Basics of Foreign Exchange

CANARA BANK
APEX CENTRE OF EXCELLENCE

BENGALURU
CANARA BANK, APEX CENTRE OF EXCELLENCE- BENGALURU

BASICS FOREIGN EXCHANGE
CONTENTS
No TOPICS Page
1 Forex Market &Forex Business Overview 3
Non-Resident Deposit & Other Foreign Currency 7

2
Deposits
3 Outward Remittances, KYC/AML Aspects 43
4 Inward Remittances, KYC/AML Aspects 50
EXPORT – FEMA Regulations, Collection, Purchase,

5 59
Discount and Negotiation
6 Pre Shipment Finance in INR/FC 98
7 Post Shipment Finance in INR/FC 109
8 Import FEMA Guidelines and Trade Control 110
9 Foreign Import Letters of Credit 116
10 Forward Contract 149
11 Exchange Rate Mechanism 157

FOREIGN EXCHANGE MARKETS- AN OVERVIEW
INTRODUCTION
No country in this world can be self sufficient and consequently, there is need for exchange of goods and
services amongst different countries. However, unlike in the primitive age, the exchange of goods and
services is no longer carried out on a barter basis. Every sovereign country in the world has a currency
which is a legal tender in its territory and this currency does not act as money outside its boundaries.
Therefore, whenever a country buys or sells goods and services from or to another country, the residents
of two countries have to exchange currencies. Hypothetically, if all countries had the same currency, there
will not be any need to exchange currencies.
Thus, it can be inferred that in case goods and services are bought or sold outside the country, exchange
of currencies becomes necessary and hence for any growing economy foreign exchange becomes an
essential component for growth and development.
What is foreign exchange
Foreign Exchange, simply stated, means foreign money. Thus, foreign money and near money
instruments denominated in foreign currency, are called foreign exchange. In other words, all claims to
foreign currency payable abroad, whether consisting of funds held abroad in foreign currency or bills or
cheques in foreign currency etc, fall in the category of foreign exchange.
In India, foreign exchange has been given a statutory definition. Section 2 (n) of Foreign Exchange
Management Act, 1999 states: “Foreign exchange” means any currency other than Indian currency and
includes;
i) deposits, credits and balances payable in any foreign currency
ii) drafts, travellers cheques, letters of credit or bills of exchange, expressed or drawn in Indian
currency but payable in any foreign currency.
iii) drafts, travellers cheques, letters of credit or bills of exchange drawn by banks, institutions or
persons outside India, but payable in Indian currency.
It would be observed from the above definition that foreign exchange refers to foreign money which
includes notes, cheques, bills of exchange, bank balances and deposits in foreign currencies.
Foreign Exchange Markets:
The word ‘Foreign Exchange market’ is in fact a misnomer in as much as there is no market place in
physical existence which can be called foreign exchange market. However, it is a facilitating mechanism
through which one country’s currency can be exchanged i.e. bought or sold for the currency of another
country. The foreign exchange market comprises of all the foreign exchange traders who are connected to
each other throughout the world through telecommunication network. They deal with each other through
telephones, telexes, and electronic systems. With advent of advanced technology like Reuters Monitors, it
is possible to access any trader in any corner of the world within a few seconds. In fact, now deal can be
done through electronic dealing systems, which allow bid and offer rates to be matched automatically
through central computers and thus transactions take place in jiffy.

Participants in Foreign Exchange Markets:
Anyone who exchanges currency of one country for currency of another country or needs such services is
said to participate in foreign exchange markets. The main players in foreign exchange markets are as
follows:
a. Customers:- The customers who are engaged in foreign trade participate in foreign exchange markets
by availing of the services of banks. An exporter may require the services of a currency. Similarly,
an importer who is required to pay for the goods imported by him utilizes the services of a bank to
convert his local currency into foreign currency. Similar types of services may be required for
settling any international obligation i.e., payment of technical know-how fees or repayment of
foreign debt, etc.
b. Commercial banks:- Commercial banks dealing in international transactions offer services for conversion
of one currency into another. They are the most active players in the forex markets. These banks are
specialized in international trade and other transactions. They have wide network of
branches/correspondent banks all over the world. This type of network helps them in undertaking
international transactions in a smooth, fast and efficient manner. Generally, commercial banks act as
intermediary between exporter and importer who are situated in different countries. Typically, a
commercial bank that offers foreign exchange services buys foreign exchange from exporters and sells
foreign exchange to the importers of goods. Similarly, the banks for executing the orders of other
customers, who are engaged in international transactions, not necessarily on account of trade alone, buy
and sell foreign exchange. However, foreign exchange amounts so bought and sold may not be equal.
Thus the bank is left with a position. The bank is said to be left with an oversold position when its sales
are more than purchases or vice-versa.
If a bank buys more foreign exchange than what it sells, it is said to be in “overbought/plus/long
position”. The bank,with open position, in order to avoid risk on account of adverse exchange rate
movement, covers its position in the market. If the bank is having oversold position, it will buy in the
market. This action of the bank may trigger a spate of buying and selling of foreign exchange in the
market.
Now a days, in international foreign exchange markets, the international trade turnover accounts for a
fraction of huge amounts dealt, i.e. bought and sold. The balance amount is accounted for either by
financial transactions or speculation. Banks, because of their financial strength and specialization also
speculate. This is popularly known as trading in the foreign markets. This speculation is not confined to
banks alone but some of the conglomerates also speculate and thus a gigantic market has come into
being.
Commercial banks by being active in the foreign exchange markets achieve the following objectives;
They render better service by offering competitive rates to their customers engaged in international
trade; they are in a better position to manage risks arising out of exchange rate fluctuations; Foreign
exchange business is a profitable activity and thus such banks are in a position to generate more
exchange profits for themselves. They can manage their integrated treasury in a more efficient
manner.
In India, a commercial bank cannot undertake foreign exchange transactions unless license from
Reserve Bank of India under FEMA has been acquired. Such persons (mostly banks) who are given a
license to deal in foreign exchange are called Authorised Dealers (ADs).

All the banks that have been authorised to deal in foreign exchange collectively constitute what is known as
“Interbank” market in India. On account of exchange control regulations the ADs have to conduct their
foreign exchange operations as per current FEMA guidelines. This apart, they are also required to follow
Rules/Guidelines framed by Foreign Exchange Dealers Association of India (FEDAI).
c. Central Banks:- The central banks, in most of the countries, have been charged with the responsibility
of maintaining the external value of the currency of the country. If the country is following a fixed
exchange rate system, the central bank has to take necessary steps to maintain the parity, i.e., the rate
so fixed. Even under the floating exchange rate system, the central bank has to ensure orderliness in
the movement of exchange rates. This is achieved by central bank’s intervention in the forex market.
Sometimes, this becomes a concerted effort of central banks of more than one country. Apart from
intervention, central banks deal in the foreign exchange markets for the purposes of :
Exchange rate management:- Though sometimes this is achieved through intervention, yet where
central bank is required to maintain external rate of the domestic currency at a level or in a band so
fixed, they deal in the market to achieve the desired objective.
Reserve management:- Central bank, is predominantly concerned with investment of foreign

exchange reserves in fairly stable proportions in range of currencies, and in assets in each currency.
These proportions are, inter alia, influenced by the structure of official external assets/liabilities.
RESERVE BANK OF INDIA, CENTRAL OFFICE, MUMBAI

DEPLOYMENT PATTERN OF FOREIGN EXCHANGE RESERVES: (figures in $Bn)
As 27.4.2018 01.03.2019 27.03.2020

on foreign curency assets
Total 395.28 374.06 439.66
Special drawing rights 1.52 1.47 1.42
Gold and gold deposits 21.51 23.25 30.89
Total forex reserves 420.37 401.78 475.56
d. Exchange Brokers:
Forex brokers play a very important role in the foreign exchange markets. However, the extent to
which services of forex brokers are utilised depends on the tradition and practice prevailing at a
particular forex market centre. Now- a- days banks do trading on line directly and sometimes use the
services of Brokers. In London, New York and Paris also partially interbank transactions are put
through forex brokers. Similarly, in India also dealing is done in interbank market partially through
forex brokers since as per FEDAI guidelines the ADs are free to deal directly among themselves
without going through brokers. The forex brokers are not allowed to deal on their own account
anywhere in the world or in India.
e. OVERSEAS MARKETS:
Overseas Forex Markets Last two decades can be said to belong to forex markets, as during this
period foreign exchange markets have taken rapid strides. Today, the daily global turnover is
estimated to be more than US $6.6 trillion a day (about $50 bn in India which constitutes 0.75% of
global turnover) . The international trade transactions, however, constitutes hardly 10 -15% of this
total turnover. The rest of trading, in world forex markets, is constituted of financial transactions and
speculations

London has been the biggest market and continues to be so even today, solely contributes to 34% market share
of the daily forex volumes . The sales desk in five countries – The United Kingdom, The United States,
Singapore, Hong Kong SAR and Japan – intermediate 77% of foreign exchange trading. However, many other
cities have also developed as major trading centers. As these centers operate in different time zones, the forex
market has truly become 24-hour market.
The day begins with Tokyo & Sydney and thereafter Hongkong, Singapore and India (very small
turnover), followed by Bahrain, Milan, Frankfurt, Paris, Amsterdam London, New York and ends at
Sanfrancisco. Dealers have access to dealers beyond business hours also thanks to revolutionary
communication system like Reuters Monitor, Tolerate, Knight Rider, Bloomberg etc., that goes on giving
relevant information round the clock. US dollar is the dominant vehicle currency, nearly being on one
side of 88% of all trades in world.
Speculators play a very active role in the foreign exchange markets. In fact major chunk of the foreign
exchange dealings in forex markets is on account of speculators and speculative activities.
The following are the major speculators in the forex markets:
Banks dealing in foreign exchange markets with a view to make profit on account of favourable
movement in exchange rates, take positions, i.e. if they feel that rate of a particular currency is likely to
go up in the short term, they buy that currency and sell it as soon they are able to make quick profits.
Corporations, particularly Multinational Corporations (MNCs) and Transnational Corporations (TNCs),

having business operations beyond their national frontiers and on account of their cash flows being large
and in multi currencies, get into foreign exchange exposures. With a view to take advantage of the
exchange rate movements in their favour, they either delay covering exposures or do not cover until they
get the cash flows. Sometimes, they take positions so as to take advantage of the exchange rate movement
in their favour and for undertaking this activity they have the state of the art dealing rooms.
Governments borrow or invest in foreign securities and then arrange cover for the exposure on account of
such deals.
Individuals, like share dealings, also undertake the activity of buying and selling of foreign exchange for
booking short-term profits. They also buy foreign currency stocks, bonds and other assets without
covering the foreign exchange exposure risk. This also results in speculation.
Corporate entities take positions in commodities whose prices are expressed in foreign currency. This
also adds to speculative activity.
It would be observed from above that these participants in Forex Markets gain or lose on account of
exchange rate movements. However, the dividing line between speculation and prudent business decision is
very thin. The uncovered positions sometimes are explained away as diversification of risk. The conscious
decision not to cover foreign exchange exposure can hardly be called speculation but taking positions for
the purpose of trading in currency markets is definitely speculation.
The speculators or traders in the foreign exchange markets cause significant swings in foreign exchange
rates. These swings, particularly sudden swings, do not do any good either to the national or international
trade, and can be detrimental not only to national economy but global business also.
However, to be fair to the speculators, they provide much needed liquidity and depth to foreign exchange
markets. This is necessary to keep bid-offer spreads to the minimum. Similarly, liquidity also helps in
executing large or unique orders without causing any ripples in foreign exchange markets.

One of the views held is that speculative activity provides much needed efficiency to foreign exchange
markets. Therefore, we can say that speculations are necessary evil in forex markets.
Our bank is having one of the largest dealing room in India (Integrated Treasury, Mumbai) with ultra
modern facilities for 35-40 dealers working under 2 Executive Dealers for forex and domestic
transactions.

NON–RESIDENT DEPOSITS & OTHER FOREIGN CURRENCY
DEPOSITS
An Overview :
A person resident outside India may be foreign citizen or nonresident Indian/person of Indian origin.
Non resident Indians and person of Indian origin can open and maintain different types of accounts
with the banks.
It is better to recall who NRI/PIO as per FEMA 1999 is, but before that we should discuss about the
‘Persons Resident in India’
Definition of Residents, Non Residents, NRIs and OCBs :
Persons Resident in India :

In terms of definition given under Section 2 (v)(i) of Foreign Exchange Management Act [FEMA]
1999, a person resident in India means, a person residing in India for more than one hundred and
eighty two days during the course of the preceding financial year but does not include:
i. a person who has gone out of India or who stays outside India, in either case -
a. for or on taking up employment outside India, or
b. for carrying on outside India a business or vocation outside India, or
c. for any other purpose, in such circumstances as would indicate his intention to stay
outside India for an uncertain period;
ii. a person who has come to or stay in India, in either case, otherwise than -
a. for or on taking up employment in India, or
b. for carrying on in India a business or vocation in India or
c. for any other purpose, in such circumstances as would indicate his intention to stay in India for
an uncertain period.
The following persons are also termed as ‘Resident in India’ as per the above definition:
[1] Foreign citizens who stay in India for employment, business, etc., or in circumstances indicating
an indefinite period of stay.
[2] Foreign citizens who come and stay in India with their spouses, if spouses are residents in India.
[3] Indian citizens who proceed abroad for business visits for short duration, training, medical
treatment etc., will continue to be treated as residents in India even during their temporary
absence from India.
Now, we came to know about the ‘person’s resident in India’ as per FEMA and now we will discuss
about Non-Resident Indian.
Non-resident Indian Nationals:
i. Non-Resident Indian [NRI] means a person resident outside India who is a citizen of India.
ii. NRIs generally fall under the following broad categories:
a. Indian citizens who stay abroad for employment or for carrying on a business or vocation,
studies abroad or for any other purpose, in circumstances indicating an indefinite period of stay
outside India.
b. Indian citizens working abroad on assignments with foreign Governments/ Government Agencies or
International/regional agencies like UNO, [including its affiliates] World Bank, [IBRD] IMF, etc.,
c. Officials of the Central and State Governments and Public Sector undertakings deputed abroad on
temporary assignments or posted to their offices [including diplomatic missions] abroad.

d. Indians who have settled abroad on immigration But if we follow the above definition in the case of,
1. Officials of our bank deputed abroad at our branches/ subsidiaries/ Exchange Companies/ other banks
and their spouse/ children staying with them are NRIs.
2. Non-Resident Indians become ‘Residents’ in India only when they return to India for employment or for
carrying on any business or vocation or for any other purpose indicating an indefinite period of
stay/permanent settlement in India. But, they are not treated as persons, ‘Resident’ in India during their short
visit to India.
In the earlier paragraph we discussed who is an NRI but the persons of Indian Origin that is the Foreign
Nationals of Indian Origin can open accounts with us.
Persons of Indian Origin [Foreign Nationals of Indian Origin] :
i. ‘Person of Indian Origin’ [PIO] means a person resident outside India who is a citizen of any country
other than Bangladesh or Pakistan or such other country as may be specified by the central government,
satisfying the following conditions:
a. Who was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of
1955); or
b. Who belonged to a territory that became part of India after the 15th day of August, 1947; or
c. Who is a child or a grandchild or a great grandchild of a citizen of India or of a person referred to in
clause (a) or (b); or
d. Who is a spouse of foreign origin of a citizen of India or spouse of foreign origin of a person referred
to in clause (a) or (b) or (c)
ii. OCI (Overseas Citizens of India)
In terms of Gazette Notification of Ministry of Home Affairs, Government of India, on and from 9th
January, 2015 all the existing Persons of Indian Origin Cardholders Registered as such shall be deemed to
be Overseas Citizens of India (OCI) Cardholders. Overseas Citizen of India is defined as under:
a Any person of full age and capacity other than who is or had been a citizen of Pakistan; and
Bangladesh:-
1. Who is citizen of another country, but was a citizen of India at the time of or at any time after, the
commencement of the Constitution; or
2. Who is citizen of another country, but was eligible to become a citizen of India at the time of the
commencement of the Constitution; or
3. Who is a citizen of another country, but belonged to a territory that became part of India after 15th day of
August, 1947; or who is a child or a grandchild or a great grandchild of such a citizen; or
4. A person who is a child of a person mentioned in (i); or
5. A person who is a minor child and whose both parents are citizens of India or one of the parents is a
citizen of India; or
6. Spouse of foreign origin of a citizen of India or spouse of foreign origin of an Overseas Citizen of
India Cardholder registered and subsisted for a continuous period of not less than two years immediately
preceding the presentation of the application for OCI Card.
Overseas Corporate Bodies [OCBs]:
Owned by NRIs include overseas companies, partnership firms, societies and other corporate bodies which
are owned directly or indirectly to the extent of at least 60% by individuals of Indian nationality or origin
residing outside India [NRIs], as also overseas trusts in which at least 60% of the beneficial interest is
irrevocably held by such persons [NRIs].
At present the Government of India does not recognize OCBs as an “eligible class of investor” under various
routes/schemes.

Now our discussion will be on the Accounts facilities:
NR – Resident deposits
( A ) Non-Resident (External) Rupee Account Scheme - NRE Account
Earlier page we have discussed about the definition and now who can open NRE account:
ü The following persons are eligible to open account :
a) NRIs and Person of Indian Origin (PIOs)
b) Crew members of Indian nationality or Indian origin employed in foreign airline/shipping

companies, are based at foreign ports and reside abroad.
c) Crew members of Indian airlines/shipping companies who are shore staff of the companies and
are posted abroad for duty on short term or long term basis.
d) NRIs working or residing in any country [except Nepal] which is a member of the Asian Clearing
Union (ACU).
e) Persons of Indian Nationality/origin resident in Nepal are eligible only if the remittance for
opening and funding the accounts are remitted in any of the permitted currencies( not in
Indian/ Nepalese Rupees).
f) The Students gone abroad for higher studies and continuing to stay abroad are does not dilute in
any way the utilization of the existing foreign exchange remittance facilities to students in
regard to their academic pursuits.
g) Indians are deputed abroad by Central/State Governments/Public Sector undertakings or working with
UNO and other international agencies, Indian Missions and similar other agencies on assignments
with foreign Governments. IMF, WHO, Economic and Social Council for Asia and the Pacific
[ESCAI] etc
But in the following cases in normal way not eligible are,
ü Indians employed in the vessels/carriers owned by Indian or foreign shipping/ airline companies but
are based in India are NOT eligible even though receive salaries in foreign exchange.
ü Pakistani nationals of Indian origin /Pakistani Entities/Bangladesh Entities requires prior
approval of Reserve Bank of India.
ü Opening in the names of individuals other than those of Indian Nationality/Indian origin
requires prior approval of RBI.
ü Overseas institutions, organizations, firms/companies are not eligible.
ü Indians gone abroad on business & sightseeing trips, medical treatment, training and such other
purposes not eligible.
Account opening form:

Application in IF (GEN) 1845, Specimen Signature Card and passport size photograph.
Introduction :
It is not mandatory (Pl refer HO circular 395/2012 dated 20/12/2012). As per the extant RBI guidelines,
obtention of introduction for opening of accounts of individuals is not mandatory as a part of Customer.
Acceptance Policy, when the documents of identity and address as required under RBI instructions are
provided for KYC compliance. Also, as per the instructions of RBI, the Bank is to open accounts based on any

documents as to the identity and address of the Customer to the satisfaction of the Bank.
If the prospect is already having a resident account [this resident account has to be designated as NRO
account] , a cross reference is to be made in the account opening form.
When account holder not personally present, may request the prospect to get his signature on the
Account Opening form and copies of the documents related to Address Proof and Identity proof
attested by:
i. Official of the Indian Embassy or Consulate, Notary Public etc.; situated in the country of his/her
residence.
ii. Employer in India, if deputed abroad.
iii. Officials deputed to our units abroad (ie. Branches , Representative Office and Exchange
Companies managed by our bank )
 All guidelines applicable to resident accounts to be observed in respect of newly opened accounts
as per Manual of Instructions on Current and Savings Bank Accounts and HO Circulars issued
from time to time, are to be followed.
Passport :
It’s the most valid document for opening the account, photocopy of all pages of the passport of the
applicant and to retain with the account opening form. Date(s) of Emigration(s) and/or of Arrival(s)
appearing in the “Endorsements” pages and VISA stamps will enable to determine the NRI status.
And also by submitting any of the following documents, in addition to identity and address proof:
i. Copy of Valid Work/Study Visa
ii. Copy of Appointment Letter
iii. Copy of Job Card
iv. I-20 (student admission letter) etc. But
this list is illustrative and not exhaustive.
Joint accounts :
It is permitted in the following cases:
i) In the names of two or more NRIs and / or PIOs
ii) With resident relative(s) on 'former or survivor' basis, the said resident relative shall be eligible to
operate the account as a Power of Attorney holder during life time of the depositor.
For the purpose of this regulation, 'relative' means relative as defined in section 2(77) of the Companies
Act, 2013.
Foreign-Born Spouse of a Non-Resident Indian :
An NRI can open NRE account jointly with his/her foreign-born spouse even though the spouse may not
be a person of Indian nationality/ origin.
The foreign-born spouse [not being a citizen of Pakistan or Bangladesh] of an NRI is treated as a person
of Indian origin as per FEMA Regulations, but not to open NRE/FCNR accounts in the single name of
foreign-born spouse. She/he can open accounts only jointly with his/her NRI spouse.
However, such accounts operation by the joint account holders at their discretion either singly or
jointly.
In the event of death of the NRI , repatriation of funds held in joint NRE/FCNR accounts will be
considered a legacy payment to a foreign born spouse, subject to foreign exchange regulations. Such
joint accounts should NOT be converted to individual accounts in her single name without prior
approval of Reserve Bank of India

2. Types of accounts:
Maintained in any form, e.g. savings, current, recurring or fixed deposit account etc.
3. Permissible credits :
a) Inward remittances in freely convertible foreign currency through normal banking channels i.e.
by way of SWIFT Message or DD, MT, TT, etc..
b) Personal cheque drawn on his/her account abroad.
c) Foreign currency travellers cheques, deposited during temporary visit to India, banker should be
satisfied his/her NRI status by verifying passport, the travellers cheques/drafts are standing in
the name of account holder and have not been endorsed in his favour are discharged by the
account holder in the presence of the branch officials and issued outside India.
d) Foreign currency / bank notes tendered personally during his temporary visit to India provided
declared on a Currency Declaration Form (CDF) ""(2) & """(3) , where applicable and verify
NRI status.
e) Transfers from other NRE / FCNR (B) accounts."(1)
f) Interest accruing on the funds held in the account.
g) Current income like rent, dividend, pension, interest, etc. can be credited, provided the branches
are satisfied, based on the certificate of Chartered Accountant, that the credit represents current
income of the non-resident account holder and income tax thereon has been deducted / paid /
provided for, as the case may be.
Where NRI declares that not having any taxable income in India, may obtain a simple
declaration( in duplicate) as is not a tax payer in India before crediting the amount.
h) Maturity proceeds of Government dated securities sold on a recognized Stock Exchange in India
and sale proceeds of Units received from Unit Trust of India, provided securities/units were
purchased by debiting NRE account or FCNR(B) account or out of remittances received from
outside India in free foreign exchange
i) Maturity or sale proceeds of any permissible investment in India which was originally made by
debit to the account holder's NRE / FCNR (B) account or out of remittances received from
outside India through banking channels. Provided that the investment was made in accordance
with the foreign exchange regulations in force at the time of making such investment.
j) Interest/Dividend Warrants of investments in shares/debentures on repatriation basis provided

investments were made with prior permission of RBI and the credit of such dividend/interest
has been permitted in terms of a general permission of RBI.
Branches before crediting Dividend/Interest Warrants, should ensure that the relative instrument
are received from Indian Companies with a request to credit the same to the NRE accounts of
NRIs accompanied by a certificate by the company as per the following points duly signed by
the authorized official of the company:
1) The number of shares/bonds/debentures held by the NRI, face value, number and date of
approval of RBI, for issue/ purchase/ holding of the shares/debentures/bonds.
2) Rate of dividend/interest payable, year/period to which it relates, gross dividend/ tax

deducted at source and net remittable amount.

3) There is no prohibition for the remittance of dividend/interest in terms of the permission
granted for acquisition of the shares/ bonds/ debentures.
4) In case such a credit or Dividend/Interest from a centralized location in the bank, Official
authorizing such credit from the centralized location has to ensure compliance with the above.
k) Refund of share / debenture subscriptions to new issues of Indian companies or portion

thereof, provided was paid from the same account or from other NRE / FCNR (B) account of the
account holder or by remittance from outside India through banking channels.
5) Delegated not below the rank of Scale II to allow such credits to NRE accounts. Upon
approval of such credits, the concerned Officer should make a noting to that effect in
“Exchange Control Delegated Power Register”(pl refer Manual of Instructions on `Foreign
Outward Remittances’)
6) Original documentary evidence or copies should be attached to the credit slip and
preserved along with the slip bundle for future inspection, if any, by RBI Inspectors /
Internal Auditors.
l) Refund of application / earnest money / purchase consideration made by the house building
agencies / seller on account of non-allotment of flat / plot / cancellation of bookings / deals for
purchase of residential / commercial property, together with interest, if any (net of income tax
payable thereon), provided the original payment was made out of NRE / FCNR(B) account of the
account holder or remittance from outside India through banking channels and the authorised
dealer is satisfied about the genuineness of the transaction.
m) Transfer from EEFC and RFC (D) account at the option/request of the account holders on
changing residential status (resident to non-resident).
n) The proceeds of policies denominated in foreign currency or the rupee policies for which premium
are paid in foreign currency or out of NRE/ FCNR accounts, are permitted to be
credited to the NRE/FCNR account of non-resident without prior approval of Reserve Bank.
o) Repatriable funds from NRO account to NRE Account within the overall ceiling of USD one
million per financial year, subject to payment of applicable tax (i.e. as applicable if funds were
remitted abroad) evidenced by submission of form 15 CA by the Remitter and form 15 CB by
Chartered Accountant.
p) Sale proceeds of Foreign Direct Investment in India are treated as eligible credit to NRE/FCNR (B)
accounts, where the purchase consideration was paid by the NRI/PIO out of inward remittance or
funds held in their NRE/FCNR(B) accounts and subject to applicable taxes if any.
q) Any other credit if covered under general or special permission granted by Reserve Bank.
(1) Branch should obtain a letter from the remitting branch/bank to the effect that the funds
remitted are from the NRE account of the same account holder / another person. A reference to
this letter is to be made in CBS( In GLM01 option)
Against the relative entry and the letter is to be kept along with the credit slip.
(2) Declaration in CDF need not be made in cases where the aggregate value of TCs & currency
notes surrendered does not exceed USD 10,000 or equivalent in other currencies or where the value
of currency note surrendered does not exceed USD 5,000 or equivalent in other currencies in either
case. A photocopy of CDF should be kept on record by the branches.
(3) We should adhere to the regular guidelines applicable for Encashment of TCs/CNs and
Handling of Clean Instruments and also the guidelines on delegation of powers as advised by
H.O. from time to time.

4. Permitted Debits:
a) Local disbursements.
b) Remittances outside India.
c) Transfer to NRE / FCNR (B) accounts of the account holder or any other person eligible to
maintain such account.
d) Investment in shares / securities / commercial paper of an Indian company or for purchase of

immovable property in India provided such investment/ purchase is covered by the regulations
made, or the general/ special permission granted by the Reserve Bank.
e) Any other transaction if covered under general or special permission granted by the Reserve
Bank.
We should be very careful while remittances abroad, this is the guidelines:

1. Not to pay the proceeds of NRE term deposits to third party either on maturity or before
maturity.
2. On closure of deposit, original receipt has to be invariably obtained.
3. E-mail and FAX requests should not be treated as authorised mode of communication and shall
seek independent confirmations, and to be fully satisfied about the genuineness of the message (Pl refer
Ho circular 303/2014 DT. 30 05 2014).
4. The above provision has to be observed keeping in view the KYC guidelines.
Operations in NRE accounts by residents:
I. Operations by residents under Power of Attorney (POA)/ Letter of Authority (LA) given by the
non-resident account holder is permitted, provided they are restricted to withdrawals for local
payments.
II. Branches/Offices shall review the existing POA/LA obtained from NRE/NRO account holder
and ensure that the clauses mentioned in the revised Letter of Authority are incorporate in the
same or else revised Letter of Authority (as per Annexure-XIV) should be obtained.
III. In cases where the account holder has been granted permission by RBI to make investments in
India, branches may permit the power of attorney holder to operate the account to facilitate such
investment.
IV. The resident power of attorney/letter of authority holder is permitted to repatriate funds held
in these accounts outside India only to the non-resident account holders concerned and not to the
third party, through normal banking channels, provided specific powers for the purpose have
been given.
V. The resident PA/LA holder should not be allowed to make payment of gifts on behalf the
account holder.
VI. Letter of Authority to be kept with respective account opening form.
VII. Foreign currency notes/Travellers Cheques tendered by the resident Power of Attorney/Letter
of authority holder cannot be accepted under any circumstances.

Change of Status:
1) All NRE deposit accounts are to be redesignated as resident accounts immediately upon return
of the account holder to India for permanent settlement.
2) Obtain a declaration from the account holder to the effect that come to India for permanent
settlement.
3) “Please intimate us about your return to India for permanent settlement immediately on
arrival” a rubber stamp is to be affixed in the pass-book/pass-sheet/deposit-receipt for the
attention of the account holder.
4) Where the status of the account holder has changed from non- resident to resident, the accounts
should also be redesignated as resident deposit accounts or RFC accounts as the case may be
with due consent of the depositors.
5) The NRE term deposit is redesignated as Resident Rupee Deposit, will continue to earn interest
originally fixed rate till the originally fixed full term even after redesignation
6) NRE Recurring Deposit is redesignated as Resident Rupee RD will earn interest at the originally
contracted rate of interest till maturity (originally fixed maturity date), the depositor may, after
becoming resident, pay the RD instalments out of local sources till maturity.
7) Where the NRE SB/term-deposit is to be converted as RFC account, the term deposit should be
closed before maturity and the balance should be converted into foreign currency( TT Selling
rate).Rate of interest to be applied prevailing on the date of re-designation.
8) When NRE term deposit is prematurely closed before completion of the minimum period of 12
months for conversion into RFC account, interest may be paid on such NRE term deposit at the rate
not exceeding the rate payable on Savings Bank Deposits provided the request for such conversion
is received immediately on return of the NRE account holder to India.
9) Where one of the joint account holders becomes a resident, branches may delete his/her name
and allow the account to continue as NRE account. At the option of the depositors the account
can be designated as NRE account to the extent of the non-residents interest in the account. In
such cases the residents interest in the account is to be designated resident Rupee account/ RFC
account.
10) No benefits under NRE account scheme once the account is treated as resident account.
11) Repercussions for not informing their return to India for Permanent Settlement:
a) The non-compliance of the undertaking by the NRI is an FEMA violation.
b) Delay causes problems for redesignation of the existing deposits as branches will not have the
discretion to redesignate the accounts as Resident Rupee/RFC accounts if the depositor has
failed to inform the branch within a reasonable period from the date of return to India for
permanent settlement.
c) It may lead to unnecessary correspondence at all levels, displeasure to the

depositor/complaints and may also lead to monetary loss to the depositor.

Conversion of NRO Account into NRE Account :
Where the funds eligible for credit to NRE accounts were wrongly credited to NRO accounts for some
reasons, Foreign Exchange Regulations provide for transfer of eligible funds out of/conversion of
Ordinary Non-Resident account into NRE account subject to obtaining prior permission of RBI.
While forwarding the application to RBI seeking their approval, the following documents/information’s are
to be furnished:
i.Full details of source of funds in the existing NRO account.
ii. Complete transcript of operations in the existing NRO account giving full particulars of debits and
credits during the entire back period covering the sources of the present balance in the account, applying
the ‘first-in, first-out’ principle.
iii.Form 15CA and 15CB.
iv.The transaction can be put through only on receipt of approval from RBI. The approval number and
date should be recorded in CBS and the letter is to be kept along with the account opening form. Either
the existing Ordinary Non-resident account can be designated as NRE account, or amount qualifying for
credit to NRE account, as determined by RBI can be utilised for opening a fresh NRE account.
v. Transfer of funds to NRE account from NRO account is not permitted if the funds are not eligible for
reconversion or repatriation.
Temporary over drawings in NRE – SB Accounts :
ü Foreign Exchange Regulations permit Authorised Dealers to allow temporary over drawings in
NRE Savings Bank accounts up to a limit of Rs.50,000 ( Circular FX/140/2013 Dated 30 12
2013), according to their own discretion/commercial judgement.
ü However, the branches may allow over drawings / TOD in NRE savings accounts as per the
credit powers delegated to the branches, as applicable to normal SB accounts.
ü Such over drawings should be on account of permissible debits as per the Foreign Exchange
regulations and not otherwise.
ü Repayment together with the interest payable thereon should be cleared/ repaid within a
period of 2 weeks, by fresh remittance in foreign exchange from abroad through normal
banking channels or transfer of funds held in NRE/FCNR term deposit accounts.
ü Cash credits should not be accepted under any circumstances for clearance of the over
drawings.
ü If there is any delay in clearance of the over drawings beyond the 14 days limit, branches
should report to Circle Office and write to the concerned Regional Office of RBI seeking condo
nation of the delay.
ü Over drawings should not be permitted in NRE Current Accounts under any circumstances.
Period of term deposit :
Minimum period is one year and maximum period is 10 years. There is no stipulation on
minimum/maximum deposit amount.
Renewal of Overdue NRE Term Deposits :

Please refer HO Circular 116/2015 Dated 09 03 2015
1) Overdue terms deposits will be paid interest at prevailing Savings Bank rate for the overdue
period.
2) The deposit is continued (entire amount or in part), the same will be treated as fresh deposit

from the date of presentation, at the rate prevailing on the date of presentation for the period of
fresh term deposit.
3) In case of deposit renewed automatically on the due date (where no instructions for Auto
Renewal was given by the depositor) and is presented for closure before maturity, prevailing SB
rate is to be paid for the period from the date of maturity till the date of closure of the deposit.
4) In case of a deposit which is renewed automatically on the due date (where no instructions for
Auto Renewal was given on the date of opening the term deposit) and the depositor has
requested for renewal for a different maturity period, interest at prevailing SB rate is to be paid
for the period from the date of maturity till the date of presentation for renewal of the deposit
for a different maturity period. The same is applicable for an auto-renewed deposit presented
for part renewal/alternate instructions which are different to the originally contracted terms of
the deposit.
5) In case of death of the depositor before maturity of the deposit and the deposit is
automatically renewed on the due date, the deposit will earn interest at the contracted rate till
the date of maturity and at SB rate from the date of maturity till the date of claim settlement.
6) In case of death of the depositor after the date of maturity of the deposit, the Bank shall pay
interest at SB rate operative on the date of maturity, from the date of maturity till the date of
payment.
7) The guidelines on payment of interest on overdue deposits are as under:
(A) Where the Overdue The overdue deposit will be paid Interest at prevailing Savings
period does not exceed Bank Rate for the overdue period. If such deposit is continued
14 days: (entire amount or in part), the same will be treated as a fresh
term deposit from the date of presentation, at the rate
prevailing on the date of presentation for the period of fresh
term deposit.
(B) Where the Overdue The overdue deposit will be paid interest at prevailing Savings
Period Exceeds 14 days: Bank Rate for the overdue period. If such deposit is continued
(entire amount or in part), the same will be treated as a fresh
term deposit from the date of presentation, at the rate
prevailing on the date of presentation for the period of fresh
term deposit.
Premature Closure of NRE Term Deposit :
The deposit closed before completion of one year from the effective date of the deposit, no interest
shall be payable.
If it is closed before maturity on or after completion of one year from the effective date of deposit,
interest payable on such premature closure shall be at the stipulated rate of interest applicable to the
scheme for the actual period for which the deposit remained with the bank as ruling on the date of
deposit or at the contracted rate, whichever is lower.
Extension of Period of NRE Deposit :
The deposits can be extended during the tenure of the deposit for a period longer than the balance period
[i.e., the remaining period of the deposit]. The period of deposit shall be minimum of one year and a
maximum of 10 years effective from the date of extension. No penal interest . The depositor should
have NRI status.

Conversion of NRE deposits to FCNR(B) :
· During the tenure of the deposit may be effected treating the deposit as closed before
maturity. The depositor should have NRI status.
· In cases where a NRE term deposit having residual maturity [remaining period of deposit] of
· less than 3 years is converted into FCNR(B) deposit for a period longer than the remaining
period of the NRE deposit [with a minimum period of one year], such conversion during the
tenure of NRE deposit may be effected, treating it as premature extension of deposit provided
the depositor continues to be a non-resident.
·  In such cases, interest payable on the NRE deposit shall be at the stipulated rate of interest
applicable to NRE deposit for the actual period run till the date of conversion as ruling on the
effective date of the NRE deposit or at the contracted rate, whichever is LOWER.
What are the benefits available to NRE account holders :
1. Principal with accrued interest can be repatriated abroad without reference to RBI.
2. Amount can be withdrawn freely for local disbursements and can also Invested in
securities/ units and interest/ dividends; maturity/sale proceeds/ repurchase value can be
credited to the account freely.
3. Investment in immovable properties in India (both commercial as well as residential)
without reference to RBI. This facility will not be available to citizens of Pakistan,
Bangladesh, Afghanistan, China, Iran, Bhutan, Nepal, Sri Lanka even if they are of
Indian Origin.
4. Funds utilisation for booking passage to and from India for the account holder, spouse
and dependents.
5. Funds utilisation to avail foreign exchange [traveller’s cheques, currency notes, etc.] for
the account holder himself, spouse and dependents going abroad.
6. In terms of clause 4(ii) of Section 10 of Income-tax Act, 1961, any income from interest
to the credit of NRE accounts is exempt from income-tax.
7. Exemption from Wealth-tax in terms of Section 6(ii) of Wealth-tax Act, 1957.
8. NRIs can book forward cover to hedge the balances held in NRE Rupee term deposit
accounts and the interest payable thereon subject to the conditions that
a. The value and maturity of the contract should not exceed the value and maturity of the
underlying deposit and interest payable,
b. The cost of hedge should be met out of repatriable funds or through an inward
remittance, and
c. All outward remittances incidental to the hedge are allowed subject to payment of tax, if
any.
ü For operational guidelines please refer - Manual of Instructions on ‘Forward
Contracts
Facilities/ Benefits available after the account holder returns to India :
ü Exemption from Wealth-Tax: Moneys and value of assets brought into India at the time of return
for permanent settlement and value of assets acquired by them out of foreign inward remittances
are exempt from wealth-tax for a period of 7 years.
ü The 7 years period commences from the next assessment year following the date on which the
person returns to India.
ü Balances are exempt from wealth-tax, Gifts made to close relatives in India from out of balances
in such accounts are also exempt from Gift tax.
ü Resident Foreign Currency Account [RFC Account] scheme enables eligible returning Indians to
open and maintain RFC accounts with the Banks in India.

Issuance of ATM Cards / International Credit Cards (ICCs) to Non-Resident Account Holders /
Letter of Authority [LA] Holders / Power of Attorney [PA] Holders :
ATM cards can be issued to NRIs as well as to LA/PA holders of eligible accounts.
For issue of ATM cards to NRIs, in addition to the application form for ATM card, an indemnity letter on
the following lines shall also be obtained:
 ‘I undertake to make good the loss if any suffered by the Bank on account of issuing/using the
ATM card. Further I also undertake the risk/responsibility of any operations done with the ATM
card irrespective of my being in India or outside India and the Bank will be discharged from any
liability with respect to such operations done with the said ATM card and the operations so
effected will be binding on me.’
In the case of issuing ATM card to letter of authority/power of attorney holders, besides the indemnity
letter, a consent letter shall also be obtained from the account holder.
Branches may ensure that Letter of Authority is obtained from the NRE / NRO account Holder before
issuing the ATM Cards to Power of Attorney / Letter of Authority holder.
Branches may issue International Credit Cards (ICCs) to NRIs and PIOs, the debits of which are subject
to the conditions for use of the ICCs by residents. Charges should be settled out of inward remittances
or balances held in NRE/ FCNR(B)/ NRO accounts.
Settlement of charges out of balances held in NRO accounts are subject to the limits for repatriation of
balances held in NRO accounts specified in regulation 4(2) of Foreign Exchange Management
(Remittance of Assets) Regulations, 2016.
Rate of Interest :
As communicated by Head Office from time to time.
Special Series of Cheques:

For easy identification and quicker processing of cheques drawn on NRE accounts, authorised dealers/
banks shall issue cheque books containing a special series of cheques to their constituents holding NRE
accounts.
( B ) Non-Resident Ordinary Rupee Account Scheme - NRO Account
Rupee accounts maintained by Non-resident individuals / entities [firms and other organisations], other
than NRE accounts are referred to as Ordinary Non-Resident Accounts [NRO Accounts].
The main purpose of NRO account is for putting through bonafide transactions in Rupees by the
individuals held prior to becoming NRI or acquired by them in India during their status as NRI, not
involving violation of the provisions of FEMA and Foreign Exchange Regulations.
The operations in NRO account do not allow, inter-alia, making available foreign exchange to any
person resident in India against reimbursement in rupees or in any other manner in India.
Eligibility for Opening NRO Accounts : The following are eligible to open NRO accounts:
i. NRIs & Persons of Indian origin.
ii. Non-resident foreign nationals of any country other than Pakistan and Bangladesh.
iii. Overseas firms, companies, entities with ownership of nationals of any country except Pakistan.
iv. NRO account of Resident Bangladesh Citizen can be opened without prior permission from
Reserve Bank of India but quarterly reporting to respective circle office.
v. Tourist.

Opening of accounts by individuals of Pakistan nationality and entities of Pakistan /Bangladesh
nationality/ ownership will require prior approval of the Reserve Bank of India (pl refer HO Circular
89/2013 Dated 08 03 2013) NRO accounts are either opened by persons residing abroad or by
designating the existing resident account after the resident account holder becomes non-resident.
Joint Accounts :
1. NRO Accounts can be opened either in individual or in joint names of the eligible persons.
2. Accounts may be held jointly with residents. The funds belong to the resident joint holder
cannot be credited. The operation condition be ‘Former or Survivor’ basis only.
3. In case any NRO account was opened by NRI joint with Resident Indian on Either or Survivor
basis, the operating condition should be changed to “former or survivor” basis with due notice
to the NRI Customer in terms of Circular FX/74/2016.
4. During the life time of the NRI/PIO account holder, the resident can operate the account only as
a Power of Attorney holder.
5. Similarly, NRI close relative may join in the existing/new resident bank accounts (domestic) as
joint holder with the resident account holder on either or survivor basis subject to certain
conditions. (Pl refer Cir fx/06/2014 dated 10.01.2014)
The Power of Attorney/ Letter of Authority has been granted by the Non Resident individual NRO
account holder, may be allowed, provided such operations are restricted to:
i. All local payments in rupees, including for eligible investments, subject regulations made by the
Reserve Bank
ii. Remittance outside India of current income in India of the non-resident individual account holder,
net of applicable taxes, to the non resident individual account holder only;
The resident Power of Attorney/ Letter of Authority is NOT permitted to:

i. Repatriate outside India funds held in the account other than the non-resident individual account
holder.
ii. Make payment by way of gift to a resident on behalf of the non-resident account holder.
iii. Transfer the funds from the NRO account to another NRO account.
Resident NRO Joint account holder is not permitted to grant Power of Attorney/Letter of Authority in
favour of another resident Indian.
Accounts of Foreign Tourists :
Foreign tourists visiting India may open accounts with branches as Non-Resident [Ordinary]
accounts. The following conditions to be followed :
1) Account should not exceed six months and adhere to the extant KYC/AML guidelines
2) The visa validity to be verified, if its expiring shortly account opening will not serve any
purpose
3) Permitted credits are convertible foreign currencies from abroad in an approved manner or by
sale of foreign exchange proceeds brought by tourist.
4) The accounts should be closed at the time of departure from India.
5) Permissible debits for local expense
6) On closing the accounts balance amount may be allowed to convert into appropriate foreign
currency.
7) Repatriation of balance in the account maintained for period exceeding six months require
prior approval from the concerned Regional Office of Reserve Bank of India.

