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Ministry of Finance
RBI (Act of 1934)
Scheduled Commercial Bank (2 nd
Status of RBI Act, 1934)
ECGC (Set up in 1957)
Exim Bank (Exim Bank Act, 1981)
FEDAI, BSCBI, IBA etc.

LEGAL FRAMEWORK
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Umbrella Acts
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Reserve Bank of India Act, 1934 : governs the Reserve Bank functions
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Banking Regulation Act, 1949: governs the financial sector

LEGAL FRAMEWORK
Export trade is regulated by DGFT and Banks may conduct export transactions in conformity with - FTP in vogue & rules of GOI/RBI and powers sub-section (3)of sec 7 & sub-section(2) of sec 47 of FEMA as notified in FEMA 23/2000-RB dated
May 3, 2000

LEGAL FRAMEWORK
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Acts governing specific functions
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Public Debt Act, 1944/Government Securities Act
(Proposed): Governs government debt market
Securities Contract (Regulation) Act, 1956:
Regulates government securities market
Indian Coinage Act, 1906 : Governs currency and coins
Foreign Exchange Regulation Act, 1973/ Foreign
Exchange Management Act, 1999 : Governs trade and foreign exchange market
"Payment and Settlement Systems Act, 2007 :
Provides for regulation and supervision of payment systems in India”

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Acts governing Banking Operations
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Companies Act, 1956:Governs banks as companies
Banking Companies (Acquisition and
Transfer of Undertakings) Act, 1970/1980:
Relates to nationalisation of banks
Bankers' Books Evidence Act
Banking Secrecy Act
Negotiable Instruments Act, 1881

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Acts governing Individual Institutions
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State Bank of India Act, 1954
The Industrial Development Bank (Transfer of
Undertaking and Repeal) Act, 2003
The Industrial Finance Corporation (Transfer of
Undertaking and Repeal) Act, 1993
National Bank for Agriculture and Rural
Development Act
National Housing Bank Act
Deposit Insurance and Credit Guarantee
Corporation Act

EXPORT FINANCE
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Pre-shipment Finance
Documents required :
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Confirmed export order or L/C
Undertaking that advance will be utilised for procuring / manufacturing / shipping of goods
If sub-supplier undertaking from exporters that packing credit would not be taken unless packing credit is liquidated.
Copy of IEC Code / RCMC etc., ECGC document, if any

EXPORT FINANCE
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Post Shipment Finance (provided on presenting shipping documents to the bank)
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The post shipment finance can be classified as :
Export Bills purchased/discounted (under DP or
DA basis)
Export Bills negotiated (under L/C)
Advance against export bills sent on collection basis.
Advance against export on consignment basis
Advance against undrawn balance on exports
Advance against claims of Duty Drawback.

EXPORT FINANCE
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Handling of documents
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(i) Checklist of documents to be submitted to banks for negotiation or collection of export bills:
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Shipping B/L or AWB
Insurance Policy
Invoice
Packing List
Certificate of Origin
GR/SDF Form
Bill of Exchange

(ii) Scrutiny of documents by banks and transmitting to foreign correspondent bank abroad for presentation to the drawee.
(iii) On receipt of payment advice, banks credit exporters’ account with rupee equivalent to the foreign currency amount at market TT buying rates.

EXPORT FINANCE
(iv) On payment / retirement of Export
Bill, the relative GR Form has to be submitted to the RBI by the bank.
(v) In case the payment is not received on due date (credit advice from the overseas correspondent branch then the liability of the exporter is converted into rupee liability known as crystallization of the bill.

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Salient points
(i) No restriction on invoicing in Indian rupees
There is no restriction on invoicing of export contracts in Indian Rupees in terms of the Rules, Regulations,
Notifications and Directions framed under the Foreign
Exchange Management Act 1999. Further, in terms of
Para 2.40 of the Foreign Trade Policy:
"All export contracts and invoices shall be denominated either in freely convertible currency or in
Indian Rupees but export proceeds shall be realised 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 non-resident bank situated in any country, other than a member of the ACU or Nepal or
Bhutan".

Master Circular on Export of Goods and
Services – 1.7.2010
( ii) Declaration for Exports
Declaration as regards export of goods & services (Section 7 Regulation 3 of FEMA except in the case of Nepal and Bhutan)
(iii) Exemption From Export Declaration (Reg 4)
- Trade samples
- Goods or S/W not exceeding US $25,000
- Gifts not exceeding Rs.5 lakhs.
- Upto 2% of avr. annual exports for preceding 3 years subject to ceiling of Rs.5 lakhs for Non status holders and Rs.10 lakhs in case of status holders.
- Re-export of imported items to EHTP/STP/EOUs/
SEZs etc.

