU/EPZ/ SEZ unit and the
Receiver EOU/EPZ/SEZ unit.
ii. The PCFC for supplier EOU/EPZ/SEZ unit will be for supply of raw
materials/components of goods which will be further processed and finally exported
by receiver EOU/EPZ/SEZ unit.

iii. The PCFC extended to the supplier EOU/EPZ/SEZ unit will have to be
liquidated by receipt of foreign exchange from the receiver EOU/EPZ/SEZ unit, for
which purpose, the receiver EOU/EPZ/SEZ unit may avail of PCFC.

iv. The stipulation regarding liquidation of PCFC by payment in foreign exchange

will be met in such cases not by negotiation of export documents but by transfer of
foreign exchange from the banker of the receiver EOU/EPZ/SEZ unit to the banker of
supplier EOU/EPZ/SEZ unit. Thus, there will not normally be any post-shipment credit
in the transaction from the supplier EOU/EPZ/ SEZ unit‘s point of view.

v. In all such cases, it has to be ensured by banks that there is no double

financing for the same transaction. Needless to add, the PCFC to receiver EOU/EPZ/SEZ
unit will be liquidated by discounting of export bills

The PCFC granted to the receiver EOU/EPZ will ultimately be liquidated by discounting of
export bills as provided under the scheme.
SHARING OF PCFC BETWEEN AN EXPORT ORDER HOLDER AND THE
MANUFACTURER
(a) 24.19
I. The rupee export packing credit is allowed to be shared between an export
order holder and the manufacturer of the goods to be exported.

II. Similarly, banks may extend PCFC also to the manufacturer on the basis of
the disclaimer from the export order holder through his bank. PCFC granted to
the manufacturer can be repaid by transfer of foreign currency from the export
order holder by availing of PCFC or by discounting of bills. Banks should ensure
that no double financing is involved in the transaction and the total period of
packing credit is limited to the actual cycle of production of the exported goods.

III. The facility may be extended where the banker or the leader of
consortium of banks is the same for both the export order holder and the
manufacturer or, the banks concerned agree to such an arrangement where the
451
 bankers are different for export order holder and manufacturer. The sharing of
export benefits will be left to the mutual agreement between the export order
holder and the manufacturer.

24.20 PCFC may be allowed only for ‘deemed exports‘ for supplies to projects financed by
multilateral/ bilateral agencies/ funds.PCFC released for deemed export should be liquidated
by grant of foreign currency loan at post supply stage, for a maximum period of 30 days or
up to the date of payment by the project authorities, whichever is earlier. PCFC may also be
repaid/ prepaid out of balances in EEFC a/c as also from rupee resources of the exporter to
the extent supplies have actually been made.
24.21 PCFC is also available for exports to ACU countries with effect form 01/01/1996.
24.22 In certain cases banks have been permitted to extend EPC higher than the FOB value
or domestic value of goods exported, such as HPS Groundnut oil extracts and in such cases
excess PC is to be liquidated within 30 days from the date of drawal. As PCFC is self liquidating
in foreign currency, it will not be feasible to liquidate PCFC, if allowed in such cases. Reserve
Bank has authorised grant of EPC both in rupees and in foreign currency to cover export of
above items, restricting PCFC only to the portion exported. EPC in respect of non-exported
portion in rupees should be liquidated within 30 days as per existing stipulation.
24.23 The export proceeds cannot be netted against import liability.

FORWARD COVER
24.24 (i) Banks are permitted to allow an exporter to book forward contract on the basis
of confirmed export order prior to availing of PCFC and cancel the contract (for portion of
drawal used for imported inputs) at prevailing market rates on availing of PCFC.
(ii) Banks are permitted to allow customers to seek cover in any permitted currency of
their choice which is actively traded in the market, subject to ensuring that the customer is
exposed to exchange risk in a permitted currency in the underlying transaction.
(iii) While allowing forward contracts under the scheme, banks may ensure compliance
of the exchange control requirement that the customer is exposed to an exchange risk in the
underlying transaction at the different stages of the export finance.

ECGC COVER/PREMIUM
24.25 At the time of sanction of New/Review/Additional/Reduction of limits or change in
terms of advance account, originating branch will inform by writing letter to ECGC the name
of designated branch through which PCFC (within limits) will be disbursed so that ECGC is
aware of the disbursement taking place at a branch different from originating branch. ECGC
Premium should be paid by the Designated branch on PCFC outstanding in rupees converted
at median exchange rate of FEDAI obtained from position maintaining branch and same will
be recovered from originating branch by Debiting their account. ECGC have advised that:
i) The PCFC advances stand covered under the existing Whole Turnover Packing Credit
guarantee issued to the Bank covering rupee packing credit.

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ii) Cover will be available only in Indian rupees for the purpose of submitting monthly
declaration of advances and payment of premium thereon. The PCFC advances shall be
converted into Indian Rupees at median Exchange rate of FEDAI for revaluation purposes.
iii)Cover will be available only for the principal PCFC and the interest payable by the exporter
will not be eligible for cover.
iv)PCFC advance is required to be declared separately every month and therefore, branches
will have to file two sets of return in the existing format, one for the Rupee Packing Credits
and the other for PCFC converted into rupees ® median exchange rate of FEDAI as on the
last day of month. Rate of Premium will be the same in both cases.
v) PCFC will be deemed to be liquidated on submission of export documents for export
credit guarantee purposes.
vi) Post-shipment advances in rupees as well as advances granted under the Post-
shipment Credit in Foreign Currency Scheme (FCBD/FCBN) will be eligible for cover under the
Whole Turnover Post Shipment Guarantee Scheme, but separate declaration needs to be filed
on the same lines as indicated above.
vii) For detail instructions on ECGC cover/ premium, please refer to the Chapter-7on Post
Shipment Finance( annexure on WTPCG/WTPSG)
Refinance - Banks will not be eligible for any refinance from RBI against export credit under
the PCFC scheme.
DOCUMENTS
24.26 The disbursement shall be approved at branch level within limit and by earmarking
the limit of pre shipment and all the security documents etc, as per the terms of sanction will
be obtained and kept by the branch concerned. [The documents obtained in the working
capital finance may be extended to cover these loans. In addition to this, branches should
obtain application for PCFC and declaration/undertaking as per the specimen (Annexure I and
II)
GENERAL
24.27 Following points will also have bearing on the smooth, efficient and cost effective
operations of the scheme:-
a) The applicable benefits such as credit of export proceeds to EEFC account etc to the
exporter, will accrue only after realisation of export bill and not at the stage of conversion of
pre shipment credit into post shipment credit (except when bills are discounted/rediscounted
"without recourse"); Surplus of export proceeds available after adjusting relative export
finance and credit to EEFC account should not be allowed for setting off of Import Bills.
Further, for the purpose of reckoning bank‘s performance in extending export credit, the rupee
equivalent of the PCFC may be taken into account.
Transactions to be carried out in the Finacle CBS system by using Packing Credit transactions
Maintenance menus.

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POST-SHIPMENT FINANCE IN FOREIGN CURRENCY
(DISCOUNTING/NEGOTIATION OF EXPORT BILLS (FCBD/FCBN)
Definition
24.28 'Post-shipment Credit' means any loan or advance granted or any other credit provided
by an institution to an exporter of goods from India from the date of extending credit after
shipment of goods to the date of realisation of export proceeds.
SALIENT FEATURES
24.29
a) The exporter can avail of this facility (FCBD/FCBN) even if he has not availed of any
pre shipment advance, or even if, he has availed Pre-shipment advance in rupees.
b) The exporter availing of Pre-shipment in foreign currency (PCFC) is compulsorily
required to avail of FCBD/FCBN for liquidating outstanding in PCFC and proceeds of the bills
discounted under FCBD/FCBN upon realisation are utilised to liquidate FCBD/FCBN. If Post
shipment limit is not available, FCBD/FCBN will be granted by earmarking pre-shipment limit
i.e. PCFC limit.
ELIGIBILITY CRITERIA
24.30
a) The facility under the scheme of discounting foreign currency bills may be offered in
any convertible currency, but for the time being, in our bank we discount bills drawn in US
Dollars only. This facility can be extended to cover bills drawn in other permitted currencies;
however, at the time of repayment the exporter has to convert the foreign currency realised
into USD at prevailing cross currency rate to repay FCBD/FCBN. The customer can also opt for
cross currency forward contract.
b) The rupee equivalent of the discounted value of the export bills (FCBD/FCBN)
converted at spot rate will be payable to the exporter (wherever PCFC is not availed), and the
same should be utilised to liquidate the outstanding Rupee Export Packing Credit if any.

MINIMUM AMOUNT OF DISBURSAL

24.31
a) The minimum amount of FCBD/FCBN will be as per H.O. guidelines (currently USD
10,000/-)
b) Discounting of export bills will be routed through the designated branches, from
whom Pre-shipment credit in foreign currency has been availed of. In case these bills are
routed through any other bank/authorised dealer, the latter will first arrange to adjust the
amount outstanding under packing credit with the concerned bank out of the proceeds of the
discounted bills.

454
PERIOD OF CREDIT
24.32 The scheme will cover mainly export bills with usance period up to 180 days from the
date of shipment (inclusive of normal transit period and grace period if any). There is,
however, no bar to include demand bills. In case, borrower is eligible to draw usance bill for
period exceeding 180 days as per the extant instructions/In cases where realization is delayed
beyond 6 months &up to date of crystallisation, post shipment credit may be provided beyond
180 days( Max 360 days).

MARGIN
24.33
a) As per sanctioned terms
b) In case the exporter desires to retain a portion of export proceeds in EEFC A/c, care should
be taken to discount bill only for the proportionate amount and EEFC a/c should be credited
only upon realisation of bill.
RATE OF INTEREST AND CHARGES
Rate of Interest and charges will be as per RBI/ H.O. guidelines as applicable from time to
time.
Presently, applicable rates of interest on post-shipment credit is as under:

a) On demand bills for transit period : 350 bps over LIBOR/EURIBOR/EURO /LIBOR
(as specified by FEDAI)
b) Usance bills (for total period of : 350 bps over LIBOR/EURIBOR/EURO LIBOR
comprising usance period of export bills, transit period as specified by FEDAI and grace
period wherever applicable) Up to 6 months from the date of shipment.

c) Export bills (demand or usance): Rate as per (b) above plus 200 bps realised after due
date but up to date of crystalisation

Up-front commission:

i) Exporter customers whose transaction value is less than USD 1 mn. :

100 bps p.a.
ii) Exporter customers whose transaction
value is USD 1 mn. and above : 50 bps p.a.

24.34 Rate of interest shall be as per Head Office instructions in this regard for the number
of days as usance period of bill plus transit period/grace period, if any, and will be recovered
in advance.
a) There will be no change in the method of crystallisation of the liability in case
of overdue bills.

455
 b) Interest rate as applicable to overdue bills as per Head Office instructions for
Post Shipment Credit in rupees will be applicable from the date of crystallisation.
c) At the time of discounting/negotiation of bill under FCBD/FCBN (Post shipment
Finance Scheme in Foreign Currency) following charges reckoned in US$ (converted
into Rupees at the prevailing TT Selling Rate without Reporting sale) shall be recovered
UPFRONT separately to the debit of customer's C/C, C/D, 0/D A/c. and Credit to
respective P & L Heads, as per Head office instructions, i.e. :
i. Transaction charges.
ii. Interest/discount at appropriate rate for the normal transit period/up
to notional due date.
iii. Commission as applicable

iv. Bill handling charges as applicable

v. Postage and Telegram/SWIFT charges.

GENERAL INSTRUCTIONS
24.35
a) The rupee equivalent of discounted amount/foreign exchange loans will be held in
branch books distinct from the existing post-shipment credit accounts.
b) Branches should negotiate/handle export documents under FCBD/FCBN (Post
shipment credit in F.C. Scheme) at their end, as they have been handling normal export
documents and send the same directly to the concerned correspondents requesting them to
credit the proceeds to Bank of India, Treasury Branch Nostro A/c. No 121121503325000( for
USD) & to Treasury Branch Nostro A/c No.330121510000003 ( For EUR) of swift advise to
concerned branch. Simultaneously, if the bill amount to be negotiated/purchased is more than
the PCFC availed earlier against that particular L/C or order, the Branch (through the
designated branch) should request Treasury Branch to make such surplus funds available
giving adequate notice by sending email.
c) Designated branches should disburse FCBD/FCBN and excess amount if any, after
adjustment of PCFC, may be transferred to PCFC control account . This excess USD/EUR
amount will be reported for the purchase to the Dealing Room at TT buying rate. When the
bills are submitted for Negotiation/Purchase to liquidate PCFC or otherwise, the covering
schedule should indicate reference as FCBN/FCBD for Negotiation/Discount respectively along
with Branch Code No. and Bill Serial No. This is required in order to reduce the number of
characters for accommodating entire reference number in the Swift Messages or Statement of
Accounts for easy identification.
d) Instructions for remittances of the proceeds in the covering schedule should read as
"Please credit the proceeds to Bank of India, Treasury Branch Nostro A/c. No
121121503325000 under Swift advice to us" in case of USD transaction. Similar instructions
to be given for Paris Branch Pool Nostro A/c no in case of Euro transaction. If the instructions

456
in schedule are not given properly by branches the proceeds can go to their regular nostro
accounts with US correspondent banks, creating reconciliation problems.
24.36 In case of earlier realisation of bills, branches may refund proportionate interest at
the same rate of interest at which interest was recovered upfront. Since the scheme is financed
from FCNR "B", EEFC and RFC funds, there is no question of recovery of swap costs.
ECGC COVER
24.37 Premium will be paid by the PCFC loan disbursing branch, and subsequently should
be recovered from the branch where the customer enjoys the regular limits, for which the
branch should obtain authority at the time of granting of PCFC loan. ECGC premium will be
payable as in the case of rupee credit on FCBD outstanding as per the revaluation rate advised
by FEDAI.
REFINANCE
24.38 The export bills discounted under the Scheme will not be eligible for refinance from
RBI and as such, the bills discounted under this scheme should be shown separately from the
export credit figures reported for the purpose of drawing export credit finance.

RESTORATION OF LIMITS AND AVAILABILITY OF EXPORT BENEFITS SUCH AS EEFC

ACCOUNT
24.39 Restoration of limits and availability of export benefits such as Credit of export
proceeds to EEFC account will be effected only on realisation of export proceeds and not on
the date of discounting of the bills. Discounting of Bills under FCBD and FCBN (D/A) will be
within the overall limit fixed for bills FBP/FBN (D/A) respectively.

CONTROL MECHANISM AND RETURNS

24.40 a) Returns are centralised
FOREIGN CURRENCY LOANS TO IMPORTERS (NOT LINKED TO EXPORTS) GENERAL
24.41 Branches can extend import trust receipt loan not related to exports for a
maximum period of 6months out of resources mobilised under EEFC/FCNR-B/RFC
schemes as is done in case of export credit in foreign currency subject to sanction at
appropriate level for undertaking fund based credit exposure. The accounting system
to be followed shall be the same as that of PCFC. However, for foreign Currency
loans for a period of 6 months and above branches should be guided by RBI directives
in this regard.
DOCUMENTATION
24.42 Documents obtained for working Capital Finance in Rupees may be extended
to cover these loans. Branch should obtain a separate undertaking from
importer/customer for crystallisation of Rupee liability on due date of the LOAN. L/C
application letter will have to be suitably modified by the Branch for availing LOAN on
presentation of documents and also for foreign currency loan facility. Needless to say,

457
 if the importer customer fails to retire the import bill on maturity date, Branch should
delink the Foreign Currency Liability and thereafter follow the procedure as laid down
for overdue import bills under Letters of Credit. Similarly, the draft negotiated/received
under L/C, duly stamped and accepted by the importer with due date mentioned
thereon shall be kept on branch's record.

SUMMARY OF MODIFICATIONS IN PCFC/FCBD/FCBN

24.43 Modifications made in the operation of the scheme are summed up below:-
I. The disbursement of PCFC will be made from Pool account of Mumbai Overseas
Branch to Nostro account of Treasury branch with our New York Branch/Paris Branch
instead of respective Nostro accounts with various correspondents. This will take
care of:-
a. Delay in transfer of funds
b. Interest for the delayed disbursements from Pool Account to Nostro
Account and credit of delayed realisation from Nostro A/c. to Pool A/c.
c. Correspondent‘s transaction charges for each debit and credit entry
are completely eliminated.
d. Locating and identifying transactions will be made very easy, due to
reduction in number of accounts, number of banks and number of entries, since
handling of these transactions will be done exclusively by our New York Branch/
Paris Branch, quick responding to the entries will also be possible.
e. Number of entries in regular Nostro Accounts will be reduced
considerably, leading to substantial reduction in work related to reconciliation
and monitoring of accounts.
II. The numbering of bills will be as under:-
a. Serial no of bill is system generated
b. Branches should give specific instructions in their bill covering schedules to
collecting banks to credit bill proceeds to Nostro Account of Treasury Br .
c. i) All charges recoverable from customer viz. Commission and interest in
USD (except potages/ telegrams charges) will be debited to customer's CD/CC account
at TT selling rates without reporting sale and will be credited to respective P&L heads,
i. Branches having sizeable forex business may approach Head Office for inclusion in
the list of designated branches, through their respective Zonal Offices.
ii. LIBOR/Prime Rate are conveyed to d branches along with daily rates by Treasury
branch.

iii. In case of early realisation of bills, branches to refund proportionate interest.

458
Foreign Currency Bill Discounting/Negotiation of Export Documents (FCBD/FCBN)

24.44 In case of exporter availing pre-shipment advance in rupees, or even if he has not
availed any preshipment advance, export bills tendered by such exporter can be discounted
under FCBD/FCBN. When the exporter-customer submits documents to the Bank, the bill has
to be discounted and PCFC if availed, is to be simultaneously liquidated.

The Branch handling foreign exchange business has to scrutinise the documents as is done for
other export documents for purchase/negotiation and forward them to Foreign Correspondent
Bank /our foreign branches abroad with clear cut instructions in the covering schedule:

j) "Pay/credit the proceeds of the bill to our Treasury Branch New York Branch Nostro
account 121121503325000( for USD)/ Paris Branch Nostro account 330121510000003 ( for
EUR).

Rediscounting of Export Bills Abroad Scheme(EBR)

General

24.45 Banks are also allowed to rediscount export bills abroad at rates linked to international
interest rates at post-shipment stage.

Scheme

(i) It will be comparatively easier to have a facility against bills portfolio (covering all
eligible bills) than to have rediscounting facility abroad on bill to bill basis. There will, however,
be no bar if rediscounting facility on bill to bill basis is arranged by a bank in case of any
particular exporter, especially for large value transactions.

(ii) Banks may arrange a "Bankers Acceptance Facility" (BAF) for rediscounting the export
bills without any margin and duly covered by collateralised documents.

(iii) Each bank can have its own BAF limit(s) fixed with an overseas bank or a
rediscounting agency or an arrangement with any other agency such as factoring agency (in
case of factoring arrangement, it should be on ‗without recourse‘ basis only).

(iv) The exporters, on their own, can arrange for themselves a line of credit with an
overseas bank or any other agency (including a factoring agency) for discounting their export
bills direct subject to the following conditions:

(a) Direct discounting of export bills by exporters with overseas bank and/or any
other agency will be done only through the branch of a bank designated by him for
this purpose.

459
 (b) Discounting of export bills will be routed through designated bank from whom
the packing credit facility has been availed of. In case, these are routed through any
other bank, the latter will first arrange to adjust the amount outstanding under packing
credit with the concerned bank out of the proceeds of the rediscounted bills.

(v) The limits granted to banks by overseas banks/discounting agencies under BAF will
not be reckoned for the purpose of borrowing limits fixed by RBI (FED) for them.

Eligibility Criteria
(i) The Scheme will cover mainly export bills with usance period up to 180 days
from the date of shipment (inclusive of normal transit period and grace period, if any).
There is, however, no bar to include demand bills if overseas institution has no
objection to it. In case borrower is eligible to draw usance bill for period exceeding 180
days as per the extant instructions of RBI, post shipment credit may be provided
beyond 180 days.

(ii) The facility under the Scheme of Rediscounting may be offered in any
convertible currency.

(iii) Banks are permitted to extend the EBR facility for exports to ACU countries.

(iv) For operational convenience, the BAF Scheme may be centralised at a branch
designated by the bank. There will, however, be no bar for other branches of the bank
to operate the scheme as per their internal guidelines/instructions.

Source of On-shore Funds

(i) There will be no bar on banks to utilise the foreign exchange resources available with
them in Exchange Earners Foreign Currency Accounts (EEFC), Resident Foreign Currency
Accounts (RFC), Foreign Currency (Non-Resident) Accounts (Banks) Scheme, to discount
usance bills and retain them in their portfolio without resorting to rediscounting. In the case
of demand bills [subject to what has been stated in paragraph 2.2.3 (i) above], these may
have to be routed through the existing post-shipment credit facility or by way of foreign
exchange loans to the exporters out of the foreign currency balances available with banks in
the Schemes ibid

(ii) To facilitate the growth of local market for rediscounting export bills, establishment
and development of an active inter-bank market is desirable. It is possible that banks hold
bills in their own portfolio without rediscounting. However, in case of need, the banks should
also have access to the local market, which will enable the country to save foreign exchange
to the extent of the cost of rediscounting. Further, as different banks may be having BAF for
varying amounts, it will be possible for a bank which has balance available in its limit to offer
rediscounting facility to another bank which may have exhausted its limit or could not arrange
for such a facility.

(iii) Banks may avail of lines of credit from other banks in India if they are not in a position
to raise loans from abroad on their own or they do not have branches abroad, subject to the

460
condition that ultimate cost to the exporter should not exceed 350 basis points above
LIBOR/EURO LIBOR/EURIBOR excluding withholding tax or any other cost as advised by the
RBI/Head office from time to time. The spread between the borrowing and lending bank is
left to the discretion of the banks concerned

(iv) Banks are also permitted to use foreign currency funds borrowed in terms of para

4.2.(i) of notification No. FEMA 3/2000 RB dated May 3, 2000 as also foreign currency funds
generated through buy - sell swaps in the domestic forex market for granting facility of
rediscounting of Export Bills Abroad (EBR) subject to adherence to Aggregate Gap Limit (AGL)
approved by RBI (FED).

Facility of Rediscounting 'with recourse' and 'without recourse'

24.46 It is recognised that it will be difficult to get ’without recourse‘facility from abroad under
BAF or any other facility. Therefore, the bills may be rediscounted ‘with recourse‘. However, if
an AD is in a position to arrange ‘without recourse‘ facility on competitive terms, it is permitted
to avail itself of such a facility.

Accounting Aspects

24.47

(i) The Rupee equivalent of the discounted value of the export bills will be payable to
the exporter and the same should be utilised to liquidate the outstanding export packing credit.

(ii) As the discounting of bills/extension of foreign exchange loans (DP bills) will be in
actual foreign exchange, banks may apply appropriate spot rate for the transactions.

(iii) The Rupee equivalents of discounted amounts/foreign exchange loan may be held in
the bank‘s books distinct from the existing post-shipment credit accounts.
(iv) In case of overdue bills banks may charge 2 percent above the
rate of rediscounting of foreign exchange loan from the due date to the date of crystallisation.

(v) Interest rate as per RBI interest rate directive for post-shipment credit in Rupees will
be applicable from the date of crystallisation.

(vi) In the event of export bill not being paid, it will be in order for the bank to remit the
amount equivalent to the value of the bill earlier discounted, to the overseas bank/agency
which had discounted the bill, without the prior approval of the RBI.

Restoration of Limits and Availability of Export Benefits such as EEFC Account:

As stated above, without recourse facility may not generally be available. Thus, the restoration
of exporter‘s limit and availability of export benefits, such as credit to EEFC accounts, in case
of ‘with recourse‘ facility, will be effected only on realization of export proceeds and not on
461
the date of discounting/ rediscounting of the bills, however, if the bills are rediscounted
without recourse‘ the restoration of exporter‘s limit and availability of export benefits may be
given effect immediately on rediscounting.
ECGC Cover:
In the case of export bills rediscounted ‘with recourse‘, there will not be any change in the
existing system of coverage provided by ECGC, as the liability of the exporter continues till the
relative bill is retired/ paid. In other cases, where the bills are rediscounted ‗ without recourse,
the liability of ECGC ceases as soon the relative bills are rediscounted.
Refinance:
Banks will not be eligible for refinance from the RBI against export bills discounted/
rediscounted under the scheme and as such, the bills discounted in foreign currency should
be shown separately from the export credit figures reported for the purposes of drawing export
credit refinance.
Export Credit Performance:
i) Only the bills rediscounted abroad ‘with recourse ‘ basis and outstanding will be taken
into account for the purpose of export credit performance. The bills rediscounted abroad
‘without recourse‘ will not count for the export credit performance.
ii) Bills rediscounted ‘ with recourse‘ in the domestic market could get reflected only in
the case of the first Bank discounting the bills as that bank alone will have recourse to the
exporter and the bank rediscounting will not reckon the amount as export credit.
24.48 Steps for Promotion of Export Credit:
Export promotion is a very high national priority. There has been persistent
demand from the exporters for timely, adequate and cost-effective credit for
increasing the exports. In their recent communication to the Bank, Government of
India(Ministry of Finance) has stated that in order to make our exports globally
competitive, the exporters should be given export credit at the competitive rate.
Amongst the various steps suggested by Government, the important points are as
under:-
i) Authorized Dealers are required to extend Pre-Shipment as well as Post-
Shipment credit in foreign currency to the exporters, out of the following
resources:-
a) Funds mobilized under various foreign currency deposit schemes;
b) By availing line of credit from Banks abroad I within India;
c) Through Inter-Bank swap route by using surplus rupee resources.
ii) The Banks having substantial presence abroad and having foreign currency
deposits with them may arrange for borrowing abroad I seek lines of credit from
foreign Banks.

462
iii) The funds so available may be lent by Banks to the exporters either directly or
through other small Banks, which may not have forex liquidity. There should be
special focus on making export credit in foreign currency available to micro and
small sector exporters.
iv) In case of packing credit, the borrower exporter may not be forced to take
forward cover unless it is for an export credit in one convertible currency for which
the export order is invoiced in another convertible currency.
v) Banks should also provide term loans for modernization and equipment
financing setting up of units for exports and project exports from India.
Our Treasury branch is managing the funds pooled out of the above stated
resources and is presently meeting with the requirements of the exporters for
credit in foreign currency through our AD Branches. Branches should contact our
Treasury Branch/Mumbai Overseas Branch as per the prevailing guidelines for
their requirement in foreign currency disbursements for export credit.
In view of the foregoing, Branches should ensure that all the exporter clients of
the bank are provided with adequate and cost-effective export credit in foreign
currency in terms of extant guidelines issued from time to time.

(Annexure-I)

LIST OF DESIGNATED BRANCHES FOR DISBURSEMENT OF PCFC/ FCBD/FCBN

SR.
NAME OF THE ZONE NAME OF THE BRANCH
NO.

1) AGRO ZONE
AGRA SSI BRANCH

2) AHMEDABAD AHMEDABAD (MAIN) BRANCH

3) CHANDIGARH CHANDIGARH BRANCH

PANIPAT BRANCH

4) CHENNAI CHENNAI OVERSEAS BRANCH

CHENNAIR Large Corporate BANKING
BRANCH

5) COIMBATORE COIMBATORE BRANCH

6) GHAZIABAD MORADABAD SSI BRANCH

GHAZIABAD BRANCH

463
7) GOA VASCO-DA- GAGAMA BRANCH
MARGAO BRANCH

8) HYDERABAD HYDERABAD MAIN BRANCH

KHAIRATABAD BRANCH

9) KERALA M.G. ROAD (ERNAKULAM) BRANCH

10) KANPUR KANPUR MAIN BRANCH

11) KOLKATA KOLKATA OVERSEAS BRANCH

KOLKATA Large Corporate
BANKING BRANCH

12) LUDHIANA JALANDHAR OVERSEAS

BRANCH
AMRUTSAR MAIN BRANCH

13)` MUMBAI SOUTH MUMBAI OVERSEAS BRANCH

BALLARD ESTATE BRANCH
BULLION EXCHANGE BRANCH
MANDVI BRANCH
D.N. ROAD BRANCH
MAHALAXMI BRANCH
OPERA HOUSE BRANCH
KALBADEVI BRANCH

14) MUBAI NORTH SEEPZ BRANCH

GHATKOPAR WEST BRANCH
ANDHERI WEST BRANCH
ANDHERI Large CORPORATE
BANKING BRANCH
MALAD WEST BRANCH

MUMBAI Large CORPORATE BANKING

BRANCH

464
15) NEW DELHI NEW DELHI OVERSEAS
BRANCH
NEW DELHI Large CORPORATE
BANKING BRANCH

16) NAGPUR-I NAGPUR

17) RAJKOT RAJKOT MAIN BRANCH

18) RAJASTHAN JAIPUR MAIN BRANCH

19) PUNE PUNE MAIN BRANCH

20) VADODARA SURAT MAIN BRANCH

21) VISAKHAPATNAM VISAKHAPATNAM OVERSEAS

BRANCH

22) VARANASI BHADOHI SME BRANCH

i) Chapter No.24 – Annexure – I – page no. 468. All the LCBs and MCBs
are also designated for disbursement of PCFC, FCBD and FCBN as per
approval of GM (I) vide Memo No.INTL(FBD)/TSN/13-14/52 dated
17.10.2013.
Updated on 26/10/2013 vide Ref. No. INTL(FBD)/TSN/13-14/01631

465
 ANNEXURE – I

(On borrower's letter head Application to be obtained every time for

disbursement of PCFC)

Date :
Place:
The
Assistant General Manager/ Chief Manager./ Manager
BANK OF INDIA,
____________ Branch.

Attn.: Foreign Currency LoansDepartment

Dear Sir,
Ref.: Our Earmarking Document dated :
Request for grant of packing credit in
Foreign Currency (PCFC) for US. Dollars/Euro

In terms of RBI instructions we request you to grant PCFC within the terms of
Packing Credit limit of Rs. ____ sanctioned to us, subject to the various rules and regulations
framed by your Bank.
1) Amount of PCFC : USD/EUR
2) Purpose : For domestic input / imported input
3) Period of Credit:
4) Nature & Quantity of Goods :
5) Details of Letter of Credit Number: Date:

Issued by: Openers :

Confirmed Order Number/dated

Importers :

to be followed by L/C or not)

6) Value of L/C or confirmed Order (FOB):
7) Margin as per Packing Credit:
8) Validity for shipment / negotiation

* Please credit equivalent Indian Rupees to our C/C or C/D A/C No.________________
with you under advice to us. Please remit funds to for credit of Amount No._____ as
per Import UC terms or Exporters 'Bankers' instructions (if under FIBC). We hereby
466
 declare that we have not availed any pre-shipment finance from any Bank against this
order.We agree to the rate of interest and charges as stipulated by the Bank. We
authorise you to convert foreign currency liability into Indian Rupees at T.T.Selling
rate on Due date of PCFC or on the date of recalling the advance by the Bank at its
sole discretion.

* In case of Rupee Funds,

* In case of imported input. Yours

faithfully,

(SIGNATURE)

Encl : Relative L/C/ Confirmed Order.

467
 ANNEXURE No. II

(Earmarking Document)

Date :

To,

Bank of India,

___________Branch.

Dear Sir,

1. We have been granted and have been enjoying the following limits at your branch :-
2. Details of Limits
Of the total limit of Rs. ______ for export packing credit/FBP, you have granted a sublimit
of Rs.____ towards availment in foreign currency, subject to availability of foreign
currency resources with the bank. The export' packing credit limit/FBP is secured by the
following documents:-
1)
2)
3)
4)
1. For the sake of convenience of operation, you have centralised the operations of
foreign currency landings at your link branch, viz. _____ Branch. We have, therefore,
requested you and accordingly you have earmarked a limit of Rs. _____ (in equivalent
foreign currency viz. USD/EUR) at the said link branch, viz. ____ Branch. You have agreed
to extend foreign currency credits at your branch ____ on specific understanding that the
documents executed as listed above for operations of the total limits at ____ branch, and
any liability incurred on account of the foreign currency account at ____ branch will be
considered as a liability that has arisen at your branch as per operation of the limit
sanctioned at your branch. The documents executed and listed above and also the
securities charged to you for securing the above limits will be available as security for any
outstanding with the branch under the earmarked limits.
2. Whereas in our Rupee packing credit/Rupee bills discounting etc., our liability is
crystallised in Rupees, we realise that you are extending the foreign currency finances as
per the Reserve Bank of India guidelines, with a specific understanding that the liabilities
arising out of the foreign currency finance under PCFC, FCBD/ FCBN etc. will be settled by
us from foreign currency out of export proceeds realised in the approved manner.
3. We undertake that all the regulations relating to foreign currency advances,
stipulated by the Reserve Bank of India will be complied by us and confirm and
acknowledge that the said stipulations/regulations have been made known to us. The Bank
shall be at liberty to strictly follow the regulations of the Reserve Bank of India in respect

468
of crystallisation/realisation of the debt either in foreign currency or in Indian Rupees as
permitted under the scheme.
4. We are also bound by the operational instructions of your Bank in the
administration of foreign currency loan facilities to us. We hereby agree and undertake that
we shall pay and discharge all our obligations under pre- shipment credit in foreign
currency/postshipment finance in foreign currency at your branch. Due to any reason
whatsoever, if amount is not paid on due dates or we are not in a position to fulfil our
export obligations, you shall be in your absolute discretion at any time, without any notice
to us, be entitled to convert foreign currency loan in Rupee loan at T.T. Selling Rate and
you shall be entitled to debit our rupee packing credit account and/or cash credit account
and from the date crystallisation of foreign currency liability in rupee currency, interest shall
be payable by us as per prevailing interest rate in P.C. Account or C.C.Account in your bank
or at such other rates as may be notified to us.
5. We further agree and undertake that if we fail to pay the amount due and payable
under pre-shipment credit in foreign currency/post-shipment finance in foreign currency on
due dates in specified contractual foreign currency, then, in any such event, we shall pay
additional interest from the due date(s) upto date of crystallisation of liability in rupee
currency at the rate prescribed by the Bank as may be notified over and above the rate of
interest charged, on foreign currency loan/discounting foreign currency bills.
6. We also agree that in case of cancellation of export contract, interest will be
payable on Rupee equivalent converted at T.T. Selling rate prevailing on the date of
cancellation, at the rate prevailing in export credit/cash credit account plus additional
interest at the rate prescribed by the Bank from the date of advance after adjustment of
interest on PCFC, already paid.
7. We agree that sanction/continuance of packing credit/ post-shipment credit in
foreign currency is purely the discretion of the Bank and the bank shall be at liberty to stop,
cancel, reduce or discontinue the facility at any time without assigning any reason for doing
the same and we further agree that your decision in this regard will be final and binding on
us and we shall not dispute your decision nor we shall make any claim against you.