Designating the Existing Resident Account as NRO Account:
1. When a resident in India leaves India for a country [other than Nepal and Bhutan] for taking up
employment, business or vocation outside India or for any other purpose indicating the intention
to stay outside India permanently or for an uncertain period, he/she becomes a person resident
outside India.
2. Now the bank account, if any, in India is required to be designated as an NRO Account. At
present the existing domestic SB Account is to be closed and fresh NRO account is to be
opened.
3. When one or more joint account holder(s) of a resident account become(s) non-resident, the
account should be designated as NRO account. If the remaining account holders who are resident
also should pay TDS of 30%, if one the joint account holders become NRI.
4. When Indian nationals and persons of Indian origin who proceed abroad for business visits,
medical treatment and such other purposes which do not indicate any intention on their part to
stay out of India for an uncertain period are not permitted to open non-resident account and their
existing accounts should continue to be treated only as resident accounts during their temporary
absence from the country.
5. The students who have gone abroad for studies should be designated as NRO accounts.
6. A Person Resident in India does not include a person who has come to or stays in India for any
purpose which would indicate his stay for definite period. Accordingly, a Foreign Student
coming to India would be considered as “Non Resident” and a Resident Account cannot be
opened for him ( Ho cir 112/2014 dtd 26/12/2014).
7. Accounts of foreign nationals/firms/companies in India are treated as resident accounts and are
governed by rules relating to current account transactions As per FEMA Guidelines
8. To facilitate the Foreign National to collect their pending dues in India, Branches may permit
such Foreign National to re-designate their resident account maintained in India as NRO
account on leaving the country after their employment/business to enable them to receive their
pending bonafide dues, subject to the following conditions Pl refer Ho cir 191/2011 dtd
23/06/2011) :
a) Branch should obtain the full details from the account holder about his legitimate dues
expected to be received into and paid from his account.
b) Branch has to satisfy itself about the credit of the bonafide dues of the account holder when
she/he was resident in India.
c) The funds credited to the NRO account should be repatriated abroad immediately, subject to
the Bank satisfying itself regarding the payment of the applicable income tax and other taxes
in India.
d) The amount repatriated abroad should not exceed USD one million per financial year.
e) Debit permitted only for the purpose of repatriation to the account holder’s account
maintained abroad.
f) There should not be any other inflow/credit to this account other than that mentioned in a)
above.
g) Branches should monitor the credits and debits in the account closely and ensure strict
compliance of the guidelines.
h) The account should be closed immediately after all the dues have been received and
repatriated as per the declaration made by the account holder
How to open an Account :

 Account opening form IF(GEN) 1845, an undertaking letter ( as per Annexure – V) for the
purpose of investment in India and credits representing sale proceeds of investments, he/she would
ensure that investments/ disinvestments would be in accordance with the regulations made by RBI

in this regard. Once this undertaking is obtained,need not verify the particulars of approvals for
investments/disinvestments while permitting individual credits/ debits to the account.
 Photograph(s), specimen signature card(s), introduction,, noting of details, issue of cheque

books, etc., as applicable to NRE accounts.
Types of Accounts :
NRO accounts as Current, Savings Bank, FDR. Savings Bank accounts cannot be opened in the name of
entities as well as in the names of individuals for commercial activity.
HUF NRO Accounts : in the name of HUF provided all the co-parceners are non-residents.
Rules, regulations and other directives of RBI in regard to resident accounts are also applicable to NRO
accounts including rate of interest.
Permissible Credits/ Debits :
( A ) Credits :
i. Inward remittance in any permitted currency from abroad through normal banking channels.
ii. Proceeds of Foreign Currency Travelers Cheques/ Currency Notes tendered personally by the
account holder during his/her temporary visits to India,
iii. Proceeds of Foreign currency notes tendered to other banks/money changers can also be
credited on production of currency declaration form and encashment certificate.
iv. Transfer from rupee accounts of non-resident banks.
v. Legitimate dues in rupees of the account holder in India, including interest/maturity proceeds of
NRO deposits.
vi. Payments received by NRIs by crossed cheque(s) from residents in Indian Rupees being proceeds
of the sale of gold/silver imported by the NRI importer.
vii. Gift by Resident Indian by way of crossed cheque/electronic transfer but overall limit of USD
250,000 per financial year under Liberalised Remittance Scheme (LRS) during the financial year
including the gift amount.
viii. Transfer from NRO accounts of other NRIs/PIOs. (Transfer between NRO accounts of the same
NRI Customer is not permitted.)
( B ) Debits :
i. local payments in rupees including payments for investments subject to compliance with the
relevant regulations made by RBI.
ii. Remittance outside India of current income in India viz. Rent, Dividend, Pension, Interest, etc.
of the account holder, are subject to net of applicable taxes.
iii. Settlement of International Credit Card [ICC] charges, to the extent of the card limit for use of
credit cards issued by Banks in India.
iv. Remittances up to USD 1million per financial year subject to compliance of the guidelines
v. Transfer to NRO accounts of other NRIs/PIOs. (Transfer between NRO accounts of the same
NRI Customer is not permitted.)
Here pl refer Cir no FX/73/2013 dtd 20/07/2013 as Reserve Bank of India intimated instances of non
compliance of FEMA regulations relating to operations in NRO accounts , mainly the following
aspects:
· Non verification of source of funds credited to Non Resident Ordinary (NRO) accounts.
· Failure to re-designate accounts as NRO accounts though required
· Non Submission of proper information called for by the Reserve Bank.
· NRI customers may be advised to open and maintain NRO accounts only if has local credits by
rental income or interest/ dividend accrued on investment etc.
· On crediting any amount , proper diligence is exercised and enquiries are made to satisfy of the

genuine of the transaction and it is permissible credit and can seek additional documents
Deduction of Tax at Source :

As per Section 195 of the Income Tax Act, 1961, Income tax is to be deducted [at the rate as advised by HO
from time to time] at source on the amount of interest paid/credited to NRO deposits. Branches
may extend the concessional rate of TDS to NRI depositor, residing in the country abroad which is
covered under Double Taxation Avoidance Agreement (DTAA) after obtaining Tax Residency
Certificate (TRC)8 in form 10F (Self declaration)
[ Details and 10F format in Ho cir 420/2013 dtd 27/08/2013 and other details for taxation refer manual
of instruction on non resident deposits point no 2.12.02 to 2.12.09]
When Non resident becomes resident – Change of status :
NRO Accounts may be redesignated as resident accounts on the return of the account holder to India,
provided necessary proof obtained (passport, visa etc) from the account holder and satisfied.
When status changes from non-resident to resident, the balance in the NRO accounts at the time of
return is not eligible for conversion and credit to RFC account.
Temporary Over drawings in NRO SB Accounts :

Foreign Exchange Regulations permit Authorised Dealers to allow temporary overdrawings in NRO
Savings Bank accounts (not in NRO current accounts), according to their own discretion/ commercial
judgment.
In accordance with the prevailing credit guidelines in our Bank, casual overdrawing in NRO-SB
accounts may be allowed upto the powers delegated to various authorities by HO from time to
time.
Such overdrawing for passing cheques covering local payments in Indian Rupees.
Over drawings with the interest to be cleared/ repaid within a period of two weeks, by remittances from
abroad or out of legitimate funds of the account holder or transfer from NRE/ FCNR accounts. if
cleared beyond the period of two weeks for any reasons beyond their control, should seek
ratification from the concerned Regional Office of RBI. All such cases to be reported to respective
RO/CO as the case may be for monitoring purpose.
Interest and follow-up will be as applicable permitted in resident accounts.

( C ) Foreign Currency Non-Resident (Bank) Account - FCNR (B) :
An Overview :
The FCNR (B) Scheme was introduced by RBI with effect from 15.05.1993. The exchange risk is to
be borne by the Bank.
The rules and guidelines applicable to NRE Accounts viz. , eligibility, account opening form,
introduction, obtention of photographs, nomination, permitted credits and debits, reparability of the
funds held in these deposits, renewal and premature closure of deposits, operation by residents, change
of status, etc., are also applicable to FCNR(B)
The main distinction between NRE and FCNR(B) schemes is that NRE accounts are maintained in
Indian Rupees and FCNR(B) accounts are maintained in foreign currencies.
Further, NRE accounts are maintained in the form of SB/Current accounts as well as term deposits,
whereas FCNR(B) accounts in the form of term deposits only.
Designated Currencies:
Opened and maintained in the following foreign currencies:
US Dollars (USD), Great Britain Pounds (GBP), Euro (EUR), Canadian Dollars (CAD) and Australian
Dollars (AUD).
Quantum OF Deposit :
Minimum amount USD 500 or its equivalent in other designated currencies. No maximum.
Period of Deposit :
DETAILS MINIMUM PERIOD MAXIMUM

FCNR (B) KDR ONE YEAR & ONE PERIOD
FIVE YEARS
DAY
FCNR (B) FDR ONE YEAR FIVE YEARS
Rate of interest :
ü The rate of interest fixed basing on the interest rates prevailing in international market, subject
to the directives of RBI and advised by Integrated Treasury Wing, Mumbai, presently on a
monthly basis and are changed effective from first day of each Month.
Funds for the Opening of Account:

1. Inward remittance in freely convertible foreign currencies from abroad in an approved
manner.
2. Proceeds of Foreign Currency Travellers Cheques/Notes tendered in person during temporary
visit to India. TCs in the name of the account holder(not endorsed) . If aggregate value of
TCs/Notes tendered exceeds USD 10,000 or its equivalent in other currencies or where the
value of currency notes exceeds USD 5,000 or its equivalent, to declare it to Customs in
Currency Declaration Form (CDF)
3. Proceeds of personal cheques of depositor’s foreign currency account maintained abroad.
4. Transfer from account holders NRE/FCNR (B) account.
5. Transfer from EEFC and RFC (D) to FCNR (B) account at the request of the account holders
on change of status from resident to non-resident.
6. Accepting Foreign Currency Cheques/DDs/TCs endorsed in favour of NRIs for opening FCNR
[B] accounts, refer 01.05.03.02 of NR deposit Manual.
Please also note the following points while opening FCNR (B) term deposits:
ü FCNR(B) deposits are opened by way of foreign currency notes, irrespective of the amount, the

deposit receipt be marked that- “in case the deposit is closed before completion of one year from
the date of deposit, a service charge of 1.25% shall be levied”.
ü Permission to be obtained from MIP£tD Section of the Circle, amount is in excess of USD
10,000 or equivalent in other currencies.
ü FCNR(B) accounts cannot be opened by a power of attorney-holder nor out of FCTC/currency
notes tendered by him or any person other than the NRI.
ü FCNR(B) accounts cannot be opened on the strength of Encashment Certificates issued by other
banks.
ü The proceeds of Insurance Policies denominated in foreign currency or the rupee Policies for
which premium are paid in foreign currency or out of NRE/FCNR accounts, are permitted to be
credited to the NRE/FCNR account of non-resident without prior approval of Reserve Bank.
Conversion into Designated Currencies :
FCNR(B) deposits can be maintained only in the five designated currencies as mentioned above.
( USD, GBP, EUR, CAD and AUD)
If remittance is received in another convertible foreign currency the currency can be converted into
designated currency( cross currency rate). It is applicable even if the currency of remittance is one of the
permitted designated currencies. "(1)
If inward remittances received in convertible Rupees or transfer of Rupee funds held under NRE
deposit, conversion into the proposed designated currency( TT Selling Rate)
FCNR [B] deposits are accepted in Japanese Yen [JPY] currency.
" (1) Cross currency rate cannot be applied in respect of foreign currency notes tendered for opening
FCNR in another currency. The currency tendered should be purchased at the currency buying rate and
sale should be reported for the currency in which the account is to be opened.
Application - IF (GEN) 1845, extracts of photocopy of passport
Payment of Interest:
a) Interest shall be computed in the currency in which the deposit account is maintained.
b) Calculation of 360 days as number of days per year
c) As per RBI-DBOD directives, interest on FCNR(B) deposits shall be calculated and paid in
the manner indicated below:
· Minimum period of FCNR (B) deposit should be one year and for compounding interest, the
deposit should be for a period exceeding one year.So FNCR KDRs should be minimum period
of ‘one year + one day’ or a period exceeding the said period.
· In case of FCNR (B) FDRs accepted for a period of exactly one year, simple interest is payable
only on the date of maturity. In other words, in case of such FCNR (B) FDRs accepted for a
period of one year, interest for the entire year [365 or 366 days, as the case may be] shall be
computed without any compounding effect and no payment of interest should be made before
completion of one year from the date of investment.
· In FCNR(B) FDR depositors wants to draw interest at half yearly rests [i.e., at intervals of 180
days] either in cash, credit to NRE/FCNR(B)/Other accounts or remittance abroad, period of
deposit for a minimum period of 1 year plus 1 day.
Premature Closure Within 3 Weeks from the date of Deposit Opened by Foreign Currency
Notes / Travellers Cheques / Foreign Demand Drafts / Cheques :
1. FCNR (B) deposit has been opened by tendering Foreign Currency Travellers
Cheques/Foreign Currency Cheques/FDDs:
i. Repayment of the deposit by conversion into Rupees or repatriation of foreign currency funds
abroad can be made only after realization of the instrument.
ii. If opted for conversion into Rupees by TT Buying Rate as on the date of conversion.
iii. Commission/Postage as applicable for Clean Instruments is to be recovered separately.

2. FCNR (B) deposit has been opened by tendering Foreign Currency Notes:
I. Repayment of the deposit by conversion into Rupees can be made only after realization of the
Foreign Currency Notes.
II. The applicable rate will be the Foreign Currency Note Buying rate ruling on the date of
conversion.
III. For repatriation of foreign currency funds abroad, purchase the Foreign Currency at Foreign
Currency Note buying rate and Rupee funds to be converted to Foreign Currency by ruling TT
Selling Rate.
Change of Status of the Depositor – Guidelines :
1. When the FCNR (B) account holder returns to India for permanent settlement immediately inform
the branch about the change in the status.
 Branches should obtain a declaration from the account holder to the effect for
Permanent settlement, are having the following two options:
i. To continue the FCNR (B) deposit till maturity at the contracted rate of interest.
a) Under this option, the deposit will continue as FCNR (B) as regards provisions relating to rate of
interest and reserve requirements. For all other purposes, such deposits would be treated as
resident deposits from the date of return.
b) In case the depositor requests for premature closure of such FCNR(B) deposits subsequent to
return to India for permanent settlement, levy of penal cut of interest on closing.
c) On maturity of such continued FCNR (B) deposit, branches should convert the same into either
resident rupee deposit or RFC account, at the option of the account holder.
ii. To close the existing FCNR (B) deposit before maturity [without penal cut] and convert the proceeds
i.e., principal and interest accrued for the actual period run (without penal cut) into Resident Foreign
Currency (RFC) account.
2. FCNR (B) accounts cannot be redesignated as RFC accounts with retrospective effect. The interest
payable on FCNR (B) accounts in foreign currency is applicable until the date of redesignation of FCNR
(B) to RFC account. Thereafter, interest will be paid as applicable to RFC account. In other words, the
rate of interest as applicable to RFC deposit will be payable from the date of opening of RFC deposit.
3. In cases where the FCNR(B) deposits have not completed the minimum period of deposit i.e., 1 year,
as on the date of conversion into RFC account as per option [2] above or conversion into resident rupee
deposit by premature closure of the FCNR(B) deposit, if so desired by the depositor, interest may be paid
on such FCNR(B) deposits at EITHER the RFC SB deposit interest rate prevailing on the date of
conversion OR the contracted rate of interest of the FCNR(B) deposit, WHICHEVER IS LOWER
4. If the FCNR (B) deposit held in one designated currency is sought to be converted into another
designated currency under RFC account, specific authority letter should be obtained from the
depositor.
5. If the account holders become non-residents again subsequent to conversion of FCNR(B) deposits into
RFC account, they would be free either to transfer the balances in RFC account to accounts outside India
or to convert such balances into NRE/FCNR(B) accounts in India.
6. Conversion of FCNR (B) deposits to RFC account where loan/overdraft granted against the security of
the deposit is outstanding:
a) The liability in the loan/overdraft account is to be liquidated along with upto date interest

by closure of the deposit before maturity. Rate applicable to the period actually run , less
penalcut of 1%. The balance portion which is to be converted into RFC account eligible
interest for the period run as ruling on the date of deposit, without penal cut.
b) In cases where the loan granted against the FCNR (B) deposit is outstanding at the time of the
return of the depositor, opts to continue to hold such FCNR(B) deposit till maturity, loan
outstanding against such deposit can also be continued till the maturity of the deposit, as per
the original terms.
However, if the depositor opts to convert the FCNR (B) deposit into RFC / resident rupee account, the
liability in the loan account should be liquidated along with up-to-date interest, before converting the
deposit into RFC/resident rupee account.

( D ) Resident foreign currency (RFC) Account :
During 1992, RBI formulated a new Scheme known as “Resident Foreign Currency Accounts (RFC
accounts) Scheme” to facilitate the returning NRIs for holding the balance in NRE / FCNR accounts in
foreign currency as well as continuing their foreign currency assets abroad.
As per clause (b) of Section 9 and clause (e) of sub-section (2) of Section 47 of Foreign Exchange
Management Act, 1999 (42 of 1999), the Reserve Bank of India makes the following regulations for
opening, holding and maintaining of Foreign Currency Accounts and the limits up to which amounts can
be held in such accounts by a person resident in India.
Returning Indians i.e. those Indians, who were non-residents earlier and are returning now for
permanent stay, are permitted to open, hold and maintain with an Authorised Dealer in India a Foreign
Currency Account, to be known as a Resident Foreign Currency [RFC] Account, out of –
Foreign currency assets held outside India and brought to India at the time of returning for permanent
stay; Or
1) Foreign exchange received as pension or any other superannuation or other monetary benefits
from the employer outside India; Or
2) Foreign exchange realized on conversion of the foreign assets including foreign security or
immovable property situated outside India if such currency, security or property was acquired, held
or owned by such person when he was resident outside India or/and repatriated to India; Or
3) Foreign exchange received or acquired when he was resident outside India as a gift or
inheritance from a person resident outside India and proceeds have been repatriated to India; Or
4) Foreign exchange received by a resident individual who was non-resident earlier and has
returned for permanent stay in India, by way of the proceeds of life insurance policy
claims/maturity/surrender values settled in foreign currency from an insurance company in
India permitted to undertake life insurance business by the Insurance Regulatory and
Development Authority.
Designated currencies:
US Dollars [USD], Sterling Pounds [GBP], Euro [EUR], Canadian Dollars (CAD) & Australian Dollars
(AUD).
Types of Accounts:
Current, Savings Bank([without Cheque facility) and term deposits other than Recurring deposit
accounts. Savings Bank accounts cannot be opened for trade and commercial purposes.
RFC Accounts can be held singly or jointly in the names of eligible persons. Additions of names other
than those of eligible persons are not permitted.
Opening of RFC Accounts :
i. Application - IF (GEN) 1853, passport photocopy.
ii. Original passport to be verified and certify on the application that the details mentioned therein
are correct after being satisfied that the applicant is eligible to open RFC account and that the
funds being credited to the account represents eligible remittance/ proceeds.

iii. In all other cases, the application in the specified form should be forwarded to RBI [FAS
Section] Central Office, Mumbai with full details for their approval for opening new RFC
Account.
iv. In the cases where change of status is not informed within a reasonable period of time after
arrival for permanent settlement should also be referred to RBI as above.
v. Guidelines regarding introduction of accounts should be complied with.
vi. In the case of Savings Bank and Current account, cheque books should not be issued. All
operations should be carried out by authority letters issued by the account-holder.
Interest rates:
The interest rates are fixed on the basis of interest rates for such foreign currency deposits in the
international market. It is advised by Integrated Treasury Wing, Mumbai from time to time.
Saving Bank Accounts
I. Individuals/ organizations in trade and commercial activities.
II. Initial Minimum amount of USD 100, GBP 100, EUR 100, CAD 100 & AUD 100.
III. The minimum amounts in the different designated currencies eligible for interest are as
follows:
IV. USD: 1000, GBP: 1000, EUR: 1000, CAD: 1000 and AUD: 1000.
V. If the balance falls below the minimum amount, no interest for that month. The minimum amount
of interest per half year is USD 10 or its equivalent in other currencies.
VI. Calculation of interest and payment on half yearly basis as resident SB accounts.
Current Accounts
I. No interest.
II. Minimum amounts of deposit are USD 100/GBP 100/EUR 100 / AUD 100 / CAD 100 and
subsequent credits to the accounts can be any amount without any stipulations.
Term Deposits
I. The minimum amounts of deposit (FD/KD) as follows :
USD GBP EUR AUD CAD
1000 1000 1000 1000 1000
 Odd amounts may also be accepted
II. The RFC Fixed Deposits for a minimum period of one month and a maximum 3 years.
III. If deposit amount of USD 250,000 or equivalent in other currencies, RFC FDRs may also be

accepted for short periods of 1 Week to less than 1 Month.
IV. The interest shall be paid only at the time of maturity of the deposit. In respect of RFC Fixed
Deposits for periods ranging from 6 months to 3 years, quarterly interest may be paid.
V. RFC KD - minimum period of 1 year and a maximum period of 3 years.
VI. Calculation of interest/maturity value is as applicable to FCNR [B] Deposits.
VII. On premature closure of the deposit, penal cut of 1% is to be levied on the applicable rate of
interest for the period for which the deposit has actually run, as ruling on the date of deposit.
VIII. If the applicable rate of interest for the period run is less than 1%, No interest should be paid
for closure before maturity.
IX. If the date of maturity is a holiday, interest for the holiday at the contracted rate, provided
customer come for payment on the immediate next working day.
X. Extension of period of RFC Term Deposits during the tenure of the deposit for a period longer than
the balance period is permitted without applying penal cut of 1%. If the extended deposit is closed
before the original due date, levy of 1% penalty to be from the date of opening of the deposit itself.
XI. Interest may be credited to the respective RFC account or to the resident rupee account of the
depositor.
Remittance in any convertible foreign currency from abroad through normal banking channels
representing:
I. Funds in foreign currency accounts of the account holder with banks abroad
II. Income as dividend, interest, profit, rent, etc. earned on account holder’s eligible assets as
securities, investment, immovable properties held abroad.
III. Sale proceeds of eligible assets.
IV. Pension or any other monetary benefits from abroad from employment taken outside India by the
account holder prior to his return to India.
V. Interest earned on RFC accounts.
VI. Foreign currency notes/travellers cheques in any permitted currency, have been declared on
Currency Declaration Form(if required)
VII. Transfers from other RFC accounts of the account holder.
VIII. Balances in NRE/FCNR(B) account in the name of the account holder at the time of arrival in
India.(No penal cut for pre-mature closure)
IX. Unutilized entitlement under any valid RIFEE (Returning Indian Foreign Exchange
Entitlement)Permits/Re-conversion facility granted by RBI.
X. Unspent foreign exchange surrendered by the RFC account holders, provided that foreign
exchange/currency released by debit to the same RFC account.
XI. Foreign exchange received as gift or inheritance from a person outside India.

XII. Any other amount specifically permitted by RBI.
XIII.Allowances received abroad in foreign exchange by Pilots/Cabin Crew Members/Flight
Engineers of Air India/Indian Airlines are not eligible for credit to their EEFC / RFC accounts.
XIV. Such allowances may be credited to RFC [Domestic] account
Tax exemption clarifications:
I. When NRE deposits are converted into RFC accounts upon return of Depositor to India or where
FCNR [B] deposits are converted into RFC accounts on maturity or before and where the
depositor maintains the status of Resident but Not Ordinarily Resident [RNOR] for IT purpose,
then under Section 10 (15)(iv) (fa) of IT Act, interest accrued/paid on such RFC accounts shall
be tax free so long the depositor maintains the status of RNOR.
II. In terms of provisions of Section 10 (15)(iv)(fa) of the Income-tax Act, 1961, as amended
through the Finance Act, 1993, the benefit of tax exemption on the interest payable by a
scheduled bank on deposits held in foreign currency would be available to those who are ‘non-
residents’ or ‘not ordinarily resident in India’ within the meaning of sub-section (6) of Section 6
of the Income-tax Act, 1961.
III. Branches may be guided by the instructions given by Executor, Trustee and Taxation Section, HO,
Bangalore and obtain clarification to specific cases with ETT Section, FM£tS Wing Head Office,
Bangalore.
(E ) Resident Foreign Currency (Domestic) Account

[ RFC(D) ]: Overview :
A person Resident in India can open, hold an maintain with an Authorised Dealer in India a Foreign
Currency Account to be known as “Resident Foreign Currency [Domestic] Account”, as foreign
exchange acquired in the form of currency notes, bank notes and travellers cheques subject to certain
terms and conditions.
Eligibility: Resident individuals
Account type: Only Current account with no interest.
Currency: US Dollar [USD], Sterling Pound [GBP] and Euro [EUR]
Minimum balance: No stipulation
Opening of account: Current account opening form. Signature card, photo etc & no cheque book
Permitted credits:
I. Acquired while on a visit to any place outside India by way of payment for services not arising
from any business in or anything done in India; or
II. Acquired from any person not resident in India and who is on a visit to India, as honorarium or
gift or for services rendered or in settlement of any lawful obligation;or
III. Acquired by way of honorarium or gift while on a visit to any place outside India; or
IV. Unspent amount of foreign exchange acquired from an Authorised Person for travel abroad; or

V. Unspent amount of Foreign Exchange received as allowance by Pilots/Crew Members/Mariners, etc.
of Indian Airline/Shipping Companies.
VI. Foreign exchange earnings through export of goods and/or services, royalty/ honorarium, etc. by
Resident Individuals; and
VII. Gifts received from close relatives.
VIII. Foreign exchange received by a resident individual, by way of the proceeds of life insurance
policy claims/maturity/surrender values settled in foreign currency from an insurance company in
India permitted to undertake life insurance business by the Insurance Regulatory and Development
Authority.
IX. Foreign exchange received by way of Cheques/DDs, etc.,. In other words,

purchasing/discounting of the same for crediting to RFC(D) account is not permissible.
X. Allowances received abroad in foreign exchange by Pilots/Cabin Crew Members/ Flight

Engineers of Air India/Indian Airlines.
XI. The sale proceeds, received by residents on receipt of disinvestment proceeds on conversion of
shares under Govt. approved ADR/GDR scheme.
Obtention of Declaration:
ü In respect of each credit to the RFC (D) account, a Declaration from the account holder as per
ANNEXURE-VIII stating the source of funds.
ü Foreign Currency Notes/ Travelers Cheques received as gift from a visitor not resident in India,
obtain a letter from the donor along with a copy of the relevant Currency Declaration Form (if
required).
ü When gift is received outside India, he is required to make the declaration in Currency
Declaration Form (CDF) to Customs authorities on arrival in India, if required (limits of
CDF)
Permitted debits:
I. For payment towards current / capital account transactions as per existing foreign exchange
regulations.
II. Balances may be credited to NRE/ FCNR (B) A/c consequent upon change of status
from resident to nonresident.

( F ) Exchange Earner Foreign Currency account
(EEFC) :
An overview:
Exporters of goods and services resident in India received Inward Remittances in convertible foreign
currencies are permitted to open and maintain.
Eligibility & Entitlements:
LIMIT
ENTITY/PERSON
[PERCENT]
Status Holder exporters [as defined in EXIM Policy in
a) force]; 100%
Residents in India for professional services rendered in his

b) 100%
capacity;
c) 100 percent EOUs, Units in EPZs/ STPs/ EHTPs; 100%
d) Any other person resident in India/ other exporters 100%
ü Here ‘professional’ means :-
Director on Board of Overseas Company, Scientist/Professor in Indian University, Economist , Lawyer,

Doctor ,Architect ,Engineer , Artist , Cost/Chartered Accountant , Any other person rendering professional
services in his individual capacity, as may be specified by RBI from time to time.
ü Status holder Exporter means :-
In terms of EXIM Policy, ‘Status Holder’ includes ‘Export Houses’, ‘Trading Houses’, ‘Star
Trading Houses’ and ‘Super Star Trading Houses’
All eligible inward remittances in foreign currency
Advance payments towards exports received in freely convertible currencies subject to monitoring of
the advances so received, by the Authorised Dealer (pl refer - Manual of Instructions on Exports –
General)
Payments received by debit to US Dollar Escrow accounts and under foreign currency debt repayment
route:
EEFC entitlement of member establishments: Received by hotels from Credit Card Servicing
Organisations (CCSO) in India in Indian rupees against goods/services sold/supplied to foreign tourists
against International Credit Cards (ICCs) , provided the CCSO in India confirms that the total bill
amount realised in convertible foreign currency in an approved manner.
Foreign Exchange received by an Unit in Domestic Tariff Area(DTA) for supply of goods to an Unit
is Special Economic Zone (SEZ) out of its foreign currency account.
Re credit of unutilized forex, provided been released earlier by debiting to the same EEFC account
The resident Indian company which has awarded the contract, under global bid can make payments to the

Indian bidder in foreign exchange. The Indian bidder who receives payments in foreign exchange isrequired
to surrender the same to an Authorised Dealer in terms of the Foreign Exchange Cost of goods purchased
by 100 % export oriented units /units in export processing zones(EPZ)/Software technology park
(STPs)/Electronic Hardware technology Parks (EHTPs) from other similar units for export production
subject to conditions (Pl refer Foreign
remittance manual)
VII. All bonafide expenses towards travel/medical treatment abroad for self and family members
and educational expenses of their children studying abroad.
VIII. Payment towards consultancy fees (technical/non technical) to foreign consultancy
firms/companies for services provided to Indian entities, submitting documentary evidence in
support of payment. Amount of consultancy fee/charge and on undertaking/certificate regarding
payment of income tax. (Pl refer Foreign remittance manual). An undertaking that applicant
complied the provisions of Research & development cess Act, 1987 and of Companies act, 1956,
wherever applicable.
IX. Trade related advances by exporters to their importer client in abroad.
X. Payments by units in Domestic Tariff area (DTA) to EOUs, units in EPZs , EHTPs and
STPs towards cost of goods purchased(Pl refer Foreign remittance manual)
XI. Repayment of FCLR.
XII. Investments by Indian companies in JV/WOS abroad under the EEFC fast track window (Pl refer
Indian direct Investments in JVs and WOSs manual).
XIII. Payment to residents in India for supply of goods/services including air fare, hotel bills.
Designated currencies:-
US Dollar (USD)
Pound Sterling (GBP)
Euro (EUR)
Australian Dollar (AUD)
Canadian Dollar (CAD)
Remittances/Export proceeds received in other permitted currencies shall be converted at cross

currency rate into any one of the above designated currencies.
Types of accounts :
Non-interest bearing Current Accounts only.
Resident Individuals are permitted to include resident close relative/s as joint account holder/s in
their EEFC account on ‘former or survivor’ basis. Such resident Indian close relative/s shall not be
eligible to operate the account during the life time of the resident account holder.
Minimum Amount: No stipulation.

Credit Facilities: No credit facility.
Extending Trade related Loans / Advances by Exporters out of their eefc balances to their Overseas
Importer Customers :
Foreign Exchange Regulation Guidelines:
An exporter holding EEFC account is permitted to extend trade related loans / advances in foreign
currency out of funds held in his EEFC account, to his overseas importer customer subject to the
following conditions :-

I. If amount of loan/ advance exceeds US$ 200,000, a guarantee of a bank of international repute
situated outside India should be provided by the overseas borrower in favour of the lender.
II. The transactions relating to loans/advances from EEFC Accounts should be reported by the
branch on a quarterly basis, as per ANNEXURE-XII to the concerned Regional Office of RBI.
(For operational instruction pl refer Non resident manual)
Conversion of balance of EEFC to INR :
100% of foreign exchange earnings during a calendar month shall get converted to Rupee
balances on or before close of business of next month, after adjusting for utilization of the balances
for approved purposes or forward commitments.
Change in Status :
The balances in the EEFC account may be allowed to be credited to NRE/FCNR account, at the
option/request of the account holder, consequent upon the change of the residential status of the
account holder from Resident to Non-resident.
( G ) Other Foreign currency accounts :-
In terms of Regulation No. 4, the following person’s resident in India can open foreign currency
accounts with an authorized dealer in India, subject to the conditions specified in the regulations:
I. A unit in a Special Economic Zone;
II. An exporter who is exporting services and engineering goods on deferred payment terms or has
undertaken a turnkey project or a construction contract abroad;
III. Indian agents of foreign airline or shipping companies;
IV. Ship-manning / crew managing agencies in India;
V. Project offices set up in India in terms of Foreign Exchange Management (Establishment in India
of Branch or Office or other Place of Business) Regulations, 2000 dated May 3, 2000, as
amended from time to time;
VI. Indian companies receiving Foreign Direct Investment.
VII. Organisers of international seminars, conferences, conventions etc.
In terms of Regulation No. 5, the following persons resident in India can open foreign currency
accounts outside India subject to the conditions specified in the regulations:
I. An authorized dealer in India with its branch/ head office/ correspondent outside India;
II. A branch outside India of a bank incorporated or constituted in India;
III. An India firm/ company/ body corporate in the name of its foreign office/ branch or its
representative posted outside India;

IV. An exporter who is exporting services and engineering goods on deferred payment terms or has
undertaken a turnkey project or a construction contract abroad;
V. An Indian Party [as defined in Foreign Exchange Management (Transfer or Issue of any Foreign
Security) Regulations, 2004, as amended from time to time] for making overseas direct
investment provided the overseas regulator requires the maintenance of such an account;
VI. A person raising ECB or ADR/ GDR;
VII. Indian shipping or airline companies;
VIII. Life Insurance Corporation (LIC) of India or General Insurance Corporation (GIC) of India and its
subsidiaries for the purpose of carrying on life/ general insurance business;
IX. A resident individual under the Liberalized Remittance
Scheme; A person going abroad to participate in an exhibition/ trade
fair;
xi. A person going abroad for studies;
xii. A person who is on a visit to a foreign country provided the balances are repatriated on return
to India;
xiii. A foreign citizen resident in India, being an employee of a foreign company, or an Indian citizen,
being an employee of a foreign company, in either case on deputation to the office/ branch/ subsidiary/
joint venture/ group company in India;
xiv. A foreign citizen resident in India employed with an Indian company.
In terms of regulation 6, unless otherwise specifically stated, a Foreign Currency Account with an
authorized dealer in India under these Regulations may be opened, held and maintained in the form of
current or savings or term deposit account in cases where the account holder is an individual, and in the
form of current account or term deposit account in all other cases. The account can be held singly or jointly
in the name of person eligible to open, hold and maintain such account.
The foreign currency accounts of ship manning / crew managing agencies in India that
are rendering services to shipping companies incorporated outside India :
I. Type of Accounts : Non Interest bearing Current Account
II. Permitted Currency : USD, GBP, EUR CAD & AUD
III. Permissible Credit : Freight/passage fare collection in India or inward remittances through
normal banking channels from the overseas principal.
IV. Permissible Debit : expenses in connection with the Management of the ships/crew in the
ordinary course of its business.
V. Tenure of the A/c : during the valid period of the agreement. A copy of the Agreement is to be
obtained for determining the tenure of the account.

VI. Accounting Procedure : same as applicable to EEFC account.
VII. Other Conditions:
· No credit facility (fund based or non-fund based)

· No EEFC facility
· No interest
· Account opening formalities including KYC norms, as applicable to current account
· Operation in the account can be made only by way of Authority letters issued by the authorised
signatory (ies) of the account holder.
Escrow account :
Under a counter trade proposal involving adjustment of value of goods imported into India against
value of exports from India in terms of an arrangement voluntarily entered into between the Indian
party and the overseas party, an Escrow Account to be opened with a bank in India. Designated in a
foreign currency will be considered by RBI.
Application for permission for opening such an account in the name of the overseas party should be
made by the overseas exporter/organization through the branch with whom the account is proposed to be
opened, to the concerned office of RBI.
Regarding the various procedural guidelines on Escrow Accounts,( pl refer Chapter 8 of ‘EXPORTS
- GENERAL ‘manual)
Escrow Account in Rupee (INR)
Resident/ non-resident acquirers and non-resident corporate may open Escrow account in INR with an
Authorized Dealer in India as an escrow agent subject to the terms and conditions specified in Schedule 5
(available on Cannet) of the Deposit Regulations.
Transactions shall be in accordance with the Foreign Exchange Management (Transfer or Issue of
Security by a person resident Outside India) Regulations, 2000 and regulations of the Securities and
Exchange Board of India (SEBI), as applicable.
No -interest bearing.
No fund/ non-fund based facility
Airline/ shipping companies or their agents in India for crediting freight collections from local
exporters/importers. Withdrawal of funds from such accounts may be permitted for meeting local
expenses of the concerned airline/shipping company, payment of taxes, etc. or for making remittances
abroad towards surplus passage/freight collections, operating expenses, etc. to the extent permitted by
RBI.
Permissible credits by way of freight or passage fare collections in India or by inward remittances
through normal banking channels from its office outside India and in the case of agent, from his
principal outside India.
For other details pl refer ‘ship manning / crew managing agencies’ foreign currency account in above
paragraph.
Foreign Currency Accounts for Travel Agents / Tour Operators:

Agents in India who have tie-up arrangements with hotels/agents etc. abroad for providing hotel
accommodations or making other tour arrangements for travellers from India provided
Permissible credit : collections made in foreign exchange from travellers and refunds received from
outside India on account of cancellation of bookings/tour arrangements, etc.
Permissible debits : payments towards hotel accommodation, tour arrangements, etc. outside India in
foreign exchange.
Travelers Cheques/FDDs, etc. presented by the Tour Operators for credit of the foreign currency
account should be handled only on collection basis and Foreign Currency account can be credited
only after realisation of the instrument, subject to ‘Waiting Period’ concept.

Foreign Currency Account of a Unit in Special Economic Zone:
A unit located in a Special Economic Zone may be allowed to open, hold and maintain a Foreign
Currency Account (NOT EEFC A/c) with an Authorised Dealer in India subject to the following
conditions :-
I. The funds held in the account shall be used for bonafide trade transactions of the unit in
the SEZ with the person resident in India or otherwise.
II. The balances in the accounts shall be exempt from the restrictions imposed under Rule 5,
except item 3 and 4 of the Schedule III, of the Government of India Notification No.
GSR.381 (E) dated May 3, 2000. (Refer Chapter 1 of Manual of Instructions on ‘FOREIGN
OUTWARD REMITTANCES’)
III. The funds held in these accounts shall not be lent or made available in any manner to any
person or entity resident in India not being a unit in Special Economic Zones.
a) A unit in SEZ for opening a Foreign Currency Account, duly satisfying about the status of the
applicant as being a unit in SEZ by calling for Letter of Permission (LOP)/Letter of Intent (LOI)
issued by the Development Commissioner of the SEZ concerned, a copy is to be retained
b) Such foreign currency accounts can be opened in the form of current account by following the laid
down guidelines as applicable to opening of Rupee current accounts like obtention of account
opening form, introduction, other precautions, etc. Additionally, a declaration is to be obtained
from the account holder that they would adhere to FEMA guidelines in the matter.
c) Currency of the account can be USD, GBP or EUR.
d) Permitted Credits : Foreign exchange funds received by the unit. No credit towards foreign
exchange purchased in India without prior permission from RBI.
e) Permitted Debits: All bonafide transactions of the unit with the person resident in India or
otherwise.Remittances abroad for gift or donation exceeding US$ 5,000 per annum, each, if
any, require prior approval of RBI.
f) Account Operations: by authority letters issued by the authorized signatories. No cheque book
facility.
g) Operational instructions: Current Accounts are applicable
h) Accounting procedure: as EEFC Accounts.
Foreign Currency Accounts of Foreign Embassies / Missions / Diplomats:

Foreign Embassies/Missions/ Diplomats accounts can be opened without the approval of RBI, subject to
the following conditions:-
i. Credits: Inward remittance in convertible currencies.
ii. Debits: Import of goods, purchases from Bonded Stores, payment of passage fare, etc.
iii. Funds held in these accounts, if converted in rupees cannot be reconverted into foreign
currency for credit to the accounts.
iv. Repatriation: Repatriated/ transferred abroad without the approval of Government of

India/RBI.
v. Foreign Diplomats may maintain Current/Savings Bank/ Fixed Deposit accounts subject to usual
terms and conditions of operating these accounts.

vi. Stipulations relating to period of deposit, minimum balance, rate of interest to be paid on
Savings/Term Deposit accounts and accounting procedure are similar to those applicable to
RFC accounts. However, no cheque facility is permissible.
Foreign Currency Accounts of Non-Diplomatic Staff of Foreign Embassies

Diplomatic missions, diplomatic personnel and non-diplomatic staff of foreign embassies, who are the
nationals of the concerned foreign countries and hold official passport, on the following terms and
conditions.
i. SB/ Current/Term Deposit accounts subject to usual terms and conditions of operating these
accounts.
ii. Credits : inward remittance in convertible currencies.
iii. Debits : import of goods, purchases from Bonded Stores, payment of passage fare, etc.
iv. Funds held in these accounts, if converted in rupees cannot be converted into foreign currency for
credit to the accounts.
v. Repatriation : Repatriated / transferred abroad without the approval of Government of

India/RBI.
vi. Stipulations relating to period of deposit, minimum balance, rate of interest to be paid on
Savings/Term Deposit accounts and accounting procedure are similar to those applicable to
RFC accounts. No interest is payable on current accounts.
Special Foreign Currency Accounts with RBI Permission :

Corporate executing projects in India/abroad under World Bank schemes/other schemes and/or
availing External Commercial Borrowings may be permitted on case to case basis by RBI to hold
the loan amount in foreign currency as deposit with a bank in India.
The amount is utilised for the purpose for which the amount is received/borrowed. In such cases, we can
accept bulk deposits in foreign currency. The following guidelines are enumerated below :
i. Special Foreign Currency Deposits accepted with specific permission of RBI.
ii. In the form of Fixed Deposits in maintained in USD, GBP or EUR
iii. Minimum amount of USD 250,000 or equivalent in other currencies.
iv. Minimum period of deposit is 1 month and maximum period is 12 months. Branches may contact
Dealing Section, Integrated Treasury Wing, Mumbai either directly or through the respective
Foreign Department for the rate of interest to be quoted for these deposits, as and when
accepted/renewed.
v. The accounting procedure and guidelines on balancing and reconciliation of balances

outstanding in these accounts as applicable to EEFC/RFC accounts should be adhered to
vi. These accounts are not exempted from SLR/CRR requirements
Foreign Currency Account for Project Offices in India :

Branches may open non-interest bearing Foreign Currency Account for Project Offices in India subject
to the following:
The Project Office has been established in India, with the general/ specific permission of Reserve
Bank, having the requisite approval from the concerned Project Sanctioning Authority,
1. The contract under which the project has been sanctioned, specifically provides for payment in
foreign currency.
2. Each project can maintain one Foreign Currency Account.

3. Debits: Payment of project related expenditure.
4. Credits: Foreign currency receipts from the Project Sanctioning Authority, and remittances
5. from parent/group company abroad or bilateral/ multilateral international financing Agency.
6. The responsibility of ensuring that only the approved debits and credits are allowed in the
Foreign Currency Account shall rest solely with the concerned branch. Further, the Accounts
shall be subject to 100 % scrutiny by the Concurrent Auditor.
7. The Foreign Currency account has to be closed at the completion of the project.
8. Intermittent remittances:
a)Branch may permit intermittent remittances by Project Offices pending winding up/completion of
the project provided they are satisfied with the bonafides of the transaction and subject to the
following:
b)The Project Office submits an Auditors’ /Chartered Accountants’ Certificate to the effect that
sufficient provisions have been made to meet the liabilities in India including Income-Tax etc.
c) An undertaking from the Project Office that the remittance will not, in any way, affect the
completion of the Project in India and that any shortfall of funds for meeting any liability in
India will be met by inward remittance from abroad.
d)Inter Project transfer of funds requires prior permission of Reserve Bank of India.
e)
LOANS AGAINST RFC DEPOSIT TO THE DEPOSITOR
Currency : Indian Rupees.

