FEMA Regulations relating to
EXPORTS, IMPORTS AND
GUARANTEES
S.Durairajan, M.Sc., CAIIB, MBA, Ph.D
Professor of International Finance
DGM, RBI (Retd.), Chennai
22 December 2014@ICAI_SIRC
I. Export of Goods & Services
•RBI has notified FEMA (Export of
Goods and Services) Regulations, 2000
(the ‘Export Regulations’) vide
Notification No. FEMA 23/2000-RB
dated May 3, 2000
•Has to comply with Trade Policy
(Foreign Trade Policy 2009-14)
•DGFT role
Declaration
• EDF/SDF
• Exemption for certain categories
• Waiver from declaration – AD’s
powers
• ACU mechanism for ACU countries
• Third party payments for export /
import transactions
Invoicing & Realising Exp proceeds
•Invoicing: in freely convertible currency
or in Indian Rupees but
•Realisation:in freely convertible currency
•However, export proceeds against
specific exports may also be realised in
Rupees provided it is through a freely
convertible Vostro account of a nonresident bank
Realisation and Repatriation of proceeds
• Exporter to realise within a stipulated
period of 9 months (for all exporters
including SEZ, EOUs, STP, EHTP & Status
holders)from the date of export:
• Within 15 months from the DoS in r/o
Goods exported to a warehouse
established outside India ( As soon as it
is realised).
Setting up of Offices Abroad and Acquisition of
Immovable Property for Overseas Offices
• (i) initial expenses: up to 15% of the average sales/income
p.a. or turnover during the last two financial years or up to
25% of the NW, whichever is higher.
• (ii) Recurring expenses: up to 10% , may be sent for the
purpose of normal business operations of the office (trading /
non-trading) / branch or representative office outside India s/t
conditions:
• a. The overseas branch/office has been set up or
representative is posted for conducting normal business
activities of Indian entity;
• b. The overseas branch/office/representative shall not enter
into any contract or agreement in contravention of the Act,
Rules or Regulations made there under;
Offices Abroad
• It should not create any financial liabilities, contingent or
otherwise, for the HO in India and also not invest surplus funds
abroad without prior approval of the Reserve Bank. Any funds
rendered surplus should be repatriated to India.
• (iii) The details of bank accounts opened in the overseas country
should be promptly reported to the AD Bank.
• (iv) Such approved remittances can also be for acquisition of
immovable property outside India for its business and for
residential purpose of its staff.
• (v) The overseas office / branch of software exporter
company/firm may repatriate to India 100 per cent of the
contract value of each ‘off-site’ contract.
• (vi) In case of ‘on site’ contracts, they should repatriate the profits
of ‘on site’ contracts after the completion.
Advance Payments against Exports
• the shipment of goods is made within one year
from the date of receipt of advance payment;
• The RoI, if any, payable on the advance is not
more than LIBOR + 100 bps;
• the documents are routed through the AD bank
through whom the advance is received.
• no remittance towards refund of unutilized
portion of advance payment or towards payment
of interest, shall be made after the expiry of one
year, without the prior approval of the RBI.
Long term export advance
• Exporters having a min.of 3 yrs’ satisfactory track record can receive
long term export advance (up to 10 years max.) to be utilized for
execution of long term supply contracts for export s/t conditions :
• (i) Firm irrevocable supply orders and contracts should be in place @ prevailing international pricing .
• (ii) Company should have capacity, systems and processes - that the
orders over the said tenure can actually be executed.
• (iii) only to those entities, who have not come under the adverse
notice of ED or have not been caution listed.
• (iv) The RoI payable, should not exceed LlBOR plus 200 basis points.
• (v) The documents should be routed through one AD bank only. AD
should ensure compliance with AML / KYC guidelines .
• vi) Cannot be used to liquidate Rupee loans classified as NPA.
Export advance
• BG/SBLC for Export Performance – 2yrs at a
time and rolled over for another 2 yrs – not
more than the value of adv.on reducing
balance basis. No discounting of this L/C by
branch of Indian bank aborad.