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Bank draft, pay order, banker's or personal cheques.
Foreign currency notes/foreign currency travellers’ cheques from the buyer during his visit to India.
Payments out of FCNR/NRE account maintained by the buyer
International Credit Cards of the buyer.

Trade transactions can also be settled in the following manner:
1.
Indian Rupees
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Routed through the ACU mechanism

Exchange Earner’s Foreign Currency
(EEFC) Account
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Account opened by resident of India in foreign currency
Credit 100% of their foreign exchange earnings in EEFC account
Non- interest bearing current account
No credit facility against security balances

 The eligible credit represents: a.Inward remittance received through normal banking channel b.Payment received in foreign exchange by a unit in Domestic Tariff Area for supplying goods to a unit in SEZ
 The exporter constituents may extend trade related loan/advances to overseas importers without any ceiling
 Exporters may repay packing credit advances in their EEFC account

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2.
Remittance towards initial expense upto 15% of average annual sales/income or turnover during last two financial years
Remittance towards recurring expense upto 10% of average annual sales/income or turnover during last two financial years subject to following conditions a. Overseas branch has been set up b. Overseas branch shall not enter into contract or agreement in contravention of the act, rules made there under c.
Overseas office should not create any financial liabilities for HO in India d. Overseas office shall also not invest surplus funds abroad

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Company may be allowed to acquire immovable property outside India for business & residential purpose
Overseas branch of software exporter may repatriate to India 100% of the contract value of each ‘off-site’ contract
Companies taking up onsite contract should repatriate profits after completion of contract
Audited yearly statement for the overseas office may be sent to AD Category-I Banks with details of expenses and repatriation

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Exporter receiving advance payment from buyer outside
India is under obligation to ensure that:
• Ship goods made within one year from date of receipt of advance payment
• ROI payable does not exceed London Inter Bank Offered
Rate + 100 basis points
• Documents covering shipment are routed through bank
If exporter is unable to make shipment, no remittance towards refund of unutilized portion of advance would be made after expiry of one year without prior approval of RBI
Prior approval of RBI required for export agreements for shipment of Goods extending beyond one year
Banks may allow purchasing Foreign Exchange from market for refunding advance payment

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For goods exported on consignment basis:
• AD Category-I banks should instruct its overseas branch to deliver shipping documents only against trust receipt/undertaking
• The consignees may deduct from sale proceeds expenses towards receipt, storage and sale of goods and remit the net proceeds to exporter
• Deduction in account sales should be supported by bills/receipts in original
• For consignment exports, freight and marine insurance must be arranged in India

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Permission for opening/hiring warehouses abroad may be given subject to following conditions:
• Export outstanding does not exceed 5% of exports during previous financial year
• Minimum export turnover of USD 1 lakh during last
Financial year
• All assignment should be routed through designated branch
• Permission may be granted initially for one year and if applicant satisfies all requirements, renewal may be given
• Banks should maintain records of permissions/approvals

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Direct dispatch of documents by exporter
Banks may dispatch shipping documents to consignee directly in cases where:
• Advance payment or irrevocable letter of credit has been received for full value of export shipment and sale contract provides for dispatch of documents direct to consignee or his agent in the country of final destination of goods
• The exporter is a regular customer with good track record and arrangement has been made for realization of export proceeds
• Documents are accompanied with declaration by exporter that they are more than Rs 25000/- in value and not declared on GR/SDF/PP/SOFTEX form
Banks may also permit “Status Holder Exporters and units in SEZ to dispatch export documents to consignee outside India with condition that:
• Export proceeds are repatriated through AD banks named in GR forms
• Exporter has to submit duplicate copy of GR form within 21 days from date of shipment
Banks may regularize dispatching shipping documents direct to consignee for cases upto USD 1 million or equivalent, per export shipment if:
• Export proceeds have been realised in full
• Exporter is regular customer of AD bank for atleast 6 months
• Exporter’s account is fully compliant with RBI’s exant KYC/AML guideline
• AD bank is satisfied about bonafides of transaction

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For long duration contracts exporter should bill overseas client periodically
Last invoice should be raised not later than 15 days from date of completion of contract
Exporter should submit combined SOFTEX form for all invoices raised for particular client, including advance remittances received in a month
Contracts involving ‘one shot’ operation should be billed within 15 days from transmission date
Exporter should submit declaration in Form SOFTEX in triplicate in respect of export of computer software and audio/video/TV software for valuation not later than 30 days from date of invoice