8. We hereby declare that we have not availed of Pre-shipment finance from any
Bank against this order.

Yours faithfully.

469
Accounting Procedure at Designated Branches

(In all cases where Notional Rate is mentioned, the Notional Rate to be taken as
available in Finacle system, entered by Treasury Branch as per the revised
procedure w.e.f. 23-03-2012)

GRANT OF PACKING CREDIT IN FOREIGN CURRENCY (PCFC)

Customer's rupee PC limit should be ear-marked by the amount of PCFC at TT Selling
rate.

A) FOR DOMESTIC INPUTS

Designated Branch should first obtain consent of Treasury Branch for availability of funds with
value date required for PCFC disbursement, &
Say customer requests PCFC for USD 100.000/- for Domestic Input.
AT DESIGNATED BRANCH
RPCTM
1 DR : PCFC LOAN ACCOUNT CUSTOMER USD 100000 @Notional rate
Cr: 01500PCFCUSD100,000 @ Notional Rate

Report purchase at TT Buying Rate/Forward rate, as the case may be by using IRM for
credit to customers account

PCFC CHARGES:

Applicable charges as per H.O. guidelines per disbursement to be recovered at prevailing

TT Selling Rate from customer's C/C - C/D - 0/D A/c (Without reporting sale).

DR : Customer's C/C - C/D - 0/D A/c -

CR : P & L Account Commission (Foreign) -

B) PCFC FOR IMPORT COMPONENT :

PCFC to meet import component can be for the following purposes:

i) Advance Remittance wherever FEMA guidelines permit.

ii) Payment for import bill received under collection.
iii) Reimbursement of import bill under Import L/C opened by Branch. Designated Branches
should similarly obtain consent of Treasury if required for availability of funds with value date
required for PCFC disbursement. After receiving Treasury & pay directly to overseas
suppliers/negotiating bank/supplier's bankers in USD/EUR (or other convertible currency by
applying appropriate cross rate obtained from dealer) out of USD/EUR Nostro Account of
Treasury Branch.. In order to meet the payment of import bills, Designated Branch to obtain
matching Buying Selling Rate and realise the bill through customers account. In case of L/C
transaction, if reimbursement is already availed by the negotiating bank the funds will have to
be transferred to replenish account of US correspondent/reimbursing bank of L/C by
Designated Branch obtaining matching Buying & Selling rate

To meet the payment of import bills under L/C, collection, the following vouchers should be
passed.

470
Suppose a customer/exporter requests for PCFC to retire the import bill received under
collection or under L/C covering shipment of goods of imported raw material for processing
and ultimate export, the following vouchers will have to be passed at the designated branch.

(i) DR: PCFC Loan Account Customer (amount advanced in foreign currency USD. ) say USD
100000

(ii) Cr: 01500PCFC USD 100000

Designated Branch to obtain matching Buying Selling rate

(I) Execute IRM
(i)DR.: SOLIDHOAC0001 A/c USD. 100000/- matching TTB
(ii) CR.: Customer A/c USD. 100000/- @ TTB

(II)Realise Bill through FBM Menu

(i)Dr: Customers A/c USD 100000 @ matching TTS rate
(ii)Cr: SOLIDHOAAC001 USD 100000@ matching TTS Rate

Needless to state that in case PCFC is granted for retirement of import bill on collection basis,
the branch will have to make remittance of import proceeds as per the instructions of the
collecting bank.)

Branch to send email to Treasury Brnach with copy to MSOB giving details of PCFC disbursed

NOTE -1:

a) The Treasury Branch will respond the CN/CO to regular Nostro Mirror A/c and reconcile
the entry against debit in the Nostro A/c representing remittance of import bill received on
collection basis or reimbursement of import bills under L/C whichever is applicable.

Foreign Currency Bill Discounting/Negotiation of Export Documents (FCBD/FCBN)

24.49 In case of exporter availing preshipment advance in rupees, or even if he has not availed
any preshipment advance, export bills tendered by such exporter can be discounted under
FCBD/FCBN. When the exporter-customer submits documents to the Bank, the bill has to be
discounted and PCFC if availed, is to be simultaneously liquidated.

The Branch handling foreign exchange business has to scrutinise the documents as is done for
other export documents for purchase/negotiation and forward them to Foreign Correspondent
Bank /our foreign branch abroad with clear cut instructions in the covering schedule :

i) "Pay/credit the proceeds of the bill to our New York Branch for ultimate credit of
Treasury Nostro Account 121121503325000 SWIFT advice to enable collecting bank to do the
needful.

ii) The branch sending bill must state on their covering schedule prominently their own
SWIFT/FAX number to enable collecting bank to do the needful.

471
Discounting of FCBD/FCBN CASE NO. 1

If the exporter has not availed Pre-shipment advance/availed Rupee advance and wishes to
avail FCBD/ FCBN by submitting export document at branch, which is not designated to
disburse PCFC/FCBD, the branch will report to designated branch full details of bill amount,
after taking into consideration margin, percentage of amount to be credited to EEFC on
realisation etc. and amount of Rupee Packing Credit details to enable the designated branch
to arrange for discounting of bill by contacting MOSB by FAX/swift for arranging funds.

Accounting Entries :

At Designated Branch

(I) Purchase through FBM menu

(i)DR : FCBD/FCBN Account of customer

(ii) Cr: PCFC of customer(in case of credit to PCFC Account
Or
(ii) Cr 01500PCFCUSD (for credit to customer account

II)Report purchase at TT buying rate/Forward Contract Rate to Treasury Branch on New York
branch Nostro A/c. through IRM

(i)DR : SOLIDHOAC001

(ii) CR : CUSTOMER C/D - C/C • 0/D A/c.

Designated Branch to send email to Treasury Branch with copy to MSOB giving details of
FCBD/FCBN disbursed

Applicable Transaction charges say @ USD 15 per disbursement at the prevailing TT selling
rate (without reporting sale) plus actual swift charges to be recovered from customer's C/C ,
C/D , 0/D A/c . Recover all other charges as per instructions issued by the Bank from time to
time

CASE NO 2

Say exporter-customer has availed on 01/01/2006 PCFC of USD 100.000/- at 6.40 (6 months
LIBOR 5.4% + 1% and ON 16/03/2006) submits export bill for USD 150,000/- to be
discounted, when the Rate of discount/interest is 6.40% (6 months LIBOR 5.4% + 1%) and
Normal Transit Period of the bill is 20 days. Also the customer desires to retain 25% of the bill
amount in EEFC (i.e. USD 37.500/-).

Designated Branch should obtain control no from Treasury Branch

At designated branch following vouchers will be passed:

(I) Purchase through FBM Menu
(i)DR. FCBD/FCBN (Customer USD 112,500/-
(ii)CR. PCPC (customer ) USD 100.000/-
(ii) CR 01500PCFCUSD 12500

472
(II) Report purchase to Treasury branch at TT buying rate
(i) DR SOLID HOAC001 USD 12500
(ii) CR. CUSTOMER'S C/C - C/D - 0/D A/c

Interest (Discount) in USD and applicable transaction Charges at say USD 15/- (without
reporting sale) plus postages/swift at actual, etc. to be recovered to the debit of exporter's
a/c and credited to respective P & L a/cs.

Interest Calculation

The transaction charges and commission etc. will be recovered in equivalent Rupees without
reporting. The interest when actually debited in PCFC a/c will be recovered from the CD/OD/CC
a/c of the customer without reporting sale as mentioned above by passing the following
vouchers.

DR : Customer CD/CC/OD a/c at TT selling rate

CR : PCFC loan

CR : P & L a/c interest on PCFC (with the difference of amount debited to the customer at
TT selling rate and credited to the PCFC loan A/c at notional rate)

Realisation of Bills

CASE NO. 1

(Where amount of the bill is more than the discounted amount.)

Suppose on realisation of said bill in Mumbai Treasury branch pool a/c. no. for USD 149,900/-
i.e. less of correspondent's charges USD 100/-.

At Designated Branch

Bill to be realised in 2 parts

Part I
Dr: 01500PCFCUSD 112500
CR . FCBD/FCBN USD 112500/-

Part II
Dr 01500EEFCUSD
Cr EEFC A/C OF CUSTOMER USD 37400

CASE NO. 2

(Where the amount realised is less than the discounted amount.)

In case the amount credited to Nostro account i.e. on realisation is less than the amount of bill
discounted (i.e. amount with which FCBD/FCBN debited), the designated branch will replenish
the short amount from the Nostro a/c of the Treasury Branch and recover the Rupee equivalent
473
by applying TT selling rate from the CC/CD/ 0D a/c of the customer as foreign bank charges.
Suppose amount of the bill discounted is USD 100,000/- and amount realised is USD 99,900/-
The branch will take the following steps:

i) Since the amount realised is short the designated branch will recover the short amount
from the operative account of the customer to the nostro a/c of the Treasury Branch with our
New York branch
ii) Following vouchers will be passed

Dr 01500PCFCUSD USD99900
Dr Customer Operative Account USD 100
Cr FCD/FCN Account (customer ) USD 100000

Overdue / Late Realisation

Say this bill is realised on 24/04/2006 in our Treasury Nostro A/c. with New York Branch
whereas, its Notional due date is 04/04/2006. Hence the bill purchased for USD 112.500/- is
overdue for 20 days. Overdue interest is chargeable at the applicable rate as advised by the
Bank.

Say at 9.4% on USD 112.500/- for 20 days (360 days to a year) = USD 587.50 @ 45.50 (TT
Selling Rate, without reporting = Rs. 26731/-)

DR. Customer's C/C - C/D - 0/D A/C.Rs. 26731/-

CR. P & L A/C. Interest on FCBD/FCBN Rs. 26731/-

EARLY REALISATION/Delivery : REFUND OF DISCOUNT/INTEREST

Say the said bill discounted for USD 112,500/- is realised in Pool Treasury A/c. value
23/03/2006. This means there is early realisation by 12 days (i.e. 23/03/2006 to 03/04/2006).

Refund of interest on account of early realisation of the bill is given at the same rate at which
interest was originally recovered,i.e. 6.4%.

Refund of interest will be made on USD 112.500/- @ same rate i.e. 6.4% for 12 days = USD
240/- @ 45.50 Rs. 10,920 (without reporting sale).

(**) The rate at which discount in dollars was converted at TT Selling rate into rupees at
the time of discounting the bill.

DR. P & L A/C. Interest on FCBD/FCBN Rs. 10.920/-

CR. Customer's C/C - C/D - 0/D A/C.Rs. 10,920/-.

474
 Chapter - 25
FOREIGN CURRENCY LOANS (FCLs) OUT OF FCNR-B
DEPOSITS OF THE BANK

BACKGROUND
25.1 Reserve Bank of India (RBI) has permitted Authorised Dealers (ADs) to grant foreign currency
loans (FCLs) to Indian residents out of foreign currency (FC) funds held by ADs under FCNR—B
scheme for meeting working capital/capital expenditure needs of the constituents. This relaxation
was aimed at giving greater flexibility to borrowers engaged in productive activities of the economy.

25.2 The above relaxation permits ADs to grant FCLs to their resident constituents for meeting
their foreign exchange as well as Rupee needs interalia subject to prudential norms, credit discipline
and credit monitoring guidelines in force. Granting of personal loans/loans for consumer durables is
strictly prohibited. Resident constituents borrowing in FC under this arrangement do not require RBI
approval under the present Exchange Regulations. Under the scheme only the designated branches
(approved by Head Office) can finance. (Please see Annexure – I).
This is a product that helps the borrower to save borrowing cost.
The attractiveness in availing Foreign Currency Loans / conversion of Working Capital Rupee /
Demand Loan/ any part of Working Capital into Foreign Currency Loan under FCNR –B Scheme by
companies/ corporates depends upon the differential rate of USD / Indian rupee interest as well as
the prevailing forward premium. The Cost of FCNR – B loan comprises of LIBOR + Credit Risk
Premium + Forward Cover. If this is lower than domestic borrowing cost, there is advantage to the
customer. The difference in interest rates between domestic borrowing and FCNR-B loan will
depend on the credit rating of the borrower. A borrower has to consider the fact that interest on
Working Capital Borrowing is charged on the balance outstanding. There is no prepayment option
for FCNR-B loan. If there are surplus funds with the borrower, the interest burden on Working
Capital borrowing can be reduced whereas the interest on FCNR-B loan is payable on entire loan
amount till the due date.The bank has formulated a policy for foreign currency lendings. The details
of which are given below:
BENEFITS TO THE BANK:
The FCNR-B funds of the Bank can be deployed in inter-bank market or inter-branch lending or
FCNR-B loans to companies. Of the three options, spread is higher in the case of FCNR-B loan. Bank
can also convert FCNR-B funds into Rupee for deployment in domestic credit/ investment. This
entails currency risk. Since the deployment in Working Capital lending will be of running nature,
the conversion cannot be hedged suitably with Forward Cover.

General Guidelines
ELIGIBLE BORROWERS
25.3
i) Existing export earning units and other customers with "AAA" or "AA" Credit Rating.
ii) New and existing customers on selective basis with credit rating "A", preferably, having
natural hedge can also be entertained.
No FCL facility to be granted to investment companies, NBFCs, construction companies and traders.
475
PURPOSE
25.4
i) Working capital (within MPBF) ii ) Demand Loan for purchase of new plant and machinery,
acquisition of equipment, assets.

The amount of FCL should necessarily be utilised for productive purposes.

Granting of FCL for personal Loans/Consumer durables is strictly prohibited.

CURRENCY OF LENDING.
25.5 US Dollars. However, competent authority may permit FCL in GBP,EURO,andJap.Yen
currencies, on the case to basis, subject to the following:
(i) obtaining approval for limits and spread from competent authority.
(ii) Treasury confirming the availability of funds in the same currency;
(iii) Pricing to be decided by Treasury Branch considering the spread (approved
by the competent authority) and cost of funds, including swap cost, if any.

QUANTUM

25.6 Minimum US Dollars (1,00,000/-) (Minimum lot)

TENOR
25.7 i) Working capital - Minimum 3 months Maximum 18 months.
Conversion of existing rupee working capital facilities into FCL facility can be allowed.
However, it should be within MPBF subject to obtaining sanction for FCL. The proceeds of
FCL cannot be utilised for repayment of Rupee WCDL except on its maturity. All cases for
conversion of WCDL in Rupees to Foreign Currency should be referred to Head Office for
approval.
Demand Loans - Minimum 12 months Maximum 36 months

In exceptional cases the period may be extended to 60 months including moratorium period.

No conversion of existing term loan into FCL.

While quoting rate of interest on FCNR-B loans, commitment of FCNR-B funds will be subject to :

i) Availability of FCNR-B funds

ii) FCNR-B funds can be committed with a roll-over option of 6 months at a time for the bank;

iii) Rate of interest will be floating with reference to 3/6 M LIBOR

iv) The borrowers should take forward cover unless specifically exempted.

476
 v) Grant of FCNR loans may be considered in case of standard assets; but grant of
FCNR-B loans in the case of restructured/ rehabilitated units may also be considered to
provide scope to reduce the interest burden and thereby improve the viability of the unit.
vi) In the case of consortium / multiple banking arrangements, branches may endeavour
to persuade the borrowers to avail FCNR-B loans proportionately from other banks.

RATE OF INTEREST
25.8 Interest to be charged and recovered as per extant guidelines presently on
monthly basis. Interest rate will be on floating rate basis. The rate of interest/spread over
6 month LIBOR would be in terms of the guidelines issued from time to time and should
depend upon credit rating of borrower, period of loan, and repayment schedule etc. The
interest rates are usually determined by adding the minimum spread as decided in ALCO
and the credit risk premium to arrive at the total spread over LIBOR. The minimum
spread as well as risk premium will be related to the Credit Rating of the borrower.

Validity of sanction

25.9 Working Capital 3 months

Term Loan 6months

25.10 Commitment fee @ 1% p.a. of unutilised amount of FCL after 3 months of

execution of document. In case the sanction is requested to be revalidated, revalidation
fee 0.25% of the entire sanctioned amount; maximum of US $ 5000. or any such other
rate/s as approved by the sanctioning authority/ advised by Head Office from time to
time.

25.11 Processing charges - As per existing rules in respect of new Demand Loan and
new working capital facilities.
25.12 In case of conversion of existing facilities, no processing charges should be
recovered, if already recovered earlier. Instead, transaction cost ranging from Rs.
15.000/- to Rs. 25.000/- to be levied. Branches are to be guided by instructions issued
by C&IC Department in respect of rate/s of interest, commitment fee, processing charges,
etc.

25.13 Prepayment charges -1% p.a. for un run period of the facility. Prepayment is
permitted but with a lock-in-period of 6 months.

SANCTIONING AUTHORITY

25.14 The identified designated branches will process the proposal in respect of FCLs
for consideration at appropriate level as per the booklet on delegation of power, subject
to prudential, credit discipline and monitoring norms in force. The FCL amount to be
converted into rupee at a notional rate comparable to the market rate for the purpose of
delegation. This notional rate should be revised depending upon the market exchange
rate of the US dollar for arriving of the indicative Rupee amount for purpose of delegation.

EXCHANGE RISK/HEDGING REQUIREMENTS

25.15 Exchange Risk to be borne by the customer. A suitable clause should be

incorporated in the original sanction letter to the borrowers advising them that their
outstanding Foreign Currency liability would be revalued on half yearly basis at the ruling
exchange rate and they would 'be required to increase the cash margin or provide some
acceptable tangible security to cover any shortfall in value of security. Branches should
477
 ensure that the borrowers hedge their payables of instalments and interest by taking
suitable forward cover wherever there is no natural hedge by way of foreign currency
receivables (like exports).

DISBURSEMENT

25.16 Disbursement of Demand Loans for purchase of fixed assets should be by

paying directly to the suppliers. Exceptions to be specifically approved at appropriate
level.
Disbursement in lot of minimum US $ 1,00,000, in exceptional cases it can be US $ 50,000.

MONITORING AND SUPERVISION

25.17 The existing instructions regarding financial data, obtention of stock

statements, periodic inspection, etc. will be applicable as per instructions / guidelines in
force.
For detailed guidelines/ operating instructions relating to Authority for sanction of FCL,
fixing rates of interest, upfront premium, prepayment charges, periodicity of recovery
of interest, crystallisation of FC liability due to non-payment of interest/ instalment,
Bank‘s policy relating to booking of Forward Contract by the borrowers to hedge the
exchange risk, revaluation of FC liability at periodical intervals, credit discipline,
monitoring, documentation, etc., the designated branches are advised to be guided by
instructions/ guidelines issued by Credit Department, H.O. from time to time.

With a view to protecting Bank‘s as well as customer‘s interest, the following steps may be taken at
operational level:
i. To periodically monitor the accounts and specifically ascertain that the stipulations
given in the sanctioned proposals, for the purpose of exchange risk mitigation, are complied
with.
ii. In accounts where forward cover has been taken; to find out whether cover has been
taken only for repayment/ interest obligation for the next 6 months or whether the cover is
for the entire loan amount and the same is being rolled over every 6 months.
iii. To ensure whether average annual forex earnings are adequate to meet the
repayment/ interest obligations for the FCL.
iv. In accounts where cash reserves are being built up whether the rate at which these
reserves are being built up is in line with the prevailing premium for the currency.
v. In accounts where no forward cover is booked neither any cash reserve built up nor
are there adequate forex earnings, the matter should be taken up with the borrowers on
priority basis for either conversion of FCL liability into Rupee Loan or for building up adequate
cash reserves or booking of forward cover on a roll over basis.
vi. In new unit accounts where natural hedge will be eventually available, the borrower
may not be in a position to hedge foreign currency during their gestation period. It is,
therefore, imperative that such borrowers should book forward contract during the gestation
period.
vii. At the time of review of all such borrowal accounts in which adequate hedging
mechanism to cover exchange risks in Foreign currency Loans is not available/ arranged for,
necessary stipulations be made to protect Bank‘s interest.

478
DELINKING / CRYSTALLISATION
25.18 i) When FCL is not repaid on due date, FCL to be converted into rupee loan after due
notice to the customer.
ii) When the interest is not paid for three consecutive months.
The above will be applicable mutatis mutandis to Cash Credit component and WCDL accounts
also. The above points to be brought out in proposal.
Besides above, the delinking of the loan can be done at the option of the Bank without
penalty if circumstances so warrant. It must be importantly noted that on conversion of FCL
into other regular facility, the rate of interest to the Rupee Account as per Head Office
instructions applicable will be charged.

AVAILABILITY OF FC FUNDS

25.19 The availability of FCL funds is with Treasury Branch. AD Branch to obtain availability from
Treasury Branch

LINK BRANCH FOR FCL

25.20 All designated branches at the time of disbursement/repayment of FCL instalment/ interest
should route their transactions through FCL control A/c of Mumbai Overseas branch...

AMOUNT ALLOCATED AND LEVEL OF MISMATCH

25.21 RBI while announcing the scheme for lending against FCNR-B funds had advised APs to
ensure that mismatch does not arise on account of FCL. However, as mismatch cannot be altogether
avoided, APs have been advised to fix limit for mismatch. Accordingly. Head Office has fixed levels
of mismatch for each band of maturity. The monitoring of mismatch is done at Treasury branch and
facilitating the same, branches are required to advise all sanctions/disbursements and repayments
to Treasury.

DESIGNATED BRANCHES

25.22 Granting of FCL under this arrangement is restricted to designated branches listed in
Annexure-1, Branches other than designated ones intending to grant FCL would be required to
earmark/ maintain the account with the nearest designated branch.

SANCTION OF FCL
25.23 The Branch/Office which processes the FCL proposal, is required to ascertain from Treasury
availability of limit/mismatch level before submitting the proposal. On availability of exposure limit,
Treasury will assign a six digit Sr. No (control no). for the FCL which is required to be quoted on all
correspondence relating to that loan.
25.24 Upon sanction of the FCL, the branch which originated the proposal (not necessarily a
designated branch) should immediately advise details of sanctions to Treasury. Such details should
include H.O Serial number, name of the account, amount sanctioned, repayment terms, rate of
interest, etc.
25.25 There are times when there is a considerable lag between the date of allotment of Sr. No.
and the date of sanction. In order that the FCNR-B funds of the Bank can be utilised for need based
purposes, the clearance for FCL given will be valid for two months from the date of sanction of

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proposals involving conversion of existing rupee advance into FCL and 3 months in case of FCL
proposal involving new advances.
25.26 In case the borrower does not desire to avail FCL after proposal is sanctioned, the concerned
branch should advise Head Office immediately in order to enable them to cancel the allocation
already made.
25.27 It is clarified that the sanction advice should be sent by the Branch to which the proposal
relates irrespective of whether or not that branch is designated branch.

DISBURSEMENT
25.28 Disbursement of FCL should be made by designated branches only. The designated branch
before disbursing the advance should ensure that Treasury‘s clearance has been obtained and is
valid.
25.29 The designated branch, on disbursement of FCL will be required to advise Mumbai Overseas
Branch and Treasury Branch by email details of the loan, viz. name of branch, FCL amount, rate of
interest, repayment terms and route transaction through FCL control account of MSOB

25.30 The designated Branches to route the transactions through FCL control account with MSOB

REPAYMENT/CRYSTALLISATION

25.31 Upon repayment of FCL instalments/interest or crystallisation of the advance due to non-
payment by the borrower, the designated branch should route the transactions through FCL control
account with MSOB as per procedure given in annexure. Designated branch to send email to MSOB
with copy to Treasury Branch and Head Office

DOCUMENTATION
25.32 The documentation has to be carried out as per extant instructions / guidelines issued by
Head Office C&IC Department/ Law Department/ as per terms of sanction.
25.33 All the above documents should be expressed in foreign currency and in the hypothecation/
pledge documents, it should be mentioned that the nature of facility is FCL. While demand
promissory note will have to be stamped as usual, as far as stamping of other security documents
are concerned, wherever ad valorem stamp duty is applicable, the Indian rupee equivalent of the
loan amount should be calculated for the purpose of stamp duty by converting the foreign currency
amount into Indian Rupees at the current rate of exchange.
25.34 A detailed sanction letter in duplicate, as per existing practice, informing the customer about
the terms and conditions of the sanction and burden of exchange risk as also crystallisation of loan
into Indian rupees in certain eventualities should be sent to borrower and copy of such letter with
the borrower's signature indicating his concurrence to these terms should be kept along with the
other security documents.
25.35 Since the security documents will be in foreign currency, the bank's charge with the Registrar
of the Companies for the assets of the borrower will also have to be registered in the same currency.
As regards registration of Bank charge on assets of the borrower with the Registrar of Assurances
is concerned, it should be done by following usual procedure and by calculating the registration fee
based on the stamp duty calculated as above.
25.36 In case the FCL has been granted in conversion of existing Rupee limits, the existing charges
registered with the Registrar of Companies need not be satisfied. Instead a modification of charge
in Form No. 8 should be filed with ROC. Moreover, in case of conversion of Rupee working capital
limits into foreign currency, branches should obtain a fresh demand promissory note in foreign

480
currency along with a deed of modification duly stamped as per Stamp Act of the State. In case of
consortium accounts a deed of modification duly stamped should be obtained.
25.37 In the event of crystallisation taking place leading to the outstanding being converted into
Indian rupees, the charge registered with ROC need not be modified.
INTEREST SETTING

25.38 The problem of interest setting arises, when FCLs are sanctioned on floating rate basis. The
bench mark for rate of interest on such advance is usually 3/6 months USD L1BOR. LIBOR is
acronym for London Inter Bank Offered Rate. The USD LIBOR is the rate of interest quoted for
Interbank US Dollar lendings by banks every day at 11.00 a.m. London time. The rates quoted by
the different banks may be same or there may be slight variation amongst them.
In order to have a uniform procedure for reckoning LIBOR for FCLs sanctioned on floating
rate basis and charging of interest thereof, the following points should be noted.:
(i) Treasury Branch announces the 6 months USD LIBOR on daily basis applicable, for
the value date e.g. LIBOR rate announced for transaction of value 9.7.2005 will be the
reference rate applicable for the first period of 6 months in respect of FCLS (on floating rate
basis) disbursed on 9.7.2005.
(ii) The period of each advance (i.e. drawdown) will be divided into successive period of
6 months each and the first interest will start on disbursement date. The interest will be
accordingly refixed every 6 months on the date corresponding to the date of disbursement
e.g. if the FCL was disbursed on 9.7.2005, the interest refixation will take place for value
9.1.2006. If the date of refixation (9.1.2006 in this example) falls on Saturday or Sunday or
on any day on which LIBOR is not quoted in London due to any reason (holiday etc.), the
refixation will be done on the next succeeding date for which the LIBOR is quoted. If the
date of refixation falls on non-existent date (e.g. 31.2.2006) the refixation will be done on
first business day on the succeeding 'date for which the LIBOR is quoted.
(iii) Every FCL sanctioned on floating rate basis will bear interest at the stipulated spread
over 6 months USD LIBOR plus interest tax (if and as applicable) from the date of advance
to the date of repayment thereof. Interest will accrue and be payable at the end of every
month. The reference rate (LIBOR) for this purpose will be 6 months USD LIBOR applicable
for
(a) each drawdown of the advance
(b) each refixation period of 6 months if any.

As each drawdown of, the FCL is required to be treated separately for the purpose of next
refixation on the dates of drawdown/refixation, the designated branch should maintain a
register to record details of for each disbursement (in case, advance is disbursed in more
than one installment) to facilitate calculation of interest. .

Accounting Procedure
25.39 Detailed accounting procedure relating to, granting of FCLs is given in Annexure II

481
HEDGING OF EXCHANGE RISK :
25.40
a) Since loans against FCNR-B funds are denominated in a foreign currency (USD), the
borrowers are exposed to exchange risk. The exposure of the borrowers to an exchange risk
automatically increases the risk of the Bank in that asset. This is all the more so when markets are
volatile and the Indian rupee happens to depreciate.
b) It is, therefore, extremely important that our borrowers are properly hedged against
exchange fluctuations so as to protect their interest as well as those of the Bank. Protection against
exchange fluctuation may be accomplished either by the borrower having a natural hedge or by the
borrower taking a market hedge.
c) A borrower is considered to be having a natural hedge when it has receivables in the same
foreign currency as its borrowing e.g. borrower who has taken an FCL in USD having adequate
exports in USD. In case the borrower does not have a natural hedge it would be necessary for them
to take a market hedge in the form of booking of forward sale contract. Branches should, therefore,
educate the borrower so that they do not remain exposed to such risks.

25.41 The requirement of hedging Foreign Currency Loan exposure by borrower is not compulsory
if :
i. the uncovered foreign inflows of borrowers is more than Foreign Currency Liability;

ii. the FC Loan is for meeting Foreign Currency expenditure.

REVALUATION
25.42 Branches are following revised procedure for revaluation as under:

i) Discontinue usage of Notional rates which were being used here to before and
instead, transactions to be recorded at weekly average rates published by FEDAI on all related
transactions for respective week. (w.e.f. March 23, 2012)

ii) To revalue all the foreign currency assets and liabilities on weekly basis/ Balance sheet
dates at the rates announced by FEDAI. The process of revaluation will be run by the Data
Centre and the difference will be parked in the Control Account "FC Portfolio Revaluation
Control account (AS 11) being opened with BKC Branch by HO Finance Department. Similar
exercise will also be done for Treasury Branch parking their revaluation in the same control
account. Final difference in the control account will be absorbed in P & L account.

iii) The weekly average rates shall be uploaded by our Treasury branch under advise to Data
Centre w.e.f. March 23, 2012.

Most of these processes are automated at our Data Centre and is based on the FEDAI
rates entered by our Treasury branch; branches should ensure that 'their
transactions are reflected properly at the time of entering the transaction in FINAcLE and
also at the stage of authorising the same in FINACLE.

482
25.43 Important points which the Branches have to follow while considering FCLs
against RWCL I RTL:

i) The FCL product is introduced to save borrowing cost by the borrower. The
attractiveness in availing FCLs I conversion of RWCL I RTL etc. depends upon the
differential rate of domestic currency and foreign currency as well as forward premium.

ii) The FCLs are considered for existing export earnings and other customers with
'AAA' or 'AA' rating.

iii) The amount of FCLs should necessarily be utilized for productive purposes.

iv) The FCLs can be given in USD I GBP I EURO and JPY after obtaining approval from
the competent authority and confirming the availability of funds from the Treasury
Branch. The pricing is decided by our Treasury Branch considering the spread, cost of
funds and swap cost, if any.

v) The minimum quantum of FCL is USD 100,000 or equivalent in other currencies.

vi) The rate of interest is determined with reference to 316 months LIBOR and it is
floating.

vii) The borrower has to take forward cover unless specifically exempted by
competent authority.

viii) The validity of sanction of FCL against RWCL I RTL is for 316 months only and it
is to be rolled over from time to time on the basis of the outstanding in RWCL I RTL
liability with fresh terms of sanction, resetting of interest, forward cover, depending
upon the availability of funds, which is to be confirmed from Treasury Branch invariably.

ix) The FCLs have to be accounted for at notional rates and they are to be revalued
every Friday as well as last day of every quarter ending June , Sept. I Dec. I March at
exchange rate announced by FEDAI.

483
ANNEXURE-I
(Refer Paragraph)
LIST OF DESIGNATED BRANCHES FOR DISBURSEMENT OF FCL

Name of the Zone Name of Branch

Telangana Hyderabad,Kharaitabad
Visakhapatnam Visakhapatnam
Patna Patna
Jamshedpur Jamshedpur
Kolkata Kolkata Overseas, Kolkata LCB
Ahmedabad Ahmedabad, Ahmedabad LCB
Indore Indore
Mumbai South Mumbai Overseas Mahalaxmi,
Mumbai LCB Mumbai LCB
Mumbai North Andheri West, Malad West
Andheri LCB Andheri LCB
Goa Vasco-da-Gama
Nagpur Nagpur
New Delhi New Delhi Overseas, Janpath
New Delhi LCB New Delhi LCB
Chandigarh Chandigarh
Ludhiana Ludhiana Overseas, Jalandhar
Pune Pune
Chennai Chennai Overseas
Chennai LCB Chennai LCB
Karnataka Bengaluru LCB
Kerala Ernakulam, M.G.Road
Kanpur Kanpur
Vadodara Vadodara Main, Surat Main
Coimbatore Coimbatore
Varanasi Badhohi
Rajkot Rajkot Main
Ghaziabad Ghaziabad Main
Lucknow Lucknow

484
 i) Chapter No.25 – Annexure – I – page no _____. All the LCBs and MCBs are also
designated for disbursement of FCL as per approval of GM (I) vide Memo
No.INTL(FBD)/TSN/13-14/52 dated 17.10.2013.