• Advance Payment received for more than one
year s/t certain conditions – Bonafides,
KYC/AML, not more than LIBOR +100 bps, no
refund > 10%., no refund without RBI approval
Trade Fairs Exhibitions abroad
• EDF/SDF to be approved by ADs, certain conditions to
be complied with –export for display, can sell abroad,
can sell at discount and also could gift upto $5000 per
exporter
• B/E for re-import within one month of import
• Repatriation of sale proceeds, report to AD
• EDF/SDF approval for Export of Goods for re-imports
• re-import after repairs / maintenance / testing /
calibration
• Certificate of destruction during testing in lieu of B/E
Part Drawing/Undrawn balances
• due to differences in weight, quality, etc., to
be ascertained after arrival and inspection,
weighment or analysis.
• maximum of 10 % of the full export value.
• Undertake on EDF that he would realise
within the prescribed period of realisation
• AD to ensure that atleast 90% or drawn
amount is realised and one year has lapsed
Consignment exports
• AD instructs correspondent bank to deliver
shipping docs against Trust Receipt/undertaking
that sale proceeds would be paid within the
period for realisation
• Consignee to Render account sales; Deductions
should be supported by bills/receipts in original
• In case the goods are exported on consignment
basis, freight and marine insurance must be
arranged in India.
Opening / Hiring of Ware houses
abroad
• AD permits on application for one year,
renewable s/t conditions
• Applicant’s export outstanding does not exceed 5
per cent of exports made during the previous
financial year.
• Applicant has a minimum export turnover of USD
100,000/- during the last financial year.
• All transactions should be routed through the
designated branch of the AD Banks and realised
within the prescribed period.
Direct despatch by Exporter
• AD
despatches
to
overseas
brs/correspondent
• Occasionally
to
agents/consignees
provided there is ILC, or full advance
payment and ag’ment contains a clause
• Based on standing and track record of
exporter and Bank is satisfied that
arrangements have been made for
realisation. SHE/SEZ can directly despatch
s/to conditions.
Direct despatch by Exporter
• The duplicate copy of the EDF/SDF form is
submitted to the AD banks for monitoring
purposes, by the exporters within 21 days
from the date of shipment of export
• The export proceeds are repatriated through
the AD banks named in the EDF/SDF Form.
Direct despatch by exporter
• AD may regularize cases of dispatch of shipping documents by
the exporter direct to the consignee or his agent resident in the
country of the final destination of goods, up to USD 1 mio, per
export shipment, subject to the following conditions:
• The export proceeds have been realised in full.
• The exporter is a regular customer of AD bank for a period of at
least six months.
• The exporter’s account with the AD bank is fully compliant with
the Reserve Bank’s extant KYC / AML guidelines.
• The AD bank is satisfied about the bona-fides of the transaction.
• In case of doubt, the AD bank may consider filing Suspicious
Transaction Report (STR) with FIU_IND (Financial Intelligence
Unit in India).
Counter-Trade Arrangement
• = adjustment of value of goods imported into India against value of goods exported
from India, voluntarily entered into with overseas supplier
• through an Escrow Account opened in India in US Dollar will be considered by RBI
• All imports and exports under the arrangement should be at international prices in
conformity with the Foreign Trade Policy and Foreign Exchange Management Act,
1999 and the Rules and Regulations made there under.
• No interest will be payable on balances standing to the credit of the Escrow
Account but the funds temporarily rendered surplus may be held in a short-term
deposit up to a total period of 3 m (in a block of 12 months) and the banks may pay
interest at the applicable rate.
• No fund based/or non-fund based facilities would be permitted against the
balances in the Escrow Account.
• Application for permission for opening an Escrow Account may be made by the
overseas exporter / organisation through his / their AD bank to the Regional Office ,
Reserve Bank.
• For Romania: Indian exporter should utilize the funds for import of goods from
Romania into India within six months from the date of credit to Escrow Accounts.
1.Invoicing of Software Exports –
SOFTEX FORMS
2. Short/Shut-out Shipments
3. Project Exports and Service Exports
RBI approval cases
• Export of Goods on Lease, Hire, etc.