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Short shipments
• When part of a shipment covered by a GR form is short shipped, exporter must give notice to customs in prescribed manner
• Incase of delay in obtaining certified short-shipment from customs, exporter should give undertaking to the
AD banks that notice has been filed and will be furnished as soon as it is obtained
Shut out shipments
• For entirely shut out shipment, exporter will give notice in duplicate to customs, with unused copy of GR form attached
• Customs will verify the facts and certify the copy of notice as correct and forward to RBI with unused duplicate copy of GR form. Original GR form received earlier from customs will be cancelled and if shipment is subsequently made, a fresh set of GR form should be completed

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RBI will consider those counter trade proposal, which involve adjustment of value of goods imported into India against value of Goods exported from India in an arrangement voluntarily entered into between Indian Party and overseas party through an Escrow account opened in India in US dollar
All imports and exports under arrangement should be at international prices in conformity with FTP and FEMA
No interest will be payable on balances standing to credit of Escrow account, funds rendered surplus maybe held in short term deposit for total of 3 months in a year and bank may pay interest at applicable rate
No fund based/or non-fund based facilities would be permitted against the balances in the Escrow account
Application for opening Escrow account can be routed through AD category-I bank to regional office concerned of RBI

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Units in SEZ are permitted to undertake job work abroad and export goods from that country subject to conditions that:
• Processing/manufacturing charges are suitably loaded in export price and are borne by the ultimate buyer
• Exporter has made satisfactory arrangements for realisation of full export proceeds subject to usual
GR procedure

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Project exports are export of engineering goods on deferred payment terms, execution of turnkey projects and civil construction contracts abroad are collectively called ‘Projects Exports’.
Such projects need approval of AD category-I banks/EXIM Bank/Working Group at post- award stage before execution of contracts
These contracts are governed by Memorandum of instructions on Project and Service Exports (PEM-October
2003)
To provide greater flexibility to these projects, following guidelines have been modified:
• Inter-project transfer of machinery
• Inter project transfer of funds
• Deployment of temporary cash surpluses
• Repatriation of funds in case of On -site software contracts

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Ads to closely watch realisationof bills
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Extension requests should be reported to RBI
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To submit XOS statement to RBI on half yearly basis

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Ads can approve reduction in invoice value after the bills is negotiated or sent for collection
Reduction should not exceed 25% of invoice value
Exporter is not caution listed
Exporter to be advised to surrender proportionate export incentives
Exporters of over 3 years of export business may be permitted for write of without ceiling provided the export outstanding does not exceed 5% of the average annual realisation during the preceding 3 years

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All exporters permitted write off and reduction of invoice value and extend the period of realisation beyond 180 days provided
The aggregate value of such export bills written off does not exceed 10% of the export proceeds due during the calendar year and such export bills are not a subject of investigation by ED/CBI or any other agencies

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Exporters to submit the application through the
Authorised Dealer (Form ETX)
Ads are permitted to extend the period beyond 6 months where the invoice value does not exceed
$1,00,000
Such extension may be grated for a period of 3 months at a time
When extension granted more than one year, the total export outstanding should not be more than
10% of the average of export realisations during the preceding 3 financial years

Cost of Export Credit: India Double Digit, competing countries of the order of 6% p.a.

High Bank service charges
- Insurance cover (Whole Turnover
Packing Credit Premium also adding to the cost of Credit)
- Collateral vs. Exposure Norms
- Crystallization of Bills
- Penalty on Overdue Bills

1.
Standard Policies
-Not exceeding 180 days
-For turnovers less than 50 lacs in the next 12 months
-Approval needs to be sought for credit limit of each buyer
-Specific approval of ECGC incase of restricted cover countries
[Shipment Comprehensive Risk Policy ; Small
Exporter Policy ; Exporter Turnover Policy]

2.
Specific Policies
-Buyer Specific Policy
-Specific Shipment Policy
3.
Exposure Policy
-Buyer Exposure Policy
-Multi-Buyer Exposure Policy

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Country
Grouping
A1
A2
B1
B2
C1
C2
D
For covering commercial & political risks Buyer /
Bank
140
190
240
290
320
340
360
For covering only political risks
30
70
120
170
190
210
230
Premium rate Paise per Rs.100/- of loss limit
Consignment Policy

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Packing Credit Guarantee
Export production finance guarantee
Post-Shipment export credit guarantee
Export finance guarantee
Export performance guarantee

A credit is a letter written by the buyer’s bank to the seller advising him that he may draw a bill of exchange up to a particular amount for the shipment of certain goods and assuring him of payment on his submitting certain specified documents. (Always irrevocable Art.3
UCPDC 600)

V.
VI.
VII.
VIII.
IX.
I.
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III.
IV.
Buyer
Seller
Buyer’s Bank
Intermediary /Advising/Notifying Bank
Correspondent Bank
Confirming Bank
Nominated Bank
Negotiated Bank
Paying Bank