Pending issue of further directions by rbi authorised dealers may be guided by following provisions of Exchange Control Manual [ecm]* 

 

Chapter

Paragraph No.

Subject-matter

of ECM

of ECM

 

1

1.4

Authorised dealers in foreign exchange

 

1.5

Authorised Co-operative/Commercial Banks (These banks will now be permitted to also maintain NRSR Accounts)

 

1.6

Authorised Money Changers

 

1.7

Revocation of licences/authorisation granted by Reserve Bank

 

1.16

Marking of documents

 

1.17

Organisation of Exchange Control Department

 

1.22

Breach of regulations by Non-resident branches/corres-pondents of authorised dealers

 

1.24

Employment of Brokers

2

2.1

Permitted currencies

 

2.2

Authorised dealers’ responsibility in regard to other currencies

 

2.3

Choice of contracting currencies in international transactions

 

2.4

Authorised dealers’ foreign currency accounts

 

2.7

Payment in approved/conforming manner

 

2.8

Asian clearing union

 

2.9

Memorandum of Procedure (ACM)

 

2.10

Channelling through ACU obligatory

3* 

3A.1

Purchase of TTs, MTs, etc., from Public

 

3A.5

Foreign Inward Remittance Payment System

 

3A.6

Issue of bank certificate

 

3A.7

Refund of inward remittance

 

3B.3(i)

Procedure for making applications

 

3B.3(iii)

-do-

 

3B.5

Manner of payment of rupees against sale of foreign exchange

 

3B.10

Undertaking/Certificate regarding payment of Income-tax

4

4.1 to 4.8

Provisions relating to authorised dealer’s dealings with Reserve Bank

5

 

Accounts of Non-resident Banks & Inter bank dealings - See AP (DIR Series) (2001-2002) Circular No. 19, dated 24-1-2002

6

 

Export of goods, software, etc. - See AP (DIR Series) (2000-2001) Circular No. 12, dated 9-9-2000

7

 

Import of goods, currency, etc., merchanting trade & other related matters - See AP (DIR Series) (2000-2001) Circular No. 9, dated 24-8-2000

8

 

Foreign Travel & Miscellaneous Remittances - See Master circular of 16-7-2002 (Sub-Chapter 5.156)

 

 

See also AP (DIR Series) (2002-2003) Circular No. 54, dated 25-11-2002

13

13B.25

Statement of Operations on NRE A/c1 

14

14B.10

Statement of inflow, outflow & outstanding Deposit under FCNR Accounts (Banks) Scheme2 

16

16.1 to 16.9

Returns and Statements (including Guide to authorised dealers for compilation of ‘R’ returns)

 

Relevant Forms

 

Form A1

Application for remittance in Foreign Currency (White Paper)

Form A1

Application for transfer of Indian Rupees to the Account of a Non-resident Bank (Blue Paper)

Form A1

Application for payment through Asian Clearing Union (Yellow Paper)

Form A2

Application for Remittance Abroad

Form A3

Transfer of rupees from/to the account of a Non-resident Bank other than transactions with public in India (White Paper)

Form BAL

Statement of foreign currency balances held abroad by authorised dealers and balances held in Non-resident rupee/ACU Dollar accounts of overseas branches and correspondents as at the end of .....

Form BCI

Certificate of Foreign Inward Remittance

Form CIR

Statement showing remittance of income/interest allowed to NRIs/OCBs on investments/deposits, etc., held by them in India on non-repatriation basis during the half-year ended ....

Form DBS

Statement of operations on Diplomatic Bond store accounts for the month of ......

Form DSP

Sale of shares/bonds/debentures of Indian companies by Non-residents of Indian nationality/origin and overseas bodies predominantly owned by such persons and disposal of sale proceeds thereof in terms of permissions granted by the Reserve Bank of India Statement for the quarter ended ......

Form EBW

Statement showing particulars of export bills permitted to be written off in terms of paragraph 6C.14 of the Exchange Control Manual for the half-year ended 30th June/31st December ...

Form ECF

Encashment Certificate

Form ECR

Encashment Certificate

Form ECT

Application for permission for export of commodities on elongated credit terms beyond 180 days

Form EFC

Application for opening foreign currency account with a bank in India or abroad by exporters

Form ENC

Statement of Export Bills negotiated/sent for collection during fortnightly period from ...to... (to cover all exports under outright sales, consignment exports, exports under deferred payment arrangement or any other arrangement)

Form ETX

Application for permission to extend the period for realisation of export proceeds

Form FXT

Statement showing the details of turnover of foreign exchange business done on all-India basis by

Form LEC (FIIs)

Statement showing company-wise details of total purchases and sales of equity shares/convertible debentures made by designated branch of ADs under portfolio investment scheme on behalf of their NRI/OCB clients

Form LEC

Statement showing company-wise details of total purchases and sales

(NRIs)

of equity shares/convertible debentures made by designated branches of ............(name of the bank) on ...... through stock exchange in India on behalf of Non-residents of Indian nationality/origin and overseas bodies predominantly owned by such persons

Form ORA

Particulars of approvals granted for opening of trading/non-trading office, posting of representative abroad during the month of ......

Form POS

Statement of positions for the week ended ..........................

Form RBM 1

Offer for spot sale of U.S. dollars to the Reserve Bank of India (Duplicate)

Form RBM 2

Offer for purchase of U.S. dollars from Reserve Bank of India (Triplicate)

Form REC

Statement showing position of unreconciled entries in Nostro Accounts as on 31st March/30th September............

Form RRD

Special report on rupee dealings with overseas banks for the month of....

Form R-Return

Return of transactions for the fortnight ended

(NOSTRO)

 

Form R-Return

Return of operations of VOSTRO Accounts for the fortnight

(VOSTRO)

ended

Form R-Supple-

Supplementary statement of Non-Export Receipts equivalent of

mentary Return

Rs. 1,00,000 and above (Duplicate)

Form SCH 1

Schedule of remittances effected for/credits afforded to Vostro A/c towards payments of imports (Duplicate)

Form SCH 2

Schedule of remittances effected for purposes other than imports (Duplicate)

Form SCH 3

Schedule giving particulars of GR/PP/SOFTEX forms where full payment has been received

Form SCH 4

Schedule giving particulars of GR/PP/SOFTEX forms where part payment has been received

Form SCH 5

Schedule giving details of full export proceeds received in advance

Form SCH 6

Schedule giving details of part export proceeds received in advance

Form STAT 5

Statement showing inflow/outflow of deposits under Foreign Currency (Non-resident) Accounts (Banks) Scheme for the month of ..........

Form STAT 6

Statement showing purchase of exchange in the form of travellers cheques, currency notes and coins and drawings under inward travellers letters of credit during the quarter ended....

Form STAT 8

Statement showing inflow/outflow of deposits under Non-residents (External) Rupee (NRE) Accounts Scheme for the month of...

Form STAT 9

Statement showing inflow/outflow of deposits under Non-resident (Non-repatriable) Rupee Deposit (NRNR) Scheme for the month of...

Form STAT 10

Statement showing inflow/outflow of deposits under Resident Foreign Currency (RFC) Accounts Scheme for the month of ................

Form VP/COD

Declaration required from exporter before sending goods by post on VP/COD basis to countries outside India other than Nepal and Bhutan

Form XOS

Statement of particulars of export bills outstanding beyond the prescribed period/due date of realisation as at 30th June/31st December ...

Memorandum RLM

 

Memorandum FLM

 

Memorandum PEM

 

Memorandum GIM

 

Memorandum LIM

 

Memorandum ACM

 

 

 

relevant provisions of exchange control manual

 

Introduction

Authorised dealers in foreign exchange

Authorisations in the form of licences to deal in foreign exchange are granted to banks which are well equipped to undertake foreign exchange transactions in India. Authorisations have also been granted to certain financial institutions to undertake specific types of foreign exchange transactions incidental to their main business. A list of such banks and institutions is given in Annex to this Chapter.

 

Authorised co-operative/commercial banks

Authorisations have also been issued to certain State Co-operative/Urban Co-operative banks and Scheduled Commercial banks to open and maintain Ordinary Non-Resident Rupee Accounts (NRO Accounts) and Non-Resident (External) Rupee Accounts (NRE Accounts), on behalf of non-resident individuals of Indian nationality/origin.

 

Authorised money-changers

In order to provide facilities for encashment of foreign currency to visitors from abroad, especially foreign tourists, Reserve Bank has granted licences to certain established firms, hotels and other organisations permitting them to deal in foreign currency notes, coins and travellers cheques subject to directions issued to them from time to time. These firms and organisations who are generally known as ‘authorised money-changers’ fall into two categories, viz. ‘Full-fledged money-changers’ who are authorised to undertake both purchase and sale transactions with the public and ‘Restricted money-changers’ who are authorised only to purchase foreign currency notes, coins and travellers cheques, subject to the condition that all such collections are surrendered by them in turn to an authorised dealer in foreign exchange/full-fledged money-changer.

 

Revocation of licence/authorisation granted by Reserve Bank

Reserve Bank may revoke the licence/authorisation granted by it to an authorised dealer, co-operative/commercial bank or money-changer at any time if the holder of the licence/authorisation is found to have failed to comply with any condition subject to which it was granted or to have contravened any provision of FERA 1973 or of any Rule, Notification, Direction or Order made thereunder.

 

Marking of Documents

Authorised dealers should mark all documents submitted by their constituents in support of applications made to them for any purpose such as remittances to non-residents, etc., under their stamp as evidence of the documents having passed through their medium. Authorised dealers must ensure, before returning any documents to their constituents, that they have been marked in this manner.

 

Organisation of Exchange Control Department

(i)                 Powers conferred upon Reserve Bank by FERA 1973 and Central Government Notifications issued under the Act are exercised by the Exchange Control Department of Reserve Bank. The Department has its Central Office at Mumbai and Offices at other centres with jurisdiction as indicated below :

 

Office

Jurisdiction

Ahmedabad

State of Gujarat

Bangalore

State of Karnataka

Bhopal

State of Madhya Pradesh

Bhubaneshwar

State of Orissa

Calcutta

States of Sikkim and West Bengal and Union Territory of Andaman and Nicobar Islands

Chandigarh

States of Haryana (excluding the districts of Faridabad, Gurgaon and Sonepat), Himachal Pradesh and Punjab and Union Territory of Chandigarh

Chennai

State of Tamil Nadu and Union Territory of Pondicherry

Kochi

State of Kerala and Union Territory of Lakshadweep

Guwahati

States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland and Tripura

Hyderabad

State of Andhra Pradesh

Jaipur

State of Rajasthan

Kanpur

State of Uttar Pradesh excluding New Okhla Industrial Development Area (NOIDA) in Ghaziabad district.

Mumbai

State of Maharashtra, Union Territory of Dadra and Nagar Haveli and Union Territory of Daman and Diu

New Delhi

Union Territory of Delhi, the districts of Faridabad, Gurgaon and Sonepat of State of Haryana and New Okhla Industrial Development Area (NOIDA) in Ghaziabad district of State of Uttar Pradesh

Panaji

State of Goa

Patna

State of Bihar

Jammu/

State of Jammu and Kashmir.

Srinagar

 

 

(ii)        Nagpur Office of Reserve Bank will deal with applications from persons, firms and companies resident in the districts of Akola, Amravati, Bhandara, Buldhana, Chandrapur, Gadchiroli, Nagpur, Wardha and Yeotmal of the State of Maharashtra, for travel and sundry remittances outlined in Annex I to Chapter 8 which are beyond the powers delegated to authorised dealers.

(iii)       Reference to Reserve Bank should be made to the office of Exchange Control Department (ECD) within whose jurisdiction the applicant person, firm or company resides or functions unless otherwise indicated. If for any particular reason, a firm or a company desires to deal with a different office of ECD, it may approach the office within whose jurisdiction it functions for necessary approval.

 

Breach of Regulations by Non-resident Branches/Correspondents of Authorised Dealers

If any non-resident branch or correspondent of an authorised dealer is found to have contravened or attempted to contravene any of the Exchange Control regulations in force in India, all rupee transfers on its account may be made subject to prior permission of Reserve Bank or totally prohibited.

 

Employment of Brokers

There is no objection to employment of brokers, but in all cases their principals as well as the brokers must comply with the requirements of the Exchange Control. Exchange brokers are, however, not authorised to deal in foreign exchange and hence they should not purchase or sell foreign exchange from/to public.

 

Annexure

List of banks and other institutions to whom
licences have been issued to deal in
foreign exchange

A.    Banks and others holding full-fledged licences

            ABN AMRO Bank N.V.

            Abu Dhabi Commercial Bank Ltd.

            Allahabad Bank

            American Express Bank Ltd.

            Andhra Bank

            ANZ Grindlays Bank Ltd.

            Arab Bangladesh Bank Ltd.

            Bank Internasional Indonesia

            Bank of America National Trust and Savings Association

            Bank of Baharain and Kuwait B.S.C.

            Bank of Baroda

            Bank of Ceylon

            Bank of India

            Bank of Madura Ltd.

            Bank of Maharashtra

                1 [Bank of Muscat International S.A.O.G.]

            Bank of Nova Scotia

            Bank of Punjab Ltd.

            Bank  of Rajasthan Ltd.

            Bank of Tokyo-Mitsubishi Ltd.

            Banque Nationale De Paris

            Barclays Bank p.l.c.

            Benares State Bank Ltd.

            Bharat Overseas Bank Ltd.

            Bombay Mercantile Co-operative Bank Ltd.

            The British Bank of the Middle East

            Canara Bank

            Catholic Syrian Bank Ltd.

            Central Bank of India

            Centurion Bank Ltd.

            The Chase Manhattan Bank

            Chinatrust Commercial Bank

            Cho Hung Bank

            Citibank N.A.

            City Union Bank Ltd.

            1 [***]

            Commerzbank A.G.

            Corporation Bank

            Credit Agricole Indosuez

            Credit Lyonnais

            Dena Bank

            Deutsche Bank Aktiengesellschaft

            The Development Bank of Singapore Ltd.

            Development Credit Bank Ltd.

            Dhanalakshmi Bank Ltd.

            Dresdner Bank A.G.

            Federal Bank Ltd.

            The Fuji Bank Ltd.

            Global Trust Bank Ltd.

            1 [***]

            HDFC Bank Ltd.

            The Hongkong and Shanghai Banking Corporation Ltd.

            ICICI Banking Corporation Ltd.

            IDBI Bank Ltd.

            Indian Bank

            Indian Overseas Bank

            IndusInd Bank Ltd.

            Internationale Nederlanden Bank (ING Bank)

            Jammu and Kashmir Bank Ltd.

            2 [K.B.C. Bank NV]

            Karnataka Bank Ltd.

            Karur Vysya Bank Ltd.

            Krung Thai Bank Public Company Ltd.

            Lakshmi Vilas Bank Ltd.

            Maharashtra State Co-operative Bank Ltd.

            Mashreq Bank p.s.c.

            2 [Morgan Guarantee Trust Co. of New York]

            Nedungadi Bank Ltd.

            Oman International Bank S.A.O.G.

            Oriental Bank of Commerce

            Oversea-Chinese Banking Corporation Ltd.

            Punjab National Bank

            Punjab and Sind Bank

            The Sakura Bank Ltd.

            Sangli Bank Ltd.

            Sanwa Bank Ltd.

            Saraswat Co-operative Bank Ltd.

            SBI Commercial and International Bank Ltd.

            The Siam Commercial Bank Ltd.

            Societe Generale

            Sonali Bank

            South Indian Bank Ltd.

            Standard Chartered Bank

            State Bank of Bikaner and Jaipur

            State Bank of Hyderabad

            State Bank of India

            State Bank of Indore

            State Bank of Mauritius Ltd.

            State Bank of Mysore

            State Bank of Patiala

            State Bank of Saurashtra

            State Bank of Travancore

            The Sumitomo Bank Ltd.

            Syndicate Bank

            Tamilnad Mercantile Bank Ltd.

            Thomas Cook (India) Ltd.

            1 [***]

            The Toronto Dominion Bank

            UCO Bank

            Union Bank of India

            United Bank of India

            United Western Bank Ltd.

            UTI Bank Ltd.

            Vijaya Bank

            Vysya Bank Ltd.

 

B.    Institutions holding restricted authorisation to deal in foreign exchange

            Export-Import Bank of India

            Industrial Credit & Investment Corporation of India Ltd.

            Industrial Development Bank of India

            Industrial Finance Corporation of India

            SBI Factors and Commercial Services Pvt. Ltd.

            Small Industries Development Bank of India

 

Permitted Currencies and Methods of Payment

Permitted Currencies

This Chapter sets out the regulations governing permitted currencies and methods of payment to be used for settlement of financial transactions between residents and non-residents through authorised dealers. The expression ‘permitted currency’ is used in the Manual to indicate a foreign currency which is freely convertible, i.e., a currency which is permitted by the rules and regulations of the country concerned to be converted into major reserve currencies like U.S. Dollar, Pound Sterling and for which a fairly active market exists for dealings against the major currencies. Accordingly, authorised dealers may maintain balances and positions in any permitted currency. Authorised dealers may also maintain positions in 1 [Euro of the European Currency Area].

 

Authorised Dealers’ responsibility in regard to other currencies

Authorised dealers should exercise care and circumspection while accepting payments offered by exporters and others in currencies not generally known as freely convertible currencies and ensure by proper enquiry with their overseas branches/correspondents that the currency qualifies to be treated as a permitted currency, in order that the foreign exchange so acquired does not become immobilised or is otherwise not subject to restrictions imposed in the foreign country on its use for international payments.

 

Choice of Contracting Currencies in International Transactions

Authorised dealers may sometimes be approached by their customers who are engaged in export/import trade, consultancy services, etc., for advice regarding choice of currencies besides Indian rupee, SDR or 2 [Euro] for the purpose of contracting with their overseas counterparts. Authorised dealers may advise their customers that while there are no restrictions from the Exchange Control viewpoint on any foreign currency being chosen, Exim Policy stipulates that all export contracts and invoices (except those for which payments are required to be received through the Asian Clearing Union) shall be denominated only in a freely convertible foreign currency. They may also be advised that settlement of payments in terms of the contracts will eventually have to take place in a ‘permitted currency’ and they will be well advised to choose one of such currencies even for contracting purposes. Additionally, although authorised dealers are allowed in terms of para 3C.1 to provide forward cover to residents in any ‘permitted currency’, the absence of a forward exchange market in India or in an overseas centre for covering the exchange risk of authorised dealers in even some of the permitted currencies, may result in residents being unable to protect themselves against exchange risk in case of need. The choice of currencies for the purpose of contracting should, therefore, be made after proper assessment of these factors.

Note : In case of countries (excluding Nepal) which are members of the Asian Clearing Union, provisions of the Memorandum of Procedure (ACM) dealing with obligatory routing of eligible current transactions between members would be relevant.

 

Authorised Dealers’ Foreign Currency Accounts

Authorised dealers may freely open and maintain accounts in any permitted currency with their branches and correspondents abroad. A report should be sent to the office of Reserve Bank to whom R Returns are submitted by authorised dealers, as soon as a new account is opened abroad giving the name and address of the foreign branch or correspondent with whom the account has been opened.

 

Payment in Approved/Conforming Manner

The expression ‘payment in an approved manner’ and ‘payment in a conforming manner’ used in the Manual will mean that the payment should be received or made in one of the permitted methods of payment laid down in paras 2.5 and 2.6 respectively.

 

Asian Clearing Union

The Asian Clearing Union (ACU) is only a mechanism for settlement of payments between participating countries. Until 31st December, 1995, the settlement of transactions was being made in Indian rupees or in the currency of the other participating country or in AMU. Effective January 1, 1996, payments are required to be made/received through ACU dollar accounts maintained with authorised dealers in India in the names of their correspondent banks in ACU countries or ACU dollar accounts maintained by authorised dealers with their branches/correspondents abroad. The Exchange Control regulations laid down in this Manual will govern the payments and receipts cleared through the Union.

 

Memorandum of Procedure (ACM)

All authorised dealers in India are permitted to handle transactions to be cleared through the Asian Clearing Union. The Agreement establishing the Union and the ACU (Procedure) Rules setting out the procedure to be followed for settlement of transactions by the participating countries as also the memorandum of procedure drawn up by the Reserve Bank to be followed by the authorised dealers for handling the transactions to be cleared through ACU are given in the Memorandum ACM.

 

Channelling through ACU Obligatory

(i)         All eligible payments, except those indicated in sub-paragraph (ii) below should be compulsorily settled through the ACU mechanism. While there is no bar on any contract, letter of credit, invoice, etc., being denominated in U.S. dollar or in any other permitted currency, it should invariably stipulate a condition that the actual payment shall be made in ACU dollar.

(ii)        The following types of payments are to be settled outside the ACU mechanism :

        (a)           All payments between India and Nepal.

        (b)           Payments relating to travel between India and all other countries in ACU.

(c)                       Export/Import transactions financed out of loans from international financial institutions like

World Bank, Asian Development Bank and under bilateral lines of credit.

        1 (d)         Import of sugar, fertilisers and pulses.

 

Foreign Exchange Transactions with Public

Part A : Purchases

 

Purchase of TTs, MTs, etc., from public

Authorised dealers may freely purchase from the public in India TTs, MTs, drafts, bills, etc., drawn in any foreign currency against rupees.

 

Foreign Inward Remittance Payment System (FIRPS)

[FIRP System withdrawn vide AP (DIR Series) (2003-2004) Circular No. 78, dated 13-3-2004.]

 

Issue of Bank Certificates

(i)         Authorised dealers should issue certificates in Form BCI against receipt of inward remittances or realisation of foreign exchange on security paper if the amount exceeds Rs. 15,000 in value, bearing distinctive serial numbers and reference numbers. In case the amount of inward remittance or realisation of foreign exchange is upto Rs. 15,000 certificates in Form BCI with serial numbers and reference numbers may be issued on the letter-head of the authorised dealer (with their ‘Logo’ printed on it). Since inward remittances received for opening of or credit to Non-resident (External) accounts/FCNR accounts can be repatriated freely, authorised dealers should not issue certificates against such remittances.

(ii)        Authorised dealers may also be required to issue bank cer­tificates to exporters in the prescribed form for submission to the Director General of Foreign Trade immediately after negotia­tion of documents, but prior to realisation of export proceeds. Such certificates cannot contain the value actually realised and date of realisation of export proceeds. Hence while issuing such certificates authorised dealers may merely indicate the FOB value under column 14 of the certificate without certifying that the amount has been actually realised. Authorised dealers should make a specific remark on such certificates that it is not an export realisation certificate.

(iii)       Authorised dealers may also issue certificates of inward remittances in Form 10H1  to assessees for submission to Income-tax Authorities alongwith the Return of Income. The format of Form 10H has been prescribed in terms of section 80RRA of the Income-tax Act read with rule 29A of the Income-tax Rules and is similar to Form BCI.

 

Refund of Inward Remittances

Authorised dealers may comply with requests received from their overseas correspondents for cancellation of inward remit­tances in foreign exchange and refund the amounts without refer­ence to Reserve Bank after satisfying themselves that the refunds are not being made in cover of transactions of a compensatory nature, resulting in remittances which should have normally accrued to India being either lost to the country or used by residents in India other than the original beneficiaries.

 

Part B : Sales

 

Procedure for making applications

(i)         Applications by persons, firms and banks other than authorised dealers for remittances in any foreign currency to a beneficiary abroad must be made to an authorised dealer on Form A1 bearing the legend ‘Application for remittance in foreign currency’, if the purpose of remittance is import of goods into India and on Form A2 bearing a similar legend in every other case.

(iii)       If the remittance is for an approved purpose and is other­wise within the powers of authorised dealers, the authorised dealer may sell the foreign exchange applied for, provided he has satisfied himself as to the bona fides of the application.

Note : Sub-paragraphs (iii) and [(iv)] also apply, mutatis mutandis, to remittances made to foreign countries otherwise than by direct sale of a foreign currency.

 

Manner of payment of Rupees against sale of Foreign Exchange

(i)         It is a basic understanding that when any person applies to an authorised dealer or to Reserve Bank for sale of foreign exchange to him, the foreign exchange is required for meeting his own commitments abroad or for his own use. The rupee funds against sales of foreign exchange should, therefore, be provided by the applicants themselves. Authorised dealers should, however, ensure that in all cases of sale of foreign exchange/remittance in foreign exchange equivalent to Rs. 20,000 or more, irrespec­tive of whether remittances are made under powers delegated to authorised dealers or against Reserve Bank permits, the relative payment is received from the applicant only by a crossed cheque drawn on the applicant’s bank account or on the bank account of the firm/company. Authorised dealers may also accept payment in the form of a Banker’s Cheque/Pay Order and/or Demand Draft. In no circumstances should payment in respect of such sale of for­eign exchange/remittance in foreign exchange be accepted in cash.

(ii)        As an exception to the above rule, authorised dealers may sell foreign exchange equivalent to amount not exceeding Rs. 50,000 for travel abroad for business, BTQ, etc., purposes against payment in cash. Where the sale of foreign exchange to residents for the visits abroad exceeds the amount equivalent to Rs. 50,000, the payment must be received only by a crossed cheque drawn on the applicant’s bank account or on the bank account of the firm/company sponsoring business visit of the applicant. Authorised dealers may also accept payment in the form of Bank­ers’ Cheque/Pay Order/Demand Draft in above cases.

(iii)       Where the rupee equivalent for drawing foreign exchange exceeds Rs. 50,000 either for any single instalment or for more than one instalment reckoned together for a single journey/visit it should be paid by the traveller by means of a cross cheque/demand draft/pay order as stated above.

Note : 1 [(i)] This provision will also apply in the case of payments made in rupees by credit to accounts of non-resident banks or through ACU.