• Export on Elongated Credit Terms
• AD approval:
Export of goods by Special Economic Zones
(SEZs)
II. Imports of goods & services
Imports – General provisions
• Import, regulated by FTP, DGFT, GOI, RBI.
• ADs need not obtain any document, including
Form A-1, except a simple letter from the
applicant containing the basic information, as
long as the exchange being purchased is for a
current account transaction (not in Sch I & II)
when the amount does not exceed USD 5,000
and the payment is made by a cheque drawn on
the applicant's bank or by a Demand Draft.
Form A-1 for import remittances
• Applications by persons, firms and companies for
making payments, exceeding USD 5000 or its
equivalent, towards imports into India must be
made in Form A-1.
• ADs may freely open L/Cs and allow remittances
for import. (Except for goods in negative list)• ‘For Exchange Control purposes’ copy of the
Licence should be called for & after effecting
remittances banks may preserve the copies of
utilised licences till they are verified by the
internal auditors or inspectors.
Obligations of purchaser of FX
• In terms of Section 10(6) of the FEMA, 1999 the person
acquiring foreign exchange is permitted to use it either for the
purpose mentioned in the declaration made by him to AD or to
use it for any other permissible purpose.
• (ii) Where foreign exchange acquired has been utilised for import
of goods into India, AD should ensure that the importer furnishes
evidence viz., Exchange Control Copy of the Bill of Entry, Postal
Appraisal Form or Customs Assessment Certificate, etc., and
satisfy himself that goods have been imported.
• (iii) In addition to the permitted methods of payment for imports
laid down in Notification No.FEMA14/2000-RB dated 3rd May
2000, payment for import can also be made by way of credit to
non-resident Rupee account of the overseas exporter maintained
with a bank in India.
Time Limit for Settlement of Imports
• Remittances against imports should be completed
within six months from the date of shipment, except
where amounts are withheld towards guarantee of
performance, etc.
• (ii) AD banks may permit settlement of import dues
delayed due to disputes, financial difficulties, etc.
Interest in respect of delayed payments, usance bills or
overdue interest for a period of less than three years
from the date of shipment.
• Time Limit for Deferred Payment Arrangements – Trade
Credit guidelines – under ECB
• No Time Limit for Import of Books.
Import of Foreign Exchange into India
• Any amount of foreign exchange can be brought into India,
s/t declaring it in the CDF to the Custom Authorities at the
Airport. No CDF if the amount TC/Cy <= $10000, and/or the
aggregate value of foreign currency notes (cash portion)
alone brought in by such person at any one time does not
exceed USD 5,000 .
• Import of Indian Currency and Currency Notes
• Any person resident in India who had gone out of India on a
temporary visit, may bring into India at the time of his
return from any place outside India, Indian currency notes
up to an amount Rs.10,000/- per person.
• (ii) A person may bring into India from Nepal or Bhutan,
currency notes of denominations of less than Rs.100 only.
Third Party Payment for Import
Transactions
• AD banks are allowed to make payments to a third party for import
of goods, s/t conditions:
• a. Firm irrevocable purchase order / tripartite agreement should be
in place. However this requirement may not be insisted upon in case
where documentary evidence for circumstances leading to third
party payments / name of the third party being mentioned in the
irrevocable order / invoice has been produced.
• b. AD bank should be satisfied with the bonafides of the
transactions and should consider the Financial Action Task Force
(FATF) statement before handling the transactions;
• c. The Invoice & B/E should contain a narration that the related
payment has to be made to the (named) third party;
• d. Importer should comply with the extant instructions relating to
imports including those on advance payment being made for import
of goods.
Advance Remittance
• (i) AD may allow advance remittance for import of goods
without any ceiling s/t conditions:
• (a) If the amount of advance remittance exceeds USD 200,000
or its equivalent, an unconditional, ISBLC or a guarantee from
an international bank of repute situated outside India or a
guarantee of an AD bank India, if such a guarantee is issued
against the counter-guarantee of an international bank of
repute situated outside India, is obtained.