Updated on 26/10/2013 vide Ref. No. INTL(FBD)/TSN/13-14/01631

ANNEXURE- II
(Refer Paragraph No 25.39)
Accounting Procedure to be followed by designated branches relating to foreign
currency loans (FCLs) granted out of FCNR-B Funds

PART-A FCL granted for meeting rupee needs of the constituents

1) Disbursement of FCL (say USD. 100-)

Branch to obtain Control No from Treasury Branch

(I)Branch will disburse FCL through LADISB Menu
(i) Dr FGN Curr Loan A/c Customer: USD 100 @notional rate
(ii)Cr 01500FLCUSD control account with MSOB: USD 100@ notional rate

Simultaneously advise MSOB with copy to Treasury Branch by email about disbursement
giving full details of the transaction

FCL A/C SHOULD INDICATE OUTSTANDING IN FOREIGN CURRENCY AND INDIAN

RUPEE EQUIVALENT CONVERTED AT NOTIONAL RATE.
(II) Credit to Customers account
Execute IRM with Ref No of FCL Disbursement ID using free code 3
(i) Dr SOLID HOAC001 (TTB Rate): USD 100(DN will be raised over Mumbai treasury Branch)
(ii) Cr Customer INR account: USD 100@ TTB Rate

(III) Payment of FCL to supplier

Branch to obtain matching TTB and TTS rate
Execute IRM with Ref No of FCL Disbursement ID using free code 3
(i) Dr SOLID HOAC001 (TTB Rate): USD 100(DN will be raised over Mumbai treasury
Branch)
(ii) Cr Customer INR account: USD 100@ TTB Rate

Execute ORM
(i) Dr Customers INR account :USD 100@ matching TTS rate (CN will be raised over Mumbai
treasury Branch)
(ii) Cr SOLID HOAC001: USD 100 @ TTs rate
Send MT 103/202/110 for payment to supplier

NOTE :

485
 Though FCL account is maintained in Indian Rupees converted at notional rate designated
branch should reckon the outstanding with reference to the rupee equivalent at rate foreign
currency was converted for other purposes such as availability/adequacy of security vis-a-vis
the outstanding, etc.

FCL granted for working capital requirements and capital expenditure should be clearly
distinguished by debiting FCL - WC or CE as mentioned in I (i) above.

The Rupee equivalent of FCL should be credited to the designated account of the customer
as per the mode of disbursement permitted by the Bank. In case FCL is granted for capital
expenditure, the disbursement will be made directly to the supplier unless otherwise
permitted in the sanction.

II A) Application and Recovery of Interest on FCL (say USD. 2)

Application of interest
(i) Dr FCN URR Loan A/c :USD 2
(ii) Cr P& L Int. on FCL: USD 2
(Booking of interest accrued on FCL to P & L Account at notional rates
Recovery of Interest from Customers Operative account
(II) (a) Execute ORM @ TTS
(i) Dr Customer INR A/c @ TTS : USD 2
(ii) Cr SOLID HOAC001@ TTS: USD 2 (CN will be raised over Mumbai treasury Branch)

(b) Execute IRM

(i) Dr 01500FLCUSD control account with MSOB: USD 2 (@ Notional rate)
(ii) Cr FGN CURR Loan: USD 2 (@ Notional rate)
Branch to advise Treasury Branch with copy to MSOB by email about recovery of interest
Note Both II (a) and II (b) are complementary to each other and as such both entries should
be executed simultaneously

**In case, the customer has booked a forward contract for interest liability, interest will be recovered
at the contracted rate. In the event of utilisation of forward contract resulting in early delivery, early
delivery charges should be recovered.

II B) Recovery of interest out of EEFC Funds held by the borrower

In case the borrower desires to make payment of interest out of EEFC funds held by him with the
bank, the following procedure should be adopted :-
Execute ORM
Dr: Customers EEFC A/c USD 2 @ notional rate
Cr : 01500EEFC USD A/c USD 2@notional rate

(b) Execute IRM

(i) Dr 01500FLCUSD control account with MSOB: USD 2 (@ Notional rate)
(ii) Cr FGN CURR Loan: USD 2 (@ Notional rate)
Branch to advise Treasury Branch with copy to MSOB by email about recovery of interest
from EEFC
Note Both II (a) and II (b) are complementary to each other and as such both entries should
be executed simultaneously

486
III) Repayment of FCL (say USD. 100)
I) Repayment from customers account

Execute ORM
(i) Dr Customer INR A/c @ TTS : USD 100
(ii) Cr SOLID HOAC001@ TTS: USD 100 (CN will be raised over Mumbai treasury Branch)

Execute IRM
i) Dr 01500FLCUSD control account with MSOB: USD 100 (@ Notional rate)
(ii)Cr FGN CURR Loan: USD 100 (@ Notional rate)
In case, the customer has booked a forward contract for FCL liability, FCL will be recovered
at the contracted rate. In the event of utilisation of forward contract resulting in early delivery, early
delivery charges should be recovered.
The modalities prescribed above for recovery of interest out of EEFC deposits should be
followed in case the borrower repays FCL out of EEFC Deposits.

PART- B FCL granted for meeting foreign exchange needs

i) FCL for meeting foreign exchange needs of the constituents could be either for import of raw
material (working capital) or for import of capital goods i.e. for retirement of import bills on D/P
basis on presentation and DA bills on due dates. Needless to state that imports will be governed by
Import Policy and Exchange Control Regulations in force.
ii) Whenever FCL is sanctioned to the borrowers for meeting foreign exchange needs by
concluding rates of interest and repayment schedule, MOSB should be advised by email the
particulars of FCL i.e. name of borrower, amount of FCL, repayment terms, tenor of the import bill,
expected date of shipment and date of opening the L/C (if already established) in order to enable
MOSB to earmark the FC funds for granting FCL. In case L/C is established subsequently, the
particulars of the L/C should be intimated to MOSB immediately.

ACCOUNTING ENTRIES
DISBURSEMENT OF FCL (SAY USD 100)

Branch to obtain Control No from Treasury Branch

(I)Branch will disburse FCL through LADISB Menu
(i) Dr FGN Curr Loan A/c Customer: USD 100 @notional rate
(ii)Cr 01500FLCUSD control account with MSOB: USD 100@ notional rate

Simultaneously advise MSOB with copy to Treasury Branch by email about disbursement
giving full details of the transaction

(III) Payment of FCL to supplier

Branch to obtain matching TTB and TTS rate
Execute IRM with Ref No of FCL Disbursement ID using free code 3
(i) Dr SOLID HOAC001 (TTB Rate): USD 100(DN will be raised over Mumbai treasury
Branch)
(ii) Cr Customer INR account: USD 100@ TTB Rate

Execute ORM
487
 (i) Dr Customers INR account: USD 100@ matching TTS rate (CN will be raised over Mumbai
treasury Branch)
(ii) Cr SOLID HOAC001: USD 100 @ TTs rate
Send MT 103/202/110 for payment to supplier

NOTE – II :
APPLICATION AND RECOVERY OF INTEREST ON FCL/ REPAYMENT OF FCL :
The entries given under Part-A and B should be passed.
Please note that branches should follow the existing guidelines for obtaining rates and reporting
purchase/ sale of foreign currency.
Branches should take in to account the clarification issued vide HO FBD Circualr letter
No. 2010-11/6 dtd. 10-04-2010, as under:

488
489
490
 CHAPTER 26

DERIVATIVES

(Branches should follow the updated guidelines available in RBI Master Directions on
Risk Management and Inter Bank Dealings. This chapter should be read in conjunction
with Chapter no. 14-Forward Exchange Contracts, which deals exclusively with forward
contracts, common derivative product in India.))

Definition of a Derivative

A derivative is a financial instrument:

(a) whose value changes in response to the change in a specified interest rate, security
price, commodity price, foreign exchange rate, index of prices or rates, a credit rating or
credit index, or similar variable (sometimes called the underlying‘).
(b) That requires no initial net investment or little initial net investment relative to other
types of contracts that have a similar response to changes in market conditions, and
(c) That is settled at a future date.

26.1 In India, different derivatives instruments are permitted and regulated by various regulators,
like Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI) and Forward
Markets Commission (FMC). Broadly, RBI is empowered to regulate the interest rate derivatives,
foreign currency derivatives and credit derivatives. For regulatory purposes, derivatives have been
defined in the Reserve Bank of India Act, as follows:

‘derivative’ means an instrument, to be settled at a future date, whose value is derived from change
in interest rate, foreign exchange rate, credit rating or credit index, price of securities (also called
‘underlying’), or a combination of more than one of them and includes interest rate swaps, forward
rate agreements, foreign currency swaps, foreign currency-rupee swaps, foreign currency options,
foreign currency-rupee options or such other instruments as may be specified by the Bank from
time to time.

26.2 Objective of Derivative Business -

Reserve Bank of India has permitted use of Derivatives for Balance Sheet Management of Banks
and Corporates and for market making. Most of the derivative products in the OTC segment available
in the International Market are also available in the Indian market. Many of the variants of the
Derivative products are now being traded in the market. Banks offer these products to the
Corporates and other banks to increase their non-interest income. The derivative business may be
oriented to achieve the objectives of Balance Sheet Risk Management, Maximization of profit
through trading and offer as additional product line to the Bank‘s customers. (Various risks
associated with Derivatives are explained in Annexture-1
The uses of derivative products are further elaborated as under:-

Balance Sheet Risk Management to hedge interest rate/currency risk identified with Bank‘s
domestic portfolio including foreign currency and also to hedge the balance sheet exposures as
recommended by ALCO.

491
 to undertake suitable interest rate derivative product to hedge term Credit exposure to
customers, if stipulated by sanctioning authority

to hedge interest rate/currency risk attendant to specific exposure in investment.

Maximization of Profit

to function as an additional profit centre, within Treasury.

to initiate trading positions in Derivative instruments, where open position is permitted, with
profit motive.

Additional Product Line

Offer various Derivative products to the Corporates as additional product line, and cover
them (back to back) in the market at a spread.

Provide risk management solutions to customers to hedge their currency and

interest rate risk and suggest suitable structures.

Set up derivative limits for potential customers currently undertaking derivative transactions
with other banks.

Offer Derivative products to other smaller banks for their balance sheet management and
Corporates banking with them to avoid direct credit exposure on non-clients.

26.3DERIVATIVES MARKETS

There are two distinct groups of derivative contracts:

Over-the-counter (OTC) derivatives: Contracts that are traded directly between two
eligible parties, with or without the use of an intermediary and without going through
an exchange.

Exchange-traded derivatives: Derivative products that are traded on an exchange.

26.4PARTICIPANTS
a. User: A user participates in the derivatives market to manage an underlying
risk.
b. Market-maker: A market-maker provides bid and offer prices to users and
other market-makers. A market-maker need not have an underlying risk.

26.5 PURPOSE
Users can undertake derivative transactions to hedge - specifically reduce or extinguish an existing
identified risk on an ongoing basis during the life of the derivative transaction - or for transformation
of risk exposure, as specifically permitted by RBI. Users can also undertake hedging of a
homogeneous group of assets & liabilities, provided the assets & liabilities are individually permitted
to be hedged.
492
 Users are business entities with identified underlying risk exposures.
Market-makers can undertake derivative transactions to act as counterparties in derivative
transactions with users and also amongst themselves.
A market making entity, if he is undertaking a derivative transaction to manage an underlying risk,
would be acting in the role of a user. All Commercial Banks (excluding LABs & RRBs) & Primary
Dealers (PDs) are eligible to become market makers.

26.6 BROAD PRINCIPLES FOR UNDERTAKING DERIVATIVE TRANSACTIONS

The major requirements for undertaking any derivative transaction from the regulatory perspective
would include;
Market-makers may undertake a transaction in any derivative structured product (a
combination of permitted cash and generic derivative instruments) as long as it is a
combination of two or more of the generic instruments permitted by RBI and does not
contain any derivatives as underlying;

Market-makers should be in a position to arrive at the fair value of all derivative instruments,
including structured products on the basis of the following approach;

a) Marking the product to market, if a liquid market in the product exists.

b) In the case of structured products, marking the constituent generic instruments to
market.

c) If (a) & (b) are not feasible, marking the product to model provided;-all the model inputs are
observable market variables.-full particulars of the model, including the quantitative algorithm
should be documented. It may be ensured that structured products do not contain any derivative,
which is not allowed on a stand-alone basis.

- All permitted derivative transactions including rollover, restructuring and renovation

shall be contracted only at prevailing market rates.
- All risk arising from derivative exposures should be analyzed and documented, both
at transaction level and portfolio level.
- The management of derivatives activities should be an integral part of the overall
risk management policy and mechanism. It is desirable that the board of directors
and senior management understand the risk inherent in the derivatives activities
being undertaken.
Market-makers should have a 'Suitability & Appropriateness Policy‘ vis-à-vis users in respect
of the products offered, on the lines indicated in these guidelines.
Market-makers may, where they consider necessary, maintain cash margin/liquid collateral
in respect of derivative
transactions undertaken by users on mark-to-market basis.

26.7 Presently, RBI has not stipulated any minimum and/or maximum size of notional principal
amount for OTC derivative instrument. Similarly, they have not fixed any minimum and/or
maximum tenor. Normal marketable lot is Rs.25 Crores. The maximum tenor of the derivative
contract for trading will be ten years or as allowed by RBI from time to time.

493
For Exchange Traded Currency Derivatives (ETCD), like currency futures and
currency options, RBI has fixed the notional amounts as:
The size of the USD-INR and USD-JPY contracts shall be USD 1000, of EUR-INR and
EUR-USD contracts shall be EUR 1000, of GBP-INR and GBP-USD contracts shall be
GBP 1000 and JPY-INR contract shall be JPY 100,000.It may be ensured that
structured products do not contain any derivative, which is not allowed on a stand-
alone basis.

26.8 PERMISSIBLE DERIVATIVE INSTRUMENTS

At present, the following types of derivative instruments are permitted
Interest Rate Swap (IRS), Forward Rate Agreement (FRA),
Currency swaps/ Coupon Swaps
Interest rate futures/currency Futures
Foreign Currency Options
Interest rate cap or collar
Foreign Currency Forward
Considering the complexities involved in the products and for better control and risk
management, only Treasury Branch undertakes the derivative transactions. The
Branches act as marketing centres for these products.

Product Definitions

Forward Rate Agreement (FRA)

A Forward Rate Agreement is a financial contract between two parties to exchange interest
payments for a 'notional principal‘ amount on settlement date, for a specified period from start date
to maturity date. Accordingly, on the settlement date, cash payments based on contract (fixed)
and the settlement rate, are made by the parties to one another. The settlement rate is the agreed
bench-mark/reference rate prevailing on the settlement date.
Interest Rate Swap (IRS)
An Interest Rate Swap is a financial contract between two parties exchanging or swapping a stream
of interest payments for a ‗notional principal‘ amount on multiple occasions during a specified
period. Such contracts generally involve exchange of a ‘fixed to floating‘ or floating to floating‘ rates
of interest. Accordingly, on each payment date – that occurs during the swap period – cash
payments based on fixed/floating and floating rates, are made by the parties to one another.
Interest Rate Futures (IRF)
Interest Rate Future is a standardised, exchange traded contract with an actual or notional interest
bearing instruments(s) as the underlying asset.
Currency Swaps
A currency swap is an interest rate swap where the two legs to the swap are denominated in
different currencies. Additionally the parties may agree to exchange the two currencies normally at
the prevailing spot exchange rate with an agreement to reverse the exchange of currencies, at the
same spot exchange rate, at a fixed date in the future, generally at the maturity of the swap.

Interest Rate Caps and Floors

An interest rate cap is an interest rate option in which payments are made when the reference
rate exceeds the strike rate. Analogously, an interest rate floor is an interest rate option in
which payments are made when the reference rate falls below the strike rate.

494
Forward Contract

The oldest and least subtle instrument allowing companies to reduce un-certainty about future
income is the forward exchange contract. It is a binding contract to purchase or sell foreign currency
at an exchange rate determined on the date that the contract is made but with payment and delivery
at a specified future date.

Benefits
i) An institution can use the forward markets to hedge or lock –in the price of
commitment to purchase or sell a currency in the future.

ii) There is generally no initial margin or variation margin to be paid nor is there
an option premium

iii) Being non-standard OTC product, customers can buy forex forwards for any
amount.

Risks:

i) They do not enable the investor to derive any profit from favourable price
movements or to unwind the transaction once the contract has been made.

ii) By entering into forward contract, risk of exposure is created if the future
commitment under the contract cannot be met. It is an 'unforgiving' instrument.

iii) The movement in price in the currency between the date the contract was
made and delivery date, may be favourable in which case profit will be foregone
(opportunity loss)
Currency Futures

A currency future contract is a future contract to buy or sell a standardized amount of a foreign
currency. The underlying rates of exchange will be almost identical to forward rates. The key
difference between currency futures and forward market is that futures are traded through
organized exchanges or clearing houses. Trading in standardized currency contracts is conducted
by open auction on the floor of the exchange. Another difference is that in the forward market, a
profit or loss is realized on the maturity date while in the futures market, all profits and losses must
be settled on a daily basis-―market to the market‖ which requires that funds may change hands
each day. The funds are added to or subtracted from a mandatory margin amount that traders are
required to maintain. In contrast in the forward market, no money changes hands until delivery
occurs. Further, exchanges set limits on the extent to which their contract may advance or decline
in price during the course of single trading session. There is no such daily fluctuation limit in the
forward contract.

Advantages

i) Standardisation of quantity and specificity of instruments facilitate transferability of

future contracts which unlike forward contracts are readily negotiable within the forum of
the exchange.
ii) It provides a convenient hedging medium
iii) Price discovery is easy and transparent
495
Risks

26.9 i) As with forwards, the use of future contracts may create an exposure if the commitment
does not materialize.
ii) Any potential profit from favourable price movement before maturity will be forgone.

iii) Cash flow disadvantages on account of initial and variation margins

OPTIONS

26.10.One essential feature of a forward contract is that once one has locked into a rate in a forward
contract, he cannot benefit from the movement of the market in his favour.

Options are unique financial instruments in that they enable the option holder (or buyer of the
option) to maximise his profits at the same time limiting his losses. This is possible as options
confer upon the buyer the right (to buy or sell the underlying) without the obligation (to buy or sell)

An option contract is defined as an agreement between two parties in which one grants to the other
the right to buy (call option) or sell (put option) an asset (i.e underlying) under specified conditions
(price, time) and assumes the obligation to sell or buy it. The party who has the right, but not an
obligation, is the buyer of option and pays a fee or premium, to the writer or seller of the option.

In other words, a currency option buyer (also called a holder) may purchase from an option writer
(also called a grantor or seller) either a call option (the right to buy the currency) or put option (the
right to sell the currency) on the underlying exposure at the agreed strike price for a known
expiration cycle (definite life time of the option) with a known expiration date (termination date of
option) for an agreed cash payment (option premium paid by buyer)

Options are of two types - calls and puts. Calls give the buyer the right but not the obligation to
buy a given quantity of the underlying asset, at a given price on or before a given future date. Puts
give the buyer the right, but not the obligation to sell a given quantity of the underlying asset at a
given price on or before a given date.

At present our Bank does not deal in options either in the proprietory book or in merchant book. As
per RBI guidelines on ‘Risk management and Interbank Dealings’ -
AD Category I banks desirous of running a foreign currency-INR options book need to fulfill
the minimum eligibility criteria listed below,
i. Net worth not less than Rs 300 crore
ii. CRAR of 10 per cent
iii. Net NPAs not exceeding 3 per cent of the net advances
iv. Continuous profitability for at least three years

496
OPTION TERMINOLOGY

Buyer: The purchaser of an option, also referred to as the option holder.

Seller: One who sells an option, also referred to as the writer or grantor of the option.

Call: An option, which gives the option buyer the right to purchase (go long) a particular currency
at a specific rate. If the buyer exercises the call option, he will acquire a long currency position and
someone who has sold an option will be assigned a short currency position at the same time.

Put: An option which gives the option buyer the right to sell (go short) a currency and someone
who has sold an option will be assigned a long currency position at the same time.

Underlying: The currency, which the option buyer has the right to purchase (in the case of a call)
or sell (in the case of a put).

Strike Price: The rate at which the buyer of a call has the right to purchase a currency and at which
the buyer of a put has the right to sell a currency, also referred to as the exercise price. The strike
price is determined at the time the option is purchased by the client.

Premium: The "price" of the option, the money the option buyer pays and the option seller receives
for the rights conveyed by the option. The premium represents the amount the option buyer can
lose.

Exercise: The action taken by the buyer (holder) of an option who wishes to acquire a position in
the underlying currency at the option strike price.

Expiration Date: The last day on which an option can be exercised. Options expire on a specific date
that is determined by the customer at the time the option is transacted with the bank.

Intrinsic Value: The amount of money, if any, that could currently be realised by exercising an option
with a given strike price. A call option has a intrinsic value if its strike price is below the spot
exchange rate. A put option has an intrinsic value if its strike price is above the spot exchange rate.

In-The-Money: This term is applied to an option that has intrinsic value.

Out-Of-The-Money: A call option is said to be "out-of-the-money" if the underlying spot exchange

rate is currently less than the strike price of the option. A put option is said to be "out-of-the-money"
if the underlying spot exchange rate is currently more than the strike price of the option. An option
that is "out-of-the-money" at expiry will have no value, and the holder of the option will allow it to
expire worthless.

At-The-Money: Means that the strike price and the spot exchange rate are the same. Like the "out-
of-the-money" option, the holder would allow the option to expire.

Knock Options - There are two kinds of knock-in options, i) up and in, and ii) down and in. With
knock-in options, the buyer starts out without a vanilla option. If the buyer has selected an upper
price barrier, and the currency hits that level, it creates a vanilla option with maturity date and strike
price agreed upon at the outset. This would be called an up and in. The down and in option is the
same as the up and in, except the currency has to reach a lower barrier. Upon hitting the chosen
497
lower price level, it creates a vanilla option. Knock-ins/outs usually call for delivery of the underlying
asset, unlike digitals, which are settled in cash.

Knockout Options - These options are the reverse of knock-ins. With knock-outs, the buyer begins
with a vanilla option, however, if the predetermined price barrier is hit, the vanilla option is cancelled
and the seller has no further obligation. As in the knock-in option, there are two kinds, i) up and
out, and ii) down and out. If the option hits the upper barrier, the option is cancelled and you lose
your premium paid, thus, "up and out". If the option hits the lower price barrier, the option is
cancelled, thus, "down and out".

Banks, financial institutions as a tool to manage their foreign currency assets and liabilities, can use
currency Options.

AMERICAN & EUROPEAN OPTIONS

There are basically two kinds of options that exist. One is the American Option and the other is
European Option. An American option can be exercised at any time up to the expiry date. On the
other hand, a European option can be exercised only on the date of expiry. Options available on
stocks are American while on Index are European in nature.

DIFFERENCE BETWEEN FUTURES & OPTIONS

OPTIONS FUTURES
Contract Buyer has the right Binding on both parties
but the obligation to
exercise
Cost of entry Cost of the No cost
option (premium)
Pay Off Nonlinear Linear
Strike price Fixed Varies
Premium Premium represents It depends upon
the fee charged by interest rate
the seller of option differentials.
from the buyer
Margin deposit Does not exist Exists
Counter party No No
Risk

Exporter:

498
An exporter having receivables of $ 1 Mn after 6 months can do the following –

Do nothing – Profit or loss unlimited

Book Fwd Contract - Cost is crystallized

Buy Put Option – Loss limited to the premium paid & profit
unlimited
USD/INR Spot – 54.84
6 Month Fwd - 0.26
Fwd Rate - 55.10

Customer buys a Put Option at Rs.55.10 strike and pays premium of 48p.

Scenario 1: Spot on Expiry Date is Rs.55.10 or less – Exporter exercises the option at Rs.55.10.
Loss to the Exporter is limited to the premium paid for buying the option.

Scenario 2: Spot on Expiry Date is Rs.55.70 – Exporter allows the option to expire and sells spot.
After adjusting premium of 48p he gets an effective rate of Rs.55.22 (55.70-0.48), which is
better than the forward rate of Rs.55.10

Importer:
USD/INR Spot – 54.85

6 Month Fwd - 0.27

Fwd Rate - 55.12

Customer buys a Call Option at Rs.55.12 strike and pays premium of 50p.

Scenario 1: Spot on Expiry Date is Rs.55.12 or more – Importer exercises the option and buys
dollar at Rs.55.12. Loss to the importer is limited to the premium paid.

Scenario 2: Spot on Expiry Date is Rs.54.20 – Importer allows the option to expire and buys from
the market at spot. After adjusting premium of 50p he effectively buys dollar at Rs.54.70
(54.20+0.50), which is lower than the forward rate of Rs.55.12

499
 Annexure-1
Types of derivatives risks

1. Credit Risk

Credit Risk is the risk of loss due to counterparty‘s failure to perform on an obligation to
the institution. Credit Risk in derivative products comes in two forms.
Pre settlement risk is the risk of loss due to a counterparty defaulting on a contract
during the file of a transaction. The level of exposure varies throughout the life of the
contract and the extent of losses will only be known at the time of default.
Settlement risk is the risk of loss due to the counterparty‘s failure to perform on its
obligation after an institution has performed on its obligation under a contract on the
settlement date. Settlement risk frequently arises in international transactions because of
time zone differences. This risk is only present in transactions that do not involve delivery
versus payment and generally exists for a very short time (less than 24 hours).

2. Market Risk

Market risk is the risk of loss due to adverse changes in the market value (the price) of an
instrument or portfolio of instruments. Such exposure occurs with respect to derivative
instruments when changes occur in market factors such as underlying interest rates,
exchange rates, equity prices and commodity prices or in the volatility of these factors.

3. Liquidity Risk

Liquidity risk is the risk of loss due to failure of an institution to meet its funding
requirements or to execute a transaction at a reasonable price. Institutions involved in
derivatives activity face two types of liquidity risk: market liquidity risk and funding liquidity
risk.
Market liquidity risk is the risk that an institution may not be able to exit or offset
positions quickly, and in sufficient quantities, at a reasonable price. This inability may be
due to inadequate market depth in certain products (e.g. exotic derivatives, long dated
options), market disruption, or inability of the bank to access the market (eg. Credit down-
grading of the institution or of a major counterparty).
Funding liquidity risk is the potential inability of the institution to meet funding
requirements, because of cash flow mismatches, at a reasonable cost. Such funding
requirements may arise from cash flow mismatches in swap books, exercise of options,
and the implementation of dynamic hedging strategies.

4. Operational risk

Operational risk is the risk of loss occurring as a result of inadequate systems and control,
deficiencies in information systems, human error, or management failure. Derivatives
activities can pose challenging operational risk issues because of the complexity of certain
products and their continual evolution.

5. Legal Risk

Legal risk is the risk of loss arising from contracts which are not legally enforceable (e.g.
the counterparty does not have the power or authority to enter into a particular type of
derivatives transaction) or documented correctly.
500
 6. Regulatory Risk

Regulatory risk is the risk of loss arising from failure to comply with regulatory or legal
requirements.

7. Reputation Risk

Reputation risk is the risk of loss arising from adverse public opinion and damage to
reputation.

For detailed guidelines/ operating instructions relating to Derivatives and

Risk Management, Bank‘s policy relating to booking of Forward Contract by
the borrowers to hedge the exchange risk, revaluation of FC liability at
periodical intervals, credit discipline, monitoring, documentation, etc., the
designated branches are advised to be guided by instructions/ guidelines
issued by International Div.Foreign Business Department, H.O. as well as RBI
guidelines vide A.P.(DIR) Circulars and Master Circulars and FEMA
Notifications issued periodically.

501
 Chapter 27
RESIDENT FOREIGN CURRENCY (DOMESTIC) ACCOUNTS
[RFC (DOMESTIC) ACCOUNTS]

27.1. Facility for Resident Indians :

As a step towards further liberalization, Reserve Bank of India have decided to allow persons
resident in India to open, hold and maintain with an Authorised Dealer in India, a Foreign Currency
Account to be known as ―RESIDENT FOREIGN CURRENCY (DOMESTIC) ACCOUNTS{(RFC) –
DOMESTIC ACCOUNTS}.

27.2 Eligibility for opening the Accounts:

A person resident in India is allowed to open, hold and maintain Resident Foreign Currency
(Domestic) Account.

27.3. Nature of Account:

RFC (D) Account will be maintained in the form of a Non-interest bearing Current Account.

27.4. Currency of Account:

RFC (D) Account will be opened in US$ Currency, for the present.

27.5. Credits:
Foreign exchange in the form of currency notes, bank notes and travellers cheques from the sources
specified hereunder:

a) While on a visit to any place outside India by way of payment for services not arising
from any business in or anything done in India, or
b) From any person not resident in India and who is on a visit to India, as honorarium
or gift or for services rendered or in settlement of any lawful obligation, or
c) By way of honorarium or gift while on a visit to any place outside India, or
d) Represents the unspent amount of foreign exchange acquired by him from an
authorised person for travel abroad.
e) gifts received from close relatives (as defined in sec-6 of the Companies Act1956)
Foreign exchange earnings could be through export of goods and/ or services, royalty,
honorarium, etc.
f) The sale proceeds, received by residents, i.e. receipt of disinvestments proceeds
under sponsored ADRs/ GDRs Scheme approved by FIPB are permitted to be credited to
their Resident Foreign Currency (Domestic) (RFC (D) accounts
g) The balances in the RFC (D) Accounts may be allowed to be credited to NRE/ FCNR-
B Account, at the option/ request of the account holders consequent upon change of their
residential status from resident to non-resident.
502
27.6. Debits:
Debits to the account shall be for payments towards a current account transaction in accordance
with the provisions of the Foreign Exchange management (current Account Transactions) Rules
2000 and towards a capital account transaction permissible under the Foreign Exchange
Management (permissible Capital Account Transactions) Regulation 2000.

27.7 Minimum and Maximum Balance:

Minimum balance of USD 1000 to be maintained in the Account. In case balance falls short of the
minimum balance of USD 1000, charges of USD 10 per half year will be deducted from the account
There will be no upper cap on funds that can be held in such accounts.
27.8 Designated Branches:
Branches presently authorised to open and maintain Resident Foreign Currency (RFC) Accounts are
designated to open the proposed Resident Foreign Currency (Domestic) Accounts also. List of
designated branches is enclosed (Annexure-1).
27.9 Safeguards for opening and maintaining of RFC (Domestic) Accounts
While opening the captioned accounts, Designated Branches should follow the laid-down procedure
including “Know Your Customer” and other guidelines as applicable for any other domestic account.
27.10 Accounting Procedure:
Accounting procedure for Resident Foreign Currency (Domestic) Accounts will be the same as
applicable in case of existing Resident Foreign Currency Account. Transactions relating to RFC
(Domestic) Account will also be routed through Nostro Account No. 121121503325000 in the name
of Treasury Branch
Branches are advised that Thomas Cook have agreed to accept currency notes received for credit
to RFC (Domestic) accounts from the branches. Thomas Cook will provide cover to Mumbai
overseas branch Nostro Account immediately after receipt of currency from the designated
branches. Charges for providing the above services are agreed upon at 0.5% of amount of currency
tendered. Such charges are payable in Rupees. Branches are therefore advised to note the
following:
i) Charges for TT by Thomas Cook for providing cover in Nostro Account, (against currency
offloaded to them) should be absorbed by the designated branches to their P&L miscellaneous
account.
ii) Depositor‘s account should be credited on the date of receipt of intimation for cover credited
to Nostro Account.
iii) In case of deposit of Thomas Cook‘s, the same should be sent by Authorised Dealer branches
by courier to New York branch for credit of Mumbai Overseas Branch above Nostro Account with
Cayman Islands. In such cases credit in the account should be given after receipt of intimation of
credit to Nostro Account.

503
 Annexure - I

List of Designated Branches for RFC (Domestic) Accounts

Name of the Name of the Branch

Zone
Hyderabad Hyderabad, Hyderabad Overseas.
Vishakhapatnam Visakhapatnam
Karnataka Bangalore Main
Patna Zone Patna
Ranchi Ranchi
Kolkata Kolkata Overseas.
Ahmedabad Ahmedabad (Main), Ahmedabad NRI
Vadodara Vadodara Main, Surat Main
Gandhinagar Bhuj NRI
Rajkot Rajkot Main
Indore Indore
Jabalpur Jabalpur
Goa Margao, Vasco, Panaji
Mumbai South Mumbai Overseas, Mumbai NRI, Mahalaxmi
Mumbai North Andheri (W), Ghatkopar (W), R.N. Marg, Sion,
Seepz
Pune Pune Main
Nagpur Nagpur Main
Kolhapur Kolhapur
New Delhi New Delhi Overseas., new Delhi NRI
Rajasthan Jaipur
Chandigarh Chandigarh Main
Ludhiana Amritsar main, Ludhiana Main, Jalandhar Overseas,
Phagwara
Bhubaneshwar Bhubaneshwar Main
Kerala Ernakulam NRI, Trivandrum, Trichur
Chennai Chennai Overseas
Lucknow Lucknow Main

504
 Chapter28

FOREIGN CURRENCY LOANS IN INDIA TO HOLDERS OF FCNR-B DEPOSITS

28.1 Reserve Bank of India has permitted Authorised Dealers to grant designated branches as
approved by Head Office (please see Annexure-I) Foreign Currency loans in India against the
security of funds held in FCNR-B deposit accounts to the account holders only subect to following
guidelines:

a. Loans should be against own FCNR (B) deposits and not against the deposits of third
parties.

b. Loans should be granted only to the deposit holder and not to any third party/ies.
The documents should be executed by the deposit holders themselves and not by their
Power of Attorney holders.

c. The maturity of the loan shall not exceed the maturity of the deposit under any
circumstances.

d. Loans shall be sanctioned to the account holders for purposes other than investments
in India.

e. Advance shall be fully secured by the deposit and regulations, if any, relating to
margin shall be complied with.

f. Repayment is to be effected by fresh remittances in foreign exchange or by

adjustment of the deposit.

g. The bank should put in place adequate monitoring system for the purpose.