1 [(ii) Where the rupee equivalent of foreign exchange drawn in a single transaction for studies abroad is Rs. 50,000 or more, it should be paid by means of a crossed cheque/demand draft/pay order as stated above.]

 

Undertaking/Certificate regarding payment of Income-tax

[K17] (i)         Certain types of remittances are being allowed by Reserve Bank or by authorised dealers under the powers delegated to them subject, inter alia, to production of Income-tax clear­ance certificate/NOC from Income-tax authorities. Under the revised procedure notified by the  Government of India, Ministry of Finance, Department of Revenue, Central Board of Direct Taxes, New Delhi, vide  their  Circular No. 759, dated 18th November, 1997, it will be in order for authorised dealers to allow such remit­tances without insisting on tax clearance certificate/NOC from Income-tax authorities, provided the person making the remittance furnishes an undertaking (in duplicate) addressed to the Assessing Officer accompanied by a certificate from an accountant (other than an employee) as de­fined in the Explanation below section 288 of the Income-tax Act, 1961 in the form prescribed by Government. A copy of CBDT’s Circular dated 18th November, 1997 and the specimen forms of undertaking to be furnished by the remitter and that of the certificate to be furnished by the accountant are given in Annexure I to this Chapter. Authorised dealers should, before allowing the remittance, obtain the aforesaid undertaking/certif­icate from the remitter/accountant for compliance with the in­come-tax provisions, where necessary.

(ii)        Authorised dealers should after making the remittance (irrespective of whether the remittance has been made against Reserve Bank permit or under the powers delegated to them) imme­diately forward a copy of the applicant’s undertaking together with a copy of the accountant’s certificate, to the Assessing Officer of the Income-tax Department as indicated in the under­taking. The other copy each of the undertaking and the certifi­cate should be kept on record for verification by the Internal Auditors of the authorised dealer/Inspecting Officers of Reserve Bank.

 

 

1  [Annexure I]

CBDT’s circular No. 759, dated 18-11-1997

 

Remittance to a non-resident - Deduction of tax at source - Submission of No Objection Certificate- Dispensing with - Re­garding

 

1.         Section 196 of the Income-tax Act, 1961 provides that any person responsible for paying to a non-resident any sum chargeable under the Act shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by cheque or draft or any other mode, whichev­er is earlier, deduct income-tax thereon at the rates in force.

2.         The Reserve Bank of India have provided in their Office Manual that no remittance shall be allowed unless a No Objection Certificate has been obtained from the Income-tax Department. It has since been decided that henceforth remittances may be allowed by the Reserve Bank of India without insisting upon a No Objection Certificate from the Income-tax Department and on the person making the remittance furnishing an undertaking (in duplicate) addressed to the Assessing Officer accompanied by a certificate from an Accountant (other than an employee) as defined in the Expla­nation  below section 288 of the Income-tax Act, 1961 in the form annexed to this circular. The person making the remittances shall submit the undertaking along with the said certificate of the accountant to the Reserve Bank of India, who in turn shall for­ward a copy thereof to the Assessing Officer.

 

Form of Undertaking and accountant’s certificate regarding payment of income-tax to be submitted to authorised dealers while making remittances to non-residents
vide CBDT Circular No. 759, dated 18th November, 1997

Undertaking

To...........................................

      (Designation of the Assessing Officer)

I/We ................................................................... (Name, address and Permanent Account Number) propose to make a remittance of......................... (Amount) being...................   (Nature of payment) to......................................................................... (Name and complete address of the person to whom the remit­tance has been made) after deducting a sum of Rs. ........................ being the tax @ ......................., which is the appropriate rate of tax deductible at source on the said amount of remittance.

2. A certificate from the Accountant as defined in Expla­nation below section 288 of the Income-tax Act certifying the nature and amount of income, amount of tax payable and the amount actually paid, is also annexed.

3. In case it is found that the tax actually payable on the amount of remittance made has either not been paid or has not been paid in full, I/we undertake to pay the said amount of tax alongwith interest found due in accordance with the provision of the Income-tax Act.

4. I/We will also be subject to the provisions of penalty and prosecution for the said default as per the Income-tax Act.

5. I/We also undertake to submit the requisite documents, etc., for enabling the Income-tax Department to determine the nature and amount of income and tax, interest, penalty, etc., payable thereon.

 

       .........................................................................

  (Name & Signature)                 

Date  :

Place :

(The undertaking shall be signed by the person authorised to sign the return of income of the person making the payment).

Certificate

I/We have examined the books of account of M/s............................................................................................................ (Name, address and Permanent Account Number of person making  the remittance)  for ascertaining the nature of the remittance, of................................................................ (Amount of remittance)  to........................................................(Name and complete address of the person to whom the remit­tance is being made) and the rate at which the tax is deductible at source thereon and hereby certify that a sum of Rs............................................   has been deduct­ed as tax at the appropriate rate and has been paid to the credit of the Government.

.................................

Accountant   

Place :

Date  :

 

Authorised dealers’ dealings with reserve bank1 

General

(i)         Authorised dealers have recourse to Reserve Bank to sell/buy U.S. dollars to the extent the latter is prepared to transact in the currency at a given point of time.

(ii)        Reserve Bank will buy/sell only U.S. dollar. It will not ordinarily buy/sell any other currency from/to authorised dealers.

(iii)       Reserve Bank will quote its spot buying rate for US dollar to any authorised dealer who makes a specific request to Reserve Bank Dealing Room in the Department of External Investments & Operations (DEIO), Central Office, Mumbai. The rate quoted by the Dealing Room will hold good only for the specific transaction and is subject to change unless deal is concluded immediately.

Note : Funding of or absorbing excess liquidity in ACU dollar account is arranged by Reserve Bank in accordance with the procedure laid down in Memorandum ACM.

 

Settlement of Rupee Leg

The settlement of Rupee leg of the transactions can be effected at the request of authorised dealer at any of the Reserve Bank Offices (Deposit Accounts Department) at Ahmedabad, Bangalore, Calcutta, Chennai, Kanpur, Mumbai, Nagpur and New Delhi. While concluding the deal, the authorised dealer should clearly indicate the office of Reserve Bank at which settlement of the Rupee leg is desired.

 

Value Date

The contract for purchase/delivery of U.S. dollar will be entered into by Reserve Bank on days on which the dealing room (DEIO) of Reserve Bank is open for business. No transaction in foreign currency will be entered into by Reserve Bank on Saturdays. The value date for spot as well as forward delivery should be in conformity with the national and international practice in this regard.

 

Reporting of Transactions

All transactions with Reserve Bank should be reported in R Return. Form A2 need not be completed in respect of sale of foreign currency to Reserve Bank.

 

Minimum and Multiple Requirements

The purchase and sale of U.S. dollar will be made by Reserve Bank ordinarily in multiple of U.S. $ 5,00,000 with the minimum of U.S. $ 1 million.

 

Confirmation of Purchase/Sale from/to Reserve Bank

Confirmation of the sale and purchase of U.S. dollar to/from the Reserve Bank may be sent immediately in the Forms RBM 1 and RBM 2 respectively to the Back-up Section of DEIO, Central Office, Reserve Bank of India, Mumbai. The confirmation may be sent by hand delivery, telex or fax.

 

Payment of Rupee Value against Sale of Foreign currencies to Reserve Bank

The payment of the rupee value will be made by the concerned office of Reserve Bank (cf. para 4.2) to the current account of the authorised dealer on the appropriate value date without waiting for the credit intimation from Reserve Bank’s overseas correspondent. If the foreign currency amount is not delivered to the overseas correspondent of Reserve Bank on the value date, interest will be charged at the Reserve Bank Rate on the rupee value credited to the account of the authorised dealer for the number of days of default. In order that the overdue interest may be recovered in such cases automatically by debit to their account with the concerned office of Reserve Bank, authorised dealers should lodge a suitable standing authority with Reserve Bank. Cases of undue delay will attract penalties, apart from overdue interest.

 

Submission of information about principals by Authorised Dealers’ Overseas Correspondents

Authorised dealers should leave standing instructions with their overseas correspondents to indicate clearly the name of the principal (i.e., the name of the Indian office/branch of the authorised dealer) on whose behalf the U.S. dollar amount is delivered to Reserve Bank’s account with the Federal Reserve Bank of New York, New York.

 

Rupee Accounts of non-residents other than banks

Part B - Non-Resident (External) Rupee Accounts (NRE Accounts)

 

1 [Statement of Operations on NRE Accounts

A monthly statement in Form STAT 8 for the bank as a whole may be forwarded to the Chief General Manager, Exchange Control Department (Central Statistical Division), Reserve Bank of India, Central Office, Mumbai-400001 so as to reach him by 10th of the month following the month to which it relates.]

 

Foreign Currency Accounts in India

Part B - Foreign Currency (Non-Resident) Accounts (Banks) Scheme [FCNR (B)]

 

Statement of Inflow, Outflow and Outstanding Deposits under FCNR Accounts (Banks) Scheme

Authorised dealers should submit a monthly statement for the bank as a whole, in Form STAT 5 showing the inflow, outflow and outstanding deposits under the Foreign Currency (Non-Resident) Accounts (Banks) Scheme during the month, so as to reach the Reserve Bank before the 10th day of the month following that to which it relates.

 

Returns and Statements1 

General

Returns and statements prescribed in the Manual are used in the Reserve Bank for compiling very valuable data relating to the country’s financial transactions with the external world as well as for exercising supervision over the operations of authorised dealers. Authorised dealers should, therefore, maintain proper internal organisation both in their controlling offices as well as operating branches so that the returns/statements and other data prescribed in the Manual or prescribed by separate instructions are prepared accurately in a systematic manner and submitted to Reserve Bank within the prescribed time schedule. The work of compilation of returns and statements should be entrusted in the controlling offices and operating branches to personnel possessing requisite knowledge and experience of foreign exchange operations. Authorised dealers must undertake periodic reviews of the arrangements for compilation and submission of data to Reserve Bank to see that they are adequate and the requisite manpower and other resources continue to be available.

 

Submission of Returns

(i)         Unless specifically indicated otherwise, all returns/statements should be submitted to the office of Reserve Bank under whose jurisdiction the concerned office/branch of authorised dealer is situated. If in any period, there are no transactions to report, the ‘NIL’ position may be advised by letter within the prescribed period. Authorised dealers should ensure that the returns and statements submitted to Reserve Bank reflect correctly and completely all the relevant transactions undertaken by them during the relevant period and all the supporting forms have been correctly filled up and annexed.

(ii)        Section 73A of FERA, 1973 empowers Reserve Bank to impose fine on an authorised dealer for contravention of Reserve Bank’s directions or for failure to file returns as specified by Reserve Bank. Reserve Bank will, therefore, take a serious view of the failure of any branch of an authorised dealer to furnish returns and statements regularly or promptly as well as of any irregularities detected in their compilation and where it deems fit, it may impose financial penalty as provided in section 73A of FERA, 1973 or even direct the authorised dealer concerned to refrain from transacting foreign exchange business at the branch concerned.

 

Maintenance of Records

Authorised dealers should maintain proper records of all purchases and sales of foreign currencies made by them and also of all transactions relating to foreign exchange business including those on non-resident accounts and foreign currency accounts held in their books.

 

Authorised Dealers’ Code Numbers

Every office or branch of an authorised dealer must indicate the complete fourteen digit code number allotted by Reserve Bank to the office/branch at the top of all its returns/statements submitted, irrespective of the office/department to which the returns are submitted as also on each remittance form and all copies of GR/PP/SOFTEX forms enclosed to or forwarded with Returns.

 

Offices/Branches of Authorised Dealers handling Foreign Exchange Business

(i)         The Head/Principal Office of each authorised dealer should furnish an up-to-date list (in triplicate) of all its offices/branches which are authorised to transact foreign exchange business, as at the end of December every year giving their addresses and code numbers to the Chief General Manager, Exchange Control Department (Central Statistical Division), Reserve Bank of India, Central Office, Mumbai-400 001, so as to reach by 15th January of the following year. The lists should be completed showing the distribution of offices/branches area-wise, i.e., according to area of jurisdiction of Reserve Bank offices and classified as under :

Category A    :   Offices and branches maintaining independent foreign currency accounts in their own names.

Category B    :   Offices and branches not maintaining independent foreign currency accounts but having powers of operating on the accounts maintained abroad by their Head/Principal Office or any other link office (The name of the latter office should also be indicated).

Category C    :   All other offices and branches handling foreign exchange business through other offices or branches in category A or B (The name of the latter office should also be indicated).

(ii)    While forwarding the above lists to Reserve Bank, the Head/Principal Office of authorised dealer should also enclose a summary statement (in triplicate) in the following form :

Name and address of the authorised dealer :

 

Name of Reserve Bank office

No. of branches under category

 

A

B

C

Ahmedabad

 

 

 

Bangalore

 

 

 

etc.

 

 

 

Total

 

 

 

 

(iii)       Authorised dealers should promptly report to Reserve Bank, any change in the status (i.e., category) of their offices/branches included in the above lists. As and when a new office/branch is opened with powers to handle foreign exchange business or an existing office/branch is delisted, same should be advised promptly to Reserve Bank (both to the Central Office as well as the Regional Office of Reserve Bank having jurisdiction over the concerned authorised dealer’s office/branch).

(iv)       While designating and categorising offices/branches for undertaking foreign exchange business, authorised dealers should ensure that branches have adequate business and are fully equipped to handle foreign exchange business and to meet various requirements of Reserve Bank including timely submission of proper returns/statements. They should also undertake a review every year to ensure that the branches which do not satisfy the criteria are delisted/reclassified.

 

R-Returns

(i)         Authorised dealers should report all transactions made by them through their Nostro Accounts abroad and Vostro Accounts maintained with them in appropriate R Return, i.e., R Return (NOSTRO) and R Return (VOSTRO) respectively, as laid down in the Guide to authorised dealers for compilation of R Returns (see Annexure at the end of the Chapter) twice a month, at the close of business on 15th and the last day of calendar month so as to reach Reserve Bank within seven calendar days from the close of reporting period to which they relate. If the 15th or the last day of the month is a holiday, the return should be submitted as at the close of business on the preceding working day.

(ii)        Each office/branch of an authorised dealer in categories A and B (C category branches are not required to submit R Return) submitting R Returns to Reserve Bank should ensure that they use correct format of R Return as applicable to transactions and write in bold letters the currency name and currency code (SWIFT Code) on the relative R Return. Incomplete R Returns (i.e., where the required information, data, certification, etc., are not furnished and/or any of the required enclosures are not properly completed and submitted), will be regarded as non-submission of the Return and will attract penal provisions of section 73A of FERA, 1973.

 

Earnings from Tourism

The Head/Principal Office of each authorised dealer should submit to the Chief General Manager, Exchange Control Department (Central Statistical Division), Reserve Bank of India, Central Office, Mumbai-400 001, a quarterly statement in Form STAT 6 giving details of all purchases, irrespective of the amount of the transaction, of foreign currency travellers cheques, notes and coins purchased by them from the public, as also payments made by them during the quarter against travellers letters of credit opened by their overseas branches/correspondent. The statement should be forwarded on or before 10th of the month following the quarter to which it relates.

 

Turnover of Foreign Exchange Business

 1 [** ** **]

 

2 [Other Periodic Statements

Authorised dealers are required to submit to Reserve Bank the following periodic statements in terms of instructions contained in various Chapters of the Manual :

 

 

Description

Manual paragraph

Form

Periodicity

1.

Special Report on Rupee dealings with overseas banks

* 5A.16

RRD

Monthly

2.

Statement of positions of authorised dealers

* 5B.1(ii)

POS

Weekly

3.

Statement   regarding   maturity  of position

* 5B.1(iii)

MAP

Monthly

4.

Statement of foreign  currency balances of authorised dealers and rupee  balances of non-resident banks

* 5B.2(ii)

BAL

Monthly

5.

Statement  showing  the  position of unreconciled entries in foreign currency accounts abroad

* 5B.2(iv)

REC

Half yearly

6.

Statement regarding  interest  rates sensitivity

* 5B.9(iii)

SIR

Quarterly

7.

Statement of particulars of outstanding export bills

** 6C.12(ii)

XOS

Half yearly

8.

Export bills allowed to be written off

** 6C.14(ii)

EBW

Half yearly

9.

Statement showing details of imports for which documentary evidence of import has not been received from importers

+ 7A.20(v)

BEF

Quarterly

10.

Statement of permission granted for opening of trading/non-trading offices/posting of representative abroad

+ 9B.1(iii)

ORA

Monthly

11.

Statement  of  purchases/sales  of shares/debentures made on behalf of FIIs under Portfolio Investment Scheme

+ 10B.4(ii)

LEC(FII)

Daily

12.

Statement  of  purchases/sales  of shares/debentures made on behalf of NRIs/OCBs under Portfolio Investment Scheme

+ 10C.23(i)

LEC(NRI)

Daily

13.

Statement  showing  remittance  of income/interest to NRIs/OCBs on investments /deposits held on non-repatriation basis

+ 10C.24A(iii)

CIR

Half yearly

14.

Statement regarding sale through stock exchange/s of shares/bonds/debentures by authorised dealers acquired by NRIs/OCBs under the Direct Investment Schemes

+ 10C.27(iii)

DSP

Quarterly

15.

Statement  of  operations  on Diplomatic Bond Stores Accounts+ 

+ 11B.5(e)

DBS

Monthly

16.

Statement of operations on  Non-resident (External) Rupee Accounts

13B.25

STAT 1

Monthly

17.

Summary  of operations on Blocked accounts

13D.6 and 8

STAT 2

Annual

18.

Deposits  under  Foreign  Currency (Non-resident) Accounts Scheme

Deleted

STAT 3

19.

Summary of  operations  on Foreign Currency (Non-resident) Accounts

Deleted

STAT 4

20.

Statement showing inflow and outflow of deposits under Foreign Currency (Non-resident - Banks Scheme) [FCNR(B)] Accounts

14B.10

STAT 5

Monthly

21.

Statement of earnings from Tourism

16.7

STAT 6

Quarterly

22.

Summary statement  of  operations in EEFC accounts

+ 14D.10

STAT 7

Quarterly

23.

Statement  showing  details  of NRE Accounts

13B.25

STAT 8

Monthly

24.

Statement showing details  of NRNR Accounts

+ 13C.6

STAT 9

Monthly

25.

Statement  showing  details  of RFC Accounts

+ 14E.10

STAT 10

Monthly

26.

Statement showing turnover of foreign exchange business of authorised dealer

16.8

FXT

Annual.]

 

 

Annexure

Guide to Authorised Dealers For Compilation of R-Returns

 

Introduction

The information about the inflows and outflows of foreign exchange is of immense importance to the Government of India (GOI) and Reserve Bank of India (RBI) for making important policy decisions. The major source of this information is the financial transactions with the outside world that take place through banks, i.e., Authorised Dealers (ADs) in foreign exchange and reported by them in R-Returns. In addition, as a member of Inter­national Monetary Fund (IMF) India have an obligation to present the quarterly Balance of Payments  (BoP) statistics to the IMF. GOI have accepted Special Data Dissemination Standards (SDDS) prescribed by the IMF which, inter alia, require that the publi­cation of BoP data should be made within three months from the closure of the quarter. The BoP statistics are the source for the outside world to know about the country’s transactions relating to trade in merchandise, services, assets and liabilities with the outside world that take place during the quarter. ADs are, therefore, required to submit the information pertaining to the transactions put through their Nostro accounts maintained by them with correspondents/branches/head office abroad and Vostro ac­counts (of non-resident banks) maintained with them, in R-Re­turns, accurately and strictly adhering to the prescribed time schedule.

 

Objective and scope of the Guide

This Guide has been prepared to facilitate correct compilation of R-Returns by the staff attending to the work in AD of­fices/branches and its provisions are supplementary to the provi­sions of Chapter 16  of Exchange Control Manual. The correct manner of reporting certain transactions where errors in report­ing have been noticed frequently, has been explained. The various checks AD should exercise before forwarding R-Returns and other documents to RBI are also listed. ADs should ensure that the dealing officers and staff in their offices/branches are fully conversant with the provisions of the Guide. They may approach RBI for any clarification they need in this regard.

 

Types of R-Returns

Every transaction  which causes inflow of foreign exchange into India or outflow of foreign exchange from India and affects the position of foreign currency assets or liabilities, is re­quired to be reported to RBI. As these transactions take place by way of debits and credits to the Nostro accounts maintained by the ADs and Vostro accounts of non-resident banks maintained with the ADs, every debit and every credit to these accounts (and only every debit and every credit to these accounts) are required to be reported. [Exceptions to this rule are (i) sale/purchase of foreign currency notes and coins where sales (outflows) and purchases (inflows) are to be shown as such and (ii) the transactions relating to export bills negotiated, purchased or discounted as mentioned in para 18 below.] Thus there are two types of R-Returns, viz., R-Return (NOSTRO) and R-Return (VOSTRO). A separate R-Return (NOSTRO) and a separate R-Return (VOSTRO) for each currency is required to be submitted irrespective of number of accounts  operated upon in that currency.

 

Printing of R-Return forms

Authorised Dealers should themselves arrange to have their requirements of R-Returns printed as per the specifications and formats prescribed by RBI. Care should be taken to indicate the name of currency in bold letters. The size of the paper should be ‘foolscap’ for R-Return (NOSTRO) and ‘double foolscap’ for R-Return (VOSTRO). The size of the paper for the various other formats should also be either foolscap or double foolscap. Quali­ty of the paper should be such that it is capable of sustaining repeated handling.

 

Time limit for submission of R-Returns

R-Returns should be submitted twice a month as at the close of business on 15th and the last day of the month. The Returns are to be sent so as to reach RBI within 7 calendar days from the close or period to which they relate. AD branches submitting R-Returns should, however, make all efforts to submit them as quickly as possible, without waiting  for the last day of submis­sion, in order to avoid inconvenience to themselves and RBI as well.

 

Who should submit R-Returns (NOSTRO)

Offices/Branches of ADs in categories A and B should submit  R-Return (NOSTRO) in the same format, independently, to RBI to­gether with the required documents as indicated in paragraph 15 below. Under no circumstances category B Offices/Branches of ADs should forward the supporting documents to the category A of­fices/branches on whose Nostro accounts they operate, for onward transmission to RBI.

 

Who should not submit R-Returns (NOSTRO)

Offices/Branches of ADs in category C should not submit their R-Returns (NOSTRO) independently to RBI. Their transactions will be reflected in the Returns of the Office/Branch in category A or B through whom their transactions are booked. Accordingly, Forms A1, A2 and Forms GR/PP/SOFTEX should be sent to that Office/Branch for onward submission to RBI alongwith relative R-Returns submitted by that Office/Branch.

 

Who should submit R-Returns (VOSTRO)

Offices/Branches of ADs maintaining accounts of non-resident banks (including banks from ACU member countries) as also private exchange houses (i.e., VOSTRO accounts) in their books, should report operations thereon to RBI in R-Return (VOSTRO) duly sup­ported by Forms A1, A2, A3 pertaining to all the transactions including the transactions relating to other branches/other AD branches routed through such accounts.

 

Who should not submit R-Returns (VOSTRO)

Offices/Branches of ADs in category C should not submit any R-Return (VOSTRO). Offices/Branches of ADs who do not maintain VOSTRO accounts should also not submit R-Returns (VOSTRO). Howev­er, in support of the transactions put through by them in VOSTRO Account maintained by another AD/branch/office, they should certify duly completed Forms A1 and A2 and forward them immedi­ately  to the concerned reporting AD/branch/office, i.e., AD/branch/office maintaining the relative VOSTRO Account for submission to RBI as mentioned in paragraph 8 above.

 

To whom R-Returns should be submitted

R-Returns should be submitted to the Regional Office of Exchange Control Department of RBI under whose jurisdiction the concerned Office/Branch of the Authorised Dealer is situated.

 

Periodical check by category A branches

Since Offices/Branches of ADs in category B will be submitting R-Returns alongwith necessary enclosures directly to RBI, the offices in category A who will be reporting sale and purchase transactions in respect of category B branches against items I.G and II.G respectively, should periodically tally them with the sales and purchases actually reported to RBI in the R-Returns submitted directly by the category B  branches.

 

Submission of Form A1

Every credit to Mirror (of Nostro) account and every credit to Vostro account for payment towards imports into India, includ­ing advance payment for imports, should be supported by an application in Form A1 made by the remitter (importer) and duly certified by the AD. It should be ensured that commodity descrip­tion and code number under Harmonised Coding System (HSITC) devised by DGFT as also I/E code number are filled in by the importer applicant. The concerned AD office/branch should also ensure that an appropriate item in the AD’s certificate is prop­erly ticked as indicated in Form A1.

 

Submission of Form A2

Every credit to Mirror (of Nostro) account and every  credit to Vostro account (except those mentioned in para 14 below), for payment towards purposes other than imports into India but including imports under intermediary trade, should be supported by an application in Form A2 made by the remitter and duly certi­fied by the AD.

 

Submission of Form A3

Every credit and debit to Vostro account towards transfer of funds between accounts of non-resident banks, transactions relat­ing to funding of/withdrawal from the Vostro account or the transactions by the account holder non-resident bank with RBI should be supported by Form A3 duly completed by the AD.

 

Documents to be submitted alongwith R-Returns+ 

The following documents/statements/schedules (as per formats enclosed) relating to payments from and receipts in both Nostro and Vostro accounts during the period under report should accompany the respective  R-Returns :

(i)     Forms A1 and A2/statement of travel transactions in lieu of Forms A2 (in Form TRA) together with covering schedules duly segregated as under, statement of sales to overseas banks/branches and Forms A3 (in the case of Vostro account):

(ii)  SCH 1  * (a)      for Forms A1 relating to payments below the equivalent to Rs. 5,00,000 towards imports into India.