• (b) In cases where the importer (other than a Public Sector
Company or a Department/Undertaking of the Government of
India/State Government/s) is unable to obtain bank guarantee
from overseas suppliers and the AD is satisfied about the track
record and bonafides of the importer, the requirement of the
bank guarantee / standby Letter of Credit may not be insisted
upon for advance remittances up to USD 5,000,000 .
Adv. Rem.
• AD may frame their own internal guidelines to deal
with such cases as per a suitable policy framed by the
bank's Board of Directors.
• (c) A Public Sector Company or a department/Utg. of
the GOI / State Government/s which is not in a position
to obtain a guarantee from an international bank of
repute against an advance payment, is required to
obtain a specific waiver for the bank guarantee from
the Ministry of Finance, GOI before making advance
remittance exceeding USD 100,000.
• (ii) All payments towards advance remittance for
imports shall be subject to the specified conditions.
AR for the Import of Services
• AD bank may allow remittance for import of services without any
ceiling subject to the following conditions:
• (a) Where the advance is >USD 500,000 or its equivalent, a g’tee
from a bank of international repute situated outside India, or a
g’tee from an AD in India, if such a guarantee is issued against the
counter-guarantee of a bank of international repute procured by
supplier.
• (b) Usual restriction for PSU, for AR > $100000 without BG. –
Ministry of Finance approval.
• (c) AD should also follow-up to ensure beneficiary of the advance
remittance fulfils his obligation under the agreement with the
remitter in India, failing which, the amount should be repatriated to
India.
Interest on Import Bills
• (i) AD bank may allow payment of interest on usance
bills or overdue interest for a period of less than three
years from the date of shipment at the rate prescribed
for trade credit from time to time.
• (ii) In case of pre-payment of usance import bills,
remittances may be made only after reducing the
proportionate interest for the unexpired portion of
usance at the rate at which interest has been claimed or
LIBOR, whichever is applicable.
• Where interest is not separately claimed or expressly
indicated, remittances may be allowed after deducting
the proportionate interest for the unexpired portion of
usance at the prevailing LIBOR of the currency.
Remittances/G’tees against
Replacement Imports
• Where goods are short-supplied, damaged, short-landed or lost
in transit and the EC Copy of the import licence has already been
utilised to cover the opening of LC against the original goods
which have been lost, the original endorsement to the extent of
the value of the lost goods may be cancelled by AD and fresh
remittance for replacement allowed, provided, the insurance
claim relating to the lost goods has been settled in favour of the
importer. It may be ensured that the consignment being replaced
is shipped within the validity period of the license.
• In case replacement goods for defective import are being sent by
the overseas supplier before the defective goods imported
earlier are reshipped out of India, AD may issue G’tees for
dispatch/return of the defective goods, according to their
commercial judgment.
Receipt of Import Bills/Documents
• Import of Equipment by Business Process
Outsourcing (BPO) Companies for their
Overseas Sites – ICCs
• Receipt of Import Bills/Documents
• Import bills and documents should be
received from the banker of the supplier by
the banker of the importer in India. AD should
not, therefore, make remittances where
import bills have been received directly by the
importers, except in the following cases:
Receipt of import documents by the importer
directly from overseas suppliers
• (i) Where the value of import bill does not exceed USD
300,000.
• (ii) Import bills received by wholly-owned Indian
subsidiaries of foreign companies from their principals.
• (iii) Import bills received by SHE as defined in the FTP,
100% EOU/ Units in SEZ, PSUs/ and Limited Companies.
• Sector specific measure: AD permitted to allow
remittance for imports up to USD 300,000 where the
importer of rough diamonds, rough precious and semiprecious stones has received the import bills /
documents directly from the overseas supplier and the
d/e import is submitted by the importer at the time of
remittance. Subject to conditions:
Receipt of import documents by the
importer directly/by AD directly
• (i) The import would be subject to the prevailing FTP.
• (ii) The transactions are based on their commercial judgment and they are
satisfied about the bonafides of the transactions.
• (iii) AD should do the KYC and due diligence exercise and should be fully satisfied
about the financial standing / status and track record of the importer customer.
Before extending the facility, they should also obtain a report on each individual
overseas supplier from the overseas banker or reputed overseas credit rating
agency.