28.2 Accordingly, it has been decided by our Bank to grant Foreign Currency Loans (FCLs)
in India to Account holders against security of funds held in FCNR (B) deposit in their names.
Salient features of the scheme are given below:-

Type of borrowers:

28.3 Foreign Currency Loan against pledge of own FCNR (B) Deposit Receipt/s will be
given to Depositor only. No loan against deposits of third party will be granted.

Foreign Currency:

28.4 Presently, loan will be given in USD currency only. Depositors having deposit receipt
in GBP/ Euro/JPY/CAD/AUD currency will also be entitled for loan in USD. Quantum of Loan
against Term Deposit Receipts in GBP/ EURO/JPY.CAD/AUD will be arrived at by applying cross
currency rate on the date of request for loan.
505
Purpose:

28.5 Foreign Currency Loan will be granted for purposes as follows:-

(i)personal purposes or for carrying on business activities except for the purpose of relending
or carrying on agricultural/plantation activities or for investment in real estate business.. The
authorised dealer/bank should ensure that the advances are fully secured by the fixed deposits
and regulations relating to normal margin, interest rate, etc. are complied with.
(ii)the purpose of making direct investment in India on non-repatriation basis by way of
contribution to the capital of Indian firms/companies subject to compliance with the provisions
of the Foreign Exchange Management (Transfer of Indian security by a person resident outside
India) Regulations, 2000 and Foreign Exchange Management (Investment in proprietary or a
partnership firm) Regulations, 2000.
(iii) the purpose of acquisition of flat/house in India for his own residential use subject to the
provisions of the relevant Regulations made under the Act.
An undertaking to be obtained from the Depositor (Borrower) stating the purpose of the loan
and using the funds for the purpose the loan is taken.
Margin:

28.6 Minimum 15% of face value of deposit receipt. However, delegates of the rank of
Senior Management Scale IV and above will have power to further reduce margin by 5% to
minimum of 10%.

Tenor:

28.7 The loan will be granted for a period not exceeding 3 years or maturity date of the
deposit, whichever is earlier and outstanding in loan account shall not exceed the maturity of
the deposit under any circumstances.

Quantum of Loan:

28.8 Up to 85% of the principal amount of Term Deposit Receipt (up to 90% of face value
of FCNR Receipt in case where margin is reduced to 10%). Minimum amount of loan will be
USD 1000/- and in multiple of USD 100/-. Maximum amount of loan will be equivalent to Rs
.1,00,00,000 or as advised by the RBI from time to time. As per delegation of power,
designated officers in scale I and above have been given full powers to sanction advances
against Bank‘s Term Deposit Receipt to the depositor..

28.9 Rate of Interest: As advised by the Head office from time to time.

Repayment:

28.10 Repayment of Loan will be effected by fresh remittances in Foreign Exchange or by

adjustment of the deposit. In case of adjustment of deposit in GBP/ Euro/ Yen equivalent USD
will be converted by applying related cross currency rate on the date of repayment (purchase/
sale of currencies should be reported to Position Maintaining Branch).

506
Designated Branches:

28.11 In order to have close monitoring of scheme and effective control, all branches
designated for disbursement of Foreign Currency Loans against FCNR (B) funds are designated
branches for disbursement of above loan. In addition, all NRI branches, viz. Ahmedabad NRI,
Mumbai NRI, New Delhi NRI, Anand NRI, Bhuj NRI and Ernakulam NRI are also designated for
the purpose. List of designated branches is given in Annexure-I.

Documentation:

28.12 In addition to pledge of Original Deposit Receipt (with marking of Bank‘s lien by the
FCNR issuing branch) and duly discharged by depositor/s, security documents applicable in
case of loan against pledge of Term Deposit Receipts will be obtained from borrower/s. Security
documents will be executed by the deposit holders themselves and not by their Power of
Attorney Holder.

Disbursement

28.13 RBI has clarified that the proceeds of foreign currency loans may be credited to
deposit holder‘s NRE account or disbursed in the form of a demand draft/outward remittance
in foreign currency in favour of the beneficiary.

Monitoring

28.14 All designated branches will send monthly report on Foreign Currency Loans
disbursed against FCNR (B) deposit as per Annexure-II to this Chapter to Head Office, Foreign
Business Department, through respective Zonal Office, before 10th of each month.

Accounting Procedure:

28.15 Accounting procedure for Foreign Currency Loans against pledge of own FCNR
Deposit receipts is given in Annexure-III to this Chapter.

Safeguards:

28.16 Branches are advised to strictly adhere to the RBI guidelines regarding safeguards
for granting of loans against non-resident deposits, conveyed from time to time as well as
conveyed by the Head office from time to time ( Pl also refer Para20.62-20.63 of chapter 20
on NRI deposits.

507
 Annexure I

List of Designated Branches for Disbursement of FCL to holders of FCNR B Deposit

Name of the
Zone Name of the Branch

Hyderabad Hyderabad

Vishakhapatnam Visakhapatnam

Patna Zone Patna

Jamshedpur Jamshedpur

Kolkata Kolkata Overseas, Kolkata. Large CorporateBr.

Ahmedabad Ahmedabad (Main), Ahmedabad NRI, Ahmedabad Corp. Bkg. Br.

Indore Indore

Mumbai South Mumbai Overseas, Mahalaxmi, Mumbai NRI

M.C.B.B. Mumbai. Large Corporate Branch

Goa Vasco-Da-Gama

Gandhi Nagar Bhuj NRI

Mumbai North Andheri (West)

Nagpur Nagpur

New Delhi Overseas, New Delhi Large Corporate ,Janapath

New Delhi Branch, New Delhi NRI

Chandigarh Chandigarh

Ludhiana Ludhiana

Pune Pune Main

508
Chennai Chennai Overseas, Chennai Large Corporate Br.

Bangalore Bangalore Corp. Bkg. Br.

Kerala Ernakulam NRI, M.G. road

Lucknow Lucknow

Vadodara Zone Coimbatore

Varanasi Zone Badhohi

509
 Annexure –II

Monthly Statement of Foreign Currency Loan

Disbursed Against FCNR (B) Deposit Receipt

-----------------------------------------------------------------

Sr.No FCNR Amt Maturity Name of Margin Amt. Of

No. Date Depositor Date of advance Outstanding
Advance disbursed at the end of
(USD) Month(USD)

510
 Annexure -III

Accounting procedure to be followed by designated branches Relating to foreign currency loans

against own FCNR Term Deposit Receipts

(As per the revised instructions w.e.f. 23-03-2012, Branches are using the rates
available in Finacle system for accounting/revaluation of Foreign currency assets
and liabilities. INR equivalent amount should be arrived at taking into account the
prevailing rates provided by Treasury Branch in the system. For detailed guidelines,
Branches should refer to Circular Letter No.2011-12/242 dated 08-03-2012)

-----------------------------------------------------------------------------------------------------------------

I) Revised Procedure

1) Disbursement of FCL (say USD 100)

Branch to obtain Control No from Treasury Branch
(I)Branch will disburse FCL through LADISB Menu
(i) Dr FGN Curr Loan A/c Customer: USD 100 @notional rate
(ii)Cr 01500FLCUSD control account with MSOB: USD 100@ notional rate

Simultaneously advise MSOB with copy to Treasury Branch by email about disbursement
giving full details of the transaction

(II) Credit to Customers account

Execute IRM with Ref No of FCL Disbursement ID using free code 3
(i) Dr SOLID HOAC001 (TTB Rate): USD 100(DN will be raised over Mumbai treasury
Branch)
(ii) Cr Customer INR account: USD 100@ TTB Rate

(III) For issuance of DD/: Branch to obtain matching TTB and TTS rate
(a)Execute IRM with TTB rate (Matching)
(i)) Dr SOLID HOAC001 (TTB Rate) :USD 100(DN will be raised over Mumbai treasury
Branch)
(ii) Cr Customer INR A/c: USD 100 (TTB Rate)

(b)Execute ORM
(i) Dr Customer INR A/c: USD 100(TTS matching)
(ii) Cr SOLID HOAC001: USD 100 (CN will be raised over Mumbai treasury Branch)
Send MT 110 for issuance of DD/MT 103 for remittance

Note: entries III (a) and III (b) as such are complimentary to each other and should be
executed simultaneously.
FCL A/c should indicate outstanding in foreign currency and Indian Rupee Equivalent
converted at notional rate

2) Application and Recovery of Interest on FCL (say USD 2)

(I)Application of interest
(i) Dr FCN URR Loan A/c :USD 2
511
(ii) Cr P& L Int. on FCL: USD 2

Recovery of Interest from Customers Operative account

(II) (a) Execute ORM @ TTS
(i) Dr Customer INR A/c @ TTS : USD 2
(ii) Cr SOLID HOAC001@ TTS: USD 2 (CN will be raised over Mumbai treasury Branch)

(b) Execute IRM

(i) Dr 01500FLCUSD control account with MSOB: USD 2 (@ Notional rate)
(ii) Cr FGN CURR Loan: USD 2 (@ Notional rate)
Branch to advise Treasury Branch with copy to MSOB by email about recovery of interest
Note Both II (a) and II (b) are complementary to each other and as such both entries
should be executed simultaneously

3) Repayment of FCL (say USD 100)

(I) Repayment from customers account

Execute ORM
(i) Dr Customer INR A/c @ TTS : USD 100
(ii) Cr SOLID HOAC001@ TTS: USD 100 (CN will be raised over Mumbai treasury Branch)

Execute IRM
i) Dr 01500FLCUSD control account with MSOB: USD 100 (@ Notional rate)
(ii)Cr FGN CURR Loan: USD 100 (@ Notional rate)

(II) Repayment of Loan by remittance from abroad (say USD 110 including
interestUSD 10)
Branch to obtain TTB and TTS matching rate from Treasury
Execute IRM
i) Dr. SOLID HOAC001 (TTB Matching Rate): USD 100(DN will be raised over Mumbai
treasury Branch)
(ii) Cr Customer INR A/c credit: USD 100 (TTB Matching Rate)

Execute ORM with TTS matching rate and IRM as (3) (I) above

(III) Repayment of Loan out of proceeds at the time of maturity (say USD
110 out of maturity proceeds of USD 200)
(i) Close FCNR (B) Deposit (CAAC & CACCAU)
Dr. FCNR Deposit a/c (USD0 – Customer A/c with branch
Cr. SOLIDSUNDEP021US – Term Deposit Control a/c with Br.

(ii)TM entry
Dr. SOLIDSUNDEP021US – TD control account
Cr. SOLIDSCRFCUSD – Sundry Credit Foreign Currency account

(iii)Execute ORM
Dr. SOLIDSCRFCUSD – TD control a/c with Br. USD 90
Cr. 01070FCNRUSD – Control a/c with MNRI USD 90
FCNR of USD 90 to be renewed /paid/repatriated as per FCNR accounting procedure

(iv)Execute ORM
Dr. SOLIDSCRFCUSD – TD control a/c with Br. USD 110
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Cr 01500FLCUSD control account with MSOB Cr. USD 110

(v)Execute IRM
Dr. 01500FLCUSD control account with MSOB Cr. USD 110
Cr. FGN CURR Loan: USD 110

Branch to send email to MSOB, with copy of NRI Branch for repayment of FCL and
closure of FCNR

(IV) Repayment of Loan out of proceeds of FCNR Deposit Receipts in

currencies other than USD (say USD 110 out of GBP 200)
(i)Close FCNR (B) Deposit (CAAC & CACCAU)

Dr. FCNR Deposit a/c (GBP)(Currency) Customer A/c with branch

Cr. SOLIDSUNDEP021GB (Currency) – Term Deposit Control a/c with Br.

(ii)TM entry
Dr. SOLIDSUNDEP021GB (currency) – TD control account: GBP 200
Cr. SOLIDSCRFCGBP (currency) – Sundry Credit Foreign Currency account: GBP 200

Say Cross Rate of 1 GBP =USD 1.25 Then USD 110 =GBP 88

For GBP 112 follow FCNR accounting procedure for renewal/repatriation /conversion

For GBP 88
(iii)Execute ORM
Dr. SOLIDSCRFGBP (Currency) – TD control a/c with Br. GBP 88
Cr. 01070FCNR GBP (Currency) – Control a/c with MNRI GBP 88

Branch to obtain cross currency rate for GBP and USD

(iv) Execute IRM (Branch to give Ref of ORM executed in (iii) using Free Code 3)
Dr. SOLID HOAC001: GBP 88(DN will be raised over Mumbai treasury Branch) (TTB)
Cr Customer A/c INR GBP 88

(v) Execute ORM (Branch to give ref IRM executed in (iv) )

Dr. Customer A/c INR: USD 110@ TTS
Cr. SOLID HOAC001 USD 110(CN will be raised over Mumbai treasury Branch)

Execute IRM
Dr. 01500FLCUSD control account with MSOB Cr. USD 110
Cr. FGN CURR Loan: USD 110

(Branch to send email to MSOB with copy to Treasury Branch giving details of all the
transactions)

MSOB to generate ACLPOA report at day end and pass necessary debit and credit
vouchers to Treasury Branch

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 Chapter 29
FOREIGN CURRENCY LOANS
DUAL CURRENCY SWING LIMIT
-------------------------------------------------
29.1 At present, our Bank extends Foreign Currency Loans (FCLs) out of FCNR-B funds to corporate
borrowers. The attractiveness of such facility depends upon the differential rate of USD / INR
interest as well as the prevailing forward premium. These being dynamic factors, a facility with
built-in option for the borrowers to switch between foreign currency and rupees and vice versa will
be attractive. Hence, our Bank has introduced a facility by which the client can switch over his
liability from foreign currency to Rupees and back depending on prevailing environment.
Target Group: Corporate borrowers with minimum credit rating ‘A‘.
Purpose: Working capital (with MPBF) or demand loan for acquisition of business assets. The limit
should necessarily be utilised for productive purpose and should not be for personal loans/ purchase
of consumer durables.
Foreign Currency: Presently, USD. The borrowers will have the flexibility for conversion from USD
to INR and vice versa.
Tenor: The facility would be available for a period not exceeding one year before which, it should
be reviewed.
Minimum Amount: Minimum sanctioned amount for the facility would be USD 100,000/- or its
equivalent in INR. The foreign currency leg of the loan would be extended out of the Bank‘s FCNR
funds.
Designated Branches: All Corporate Banking Branches and Mumbai Overseas Branch, New Delhi
Overseas Branch and Chennai Overseas Branch are presently authorised to extend the facility under
the DCSL Scheme.
Disbursement: In all new cases, the first disbursement will be made in Indian Rupees. In case
the borrower wants the first disbursement to be made in foreign currency, the branch should
disburse facility in Indian Rupees under the Scheme and thereafter on the same day convert the
rupee amount in to foreign currency.
Rate of Interest: For borrowings in INR, the rate of interest would be that applicable for Rupee
working capital/ demand loan for the particular borrower. When borrowings are in USD, interest
would be linked to LIBOR. The rate of interest on FCLs is needed to be loaded with risk premium
keeping in view the credit rating of the borrower, countervailing benefits that the Bank is likely to
get at prevailing market rate/ behaviour.
29.2 For both the legs i.e. Rupees and USD borrowings, the borrower will be charged an additional
interest of 0.5% p.a. to compensate the bank for committing FCNR funds. Rate of interest will be
re-fixed on each switch-over (conversion date).

Conversion:
29.3 Spot Notice (i.e. notice of 2 foreign exchange working days) will be required to be given by
the borrower to the Bank for switching either from USD to INR or vice versa.
Charges:
29.4 Commitment fee @ 1% p.a. of unutilized amount if the facility is not utilized within 3 months
of the execution of documents and charging of securities. In case the sanction is requested to be

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revalidated, revalidation fee @ 2.5% on the sanctioned amount with a maximum of USD 5000/- to
be recovered.
Processing charges:
29.5 As per existing rule in respect of new Demand Loan/ Working Capital Facility. On review of the
facility, charges as applicable to review proposals should be recovered. In case conversion of
existing credit facility to DCSL, no processing charges should be recovered, since these would
already have been recovered. Instead a supplementary processing charge, ranging from
Rs.15,000/- to Rs.25,000/- should be levied as per extant guidelines.
Transaction charges:
29.6 Rs.1000/- should be recovered from the borrower at the time of each conversion (from USD
to INR to INR and vice-versa).
Clearance for availability of USD Funds:
29.7 As in the case of FCNR-B loans, branches should obtain clearance from Treasury Branch from
the perspective of availability of foreign currency funds/ mismatch level. Similarly, as in the case of
FCNR-B loans, sanction, disbursement in USD, conversion from INR to USD, repayment/ cancellation
of facility, conversion from USD to INR, crystalisation, should be advised to Treasury branch. It
should be noted that Treasury branch, subject to availability of FCNR funds, will give clearance for
the entire duration of the facility. This means that the availability of funds will continue to be
ensured even when the facility is availed in INR. This would effectively block the availability of
foreign currency funds to other borrowers and hence, branches should promptly advise when any
DCSL facility is cancelled, so that Treasury branch can release the funds that have been so
earmarked. Please note that clearance from Treasury branch will have to be obtained for
continuation of facility, every year upon review, if the facility is proposed to be continued upon such
review.
Accounting:
29.8 Accounting for the facility when availed in Rupees will be as per our conventional norms. As
far as accounting for the foreign currency leg is concerned, the same is as applicable in FCL against
FCNR-B funds.
Revaluation:
29.9 Foreign currency assets of the Bank, availed out of FCNR resources, are booked at notional
rates and are required to be revalued on each Friday as also the last day of each quarter.
The revised procedure for revaluation of the assets and liabilities in foreign currency with the
domestic branches is advised vide Circular Letter No.2011-12/242 dated 08-03-2012 is as follows:
i)Discontinue usage of Notional rates which were being used hereto before and instead,
transactions to be recorded at weekly average rates published by FEDAI on all related transactions
for respective week. (w.e.f. March 23, 2012)
ii) To revalue all the foreign currency assets and liabilities on weekly basis/ Balance sheet dates at
the rates announced by FEDAI. The process of revaluation will be run by the Data Centre and the
difference will be parked in the Control Account "FC Portfolio Revaluation Control account (AS 11)
being opened with BKC Branch by HO Finance Department. Similar exercise will also be done for
Treasury Branch parking their revaluation in the same control account. Final difference in the control
account will be absorbed in P & L account.
iii)The weekly average rates shall be uploaded by our Treasury branch under advise to Data Centre
w.e.f. March 23, 2012.

515
In case the availment on such days is in Rupees, the issue of revaluation for assets and liabilities in
foreign currency with the domestic branches will not arise.
Control:
29.10 Branches should monitor the rate of exchange and bring to the notice of borrowers, large
depreciation in exchange rate (say, exceeding 5%), to enable the borrower to consider reconversion
of loan to Rupee, if necessary.
The DCSL is a flexible tool for Corporates in managing their treasury profitably and branches should
carefully select deserving borrowers who have adequate treasury skills. Proposal for sanction of
DCSL should be put up to the concerned functional department after obtention of clearance for
foreign currency funds from Treasury Branch.
Documentation:
29.11 As regards documentation, creation/modification of charge with ROC under DCSL
facility and for the drafts of DCSL Agreement and Letter of Undertaking to be obtained from
borrowers, please refer to instructions contained in Head Office Circular No. FBD:0001/47
dated 8th January, 2001. In case of need, please refer to Law Department/ C&IC
Department, H.O. through Zonal Office.

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 Chapter 30

EXPORT OF IT SERVICES AND SOFTWARE

30.1 Pre-shipment or Post-shipment finance can be provided to exporters of IT and Software

services in case of specific orders from abroad. ―IT Service is defined as any service which results
from the use of any IT software over a system of IT products for realizing value addition.
30.2 Various segments of Information Technology and Software Industry could be broadly classified
into four categories as under:
1) Software Services and Programming Services:
These services, which are also known as manpower exports, involve deputation of professionals
for delivering programming services at customer‘s locations within the country, as well as abroad,
under different contracts.
2) Project Services :
a) Customised Software Development – These services comprise of providing solution
to specific problems of the customer which would be utilised by corporate main frame and
mini computer users.
b) System Solution and integration – This involves providing a complete business
solution, using Information Technology. In this, integrater addresses a business problem of
the client and offers an IT base business solution. The work involves, programming, testing,
documenting customized software solution for clients and integration of this programme with
the client‘s existing IT system as well as with the systems of the client‘s parties/ associates.
c) Maintenance of Software contracts - These contracts cover trouble shooting
operations and at times even updation of software.
3) Software Products and Packages:
These comprise of :
a) Systems Software and
b) Application Software.
4) Information Technology Related Services (IT Service) :
IT services, such as call centers, tele-conferencing, tele-medicine, etc., result from the use of any
IT Software over a system of IT products for realising value additions.
RBI has issued general and operational guidelines to commercial Banks to decide the permissible
Bank finance for software units.

5) Operational guidelines :
The current operational guidelines, suggested by RBI are as follows:
a) Monthly Cash Budget system would be ideal for arriving the cash gaps and deciding
the Permissible Bank Finance (PBF).
b) Working Capital requirements of borrowers up to Rs.2 Crs. may be assessed on the
basis of 20 per cent of projected turnover. However, if the borrower prefers, cash budget
method may be adopted.
517
 c) For above Rs.2 Cr. the cash budget system may be confined. Peak deficit in cash
budget would determine the Permissible Bank Finance (PBF).
d) Credit budgets may be reviewed frequently and credit limits may be accordingly
modified.
6) Appraisal :
Promoter‘s background, his qualifications and experience in developing software products is a crucial
important factor in appraising the credit proposal. Other professional manpower associated with
full commitment is also to be considered seriously.
7) documentation :
The Bank should obtain from the borrower:
1. Operating Statement;
2. Balance Sheet;
3. Cash Budget;
4. Statement of Economics
5. A note on the assumptions underlying the operating statement.

In addition to this, every proposal must be accompanied by a detailed project report and business
plan.
8) Margins :
Banks have to stipulate reasonable promoter‘s contribution as margin.
9) Security :
I. There are no tangible assets or no generation of tangible goods.
Hence, Banks can obtain collateral security.
II. If current assets are available, first or second charge may be created.
III. The success of the activity depends upon the skills of the professionals or promoters,
the Bank would have to carefully evaluate the factors like the promoter‘s track records, their
competence, their stake in the business and marketing strategies.
IV. Banks can obtain collateral securities subject to availability.

10) Pricing (Rate of Interest):

I. In respect of pre-shipment and post-shipment credit for financing export, the concessional
rate, prescribed by RBI/ advised by the Bank, is applicable.
II.For all other types of advances, banks have to follow guidelines, applicable to general category
of borrowers.
11) Monitoring and Follow-up:
I. Bank should obtain once in a quarter the Actual Cash Flow statement and compare it with
Projected Statement. Corrective steps are to be taken for large variations in actual and
projected figures.
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 II.Banks have to develop tailor-made follow up systems for paying additional attention to these
advances by themselves.
12) Risk factors in financing Software Units :
I Absence of tangible current assets;
II. High obsolescence, fixed assets depreciate rapidly.
III. As the capital requirements are very low and there are no barriers, rapid growth of
small and medium units have taken place and subsequently the rate of failures is very high.
IV. High manpower turnover, which affects execution and completion of the job.
V. Product could turn out to be non-marketable or overtaken by a similar product of a
competitor.
13) Prerequisites for Financing Software Industry:
I. Banks have to streamline their administrative arrangements to provide timely and
adequate credit to software industry.
II. Identify the centres where the IT software and Services Units are sufficiently large
and create IT financing cells at identified branches.
III. Constitute appropriate screening Committee for appraisal of credit proposals and
monitoring the progress/ performance.
IV. Banks should arrange for requisite in-house training for their staff on financing
software industry.
In the matter of financing of Software Export/ IT related activities, Branches are
advised to be guided by instructions issued by Head Office from time to time.

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 CHAPTER - 31
GOLD CARD SCHEME FOR EXPORTERS

31.1 Ministry of Commerce and Industry, Government of India, in consultation with RBI, select
Banks and exporters have drawn up a Gold Card Scheme for the exporters. Our Bank issues Gold
Cards to exporters who fulfil the eligibility criteria, viz. good track record, satisfactory financials and
cash management, asset classification as ‘Standard’ continuously for the past 3 years, satisfactory
conduct of account, overdue export bills not in excess of 10% of the previous year‘s Export Turnover
etc.
31.2 Salient features of the Scheme( circulated vide Head office branch CircularNo. 98/97 Dt
19.08.2004), are :
Objectives:

i. Gold Card holders to be considered for better terms of credit, including

pricing, in comparison to those extended to other exporters
ii. Application for credit to be processed faster and at norms simpler than for
other exporters .
iii. Limits to be sanctioned for a period of 3 years on ‘in-principle’ basis with a
provision for automatic renewal subject to fulfilment of the terms and conditions of
sanction
iv. Gold Card holders to be given preference for grant of packing credit in foreign
currency (PCFC)
v. Gold Card holders to be considered for issuance of credit cards for meeting
urgent payment obligations
vi. To be considered for lower charges while extending services.
vii. To be considered for relaxation in norms in respect of security and collaterals,
and
viii. To be considered for any other facility/ benefit subject to fulfilment of extant
rules and regulations as applicable to export finance

31.3 Eligibility
All credit worthy exporters including those in small and medium sectors with good track record.
Exporters with profitability in operations for the last three years, increasing or steady net worth
during the last three years, regular in submission of financial statements/ data/ stock statements
for proper monitoring of the accounts and who are not resorting to frequent temporary over
limits/ overdrafts (without proper sanction) will be considered eligible. All their accounts should
have been classified as 'standard' continuously for the past three years and there should be no
adverse features in the conduct of their accounts. The scheme will not be applicable to those
exporters who are blacklisted by ECGC and/ or included in RBI/CIBIL caution list. Similarly, exporters
having overdue export bills in excess of 10 % of the last 12 months‘ export turnover will also be
ineligible. It is proposed to exclude those accounts where the export activity is not carried out on
a regular/continuous basis.
31.4 Fixation of Credit Limit:

The working capital finance requirements will be assessed based on a simplified procedure.
For small and medium exporters- for limits upto Rs. 5 crores- the limits will be worked out at 20 %
of the average yearly turnover estimated/ projected for the next three years. For large borrowers,
limits will be assessed on average basis after analysis of CMA data for the next 3 years. The actual

520
performance will be monitored on a monthly/ quarterly basis and the operating limit fine tuned
through a realistic step-up or step down procedure. To illustrate, while there will be an overall limit
worked out as above for a three year span, the operative limits for the first, second and third years
will need to be assessed for the respective period based on the estimated/ projected export turnover
for the relevant period. Such operative limits will be made available to the exporter upon
achievement of the estimated export turnover measured on a monthly/ quarterly basis. In case of
any shortfall beyond 10 % (i.e. below achievement level of 90 %) in the first year, the operative
limit for the second year will not be made effective. In accounts showing erratic export performance,
review will continue to be done annually as per the existing practice.

Branches may obtain the usual security documents for the overall limit worked out as above
for a three year span and also similarly create and register the charge (on primary security as well
as collateral) for such an overall limit. This provision/ procedure will lead to simplification of the
documentation process and other formalities attached thereto, including payment of stamp duty.

The issue of the Gold Card to an exporter, by itself, will not entitle the holder for an automatic
renewal of the facilities availed. The automatic review during the three year period with limits at
same/ increased levels will be contingent upon the exporter achieving the budgeted sales
performance and important/ key financial indicators, compliance of all terms and conditions of the
previous sanction etc. Till a provision is incorporated in the relative credit proposal for auto- renewal
of the facilities spanning a three year period, as discussed above and duly approved by the
concerned sanctioning authority, the account will continue to be reviewed on a yearly basis. In other
words, even in the case of Gold Card holders, specific approval from the sanctioning authority will
be required for introducing the facility of auto-renewal of the limits in the concerned account.

On a case to case basis, branches will incorporate a provision/ enabling clause in the relative
credit proposals for automatic renewal of the various facilities within the overall assessed limit. This
will, however, be subject to compliance of all the terms and conditions of the sanction, continuance
of all the accounts of the borrower under the “standard”asset classification and further subject to
there being no slippage in the credit rating of the borrower, which exercise will be required to be
carried out at intervals as advised by Risk Management Department, Head Office, from time to time.

Gold Card holders will be given priority over non-export borrowers while allocating foreign currency
funds for drawings under PCFC/ FCFBD/FCFBN.

RBI has advised that a standby limit of not less than 20 % of the assessed limit may be additionally
made available to Gold Card holders to facilitate them for executing sudden export orders. Similarly,
in the case of exporters of seasonal commodities, appropriate peak and off-peak levels of limits are
required to be specified. Since our extant guidelines do adequately cover both the above
contingencies, branches will continue to be guided accordingly in such cases. In other words,
present guidelines in terms of Delegation of Powers and our Credit Policy document would continue
to be applicable to Gold Card holders also, in so far as over limit business and fixation of peak/ off-
peak level limits are concerned.

The time frame for disposal of applications ( for credit facilities) received from Gold
Card holders will be as under:-
Fresh applications 25 days
Renewal of limits 15 days
Sanction of ad hoc
limits 07 days

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31.5 Rate of Interest

As advised by the Head Office from time to time.

31.6 Tenure

The Gold Card will be initially issued for a period of 3 years and will be automatically renewed at
the branch level itself for a further period of three years unless there are adverse features/
irregularities in the account. In case of any misuse of the card and/or observance of any violation
of the terms and conditions and / or dilution of eligibility conditions, the bank will have the right to
recall the card at any time. The aforesaid conditions will be clearly mentioned by the branches in
their covering letter while forwarding the Gold Card to the eligible exporters.

As already mentioned hereinabove, auto renewal of the facilities after the customary initial period
of one year, will be available to the Gold Card holders only if such an enabling provision is
incorporated in the previous proposal and duly approved by the appropriate sanctioning authority.

31.7 Additional features/ facilities

i. The Gold Card will carry details such as the name of the person, colour photo,
specimen signature, name of company/ firm, validity date, card number, IE code number,
issuing branch/ city etc.

ii. The scheme will also extend to exporter customers who are not availing any credit
facilities from branches but, nevertheless, route their export business through them
by way of collection bills, remittances etc and maintain well conducted current accounts.

iii. In the case of takeover of accounts, the eligibility will be decided with reference to
the past track record (financial as well as operational) of the exporter, credit report/s from
existing banker/s and subject to the satisfaction of the sanctioning authority. If the exporter
is already holding a Gold Card from another bank, the sanctioning authority will , by and
large, rely on the same and consider the exporter
eligible for our Bank‘s own Gold Card

iv. Since the eligible exporter‘s legal identity may be by way of partnership, company
etc., branches may consider, upon request, issuing more than one Gold Card to the exporter
to be kept in the possession of the active persons associated with the exporter. However,
the number of cards issued per exporter will not exceed 5.

v. Running packing credit account facility may be provided to all the Gold Card holders.
While extending running packing credit account facility, branches will be guided by the extant
guidelines for monitoring such accounts. For example, the exporters will be required to
produce relative letters of credit/ firm orders within a reasonable period of time. In case any
diversion of funds for non-export purposes is observed, the running account facility will be
withdrawn.

vi. In respect of all the existing accounts, Zonal Manager of the respective Zone will be
the authority to sanction/approve Gold Cards based on recommendations received from the
concerned branches in the Zone. Branches will refer the eligible accounts in a consolidated

522
 format to their Zonal Office giving essential information such as asset classification, credit
rating, period of association, total working capital finance limits relating to export activity,
extent of average utilisation, export turnover with the branch, percentage of overdue
export bills and any other relevant information together with a certificate with regard to
the accounts meeting the eligibility criteria. However, sanction/ review of the limits/ facilities
will continue to be at the appropriate level as per the present scheme of delegation. In
respect of new accounts, the authority who sanctions the relative credit proposal will also
accord approval for issue of the Gold Card subject to the account meeting the eligibility
norms. In the case of exporters who do not enjoy any credit facility with our Bank, necessary
approval will be considered at SM-Scale IV level, either at the concerned branch or at the
Zonal Office level.

vii. Branches are required to maintain a register for issuance of cards incorporating
details such as Serial No., Name of exporter, Card No. , Date of issue, Date of renewal etc.

viii. ‘BOI Gold Card Holder Exporter ‘will be mentioned in the ledger account, proposals,
correspondence etc.

31.8 Branches to note importantly to pay to the card holder a sum of upto Rs. 50,000 (max.) at
any of our branches in India and upto USD 1,000 or equivalent thereof (max.) at any of our foreign
branches, to make the card unique and attractive. Branches will be required to observe the following
risk mitigating measures in such cases:-

(a) The Gold Card holder will be identified through the card (containing his/her
photograph and signature) and, if possible, additionally through his/ her passport, driving
licence, income tax PAN Card etc. An appropriate application will be obtained from the card
holder indicating the amount of withdrawal.

(b) Payment will be made against a cheque drawn on the exporter customer‘s account
at the branch where the accounts are maintained.