                                (b)           for Forms A1 relating to payments equivalent to Rs. 5,00,000 and above towards imports into India.

(iii) SCH 2 * (a)        for Forms A2 relating to payments below the equivalent to Rs. 5,00,000 towards purposes other than imports.

                                (b)           for Forms A2 relating to payments equivalent to Rs. 5,00,000 and above towards purposes other than imports.

(iv)    ENC              relating to physical exports, bills in respect of which were negotiated, purchased,

                    Statement                      discounted or sent for collec­tion during the reporting period.

(v) GR/PP/              relating  to  exports  where  full  export  value  has  been  realised, with invoices/

                    SOFTEX                        accounts sales, etc., as enclo­sures to SCH 3/SCH 5.

                    Forms    

(vi) SCH 3              for exports where full value has been rea­lised.

(vii) SCH 4              for exports where part value has been realised.

(viii) SCH 5                for exports where full value has been received in advance.

(ix) SCH 6              for exports where part value has been re­ceived in advance.

(x)    Supplementary statement of receipts, i.e., debits to Mirror (of NOSTRO) accounts or VOSTRO accounts, for purposes other than exports, involving amounts equivalent of Rs. 1,00,000 and above.+ 

(xi)   Exchange Control copies of import licences which have been fully utilised/expired, under a covering schedule giving licence numbers and dates.

        (xii) Selected large branches of ADs (critical branches) who have been advised to submit the data relating to sale and purchase transactions with public duly classified purposewise, on a floppy, should submit the floppy alongwith R-Returns.

 

Uniform code number allotted to AD branches

Part I (7 digits) of the uniform code number allotted to the reporting Office/Branch of AD should be indicated on the top of the R-Returns, as well as on all the enclosures. As and when new branches are authorised ADs should apply to the Director, Banking Statistics Division, Department of Statistical Analysis and Computer Services, Reserve Bank of India, C-8/9 Bandra Kurla Complex, Post Box No. 8128, Bandra (East), Mumbai-400051 through their Head Office for allotment of code number irrespective of whether the branch intends transacting foreign exchange business immediately or not. Any existing branch having a 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.

 

What should be reported in R-Returns

All credits and debits to Mirror (of NOSTRO) account and to VOSTRO account, pertaining to the reporting period only, should be reported in R-Returns. In other words, from a set of vouchers pertaining to any transaction, only Mirror (of NOSTRO) account voucher or VOSTRO account voucher qualifies for reporting. Sales and purchases of foreign currency notes and coins should also be shown as sales (payments) and purchases (receipts.)

 

Suspense Account

As per the guidelines for compilation of BoP statistics, export receipts are required to be included as inflows when (construc­tive) ownership is passed on from the exporters.  As such when the export bills are negotiated, purchased or discounted, the bill amounts should be shown as export receipts. This is an exception to what is stated in para 17 above. Pending reali­sation of such bills the bill amounts are debited to a Suspense Account. On  realisation of export bills the bill amounts are debited to Mirror (of Nostro) Account and credited to the Sus­pense Account to reverse the earlier debit entries. This Mirror (of Nostro) Account debit should not be reported. Thus, this Suspense Account, in a way, is regarded as a part of Mirror Account and hence the balance in that account is included in Opening and Closing Balances. This Suspense Account is also operated upon in the case of transactions initiated locally, pending actual debit or credit in NOSTRO Account.

 

What should not be reported in R-Returns

Debit or credit to any account, other than those mentioned at paras 17 and 18 above, should not be reported in R-Returns for any reason whatsoever. Similarly, as exception,  debits/credits pertaining to transfer between any two accounts [cash (Mirror), suspense, deposit, treasury  bills, treasury deposit, securities, shares, foreign currency loan, etc., ac­counts] mentioned in items III and IV of R-Return (NOSTRO) should not be reported as they get reflected by increase in balance in one and corresponding decrease in balance in the other.

 

Revised R-Return to be submitted by ADs

Back data, if any, pertaining to earlier reporting periods should not be reported  in R-Returns for the current period. Instead, a revised R-Return for the relevant earlier period, should be submitted, duly superscribed as “REVISED R-RETURN”. Similarly, in the event of any wrong reporting in R-Return no­ticed later, a revised R-Return should be submitted.

 

Amounts in R-Returns

No decimal places should be reported. Only foreign currency amounts, in rounded whole units of the currency, should be re­ported in all R-Returns (NOSTRO) and R-Returns (VOSTRO) in ACU Dollars. Similarly, only rounded whole Rupee amounts should be reported in R-Returns (VOSTRO) in Indian Rupees.

 

Important major items of the R-Return (NOSTRO)

The following are the important major items to be reported in the R-Returns (NOSTRO):

        I.  Sales

        II.  Purchases

        III. Opening balances

        IV. Closing balances

        V. Aggregate balances in customers’ accounts which are in the nature of foreign currency liability of the AD.

These are followed by the certificate to be given by the AD branch submitting the Returns. The individual item headings are self explanatory. Care should be taken to ensure that the Opening balances shown  in the Return are exactly the same as the Clos­ing balances shown in the previous period’s Return. It should also be ensured that the Return balances arithmetically, i.e., Item III + Item II - Item I = Item IV.

 

Important major items of R-Returns (VOSTRO)

The following are 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

These are followed by the certificate to be given by the AD branch submitting the Returns. The individual column headings are explicit and self explanatory. Care should be taken to ensure that the Opening Balances shown in the Return are exactly the same as the Closing Balances shown in the previous period’s Return. It should also be ensured that the Return balances arith­metically, i.e., Col. 2 + Col. 6 - Col.10 = Col. 11.

 

Items in R-Return (NOSTRO)

The following are brief clarifications of the various items to be reported in R-Return (NOSTRO):

 

 

Item No.

What should be filled in against the item

Sales for imports below equivalent of Rs. 5,00,000

I.A. (i)

Aggregate amount of sales of foreign currency to public towards all payments individually below the equivalent of Rs. 5,00,000 for imports into India including remittances towards advance payments indicating the number of Forms A1  enclosed. Duly completed Form A1 for each transaction should be enclosed. These Forms A1 should be separately bunched together and listed in SCH 1 (a).

Sales for imports equivalent of Rs. 5,00,000 and above

I.A. (ii)

Aggregate amount of sales of foreign currency to public towards all payments individually equivalent of Rs. 5,00,000 and above for imports into India including remittances towards advance payments indicating the number of Forms A1 en­closed. Duly completed Form A1 for each transaction should be enclosed. These Forms A1 should be separately bunched together and listed in SCH 1 (b).

Sales for imports under intermediary trade

I.B.

Aggregate amount of sales of foreign currency to public for intermediary trade indicating number of Forms A2 enclosed. Duly completed Form A2 for each transaction should be enclosed. These Forms A2 should be separately bunched together.

Sales for non-imports below equivalent of Rs. 5,00,000

I.C. (i)

Aggregate amount of sales of foreign currency to public towards all payments  individually below the equivalent of Rs. 5,00,000 for purposes other than imports, including bank charges due on import transactions where remitted separately as also commission, reduction of value, etc., deducted from export proceeds. Duly completed Form A2 for each transaction should be enclosed, except in cases where a statement in lieu  of Forms A2 is enclosed, such as in  the case of payments relating to travel abroad, etc. These Forms A2 and statements in lieu thereof should be separately bunched together and listed in SCH 2 (a).

Sales for non-imports equivalent of Rs. 5,00,000 and above

I.C. (ii)

Aggregate amount of sales of foreign currency to public towards all payments individually equivalent of Rs. 5,00,000 and above for purposes other than imports, including bank charges due on import transactions where remitted separately as also commission,  reduction of value, etc., deducted from export proceeds realised. Duly completed Form A2 for each trans­action should be enclosed, except where a statement in lieu of Forms A2 is enclosed, such as in the case of payments relating to travel abroad, etc. These  Forms A2 and statements in lieu there­of should be separately bunched together and listed in SCH 2 (b).

Sales to other ADs, FFMCs

I.D.

Aggregate amount of sales of foreign currency

 

(a)

to other Authorised Dealers

 

(b)

to  the  reporting  AD’s  other  branches  in India  main­taining independent position

 

(c)

to  ADs on account of conversion into another currency

 

(d)

to FFMCs in the Form of TCs, notes and coins.

 

 

No form is required to be completed for these transactions.

Sales to RBI

I.E.

Aggregate amount of sales of foreign currency to RBI.

 

 

No form is required to be completed

Sales to overseas banks and branches

I.F.

Aggregate amount of sales of foreign currency to overseas banks and branches. No Form is required to be completed. However, a statement in the prescribed Form enclosed with A.D. (M.A. Ser­ies) Circular No. 36, dated 11 September, 1997 should be submitted.

Sales reported by category B branches

I.G.

Aggregate amount of sales of foreign currency to public at category B branches, operating on the account maintained by the reporting category A branch. These sales should correspond to the sales independently reported by those category B branches to RBI.

Notional sales relating to reversal of purchases

I.H.

Aggregate amount of notional sales  of foreign currency arising out of reversal of entries relating to purchases of export bills due to delinking of foreign currency. The amount should be shown only in the inner column.

 

 

No Form is required to be completed.

Purchases relating to export bills - NPD

II.A. (i)(a)

Aggregate amount in foreign currency relating to all export bills negotiated under letters of credit, export bills purchased and export bills  discounted.

Purchases relating to bills sent for collection and undrawn  balances

II.A. (i)(b)

Aggregate amount of realisation of foreign curren­cy relating to export bills sent for collection earlier and undrawn balances against exports made earlier.

Purchases of advance export receipts

II.A. (ii)

Aggregate amount of purchases of foreign currency from public representing advance receipts for exports.

Purchases under intermediary trade

II.B.

Aggregate amount of purchases of foreign currency from public relating to proceeds under intermediary trade, which are not covered by Forms GR/PP/SOFTEX.

Purchases of non-export receipts below equivalent of Rs. 1,00,000

II.C. (i)

Aggregate amount of purchases of foreign currency from public for purposes other than exports, individually below the equiva­lent of Rs. 1,00,000.

Purchases of non-export receipts equivalent of Rs. 1,00,000 and above

II.C. (ii)

Aggregate amount of purchases of foreign currency from public for purposes other than exports, individually equivalent of Rs. 1,00,000 and above. A supplementary statement in the pre­scribed proforma giving details of the transactions should be submitted.

Purchases from other ADs, FFMCs

II.D.

Aggregate amount of purchases of foreign currency from

 

 

(a) other ADs

 

 

(b) the reporting AD’s other branches in India maintaining independent position

 

 

(c) other ADs on account of conversion into another curren­cy

 

 

(d) FFMCs in the form of TCs, notes and coins

 

 

No Form is required to be completed.

Purchases from RBI

II.E.

Aggregate amount of purchases of foreign currency from RBI. No Form is required to be completed.

Purchases from overseas banks and branches

II.F.

Aggregate amount of purchases of foreign currency from overseas banks and branches. No Form is required to be completed.

Purchases reported by category B branches

II.G.

Aggregate amount of purchases of foreign currency from public at category B branches, operating on the account main­tained by the reporting category A branch. These purchases should correspond to the purchases independently reported by those category  B branches to RBI.

 

 

No Form is required to be submitted.

Notional purchases relating to purchases reversed earlier

II.H.

Aggregate amount of notional purchases of foreign currency  relating to realisations against export bills delinked as at item No. I.H. No Form is required to be submitted.

Opening Cash Balance

III.A.

Balance as at the opening of the reporting period in the Mirror (of NOSTRO) accounts. If the reporting Office/Branch is maintaining more than one NOSTRO (Current) account abroad, the total of balances in the corresponding Mirror accounts should be shown. Physical cash balance in the form of foreign currency notes and coins should be included in the cash balance.

 

 

Branches in Category B should maintain a separate Inter branch account for each foreign currency they are dealing in, to book foreign currency transactions and should report the balance as at the opening  of  the  reporting  period  in  that account, against this item. Physical cash balance, as above, should also be included.

Opening balance in suspense account

III.B.

Balance as at the opening of the reporting period in the Suspense account maintained, as an intermediate arrangement, to park the transactions initiated by the reporting category A branch (or by the category B branches  operating on the NOSTRO account main­tained by the reporting A category branch), in their NOSTRO account. Such  transactions generally include export bills nego­tiated/purchased/discounted pending realisation, drafts drawn by overseas correspondents pending receipt of cover funds, etc.

Opening balances in other asset/liability accounts in foreign cur­rency

III.C

III.D

III.E

III.F

III.G

Balances as at the opening of the reporting period in the respective accounts as per local  books against respec­tive items.

Opening balances in foreign currency loan accounts

III.H.

Balances as at the opening of the reporting period in the account of foreign currency loans extended by the AD and outstanding as per local books.

Closing balances

IV.A to H

Balances as at the close of the reporting period in the same manner as in the case of opening balances at III.A to III.H.

Balances in foreign exchange liability a/cs.

V.

Aggregate of balances in each type of accounts mentioned at sub-items A to F. These are the deposit accounts where AD has liability in foreign exchange towards residents or non-residents.

 

 

 

 

Items  in  R-Return (VOSTRO)

The following are brief clarifications of the various columns in R-Returns (VOSTRO).

 

 

Column No.

What should be filled in against the item

Identification of the account

Col. 1

Name, place and country of the VOSTRO account holder non-resident bank/branch/correspondent/private exchange house.

Opening balances

Col. 2

Balances as at the opening of the reporting period in the relative accounts. Care should be taken to ensure that they are exactly same as the closing balances in Return for the preceding reporting period.

Credits towards imports below equivalent of Rs. 5,00,000

Col. 3 (a)

As in Item I.A.(i) of R-Return (NOSTRO), “aggregate amount of credits” instead of “aggregate amount of sales of foreign currency”.

Credits Towards  imports  equivalent of Rs. 5,00,000 and above

Col. 3 (b)

As in Item I.A(ii) of R-Return (NOSTRO), “aggregate amount of credits” instead of “aggregate amount of sales of foreign currency”.

Credits towards non-imports below equivalent of Rs. 5,00,000

Col. 4 (a)

As in Item I.C.(i) of R-Return (NOSTRO), “aggregate amount of credits” instead of “aggregate amount of sales of foreign currency”. Credits towards imports under intermediary trade should also be included.

Credits towards non-imports equivalent of Rs. 5,00,000 and above

Col. 4 (b)

As in Item I.C.(ii) of R-Return (NOSTRO), “aggregate amount of credits” instead of “aggregate amount of sales of foreign currency”. Credits towards imports under intermediary trade should also be included.

Credits towards funding

Col. 5

Aggregate amount of credits on account of

 

 

(i) funding of the account by account-holder bank [there should be corresponding purchase of foreign currency in the appropriate R-Return (NOSTRO)] and

 

 

(ii) transfer from another account of the same or other non-resident bank with the same or another AD.

 

 

Forms A3 should be enclosed.

Debits towards exports

Col. 7

As in Item Nos. II.A.(i)(a), II.A.(i)(b) and II.A.(ii) of R-Return (NOSTRO), “aggregate amount of debits” instead of “aggregate amount of purchases of foreign currency” in the case of  Vostro Account in Rupees. In the case of Vostro Account in  ACU  $  reimbursement towards exports made to other ADs/branches should not be included.

Debits towards non-exports below equivalent of Rs. 1,00,000

Col. 8 (a)

As in Item II.C.(i) of R-Return (NOSTRO), “aggregate amount of debits” instead of “aggregate amount of purchases of foreign currency”. Debits to­wards exports under intermediary trade should also be included.

Debits towards non-exports equivalent of Rs. 1,00,000 and above

Col. 8 (b)

As in Item II.C.(ii) of R-Return (NOSTRO), “aggregate amount of debits” instead of “aggregate amount of purchases of foreign currency”. Debits to­wards exports under intermediary trade should also be included.

Debits towards withdrawals

Col. 9

Aggregate amount of debits on account of

 

 

(a) withdrawals by the account-holder bank [there should be corresponding sale of foreign currency in the appropriate R-Return (NOSTRO)] and

 

 

(b) transfer to another account of the same or another non-resident  bank with the same or another AD.

 

 

Forms A3 should be submitted

 

 

In the case of Vostro Account in ACU $, reimbursement made to other ADs/branches should be included in this column. No Form is required to be submitted for this purpose.

Closing balances

Col. 11

Balances as at the close of the reporting period in the relative accounts.

 

Reporting of certain transactions

All ADs are expected to follow uniform procedure for report­ing the transactions in R-Returns. The following clarifications are provided for reporting of certain transactions in which reporting errors are observed commonly:

Export bills NPD

(i)         As already explained in para 18 above, value of export bills negotiated, purchased or discounted (NPD) should be reported against item II.A(i)(a) of R-Return (NOSTRO) although, it is debited to Suspense Account instead of Mirror (of NOSTRO) Account pending actual realisation. In ENC statement, however, full invoice value of relative exports should be reported.

Export bills sent for collection

(ii)    While only the amounts realised against export bills sent for collection earlier should be included in item II.A(i)(b) of R-Return (NOS­TRO), as explained against the item, full invoice value of the relative export bills should be reported in the relative ENC statement at the time of sending the bills for collection.

Non-payment of export bills NPD

(iii)   When export bills negotiated, purchased or discounted are dishonoured and are taken on collection basis, the purchases earlier reported as at (i) above have to be reversed. Reporting of such a reversals has to be made by reporting equivalent amount against item I.C(i) or I.C(ii). Duly completed Form A2 indicating GR/PP/SOFTEX Form number, amount of bill, period of R-Return in which purchase was reported and reason for reversal, should be enclosed.

Export bills realised in another currency

(iv)   When an export bill is realised in the currency other than that of the bill earlier purchased and reported as in (i) above, it has to be re­versed as indicated at (iii) above. Purchase of the currency actually realised should be reported in R-Return pertaining to that currency.

Short realisation of export bills

(v)    When the amount realised against an export bill is short of the actual bill amount reported earlier as in (i) above, on account of discount, reduction allowed or commission deducted, etc., the difference should be reported as sale against item I.C.(i) or I.C.(ii). Duly completed Form A2 indicating the details such as GR/PP/SOFTEX Form number, bill amount, etc., should be enclosed.

Export bills under LC restricted to another AD

(vi)   When a forward purchase contract is booked by an AD (Export­er’s AD) against an export bill under letter of credit (LC) negotiated with another AD (LC Negotiating AD) to whom the LC is restricted, the LC Negotiating AD should follow the reporting procedure as in (i) above, at the time of negotiating by reporting the amount as purchase in R-Return and full invoice value in ENC statement, and as in (v) above, at the time of receipt of the foreign currency by reporting short reali­sation, if any. When the foreign currency amount is paid by the LC Negotiating AD to the Exporter’s AD in settlement of the forward contract both the ADs should report the transaction as an interbank transaction against items I.D and II.D respectively. Exporter’s AD should immediately pass on the relative GR/PP/SOFTEX Form to the LC Negotiating AD for submission to RBI alongwith the latter’s R-Return.

Payments for imports under deferred guarantees/loans/credits

(vii)  Payment for imports under deferred guaran­tees/loans/credits or other suppliers’ credits (whether short, medium or long term) should be reported against item I.C.(i) or I.C.(ii). Form A2 duly complet­ed and certified by the AD indicating the purpose of remittance with details such as, break-up of the amount towards principal and interest, RBI/GOI approval/registration No., if any, etc.

Credits to EEFC/RFC Accounts

(viii) The credits to the EEFC/RFC Accounts have to be out of realisation/receipt of foreign currency amounts. As explained in paras 17 and 19 above all such receipts being debited to Mirror (of NOSTRO) Account have to be reported as purchases against appropriate item in relative R-Return (NOSTRO). As the credits to EEFC/RFC Ac­counts are corresponding domestic part of the transactions, they should not be reported in any manner in any R-Return nor should any form be enclosed, for any reason whatsoever. Even the inter­est, if any, payable on the balance in the account and credited, should not be reported, as there is no corresponding effect on Mirror (of NOSTRO) Account.

Debits to EEFC/RFC accounts

(ix)   Debits to the EEFC/RFC Accounts for payments in Rupees in India should be treated exactly in the same manner as credits, as explained in (viii) above. Debits for payments abroad for any approved purposes should be reported as sales against item I.A.(i) or I.A.(ii) or I.C.(i) or I.C.(ii) in appropriate R-Return (NOSTRO) because there is corresponding credit to Mirror (of NOSTRO) Ac­count. Forms A1/A2 duly completed by the remitter and certified by the AD indicating requisite details, should be submitted.

Foreign currency received for credit to FCNR(B)/RFC A/cs

(x)    When foreign currency amount is received for credit to FCNR(B), RFC Accounts, Mirror (of NOSTRO) Account is debited and hence the same should be reported as purchase against item No. II.C. (i) or II.C.(ii) giving appropriate purpose in the supplementary state­ment.

 

Submission of R-Returns

All R-Returns should be submitted in two sets as detailed below :

Set I:    (i)  All R-Returns (originals)

              (ii)  All SCH I and SCH II (originals)

             (iii)  All Supplementary Statements of non-export re­ceipts (originals)

             (iv)  All            (a)       Enc statements (originals and duplicates)

                                    (b)       SCH 3, SCH 4, SCH 5 & SCH 6 (originals & duplicates)

                                    (c)        duplicates of GR/PP/SOFTEX Forms.

Set II:  (i)  All R-Returns (duplicates)

              (ii)  All SCH I and SCH II (duplicates) along with Forms A1, A2, & A3

             (iii)  All Supplementary Statements of non-export re­ceipts (duplicates)

             (iv)  Fully utilised/expired import licences and those having meagre balances together with a list giving serial numbers of licences surrendered.

Both the sets should be sent in the same cover.

 

 

AMC - Memorandum of Instructions to Authorised Money Changers

 

AP (DIR Series) (2002-2003) Circular No. 43, dated 12-11-2002

Memorandum of Instructions to Authorised Money Changers (AMCs)

Attention of the Full Fledged Money Changers (FFMCs) and Restricted Money Changers (RMCs) is invited to the Memorandum FLM and Memorandum RLM containing the procedural instructions issued to FFMCs and RMCs respectively.

2.         The Reserve Bank has now brought out the Memorandum of Instructions to Authorised Money Changers (AMCs) i.e. Full Fledged Money Changers and Restricted Money Changers, containing procedural instructions issued to authorised money changers, for adherence while undertaking money changing transactions. A copy of the Memorandum AMC is enclosed.

3.         The directions contained in the Memorandum AMC, supercede the instructions contained in the existing Memorandum FLM/RLM issued in June 1999, as amended from time      to time.

4.         FFMCs/RMCs may, however, continue to maintain the same set of books/registers as hitherto. A revised FLM 8 designed to capture data relating to purchases from franchisees is at Annexure.

5.         Authorised dealers may bring the contents of this circular to the notice of their constituents concerned.

6.         The directions contained in this circular have been issued under section 10(4) and section 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999).

ANNEXURE

FLM 8

Summary statement of purchases and sale of foreign currency
notes during the month of…………………………., 200

 

Name and address of money changer

RBI Licence No. ....................

 

 

US $

£

EURO

JY etc.

A. Opening balance

 

 

 

 

Purchase of foreign currency notes from

  (a)Public

(b)RMCs/FFMCs/ADs including imports

(c) Franchisees

 

 

 

 

 

B. Total Purchases (a) + (b)

 

 

 

 

Sales of foreign currency notes under

 

 

 

 

 

(a)BTQ

(b)Business Visits

(c)Sales to other FFMCs/ADs including exports

 

 

 

 

 

C. Total Sales [(a) + (b) + (c)]

 

 

 

 

Closing balance (A + B - C)

 

 

 

 

 

We hereby certify that the statement is a true account of all transactions undertaken during the month in accordance with the Exchange Control Regulations.

Place :

                                                                                                                        (Signature of Authorised Official)

                                                      Stamp

 

Date :                                                                        Name : ....................................

                                                                                Designation : ............................

 

AMC MEMORANDUM OF INSTRUCTIONS TO AUTHORISED MONEY CHANGERS

 

General

Authorised Money Changers (AMCs) are entities licensed by the Reserve Bank under section 10 of the Foreign Exchange Management Act, 1999. An AMC may either be a Full Fledged Money Changer (FFMC) or a Restricted Money Changer (RMC). FFMCs are authorised to purchase foreign exchange from residents and non-residents visiting India, and to sell foreign exchange for certain approved purposes. RMCs are authorised only to purchase foreign exchange from residents and non-residents. FFMCs may appoint franchisees to undertake purchase of foreign currency as per the Scheme announced by the Reserve Bank. A copy of the Scheme is given in the Annexure.

Note :- RMCs and franchisees of FFMCs functioning within 10 kms. from the borders of Pakistan and Bangladesh may also sell the currency of the bordering country, with the prior approval of the Reserve Bank.

 

Scope of Memorandum

(i)         This Memorandum contains directions which AMCs should strictly observe in their dealings. Amendments to the Memorandum will be circulated in the form of A.M. (F.L. Series) circulars.

(ii)        Directions contained in this Memorandum have been issued under section 11(1) of Foreign Exchange Management Act, 1999 (42 of 1999).

 

Bringing in and taking out of Foreign Exchange

(i)         Foreign exchange in any form can be brought into India freely without limit provided it is declared on the Currency Declaration Form (CDF) on arrival to the Custom Authorities. When foreign exchange brought in the form of currency notes or travellers cheques does not exceed US $ 10,000 or its equivalent and/or the value of foreign currency notes does not exceed US $ 5,000 or its equivalent, declaration thereof on CDF is not insisted upon.