Margin : 10%
Purpose : All bonafide purposes.
R.O.I : As per H.O Circulars .: Domestic/Inward remittance/Deposit proceeds.
Review : Value of the deposit is to be reviewed on last Friday of the month on the basis of Prevailing TT
buying Rate and record is to be maintained which is to be signed by the Manager Credit.
LOANS AND OTHER FACILITIES TO NRIs
Eligibility: NRIs/ NRIOs can avail loan in foreign currency against their FCNR (B) deposits
Currency of Loan: in the currency of the deposit, but to be converted into Indian Rupees immediately.
Margin :: 25% (10% with the permission of DM(O) of RO/CO, CM/AGM/DGM of the branch).
Purpose of Loan : for all purposes except for re lending or carrying of Agricultural /plantation or real
estate business.
Rate of Interest::
(a) upto 75 % / 90 % : 2% above the ROI offered on the deposit or LIBOR/SWAP rate for the period of
loan as prevailing on the day of grant of loan +2% whichever is higher.
(b) beyond 75 % /90 % up to 100%-- 2 % above the ROI stipulated to the particular
account on the overdrawn liability from the date of erosion of margin till the date of
clearance/regularization.
(c) When the deposit is withdrawn before the prescribed minimum period, no interest is paid on the
deposits, still ROI to be charged for a rupee loan at Base Rate+6% and in case of FC loan it will be LIBOR
for the period for which loan has existed +2.5% with a minimum of one month LIBOR+2.5%.
Repayment::
Only from repatriable sources like a).A Maturity proceeds of deposit b). Inward Remittances or from NRE
or from FCNR .c.) If repaid from NRE funds , INR NRE are to be converted into the currency of the

loan/deposit . d). NRO funds cannot be credited into this Loan.
Crediting Loan proceeds:
The loan proceeds should be converted at TT buying rate and is to be credited into NRO account or can be
repatriated to the account holder if desired.
HOW LOANS TO NRIs CAN BE GRANTED OUTSIDE INDIA AGAINST FCNR ?
Loans can be availed abroad by NRIs against their FCNR deposits. Loans to be availed through branch
abroad/correspondent banks. Lien to be noted at the branch where the deposit is kept.
PROCEDURE FOR LIQUIDATING VSL AGAINST NRE/FCNR DEPOSITS
The deposit amount ONLY to the extent of the VSL liability is to be transferred to the VSL. The excess in
the deposit amount is to be transferred directly to NRE/FCNR without routing through the VSL account.
ROLL OVER OF LOANS ON THE SECURITY OF NRE/FCNR DEPOSITS.
Request for renewal of NRE/FCNR deposits where loans granted are outstanding can be acceded provided
, the outstanding loan/overdraft with up to date interest is to be closed either by inward remittance or by
new loan granted against the renewed deposits. In case of closure of the earlier liability by way of new
loan on the renewed deposit is to be done on the same day of renewal. Fresh loan may be granted to close
the old loan to enable roll over of the existing liability. Fresh loan papers including authority to transfer the
existing liability to the new loan should be obtained from the depositor as well as from the borrower.
It is advisable to grant separate loans against individual deposits if the deposits are maturing on different
dates.
LOANS TO RESIDENTS AGAINST NR DEPOSITS: Presently, branches can grant VSL against
FCNR/NRE to the extent of 75% with a maximum of Rs1 Crore subject to delegation powers. However loan
against NRO deposits can be extended up to 90% with a maximum as per delegated powers.
CONTINUING THE LOANS TO RESIDENTS WHO HAVE BECOME NONRESIDENTS

SUBSEQUENTLY:
The borrower is an Indian Citizen or Indian origin. The party should submit an application furnishing
details such as date of departure, country to which he has gone, the purpose and duration of stay and
reason for continuing the loan. The Loan /OD was granted for meeting his business or personal
requirements and not for investments. Continuance of loan be restricted only to a period of original
sanction period or 1 year from the date of departure of borrower whichever is longer. Under any
circumstances the amount should not exceed the amount outstanding at the time of becoming nonresident.
Appropriate permission from sanctioning authority be obtained for continuance. It can be repaid from
Inward Remittances / funds in NRO /NRE / FCNR (B)
Interest rate :: if the loan is repaid from funds in NRE or Inward Remittances -Interest will be as per
original conditions ii. If repaid from Funds held in NRO. At Commercial rate or specified rate whichever
is higher. In case of non-response from the party, assistance of Indian Missions in the country may be
sought and normal steps for recovery initiated.
From KYC angle pre-mature/maturity payment of all non-resident term deposits are to be remitted only to
depositors and not to any third party. E-mail/fax instructions not to be acted upon till independent
confirmation from depositor is obtained in view of many frauds occurred in such transactions exposing
Banks to huge losses and embarrassments.

OUTWARD REMITTANCES
As per sub-section 5 of section 10 of FEMA, before undertaking any transaction in foreign exchange on
behalf of any person, an authorized dealer is required to obtain a declaration and such other information
from the person (applicant) on whose behalf the transaction is being undertaken that will reasonably
satisfy him that the transaction is not designed to contravene or evade the provisions of the Act or any of
the Rules or Regulations made or Notifications or directions or orders issued under the Act. Authorised
Dealers should preserve the information / documents obtained by them from the applicant before
undertaking the transactions for verification by the Reserve Bank. The onus of furnishing the correct
details in the application will remain with the applicant who has certified the details relating to the
purpose of such remittance.
If such person refuses or does not give satisfactory compliance of the requirements of an authorised
person, the authorized person shall refuse in writing to undertake the transactions and shall, if there is
reasons to believe that any contravention / evasion is contemplated by the person, report the matter to the
RBI.
In view of the above, declaration for every transaction in FEX to be obtained as per Annex-I(a) of Manual
of Instruction on Outward Remittance. However, for clients having regular foreign exchange transaction,
one time declaration can be obtained as per Annex – I(b).
TYPES OF TRANSACTION: Foreign exchange transactions can be divided into Capital account
transaction & Current account transaction.
Capital account transaction is a transaction which alters the assets or liabilities, including contingent
liabilities, outside India of persons resident in India or assets and liabilities in India of persons resident
outside India and includes the following;
Ø Transfer or issue of any foreign transfer or issue of any foreign security by a person resident in
India
Ø Transfer or issue of any security by a person resident outside India;
Ø Transfer or issue of any security or foreign security by any branch, office or agency in India of a
person resident outside India;
Ø Any borrowing or lending in foreign exchange in whatever form or by whatever name called;
Ø Any borrowing or lending in rupees in whatever form or by whatever name called between a
person resident in India and a person resident outside India;
Ø Deposits between persons resident in India and persons resident outside India;
Ø Export, import or holding of currency or currency notes;
Ø Transfer of immovable property outside India, other than a lease not exceeding five years, by a
person resident in India;
Ø Acquisition or transfer of immovable property in India, other than a lease not exceeding 5 years,
by a person resident outside India;
Ø Giving of a guarantee or surety in respect of any debt, obligation or other liability incurred – by a
person resident in India and owed to a person resident outside India; or by a person outside India.
Release of FEX for these transactions is subject to RBI guidelines.
Current account transaction: Other than Capital account transactions and includes:
Ø Payments in connection with foreign trade, other current business, services and short term
banking, and credit facilities in the ordinary course of business.
Ø Payment due as interest on loans and as net income from investments.
Ø Remittances for living expenses of parents, spouse and children residing abroad.
Ø Expenses in connection with foreign travel, education and medical care of parents, spouse and
children.

Government of India has imposed restrictions on following current a/c transactions:
Schedule I – Drawal of foreign exchange is prohibited on following items:

1. Remittance out of lottery winnings.
2. Remittance of income from racing/riding etc. or any other hobby.
3. Remittance for purchase of lottery tickets, banned/proscribed magazines, football pools,
sweepstakes etc.
4. Payment of commission on exports made towards equity investment in Joint Ventures/Wholly
Owned Subsidiaries abroad of Indian companies.
5. Remittance of dividend by any company to which the requirement of dividend balancing is
applicable.
6. Payment of commission on exports under Rupee State Credit Route except commission up to 10%
of invoice value of exports of tea and tobacco.
7. Payment related to “Call Back Services” of telephones.
8. Remittance of interest income on funds held in Non-Resident Special Rupee (Account) Scheme.
SCHEDULE - II – Drawal of forex for the following transaction is permitted only against prior approval
of concerned ministry of GOI mentioned against the transaction.
1. Cultural Tours - Ministry of Human Resources Development (Department of Education and
culture)
2. Advertisement in foreign print media for the purposes other than promotion of tourism, foreign
investments and international bidding (exceeding USD 10000) by a state Government and its
public sector undertaking - Ministry of Finance (Department of Economic Affairs)
3. Remittance of freight of vessel Chartered by PSU - Ministry of Surface Transport (Chartering
Wing)
4. Payment of import through ocean transport by a Government Dept or a PSU on CIF basis (i.e.
other than FOB and FAS basis) - Ministry of Surface Transport, (Chartering Wing)
5. Multi-modal transport operators making remittance to their agents abroad - Registration
Certificate from the Director General of Shipping.
6. Remittance on hiring charges of transponders by (a) TV Channels - Ministry of Information £t
Broadcasting, (b) Internet Service providers - Ministry of Communication and Information
Technology.
7. Remittance of container detention charges exceeding the rate prescribed by Director General of
Shipping - Ministry of Surface Transport (Director General of Shipping)
8. Omitted
9. Remittance of prize money/sponsorship of sports activity abroad by a person other than
international/National/State Level sports bodies, if the amount involved exceeds USD100,000 -
Ministry of Human Resources Development (Department of Youth Affairs and Sports)
10. Omitted
11. Remittance for membership/of P and I Club - Ministry of Finance (Insurance Division).
Schedule III – These are the transactions where the limit applied for exceeds the limit, prior approval of
RBI is required. These transactions are divided into facilities for individuals and facilities for persons
other than individuals.
Facilities for Individuals:

1. Individuals can avail of foreign exchange facility for the following purposes within the limit of
USD 250,000 only. Any additional remittance in excess of the said limit for the following
purposes shall require prior approval of the Reserve Bank of India.
i. Private visits to any country (except Nepal and Bhutan).
ii. Gift or donation.

iii. Going abroad for employment.
iv Emigration.
v Maintenance of close relatives abroad
vi Travel for business, or attending a conference or specialised training or for meeting
expenses for meeting medical expenses, or check-up abroad, or for accompanying as
attendant to a patient going abroad for medical treatment / check-up.
vii Expenses in connection with medical treatment abroad.
viii Studies abroad.
ix Any other current account transaction
Provided that for the purposes mentioned at item numbers (iv), (vii) and (viii), the individual may
avail of exchange facility for an amount in excess of the limit prescribed under the Liberalised
Remittance Scheme, if it is so required by a country of emigration, medical institute offering
treatment or the university, respectively:
Provided further that if an individual remits any amount under the said Liberalised Remittance
Scheme in a financial year, then the applicable limit for such individual would be reduced from
USD 250,000 (US Dollars Two Hundred and Fifty Thousand Only) by the amount so remitted:
provided also that for a person who is resident but not permanently resident in India and -
a. is a citizen of a foreign State other than Pakistan; or
b. is a citizen of India, who is on deputation to the office or branch of a foreign company
or subsidiary or joint venture in India of such foreign company --- may make remittance up to
his net salary (after deduction of taxes, contribution to provident fund and other deductions).
Explanation: For the purpose of this item, a person resident in India on account of his
employment or deputation of a specified duration (irrespective of length thereof) or for a
specific job or assignments, the duration of which does not exceed three years, is a resident
but not permanently resident:
provided also that a person other than an individual may also avail of foreign exchange facility,
mutatis mutandis, within the limit prescribed under the said Liberalised Remittance Scheme for
the purposes mentioned herein above.
Facilities for persons other than individual -
2. The following remittances by persons other than individuals shall require prior approval of the
Reserve Bank of India.
(i) Donations exceeding one per cent. of their foreign exchange earnings during the
previous three financial years or USD 5,000,000, whichever is less, for-
a. creation of Chairs in reputed educational institutes,
b. contribution to funds (not being an investment fund) promoted by educational
institutes; and
c. contribution to a technical institution or body or association in the field of
activity of the donor Company.
(ii) Commission, per transaction, to agents abroad for sale of residential flats or
commercial plots in India exceeding USD 25,000 or five percent of the inward
remittance whichever is more.

(iii) Remittances exceeding USD 10,000,000 per project for any consultancy services in respect
of infrastructure projects and USD 1,000,000 per project, for other consultancy services
procured from outside India.
(iv) Remittances exceeding five per cent of investment brought into India or USD 100,000
whichever is higher, by an entity in India by way of reimbursement of pre-incorporation
expenses."
Prior approval of GOI/RBI as per Schedule II/III is not required, if release of exchange is out of RFC
funds. Prior approval of GOI/RBI is also not required when funds are released from EEFC account except
following cases;
Ø Remittance for membership of PELI club
Ø Gift or donation remittance exceeding USD250,000 per financial year per remitter/donor.
Ø Donation exceeding 1% of total forex earning during the previous three financial year or
$5,000,000 whichever is less only for
a) Creation of chairs in reputed educational institutes
b) Contribution to funds (not being an investment fund) promoted by educational institutes.
c) Contributions to a technical institution or body or association in the field of activity of the
donor company.
Ø Commission per transaction to agents abroad for sale of residential flats or commercial plots in
India exceeding USD25,000 or 5% of the inward remittance whichever is more.
Ø Remittance exceeding 5% of investment brought in India or USD100,000 whichever is higher, by
an entity in India by way of reimbursement or pre-incorporation expenses.
Note: Drawal of foreign exchange by any person is prohibited for the following purposes;
Ø A transaction specified in Schedule – I
Ø A travel to Nepal and/or Bhutan
Ø A transaction with a person resident in Nepal or Bhutan.
LIBERALISED REMITANCE SCHEME FOR RESIDENT INDIVIDUALS
The Reserve Bank of India announced Liberalized Remittance Scheme on February 4, 2004 as a step
towards further simplification and liberalization of the foreign exchange facilities available to resident
individuals. Under this scheme, Authorised Dealers may freely allow remittances by resident individuals
including minors up to USD 250,000 per financial year for any permitted current or capital account
transaction or a combination of both. In case of remitter being a minor, the LRS declaration form must be
countersigned by the minor’s natural guardian. This scheme is not available to corporates, partnership firms,
HUF, Trusts etc. Remittances under the scheme can be consolidated in respect of family members subject to
individual family members complying with its terms and conditions. For all capital account remittances, the
remitter must have satisfactory account for minimum one year. For all current account remittances, if the
customer is new to the bank, KYC/AML guidelines must be ensured apart from obtaining copy of Income
tax assessment order and bank statement for the previous year from other financial institutions where
customer was having account.
The scheme is not available for capital account remittances to countries identified by FATF as non-co -
operative countries and territories (NCCT) as available on FATF website. Remittances directly or
indirectly to those individuals and entities identified as posing significant risk of committing acts of
terrorism as advised separately by the RBI is also not permitted.
PAN card need not be insisted upon for remittances made towards permissible current account transactions
up to USD25,000.00. However for all remittances for capital account transactions and current account
transactions of more than USD25,000 PAN card is mandatory.

Permissible Capital account transactions under this scheme:
Ø Opening of foreign currency account abroad with a bank.
Ø Purchase of property abroad.
Ø Making investment abroad.
Ø Setting up Wholly Owned Subsidiaries and Joint Ventures outside India for bonafide business.
Ø Extending loans including loans in Indian Rupees to Non-resident Indians (NRIs) who are relatives as
defined in Companies Act, 1956.
Sources of funds: The payment has to be received from the applicant by a cheque drawn on the applicant’s
bank account or by debit to his account. No credit facilities can be granted to resident individuals to
facilitate capital account remittance under the scheme. However credit facilities can be extended to
resident individuals to facilitate current account remittances under the scheme.
Remittance procedure: To avail this facility the individual remitter will have to designate a branch of a
Bank for routing all the remittances under the scheme. He has to furnish an application cum declaration in
the format as per Annex-III(a) along with form A2. FEX cells/Overseas branches/ Forex branches can
execute such remittances directly whereas ‘C’ category branches should route the remittance through
concerned FEX cell/ FD.
Other provisions: Individuals can also open, maintain and hold foreign currency account with a bank
outside India for making remittances under LRS without prior approval of RBI.
Mode of release of foreign exchange: Out of overall foreign exchange being sold to a traveller, exchange in
the form of foreign currency notes and coins may be sold up to the limit indicated below:
i. Travellers proceeding to countries other than Iraq, Libya, Islamic Republic of Iran, Russian
Federation and other Republics of Commonwealth of Independent States - not exceeding USD
3000 per visit or its equivalent.
ii. Travellers proceeding to Iraq or Libya - not exceeding USD 5000 per visit or its equivalent.
iii. Travellers proceeding to Islamic Republic of Iran, Russian Federation and other Republics of
Commonwealth of Independent States - full exchange may be released.
iv. Travellers proceeding for Haj / Umrah pilgrimage- full amount of entitlement in cash or up to the
cash limit as specified by the Haj Committee of India, may be released.
Period of surrender of foreign exchange
(i) In case the foreign exchange purchased for a specific purpose is not utilized for that purpose, it
could be utilized for any other eligible purpose for which drawal of foreign exchange is permitted
under the relevant Rules / Regulation.
(ii) General permission is available to any resident individual to surrender received / realised / unspent
/ unused foreign exchange to an Authorised Person within a period of 180 days from the date of
receipt / realisation / purchase / acquisition / date of return of the traveller, as the case may be.
EXPORT AND IMPORT OF INDIAN CURRENCY Et CURRENCY NOTES
As per Foreign Exchange Management (Export and Import of Currency) Regulation 2015, any person
resident in India may take outside India (other than Nepal and Bhutan) currency notes of GOI and RBI notes
up to Rs.25000/- per person. He may take or send outside India (other than Nepal and Bhutan)
commemorative coins not exceeding two coins each.

Any person going to or coming from Nepal or Bhutan may take/send any amount up to denomination of
100.00. Any denomination above Rs.100 will come within ceiling of Rs.25000.00
Guidelines regarding submission of Form 15CA, 15CBand15CC
Form 15CA is an undertaking to be submitted online to the Income Tax department by a

person(remitter) containing the details of information of payments, chargeable to tax, to a
Nonresident, not being a company or to a Foreign Company. Form 15CB is the format of the
Certificate to be provided by an Accountant (as defined in explanation provided to Section 288(2) of I
T Act), certifying the nature of remittance and also rate of deduction of TDS.
Form 15CA has four parts
Part A - To be filled up if the remittance is chargeable to tax under the provisions of the Income-tax Act,
1961 and the remittance or the aggregate of such remittances, as the case may be, does not exceed five
lakh rupees during the financial year)
Part B - To be filled up if the remittance is chargeable to tax under the provisions of the Income-tax Act,
1961 and the remittance or the aggregate of such remittances, as the case may be, exceeds five lakh rupees
during the financial year and an order/ certificate u/s 195(2)/ 195(3)/ 197 of Income-tax Act has been
obtained from the Assessing Officer.
Part C - To be filled up if the remittance is chargeable to tax under the provisions of Income-tax Act, 1961
and the remittance or the aggregate of such remittances, as the case may be, exceeds five lakh rupees
during the financial year and a certificate in Form No. 15CB from an accountant as defined in the
Explanation below sub-section (2) of section 288 has been obtained.
Part D - To be filled up if the remittance is not chargeable to tax under the provisions of the Income-tax
Act,1961 other than payments referred to in rule 37BB(3) by the person referred to in rule 37BB(2).
Cases where form 15CAand15CB is not required to be filed
Ø No Form 15CA and 15CB will be required to be furnished by an individual for remittance which does
not require RBI approval under its Liberalized Remittance Scheme (LRS).
Ø The list of payments of specified nature under Rule 37 BB where submission of Forms 15CA and
15CB is not required has been expanded from 28 to 33.
Ø A CA certificate (Form No. 15CB in this case) will be required to be furnished only in case of
payments made to non-residents which are chargeable to tax and the amount of payment during the
year exceeds Rs. 5 lakhs.
The authorized dealer shall furnish a quarterly statement for each quarter of the financial year in Form
No.15CC to IT Department as specified, electronically under digital signature within fifteen days from the
end of the quarter of the financial year to which such statement relates in accordance with the procedures
and formats specified. Penalty of Rs.1 Lakh – u/s 271-I will be levied for non-furnishing of information or
furnishing of inaccurate information in Form 15CA/15CB.

Specified list of payments where submission of 15CAft15CB is not required as per Rule 37BB
Sl No RBI Purpose Nature of Payment

Code
1 S0001 Indian Investment abroad – in equity capital (shares)
2 S0002 Indian investment abroad – in debt securities
3 S0003 Indian Investment abroad – in branches and wholly owned subsidiaries
4 S0004 Indian investment abroad – in subsidiaries and associates
5 S0005 Indian investment abroad – in real estate
6 S0011 Loans extended to Non-Residents
7 S0101 Advance payment against imports
8 S0102 Payment towards imports – settlement of invoice
9 S0103 Imports by diplomatic missions
10 S0104 Intermediary trade
11 S0190 Imports below Rs.5,00,000 – (For use by ECD offices)
12 S0202 Payment for operating expenses of Indian shipping companies operating
abroad
13 S0208 Operating expenses of Indian Airlines companies operating abroad
14 S0212 Booking of passages abroad – Airlines companies
15 S0301 Remittance towards business travel
16 S0302 Travel under basic travel quota (BTQ)
17 S0303 Travel for pilgrimage
18 S0304 Travel for medical treatment
19 S0305 Travel for education (including fees, hostel expenses etc.)
20 S0401 Postal services
21 S0501 Construction of projects abroad by Indian companies including import of
goods at project site
22 S0602 Freight insurance – relating to import and export of goods
23 S1011 Payments for maintenance of offices abroad
24 S1201 Maintenance of Indian embassies abroad
25 S1202 Remittances by foreign embassies in India
26 S1301 Remittance by non-residents towards family maintenance and savings
27 S1302 Remittance towards personal gifts and donations
28 S1303 Remittance towards donations to religious and charitable institutions abroad
29 S1304 Remittance towards grants and donations to other Governments and
charitable institutions established by the Governments
30 S1305 Contributions or donations by the Government to international institutions
31 S1306 Remittance towards payment or refund of taxes
32 S1501 Refunds or rebates or reduction in invoice value on account of exports
33 S1503 Payments by residents for international bidding
CANARA BANK, APEX CENTRE OF EXCELLENCE-

BENGALURU
INWARD REMITTANCES
Approved mode of receipt of Inward Remittances from ABROAD: By SWIFT payment order (MT103),
Remit Money. By the customers directly by way of Bank drafts, Bankers Cheques, International Money
Orders, Personal Cheques etc drawn on banks in INDIA / ABROAD etc – known as “clean instruments”
PROCEDURE: Inward Remittances received in foreign currency: (IO Cir 139/2012)
Inward remittances in foreign currency up to an equivalent of USD10000 received other than for investment
in FCNR/RFC/EEFC deposits or towards advance remittance for exports/export proceeds and also where
there are no specific instructions not to convert the amount – can be converted into Indian Rupees. FD/FEX
Cell will directly credit to beneficiary account at C category branch.
Inward remittance received in excess of USD10000/-, and where funds are meant for investment in
FCNR/RFC/EEFC deposits, or funds representing export proceeds or advance remittance for exports, and
where there are specific instruction not to convert the amount – will not be converted automatically into
INR. FD/FEX Cell will send FIT vouchers to the beneficiary/beneficiary’s bank within two working days
from the date of receipt of credit advice/nostro account. FITT voucher for USD10000 and above to be
generated in BO by the C category branches through report 194312 which provides all details of FITT i.e.
FC amount, conversion rate, charges if any debited, remitter details etc.
The beneficiary has the option to present the relative voucher/instruments for payment to the executing bank
within 7 days from the date of receipt of remittance advice from abroad. In case beneficiary requests for
conversion into Indian Rupees, branches should report purchase to the respective Foreign Department/FEX
Cell furnishing FDs reference & Foreign Currency amount.
In cases where the Foreign Currency amount received by way of TT has been converted into Indian Rupees
as per FEDAI Rule no.4.3, however the resident beneficiary desires to credit a portion of the proceeds to his
EEFC/RFC etc, Indian Rupees so credited to the account need to be reconverted into Foreign Currency by
reporting sale at TT Selling rate.
Time Limit prescribed for payment of inward remittance:

Where the execution in foreign currency of the remittance by issue of FIT voucher, the FIT voucher should
be dispatched to the beneficiary within 2 days from the date of receipt of the payment order. Where
execution of foreign currency remittance by conversion in to Indian Rupee, including execution of inward
remittances denominated in Indian Rupees, the remittance should be paid to the beneficiary within 2 days
from the date of receipt of payment order from abroad.
Branch to obtain certificate regarding prompt adjustment from continuous auditors/inspecting officers
periodically and hold them in their records, to be made available to RBI inspectors during RBI
inspection.
Compensation payable:
For delay beyond the stipulated periods above, compensation is payable to the beneficiary at 2% over SB
rate, provided the payment order is authenticated and contain full details of the beneficiary. The bank
should also pay compensation for adverse movement of exchange rate, at TT buying rate prevailing at 12
noon on the day on which it was due for payment and the date of actual payment, if any.
Compensation is not payable in the following cases:

Ø Inward remittances executed by FD/FEX Cell on the basis of pass sheet credits, without receipt of
payment order.
Ø Inward remittances received for opening FCNR/RFC/EEFC etc since such deposits are opened with
effect from the date of the credit to our NOSTRO account.

proceeds of the remittances are paid to other bank in the same currency of the remittance for investment
in FCNR/RFC/EEFC etc.
SERVICE TAX
Govt. of India, prescribed collection of Service Tax on the Foreign Currency Transactions including
money changing with effect from 01/04/2011. Now after implementation of GST from 01.07.2017, GST at
following rates to be collected on purchase or sale of foreign currency including money changing;
Amount of Value deemed for purchase GST to be recovered at rate of 18%

purchase or sale of or sale transaction
foreign Currency
(in Rupees value)
Upto Rs 1,00,000/- One per cent of the gross 18 % of one per cent of the gross amount of
amount of purchase or sale of purchase or sale of foreign currency, subject to a
foreign currency, subject to a minimum of Rs.45/-.
minimum amount of two For example , if value of gross amount of
hundred and fifty rupees; currency exchanged is Rs.50000/-, then the
deemed value is Rs.500/- and GST to be
recovered at proposed GST rate of 18% is
Rs.90/-.
Rs 1,00,001 to One thousand rupees and half Example : If value of currency exchanged is
10,00,000/- of a percent of the gross Rs.5,00,000/- GST is to be computed as under: For
amount of currency first one lakh, value is Rs.1000/-
exchanged for an amount For remaining amount of Rs.4,00,000/-, Value is
exceeding one lakh rupees Rs.2000/- [i.e 0.5% of Rs.4,00,000/- ]
and up to ten lakh rupees So total value is Rs.3000/- [Rs.1000/- plus
Rs.2000/-] GST to be recovered is Rs.540/- [Rs.3000/-
multiplied by proposed GST rate of 18%]
Above Rs. Five thousand and five Example: If value of currency exchanged is
10,00,000/- hundred rupees and one Rs.20,00,000/- GST is to be computed as under:
tenth of a percent of the For first ten lakhs, value is Rs.5500/-
gross amount of currency For remaining amount of Rs.10,00,000/- Value is
exchanged for an amount Rs.1000/- [i.e 0.1% of Rs.10,00,000/- ]
exceeding ten lakh rupees, So total value is Rs.6500/- [Rs.5500/- plus
subject to maximum amount of Rs.1000/-]. GST to be recovered is Rs.1170-
sixty thousand rupees. [Rs.6500/- multiplied by proposed GST rate of 18%]
However, if value of currency exchanged is
Rs.5,55,00,000/- and above, deemed value is
Rs.60000/- and GST to be recovered is
Rs.10,800/- [Rs.60000/-multiplied by proposed
GST rate of 18%].
So maximum GST recoverable at proposed GST rate
of 18%, is Rs.10,800/-.
Please note that GST recoverable computed as above will change, if rate GST of 18% is revised.
1. Branches should collect GST for purchase or sale transaction, which involve only ready Fx
reporting of purchase or sale. For example: Transactions involving outward remittances out of

EEFC balances or Crediting to EEFC account does not involve Fx reporting and hence, no GST
need to be collected.
2. With regard to cross currency transactions, branch to calculate the Indian Rupee equivalent of the
respective currencies at the interbank rate and the higher rupee value of the two currencies to be
considered for arriving at the value and GST thereon.
3. Inter se sale or purchase of foreign currency amongst Banks or authorized dealers of foreign
exchange or amongst Banks and such dealers is exempt from levy of GST.
4. This GST, on the purchase or sale of foreign currency, should be collected when the transaction is
put through by the customer or when the actual delivery is taken under forward contract. In other
words this GST should not be collected at the time of booking forward contract.
For example: Date of booking of Forward Contract transaction: 14/07/2017.
Fixed due date for delivery under Forward contract: 14/10/2017.
GST should be collected only on 14/10/2017, when the currencies are exchanged.
The above guidelines are equally applicable to Cross Currency Forward transactions.
5. This GST, on the purchase or sale of foreign currency, should be collected by the Branch/Office
which has originated the transaction.
6. The amount of GST shall be netted off before giving final credit to the customer's account in case of
purchase transactions or debited to customer's account along with the transaction amount in case of
sale transactions.
7. Branches/Offices shall collect GST at the above rates wef 01/07/2017 manually, till DIT Wing
implements this provision in CBS package.
8. Branches/Offices shall issue Tax Invoices for collection of GST.
TEMPORARY FOREIGN CURRENCY ACCOUNTS
Authorised Dealers may get requests for opening temporary foreign currency accounts from the
organizers of international seminars, conferences etc. in India and RBI has permitted opening of such
accounts subject to the following guidelines.
A copy of the permission obtained from the concerned Ministry of the Government of India for conduct of
such meeting/seminar involving participation from foreign delegates/speakers should be produced by the
organizers.
Appropriate Current account opening form with regular formalities like introduction, specimen signature
cards, resolution for opening the account etc. to be obtained. Undertaking to close the account
immediately on closure of the event to be obtained.
FEMA declaration-cum-undertaking
CREDIT: All inward remittances in foreign currency towards participation fees, sponsorship fees,
donations from abroad in connection with the event .
DEBIT: Payment of honorarium, travel charges etc to the foreign speakers, delegates
Remittance towards refund of unused sponsorship money, refund of registration
fees etc.
Bank charges, if any
Conversion to rupee
The account will be a current account and is non-interest bearing in nature.
The account can be opened in 3 currencies viz USD,GBP, EURO
Debits other than the ones permitted require permission from RBI.
The accounting procedure will be similar to FCNR,EEFC,RFC, RFCD.
Branches to follow-up with the organizers for closure of the account on completion of the event in India.

FOREIGN CONTRIBUTION (REGULATION) ACT, 2010
The Reserve Bank, in exercise of the powers conferred by Clause (a) of sub-section (1) of Section 36 of
the Banking Regulation Act, 1949 (Act 10 of 1949) and of all the powers enabling it in this behalf, issued
the guidelines on Foreign Contribution (Regulation) Act, 2010 and Foreign Contribution (Regulation)
Rules, 2011 for compliance by all scheduled commercial banks (excluding Regional Rural Banks). With
the coming into force of the Act, Foreign Contribution (Regulation) Act, 1976 stands repealed. The act
extends to whole of India, to its citizens outside India, and also to associate branches or subsidiaries
outside India of companies or body corporate, registered or incorporated in India.
The Act prohibits certain classes of persons from receiving ‘foreign contribution’. Foreign contribution means
donation, delivery or transfer made by a foreign source of any article, currency or any security.
The Act restricts certain classes of persons from accepting foreign hospitality while visiting any country
or territory outside India, without the prior permission of the Central Government.
The Act provides that persons having definite cultural, economic, educational, religious and social
programs should get themselves registered with the Government of India before accepting any ‘foreign
contribution’.
In case a person falling in the above category is not registered with the Central Government, it can accept
foreign contribution only after obtaining prior permission of the Central Government.
The Act stipulates that every person who has been granted a certificate of registration/prior permission as
stipulated in the Act shall receive foreign contribution in a single account and only through such branches
of a bank as may be specified in his application.
It strictly prohibits the receipt or deposit of any other funds (other than foreign contribution) in such
accounts. The Act mandates that every bank or authorized person in foreign exchange shall report to
specified authority, the prescribed amount of foreign remittance, source and manner in which foreign
remittance was received and other particulars in such form and manner as may be prescribed. Section 18
of the Act requires every person who has been granted a certificate of registration or prior permission
under the Act to intimate the Central Government on the details provided therein in the manner stipulated
therein.
This intimation has to be accompanied by a copy of the statement indicating the particulars of foreign
contribution received duly certified by an officer of the bank or authorized person in foreign exchange.
Associations which were granted certificates of registration or prior permission under Section 6 of the
Foreign Contribution (Regulation) Act, 1976, will continue to be eligible to receive foreign contribution
under the Act. Such registration shall be valid for a period of five years from the date on which the Act
came into force.
Any permission to accept foreign hospitality granted under Section 9 of the repealed Act would also be
deemed to be the permission granted under the Act until such permission is withdrawn by the Central
Government.
Where any person who was permitted to accept foreign contribution under the Act ceases to exist or has
become defunct, all the assets of such person shall be disposed of in accordance with the provisions
contained in any law for the time being in force under which the person was registered or incorporated.
Branches to strictly adhere to the provisions of the new act while dealing with the receipt of Foreign
Contributions.

As per Rule 16 of FCRA 2010 and DBOD guidelines, banks have to send a report to the Central
Government within 30 days of any transaction in respect of receipt of Foreign Contribution by any person
who is required to obtain a certificate of registration or prior permission under the Act, but who was not
granted such certificate or prior permission as on the date of receipt of such remittance. Such report should
contain the details like Name and address of the donor and also of recipient, Account Number, Name of the
Bank and branch, amount of Foreign Contribution (in FC as well as in IRS), date of receipt, Manner of
receipt. Therefore branches to note that all accounts of NGOs, Clubs, Societies, Associations, Trusts having
a definite cultural, economic, educational, religious or social program are to be classified by selecting proper
customer type code under FCRA Act as under:
Customer type - X - NGO, club, society registered –Home Min under

FCRA, Customer type – XI - NGO, not registered under FCRA
Customer type - X2 - Association, Trust registered with home ministry under FCRA
Whenever there is a change in customer type, customer type has to be changed in CBS.
Branches to submit a report as per Appendix I of INWARD REMITTANCE MANUAL to Business
Planning Section, SPELD Wing, HO immediately in respect of receipt of foreign contribution by any
person who is required to obtain a certificate of registration or prior permission under the Act, but who
was not granted such certificate or prior permission as on the date of receipt of such remittance, so as to
enable them to submit a consolidated report for bank as a whole to the central government within 30 days
of any transaction.
Branch should also submit the statement as per Appendix II of INWARD REMITTANCE MANUAL to
Business Planning Section, SPELD Wing, HO immediately in respect of receipt of any foreign
contribution in excess of One crore rupees or equivalent thereto in a single transaction or in transactions
within a duration of thirty days from the date of last transaction, by any person, whether registered or not
under the FCRA to enable them to submit a consolidated report for bank as a whole to the central
government.
Important features of the Act are given hereunder;
1. Introduction: FCRA, 2010, is intended to consolidate the law regulating the acceptance and utilization
of foreign contribution or foreign hospitality by certain individuals or associations or companies and to
prohibit acceptance and utilization of foreign contribution or foreign hospitality for any activities
detrimental to the national interest and for matters connected therewith. The Act extends to the whole of
India, to its citizens outside India and also to associate branches or subsidiaries outside India, of
companies or body corporate, registered or incorporated in India.
2. Prohibition on acceptance of foreign contribution: Certain persons are totally barred from
accepting any foreign contribution. The term ‘foreign contribution’ is defined in Clause (h) of Section
2 of the Act to mean the donation, delivery or transfer made by a foreign source of any article (not
being an article of gift for personal use, the market value of which is not more than the specified
amount), currency (whether Indian or foreign) or any security. The following are the persons
prohibited from accepting foreign contribution:
a) Candidate for election;

b) Correspondent, columnist, cartoonist, editor, owner, printer or publisher of a registered
newspaper;
c) Judge, government servant or employee of any entity controlled or owned by the Government;
d) Member of any Legislature;
e) Political party or office bearers thereof;
f) Organizations of a political nature as may be specified;

g) Associations or companies engaged in the production or broadcast of audio news or
audiovisual news or current affairs programs through any electronic mode or form or any other
mode of mass communication;
h) Correspondent or columnist, cartoonist, editor, owner of the association or company referred
to in (g) above.
3. The Act empowers the Central Government to specify organizations as organizations of political nature
by publication in the Official Gazette. Foreign contribution can however be accepted by the above-
mentioned persons in the following specific cases:
a) by way of salary, wages or other remuneration due to him or to any group of persons working
under him, from any foreign source or by way of payment in the ordinary course of business
transacted in India by such foreign source; or
b) by way of payment, in the course of international trade or commerce, or in the ordinary course
of business transacted by him outside India; or
c) as an agent of a foreign source in relation to any transaction made by such foreign source with
the Central Government or State Government; or
d) by way of a gift or presentation made to him as a member of any Indian delegation, provided that
such gift or present was accepted in accordance with the rules made by the Central Government
with regard to the acceptance or retention of such gift or presentation; or
e) from his relative; or
f) by way of remittance received, in the ordinary course of business through any official channel,
post office, or any authorized person in foreign exchange under the Foreign Exchange
Management Act, 1999; or
g) by way of any scholarship, stipend or any payment of like nature.
The term ‘foreign source’ covers foreign governments and its agencies, any international agencies (other
than certain specified agencies such as United Nations, World Bank, etc.), foreign citizens, foreign
companies and foreign corporations, entities such as trade unions, trusts, societies, clubs, etc. formed or
registered outside India.
4. Restrictions on acceptance of foreign hospitality: The Act mandates that no member of a Legislature
or office-bearer of a political party or Judge or Government servant or employee of any corporation or
any other body owned or controlled by the Government shall, while visiting any country or territory
outside India, accept, except with the prior permission of the Central Government, any foreign
hospitality. However, such permission would not be necessary for an emergent medical aid needed on
account of sudden illness contracted during a visit outside India. The term ‘foreign hospitality’ is
defined to mean any offer, not being a purely casual one, made in cash or kind by a foreign source for
providing a person with the costs of travel to any foreign country or territory or with free boarding,
lodging, transport or medical treatment. Apart from this, the Central Government is empowered to
prohibit any person or organization not specified in the Act from accepting any foreign contribution
and to require any person or class of persons, not specified in the Act to obtain prior permission of the
Central Government before accepting any foreign hospitality.
5. Registration for the acceptance of foreign contribution: Section 11 of the Act mandates that no person
having a definite cultural, economic, educational, religious or social program shall accept foreign
contribution, unless such person obtains a certificate of registration from the Central Government. In
case a person falling in the above category is not registered with the Central Government, it can accept
foreign contribution only after obtaining prior permission of the Central Government. The Central
Government is authorized to suspend or cancel the registration so granted. Every person who has been
granted a certificate under Section 12 shall have such certificate renewed within six months before the
expiry of the period of the certificate.

6. Prohibitions and restrictions on receipt, transfer, utilization etc. of foreign contribution: The
Act imposes a prohibition, on persons registered and granted certificate or has obtained prior
permission under the Act, from transferring such contribution to any other person, unless such other
person is also registered and had been granted a certificate or obtained the prior permission under the
Act. The Act mandates that the foreign contribution shall be utilized only for the purposes for which
contribution was received. No foreign contribution or any income arising out of it can be used for
speculative purposes. Use of foreign contribution for defraying administrative expenses has been
restricted by the Act.
7. Foreign contribution to be received through a scheduled bank: Section of 17 states that every
person who has been granted a certificate or given prior permission under Section 12 shall receive
foreign contribution in a single account only through such one of the branches of a bank as he may
specify in his application for grant of certificate. Such person can open one or more accounts in one or
more banks for utilizing the foreign contribution received by him. However, no funds other than
foreign contribution shall be received or deposited in such account or accounts. The Act makes it
mandatory for every bank or authorized person in foreign exchange to report to such specified authority
(a) the prescribed amount of foreign remittance (b) the source and manner in which the foreign
remittance was received and (c) other particulars, in such form and manner as may be prescribed.
8. Maintenance of accounts and disposal of assets: Section 19 of the Act stipulates that every person
has to maintain accounts of the foreign contribution received and utilized in the prescribed manner.
Where any person who was permitted to accept foreign contribution under the Act ceases to exist or
has become defunct, all the assets of such person shall be disposed of in accordance with the
provisions contained in any law for the time being in force under which the person was registered or
incorporated.
9. Powers of inspections and seizure: The Act empowers the Central Government to authorize
inspection of accounts or records for verifying contravention of the provisions of the Act. It also
provides for seizure of accounts and records and also articles or currency or security received in
contravention of the provisions of the Act.
10. Miscellaneous Issues: Section 37 of the Act provides that whoever fails to comply with any
provision of the Act for which no separate penalty has been provided, shall be punished with
imprisonment for a term which may extend to one year, or with fine or with both.
11. Rules framed under the Act: In exercise of the powers conferred by Section 48 of the Act, the Central
Government has framed the Foreign Contribution (Regulation) Rules, 2011 for carrying out the
provisions of the Act. Rule 13 of the said Rules mandates that in case a person who has been granted a
certificate of registration or prior permission receives foreign contribution in excess of one crore rupees,
or equivalent thereto, in a financial year, he/it shall place the summary data on receipts and utilization of
the foreign contribution pertaining to the year of receipt as well as for one year thereafter, in the public
domain. It is important to note that in terms of Rule 15, the amount of foreign contribution lying,
unutilized in the exclusive foreign contribution bank account of a person whose certificate of registration
has been cancelled shall vest with the banking authority concerned till the Central Government issues
further directions is the matter.
Rule 16 of the said Rules provides that every bank has to send a report to the Central Government within
thirty days of any transaction in respect of receipt of foreign contribution by any person who is required
to obtain a certificate of registration or prior permission under the Act, but who was not granted such
certificate or prior permission as on the date of receipt of such remittance. Such report has to contain the
following details:
(a) Name and address of the donor.
(b) Name and address of the recipient.
(c) Account number.