(c) The paying branch will get reimbursed by direct debit to the exporters account in the
Finacle system.

(d) The officer in-charge of the branch or holding charge of the branch will be the
appropriate authority to authorise payment as above.

(e) In the case of drawings in foreign currency at our foreign branches, the card holder
will additionally give a declaration in duplicate to the foreign branch to the effect that the
amount drawn will be used for purposes permitted under the FEMA. The duplicate copy will
be sent by the foreign branch to the concerned branch in India for its record after making
the payment.

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 Chapter -32

INTERNATIONAL STANDARD BANKING PRACTICE (ISBP)

32.1 Letter of credit appears to be a safe instrument for trade settlements but in certain cases it
fails to produce the desired results. In terms of Article 7 of UCP ICC 600, Issuing Bank is
liable to the beneficiary, provided the beneficiary presents the stipulated documents to the
Nominated Bank or to them. It was observed that though required documents were
presented, still more than 50% of credits were rejected for discrepancies on first
presentation.

32.2 Any term in the documentary credit, which may affect or modify the application of a particular
UCP Article, can have an impact on the standard practices followed by different parties in
different countries. None of the the articles in UCPDC or guidelines clarifies how the terms
‘ISBP‘ should be applied while examining the documents which lead to different
interpretations resulting in rejection of documents or delay in settlements. Hence there was
a need for ICC Paris to define and document certain practices prevailing in banks.

32.3 With the intention of documenting various practices adopted by the banks with specific
reference to scrutiny of documents, ICC Banking Commission appointed a task force to
compile ISBP for examination of documents drawn under a letter of credit. Accordingly, the
task force came out with a report which was approved by ICC Banking Commission in April
2013 and came out with the publication titled as “International Standard Banking
Practice for the Examination of documents under Documentary Credit”, which has
since been modified in view of UCPDC 600.The latest applicable publication is publication no.
745.

32.4 It should be noted that the ISBP (Publication No.745) is not an amendment to UCP ICC 600.
ISBP is in consistent with UCP provisions, Banking Commissions opinions, decisions, Position
Papers and applicable DOCDEX decisions. It discreetly addressed the issues that commonly
arise but not expressly treated in UCP.

32.5 This publication consists of three parts. The three parts of the publication are as under:

a. Preliminary consideration

b. General Principles

c. Issues relating to Documents

 Draft

 Invoice

 Transport documents – Bill of Lading, Charter party B/L, Multimodal transport

document, Air transport document, Road, Rail, Inland waterway transport document.

 Insurance document

 Certificate of Origin

 Packing list, Note or slip, Weight list, Beneficiaries Certificate,

Analysis/Inspection/Health/Phytosanitary/Quantity/quality/other certificates

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32.6 Some of the issues are highlighted in the following paragraphs:

Preliminary consideration:

Scope of the Publication

i) This publication is to be read in conjunction with UCP 600 and not in isolation.

ii) The practices described in this publication highlight how the articles of UCP 600 are to be
interpreted and applied, to the extent that the terms and conditions of the credit, or any
amendment thereto, do not expressly modify or exclude an applicable article in UCP 600.

The Credit and amendment application, the issuance of the credit and any amendment thereto

iii) The terms and conditions of a credit and any amendment thereto are independent of the
underlying sale or other contract even if the credit or amendment expressly refers to that
sale or other contract. When agreeing the terms of the sale or other contract, the parties
thereto should be aware of the ensuing implications for the completion of the credit or
amendment application.

iv) Many of the problems that arise at the document examination stage could be avoided or
resolved by the respective parties through careful attention to detail in the credit or
amendment application and issuance of the credit or any amendment thereto. The applicant
and beneficiary should carefully consider the documents required for presentation, by whom
they are to be issued, their data content and the time frame in which they are to be
presented.

v) The applicant bears the risk of any ambiguity in its instructions to issue or amend a credit.
An issuing bank may, unless the applicant expressly instructs to the contrary, supplement or
develop those instructions in a manner necessary or desirable to permit the use of the credit
or any amendment thereto. An issuing bank should ensure that any credit or amendment it
issues is not ambiguous or conflicting in its terms and conditions.

vi) The applicant and issuing bank should be fully aware of the content of UCP 600 and
recognize that articles such as 3.14, 19, 20 23, 24, 28 (i), 30 and 31 define terms in a manner
that may produce unexpected results. For example, a credit requiring presentation of a bill
of lading and containing a prohibition against transhipment will, in most cases, have to
exclude, UCP 600 sub article 20 (c ) to make the prohibition against transhipment effective.

vii) A credit or any amendment thereto should not require presentation of a document that is to
be issued, signed or countersigned by the applicant. If, nevertheless, a credit or amendment
is issued including such a requirement, the beneficiary should consider the appropriateness
of such a requirement and determine its ability to comply with it, or seek a suitable
amendment.

32.7 General Principles and issues relating to Documents

1. Abbreviations, Paragraph No. A1, A2

2. Certificates, Certifications, Declarations and Statements, Paragraph No. A3, A4, A5

525
3. Copies of transport documents covered by UCP 600 Articles 19-25, Paragraph No. A6

4. Correction and alteration (“Correction”), Paragraph No.A7, A8, A9

5. Courier receipt, post receipt and certificate of posting in respect of the sending of documents,
notices and the like, Paragraph No.A10, A11, A12, A13, A14, A15, A16

6. Documents and the need for completion of a box, field and space, Paragraph No.A17.

7. Documents for which the UCP 600 transport articles do not apply, Paragraph No.A18.

8. Expressions not defined in UCP 600, Paragraph No.A19

9. Issuer of documents, Paragraph No.A20.

10. Language, Paragraph No.A21.

11. Mathematical calculations, Paragraph No.A22.

12. Misspellings or typing errors, Paragraph No.A23.

13. Multiple pages and attachments or riders, Paragraph No.A24, A25.

14. Non-documentary conditions and conflict of data, Paragraph No.A26.

15. Originals and copies, Paragraph No.A27, A28, A29, A30, A31.

16. Shipping marks, Paragraph No.A32, A33, A34.

17. Signatures, Paragraph No.A35, A36, A37, A38.

18. Title of documents and combined documents, Paragraph No.A39, A40, A41.

Drafts and Calculation of maturity date –

1. Basic requirement, Paragraph No.B1.

2. Tenor, Paragraph No.B2, B3.

3. Maturity date, Paragraph No.B4, B5, B6.

4. Banking days, grace days, delays in remittance, Paragraph No.B7.

5. Drawing and signing, Paragraph No.B8, B9, B10, B11, B12.

6. Amounts, Paragraph No.B13, B14.

7. Endorsement, Paragraph No.B15.

8. Correction and alteration (“correction”), Paragraph No.B16, B17.

9. Drafts drawn on the applicant, Paragraph No.B18.

Invoices

1. Title of invoice, Paragraph No.C1.

2. Issuer of an invoice, Paragraph No.C2.

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3. Description of the goods, services or performance and other general issues related to
invoices, Paragraph No.C3, C4, C5, C6, C7, C8, C9, C10 C11, C12, C13, C14.

4. Instalment drawings or shipments, Paragraph No.C15.

5. On board notation, date of shipment, place of receipt, dispatch, taking in charge, port of
loading or airport of departure, Paragraph No.D6, D7, D8, D9, D10, D11.

6. Place of final destination, port of discharge or airport of destination, Paragraph No.D12,D13.

Transport document Covering atleast two different modes of transport (“multimodal or

combined transport document”) –

1. Application of UCP 600 article 19, Paragraph No.D1, D2.

2. Issuance, carrier, identification of the carrier and signing of a multimodal transport

document, Paragraph No.D3, D4, D5, D14.

3. Original multimodal transport document, Paragraph No.D15.

4. Consignee, order party, shipper and endorsement and notify party, Paragraph No.D16, D17,
D18, D19, D20.

5. Transhipment, partial shipment and determining the presentation period when multiple sets
of multimodal transport documents are presented, Paragraph No.D21, D22, D23.

6. Clean multimodal transport document, Paragraph No.D24, D245.

7. Goods description, Paragraph No.D26.

8. Indication of name and address of delivery agent at destination, Paragraph No.D27.

9. Corrections and alterations (“Corrections”), Paragraph No.D28, D29.

10. Freight and additional costs, Paragraph No.D30, D31.

11. Release of goods with more than one multimodal transport document to be surrendered,
Paragraph No.D32.

Bill of Lading

1. Application of UCP 600 article 20, Paragraph No.E1, E2.

2. Issuance, carrier, identification of the carrier and signing of a bill of lading, Paragraph No.E3,
E4, E5.

3. On board notation, date of shipment, pre-carriage, place of receipt and port of loading,
Paragraph No. E6, E7.

4. Port of discharge, Paragraph No.E8, E9, E10.

5. Original bill of lading, Paragraph No.E11.

6. Consignee, order party, shipper and endorsement and notify party, Paragraph No.E12, E13,
E14, E15, E16.

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7. Transhipment, partial shipment and determining the presentation period when multiple sets
of bills of lading are presented, Paragraph No.E17, E18, E19.

8. Clean bill of lading, Paragraph No.E20, E21.

9. Goods description, Paragraph No.E22.

10. Indication of name and address of delivery agent at port of discharge, Paragraph No.E23.

11. Corrections and alterations (“corrections”), Paragraph No.E24, E25.

12. Freight and additional costs, Paragraph No.E26, E27.

13. Release of goods with more than one bill of lading to be surrendered, Paragraph No.E28.

Non-negotiable sea waybill

1. Application of UCP 600 article 21, Paragraph No.F1.

2. Issuance, carrier, identification of the carrier and signing of a non-negotiable sea waybill,
Paragraph No.F2, F3, F4.

3. On board notation, date of shipment, pre-carriage, place of receipt and port of loading,
Paragraph No.F5, F6

4. Port of discharge, Paragraph No.F7, F8, F9.

5. Original non-negotiable sea waybill, Paragraph No.F10.

6. Consignee, order party, shipper and notify party, Paragraph No.F11,F12, F13, F14

7. Transhipment, partial shipment and determining the presentation period when multiple sets
of non-negotiable sea waybills are presented, Paragraph No.F15, F16, F17.

8. Clean non-negotiable sea waybill, Paragraph No.F18, F19.

9. Goods description, Paragraph No.F20.

10. Indication of name and address of delivery agent at port of discharge, Paragraph No.F21.

11. Corrections and alterations (“corrections”), Paragraph No.F22,F23.

12. Freight and additional costs, Paragraph No.F24, F25.

Charter party bill of lading –

1. Application of UCP 600 article 22, Paragraph No.G1, G2, G3.

2. Signing of a charter party bill of lading, Paragraph No.G4.

3. On board notation, date of shipment, pre-carriage, place of receipt and port of loading,
Paragraph No.G5, G6.

4. Port of discharge, Paragraph No.G7, G8, G9.

5. Original charter party bill of lading, Paragraph No.G10.

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6. Consignee, order party, shipper and endorsement and notify party, Paragraph No.G11, G12,
G13, G14, G15.

7. Partial shipment and determining the presentation period when multiple sets of charter party
bills of lading are presented, Paragraph No.G16, G17.

8. Clean charter party bill of lading, Paragraph No.G18, G19, G20, G21.

9. Corrections and alterations (“corrections”), Paragraph No.G22, G23.

10. Freight and additional costs, Paragraph No.G24, G25.

11. Release of goods with more than one charter party bill of lading to be surrendered, Paragraph
No.G26, G27.

Air transport document-

1. Air transport document, Paragraph No.H1, H2.

2. Issuance, carrier, identification of the carrier and signing of an air transport document,
Paragraph No.H3, H4, H5, H6.

3. Goods accepted for carriage, date of shipment and requirement for an actual date of
shipment, Paragraph No.H7, H8, H9, H10, H11.

4. Original of an air transport document, Paragraph No.H12, H13, H14, H15, H16.

5. Transhipment, partial shipment and determining the presentation period when multiple air
transport documents are presented, Paragraph No.H17, H18, H19.

6. Clean air transport document, Paragraph No.H20, H21.

7. Goods description, Paragraph No.H22.

8. Corrections and alterations (“corrections”), Paragraph No.H23, H24.

9. Freight and additional costs, Paragraph No.H25, H26, H27.

Road, Rail or Inland Waterway transport documents

1. Application of UCP 600 article 24, Paragraph No.J1.

2. Carrier, identification of the carrier and signing of a road, rail or inland waterway transport
document, Paragraph No.J2, J3, J4.

3. Place of shipment and place of destination, Paragraph No.J5, J6.

4. Original and duplicate of a road, rail or inland waterway transport document, Paragraph
No.J7, J8, J9, J10, J11.

5. Transhipment, partial shipment and determining the presentation period when multiple road,
rail or inland waterway transport documents are presented, Paragraph No.J12, J13, J14

6. Clean road, rail or inland waterway transport document, Paragraph No.J15, J16.

7. Goods description, Paragraph No.17.

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8. Corrections and alterations (“corrections”), Paragraph No.J18, J19.

9. Freight, Paragraph No.J20.

Insurance document and coverage

1. Application of UCP 600 article 28, Paragraph No.K1.

2. Issuer, signing and original of an insurance document, Paragraph No.K2, K3, K4, K5, K6, K7,
K8.

3. Dates, Paragraph No.K9, K10, K11.

4. Amount of cover and percentage, Paragraph No.K12, K13, K14, K15, K16.

5. Risks to be covered, Paragraph No.K17, K18.

6. Insured party and endorsement, Paragraph No.K19, K20, K21, K22, K23.

Certificate of origin –

1. Basic requirement and fulfilling its function, Paragraph No.L1, L2.

2. Issuer of a certificate of origin, Paragraph No.L3.

3. Content of a certificate of origin, Paragraph No.L4, L5,L6,L7, L8.

Packing List, note or slip (Packing List) –

1. Basic requirement and fulfilling its function, Paragraph No.M1.

2. Issuer of a packing list, Paragraph No.M2, M3.

3. Content of a packing list, Paragraph No.M4, M5, M6.

Weight list, note or slip (“weight list”) –

1. Basic requirement and fulfilling its function, Paragraph No.N1.

2. Issuer of a weight list, Paragraph No.N2, N3.

3. Content of a weight list, Paragraph No.N4, N5, N6

Beneficiary’s certificate –

1. Basic requirement and fulfilling its function, Paragraph No.P1.

2. Signing of a beneficiary’s certificate, Paragraph No.P2.

3. Content of a beneficiary’s certificate, Paragraph No.P3, P4.

Analysis, Inspection, Health, Phytosantiary, Quantity, Quality and other certificates

(“certificates”)

1. Basic requirement and fulfilling its function, Paragraph No.Q1, Q2.

2. Issuer of a certificate, Paragraph No.Q3, Q4, Q5.

3. Contents of a certificate, Paragraph No.Q6, Q7, Q8, Q9, Q19, Q11.

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With clarifications provided by ICC, Paris, on examination of documents on the basis of
practices adopted by banks, it is expected that rejection of documents on certain
unspecified issues will be considerably reduced. The ISBP 745 is explicitly aimed at
documentary- credit bankers to help them examine and determine compliance.

Branches are advised to refer to ISBP 745 publication and refer to particular articles
mentioned therein for clarification while examination of the documents.

531
 Chapter 33

OVERSEAS DIRECT INVESTMENT IN JOINT VENTURES/WHOLLY OWNED

SUBSIDIARIES

(Branches should refer to the updated guidelines available in RBI Master Directions on
Direct Investment by Residents in Joint Venture (JV) / Wholly Owned Subsidiary (WOS)
Abroad updated from time to time)

33.1 Overseas investments (or financial commitment) in Joint Ventures (JV) and Wholly Owned
Subsidiaries (WOS) have been recognised as important avenues for promoting global business
by Indian entrepreneurs. Joint Ventures are perceived as a medium of economic and business
co-operation between India and other countries. Transfer of technology and skill, sharing of
results of R&D, access to wider global market, promotion of brand image, generation of
employment and utilisation of raw materials available in India and in the host country are other
significant benefits arising out of such overseas investments (or financial commitment). They
are also important drivers of foreign trade through increased exports of plant and machinery
and goods and services from India and also a source of foreign exchange earnings by way of
dividend earnings, royalty, technical know-how fee and other entitlements on such investments
(or financial commitment).

33.2 In exercise of the above powers conferred under the Act, the Reserve Bank has in
supersession of the earlier Notification No.FEMA19/RB-2000 dated 3rd May 2000 and
subsequent amendments thereto, issued Foreign Exchange Management (Transfer or Issue of
any Foreign Security) Regulations, 2004 vide Notification No. FEMA.120/RB-2004 dated July 7,
2004. The Notification seeks to regulate acquisition and transfer of a foreign security by a person
resident in India i.e. investment (or financial commitment) by Indian entities in overseas joint
ventures and wholly owned subsidiaries as also investment by a person resident in India in
shares and securities issued outside India. Overseas Investment (or financial commitment) can
be made under two routes viz. (i) Automatic Route outlined in paragraph B.1 and (ii) Approval
Route outlined in paragraph B.8.

33.3 In these Regulations, unless the context otherwise requires:

(a) "Act" means Foreign Exchange Management Act, 1999 (42 of 1999);

(b) "Authorised Dealer" means a person authorised as an authorised dealer under sub-section
(1) of section 10 of the Act;

(ba) “Alternative Investment Fund” means a fund as defined under the Securities and
Exchange Board of India (Alternative Investment Funds) Regulations, 2012;
(c) "American Depository Receipt (ADR)" means a security issued by a bank or a depository in
United States of America (USA) against underlying rupee shares of a company incorporated
in India;

(d) "Core Activity" means an activity carried on by an Indian entity, turnover wherefrom
constitutes not less than 50% of its total turnover in the previous accounting year;

(e) "Direct investment outside India" means investment by way of contribution to the capital or
subscription to the Memorandum of Association of a foreign entity or by way of purchase of

532
 existing shares of a foreign entity either by market purchase or private placement or through
stock exchange, but does not include portfolio investment;

[(ea) "Domestic Depository" shall have the same meaning as assigned to it in the
Companies (Issue of Indian Depository Receipts) Rules, 2004;
(eb) "Eligible Company" means a Company eligible to issue Indian Depository Receipts
under rule 4 of the Companies (Issue of Indian Depository Receipts) Rules, 2004;]
(f) "Financial Commitment" means the amount of direct investment by way of contribution to
equity, loan and 100 per cent of the amount of guarantees and 50 per cent of the
performance guarantees issued by an Indian Party to or on behalf of its overseas Joint
Venture Company or Wholly Owned Subsidiary;

(g) "Foreign Currency Convertible Bond (FCCB)" means a bond issued by an Indian company
expressed in foreign currency, and the principal and interest in respect of which is payable
in foreign currency;

(h) "Global Depository Receipt (GDR)" means a security issued by a bank or a depository outside
India against underlying rupee shares of a company incorporated in India;

(i) "Host country" means the country in which the foreign entity receiving the direct investment
from an Indian Party is registered or incorporated;

(j) "Indian Depository Receipts" shall have the same meaning as assigned to it in the
Companies (Issue of Indian Depository Receipts) Rules, 2004

(k) "Indian Party" means a company incorporated in India or a body created under an Act of
Parliament or a partnership firm registered under the Indian Partnership Act, 1932, or a
Limited Liability Partnership (LLP), registered under the Limited Liability Partnership Act,
2008 (6 of 2009), making investment in a Joint Venture or Wholly Owned Subsidiary abroad,
and includes any other entity in India as may be notified by the Reserve Bank:

Provided that when more than one such company, body or entity make an investment in
the foreign entity, all such companies or bodies or entities shall together constitute the
"Indian Party";
(l) "Investment Banker" means an investment banker registered with the Securities and
Exchange Commission in USA, or the Financial Services Authority in UK, or appropriate
regulatory authority in Germany, France, Singapore or Japan;

(m) "Joint Venture (JV)" means a foreign entity formed, registered or incorporated in accordance
with the laws and regulations of the host country in which the Indian Party makes a direct
investment;

(n) "Mutual Fund" means a Mutual Fund referred to in clause (23D) of section 10 of the Income-
tax Act, 1961;

(o) "Net Worth" means paid up capital and free reserves;

(p) "Real estate business" means buying and selling of real estate or trading in Transferable
Development Rights (TDRs) but does not include development of townships, construction
of residential/commercial premises, roads or bridges;

(q) "Wholly Owned Subsidiary (WOS)" means a foreign entity formed, registered or
incorporated in accordance with the laws and regulations of the host country, whose entire
capital is held by the Indian Party;
533
 (qa) "Venture Capital Fund" means a fund as defined under the Securities and Exchange
Board of India (Venture Capital Fund) Regulations, 1996;
(qb) "Trust" means a Trust registered under the Indian Trust Act, 1882;

(qc) "Society" means a society registered under the Societies Registration Act, 1860;]
(r) "Agricultural operations" means agricultural operations as defined in the 'National Bank for
Agriculture and Rural Development Act, 1981';

(s) "Foreign Currency Exchangeable Bond" means a bond expressed in foreign currency, the
principal and interest in respect of which is payable in foreign currency, issued by an issuing
company and subscribed to by a person who is a resident outside India in foreign currency
and exchangeable into equity share of offered company, in any manner, either wholly, or
partly or on the basis of any equity related warrants attached to debt instruments;

(t) "Issuing company" means a company registered under the Companies Act, 1956 (1 of 1956)
and eligible to issue Foreign Currency Exchangeable Bond under these regulations;

(u) "Offered company" means a company registered under the Companies Act, 1956 (1 of 1956)
and whose equity share/s is/are offered in exchange of the Foreign Currency Exchangeable
Bond;

(v) "Promoter group" has the same meaning as defined in the Securities and Exchange Board
of India (Disclosure and Investor Protection) Guidelines, 2000;]

(w) Words and expressions used but not defined in these Regulations shall have the meanings
respectively assigned to them in the Act.

33.4 Prohibitions

a. Indian Parties are prohibited from making investment (or financial commitment) in foreign
entity engaged in real estate (meaning buying and selling of real estate or trading in
Transferable Development Rights (TDRs) but does not include development of townships,
construction of residential/commercial premises, roads or bridges) or banking business, without
the prior approval of the Reserve Bank.
b. An overseas entity, having direct or indirect equity participation by an Indian Party, shall
not offer financial products linked to Indian Rupee (e.g. non-deliverable trades involving foreign
currency, rupee exchange rates, stock indices linked to Indian market, etc.) without the specific
approval of the Reserve Bank. Any incidence of such product facilitation would be treated as a
contravention of the extant FEMA regulations and would consequently attract action under the
relevant provisions of FEMA, 1999.
33.5 General Permission
General permission has been granted to persons residents in India for purchase /
acquisition of securities in the following manner:
(a) out of the funds held in RFC account;

(b) as bonus shares on existing holding of foreign currency shares; and

(c) when not permanently resident in India, out of their foreign currency resources
outside India.

General permission is also available to sell the shares so purchased or acquired.

534
33.5 Automatic Route

33.6.1 In terms of Regulation 6 of the Notification No. FEMA 120/RB-2004 dated July 7,
2004, as amended from time to time, an Indian Party has been permitted to make
investment / undertake financial commitment in overseas Joint Ventures (JV) / Wholly
Owned Subsidiaries (WOS), as per the ceiling prescribed by the Reserve Bank from time
to time.
With effect from July 03, 2014, it has been decided that any financial commitment (FC)
exceeding USD 1 (one) billion (or its equivalent) in a financial year would require prior
approval of the Reserve Bank even when the total FC of the Indian Party is within the
eligible limit under the automatic route (i.e., within 400% of the net worth as per the last
audited balance sheet).
33.6.2 For the purpose of making investment / undertaking financial commitment in
overseas Joint Ventures (JV) / Wholly Owned Subsidiaries (WOS), the Indian Party should
approach an Authorised Dealer Category - I bank with an application in Form ODI (Master
Document on Reporting) and prescribed enclosures / documents for effecting such
remittances.
33.6.3 The total financial commitment of the Indian Party in all the Joint Ventures / Wholly
Owned Subsidiaries shall comprise of the following:
a. 100% of the amount of equity shares and/ or Compulsorily Convertible Preference
Shares (CCPS);
b. 100% of the amount of other preference shares;
c. 100% of the amount of loan;
d. 100% of the amount of guarantee (other than performance guarantee) issued by
the Indian Party;
e. 100% of the amount of bank guarantee issued by a resident bank on behalf of JV
or WOS of the Indian Party provided the bank guarantee is backed by a counter
guarantee / collateral by the Indian Party.
f. 50% of the amount of performance guarantee issued by the Indian Party provided
that if the outflow on account of invocation of performance guarantee results in the
breach of the limit of the financial commitment in force, prior permission of the Reserve
Bank is to be obtained before executing remittance beyond the limit prescribed for the
financial commitment.
33.6.4 The investments / financial commitments are subject to the following conditions:
a. The Indian Party / entity may extend loan / guarantee only to an overseas JV /
WOS in which it has equity participation. Proposals from the Indian Party for undertaking
financial commitment without equity contribution in JV / WOS may be considered by the
Reserve Bank under the approval route. AD banks may forward the proposals from their
constituents after ensuring that the laws of the host country permit incorporation of a
company without equity participation by the Indian Party.
Indian entities may offer any form of guarantee - corporate or personal (including
the personal guarantee by the indirect resident individual promoters of the Indian Party)/
primary or collateral / guarantee by the promoter company / guarantee by group company,
sister concern or associate company in India provided that:
i) All the financial commitments, including all forms of guarantees and
creation of charge are within the overall ceiling prescribed for the Indian
Party.

ii) No guarantee should be 'open ended' i.e. the amount and period of the
guarantee should be specified upfront. In the case of performance

535
 guarantee, time specified for the completion of the contract shall be the
validity period of the related performance guarantee.

iii) In cases where invocation of the performance guarantee breaches the

ceiling for the financial commitment, the Indian Party shall seek the prior
approval of the Reserve Bank before remitting funds from India, on
account of such invocation.

iv) In terms of Regulation 5 (b) of Notification No. FEMA 8/2000-RBI dated

May 3, 2000, an authorised dealer in India may also give a Bank
guarantee/ issue SBLC to a joint venture company or a wholly-owned
subsidiary of a company in India in connection with its business abroad
provided that the terms and conditions stipulated in Foreign Exchange
Management (Transfer and Issue of Foreign Security) Regulations, 2000
for promoting or setting up such company or subsidiary are continued to
be complied with;

v) As in the case of corporate guarantees, all guarantees (including

performance guarantees and Bank Guarantees / SBLC) are required to
be reported to the Reserve Bank in Form ODI-Part I through their
designated AD, at the time of issuance of such guarantees. Guarantees
issued by banks in India in favour of WOS / JV outside India would be
subject to prudential norms issued by the Reserve Bank of India
(Department of Banking Regulation) from time to time.

b. The Indian Party should not be on the Reserve Bank’s Exporters' caution list / list
of defaulters to the banking system circulated by the Reserve Bank / Credit Information
Bureau (India) Ltd. (CIBIL) / or any other credit information company as approved by
the Reserve Bank or under investigation by any investigation / enforcement agency or
regulatory body.
c. All transactions relating to a JV / WOS should be routed through one branch of an
Authorised Dealer bank to be designated by the Indian Party.
d. In case of partial / full acquisition of an existing foreign company, where the
investment is more than USD 5 million, valuation of the shares of the company shall be
made by a Category I Merchant Banker registered with SEBI or an Investment Banker /
Merchant Banker outside India registered with the appropriate regulatory authority in
the host country; and, in all other cases by a Chartered Accountant or a Certified Public
Accountant.
e. In cases of investment by way of swap of shares, irrespective of the amount,
valuation of the shares will have to be made by a Category I Merchant Banker registered
with SEBI or an Investment Banker outside India registered with the appropriate
regulatory authority in the host country. Approval of the Foreign Investment Promotion
Board (FIPB) 1 will also be a prerequisite for investment by swap of shares, if required
in terms of Notification No. FEMA 20/2000-RB dated May 3, 2000.
f. In case of investment in overseas JV / WOS abroad by a registered Partnership
firm, where the entire funding for such investment is done by the firm, it will be in order
for individual partners to hold shares for and on behalf of the firm in the overseas JV /
WOS if the host country regulations or operational requirements warrant such holdings.
g. An Indian Party may acquire shares of a foreign company engaged in a bonafide
business activity, in exchange of ADRs/GDRs issued to the latter in accordance with the

536
 Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (through
Depository Receipt Mechanism) Scheme, 1993, and the guidelines issued there under
from time to time by the Government of India, provided:
(i) ADRs/GDRs are listed on any stock exchange outside India;

(ii) The ADR and/or GDR issued for the purpose of acquisition is backed by
underlying fresh equity shares issued by the Indian Party;

(iii) The total holding in the Indian entity by persons resident outside India in
the expanded capital base, after the new ADR and/or GDR issue, does not
exceed the sectoral cap prescribed under the relevant regulations for such
investment under FDI;

(iv) Valuation of the shares of the foreign company shall be

(a) as per the recommendations of the Investment Banker if the shares are
not listed on any recognized stock exchange; or

(b) based on the current market capitalisation of the foreign company arrived
at on the basis of monthly average price on any stock exchange abroad for
the three months preceding the month in which the acquisition is
committed and over and above, the premium, if any, as recommended by
the Investment Banker in its due diligence report in other cases.

33.6.5 Investments / financial commitments in Nepal are permitted only in Indian Rupees.
Investments / financial commitments in Bhutan are permitted in Indian Rupees as well as
in freely convertible currencies. All dues receivable on investments (or financial
commitment) made in freely convertible currencies, as well as their sale / winding up
proceeds are required to be repatriated to India in freely convertible currencies only.
33.6.5 Investments / financial commitments by an Indian Party are not permitted in an
overseas entity located in the countries identified by the Financial Action Task Force (FATF)
as “non co-operative countries and territories” as per list available on FATF website
www.fatf-gafi.org or as notified by the Reserve Bank of India from time to time.
3Investments / financial commitments in Pakistan by Indian Parties are permissible under
the approval route.
33.7.1 Investment (or financial commitment) through Special Purpose Vehicle
(SPV) under Automatic Route
Investments (or financial commitment) in JV/WOS abroad by Indian Parties through the
medium of a Special Purpose Vehicle (SPV) are also permitted under the Automatic Route
in terms of Regulation 6 of the Notification ibid, including the conditions that the Indian
Party is not appearing in the Reserve Bank's caution list or is under investigation by the
Directorate of Enforcement or included in the list of defaulters to the banking system
circulated by the Reserve Bank/any other Credit Information company as approved by the
Reserve Bank. Indian Parties whose names appear in the defaulters' list require prior
approval of the Reserve Bank for the investment (or financial commitment).
33.7.2 Issue of guarantee by an Indian Party to step down subsidiary of JV /
WOS
(a) Indian Parties are permitted to issue corporate guarantees on behalf of their first
level step down operating JV /WOS set up by their JV / WOS operating as either an
operating unit or as a Special Purpose Vehicle (SPV) under the Automatic Route,
537
 subject to the condition that the financial commitment of the Indian Party is within the
extant limit. Such guarantees will have to be reported to the Reserve Bank in Form
ODI, as hitherto, through the designated AD Category – I bank concerned.
(b) Further, the issuance of corporate guarantee on behalf of second generation or
subsequent level step down operating subsidiaries will be considered under the
Approval Route, provided the Indian Party indirectly holds 51 per cent or more stake
in the overseas subsidiary for which such guarantee is intended to be issued.
33.8 Investment (or financial commitment) in unincorporated/ incorporated
entities overseas in oil sector under the Automatic Route
(a) Investments (or financial commitment) in unincorporated / incorporated entities
overseas in the oil sector (i.e. for exploration and drilling for oil and natural gas, etc.)
by Navaratna PSUs, ONGC Videsh Ltd (OVL) and Oil India Ltd (OIL) may be permitted
by AD Category - I banks, without any limit, provided such investments are approved
by the competent authority.
(b) Other Indian companies are also permitted under the Automatic Route to invest in
unincorporated entities overseas in the oil sector up to the limit prescribed provided
the proposal has been approved by the competent authority and is duly supported
by certified copy of the Board resolution approving such investment. Investment in
excess of the prescribed limit shall require prior approval of the Reserve Bank.

33.9 Construction and maintenance of submarine cable systems under the

Automatic Route

(a) Indian Parties are also permitted to participate in a consortium with other
international operators to construct and maintain submarine cable systems on co-
ownership basis under the automatic route. Accordingly, AD Category - I banks may
allow remittances by Indian companies for overseas direct investment, after ensuring
that the Indian company has obtained necessary licence from the Department of
Telecommunication, Ministry of Telecommunication & Information Technology,
Government of India to establish, install, operate and maintain International Long
Distance Services and also by obtaining a certified copy of the Board Resolution
approving such investment.

(b) Accordingly, these transactions may be reported by the Indian Parties investing in
the consortium to the AD Category-I banks in Form ODI for enabling online submission
of the same by the AD Category-I banks to the Reserve Bank for allotment of Unique
Identification Number.

33.10 Method of Funding

(a) Investment (or financial commitment) in an overseas JV / WOS may be funded out
of one or more of the following sources:
i) drawal of foreign exchange from an AD bank in India;

ii) capitalisation of exports;

iii) swap of shares (valuation as mentioned in para B.1 (e) above);

iv) proceeds of External Commercial Borrowings (ECBs) / Foreign Currency

Convertible Bonds (FCCBs);

538
 v) in exchange of ADRs/GDRs issued in accordance with the Scheme for issue of
Foreign Currency Convertible Bonds and Ordinary Shares (through Depository
Receipt Mechanism) Scheme, 1993, and the guidelines issued thereunder from
time to time by the Government of India;

vi) balances held in EEFC account of the Indian Party and

vii) proceeds of foreign currency funds raised through ADR / GDR issues.