• Receipt of import documents by the AD directly from overseas suppliers
• (i) At the request of importer, provided the AD is fully satisfied about the financial
standing/status and track record of the importer customer.
• (ii) Before extending the facility, the AD should obtain a report on each individual
overseas supplier from the overseas banker/reputed overseas credit agency.
However, such credit report on the overseas supplier need not be obtained in
cases where the invoice value does not exceed USD 300,000 provided the AD is
satisfied about the bonafides of the transaction and track record of the importer.
Evidence of Import - Physical Imports
• (i) If Rem. exceeds USD 100,000 or its equivalent, it is obligatory on
the part of the AD to ensure that the importer submits :• (a) EC copy of B/E for home consumption, or
• (b) EC copy B/E for warehousing, in case of 100% EOU/ or
• (c) Customs Assessment Certificate or Postal Appraisal Form, as
declared by the importer to the Customs Authorities, where import
has been made by post, as evidence that the goods for which the
payment was made have actually been imported into India.
• (ii) For imports on D/A basis, AD should insist on production of
evidence when effecting remittance. However, if importers fail to
produce documentary evidence due to genuine reasons such as
non- arrival of consignment, delay in delivery/ customs clearance of
consignment, etc., AD may, if satisfied, allow reasonable time, upto
3 months from the date of remittance, to the importer.
Evidence in Lieu of Bill of Entry
• (i) AD may accept, in lieu of EC copy B/E, a certificate from the
CEO or auditor of the company that the goods for which Rem.
was made, have actually been imported into India provided :• (a) The amount of foreign exchange remitted is less than USD
1,000,000 .
• (b) The importer is a company listed on a stock exchange in India
and whose net worth is not less than Rs.100 crore as on the date
of its last audited balance sheet, or, the importer is a public sector
company or an undertaking of the Government of India or its
departments.
• (ii) The above facility may also be extended to autonomous
bodies, including scientific bodies/academic institutions, such as
IISc/IITs whose accounts are audited by CAG. AD to insist on a
declaration from the auditor/CEO to this effect.
Non-physical Imports, Issue of Ack. And
Verification and Preservation
• (i) Software or data through internet / datacom channels and
drawings and designs through e-mail / fax, a certificate from a CA
that it has been received by the importer, may be obtained.
• (ii) AD should advise importers to keep Customs Authorities informed
of the imports made by them under this clause.
• Ii) AD should acknowledge receipt of evidence of import e.g. EC copy
B/E, Postal Appraisal Form or Customs Assessment Certificate, etc.,
from importers by issuing acknowledgement slips containing all
relevant particulars relating to the import transactions.
• iii) Internal inspectors or auditors (including external auditors
appointed by AD) should carry out verification of the documents
evidencing import.
• (ii) D/e for import should be preserved by AD for a period of one
year from the date of its verification. In respect of cases which are
under investigation , till it is complete.
Follow-up for Import Evidence
• (i) Evidence of import for > $100000, within 3 m from date of
remittance, AD to rigorously follow-up for the next 3 months.
• (ii) AD should forward a statement on half-yearly basis as at the
end of June & December of every year, in form BEF furnishing
details of import transactions, to the Regional Office of Reserve
Bank under whose jurisdiction the AD is functioning, within 15
days from the close of the half-year to which the statement
relates.
• (iii) AD need not follow up submission of evidence of import
involving amount of USD 100,000 or less provided they are
satisfied about the genuineness of the transaction and the
bonafides of the remitter. A suitable policy may be framed by
the bank's Board of Directors and AD may set their own internal
guidelines to deal with such cases.
Merchanting Trade
In Merchanting Trade following conditions should be satisfied:
a. Goods acquired should not enter the Domestic Tariff Area and
b. The goods should not undergo any transformation.
AD may handle bonafide MT Transactions and ensure that:
(a) All regulations and directions applicable to export (except
Export Declaration Form) and import (except Bill of Entry) are
complied with.
• (b) Both the legs of a Merchanting Trade Transaction are routed
through the same AD.