(d) Name of the Bank and Branch.
(e) Amount of foreign contribution (in foreign currency as well as Indian Rupees).
(f) Date of receipt.
(g) Manner of receipt of foreign contribution (cash/cheque/electronic transfer etc.)
Details of Foreign Currency Nostro Accounts maintained by our Bank:
Our bank is maintaining 23 NOSTRO accounts in12 different currencies details of which are as
under;
Sl Curr Name of Correspondent Bank Account No

N
o1 USD JP Morgan 001 1 395969
Chase New //CH000857 (Chips UID)
York //CP0002 (Chips)
SWIFT: CHASUS33 //FW021000021 (Fedwire ABA No.)
2 USD BANK OF 6550791917
AMERICA, NEW //CH396491 (Chips UID)
YORK //CP0959 (Chips)
SWIFT: BOFAUS3N //FW026009593 (FEDWIRE ABA No.)
3 USD CITIBAN 36053796
K, NEW //CH259486 (Chips UID)
YORK //CP0008 (Chips)
//FW021000089 (FEDWIRE ABA No.)
4 USD DEUTSCHE BANK TRUST 04427255
COMPANY AMERICAS,NEW //CH420815
YORK SWIFT: BKTRUS33 //CP0103
5 USD WELLS FARGO BANK N.A. 2000193007934

(erstwhile WACHOVIA BANK, //CH143906 (Chips UID)
N.A.) SWIFT: PNBPUS3NNYC //CP0509 (Chips)
6 USD THE BANK OF NEW YORK 8900033355
MELLON, NEW YORK Not allocated for
SWIFT: IRVTUS3N branch payments
7 USD STANDARD CHARTERED BANK, 3582050114001
NEW YORK Not allocated for branch
SWIFT: SCBLUS33 Payments
8 EUR COMMERZBANK, 400875020001
FRANKFURT SWIFT:
9 EUR COBADEFF
DEUTSCHE 10095345871000
BANK AG
FRANKFURT
10 EUR SWIFT: DEUTDEFF
SOCIETE 001016201860
GENERALE,
PARIS
11 EUR SWIFT: SOGEFRPP
STANDARD CHARTERED BANK, 500057705
FRANKFURT
SWIFT: SCBLDEFX
12 EUR BARCLAYS BANK, LONDON, 69325411
UK, SWIFT: BARCGB22

13 GBP CANARA BANK, 0001120001001
LONDON SWIFT: SORT CODE: //SC405143
14 CHF CNRBGB2L
CREDIT SUISSE, ZURICH 0835-0891216-43-003
SWIFT: CRESCHZZ80A
15 CA BANK OF MONTREAL, 31691035502
D MONTREAL SWIFT: BOFMCAM2
16 SEK SKANDINAVISKA ENSKILDA 52018528297
BANKEN, STOCKHOLM
SWIFT: ESSESESS
17 AU ANZ BANKING GROUP 212894/00001
D MELBOURNE SWIFT:
18 SGD ANZBAU3M
OCBC, 501071575001
SINGAPORE
19 YEN SWIFT:OF AMERICA,
BANK 606418411019
TOKYO SWIFT:
20 YEN BOFAJPJX
BANK OF TOKYO-MITSUBISHI 653-0469203
UFJ, LTD.,TOKYO Not allocated for branch payments
SWIFT: BOTKJPJT
21 DK DANSKE 3007530811
K BANKCOPENHAGEN
22 HK SWIFT:
CANARA DABADKKK
BANK HONG 100-200054
D KONG SWIFT:
23 AED IHIFHKHH
MASHREQ BANK PSC, AE820330000019030000133
DUBAI SWIFT:
BOMLAEAD

EXPORT FEMA REGULATION, COLLECTION, PURCHASE,
DISCOUNT & NEGOTIATION
EXPORTER’S OBLIGATION UNDER FEMA:
I E CODE NUMBER:- This code number will be allotted by DGFT. No separate RBI code number will be
issued. Importer exporter code no issued by DGFT should be cited on all prescribed export declaration form.
EXPORT PROMOTION COUNCILS: When the goods meant for export come under the purview of export
promotion councils, the exporter should register with the concerned export promotion council.
MECHANISM OF CONTROL FORMS AND THEIR APPLICATIONS
1. EXPORT OF GOODS THROUGH CUSTOMS PORTS: Two copies of Export Declaration Form
(EDF) to be submitted to customs by the exporters at the Non-Electronic Data Interchange ports.
Customs will certify the value declared and give running serial number on both the copies and original
will be retained by customs for online to RBI and return the duplicate copy to the exporter. At the time of
shipment of goods, exporters shall submit the duplicate copy of the EDF to Customs. After examining
the goods, Customs shall certify the quantity in the form and return it to the exporter for submission to
AD for negotiation or collection of export bills. Within 21 days from the date of export, exporter shall
lodge the duplicate copy together with relative shipping documents and an extra copy of the invoice to
the AD named in the EDF. After the documents have been negotiated / sent for collection, the AD shall
report the transaction through Export Data Processing and Monitoring System (EDPMS) to the Reserve
Bank and retain the documents at their end. Where duplicate copy of EDF is misplaced or lost, AD may
accept copy of duplicate EDF duly certified by Customs.
2. EXPORT OF GOODS/SOFTWARE DONE THROUGH EDI PORTS: The shipping bill shall be
submitted in duplicate to the authority concerned (Commissioner of Customs or the SEZ, if the export is
made through SEZ). After verifying and authenticating, the authority concerned shall hand over to the
exporter, one copy of the shipping bill marked 'Exchange Control (EC) Copy' for submission to the AD
bank within 21 days from the date of export for collection / negotiation of shipping documents. However,
in cases where EC copy of shipping bill is not printed in terms of CBEC's Circular No.55/2016-Customs
dated November 23, 2016 and data of shipping bill is integrated with EDPMS, requirement of submission
of EC copy of shipping bill with the AD bank would not be there. The manner of disposal of EC copy of
Shipping Bill shall be the same as that for EDF. The duplicate copy of the form together with a copy of
invoice etc. shall be retained by ADs and may not be submitted to the Reserve Bank.
3. EXPORT OF GOODS THORUGH POST: Postal Authorities shall allow export of goods by post only
if the original copy of the EDF has been countersigned by an AD. Therefore, EDF which involve sending
goods by post should be first presented by the exporter to an AD for countersignature. AD shall
countersign EDF after ensuring that the parcel has been addressed to their branch or correspondent bank
in the country of import and return the original copy to the exporter, who shall then submit the EDF to the
post office with the parcel. The duplicate copy of EDF shall be retained by the AD to whom the exporter
shall submit relevant documents together with an extra copy of invoice for negotiation / collection, within
the prescribed period of 21 days. The concerned overseas branch or correspondent shall be instructed to
deliver the parcel to consignee against payment or acceptance of relative bill. Any alteration in the name
and address of consignee on the EDF form should also be authenticated by AD under its stamp and
signature.
4. SOFTEX FORM:
All software exporters can file single as well as bulk SOFTEX form in the form of a statement in excel
format to the competent authority for certification. Since the SOFTEX data from STPI / SEZ are being

transmitted in electronic format to RBI, the exporters have to submit the SOFTEX form in duplicate.
STPI / SEZ will retain one copy and handover duplicate copy to exporters after due certification. The
exporters have to provide information about all the invoices including the ones lesser than US$25000, in
the bulk statement in excel format. Reserve Bank of India has extended the facility for online generation
of the EDF Form Number and the SOFTEX Form Number (Single as well as Bulk for use in off-site
software exports). The facility of manual allotment of single as well bulk SOFTEX form number by
Regional Offices of RBI has been dispensed with. For long duration contracts involving series of
transmissions, the exporters should bill their overseas clients periodically, i.e., at least once a month or
on reaching the 'milestone' as provided in the contract entered into with the overseas client and the last
invoice / bill should be raised not later than 15 days from the date of completion of the contract.
Exporters can submit a combined SOFTEX form for all the invoices raised on a particular overseas client,
including advance remittances received in a month. Contracts involving only 'one-shot operation', the
invoice / bill should be raised within 15 days from the date of transmission. The exporter should submit
declaration in Form SOFTEX in quadruplicate in respect of export of computer software and audio / video /
television software to the designated official concerned of the Government of India at STPI / EPZ / FTZ /
SEZ for valuation / certification not later than 30 days from the date of invoice / the date of last invoice
raised in a month. The designated officials may also certify the SOFTEX Forms of EOUs, which are
registered with them. The invoices raised on overseas clients as above will be subject to valuation of export
declared on SOFTEX form by the designated official concerned of the Government of India and
consequent amendment made in the invoice value, if necessary.
5. EXPORT OF SERVICES:
In respect of export of services to which none of the forms specified, the exporter may export such
services without furnishing any declaration, but shall be liable to realize the amount of foreign
exchange which becomes due or accrues on account of such export and to repatriate the same to India in
accordance with the extant provisions.
EXEMPTIONS FROM DECLARATIONS
Export of goods or software may be made without furnishing the declaration in the following cases;
a) Trade samples of goods and publicity material supplied free of payment.
b) Personal effects of travellers, whether accompanied or unaccompanied.
c) Ship’s stores, trans-shipment cargo and goods supplied under the orders of Central Government or of
such officers as may be appointed by the Central Government in this behalf or of the military, naval or
air force authorities in India for military, naval or air force requirements.
d) By way of gift of goods accompanied by a declaration by the exporter that they are not more than Rs. 5
lacs per annum in value.
e) Aircrafts or aircraft engines and spare parts for overhauling and/or repairs abroad subject to their import
into India after overhauling/repairs, within a period of six months from the date of their export.
f) Goods imported free of cost on re-export basis.
g) The following goods which are permitted by the Development Commissioner of the Special Economic
Zones, Electronic Hardware Technology Parks, Software Technology Parks or Free Trade Zones to be
re-exported, namely;
1) imported goods found defective, for the purpose of their replacement by the foreign suppliers /
collaborators
2)goods imported from foreign suppliers / collaborators on loan basis
3) goods imported from foreign suppliers / collaborators free of cost, found surplus after production
operations

The above goods to be re-exported by units in Special Economic Zones, under intimation to the
Development Commissioner of Special Economic Zones / concerned Assistant Commissioner or Deputy
Commissioner of Customs
h) Replacement goods exported free of charge in accordance with the provisions of Foreign Trade Policy in
force, for the time being.
i) Goods sent outside India for testing subject to re-import into India.
j) Defective goods sent outside India for repair and re-import provided the goods are accompanied by a
certificate from an authorised dealer in India that the export is for repair and re-import and that the
export does not involve any transaction in foreign exchange.
k) Exports permitted by the Reserve Bank, on application made to it, subject to the terms and conditions, if
any, as stipulated in the permission.
WAIVER OF EDF (GR) BY AUTHORISED DEARLER
AD Category - I banks may consider requests for grant of EDF waiver from exporters as under:
Status holders shall be entitled to export freely exportable items (excluding Gems and Jewellery, Articles of
Gold and precious metals) on free of cost basis for export promotion subject to an annual limit of Rs. One
Crore or 2% of average annual export realisation during preceding three licensing years, whichever is lower.
For export of pharma products by pharmaceutical companies, the annual limit would be 2% of average
annual export realisation during preceding three licensing years. In case of supplies of pharmaceutical
products, vaccines and lifesaving drugs to health programs of international agencies such as UN,WHO-
PAHO and Government health programs, the annual limit shall be upto 8% of the average annual export
realization during preceding three licensing years. Such free of cost supplies shall not be entitled to Duty
Drawback or any other export incentive under any export promotion scheme.
Exports of goods not involving any foreign exchange transaction directly or indirectly requires the waiver of
EDF procedure from the Reserve Bank
The Branch Head or the official of the rank not below scale II, overseeing the Foreign Exchange Section of
the branch can only exercise the powers for granting the permission for waiver of EDF (GR) subject to the
following conditions.
i The exporter should be a regular customer of our branch and should have a satisfactory track record.
ii The applicant should be in export business for a minimum period of three years.
iii An application should be obtained from the exporter along with a copy of invoice and declaration
duly certified by the auditor, indicating the annual exports during the preceding three years.
EXPORTERS' CAUTION LIST
The exporters are caution listed if any shipping bill against them remains open for more than two years in
EDPMS provided no extension is granted by AD Category -I bank / RBI. Date of shipment is considered for
reckoning the realisation period. Once related bills are realised and closed or extension for realisation is granted,
the exporter is automatically de-caution listed. The exporters can also be caution listed even before the expiry of
two years period based on the recommendation of AD banks. The recommendation may be based on cases
where exporter has come to adverse notice of the Enforcement Directorate (ED) / Central Bureau of
Investigation (CBI) / Directorate of Revenue Intelligence (DRI) / any such other law enforcement agency or the
case where exporter is not traceable or not making any serious efforts for realisation of export proceeds. In such
cases, AD may forward its findings to the concerned regional office of RBI recommending inclusion of the
name of the exporter in the caution list. Authorised dealers may accept for negotiation/collection shipping
documents wherever they have received either an irrevocable LC or Advance Remittance for the value declared.
The decision of handling export bills on behalf of caution listed exporter should be taken by the Head of the

branch or by the Manager/ Senior Manager in charge of the exports Department of the branch concerned.
SUBMISSION OF EXPORT DOCUMENTS AND OTHER CONTROL ASPECTS
1. Documents are to be submitted only to AUTHORISED DEALERS

2. Documents are to be submitted within 21 days from the date of shipment.
3. SHUT OUT & SHORT SHIPMENT: Sometimes it may happen that after the custom authorities have
passed the goods for shipment; the goods might not have been loaded for want of space or due to diversion
in voyage etc. This is called SHUT OUT SHIPMENT. In such cases, exporter has to give notice in duplicate
to customs attaching thereto the duplicate copy of EDF form and shipping bill. Customs will certify copy of
the notice after verification and forward it to RBI. In this case original EDF form issued earlier will be
cancelled and if shipment is to be made subsequently, a fresh set of EDF form should be completed. In case
of short shipment the exporter has to get the certificate from the customs authorities and produce the same
along with the duplicate copy of the EDF form and draw the bill for the less value (i.e. excluding the value
of goods that could not be shipped).
DELAY IN SUBMISSION OF SHIPPING DOCUMENTS BY EXPORTERS
In cases where exporters submit documents after the prescribed period of 21 days from date of export,
branches should call for a letter from the exporter, as per format given in Manual of instructions (Annex 6),
explaining the reasons for the delay. Branches may handle such documents without prior approval of
Reserve Bank, provided they are satisfied that delay was due to reasons beyond the control of the exporters
and should certify to that effect on exporter's letter. C-Category branches have to forward such export
documents to FD/FEX Cell along with explanatory letter of the exporter duly certified by them.
DBs/OBs/Fex Cells may retain such letter with themselves (need not be forwarded to RBI along with
duplicate EDF form).
DESPATCH OF SHIPPING DOCUMENTS BY AUTHORISED DEALERS:
Normally shipping documents are to be dispatched only to overseas correspondent banks. Under certain
circumstances the AUTHORISED DEALER may dispatch the shipping documents to consignees directly
subject to certain conditions
1. Advance payment or an irrevocable letter of credit has been received for the full value of the export
shipment and the underlying sale contract / letter of credit provides for dispatch of documents direct to
the consignee or his agent resident in the country of final destination of goods.
2. The exporter is a regular customer and the AD Category - I bank is satisfied, on the basis of
standing and track record of the exporter and arrangements have been made for realization of
export proceeds.
AD Category - I banks may also permit 'Status Holder Exporters', and units in Special Economic Zones
(SEZ) to dispatch the export documents to the consignees outside India subject to the terms and
conditions that :
a. The export proceeds are repatriated through the AD banks named in the EDF.
b. The duplicate copy of the EDF is submitted to the AD banks for monitoring purposes, by the
exporters within 21 days from the date of shipment of export.
AD Category - I banks may regularize cases of dispatch of shipping documents by the exporter direct to
the consignee or his agent resident in the country of the final destination of goods, up to USD 1 million or
its equivalent, per export shipment, subject to the following conditions :

a. The export proceeds have been realized in full.
b. The exporter is a regular customer of AD Category - I bank for a period of at least six months.
c. The exporter's account with the AD Category - I bank is fully compliant with the Reserve Bank's
extant KYC / AML guidelines.
d. The AD Category - I bank is satisfied about the bonafides of the transaction.
e. In case of doubt, the AD Category-I bank may consider filing Suspicious Transaction Report
(STR) with FIU_IND (Financial Intelligence Unit in India).
Time Limit for RealizationandRepatriation of Export Proceeds:
Ø Period of realization and repatriation of export proceeds is nine months from the date of export for
all exporters including units in SEZ, Status holder exporter, Export Oriented Units, Units in
Electronic Hardware Technology Park (EHTPs), Software Technology Parks (STPs) & Bio-
Technology Park (BTPs).
Ø For goods exported to a warehouse established outside India, the proceeds shall be realized within
fifteen months from the date of shipment of goods.
Ø In the view of disruption caused by the COVID-19 pandemic, the time period for the realization and
repatriation of export proceeds for exports made upto or on 31 July 2020 has been extended to 15
months from the date of export.
Manner of receipt of foreign exchange:
The amount representing full export value of goods exported should be received through an Authorised
Dealer, whether by way of remittance from a foreign country (other than Nepal or Bhutan) or by way of
reimbursement from its branch outside India in the following manner;
GROUP MANNER OF RECEIPT OF FOREIGN EXCHANGE

1. Member countries in the a. Payment for all eligible current transactions by debit to the Asian
Asian Clearing Union (except Clearing Union Dollar account in India of a bank of the member
Nepal) namely, Bangladesh, country in which the other party to the transaction is resident or by
Islamic Republic of Iran, credit to the Asian Clearing Union dollar account of the Authorised
Myanmar, Pakistan and Sri Dealer maintained with the correspondent bank in the member
Lanka. country;
b. Payment in any permitted currency in all other cases.
2. All countries other than a. Payment in rupees from the Vostro account of a bank situated in
mentioned above any country other than a member country of Asian Clearing Union
or Nepal or Bhutan; or
b. Payment in any permitted currency.
Payment for export may also be received by the exporter as under:

Ø In the form of a bank draft, cheque, Pay order, Foreign currency notes/travellers cheque from a buyer
during his visit to India, provided the foreign currency so received is surrendered within the specified
period to the Authorised Dealer of which the exporter is a customer.
Ø By debit to FCNR/NRE account maintained by the buyer with an authorised dealer or an authorised
Bank in India.
Ø Through International Credit card: EDF should be released only on receipt of funds in our NOSTRO
account or on production of certificate by the Exporter from the card servicing Bank that they have
received the equivalent amount in free foreign exchange.
Ø By debit to the credit card of an importer where the reimbursement from the card issuing bank will be
received in foreign exchange.
Ø From a rupee account held in the name of an Exchange House with an authorised dealer if the amount

does not exceed Rs.15,00,000/- per export transaction.
Ø In accordance with the directions issued by the Reserve Bank to authorised dealers, where the export
is covered by the arrangement between the Central Government and the Government of a foreign
country or by the credit arrangement entered into by the Exim Bank with a financial institution in a
foreign state.
Ø By precious metals i.e. Gold/Silver/Platinum by the Gem & Jewellery Units in SEZ and EOUs in
equivalent to value of jewellry exported on the condition that the sale contract provides for the same
and the approximate value of the precious metal is indicated in the relevant EDF/PP form.
Extension of period of realisation:
Where the export proceeds are not realised within the permissible period, Authorised Dealers can permit
extension up to a period of 6 months, at a time, irrespective of invoice value subject to following
conditions;
Ø The said export transaction is not under investigation by Directorate of Enforcement/ CBI or other
investigating agencies.
Ø The AD-I bank is satisfied that the exporter has not been able to realize the export proceeds for
reasons beyond his control.
Ø The exporter submits a declaration that the export proceeds will be realized during the extended
period.
Ø While considering extension beyond one year from the date of export, the total outstanding of the
exporter does not exceed USD one million or 10 per cent of the average export realizations during the
preceding three financial years, whichever is higher.
Ø In cas es where the export er has filed suit s abroa d a gai nst the buyer, e xte nsi on may
be gr ant ed irres pecti ve of t he am ount involve d / outst anding. Applic ation in ETX
forms [IF (exp) 1679]
Advance Payment against Export:
Exporters can receive advance payment against export provided maximum rate of interest charged is
LIBOR + 100 basis points. The shipment of goods must be made within a maximum period of one year
from the date of receipt of advance payment. The document covering the shipment should be routed
through the bank through whom the advance payment is received.
AD-1 banks can also allow exporters having a minimum of three years’ satisfactory track record to
receive long term export advance up to a maximum tenor of 10 years to be utilized for execution of long
term supply contracts for export of goods subject to following conditions;
Ø Firm irrevocable supply orders and contracts should be in place.
Ø Company should have capacity, systems and processes in place to ensure that the orders over the
duration of the said tenure can actually be executed.
Ø The facility is to be provided only to those entities, which have not come under the adverse notice of
Enforcement Directorate or any such regulatory agency or have not been caution listed.
Ø Such advances should be adjusted through future exports.
Ø ROI payable if any should not exceed LIBOR plus 200 basis points.
Ø The documents should be routed through one AD bank only.
Ø AD bank should ensure compliance with AML/CFT guidelines.
Ø Such export advances shall not be permitted to be used to liquidate rupee loans classified as NPA.
Ø Double financing for working capital for execution of export order should be avoided.
Ø Receipt of such advance of USD 100 million or more should be immediately reported to the Trade
Division, Foreign Exchange Dept, RBI, Central Office, Mumbai.
Ø In case ADs are required to issue Bank Guarantee/ Standby Letter of Credit for export performance,
then the issuance should be rigorously evaluated as any other credit proposal.
Ø AD banks may allow the purchase of foreign exchange from the market for refunding advance
payment credited to EEFC account only after utilizing the entire balance held in the exporter’s EEFC
account maintained at different branches/banks.

Reduction in Invoice Value on Account of Prepayment of Usance Bills:
Obtain application/letter in duplicate along with documentary evidence. Reduction requested should not
exceed rate of interest on contracted rate/prime rate/LIBOR for unexpired period. Reduction value to be
recovered by reporting sale (at TT selling rate or Bill financed rate whichever is higher) and swap charges
for early payment is to be recovered.(If bill is financed and has not been delinked.)
Details to be noted in EC delegated power register
Reduction in Invoice Value in other cases:
If after a bill has been negotiated or sent for collection, the amount thereof is desired to be reduced for any
reason, Authorized Dealer are delegated with powers to approve such reduction, if satisfied about the
genuineness of the request provided;
a) The reduction does not exceed 25% of invoice value.
b) It does not relate to an export of commodities subject to floor price stipulations.
c) The exporter is not on the exporters' caution list of Reserve Bank.
d) The exporter is advised to surrender the proportionate export incentive availed, if any.
In the case of exporters who have been in the export business for more than three years, reduction in
invoice value may be allowed, without any percentage ceiling, subject to the above conditions as also
subject to their track record being satisfactory i.e. the export outstanding do not exceed 5% of the average
annual export realisations during the preceding three financial years. For the purpose of reckoning the
percentage of outstanding export bills to average export realisation during the preceding three financial
years, outstanding export bills in respect of exports made to countries facing externalization problems may
be ignored provided the payments have been made by the buyers in the local currency.
In case the export bills had been purchased / discounted /negotiated and reduction is to be permitted,
branches should recover the rupee equivalent of the amount to be reduced and should collected interest at
ECNOS right from the date of post shipment advance.
Export Claims:
Sometimes after realization of proceeds of export bill, the overseas buyer may claim compensation
towards defective quality of goods. Such claims are termed as export claims. The same may be permitted
on application (Annexure 36 of Exports Manual) with documentary evidence without any % ceiling
provided the relative export proceeds have been realised and repatriated to India and the exporter is not in
the exporters’ caution list. The exporter should be advised to surrender proportionate export incentive, if
any received by him. Application by the exporter together with supportive documents to be produced to
the AD.
Change of Buyer/Consignee:
Prior approval of Reserve Bank is not necessary if, after goods have been shipped, they are to be
transferred to a party other than the original buyer in the event of default by the latter, provided the
realisation of export proceeds is not delayed beyond the period of nine months(or stipulated period for
realisation for the category of the exporter) from the date of exports and reduction in invoice value if any
does not exceed 25%.
The letter requesting for change of buyer, the fax/original of the contract entered into with the new buyer,
the revised draft etc should be obtained and forwarded to FD/FEX Cell who will instruct the remitting
bank to deliver the shipping and other documents to the new buyer against payment/ acceptance as the
case may be.
Shipments Lost in Transit:
When shipments from India for which payment has not already been received are lost in transit, branches

must see that insurance claim is made as soon as loss is known.
In cases where insurance claim is payable in India, the branches upon preferring their claim with the
Insurance Company should inform the following particulars to FD/FEX Cell who will release the
duplicate copy of Shipping Bill/EDF form furnishing the said details in Shipping Bill/EDF form:
a. Amount for which shipment was insured.
b) Name and address of the Insurance Company.
c) Place where the claim is payable.
In cases where claim is payable abroad, branches should take up the matter with FD/FEX cell for
arranging to collect the full amount of the claim due on the lost shipment through our correspondent bank
aboard. In such cases, FD/FEX cell will release the duplicate copy of Shipping bill/EDF form to Reserve
Bank only after the amount has been collected duly furnishing a certificate for the amount of claim
received on the reverse of Shipping Bill/EDF form.
Sometimes claims on shipments lost in transit are also partially settled directly by shipping companies /
airlines under carriers' liability. Branches should ensure that amounts of such claims if settled abroad are
also repatriated to India by exporters.
Undrawn Balance:
In certain lines of export trade, it is the practice to leave a small part of the invoice value undrawn for
payment after adjustment due to differences in weight, quality, etc. to be ascertained after arrival and
inspection, weighment or analysis of the goods. Branches may handle such export bills provided;
Ø The amount of undrawn balance is considered normal in the particular line of export trade, subject to
maximum of 10 per cent of the full export value.
Ø The exporter gives an undertaking in the duplicate EDF/PP that he will surrender/account for the
balance proceeds of the shipment within the period prescribed for realization.
Agency Commission on Exports:
Authorised dealers may allow payment of commission, either by remittance or by deduction from invoice
value, on application and supporting documents without any percentage % ceiling, subject to the
following conditions;
Ø The relative shipment has already been made.
Ø Amount of commission has been declared on EDF/SOFTEX form and accepted by customs authority
or Ministry of Information Technology. In case it is not declared, remittance may be allowed after
satisfying the reasons adduced by the exporter for not declaring in the relative export declaration
form besides ensuring valid agreement/written understanding between the overseas agent/beneficiary
concerned for payment of commission subsists.
Payment of commission is prohibited on exports made by Indian partners towards equity participation in
an overseas joint venture/wholly owned subsidiary and exports made under Rupee State Credit
arrangements except for Tea & Tobacco (up to 10% of Invoice)
Agency Commission in respect of exports covered under counter trade arrangement through Escrow account
designated in USD, may be allowed by AD banks, subject to the following conditions:
Ø Above two conditions are satisfied.
Ø The commission is not payable to Escrow account holder themselves.
Ø The commission should not be allowed by deduction from invoice value.
Export of Gift Parcels/Publicity Materials – Issue of Certificate: Branches can issue certificate, at the
request of their regular customers, that the export does not involve any transaction in foreign exchange, to
enable them to send out gift parcels, publicity materials, etc provided the following conditions are
fulfilled
· Value does not exceed Rs.5,00,000/-

· Parcel sent by freight or post parcel
· The certificate issued should carry a notation to the effect that the value of the shipment shall be
subject to acceptance by customer.
Customer should submit an application as per specimen in Annexure of Manual of Instruction.
Original Cash Memo / Bill to be verified
Certificate so issued should be recorded in Register for Bank Certificates issued and running serial
number given.
In case of publicity materials, if the customer is unable to produce the cash memo or bill, branches may
accept a self-declaration regarding the value.
Counter Trade Arrangements: Counter trade proposals involving adjustment of value of goods imported
into India against value of goods exported from India in terms of an arrangement voluntarily entered into
between the Indian party and the overseas party through an Escrow Account opened in India in USD will be
considered by the Reserve Bank. 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 thereunder. 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 three months in a year (i.e. in a block of 12 months) and the banks may pay interest at the
applicable rate. No fund based / or non-fund based facilities 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/organization through the authorized dealer with whom the account is proposed to be opened, to
the office of Reserve Bank under whose jurisdiction the authorized dealer is functioning.
Export of Goods on Lease, Hire etc:
Export of machinery, equipment, etc. on lease, hire, etc. basis under agreement with the overseas lessee
against collection of lease rentals / hire charges and ultimate re-import require prior approval of the Reserve
Bank. Exporters should apply for necessary permission, through an authorised dealer, to the concerned
Regional Office of the Reserve Bank, giving full particulars of the goods to be exported.
Participation in Trade Fairs Abroad:
Firms/Companies and other organisations participating in Trade Fair/ Exhibition abroad are permitted to
take/export goods for exhibition and sale outside India without the prior approval of RBI. It would also be
permissible to 'gift' unsold goods up to the value of USD 5000 per exporter, per exhibition / trade fair
Authorised Dealer may approve EDF form of export items for display or display-cum-sale in the trade
fair/exhibition outside India subject to the following;
Ø The exporter shall produce relative Bill of Entry within one month of re-import into India of the
unsold items.
Ø The exporter shall report to the AD category–I bank, the method of disposal of all items exported, as
well as the repatriation of proceeds into India.
Ø Such transactions approved by the AD Category - I banks will be subject to 100 per cent audit by
their internal inspectors / auditors.
Procedure for approving the EDF forms:

a) Application by letter
b) FEMA declaration-cum-undertaking (Annex 2(a) and 2(b) of MOI)
c) Letter received from Trade fair/Exhibition Authorities abroad confirming the allotment/reservation of
stalls/spaces in the fair/exhibition.
d) An undertaking in writing from the applicant regarding re-import, method of disposal of items
exported and repatriation of export proceeds.
e) After monitoring the EDF forms, the branch has to monitor the transaction and follow-up till the

exporter submit all required details/documentary evidences.
f) Commission of Rs.1000/- to be collected apart from other out of Pocket expenses.
g) The transaction to be approved by an official not below the rank of Scale-II Manager and to be noted
in Delegated Power Register.
Participants in international exhibition/ trade fair have been granted general permission vide Regulation
5(E)5 of the Foreign Exchange Management (Foreign Currency Accounts by a person Resident in India)
Regulations, 2000 dated 21st January 2016 for opening a temporary foreign currency account abroad.
Exporters may deposit the foreign exchange obtained, by sale of goods, at the international exhibition/trade
fair and operate the account during their stay outside India provided that the balance in the account is
repatriated to India within a period of one month from the date of closure of the exhibition/trade fair and full
details are submitted to the concerned authorized dealer.
Project Exports and Service Exports:
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'. Indian exporters offering
deferred payment terms to overseas buyers and those participating in global tenders for undertaking
turnkey/civil construction contracts abroad are required to obtain approval of Authorised dealer-I/ Exim Bank
at post-award stage before undertaking execution of such contracts. Regulations relating to 'Project Exports'
and 'Service Exports' are laid down in the Memorandum on Project Exports (PEM).
Exports on Elongated Credit Terms:
Exporters intending to export goods on elongated credit terms may submit their proposals giving full
particulars through their banks to the concerned Regional Office of Reserve Bank for consideration.
Write off of Unrealised Export bills

Powers delegated by RBI for “Write Off” of unrealized export bills;
Self "write-off" by an exporter 5%"

(Other than Status Holder Exporter)
Self "write-off" by Status Holder Exporters 10%"
'Write-off" by Authorized Dealer Bank - 10%"
" of the total export proceeds realized during the previous calendar year.
The above limits will be related to total export proceeds realized during the previous calendar year and
will be cumulatively available in a year.
This provision is not for writing off any liability of the exporter towards the pre-shipment/post shipment
advance granted by the bank, but only for allowing the exporter customer to write off unrealized export
bills in the books of the exporters.
An exporter who has not been able to realize the outstanding export dues despite best efforts, may
approach the AD Banks, who had handled the relevant shipping documents, with appropriate supporting
documentary evidence with a request for write off of the unrealized portion. AD Banks may accede to
such requests subject to the following conditions:
(a) The relevant amount has remained outstanding for more than one year;

(b) Satisfactory documentary evidence is furnished in support of the exporter having made all efforts to
realize the dues;
(c) The case falls under any of the under mentioned categories;
i. The overseas buyer has been declared insolvent and a certificate from the official liquidator
indicating that there is no possibility of recovery of export proceeds has been produced.
ii. The overseas buyer is not traceable over a reasonably long period of time.
iii. The goods exported have been auctioned or destroyed by the Port / Customs / Health authorities
in the importing country.
iv. The unrealized amount represents the balance due in a case settled through the intervention of the
Indian Embassy, Foreign Chamber of Commerce or similar Organization;
v. The unrealized amount represents the undrawn balance of an export bill (not exceeding 10% of
the invoice value) remaining outstanding and turned out to be unrealizable despite all efforts
made by the exporter;
vi. The cost of resorting to legal action would be disproportionate to the unrealized amount of the
export bill or where the exporter even after winning the Court case against the overseas buyer
could not execute the Court decree due to reasons beyond his control;
vii. Bills were drawn for the difference between the letter of credit value and actual export value or
between the provisional and the actual freight charges but the amounts have remained unrealized
consequent on dishonor of the bills by the overseas buyer and there are no prospects of
realization.
(d) The exporter has surrendered proportionate export incentives, if any, availed of in respect of the
relative shipments. The AD Category – I banks should obtain documents evidencing surrender of
export incentives availed of before permitting the relevant bills to be written off.
(e) In case of self-write-off, the exporter should submit to the concerned AD bank, a Chartered
Accountant’s certificate, indicating the export realization in the preceding calendar year and also the
amount of write-off already availed of during the year, if any, the relevant Shipping Bill/ EDF forms
to be written off, Bill No., invoice value, commodity exported, country of export. The CA certificate
may also indicate that the export benefits, if any, availed of by the exporter have been surrendered.
(f) AD banks should report write off of export bills through EDPMS to the Reserve Bank.
(g) However, the following would not qualify for the “write off” facility;
i) Exports made to countries with externalization problem i.e. where the overseas buyer has
deposited the value of export in local currency but the amount has not been allowed to be
repatriated by the central banking authorities of the country.
ii) Shipping Bill/ EDF forms which are under investigation by agencies like, Enforcement
Directorate, Directorate of Revenue Intelligence, Central Bureau of Investigation, etc. as also the
outstanding bills which are subject matter of civil/criminal suit.
Operational Instruction: The exporter desiring to write off unrealizable export dues should submit an
application in specimen format as per the ANNEXURE 31, in duplicate, requesting the branch/office to
allow write off of unrealized export dues, declared in specific Shipping Bill/EDF forms along with the
Chartered Accountant Certificate indicating;
a) The total export realization (from all banks, in case of consortium account) in the preceding
calendar year and also the amount of write-off already availed of during the year, if any, (from all
banks, in case of consortium account).
b) The relevant GR / SDF Nos. to be written off, Bill No., invoice value, commodity exported,
country of export.
c) The export benefits, if any, availed of by the exporter have been surrendered.
Apart from above, the following procedure should be followed;

i) Branches shall ensure that the relative export bill was originally handled by the branch, either on
collection basis or purchased/discounted/negotiated. In the case of latter, Pre-shipment/ Post-
shipment advance of the relative export bill should be fully recovered from the exporter.
ii) The export bill in question is outstanding at the branch/office for a period not less than one year.
iii) The export bill/GR does not relate to,
a) Exports made to countries with externalization problem i.e. where the overseas buyer has
b) GR / SDF forms which are under investigation by agencies like, Enforcement Directorate,
Directorate of Revenue Intelligence, Central Bureau of Investigation, etc. as also the
outstanding bills which are subject matter of civil / criminal suit.
iv) Necessary application as per Annexure -30 of Manual of Instruction is obtained.
v) The bill falls under any of the categories as mentioned above.
vi) In case any exporter is routing their export transactions through more than one bank, the export
bills of the exporter handled by all such banks and realized during previous calendar year may be
clubbed for arriving the entitlement of the exporter for “write-off” of unrealized export bills, as
stated in Chartered Accountant Certificate up to the limit stipulated i.e. 10% of total export
proceeds realized during the previous calendar year in case of status holder exporter and 5% of
total export proceeds realized during the previous calendar year in case of other than status
holder exporter.
vii) In case any exporter is routing their export transactions only through our Bank, total amount
realized during the previous calendar year shall be verified to ensure that the same is as certified
by the Chartered Accountant
viii) The cumulative value of total amount written off in the particular calendar year should not
exceed the entitlement of the exporter for “write-off” of unrealized export bills.
ix) Upon satisfying compliance with the above the branch should submit all relevant papers to the
appropriate approving authority at Circle Office as mentioned below and seek their approval for
allowing the exporter to write off the unrealized export dues.
Delegation of powers for allowing write off by exporters is as follows:

Chief Manager/Divisional Manager--------- Upto Rs.2 lacs.
Asst. General Manager -----------------------Upto Rs.5 lacs.
Deputy General Manager --------------------- Unlimited.
Chief Manager/Asst. General Managers heading VLBs/ ELBs are also vested with the same
powers. VLBs/ELBs shall seek the approval of Circle Office for the transactions falling beyond
their powers.
x) On receiving the approval for Write Off from the competent authority, the branch may write off
unrealized export dues and communicate to the exporter customer accordingly.
xi) Branches shall certify on duplicate copy of EDF/PP form as under:

" Write off of ............................................. (Amount in words and figures) as per A.P.(DIR Series)
Circular No. 88 dated 12.03.2013
Date Stamp & Signature
xii) Designated branches shall maintain a separate register to record details of the GR/SDF/PP form
in a chronological order and retain the application and the documentary evidences submitted by
the exporter as well as the approval letter received from the Competent Authority in their files, for
verification by our internal Inspector, Auditors and RBI's Inspecting Officials.
xiii) C category branches shall forward all relevant papers and approval letters to Foreign
Department/FEX Cell concerned, who is holding the relevant duplicate GR/SDF/PP form.
WRITE-OFF OF GR ON SETTLEMENT OF CLAIM BY ECGC

On receipt of an application from the exporter, supported by documentary evidence from the ECGC
confirming that the claim in respect of the outstanding bill has been settled by them, write-off the relative
export bills and delete them from the outstanding status. Such write off will not be restricted to the limit of
10 percent. Surrender of incentives, if any, in such cases will be as provided in foreign trade policy. The
claim settled in rupees by ECGC should not be construed as export proceeds realization.
Whenever exporters approach the branch for write-off of unrealized export bills as per provisions,
branches should furnish the details of export bills written-off, providing details of export bill written off
after settlement of the claim by ECGC, for the information of sanctioning authorities.
Opening / Hiring of Warehouse Abroad:
RBI has delegated powers to an AD for granting permission to exporters for opening/hiring warehouses
abroad subject to following conditions;
1) Export outstanding of the exporter not to exceed 5% of the exports made during the previous
financial year.
2) Exporter has a minimum export turnover of USD100,000 during the last financial year.
3) Period of realization should be as applicable to the category (9 months).
4) All transactions should be routed through the designated branch of AD banks.
5) The above permission may be granted to the exporter initially for a period of one year and renewal
may be considered subject to the applicant satisfying the requirement above.
6) AD Category - I banks granting such permission / approvals should maintain a proper record of the
approvals granted.
The exporter seeking permission for opening/hiring ware house abroad should submit the following
documents:
1) Application in duplicate seeking permission duly furnishing the need for opening /hiring
ware houses abroad.
2) Certificate from a Chartered Accountant duly furnishing the total exports made
during the previous year and outstanding overdue bills as on the date of application.
3) If the opening/hiring of warehouse involves purchase or acquisition of immovable
property outside India, other than by way of lease not exceeding five years, RBI permission is to
be obtained and submitted.
4) An undertaking letter from the exporter to route all transactions through the same
Authorised branch.
5) On receipt of the above documents and after ensuring compliance, Authorised branches/FDs/Fex
Cells may accord permission to the exporters for opening/hiring of warehouses abroad.
6) ‘C’ category branches and branches designated for imports only, should obtain documents as
stated above and forward them to the concerned Foreign Department.
7) An official of the rank not below Scale II, overseeing the Foreign Exchange Section of the
branch can only exercise the powers for granting the permission. The details of permission
granted should be recorded in the Exchange Control Delegated Powers Register.
8) Applications, which do not conform to the above guidelines, should be referred to RBI.
9) Branches should collect service charge of Rs.1000 per permission.
Re-export of unsold rough diamonds from Special Notified Zone of Customs without Export
Declaration Form (EDF) formality
i) In order to facilitate re-export of unsold rough diamonds imported on free of cost basis at SNZ, it is
clarified that the unsold rough diamonds, when re-exported from the SNZ (being an area within the

Customs) without entering the Domestic Tariff Area (DTA), do not require any EDF formality.
ii) Entry of consignment containing different lots of rough diamonds into the SNZ should be
accompanied by a declaration of notional value by way of an invoice and a packing list indicating
the free cost nature of the consignment. Under no circumstance, entry of such rough diamonds is
permitted into DTA.
iii) For the lot / lots cleared at the Precious Cargo Customs Clearance Centre, Mumbai, Bill of Entry
shall be filed by the buyer. AD bank may permit such import payments after being satisfied with
the bona-fides of the transaction. Further, AD bank shall also maintain a record of such
transactions.

EXPORT LETER OF CREDIT (ELC)
Export Letters of Credit (ELCs) is an important instrument for settlement under international trade. It
enables the exporters to secure pre-shipment and post-shipment finance from Commercial Banks and also
act as guarantee against the commercial risks, if they fulfill their contractual obligations and present
documents as per terms of the Credit. Any delay in advising the ELC to the exporters would delay the
production process as well as shipment schedule and may eventually deny the exporters the payment
under LC in time. Hence this is a highly sensitive area in international banking and prone to customer
complaints, if not handled correctly and carefully.
At the same time, handling forged LCs, those with erroneous/ ambiguous clauses or with terms and
conditions contrary to Foreign Exchange Regulations etc., will lead to exporters as well as banks incurring
loss and country also may be deprived of legitimate foreign exchange receipt. Hence, ascertaining the
authenticity of Export Letters of Credit and satisfying its correctness from UCP and Foreign Exchange
Regulations angle assumes utmost importance before advising ELCs or amendments.
Processing and advising of all Export Letters of Credit and amendments received by our bank through
SWIFT media has been centralized at ELC Advising Desk functioning at our Vostro Section, Treasury,
Mumbai. Besides this, our Foreign Departments, FEX
Cells, Overseas Branches, FOREX Branches are also authorized to advise Export Letters of Credit
received from our correspondent banks abroad through other than SWIFT media, like courier/airmail.
Other branches (even if they are designated for Exports) should route the ELCs received by them though
the FD/FEX Cell concerned. For adding confirmation to the ELCs and for effecting transfer, where
required, FDs/FEX Cells/OBs/FOREX Branches alone are authorized.
ELCs RECEIVED THROUGH COURIER/AIRMAIL
Occasionally branches may receive original Letters of Credit directly from our correspondent banks
abroad by courier or airmail with a request to advise beneficiary. In such cases, the original Letter of
Credit including its copies and opening bank's covering schedule should be forwarded by Registered
Post/Speed Post to the Foreign Department/FEX Cell concerned for confirming its authenticity,
scrutinizing the clauses with reference to UCP and Foreign Exchange Regulations and advising the same.
Amendments received directly should also be dealt with, in the same manner.
In the case of ELCs received from other Banks before advising the same, branches should acknowledge
such LCs and signature may be got verified from local branch, if any, of that bank. The local branch
should be requested to give “signature verified” confirmation in writing either in the original advising
letter itself or in a separate letter.
After confirming the authenticity, the ELC should be promptly passed on to the beneficiary along with the
advising bank's letter.
The ELCs advised by FDs/FEX Cells under cover of IF(EXP)1685, when received by the branches,
should also be delivered to the beneficiary customers promptly without any delay. The advising charges
claimed by FD/FEX Cell are to be debited to beneficiary's account and remitted to the FD/FEX Cell
concerned. Requests from customers for adding confirmation to ELCs or effecting transfers to the ELCs
are to be referred to servicing FD/FEX Cell.
Under UCP 600, beneficiary has to communicate his acceptability or rejection of any amendment to the
issuing bank. Where branches receive such acceptance or rejection notice from their customer, the same
should be forwarded to FD/Fex Cell for onward communication.
Though Overseas Branches, FOREX Branches (including PCBs) and FEX Cells (other than those who
service business from other branches) are permitted to handle ELCs, they can advise the ELCs pertaining
only to their customers. ELCs received, which are not pertaining to their customers, are to be forwarded to
the nearest Foreign Department by hand delivery/speed post/courier. Similarly ELCs pertaining to the
customers of OBs / FOREX Branches/FEX Cells received by Foreign Departments shall be forwarded to

the respective OB/FOREX Branch/FEX Cell for advising from their end if OB/Fex Cell/PCBs/FOREX
Branch is situated in the same centre. In all other cases, ELCs shall be processed and advised by the
Foreign Department, irrespective of whether the beneficiary is under their jurisdiction or not.
Pre advice of LCs:
When the issuing Bank opens LC by air mail preceded by an authenticated SWIFT message in form MT
705 – Pre Advice of a Documentary Credit giving brief details of the LC being opened by it, then such
messages are to be advised to the beneficiary under IF (EXP) 1686 duly mentioning that the enclosure is
only a preliminary advice of the LC and not valid for negotiation of documents. The airmail advice of the
relative Letter of Credit only is to be treated as an operative instrument.
Advising ELCs:
Letters of Credit are to be lodged in the 'Register of Export Letters of Credit Advised' IF(EXP) 253 and a
running serial number is allotted. This number is to be noted on the original LC and its office copy after
the round seal of the advising office is affixed A rubber stamp with the following wordings should also be
affixed on all copies of the ELC: "AFFIX ONE RUPEE* STAMP FEE BEFORE PRESENTING
THE DOCUMENTS FOR NEGOTIATION." (*or actual stamp duty as applicable).
ADDING CONFIRMATION TO EXPORT LETTERS OF CREDIT:
Allocation of Limit: Adding confirmation to the LCs binds the Bank to negotiate the documents
presented there under, without recourse to the exporter, provided the documents strictly comply with the
LC terms and are presented for negotiation within the validity. As such, adding confirmation amounts to
extending a line of credit and hence requires sanction of limits to the LC Opening bank.
Prior approval of Reserve Bank is not necessary if, after goods have been shipped, they are to be
transferred to a party other than the original buyer in the event of default by the latter, provided the
realisation of export proceeds is not delayed beyond the period of nine months(or stipulated period for
realisation for the category of the exporter) from the date of exports and reduction in invoice value if any
does not exceed 25%.
The letter requesting for change of buyer, the fax/original of the contract entered into with the new buyer,
the revised draft etc should be obtained and forwarded to FD/FEX Cell who will instruct the remitting
bank to deliver the shipping and other documents to the new buyer against payment/ acceptance as the
case may be.
Shipments Lost in Transit:
When shipments from India for which payment has not already been received are lost in transit, branches
must see that insurance claim is made as soon as loss is known.
In cases where insurance claim is payable in India, the branches upon preferring their claim with the
Insurance Company should inform the following particulars to FD/FEX Cell who will release the
duplicate copy of Shipping Bill/EDF form furnishing the said details in Shipping Bill/EDF form:
a. Amount for which shipment was insured.
d) Name and address of the Insurance Company.
e) Place where the claim is payable.
In cases where claim is payable abroad, branches should take up the matter with FD/FEX cell for
arranging to collect the full amount of the claim due on the lost shipment through our correspondent bank
aboard. In such cases, FD/FEX cell will release the duplicate copy of Shipping bill/EDF form to Reserve
Bank only after the amount has been collected duly furnishing a certificate for the amount of claim
received on the reverse of Shipping Bill/EDF form.