(ii)        Taking out foreign exchange in any form, other than foreign exchange obtained from an authorised dealer or a money changer is prohibited unless it is covered by a general or special permission of Reserve Bank. Non-residents, however have general permission to take out an amount not exceeding the amount originally brought in by them subject to compliance with the provisions of sub-para (i) above.

 

Purchases of Foreign Currency from Public

(i)         AMCs/franchisees may freely purchase foreign currency notes, coins and travellers cheques from residents as well as non-residents. Production of passport need be insisted upon only while encashing travellers cheques tendered by non-residents. Where the foreign currency was brought in by declaring on form CDF, the tenderer should be asked to produce the same. The production of the form may, however, be waived if for any reason, the tenderer is unable to produce it.

(ii)        AMCs may sell Indian rupees to foreign tourists/visitors against International Credit Cards and take prompt steps to obtain reimbursement through normal banking channels.

 

Encashment Certificate

(a)       AMCs may issue certificate of encashment when asked for in cases of purchases from the public. These certificates bearing authorised signatures should be issued on the letter head of the money-changer and proper record maintained.

(b)       In cases where encashment certificate is not issued, attention of the customers should be drawn to the fact that unspent local currency held by non-residents will be allowed to be converted into foreign currency only against production of a valid encashment certificate.

 

Purchases from other FFMCs and Authorised Dealers

FFMCs may purchase from other FFMCs,RMCs and authorised dealers any foreign currency notes, coins and encash travellers cheques tendered in the normal course of business. Rupee equivalent of the amount of foreign exchange purchases should be paid only by way of crossed account payee cheque/Demand Draft.

 

Sale of foreign exchange

(I) Private Visits

FFMCs may sell exchange upto the prescribed ceiling in the form of foreign currency notes/coins and travellers cheques to eligible resident Indian citizens for undertaking one or more private visits to any country abroad (except Nepal and Bhutan). Exchange for such visits may be released on the basis of declaration given by the traveller regarding the amount of foreign exchange availed of during a calendar year. Foreign nationals permanently resident in India are also eligible to avail of this quota for private visits provided the applicant is not availing of facilities for remittance of his salary, savings etc. abroad in terms of the existing Exchange Control regulations.

 

(II) Business visits :

FFMCs may sell exchange in the form of foreign currency notes/coins and traveller cheques to eligible travellers for business travel or for attending conference or specialised training.

 

Quantum of Exchange :

Amount prescribed by Reserve Bank from time to time.

 

Conditions

(i)         The sale of foreign exchange should be made only on personal application and identification. While issuing travellers’ cheques, the condition for issue stipulated by the issuing company should be scrupulously observed and acknowledgement for receipt of travellers cheques duly obtained.

(ii)        Payment in excess of Rs. 50,000 towards foreign exchange sold should be received only by account payee cheque/demand draft. For this purpose, sales in instalments, should be reckoned as a single drawal for the journey.

(iii)       The sale of foreign currency/notes and coins within the overall entitlement of foreign exchange, should be restricted to the limits prescribed by Reserve Bank from time to time.

 

Sales against Reconversion of Indian Currency

FFMCs may convert into foreign currency, unspent Indian currency held by non-residents at the time of their departure from India, provided a valid Encashment Certificate is produced.

Note : FFMCs may convert at their discretion, unspent Indian currency up to Rs.10,000 in the possession of non-residents if, for bona fide  reasons, the person is unable to produce an Encashment Certificate after ensuring that the departure is scheduled to take place within the following seven days.

 

Cash Memo

FFMCs may issue a cash memo, if asked for, on official letterhead to travellers to whom foreign currency is sold by them. The cash memo may be required for production to emigration authorities while leaving the country.

 

Rates of Exchange

AMCs may put through transactions relating to foreign currency notes and travellers cheques at rates of exchange determined by market conditions.

 

Display of Exchange Rate Chart

AMCs should display at a prominent place in or near the public counter, a chart indicating the rates for purchase/sale of foreign currency notes and travellers cheques.

 

Foreign Currency Balances

(i)         FFMCs should keep balances in foreign currencies at reasonable level and avoid build up of idle balances with a view to speculating on currency movements.

(ii)        RMCs/franchisees should surrender collection of foreign currency notes, coins and travellers cheques to an authorised dealer or to a FFMC within seven working days.

(iii)       The transactions between authorised dealers, FFMCs and RMCs should, however, be settled by way of account payee crossed cheques/demand drafts. Under no circumstances should settlement be made in cash.

 

Replenishment of Foreign Currency Balances

(i)         FFMCs may obtain their normal business requirements of foreign currency notes from other AMCs (including RMCs)/authorised dealers in foreign exchange in India, against payment in rupees made by way of account payee crossed cheque/Demand Draft.

(ii)        Where FFMCs are unable to replenish their stock in this manner, they may make an application to the Central Office, Reserve Bank through an authorised dealer for permission to import foreign currency into India. The import should take place through the designated authorised dealer through whom the application is made.

 

Export/Disposal of surplus Foreign Currency Notes/Travellers Cheques

FFMCs may export surplus foreign currency notes/encashed travellers cheques to an overseas bank through the medium of designated authorised dealer in foreign exchange for realisation of the value through the latter. FFMCs may also export surplus foreign currency to private money changers abroad subject to the condition that either the realisable value is credited in advance to the A.D.’s nostro account or a bank guarantee is issued by an international bank of repute covering the full amount of the foreign currency notes/coins to be exported.

 

Write-off of fake foreign currency notes

In the event of foreign currency notes purchased being found fake/forged subsequently, AMCs may write- off upto USD 2000 per year after approval of their Top Management after exhausting all available options for recovery of the amount. Any write-off in excess of the above amount, would require the approval of the concerned Regional Office of the Reserve Bank.

 

Registers and Books of Account of Money-changing Business

(i)         AMCs shall maintain such registers and books of account as prescribed by the Reserve Bank from time to time

(ii)        All registers and books should be kept up-to-date, cross-checked and balances verified daily.

(iii)       Transactions not pertaining to money-changing business of the AMC should not be mixed up with money-changing transactions. In other words, the registers and books of account should show clearly the trail of transactions pertaining to money-changing business.

(iv)       Separate registers should be maintained for each establishment, if the AMC maintains more than one place of business.

 

Submission of Statement to Reserve Bank

(i)         FFMCs should submit to the office of Reserve Bank which has issued the licence/unified licence, a monthly consolidated statement for all its offices in form FLM 8 so as to reach Reserve Bank not later than the 10th of the succeeding month.

(ii)        Similarly RMCs should submit to the office of Reserve Bank under whose jurisdiction they are functioning, a quarterly statement in form RLM 3. The statement duly certified by the Authorised Dealer/FFMC should reach Reserve Bank not later than the 10th day of the month following the quarter. In case the collections of foreign currencies are surrendered to different authorised dealers/FFMCs, separate quarterly statements should be prepared to facilitate independent certification by each such authorised dealer/FFMC.

(iii)       AMCs should submit to the Reserve Bank a monthly statement indicating details of receipt/purchase of US $ 10,000/its equivalent and above per transactions within 10 days of the close of the month. FFMCs should include transactions of their franchisees in their statement.

 

Inspection of Transactions of AMCs

Section 12(1) of Foreign Exchange Management Act, 1999, empowers any officer of Reserve Bank specially authorised in this behalf to inspect the books and accounts and other documents of AMCs. AMCs should provide all assistance and co-operation to Inspecting Officers in carrying out their inspection. Failure to produce any books of account or other document or to furnish any statement or information or to answer any question relating to the money-changing transactions to the Inspecting Officers, shall be deemed to be a contravention of the provisions of the Act.

 

Concurrent Audit

(i)         FFMCs should put in place a system of Concurrent Audit of the transactions undertaken by them.

(ii)        All single branch FFMCs having a turnover of more than USD 100,000 or equivalent per month and all multiple branch FFMCs should institute a system of monthly audit. Single branch FFMCs having turnover of less than USD 100,000 or its equivalent may institute a system of quarterly audit.

(iii)       Appointment/selection of auditors is left to the discretion of the FFMCs. The auditors should check all the transactions of the FFMCs. The Statutory Auditors would be required to certify that the Concurrent Audit and the internal control systems are working satisfactorily.

 

Renewal of Licence

AMCs should apply for renewal of licence at least 3 months in advance of the expiry of the current licence to the Regional Office of Reserve Bank in whose jurisdiction their Head Office is situated.

 

Temporary Money-changing Facilities

AMCs are authorised to transact money-changing business only at the location or locations specifically indicated in the licence. If it is intended to provide money-changing facilities on a temporary basis on certain special occasions, a separate application should be made for the purpose to the concerned Regional Office of Reserve Bank giving full details such as period for which the exchange counter will be operated, volume of business expected, manner of accounting of the transactions, letter from organisers making available venue for the money changing facilities, etc.

 

Revocation of Licence

Reserve Bank may revoke the licence granted to an AMC at any time for reasons of public interest or if the AMC has not complied with any of the conditions of the money-changing licence issued by Reserve Bank or has made any false declaration or has not conducted the business in accordance with the provisions of this Memorandum read with the amendments issued from time to time or has contravened any of the Exchange Control regulations.

Annexure

SCHEME FOR AUTHORISED DEALERS AND FULL-FLEDGED MONEY CHANGERS APPOINTING AGENTS/FRANCHISEES FOR UNDERTAKING RESTRICTED MONEY CHANGING

Objective

The objective of the Scheme is to provide easier conversion facilities for travellers and tourists, including NRIs, by enlarging the network of money changing facilities in the country. It is expected that the new facility given below, will enable banks and full-fledged money changers to provide such facilities at all tourist centres and major cities for extended hours and on holidays.

 

Proposed Scheme

Under the proposed Scheme, in addition to the existing facilities, RBI would freely permit Banks i.e. ADs and FFMCs to enter into agency/franchising agreements at their option with entities for the purpose of carrying on Restricted Money Changing business i.e. conversion of foreign currency notes, coins or travellers cheques into rupees.

 

Franchisee

A franchisee can be any entity who has a place of business and whose bona  fides  are  acceptable to the AD/FFMC. These franchisees would undertake only restricted money changing business.

 

Existing RMCs

Existing RMCs who are licensed by the Reserve Bank are free to undertake money changing under this scheme as a franchisee of the AD/FFMC on surrendering the existing RBI licence. Those who do not opt for operation under this Scheme may continue to undertake existing money changing business until further notice.

 

Procedure for application

The Franchiser i.e. an AD or an FFMC would need to apply to the Reserve Bank in Form RMC-F for putting in place arrangements under this Scheme. The application should be accompanied by a declaration that while selecting the franchisees adequate due diligence has been carried out and that such entities have undertaken to comply with all the provisions of the franchising agreement/prevailing RBI regulations regarding money changing. Approvals would be issued by the Reserve Bank on a one time basis. Thereafter, as and when new agency/franchise agreements are entered into, these would have to be reported to the Reserve Bank on a post facto basis along with similar declaration as indicated above.

 

Agency/Franchise Agreement

Franchisers are free to decide on the tenor of the arrangement as also the commission or fee through mutual agreement with the franchisee.

The Agency/Franchise agreement to be entered into by an AD/FFMC should, however, include the following salient features :

(a)       The display of exchange rates by the franchisee. Exchange Rate of foreign currency into rupees should be the same or close to the daily exchange rate charged by the ADs/FFMC at its branches.

(b)       The surrender of collections by the franchisee to the franchiser or other authorised persons, as may be agreed upon, within 7 days.

(c)        The maintenance of proper record of transactions by the franchisee.

(d)       The on-site inspection of premises and records of the franchisee by the franchiser at least once a year.

 

Reporting and Inspection

The franchisers i.e. ADs/FFMCs would be expected to put in place adequate arrangements for reporting of transactions by the franchisees to ADs/FFMCs in a simple format to be prescribed by them on a regular basis, say at monthly intervals.

Form RMC - F

        1. Name of the AD/FFMC

        2.Name and address of the franchisees Details of locations

        (i)

        (ii)

        (iii)

etc.

        3. Arrangements in place to surrender the foreign exchange

        4. Reporting and Inspection arrangements.

                                                                                                Authorised Signatory

Date:

MEMORANDUM AMC

 

 

MEMORANDUM OF INSTRUCTIONS TO AUTHORISED MONEY CHANGERS

 

 

RESERVE BANK OF INDIA, NOVEMBER 2002

Preface

This Memorandum (AMC) contains procedural instructions issued to authorised money changers for adherence while undertaking money changing transactions. The directions contained herein have been issued under section 10(4) and section 11(1) of Foreign Exchange Management Act, 1999 (42 of 1999).

 

Pem - Memorandum of Instructions on Project Exports and Service Exports* 

Introduction

Export of engineering goods on deferred payment terms and execution of turnkey projects and civil construction contracts abroad are collectively referred to as ‘Project Exports’. Project export contracts are generally of high value and exporters undertaking them are required to offer competitive credit terms to be able to secure orders from foreign buyers in the face of stiff international competition. Indian exporters offering deferred payment terms to overseas buyers in respect of export of goods and those who have been awarded turnkey, civil construction contracts by overseas parties have to secure prior approval at post award stage from various institutions such as Authorised Dealer/Exim Bank/Working Group/Reserve Bank of India as the case may be for credit terms to be offered, third country imports etc. Regulations relating to Project Exports and Service Exports are laid down in this Memorandum which is divided into the following parts:

 

Part A

-

General

Part B

-

Project Exports

Part C

-

Export of Services

Part D

-

Other matters connected with Project Exports & Service Exports

 

Scope of Memorandum

(i)         This memorandum contains directions to be observed by the exporters engaged in project exports and service exports as also Export Import Bank of India and authorised dealers while dealing with cases of project/service exports.

(ii)        Directions contained in this Memorandum have been issued under Section 10(4) and Section 11(1) of Foreign Exchange Management Act, 1999 (42 of 1999).

 

Part A - General

Constitution of Working Group

(i)         Exporters who have secured orders for undertaking supply contracts on deferred payment terms or those who have secured turnkey/civil construction contracts abroad require approval/assistance of different institutions like Reserve Bank (ECD), Exim Bank and ECGC besides their own bankers. With a view to obviating the need for exporters to approach each institution separately for such approvals and to avoid delays, a Working Group has been constituted with representation from Reserve Bank (ECD), Exim Bank and ECGC for the purpose of giving package approval for proposals submitted by exporters who have secured orders for execution of overseas contracts. In case of contracts of high value, representatives of Government of India are also invited to participate in the meetings of the Working Group. In order to obtain immediate clarifications for speedy clearance of proposals by the Working Group, the concerned exporters and their bankers are also associated with the meetings. With the same objective, participation of the main sub-suppliers, sub-contractors or other associates and their bankers in such meetings is also encouraged, particularly in respect of proposals for high value contracts.

(ii)        The Working Group also considers proposals for export of services in the area of management, technical consultancy, etc. where execution of the contracts involves grant of fund-based and/or non-fund-based facilities from the Indian banking system or where deferred payment terms are to be offered.

 

Criteria for consideration of Proposals by Working Group

(i)     The Working Group will mainly examine, among others, the following aspects while considering grant of package approval for proposals for export of engineering goods on deferred payment terms or for undertaking turnkey/construction contracts abroad:

(a)       Period of deferred credit offered vis-a-vis foreign competition, moratorium, rate of interest, adequacy of advance and down payment provided for as well as requirement of foreign exchange for execution of contract (viz. imports from third countries, agency commission, freight, etc.) and overall economics of the proposal.

(b)       Nature of security obtainable from the foreign buyers against payments due and nature and extent of various bonds/guarantees required to be offered by the exporter (including those for procuring third country supplies).

(c)        Nature of escalation, force majeure and arbitration clauses provided in the contract and penalty/damages payment provisions.

(d)       Extent of fund-based and non-fund-based facilities required in India including pre-shipment and post-shipment credit and/or bridge finance requirement.

(e)       In case of turnkey contracts, economic and technical viability thereof as well as special features relating to erection, supervision and commissioning of the contract.

(ii)        As regards civil construction contracts, the Working Group will consider proposals only from contractors who are on the approved list of Ministry of Commerce and Industry, Government of India in order to ensure that only contractors having the necessary competence and capability undertake overseas construction contracts. While considering proposals, the Working Group will endeavour to promote, wherever possible, the idea of high value construction contracts being undertaken on a consortium basis. Apart from examination of special features relevant to the proposal under consideration and the factors enumerated in sub-paragraph (i) above, the Working Group will also take into account the following aspects while considering grant of package approval for construction contracts abroad:

(a)       Availability of infrastructural facilities in the importer country like transport, water, construction material, skilled/unskilled labour, etc. and nature of laws governing civil matters, labour usages, etc.

(b)       Estimated monthly/quarterly cash flows for the entire duration of the contract and arrangements between prime contractor and associate/sub-contractors for timely execution of the contract in case of consortium arrangement.

(c)        Whether the contract would need any bridge finance facility abroad to meet temporary cash flow deficits in working capital, if so, the manner of raising the bridge finance and its full repayment with interest.

(iii) In regard to service contracts, the Working Group will, inter alia, take into account relevant factors like size of the contract, nature of services to be rendered, overall economic condition of the importer country, extent of international competition and potential and prospects for further export of services, goods or turnkey projects from India.

(iv) The Working Group may suitably relax the above criteria at its discretion where warranted by merits of the proposal. While considering proposals, the Working Group may also make such suggestions or tender such advice as may be necessary to avoid inter se competition and to promote, as far as possible, exports in such a way that the foreign exchange benefit for the country is maximised.

 

Procedure for Clearance of Proposals

(i)         All applications to the Working Group are required to be submitted by the exporters through their bankers (who must be authorised dealers in foreign exchange) in the prescribed form in the required number of copies sufficiently in advance to enable the Working Group to hold a meeting of its members for consideration of the proposal. When a proposal is approved by the Working Group, a package clearance is granted by Exim Bank, on behalf of all the members of the Working Group and conveyed to the exporters’ bankers through whom the proposal was received. The Working Group’s clearance will ordinarily be given within a period of seven days from the date of receipt of the application, provided it is complete in all respects.

(ii)        Exporters desiring to submit bids for execution of projects abroad including service contracts will not be required to obtain clearance for submission of bids from the authorised dealer/Exim Bank/Working Group. However, exporters in such cases are required to ensure that the conditions as laid down in the Memo PEM are complied with.

(iii)       On the basis of experience gained over the years and in order to enable the exporters to expeditiously obtain clearance for contracts for supply of engineering goods on deferred payment terms, turnkey contracts and civil construction contracts, powers have been delegated to authorised dealers and Exim Bank to grant post-award clearances in cases where the contract value does not exceed U.S. Dollar 100 Million. Proposals for undertaking such export contracts up to the value of U.S. Dollar 100 Million will, therefore, be cleared by authorised dealers/Exim Bank. Proposals for undertaking such contracts exceeding U.S. Dollar 100 Million in value will need to be cleared by the Working Group.

(iv)       In the case of contracts for export of services on cash payment terms requiring fund-based and/or non-fund based facilities, as also those involving deferred payment terms, authorised dealers and Exim Bank have been empowered to grant clearance upto the value of U.S. Dollar 100 Million. Proposals for undertaking such export contracts will, therefore, be cleared by authorised dealers/Exim Bank upto the value of U.S. Dollar 100 Million. Proposals for undertaking such contracts exceeding U.S. Dollar 100 Million in value will need to be cleared by the Working Group.

(v)        Proposals for deferred payment export or turnkey projects against Buyers’ Credits as well as for export of managerial/technical consultancy services on deferred payment terms as also those on cash payment terms involving grant of any fund-based and/or non-fund based facilities in excess of the monetary limits mentioned in sub-paragraph (iv) above will need the prior approval of the Working Group.

 

Declaration of the Exports and Handling of GR/SDF/PP Forms

(i)         The regulations notified under Notification No.FEMA 23/2000-RB dated 3rd May 2000 and the directions issued vide A.P. (DIR Series) Circular No. 12, dated 9th September 2000 relating to declaration of export of goods on GR/SDF/PP Forms and other matters apply mutatis mutandis, to project exports. In order to facilitate maintenance of proper record of exports made on deferred payment terms, exporters should prominently superscribe both copies of relative GR/SDF/PP Forms with the name of export contract for which supplies are being made and the number and date of the approval granted by the approving authority (viz. Authorised Dealer, Exim Bank and Working Group) noted on the GR/SDF/PP Form in the space provided therefor. The duplicate copies of the forms should be retained by authorised dealers duly certified after realisation of the last instalment together with interest from overseas buyers. Similar procedure should be followed by sub-suppliers also while declaring their exports on GR/SDF/PP Forms.

(ii)        In connection with execution of projects, exporters may sometime be required to export ‘consumables’ such as tools, tackles, machinery spares etc. for which separate payments will not be made by the overseas buyers. Such consumables will have also to be declared on GR/SDF/PP Forms in the same manner as exports of machinery, materials, etc. which are separately paid for. In such cases, authorised dealer may, on application, permit exporters to raise invoices against their own site offices abroad, send the shipping documents direct to those offices and realise the value due thereon in convenient instalments out of the progress payments for the contracts. The application to authorised dealer may be accompanied by a declaration by the exporter that the consumables are being exported for execution of the project export contract which has been approved by the authorised dealer/Exim Bank/Working Group as the case may be. The number and the date of approval for the project export contract granted by the approving authority may be indicated on GR/SDF/PP Form.

 

Part B - Project Exports

 

Extension of deferred payment Terms

Contracts for export of goods against payment to be received partly or fully beyond the period statutorily prescribed for realisation of export proceeds are treated as deferred payment exports. Ordinarily, contracts providing for deferred payment terms will be allowed only for export of engineering goods (capital goods and consumer durables). Turnkey projects involve rendering of services like designing, civil construction and erection and commissioning of plant/factory along with supply of machinery, equipment and materials. Execution of civil construction contracts abroad involves mainly erection and civil construction work and supply of construction materials and equipment going into the civil works. Payment in respect of goods supplied under both turnkey and civil construction contracts may be received on ‘cash’ basis but sometimes exporters are required to offer deferred payment terms in respect of such supplies depending on the nature and size of the project. The terms and conditions governing extension of deferred credit terms are set out in the following paragraphs.

 

Nature of Credit

Contracts for export of goods on deferred payment terms may be financed either under supplier’s credit or buyer’s credit. Under supplier’s credit the exporter extends credit directly to the overseas buyer. Buyer’s credits are credits extended to the foreign buyers by authorised dealers or financial institutions in India (including a consortium of authorised dealers or financial institutions in India) and the exporters realise the export value in Indian rupees from the institution/s concerned straightaway. As repayments under deferred payment arrangements are spread over a long period of time, exporters extending supplier’s credit as well as those desiring to undertake exports to be financed under buyer’s credit may seek the advice of Exim Bank or ECGC in regard to various risks inherent in extension of such long-term credits and ways and means of protecting themselves against these risks.

 

Eligible Goods

An illustrative List (in two parts, A and B) of engineering goods in respect of which commercial export credit may be offered by exporters to prospective buyers abroad is given in Annexure I. The list is subject to revision from time to time. Inclusion of goods in the lists does not imply that their exports may be made only on deferred payment terms. Exporters should always endeavour to secure the best possible terms from their buyers so that foreign exchange accrues to the country as early as possible. The discretion to include new items in or exclude the existing items from the list is vested in the Working Group on Project Exports functioning with Exim Bank as the nodal agency.

 

Period of Deferred Credit

The periods for which credit may be offered for export of goods, consumer durables, turnkey contracts and civil construction contracts will depend on merits of individual case and may be determined by the exporter and his banker in mutual consultation on the basis of commercial judgment. However, consumer durables and miscellaneous engineering goods (Part B of List) should ordinarily be exported on cash terms. Four major factors viz. anticipated life of the goods to be exported, extent of foreign competition, nature of the foreign market and the contract value constitute the criteria for determining the overall terms of credit.

 

Conditions necessary for Clearance of proposals by Authorised Dealers/Exim Bank

While it is not necessary for exporters to obtain prior approval for submission of bids/offers for execution of contracts, authorised dealer/Exim Bank should, while granting post-award clearance, ensure that the export proposals satisfy, inter alia, the following conditions:

(a)       Moratorium or grace period applicable to repayment of principal (and not to payment of interest) should not exceed one year in respect of export of capital or producer goods. In the case of turnkey contracts, the moratorium should not exceed two years. No moratorium should be permitted in respect of export of consumer durables. Interest should be payable even during the period of moratorium.

(b)       In case of supply contracts, deferred receivables should be received in equal half-yearly instalments over the agreed period with relation to mean date of shipment (i.e. the date by which 50 per cent supplies in terms of value will be completed) or the date of respective shipment. In case of turnkey projects, instalments should be related to either date of contract or the mean date of shipment or commissioning as agreed upon between the parties.

(c)        The rate of interest on deferred receivables should be such that taking into account the cost of deferred credit in India the overall profitability is ensured.

(d)       Ordinarily, down payment together with advance payment or mobilisation advance should not be less than 15 per cent of the contract value. In exceptional cases, this may be reduced to 5 per cent of the contract value. In the case of civil construction contracts, it should not ordinarily be less than 5 per cent.

(e)       Down payments and deferred instalments receivable should be secured by a letter of credit/acceptable bank guarantee. In case the overseas importer/project authority is a Government department or a public sector undertaking, a guarantee from the foreign Government and/or a promissory note from the foreign Government/public sector undertaking will suffice.

(f)         As far as possible, turnkey projects and civil construction contracts should be self-financing. However, bridge finance required for meeting temporary shortfalls in working capital should not normally exceed 25 per cent of the contract value. However, authorised dealer/Exim Bank/Working Group may clear proposals involving bridge finance in excess of 25% of contract value also wherever they are satisfied that such finance is necessary.