• The bank should verify the documents like invoice, packing list,
transport documents and insurance documents (if originals are
not available, Non-negotiable copies duly authenticated by the
bank handling documents may be taken) and satisfy itself about
the genuineness of the trade.
•
•
•
•
•
Merchanting Trade ..2
• (c) The entire Merchanting Trade Transactions should be
completed within an overall period of nine months and there
should not be any outlay of foreign exchange beyond four
months.
• (d) The commencement of Merchanting Trade would be the
date of shipment /export leg receipt or import leg payment,
whichever is first. The completion date would be the date of
shipment / export leg receipt or import leg payment,
whichever is the last;
• (e) Short-term credit either by way of suppliers' credit or
buyers' credit will be available for MT transactions, to the
extent not backed by advance remittance for the export leg,
including the discounting of export leg LC by an AD bank, as in
the case of import transactions ;
Merchanting Trade ..3
• (f) In case advance against the export leg is received by the
Merchanting Trader, AD bank should ensure that the same is
earmarked for making payment for the respective import leg.
However, AD bank may allow short-term deployment of such
funds for the intervening period in an interest bearing account;
• (g) Merchanting Traders may be allowed to make advance
payment for the import leg on demand made by the overseas
seller. In case where inward remittance from the overseas buyer
is not received before the outward remittance to the overseas
supplier, AD bank may handle such transactions by providing
facility based on commercial judgement. It may, however, be
ensured that any such advance payment for the import leg
beyond USD 200,000/- per transaction, the same should be paid
against Bank Guarantee / LC from an international bank of
repute, except in cases and to the extent where payment for
export leg has been received in advance;
Merchanting Trade..4
• (h) L/C to the supplier is permitted against confirmed export order keeping in
view the outlay and completion of the transaction within nine months;
• (i) Payment for import leg may also be allowed to be made out of the balances
in Exchange Earners Foreign Currency Account (EEFC) of the Merchant Trader.
• (j) AD bank should ensure one-to-one matching in case of each Merchanting
Trade transaction and report defaults in any leg by the traders to the
concerned Regional Office of RBI, on half yearly basis within 15 days from the
close of each half year, i.e. June and December.
• (k) The names of defaulting Merchanting Traders, where outstanding reaches
5% of their annual export earnings, would be Caution-listed.
• (l) The KYC and AML guidelines should be observed by the AD bank.
• The Merchanting Traders have to be genuine traders of goods and not mere
financial intermediaries. Confirmed orders have to be received by them from
the overseas buyers. AD banks should satisfy themselves about the
capabilities of the Merchanting Trader to perform the obligations under the
order. The overall Merchanting Trade should result in reasonable profits to the
Merchanting Trader.
III. Issue of Guarantees under FEMA
G’tees are governed by FEMA
(Guarantees) Regulations, 2000
• In terms of Regulation 4 of the Foreign
Exchange Management (Guarantees)
Regulations,
2000,
notified
vide
Notification No. FEMA 8/2000-RB dated
May 3, 2000, AD Category – I banks have
been permitted to issue guarantees on
behalf of exporter clients on account of
exports out of India subject to specified
conditions.
1. Bid bonds and performance bonds or
guarantees for exports
• AD banks have the permission to
give performance bond or
guarantee in favour of overseas
buyers on account of bona fide
exports from India.
• (RBI approval needed in the case
of caution-listed exporters)
Precautions
• Before issuing any such guarantees, AD banks
should satisfy themselves with the bona fides of
the applicant and
• his capacity to perform the contract and also
that the value of the bid/ guarantee as a
percentage of the value of the contract/ tender
is reasonable
• and according to the normal practice in
international trade, and
• the terms of the contract are in accordance
with FEMA Regulations.
2. Counter-guarantees & IATA
• 1. In cases where guarantees of only resident banks are
acceptable to overseas buyers (in accordance with local
laws/ regulations) AD banks, can also, issue counter-g’tees
in f/o of their branches/ correspondents abroad in cover of
guarantees required to be issued by them, on behalf of
Indian exporters,
• 2. AD banks in their ordinary course of business can issue
g’tees in f/o of the foreign airline companies/IATA on behalf
of Indian agents of foreign airline companies, who are
members of IATA, in connection with their ticketing
business.