Sometimes claims on shipments lost in transit are also partially settled directly by shipping companies /
airlines under carriers' liability. Branches should ensure that amounts of such claims if settled abroad are
also repatriated to India by exporters.
Undrawn Balance:
In certain lines of export trade, it is the practice to leave a small part of the invoice value undrawn for
payment after adjustment due to differences in weight, quality, etc. to be ascertained after arrival and
inspection, weighment or analysis of the goods. Branches may handle such export bills provided;
Ø The amount of undrawn balance is considered normal in the particular line of export trade, subject to
maximum of 10 per cent of the full export value.
Ø The exporter gives an undertaking in the duplicate EDF/PP that he will surrender/account for the
balance proceeds of the shipment within the period prescribed for realization.
Agency Commission on Exports:
Authorised dealers may allow payment of commission, either by remittance or by deduction from invoice
value, on application and supporting documents without any percentage % ceiling, subject to the
following conditions;
Ø The relative shipment has already been made.
Ø Amount of commission has been declared on EDF/SOFTEX form and accepted by customs authority
or Ministry of Information Technology. In case it is not declared, remittance may be allowed after
satisfying the reasons adduced by the exporter for not declaring in the relative export declaration
form besides ensuring valid agreement/written understanding between the overseas agent/beneficiary
concerned for payment of commission subsists.
Payment of commission is prohibited on exports made by Indian partners towards equity participation in
an overseas joint venture/wholly owned subsidiary and exports made under Rupee State Credit
arrangements except for Tea & Tobacco (up to 10% of Invoice)
Agency Commission in respect of exports covered under counter trade arrangement through Escrow account
designated in USD, may be allowed by AD banks, subject to the following conditions:
Ø Above two conditions are satisfied.
Ø The commission is not payable to Escrow account holder themselves.
Ø The commission should not be allowed by deduction from invoice value.
Export of Gift Parcels/Publicity Materials – Issue of Certificate: Branches can issue certificate, at the
request of their regular customers, that the export does not involve any transaction in foreign exchange, to
enable them to send out gift parcels, publicity materials, etc provided the following conditions are
fulfilled
· Value does not exceed Rs.5,00,000/-
· Parcel sent by freight or post parcel
· The certificate issued should carry a notation to the effect that the value of the shipment shall be
subject to acceptance by customer.
Customer should submit an application as per specimen in Annexure of Manual of Instruction.
Original Cash Memo / Bill to be verified
Certificate so issued should be recorded in Register for Bank Certificates issued and running serial
number given.
In case of publicity materials, if the customer is unable to produce the cash memo or bill, branches may
accept a self-declaration regarding the value.
Counter Trade Arrangements: Counter trade proposals involving adjustment of value of goods imported
into India against value of goods exported from India in terms of an arrangement voluntarily entered into
between the Indian party and the overseas party through an Escrow Account opened in India in USD will be
considered by the Reserve Bank. 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 thereunder. 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 three months in a year (i.e. in a block of 12 months) and the banks may pay interest at the
applicable rate. No fund based / or non-fund based facilities 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/organization through the authorized dealer with whom the account is proposed to be opened, to
the office of Reserve Bank under whose jurisdiction the authorized dealer is functioning.
Export of Goods on Lease, Hire etc:
Export of machinery, equipment, etc. on lease, hire, etc. basis under agreement with the overseas lessee
against collection of lease rentals / hire charges and ultimate re-import require prior approval of the Reserve
Bank. Exporters should apply for necessary permission, through an authorised dealer, to the concerned
Regional Office of the Reserve Bank, giving full particulars of the goods to be exported.
Participation in Trade Fairs Abroad:
Firms/Companies and other organisations participating in Trade Fair/ Exhibition abroad are permitted to
take/export goods for exhibition and sale outside India without the prior approval of RBI. It would also be
permissible to 'gift' unsold goods up to the value of USD 5000 per exporter, per exhibition / trade fair
Authorised Dealer may approve EDF form of export items for display or display-cum-sale in the trade
fair/exhibition outside India subject to the following;
Ø The exporter shall produce relative Bill of Entry within one month of re-import into India of the
unsold items.
Ø The exporter shall report to the AD category–I bank, the method of disposal of all items exported, as
well as the repatriation of proceeds into India.
Ø Such transactions approved by the AD Category - I banks will be subject to 100 per cent audit by
their internal inspectors / auditors.
Procedure for approving the EDF forms:

h) Application by letter
i) FEMA declaration-cum-undertaking (Annex 2(a) and 2(b) of MOI)
j) Letter received from Trade fair/Exhibition Authorities abroad confirming the allotment/reservation of
stalls/spaces in the fair/exhibition.
k) An undertaking in writing from the applicant regarding re-import, method of disposal of items
exported and repatriation of export proceeds.
l) After monitoring the EDF forms, the branch has to monitor the transaction and follow-up till the
exporter submit all required details/documentary evidences.
m) Commission of Rs.1000/- to be collected apart from other out of Pocket expenses.
n) The transaction to be approved by an official not below the rank of Scale-II Manager and to be noted
in Delegated Power Register.
Participants in international exhibition/ trade fair have been granted general permission vide Regulation
5(E)5 of the Foreign Exchange Management (Foreign Currency Accounts by a person Resident in India)
Regulations, 2000 dated 21st January 2016 for opening a temporary foreign currency account abroad.
Exporters may deposit the foreign exchange obtained, by sale of goods, at the international exhibition/trade
fair and operate the account during their stay outside India provided that the balance in the account is
repatriated to India within a period of one month from the date of closure of the exhibition/trade fair and full
details are submitted to the concerned authorized dealer.
Project Exports and Service Exports:
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'. Indian exporters offering
deferred payment terms to overseas buyers and those participating in global tenders for undertaking
turnkey/civil construction contracts abroad are required to obtain approval of Authorised dealer-I/ Exim Bank
at post-award stage before undertaking execution of such contracts. Regulations relating to 'Project Exports'
and 'Service Exports' are laid down in the Memorandum on Project Exports (PEM).
Exports on Elongated Credit Terms:
Exporters intending to export goods on elongated credit terms may submit their proposals giving full
particulars through their banks to the concerned Regional Office of Reserve Bank for consideration.
Write off of Unrealised Export bills

Powers delegated by RBI for “Write Off” of unrealized export bills;
Self "write-off" by an exporter 5%"

(Other than Status Holder Exporter)
Self "write-off" by Status Holder Exporters 10%"
'Write-off" by Authorized Dealer Bank - 10%"
" of the total export proceeds realized during the previous calendar year.
The above limits will be related to total export proceeds realized during the previous calendar year and
will be cumulatively available in a year.
This provision is not for writing off any liability of the exporter towards the pre-shipment/post shipment
advance granted by the bank, but only for allowing the exporter customer to write off unrealized export
bills in the books of the exporters.
An exporter who has not been able to realize the outstanding export dues despite best efforts, may
approach the AD Banks, who had handled the relevant shipping documents, with appropriate supporting
documentary evidence with a request for write off of the unrealized portion. AD Banks may accede to
such requests subject to the following conditions:
(a) The relevant amount has remained outstanding for more than one year;
(b) Satisfactory documentary evidence is furnished in support of the exporter having made all efforts to
realize the dues;
(c) The case falls under any of the under mentioned categories;
viii. The overseas buyer has been declared insolvent and a certificate from the official
liquidator indicating that there is no possibility of recovery of export proceeds has been
produced.
ix. The overseas buyer is not traceable over a reasonably long period of time.
x. The goods exported have been auctioned or destroyed by the Port / Customs / Health authorities
in the importing country.
xi. The unrealized amount represents the balance due in a case settled through the intervention of the
Indian Embassy, Foreign Chamber of Commerce or similar Organization;
xii. The unrealized amount represents the undrawn balance of an export bill (not exceeding 10% of
the invoice value) remaining outstanding and turned out to be unrealizable despite all efforts
made by the exporter;
xiii. The cost of resorting to legal action would be disproportionate to the unrealized amount of
the export bill or where the exporter even after winning the Court case against the overseas buyer
could not execute the Court decree due to reasons beyond his control;
xiv. Bills were drawn for the difference between the letter of credit value and actual export
value or between the provisional and the actual freight charges but the amounts have remained

unrealized consequent on dishonor of the bills by the overseas buyer and there are no prospects
of realization.
(d) The exporter has surrendered proportionate export incentives, if any, availed of in respect of the
relative shipments. The AD Category – I banks should obtain documents evidencing surrender of
export incentives availed of before permitting the relevant bills to be written off.
(e) In case of self-write-off, the exporter should submit to the concerned AD bank, a Chartered
Accountant’s certificate, indicating the export realization in the preceding calendar year and also the
amount of write-off already availed of during the year, if any, the relevant Shipping Bill/ EDF forms
to be written off, Bill No., invoice value, commodity exported, country of export. The CA certificate
may also indicate that the export benefits, if any, availed of by the exporter have been surrendered.
(f) AD banks should report write off of export bills through EDPMS to the Reserve Bank.
(g) However, the following would not qualify for the “write off” facility;
iii) Exports made to countries with externalization problem i.e. where the overseas buyer has
iv) Shipping Bill/ EDF forms which are under investigation by agencies like, Enforcement
Directorate, Directorate of Revenue Intelligence, Central Bureau of Investigation, etc. as also the
outstanding bills which are subject matter of civil/criminal suit.
Operational Instruction: The exporter desiring to write off unrealizable export dues should submit an
application in specimen format as per the ANNEXURE 31, in duplicate, requesting the branch/office to
allow write off of unrealized export dues, declared in specific Shipping Bill/EDF forms along with the
Chartered Accountant Certificate indicating;
d) The total export realization (from all banks, in case of consortium account) in the preceding
calendar year and also the amount of write-off already availed of during the year, if any, (from all
banks, in case of consortium account).
e) The relevant GR / SDF Nos. to be written off, Bill No., invoice value, commodity exported,
country of export.
f) The export benefits, if any, availed of by the exporter have been surrendered.
Apart from above, the following procedure should be followed;
i) Branches shall ensure that the relative export bill was originally handled by the branch, either on
collection basis or purchased/discounted/negotiated. In the case of latter, Pre-shipment/ Post-
shipment advance of the relative export bill should be fully recovered from the exporter.
ii) The export bill in question is outstanding at the branch/office for a period not less than one year.
iii) The export bill/GR does not relate to,
c) Exports made to countries with externalization problem i.e. where the overseas buyer has
d) GR / SDF forms which are under investigation by agencies like, Enforcement Directorate,
Directorate of Revenue Intelligence, Central Bureau of Investigation, etc. as also the
outstanding bills which are subject matter of civil / criminal suit.
iv) Necessary application as per Annexure -30 of Manual of Instruction is obtained.
v) The bill falls under any of the categories as mentioned above.
vi) In case any exporter is routing their export transactions through more than one bank, the export
bills of the exporter handled by all such banks and realized during previous calendar year may be
clubbed for arriving the entitlement of the exporter for “write-off” of unrealized export bills, as
stated in Chartered Accountant Certificate up to the limit stipulated i.e. 10% of total export
proceeds realized during the previous calendar year in case of status holder exporter and 5% of

total export proceeds realized during the previous calendar year in case of other than status
holder exporter.
vii) In case any exporter is routing their export transactions only through our Bank, total amount
realized during the previous calendar year shall be verified to ensure that the same is as certified
by the Chartered Accountant
viii) The cumulative value of total amount written off in the particular calendar year should not
exceed the entitlement of the exporter for “write-off” of unrealized export bills.
ix) Upon satisfying compliance with the above the branch should submit all relevant papers to the
appropriate approving authority at Circle Office as mentioned below and seek their approval for
allowing the exporter to write off the unrealized export dues.
Delegation of powers for allowing write off by exporters is as follows:

Chief Manager/Divisional Manager--------- Upto Rs.2 lacs.
Asst. General Manager -----------------------Upto Rs.5 lacs.
Deputy General Manager --------------------- Unlimited.
Chief Manager/Asst. General Managers heading VLBs/ ELBs are also vested with the same
powers. VLBs/ELBs shall seek the approval of Circle Office for the transactions falling beyond
their powers.
x) On receiving the approval for Write Off from the competent authority, the branch may
write off unrealized export dues and communicate to the exporter customer accordingly.
xiv) Branches shall certify on duplicate copy of EDF/PP form as under:
" Write off of ............................................. (Amount in words and figures) as per A.P.(DIR Series)
Circular No. 88 dated 12.03.2013
Date Stamp & Signature
xv) Designated branches shall maintain a separate register to record details of the GR/SDF/PP form
in a chronological order and retain the application and the documentary evidences submitted by
the exporter as well as the approval letter received from the Competent Authority in their files, for
verification by our internal Inspector, Auditors and RBI's Inspecting Officials.
xvi) C category branches shall forward all relevant papers and approval letters to Foreign
Department/FEX Cell concerned, who is holding the relevant duplicate GR/SDF/PP form.
WRITE-OFF OF GR ON SETTLEMENT OF CLAIM BY ECGC
On receipt of an application from the exporter, supported by documentary evidence from the ECGC
confirming that the claim in respect of the outstanding bill has been settled by them, write-off the relative
export bills and delete them from the outstanding status. Such write off will not be restricted to the limit of
10 percent. Surrender of incentives, if any, in such cases will be as provided in foreign trade policy. The
claim settled in rupees by ECGC should not be construed as export proceeds realization.
Whenever exporters approach the branch for write-off of unrealized export bills as per provisions,
branches should furnish the details of export bills written-off, providing details of export bill written off
after settlement of the claim by ECGC, for the information of sanctioning authorities.
Opening / Hiring of Warehouse Abroad:
RBI has delegated powers to an AD for granting permission to exporters for opening/hiring warehouses
abroad subject to following conditions;
1. Export outstanding of the exporter not to exceed 5% of the exports made during the previous

financial year.
2. Exporter has a minimum export turnover of USD100,000 during the last financial year.
3. Period of realization should be as applicable to the category (9 months).
4. All transactions should be routed through the designated branch of AD banks.
5. The above permission may be granted to the exporter initially for a period of one year and
renewal may be considered subject to the applicant satisfying the requirement above.
6. AD Category - I banks granting such permission / approvals should maintain a proper record of
the approvals granted.
The exporter seeking permission for opening/hiring ware house abroad should submit the following
documents:
1. Application in duplicate seeking permission duly furnishing the need for opening /hiring ware
houses abroad.
2. Certificate from a Chartered Accountant duly furnishing the total exports made during the
previous year and outstanding overdue bills as on the date of application.
3. If the opening/hiring of warehouse involves purchase or acquisition of immovable property outside
India, other than by way of lease not exceeding five years, RBI permission is to be obtained and
submitted.
4. An undertaking letter from the exporter to route all transactions through the same Authorised
branch.
5. On receipt of the above documents and after ensuring compliance, Authorised branches/FDs/Fex
Cells may accord permission to the exporters for opening/hiring of warehouses abroad.
6. ‘C’ category branches and branches designated for imports only, should obtain documents as
stated above and forward them to the concerned Foreign Department.
7. An official of the rank not below Scale II, overseeing the Foreign Exchange Section of the branch
can only exercise the powers for granting the permission. The details of permission granted should
be recorded in the Exchange Control Delegated Powers Register.
10) Applications, which do not conform to the above guidelines, should be referred to RBI.
11) Branches should collect service charge of Rs.1000 per permission.
Re-export of unsold rough diamonds from Special Notified Zone of Customs without Export
Declaration Form (EDF) formality
iv) In order to facilitate re-export of unsold rough diamonds imported on free of cost basis at SNZ, it is
clarified that the unsold rough diamonds, when re-exported from the SNZ (being an area within the
Customs) without entering the Domestic Tariff Area (DTA), do not require any EDF formality.
v) Entry of consignment containing different lots of rough diamonds into the SNZ should be
accompanied by a declaration of notional value by way of an invoice and a packing list indicating
the free cost nature of the consignment. Under no circumstance, entry of such rough diamonds is
permitted into DTA.
vi) For the lot / lots cleared at the Precious Cargo Customs Clearance Centre, Mumbai, Bill of Entry
shall be filed by the buyer. AD bank may permit such import payments after being satisfied with
the bona-fides of the transaction. Further, AD bank shall also maintain a record of such
transactions.
EXPORT LETER OF CREDIT (ELC)
Export Letters of Credit (ELCs) is an important instrument for settlement under international trade. It
enables the exporters to secure pre-shipment and post-shipment finance from Commercial Banks and also
act as guarantee against the commercial risks, if they fulfill their contractual obligations and present

documents as per terms of the Credit. Any delay in advising the ELC to the exporters would delay the
production process as well as shipment schedule and may eventually deny the exporters the payment
under LC in time. Hence this is a highly sensitive area in international banking and prone to customer
complaints, if not handled correctly and carefully.
At the same time, handling forged LCs, those with erroneous/ ambiguous clauses or with terms and
conditions contrary to Foreign Exchange Regulations etc., will lead to exporters as well as banks incurring
loss and country also may be deprived of legitimate foreign exchange receipt. Hence, ascertaining the
authenticity of Export Letters of Credit and satisfying its correctness from UCP and Foreign Exchange
Regulations angle assumes utmost importance before advising ELCs or amendments.
Processing and advising of all Export Letters of Credit and amendments received by our bank through
SWIFT media has been centralized at ELC Advising Desk functioning at our Vostro Section, Treasury,
Mumbai. Besides this, our Foreign Departments, FEX
Cells, Overseas Branches, FOREX Branches are also authorized to advise Export Letters of Credit
received from our correspondent banks abroad through other than SWIFT media, like courier/airmail.
Other branches (even if they are designated for Exports) should route the ELCs received by them though
the FD/FEX Cell concerned. For adding confirmation to the ELCs and for effecting transfer, where
required, FDs/FEX Cells/OBs/FOREX Branches alone are authorized.
ELCs RECEIVED THROUGH COURIER/AIRMAIL
Occasionally branches may receive original Letters of Credit directly from our correspondent banks
abroad by courier or airmail with a request to advise beneficiary. In such cases, the original Letter of
Credit including its copies and opening bank's covering schedule should be forwarded by Registered
Post/Speed Post to the Foreign Department/FEX Cell concerned for confirming its authenticity,
scrutinizing the clauses with reference to UCP and Foreign Exchange Regulations and advising the same.
Amendments received directly should also be dealt with, in the same manner.
In the case of ELCs received from other Banks before advising the same, branches should acknowledge
such LCs and signature may be got verified from local branch, if any, of that bank. The local branch
should be requested to give “signature verified” confirmation in writing either in the original advising
letter itself or in a separate letter.
After confirming the authenticity, the ELC should be promptly passed on to the beneficiary along with the
advising bank's letter.
The ELCs advised by FDs/FEX Cells under cover of IF(EXP)1685, when received by the branches,
should also be delivered to the beneficiary customers promptly without any delay. The advising charges
claimed by FD/FEX Cell are to be debited to beneficiary's account and remitted to the FD/FEX Cell
concerned. Requests from customers for adding confirmation to ELCs or effecting transfers to the ELCs
are to be referred to servicing FD/FEX Cell.
Under UCP 600, beneficiary has to communicate his acceptability or rejection of any amendment to the
issuing bank. Where branches receive such acceptance or rejection notice from their customer, the same
should be forwarded to FD/Fex Cell for onward communication.
Though Overseas Branches, FOREX Branches (including PCBs) and FEX Cells (other than those who
service business from other branches) are permitted to handle ELCs, they can advise the ELCs pertaining
only to their customers. ELCs received, which are not pertaining to their customers, are to be forwarded to
the nearest Foreign Department by hand delivery/speed post/courier. Similarly ELCs pertaining to the
customers of OBs / FOREX Branches/FEX Cells received by Foreign Departments shall be forwarded to
the respective OB/FOREX Branch/FEX Cell for advising from their end if OB/Fex Cell/PCBs/FOREX
Branch is situated in the same centre. In all other cases, ELCs shall be processed and advised by the
Foreign Department, irrespective of whether the beneficiary is under their jurisdiction or not.
Pre advice of LCs:
When the issuing Bank opens LC by air mail preceded by an authenticated SWIFT message in form MT
705 – Pre Advice of a Documentary Credit giving brief details of the LC being opened by it, then such

messages are to be advised to the beneficiary under IF (EXP) 1686 duly mentioning that the enclosure is
only a preliminary advice of the LC and not valid for negotiation of documents. The airmail advice of the
relative Letter of Credit only is to be treated as an operative instrument.
Advising ELCs:
Letters of Credit are to be lodged in the 'Register of Export Letters of Credit Advised' IF(EXP) 253 and a
running serial number is allotted. This number is to be noted on the original LC and its office copy after
the round seal of the advising office is affixed A rubber stamp with the following wordings should also be
affixed on all copies of the ELC: "AFFIX ONE RUPEE* STAMP FEE BEFORE PRESENTING
THE DOCUMENTS FOR NEGOTIATION." (*or actual stamp duty as applicable).
ADDING CONFIRMATION TO EXPORT LETTERS OF CREDIT:
Allocation of Limit: Adding confirmation to the LCs binds the Bank to negotiate the documents
presented there under, without recourse to the exporter, provided the documents strictly comply with the
LC terms and are presented for negotiation within the validity. As such, adding confirmation amounts to
extending a line of credit and hence requires sanction of limits to the LC Opening bank.
Such limits are to be got sanctioned through Correspondent Banking Section, Integrated Treasury Wing,
Mumbai, by submitting proposal in prescribed form as per ANNEXURE – 7 of Manual of Instruction on
Export General. The limit allocated by Correspondent Banking Section basing on such proposal would be for
specific SINGLE TRANSACTION only.
Conditions for adding confirmation:
i) There should be authorization/request for adding confirmation from the issuing bank.
ii) Method of payment and terms of settlement should strictly be in consonance with Foreign Exchange
(FEMA) regulations/guidelines.
iii) None of the clauses should be contrary to Exchange/Trade Control Regulations.
iv) LCs should not contain any derogatory/ambiguous/onerous clauses.
v) LCs must be available for negotiation/acceptance at the counters of our bank.
vi) In case the LC was advised originally through another bank in India before adding confirmation
suitable undertaking is to be obtained to the effect that they (i.e, the issuing bank) would
communicate all future amendments through us.
vii) LC should provide for simultaneous TT reimbursement in the case of sight bills and in the case of
Usance bills authority to claim reimbursement on due date from settlement intermediary. In case of LC,
falling under (vi) above, such an authority should be in favour of our bank and not in favour of the bank
who originally advised the LC.
viii) Where LCs provide for payment/settlement by the opening bank upon receipt of documents at
their counters, the same should not be treated as simultaneous reimbursement. In such cases, suitable
amendment must be sought as per item (vii) above.
ix) Limit sanctioned / allocated is for specific single transaction only and not to be utilised for any
subsequent transaction upon clearance of the liability under the transaction for which limit was
allocated.
x) Adding confirmation to LCs emanating from “Restricted cover countries” shall also be subject to
permission from Correspondent Banking Section, Treasury Wing Mumbai and upon compliance
with the terms and conditions specified in their sanction letter.
xi) Confirmation will be valid only for documents conforming to the terms and conditions of the credit
and presented within the validity of the credit.
xii) In the case of LCs calling for usance drafts, payment shall be made only on due date and not on
presentation of documents.
xiii) In the event of any enhancement/extension/material changes in the LC conditions by way of

amendment to the LC for which confirmation is added, compliance with all the above conditions is to
be ensured before making available our confirmation to the amendment. Adding confirmation to such
amendment/s is at the sole option of the confirming bank and it is not obligatory for us to extend
confirmation to such amendments.
xiv) In the event of adverse political/economical developments after adding confirmation subsequent
amendments to such LCs and amendments with unacceptable provisions are to be advised to
beneficiary duly mentioning that our confirmation will not be available for the amendment but only
for original terms of LC.
xv) All LCs should contain the following clause: "Except as otherwise expressly stated this
Documentary Credit is subject to The Uniform Customs and Practices for Documentary Credits
2007 Revision, International Chamber of Commerce Publication No. 600".
xvi) Where confirmation charges are for the account of beneficiary, confirmation can be added only after
collection of appropriate commission. Where the confirmation charges are for account of openers,
confirmation can be added and charges are to be claimed from the issuing bank.
TRANSFER OF EXPORT LETTERS OF CREDIT:

Letters of Credit expressly designated as “transferable” can only be transferred in favour of a party at the
instance of the original beneficiary. Transferable LCs can be transferred only once. However, if the
transferable LC provides for part shipments, it can be transferred in part/s also. A transferable LC can be
transferred only by the bank authorised to pay, incur a deferred payment undertaking, accept or negotiate
(the Transferring Bank), or in the case of a freely negotiable Credit, the bank specifically authorised in the
Credit as a Transferring Bank.
Therefore, before effecting transfers, the FD/FEX Cell/OB/FOREX Branch should satisfy that our bank is
a nominated bank authorised to pay, incur a deferred payment undertaking, accept or negotiate the
documents under the LC. If an LC is issued as being available at the Issuing Bank's counter, the only bank
that can effect the transfer is the Issuing Bank and hence under any situation, such LCs should not be
transferred by our FD/FEX Cell/OB/FOREX Branch, even if it is a transferable LC.
ELCs can be transferred only to a person / firm / company resident in India and not to a person /firm/
company outside India. In case of request for transfer of an ELC to a person/firm/company outside India,
the matter should be referred to Systems & Procedures Section, Integrated Treasury Wing Mumbai for
necessary guidance.
In the case of a freely negotiable ELC, the bank specifically authorised in the LC as a TRANSFERRING
BANK alone can effect the transfer (Article 38b of UCP 600).
Any request for transfer must indicate if and under what conditions amendments may be advised to the
second beneficiary. The transferred credit must clearly indicate those conditions (Article 38e UCP600).
A credit may be transferred in part to more than one second beneficiary provided partial drawings or
shipment are allowed. A transferred credit cannot be transferred at the request of a second beneficiary to
any subsequent beneficiary. The first beneficiary is not considered to be a subsequent beneficiary (Article
38d UCP 600).
The transferred credit must accurately reflect the terms and conditions of the credit, including
confirmation, if any, with the exception of:
The amount of the credit,
The unit price stated therein,
The expiry date,
The period for presentation, or
The latest shipment date or given period for shipment, any or all of which may be reduced or
curtailed (Article 38g UCP600).

Advising Amendments to Export Letters of Credit:
Amendments received by airmail/courier are to be processed and advised to the beneficiaries in the
same manner as done while advising LCs. Under UCP 600, the beneficiary should give notification of
acceptance or rejection of an amendment. Upon receipt, such communication should be forwarded to
the Issuing bank. If there is a specific request from the LC opening bank to advise them as to whether
particular amendment is acceptable to the beneficiary or not, while advising such amendment the
beneficiary should be requested to advise us accordingly. Beneficiary's concurrence or otherwise should
be communicated to the opening bank.
ELCs RECEIVED THROUGH SWIFT MEDIA
Such Export LCs/Amendments meant for beneficiaries (both our customers and non-customers), are
received at our SWIFT Centre, Treasury, Mumbai. “ELC Advising Desk” at Vostro Section, Treasury,
Mumbai, would process and advise all Export LCs/Amendments received at SWIFT Centre, Treasury,
Mumbai to the beneficiaries directly. However, wherever adding of confirmation to LCs or effecting
transfer is involved, such functions will continue to be performed by the respective FD/FEX
Cell/OB/FOREX Branches and not by the ELC Advising Desk, Vostro Section.
All pre-advices/Export LCs/Amendments received at SWIFT Centre through SWIFT formats MT 705,
MT 700, MT 707, MT 799, MT 710 and MT 720 are processed by the ELC advising desk. Wherever pre-
advices / Export LCs / Amendments received are favouring the beneficiaries who are our bank's clients,
same are advised directly to the client through courier. A copy of the forwarding letter IF(EXP)1685,
1686, 1687 is sent to the concerned branch.
Wherever the pre-advices/Export LCs/Amendments received are in favour of beneficiaries, who are
non-customers of our bank, the ELC Advising Desk advises the same directly by couriering the same
to the main branch of our bank in the beneficiary's place or to a nearby neighboring branch of the
beneficiary's place, if no branch of ours is present in the beneficiary's place along with forwarding
letter IF(EXP)1685, 1686, 1687 with instructions to simply hand over the pre-advice/Export
LC/Amendment to the beneficiary concerned after collection of charges.
ADDING CONFIRMATION:
Where there is a request to add confirmation by the opening bank at its cost: Export LCs
containing such instructions would be processed by our Correspondent Banking Section, Integrated
Treasury Wing, Mumbai and with their concurrence, ELC Advising Desk at Vostro Section, Treasury
would add the confirmation and forward the LC to our concerned office/beneficiary for further
handling of documents.
Where confirmation is to be added, at the cost of the beneficiary: Our ELC Advising Desk would
forward the LC by courier to our concerned branch/ beneficiary directly duly indicating in the
forwarding letter that there is a request to add confirmation to the Export LC and should the
beneficiary need the confirmation they should approach our specific office, like, FD/FEX
Cell/OB/FOREX Branch, as the case may be will be indicated in the Export LC Forwarding Schedule.
Our concerned FD/FEX Cell/OB/FOREX Branch upon receipt of request to add confirmation to such
Export LCs/Amendments should refer the matter to Correspondent Banking Section, Integrated
Treasury Wing, Mumbai and process the request.
Where the request for adding confirmation is from the beneficiary without any specific request
from the opening bank: Such cases are also referred to Correspondent Banking Section, Integrated
Treasury Wing, Mumbai, who would decide on the merits of the individual cases.
RESTRICTEDandTRANSFERABLE LETTERS OF CREDIT:

Export LCs/ Amendments, if restricted for negotiation to our bank, the documents are to be processed and
negotiated by the concerned FD/authorised branches. Where Export LCs/Amendments received through
SWIFT contain "transferable" clause and beneficiaries approach our bank for effecting the transfer of LC
amount either fully or partly, same is to be effected by the concerned FD.
Where Export LCs/Amendments are restricted to our bank for negotiation and contain "transferable"
clause and the beneficiaries are our customers, such ELCs are to be directed to concerned FD/authorized
branch, for effecting the transfers.
Provisions relating to Advising of LC as per Uniform CustomsandPractices for Documentary

Credit- UCP 600
Definition: (Article 2)
- Issuing bank means the bank that issues a credit at the request of an applicant or on its own behalf. -
Advising bank means the bank that advises the credit at the request of the issuing bank.
Advising of Credits and Amendments (Article 9)
a. A credit and any amendment may be advised to a beneficiary through an advising bank. An advising
bank that is not a confirming bank advises the credit and any amendment without any undertaking to
honour or negotiate.By advising the credit or amendment, the advising bank signifies that it has
satisfied itself as to the apparent authenticity of the credit or amendment and that the advice
accurately reflects the terms and conditions of the credit or amendment received.
b. An advising bank may utilize the services of another bank (“second advising bank”) to advise the
credit and any amendment to the beneficiary. By advising the credit or amendment, the second
advising bank signifies that it has satisfied itself as to the apparent authenticity of the advice it has
received and that the advice accurately reflects the terms and conditions of the credit or amendment
received.
c. A bank utilizing the services of an advising bank or second advising bank to advise a credit must use
the same bank to advise any amendment thereto.
d. If a bank is requested to advise a credit or amendment but elects not to do so, it must so inform,
without delay, the bank from which the credit, amendment or advice has been received.
e. If a bank is requested to advise a credit or amendment bur cannot satisfy itself as to the apparent
authenticity of the credit, the amendment or the advice, it must so inform, without delay, the bank
from which the instructions appear to have been received. If the advising bank or second advising
bank elects nonetheless to advise the credit or amendment, it must inform the beneficiary or second
advising bank that it has not been able to satisfy itself as to the apparent authenticity of the credit,
the amendment or the advice.
Amendments (Article 10)
a. Except as otherwise provided by article 38, a credit can neither be amended nor cancelled without
the agreement of the issuing bank, the confirming bank, if any, and the beneficiary.
b. An issuing bank is irrevocably bound by an amendment as of the time it issues the amendment. A
confirming bank may extend its confirmation to an amendment and will be irrevocably bound as of
the time it advises the amendment. A confirming bank may, however, choose to advise an
amendment without extending its confirmation and, if so, it must inform the issuing bank without
delay and inform the beneficiary in its advice.
c. The terms and conditions of the original credit (or a credit incorporating previously accepted
amendments) will remain in force for the beneficiary until the beneficiary communicates its
acceptance of the amendment to the bank that advised such amendment. The beneficiary should give
notification of acceptance or rejection of an amendment. If the beneficiary fails to give such
notification, a presentation that complies with the credit and to any not yet accepted amendment will
be deemed to be notification of acceptance by the beneficiary of such amendment. As of that moment
the credit will be amended.
d. A bank that advises an amendment should inform the bank from which it received the amendment of
any notification of acceptance or rejection.
e. Partial acceptance of an amendment is not allowed and will be deemed to be notification of rejection

of the amendment.
f. A provision in an amendment to the effect that the amendment shall enter into force unless rejected
by the beneficiary within a certain time shall be disregarded.
Provisions relating to confirmation of LC as per Uniform CustomsandPractices for Documentary

Credit- UCP 600
As per Article 2, Honour means:
a. to pay at sight if the credit is available by sight payment.
b. to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred
payment.
c. to accept a bill of exchange (“draft”) drawn by the beneficiary and pay at maturity if the credit is
available by acceptance.
As per Article 2, Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other
than the nominated bank) and/or documents under a complying presentation, by advancing or agreeing to
advance funds to the beneficiary on or before the banking day on which reimbursement is due to the
nominated bank.
Confirming Bank’s undertaking as per Article 8 is as under,
a. provided that the stipulated documents are presented to the confirming bank or to any other nominated
bank and that they constitute a complying presentation, the confirming bank must:
i. honour, if the credit is available by
a. sight payment, deferred payment or acceptance with the confirming bank;
b) sight payment with another nominated bank and that nominated bank does not pay;
c) deferred payment with another nominated bank and that nominated bank does not incur its
deferred payment under taking or, having incurred its deferred payment undertaking, does not
pay at maturity;
d) acceptance with another nominated bank and that nominated bank does not accept a draft
drawn on it or, having accepted a draft drawn on it, does not pay at maturity;
e) negotiation with another nominated bank and that nominated bank does not negotiate.
ii. Negotiate, without recourse, if the credit is available by negotiation with the confirming bank.
b. A confirming bank is irrevocably bound to honour or negotiate as of the time it adds its confirmation
to the credit.
c. A confirming bank undertakes to reimburse another nominated bank that has honoured or negotiated a
complying presentation and forwarded the documents to the confirming bank. Reimbursement for the
amount of a complying presentation under a credit available by acceptance or deferred payment is
due at maturity, whether or not another nominated bank prepaid or purchased before maturity. A
confirming bank’s undertaking to reimburse another nominated bank is independent of the
confirming bank’s undertaking to the beneficiary;
d. If a bank is authorised or requested by the issuing bank to confirm a credit but is not prepared to do
so, it must inform the issuing bank without delay and may advise the credit without confirmation.
EXPORT COLLECTION, PURCHASE, DISCOUNT & NEGOTIATION
The terms Purchase, Discount, Negotiation & Rupee Advance mean the following in the context of post-
shipment finance against export documents;
Purchase: Providing finance against export documents covered by drafts drawn ‘at sight’. The foreign
currency amount of the bill is purchased at spot Bill buying rate and the resultant Rupee equivalent is
financed.

Discount: Providing finance against export documents covered by drafts drawn ‘on usance’ basis. The
foreign currency amount of the bill is purchased at the long rate (usance bill buying rate) corresponding to
the maturity of the bill and the resultant Rupee equivalent is financed.
Negotiation: Providing finance against documents drawn under export letters of credit. Accounting
principle is similar to purchase/Discount with reference to the tenor of the draft.
Rupee Advance: Providing finance in Indian Rupees without purchasing the foreign currency element of
the bill against exports documents -
i. Drawn in non-position currencies,
ii. During the period when exchange rates are not available due to closure of exchange markets or
suspension of exchange rates,
iii. Drawn on and payable in listed countries or
iv. Sent on collection basis where the customer specifically requests for Rupee Advance without
purchasing the foreign currency amount of the bill.
STATUS REPORT (OPL) ON OVERSEAS BUYERS:
Whether the bills are drawn under LCs or otherwise, Status Report (OPL) on all the overseas buyers
should be obtained. The Panel of Service providers from whom the Status Reports on foreign entities can
be obtained is as follows:
a) M/s. Dun and Bradstreet Information Services India Private Limited,
b) M/s. Brickwork India Private Limited,
c) M/s. Mira Inform Private Limited,
d) M/s. Experian Services India Private Limited and
e) M/s. MNS Credit Management Group (P) Ltd.
Branches/Offices should send their requests for Status Reports in the Format furnished in the Annexure-
29(a) of Manual of Instructions. The Service Provider would be sending consolidated Bill to the Branch
concerned and the payment is to be made on a monthly basis, for the Status Reports received by branch in
the previous month.
Prime Banks: Our correspondent banks satisfying the following norms only are classified as prime
banks;
Group I: International Banks which are fulfilling the rating matrix norms as per Counter Party Banks
Risk Exposure Policy 2010-11 and who have regular satisfactory past dealings, AND Public Sector Banks
of India having overseas branches.
Group II: International Banks which are fulfilling the rating matrix norms as per Counter Party Banks
Risk Exposure Policy 2010-11 and who occasionally deal with our bank (with satisfactory dealings), AND
Private Sector Banks from India having overseas branches.
PURCHASE/DISCOUNT: SCRUTINY OF DOCUMENTS:
After satisfying that the customer has adequate limits to cover the purchase/discount of the bill and all the
terms of sanction (like ECGC cover, usance period, etc) have been complied with, the bill should be
scrutinized to ensure compliance with Foreign
Exchange Regulations and credit angle etc. requirements.
Purchasing or discounting of export bills not drawn under irrevocable letters of credit, require specific
approval of higher/sanctioning authorities in the following cases (even under Sanctioned Limits):
i. Where the Bill of Lading presented is issued by a Charter Party/Freight Forwarding Agent;
ii. Where Country Craft/Sailing vessel/Stale/Direct BL is presented or BL is evidencing "on deck"
shipment or "Received for Shipment";
iii. Where Forwarder's Cargo Receipt (FCR) issued by IATA approved agent is presented in lieu of Bill
of Lading;

iv. Where Airway Bill is consigned directly in the name of overseas buyer;
v. Where House Airway Bill is presented;
vi. Where Non-negotiable Seaway Bill is presented instead of B/L;
vii. Where post parcel is directly addressed to the buyer;
viii. Where one or more original BL and/or other shipping documents are to be dispatched directly to
overseas buyer;
ix. Where the goods are dispatched on consignment sale basis;
x. Where the goods are dispatched for stock and sale through warehouse.
Note: If relative Insurance Policy covers the risks in 'On Deck Shipment', branches may accept BLs
evidencing 'On deck' shipment.
Where the export document contains usance draft with instructions to deliver the document only against
payment, then the following factors should engage the attention of the branch;
i. The D/A period allowed should not be longer than the voyage period.
ii. If D/A period is longer than the voyage period, adequate arrangements should be made by the
exporter to keep the cargo in warehouse at the port of discharge, as in some countries uncleared cargo
is auctioned by the port authorities.
iii. In case of shipment by air, adopting this method of payment by exporter should raise doubts in
the mind of the branch about the intention of the exporter.
In case of non-LC documents, knowing the customer, verification of their business transactions/financial
position, integrity, previous dealings, etc. are important aspects, which are to be looked into while
purchasing/discounting.
When documents are submitted after an unreasonable time from the date of shipment (more than 21 days),
with instructions to deliver the documents against payment, then there may be possibility of cargo
remaining uncleared at the port of destination. Such instances are likely to give a clue that the exporters
may have indulged in acts, like, obtention of delivery at the port of discharge by employing other means
more so by: -
Ø Procuring number of original B/Ls more than the numbers indicated on B/Ls,
Ø Fraudulently altering consignee's name,
Ø Obtaining more than one set of B/Ls for a single shipment by fraudulent means and so on,
This is also applicable to Airway Bills. In such a situation and where B/Ls do not appear to be normal
B/Ls, discrete enquiries should be made by contacting concerned Shipping Company/Air Liners.
The transaction of any business relating to the entry or departure of conveyances or the import or export of
goods at any Customs station is undertaken by Custom House Agent (CHA), who is licensed to act as an
agent for the said purpose. All shipping bills contain the information relating to Customs House Agent
(CHA) who has handled the shipping bill and the same is also countersigned by him. The names of Custom
House Agents (CHAs), who are permitted to handle the above work, are available in the Website of
respective customhouses. In case of any doubt regarding the genuineness of a shipping bill, branches may
verify the status of concerned CHA from the above websites.
Branches should report purchases of foreign currency amounts representing

Purchase/Discount/Negotiation to their respective servicing FD/Fex Cell over telephone by furnishing the
following details:
a. Branch reference number of the Bill: FDB/FBE/..../
b. Foreign currency name and amount purchased, (i.e. excluding EEFC component)
c. Tenor of the bill, nature of usance and/or due date in the case of fixed due date bills.
d. Whether drawn under LC; if so nature of reimbursement available as per LC terms.
e. EEFC amount.
Branches should maintain a Reporting Register duly recording the following details in respect of

transactions reported:
- Export Bill Reference Number,
- Foreign Currency amount of the Bill reported excluding EEFC component
- Tenor of the Bill
- Rate as well as acknowledgment number quoted by FD
- Name of the branch official who reported the transaction and the name of the official in FD to
whom reported.
- EEFC amount.
NORMAL TRANSIT PERIOD AND NOTIONAL DUE DATE:
The export bills purchased/discounted/negotiated are eligible for concessional rate of interest during
Normal Transit Period (NTP) in the case of sight bills and till Notional Due Date (NDD) in the case of
usance bills. Normal Transit Period comprises the average period normally involved from the date of
negotiation/purchase/ discount till the receipt of bill proceeds in the Nostro account of the bank.
Normal Transit Period is not to be confused with the time taken for arrival of the goods at the destination.
The rules evolved by FEDAI with regard to Normal Transit Periods applicable to various types of export
bills are as under;
1. Normal Transit Period for purposes of all bills in foreign currencies :25 days
Note: NTP applicable for foreign currency bills as above is also applicable for bills drawn in foreign
currency under Letter of Credit issued in connection with Govt. of India Lines of Credit, the
reimbursement of which is obtained from Govt. of India by the designated bank and paid in Indian
rupees.
2. Exports to Iraq: In respect of Exports to Iraq under United Nations Guidelines where payment under
Letters of Credit is made on arrival of goods upon issuance of certificate by U.N. Agency to the
effect that the exports conform to the guidelines laid down by United Nations, the applicable Normal
Transit Period shall be for a maximum of 120 days from the date of shipment for which
concessional rate of interest shall be recovered.
3. Normal Transit Period for purposes of bills drawn in Rupees:

(a) In the case of bills drawn under Letters of Credit where reimbursement is provided at the centre
of negotiation :3 days
If reimbursement for negotiation of Rupee bills drawn under a Letter of Credit is obtained in the
centre of negotiation by debit to the non-resident account of the credit opening bank held, either
with the negotiating bank itself or with any of its branches in the same centre, interest for the
transit period of 3 days as allowed shall not be collected.
(b) In the case of bills drawn under Letter of Credit where reimbursement is provided at a centre in
India other than the centre of negotiation :7 days
(c) In the case of bills drawn under Letters of Credit where reimbursement is provided by banks
situated outside India & Bills not under Letter of Credit: 20 days
(d) Exports to Russia against Letters of Credit providing for reimbursement by RBI under State
Credit arrangement : 20 days
4. TT Reimbursement under Letters of Credit:

Ø In case where the Letter of Credit provides for reimbursement claim upon negotiation by
cable/SWIFT or other electronic means: 5 days.
Ø In case such reimbursement instructions stipulate claiming of reimbursement by Cable/ SWIFT
or other electronic means after a certain number of days from date of negotiation/ despatch of
documents, this additional period shall be added to the five days for recovery of concessive rate
of interest.
Notional Due Date (NDD) of usance bills:

Ø Where the due date is to be determined based on the date of acceptance of the usance bill, NDD

shall be arrived at taking into account the usance period plus Normal Transit Period.