(g)       Ordinarily, deferred payment terms in respect of the services segment of a turnkey contract may be offered only if the competitors of the exporter from other countries are known to have offered similar terms. In such cases, other terms for the deferred receivables towards services like period of credit, rate of interest and security should be the same as offered for the supply portion of the contract.

Note : Authorised dealer/Exim Bank may relax conditions at (d) and (e) above, if necessary, based on their commercial judgment.

 

Cases where exporters desire to offer, due to local conditions, commercial credit not exceeding one year in respect of goods specified in Annexure I may be considered by the authorised dealers/Exim Bank as per powers delegated to them.

 

Post-award Clearance of Proposals

(i)         Within fifteen days of entering into contract, the exporter should submit to his bankers an application in form DPX-1 (in respect of turnkey and deferred payment supply contracts) or in form PEX-1 (in respect of civil construction contracts), as the case may be, in six copies along with six copies of the contract. Authorised Dealers should deal expeditiously with all applications made by exporters in connection with project exports. In cases where the proposal is within the powers delegated to him, authorised dealer may grant post-award approval for the terms and conditions of the contract, provided the contract basically satisfies the conditions laid down in para B.5. Copies of the approval letter along with copies of the application and the contract may be forwarded by the authorised dealer to the office of the Reserve Bank of India (Exchange Control Department) within whose jurisdiction the Head Office of the exporter is situate, as also to ECGC, Mumbai and Exim Bank where their participatory interest by way of funded/non-funded facilities, insurance/risk cover, etc. is involved.

(ii)        Authorised dealers/Exim Bank may grant post-award clearance to the project proposal provided the value of the contract does not exceed U.S. Dollar 100 Million. If the authorised dealer desires participation of Exim Bank in the financial arrangements and/or guarantee facilities, concurrence of Exim Bank should be obtained before granting post award clearance. In case, the authorised dealer is unable for any reason to grant post award clearance, he should forward four copies of the application to Exim Bank for consideration within two days indicating, inter alia, the extent upto which his bank would be prepared to take a share in the fund-based and/or non-fund based facilities required by the exporter for execution of the overseas contract. Exim Bank will consider project proposals for post-award clearance where the value of contract is upto U.S. Dollar 100 Million or such proposals as referred by authorised dealer. Exim Bank may also receive directly applications for project export proposals of the value upto U.S. Dollar 100 Million, without being routed through an authorised dealer provided (i) all facilities required for execution of the project are being extended by Exim Bank, (ii) Exim Bank makes necessary arrangement with an authorised dealer to handle exchange control matters like GR formality, etc. in connection with execution of the project and the details of the arrangement made in this regard are advised to the concerned Regional Office of Exchange Control Department and (iii) Exim Bank monitors such projects cleared by them till their completion and ensures compliance with the requirements of completed projects as per paragraph B.10 of Memorandum PEM. In approved cases, Exim Bank will forward a copy of its approval to the Regional Office of Exchange Control Department under whose jurisdiction the applicant is functioning. Proposals exceeding U.S. Dollar 100 Million in value will need to be considered by the Working Group.

(iii)       In all cases mentioned at (ii) above, authorised dealers/Exim Bank have to consult ECGC in advance if counter-guarantees of the Corporation are required and/or insurance cover is desired to be obtained from it. In cases where ECGC agrees to extend counter-guarantees/insurance cover, the authorised dealer/Exim Bank should, while granting clearance, advise the exporter that they will become effective only after the guarantee commission/deposit premium as prescribed by the Corporation is paid to it.

(iv)       While according package approval, authorised dealers/Exim Bank should specifically indicate in the approval letter, the terms of clearance giving, inter alia, the break-up of contract value with details of Indian, third country and local supplies and services, payment terms, currency of payment, rate of agency commission, amount of overseas borrowings, funded and non-funded facilities with respective shares of different agencies therein, the value of plant, machinery, equipment etc. to be exported on reimport basis and the extent of ECGC cover guarantee.

(v)        If there are any Indian sub-contractors, they should be advised by the prime contractor to submit similar applications to the bankers of the prime contractor for obtaining approval for the portion of the contract entrusted to each sub-contractor. The institution which will consider the application of the prime contractor at the post-award stage will also clear applications of all the sub-contractors.

(vi)       In cases where the value of the contract proposal exceeds U.S. Dollar 100 Million, the authorised dealer should immediately forward copies of the application together with copies of the contract and Banker’s comments in Form DPX 2/PEX 2 as the case may be, to various institutions listed in paragraph B.7(i) as also to Central Office of Reserve Bank of India, Exchange Control Department, Mumbai. Exim Bank will convene a meeting of the Working Group within a week of the receipt of the application to consider the final terms and conditions of the contract and to grant a package post-award clearance for the contract. Copies of the letter of approval issued by Exim Bank will be forwarded to all members of the Working Group, concerned Regional Office of Reserve Bank of India and exporter’s bankers for necessary action.

(vii)      Payment terms approval to be conveyed will form part of package of approval granted for the proposal by authorised dealer/Exim Bank/Working Group as the case may be.

(viii)     Export of Goods (Pure Supply Contracts) - The procedure outlined in the preceding sub-paragraphs for post-award clearance will not apply to exports of goods (pure supply contracts) where at least 90% of the export value will be realised within the prescribed period i.e. six months from the date of export and the balance amount within a maximum period of two years from the date of export, provided the exporter does not require/avail of any funded or non-funded facility for such exports, from authorised dealers.

 

Appointment of Sub-contractors

In the case of large value contracts, applicant firms/companies normally take the assistance of other contractors. In such cases the applicant firm/company will be treated as the prime contractor while other contractors will be treated as sub-contractors. The prime contractor will be accountable to the various authorities in India for compliance with the requirements laid down by them and will at the same time be equally responsible to the overseas buyer for proper and timely completion of the contract. The prime contractor should accordingly enter into suitable inter se arrangement with the sub-contractors after satisfying himself about the capacity and competence of the latter. Credit reports on sub-contractors and confirmation of financial arrangement proposed to be made by them in respect of their portion of the contract should be obtained by the prime contractor from their bankers and furnished along with the application. Overseas financial requirements of the sub-contractors will have to be met by the prime contractor. Appointment of all sub-contractors and/or any subsequent change in sub-contractors will require prior clearance of the concerned approving authority.

 

Follow-up of Turnkey/Construction Contracts

Exporters and all their Indian sub-contractors executing turnkey contracts or civil construction contracts abroad should furnish progress reports in form DPX 3 on a half-yearly basis (June and December) to concerned approving authority viz. authorised dealer/Exim Bank/Working Group as the case may be, and the concerned Regional Office of the Reserve Bank through their bankers within one month from the date of expiry of the relative half-year. Copy of the report may however invariably be sent to ECGC/Exim Bank in all cases where their risk/guarantee cover participation in the funded/non-funded facilities has been obtained. However, in the case of project export proposals approved at the level of the Working Group, report in Form DPX 3 may be sent to Exim Bank/ECGC and the concerned Regional Office of the Reserve Bank. The final Report in Form DPX 3 should clearly indicate the fact of completion of the project and full compliance with the requirements relating to completed projects as laid down in paragraph B.10.

 

Requirements relating to Completed Projects

(i)     Exporters executing turnkey/construction contracts abroad should take the following steps after completion of the contracts:

        (a)           close the foreign currency accounts and transfer the balances to India;

        (b)           wind up site and liaison offices opened abroad;

(c)            ensure that the guarantees for performance of the contract and other guarantees issued are cancelled and returned to exporters;

(d)           liquidate fully overseas borrowings/overdrafts obtained, if any and cancel counter-guarantees;

(e)           make suitable provision for payment of taxes, customs and other statutory obligations in the country of project;

(f)             dispose of the equipment, machinery, vehicles, etc. purchased abroad and/or to arrange their import into India. [In case the machinery etc. is to be used for another overseas project, the market value (not less than book value) should be recovered from the project to which equipment/machinery has been transferred]

        (g)           recover funds, if any, transferred to other overseas project/s and repatriate them to India.

 

(ii)        A report giving full account of the various steps taken should be sent by the exporter through his bankers to the concerned authorised dealer/Exim Bank as the case may be depending upon the authority, which had granted post-award approval for the project contract within one month from the completion of the project. Such report should also invariably be sent to Exim Bank/ECGC where their participation in funded/non-funded facilities, risk sharing is involved. Where the project export proposal was approved at the level of the Working Group, the report may be sent to Exim Bank and ECGC. The following documents should also be forwarded alongwith such report:

        (a)           A completion or final handing over certificate

        (b)           A certificate from the overseas bank regarding closure of the account held with it.

(c)            A statement of remittances made to India. Bank certificates about repatriation of funds to India should be enclosed.

        (d)           Tax clearance certificate/No tax liability certificate about the overseas project.

        (e)           Bills of Entry for re-import of machinery, etc.

(f)             Statements of income and expenditure and profit and loss account of the project duly certified by a Chartered Accountant/Project Manager.

 

Buyer’s Credit Scheme of Exim Bank

(i)     Buyer’s credit is extended under a scheme by Exim Bank known as ‘Buyer’s Credit Scheme’ which envisages grant of credit by Exim Bank in participation with commercial banks in India to foreign buyers in connection with export of capital goods and turnkey projects from India. The Scheme provides for payments being made to exporters out of buyer’s credit on a non-recourse basis on their fulfilling the commercial terms of the export contracts to be financed under the Scheme. All offers for deferred payment exports or turnkey projects against buyer’s credit require specific prior approval of the Exim Bank/Working Group. Exim Bank has been authorised to extend Buyer’s Credit under the Scheme upto the limit of U.S. Dollar 20 Million and proposals exceeding this limit will be considered by the Working Group. The procedure for clearance of proposals as set out in paragraph B.7 shall apply, mutatis mutandis, to such proposals. Exporters should not ordinarily negotiate with overseas buyers credit terms requiring financing against buyer’s credits without prior consultation with their bankers and Exim Bank. To assist Indian exporters in carrying out negotiations with importers, Exim Bank will be prepared to indicate its willingness, in principle, in suitable cases, to provide the credit. The following principal factors will weigh with Exim Bank while considering proposals under the Buyer’s Credit Scheme:

        (a)           Competence and capability of the exporter in executing the proposed contract.

        (b)           Commercial justification for the contract.

        (c)            Economic viability of the overseas project for which the credit is required to be offered.

(d)           Creditworthiness, standing and financial position of foreign borrower and general economic conditions of buyer’s country.

(ii)    Since payments to exporters in India in respect of exports financed under buyer’s credit will be made on behalf of non-resident buyers, permission of Reserve Bank under Regulation 3 of Notification No. FEMA 3/2000-RB dated 3rd May 2000 [Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000] should be obtained by banks in India before agreeing to extend buyer’s credit to importers abroad. The necessary applications for the purpose should be made by authorised dealers to Reserve Bank in form DPX 4 after the proposal is cleared in principle by the Working Group. Where two or more authorised dealers are participating with Exim Bank, the application should be made by the principal participating bank (Process Agent). The banks are also required to comply with the instructions issued by Department of Banking Operations and Development, Reserve Bank of India in this regard from time to time.

(iii)   Since exporter will be receiving payments for the goods and services on a non-recourse basis from the financing institutions in India, the exchange risk will fall on the institutions extending the credit. To meet the situation, the exporter will either have to provide in the contract itself for the exchange fluctuation risk to be borne by the importer or to bear the cost of the appropriate exchange risk cover to be taken by the financing institutions in India. It will, however, be the responsibility of the financing bank to receive the repayments of the loan and interest thereon from the overseas buyer. The lending institution (Process Agent in the case of consortium credits) should, therefore, take necessary steps to realise the instalments on due dates. If for any reason, instalments are not received on due dates, the institution concerned should promptly bring the matter to the notice of Reserve Bank and Exim Bank indicating steps, if any, taken or proposed to be taken to recover the instalments.

Part C - Export Of Services

General

(i)         Contracts for export of consultancy, technical and other services by Indian companies/firms generally fall in the following categories:

        (a)           Preparation of project/feasibility reports, drawings, designs, etc.

        (b)           Supply of technical know-how/engineering services in different fields.

(c)            Operation, maintenance and supervision of manufacturing plants, buildings and structures, etc.

        (d)           Management contracts for commercial concerns.

Export of services may also involve supply of some associated mechanical wherewithals, consumables and spares e.g. contractors may generally have to procure tools and instruments for their own personnel for performing their jobs. They may sometimes be called upon to give performance guarantees but the scope of such guarantees would be limited to their own work, i.e. satisfactory performance of the personnel provided and/or technical etc. services rendered.

(ii)        Indian exporters of services have normally to undertake overseas contracts on “cash” terms. Overseas service contracts undertaken on “cash” terms do not require prior clearance of Reserve Bank or the Working Group if no facilities are required. Resident individuals, firms and companies may, therefore, freely provide consultancy/technical/management services to overseas clients subject to the condition that the income earned abroad minus expenses will be promptly repatriated to India through normal banking channels. Individuals/firms/companies executing service contract in computer software should, however, repatriate to India income equivalent to at least 30% of contract value and the balance income upto 70% of contract value could be retained for meeting contract-related expenses abroad. Indian companies/firms executing service contracts abroad, requiring facilities like opening of foreign currency bank accounts and site offices abroad, etc. will need approval from Authorised Dealer/Exim Bank/Working Group at the post-award stage. In the case of exporters executing software service contracts abroad, authorised dealers may permit remittances towards maintenance expenses of the persons deputed abroad to execute such contracts, out of receipts of advance/down payments in respect of the contract from the overseas client and on submission of a declaration by the exporter that the aggregate exchange facilities already availed of/to be availed of for execution of the contract would be within the overall ceiling of project related expenses viz. 70% of the contract value.

 

Service Contracts Requiring Authorised Dealers’/ Exim Bank’s/Working Group’s Approval

In some cases service contractors may be required to furnish a performance guarantee to the overseas employer in respect of the project as a whole especially for contracts in the field of erection/installation of plant and machinery as well as services like electrical or air-conditioning installations associated with civil construction work. Such service contracts often involve high contract values and some are as complex in character as contracts for turnkey or civil construction projects. They also involve direct and indirect foreign exchange liabilities by way of execution of performance/advance payments guarantees, counter-guarantees for loans/overdrafts raised from banks abroad and even considerable expenditure in foreign exchange on purchase of instruments/equipment of third country origin, which necessitates recourse to fund-based and/or non-fund-based facilities from Indian commercial banks, Exim Bank and ECGC apart from a variety of Exchange Control approvals. Such contracts are treated on par with turnkey/construction projects and therefore require clearance at post-award stage of authorised dealers/Exim Bank/Working Group depending on the value of contracts. All Service contracts involving deferred payment (DP) terms also require post-award clearance of authorised dealers/Exim Bank/Working Group depending on the value of the contract.

 

Pre-requisites for Consideration of Proposals of Service Contracts Involving Cash Payment Terms

Before granting clearance to the exporters who have secured Service Contracts abroad, authorised dealers/Exim Bank should ensure that the proposals satisfy, inter alia, the following broad guidelines/conditions:

        (a)           Contract should be technically feasible and economically viable.

(b)           Ordinarily, exporters should secure mobilisation advance to the extent of 15 per cent of the contract value. Exporters should not undertake any responsibility for organising supplies of machinery/equipment and/or materials going into the project. In case, contracts involve purchase of materials/machinery/equipments from third countries, such purchases should be financed directly by employers.

(c)            ECGC may be consulted in advance for its commercial and/or political risk cover/guarantees etc., if required.

(d)           Ratio of the currencies of payment for the contract should be appropriately stipulated in order to avoid a surplus being generated in a non-repatriable local currency.

Note : Condition at (b) above regarding mobilisation advance may be relaxed by authorised dealer/Exim Bank on merits of each case on the basis of their commercial judgment.

 

Pre-requisites for consideration of proposals of Service Contracts on DP terms

The periods for which credit may be offered in respect of a service contract will depend on merits of each individual case and may be determined by the exporter and his banker in mutual consultation on the basis of commercial judgment. The moratorium will be available only for the principal amount and not interest and should not exceed one year. The authorised dealers/Exim Bank/Working Group will consider proposals for clearance of service contracts abroad on DP terms at post-award stage subject, inter alia, to the fulfilment of the following conditions in addition to those at paragraph C.3(a), (c) & (d).

(a)           The rate of interest on deferred receivables should cover fully the cost to the exporter of export credit to be availed of from the Indian banking system. Periodicity of repayment of principal and payment of interest should not exceed half-yearly intervals.

(b)           Ordinarily, payment terms should provide for advance payment upto 25 per cent of the contract value. In exceptional cases, the advance payment may be reduced to 5 per cent of the contract value. In any case advance/progress payment should cover fully the foreign exchange outgo as well as wages and salaries of personnel employed on the project.

(c)            Payment of instalments should be secured by letters of credit and/or acceptable bank guarantees. In case the overseas employer is a Government department or a public sector undertaking, a guarantee from the Government and/or promissory notes from the Government or public sector undertaking concerned may be accepted. An undertaking from the Central Bank of the importer country indicating that necessary foreign exchange would be made available on due dates for payment of instalments including interest should be obtained, where stipulated by the Working Group.

(d)           If services of an agent are considered necessary for ensuring smooth execution of the contract every effort should be made to keep the rate of agency commission as low as possible.

Note : Authorised dealer/Exim Bank may relax conditions at (b) and (c) above, if necessary, based on their commercial judgment.

 

Clearance of Proposals at Post-award Stages

(i)         Within 15 days of entering into contract for rendering managerial, technical, consultancy services to overseas employers, the exporter should submit to his bankers an application in form TCS 1 in six copies alongwith six copies of contract for necessary post-award clearance. Where value of the contract is U.S. Dollar 100 Million or less authorised dealers/Exim Bank should examine the proposals in the light of nature and scope of the services to be rendered, terms of payment, period available for completion of the project/assignment, penalty provisions, etc. and grant clearance provided the proposal satisfies the conditions listed in paragraphs C.3/C.4.

(ii)        Exim Bank may also receive directly applications for export of services of the value upto U.S. Dollar 100 Million, without being routed through an authorised dealer provided (i) all facilities required for execution of the contract are being extended by Exim Bank, (ii) Exim Bank makes necessary arrangement with an authorised dealer to handle exchange control matters like GR formality, etc. in connection with execution of the contract and the details of the arrangement made in this regard are advised to the concerned Regional Office of Exchange Control Department and (iii) Exim Bank monitors such contracts cleared by them till their completion and ensures compliance with the requirements of completed contracts as per paragraph B.10 of Memorandum PEM. In approved cases, Exim Bank will forward a copy of its approval to the Regional Office of Exchange Control Department under whose jurisdiction the applicant is functioning.

(iii)       Proposals for values in excess of U.S. Dollar 100 Million are required to be referred to the Working Group for clearance. In the case of proposals exceeding the value of U.S. Dollar 100 Million, detailed comments and recommendations on the proposals may be communicated by authorised dealers in form TCS 2 to Exim Bank.

(iv)       The procedure outlined in paragraph B.7 in respect of project export proposals should be followed, mutatis mutandis, by authorised dealer/Exim Bank while granting post-award clearance/referring the proposals to Exim Bank/Working Group.

 

Follow-up of Service Contracts

Exporters executing service contracts abroad should furnish progress reports at half yearly intervals ending June and December of each year to institutions concerned in the same manner as stated in paragraph B.9 through their bankers.

 

Requirements relating to Completed Projects

Exporters should comply with the requirements laid down in paragraph B.10 in regard to submission of reports, statements and documentary evidence after completion of the service contracts abroad.

 

Part D - Other Matters Connected with Project Exports and Service Exports

 

Foreign Currency Accounts/Site Offices Abroad/ Agency Commission/Financial Requirements

(i)         Project/Service exporters may avail of facilities such as opening of foreign currency accounts, temporary site offices, payment of agency commission and availing of temporary overseas borrowings subject to the conditions as may be stipulated by the Exim Bank on behalf of the Working Group on project exports or Exim Bank/authorised dealer under the powers delegated to them. The project exporters may also be permitted to open temporary liaison offices overseas in connection with the execution of the contract abroad by the authority approving the relative project export proposal subject to the conditions as may be specified by the said authority. Exim Bank/authorised dealers may convey to the exporters, at the post-award stage, the detailed conditions subject to which the various facilities have been granted by the authority which grants the post award approval. A set of standard conditions are given in Annexure II. In the case of pure supply contracts on deferred payment terms where the exporter does not maintain any foreign currency account abroad, authorised dealers may remit commission in accordance with the terms and conditions set out in the letter of approval issued by them/Exim Bank at the post award stage subject to the conditions stipulated in Annexure III. The exporter, if he so desires, may maintain a single foreign currency account for more than one project being executed in the same country subject to the conditions as may be stipulated by the authorised dealer/Exim Bank/Working Group. It will, however, be necessary in such cases, for the exporter to submit project-wise statement of accounts duly certified by a Chartered Accountant to the project monitoring authority/authorised dealer. Conditions mentioned at A(i) in Annexure II may be suitably amended by Authorised Dealer/Exim Bank in case the exporter desires to maintain a single foreign currency account for more than one project being executed in the same country. It may be noted that even if the exporter opts for maintaining a single foreign currency account for more than one project it will be necessary for the exporter to comply with the instructions on inter-project transfer of funds.

It will be in order for the approving authority of the overseas contract i.e. Authorised Dealer/Exim Bank/Working Group as the case may be, to approve, the proposal of exporter, to open, hold and maintain foreign currency account in India subject to terms and conditions indicated at A(ii) in the Annexure II. The following will however need to be noted in this regard by the concerned Authorised dealer:

(a)           Exporter will have to open, hold and maintain separate foreign currency account for each project under execution abroad.

(b)           Authorised dealers shall not avail of rupee loan against the security of balances held in such account and no overdraft in the account shall be permitted.

(c)            The balance in the account will be subject to SLR/CRR requirement as prescribed by Reserve Bank (DBOD) from time to time.

Approving authority may on request allow such of the project/service exporters, as have been permitted to open foreign currency account in India, to pay their Indian suppliers/service providers in foreign currency from foreign currency account subject to the following conditions :

(a)           Project/service exporter should not claim export benefit on the payment made to Indian supplier/service provider.

(b)           Indian supplier of goods/services should comply with export procedure as per provisions/requirements of Foreign Exchange Management Act, 1999.

(ii)        In cases where adequate advance payment or an overdraft/loan abroad cannot be arranged, authorised dealer monitoring the project on an application by the project exporter, may allow remittance from India provided such remittance has been approved by the authorised dealer/Exim Bank/Working Group granting clearance to the project export proposal at the post award stage. Authorised dealer may allow such remittances after obtaining an undertaking from the project exporter that the amount remitted will be repatriated to India within a period stipulated by the authorised dealer/Exim Bank/Working Group. Compliance of the condition regarding repatriation of the funds so remitted within the period determined by the approving authority should be monitored by the concerned authorised dealer who allows remittance and who is also required to monitor the project.

It will be in order for authorised dealer/Exim Bank/Working Group while considering proposals at post award stage, against an undertaking to repatriate the amount of remittance, to approve initial remittance upto a limit deemed necessary on the basis of inflow/outflow of payments concerning the project, where adequate advance payment or an overdraft/loan abroad can not be arranged by the exporter. The period of repatriation of the amount sought to be remitted may also be determined by the authorised dealer/Exim Bank/Working Group as the case may be.

 

Third Country Purchases

(i)         While granting package approval for turnkey/civil construction contracts involving purchase of machinery/equipment/materials from third country sources, the authorised dealer or Exim Bank will indicate the extent upto which such purchases may be made. Ordinarily, the third country purchases should be paid for separately by the overseas project authority or by the Indian exporter out of advance/down payment received from the project authority. Where the payments for the contract are receivable on deferred payment basis, the exporter should, as far as possible, try to secure matching deferred payment terms in respect of third country purchases required for the project to avoid a net outlay of funds in foreign exchange. Authorised dealers may, however, as far as possible open letters of credit in such cases in favour of the third country suppliers on a back-to-back basis, provided the amount for which the credit is to be opened from India in favour of the third country supplier does not exceed the amount for which a credit has been opened by the project authority in favour of the Indian exporter. Where however, the exporter is unable to provide security of a letter of credit opened by buyer, authorised dealer may open a letter of credit in favour of third country suppliers even if it is not on a back-to-back basis provided the amount of such letter of credit does not exceed the value of third country imports approved by the approving authority while according post-award clearance to the project export proposal and payments under such letters of credits are made out of project receipts.

(ii)        In respect of third country purchases by the exporter for execution of the project/service contract abroad, which are directly transported by the overseas supplier to the project site and for which payment is proposed to be made under letter of credit opened with banks in India, authorised dealer on an application made by the exporter, may grant waiver for submission of the exchange control copy of the bill of entry subject to the conditions that (a) the third country purchases have been approved by the concerned approving authority while according post-award approval to the project/service export proposal and (b) the exporter submits the invoice raised on him by the overseas supplier in respect of the goods supplied by him direct to the project site as also documentary evidence for having received the goods at the project site.

 

Inter-project transfer of funds

Requests from the project exporters executing turnkey/construction/service contracts abroad for temporary inter-project transfer of funds to meet cash flow deficits should be submitted to the exporter’s banker monitoring the project, together with the cash-flow statements in respect of the borrowing and lending projects. The authorised dealer may consider the application on merits taking into account the overall funds-flow position of both the projects and permit such temporary transfers. In case the banker to the lending project is other than the banker of the borrowing project, consent of the former should be obtained. The exporter should be advised to retransfer the funds to the lending project as soon as the funds-flow position of the borrowing project improves. The transfer of surplus funds of completed overseas project to another ongoing project of the same project exporter is not permitted since such surplus becomes repatriable to India as soon as the project is completed and provisional completion certificate is issued.