3. Issue of BG on behalf of Service Importers
• AD Category-I banks are now permitted to issue guarantee for
amount not exceeding USD 500,000 or its equivalent in favour of
a non-resident service provider, on behalf of a resident customer
who is a service importer, provided:
• (a) the AD is satisfied about the bonafides of the transaction;
• (b) the AD bank ensures submission of documentary evidence
for import of services in the normal course; and
• (c) the guarantee is to secure a direct contractual liability arising
out of a contract between a resident and a non-resident.
• (d) a Public Sector Company or a Department/ Undertaking of
the Government of India/ State Governments, approval from the
Ministry of Finance, Government of India for issue of guarantee
for an amount exceeding USD 100,000 would be required.
4. Issue of BG-commodity hedging
• An AD bank may give G’tee or SbyLC in
respect of an obligation incurred by a
person resident in India and owed to a
person resident outside India in
connection with payment of margin money
in respect of approved commodity hedging
transaction of such person residing in India
subject to terms and conditions as may be
stipulated by RBI.
Invocation of guarantee
• In case of invocation, give detailed
report to RBI CO. FED, EPD
5. Other stipulations
• ADs encouraged by Export
Performance G’tee of ECGC
• 90% ECGC cover, if No cash margins
• Other cases, reasonable cash margins
• Separate limits for issue of BG for bid
bonds
6. Unconditional G’tees in f/o of O/s
Employers/Importers
• Banks entitled to make payment;
exporter to seek legal remedy in case
of disputes; Non-honouring of BGs is
not viewed favourably and puts
Indian banks in bad light –so suitable
clauses are added while agreeing
with exporters, to issue such G’tees.
7. Certain precautions in case of PEX
• Wkg Group – Regulatory-Post-bid package approval
• AD banks – Responsible - examine the project proposals
thoroughly with regard to the capacity of the
contractor/ sub-contractors, protective clauses in the
contracts, adequacy of security, credit ratings of the
overseas sub-contractors, if any, etc.
• the export projects should be given more attention, in
view of their high value and the possibilities of forex
losses in case of failure, apart from damage to the
image of Indian entrepreneurs.
• Bid bonds and PG should not be given as a matter of
routine but after careful assessment and subject to
post award monitoring and follow-up.
8. Guarantees for Export Advance
• Banks should, be careful while extending guarantees against
export advances-to ensure that no violation of FEMA regulations
takes place and banks are not exposed to various risks. It will be
important to carry out due diligence and verify the track record
of such exporters to assess their ability to execute export orders.
• ADs have been allowed to issue guarantees in respect of a debt,
obligation or other liability incurred by an exporter, on account
of exports from India, intended to facilitate execution of export
contracts by the exporter and not for other purposes.
• It has, however, been found that some exporter borrowers are
using export advances, received on the strength of guarantees
issued by Indian banks, for repayment of loans availed of from
Indian banks. This is a clear violation of FEMA instructions.
• Banks should ensure -export advances received are in
compliance with the FEMA regulations/ directions.
9. Other Guarantees regulated by Foreign
Exchange Management Rules
• i. Minor Guarantees –
- in the ordinary course of business, in respect of
missing or defective documents, authenticity of
signatures and for similar other purposes.
• ii. Bank Guarantees - Import under Foreign
Loans/Credits
•
iii. Guarantees for Non-Residents
9a.i. Trade Credits for imports into
India – Issue of Guarantees
• Applications for providing guarantees/
standby letters of credit or letters of
comfort by banks relating to ECB in the
case of SMEs and by textile companies for
modernization or expansion of the textile
units, will be considered by the Reserve
Bank on merit under the Approval Route,
subject to prudential norms.
9a.ii. G’tees for Trade credits
• Suppliers’ or Buyers’ credit for maturity of
less than three years is ‘trade credit’ for
imports.
• For more than 3 years maturity, covered by
ECB guidelines
• AD can approve Trade credits upto USD 20
mio for maturity of upto 1 year for normal
imports and upto 3 years in r/o capital
goods imports; no rollover or extension.