In respect of (vi) and (vii) above, the limit of financial commitment vis-à-vis the net worth
will not apply. However, all investments (or financial commitment) made in the financial
sector will be subject to compliance with Regulation 7 of the Notification ibid, irrespective
of the method of funding.
(b) General permission has been granted to persons resident in India for purchase/
acquisition of securities in the following manner:
(i) out of funds held in RFC account;

(ii) as bonus shares on existing holding of foreign currency shares; and

(iii) when not permanently resident in India, out of their foreign currency resources
outside India (para A.4 above)

33.11 Capitalisation of exports and other dues

(a) Indian Party is permitted to capitalise the payments due from the foreign entity
towards exports, fees, royalties or any other dues from the foreign entity for supply of
technical know-how, consultancy, managerial and other services within the ceilings
applicable. Capitalisation of export proceeds remaining unrealised beyond the prescribed
period of realization will require prior approval of the Reserve Bank.
(b) Indian software exporters are permitted to receive 25 per cent of the value of their
exports to an overseas software start-up company in the form of shares without entering
into Joint Venture Agreements, with prior approval of the Reserve Bank.

33.12 Investments (or financial commitment) in Financial Services Sector

(a) An Indian Party seeking to make investment (or financial commitment) in

an entity outside India, which is engaged in the financial sector, should fulfill the
following additional conditions:
(i) be registered with the regulatory authority in India for conducting the financial
sector activities;

(ii) has earned net profit during the preceding three financial years from the financial
services activities;

(iii) has obtained approval from the regulatory authorities concerned both in India
and abroad for venturing into such financial sector activity; and

(iv) has fulfilled the prudential norms relating to capital adequacy as prescribed by
the concerned regulatory authority in India.

(b) Any additional investment (or financial commitment) by an existing JV/WOS

or its step down subsidiary in the financial services sector is also required to
comply with the above conditions.
539
 (c) Regulated entities in the financial sector making investments (or financial
commitment) in any activity overseas are required to comply with the above
guidelines. Unregulated entities in financial services sector in India may invest
in non-financial sector activities subject to compliance with provisions of
Regulation 6 of the Notification ibid. Trading in commodities exchanges overseas
and setting up JV/WOS for trading in overseas exchanges will be reckoned as
financial services activity and require clearance from SEBI.

33.13 Investment in equity of companies registered overseas / rated debt

instruments

(a) Portfolio investments by listed Indian companies

Listed Indian companies are permitted to invest up to 50 per cent of their net worth as on
the date of the last audited balance sheet in (i) shares and (ii) bonds / fixed income
securities, rated not below investment grade by accredited / registered credit rating
agencies, issued by listed overseas companies.
(b) Investment by Mutual Funds

Indian Mutual Funds registered with SEBI are permitted to invest within an overall cap of
USD 7 billion in:
i. ADRs / GDRs of the Indian and foreign companies;

ii. equity of overseas companies listed on recognized stock exchanges overseas

iii. initial and follow on public offerings for listing at recognized stock exchanges
overseas;

iv. foreign debt securities in the countries with fully convertible currencies, short-
term as well as long-term debt instruments with rating not below investment
grade by accredited/registered credit agencies;

v. money market instruments rated not below investment grade;

vi. repos in the form of investment, where the counter party is rated not below
investment grade. The repos should not, however, involve any borrowing of
funds by mutual funds;

vii. government securities where the countries are rated not below investment
grade;

viii. derivatives traded on recognized stock exchanges overseas only for hedging and
portfolio balancing with underlying as securities;

ix. short-term deposits with banks overseas where the issuer is rated not below
investment grade; and

x. units / securities issued by overseas Mutual Funds or Unit Trusts registered with
overseas regulators and investing in (a) aforesaid securities, (b) Real Estate
Investment Trusts (REITS) listed on recognized stock exchanges overseas, or (c)
unlisted overseas securities (not exceeding 10 per cent of their net assets).

Investments made by listed Indian companies and Mutual Funds in accordance with para
(a) and (b) above, are to be reported online on a monthly basis by the AD banks in the
format as prescribed by the Reserve Bank from time to time

540
 (c) A limited number of qualified Indian Mutual Funds, are permitted to invest cumulatively
up to USD 1 billion in overseas Exchange Traded Funds as may be permitted by SEBI.

(d) Domestic Venture Capital Funds / Alternative Investment Funds registered with SEBI
may invest in equity and equity linked instruments of off-shore Venture Capital
Undertakings, subject to an overall limit of USD 500 million.

Accordingly, Mutual Funds / Venture Capital Funds / Alternative Investment Funds

desirous of availing of this facility may approach SEBI for necessary permission.
(e) General permission is available to the above categories of investors for sale of securities
so acquired.

(f) Investments made by Venture Capital Fund (VCF) / Alternate Investment Fund (AIF),
may be reported in the online application.4

33.14 Approval of the Reserve Bank

1. Prior approval of the Reserve Bank would be required in all other cases of direct investment
(or financial commitment) abroad. For this purpose, application together with necessary
documents should be submitted in Form ODI through their Authorised Dealer Category – I
banks.
2. Reserve Bank would, inter alia, take into account the following factors while considering
such applications:
a) Prima facie viability of the JV / WOS outside India;

b) Contribution to external trade and other benefits which will accrue to India
through such investment (or financial commitment);

c) Financial position and business track record of the Indian Party and the foreign
entity; and

d) Expertise and experience of the Indian Party in the same or related line of activity
as of the JV / WOS outside India.

33.15 Investments in energy and natural resources sector

Reserve Bank will consider applications for investment (or financial commitment) in
JV/WOS overseas in the energy and natural resources sectors (e.g. oil, gas, coal and
mineral ores) in excess of the prescribed limit of financial commitment. AD Category - I
banks may forward such applications from their constituents to the Reserve Bank as per
the laid down procedure.

33.16 Overseas investments by proprietorship concerns and registered Trust/ Society

33.16.1 Keeping in view the changes in the definition / classification of the exporters as per
the Foreign Trade Policy of the Ministry of Commerce and Industry, issued from time to time,
the following revised terms and conditions are required to be complied with for considering the
proposal of overseas direct investment (or financial commitment), by a proprietorship concern
/ unregistered partnership firm in India, by the Reserve Bank under the approval route:
(a) The proprietorship concern / unregistered partnership firm in India is classified as ‘Status
Holder’ as per the Foreign Trade Policy issued by the Ministry of Commerce and Industry,
Govt. of India from time to time;

541
 (b) The proprietorship concern / unregistered partnership firm in India has a proven track
record, i.e., the export outstanding does not exceed 10% of the average export
realisation of the preceding three years and a consistently high export performance;

(c) The Authorised Dealer bank is satisfied that the proprietorship concern / unregistered
partnership firm in India is KYC (Know Your Customer) compliant, engaged in the
proposed business and has turnover as indicated;

(d) The proprietorship concern / unregistered partnership firm in India has not come under
the adverse notice of any Government agency like the Directorate of Enforcement,
Central Bureau of Investigation, Income Tax Department, etc. and does not appear in
the exporters' caution list of the Reserve Bank or in the list of defaulters to the banking
system in India; and

(e) The amount of proposed investment (or financial commitment) outside India does not
exceed 10 per cent of the average of last three years’ export realisation or 200 per cent
of the net owned funds of the proprietorship concern/ unregistered partnership firm in
India, whichever is lower.

33.16.2 Registered Trusts and Societies engaged in manufacturing/ educational/ hospital

sector are allowed to make investment (or financial commitment) in the same sector(s) in a
JV/WOS outside India, with the prior approval of the Reserve Bank.

Eligibility Criteria:
(a) Trust

i) The Trust should be registered under the Indian Trust Act, 1882;

ii) The Trust deed permits the proposed investment overseas;

iii) The proposed investment should be approved by the trustee/s;

iv) The AD Category – I bank is satisfied that the Trust is KYC (Know Your Customer)
compliant and is engaged in a bonafide activity;

v) The Trust has been in existence at least for a period of three years;

vi) The Trust has not come under the adverse notice of any Regulatory /
Enforcement agency like the Directorate of Enforcement, Central Bureau of
Investigation (CBI), etc.

(b) Society

i) The Society should be registered under the Societies Registration Act, 1860.

ii) The Memorandum of Association and rules and regulations permit the Society to
make the proposed investment which should also be approved by the governing
body / council or a managing / executive committee.

iii) The AD Category - I bank is satisfied that the Society is KYC (Know Your
Customer) compliant and is engaged in a bonafide activity;

iv) The Society has been in existence at least for a period of three years;

v) The Society has not come under the adverse notice of any Regulatory/
Enforcement agency like the Directorate of Enforcement, CBI etc.
542
 In addition to the registration, the AD Category – I bank should ensure that the special
license / permission has been obtained by the applicant in case the activities require special
license / permission either from the Ministry of Home Affairs, Government of India or from
the relevant local authority, as the case may be.
33.16.3 An application in form ODI may be made to the Chief General Manager,
Reserve Bank of India, Foreign Exchange Department, Overseas Investment Division,
Central Office, Amar Building, 5th Floor, Fort, Mumbai 400 001, through the AD Category
- I bank. AD Category - I banks may forward the application to the Reserve Bank, after
ensuring the above terms and conditions along with their comments and
recommendations, for consideration.
33.17 Post investment changes / additional investment (or financial commitment) in
existing JV / WOS

A JV / WOS set up by the Indian Party as per the Regulations may diversify its activities /
set up step down subsidiary / alter the shareholding pattern in the overseas entity (subject
to compliance of Regulation 7 of the Notification ibid, in the case of financial services sector
companies). The Indian Party should report to the Reserve Bank through the AD Category
- I bank, the details of such decisions within 30 days of the approval of those decisions by
the competent authority of the JV / WOS concerned in terms of local laws of the host
country and include the same in the Annual Performance Report (APR - Part II of Form
ODI) required to be forwarded to the AD Category-I bank.
33.18 Restructuring of the balance sheet of the overseas entity involving write off of
capital and receivables

In order to provide more operational flexibility to the Indian corporates, the Indian
promoters who have set up WOS abroad or have at least 51 per cent stake in an overseas
JV, may write off capital (equity / preference shares) or other receivables, such as, loans,
royalty, technical knowhow fees and management fees in respect of the JV /WOS, even
while such JV /WOS continues to function as under:
(i) Listed Indian companies are permitted to write off capital and other receivables
up to 25 per cent of the equity investment in the JV /WOS under the Automatic
Route; and

Unlisted companies are permitted to write off capital and other receivables up to 25 per
cent of the equity investment in the JV /WOS under the Approval Route.The write-off /
restructuring have to be reported to the Reserve Bank through the designated AD
Category-I bank within 30 days of write-off/ restructuring. The write- off / restructuring is
subject to the condition that the Indian Party should submit the following documents for
scrutiny along with the applications to the designated AD Category –I bank under the
Automatic as well as the Approval Routes:
a) A certified copy of the balance sheet showing the loss in the overseas WOS/JV set up
by the Indian Party; and

b) Projections for the next five years indicating benefit accruing to the Indian company
consequent to such write off / restructuring.

33.19 Acquisition of a foreign company through bidding or tender procedure

An Indian Party may remit earnest money deposit or issue a bid bond guarantee for
acquisition of a foreign company through bidding and tender procedure and also make
subsequent remittances through an AD Category - I bank in accordance with the provisions
of Regulation 14 of the Notification ibid.

543
 33.20 Obligations of Indian Party (IP) and Resident Individual (RI)

33.20.1 An IP/ RI which has made direct investment abroad is under obligation to,

(i) receive share certificates or any other document as an evidence of investment in the foreign
entity to the satisfaction of the Reserve Bank within six months, or such further period as
Reserve Bank may permit, from the date of effecting remittance or the date on which the
amount to be capitalised became due to the Indian Party or the date on which the amount due
was allowed to be capitalised;

(ii) repatriate to India, all dues receivable from the foreign entity, like dividend, royalty, technical
fees etc., within 60 days of its falling due, or such further period as the Reserve Bank may
permit: and

(iii) submit to the Reserve Bank, through the designated Authorised Dealer, every year on or
before December 31, an Annual Performance Report (APR) in Part II of Form ODI in respect of
each JV or WOS outside India, and other reports or documents as may be prescribed by the
Reserve Bank from time to time. The APR, so required to be submitted, has to be based on the
audited annual accounts of the JV/WOS for the preceding year, unless specifically exempted by
the Reserve Bank.

AD Category - I bank is required to monitor the receipt of such documents and satisfy itself
about the bonafides of the documents. It is further advised that -
a. the online OID application has been suitably modified to enable the nodal office of the
AD bank to view the outstanding position of all the APRs pertaining to an applicant
including for those JV / WOS for which it is not the designated AD bank. Accordingly,
the AD bank, before undertaking / facilitating any ODI related transaction on behalf of
the eligible applicant, should necessarily check with its nodal office to confirm that all
APRs in respect of all the JV / WOS of the applicant have been submitted;

b. certification of APRs by the Statutory Auditor or Chartered Accountant need not be

insisted upon in the case of Resident Individuals and self-certification may be accepted;

c. in case multiple IPs / RIs have invested in the same overseas JV / WOS, the obligation
to submit APR shall lie with the IP / RI having maximum stake in the JV / WOS.
Alternatively, the IPs / RIs holding stake in the overseas JV / WOS may mutually agree
to assign the responsibility for APR submission to a designated entity which may
acknowledge its obligation to submit the APR in terms of Regulation 15 (iii) of
Notification, ibid, by furnishing an appropriate undertaking to the AD bank;

33.20.2 Reporting requirements including submission of Annual Performance Report

are also applicable for investors in unincorporated entities in the oil sector.
33.20.3 Where the law of the host country does not mandatorily require auditing of
the books of accounts of JV / WOS, the Annual Performance Report (APR) may be
submitted by the Indian Party based on the un-audited annual accounts of the JV / WOS
provided:
(a) The Statutory Auditors of the Indian Party certify that law of the host country does
not mandatorily require auditing of the books of accounts of JV/ WOS and the figures in the
APR are as per the un-audited accounts of the overseas JV / WOS; and

544
 (b) That the un-audited annual accounts of the JV / WOS have been adopted and
ratified by the Board of the Indian Party.
(c) The above exemption from filing the APR based on unaudited balance sheet will
not be available in respect of JV/WOS in a country / jurisdiction which is either under the
observation of the Financial Action Task Force (FATF) or in respect of which enhanced due
diligence is recommended by FATF or any other country / jurisdiction as prescribed by
Reserve Bank of India.
33.20.4 An annual return on Foreign Liabilities and Assets (FLA) is required to be
submitted directly by all the Indian companies which have received FDI and/or made FDI
abroad (i.e. overseas investment) in the previous year(s) including the current year, to the
Director, External Liabilities and Assets Statistics Division, Department of Statistics and
Information Management (DSIM), Reserve Bank of India.
The Annual Return on FLA is available on the RBI website (www.rbi.org.in → Forms
category → FEMA Forms) which can be duly filled-in, validated and sent by e-mail, by July
15 every year.

33.21 Transfer by way of sale of shares of a JV / WOS

33.21.1 An Indian Party, without prior approval of the Reserve Bank, may transfer
by way of sale to another Indian Party which complies with the provisions of Regulation
6 of FEMA Notification 120/RB-2004 dated July 7, 2004 as amended from time to time, or
to a person resident outside India, any share or security held by it in a JV or WOS outside
India subject to the following conditions:
(i) the sale does not result in any write off of the investment (or financial
commitment) made.

(ii) the sale is effected through a stock exchange where the shares of the overseas
JV/ WOS are listed;

(iii) if the shares are not listed on the stock exchange and the shares are disinvested
by a private arrangement, the share price is not less than the value certified by
a Chartered Accountant / Certified Public Accountant as the fair value of the
shares based on the latest audited financial statements of the JV / WOS;

(iv) the Indian Party does not have any outstanding dues by way of dividend,
technical know-how fees, royalty, consultancy, commission or other
entitlements and / or export proceeds from the JV or WOS;

(v) the overseas concern has been in operation for at least one full year and the
Annual Performance Report together with the audited accounts for that year has
been submitted to the Reserve Bank;

(vi) the Indian Party is not under investigation by CBI / DoE/ SEBI / IRDA or any
other regulatory authority in India.

33.21.2 The Indian Party is required to submit details of such disinvestment through
its designated AD category-I bank within 30 days from the date of disinvestment.

33.22 Transfer by way of sale of shares of a JV / WOS involving write off of the
investment (or financial commitment)

33.22.1 Indian Party may disinvest, without prior approval of the Reserve Bank, in
any of the under noted cases where the amount repatriated after disinvestment is less
than the original amount invested:
545
 i) in case where the JV / WOS is listed in the overseas stock exchange;

ii) in cases where the Indian Party is listed on a stock exchange in India and has a
net worth of not less than Rs.100 crore;

iii) where the Indian Party is an unlisted company and the investment (or financial
commitment) in the overseas venture does not exceed USD 10 million. and

iv) where the Indian Party is a listed company with net worth of less than Rs.100
crore but investment (or financial commitment) in an overseas JV/WOS does not
exceed USD 10 million.

33.22.2 Such disinvestments shall be subject to the conditions listed at B.15 (1)
items (ii) to (vi) and B 15 (2)
33.22.3 An Indian Party, which does not satisfy the conditions laid down above for
undertaking any disinvestment in its JV/WOS abroad, shall have to apply to the Reserve
Bank for prior permission.

33.23 Pledge of shares of Joint Venture (JV), Wholly Owned Subsidiary (WOS) and
Step Down Subsidiary (SDS)

An Indian Party may create charge, by way of pledge, on the shares of Joint Venture (JV)
or Wholly Owned Subsidiary (WOS) or Step Down Subsidiary (SDS) outside India as a
security in favour of an Authorized Dealer or a public financial institution in India or an
overseas lender, for availing of fund based or non-fund based facility for itself (i.e. the
Indian Party) or for its JV / WOS / SDS whose shares have been pledged, or for any other
JV / WOS / SDS of the Indian Party subject to the terms and conditions prescribed under
Regulation 18 of the Notification and A.P. (DIR Series) Circular No.54 dated December 29,
2014.

33.24 Rollover of guarantees

33.24.1 It has been decided not to treat / reckon the renewal / rollover of an existing
/ original guarantee, which is part of the total financial commitment of the Indian Party
in terms of Regulation 6 of the Notification ibid, as a fresh financial commitment, provided
that:
(a) the existing / original guarantee was issued in terms of the then extant / prevailing FEMA
guidelines;

(b) there is no change in the end use of the guarantee, i.e. the facilities availed by the JV /
WOS / Step Down Subsidiary;

(c) there is no change in any of the terms & conditions, including the amount of the
guarantee except the validity period;

(d) the reporting of the rolled over guarantee would be done in Form ODI - Part I; and
(e) if the Indian Party is under investigation by any investigation / enforcement agency or
regulatory body, the concerned agency / body shall be kept informed about the same.

33.24.2 In case, however, the above conditions are not met, the Indian Party shall
obtain prior approval of the Reserve Bank for rollover / renewal of the existing guarantee
through the designated AD bank.

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33.25 Creation of charge on domestic and foreign assets

33.25.1 An Indian Party may create charge (by way of mortgage, pledge,
hypothecation or otherwise) on its assets [including the assets of its group company, sister
concern or associate company in India, promoter and / or director] in favour of an overseas
lender as security for availing of the fund based and/or non-fund based facility for its Joint
Venture (JV) or Wholly Owned Subsidiary (WOS) or Step Down Subsidiary (SDS) outside
India subject to the terms and conditions prescribed under Regulation 18A of the
Notification and A.P. (DIR Series) Circular No.54 dated December 29, 2014.
33.25.2 An Indian Party may create charge (by way of mortgage, pledge,
hypothecation or otherwise) on the assets of its overseas JV or WOS or SDS in favour of
an AD bank in India as security for availing of the fund based and/or non-fund based
facility for itself or its JV or WOS or SDS outside India subject to the terms and conditions
prescribed under Regulation 18A of the Notification and A.P. (DIR Series) Circular No.54
dated December 29, 2014.

33.26 Overseas Direct Investments by resident individuals

With effect from August 05, 2013, a resident individual (single or in association with
another resident individual or with an ‘Indian Party’ as defined in the Notification) satisfying
the criteria as per Schedule V of the Notification, may make overseas direct investment in
the equity shares and compulsorily convertible preference shares of a Joint Venture (JV)
or Wholly Owned Subsidiary (WOS) outside India.
The limit of overseas direct investment by the resident individual shall be within the overall
limit prescribed by the Reserve Bank of India under the provisions of Liberalised
Remittance Scheme, as prescribed by the Reserve Bank from time to time.
33.27 Hedging of overseas direct investments

33.27.1 Resident entities having overseas direct investments (or financial

commitment) are permitted to hedge the foreign exchange rate risk arising out of such
investments (or financial commitment). AD Category - I banks may enter into forward /
option contracts with resident entities who wish to hedge their overseas direct investments
(in equity and loan), subject to verification of such exposure.
33.27.2 If a hedge becomes naked in part or full owing to shrinking of the market
value of the overseas direct investment (or financial commitment), the hedge may
continue to the original maturity. Rollovers on the due date are permitted up to the extent
of market value as on that date.

33.28 Opening of Foreign Currency Account abroad by an Indian Party

In terms of the conditions stipulated under A.P. (DIR Series) Circular No. 101 dated April
02, 2012, eligible Indian Party may open, hold and maintain Foreign Currency Account
(FCA) abroad for the purpose of overseas direct investments subject to the following terms
and conditions:
I. The host country regulations stipulate that the investments into the country are required
to be routed through a designated account.

II. FCA shall be opened, held and maintained as per the regulation of the host country.

III. The remittances sent to the FCA by the Indian party should be utilized only for making
overseas direct investment into the JV / WOS abroad.

IV. Any amount received in the account by way of dividend and / or other entitlements from
the subsidiary shall be repatriated to India within 30 days from the date of credit.

547
V. The Indian Party should submit the details of debits and credits in the FCA on yearly
basis to the designated AD bank with a certificate from the statutory Auditors of the
Indian party certifying that the FCA was maintained as per the host country laws and
the extant FEMA regulations / provisions as applicable.

The FCA so opened shall be closed immediately or within 30 days from the date of
disinvestment from JV / WOS or cessation thereof.

548
 OTHER INVESTMENTS IN FOREIGN SECURITIES

33.29 Permission for purchase/ acquisition of foreign securities in certain cases

33.29.1 General permission has been granted to a person resident in India who is
an individual:
(a) to acquire foreign securities as a gift from any person resident outside India;

(b) to acquire shares under cashless Employees Stock Option Programme (ESOP)
issued by a company outside India, provided it does not involve any remittance
from India;

(c) to acquire shares by way of inheritance from a person whether resident in or

outside India;

(d) to purchase equity shares offered by a foreign company under its ESOP Schemes,
if he is an employee, or, a director of an Indian office or branch of a foreign
company, or, of a subsidiary in India of a foreign company, or, an Indian
company in which foreign equity holding, either direct or through a holding
company/Special Purpose Vehicle (SPV) irrespective of the percentage of the
direct or indirect equity stake in the Indian company. AD Category – I banks are
permitted to allow remittances for purchase of shares by eligible persons under
this provision irrespective of the method of operationalisation of the scheme i.e.
where the shares under the scheme are offered directly by the issuing company
or indirectly through a trust / a Special Purpose Vehicle (SPV) / step down
subsidiary, provided (i) the shares under the ESOP Scheme are offered by the
issuing company globally on a uniform basis, and (ii) an Annual Return is
submitted by the Indian company to the Reserve Bank through the AD Category
– I bank giving details of remittances / beneficiaries, etc.

33.29.2 A person resident in India may transfer by way of sale the shares acquired
as stated above provided that the proceeds thereof are repatriated immediately on receipt
thereof and in any case not later than 90 days from the date of sale of such securities.
33.29.3 Foreign companies are permitted to repurchase the shares issued to
residents in India under any ESOP Scheme provided (i) the shares were issued in
accordance with the Rules / Regulations framed under Foreign Exchange Management
Act, 1999, (ii) the shares are being repurchased in terms of the initial offer document, and
(iii) an annual return is submitted through the AD Category – I bank giving details of
remittances / beneficiaries, etc.
33.29.4 In all other cases, not covered by general or special permission, approval
of the Reserve Bank is required to be obtained before acquisition of a foreign security.

33.30 Pledge of a foreign security by a person resident in India

The shares acquired by persons resident in India in accordance with the provisions of
Foreign Exchange Management Act, 1999 or Rules or Regulations made thereunder are
allowed to be pledged for obtaining credit facilities in India from an AD Category – I bank
/ Public Financial Institution.
33.31 General permission in certain cases

Residents are permitted to acquire a foreign security, if it represents –

a) qualification shares for becoming a director of a company outside India to the extent
prescribed as per the law of the host country where the company is located provided

549
 it does not exceed the limit prescribed for the resident individuals under the Liberalized
Remittance Scheme (LRS) in force at the time of acquisition;

b) part / full consideration of professional services rendered to the foreign company or in

lieu of Director’s remuneration. The limit of acquiring such shares in terms of value is
restricted to the overall ceiling prescribed for the resident individuals under the
Liberalized Remittance Scheme (LRS) in force at the time of acquisition;

c) rights shares provided that the rights shares are being issued by virtue of holding
shares in accordance with the provisions of law for the time being in force;

d) purchase of shares of a JV / WOS abroad of the Indian promoter company by the

employees/directors of Indian promoter company which is engaged in the field of
software where the consideration for purchase does not exceed the ceiling as stipulated
by Reserve Bank from time to time; the shares so acquired do not exceed 5 per cent
of the paid-up capital of the JV/ WOS outside India; and after allotment of such shares,
the percentage of shares held by the Indian promoter company, together with shares
allotted to its employees is not less than the percentage of shares held by the Indian
promoter company prior to such allotment; and

e) An Indian company in the knowledge based sector may allow its resident employees
(including working directors) to purchase foreign securities under the ADR/GDR linked
stock option schemes. The issue of employees’ stock option by a listed company shall
be governed by SEBI (Employees’ Stock Option and Stock Purchase Scheme)
Guidelines, 1999 and the issue of employees stock option by an unlisted company shall
be governed by the guidelines issued by the Government of India for issue of ADR/GDR
linked stock options. The consideration for the purchase should not exceed the ceiling
as stipulated by the Reserve Bank from time to time.

33.32 Acquiring the shares of SWIFT by a resident bank

A bank in India, being licensed by the Reserve Bank under the provisions of the Banking
Regulation Act, 1949, may acquire the shares of Society for Worldwide Interbank Financial
Telecommunication (SWIFT) as per the by-laws of SWIFT, provided the bank has been
permitted by the Reserve Bank for admission to the ‘SWIFT User’s Group in India’ as
member.
33.33 Issue of Indian Depository Receipts (IDRs)

Eligible companies resident outside India may issue Indian Depository Receipts (IDRs)
through a Domestic Depository. The permission has been granted subject to

550
 compliance with the Companies (Issue of Depository Receipts) Rules, 2004 and
subsequent amendments made thereto and the SEBI (DIP) Guidelines, 2000, as amended
from time to time. In case of raising of funds through issuance of IDRs by financial/banking
companies having presence in India, either through a branch or subsidiary, the approval
of the sectoral regulator(s) should be obtained before the issuance of IDRs.
33.34 Maintenance of collateral by FIIs for transactions in derivative segment-
opening of demat accounts by Clearing Corporations and Clearing Members

SEBI approved clearing corporations of stock exchanges and their clearing members may
undertake the following transactions subject to the guidelines issued from time to time by
SEBI in this regard:
i) to open and maintain demat accounts with foreign depositories and to acquire, hold,
pledge and transfer the foreign sovereign securities, offered as collateral by FIIs;

ii) to remit the proceeds arising from corporate action, if any, on such foreign sovereign
securities; and

iii) to liquidate such foreign sovereign securities if the need arises.

Clearing Corporations shall report, on a monthly basis, the balances of foreign sovereign
securities, held by them as non-cash collaterals of their clearing members to the Chief
General Manager, Reserve Bank of India, Foreign Exchange Department, Foreign
Investment Division, Central Office, Mumbai. The report should be submitted by the 10th
of the following month to which it relates.

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 PART - II
OPERATIONAL INSTRUCTIONS TO AUTHORISED DEALER BANKS

33.35 Designated branches

An eligible Indian Party making investment (or financial commitment) in a Joint Venture
(JV) / Wholly Owned Subsidiary (WOS) outside India is required to route all its transactions
relating to the investment (or financial commitment) through one branch of an AD
Category – I bank designated by it in terms of clause (v) of sub regulation 2 of Regulation
6 of the Notification ibid. All communication from the Indian Parties, to the Reserve Bank,
relating to the investment (or financial commitment) outside India should be routed
through the same branch of the AD Category – I bank that has been designated by the
Indian investor for the investment (or financial commitment). The designated AD Category
– I bank while forwarding the request from their customers to the Reserve Bank, should
also forward its comments / recommendations on the request. However, the Indian Party
may designate different AD Category – I banks / branches of AD Category – I banks for
different JV / WOS outside India. For proper follow up, the AD Category – I bank is required
to maintain party-wise record in respect of each JV/ WOS.
33.36 Investments under Regulation 6 of Notification No. FEMA 120/2004-RB dated
July 7, 2004
AD Category – I banks may allow investments (or financial commitment) up to the
permissible limits on receipt of application in form ODI together with form A-2, duly filled
in, from the Indian Party (ies)/ Resident Individual (RI) making investments (or financial
commitment) in a JV/WOS abroad subject to their complying with the conditions specified
in Regulation 6 of Notification FEMA No.120/RB-2004 dated July 7, 2004, as amended from
time to time. Investment (or financial commitment) in financial services should also comply
with the norms stipulated at Regulation 7 of Notification FEMA No.120/RB-2004 dated July
7, 2004, as amended from time to time. While forwarding the report of remittance in
respect of investment (or financial commitment) in financial services sector, AD Category
– I banks may certify that prior approvals from the Regulatory Authorities concerned in
India and abroad have been obtained. Before allowing the remittance (or financial
commitment), AD Category – I banks are required to ensure that the necessary
documents, as prescribed in form ODI, have been submitted and found to be in order.
Explanation: AD banks may note that an additional timeline of 15 days is made available
to them for reporting of investments/ financial commitments by their constituents to RBI
in the OID application (other than first remittance, which requires to be reported in ODI
system before executing the transaction, to generate UIN) and is not to be availed by the
Indian parties/ Indian Residents for submission of Forms and documents to the AD bank.

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33.37 General procedural instructions

33.37.1 The reporting system for overseas investment (or financial commitment)
has been revised and incorporated in the FED Master Direction No. 18/2015-16 dated
January 1, 2016.
33.37.2 With effect from March 2, 2010 online reporting of the ODI forms has been
operationalised in a phased manner. The system enables online generation of the Unique
Identification Number (UIN), acknowledgment of remittance/s (or financial commitment),
filing of the Annual Performance Reports (APRs), disinvestment report and easy
accessibility to data at the AD level for reference purposes.
The online reporting would be required to be made by the Centralized Unit/Nodal Office
of AD Category - I banks. The Overseas Investment Application is hosted on the Reserve
Bank's Website at https://oid.rbi.org.in and a link has been made available for accessing
the Application on the main page of the website. AD Category – I banks would be
responsible for the validity of the information reported online.
(a) The application for overseas investment (or financial commitment) under the
approval route would continue to be submitted to the Reserve Bank in physical form as
hitherto, in addition to the online reporting of Part I as contemplated above, for approval
purposes.
(b) In case of disinvestment by way of closure / winding up / voluntary liquidation /
merger/ amalgamation of JV/ WOS under the Automatic Route, in terms of A. P. (Dir
Series) Circular No. 29 dated March 27, 2006/ A. P. (Dir Series) Circular No. 73 dated June
29, 2011, a report should continue to be submitted by the designated AD Category - I
bank, in Part III of form ODI, to Reserve Bank in the online application. In all other cases
of disinvestment, an application along with the necessary supporting documents should be
submitted to the Reserve Bank as per the existing procedure.
(c) As per the new reporting system, AD Category – I banks would be able to generate
the UIN online under the automatic route.However, subsequent remittances (or financial
commitment) under the automatic route and remittances (or financial commitment) under
the approval route should be made and reported online, only after receipt of auto
generated e-mail from RBI confirming the UIN.
33.37.3 In cases where the investment (or financial commitment) is being made
jointly by more than one Indian Party, Reserve Bank would allot only one Unique
Identification Number to the overseas JV/ WOS.
33.37.4 AD Category – I banks should allow remittance towards loan to the JV/
WOS and / or issue guarantee to / on behalf of the JV / WOS abroad only after ensuring
that the Indian Party has an equity stake in the JV / WOS. However, wherever the laws of
the host country permit incorporation of a company without equity participation by the
Indian Party, AD banks may obtain prior approval from the Reserve Bank before allowing
the remittances towards the loan/issue of guarantee to/on behalf of the overseas JV/WOS.
33.38 Investments (or financial commitment) under Regulation 11 of
Notification No. FEMA.120/2004-RB dated July 7, 2004
In terms of Regulation 11 of the Notification, Indian Parties are permitted to make direct
investment (or financial commitment) in JV / WOS abroad by way of capitalisation of
exports or other dues/entitlements like royalties, technical know- how fees, consultancy
fees, etc. In such cases also, the Indian Party is required to submit details of the
capitalisation in form ODI to the designated branch of the AD Category – I bank. Such
investments (or financial commitment) by way of capitalisation are also to be reckoned
while computing the limit of financial commitment prescribed in terms of Regulation 6 of
the Notification ibid. Further, in cases where the export proceeds are being capitalised in
accordance with the provisions of Regulation 11, the AD Category – I banks are required
to obtain a custom certified copy of the invoice as required under Regulation 12(2) and
forward it to the Reserve Bank together with the revised form ODI. Capitalisation of export
553
proceeds or other entitlements, which are overdue, would require prior approval of the
Reserve Bank for which the Indian Parties should make an application in form ODI to the
Reserve Bank for consideration.

