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Banking Regulation Governing Exports

 

Banking Regulation Governing Exports

 

In the export trade, transaction in foreign exchange is involved. It is governed by Foreign Exchange Management Act, 1999 under which Foreign Exchange Management (Export of goods and services) Regulations, 2000 were framed. These Regulations have been notified vide Notification No. FEMA 23/2000-RB dated May 3, 2000 as amended from time to time.

Reserve Bank of India issues Master Circular on Exports of Goods and Services every year on 1st July which consolidates the existing instructions on the subject of “Export of Goods and Services from India” at one place.

Important clauses related to exports are as follows:

 

1.      Declaration as regards export of goods and services:

Declaration of export of goods in the prescribed form {EDF (For non EDI ports)/ SDF (For EDI ports)} is required to be made to the bank. However, declaration in case of trade samples of goods and publicity material, goods or software accompanied by a declaration that they are not more than 25,000/- rupees in value; goods imported free of cost on re-export basis; goods not exceeding USD $1000 or its equivalent in value per transaction exported to Myanmar under the Barter Trade Agreement; replacement goods exported free of charge in accordance with the provision of Exim Policy are exempted from aforesaid declaration.

2.      Denomination of Export Contracts:

As per Para 2.52 of FTP 

(a) All export contracts and invoices shall be denominated either in freely convertible currency or Indian rupees but export proceeds shall be realized in freely convertible currency.

(b) However, export proceeds against specific exports may also be realized in rupees, provided it is through a freely convertible Vostro account of a non-resident bank situated in any country other than a member country of Asian Clearing Union (ACU) or Nepal or Bhutan. Additionally, rupee payment through Vostro account must be against payment in free foreign currency by buyer in his non-resident bank account. Free foreign exchange remitted by buyer to his nonresident bank (after deducting bank service charges) on account of this transaction would be taken as export realization under export promotion schemes of FTP.

(c) Contracts (for which payments are received through Asian Clearing Union (ACU) shall be denominated in ACU Dollar. Central Government may relax provisions of this paragraph in appropriate cases. Export contracts and invoices can be denominated in Indian rupees against EXIM Bank/Government of India line of credit.

Notwithstanding the provisions contained in para 2.52 (a) above, export proceeds realized in Indian Rupees against exports to Iran are permitted to avail exports benefits / incentives under the Foreign Trade Policy (2015-20), at par with export proceeds realized in freely convertible currency (para 2.53).

3.      Submission of Export Documents to Bank:

Within 21 days from the date of export, exporter should lodge the copy of EDF/ SDF together with relative shipping documents and an extra copy of the invoice with the banks. In cases where exporters present documents pertaining to exports after the prescribed period of 21 days from date of export, banks may handle them without prior approval of the Reserve Bank, provided they are satisfied with the reasons for the delay.

4.      Realisation and Repatriation of Export Proceeds:

Realisation and Repatriation of proceeds of export of goods / software / services

It is obligatory on the part of the exporter to realise and repatriate the full value of goods / software / services to India within a stipulated period from the date of export, as under:

(i) 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 SEZs, Status Holder Exporters, EOUs, Units in EHTPs, STPs & BTPs until further notice.

(ii) Goods exported to a warehouse established outside India: As soon as it is realised and in any case within fifteen months from the date of shipment of goods.

5.      Exchange Earners’ Foreign Currency (EEFC) Account:

(i) A person resident in India may open with, an AD Category – I bank in India, an account in foreign currency called the Exchange Earners’ Foreign Currency (EEFC) Account, in terms of Regulation 4 of the Foreign Exchange Management (Foreign Currency Account by a Person Resident in India) Regulations, 2000 notified under Notification No. FEMA 10/2000-RB dated May 3, 2000 as amended from time to time.

(ii) Resident individuals are permitted to include resident close relative(s) as defined in the Companies Act 1956 as a joint holder(s) in their EEFC bank accounts on former or survivor basis. However, such resident Indian close relative, being made eligible to become joint account holder, shall not be eligible to operate the account during the life time of the resident account holder

(iii) This account shall be maintained only in the form of non-interest bearing current account. No credit facilities, either fund-based or non-fund based, shall be permitted against the security of balances held in EEFC accounts by the AD Category – I banks.

(iv) All categories of foreign exchange earners are allowed to credit 100% of their foreign exchange earnings to their EEFC Accounts subject to the condition that

  • a) The sum total of the accruals in the account during a calendar month should be converted into Rupees on or before the last day of the succeeding calendar month after adjusting for utilization of the balances for approved purposes or forward commitments. Further, in case of requirements, EEFC account holders are permitted to access the forex market for purchasing foreign exchange. 
  • b) The facility of EEFC scheme is intended to enable exchange earners to save on conversion/transaction costs while undertaking forex transactions. This facility is not intended to enable exchange earners to maintain assets in foreign currency, as India is still not fully convertible on Capital Account.