9a.iii. G’tees/LoU/LoC in f/o of o/s supplier
• ADs can issue G’tees/LoU/LoC in f/o of overseas
supplier, bank and financial institution up to USD 20
million per import transaction;
• for a period up to 1 yr for import of all non-capital
goods permissible, under the Foreign Trade Policy
(except gold) and
• up to 3 years for import of capital goods, subject to
prudential norms issued by the RBI from time to
time. The period of such guarantees/LoUs/LoCs has
to be co-terminus with the period of credit,
reckoned from the date of shipment.
10. Loans abroad against securities in India
• In terms of Regulation 4(2) of Notification No.
FEMA.8/2000-RB dated May 3, 2000,
• an AD may give guarantee in respect of any
debt, obligations or other liability incurred by
a person resident outside India, among others,
where such debt, obligation or liability is owed
to a person resident in India for a bona fide
trade transaction,
• provided that G’tee is covered by a counter
guarantee of a bank of international repute.
11 Guarantees for non-residents
• ADs may give on behalf of their overseas
branches/ correspondents or a bank of
international repute, guarantees/ performance
bonds in favour of residents of India in
connection with genuine transactions involving
debt, liability or obligation of non-residents,
provided the bond/ guarantee is covered by a
counter-guarantee of the overseas Head Office/
branch/ correspondent or a bank of
international repute situated abroad.
Guarantees for non-residents (b)
• ADs should ensure that counter-guarantees are properly
evaluated and their own guarantees against such
guarantees are not issued in a routine manner. Before
issuing a guarantee against the counter-guarantee from an
overseas Head Office/branch/ correspondent/ bank of
international repute, banks should satisfy themselves that
the obligations under the counter-guarantee, when invoked,
would be honoured by the overseas bank promptly.
• If the AD desires to issue guarantee with the condition that
payment will be made, provided reimbursement has been
received from the overseas bank which had issued the
counter-guarantee, this fact should be clearly made known
to the beneficiary in the guarantee document itself.
Guarantees for non-residents (c)
• ADs to make rupee payments to the resident
beneficiaries immediately when the guarantee
is invoked and, simultaneously, arrange to
obtain the reimbursement from the overseas
bank concerned, which had issued the
counter-guarantee.
• Cases where payments are not received by the
AD banks when the g’tees of overseas banks
are invoked, should be reported to RBI
indicating the steps being taken by the bank to
recover the amount due.
Guarantees for non-residents (d)
• ADs may issue guarantees in favour of overseas
organisations issuing travellers cheques in respect of
blank travellers cheques stocked for sale by them or on
behalf of their constituents who are full-fledged money
changers holding valid licenses from Reserve Bank,
subject to suitable counter-guarantee being obtained
from the latter.
• AD bank is permitted to issue bank guarantee, without
prior approval of the Reserve Bank, on behalf of a nonresident acquiring shares or convertible debentures of
an Indian company through open offers / delisting / exit
offers, s/t certain conditions:
12. Guarantee on behalf of WOSs/JVs abroad
• (i) An Indian party may have financial commitment to its overseas
JV / WOS to the limit, as prescribed by the Reserve bank from time
to time, of the net worth of the Indian party as on the date of the
last audited balance sheet. The financial commitment may be in
the form of
• (a) capital contribution and loan to the JV / WOS;
• (b) corporate guarantee (only 50 percent value in case of
performance guarantee) and / or bank guarantee (which is backed
by a counter guarantee / collateral by the Indian party) on behalf
of the JV / WOS and
• (c) charge on immovable / movable property and other financial
assets of the Indian party (including group company) on behalf of
JV / WOS.
13. Non-resident Guarantee for Non-fund based
Facilities entered between Two Resident Entities
• Both for fund based and non-fund based
transactions between two Residents, on
the back of G’tee by a Non resident.
• On invocation, the NR would have to pay
– the Resident Principal Debtor is
permitted to remit the money to the NR
s/t certain conditions like maturity,
reporting to RBI etc.
Any Questions??
Thank you!
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