33.39 Allotment of Unique Identification Number (UIN)

The Unique Identification Number allotted to each JV or WOS abroad, is required to be
quoted in all correspondence with the Reserve Bank. AD Category – I banks may allow
investment (or financial commitment) in an overseas concern set up by an Indian Party,
in terms of Regulation 6 of Notification No. FEMA 120/RB-2004 dated July 7, 2004, as
amended from time to time, only after the Reserve Bank has allotted necessary Unique
Identification Number to the overseas project.

33.40 Investment by way of share swap

In the case of investment by way of share swap, AD Category – I banks are additionally
required to submit to the Reserve Bank the details of transactions such as number of
shares received / allotted, premium paid / received, brokerage paid / received, etc., and
also confirmation to the effect that the inward leg of transaction has been approved by
FIPB (if required) and the valuation has been done as per the laid-down procedure and
that the overseas company’s shares are issued / transferred in the name of the Indian
investing company. AD Category – I bank may also obtain an undertaking from the
applicants to the effect that future sale / transfer of shares so acquired by Non-Residents
in the Indian company shall be in accordance with the provisions of Notification No. FEMA
20/2000-RB dated May 3, 2000, as amended from time to time.
33.41 Investments (or financial commitment) under Regulation 9 of Notification
No. FEMA.120/2004-RB dated July 7, 2004
In terms of Regulation 9, investment (or financial commitment) in JV / WOS in certain
cases requires the prior approval of the Reserve Bank. AD Category – I banks may allow
remittances under these specific approvals granted by the Reserve Bank and report the
same to the Chief General Manager, Foreign Exchange Department, Central Office,
Overseas Investment Division, Amar Building, 5th floor, Mumbai 400 001 in form ODI.

554
 33.41 Purchase of foreign securities under ADR / GDR linked Stock Option
Scheme
AD Category – I banks may make remittances for purchase of foreign securities in the
knowledge based sector under the ADR / GDR linked ESOPs, up to the ceiling as
stipulated by the Reserve Bank from time to time after satisfying that the issuing
company has followed the relevant guidelines of SEBI / Government.
33.42 Remittance towards Earnest Money Deposit or Issue of Bid Bond
Guarantee

(i) In terms of Regulation 14 of the Notification, AD Category – I banks may, on being

approached by an Indian Party which is eligible for investment (or financial
commitment) under Regulation 6 of the Notification ibid, allow remittance towards
Earnest Money Deposit (EMD) to the extent eligible after obtaining Form A2 duly
filled in or may issue bid bond guarantee on their behalf for participation in bidding
or tender procedure for acquisition of a company incorporated outside India. On
winning the bid, AD banks may remit the acquisition value after obtaining Form A2
duly filled in and report such remittance (including the amount initially remitted
towards EMD) to the Chief General Manager, Foreign Exchange Department, Central
Office, Overseas Investment Division, Amar Building, 5th floor, Mumbai 400 001 in
form ODI. AD Category – I banks, while permitting remittance towards EMD should
advise the Indian Party that in case they are not successful in the bid, they should
ensure that the amount remitted is repatriated in accordance with Foreign Exchange
Management (Realisation, Repatriation & Surrender of Foreign Exchange)
Regulations, 2000 (cf. Notification No. FEMA 9/2000-RB dated 3rd May 2000), as
amended from time to time

(ii) In cases where an Indian Party, after being successful in the bid / tender decides
not to proceed further with the investment, AD banks should submit full details of
remittance allowed towards EMD / invoked bid bond guarantee, to the Chief General
Manager, Foreign Exchange Department, Central Office, Overseas Investment
Division, Amar Building, 5th floor, Mumbai 400 001.

(ii) In case the Indian Party is successful in the bid, but the terms and conditions of
acquisition of a company outside India are not in conformity with the provisions of
Regulations in Part I, or different from those for which approval under sub-regulation
(3) was obtained, the Indian entity should obtain approval from the Reserve Bank
by submitting form ODI.

33.43 Transfer by way of sale of shares of a JV / WOS outside India

The Indian Party should report details of the disinvestment in the online OID application
through the AD Category – I bank within 30 days of disinvestment in Part III of the
Form ODI as indicated in para 3 (3) (d) above. Sale proceeds of shares / securities
shall be repatriated to India immediately on receipt thereof and in any case not later
than 90 days from the date of sale of the shares / securities.
33.44 Verification of evidence of investment

555
The share certificates or any other document as evidence of investment, where share
certificates are not issued shall, henceforth, be retained by the designated AD Category
–I bank, who would be required to monitor the receipt of such documents and satisfy
themselves about the bonafides of the documents so received.
33.45 Opening of Foreign Currency Account abroad by an Indian Party
Wherever, the host country Regulations stipulate that the investments (or financial
commitment) into the country are required to be routed through a designated account,
an Indian Party is allowed to open, hold and maintain Foreign Currency Account (FCA)
abroad for the purpose of overseas direct investments (or financial commitment)
subject to certain terms and conditions stipulated under A.P. (DIR Series) Circular No.
101 dated April 02, 2012

556
 ANNEXURE – I

LIST OF DESIGNATED BRANCHES

1) Ahmedabad 14) Mumbai Large

Corporate Corporate
Banking Banking
2) Chandigarh 15) Andheri
Corporate Corporate
Banking Banking
3) Chennai 16) Mumbai
Corporate Overseas
Banking
4) Chennai 17) Mumbai
Overseas Corporate
Banking
5) Coimbatore 18) Nagpur
Corporate Corporate
Banking Banking
6) Kolkata 19) New Delhi
Corporate Large
Banking Corporate
Banking
7) Kolkata 20) New Delhi
Overseas Overseas
8) Hyderabad 21) Pune
Corporate Corporate
Banking Banking
9) Indore 22) Thane Main
10) Jamshedpur 23) Jaipur Main
11) Kanpur 24) Rajkot Main
Main
12) Bangalore 25) Vadodara
Corporate Corporate
Banking Banking
13) Jalandhar 26) Visakhapatnam
Overseas Overseas
27) SEEPZ

As regards other branches they are required to route the applications received by
them under ODI Investments through one of the aforesaid branches located within
their vicinity.

557
 Chapter No 34

EXTERNAL COMMERCIAL BORROWINGS (ECB)

PART I

34. External Commercial Borrowing: External Commercial Borrowings are commercial loans
raised by eligible resident entities from recognised non-resident entities and should conform to
parameters such as minimum maturity, permitted and non-permitted end-uses, maximum all-
in-cost ceiling, etc. The parameters given below apply in totality and not on a standalone basis.

34.1 ECB Framework: The framework for raising loans through ECB (hereinafter referred to
as the ECB Framework) comprises the following two options:

Sr. Parameters FCY denominated ECB INR denominated ECB

No.
i Currenc Any freely convertible Indian Rupee (INR)
y of Foreign
borrowi Currency
ng
ii Forms of Loans including bank loans; Loans including bank loans;
ECB floating/ fixed rate notes/ floating/ fixed rate
bonds/ debentures (other notes/bonds/ debentures/
than fully and compulsorily preference shares (other
conver than fully and compulsorily
tible instruments); Trade convertible instruments);
credits beyond 3 years; Trade credits beyond 3
FCCBs; FCEBs and Financial years; and Financial Lease.
Lease. Also, plain vanilla Rupee
denominated bonds issued
overseas, which can be
either placed privately or
listed on exchanges as per
host country
regulations.

558
iii Eligible All entities eligible to receive a) All entities eligible to raise
borrowe FDI. Further, the following FCY ECB; and
rs entities are also eligible to b) Registered entities
raise ECB: engaged in micro-finance
i. Port Trusts; activities, viz., registered
ii. Units in SEZ; Not for Profit companies,
iii. SIDBI; and registered
iv. EXIM Bank of India. societies/trusts/
cooperatives and Non-
Government
Organisations.
iv Recogni The lender should be resident of FATF or IOSCO compliant
sed country, including on transfer of ECB. However,
lenders a) Multilateral and Regional Financial Institutions where India is
a member country will also be considered as recognised
lenders;
b) Individuals as lenders can only be permitted if they are foreign
equity holders or for subscription to bonds/debentures listed
abroad; and
c) Foreign branches / subsidiaries of Indian banks are permitted
as
recognised lenders only for FCY ECB (except FCCBs and
FCEBs).
Foreign branches / subsidiaries of Indian banks, subject to
applicable prudential norms, can participate as
arrangers/underwriters/market-makers/traders for Rupee
denominated Bonds issued overseas. However, underwriting
by foreign branches/subsidiaries of Indian banks for issuances
by
Indian banks will not be allowed.
V Minimu MAMP for ECB will be 3 years. Call and put options, if any, shall
m not be exercisable prior to completion of minimum average
Average maturity. However, for the specific categories mentioned below,
Maturity the MAMP
Period will be as prescribed therein:
(MAMP) Sr. Category MA
No. MP
(a) ECB raised by manufacturing companies 1
up to year
USD 50 million or its equivalent per
financial year.
(b) ECB raised from foreign equity holder for 5
working capital purposes, general years
corporate purposes or for repayment of
Rupee loans
559
 (c) ECB raised for 10
(i) working capital purposes or general years
corporate purposes
(ii) on-lending by NBFCs for working
capital
purposes or general corporate purposes
(d) ECB raised for 7
(i) repayment of Rupee loans years
availed domestically for capital
expenditure
(ii) on-lending by NBFCs for the same
purpose
(e) ECB raised for 10
(i) repayment of Rupee loans availed years
domestically for purposes other than
capital expenditure
(ii) on-lending by NBFCs for the same
purpose
for the categories mentioned at (b) to (e) –
(i) ECB cannot be raised from foreign branches / subsidiaries
of Indian banks
(ii) the prescribed MAMP will have to be strictly complied
with
under all circumstances.
vi All-in- Benchmark rate plus 450 bps spread.
cost
ceiling per
annum
vi Other Prepayment charge/ Penal interest, if any, for default or
i costs breach of
covenants, should not be more than 2 per cent over and
above the
contracted rate of interest on the outstanding principal amount
and
will be outside the all-in-cost ceiling.
V End- The negative list, for which the ECB proceeds cannot be
iii uses utilised, would include the following:
(Negativ a) Real estate activities.
e list) b) Investment in capital market.
c) Equity investment.
d) 2Working capital purposes, except in case of ECB mentioned
at v(b) and v(c) above.
e) General corporate purposes, except in case of ECB
mentioned at v(b) and v(c) above.
f) Repayment of Rupee loans, except in case of ECB

560
 mentioned at v(d) and v(e) above.
g) On-lending to entities for the above activities, except in case
of ECB raised by NBFCs as given at v(c), v(d) and v(e)
above.
ix Exchang Change of currency of FCY For conversion to Rupee, the
e rate ECB into INR ECB can be at exchange rate shall be the
the exchange rate prevailing rate prevailing on the date of
on the date of the settlement.
agreement for such change
between the parties
concerned or at an exchange
rate, which is less than the
rate prevailing on the date of
the agreement, if consented
to by
the ECB lender.
x Hedging The entities raising ECB are Overseas investors are
provisio required to follow the eligible to hedge their
n guidelines for hedging exposure in Rupee through
issued, if any, by the permitted derivative
concerned sectoral or products with AD Category I
prudential regulator in banks in India. The investors
respect of foreign currency can also access the domestic
expo market through branches /
sure. Infrastructure space subsidiaries of Indian banks
companies shall have a abroad or branches of
Board approved risk foreign banks with Indian
management policy. Further, presence on a back to back
such companies are required basis.
to mandatorily hedge 70 per
cent of their ECB exposure
in case the
average maturity of the
ECB is
less than 5 years. The
designated AD Category-I
bank shall verify that 70 per
cent hedging requirement is
complied with during the
currency of the ECB and
report the position to RBI
through Form ECB 2. The
following operational aspects
with respect to hedging
should be ensured:
561
a. Coverage: The ECB
borrower will be
required to cover the
principal as well as the
coupon through
financial hedges. The
financial hedge for all
exposures on account of
ECB should start from
the time of each such
exposure (i.e. the day
the liability is created in
the books of the
borrower).
b. Tenor and rollover: A
minimum tenor of one
year for the financial
hedge would be
required with periodic
rollover, duly ensuring
that the exposure on
account of ECB is not
unhedged at any point
during the currency of
the ECB.
Natural Hedge:
Natural hedge, in lieu of
financial hedge, will be
considered only to the
extent of offsetting
projected cash flows /
revenues in matching
currency, net of all other
projected outflows. For
this purpose, an ECB
may be considered
naturally hedged if the
offsetting exposure has
the maturity/cash flow
within the same
accounting year.Any
other arrangements/
structures, where
revenues are indexed to
foreign currency will not
562
 be considered as a
natural
hedge.

xi Change Change of currency of ECB Change of currency from INR

of from one freely convertible to any freely convertible
currency foreign currency to any other foreign currency is not
of freely convertible foreign permitted.
borrowi currency as
ng well as to INR is freely
permitted.

Note: The ECB framework is not applicable in respect of investments in Non-Convertible

Debentures in India made by Registered Foreign Portfolio Investors. 3Lending and borrowing
under the ECB framework by Indian banks and their branches/subsidiaries outside India will be
subject to prudential guidelines issued by the Department of Banking Regulation of the Reserve
Bank. Further, other entities raising ECB are required to follow the guidelines issued, if any, by
the concerned sectoral or prudential regulator.

34.2 Limit and leverage: Under the aforesaid framework, all eligible borrowers can
raise ECB up to USD 750 million or equivalent per financial year under the automatic route.
Further, in case of FCY denominated ECB raised from direct foreign equity holder, ECB liability-
equity ratio for ECB raised under the automatic route cannot exceed 7:1. However, this ratio will
not be applicable if the outstanding amount of all ECB, including the proposed one, is up to USD
5 million or its equivalent. Further, the borrowing entities will also be governed by the guidelines
on debt equity ratio, issued, if any, by the sectoral or prudential regulator concerned.

34.3 Issuance of Guarantee, etc. by Indian banks and Financial Institutions: Issuance
of any type of guarantee by Indian banks, All India Financial Institutions and NBFCs relating to
ECB is not permitted. Further, financial intermediaries (viz., Indian banks, All India Financial
Institutions, or NBFCs) shall not invest in FCCBs/ FCEBs in any manner whatsoever.

34.4 Parking of ECB proceeds: ECB proceeds are permitted to be parked abroad as well as
domestically in the manner given below:

34.4.1 Parking of ECB proceeds abroad: ECB proceeds meant only for foreign
currency expenditure can be parked abroad pending utilisation. Till utilisation, these funds can
be invested in the following liquid assets (a) deposits or Certificate of Deposit or other
products offered by banks rated not less than AA (-) by Standard and Poor/Fitch IBCA or Aa3
by Moody’s; (b) Treasury bills and other monetary instruments of one-year maturity having
minimum rating as indicated above and (c) deposits with foreign branches/subsidiaries of
Indian banks abroad.

563
34.4.2 Parking of ECB proceeds domestically: ECB proceeds meant for Rupee
expenditure should be repatriated immediately for credit to their Rupee accounts with AD
Category I banks in India. ECB borrowers are also allowed to park ECB proceeds in term deposits
with AD Category I banks in India for a maximum period of 12 months cumulatively. These term
deposits should be kept in unencumbered position.

34.5 Procedure of raising ECB: All ECB can be raised under the automatic route if they
conform to the parameters prescribed under this framework. For approval route cases, the
borrowers may approach the RBI with an application in prescribed format (Form ECB) for
examination through their AD Category I bank. Such cases shall be considered keeping in view
the overall guidelines, macroeconomic situation and merits of the specific proposals. ECB
proposals received in the Reserve Bank above certain threshold limit (refixed from time to time)
would be placed before the Empowered Committee set up by the Reserve Bank. The Empowered
Committee will have external as well as internal members and the Reserve Bank will take a final
decision in the cases taking into account recommendation of the Empowered Committee.
Entities desirous to raise ECB under the automatic route may approach an AD Category I bank
with their proposal along with duly filled in Form ECB.

34.6 Reporting Requirements: Borrowings under ECB Framework are subject to following
reporting requirements apart from any other specific reporting required under the framework:

34.6.1 Loan Registration Number (LRN): Any draw-down in respect of an ECB should
happen only after obtaining the LRN from the Reserve Bank. To obtain the LRN, borrowers are
required to submit duly certified Form ECB, which also contains terms and conditions of the
ECB, in duplicate to the designated AD Category I bank. In turn, the AD Category I bank will
forward one copy to the Director, Reserve Bank of India, Department of Statistics and
Information Management, External Commercial Borrowings Division, Bandra-Kurla Complex,
Mumbai – 400 051 (Contact numbers 022-26572513 and 022-26573612). Copies of loan
agreement for raising ECB are not required to be submitted to the Reserve Bank.

34.6.2 Changes in terms and conditions of ECB: Changes in ECB parameters in

consonance with the ECB norms, including reduced repayment by mutual agreement between
the lender and borrower, should be reported to the DSIM through revised Form ECB at the
earliest, in any case not later than 7 days from the changes effected. While submitting revised
Form ECB the changes should be specifically mentioned in the communication.

34.6.3 Monthly Reporting of actual transactions: The borrowers are required to

report actual ECB transactions through Form ECB 2 Return through the AD Category I bank on
monthly basis so as to reach DSIM within seven working days from the close of month to which
it relates. Changes, if any, in ECB parameters should also be incorporated in Form ECB 2 Return.

564
34.6.4 Late Submission Fee (LSF) for delay in reporting:
34.6.4.1 Any borrower, who is otherwise in compliance of ECB guidelines, can regularise
the delay in reporting of drawdown of ECB proceeds before obtaining LRN or delay in submission
of Form ECB 2 returns, by payment of late submission fees as detailed in the following matrix:

Sr. Type of Period of delay Applicable LSF

No. Return/Form
1 Form ECB 2 Up to 30 calendar days from due date INR 5,000
of submission
2 Form ECB 2/Form Up to three years from due date of INR 50,000 per year
ECB submission/date of drawdown
3 Form ECB 2/Form Beyond three years from due date of INR 100,000 per year
ECB submission/date of drawdown

34.6.4.2 The borrower, through its AD bank, may pay the LSF by way of demand draft in
favour of “Reserve Bank of India” or any other mode specified by the Reserve Bank. Such
payment should be accompanied with the requisite return(s). Form ECB and Form ECB 2 returns
reporting contraventions will be treated separately. Non-payment of LSF will be treated as
contravention of reporting provision and shall be subject to compounding or adjudication as
provided in FEMA 1999 or regulations/rules framed thereunder.

34.6.5 Standard Operating Procedure (SOP) for Untraceable Entities: The

following SOP has to be followed by designated AD Category-I banks in case of untraceable
entities who are found to be in contravention of reporting provisions for ECB by failing to submit
prescribed return(s) under the ECB framework, either physically or electronically, for past eight
quarters or more.
i. Definition: Any borrower who has raised ECB will be treated as ‘untraceable entity’, if
entity/auditor(s)/director(s)/ promoter(s) of entity are not reachable/responsive/reply in
negative over email/letters/phone for a period of not less than two quarters with documented
communication/ reminders numbering 6 or more and it fulfills both of the following conditions:
a) Entity not found to be operative at the registered office address as per records available
with the AD Bank or not found to be operative during the visit by the officials of the AD
Bank or any other agencies authorised by the AD bank for the purpose;
b) Entities have not submitted Statutory Auditor’s Certificate for last two years or more;
ii. Action: The followings actions are to be undertaken in respect of ‘untraceable entities’:
a) File Revised Form ECB, if required, and last Form ECB 2 Return without certification from
company with ‘UNTRACEABLE ENTITY’ written in bold on top. The outstanding amount
will be treated as written-off from external debt liability of the country but may be
retained by the lender in its books for recovery through judicial/ non-judicial means;
b) No fresh ECB application by the entity should be examined/processed by the AD bank;
c) Directorate of Enforcement should be informed whenever any entity is designated
‘UNTRACEABLE ENTITY’; and
d) No inward remittance or debt servicing will be permitted under auto route.
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34.7 Powers delegated to AD Category I banks to deal with ECB cases: The designated
AD Category I banks can approve any requests from the borrowers for changes in respect of
ECB, except for FCCBs/FCEBs, duly ensuring that the changed conditions, including change in
name of borrower/lender, transfer of ECB and any other parameters, comply with extant ECB
norms and are with the consent of lender(s). Further, the following can also be undertaken
under the automatic route:

34.7.1 Change of the AD Category I bank: AD Category I bank can be changed

subject to obtaining no objection certificate from the existing AD Category I bank.

34.7.2 Cancellation of LRN: The designated AD Category I banks may directly approach
DSIM for cancellation of LRN for ECB contracted, subject to ensuring that no draw down against
the said LRN has taken place and the monthly ECB-2 returns till date in respect of the allotted
LRN have been submitted to DSIM.

34.7.3 Refinancing of existing ECB: Refinancing of existing ECB by fresh ECB provided
the outstanding maturity of the original borrowing (weighted outstanding maturity in case of
multiple borrowings) is not reduced and all-in-cost of fresh ECB is lower than the all-in-cost
(weighted average cost in case of multiple borrowings) of existing ECB. Further, refinancing of
ECB raised under the previous ECB frameworks may also be permitted, subject to additionally
ensuring that the borrower is eligible to raise ECB under the extant framework. Raising of fresh
ECB to part refinance the existing ECB is also permitted subject to same conditions. Indian banks
are permitted to participate in refinancing of existing ECB, only for highly rated corporates (AAA)
and for Maharatna/Navratna public sector undertakings.

34.7.4 Conversion of ECB into equity: Conversion of ECB, including those which are
matured but unpaid, into equity is permitted subject to the following conditions:
i. The activity of the borrowing company is covered under the automatic route for FDI or
Government approval is received, wherever applicable, for foreign equity participation as per
extant FDI policy.
ii. The conversion, which should be with the lender’s consent and without any additional cost,
should not result in contravention of eligibility and breach of applicable sector cap on the
foreign equity holding under FDI policy;
iii. Applicable pricing guidelines for shares are complied with;
iv. In case of partial or full conversion of ECB into equity, the reporting to the Reserve Bank
will be as under:
a. For partial conversion, the converted portion is to be reported in Form FC-GPR prescribed
for reporting of FDI flows, while monthly reporting to DSIM in Form ECB 2 Return will
be with suitable remarks, viz., "ECB partially converted to equity".
b. For full conversion, the entire portion is to be reported in Form FC-GPR, while reporting
to DSIM in Form ECB 2 Return should be done with remarks “ECB fully converted to
equity”. Subsequent filing of Form ECB 2 Return is not required.
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 c. For conversion of ECB into equity in phases, reporting through Form FC-GPR and Form
ECB 2 Return will also be in phases.
v. If the borrower concerned has availed of other credit facilities from the Indian banking
system, including foreign branches/subsidiaries of Indian banks, the applicable prudential
guidelines issued by the Department of Banking Regulation of Reserve Bank, including
guidelines on restructuring are complied with;
vi. Consent of other lenders, if any, to the same borrower is available or atleast information
regarding conversions is exchanged with other lenders of the borrower.
vii. For conversion of ECB dues into equity, the exchange rate prevailing on the date of the
agreement between the parties concerned for such conversion or any lesser rate can be
applied with a mutual agreement with the ECB lender. It may be noted that the fair value of
the equity shares to be issued shall be worked out with reference to the date of conversion
only.

34.7.5 Security for raising ECB: AD Category I banks are permitted to allow
creation/cancellation of charge on immovable assets, movable assets, financial securities and
issue of corporate and/or personal guarantees in favour of overseas lender / security trustee, to
secure the ECB to be raised/ raised by the borrower, subject to satisfying themselves that:
i. the underlying ECB is in compliance with the extant ECB guidelines,
ii. there exists a security clause in the Loan Agreement requiring the ECB borrower to
create/cancel charge, in favour of overseas lender/security trustee, on immovable
assets/movable assets/financial securities/issuance of corporate and/or personal
guarantee, and
iii. No objection certificate, as applicable, from the existing lenders in India has been obtained
in case of creation of charge.

Once the aforesaid stipulations are met, the AD Category I bank may permit creation of charge
on immovable assets, movable assets, financial securities and issue of corporate and/or personal
guarantees, during the currency of the ECB with security co-terminating with underlying ECB,
subject to the following:
i. Creation of Charge on Immovable Assets: The arrangement shall be subject to the
following:
a) Such security shall be subject to provisions contained in the Foreign Exchange
Management (Acquisition and Transfer of Immovable Property in India) Regulations,
2017, as amended from time to time.
b) The permission should not be construed as a permission to acquire immovable asset
(property) in India, by the overseas lender/ security trustee.
c) In the event of enforcement / invocation of the charge, the immovable asset/ property
will have to be sold only to a person resident in India and the sale proceeds shall be
repatriated to liquidate the outstanding ECB.
ii. Creation of Charge on Movable Assets: In the event of enforcement/ invocation of the
charge, the claim of the lender, whether the lender takes over the movable asset or
otherwise, will be restricted to the outstanding claim against the ECB. Encumbered

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 movable assets may also be taken out of the country subject to getting ‘No Objection
Certificate’ from domestic lender/s, if any.
iii. Creation of Charge over Financial Securities: The arrangements may be permitted
subject to the following:
a) Pledge of shares of the borrowing company held by the promoters as well as in domestic
associate companies of the borrower is permitted. Pledge on other financial securities,
viz. bonds and debentures, Government Securities, Government Savings Certificates,
deposit receipts of securities and units of the Unit Trust of India or of any mutual funds,
standing in the name of ECB borrower/promoter, is also permitted.
b) In addition, security interest over all current and future loan assets and all current
assets including cash and cash equivalents, including Rupee accounts of the borrower
with ADs in India, standing in the name of the borrower/promoter, can be used as
security for ECB. The Rupee accounts of the borrower/promoter can also be in the form
of escrow arrangement or debt service reserve account.
c) In case of invocation of pledge, transfer of financial securities shall be in accordance
with the extant FDI/FII policy including provisions relating to sectoral cap and pricing
as applicable read with the Foreign Exchange Management (Transfer or Issue of
Security by a Person Resident outside India) Regulations, 2017, as amended from time
to time.
iv. Issue of Corporate or Personal Guarantee: The arrangement shall be subject to the
following:
a) A copy of Board Resolution for the issue of corporate guarantee for the company issuing
such guarantee, specifying name of the officials authorised to execute such guarantees
on behalf of the company or in individual capacity should be obtained.
b) Specific requests from individuals to issue personal guarantee indicating details of the
ECB should be obtained.
c) Such security shall be subject to provisions contained in the Foreign Exchange
Management (Guarantees) Regulations, 2000, as amended from time to time.
d) ECB can be credit enhanced / guaranteed / insured by overseas party/ parties only if
it/ they fulfil/s the criteria of recognised lender under extant ECB guidelines.

34.7.6 Additional Requirements: While exercising the delegated powers, the AD

Category I banks should ensure that:
i. The changes permitted are in conformity with the applicable ceilings / guidelines and the ECB
continues to be in compliance with applicable guidelines. It should also be ensured that if the
ECB borrower has availed of credit facilities from the Indian banking system, including foreign
branches/subsidiaries of Indian banks, any extension of tenure of ECB (whether matured or
not) shall be subject to applicable prudential guidelines issued by Department of Banking
Regulation of Reserve Bank including guidelines on restructuring.
ii. The changes in the terms and conditions of ECB allowed by the ADs under the powers
delegated and / or changes approved by the Reserve Bank should be reported to the DSIM as
given at paragraph 6.2 above. Further, these changes should also get reflected in the Form
ECB 2 returns appropriately.

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34.8 Special Dispensations under the ECB framework:

34.8.1 ECB facility for Oil Marketing Companies: Notwithstanding the provisions
contained in paragraph 2.1 (viii), 2.1 (x) and 2.2 above, Public Sector Oil Marketing Companies
(OMCs) can raise ECB for working capital purposes with minimum average maturity period of 3
years from all recognised lenders under the automatic route without mandatory hedging and
individual limit requirements. The overall ceiling for such ECB shall be USD 10 billion or
equivalent. However, OMCs should have a Board approved forex mark to market procedure and
prudent risk management policy, for such ECB. All other provisions under the ECB framework
will be applicable to such ECB.

34.8.2 ECB facility for Startups: AD Category-I banks are permitted to allow Startups
to raise ECB under the automatic route as per the following framework:

i. Eligibility: An entity recognised as a Startup by the Central Government as on date of

raising ECB.
ii. Maturity: Minimum average maturity period will be 3 years.
iii. Recognised lender: Lender / investor shall be a resident of a FATF compliant country.
However, foreign branches/subsidiaries of Indian banks and overseas entity in which
Indian entity has made overseas direct investment as per the extant Overseas Direct
Investment Policy will not be considered as recognised lenders under this framework.
iv. Forms: The borrowing can be in form of loans or non-convertible, optionally convertible
or partially convertible preference shares.
v. Currency: The borrowing should be denominated in any freely convertible currency or in
Indian Rupees (INR) or a combination thereof. In case of borrowing in INR, the non-
resident lender, should mobilise INR through swaps/outright sale undertaken through an
AD Category-I bank in India.
vi. Amount: The borrowing per Startup will be limited to USD 3 million or equivalent per
financial year either in INR or any convertible foreign currency or a combination of both.
vii. All-in-cost: Shall be mutually agreed between the borrower and the lender.
viii. End uses: For any expenditure in connection with the business of the borrower.
ix. Conversion into equity: Conversion into equity is freely permitted subject to
Regulations applicable for foreign investment in Startups.
x. Security: The choice of security to be provided to the lender is left to the borrowing
entity. Security can be in the nature of movable, immovable, intangible assets (including
patents, intellectual property rights), financial securities, etc. and shall comply with
foreign direct investment / foreign portfolio investment / or any other norms applicable
for foreign lenders / entities holding such securities. Further, issuance of corporate or
personal guarantee is allowed. Guarantee issued by a non- resident(s) is allowed only if
such parties qualify as lender under ECB for Startups. However, issuance of guarantee,
standby letter of credit, letter of undertaking or letter of comfort by Indian banks, all
India Financial Institutions and NBFCs is not permitted.
xi. Hedging: The overseas lender, in case of INR denominated ECB, will be eligible to

569
 hedge its INR exposure through permitted derivative products with AD Category – I
banks in India. The lender can also access the domestic market through branches/
subsidiaries of Indian banks abroad or branches of foreign bank with Indian presence
on a back to back basis.
Note: Startups raising ECB in foreign currency, whether having natural hedge or not,
are exposed to currency risk due to exchange rate movements and hence are advised to
ensure that they have an appropriate risk management policy to manage potential risk
arising out of ECB.
xii. Conversion rate: In case of borrowing in INR, the foreign currency - INR conversion
will be at the market rate as on the date of agreement.
xiii. Other Provisions: Other provisions like parking of ECB proceeds, reporting
arrangements, powers delegated to AD banks, borrowing by entities under investigation,
conversion of ECB into equity will be as included in the ECB framework. However,
provisions on leverage ratio and ECB liability: Equity ratio will not be applicable. Further,
the Start-ups as defined above [8.2. (i)] as well as other start-ups which do not comply
with the aforesaid definition but are eligible to receive FDI, can also raise ECB under the
general ECB route/framework.

34.9 Borrowing by Entities under Investigation: All entities against which investigation /
adjudication / appeal by the law enforcing agencies for violation of any of the provisions of the
Regulations under FEMA pending, may raise ECB as per the applicable norms, if they are
otherwise eligible, notwithstanding the pending investigations / adjudications / appeals, without
prejudice to the outcome of such investigations / adjudications / appeals. The borrowing entity
shall inform about pendency of such investigation / adjudication / appeal to the AD Category-I
bank / RBI as the case may be. Accordingly, in case of all applications where the borrowing entity
has indicated about the pending investigations / adjudications / appeals, the AD Category I Banks
/ Reserve Bank while approving the proposal shall intimate the agencies concerned by endorsing
a copy of the approval letter.

34.9 ECB by entities under restructuring/ ECB facility for refinancing stressed assets:

34.10.1 An entity which is under a restructuring scheme/ corporate insolvency resolution

process can raise ECB only if specifically permitted under the resolution plan.

34.10.2 Eligible corporate borrowers who have availed Rupee loans domestically for capital
expenditure in manufacturing and infrastructure sector and which have been classified as SMA-
2 or NPA can avail ECB for repayment of these loans under any one time settlement with lenders.
Lender banks are also permitted to sell, through assignment, such loans to eligible ECB lenders,
provided, the resultant external commercial borrowing complies with all-in-cost, minimum
average maturity period and other relevant norms of the ECB framework. Foreign branches/
overseas subsidiaries of Indian banks are not eligible to lend for the above purposes. The
applicable MAMP will have to be strictly complied with under all circumstances.

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34.10.3 Eligible borrowers under the ECB framework, who are participating in the
Corporate Insolvency Resolution Process under Insolvency and Bankruptcy Code, 2016 as
resolution applicants, can raise ECB from all recognised lenders, except foreign
branches/subsidiaries of Indian banks, for repayment of Rupee term loans of the target
company. Such ECB will be considered under the approval route, procedure of which is given at
paragraph No. 5 above.