Copies of such applications, together with the approval accorded by the authorised dealer, should be forwarded to the approving authority which had cleared the project export contract and the banker of the lending project. Copies may also be forwarded to Exim Bank/ECGC in all cases where their participation in funded/non-funded facilities, risk sharing is involved in the concerned project export contracts. However, in the case of project export proposals approved by the Working Group, copies of the application, etc. may be forwarded to Exim Bank/ECGC.

 

Construction etc. Equipment

(i)         Exporters executing turnkey/construction/service contracts abroad should normally take from India construction and other equipment required for performance of the contracts. Authorised dealer may permit, on application, export of equipment from India on the condition that it will be re-imported into India on completion of the contract and if let out/sold, the full hire charges/sale proceeds will be promptly repatriated to India. Applications may be made to the authorised dealer by letter citing a reference to the post-award package approval granted by authorised dealer/Exim Bank/Working Group and enclosing a set of GR forms duly completed for the export together with an undertaking in form PEX3 regarding re-import of such equipment into India. Requisite GR/SDF Form approval may be granted by authorised dealer. Authorised dealer will need to monitor the compliance of the undertaking furnished by the exporter to him.

(ii)        Exporters will also be permitted to purchase construction etc. equipment abroad, where necessary. Approval will be given by approving authority, provided the equipment will be paid for fully out of payments to be received for the services segment of the contract. Full details of such purchases should be reported in the half-yearly statements of foreign currency accounts supported by documentary evidence. Similarly, some exporters may be required to purchase abroad motor vehicles necessary for execution of their contract. Requests for permission to purchase vehicles abroad will be considered by the approving authority on merits of each case.

(iii)       Exporters may also obtain construction etc. equipment abroad on hire against payment of hire charges out of foreign currency receipts in respect of service segments of their contracts.

(iv)       Exporters may freely use the equipment for performing any other contract secured by them in the same or any nearby country. They may, if they so wish, also sell the equipment or give it on hire to other contractors abroad, provided the full amount of sale proceeds or hire charges, as the case may be, is repatriated to India promptly through normal banking channels. Documentary evidence showing repatriation of full amount realised should be produced to the authorised dealer monitoring the project.

 

Import of Equipment/Machinery/Motor Vehicles Purchased Abroad

Exporters may sometimes desire to import the used equipment/machinery or motor vehicles into India after completion of the overseas contract unless they are disposed of abroad. Import of such items into India will be governed by the prevailing Import Policy of Government of India.

 

Foreign Travel in connection with Execution of Contracts Abroad

Firms/companies executing turnkey/construction/service contracts abroad have to depute their technical and managerial personnel abroad for supervising construction, erection, commissioning of the projects, etc. Expenses of such personnel should ordinarily be met out of payments receivable towards erection and commissioning services which are retained abroad in foreign currency accounts opened with permission of Authorised Dealer/Exim Bank/Working Group, unless such expenses are to be met by the overseas employers in terms of the contract. Passage fares for sending such personnel abroad will also have to be met in a similar manner. Accordingly, wherever such fares are paid in India in rupees, an equivalent amount in foreign exchange should be repatriated to India promptly.

 

Bid Bonds and Guarantees against Project Exports

(i)         Authorised dealers may consider and furnish, without prior permission of Reserve Bank, all types of guarantees required to be furnished in connection with execution of project/contract abroad, in cases where they have been authorised to approve proposals of exporters to undertake contracts abroad. Authorised dealer may also consider/furnish bid bonds/tender guarantees in connection with bids/offers being submitted by exporters for execution of contracts abroad. Authorised dealers should satisfy themselves before furnishing the bond/guarantee that the exporter is in a position to fulfil his contractual obligations and the bid/contract satisfies the conditions stipulated in paragraph B.5/C.3/C.4. In other cases, authorised dealers should issue the guarantees after package approval has been secured from Exim Bank either under powers delegated to it in this behalf or on behalf of the Working Group.

(ii)        Exporters desiring to submit bids for execution of projects abroad including service contract may furnish their own Corporate Guarantee in lieu of Bid Bond Guarantee, if they so desire, subject to the condition that the amount of such guarantee shall not exceed 5% of the contract value. Exporters, however, have to ensure that provisions contained in Memorandum PEM and other instructions issued by Reserve Bank from time to time for submission of bids are complied with.

(iii)       In terms of Reserve Bank Notification No. FEMA 8/2000-RB, dated 3rd May 2000, project/service exporters, have been granted general permission to furnish their own Corporate guarantees for performance of the contract or for availing of fund-based and/or non-fund based facilities from banks/financial institutions abroad for the purpose of execution of projects abroad subject to approval of approving authority at post award stage. The details of guarantee/s issued as above should be reported by the project/service exporters to the concerned Regional Office of Reserve Bank (ECD) as also to the concerned authorised dealer/Exim Bank who had cleared the proposal and to all the members of the Working Group, where the proposal was cleared by Working Group, within 15 days from the issue of such guarantee/s.

 

Guarantees for Borrowings Abroad

In all cases where exporters executing turnkey/civil construction/service contracts abroad are granted an approval by the approving authority to raise foreign currency loans/overdrafts abroad against counter guarantees of their bankers in India, for bridging temporary short-falls in the cash-flows, the authorised dealer concerned may issue the requisite guarantee in favour of the overseas bank from which the loan/overdraft is to be raised.

 

Project Exports to Nepal/Bhutan

All project export proposals to Nepal and Bhutan require the clearance of the concerned authorities like the authorised dealer/Exim Bank/Working Group on Project Exports depending upon the value and other terms and conditions of the contract at post-award stage. Provisions of para. D1(i) regarding opening of foreign currency bank account, temporary site office, liaison office and availing of temporary overseas borrowings etc.are applicable, mutatis mutandis, in respect of project exports to Nepal and Bhutan.

Annexure  I

List of goods in respect of which commercial export credit may be offered by Indian exporter

 

A. Capital and producer goods

        1.             Air compressors

2.             Air conditioning, heating, cooling, fume extraction, dust collection, humidification and ventilation equipment for industrial use including blowers and exhaust fans

        3.             Alcohol and brewery plant

        4.             Aluminium plant and equipment

        5.             Asbestos cement machinery

        6.             Cement machinery

        7.             Cinematographic equipment for motion picture and television studios

        8.             Chemical and pharmaceutical plant and machinery

        9.             Cigarette making machinery

        10.           Coffee processing machinery

        11.           Coke oven plant and equipment

        12.           Coke oven refractories

        13.           Control and Process Instruments including X-Ray equipment for Industrial Applications

        14.           Copper Ore concentration machinery

        15.           Dairy equipment and animal feed plant

        16.           Earth moving equipment like crawler tractors, shovels, excavators, loaders, dumpers etc.

        17.           Edible Oil Mill machinery and oil expellers

        18.           Electric motors and pumps

        19.           Electronic Data Processing equipment

        20.           Fertilizer plant and equipment

        21.           Flour, rice and dal mill machinery

        22.           Food processing plant

23.           Foundry equipment including mould making machinery, Sand and Shot blasting equipment

        24.           Freight containers

        25.           Garage equipment

        26.           Gas and air separation plants

        27.           Glass and Ceramic machinery

        28.           Heat Exchangers

29.           Integrated Steel Plants (complete or in parts), mini steel plants (electric arc and reduction furnaces). Re-heating and heat treatment furnaces, Rolling Mills and other finishing lines for ferrous and non-ferrous metals.

        30.           Ice-making machinery

        31.           Industrial boilers

        32.           Industrial furnaces

        33.           Industrial switchboards, Control panels, circuit breakers, air break switches

        34.           Jute machinery

        35.           Leather tanning and processing machinery

        36.           Machine tools

37.           Machinery for manufacturing air conditioners, bicycles, corks, electrical goods, enamel-ware, hard board, metal containers, radios, razor blades, refractories and bricks, sewing machines, shoes, steel furniture, wire-ropes and cables etc.

38.           Machinery for manufacturing any product figuring in Part B of this List, not specified separately in this Part

39.           Material handling equipment like fork lifts, electric lifts, cranes, hoists etc. and conveyor systems

        40.           Metal working machinery

        41.           Mining machinery

        42.           Motor vehicles and chassis, including three-wheelers

        43.           Oil drilling rigs

        44.           Oil refinery equipment

        45.           Packaging and weighing machinery

        46.           Pile foundation machinery

        47.           Plastic machinery

48.           Power generation, transmission and distribution equipment including boilers, generators, transformers, switchgears, transmission line towers, conductors, cables, sub-station equipment and protective equipment

        49.           Power line carrier communication equipment

50.           Power station structures, hydraulic structures like penstocks, gates and gearings, sub-station structures

        51.           Pressure vessels

        52.           Printing and book-binding machinery

        53.           Pulp and Paper Mill machinery

        54.           Railway electrification equipment and structures and railway signalling equipment

        55.           Railway rolling stock including locomotives, wagons, coaches and trolleys

        56.           Rubber machinery

57.           Refractories for use in hot blast stoves, hot blast main bustle pipes and blast furnace proper

58.           Road and construction equipment including road rollers, tar boilers, continuous batch plants, stone crushers, asphalt mixers, concrete mixers and vibrators

        59.           Ships, boats, trawlers, steamers, launches, barges

        60.           Solvent extraction machinery

        61.           Spraying equipment

        62.           Steam, diesel and petrol engines

        63.           Steel fabrication for bridges, factories etc.

64.           Steel rails and railway track equipment including sleepers, fishplates, points and crossings.

        65.           Steel shuttering and scaffolding materials

        66.           Steel tanks

        67.           Sugar (including Khandsari) machinery

        68.           Telecommunication and signalling equipment including Telecom cables

        69.           Textile machinery

        70.           Tractors and Trailers

        71.           Vending machines

72.           Water supply equipment including pumping plant, large diameter fabricated steel pipes, C.I. spun pipes and storage tanks, water treatment and sewage treatment plant

        73.           Weigh bridges

        74.           Welding machinery

        75.           Wood working machinery

B.    Other goods

        76.           Agricultural implements.

        77.           Auto parts

        78.           Bicycles, motorcycles, scooters, mopeds and parts

79.           Construction materials including sanitaryware, tiles and precast cement products, false ceiling, flooring materials, pipes, decorative laminates, fittings, electricals and steel/aluminium doors and windows, provided they are exported as separate items and not as items forming part of civil construction/turnkey projects.

        80.           Agricultural chemicals and industrial chemicals.

81.           Pressure cookers, watches and clocks, knitting/sewing machines, vacuum flasks, cutlery, plastic moulded luggage.

        82.           Domestic electric appliances

        83.           Drugs and pharmaceuticals

84.           Electrical equipment including low tension insulators, batteries and accumulators, parts of electrical machinery and lamps fuses and electrodes for industrial application.

        85.           Electronic components.

86.           Electronic goods including radios, TV, public address systems, record players, tape recorders.

        87.           Fibreglass, PVC and plastics based products including pipes and tubes, tyre cord.

        88.           Ferrous/non-ferrous castings, forgings, stampings, extrusions and rolled products.

        89.           Ferrous/non-ferrous pipes, tubes, sheets, strips, foils, rods, wires, wire ropes

        90.           Heating and cooling equipment including air conditioners, refrigerators, water coolers.

91.           Industrial rubber products including tyres and tubes, cots and aprons, conveyor belts, rubber rollers, hose pipes.

        92.           Instruments for measurement, scientific survey and for surgical applications.

        93.           Industrial fasteners, bearings, valves, gears and gaskets.

        94.           X-ray and other electro-medical and other hospital equipments

        95.           Office equipments including typewriters, calculators, duplicators, teleprinters.

        96.           Metal and plastic furniture

        97.           Hand tools, cutting tools, grinding wheels, moulds dies.

98.           Gas cylinders, fire fighting equipment, photographic equipment, helmets, including fibreglass helmets.

Note : The Working Group on Project Exports functioning at Exim Bank may consider proposals to include new items to or exclude existing items from the list.

Annexure II

Standard conditions to be stipulated by Exim Bank/authorised dealers for various facilities
at the time of conveying post-award approval for projects/service contracts

 

A(i). Opening of foreign currency bank accounts abroad

(a)           The exporter is permitted to open..................................................................(no. of accounts). foreign currency accounts in ......................................................................................(Places where accounts are to be opened) for the purpose of execution of contract.

(b)           The exporter shall within 15 days from the date of opening of such accounts furnish the details thereof viz. account number, name of the bank, place and country where such account is opened, to the Authorised Dealer concerned.

(c)            Credits representing payments by the project authorities to the Indian contractor under the contract may be made freely. In case payments made in respect of supplies of materials/equipment made from India have to be temporarily credited to the account, the amount representing value of such supplies should be repatriated to India soon thereafter.

(d)           Debits representing disbursements to be made in country of execution of contract and for purchase of materials/equipments from third country/Indian sources in connection with execution of the contract to the extent approved by the Working Group/Exim Bank/authorised dealer as the case may be at post-bid stage viz. not exceeding................................................ (value of such supplies)may be made freely.

(e)           Credits representing accrued interest and debits representing remittances to India and bank charges may be made freely.

        (f)             All other credits/debits will require prior approval of the Reserve Bank.

(g)           A half-yearly statement of operations on the bank account(s) as in the following format duly supported by the transcripts together with brief note explaining each debit and credit exceeding US$ 10,000 or its equivalent shall be submitted to the authorised dealer concerned within one month from the close of relevant half-year.

 

Format

Statement showing summary of transactions routed through the foreign currency account maintained with .............................................................................................. (name & address of the bank) in ................................................... (currency) during the half-year ended

        1.     Name & address of the exporter:

        2.     Name & address of the buyer :

3.          Name of the project :

 

Particulars

As per last Report

during the quarter

Total

 

A. Receipts

        1.     Opening balance

        2.     Receipts from buyer towards (advance/down/progress payments)

        (a)       Supplies from India

        (b)       Third country local supplies

        (c)        Services

        (d)       Reimbursable expenses

        (e)       Extra claims

        (f)         Others (if any)

        3.     Remittances from India

        4.     Inter project transfers

        5.     Transfers from other accounts (short-term deposits/other foreign currency accounts)

        6.     Others

        7.     Total of (A):

B. Expenditure

        1.     Third country/local supplies/Indian supplies

        2.     Site office expenses

        3.     Taxes/duties

        4.     Freight/insurance

        5.     Purchase of construction equipment/Machinery/tools/tackles etc.

        6.     Agency commission

        7.     Short term deposits

        8.     Inter project transfer

        9.     Repatriation to India

        10.   Others

        11.   Total of (B)

        12.   Closing balance (A-B)

(Note : Separate statement should be furnished for each account maintained in local/foreign currency)

(h)           The balance in the account in excess of normal requirements should be repatriated to India periodically. If, however, exporters have been permitted to raise foreign currency borrowings abroad for execution of the project, the balance in the account should first be utilised for progressive repayment of such loans/overdrafts and surplus available thereafter should be repatriated to India.

(i)             The account(s) shall be closed immediately after the contract is completed and the entire balance transferred to India under advice to the concerned authorised dealer together with bank certificate/s evidencing repatriation of the amount to India.

(j)             If the bank account is in the nature of overdraft account, which was permitted in principle while granting post-award clearance by Exim Bank/authorised dealer, the overdraft should be fully liquidated from out of payments received in respect of contract (excluding the value of Indian supplies which is required to be repatriated to India) within the validity of the bank guarantee issued by bank(s) in India.

(k)            Project funds in the foreign currency account temporarily rendered surplus may be invested in short term deposits, not exceeding one year, and on maturity they should be transferred to the foreign currency account opened in connection with the project in question. However, such investments are not permitted when the foreign currency borrowings/overdrafts raised by the project exporter are outstanding. The maturity period of the fixed deposit should not in any case, go beyond the date of completion of the project in question.

(l)             The Reserve Bank reserves the right to go into details of any specific transaction and call for such documentary evidence like Chartered accountant’s Certificate, bills/vouchers, etc. as it may consider necessary.

A(ii). Opening of Foreign Currency bank account in India.

(a)       The exporter is permitted to open foreign currency account in ............................................................(Name of the foreign cuency) with ................................................ (Name of the bank).. ............................................ (Place) for the purpose of the execution of contract. (The account can be maintained in any convertible foreign currency).

(b)           Credits representing payment by the project authorities to the Indian contractor under the contract may be freely made.

        (c)            Interest earned on surplus funds parked in short term deposits may also be credited.

(d)           Debits representing payment for purchase of material/equipment from overseas suppliers in connection with execution of the contract to the extent approved by the Working Group/Exim Bank/Authorised dealer as the case may be, at post-award approval stage viz. not exceeding .............................................................................................................. (Value of such supplies) may be made freely.

(e)           Debits representing transfer of funds to the project site, bank charges and project related expenses in rupees may also be made freely.

(f)             Debits for transfer of funds to rupee account in case payment made by the client for supply of material/equipment from India has to be temporarily credited to the account and for conversion of balance in the account into Indian rupees at the end of the contract may be made freely.

(g)           All other credits/debits will require prior approval of approving authority/Reserve Bank of India.

(h)           The account shall be closed immediately after completion of the project and the entire balance should be transferred to rupee account and/or EEFC account as the case may be as per prevailing guidelines.

(i)             Project funds temporarily rendered surplus may be invested in short term deposits, not exceeding one year and on maturity, they should be transferred to the project foreign currency account. However, maturity period of the fixed deposit should not, in any case, go beyond the date of completion of the project in question.

        (j)             No forward cover facility would be available on the balances held in the account.

 

B. Establishment of temporary site/liaison offices

        (a)           The project exporter is permitted to set up site offices/liaison office at the following places :

        (i)     .........................................

        (ii)    .........................................

        (iii)   ........................................

(b)           The exporter shall, within 15 days of opening of such site office/liaison office furnish to the authorised dealer the details regarding places where site office/s/liaison office have been opened.

(c)            Expenses of the site office/s/liaison office shall be met out of payments receivable for the services segment of the contract and no remittance from India will be allowed for maintenance of such office/s.

(d)           A half-yearly statement of expenditure of the site office/s/liaison office shall be submitted to the authorised dealer concerned with suitable documentary evidence, within one month from the close of relevant half-year.

(e)           The temporary site office/s/liaison office shall be closed as soon as the project in question is completed, under advice to the concerned authorised dealer.

Note : Exim Bank/authorised dealers may also agree to opening and maintenance of site office/s/liaison office by the Indian associates and sub-contractors of prime contractors with foreign exchange made available to them by the prime contractors subject to the above terms and conditions, provided opening of such site office/s/liaison office has been approved while granting post-award clearances.

 

C.        Payment of agency commission to overseas agents

(a)           It will be in order for the project exporter to pay agency commission not exceeding............................. ............................................................. (to be specified)* of the contract value to the.................................................................................... (Name and address of the agent)

                *as indicated in the payment terms conveyed in the letter of approval.

(b)           The agency commission shall be paid at the approved rate by debits to the foreign currency bank account/s opened in connection with execution of the contract.

(c)            Payment of agency commission shall not be made by credit to a numbered account where the identity of the recipient is not known or to a third person/party.

(d)           The commission payments shall be reflected in the half-yearly statement of operations on the bank account/s submitted to the authorised dealer.

Note : The above general permission is not available to the sub-contractors of Indian prime contractors.

 

D.    Raising of Foreign Currency Loans/Overdrafts Abroad against Bank Guarantees from India for bridging temporary shortfall in cash flow

(a)           It will be in order for the project/service exporter to arrange to raise foreign currency borrowings overdraft etc. from a bank abroad not exceeding..................in value. The exporter should, however, within 15 days from the date of grant of financial accommodation furnish to the authorised dealer details of the account number, name of the bank, place and country where such account is maintained for the purpose of raising loan/overdraft.

(b)           Overdraft/loan limit shall be operated in accordance with the approved cash flow statement and the outstanding balance should not at any time exceed the limit sanctioned by the Working Group/Exim Bank/authorised dealer, as the case may be, while granting post-bid clearance.

(c)            The entire amount of overdraft/loan together with interest will have to be liquidated out of payments to be received from the overseas employer on account of the services segment of the contract and no remittance from India will normally be allowed either for repayment of the overdraft/loan or for payment of interest.

(d)           The export value of goods supplied from India and declared on GR/SDF forms in the usual manner shall be repatriated to India in the normal course and shall not be utilised for repayment of the overdraft/loan.

(e)           A certified half-yearly statement of the operations in the overdraft/loan account duly supported by transcripts of the account and a brief note explaining each debit and credit exceeding the equivalent of US$ 10,000 shall be submitted to the authorised dealer, within one month from the close of relevant half-year.

(f)             Liquidation of overseas borrowings (including interest) shall be given preference over liquidation of rupee overdrafts and other rupee liabilities in India and no funds received out of the service segment of the contract shall be brought to India until overseas borrowings (including interest) are fully liquidated.

(g)           The full amount of overdraft/loan (with accrued interest) shall be liquidated within the validity period of the bank guarantee issued from India.

(h)           The finance raised abroad for a particular project shall be utilised only for that project and for the purpose/s for which it was authorised, and for no other purpose/project.

(i)             Interest due on the overseas overdraft/loan shall be paid on due dates from the project receivable relating to the services segment and no roll-over for the amount of interest for a further period shall be allowed, without prior approval of Reserve Bank.

Notes : (i) In case borrowings are proposed to be raised by the exporter in a country other than the country in which the contract is being executed, the exporter should be advised to ensure that the authorities in country where contract is being executed will be prepared to allow remittances out of local currency payments made to the exporter on service segment of the contract.

(ii) The permission for raising loans/overdrafts should not be granted to sub-contractors of Indian prime contractors and that they should be advised to approach the Indian prime-contractors for necessary financial requirements in foreign exchange.

 

E.        Conditions relating to Payment Terms approval

Exporter will not be required to approach Reserve Bank for obtaining Payment Terms approval. He should however note the following:

1.         Any matter for which specific Exchange Control approval is required, a specific application will have to be made to RBI at the appropriate time. The approval accorded by the Approving Authority does not bind the Exim Bank/ECGC/Import Trade Control authorities regarding grant of Exim Bank financial assistance/ECGC cover/import replenishment/third country imports as these are to be dealt with by the respective authorities.

2.         The following procedure in respect of the exports to be made under the approval should be observed scrupulously:

a.     All copies of GR forms covering exports under the contract should be prominently superscribed in Red Ink as under:

Exports under Deferred Payment Arrangements. Approving Authority’s approval No. ................. dated .......................... .

In all communications with the Reserve Bank/Approving Authority, the number and date of the approval should invariably be cited.

b.     Exporter should submit to Reserve Bank of India and the Approving Authority, a quarterly statement showing the total value of shipment effected as also advance payment/deferred instalments received etc. as per Annexure AB, within ten days from the close of the quarter. This statement should be submitted till all the payments are fully realised. In case there is no transaction to report for a particular quarter a “Nil” statement should be submitted.

Annexure ‘AB’

Quarterly statement showing value of shipments effected and advance/deferred instalments
received in respect of exports under Deferred Payment Arrangements

(To be completed by the exporter and submitted to the concerned Regional Office of
Reserve Bank and Approving authority every calendar quarter)

For the quarter ended —

        1. No. & date of approval of the Approving

            Authority for the deferred payments                        :

                                                                        :

2. Country

Amount

 

Foreign Currency

Rs.

        I.(a)          Value of shipments effected during the      :

            quarter

        (b)           Of which deferred payment portion :

        II.  Advance payment, if any received during  :

            the quarter

 

III.

Deferred Credit instalments realised during the quarter

Principal

 

Interest

 

 

 

Foreign

Rs.

Foreign

Rs.

 

 

currency

 

currency

 

       

3.     Details of amounts fallen due

        (a)   Total amount due but not received

        (b)   Amount pending beyond six months

        (c)    Reasons for non-payment of instalments/interest which have fallen due and efforts made to realise the overdues

                                                                                    ....................................................................

                                                                                    (Signature of authorised official)

                                                                                    Name: ......................................................

Date: .....................                                                     Designation: ..........................................

                                                                                    Name and Address ............................

                                                                                    of Exporter ...........................................

Note : The statement may be submitted regularly within 10 days of the close of the quarter to which it relates.

Annexure III

Conditions subject to which remittance of agency commission in respect of pure
supply contracts may be effected by authorised dealers

 

The authorised dealers may effect remittances of agency commission in accordance with the terms and conditions as set out in the letters of approval issued by him/Exim Bank/Working Group at the post award stage subject to the following conditions :

I.              The remittance may be effected only by the branch of the bank monitoring the supply contract (on deferred payment terms).

        II.              The agency commission shall be paid at the approved rate.

III.             The commission payments should not be made for credit to a numbered account where the identity of the recipient is not known.

IV.            Where project receivables are received in non-convertible Indian Rupees and the agency commission is desired to be made in freely convertible currency, such applications should be referred to the concerned Regional Office of Reserve Bank for approval.

Note: This facility is not available to the sub-contractors of Indian prime contractors.

 

ACM - Memorandum of procedure for channelling transactions through Asian Clearing Union* 

 

Introduction

This Memorandum details the revised procedure to be followed by authorised dealers for handling transactions which are to be cleared through Asian Clearing Union (ACU), consequent on switchover to a dollar denominated trade with effect from 1st January, 1996.

 

Handling of ACU Transactions

All transactions to be cleared through the ACU will be handled by authorised dealers in the same way as other normal foreign exchange transactions. All authorised dealers in India have been permitted to handle ACU transactions. Authorised dealers may freely enter into correspondent arrangements with banks in the other countries participating in the Clearing Union.