It may be noted that the provisions at paragraph (iv) a) and (iv) b) above will apply, mutatis mutandis, also to holder of either a Resident Foreign Currency Account (Domestic) or a Diamond Dollar Account (DDA).

(v) The eligible credits represent –

  • a) inward remittance received through normal banking channel, other than the remittance received pursuant to any undertaking given to the Reserve Bank or which represents foreign currency loan raised or investment received from outside India or those received for meeting specific obligations by the account holder.
  • b) Payments received in foreign exchange by a unit in Domestic Tariff Area (DTA) for supplying goods to a unit in Special Economic Zone out of its foreign currency account.

(vi) AD Category – I banks may permit their exporter constituents to extend trade related loans / advances to overseas importers out of their EEFC balances without any ceiling subject to compliance of provisions of Notification No. FEMA 3/2000-RB dated May 3, 2000 as amended from time to time.

(vii) AD Category – I banks may permit exporters to repay packing credit advances whether availed in Rupee or in foreign currency from balances in their EEFC account and / or Rupee resources to the extent exports have actually taken place.

6.      Advance Payment against Exports:

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 bank through whom the advance payment is received.

7.      EDF/ SDF Approval for Trade Fair/ Exhibitions abroad:

Firms / Companies and other organizations 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. Banks may approve EDF/ SDF Form of export items for display or display-cum-sale in trade fairs/exhibitions outside India subject to the condition that

(i) The exporter shall produce relative Bill of Entry within one month of re-import into India of the unsold items and

(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.

8.      Direct Dispatch of documents by the exporter:

Banks should normally dispatch shipping documents to their overseas branches/correspondents expeditiously. However, they may dispatch shipping documents direct to the consignees or their agents resident in the country of final destination of goods in cases of Advance Payment or Irrevocable Letter of Credit or in certain cases as detailed in the Master Circular. Status Holder Exporters and SEZ units may be permitted by the bank to dispatch the export documents to the consignee subject to certain conditions

9.      Short Shipments:

When part of a shipment covered by a GR form already filed with Customs is short- shipped, the exporter must give notice of short-shipment to the Customs in the form and manner prescribed. In case of delay in obtaining certified short-shipment notice from the Customs, the exporter should give an undertaking to the banks 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.

10.  Shut out Shipments:

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

11.  Write off of Export bills:

An exporter who has not been able to realize the outstanding export dues despite best efforts may either self-write off or approach the banks, who had handled the relevant shipping documents, with appropriate supporting documentary evidence with a request for write off of the unrealized portion subject to the fulfillment of stipulations and conditions. The limits prescribed for “write-offs” of unrealized export bills are as under: 

 

  Self “write-off” by an exporter (Other than Status Holder Exporter)                 :5%* 

Self “write-off” by Status Holder Exporters                                                    :10%* 

‘Write-off” by Authorized Dealer Bank                                                           :10%* 

*of the total export proceeds realized during the previous calendar year.

 

13. Write off in cases of Payment of claims by ECGC and private insurance companies regulated by Insurance Regulatory and Development Authority:

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 and delete them from the XOS statement. Such write-off will not be restricted to the limit of 10 per cent indicated 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 regulated by IRDA should not be construed as export realization in foreign exchange.

14.  Write-off – Relaxation:

As announced in the Foreign Trade Policy (FTP), 2009-14, with effect from August 27, 2009, realisation of export proceeds shall not be insisted upon under any of the Export Promotion Schemes under the said FTP, subject to the following conditions:

(a) The write off on the basis of merits is allowed by the Reserve Bank or by bank on behalf of the Reserve Bank, as per extant guidelines; 

(b) The exporter produces a certificate from the Foreign Mission of India concerned, about the fact of non-recovery of export proceeds from the buyer; and 

(c)  This would not be applicable in self write off cases.   

(d) The banks are advised not to insist on the surrender of proportionate export incentives, other than under the Duty Drawback Scheme, if availed of, by the exporter under any of the Export Promotion Schemes under FTP 2009-14, subject to fulfilment of conditions as stated above. The drawback amount has to be recovered even if the claim is settled by the Export Credit Guarantee Corporation of India Limited (ECGC) or the write –off is allowed by the Reserve Bank.

15.  Change of buyer/consignee: 

Prior approval of the Reserve Bank is not required 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, provided the reduction in value, if any, involved does not exceed 25 per cent of the invoice value and the realization of export proceeds is not delayed beyond the period of 12 months from the date of export.

16.  Reduction in Invoice Value :

If, after a bill has been negotiated or sent for collection, its amount is to be reduced for any reason, banks may approve such reduction, if satisfied about genuineness of the request, provided the reduction does not exceed 25 per cent of invoice value;  It does not relate to export of commodities subject to floor price stipulations; the exporter is not on the exporters’ caution list of the Reserve Bank, and the exporter is advised to surrender proportionate export incentives availed of, if any.

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