34.11 Dissemination of information: For providing greater transparency,

information with regard to the name of the borrower, amount, purpose and maturity of ECB
under both Automatic and Approval routes are put on the RBI’s website, on a monthly basis,
with a lag of one month to which it relates.

34.12 Compliance with the guidelines: The primary responsibility for

ensuring that the borrowing is in compliance with the applicable guidelines is that of the
borrower concerned. Any contravention of the applicable provisions of ECB guidelines will invite
penal action under the FEMA. The designated AD Category I bank is also expected to ensure
compliance with applicable ECB guidelines by their constituents.

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PART-II

PART II – TRADE CREDITS FRAMEWORK

34.13 Trade Credits (TC) refer to the credits extended by the overseas supplier,
bank, financial institution and other permitted recognised lenders for maturity, as prescribed in
this framework, for imports of capital/non-capital goods permissible under the Foreign Trade
Policy of the Government of India. Depending on the source of finance, such TCs include suppliers’
credit and buyers’ credit from recognised lenders.

34.14 Trade Credits Framework: TC for imports into India can be raised in any
freely convertible foreign currency (FCY denominated TC) or Indian Rupee (INR denominated
TC), as per the framework given in the table below:

Sr. Parameters FCY denominated TC INR denominated TC

No.
i Forms of TC Buyers’ Credit and Suppliers’ Credit.
ii Eligible borrower Person resident in India acting as an importer.
iii Amount under Up to USD 150 million or equivalent per import transaction for
automatic route oil/gas refining & marketing, airline and shipping companies. For
others, up to USD 50 million or equivalent per import transaction.
iv Recognised 1. For suppliers’ credit: Supplier of goods located outside India.
lenders 2. For buyers’ credit: Banks, financial institutions, foreign equity
holder(s) located outside India and financial institutions in IFSCs
located in India.
Note: Participation of Indian banks and non-banking financial
companies (operating from IFSCs) as lenders will be subject to the
prudential guidelines issued by the concerned regulatory
departments of the Reserve Bank. Further, foreign
branches/subsidiaries of Indian banks are permitted as
recognised lenders only for FCY TC.

v Period of TC The period of TC, reckoned from the date of shipment, shall be up
to three years for import of capital goods. For non-capital goods,
this period shall be up to one year or the operating cycle whichever
is less. For shipyards / shipbuilders, the period of TC
for import of non-capital goods can be up to three years.

vi All-in-cost ceiling Benchmark rate plus 250 bps spread.

per annum

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 vii Exchange rate Change of currency of FCY TC into For conversion to Rupee,
INR TC can be at the exchange rate exchange rate shall be the
prevailing on the date of the rate prevailing on the date of
agreement between the parties settlement.
concerned for such change or at an
exchange rate, which is less
than the rate prevailing on the
date of agreement, if consented to
by the TC lender.

viii Hedging provision The entities raising TC are required The overseas investors are
to follow the guidelines for hedging, eligible to hedge their
if any, issued by the concerned exposure in Rupee through
sectoral or prudential regulator in permitted derivative
respect of foreign currency products with AD Category I
exposure. Such entities shall have a banks in India. The investors
board approved risk management can also access the domestic
policy. market through branches /
subsidiaries of Indian banks
abroad or branches of foreign
banks with Indian presence
on a
back to back basis.

ix Change of Change of currency of TC from one Change of currency from INR

currency of freely convertible foreign currency to any freely convertible
borrowing to any other freely convertible foreign currency is not
foreign currency as well as to INR permitted.
is freely permitted.

34.15 Trade Credits in SEZ/FTWZ/DTA:

34.15.1 TC can be raised by a unit or a developer in a SEZ including FTWZ for purchase of
non- capital and capital goods within an SEZ including FTWZ or from a different SEZ including
FTWZ subject to compliance with parameters given at paragraph 14 above. Further, an entity in
DTA is also allowed to raise TC for purchase of capital / non-capital goods from a unit or a
developer of a SEZ including FTWZ.

34.15.2 TC transactions in respect of SEZs and DTAs as permitted above should also be in
compliance with applicable provisions of SEZ Act, 2005 as amended from time to time. For TC
transactions related to SEZ, date of transfer of ownership of goods will be treated as TC date.
As there will be no bill of entry for sale transactions within SEZ, the inter unit receipt generated
through NSDL can be treated as an import document.
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34.16 Security for Trade Credit: The provisions regarding security for raising TC are as under:

34.16.1 Bank guarantees may be given by the ADs, on behalf of the importer, in favour
of overseas lender of TC not exceeding the amount of TC. Period of such guarantee cannot be
beyond the maximum permissible period for TC. TC may also be secured by overseas guarantee
issued by foreign banks/overseas branches of Indian banks. Issuance of such guarantees i.e.
guarantees by Indian banks and their branches/subsidiaries located outside India will be subject
to compliance with the provisions contained in Department of Banking Regulation Master
Circular No. DBR. No. Dir.BC.11/13.03.00/2015-16 dated July 1, 2015 on “Guarantees and Co-
acceptances”, as amended from time to time.

34.16.2 For the purpose of raising TC, the importer may also offer security of movable
assets (including financial assets) / immovable assets (excluding land in SEZs) / corporate or
personal guarantee for raising trade credit. ADs may permit creation of charge on security
offered / accept corporate or personal guarantee, duly ensuring that:
i. there exists a security clause in the loan agreement requiring the importer to create
charge, in favour of overseas lender / security trustee on immovable assets / movable
assets / financial securities / issuance of corporate and / or personal guarantee;
ii. No objection certificate, wherever necessary, from the existing lenders in India has been
obtained;
iii. such arrangement is co-terminus with underlying TC;
iv. In case of invocation, the total payments towards guarantee should not exceed the dues
towards trade credit; and
v. Creation/ enforcement / invocation of charge shall be as per the provisions contained in
Foreign Exchange Management (Acquisition and Transfer of Immovable Property in
India) Regulations, 2018 and Foreign Exchange Management (Transfer or Issue of
Security by a Person Resident Outside India) Regulations, 2017, as amended from time to
time, or any other relative Regulations framed under the Foreign Exchange Management
Act, 1999 and should also comply with applicable FDI/FII/SEZ policy/ rules/ guidelines.

Note: The directions on issuance of corporate or personal guarantee mentioned under this
provision shall come into force from the date of publication, in the Official Gazette, of the relative
Regulations issued under FEMA.

34.17 Reporting requirements: TC transactions are subject to the following

reporting requirements:

34.17.1 Monthly reporting: AD Category I banks are required to furnish details of TCs
like drawal, utilisation, and repayment of TC approved by all its branches, in a consolidated
statement, during a month, in Form TC to the Director, Division of International Trade and
Finance, Department of Economic Policy and Research, RBI, Central Office, Fort, Mumbai – 400

574
001 (and in MS-Excel file through email) so as to reach not later than 10th of the following month.
Each TC may be given a unique identification number by the AD bank. Format of Form TC is
available at Annex IV of Part V of Master Directions – Reporting under Foreign Exchange
Management Act dated January 1, 2016, as amended from time to time.

Note: Suppliers’ credit beyond 180 days and up to one year/three years from the date of
shipment for non-capital/capital goods respectively, should also be reported by the AD banks.
Further, permissions granted by the AD banks/Regional offices of Reserve Bank for settlement of
delayed import dues in terms of paragraphs B.5 and C.2 of the Master Direction on Import of
Goods and Services dated January 1, 2016, as amended from time to time, should also be
reported by the AD banks as per the aforesaid procedure.

34.17.2 Quarterly reporting: AD Category I banks are also required to furnish data on
issuance of bank guarantees for TCs by all its branches, in a consolidated statement, at
quarterly intervals on the XBRL platform. For the above purpose AD banks may login to
the site https://secweb.rbi.org.in/orfsxbrl/ using their User name, Password and Bank code.
For downloading the relevant form, AD banks may follow the link ‘Download Returns Package’
and download the form. After following the successive steps, AD banks may upload the file. For
User name and Password, AD banks may write at [email protected] along with contact details.
Clarification required, if any, may also be sent to the aforesaid email of the Reserve Bank and/
or may be communicated at Telephone No. 022-22601000 (extension- 2715). Guide for using
XBRL website is also available under the Help option on the same page. Format of this statement
is also available at Annex V of Part V of Master Directions – Reporting under Foreign Exchange
Management Act dated January 1, 2016, as amended from time to time.

34.18 Role of ADs: While the primarily responsibility of ensuring adherence to

the TC policy lies with the importer, the ADs are also expected to ensure compliance with
applicable parameters of the trade credit policy / provisions of Foreign Exchange Management
Act, 1999 by their constituents. As the Reserve Bank has not prescribed any format or manner
in which TC arrangements / loan agreements are to be documented, ADs may consider any
document to satisfy themselves with the underlying TC arrangement. ADs should ensure that
there is no double financing on account of these transactions between a unit or a developer in
a SEZ including FTWZ for purchase of non-capital and capital goods within an SEZ including FTWZ
or from a different SEZ including FTWZ. ADs should also ensure that for import of non-capital
goods, the period of TC, as applicable, is lower of operating cycle or one year (three years for
shipyards / shipbuilders).

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 PART III – STRUCTURED OBLIGATIONS

34.19 Non-resident guarantee for domestic fund based and

non-fund based facilities: Borrowing and lending in Indian Rupees between two residents
does not attract any provisions of the Foreign Exchange Management Act, 1999. In cases where
a Rupee facility which is either fund based or non-fund based (such as letter of credit / guarantee
/ letter of undertaking / letter of comfort) or is in the form of derivative contract by residents
that are subsidiaries of multinational companies, is guaranteed by a non-resident (non-resident
group entity in case of derivative contracts), there is no transaction involving foreign exchange
until the guarantee is invoked and the non-resident guarantor is required to meet the liability
under the guarantee. The arrangements shall be with the following terms:
i. The non-resident guarantor may discharge the liability by i) payment out of rupee balances
held in India or ii) by remitting the funds to India or iii) by debit to his FCNR(B)/NRE
account maintained with an AD bank in India.
ii. In such cases, the non-resident guarantor may enforce his claim against the resident
borrower to recover the amount and on recovery he may seek repatriation of the amount
if the liability is discharged either by inward remittance or by debit to FCNR(B)/NRE
account. However, in case the liability is discharged by payment out of Rupee balances,
the amount recovered can be credited to the NRO account of the non- resident guarantor.
iii. General Permission is available to a resident, being a principal debtor to make payment to
a person resident outside India, who has met the liability under a guarantee.
iv. In cases where the liability is met by the non-resident out of funds remitted to India or by
debit to his FCNR(B)/NRE account, the repayment may be made by credit to the
FCNR(B)/NRE/NRO account of the guarantor provided, the amount remitted/credited shall
not exceed the rupee equivalent of the amount paid by the non-resident guarantor against
the invoked guarantee.
v. AD Category I banks are required to furnish at quarterly interval details of guarantees
availed of/ invoked, by all its branches, in a format specified by RBI (Annex I of Part X of
Master Directions – Reporting under Foreign Exchange Management Act dated January 1,
2016, as amended from time to time), to the Chief General Manager-in-Charge, Foreign
Exchange Department, External Commercial Borrowings Division, Reserve Bank of India,
Central Office Building, 11th floor, Fort, Mumbai – 400 001 so as to reach the Department
not later than 10th day of the month following quarter to which the data pertain to.
34.20 Facility of Credit Enhancement: The facility of credit enhancement by
eligible non- resident entities (viz. Multilateral financial institutions (such as, IFC, ADB, etc.) /
regional financial institutions and Government owned (either wholly or partially) financial
institutions, direct/ indirect equity holder) to domestic debt raised through issue of capital
market instruments, such as Rupee denominated bonds and debentures, is available to all
borrowers eligible to raise ECB under automatic route subject to the following conditions:
i. The underlying debt instrument should have a minimum average maturity of three years;
ii. Prepayment and call/ put options are not permissible for such capital market instruments
up to an average maturity period of 3 years;
iii. Guarantee fee and other costs in connection with credit enhancement will be restricted to
a maximum 2 per cent of the principal amount involved;
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 iv. On invocation of the credit enhancement, if the guarantor meets the liability and if the
same is permissible to be repaid in foreign currency to the eligible non-resident entity, the
all-in-cost ceilings, as applicable to the relevant maturity period of the TC/ECB, as per the
extant guidelines, is applicable to the novated loan.
v. In case of default and if the loan is serviced in Indian Rupees, the applicable rate of
interest would be the coupon of the bonds or 250 bps over the prevailing secondary
market yield of 5 years Government of India Security, as on the date of novation,
whichever is higher;
vi. NBFC-IFC proposing to avail of the credit enhancement facility should comply with the
eligibility criteria and prudential norms laid down in the circular DNBS.PD.CC No. 168/
03.02.089 / 2009-10 dated February 12, 2010 and in case the novated loan is designated in
foreign currency, the IFC should hedge the entire foreign currency exposure; and

vii. The reporting arrangements as applicable to the ECB would be applicable to the novated
loans.

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 Part V: Annex I
Form ECB
(Application and Reporting of loan agreement details under Foreign Exchange Management
Act, 1999)

i. All dates should be in the format YYYY/MM/DD (e.g., 2012/01/21 for January 21,
2012).
ii. No item should be left blank. In case, any item is not applicable, write ‘N.A.’ against
it.
iii. If space is not sufficient for giving full details against any item, separate sheet(s)
may be attached to the Form and serially numbered as Annex. Each such Annex
should be certified by both the borrower and AD.
iv. The borrower should give a brief description of his business activity (whether in
manufacturing/ trade/ provide services etc.) for the AD’s use.
v. Before forwarding the Form to the Reserve Bank of India, AD must ensure that the
form is complete in all respects and scrutinise all the related original documents at
its end. Incomplete Forms are liable to be rejected/returned by RBI to AD.

 Following codes are for use in filling Part C of the Form:

Box 1: Guarantee Status Code Box II: Borrowing Purpose Code

Sr.No. Code Description Sr.No Code Description
1 GG Govt. of India guarantee 1 IC Import of capital goods
2 CG Public Sector guarantee 2 RL Local sourcing of capital goods
(Rupee expenditure)
3 PB Public Sector Bank 3 SL On-lending or sub-lending
guarantee 4 RF Refinancing of earlier ECB
4 FI Financial Institution
5 NP New Project
guarantee
5 MB Multilateral/ Bilateral 6 ME Modernisation/Expansion of existing
Institution guarantee units
6 PG Private Bank guarantee 7 OI Overseas investment in JV/ WOS
7 PS Private Sector guarantee 8 MF Micro Finance activity
8 MS Mortgage of assets/ security 9 OT Others (specify)
9 OG Other guarantee 10 RR Refinancing of rupee loans
10 NN Not guaranteed 11 RB Redemption of FCCBs
12 IF Infrastructure development
13 RC Working capital/ general corporate
purpose

1. To be submitted in duplicate by the borrower to designated Authorised Dealer (AD) for all
categories and any amount of external commercial borrowing (ECB). After examining conformity
with the extant ECB guidelines, the AD may provide requisite details in the Summary Sheet of the
Form and forward one copy (within 7 days from the date of signing loan agreement between
borrower and lender) for allotment of Loan Registration Number (LRN) to:

Amended vide AP (DIR Series) Circular No.17 dated January 16, 2019. The Form ECB and Form 83
have been replaced by only a single Form ECB. The previous versions of Form ECB and Form 83 are
available on the following link:

578
The Director
External Commercial Borrowings Division
Department of Statistics and Information Management (DSIM)
Reserve Bank of India
C-9 Bandra-Kurla Complex Mumbai – 400 051
Agreement Details (To be filled by borrowers of External Commercial Borrowings)
ECB Original Revised
application
Form FCY ECB INR ECB
In case of Revised
Loan Registration Number allotted
ECB under Approval Automatic
Route Route
Whether requires clearance from any
statutory
authority? If yes, furnish the name of
authority, clearance no. and date.
Comments/ recommendation of AD bank:

Part A: Borrower details

Name and address of the Borrower (in Borrower Category (Tick one)
BLOCK letters) Public Private
Sector Sector
Detailed Category (Tick one)
Corporate - Manufacturing
Corporate – Infrastructure
Registration Number given by the a) Transport
Registrar of Companies: b) Energy
c) Water and Sanitation
PAN Number of Company: Business d) Communication
Activity: e) Social and Commercial Infrastructure
f) Exploration, Mining and Refinery
g) Others
Sub-Sector:
Corporate –Service Sector -
Others
Contact Official’s Name:
a) Units in SEZ;
Designation: b) SIDBI;
Phone No. : c) EXIM Bank;
Fax No. : d) Micro-finance entities
E-mail ID : e) Others :
(No item should be left blank) Bank
Financial Institution (other than NBFC)
NBFC- IFC/AFC Reg. No.
NBFC- MFI Reg. No.
NBFC- Others Reg. No.
Non-Government Organization (NGO)
Micro Finance Institution (MFI)
Others
(Specify)
Part B: Lender details
Name and address of the lender/ lessor Lender Category (Tick one)
/foreign supplier (in BLOCK letters) Multilateral Financial Institution
579
 Foreign Government (Bilateral Agency)
Export Credit Agency
Indian Commercial Bank branch abroad
Other Commercial Bank
Supplier of Equipment
Country: Leasing Company
E-mail ID : Foreign Collaborator / Foreign Equity Holder
International Capital Market
(No item should be left blank) Regional Financial Institution
Government Owned Development Financial
Institution
Private placement (RDBs)
Public Offer (RDBs)
Others (Specify)
Details of foreign equity holding of the lender (b) Amount of paid-up capital
in the borrower company:
(a) Share in paid-up equity of the borrower
(%)

ECB-Liability: equity ratio in case of borrowings above USD 5 million from foreign equity holder :
Part C: Loan Details
Loan Agreement Date / /
(YYYY/MM/DD)
Effective Date of the Loan / /
Last Date of Disbursement / /
Maturity Date (Last / /
payment date)
Grace Period (if in Ye Months
agreement) ars
Currency Name Currency Code
1. (SWIFT)
2.
3.
Amount (in Foreign
Currency) 1.
2.
3.
Equivalent Amount (in US
Dollars)
(as on date of this form)
Proposed Bifurcation of Foreign Currency Expenditure Rupee Expenditure
the amount
(in loan currency)
Hedging details Currency Swap Interest Rate Swap Others Unhedge
(Tick one) d
Hedging Financial Natural Hedge Total
percentage Hedge Hedge
(proposed)
In case options are provided in the loan agreement (tick in the appropriate box)
Call Option per cent of Can be executed after / /
Debt date
Put Option per cent of Can be executed after / /
Debt date

580
Name and address of the Guarantor (in Block
letters) Contact Official’s Name:
Designation :
Phone No.: Fax No.: E-mail id:
Guarantee Status Code:
Nature and details of security, if any
End-use (% share if more than one end-use):
(i) Borrowing Purpose Code Amount
Percentage

(ii) Borrowing Purpose Code Amount

Percentage

(iii) Borrowing Purpose Code Amount

Percentage
Project Details (Name, Location and Cost):

If import, specify the Country of import (if more than one country, attach details as Annex):

Industry Code (as per NIC-2008)

Type of ECB (Tick in appropriate box)
1.Buyers’ 2.Commercial Loan / Syndicated Loan
Credit (attach sheet for percentage distribution among lenders)
3.Suppliers’ 4.Export Credit from Bilateral Sources
Credit
5.Line of Credit 6. Securitized Instruments (Bonds, CP, FRN, etc.)
7.Financial 8.FCCB, FCEB, Non-Convertible Preference Shares, Optionally
Lease Convertible Preference Shares, Partially Convertible Preference
Shares
9.Refinancing of old ECBs
LRN of the old ECB: Approval Date of Approval:
No.
Amount refinanced: Reason:
10.Others
(Specify)
Interest Payment Schedule
First / / No.of
Payment payments/
Date year
Fixed Rate
Floating Base Margi Cap Rate Floor
Rate with n Rate
curre
ncy
Drawdown Schedule
Tra Date* (YYYY- Curre Amount If more than one instalment
nch MM-DD) ncy Total No. of drawals No. of drawals
e in a calendar
No. year

581
* 1. In case of import of goods or services, date of import is to be furnished against date of
drawdown.
2. In case of financial lease, date of acquisition (import) of the goods is to be mentioned as
date of drawdown.
3. In case securitised instruments, date of issue has to be shown as date of drawdown.
4. In case of more than one equal drawdown transactions are shown in a row, the first date of
transaction should be mentioned.

582
Principal Repayment Schedule
Date Curre Amount If more than one instalment
(YYYY-MM- ncy Total No. of No. of payments in a calendar
DD) payments year

Part D: Other Charges

Nature of Expected Curre Amount In case of multiple equal payments
charge Date of ncy No. of payments Total no. of
Payment in a year payments
Upfront fee
Manageme
nt fee
Commitme
nt fees
Guarantee
fees
ECA
charges
Others
Total
Penal Interest for late Fixed % or Base: Margin:
payments
Commitment Charges % per annum of: % of Undrawn
Amount:
Part E: Details of ECB already availed (not applicable for the first-time borrower)
Yea Loan Reg. Curre Amount of Loan
r No. (LRN) ncy Principal Disbursed so far Net outstanding
(as per (Principal)
agreement
)

We hereby certify that the particulars given above are true and correct to the best of our
knowledge and belief and no material information has been withheld and/or
misrepresented. Furthermore, the ECB is in compliance with the extant ECB guidelines and
the ECB to be raised will be utilised for permitted purposes.

Place:
(Signature of the Authorised Official of the Company
with stamp)
Date: Name:
Designation: Phone No.

Fax
E-mail

583
 Summary Sheet (SS) for Form ECB
We have scrutinized the related documents and confirm the following:
1 End-use (i) Permissible Approved by
(% share if more than (ii) under Foreign
one end-use) (iii) Automatic Exchange
Route Department,
RBI under
Approval
Route

2 Average Maturity Years Months

3 Floating Rate Loan

Fixed
Cost Factors (%) Margin (spread) over
Base
base
Rate
Loan
a) Interest Rate
b) All-in-cost
4 In case of loan from ‘Foreign Equity Holder’, it is confirmed that ECB liability: Equity
ratio (7:1) criteria is satisfied. Further, in case of working capital/ general corporate
purpose/ repayment of rupee loans end-use, it is confirmed that equity holding of
lender is at least 25 per cent (direct)/ 51 per cent (indirect) of the paid-up equity or
the lender is a group company with common overseas parent.
5 Borrower has given written undertaking to AD to the effect that Yes /
it has been submitting ECB-2 Returns regularly to RBI in Not
respect of Applicable
past ECB/FCCB loans)
6 Security provided, if
any
7 Other important facts
relevant for the
allotment of LRN

Place:

(Signature of Company Secretary/ Chartered Accountant

with stamp)
Date: Name: Registration
No.:
We certify that the borrower is our customer and the particulars given in this Form are true
and correct to the best of our knowledge and belief. We have scrutinized the application and
the original letter of offer from the lender/supplier and documents relating to proposed
borrowing and found the same to be in order. This application complies with the extant ECB
guidelines and we recommend it for allotment of Loan Registration Number (LRN) by RBI.
Place:
(Signature of the Authorised Official with stamp)
Date: Name: Designation:

584
 Name of the bank/ branch

AD Code (Part I and Part

II):

Tel.No.: Fax No. e-

mail:

For RBI (DSIM) Use only

RBI Team Received on Action Loan Classification

Taken on

LRN (if allotted)

585
 Part V: Annex II
Form ECB 2
Reporting of actual transactions of External Commercial Borrowings (ECB) under Foreign
Exchange Management Act, 1999
(for all categories and any amount of loan) Return for the Month ended of .
1. This return should be filled in for all categories of ECB. It should be submitted within 7
working days from the close of the month through the designated Authorised Dealer to the
Director, Department of Statistics and Information Management (DSIM), External
Commercial Borrowings Division, Reserve Bank of India, C-9, Bandra-Kurla Complex,
Bandra (East), Mumbai-400 051. If there is no transaction during a particular period, a Nil
Return should be submitted.
2. Please do not leave any column blank. Furnish complete particulars against each item. In
case an item is not applicable, write “N.A.” against it.
3. All dates should be in format YYYY/MM/DD (e.g., 2012/01/21 for January 21, 2012).
4. Borrowers obtaining sub-loans through DFIs/Banks/NBFCs etc. should not complete this
form as the concerned financial institution would directly submit Form ECB-2.
5. The Company Secretary / Chartered Accountant must scrutinise related original documents
and ensure that the return is complete and in order as per ECB guidelines issued by
Government/RBI, before forwarding it to RBI.
6. Loan Registration Number should be specified for all the loans approved after February 01,
2004. For earlier loans, Loan Identification Number (LIN) / Registration Number allotted
by RBI should be specified.
7. If space is not sufficient for giving full information against any item, a separate sheet may
be attached to the return and serially numbered as Annex.
8. Following purpose codes for use in Part C (Utilisation).

Code Description Code Description

IC Import of capital goods MF Micro Finance Activity
OI Overseas Investment in JV/WOS OT Others (Pl. specify)
RL Local sourcing of capital goods (Rupee RR Refinancing of rupee loans
expenditure)
RC Working Capital (Rupee expenditure) RB Redemption of FCCBs
SL On-lending or sub-lending IF Infrastructure development
RF Repayment of earlier ECB NP New project
ME Modernisation /Expansion of existing
units

9. Following codes for use in Part D (Debt Servicing) for source of remittance:

Cod Description Cod Description

e e
A Remittance from India D Conversion to equity
capital
B Account held abroad E Lender waiver
C Export proceeds held F Others (specify)
abroad

Amended vide AP (DIR Series) Circular No. 17 dated January 16, 2019. The previous version
of Form ECB-2 is available on the following link:
586
Part A: Loan Identification Particulars

Loan Registration Number

(LRN)
Loan Amount Borrower Particulars
Curre Amo Name and address of the Borrower (Block
ncy unt Letters)
As per Agreement

Revised (please indicate if Contact Person's Name:

period of disbursement Designation: Phone No. :
elapsed/ Cancelled/ not to Fax no. : E-mail ID :
be drawn in future)

Part B: Disbursement

B.1: Draw-down (Disbursement) during the month (in loan currency):

Particulars Date Curre Amou Name of Account

(YYYY/MM/D ncy nt Bank/branch No.
D)
A. Amount
Parked
Abroad
B. Amount
Remitted
to India Not Required
Notes:1. In the case of import of goods or services, date of import may be furnished against
date of drawdown.
2. In the case of financial lease date of acquisition of the goods is to be mentioned as
date of drawdown.
3. In the case of securitised instruments, date of issue may be shown as date of
drawdown
4. In the case of multi-currency loan a separate block(s) may be attached to the
return

B. 2: Balance amount of loan to be drawn in future:

Expected Date Currency Amount If more than one instalment

of drawdown Total No. of drawals
number of in a calendar
drawals year

587
 Part C : Utilisation

C.1: Details of utilisation of drawdowns (only Principal amount) during the

month:

Particulars Date Purpose Currency Amount Country Name of Account No.

code Bank
From Amount
Held Abroad
From Amount
Remitted to
India Not Required

C. 2: Outstanding Balance amount (principal only) as at month-end:

Particulars Deposits/ Cumulative Currency Amount Name of bank Account No.

Others period in and branch
months
Parked
Abroad
Parked in
India

Part D : Debt Servicing

D. 1: Principal Repayment, Interest payment etc. during the month (in loan
currency):

Tranche Purpose Date of Currency Amount Code for Whether

No. Remittance Source of Prepayment of
remittance Principal (Y/N)
#
Principal
Repayment @
Interest @ rate
Others (Specify)
# In case of prepayment please provide details of Automatic / Approval Route No., Date, Amount
as Annex.
@ In case of conversion of FCCB/ECB into equity, Buyback/Redemption of outstanding FCCB or
write-off of ECB principal amount, the transactions still to be shown against Principal Repayment
with appropriate remarks.

D.2: Revised Principal Repayment Schedule (if revised / entered into Interest rate
swap):

If more than one Annuit

Date (YYYY/MM/DD) Currenc Amount in instalment y
(First repayment y Loan Total No. of Rate
date) Currency in Number payments in (if
each of a calendar annui
transaction instalme year (1, 2, ty
nts 3, 4, 6, paym
588
 12) ent)

589
Part E : Others
E.1 Hedging details:

Financial hedge(s) Natural hedge Annualised

Outstanding % of % of percentage cost
Principal ECB Currency Notional outstanding ECB Notional outstanding ECB of financial
amount* value amount value amount hedge(s) for
ECB

*as on the last date of the reporting month

E.2 Foreign exchange earnings and expenditure, if any, for the last three
financial years (only corresponding to same currency of ECB):

Foreign Annual
Foreign EBID**
Financial Year Currency Currency
earnings Currency
expenditure

**Earnings before Interest and Depreciation (EBID), as defined table above = Profit After Tax +
Depreciation + Interest on debt + Lease Rentals, if any.

Part F: Outstanding Principal Amount

Outstanding loan Amount (in Loan Currency):
(i.e., total drawdown less total repayments at month-end)

Currency Amount:

We hereby certify that the particulars given above are true and correct to the best of our knowledge
and belief. No material information has been withheld and / or misrepresented.

Place :
Signature of Authorised Official of borrowing company (with stamp)
Name :
Date : Designation :

Telephone No.:

590
 Summary Sheet (SS 2) for Form ECB 2

Loan Registration Number (LRN) :

Currency Drawn Drawn Principal Net Interest Other

Amount amount in repayment in outstanding Payments charges
before current current made paid
current month month
month

Certificate from Company Secretary / Chartered Accountant

We hereby certify that the ECB availed vide LRN in terms of approval
granted by Government or RBI or under approval route / automatic route is duly accounted in
the books of accounts. Further, ECB proceeds have been utilised by the borrower for the purpose
of during month ended
. We have verified all the related documents and records connected with the
utilisation of ECB proceeds and found these to be in order and in accordance with the terms and
conditions of the loan agreement and with the approval granted by GoI (MoF) or RBI or under
approval route / automatic route and is in conformity with the applicable ECB Guidelines.

Authorised Signatory Name & Address

Place : Registration No.
Date : [Stamp]

Certificate by an Authorised Dealer

We hereby certify that the information furnished with regard to debt servicing, outstanding and
repayment schedule for LRN for month ended is true and
correct as per our record. The drawal, utilisation and repayment of the ECB have been scrutinised and
it is certified that such drawal, utilisation and repayments of ECB are in compliance with ECB guidelines

Signature of Authorised Dealer (with stamp) Name :

Place :

Date : Designation : Telephone

No. :
Name & Address of Authorised Dealer: E-mail ID:

591
Part V: Annex III (Annex to A.P. (DIR Series) Circular No. 87 dated April 17, 2004) Form

Trade Credit (TC)

Form Annex to A.P. (DIR Series) Circular No. 87

– TC dated April 17, 2004

Part I : Approvals of Trade Credit granted by all branches

during the (Month / Year)…………
Name of Contact
the AD : Person:
Address Tel :
:
Fax :

Sr. Date Loan Categor Name of Country Currenc Amount Equiv. Rate of Other
No of Identificati y of Lender* of y Amt.in USD Interest charges
Approv on Borrowe Lender* in
al No. r USD
1 2 3 4 5 6 7 8 9 10 11

Tota
l

For Annex to A.P. (DIR Series) Circular No. 87 dated

m April 17, 2004
–
TC

Part I : Approvals of Trade Credit granted by all branches during the

(Month / Year)…………

e-mail:
Period of credit Type of Credit** Item of Import
/ proposed
Import
All-in- No. of Unit of SC / BC STC / LTC Descriptio Category**
cost Days/Mon./Yr time n *
period
12 13 14 15 16 17 18

592
 I. Supplier's Credit (SC)
II. Buyer's Credit (BC)
III. Short-term Trade Credit (STC) (maturity period up to one year)
IV. Long-term Trade Credit (LTC) (maturity period more than one year & less than three
years)
V. Total Trade Credit (TC) (I+II)
*: or Supplier
**: Please type respective code such as SC or BC; STC or LTC.
***: Petroleum Oil Lubricants (POL), Capital Goods (CG), Others (OT)
Note 1: The format of the loan identification number is: TC/(Name of the
Bank/branch)/(Identification No.)
Note 2: Information in column nos. 8 to 13 should be numeric only. No alphabets should be
entered in those columns.
Note 3: Date format in col. No 2 is YYYY/MM/DD. For example, December 31, 2003 should be
entered as 2003/12/31

593
 Part II : Disbursement, Utilization and Debt servicing of Trade Credit during (month) / (year)
Sr. Loan Amount Disburseme Utilization Princip Interest Other Total Outstanding Shipment Final
No. Identif approved nt (USD) al charges (6+7+ (4-6) repayment
-icatio (USD)
(USD) 8)
n No.
1 2 3 4 5 6 7 8 9 10 11 12

Note 1: Information in column nos.1, 3 to 10 should be numeric only. No alphabets should be entered
in those columns.
Note 2: Date format in col. No 11, 12 is YYYY/MM/DD. For example, December 31, 2003 should be
entered as 2003/12/31
Certificate by the Authorized Dealer
1. All trade credits for imports approved by all our branches during the month have
been
included in this statement.
2. Related import documents (including EC copy of Bill of Entry) towards utilization of
such trade credits have been verified and found in order.
3. The drawal, utilization and repayment of all trade credits approved by our branches
have been scrutinized and it is certified that such drawal, utilization and repayments of
trade credits

594