 

Eligible Instruments of Payment

The Asian Monetary Unit is the common unit of account of ACU and is equivalent in value to one U.S. dollar. The Asian Monetary Unit may also be denominated as U.S. dollar. All instruments of payment shall be denominated in Asian Monetary Unit. Settlement of such instruments may be made by authorised dealers through operation on ACU dollar Accounts.

 

ACU Dollar Accounts

(i)     The essence of the procedure for settlement of eligible transactions through the ACU is that as large a part of the transactions as possible should be settled directly through the accounts maintained by authorised dealers with banks in the other participating countries and vice versa ; only the spill-overs in either direction being required to be settled by the Central Banks in the countries concerned through the Clearing Union.

(ii)    Authorised dealers are permitted to settle commercial and other eligible transactions in much the same way as other normal foreign exchange business. The procedure for opening letters of credit, negotiation of documents, etc. in respect of trade in convertible currencies is applicable for trade routed through the ACU mechanism.

(iii)   To facilitate settlement of transactions through the ACU in this manner, authorised dealers may freely open with their branches/correspondents ‘ACU dollar accounts’. These may be kept distinct from U.S. dollar accounts, if any, maintained for settlement of transactions taking place outside the Clearing Union. The term ACU dollar is specifically being used in order to identify the use of U.S. dollar in relation to ACU transactions. Otherwise there is no distinction value-wise between ACU dollar and the U.S. dollar.

(iv)   Authorised dealers should ensure that at all times the balances maintained in the ACU dollar accounts are commensurate with the requirements of their normal exchange business and funds rendered surplus should be repatriated to India regularly.

 

Mechanism for settlement through the Union

(i)     Effective 1st January, 1996, the Reserve Bank of India will undertake to receive and pay U.S. dollars from/to authorised dealers for the purpose of funding or for repatriating the excess liquidity in the ACU dollar accounts maintained by the authorised dealers with their correspondents in the other participating countries. Similarly, the Reserve Bank of India will also receive and deliver U.S. dollar amounts for absorbing liquidity or for funding the ACU dollar (vostro) accounts maintained by the authorised dealers on behalf of their overseas correspondents.

(ii)    Funding of an ACU dollar account maintained with a correspondent bank in another ACU participant country will be effected by Reserve Bank only after receiving an intimation that equivalent amount of U.S. dollar is being credited to its account with the Federal Reserve Bank of New York, New York by the authorised dealer on the value date. Similarly, Reserve Bank will arrange for payment of U.S. dollar from its account with the Federal Reserve Bank of New York to the account of the correspondent of the authorised dealer in New York, in case it has received intimation of surrender of surplus funds to the other participant central bank on behalf of the authorised dealer in India.

(iii)   In the case of funding of ACU dollar accounts maintained by foreign commercial banks with the authorised dealers in India, Reserve Bank on receipt of an advice from participant central bank will arrange to credit U.S. dollar amounts to the Nostro Accounts of the authorised dealers in New York. The authorised dealers will credit the U.S. dollar amounts to the ACU dollar accounts of the foreign commercial banks of the participating countries concerned on the value date. Similarly, the authorised dealers will receive instructions from their overseas correspondents to surrender excess liquidity in their ACU dollar accounts to Reserve Bank. In such cases the authorised dealers will have to actually remit the U.S. dollar amounts to the account of Reserve Bank with the Federal Reserve Bank of New York, New York on the value date and Reserve Bank will arrange to advise the other participant Central Banks to make available the U.S. dollar amounts to the Commercial Banks in their countries.

 

Applicability of Exchange Control Regulations

Operations conducted in and through the ACU dollar Accounts will be subject to compliance with all the Exchange Control regulations and the specific provisions of this Memorandum.

 

Eligible Payments

Transactions that are eligible to be made through ACU are payments :

        (a)           from a resident in the territory of one participant to a resident in the territory of another participant

        (b)           for current international transactions as defined by the Articles of Agreement of the International Monetary Fund

        (c)            permitted by the country in which the payer resides

        (d)           not declared ineligible under paragraph 6 of this Memorandum, and

        (e)           for export/import transactions between ACU member countries on deferred payment terms.

Ineligible Payments

The following payments are not eligible to be settled through ACU —

        (a)           Payments between Nepal and India

(b)           Payments which are not on account of current international transactions as defined by the International Monetary Fund, except to the extent mutually agreed upon between Reserve Bank and the other participants

(c)            Such other payments as may be declared by the Asian Clearing Union to be ineligible for being channelled through the clearing facility.

1 [* (d) Import of sugar, fertilisers and pulses.]

 

Rate of Exchange for U.S. dollar

Under the revised procedure, the Bank will receive and pay U.S. dollar from/to the authorised dealers in respect of transactions described in paragraph 5 above and there will be no corresponding payment/receipt of Indian rupees. In other words, no exchange rates will be announced for the purpose of putting through the transactions relating to the ACU with effect from 1st January, 1996.

 

Hours of business

The hours for receiving applications for funding of ACU dollar accounts in overseas participant countries or surrendering of surplus liquidity in the ACU dollar accounts of their overseas correspondents maintained in India will be the regular business hours of the Bank. No application will be received on Saturdays.

 

Minimum and Multiple amounts for transactions with Reserve Bank

The minimum amounts and the multiples in which Reserve Bank will receive and pay will be :

 

Currency

Minimum

Multiple

US Dollar US $

25,000

1,000

2 [Myanmar Kyat M. Kyats

20,000

1,000

Iranian Rial I. Rials

50,00,000

5,00,000]

 

Procedure for business with Reserve Bank3 

(i)         Reserve Bank’s Deposit Accounts Departments at Bombay, Calcutta, New Delhi, Madras, Bangalore and Kanpur will undertake ACU transactions.

(ii)        Requests from authorised dealers for funding of their ACU dollar accounts with commercial banks in participating countries should be made in Form ACU-1 in duplicate to the concerned office of Reserve Bank. The acceptance of the offer will be conveyed on the duplicate copy of the letter of offer. Such offers should be accompanied by confirmation that equivalent amount of dollar is being credited to Reserve Bank’s account with Federal Reserve Bank of New York, New York on the value date. Reserve Bank will advise the Central Bank in the concerned participating country by telex or cable to deliver the contracted amount on the value date to the correspondent bank indicated by the authorised dealer. To obviate the possibility of delay in putting through the transaction, authorised dealers may inform their correspondents of the particulars of the transactions such as expected amount, value date, etc.

(iii)       Authorised dealers may wish to repatriate the excess liquidity in their ACU dollar accounts maintained with their branches/correspondents in other participating countries. They will arrange through their branches/correspondents for surrendering of such liquidity to the participant central bank. Upon receipt of an advice from the participant central bank, the concerned office of Reserve Bank will make available U.S. dollar on the value date through the Federal Reserve Bank of New York, New York to the New York correspondent of the authorised dealer.

 

Transactions between Authorised Dealers and Reserve Bank for Account of Correspondent Banks

(i)         Banks in the other participating countries may fund their accounts with authorised dealers in India by transfer of U.S. dollars through their Central Banks. On receipt of transfer instructions by telex, cable, etc. from the concerned Central Bank. Reserve Bank will arrange to transfer the amount indicated in the transfer instruction from their account with Federal Reserve Bank of New York, New York to the correspondent of the authorised dealer in New York. The authorised dealer may then arrange to credit the ACU dollar account of its correspondent bank on the value date.

(ii)        Correspondent banks of authorised dealers may also request authorised dealers to transfer amounts from their ACU dollar accounts to Reserve Bank for account of the Central Bank in the participating country. Requests from authorised dealers for repatriation of these surplus funds should be made in Form ACU-2 in duplicate to the concerned office of the Reserve Bank. The acceptance of the offer will be conveyed on the duplicate copy of the letter of offer. Such offers should also be accompanied by confirmation that equivalent amount of dollar is being credited to Reserve Bank account with Federal Reserve Bank of New York, New York on the value date. Reserve Bank will advise the participant central bank to provide equivalent amount of dollars to the concerned bank in that country.

(iii)       The authorised dealers must ensure that deliveries of U.S. dollar amounts are duly made on the value date to the account of Reserve Bank of India with Federal Reserve Bank of New York, New York in respect of transactions of funding their ACU dollar account or repatriation of excess liquidity from the ACU dollar vostro accounts maintained with them. If the U.S. dollar amount is not delivered on the due date, interest will be charged at the appropriate penal rate for the number of days of default.

 

Overdrafts in ACU dollar Accounts

(i)     Authorised dealers may permit overdrafts in the ACU dollar accounts maintained with them by their branches/correspondents in the other participating countries upto the ceilings and subject to the conditions as indicated in paragraph 5A.15 of Exchange Control Manual (ECM).

(ii)    Authorised dealers may likewise avail of temporary overdrafts in the ACU dollar accounts maintained by them with their branches/correspondents in the countries concerned (cf. 5B.8 of ECM).

 

Forward Facilities for Customers

Authorised dealers may extend forward cover facilities to exporters, importers, etc. in the usual manner subject to compliance with the normal Exchange Control regulations laid down in the Exchange Control Manual.

 

Agreement establishing the Asian clearing union

 

(as amended by the Board of Directors during various meetings up to September 1995)

 

The central banks and monetary authorities of regional members and associate members of the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).

Desiring to establish a facility to settle payments for current international transactions within the ESCAP region on a multilateral basis,

Recognizing that such a facility would contribute to the expansion of trade and the promotion of monetary co-operation among their countries,

Recognizing further that a facility designed to promote the use of the participants’ currencies would reduce the use of extra-regional currencies to settle current international transactions within the regions and thereby effect economies in the use of foreign exchange and reduce the cost of making payments for such current international transactions,

Realizing that a region-wide clearing facility could co-exist and function in co-operation with sub-regional or less than regional arrangements in Asia and the Pacific,

Convinced that the regional clearing facility must be established and operated in a manner that will not prejudice the principles of multilateral trade and payments,

On whose behalf this Agreement has been signed, have agreed as follows :

 

General provisions

Article I - Asian Clearing Union

The Central Banks and other monetary authorities on whose behalf the present Agreement is signed, hereinafter referred to as “participants”, agree to establish a system for clearing payments among their respective countries on a multilateral basis, hereinafter referred to as the “Asian Clearing Union”, which shall be governed by the provisions of this Agreement and by the rules, regulations and decisions agreed within its framework.

Article II - Purposes

The purposes of this Agreement are :—

(a)           To provide a facility to settle, on a multilateral basis, payments for current international transactions among the territories of participants;

(b)           To promote the use of participants’ currencies in current transactions between their respective territories and thereby effect economies in the use of the participants’ exchange reserves;

(c)            To promote monetary co-operation among the participants and closer relations among the banking systems in their territories and thereby contribute to the expansion of trade and economic activity among the countries of the ESCAP region; and

(d)           To provide for currency swap arrangement among the participants so as to make Asian Monetary Units available to them temporarily.

Article III - Participation

Section 1 - Eligibility to participate

(a)           Participation in the Asian Clearing Union shall be open to the Central Bank or monetary authority of each regional member or associate member of ESCAP.

(b)           Participation in another clearing group or arrangement is not precluded by participation in the Asian Clearing Union.

 

Section 2 - Original Participants

Original participants shall be those central banks or monetary authorities that are eligible to participate in and which sign this Agreement not later than three months from the date this Agreement has been signed by the duly authorized representatives of five such central banks or authorities. Each shall become a participant on the date this Agreement enters into force.

 

Section 3 - Other participants

A Central Bank or monetary authority that is eligible to participate and is not an original participant may apply to the Board of Directors to become a participant and be admitted as a participant if the Board so decides by a two-thirds vote of all of the Directors and upon such central bank or monetary authority signing this Agreement and accepting the rules, regulations and decisions of the Board of Directors. The Chairman of the Board shall determine the date on which the payments and transfers with respect to such a participant shall be included in the clearing facility.

 

Operations

Article IV - Unit of Account

(a)           The accounts of the Asian Clearing Union shall be kept in a common unit of account hereby designated as the “Asian Monetary Unit”, which may be referred to in the abbreviated form as “AMU”.

(b)           The value of one Asian Monetary Unit shall, with effect from 1-1-1996, and until such time as it is changed by the Board of Directors in terms of the sub-clause (c) of the Article, be equivalent in value to one US Dollar. The Asian Monetary Unit may also be denominated as ‘ACU dollar’.

(c)            The Board of Directors may change the value of the Asian Monetary Unit at any time by a unanimous vote of all the Directors.

(d)           In the event of a change in the value of the Asian Monetary Unit by the Board of Directors, the outstanding net debtor and creditor positions as of the date of this change including accrued interest shall be settled on the basis of the value of the Asian Monetary Unit preceding such change.

Article V - Clearing of Individual Payments and Transfers

Section 1 - Rules for individual payments and transfers

(a)           The Board of Directors, after consultation with participants, shall prescribe by appropriate rules consistent with this Agreement the procedures to effect the financial settlement of eligible payments and transfers through the clearing facility. In particular, these rules and regulations shall specify the procedures to be followed by persons, Commercial Banks, and Central Banks or monetary authorities. The Board shall prescribe the information to be supplied to the General Manager for the operation of the clearing facility.

(b)           Each participant, in so far as its monetary and exchange system permits, shall take all steps necessary to put into effect in its territories the procedures prescribed by the Board of Directors and to supply the information required by the Board for the operation of the clearing facility.

Section 2 - Eligible payments and transfers

        (a)           The payments that are eligible to be made through clearing facility are payments :

(i)         from a resident in the territory of one participant to a resident in the territory of another participant;

(ii)        for current international transactions as defined by the Articles of Agreement of the International Monetary Fund;

            (iii)       permitted by the country in which the payer resides; and

        (iv)       not declared ineligible under (b) or (c) below.

(b)           The Board of Directors may declare specified payments to be ineligible to be channelled through the clearing facility and may terminate such ineligibility.

(c)            A participant, at the time it signs this Agreement, may declare that payments for specified transactions are ineligible to be made by and to residents in its territories through the clearing facility. The participant shall consult with the Board of Directors with a view to the relaxation and eventual removal of this ineligibility as soon as circumstances permit.

 

Section 3 - Duty to complete payment

Each participant undertakes that all eligible payments made through the clearing facility to residents in its territory will be accepted and completed.

 

Section 4 - Use of the clearing facility

(a)           A participant may require residents to make payments through the clearing facility, but such a requirement shall not be enforced in a manner that will restrict or delay the making of payments for current international transactions or create a discriminatory currency arrangement.

(b)           Except to the extent that a participant requires its residents to make payments through the clearing facility in accordance with (a) above, the use of the clearing facility shall be optional.

(c)            In order to promote the use of the clearing facility, participants may adopt measures designed to provide incentives to make payments for individual transactions through the clearing facility, provided such measures shall be consistent with the participant’s undertakings under the Articles of Agreement of the International Monetary Fund. Thus, for this purpose, participants may allow the conversion of their currencies into Asian Monetary Units or into those of other participants in respect of payments or receipts at rates which are more favourable than those for dealings outside the clearing facility.

 

Section 5 - Instruments of payment

The Board of Directors shall specify in its rules and regulations the types of instrument of payment that may be used and how each is to be used to make payment through the facility. Only instruments of payment denominated in Asian Monetary Units or the US dollar may be used to make payment through the clearing facility. A participant, after consultation with the Board may prohibit the use of particular instruments of payment by its residents for making payments through the clearing facility, but shall notify the General Manager of such prohibition who shall notify all other participants.

 

Article VI - Settlement of Balances among Participants

Section 1 - Periodical settlement

(a)           Settlement shall be made of net positions and accrued interest at the end of each two monthly settlement period. Settlements shall be made in accordance with section 3 of this article.

(b)           The Board of Directors may change the length of the settlement period by a decision taken by a unanimous vote of all of the Directors.

 

Section 2 - Interest

(a)           Interest shall be paid by net debtors and transferred to net creditors on daily balances outstanding between settlement dates. The accrued interest shall be included in the calculation of the net amounts to be paid and received at the end of each settlement period and shall be notified at the end of each settlement period along with the net position of each participant.

(b)           The Board of Directors shall determine, from time to time, the rate of interest, which shall be the same for both net creditor and net debtor positions, on the basis of the return on balances held on similar availability in major financial centres.

Section 3 - Notifications and Payments

(a)           The General Manager shall notify each participant of its net position, including accrued interest, and of the amounts it shall pay to, or receive from, other participants at the end of each settlement period.

(b)           Each debtor participant, within four working days of the receipt from the General Manager of the notice of the amounts to be paid, shall make the payments in international reserve assets specified by the Board of Directors for the purpose. Payments may also be made in the currency of the creditor subject to its specific consent.

 

Article VII - Maintenance of Value and Non-settlement of Balances

Section 1 - Value of payments and transfers

The value of any instrument of payment or transfer of a currency for the purpose of the amount to be settled through the clearing facility shall be the amount in Asian Monetary Units or ACU dollars, as well as in the case of a transfer of currency, be equivalent in Asian Monetary Units or ACU dollars determined as of the date the transfer is considered to be made under the rules prescribed by the Board of Directors. The values of payments and transfers made and received with respect to participants and the resulting positions of participants shall be recorded by the General Manager in Asian Monetary Units.

 

Section 2 - Delayed payments

If a participant fails to make any payment notified to it by the General Manager under article VI within the time required, interest shall be payable by the participant on the amount due at such rate as may be determined by the Board of Directors.

 

Section 3 - Default

(a)           In the event the payment referred to in section 2 above remains unpaid after fifteen days from the date on which it was due in terms of Article VI, section 3(b), the participant shall be deemed to have defaulted and the General Manager shall immediately notify the Directors and all participants. Thereafter no payments with respect to residents in the territory of the defaulting participant can be made through the clearing facility until the default has been fully discharged and the participant restored to full participation in accordance with (c) below.

(b)           Unless the defaulting participant, within seven days of the date of default agrees with the participants to which it is obliged to make any payments due under article VI on arrangements to make the payments, with interest, its participation in the Asian Clearing Union shall be suspended.

(c)            After the default has been fully discharged, the Board of Directors may restore the defaulting participant to full participation in the Asian Clearing Union subject to any special terms and conditions that the Board may deem appropriate, or may require the defaulting participant to withdraw from participation. If the defaulting participant does not agree to continue participation on the terms and conditions specified by the Board within thirty days of the decision of the Board on this matter, it shall be deemed to have withdrawn. The special terms and conditions may be revoked at any time by the Board.

(d)           In addition, the Board of Directors shall consider, in consultation with participants, other means by which the amount of the default may be recovered, and participants shall take such further measures as the Board deems appropriate in order to recover the amount of the default in the shortest possible time.

Article VIIA - Currency Swap Arrangement

The Board of Directors may provide for a Currency Swap Arrangement among the participants and specify in the rules the eligibility criteria, the terms including the rate of interest and the period for which the facility should be extended, the manner in which the participants should contribute and such other relevant conditions and procedures as are considered necessary.

 

Organization and Administration

Article VIII - Organization

Section 1 - Joint action

Representatives of the participants shall meet from time to time for the purpose of giving effect to those provisions of this Agreement which involve joint action and, generally, with a view to facilitating the operation and furthering the objectives of this Agreement. Whenever reference is made in this Agreement to the participants acting jointly, they are designated as the Board of Directors.

 

Section 2 - The Board of Directors

(a)           Each participant shall appoint one Director and one Alternate Director to represent it on the Board of Directors. Each Director and alternate Director shall be appointed for a term of two years, may be reappointed, and may be replaced at any time during the term of his appointment. Each Director shall have one vote. An Alternate Director may attend the meetings but may vote only when his principal is not present or when his principal is acting as the Chairman. The Board shall elect a Chairman from among its members to serve for a period of one year, and a Vice-Chairman to serve in the absence or inability of the Chairman during the same period.

(b)           The Board of Directors shall meet at least once in a calendar year. In addition, meetings of the Board shall be called by the Chairman when requested by two Directors or when the Chairman considers a meeting necessary.

(c)            A quorum for any meeting of the Board of Directors shall be the Chairman or Vice-Chairman and two-thirds of the Directors.

(d)           All decisions of the Board of Directors shall be taken by a majority of the votes of all the Directors unless a special majority is required by this Agreement. The votes of “all of the Directors” means the votes of all the Directors and not merely of those Present and Voting. When both a Director and his Alternate are not present at a meeting of the Board, the Director, in accordance with rules established by the Board, may authorise another Director to present his views and to cast his vote. The Chairman shall have no vote, except in the case of an equal division when he shall cast the deciding vote.

(e)           The Board of Directors may establish a procedure whereby the Chairman may obtain the votes of the Directors on a specific question without calling a meeting of the Board.

(f)             The Board of Directors may adopt such rules and regulations as are necessary for the organization and operation of the Asian Clearing Union.

(g)           The remuneration and expenses of a Director and Alternate Director shall be borne by the participant appointing them.

 

Section 3 - General Manager and Staff

(a)           The Board of Directors, by a two-thirds majority of all of the Directors, shall select and appoint the General Manager, who shall not be a Director, for a term of three years. The Boards shall establish the remuneration and other terms of the contract of service of the General Manager. The General Manager may be reappointed and shall cease to hold office when the Board so decides by a two-thirds vote of all of the Directors.

(b)           The General Manager, under the direction of the Board of Directors shall conduct the ordinary business of the Asian Clearing Union. He shall be the head of the staff and, subject to the general rules of the Board, organize, appoint and dismiss members of the staff. He shall exercise such other powers as are assigned to him by the Board.

(c)            The General Manager shall prepare and submit to the Board the documents necessary for its work, particularly the financial statements, the proposed annual budget and the draft annual report.

(d)           The General Manager shall act as the representative of the Board of Directors within the limits prescribed by the Board.

(e)           The General Manager and the staff members, in the discharge of their official functions, shall owe their duty entirely to the Board of Directors and to no other authority. Each participant in the Asian Clearing Union shall respect the international charter of this duty and shall refrain from all attempts to influence any of the staff in the discharge of his functions.

Article IX - Agent

The Board of Directors may make arrangements with a Central Bank or monetary authority of a participant or with the Asian Reserve Bank when it is established to provide the necessary services and facilities for the operation of the clearing facility. The agreement establishing these arrangements with an Agent must be approved by a vote of two-thirds of all of the Directors.

 

Article X - Relations with other Organizations and Clearing Arrangements

The Board of Directors may make arrangements to co-operate with other general, regional or sub-regional international organizations, or other clearing arrangements among countries within or outside the ESCAP region. Any such arrangements shall not apply to a participant which does not consent.

 

Article XI - Interpretation

(a)           Any question of interpretation of this Agreement or of any rules, regulations or decisions of the Board of Directors arising between the General Manager and a participant or between participants shall be decided by the Board whose decision shall be final.

(b)           Should any disagreement arise between the Board of Directors and a participant which has withdrawn from the Asian Clearing Union or has been required to withdraw, and if efforts to settle the controversy by negotiation fail, such disagreement shall be submitted to arbitration by a Tribunal of three arbitrators, the first appointed by the Board, the second by the participant and the third designated by the first two arbitrators. If they fail to reach agreement, the third arbitrator shall be appointed by the Executive Secretary of ESCAP. The third arbitrator shall be empowered to decide all matters of procedure whenever the other two arbitrators disagree with respect to such a question.

 

Article XII - Reports and Assessments

Section 1 - Reports

The Board of Directors shall publish an annual report on its activities and the operations of the Asian Clearing Union. The report shall contain an audited statement of accounts and of the clearing operations. The Board may publish such other reports as it deems desirable.

 

Section 2 - Operating expenses

(a)           The Board of Directors shall approve the annual budget and determine the formula under which expenses shall be apportioned among participants, on the basis of the actual use made of the Asian Clearing Union and of the services rendered to them.

(b)           The Board shall specify the currencies or other means in which the assessments shall be paid by members as well as the schedule of payments for each fiscal year.

(c)            The Board of Directors may request the Agent to make an advance to the Asian Clearing Union on behalf of the participants when such action becomes necessary to meet expenses, but the Board shall promptly make an assessment to meet the amount borrowed.

(d)           All the decisions taken by the Board of Directors in accordance with this section shall require the affirmative vote of two-thirds of all of the Directors.

 

Miscellaneous Provisions

Article XIII - Withdrawal from Participation

Section 1 - Voluntary withdrawal

Any participant may withdraw from this Agreement at any time by transmitting a notice in writing to the General Manager. Withdrawal shall become effective three business days from the date such written notice is received by the General Manager unless a later date is indicated by the participant in the notice. The General Manager shall notify all other participants as promptly as possible.

 

Section 2 - Compulsory withdrawal

If a participant fails to fulfil any of its obligations under this Agreement, and if, after consultations between the Board of Directors and the participant concerned, the participant fails to correct the situation, the Board may require such participant to withdraw from participation. The participant shall be deemed to have withdrawn on the date of the decision of the Board or such later date as the Board may specify.

 

Section 3 - Settlement of accounts

(a)           A participant shall remain liable for and shall meet all its obligations to other participants arising from its participation under the Agreement until the final settlement of accounts with it has taken place.

(b)           Only instruments of payments for the settlement of transactions involving residents in the territory of the withdrawing participant issued on or before the date of its withdrawal shall be settled thereafter through the clearing facility. Settlements shall normally be made at the regular settlement dates until all outstanding instruments of payments have been cleared. The Board of Directors shall determine any further procedures needed to effect the final settlement of accounts with the withdrawing participant.

Article XIV - Amendment

(a)           This Agreement may be amended by a decision of the Board of Directors taken by a vote of two-thirds of all the Directors.