Ø Actual due date of the bill if the same can be determined by the nature of usance, such as 90 days
from the date of shipment or payable on a fixed future date, etc. As the actual due date can be
determined in these cases, no NTP will be applicable.
While purchasing an export bill already sent for collection, NTP should be reckoned from the date of
forwarding the documents on collection basis and not from the date of purchase/discount/negotiation.
Normal Transit Period in respect of export bills under LC where SWIFT Reimbursement is
available: 5 days
In case of dispatch of documents directly by eligible exporters calculation of the NTP of 25 days is to
commence from the date of evidencing dispatch of documents by the exporter to the consignee or from the
date of submission of copies of documents by the exporter to the branch, whichever is earlier.
COLLECTION OF INTEREST:
For the export bills purchased, discounted or negotiated branches should collect interest on the liability
amount as per HO circular. Overdue interest shall be recovered from the customer in cases payment is not
received on or before the expiry date of Normal Transit Period in case of demand bills, and on or before
the notional due date/actual due date in case of usance bills.
In cases, where change of tenor of export bills is allowed, concessional credit can be extended only if the
revised due date does not fall beyond the period prescribed for realisation from the date of shipment.
Where extension of time limit (for overdue export bills) is permitted, the same is only for realisation of
export proceeds under the provisions of FEMA and not for extending the period of concessional credit
beyond original due date of the bills.
FORWARDING DOCUMENTS TO FD/FEX CELL AND FOLLOW UP:
All documents should be forwarded to Foreign Department/Fex Cell under the cover form IF (EXP) 1668
by expeditious means. IF (EXP) 1668 should contain the following:
a) Full instructions as to collection of documents.
b) EEFC component if any.
c) Exchange Rate applied; details of reporting/forward contract and Rupee equivalent.
d) Obtention of specific permission of sanctioning authorities under special cases.
e) Clause/Covenant or letter regarding noting/protesting (for collection docs).
f) Scrutiny sheet, if the documents are drawn under LC.
DELINKING/CRYSTALLIZATION:
While purchasing the export bills, Treasury enters into a firm sale commitment in the interbank market to
deliver the foreign currency amount to coincide with the probable date of realisation. In case there is any
delay in realisation of export bills, FEDAI has devised a system called delinking/crystallization of export
bills. As per this system, where the proceeds of any export bill is not realised within 15 days from the
expiry of Normal Transit Period or Notional Due Date or actual due date, as the case may be, the foreign
currency element of the transaction is delinked and customer's liability is crystallized in Indian Rupees. The
delinking is done at TT Selling Rate of the foreign currency ruling on the date of delinking.
The ostensible date for delinking is 15th day from the expiry of the NTP in case of unpaid sight bills and
the 15th day from the expiry of Notional Due date in case of unpaid usance bills. Where the 15 th day falls
on a Saturday or a Sunday or a holiday, the ostensible date for delinking shall be extended to the next
following working day.

The bill may be crystallized before the above said period of 15 th day with specific understanding and
written request from the customer (Annexure-22).
Delinking Procedure:
The overdue export bill is crystallized at TT selling rate ruling on the date of delinking/crystallization. The
crystallized liability is transferred to "Bills Purchased - Overdue Export Bills Realisable A/c", which is
denominated in INR. The profit/loss generated in the transaction is passed on to Treasury online by
debiting/crediting identified profit/loss GL at Treasury ( GL no. 320020007)
REALISATION OF EXPORT BILLS:
Where the proceeds of export bills have been realised before delinking, export bill should be adjusted at the
exchange rate at which the bill was earlier purchased/discounted. If the remitting bank had deducted their
charges, such charges shall be converted at TT Selling Rate and deducted from the
proceeds. Similarly where our charges had been claimed from drawees, if realised the same should be
converted at TT Buying Rate and included in the export bill proceeds.
In the case of early realisation of the usance bills before due date, excess premium passed towards un -
availed usance period will be recovered as swap cost. Upon receipt of a claim from the Treasury, branches
should recover the amount so claimed from exporter's account.
Realization after delinking:
Upon realisation of delinked export bills, branches should report fresh purchase of the foreign currency
amount realised and the resultant Rupee equivalent should be credited to the crystallised liability
outstanding in Indian Rupees or customer’s account as the case may be.
The post shipment credit in respect of unrealized export bills can be adjusted either from proceeds of any
other (collection) bills not financed or from the balance available in the EEFC account of the exporter
subject to the following conditions:
1) The concerned export bill against which advance was granted will continue to remain outstanding
as bill for collection and the respective shipping bill/EDF form will be released only upon
realization/receipt of actual payment of the relevant bill.
2) The concessional rate will be applicable in case of such adjustment also.
3) While the export bill thus adjusted would continue to remain outstanding, it would however not be
subject to crystallization norms.
4) If the adjustment takes place before the delinking of overdue export bill, then the subject bill
becomes collection bill and the question of delinking of such export bill does not arise.
5) Overdue post shipment finance in rupee/foreign currency can be adjusted out of balance held in
EEFC account as also from the proceeds of any other un-financed (collection) bills. Post Shipment
finance in rupee/foreign currency can also be adjusted before the due date of the bill. In such cases
it is to be treated as early realization of export bills and appropriate swap charges should be
collected as per the existing guidelines.
NEGOTIATION
As per article 2 of UCP 600, Negotiation means the purchase by the nominated bank of drafts (drawn on a
bank other than the nominated bank) and/or documents under a complying presentation, by advancing or
agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due
to the nominated bank.
Meaning of "Honour": As per article 2 of UCP 600, Honour means:

a) to pay at sight if the credit is available by sight payment.
b) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred
payment.
c) to accept a bill of exchange (“draft”) drawn by the beneficiary and pay at maturity if the credit is
available by acceptance.
As per Article 12 (c) of UCP 600, receipt or examination and forwarding of documents by a nominated
bank that is not a confirming bank does not make that nominated bank liable to honour or negotiate, nor
does it constitute honour or negotiation.
Branches should forward the documents - whether discrepant or clean - to the LC Opening Bank by using
the term “negotiation”.
SCRUTINY OF DOCUMENTS:
Documents presented should be meticulously scrutinized with the LC terms. The discrepancies, if any,
observed by the branches are to be recorded and the customer should be asked to rectify the same
wherever possible by advising the discrepancies observed in IF (EXP) 1688. The fact of such rectification
should also be recorded against the discrepancy observation remark on the reverse of the bill-covering
schedule.
DISCREPANT DOCUMENTS AND PAYMENT UNDER RESERVE:
Unless the documents presented conform to the terms and conditions stated in the relative letter of credit,
the same cannot be considered as CLEAN. Where the documents do not comply with the LC terms, the
issuing bank may reject the documents irrespective of the nature of the discrepancy whether minor or
major. Customer's standing, commodity involved, reputation of the opening bank and of the opener and
past experience should be weighed while taking decision as to negotiate the documents under reserve or
not and such decision should be taken ONLY BY THE OFFICIAL IN CHARGE OF THE BRANCH.
However, such discrepant documents can be discounted/ negotiated only under the regular limit permitted
by the appropriate sanctioning authority. Branches cannot exercise their powers for negotiation of such
discrepant documents.
While negotiating the documents under reserve to the customer, branches should obtain an indemnity letter
from him in form IF(EXP) 1692. The discrepancies observed should be incorporated in the indemnity letter.
Discrepancies observed by the branches and the fact of obtention of Indemnity letter should be advised to
FD/FEX Cell on the bill-covering schedule. Before considering a fresh proposal to pay under reserve the
official in charge of the branch should take note of the existing reserve payment position of the customer.
Branches may convey the discrepancies by way of SWIFT to the opening bank and seek their specific
authority to negotiate documents despite discrepancies. Upon receiving authenticated message from the
issuing bank authorizing to negotiate the documents despite discrepancies, branches may negotiate the
documents. In such cases the payment need not be treated as under reserve. However branches should
obtain indemnity letter even in such cases.
Where the documents could not be negotiated due to discrepancies and rupee packing credit is
outstanding, rupee advance not exceeding the outstanding PC liability should be granted. For granting
such Rupee Advance against discrepant documents for clearing PC liability, branches should get
sanctioned a suitable post shipment limit or sub limit well in advance. Such cases are to be treated similar
to order based transactions and not as negotiation under delegated power.
Wherever we receive intimation of rejection of documents, same should be treated as Non-LC documents. In
a LC document, counter-party exposure is considered as one on LC opening bank and not on the drawee
whereas in case of non-LC documents, counter-party exposure is on the drawee alone. Wherever such
documents are discounted under specific limits for discounting bills under LCs or under general delegated

powers of the Export turnover, branches should treat the liability as one under non-LC bills to satisfy
whether the same falls within the sanctioned limits/delegated powers for this purpose. Recovery steps should
be initiated in consultation with the sanctioning authorities.
NEGOTIATION UNDER REVOLVING LETTER OF CREDIT:
“Revolving letter of credit” is one, which provides for repeated utilisation of the LC amount on the
original terms and conditions. Generally revolving LCs will stipulate two amounts viz., the amount upto
which drawings can be made at any point of time and overall ceiling amount comprising total drawings
under the LC.
Automatic Revolving:
Generally the repeated utilisation of the LC will be by way of a condition like:
Such LCs will provide for further utilisation as soon as the documents of previous utilisation have been
negotiated clean.
Restricted Revolving: LC may provide for further utilisation only after receipt of LC issuing bank's payment
advice with regard to the previous utilisation or an amendment/SWIFT message to that effect.
REJECTION OF DOCUMENTS BY ISSUING BANK AND NEGOTIATING BANK'S RIGHT OF

RECOURSE TO THE DRAWERS:
As per provisions of UCP 600, the documents negotiated under an irrevocable letter of credit are liable to
be rejected by the LC issuing bank if they observe any discrepancy tenable under provisions of UCP 600.
Except under LCs to which the bank has added confirmation and negotiated the documents clean,
branches have recourse to the drawers.
Even in case where branches have claimed reimbursement as per terms of LC, the LC issuing bank may
reject the documents by enumerating the discrepancies observed by them within five banking days
following the day of presentation and demand refund of the amount reimbursed.
Confirmed LCs:
In the case of negotiation of documents drawn under ELCs to which our Bank has added confirmation, the
payment made to the exporter shall be final and even if the issuing bank rejects the documents citing
discrepancies, our Bank shall not have any right of recourse to the drawer. However, if the branch has
observed the discrepancies at the time of negotiation and obtained indemnity letter IF(EXP)
1692/IF(EXP)1693, the right of recourse to the drawer can be exercised in case of rejection by the issuing
bank.
LCs Restricted to Issuing Bank:
LCs which state that the same are available only at the counters of the Issuing bank do not authorise any
other bank to negotiate documents there under. Such documents should be presented to the Issuing bank
for payment/ acceptance. The date of receipt of documents by the Issuing bank within the validity of the
LC alone will be treated as due presentation. Branches are not delegated with powers to negotiate such
documents but can purchase/discount them only under sanctioned FDB/FBE limit like any other order
based transaction. Such documents should be forwarded to FD/Fex Cell along with duplicate Shipping
Bill/EDF form, the original LC and amendments, if any.
ADVANCES AGAINST RED CLAUSE LETTERS OF CREDIT:

In certain trades, letters of credit will provide for drawing a specified amount under the L/C in advance
against beneficiary's receipt or draft accompanied by his undertaking to effect shipment and tender
documents drawn in compliance with the credit terms within its validity. This is considered as pre-
shipment finance made available to the seller by the opener of the LC (buyer). Letters of Credit containing
such a provision are called as ‘Red Clause LCs’.
Authorised Dealers can grant pre-shipment advances against Red Clause LCs. Such advance will,
however, be treated as advance remittance against exports. Normally such LCs will provide for
simultaneous reimbursement to the negotiating bank for their payment to the beneficiary under ‘Red
Clause LC’ treating the same on par with a bill. The amount so drawn should be adjusted in the value of
resulting shipments as stated in the L/C. To the extent of negotiation under Red Clause LC, pre-shipment
credit entitlement for the relative export order should be reduced.
Sometimes, in respect of `Red Clause' payments, the L/C issuing bank may not provide for simultaneous
reimbursement to the negotiating bank, but may request them to provide for advance from their own
resources and to adjust the same from the value of ensuing negotiation of documents together with
interest. In case the L/C expires unutilised, the issuing bank also undertakes to reimburse the negotiating
bank the amount so advanced together with interest. Branches are not delegated with powers to grant pre-
shipment advances against such LCs. However branches can grant pre-shipment credit under sanctioned
PC limits subject to normal regulations.
NEGOTIATION OF DOCUMENTS DRAWN IN NON-POSITION CURRENCIES:
Along with the documents, a request-cum-risk letter should be obtained from the customer as per
ANNEXURE – 25 of MOI. In the said request letter the customer should indicate in which of our position
currencies he would like us to realise the bill amount. A copy of the risk letter should be forwarded to the
FD/Fex Cell along with the documents. The customer will be paid the Rupee equivalent of position currency
in which we receive payment. The Foreign Department will credit the amount to the branch at the prevailing
rate of exchange upon actual realisation of bill. Wherever Rupee advance is extended against such bill,
necessary entries for the differential amount are to be passed by the branches upon realization of the export
bill. All other procedure except maintaining liability is on par with that applicable for making rupee
advances against other types of export bills.
RUPEE ADVANCE AGAINST EXPORT BILLS:
Following are instances when we have to grant rupee advance against export bills;
1) Wherever our Bank does not maintain position in any currency, and bills are sent in those
currencies, proceeds of such Bills are to be realised in Indian Rupees or in any other position
currency as per the choice of the customer.
2) Non availability of exchange rate due to suspension of forex market
3) Bills payable in listed countries – countries which are facing balance of payment problems or huge
foreign exchange deficit are termed as Listed Countries. Even if the overseas buyer of such countries
make payment of the bills in their local currency, repatriation of proceeds into India will be difficult
as the Central Bank in these countries face huge foreign exchange deficit. Countries which are
facing political instability or frequent civic unrest are also to be treated as Listed Countries. In such
countries payment risks are too high and ECGC provides cover for political as well as commercial
risks on a restricted basis.
Branches may grant Rupee advances against export bills payable in Listed Countries only after taking
specific permission from their higher authorities and after ensuring obtention of ECGC Policy by the
customer with specific approval for shipment to the listed country. This is applicable even if documents

are drawn under Irrevocable LCs issued by and payable at branches of Prime Banks situated in listed
countries.
Where LCs issued by banks situated in listed countries are confirmed by reputed prime banks situated in a
non-listed country providing for simultaneous reimbursement in freely convertible currency, branches
may negotiate documents.
4) Where Rupee pre-shipment credit was granted against irrevocable LC of a prime bank, if documents
contain discrepancies, branches should grant Rupee advance and transfer the outstanding Rupee Pre-
shipment liability into post-shipment liability. To facilitate this, branches should get suitable limits
sanctioned well in advance.
5) Whenever customer specifically desires to avail only Rupee advance against export bills. This is in
order to avail any probable appreciation in exchange rate of the foreign currency at a future date i.e.,
upon realisation of the bill.
Before granting Rupee advance, apart from the General Power of Attorney, obtain an Application cum
Agreement as per ANNEXURE – 26 of MOI, DPN and appropriate risk letter as per ANNEXURE -
27(a) to 27(d) from the exporter-customer.
The amount of Rupee advance will be on the basis of latest spot Bill buying rate (irrespective of the tenor of
the bill). In respect of non position currencies branches may obtain approximate value of the currency by
contacting FD/Fex Cell. The amount so arrived may be rounded off to the lower thousand.
EXPORT COLLECTION:
Export Bills which are received from the customers for collection and for crediting the amount upon
actual realisation are called "Foreign Outward Bills for Collection". From the Foreign Exchange
Regulations point of view, there is no difference between the export bills handled on collection basis and
those against which post shipment finance is granted. However, the internal guidelines from credit angle
like seeking permission of sanctioning authorities in handling Charter Party Bill of Lading, House Airway
Bills, Non-Negotiable Seaway Bills etc., are not applicable while handling documents on collection basis,
as long as the same are in conformity with the provisions of Foreign Exchange Regulations.
CATEGORIES OF BILLS:
Foreign Outward Sight for Collection (FOSCs): Shipping documents accompanied by drafts payable at
sight or demand and providing for delivery against payment are called FOSCs.
Foreign Outward Bills for Collection (FOBCs): Shipping documents accompanied by usance drafts and
providing delivery against acceptance of the draft (DA terms) or against payment (DP terms), are called
FOBCs. Shipping documents covering shipment made on consignment basis are also classified as FOBCs.
Such documents will provide for delivery against a trust receipt from the agent (consignee) abroad
undertaking to remit the sale proceeds as and when the goods are sold but not later than the period
prescribed for realization of proceeds of the export.
DELIVERY OF USANCE DOCUMENTS AGAINST PAYMENT: The term "Usance" does not
necessarily mean delivery of documents against acceptance. It could also be documents against payment
where considerable time is likely to be taken for the cargo to reach the port of discharge. In this case, the
exporters should give CLEAR & UNAMBIGUOUS instructions to the collecting bank that all the
documents shall be deliverable against payment only.
Article 7 of URC 522 states that it is not a normal practice to draw bills payable at a future date with
instructions to deliver the documents against payment. However, the said Article also provides that in case
such bills are drawn, the relative collection instructions should clearly state whether the documents are to be
delivered against acceptance (DA) or against payment (DP). When documents with such payment instructions

are received, the drawee accepts the bill of exchange drawn at, say 60 days after sight. However, the
documents are released to the drawee only when payment is received.
PRESENTATION OF DOCUMENTS: Bills should be presented by the customer under cover form
IF(EXP) 1667- Foreign Documentary Bills for Collection Covering Letter. This form is in set of 3 copies
and the customer should present all the three copies with the documents and duplicate copy of Shipping
Bill/EDF forms. The first copy is for forwarding documents to the FD/Fex Cell, the second copy is meant
for the branch and the third copy should be returned to the customer duly acknowledging the documents
therein.
This form IF (EXP) 1667 contains instructions to the bank and also includes terms and conditions for
collection of documents. Hence this form should be presented by the customer duly signed by an
authorised signatory of the exporter firm/company.
In view of various difficulties normally faced in the event of dishonour of export bills in getting the same
noted/protested, branches should incorporate a covenant/clause as stated below, in the Export Bills
Covering Schedule:
"The bank is not bound to get the dishonoured bills noted and protested and I/we waive such
notices of dishonor or protest."
SCRUTINY OF DOCUMENTS:
Instructions given by the customer on terms of delivery of documents, collection of charges, collection of
interest, etc should be verified to ensure that requisite information has been given. If there are any omissions
or any changes are required, the customer should be asked to furnish or rectify the same.
Thereafter, the shipping documents should be scrutinised as per FEMA guidelines. Documents should be
checked to ensure correctness and arithmetical accuracy of the calculation as well as the details as
declared in Shipping Bill/EDF forms. Where the exporter has requested the bank to despatch the shipping
documents directly to the overseas buyer/consignee or where the post parcel is addressed to the overseas
buyer directly, branches should accede to such requests only where the exporter is a regular customer of
the bank.
Documents drawn under LCs:
The documents drawn under letter of credit, even though presented on collection basis should be
scrutinized as per guidelines explained under negotiation chapter of this book. This would assist the
branches, if the customer requests for post shipment finance at a later date.
NON-POSITION CURRENCY BILLS:
While accepting documents drawn in non position currencies, branches should obtain a letter in duplicate
from the customer as per proforma given in ANNEXURE – 25 of MOI, a copy of which is to be
forwarded to FD/FEX Cell by C Category branches along with the documents. In this letter, the customer
should indicate the foreign currency in which he would like the bill amount to be converted at the time of
realisation. The foreign currency so opted should be one in which the Bank maintains position.
FORWARDING OF DOCUMENTS TO FOREIGN DEPARTMENT/FEX CELL:
The documents alongwith duplicate copy of Shipping Bill/EDF forms and scrutiny sheet as per Annexure -
14 of MOI (in case of document drawn under LC) are to be forwarded to FD/FEX Cell under cover of form
IF(EXP)1667. Upon forwarding the documents to correspondent bank for collection, FD/FEX Cell will send
two copies of their covering schedules IF(EXP) 1669 to the branches. Branches should note the FD/FEX
Cell's bill reference number and date as appearing therein against relative entries in FOSC/FOBC Records.

One copy of the covering schedule IF (EXP) 1669 is to be delivered to the customer and the branch copy
should be filed alongwith relative office copy of the IF (EXP) 1667.
In respect of usance bills, upon receipt of acceptance advice from the correspondent bank, FD/FEX Cell
will in turn advise the branches. The same are to be noted in the FOSC/FOBC Records and also advised to
the customer.
Where Forward Contract has been booked by the customer before presentation of documents, the fact that the
proceeds of collection documents are to be taken as delivery under Forward Purchase Contract should be
advised to FD/FEX Cell in the Bill Covering Schedule. Where Forward Contract is booked after
forwarding the documents for collection, branches while booking Forward Purchase Contracts should
inform FD/FEX Cell their collection bill reference number and date without fail. The details of Forward
Contract should be noted in FOSC/FOBC Records.
PAYMENT OF COMPENSATION TO THE EXPORTERS IN RESPECT OF DELAYED

CREDIT OF EXPORT BILLS SENT ON COLLECTION:
As per RBI directive, banks are required to compensate the exporters, without any demand from the
exporters, wherever the export bill proceeds are credited to their accounts after the expiry of the period fixed
by FEDAI, provided the exporter has complied with the Foreign Exchange Regulations and the credit
advices/statements received from the correspondent banks contain correct and full details. The compensation
is by way of payment of interest for the delayed period excluding execution period.
Compensation is applicable in cases where Bank fails to transfer funds to exporter’s account within two
working days. This time limit is for completion of the transaction from the date of receipt of credit
advice/statement confirming credit to `Nostro' account. Intervening holidays and Saturdays are to be
excluded while calculating the period for execution of the payment. If last day of completing the
transaction falls on a holiday, the transaction should be closed on the next working day. Further, the
compensation is payable (only) if the FOREX Rate moves adversely.
The debit slip for payment of compensation should be authorized by the Branch-in-charge. Compensation
will be paid by way of minimum interest charged by banks on export credit and the compensation will
start from the expiry of time limit fixed above for execution of the transaction.
UNIFORM RULES FOR COLLECTION (URC 522):
With a view to follow uniform procedure and system for collection of export bills (not drawn under letter
of credit) particularly in the absence of specific/clear instructions from the remitting bank, International
Chamber of Commerce, Paris, has adopted a set of Articles known as 'Uniform Rules for Collection [1995
Revision URC 522]. The documents are collected by overseas banks, as per provisions in the above rules
in the absence of specific instructions in our forwarding schedule. In case the overseas bank in the course
of collecting the bill has not adhered to certain instructions, branches should refer to the above rules
before taking up the matter with FD/Fex Cell.
FOLLOW UP OF OVERDUE COLLECTION BILLS:
If the sight/usance bills are not paid/accepted on presentation or accepted drafts are not paid on the due
date, they are considered as overdue bills. In these cases the goods incur demurrage and are exposed to the
risks of theft, pilferage, damage etc. Further, Customs Authorities abroad may auction the goods if the
same are not cleared within a stipulated period. The insurance cover will also get lapsed 30 days after
discharge of goods at the destination. In order to avoid such a situation, the customer should persuade the
drawee to make payment or accept the documents.

In respect of unpaid bills, the customers may also be instructed to seek assistance from the Indian
Embassies/High Commissions or Consulates in those countries. If the customer is not successful in obtaining
payment of the bill, he may arrange to get the goods re-imported into India on freight-to-pay basis, upon
clearance of goods re-imported, the branches should obtain from the customer Exchange Control copy of Bill
of Entry or Customs Assessment Certificate or Postal Appraisal form, as the case may be, and forward the
same to the FD/Fex Cell for clearance of outstanding Shipping Bill/EDF form.
NotingandProtesting of Dishonoured Export Bills:
In the case of dishonoured export bills, following difficulties are normally faced in getting the
dishonoured export bills noted/protested abroad in order to initiate legal action against the drawees outside
India: -
a) Most of the correspondent banks do not undertake the work of noting and protesting of unpaid
export bills.
b) In some countries, noting/protesting is to be done within specific number of hours/business days
from the date of dishonour or non-payment and by the time non-payment is known; the time for
noting/protesting would have expired.
c) Where bills are despatched directly to the drawees abroad in accordance with the procedure
prescribed under Foreign Exchange Regulations, noting/protesting becomes impracticable.

PRE SHIPMENT FINANCE IN INR/FC
Financial assistance extended to the exporters prior to shipment of goods fall within the scope of pre
shipment finance and assistance extended after the shipment of goods falls within the scope of post-
shipment of finance.
Export Finance (both at pre shipment and post shipment stages) in India is governed by FEMA, directives
issued by RBI from time to time, regulations of Directorate General of Foreign Trade (DGFT), FEDAI
rules and guidelines issued by ECGC Ltd.
Credit extended by Bank to exporter for financing purchase, processing, manufacturing or packing of goods
prior to shipment on the basis of LC or on the basis of a confirmed and irrevocable order or any other
evidence of an order for export comes under the purview of Pre-shipment finance. This facility is commonly
referred to as PACKING CREDIT. Pre-shipment credit may be extended either in Indian Rupees or in
designated currencies (presently USD, GBP and EURO) at the option of the exporter.
PCs may be extended for domestic as well as for imported inputs. The period of a PC will generally begin
with the procurement of raw materials for execution of a particular LC / Order and the credit gets
liquidated once the goods are shipped and shipping documents are presented to the Bank. The liability
under the PC shall stand converted as Post-Shipment liability upon negotiation / purchase / discount of the
export bill.
PCs are granted to Exporters who have export orders or a Letter of Credit or to the suppliers or supporting
manufacturers who do not have export order/ LC in their own name and are exporting through merchant
exporters or Star Exporters who are the Export Order Holders (EOH).
Goods and services going into SEZ from Domestic Tariff Area (DTA) are treated as exports. Hence the
same will be eligible for export credit facilities. Packing credit may be allowed to floriculture, grapes and
other agro based products or purchase of cut flowers etc. and all post-harvest expenses incurred for
making shipment.
RBI has also permitted banks to release / grant PCs to exporters having good track record, on the basis of
“Letters of Indication” or in anticipation of Export orders without insisting for lodgement of Export LC /
confirmed order or contract at the time of release of PC depending upon their judgement regarding the
need under Running Account facility subject to the following conditions:
i. The facility may be extended provided the need for ‘Running Account’ facility has been established
by the exporters to the satisfaction of the bank.
ii. The banks may extend the ‘Running Account’ facility only to those exporters whose track record has
been good.
iii. In all cases where ‘Running Account’ facility has been extended, Letters of Credit / Firm Orders
should be produced within a reasonable period of time, and in the case of commodities covered
under Selective Credit Control, banks should insist on production of letters of credit / firm orders
within a period of one month from the date of release.
At times, exporters may conclude contracts by exchange of cables/ e-mail / messages and regular orders /
contracts / LC may follow subsequently. In such cases, banks can accept the messages lodged provided
such communications contain the following minimum information:
a. Name of the Overseas Buyer
b. Particulars of goods to be exported
c. Quantity and unit prices or value of order
d. Dates of shipment
e. Terms of sales and payment

In the above cases, banks must follow up for final contract / LC etc. with the exporters and ensure its
receipt within a reasonable period. All the export orders / LCs etc against which PC is granted should be
retained with the bank ( unless they are required by the exporter for any genuine reason like obtaining
export quotas, licences etc.) and they should be endorsed / marked in token of having granted the PC.
NATURE OF ADVANCE:
Packing Credit is normally extended as fund-based advance secured by way of hypothecation or pledge of
goods. However, non-fund based facility can also be extended by way of opening inland LCs or back to
back LCs in favour of the sub-suppliers for supply of goods to be exported or by way of opening import
LCs for import of raw materials, accessories etc., for manufacture of goods meant to be exported.
Suitable credit limits should be got sanctioned from appropriate sanctioning authorities well in advance.
Within the PC limit sanctioned, the exporter can avail PCFC depending on the availability of FC funds for
which funds clearance from ID is required. Tenability of export credit limits shall be two years.
ASSESSMENT Et EVALUATION OF PROPOSALS
General guidelines applicable to Working Capital facilities viz., assessment, preparation of Credit Report
etc., are to be followed in addition to the following:
Ø Applicant should not have been be placed in the Exporters Caution List issued by Reserve Bank of
India/ defaulters list by the Bank.
Ø All exporters / Importers should possess Importer- Exporter Code number ( IECN.) allotted by
Directorate General of Foreign Trade (DGFT) unless specifically exempted.
Ø Exporter should not have been placed under Specific Approval List (SAL) by ECGC.
Proposals are to be examined from the angle of borrower’s credit – and trust-worthiness, prudence,
capability, past experience / expertise in the line of proposed export activity. The requirement of packing
credit limit is to be assessed after considering the past performance of the borrower, projected export
turnover, the export-orders on hand and the availability of infrastructure for achieving the projections /
executing the export orders on hand. Cost of production / profitability of export orders should also be
analysed. The commodity/ies proposed to be exported should relate to the party’s line of business and the
party should possess a valid licence / permit to deal with the goods, wherever applicable.
In case of new parties / taken over accounts, in addition to the above, OPL from their existing bankers
should be called for, to ensure that they have the necessary standing and means to execute the export
orders.
RENEWAL PROPOSALS
While submitting renewal proposals, the following should include in the Credit Report:
(i) Goods for PC purposes are segregated and adequate insurance is available as per prevailing
guidelines;
(ii) Whether the stock statements are submitted promptly / in time or with delay
(iii) Whether the branch has inspected the godowns as per the guidelines / sanction terms;
(iv) Whether the stocks are maintained properly or not;
(v) Whether the movement of goods is satisfactory;
(vi) Whether adverse features, if any, noticed in the last inspection. and, if not rectified, reasons and
steps taken to rectify.
(vii) Details of irregular / overdue PCs along with the nature of irregularity and steps taken;

(viii) Number of overdue GR forms outstanding year-wise, with reasons for the outstanding and steps
taken to release the GRs;
(ix) No. of discrepant documents handled against the PC Limit / Advance.
(x) Any reduction in invoice value in the Exports made by the party.
TIME LIMIT FOR DISPOSAL OF EXPORT CREDIT PROPOSALS
RBI has stipulated the following time schedule for disposal of applications for export
Credit;
BRANCH SANCTION
Proposals for Sanctions at Branch

Sanction of fresh/enhanced credit limits 30 days (25 days)
Renewal of existing credit limits 30 days (15 days)
Sanction of adhoc credit facilities 15 days (7 days)
REGIONALandCIRCLE OFFICE SANCTION
Time Norms For Sanction Total TAT

Proposals for Processing at Processing/sanction at
branch RO/CO
Sanction of fresh/enhanced credit 15 days (10 days) 20 days (15 days) 45 days (20
limits days)
Renewal of existing credit limits 15 days (5 days) 15 days (10 days) 30 days (15
days)
Sanction of adhoc credit facilities 5 days (3 days) 10 days (4 days) 15 days (7 days)
HEAD OFFICE SANCTION
Time Norms For Sanction Total TAT

Proposals for Processing at Processing At HO
branch /sanction at
RO/CO
Sanction of fresh/enhanced 10 days (5 days) 15 days (7 days) 20 days (13 45 days (25
credit limits days) days)
Renewal of existing credit 7 days (3 days) 10 days (4 days) 13 days (8 30 days (15
limits days) days)
Sanction of adhoc credit 3 days (2 days) 4 days (2 days) 8 days (3 days) 15 days (7
facilities days)
Turnaround Time (TAT) to be computed from the date of receipt of completed loan Applications.
Period mentioned in brackets indicate time period for Gold Card Exporters.
As per credit policy of the bank, rejection of export credit proposals shall be immediately reported to
MD&CEO.
QUANTUM OF FINANCE:
There is no fixed formula for determining the quantum of finance. The guiding principle is the concept of
“NEED BASED” finance. Limit is to be determined considering the past performance and in the case of
new parties based on projections. Normally, PCs to be granted to exporters should not exceed the FOB
value of the goods or domestic market value of the goods, whichever is less. However, there are certain
exceptions like:

(a) PCs can be granted to the extent of domestic market value or imported cost of the goods even
though the same is higher than the FOB value of relative exports, provided the goods are eligible for
Export incentives like Duty Draw Back, and Export Production Finance Guarantee of ECGC is
available. Such facility can be sanctioned only if advance against Duty Draw Back is to be
sanctioned at Post-shipment stage. In such cases, advance in excess of the F.O.B. value of the goods
should be liquidated from the proceeds of Duty Draw Back to be received.
(b) PCs can be granted to exporters of HPS Groundnuts, de-oiled and defatted cakes against the security
of oil seeds and/or other raw materials required viz., Groundnut, rice bran, soya seeds etc. , to the
extent of their value, even though, such value exceeds the value of the export order. The advance in
excess of the export order is required to be adjusted either in cash or by sale of residual groundnut /
by-product as soon as the selection of HPS groundnuts/ extraction of oil is completed but within a
period not exceeding 30 days in case of export of deoiled and defatted cakes and 15 days in case of
HPS groundnuts from the date of advance. The balance is to be adjusted by the proceeds of the
relative Export Bills. Such advance will be eligible for concessional rate of interest provided the
excess advance is cleared as per the above terms.
(c) In respect of Exports on CIF basis, the cost of freight and insurance can also be considered at the
time when the goods are despatched to the port for ultimate shipment.
MARGIN:
There is no minimum stipulation of margin. The percentage of margin is to be determined depending

upon the nature of order, commodity to be exported, fluctuations in the market price, marketability, risk of
deteriorations, non-availability of exact market price, etc., besides standing of the party, past track record,
availability of collaterals, currency fluctuations etc.
Margin is stipulated mainly to serve distinct purposes like:

a) Exporter’s own stake in the business so that he would be more business conscious.
b) To take care of erosion in value of goods charged to the bank.
c) To ensure that Bank’s finance is not extended to cover the Exporter’s profit margin.
d) Price / Currency fluctuations in International Markets.
PERIOD OF FINANCE:
It will depend upon shipping schedule, production cycle, time required for procuring, manufacturing or
processing, and shipping; and, if not adjusted by submission of export documents within 360 days of
advance, the advance will cease to qualify for concessional rate of interest ab-initio. RBI will provide
refinance only for a period upto 180 days.
Though the period of PC is permitted taking into account the production/operating cycle, branches should
fix a suitable period for each PC as per sanction terms and depending upon the shipment schedules
stipulated in the relative export order / LC.
The maximum period for which PC can be granted at concessional rate of interest as per Reserve Bank of
India directives is 180 days. This period can be extended further by additional 90 days i.e. upto an
aggregate period of 270 days at a higher concessional rate of interest as per Reserve Bank of India
directive.
Sanction of PC limits for period exceeding 180 days ab initio can be made only by the appropriate
sanctioning authorities at Circle Offices / Head Office as under:
1. Sanction of PC limits for period exceeding 180 days ab-initio can be made only by DGM / GM of CO
in respect of limits falling within the Branch / RO / CO powers.

2. In respect of Sanctions falling under HO powers, respective sanctioning authorities at HO alone can
permit sanction of PC limits for period exceeding 180 days ab-initio.
OPENING INLAND LCS IN FAVOUR OF SUB-SUPPLIER:
Requests from Export Order Holders ( EOH ) for opening inland LCs favouring the sub-suppliers on the
basis of export LCs / orders can be considered and the payment under such inland LCs will be out of the
proceeds of PCs disbursed to the EOH. However, the period of PC will be reckoned from the date of first
drawal of advance either by the sub-supplier against inland LCs or by the EOH for meeting his working
capital needs. For easy identification of inland LCs towards supply of materials for execution of export
orders, these LCs are to be referred as Inland Export LCs.
SCRUTINY OF PC APPLICATIONS:
PC applications are to be scrutinised to ensure compliance with sanction terms as well as FEMA /
Export Trade Control Regulations. Some of the checkpoints are:
Ø Application should be complete in all respects and signed by an authorised signatory of the
borrower.
Ø Commodity proposed to be exported is allowed for export or where necessary, the applicant has
appropriate export licence / quota or endorsement.
Ø Export price agreed is in line with the minimum export price or floor price stipulated in the Export
Trade Policy, where applicable.
Ø Where the goods to be exported require import of raw materials/components, whether appropriate
arrangements for such import have been made.
Ø Where payment terms are on usance basis, the date of payment is to fall within 180 days from the
date of shipment. Conditions if any regarding undrawn balance, the same should not exceed 10% of
invoice value.
Ø If the goods are to be exported to a restricted cover country, whether prior approval of ECGC is
obtained. (Where the political and financial conditions of the buyer’s country are not sound, ECGC
places such countries under its “Restricted Cover” which means prior approval of ECGC has to be
obtained by the exporter before making shipments to such countries).
Ø Where Status Report (OPL) on the overseas buyer has to be obtained. Branches have been
delegated with powers for waiver of obtention of OPL in the following cases at specific request of
the exporters:
i. S1 and S2 parties.
ii. Where the exporter is a public sector undertaking / Government department
iii. Where the exporter has a good track record and the account is standard asset
iv. Where Pre-shipment / Post-shipment finance is covered under ECGC Guarantee Policy.
v. Where the overseas buyer is a Fortune 500 Company
vi. In cases other than (i) to (iv) above, where export bills are to be drawn under Prime
Bank/reputed bank LCs and the value of individual export bill not exceeding Rs.15 lacs for
documents on DA basis or not exceeding Rs.30 lacs for individual bills on DP terms.
vii. In other cases where the value of the proposed individual export bill is not over Rs.10 lacs
in case of DA bills and Rs.20 lacs in case of DP Bills.
viii. In all other cases, status reports on Overseas Buyers are to be called for and to be found
satisfactory before granting pre-shipment advance.
DETERMINING FACTORS OF LOANABLE VALUE:
Ø Quantum of advance sought for should be commensurate with the needs of the exporter. It should be
on the basis of valuation of stocks to be pledged/ hypothecated.