(b)           Notwithstanding the provisions of the preceding paragraph, the affirmative vote of each Director on the Board shall be required to approve an amendment to modify the provisions of :

        (i)     Article III on participation;

        (ii)    Article IV(c) on the modification of the parity of the Asian Monetary Unit;

        (iii)   Article V, Section 2(b), on specified ineligible payments;

        (iv)   Article VI, Section 1(b), on the change of the settlement period;

        (v)    Article VII, Section 1, on the value of payments and transfers;

(vi)   Article XII, Section 2(a), on the formula under which expenses shall be apportioned among participants;

(vii)  Article XIII, Section 1, on the right of a member to withdraw voluntarily from this Agreement at any time; and

        (viii) Article XIV on the amendment of this Agreement.

            The absence or abstention of a Director shall be considered to be a negative vote.

(c)            Any proposal to amend this Agreement shall be communicated to the Chairman of the Board of Directors who shall place the proposal before the Board for discussion. When an amendment has been adopted by the Board, the Chairman shall so certify in an official notice addressed to all participants and to the Executive Secretary of ESCAP. Amendments shall enter into force one month after the date of despatch of the official communication unless the Board specifies a different date.

 

Article XV - Suspension and Liquidation

(a)           The Board of Directors may suspend operations by a decision of the Board taken by a vote of two-thirds of all of the Directors. All participants shall be notified immediately and no instrument of payment issued after the date of notice shall be settled through the clearing facility.

(b)           After a decision under sub-section (a), if the Board of Directors does not decide to resume operations within six months, all operations and other activities shall be suspended, except those necessary for the orderly liquidation and the final settlement of accounts among participants as determined by the Board.

 

Final Provisions

Article XVI - Signature and Custody

(a)           The Executive Secretary of Escap shall be the depository of this Agreement and shall send certified copies of this Agreement and any amendments to it, to all regional members and associate members of ESCAP. Any amendments to this Agreement, as certified by the Chairman of the Board of Directors under the provisions of Article XIV(c), shall be appended to its text.

(b)           This Agreement shall be open for acceptance by signature by duly authorized representatives of Central banks or monetary authorities of regional members or associate members of ESCAP at the United Nations Economic and Social Commission for Asia and the Pacific. Each Central Bank or monetary authority on whose behalf this Agreement is signed shall deposit with Executive Secretary, before signature, an instrument setting forth that it has full legal authority to accept this Agreement and to carry out all its obligations under it.

Article XVII - Entry into Force

This Agreement shall enter into force when it has been signed and the instruments provided in Article XVI(b) have been deposited by duly authorized representatives of at least five Central Banks or monetary authorities of regional members or associate members of ESCAP but not before the date determined by Article III, section 2.

Article XVIII - Commencement of operations

(a)           As soon as this Agreement enters into force, each participant shall appoint a Director and Alternate Director, and the Executive Secretary of ESCAP shall call the inaugural meeting of the Board of Directors.

        (b)           At its inaugural meeting, the Board shall :

        (i)     elect the Chairman and Vice-Chairman; and

        (ii)    make arrangements to proceed with the preparatory work necessary to commence operations of the clearing facility.

(c)            The Chairman of the Board shall notify the participants of the date of the commencement of operation of the clearing facility.

Article XIX - Notification

The Executive Secretary of ESCAP shall notify signatories and all regional members and associate members of ESCAP of :

        (i)             all signatures to this Agreement, and

        (ii)            the date on which this Agreement enters into force.

DONE in a single copy in the English language.

 

Asian Clearing Union (Procedure) Rules* 

 

These rules have been adopted by the Board of Directors of the Asian Clearing Union in terms of Article VIII, Section 2(f), of the Agreement establishing the Asian Clearing Union and shall be called the Asian Clearing Union (Procedure) Rules.

 

These rules shall come into force on such date as may be notified by the Board of Directors of the Asian Clearing Union.

 

Definitions

In these rules, unless there is anything repugnant in the subject or context :

(a)           ‘Agent’ means the participant Central Bank or monetary authority with whom the Board has arranged to provide the necessary services and facilities for the operation of the clearing facility;

        (b)           ‘Agreement’ means the Agreement establishing the Asian Clearing Union;

(c)            ‘Asian Monetary Unit’ (AMU) means the common unit of account of the Clearing Union referred to in Article IV of the Agreement.

(d)           ‘Board’ means the Board of Directors of the Asian Clearing Union referred to in Article q            VIII, Section I, of the Agreement.

        (e)           ‘Clearing Union’ means the Asian Clearing Union;

(f)             ‘General Manager’ includes the officer who is designated by the Agent to perform the functions of the General Manager for the time being;

(g)           ‘Participant’ means any central bank or monetary authority which is a signatory to the Agreement and

(h)           ‘Currency swap’ arrangement means an arrangement among the participants under which a participant becomes eligible to draw Asian Monetary Units from other participants in specified proportion and in specified circumstances for settling imbalances in clearing.

 

Ineligible payments

The following payments shall not be eligible to be made through the clearing facility :

        (i)             payments between Nepal and India;

(ii)            payments which are not current international transactions as defined by the Articles of Agreement of the International Monetary Fund, except to the extent mutually agreed upon between two or more participants.

 

Eligible instruments of payment and the currency in which they are to be denominated

All instruments of payment denominated in AMUs or U.S. dollars, may be used to effect payment through the clearing facility. Settlement of such instruments will be made by the Commercial Banks through operations of the accounts referred to in Rule 6.

 

Clearing Operations

(a)   The participants will permit the banks in their respective countries to maintain ACU dollar accounts with their correspondent banks in the other participating countries. All payments other than ineligible payments will be settled by the banks concerned through these accounts. The operations on these accounts shall be governed by the prevailing Exchange Control Regulations and such other directions, rules, regulations or guidelines as the participants may issue or specify from time to time.

1 [(b)    When a Commercial Bank desires to fund its ACU dollar account with its correspondent bank in another participating country, it may purchase the required amount of ACU dollar either from a local Commercial Bank having a surplus in that participating country or from its central bank. In the latter case, it will surrender equivalent amount of U.S. dollars or, at the option of the central bank, the equivalent in the local currency to its own central bank for remittance through the ACU mechanism. The participant receiving the amount will advise the participant in the country concerned to make available the amount in U.S. dollars to the concerned bank in that country. After making the payment, the second participant will advise the General Manager of the ACU to credit its account by debit to the first participant’s account.

(c)    When a Commercial Bank desires to repatriate funds from its ACU dollar account with its correspondent bank in another participating country, it may sell the desired amount of ACU dollar either to a local Commercial Bank which desires to fund its ACU dollar account in that participating country, or to its Central Bank. In the latter case, it will request that bank to effect the remittance through the ACU mechanism. The correspondent bank will surrender equivalent amount of U.S. dollars to its own Central Bank for remittance. The participant receiving the amount will advise the participant in the country concerned to make available the equivalent amount to the concerned bank in that country. The Central Bank may, at its option, make the payment in U.S. dollar or in local currency. After making the payment the second participant will advise the General Manager of the ACU to credit its account by debit to the first participant’s account.]

(d)   On receipt of the advices referred to in sub-rules (b) and (c) above, the Clearing Union shall effect the necessary transfers under advice to both the participants.

 

Currency swap arrangement

A participant desirous of availing of the swap facility as defined in Rule 3(h) should request the General Manager in such format as he prescribes. The nature and scope of swap arrangement will be as described hereunder :

(a)           Eligibility - Subject to sub-rule (d) of this rule any participant in deficit at the end of a settlement period shall be eligible to avail of the facility. Participants whose countries have special payment arrangements between themselves will not be eligible to avail of this facility from each other.

(b)           Entitlement - Every eligible participant shall be entitled to the facility from every other participant up to 20% of the average gross payments made by it through the ACU mechanism to other participants during the three previous calendar years. A participant shall not, however, draw more than its overall deficit at the end of a settlement period. The drawal by each participant from each other participant shall be in the same proportion as its overall deficit bears to its maximum entitlement.

(c)            Rate of interest - The rate of interest chargeable on each drawal should be equal to LIMEAN on U.S. dollars for the period of 2 months. The reference LIMEAN will be of Barclay’s Bank, London, at 11.00 a.m. applicable for the concerned value date. If the rate is not available from Barclay’s Bank, the General Manager shall ascertain it from any other London clearing bank at his discretion and if it is not available from any such bank, the rate of Barclay’s Bank applicable for the immediately preceding value date will apply.

(d)           Other conditions - A participant may draw under the swap arrangement for a period of two months at a time. Such a participant shall not be entitled to draw under the arrangement at the time of the next following settlement.

 

Accounts kept by the Clearing Union

The Clearing Union shall maintain an account in AMUs for each participant to which the payments advised by the participants will be debited or credited. Interest will be payable by the participants on the net debit balances and receivable on the net credit balances, calculated at the interest rate referred to in Rule 9, on the daily balances outstanding.

 

Interest

(a)   Interest on the net debit and net credit balance will be calculated by the Clearing Union on the daily outstanding by the product method, taking a year as comprising 360 days and shall be debited or credited to the participants’ accounts at the end of each settlement period. The rate of interest applicable for a settlement period will be the closing rate on the first working day of the last week of the previous calendar month offered by the Bank for International Settlements for one month Euro-dollar deposits. In the event that the Bank for International Settlements does not quote rates for such deposits, the last available rate will apply until such rates become available. However, the Board may decide upon a substitute rate if necessary.

(b)   In the case of delayed payments referred to in Article VII section 2 of the Agreement and default referred to in section 3 of the same Article, interest for the period of delay or default shall be calculated by the Clearing Union at :

        (1)   one per cent per annum over the rate for the relevant settlement period or periods under sub-rule (a), or

        (2)   one per cent per annum over the rate applicable on the day of default under sub-rule (a), whichever is higher.

 

Notification of net position at the end of settlement period

At the end of each settlement period, the General Manager shall notify each participant by telex or cable of its net position and accrued interest, and of the amounts it shall pay to or receive from other participants.

 

Settlement of balances

(a)     Each debtor participant, within four working days of the receipt from the General Manager of the notice of the amounts to be paid, shall make the payment in U.S. dollar or in any other mutually acceptable currency, under telex or cable intimation to the General Manager.

(b)     If settlement is desired to be effected in a currency other than the US dollar, the participants shall, by mutual agreement, decide on the exchange rate to be made applicable for such settlement.

 

Obligation to accept net position advised by the General Manager

The net position at the end of the settlement period, as notified by the General Manager shall be accepted by every participant as correct and settlement shall be made accordingly. The participants shall, however, have the right to bring any discrepancy detected in such position to the notice of the General Manager as soon as possible thereafter for eventual rectification and further settlement, if necessary. Such rectification shall be made at the same rate of exchange at which the original settlement was made.

 

Default

In the event that a participant fails to make any payment notified to it by the General Manager under Rule 11 within the time specified, the provisions of Article VII, section 3, of the Agreement shall apply.

 

Amendment

Unless otherwise provided in the Agreement, these rules may be amended by a decision of the Board taken by a majority of the votes of all the Directors.

 

GIM - Revised instructions under GIM* 

Attention of authorised dealers is invited to the Notification No. FEMA 12/2000-RB dated 3rd May, 2000 viz. Foreign Exchange Management (Insurance) Regulations, 2000. The Memorandum of Exchange Control Regulations relating to General Insurance in India (GIM) since brought out is enclosed. The major changes in procedure as per the Memorandum are summarised in the Annexure.

 

Authorised dealers may bring the contents of this circular to the notice of their constituents concerned.

 

The Directions contained in this circular have been issued under section 10(4) and section 11(i) of the Foreign Exchange Management Act, 1999 (42 of 1999).

 

Major changes proposed in the revised GIM

 

Sr. No

Subject matter

Changes

1.

Scope of Memorandum

The earlier instructions of GIM covered only public sector general insurance companies. The present instructions contained in the Memorandum are applicable to public sector general insurance companies as well as general insurance companies which are registered with IRDA.

2.

Reinsurance Arrangement

The reinsurance arrangement of public sector general insurance companies registered with IRDA are to be decided by the respective Boards of the insurance companies and IRDA is to be kept informed. ADs designated by these insurance companies are now permitted to make remittances falling under such approved reinsurance arrangements without reference to the Bank.

3.

Remittance of Reinsurance

Premia by local brokers

ADs have been permitted to allow remittance of reinsurance premia by local brokers of insurance companies after verifying debit notes from the overseas insurance company, statement of account and CA’s certificate of broker certifying the sum etc.

4.

Foreign currency accounts abroad

Public sector general insurance companies and general insurance companies registered with IRDA are permitted to open, maintain and hold a foreign currency bank account with a bank outside India for the purpose of facilitating transactions and expenses relating/incidental to general insurance business undertaken in foreign countries.

5.

Settlement of claims in

foreign currency

For settlement of claims in foreign currency in respect of policies issued in foreign currency, insurance companies are now permitted to make remittances subject to certain condition as stipulated in the Memorandum, without reference to Reserve Bank as required in the past.

 

 

GIM Memorandum of exchange control regulations relating to general insurance in india

Introduction

General insurance business in India is undertaken by insurance companies which are registered with Insurance Regulatory and Development Authority (IRDA).

 

Scope of Memorandum

(i)         Exchange Control Regulations governing general insurance business written in India are set out in this Memorandum.

(ii)        Directions contained in this Memorandum have been issued under section 10(4) and section 11(1) of Foreign Exchange Management Act, 1999 (42 of 1999).

 

Definitions

For the purpose of this Memorandum, the terms “Person resident in India” and “Foreign Currency” will have the same meaning as defined under Foreign Exchange Management Act, 1999.

 

Bank Encashment Certificates

Where Insurers have been permitted to issue policies expressed in foreign currency against premium payable in foreign currency, they should insist on submission of suitable document to satisfy themselves that the premium has been received by foreign exchange remittance through banking channels or in rupees derived by sale of foreign exchange to an authorised dealer in foreign exchange or an authorised money-changer.

 

Direct Insurance outside India by Residents

Persons, firms, companies etc. resident in India are not permitted to take insurance cover of any kind with insurance companies in foreign countries without the prior permission of Reserve Bank. Besides, permission of Government of India under General Insurance Business (Nationalisation) Act, 1972, is also required to be taken in such cases.

 

Transaction in Nepal and Bhutan

Indians, Nepalese and Bhutanese resident in Nepal and Bhutan as well as offices and branches of Indian, Nepalese and Bhutanese firms, companies or other organisations in these two countries are treated as resident in India for purposes of transactions in Indian rupees. Payment of claims to such persons against marine or non-marine policies may be freely made in rupees. Payments in foreign currency towards claims under marine or non-marine policies will require prior approval of Reserve Bank, except where premiums thereon were also collected in foreign currency.

 

The Memorandum is divided into four parts as under

 

 

PART A

-

MARINE INSURANCE

 

PART B

-

NON-MARINE INSURANCE

 

PART C

-

REINSURANCE

 

PART D

-

FOREIGN CURRENCY ACCOUNTS AND

 

 

 

INVESTMENTS ABROAD

 

PART A

MARINE INSURANCE

 

Currency in which Marine Policies may be issued

(i)         Marine insurance policies on coastal shipments may be issued only in Indian rupees.

(ii)        Marine insurance policies on shipments between India and other countries as also between two points outside India may be issued in rupees or in any foreign currency.

 

Premiums on Marine Policies covering Exports

Payment of premium on a marine insurance policy on exports from India may be accepted in rupees provided exporter furnishes to the insurer a certificate to the effect either (a) that insurance charges on the shipment in question have to be borne by him in terms of contract with overseas buyer and that he is not making the payment on behalf of any non-resident or (b) that he is defraying insurance charges on the shipment in question on account of overseas buyer of the goods and he undertakes to add the amount on the invoice and recover the payment so made from the buyer in an approved manner.

NOTES: A. Overseas buyers may sometimes approach Insurers directly or through their overseas offices/agents for extension of cover for additional risks or for extended transit risks necessitated by circumstances not envisaged when the marine insurance was originally covered in India with the Insurers. Such extensions may be made by Insurers provided the additional premiums are collected from overseas buyers in foreign currency.

B. Certain countries operate restrictions requiring importers in their countries to obtain marine insurance cover from local insurers, settlement under which may not be possible in the event of cargo getting lost before reaching port of destination due to Exchange Control Regulations governing remittances against imports into those countries. Insurers may issue in such cases, contingency marine insurance policies to exporters to protect their interest till goods are paid for. The policies should be issued with a condition that they will not be assignable to overseas buyer or any other non-resident party. Claims on such policies should be paid only to exporters in India.

 

Premiums on Marine Policies covering Imports

(i)         Payment of premium on a marine insurance policy on imports into India may be accepted in rupees provided importer furnishes to the insurer a certificate to the effect that (a) the insurance charges are required to be borne by him in terms of the contract with the overseas seller and (b) where the import is made against an Import Licence, he undertakes to ensure that the amount of insurance premium is endorsed on the import licence in due course.

(ii)        In case of imports by the public sector (viz. Central Government, any State Government, Statutory or public bodies and Government undertakings), payment of insurance premium in rupees may be freely accepted.

(iii)       In all other cases, where payment of premium in respect of imports is offered in rupees, prior approval of Reserve Bank will be required. Applications for the purpose should be made by letter (in duplicate) furnishing full particulars.

 

Premiums on Marine Policies covering Shipments between Countries outside India

(i)         Premiums on marine insurance policies covering shipments between countries outside India must ordinarily be received in foreign currency, but payment in rupees may be accepted provided a certificate from an authorised dealer in foreign exchange is produced to show that the rupees are derived by a remittance from abroad in an approved manner.

NOTE : Overseas offices of the Insurers may grant marine insurance cover for trade between China and third countries and receive premium/settle claims through foreign currency accounts maintained by their overseas offices without prior approval of Reserve Bank.

(ii)        Sometimes, firms and companies in India finance merchanting trade i.e. goods shipped from one foreign country to another and financed by an intermediary in India. In some of these cases goods may be purchased on f.o.b./c.& f. terms and/or sold on c.i.f. terms, the marine insurance cover being arranged by the intermediary in India. Insurance companies registered with IRDA may issue policies covering transit risks between the loading and the destination ports in rupees or in any foreign currency in such cases, against payment of premium in rupees by the intermediary, after satisfying themselves that the contract provides for marine insurance being taken by the intermediary.

 

Claims against Marine Policies

Claims against marine insurance policies, when payable to persons, firms or companies in India should be paid only in rupees, irrespective of the currency in which relative policies had been issued. Where claimant is not a resident of India, Insurers may settle the claim out of foreign currency balances held by them, provided they are satisfied that ownership of the goods lost, damaged etc., vests in such claimant and that the latter is not making the claim merely as agent of the real owner of the goods in India.

 

Remittance of Claims on Exports

(i)         In the case of marine claims against exports, remittances of claim will be permitted by authorised dealers in foreign exchange on application on form A2 provided the Insurer has satisfied himself that the ownership of the goods on which claim has arisen vests in the non-resident claimant. Applications should be supported by following documents:

        (a)   Statement of claim duly certified by an official authorised by the insurance company registered with IRDA for this purpose.

        (b)   Insurance policy.

        (c)    Survey report or other customary proof of loss.

        (d)   Bill of lading/Airway bill.

        (e)   Certified copy of invoice.

        (f)     Any other documents ordinarily required to support the claim.

Where original documents are not available for any reason, photo copies may be produced to authorised dealer together with reasons for non-availability of the original documents. This provision does not apply to remittances for replenishment of foreign currency balances which will require specific approval of Reserve Bank.

NOTE : Insurers may settle claims in rupees in favour of Indian exporters even in cases where title to the goods has passed to foreign buyer, if a request to that effect has been made by the non-resident claimant. A certificate indicating full particulars of the transaction including number of relative GR/PP Form and amount paid in settlement of claim should be issued to the exporter to enable the latter to obtain necessary approval from Reserve Bank for making replacement shipments.

(ii)        Claims against marine insurance policies covering exports may also be settled through the overseas claims settling agents, if so desired by Insurers. Authorised dealers have been permitted to open revolving letters of credit in favour of established claims-settling agents abroad and reimburse claims under the credit on verification of the necessary documentary evidence viz. statement of claim, survey report or other documentary evidence of loss/damage, original policy or certificate of insurance etc.

 

Payment in Foreign Currency of certain Import Claims

Although it is a basic rule that marine claims on imports should be settled locally in rupees in favour of importer in cases where ownership of the goods lost, damaged, etc. vests in the importer, Insurers may settle claims from their foreign currency balances in favour of overseas suppliers in the following categories of imports, in order to facilitate early replacement of the lost, damaged, etc. goods, on request being received in this regard from importers:

        (a)           Imports by Government Departments and public sector undertakings

(b)           Imports by private sector undertakings against foreign credits provided the terms of the foreign credit require that insurance cover should be taken in foreign currency for replacement of lost/damaged goods.

        (c)            In all other cases, where the ownership of the goods lost/damaged, etc. vests with the overseas supplier and no payment has been made towards any part of the cost of the goods.

These provisions are applicable not only to marine policies, but also to marine-cum-erection policies, whether issued separately or combined.

 

Claims on Policies Covering Merchanting Trade

Claims arising from marine insurance policies covering merchanting trade financed through India may be settled by Insurers from their foreign currency balances only if—

        (a)           the ownership of the goods vests with the overseas party and

(b)           where the claim is proposed to be settled in favour of the overseas supplier, payment for the goods has not been made to the supplier and where claim is proposed to be settled in favour of the overseas buyer, payment for the goods has been received by the Indian intermediary from the buyer.

PART B

NON-MARINE INSURANCE

Assets in India

Insurance cover on risks inside India (including All Risks Insurance) on assets in India owned by residents of India may be issued only in rupees. This is also applicable to assets of Indian branches/offices of foreign companies, banks, etc.

 

Assets outside India

Non-marine risks in respect of assets outside India owned by residents of India may be covered in rupees or in foreign currency provided that in respect of immovable property held outside India by Indian nationals, permission of Reserve Bank for holding the property had been obtained, (where necessary). Settlement of claims under such policies should be made only in rupees locally. Foreign currency policies providing for payment of claims in foreign currency in the foreign country may, however, be issued only if the premiums are paid in foreign currency out of eligible foreign currency assets held by Indian nationals/persons of Indian origin who have returned to India from abroad after a minimum continuous stay abroad for at least one year or out of funds held in their RFC accounts with authorised dealers in India. Issue of foreign currency policies in other cases will require prior approval of Reserve Bank.

 

Policies in foreign currency approved by Reserve Bank- Settlement of claims

(i)         Request for issue of policies in foreign currency which are not covered by the above guidelines are examined on merits by RBI. For such requests where RBI grants specific approval for issue of policy in foreign currency, acceptance of premium in foreign currency and settlement of claim in foreign currency, insurers may approach A.D. for remittance of claims under policies subject to the following conditions :—

        (a)           the policy has been issued in foreign currency with specific approval of RBI;

        (b)           the claim has been admitted by the competent authority of the insurance company;

(c)            the claims has been settled as per the surveyors report and other substantiating documents;

(d)           claims on account of reinsurance are being lodged with the reinsurers and will be received as per reinsurance agreement;

(e)           the remittance is being made to the non-resident beneficiary under the policy. For resident beneficiaries the claim may be settled in Rupee equivalent of foreign currency due. Under no circumstances payment in foreign currency be made to a resident beneficiary.

(ii)        Insurers may submit, to the Regional Office of RBI under whose jurisdiction it operates, a report on quarterly basis of the claims settled in foreign currency along with supporting documents of each claim settled by them. These reports may be submitted within 15 days from the end of each quarter of the calendar year.

 

Baggage and Valuables in transit

(i)         Insurance cover on baggage or valuables in transit between India and other countries or between two countries outside India may be issued in rupees or in foreign currency.

(ii)        Premiums on such policies may be collected in rupees only if the owner of the baggage or other valuables is either an Indian national or is normally resident in India. In other cases, premiums should be received in foreign currency or in rupees derived by surrender of foreign currency to an authorised dealer in foreign exchange or authorised money-changer; such payments should be supported by a certificate from the authorised dealer/money-changer in the prescribed form.

(iii)       Claims on such policies may be paid only in rupees in India except where the policy holder is a person normally resident outside India and premiums against the policy had been collected either in foreign currency or in rupees derived by surrender of foreign currency. Remittances of claims in foreign currencies in other cases will require prior approval of Reserve Bank.

(iv)       Remittances towards claims on personal baggage reshipped from India by foreign nationals on completion of their assignments in India may be allowed by insurers, if they are eligible for or have been accorded remittance facilities at the time of retirement from India.

 

War etc. Risks Insurance on Marine Hulls

Insurance on Indian marine hulls covering All Risks against war and other allied risks arising out of civil commotion, political or labour disturbances etc. are required to be obtained from the Insurers in India only.

 

Personal Accident Insurance

Personal accident policies may be issued only in rupees and claims thereon settled only in rupees, in case of Indian nationals and persons of Indian origin normally resident in India. In other cases, personal accident policies may be issued in foreign currency, provided premiums thereon are paid either in foreign currency or in rupees derived by surrender of foreign currency to an authorised dealer or authorised money-changer. Claims in these cases may be settled in currency of the policy or in rupees as desired by the policy holder.

NOTE : Indian companies executing construction and turnkey contracts in foreign countries may at times desire to obtain personal accident cover from Indian Insurers for the workmen and technical staff actually engaged in the overseas contracts providing for settlement of claims in foreign currency. Insurers may permit such insurance being taken provided premiums will be paid by remittances in foreign currency from out of the foreign currency earnings generated by the contracts. Claims in such cases may be settled in foreign currency or if so desired, in rupees locally.