Ø Where full advance payment has been received, the question of releasing PC advance will not arise.
Where part advance payment has been received, the loanable value would stand reduced pro-rata to
the advance received.
Ø Where shipment terms are CIF / C&F, proportionate insurance premium and/or freight components
are to be deducted to arrive at FOB component.
Ø Where relative Export Order / LC stipulates the agency commission is payable directly by deducting
from the proceeds, the agency commission should be deducted from FOB value.
Ø Where relative Export Order / LC stipulates provision for leaving any un-drawn balance, such
component should be deducted from FOB value. Where there is a sanctioned limit for granting
advance against un-drawn balance at post-shipment stage, branches need not exclude un-drawn
balance component while disbursing PC.
Ø Branch, on being satisfied with the quality, valuation etc., should determine the amount of advance.
This amount is to be computed as under:
a) FOB value of the contract or cost of sale whichever is less LESS
Margin LESS advance payment received if any = Eligible loan
Where PC is to be disbursed under Running Account Facility, the approximate FOB value as
declared by the exporter has to be taken.
b) Where PC is to be disbursed to a sub-supplier on the basis of an inland LC being opened in his

favour by an EOH or on the basis of order placed by an EOH, then the amount to be computed
would be as under;
Value of Inland LC/Order LESS Margin = Eligible loan amount
c) Where the cost of sale is higher than the FOB value;

Cost of sale LESS (Margin & Advance payment if any received) = Eligible loan
d) For determining loan amount for financing against groundnuts/ other oil seeds for export of de-
oiled and defatted cakes;
Value of oil-seeds, rice bran (This is to be restricted to 150 % of the FOB value of the order)
LESS (Margin & Advance Payment if any) = Eligible loan
DISBURSEMENT:
May be disbursed lumpsum or in stages. Each disbursement should be maintained / treated as separate
account for monitoring period of sanction and end use. Branches should ensure the end use of the funds
disbursed under the PCs. As far as possible the disbursements should be made in a phased manner taking into
account the specific purpose and needs of the exporter, shipments schedules, production cycle and other
aspects.
Disbursements are to be made directly to the suppliers for procurement of raw materials or ready made
goods / finished goods etc., against suitable evidence like invoice, delivery order etc. Where LCs have
been opened for procurement of materials (import /domestic), the payments for retirement of the
documents i.e. IBLC / FIBC / ISC etc., should be out of the proceeds of the PCs.
Circumstances where disbursements are not made directly to the Suppliers:
There may be instances where a number of miscellaneous payments are to be made such as wages,
overheads etc., at required intervals during the course of execution of the export order. Branches can credit
the PC disbursals to an operative account of the exporter opened specifically for this purpose. The exporter
can utilise the cheque facility to make various payments under the export order. The exporter should submit
a statement once in a fortnight / month detailing the nature of expenses met
out of the loan amount credited to his current account opened for this purpose. No other payments or

credits are to be allowed into this account.
Running Account Facility:
Running account facility means a facility wherein the packing credit advances are cleared by adjusting the
first credit in the loan to the first debit or first loan granted to the exporter, irrespective of the contracts to
which both the debit and credit apply. The advance is set-off in chronological order.
Running account facility does not mean grant of packing credit as a running account like OCC or OD. It is
granted in the form of loans only. Where Exporters desire grant of PC on a Running Account facility,
branches can permit the same subject to the following conditions:
a) The facility can be considered only for existing established exporters having good track record and
classified under Standard Asset (S1 /S2 parties) An undertaking has to be obtained from the Exporters
to produce the Export LC / Order within a reasonable time. In respect of export of commodities
subject to Selective Credit Control directives, exporters should give an undertaking to produce the
Export LC / Order within a period of 30 days from the date of grant of PC.
b) Commodity to be exported should be of uniform grade and not made to specific order.
c) The export bills negotiated / discounted / purchased for the exporter should be utilised to liquidate
the earliest outstanding PC on First In First Out (FIFO) basis.
Cases not conforming to the above should be referred to the Sanctioning Authority for their prior
permission who will examine the requests taking into account the nature of the commodities to be
exported and permit the same after satisfying the need for such a facility.
Earliest outstanding PC should be cleared / adjusted on FIFO basis, duly ensuring concessional credit in
individual PC does not go beyond the period of sanction / 360 days from date of advance, whichever is
earlier.
GRANT OF PCs TO MANUFACTURER EXPORTER ROUTING EXPORTS THROUGH

MERCHANT EXPORTER / STAR EXPORT HOUSE /CANALISING AGENCIES
Where the exports are routed through merchant exporter / SEH or through Canalizing Agencies such as
State Trading Corporation, MMTC, Spices Trading Corporation etc., PCs can be granted to the
manufacturer exporters supplying to such SEH / Agencies on usual terms subject to the following
additional conditions:
a) Branches should call for a letter from the Merchant Exporter / Export House or Agency setting out the
details of the export order and the portion of the order to be executed by the manufacturer exporter viz.,
our exporter borrower. The letter should specify all the terms and conditions laid down in the original
contract / LC and also state the fact that he is not availing of export finance for that particular order / LC
or part thereof advanced to the supporting manufacturer.
b) Branches should also call for a Certificate from the bankers of the Merchant Exporter / SEH
certifying that no packing credit advance has been extended on the apportioned order to be executed
by the manufacturer exporter.
c) As an exception to the rule where Merchant Exporter / SEH as well as the Manufacturer Exporter
require packing credit facility on the export order for varying periods, branches should fix the period
of the packing credit to the manufacturer exporter and advise the bankers of the Merchant Exporter /
SEH on the same.
d) The PC granted to the manufacturer exporter should be cleared out of the proceeds of the bills drawn
on the merchant exporter / SEH. Where the bills drawn by the manufacturer exporter on the Exporter /
SEH are not accompanied by the Bill of Lading and other export documents ( i.e., where the
manufacturer exporter does not directly ship the goods), the bills should be supported by inland
documents such as Lorry Receipt / Railway Receipts. Branches should obtain a certificate from the
bankers of merchant exporter / SEH / Agency that the goods supplied by the borrower have been
exported specifying relative particulars such as date and amount of the bill, the bank through whom

the bills have been negotiated, the particulars of the Bills of Lading etc
GRANT OF PCs TO MERCHANT EXPORTERS/STAR EXPORT HOUSES
a) Procedure for grant of PCs to merchant exporters / SEH would be applicable to grant of PCs to
exporters in general. Where however, the merchant exporter / SEH desires to apportion a
portion of the export order in favour of the manufacturer exporter, on the portion so
apportioned, no PCs can be granted to the merchant exporters / export houses and the portion
should be earmarked in the Export Order / Export LC.
b) Where the merchant exporters / SEH requires PCs on the apportioned portion of the export order,
the details of the packing credit granted by the bankers of the manufacturer exporters should be
called for. On ascertaining the period of PCs granted to the manufacturer exporters on the export
order, PCs to the merchant exporter/export house can be extended only for the balance period such
that the total period of PCs i.e. to the manufacturer exporters and the merchant exporters / export
houses put together does not exceed the validity period of the LC / maximum period permissible
for PCs i.e. 180 / 270 days.
EXTENSION OF THE PERIOD OF PACKING CREDITS
Sometimes it may so happen that the exporter is unable to effect the shipments for reasons beyond his
control. Where the exporter desires to seek extension of the period of PCs, a letter requesting for the
extension in the period of PC giving the reasons for the same, should be obtained from the exporter. If
export is delayed for any reason beyond the control of the exporter and branch is satisfied about the
reasons for delay, branches may consider the case.
1. Extension in the period of the PC from the original sanctioned period upto 270 days from the
date of advance is to be dealt with as follows: In respect of limits falling under Branch powers,
extensions have to be sought from RO/CO and in respect of accounts under RO/CO/HO powers,
extensions have to be sought from the respective Sanctioning Authority. Wherever extension is
permitted, PC will be eligible for concessional interest for the extended period subject to
maximum of 270 days.
2. Extensions of period of PC on account of genuine reasons may be permitted only by respective
authority. Extensions beyond 270 days and upto 360 days from the date of advance can be
permitted by the RO/CO in respect of limits falling under Branch Powers. In respect of limits
falling under RO/CO/HO powers, extensions may be permitted by respective sanctioning
authority on account of bona-fide reasons. In such cases, interest as applicable to Export Credit
Not Otherwise Specified (ECONS) will have to be collected on PCs for period beyond 270 days
up to 360 day.
Branches should take up cases for extension of PC reasonably in advance and also advise exporter
clients to submit the extension requests without delay. Where the branch is of the opinion that
extension in the period of PC sought by the exporter is not genuine, it can refuse such extension
recording reasons for doing so on the request letter of the exporter and initiate appropriate steps for
recovery of PC liability. In the event of non-payment / non-clearance of liability a report of default is
to be filed with ECGC.
LIQUIDATION OF Packing Credit:
Upon shipment of the goods & submission of the export documents the PC amount may be liquidated as
follows:
(a) The bills may be purchased/discounted with suitable margin, or

(b) The entire liability in the PC may be transferred to a special account Post-shipment Rupee advance,
or
(c) By granting Rupee advance with suitable margin.
PCs to be eligible for concessional rate of interest must be repaid from funds received by the Exporter
from either or combination of the following sources:
a) Proceeds of Export Bills Negotiated, Purchased or discounted in the case of export bills
presented by the exporter borrower (i.e., where relative GR/SDF form is signed by the borrower or
a shipper and or counter-signed by the borrower);
b) Proceeds of export bills negotiated by other banks under LCs restricted for negotiation to them;
c) Proceeds of Advance payment received by the exporter through the permitted method after
the PC is released.
d) In the case of supplies made under an Inland Export LC opened by a EOH in favour of the
sub-supplier, by proceeds received from Issuing Bank of the IELC being the payments
received under the IELC.
e) In the case of exports made through the STAR Export House, from the Inland Bill proceeds
received from the bankers of the STAR Export House supported by a certificate.
f) Proceeds of advances granted against undrawn balances representing export earnings under
the relevant contract/LC.
g) By sale proceeds of residual/by-product oil in the case of PC granted to exporters of HPS
groundnut and de-oiled and defatted cakes, in excess of the FOB value of the export order.
h) Proceeds of payments received in the form of Duty Draw Back where PC has been granted
against such entitlements due to the exporter.
i) In the case of PC against goods sent abroad for exhibition and sale, the PC would have to be
initially treated as an inland transaction. Only in case of goods sold and remittances of such sale
proceeds are received, the same should be treated as export credit and interest rates as applicable
to PC will have to be charged.
j) By granting Rupee Advance.
Under normal circumstances, liquidation of PCs shall be as follows:

Ø The PCs have to liquidated out of export bill proceeds of the relative export order / LC
Ø Under the Running Account Facility, PCs are to be liquidated out of export bill proceeds relating
to any other export order covering the same commodity or any other commodity exported by the
exporter applying First in First out principle. Where exporter is enjoying running account facility
no export bill should be sent on collection basis.
Ø If the PC is cleared by any source other than those indicated above, such PCs will not be eligible
for concessional interest as applicable to preshipment advances and for the entire period of PC
rate of interest as per below is applicable.
Ø PCs should not remain outstanding once the relative goods are shipped and export documents are
tendered by the exporter to the branch. If the PC is allowed to remain outstanding even after
submission of relative export documents, by sending the export documents on collection basis at the
request of the exporter, the PC will lose the cover under WTPCG of ECGC and also will not be
eligible for concessional interest as the PC is not eligible for refinance. Where branches are not able
to negotiate the discrepant export documents, branches should grant Rupee advance against the
export document and PC liability should be cleared.
PRE-SHIPMENT CREDIT IN FOREIGN CURRENCY (PCFC)
The objective is to make available credit at internationally competitive rates linked to LIBOR / EURIBOR
/ EURO LIBOR for domestic/ imported in puts.
Under the scheme, following options are available to exporter;

Ø Avail PC in Rupees and post shipment finance in Rupees or FC
Ø Avail PC in FC and post shipment finance in FC

Ø Avail PC in rupees and convert into PCFC at the discretion of bank.
Ø Cross currency PCFC permissible.
Ø No separate limits required but to be carved out of normal PC limits sanctioned.
Rate of Interest should not to exceed 350 Basis points (3.5%) over applicable LIBOR. PCFC is available
for standard period of 1/2/3/6/12 months. For Non-standard periods the ROI is the rate for the next /upper
standard period. Interest should be collected at monthly rest.
Maximum period for concessional ROI is 180 days. Beyond 180 days upto 360 days the applicable ROI will
be the rate for the initial period of 180 days prevailing at the time of extension of PCFC + 2%
If no export takes place within 360 days, PCFC to be adjusted at TT selling rate. Extension within 180
days may be permitted on rollover basis of principal subject to funds clearance from Integrated Treasury
Wing, Mumbai.
For domestic output the PCFC should be converted into Rupees at Spot TT buying rate. Liquidation, as in
the case of Rupee PCs, shall be by adjustment of export bill proceeds / repayment or prepayment out of
balances in EEFC / rupee resources to the extent exports have actually taken place

POST SHIPMENT FINANCE IN INR/FC
Post shipment finance is already covered under topic Negotiation, Purchase & Discount. Kindly refer to
that chapter for details.

IMPORT FEMA GUIDELINES & TRADE CONTROL
General Provisions: As per current Foreign Trade Policy 2015-20, Imports shall be free except when
regulated by way of ‘prohibition’, ‘restriction’ or ‘exclusive trading through State Trading Enterprises
(STEs)’ as laid down in Indian Trade Classification (Harmonised System) [ITC (HS)] of Exports and
Imports. Further, there are some items which are ‘free’ for import/export, but subject to conditions
stipulated in other Acts or in law for the time being in force.
No import can be made without Import Export Code number. This will be granted by the authority
specified by DGFT on application. IEC number should be incorporated in each FLC application as well as
Control Form submitted in lieu of Form A-1.
Imports from any country shall be free, except where regulated by FTP or any other law in force. Imports
from the following countries are not permitted:
Ø Import of rough diamond from Cote d’Ivoire.
Ø Import of arms and related material from Iraq.
Ø Direct or indirect import of all items, materials equipment, goods and technology which could
contribute to DPRK’s nuclear-related, ballistic missile related or other weapons of mass destruction-
related programs, whether or not originating in Democratic People’s Republic of Korea (DPRK).
Ø Direct or indirect import of all items, materials, equipment, goods and technology which could
contribute to Iran’s enrichment related, reprocessing or heavy water related activities, or to
development of nuclear weapon delivery systems, whether or not originating in Iran.
The above prohibitions are placed by the United Nation Security Council by their various documents.
IMPORT LICENCES/AUTHORIZATIONS:
Import licenses are issued by DGFT against specific application of the importer. These are issued in
duplicate. Original marked as "Customs Purposes" is meant for clearance of goods and the Duplicate marked
as "Exchange Control Purposes" is meant for remittances. Where import is to be made under licence,
Exchange Control copy of the licence is to be submitted by the importer to the bank at the time of opening of
FLCs and / or effecting remittances. Imports of any goods which is restricted under ITC-HS, may be imported
only in accordance with a Licence/Certificate/Permission/Authorisation or in terms of the public notice issued
in this regard. Every Authorisation shall be valid for prescribed period of validity and shall contain such terms
and conditions as may be specified by Regional Authority. Date of shipment should be within the validity
period. Expiry of Licence for shipment shall be the last date of the calendar month. Where an Authorisation
expires during the month, such Authorisation shall be deemed valid until last day of concerned month.
Validity of an import Authorisation is decided with reference to date of shipment / dispatch of goods from
supplying country and not the date of arrival of goods at an Indian port. Authorizations are always for CIF
value.
Branches/Foreign Departments/Fex Cells should note to endorse on the `Exchange Control Copy' of
import licences, under their stamp and signature, the details of letters of credit opened or forward contracts
booked or remittances made in foreign currency as also the amount of insurance and freight paid by the
importer locally in rupees, wherever licences have been obtained by importers.
TIME LIMIT FOR SETTLEMENT OF IMPORT
PAYMENTS Applicable to Normal Importers:
In terms of the extant Rules, remittances against imports should be completed not later than six months
from the date of shipment, EXCEPT IN CASES where the amounts are withheld towards guarantee of
performance etc. Branches/Foreign Departments & Fex Cells may make remittances of

amounts so withheld, provided the earlier remittance had been made through them. No payment of interest
is permissible on such withheld amounts.
Sometimes, settlement of import dues may be delayed due to disputes, financial difficulties, etc.
Branches/Foreign Departments and Fex Cells may allow payment of interest in respect of such delayed
payments provided they are satisfied about the genuineness of the circumstances leading to the delay in
payment.
TIME LIMIT FOR DEFERRED PAYMENT ARRANGEMENT:
Deferred payment arrangements, including suppliers and buyers credit, providing for payments beyond a
period of six months from date of shipment up to a period of less than three years, are treated as trade
credits.
TIME FOR IMPORT OF BOOKS: Remittances against import of books may be allowed without
restriction as to time limit.
Extension of Time
(i) AD Category - I banks can consider granting extension of time for settlement of import dues up to a
period of six months at a time (maximum up to the period of three years) irrespective of the invoice value
for delays on account of disputes about quantity or quality or non-fulfilment of terms of contract; financial
difficulties and cases where importer has filed suit against the seller. In cases where sector specific
guidelines have been issued by Reserve Bank of India for extension of time (i.e. rough, cut and polished
diamonds), the same will be applicable.
(ii) While granting extension of time, AD Category -I banks must ensure that :
a. The import transactions covered by the invoices are not under investigation by Directorate of
Enforcement / Central Bureau of Investigation or other investigating agencies;
b. While considering extension beyond one year from the date of remittance 7, the total
outstanding of the importer does not exceed USD one million or 10 per cent of the average import
remittances during the preceding two financial years, whichever is lower; and
c. Where extension of time has been granted by the AD Category - I banks, the date up to which
extension has been granted may be indicated in the 'Remarks' column.
(iii) Cases not covered by the above instructions / beyond the above limits, may be referred to the
concerned Regional Office of Reserve Bank of India.
(iv) The above shall be reported in IDPMS as per message "Bill of Entry Extension" and the date up to
which extension is granted will be indicated in "Extension Date" column.
INTEREST ON IMPORT BILLS: Branches/Foreign Departments and Fex Cells may make remittances
on account of interest accrued on usance bills or of overdue interest payable on sight bills for a period less
than three years from the date of shipment in respect of imports without prior approval of RBI as per rate
prescribed by Reserve Bank of India from time to time.
The current all in cost ceilings are as under:

Maturity period All in cost ceilings over
6 months LIBOR*
Upto to one year 350 basis points
More than one year but less than 350 basis points
three years
* For the respective currency of credit of applicable benchmark.
The all-in-cost ceilings include arranger fee, upfront fee, management fee, handling / processing charges,
out of pocket and legal expenses, if any.
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, according to the contract, at which
the interest has been claimed for the usance period or LIBOR (of the currency in which the goods have
been invoiced) 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 of invoice.
IMPORTS UNDER PENALTY:
Branches/Foreign Departments a Fex Cells may make remittances against goods imported without
authority, but later allowed to be cleared by the Customs Authorities against payment of penalty, to the
extent of CIF value of the goods indicated on the relative Exchange Control copy of the Customs Bill of
Entry evidencing imports of goods to India.
POSTAL IMPORTS:
Remittances against bills received for collection in respect of imports by post parcel may be made
provided the goods imported are such as are normally despatched by post parcel. In these cases, the
relative parcel receipts must be produced as evidence of dispatch through the post and an undertaking to
submit Postal Appraisal Form or Customs Assessment Certificate as evidence of import within three
months from the date of remittance should be furnished by importers.
If the parcel has already been received in India, Postal Appraisal Form or Customs Assessment Certificate
should be produced in support of the remittance application. Where goods to be imported are not of a kind
normally imported by post parcel or where Branches/Foreign Departments and Fex Cells are not satisfied
about the bonafide of the application, the case should be referred to RBI for prior approval with full
particulars together with relative parcel receipt/s and Postal Appraisal Form or Customs Assessment
Certificate.
IMPORTS THROUGH COURIER:
Imports through a registered courier service are permitted as per the Notification issued by the
Department of Revenue. However, importability of such items shall be regulated in accordance with the
Foreign Trade Policy. With regard to the appropriate documentary evidence of import applicable to such
imports.
RECEIPT OF IMPORT BILLS/DOCUMENTS:

A) RECEIPT OF DOCUMENTS BY IMPORTER DIRECTLY FROM OVERSEAS SUPPLIER:
i Import bills and documents should be received from the banker of the supplier by the banker of the
importer in India. Branches/Foreign Departments and Fex Cells should not therefore, make
remittances where import bills have been received directly by the importers from the overseas
supplier, except in the following cases:

a) Where the value of import bill does not exceed US$ 300,000.
b) Import bills received by wholly owned Indian subsidiaries of foreign companies from their
principals.
c) Import bills received by Status Holder Exporters as defined in the Foreign Trade Policy,
100% Export Oriented Units/Units in Special Economic zones, Public Sector Undertakings
and Limited Companies.
d) Import bills received by all limited companies viz. Public limited, deemed public limited and
private limited companies.
The above facilities are available subject to following conditions:
(i) The import would be subject to the prevailing Foreign Trade Policy.
(ii) The transactions are based on their commercial judgment and they are satisfied about the
bonafides of the transactions.
(iii) The importer is a customer of the branch and the customer's account is fully compliant
with extant KYC / AML guidelines issued by the Reserve Bank.
(iv) Branches should do the due diligence exercise and should be fully satisfied about the
financial standing / status and track record of the importer customer.
(v) It is customary in that trade to receive import documents directly from the overseas exporter.
B) Receipt of import documents by the importer directly from overseas suppliers in case of
specified sectors
As a sector specific measure, Branches/Foreign Departments and Fex Cells are permitted to allow
remittance for imports by non-status holder importers up to USD 300,000 where the importer of rough
diamonds, rough precious and semi-precious stones has received the import bills / documents directly
from the overseas supplier and the documentary evidence for import is submitted by the importer at the
time of remittance. Status holder importers as defined in the Foreign Trade Policy dealing in the import
of rough diamonds, rough precious and semi- precious stones can receive import bills directly from the
suppliers without any ceiling. Branches/Foreign Departments and Fex Cells may undertake such
transactions subject to the following conditions:
a) The import would be subject to the prevailing Foreign Trade Policy.
b) The transactions are based on their commercial judgment and they are satisfied about the
bonafides of the transactions.
c) Branches 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 credit rating agency overseas.
d) Documentary evidence of import is to be submitted at the time of remittance.
C) Receipt of import documents by the AD Category – I bank directly from overseas suppliers: At
the request of importer clients, Branches/Foreign Departments and Fex Cells may receive bills
directly from the overseas supplier, provided the Branches/Foreign Departments and Fex Cells are
fully satisfied about the financial standing/status and track record of the importer customer.
Before extending the facility, the branches should obtain a report on each individual overseas
supplier from the overseas banker or a reputed credit agency. However, such credit report on the
overseas supplier need not be obtained in cases where the invoice value does not exceed USD
300,000 provided the Branches/Foreign Departments and Fex Cells are satisfied about the bonafides
of the transaction and track record of the importer constituent.

REMITTANCES AGAINST REPLACEMENT OF IMPORTS:
Where goods are short supplied, damaged, short landed or lost in transit and the Exchange Control copy of the
import licence has already been utilised to cover the opening of a letter of credit against the original goods
which have been lost, the original endorsement to the extent of the value of the lost goods may be cancelled
and fresh remittance for replacement of imports may be permitted without reference to Reserve Bank,
provided the insurance claim relating to the lost goods has been settled in favour of the importer. It may be
ensured that the consignment being replaced is shipped within the validity period of the license
Import of Gold / Platinum / Silver by Nominated Banks / Agencies I.

GOLD IMPORT BY NOMINATED AGENCIES/ENTITIES:
a. Import on consignment basis

In case of import on consignment basis, Gold is imported by the nominated agencies/banks on
consignment basis where the ownership remains with the supplier and the importer (consignee) will be
acting as an agent of the supplier (consignor) and remittances towards the cost of import is made as and
when sales take place and in terms of the provisions of agreement entered into between the overseas
supplier and nominated agency/bank. These instructions would also apply to import of platinum and
silver. As per extant guidelines, any import of gold on consignment basis by both nominated agencies and
banks shall be permissible only for the purpose of export.
b. Import on unfixed price basis

The nominated agency/bank may import gold on outright purchase basis subject to the condition that
although ownership of the gold shall be passed on to the importer at the time of import itself, the price of
gold shall be fixed later, as and when the importer sells the gold to the users. These instructions would
also apply to import of platinum and silver.
Merchanting Trade
For a Trade to be classified as “MERCHANTING TRADE” following conditions should be satisfied;

a. Goods acquired should not enter the Domestic Tariff Area and
b. The state of the goods should not undergo any transformation Branches to note that short term credit
either by way of suppliers’ credit or Buyers’ Credit will be available for Merchanting trade transactions,
to the extent not backed by advance remittance for the export leg, including the discounting of export leg
LC by the Bank, as in the case of import transactions.
Branches/Foreign Departments & Fex Cells may take necessary precautions in handling bonafide
merchanting trade transactions to ensure that:
a) goods involved in the transactions are permitted to be imported into India, all rules, regulations and
directions applicable to export (except Export Declaration Form) and import (except Bill of Entry) are
complied with for the export leg and import leg, respectively.
b) The entire merchant trade transaction is completed within a period of 9 months.
c) The transactions do not involve foreign exchange outlay for a period exceeding four months.
TRADE CREDITS FOR IMPORT INTO INDIA
‘Trade Credits’ (TC) refer to credits extended for imports directly by the overseas supplier, bank and
financial institution for original maturity upto five years. Depending on the source of finance, such trade
credits include suppliers’ credit or buyers’ credit. Suppliers’ credit relates to credit for imports in to India
extended by the overseas supplier, while buyers’ credit refers to loans for payment of imports in to India
arranged by the importer from a bank or financial institution outside India for maturity upto five years.

Buyers’ credit and suppliers’ credit for five years and above come under the category of External
Commercial Borrowings (ECB) which is governed by ECB guidelines.
THIRD PARTY PAYMENT FOR IMPORT INTO INDIA
Branches/Offices may allow payments to be made to a third party for import of goods, after complying
with guidelines relating to imports including those on advance payment being made for import of goods
and also ensuring that,
Ø Documentary evidence for circumstances leading to third party payments / name of the third party
being mentioned in the irrevocable order / invoice has been produced by the importer.
Ø Third party payment is made to a Financial Action Task Force (FATF) compliant country and
through the banking channel only. Branches shall ensure this by verifying the list of FATF non
compliant countries, circulated by us from time to time.
Ø The Invoice contains a narration that the related payment is to be made to the (named) third party.
Bill of Entry should also mention the name of the shipper containing a narration that the related
payment is to be made to the (named) third party.
OBTENTION OF FORM 15 CA Et FORM 15 CB:
The format of the undertaking (Form 15CA), which is to be filed electronically and format of the
certificate from the accountant (Form 15CB) have been modified vide Rule 37BB of Income Tax Rules
1962. The process flow for furnishing information regarding remittances being made to Non-Residents is
as follows:
i. The person making the payment (remitter) will obtain a certificate from a Chartered accountant
(other than employee) in form 15CB.
ii. The remitter will then access the website to electronically upload the remittance details to the
department in form 15 CA (undertaking). The information to be furnished in form 15CA is to be filed
using the information contained in form 15CB (certificate).
iii. The remitter will then take a print out of this filled up Form 15CA (which will bear an
acknowledgment number generated by the system) and sign it. Form 15CA (undertaking) can be
signed by the person authorized to sign the return of income of the remitter or a person so authorized
by him in writing.
iv. The duly signed Form 15CA (undertaking) and Form 15CB (Certificate), will be submitted in
duplicate by the customer. Branches/Offices will in turn forward a copy of the certificate and
undertaking to the Assessing Officer concerned, along with a forwarding letter.
The form 15CA and 15CB are available for upload and printout at www.incometaxindia.gov.in and
www.tin.nsdl.com along with necessary procedural guidelines in this regard

FOREIGN IMPORT LETTERS OF CREDIT
Objectives :
Letter of credit - the most convenient methods of settling payments in International trade.
Structure :
1.1 Overview - Definition of Documentary Credit
1.2 Operation of Documentary credit
1.3 Parties to a Documentary Credit
1.4 Types of Documentary Credits
1.5 Regulatory requirements applicable to import of goods and services
1.6 Assessment of import finance and fixing of Credit limits
1.7 Trade Control Regulation
1.8 Documents most often Presented under Documentary Credit
1.9 ICC Uniform Customs and Practice for Documentary Credits (UCP 600)
1.10 Additional Documents / Conditions Requiring Permission of

Sanctioning Authorities
1.11 Processing of FLC Applications
1.12 Inco terms- 2000
1.13 Examination of Documents under Documentary credit :
1.14 Expressions not defined in UCP 600 :
1.15 Summary
1.16 Reference
1.1 Overview - Definition of Documentary Credit
Letter of Credit (LC) may be broadly defined as a set of instructions of a buyer (applicant) conveyed by
his banker (issuing bank) to the seller (beneficiary), through another bank (advising bank) in the seller's
country whereby the issuing bank undertakes to pay to the seller a certain sum of money mentioned
therein upon submission of stipulated documents within a specified period of time.
An LC may provide for payment either at sight or at usance.

LC mechanism is a widely used device to finance international trade as it safeguards the interest of both
the importer (buyer) and the overseas supplier (seller).
The importer knows that the negotiating bank will not effect payment to the seller unless and until the
latter tenders the documents strictly in accordance with the Credit terms (terms of the LC). The seller is
assured of getting payment as long as he presents the documents as per LC terms to the negotiating bank.
Letters of Credits (LCs, also known as Documentary Credits) are governed by provisions of Uniform
Customs and Practice of Documentary Credits (UCPDC) set by International Chamber of Commerce
(ICC), Paris. Presently the Uniform Customs and Practice for Documentary Credits, 2007 Revision,
ICC publication 600 is operative from 3rd July, 2007 which is referred as UCP 600. Other relevant
Rules of International Chamber of Commerce (ICC), are as follows :
i. eUCP - Supplement to UCP 600 for Electronic Presentation.
ii. URR 725 - Uniform Rules for Bank-to-Bank Reimbursements under Documentary Credits.
iii. DOCDEX Rules - Documentary Credit Dispute Resolution Expertise (ICC 577).
iv. ISBP - International Standard Banking Practice
As per UCP 600 a Documentary Credit: is an irrevocable arrangement, thereby constitutes definite
undertaking of the issuing bank to honour a complying presentation. As per this definition, all the
Documentary Credits are considered to be irrevocable. The concept of revocable documentary credit has
been removed. This definition includes three concepts.
i. The presentation of documents must comply with the terms and conditions of the documentary
credit.
ii. The presentation of documents must comply with the rules containing UCP 600 that are applicable to
the transactions i.e. those that have not been modified or excluded by the terms & conditions of
documentary credit.
iii. The presentation of documents must comply with International Standard Banking
Practice. (ISBP) 1.2 Operation of Documentary credit : Now our discussion will be
Operation of a Documentary credit.
We can explain in two stages, establishing a letter of creditandnegotiation of documents under a

letter of credit
Stage 1:
Buyer and Seller conclude a contract for sale, specifying the terms of
sale and settlement by L/C. Buyer instructs his bank to issue L/C as per
L/C application and sales contract.
Stage 2 :
Issuing Bank verifies its own customer’s (Applicant’s) creditworthiness, if satisfied, issues a letter of credit
and sends it to a correspondent bank (Advising Bank) in the city/country of the Beneficiary (Seller).
Issuing Bank authorises the Reimbursing Bank to honour reimbursement claims under L/C

Stage 3 :
Advising of a L/c to beneficiary by advising Bank with/without adding confirmation.
Negotiation and Payment of documents under a letter of credit :
Flow Chart
Stage 1 :
After shipping the goods in accordance with the L/C, Beneficiary receives documents evidencing
shipment of goods.
Stage 2 :
Beneficiary submits documents under the L/C to the negotiating Bank (or Confirming Bank)
Stage 3 :
After examining the documents, for complying presentation, Negotiating Bank (or Confirming Bank)
effects payment to the Beneficiary as per terms.
Stage 4 :
a) Documents are to be forwarded to Issuing Bank
b) Reimbursement claim is lodged with the Reimbursing Bank.
c) Reimbursement Bank debits the ‘NOSTRO’ account of the issuing bank and in
terms of the arrangement, reimburses the claiming bank – the Negotiating Bank
or Confirming Bank.
Stage 5:
a) Bill intimation is sent to the applicant and the documents are presented to the
applicant.
b) Applicant effects payment as per terms of payment to the Issuing Bank and
settles the liability if the documents are as per specification of L/C.
c) Original set of documents is delivered to the Applicant, duly endorsed by the
Issuing Bank.
Stage 6:
Applicant submits the original documents to the clearing agent at the port of destination and get
delivery of the goods.
1.3 Parties to a Documentary Credit :
· Applicant /Buyer – on whose behalf the credit is issued

· Beneficiary /Seller – in whose favour a credit is issued
· Issuing Bank – the Bank that issues a credit on behalf of an applicant or on its own behalf
· Advising Bank – the bank that advises the credit at the request of the issuing bank
· Confirming Bank – the bank that adds its confirmation to a credit upon the issuing’s bank’s
authorisation or request.
· Negotiating Bank – the bank (either nominated bank with which credit is available or any bank in
the case of a credit available with any bank) which purchases drafts and/or documents under a
complying presentation by advancing or agreeing to advance funds to beneficiary on or before the
banking day on which reimbursement is due from the nominated bank.

 Reimbursing
reimburses Bank –bank.
the claiming which maintains the nostro account of the opening bank and
Applicant: The UCP 600 Article 2 defines the Applicant as the party on whose request a Credit is issued.
As per Foreign Exchange Regulations, the applicant must be KYC complient regular clients, with
satisfactory dealings and should be participating in the Trade and the Letter of Credit is to be issued at the
request of the applicant on the basis of orders/contract exchanged between buyer and seller.
The applicant should provide details for issuing the Credit to the issuing bank and as per Article 37 (d)
UCP 600, and he shall be bound by & liable to indemnify the bank against all obligations and
responsibilities imposed by foreign laws and usages.
Beneficiary: The UCP 600 Article 2 defines the Beneficiary as the party in whose favour the
Documentary Credit is issued.
Ø Beneficiary of the LC (the seller of goods) receives the payment from the issuing Bank or
confirming bank on presentation of documents stipulated in LC complying the terms and
conditions of the Credit.
Ø Status reports/OPL should be called for in case of all parties except Government/ Semi Govt.
Departments and public sector undertakings, from their bankers and LCs should be opened only if
such reports are satisfactory
Issuing Bank : issues the Letter of Credit at the request of the applicant in favour of the beneficiary and
undertake to pay at sight, if the Credit is available by sight payment or incur a deferred payment
undertaking and pay at maturity, if the Credit is available by deferred payment or accept bill of exchange
(draft) drawn by the beneficiary and pay at maturity,
If the Credit is available by acceptance, provided the stipulated documents complying the terms and
conditions of the Credit are presented to the nominated bank or to the issuing bank. Articles 7, 14and16
of UCP 600 deals with obligations of issuing bank.
Advising Bank : Advising Bank is the Bank that advises the Credit at the request of the issuing Bank.
Generally, the issuing bank utilizes the services of the advising bank in the seller's country, for advising
the LC to the Beneficiary without any undertaking to honour or negotiate.
Confirming Bank: Is one which steps in to the shoes of the issuing bank and takes over the responsibility
of honouring the claim under the Letter of Credit by adding the confirmation. When the confirmation is
added to a Letter of Credit, it constitutes a definite, equitable undertaking on the part of confirming bank
in addition to the undertaking of the issuing bank.
As per Sub article (a) of Article 8 of UCP 600 the confirming bank undertake to honour the presentation
that complies with the terms and conditions of the Documentary Credit when the documents are presented
to any other nominated bank or the confirming bank.
If the Documentary Credit is available with the confirming bank by negotiation, the confirming bank, that
negotiates does so on a without recourse basis.
Nominated Bank : The LC opening bank nominates and authorizes the bank in seller's country to honour
or negotiate the documents submitted by the Beneficiary.

Nominating a bank to honour or negotiate does not obligate that bank to receive or examine document or
to honour or negotiate, unless the nominated bank is the confirming bank or expressly communicates its
agreement to honour or negotiate the documents to the beneficiary
Reimbursing Bank : Is the bank who will reimburse the claim made by Nominated / negotiating Bank by
debiting the Nostro Account of LC opening Bank as per the authority issued by LC opening bank.I
The Documentary Credit indicates that reimbursement is to be obtained from the reimbursement bank, it
must indicate, if the reimbursement is subject to the ICC Rule for bank to bank reimbursements.
The Credit does not state that reimbursement subject to the ICC Rule for bank to bank reimbursement, the
sub article (b) of Article 13 of UCP 600 will apply to the reimbursement Sub article (c) of Article 13 of UCP
600 states that an issuing bank is not relieved of any of its obligations to provide reimbursement if
reimbursement is not made by reimbursing bank on first demand.
1.4 Types of Documentary Credits
1. Revocable LC : A revocable LC may be amended or cancelled at any time without prior notification to
the beneficiary. However, issuing bank is bound to reimburse the negotiating bank for negotiations made prior
to its receipt of advice of amendment or revocation of the LC. Such Revocable letter of credit is very rarely
used. As per Article 3 of UCP 600, the Credit is "irrevocable" even if there is no indication to that
effect.
2. Irrevocable LC : A firm undertaking by the issuing bank and cannot be cancelled or amended
without the consent of the parties to the letter of credit, particularly the beneficiary.
This type of credit is most commonly used in international trade. The issuing bank irrevocably commits
itself to pay to the beneficiary upon presentation of specified documents provided the terms and conditions
of the credit are complied with.
An irrevocable credit offers complete protection to the beneficiary. Issuing bank will honour its
commitment so long as he fulfills his part of the contract. As per Article 3 of UCP 600 the Credit is
irrevocable even if there is no indication to that effect.
3. Confirmed Irrevocable LC :
· The advising bank that is not a confirming bank advises the Credit to the beneficiary without any
undertaking to honour or negotiate on its part. Negotiation of documents drawn under such letter
of credit is not obligatory on the part of the advising bank/nominated bank.
· In case, any bank agrees to negotiate the documents drawn under an irrevocable L/C, it retains the
right of recourse to the beneficiary (seller) in the event it does not receive due reimbursement for
its negotiation for any reason.
· Sometimes the seller abroad may not be aware of the standing of the LC opening bank; and
hence may ask for the credit to be guaranteed for payment by a bank in his own country against
presentation of documents, without recourse.
· In such circumstances the opening bank requests the advising bank or some other correspondent
bank to 'add its confirmation' to the Credit. Adding confirmation may also be necessitated due to
political situation prevailing in the country of Credit opening bank.
When the confirmation is added to a Credit by confirming bank at a specific request of issuing bank,
it constitutes a definite, equitable undertaking on the part of confirming bank in addition to the
undertaking of the issuing bank. In short Confirmed Credit is a Credit to which another bank (the
bank other than the issuing bank) has added its confirmation.
4. Revolving Credit :

· Revolving Credit is that " after a drawing is made, the Credit reverts to its original amount for re-
use by Beneficiary".
· There are two types of Revolving Credits. In the first type of Revolving Credit, Credit gets
reinstated immediately after a drawing is made.
· In the second type of Revolving Credit, the Credit reverts to original amount only after it is
confirmed by the issuing Bank (i.e. after the documents reach the Issuing Bank and it pays for the
documents/ or such fact is confirmed by the Issuing Bank).
5. Transferable LC : As the name indicates, it is a credit which can be transferred by the original
Beneficiary in favour of a second beneficiary / beneficiaries.
· Transferable Documentary Credit is one that can be transferred at the request of the original
beneficiary to one or more second beneficiary. Such Credits can be transferred only if it is
specifically stated as "transferable" in the Credit.
· It is normally used when the seller or beneficiary may not be the actual producer or manufacturer
of the goods. On receipt of the same he will instruct transferring bank to transfer the Credit in
favour of the actual supplier.
· The nominated bank or a bank specifically authorised by the Documentary Credit to transfer the
Documentary Credit, is under no obligation to transfer a Credit except to the extent and in the
manner expressly consented by the bank.
· A Transferred Credit can not be transferred at the request of second beneficiary to any subsequent
beneficiary. The first beneficiary is not considered to be a subsequent beneficiary, hence second
beneficiary can transfer LC back to first beneficiary of the LC.
6. Back to Back LC : Where the seller is not a manufacturer or producer of the goods and does not
wish to get transferable letter of credit due to variety of reasons, he may request his bank to open a
letter of credit in favour of his supplier on the strength of the LC already received in his favour. Such
a letter of credit is referred to as 'Back to Back' Letter of Credit and is in vogue in Merchanting Trade
Transactions.
7. Red Clause LC : A Letter of Credit incorporating a clause enabling the beneficiary to avail advance
(before effecting shipment) to the extent stated in the clause is called 'Red Clause LC' for purchasing
raw materials, processing and packing of goods to be exported.
8. Green Clause LC : It is an extended version of Red Clause Credit; in the sense that it not only provides
for advance towards purchase, processing and packing, but also for warehousing & insurance charges at
port where the goods are stored pending availability of ships / shipping space.
9. Payment Credit : Payment Credit LCs are paid on sight basis on presentation of requisite documents
to the designated paying bank. In many countries, because sight drafts attract stamp duty, the
beneficiary may not call upon to draw a draft.
In such cases, Credit issuing bank will provide reimbursement instructions in the Credit itself and the
negotiating bank can claim reimbursement simultaneously while forwarding the documents to the issuing
bank.
11. Deferred Payment Credit : It is a usance Credit where payment will be made by the designated bank
on respective due dates as per the terms of the Credit without drawing of the Drafts. Under Differed
Payment Credit, no draft will be called upon but Credit must specify the maturity at which the payment is
to be made and how to arrive at the maturity Acceptance Credit : It is similar to Deffered Payment
Credit, except for the fact that in this Credit, drawing of the usance Draft is a must and the designated bank
will accept the Draft and honour the same by making the payment on due date.

12. Negotiation Credit : Such Credit may be sight or usance. In Negotiation Credit the nomination can
be restricted to a specific bank or it may allow free negotiation, in which case it is called as “freely
negotiable credit” whereby, any bank who is willing to negotiate can do so.
13. Instalment Credit : Instalment Credit calls for full value of goods to be shipped but stipulate that
the shipment be made in a specific quantity in a stated period or intervals. If the shipment schedules are
not adhered to and any installment is not drawn or shipped within the period allowed for that installment,
the Credit ceases to be available for that and any subsequent installment.
14. Transit Credit :
· In a normal credit, the Credit issuing bank would be from the country of the buyer (applicant)
and the credit will be advised to the beneficiary in another country through a local bank (i.e. a bank
in the beneficiary’s country). However, in Transit Credit, the services of a bank in a third country
(i.e. neither the buyers country nor sellers country) would be utilised.
· This generally happens when an issuing Bank has no correspondent relations with any bank in the
Beneficiary’s country. This type of Credit may also be issued by small countries whose credits
may not be readily acceptable in another country. In such cases, the Bank may request a bank in a
third country to issue the Credit on its behalf.
·
General Aspects :
AD – 1 category Banks in India normally issue import (foreign) Letters of credit under following
circumstances:
· When a resident in India is importing goods into India.
· When a resident merchant trader (known as intermediary) is purchasing goods from one country,
for sale to another country, for the purpose of merchanting trade.
· When an Indian exporter who is executing a contract abroad requires to import goods from a third
country to the country where he is executing the contract.
Regulations
The first category referred to above is the most common category and they are the Import letters of credit
in the real sense of the term. Opening of such credits involve compliance of:
ü Trade control Requirements under extant Foreign Trade Policy
ü FEMA 1999
ü Credit norms of Reserve Bank of India
ü FEDAI, UCP 600, URR 725, and ISBP 745 rules/guidelines.
ü Bank’s internal guidelines.
1.5 Regulatory requirements applicable to import of

goodsandservices
Import transaction has two parts, viz., physical / non - physical import of merchandise / software into India
and remittance of foreign exchange abroad towards its settlement.
Merchandise which can be imported into India, eligibility of importers etc., are governed by Foreign Trade
Policy announced by Ministry of Commerce and Industry Department of Commerce, Government of India
and Directorate General of Foreign Trade (DGFT).
The settlement of imports, as it involves outflow of foreign exchange from the country, is governed by
Foreign Exchange Regulations as per Foreign Exchange Management Act (FEMA), 1999 and directions
issued there under by RBI.

The Customs Authorities monitor entry of imported merchandise as per Foreign Trade Policy, collect
applicable import duty etc.
Banks (Authorised Dealers Category-I banks) effect remittances towards settlement of imports and
follow up for submission of documentary evidence to satisfy entry of merchandise into India.
1.6 Assessment of import financeandfixing of Credit limits:

Payments for imports are made against bills drawn under letters of credit or against bills received on
collection basis or against advance payment for future imports. Importers bank will be asked to open
letter of credit, which may involve financing by the banks. Hence letter of credit must be opened
selectively and only for customers of good financial standing.
Proper investigation into the antecedents and respectability of the importer is essential to safeguard any
eventuality, which may arise later on while undertaking import business on behalf of them. Banks
should bear in mind that goods to be imported are easily saleable in case of default by the importer
customer.
Additional care to be taken like stipulating higher margin etc , in respect of merchandise with volatile
domestic prises like sugar, pulses etc.,as any downward movement of domestic prices may reduce profit
margin of the importer leading to possible default.
LCs are considered as non-fund based facilities, it is absolutely essential for the branches to appraise the
proposals with the same diligence as in the case of fund based limits and obtain adequate cover by way of
margin, security etc., so that bank can fall back on such security in case the liability is devolved.
While approving and assessing the credit needs, proper analysis of available information, for example,
frequent devolvement of import LCs, non-submission of evidence of import, non-submission of stock
statement, non-co-operation in getting stocks audited/appointment of concurrent auditor,
exceptionally high level of current liabilities due to borrowings from NBFCs and other disquieting
features, including maintenance of accounts with the routing of business through non-consortium banks,
should be done and suitably addressed.
Credit report should contain the position of non-submission of documentary evidence of import (Bill of
Entry) for existing or new parties with following details and sanctioning authority should be satisfied:
I. Bill No. and date
II. Amount in Foreign Currency and Rupees
III. Due date for submission of Bill of Entry
IV. Reasons for non-submission.
By opening a letter of credit, as issuing bank, we bind ourselves to make payment to the beneficiary upon
presentation of stipulated documents complying with terms and conditions of the LC or at maturity. The
negotiating bank immediately upon negotiation or on maturity date automatically claims reimbursement
from our Nostro Account maintained abroad. Hence, it amounts to extending credit in foreign currency till
the documents are received by us and retired by the importer.
In other words, the bank is exposed to credit risks by opening FLCs. It is, therefore, essential that the
creditworthiness of the importer is assessed as per regular credit norms and suitable limits are to be got
sanctioned by appropriate sanctioning authority for opening import letters of credit well in advance.
Branches can exercise the powers delegated to them by HO for opening FLCs on behalf of their
customers.
1.7 Trade Control Regulation

Letter of credit envisages payment for the goods being brought into the country, as first it is to be ensured
that whether the goods concerned can be physically brought into India or not as per the current Foreign
Trade Policy(2015 -2020)
a) The importability of the goods should be ascertained through ITC HS Code no of the respective
items against which a specific note will appear either as free or prohibited or canalised or
restricted.

b) Import of which is restricted through licensing, may be imported only in accordance with a
licence issued by DGFT
c) Any goods the import of which canalised may be imported by the canalizing agency concerned.
d) The prohibited items in the negative list of imports shall not be imported.
1.8 Documents most often Presented under Documentary Credit

The Documents which are very common and important from Banks’ point of view can be classified into
following categories :
1. Financial Documents
2. Commercial documents
3. Transport documents
4. Risk covering documents
1. Financial Documents :
Bill of Exchange :A Bill of exchange (or B/E shortly) is also referred to as “Draft” or “Hundi”. In many
countries, the Bill of exchange is recognized as a legal document. The bill of exchange performs the basic
function such as collecting payment, demanding payment, extending Credit, promise of payment and
receipt of payment.
Drawing of bill of exchange is not always must under Letter of Credit. In Credits like payment & deferred
payment Credit, the bill of exchange is not to be drawn. Further, as per article 2 of UCP, Negotiation
means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank).
In international trade, bills of exchange are generally drawn in set of two, so that each one can be sent with
one set of documents. When are they are drawn in sets of two, each one bears the exclusion clause making
the other part of the draft invalid. The first of exchange contains word "The second of the same tenor and
date unpaid" or similar words. The second of the exchange contains the words "The first of the same tenor
and date unpaid" or similar words.
 Bills of exchange can be classified into two categories depending upon the tenor of payment
ordered there under.
Sight bill of exchange: Its also known as a Demand bill of exchange. Under such bill of exchange the
drawee has to make payment on presentation/sight/demand. Documents drawn under this credit will be
delivered to the payee only on payment.
Usance bill of exchange: They are also known as “TENOR” or “TIME” Bills of exchange. The drawee is
directed to make payment after a stated number of days or a period from a particular date or event. The
Draft must be drawn by the beneficiary on the party, stated in the Credit. Sub article (c) of Article 6 of
UCP 600 specifically states that the Documentary Credit must not be issued, available by a Draft on the
applicant.
UCP 600 article 3 provides guidance that where the words "from" and "after" are used to determine maturity
dates of drafts, the calculation of the maturity commences the day following the date of the document,
shipment, or the event. For example 21 days after or from December 1 is December 22.
10. In other words the words "from" or "after" when used to determine the maturity date, exclude the date
mentioned.
The amount in words must accurately reflect the amount in figures, if both are shown and indicate the
currency as stated in the Credit. The amount must agree with that of invoice, unless Credit permits. 2.
Commercial Documents:
The documents which are needed by the buyer and seller for their normal commercial (business)
transactions are termed as commercial documents. Some of the commercial documents are : Commercial
Invoice:
Commercial Invoice is a basic document in any trade transaction. It is also called a “document of
contents” because it contains all the information required for the preparation of all other documents. A
commercial invoice is the seller’s bill of merchandise. There is no standard format but contains:

· Date
· Name and Address of the seller and the buyer.
· Order number/contract number/proforma invoice number or details of credit.
· Description, quantity and (sometimes) Quality of the goods.
· Terms of sale.
· Port of shipment and port of destination.
· Value of the goods and any adjustments like advance/discount etc.
· Shipping marks or no of packages.
· Any other certifications required under the credit.
Commercial invoice must appear to have been issued by the beneficiary and made out in the name of the
applicant (except as provided in Article 38 of UCP 600)
As per sub article (a-iii) Article 18 of UCP 600, the invoice must be made out in the same currency as
the credit, reflecting the value of the goods, services or performance.
I. Invoices identified as "provisional", "proforma" or the like are not acceptable. When a credit
requires presentation of a commercial invoice, a document titled "invoice" will be acceptable.
II. The description of the goods, services or performance in the invoice must correspond with the
description in the credit.
III. An invoice must evidence the value of the goods shipped or services or performance provided.
Unit price(s), if any, and currency shown in the invoice must agree with that shown in the credit.
IV. If a trade term is part of the goods description in the credit, or stated in connection with the
amount, the invoice must state the trade term specified, and if the description provides the source of
the trade term, the same source must be identified
V. However, when a trade term is stated in the credit as “CIF Hongkong” or “CIF Hongkong
incoterms”, it may also be indicated on an invoice as “CIF Hongkong Inco terms 2010”. Charges
and costs must be included within the value shown against the stated trade term in the credit and
invoice. Any charges and costs shown beyond this value are not allowed.
VI. Unless required by the credit, an invoice need not be signed or dated.
VII. The quantity of the goods required in the credit may vary within a tolerance of +/- 5%. This
does not apply if a credit states that the quantity must not be exceeded or reduced, or if a credit states
the quantity in terms of a stipulated number of packing units or individual terms. A variance of up to
+5% in the goods quantity does not allow the amount of the drawing to exceed the amount of the
credit.
Certificate of Origin:
The certificate of origin indicates the country (origin) where the goods were originally produced /
manufactured. Generally in a certificate of origin of goods by manufacturer / exporter on the basis of which an
independent agency like Chamber of Commerce, Export Promotion Council, Trade Association or any other
body which is authorized in this behalf issues a certificate of origin of goods.
This document may form part of the invoice itself or may be a separate document. In many of the
countries, permission to import is refused unless a certificate of origin is produced. Further, this is also
used to determine the concessional tariff rates applicable to the goods.
This may or may not be the same as the place where the goods or component parts of the goods were
originally made, grow etc., there may have been enough value added to the goods which enables them to
be said to be origin of exporting country. Example, Coffee beans which are graded, roasted and packed in
the UK may be “product of UK” despite originally having been grown in India.
Certificate of origin is used mostly to serve/ensure the following purposes:
a) Some countries may not wish to use the goods of a particular country or enemy country.

b) Some countries may not wish a particular country to export the goods manufactured in
another country to avoid intermediary trade or avoiding competition from the goods
manufactured by a competing country and to encourage their own industry.
c) Some countries may allow import of goods manufactured in certain countries at concessional
tariff rates ( e.g. Generalised System of Preference Scheme of GATT)
Issuers of certificates of origin:

A certificate of origin must be issued by the party stated in the credit. However, if a credit requires a
certificate of origin to be issued by the beneficiary, the exporter or the manufacturer, a document issued by
a chamber of commerce will be deemed acceptable, provided it clearly identifies the beneficiary, the
exporter or the manufacturer as the case may be.
If a credit does not state who is to issue the certificate, then a document issued by any party, including the
beneficiary, is acceptable.
Packing list:
As the name indicates, it’s a document which shows the nature and number of packages with distinctive
numbers or marks. This is generally needed by the importer when he is importing different types or sizes
of merchandise, so for identification of the nature of goods in each package
It is used when an importer is importing goods for ultimate direct distribution to various suppliers etc. It is
also used by Customs for checking the goods on random basis or otherwise.
This certificate mainly to easy identification of goods in each package / container by the importer or
Customs etc.
Weight Certificate:
It’s a document, certifying the weight of goods. Generally its given by the exporter which may at times be
countersigned by independent agency. Generally It gives the weight of each article or bunch of articles. It
may also give the net weight as well as the gross weight.
This certificate is generally required in case of bulk goods like iron ore, food items etc. There can be a
requirement in a Letter of credit for submission of a combined packing list cum weight certificate.
Certificate of AnalysisandQuality
It is a certificate which indicates the inner composition, quality, technical composition and intricate nature
of the goods broadly described in the invoice.
This certificate may be given by the exporter himself or an institution / organisation which is competent or
nominated to give such a certificate. In certain types of goods like chemicals, food articles, clothes etc.,
this certificate is generally called for so that the goods exported conform to the desired quality / standard /
analysis.
Certificate of Inspection
The document certifying that the goods inspected. It is desired by the importer to be sure that the right
types of goods ordered are being sent by the exporter. In India certain goods are statutorily subjected to
quality control and pre-shipment inspection. For this purpose an agency called Export Inspection Council
was created. EIC in turn has nominated certain agencies to issue Inspection Certificates in respect of
certain types of goods. Sometimes, the importer may also nominate a person to issue such a certificate.
3. Transport Document
In International trade the goods move from the warehouse of the exporter to the warehouse of the
importer. The goods may move by land,water or air or a combination of one or more of these modes Basic
function of a transport document is to evidence the contract of carriage and hence, it must show the name
of the carrier.
As per RBI directives, every transport document must contain the name and address of the issuing Bank
and the Applicant.
Bill of Lading :
This is the transport document representing the movement of goods by water (ocean or sea).
A Bill of lading is a formal receipt given by the ship-owners or their authorised agents stating that the
goods mentioned therein (quantity, quality, description etc.) are shipped through a specified date and
vessel and are deliverable to the person mentioned therein or to his order after payment of all dues of the

shipping company.
Bill of lading has three main functions
a) It is an evidence of contract of freight.
b) It is a receipt for the goods
c) It is a document of title to goods
If we further discuss this main functions the Bill of Lading:

a) A memorandum of contract of carriage because it contains detailed terms and conditions on which
the carrier has accepted the goods for shipment (carriage) from the shipper.
b) A receipt for goods because the ship owner or their agents, who have issued it, declare that the
goods described therein are received from the specified person for shipment to a named port.
Thus, it is an evidence of receipt of goods by the carrier.
c) A document of title to goods because it states that the goods received for shipment by the carrier
are deliverable to the named person or to his order.
I. Generally, Bills of Lading are issued in a set of 2 or 3. The exact number of originals issued is
a. indicated on each of Bill of Lading. These are called negotiable Bills of Lading and
presentation of any one of them will entitle the holder to claim the goods there under and
render the other negotiable copies void. Production one copy of negotiable Bill of Lading
is a must for claiming the goods.
II. Sub article (a) (i) of Article 20 of UCP 600 requires that the name of the carrier be indicated
on the Bill of Lading.
III. Original Bill of Lading must be signed in the form described in UCP 600 sub-article 20 (a)(i)
and indicate the name of the carrier, identified as the carrier.
IV. If an agent signs a Bill of Lading on behalf of a carrier, the agent must be identified as agent and
must identify on whose behalf it is signing, unless the carrier has been identified elsewhere on the
Bill of Lading.
V. If the Master (captain) signs the Bill of Lading, the signature of the "Master" (captain) must be
identified as "Master (captain). In this event, the name of the master (captain) need not be stated.
VI. If an agent signs the Bill of Lading on behalf of the "Master"(captain), the agent must be identified
as agent. In this event, the name of the "master"(captain) need not be stated.
VII. If the credit states "Freight Forwarders Bill of Lading is acceptable" or uses a similar phrase,
then the Bill of Lading may be signed by a freight forwarder in the capacity of a freight forwarder,
without the need to identify itself as carrier or agent for the named carrier. In this event, it is not
necessary to show the name of the carrier.
VIII. The Bill of Lading should indicate that goods have been shipped “ON BOARD” on a named
vessel at a port of loading as stated in Credit by pre-printed wording or “ON BOARD” notation
indicating the date on which the goods have been shipped “ON BOARD”. If the Bill of Lading
includes an “ON BOARD “notation, the date of “ON BOARD” notation will be deemed to be the
date of shipment whether or not this date is prior to or after the date of Bill of Lading. [Article 20
(a) (ii) of UCP 600]
IX. The Bill of Lading should indicate that shipment has been effected from the port of loading to the
port of discharge, as stated in the Credit
X. Sub article (a) (iii) of Article 20 of UCP 600 which states that if the bill of lading does not indicate
the port of loading stated in the credit as the port of loading, or if it contains the indication
"intended" or similar qualification in relation to the port of loading, an on board notation

indicating the port of loading as stated in the credit, the date of shipment and the name of the
vessel is required. This provision applies even when loading on board or shipment on a named
vessel is indicated by pre-printed wording on the bill of lading.
XI. Sub article (a) (VI) of Article 20 of UCP 600 stipulates that the Bill of Lading must not contain an
indication that it is subject to chartered party.
Airway Bill
Airway Bill is an acknowledgement issued by an Airline Company or their authorised agents (and not
forwarding agents) stating that they have received the goods detailed therein (number of packages,
quantity and nature of goods) for despatch by air to the named consignee at the address stated therein.
Unlike a Bill of lading AWB is not a document of title of goods because it is merely an acknowledgement
of goods.
As it is not a document of title to goods, naturally it is not a negotiable document and hence it is not
necessary for a consignee to possess the AWB for taking delivery of goods, Thus for shippers the AWB is
not safe a document as a Bill of Lading. Further, in case of AWB it is obligatory on the part of the
Airlines to notify the consignee on arrival of goods and they will normally deliver the goods to the
consignee or his order on proper identification.
I. When Credit allows shipment by air, it must call for Airway Bill (air consignment note) or a
House Airway Bill, as instructed by the applicant. Credit should not call for more than one
original (since it the only third original issued to the shipper) and should not say full set of airway
bill is required.
II. Credit must specify the name and the address of the person to whom goods should be consigned
(this should be normally the issuing bank only). It should not state that it should be issued to "TO
ORDER" and / or "TO BE ENDORSED" since it is not a negotiable document. Even if, the Credit
calls for air transport document made out "TO ORDER or "TO ORDER OF" a named party" a
document presented showing goods consigned to that party, without mention of "TO ORDER" or
"TO ORDER OF" is acceptable.
III. An air transport document must appear to cover an airport-to-airport shipment but need not be
titled "air waybill", "air consignment note" or similar.
IV. The air transport document must appear to be the original for consignor or shipper. A requirement
for a full set of originals is satisfied by the presentation of a document indicating that it is the
original for consignor or shipper.
V. An original air transport document must be signed by the carrier and indicate the name of the
carrier identified as carrier.
VI. If an agent signs an air transport document on behalf of a carrier, the agent must be identified as
agent and must identify on whose behalf he is signing, unless the carrier has been identified
elsewhere on the air transport document.
VII. An air transport document must indicate that the goods have been accepted for carriage.
VIII. The date of issuance of an air transport document is deemed to be the date of shipment unless
the document shows a separate notation of the flight date, in which case this will be deemed to be the
date of shipment. Any other information appearing on the air transport document relating to the flight
number and date will not be considered in determining the date of shipment.
IX. If a credit does not state a notify party, the respective field on the air transport document may be
left blank or completed in any manner.

House Air Waybill
House Airway bill is a receipt for goods issued on the same lines as Airway Bill by cargo consolidating
agents. When air cargo is shipped under consolidation, the Airline company issues an Airway bill called
Master Airway bill to the consolidating cargo agent and he in turn issues his own House Airway Bills to
individual shippers.
Thus House Airway Bill is a receipt for goods issued not by the actual carriers or their agents but an
intermediary cargo consolidating agent. A House Airway bill is not as safe a document as an Airway Bill.
In case the consolidating agent fails to pay the freight, the carriers will have the right over the goods and
the holder of House Airway Bill will not get his goods.
If the Credit calls for House Airway Bill, it is better to stipulate the following:
a) Master Airway Bill Number
b) Name of the Airline Company, Flight Number and Date
c) Issuer's IATA Registration Number.
I. House Air Waybill may be signed by the freight forwarder in the capacity of a freight forwarder
without the need to identify himself as a carrier or agent for a named carrier. In this event, it is not
necessary to show the name of the carrier.
II. As shipment by House Airway Bill involves the risk of non delivery by the agent of freight
forwarder, opening FLCs calling for HAWB requires permission from appropriate authority.
Road, Rail or Inland Waterway Transport Documents

I. If a credit requires presentation of a transport document covering movement by road, rail or
inland waterway, UCP 600 article 24 is applicable. The term "carrier" used in UCP 600 article 24
includes terms in transport documents such as "issuing carrier", "actual carrier", "succeeding carrier"
and "contracting carrier".
II. Original and duplicate of road, rail or inland waterway transport documents.
If a credit requires a rail or inland waterway transport document, the transport document presented will be
accepted as an original whether or not it is marked as an original. A road transport document must appear
to be the original for consignor or shipper or bear no marking indicating for whom the document has been
prepared.
With respect to rail waybills, the practice of may railway companies is to provide the shipper or consignor
with only a duplicate (often a carbon copy) duly authenticated by the railway company’s stamp. Such a
duplicate will be accepted as an original.
Courier Receipts
A courier service document evidences receipt of goods for delivery and should appear on its face to
indicate the name of the courier/service and should be stamped/signed or otherwise authenticated by such
named courier/service unless the credit specifically calls for a document issued by specifically named
courier/service.
This document should indicate the date of pick-up or of receipt, or wording to this effect which will be
deemed to be the date of shipment. The requirement that the courier charges are to be paid or pre paid may
be satisfied by transport document issued by the courier service.
Postal Receipt or Certificate or Posting
The postal receipt or certificate of posting evidencing receipt of goods for transport must be stamped,
signed, or dated at the place from which the goods are shipped. This date will be deemed as to be the date
of shipment.
4. Risk Covering Documents :
Insurance Policy / Certificate:
It’s a contract of insurance. It is an undertaking given by the insurers promising to pay or secure payment
of money as compensation in case the goods under movement or otherwise subjected to loss, theft,
damage, etc. In international trade, marine insurance is the most common document obtained either by the
exporter or importer for the safety of the goods. Insurance policies are of different nature and may cover
different types of risks. But the basic cover is perils of sea.

I. This is to be called for if the terms of shipment are CIF, CIP or CELI. The risks and extent
of
percentage over CIF / CIP value to be covered (like 10% over CIF value) and place where claims
payable are to be clearly stated. Insurance Certificate is to be in negotiable form (UCP 600 Article
28).
II. The standard insurance clause as suggested by FEDAI is "Marine Insurance Policy or
certificate dated not later than the date of transport document issued unto order and blank
endorsed for 10% over the invoice value covering Institute Cargo / Air Cargo clause (A), Institute
War Clause (Cargo / Air Cargo), Institute Strikes Clause (Cargo / Air Cargo) with claims payable
in India."
III. It is important to note that only Institute Cargo Clauses (Air Cargo) will provide cover for air
shipment. It is not correct to call for an insurance document covering institute cargo clause A, If
the shipment is to be effected by air.
IV. In the case of shipment by sea, the standard clause to be covered are :
a. Institute Cargo Clauses (A) of ICC (A),

b. Institute War Clauses (Cargo) and
c. Institute Strike Clauses (Cargo)
V. Any imprecise terms such as usual risks or customary risks must not be used. If they are used in
a Documentary Credit, the bank will accept the insurance document as presented without regard to
any risk that is not covered.
VI. The documentary Credit should not call for an insurance coverage against "all risk", as there are
various types for all risk coverage in markets. Sub article (h) of Article 20 of UCP 600 implies that
the Documentary Credit should be more specific in its requirement for insurance coverage. If the
documentary Credit calls for insurance against "all risk" an insurance document containing any "all
risk" notation or clause will be accepted without regard to any risk stated to be excluded even if it
does not bear the headings "all risk" in the document.
VII. If the customer requests for any additional risks to be covered, it must additionally stipulate
so. If insurance is not to be subject to a *Franchise or an *Excess (Deductible), as referred to in
Art 28.j of UCP 600, the Credit must call for the insurance to be issued irrespective of
percentages.
Insurance policies are generally freely assignable to anyone who acquires insurable interest without
notice to the underwriters. The assignment is usually effected by blank endorsement.
Specific policy: When a policy is issued for a particular voyage covering specific goods, such policy
is termed as a specific policy.
Open policy: It is a blank policy issued by the insurers for a specified amount and period and exporter
can cover any number of shipments within the stipulated amount and period. In this case the cover
becomes effective only when details of shipment are informed in good time to the insurers along with
premium if any, as agreed upon.
LloydsandSGS Certificates:
With a view to reduce instances of maritime frauds, certain preventive steps have been imposed from
credit angle, while opening FLCs of large value. These are :
Lloyds Certificate: A certificate issued by Lloyds Registry of Shipping certifying the age, classification
and seaworthiness of the vessel in order to ensure marine insurance cover under Institute Classification
Clause.
SGS Certificate: A certificate of Pre-shipment Inspection of merchandise by a well known International
inspection agency like Societe Generale De Survilence (SGS) or its subsidiary or Lloyds Inspection
Agency. It certifies that the quality, quantity and description of merchandise loaded on the vessel conform
to the sale contract / FLC. Inspection agencies also undertake supervision while loading the cargo on

board the vessel.
The above requirements are applicable to FLCs exceeding the value of Rs.50 lacs for Lloyds certificate
purposes and Rs.1 crore for SGS certificate purposes.
The sanctioning authorities will invariably mention in their sanction letters the conditions calling for the
above two certificates (where the waiver is not intended) and these conditions are to be conveyed by the
branches to the importers to make them aware in advance of the Bank's requirements.
Full text of Institute Classification Clause is reproduced in ANNEXURE III of Import manual. The
Insurance Policy / Certificate / Cover Note will also stipulate shipment by vessels conforming to this
clause.
The Insurance Company or their agents will not entertain any claims if the carrying Vessel was later
found to be not seaworthy. In order to ensure the vessel is seaworthy Lloyd's Certificate is called for.
There are certain other equivalent registries with corresponding equivalent classification as defined in
Institute Classification Clause (c.f. ANNEXURE III) and their certificate can be treated on par with
Lloyd's Certificate.
Delegation For Permitting Waiver Of Lloyd And SGS Certificates By BRANCH AND CIRCLE
HEAD When The Same Is Not Obtained At The Time Of Sanction.(Cir 565/2017)
A. Lloyds & SGS Certificates :

With a view to reduce instances of maritime frauds, certain preventive steps have been imposed
from credit angle, while opening FLCs of large value.
These are:
a. Calling for Lloyds Certificate, a certificate issued by Lloyds Registry of Shipping certifying the age,
classification and seaworthiness of the vessel in order to ensure marine insurance cover under Institute
Classification Clause. (Refer Note below)
b. Calling for SGS Certificate, a certificate of Pre-shipment Inspection of merchandise by a well known
International inspection agency like Societe Generale De Survilence (SGS) or its subsidiary or Lloyds
Inspection Agency certifying that the quality, quantity and description of merchandise loaded on the vessel
conform to the sale contract / FLC. Inspection agencies also undertake supervision while loading the cargo
on board the vessel.
In terms of existing guidelines, the above requirements are applicable to FLCs exceeding the value of
Rs.15 lacs for Lloyds certificate purposes and Rs.30 lacs for SGS certificate purposes. The sanctioning
authorities will invariably mention in their sanction letters the conditions calling for the above 2
certificates (where the waiver is not intended) and these conditions are to be conveyed by the branches to
the importers to make them aware in advance of the Bank's requirements.
Note: Full text of Institute Classification Clause is reproduced in Para 02.04.05.02 of Manual of Imports
General. The Insurance Policy / Certificate /Cover Note will also stipulate shipment by vessels
conforming to this clause. The Insurance Company or their agents will not entertain any claims if the
carrying Vessel was later found to be not seaworthy. In order to ensure the vessel is seaworthy Lloyd's
Certificate is called for.
There are certain other equivalent registries with corresponding equivalent classification as defined in
Institute Classification Clause (c.f. Para 02.04.05.02 of Manual of Imports General.) and their certificate
can be treated on par with Lloyd's Certificate.
B. Waiver of Lloyds Certificate by Branch Head

Lloyds certificate can be waived at the discretion of the branches in respect of imports made by:
1. Public Sector Undertakings / Companies.
2. Importers whose accounts are internally rated as LR-I or LR-II or LR-III or externally rated as A.
3. Parties other than (1) E (2) if:-

a. they are financed by a consortium of Banks where other member banks do not insist on Lloyds
Certificate,
b. Where the value of the LC is less than Rs.50 lacs, or the value of each Part-shipment is less than
Rs.50 lacs even if the value of LC exceeds Rs.50 lacs;
c. Where the LCs are established on Cost Insurance and Freight (CIF) or Cost and Insurance (CEI)
terms and the insurance clause stipulating the requirement to mention the name of the carrying vessel
specifically in the insurance policy without giving choice to ship in any other vessel.
Note: Where Lloyd's Certificate is waived, but the Insurance Cover Note submitted by the importer (under
FOB / CFR contracts) specify Institute Classification Clause, necessary amendment from the Insurance
Company should be insisted for deletion of the said clause. (The importer will have to pay an additional
premium towards such deletion).
C. Waiver of SGS Certificate by Branch Head

The SGS Certificate can be waived at the discretion of the branches in respect of the following
parties:
3. Parties other than (1) and (2) if –
a. they are financed by a consortium of banks where other member banks do not insist for SGS
Certificate;
b. the value of LC is less than Rs. 1.00 crore, or the value of each part shipment is less than Rs. 1.00
crore even if the value of the LC exceeds Rs.1.00 crore.
The waiver of Lloyds / SGS Certificates should be permitted only on specific representation from the
importer and not as a matter of routine.
D. Waiver of Lloyds and SGS certificate by Circle Head CAC

Discretion to the Circle Head CAC (CGM/GM /DGM-CO-CAC) for waiving Lloyds / SGS
Certificates:
The Circle Head CAC can relax the conditions and waive the requirements of Lloyds
Certificate and SGS Certificate under the following cases:
(i) Lloyds Certificate may be waived where the value of LCs or the value of each part-shipment is less
than Rs.1.00 crore, subject to obtaining a satisfactory OPL report on the suppliers, good track record of the
importer client and stipulation of additional margin of 5%.
(ii) SGS Certificate may be waived where the value of LC or the value of each part-
shipment is less than Rs. 2.00 crore, subject to obtaining satisfactory
OPL report on the supplier, good track record of the importer and
stipulation of an additional margin of 5%.
The waiver will be permitted only on representation by the importers and on the
recommendations by the branches.
NOTE:
1. While forwarding FLC / Amendment applications to FD / FEX Cell,branches have to certify to the
effect that prior permission of sanctioning authorities is obtained or branch has exercised their
discretionary powers to call for / waive certain documents as per Manual of Imports General
2. Wherever waiver of SGS / Lloyds Certificate is requested by the importer-clients, branches are
advised to explain the implications /consequences arising out of such waiver. Such requests for waivers as
enumerated above may be acceded to only after obtaining a Declaration-cum-Undertaking from the
importer seeking waiver of SGS / Lloyds Certificates. The draft format of "Declaration-cum-

Undertaking" to be obtained from the importer is given in Para 02.04.05.02 of Manual of Imports
General. In case the importer-client is not agreeable to give the Undertaking, the request for waiver
should not be acceded to.
3. Branch Head and Circle Head can permit waiver of Lloyds and SGS Certificate as per para B(3),
C (3) and D , only if rating of entity is BBB Et above or they are internally rated as Low Risk/Normal
Risk/Moderate Risk.
4. In case of New Borrower with BBEt Below rating, where waiver was not obtained from appropriate
authority, at the time of sanction, waiver of these 2 certificates be permitted by CGM/GM-HO-CAC &
above authorities upto their delegated powers.
5. In case of MC Power account, where waiver was not obtained from appropriate authority, at the time of
sanction, waiver of these 2 certificates be permitted by CAC of the Board.
Waiver of Lloyds Certificate :

Lloyds certificate can be waived at the discretion of the branches in respect of imports made by :
2. Importers whose accounts are classified as LR-I or LR-II
3. Parties other than (1) Et (2) if
A. they are financed by a consortium of Banks where other member banks do not insist on Lloyds
Certificate,
B. Where the value of the LC is less than Rs.15.00 lacs, or the value of each Part-shipment is less
than Rs.15 lacs even if the value of LC exceeds Rs.15 lacs;
C. Where the LCs are established on CIF or CEtI terms and the insurance clause stipulating the
requirement to mention the name of the carrying vessel specifically in the insurance policy
without giving choice to ship in any other vessel.
Where Lloyd's Certificate is waived, but the Insurance Cover Note submitted by the importer (under FOB
/ CFR contracts) specify Institute Classification Clause, necessary amendment from the Insurance
Company should be insisted for deletion of the said clause. (The importer will have to pay an additional
premium towards such deletion) .
Waiver of SGS Certificate :
The SGS Certificate can be waived at the discretion of the branches in respect of the following parties :
2. Importers whose accounts are classified as LR-I or LR-II
3. Parties other than (1) and (2) if -
A. They are financed by a consortium of banks where other member banks do not insist for SGS
Certificate;
B. The value of LC is less than Rs.30 lacs, or the value of each partshipment is less than Rs.30 lacs
even if the value of the LC exceeds Rs.30 lacs.
C. The waiver of Lloyds / SGS Certificates should be permitted only on specific representation
from the importer and not as a matter of routine.
1. Discretion to the DGM / GM of Circle for waiving Lloyds / SGS Certificates :

The GM / DGM of Circles have delegated powers to further relax the conditions and waive the
requirements of Lloyds Certificate and SGS Certificate under the following cases:
(i) Lloyds Certificate may be waived where the value of LCs or the value of each part-shipment is
less than Rs.30 lacs, subject to obtaining a satisfactory OPL report on the suppliers, good track
record of the importer client and stipulation of additional margin of 5%.
(ii) SGS Certificate may be waived where the value of LC or the value of each part-shipment is less
than Rs.60 lacs, subject to obtaining satisfactory OPL report on the supplier, good track record of
the importer and stipulation of an additional margin of 5%.

The waiver will be permitted only on representation by the importers and on the recommendations
by the branches.
2.While forwarding FLC / Amendment applications to FD / FEX Cell, branches have to certify to
the effect that prior permission of sanctioning authorities is obtained or branch has exercised their
discretionary powers to call for / waive certain documents as per 02.04.05.02.
3.Wherever waiver of SGS / Lloyds Certificate is requested by the importer-clients, branches are
advised to explain the implications / consequences arising out of such waiver. Such requests for
waivers as enumerated above may be acceded to only after obtaining a Declaration-cum-Undertaking
from the importer seeking waiver of SGS / Lloyds Certificates. The draft format of "Declaration-cum-
Undertaking" to be obtained from the importer is given in ANNEXURE - IX. In case the importer-
client is not agreeable to give the Undertaking, the request for waiver should not be acceded to.
1.9 UCP 600

Background : The Uniform Customs & Practice for Documentary credits (commonly called
“UCP” constitutes a set of contractual rules governing documentary credit practice between banks
and various parties involved in the L/C transaction.First published by ICC, Paris in 1933.
International standard Banking practice (ISBP) for the examination of Documents under documentary
credits,2007 Revision for UCP 600, an update of the successful ICC publication No 645,
ISBP was conceived as an intelligent checklist of procedures for document checkers to follow in
examining the documents presented under letters of credit.
UCP 600 came into effect on 1 July, 2007,UCP 600 consists of 39 Articles covering the following
areas, which can be classified as 8 sections according to their function and operation procedures.
Serial Article Area Consisting

No.
1 1 to 3 General Application, Definition and Interpretations
2 4 to 12 Obligations Credit Vs Contracts, Documents Vs Goods etc, Availability for
Presentation, Undertaking of Banks, Advising and amending
Credits, Transmission of Credits and Nominations.
3 13 to 16 Liabilities and Reimbursements, Examination of Documents,

Responsibilities Complying presentation, Handling discrepant
Documents.
4 17 to 28 Documents Bill of lading,Charter party bill of lading, Air

Documents, Road, Rail etc, documents, Courier
Postal etc, Receipt on board, Shippers count, Clean
document, Insurance document
5 29 to 33 Miscellaneous Extension of dates, Tolerance in credits, Partial Shipments
provisions and Drawings, Hours of presentation
6 34 to 37 Disclaimers Effectiveness of documents, transmission £t
Translation, Force Majeure & Act

of Instructed part.
7 38 Transfers Credit transfer to third parties

8 39 Assignment Procedure for assignment
ICC Uniform Customs and Practice for Documentary Credits (UCP 600)

Article Subject Article Subject
1 Application of UCP 21 Non-Negotiable Sea Waybill
2 Definitions 22 Charter Party Bill of Lading
3 Interpretations 23 Air Transport Document
4 Credits v. Contracts 24 Road, Rail or Inland Waterway
Transport Documents
5 Documents v. Goods, Services or 25 Courier Receipt, Post Receipt or
Performance Certificate of Posting
6 Availability, Expiry Date and Place 26 On Deck", "Shipper's Load and Count",
for Presentation "Said by Shipper to Contain" and
Charges Additional to Freight
7 Issuing Bank Undertaking 27 Clean Transport Document
8 Confirming Bank Undertaking 28 Insurance Document and Coverage
Extension of expiry date or last day of
9 Advising of Credits and Amendments 29
presentation
10 Amendments 30 Tolerance in Credit Amount, Quantity and
Unit Prices
11 Teletransmitted and Pre-Advised Credits 31 Partial Drawings or Shipments
and Amendments
12 Nomination 32 Instalment Drawings or Shipments
13 Bank-to-Bank 33 Hours of Presentation
Reimbursement
Arrangements
14 Standard for Examination of Documents 34 Disclaimer on Effectiveness of Documents
15 Complying Presentation 35 Disclaimer on Transmission
and Translation
16 Discrepant Documents, Waiver and Notice 36 Force Majeure
17 Original Documents and Copies 37 Disclaimer for Acts of an Instructed Party
18 Commercial Invoice 38 Transferable Credits
19 Transport Document Covering at Least 39 Assignment of Proceeds
Two Different Modes of Transport
20 Bill of Lading

1.10 Additional Documents / Conditions Requiring Permission of Sanctioning Authorities or
Requiring Special Attention
Charter Party Bill of Lading :
Bill of Lading issued by a charter party who has chartered (i.e., hired) the vessel from a Shipping Co., is
known as Charter Party Bill of Lading. As such, Charter Party Bill of Lading is not issued by the owner
of the vessel or shipping company. Necessarily shipment of merchandise like coal, ores, extractions,
expellers etc., in bulk quantities necessitates shipment by a charter party vessel due to reasons as: Cargo
is shipped in loose or using very little and cheap packing materials like second hand gunny bags etc.,
Conference line vessels being not suitable for shipment of bulk cargo,
Lower freight charges as compared to regular vessels etc
The main distinctions between a Shipping Company's BL and a Charter Party BL are :
a. Shipping Co. Vessel is governed by the terms and conditions printed on the back of the Bill of
Lading; whereas Charter Party BLs are as per agreement between the charter party and the owner
of the vessel.
b. Liability in the case of Shipping Co.'s BL is limited to the freight charges as mentioned in the BL;
whereas under a Charter Party BL, in the event of any delay at the port of discharge beyond the
period agreed as per charter agreement, additional berthing charges and / or other port dues are
for the account of the importer.
c. In the case of Shipping Co's BL, the owner of the vessel i.e., the Shipping Co. undertakes
delivery of the merchandise ; whereas under a Charter Party BL, ship owner is not responsible for
the delivery of merchandise.
d. On the contrary, if the charter party fails to settle the charter charges, the ship owner has lien over
the merchandise until his dues are settled. Sometimes this may even lead to legal proceedings.
e. In the case of a voyage charter ( where the charter is only for one voyage), ship owner's dues
referred above will be limited to the particular voyage. In the case of time charter (where the
charter is for a period like for 3 months etc.), ship owner's dues may be for more than one
voyage.
In view of the above, shipment through a charter party vessel is subject to getting prior permission of
respective sanctioning authorities who will accord their permission after assessing the credit worthiness
of the importer for additional exposure involved. Charter Party Bill of Lading facility is to be
extended only covering shipment of goods which are normally shipped per charter party vessels.
Goods which can be shipped per regular vessels should not be permitted to be shipped per charter party
vessels.
Shipment by Country Craft Vessel:

Country crafts are mostly made of wood and some of them may not be mechanized. These vessels are small
size, slow speed and not having a standard navigational equipment on board, do not venture to travel deep in
the sea, but generally move along the coastal line. Shipment by country craft is used between neighbouring
countries In the case of shipment by country crafts, only Tindal Receipts will be issued in the place of BL.
Tindal Receipts are non-negotiable documents and its an additional risk.
LASH Bill of Lading / Shipment by Interlighter Vessels / Shipment on Barges :
In the case of countries which do not have ports with adequate depth to berth huge vessels and in the case of
ports with congested ports, the ships will wait in high seas; goods / container will be loaded on non-mechanized
barges or Lighters and such barges will be pulled by tugs upto the ship on high seas. Shipment by Tanker
Vessel or Tanker BL Shipment of merchandise in liquid state like oil, chemical etc., is to be made by
specialized vessels

Commingled Shipment:
Shipment of merchandise like coal, ores, oil / petroleum products will be in unpacked state. Where the
entire load of the vessel is covered by two or more BLs with different consignees, it is called commingled
shipment
On Deck Shipment:
When the goods are loaded on the deck (on top portion of the vessel), they are exposed to the risk of
jettisoning, washing overboard and exposure to weather. Bills of Lading covering "on deck shipment"
can be called for provided the Insurance Policy covers "On Deck Shipment Risks".
Short Form Bills of Lading:

Which do not contain all the conditions of carriage of goods and require the shippers to refer to rules
and regulations available at the office of Shipping Company
Combined BLs:
A FLC is opened on behalf of the same applicant and favouring the same beneficiary, openers may
request for calling combined Bill of Lading under such LCs with a view to save freight charges. Such
requests may be acceded to provide latest date for shipment and presentation of documents under the
FLCs are identical.
Combined Transport Bills of Lading or Multi-Modal Transport Documents :

Imports from land locked countries / upcountry places away from ports, merchandise are to be transported by
Road/Rail up to the nearest port and by Sea / Air thereafter. Transport documents covering the entire voyage
involving two or more modes of carriage Multi-modal Transport Documents to be issued subject to
UNCTAD / ICC Rules (ICC publication No 481) instead of Bills of Lading.
Permitting Shipments under House Airway Bill (HAWB):

House Airway Bills (HAWB) are issued by freight forwarders or consolidating agents against Master
Airway Bills issued by Airways companies. Shipment of Merchandise with small volume are generally
made on consolidation basis it reduces the air freight. As it involves the risk of non-delivery by the agent
of freight forwarder, opening FLCs calling for HAWB requires special treatment.
Branches are delegated with powers for calling for HAWB under our FLCs in following cases
I. Where importer is a Public Sector Undertakings / Companies
II. Where importer is a classified as LR1 / LR2 parties.
III. For importers other than (i) or (ii), if -
a).the importer is having facilities from a consortium of banks where other member banks have not
imposed restriction for imports under HAWB, or
b) the value of FLC is less than Rs.25 lacs, or
c).the value of each consignment is less than Rs. 25 lacs even FLC value exceeds Rs. 25 lacs. (This
flexibility should be sparingly exercised).
In other cases DGM / GM of Circles have delegated powers to permit FLCs calling for HAWB without
any limit, subject to obtaining a satisfactory OPL report on the suppliers, good track record of the
importer and stipulating additional margin of 5%.
1.11 Processing of FLC Applications:

Once the limits are sanctioned after observing all the formalities stated earlier, the prospective importer
will tender application for establishing letter of credit
Before opening the letter of credit, branches should ensure
(A) that the import of goods for which letter of credit is opened is allowed as per the Foreign Trade
Policy and terms of letter of credit do not contravene any FEMA regulations / Credit Control
Regulations.
(B) Whether the credit report of the overseas supplier are held ?

Status reports/OPL should be called for in case of all parties except Government/ Semi Govt.
Departments and public sector undertakings, from their bankers and LCs should be opened only
if such reports are satisfactory
OPLs enable us to safeguard our interest in avoiding eventuality of an unscrupulous overseas
supplier's claiming payment by presenting fraudulent documents under our FLCs
The applications should have either been typed or written legibly (preferably in block letters).
Applications should be signed by an authorised signatory of the importer firm / company. Alterations /
cancellations / additions, if any, are to be duly authenticated.
Verification of Sale Contract:

Letter of credit should be opened on the basis of underlying contracts
The original sale contract should be verified to ensure that the terms and conditions stated therein viz.,
description of merchandise, quantity, unit price, shipment period, terms of payment etc. conform to those
stated in the FLC application.
In the absence of sale contract, any of the following containing such details may be accepted:
· Purchase order of the importer confirmed by the overseas supplier.
· Proforma invoice of the overseas supplier duly counter-signed by the importer.
· Indent of authorised agent of the overseas supplier.
Branches should certify on the copy / photo copy of the same that the original has been verified and
forward it to FD along with FLC Application.
While returning the original to the applicant, the same should be duly marked with the details of FLC
opened.
Obtention of FLC Application Cum Agreementandother documents

FLC Application cum Agreement IF(IMP)1601 to be obtained in quadruplicate (original of which is
stamped as applicable to "Agreements")
1. Sale contract and FEMA Declaration cum Undertaking Additionally, where applicable, the
following are also to be obtained along with FLC application
2. Insurance Cover Note if shipping term is FOB or CFR (CELF).
3. Exchange Control copy of import licence, wherever required.
4. In respect of import of freely importable items, where no import licence is required as per Foreign
Trade policy, it is to be ensured that relevant declarations are ticked in the FLC application. A
declaration cum undertaking in form IF (IMP) 1872 (Annexure-V) to be obtained.
Mode of Advising FLCs : by SWIFT only

Amount and Currency:
While indicating the amount (value of credit), FEDAI has suggested the use of the words “not exceeding”
before amount, the rationale being: that in terms of Article 30 of UCP 600 words "ABOUT" will be taken
to means 10% more or less,
Further, as per the Article 30 (b), even if a fixed amount is stated, it would be taken to mean that the
credit allows tolerance of 5% more or less. By prefixing words “NOT EXCEEDING”, it is ensured that
the beneficiary will not be able to draw more than the amount indicated, while there is no objection for his
drawing for a lesser amount.
While mentioning the amount, the currency and ISO currency code must be indicated, to avoid any
confusion. Further, as per article 28.f (i), the insurance document must be expressed in the same
currency as credit.
Beneficiary and Opener:

Name and full address of the beneficiary are to be counter checked with the sale contract. Mentioning the
name and full address of the importer (opener) is to be ensured

Tenor of the Draft
Draft must be drawn in case of acceptance Credit. In many countries, because of the stamp duties even
on sight drafts, it has become increasingly customary not to call for a Draft under the credit available by
sight payment. In case of sight payment credits (if the credit does not specifically call for drawing a
draft), payment can be made only on presentation of specific documents. On the other hand, in sight
negotiation credit (available by negotiation), the draft must be drawn. Similarly in case of acceptance
Credit (available by acceptance), draft is must. The draft need not be drawn in case of deferred payment
credits.
The tenor of draft can be at sight or usance. The period of usance should generally be expressed as certain
number of days (not exceeding 180 days) from the date of shipment. In exceptional circumstances where the
importer clients themselves opt for an usance period to be reckoned from a date other than the date of
shipment (like, date of acceptance, date of invoice, etc.) and the contract provides for payment in such terms,
LCs may be opened calling for drafts with usance period to be reckoned from a date other than the date of
shipment, provided the due date for settlement does not fall beyond 180 days from the date of shipment.
As per Article 3, the words "from" and "after" when used to determine a maturity date, exclude the date
mentioned.
As per Article 6(c) of UCP 600, LCs should not be issued available by Draft(s) on the
Applicant (Opener).
Description of merchandise
It should be state quantity and unit price. If the word 'about' is used before quantity / unit price, it gives
flexibility of 10% more or less of the same, in terms of UCP 600 (Art. 30). While stating the description
of details, excessive details (particulars of technical specifications etc.) must be avoided. Reference to
Proforma Invoices must be avoided and Proforma invoices should not attach to the credit to form the part
of credit.
Terms of shipment
1.12 INCO TERMS- 2020 The purpose of “Inco terms” is to provide a set of international rules for the
interpretation of the most commonly used trade terms in cross border trade. Thus, the uncertainties of
different interpretations of such terms in different countries can be avoided or at least reduced to some
extent.
International Chamber of Commerce (ICC) , Paris has devised a set of rules called Inco terms.
Reference to an Inco terms in a sale contract clearly defines the parties’ respective obligations and
reduces the risk of legal complications. The Inco terms describe mainly the tasks, costs and risks
involved in the delivery of goods from seller to buyer. Inco terms 2020 came into force on 1 January
2020.
There are 11 Inco terms 2020 rules which can be presented in two distinct classes.
i. Rules for any mode or Modes of Transport
a. EXW - EX- Works (at named place of delivery)
b. FCA - Free Carrier (at named place of departure)
c. CPT - Carriage Paid to (to named place of destination)
d. CIP - Carriage and Insurance Paid to (to named place of destination)
e. DPU – Deliver at Place Unloaded ( named place of destination)
f. DAP - Delivered at Place ( named place of destination)
g. DDP - Delivered Duty Paid (at named port of destination)
ii. Rules for sea and Inland Waterway Transport
a. FAS - Free Alongside Ship (at named port of shipment)
b. FOB - Free on Board (at named port of shipment)
c. CFR - Cost and Freight (at named port of destination)
d. CIF - Cost Insurance and Freight (to named port of destination)

Rule for any mode of Transport
The 7 rules defined for any mode s of transportation.
ü EXW – Ex Works (named place of delivery) :The seller makes the goods available at its premises.
The buyer is responsible for unloading EXW means that a seller has the goods ready for collection at
his premises (works, factory, plant, warehouse etc) on the date agreed upon. The buyer bears all
transportation costs and also bears the risk for bringing the goods the their final destination. If the
seller does load the good, he does so at buyer’s risk and cost and it should be made clear by explicit
wording to this effect in the contract of sale.
ü FCA – Free Carrier (named place of delivery) : The seller hands over the goods, cleared for
export, into the disposal of the first carrier (named by the buyer) at the named place. Here the
buyer pays the carriage cost and the risk passes to buyer when the goods are handed over to the
first carrier.
ü CPT – Carriage paid to (named place of destination) : Seller pays for carriage and insurance to
the named destination point, but risk passes when it is handed over to the first carrier.
ü DPU – Delivered at place unloaded (named place of destination) Delivered at place unloaded
means seller delivers the goods and transfers risk to the buyer. In DPU the seller bears all risks
involved in bringing goods to and unloading them at the named place of destination. DPU is
the only Incoterm that requires the seller to unload goods at the destination
ü DAP - Delivered at Place ( named place of destination) : Here seller pays carriage, except
import clearance cost and bears all risk to the point of unloading destination.
ü DDP - Delivered Duty Paid (at named port of destination) : Here seller is responsible for
delivery to the destination point(country of the buyer) and pays all cost pertaining to all risk
including import duties and taxes. Here buyer responsible for unloading
The 4 rules for seaandinland waterway transport.

ü FAS -Free Alongside Ship (at named port of shipment) Here the seller will place the goods
alongside the ship at the named port. The buyer assumes all risks and cost for goods from this
point forward. The seller must clear the goods for export It is typically used for bulk cargo . Its not
for multimodal sea transport in containers..
ü FOB - Free on Board (at named port of shipment): Here seller will load the goods on board the
vessel nominated by the buyer. The buyer will bear the cost and risk when the goods are actually
on board the vessel.. The seller must clear the goods for export. Its not for multimodal sea
transport in containers.. Here the buyer will instruct the seller the details of the vessel and the port.
ü CFR - Cost and Freight (at named port of destination) :Here seller must pay costs and freight but
risk is transferred to the buyer once the goods are loaded on the vessel.. Insurance cost of the
goods are not included. or loaded.
ü CIF - Cost Insurance and Freight (to named port of destination) :It is exactly like CFR (referred
above) only here the seller pay for the insurance. Here risk passes from seller to buyer once the
goods are on board the vessel at the port of shipment.
Port of Shipment and Port of Discharge :

The port from where the goods are to be shipped and the port where the goods are to be unloaded are to be
clearly specified(no abbreviations). If the import is without specific license the shipment can be allowed
from any port other than those countries with which trade ban is in force.
The port of shipment and method of payment conform to provisions of Foreign Exchange Regulations. If
port of discharge is a place other than any port in India, Branches should be on guard to satisfy whether it
is a Merchanting Trade and if so, FEMA and other related guidelines are to be complied according to
Merchanting trade..

Documents required :
1.Letter of credit must specify the following :
I. List of all documents required to be submitted.
II. Number of copies of each document required.
III. Whether required in original.
IV. Where necessary, the Credit must state by whom the document must be issued and its wording or
data content.
2. A credit should not require presentation of documents that are to be issued or countersigned by the
applicant. If a credit is issued including such terms, the beneficiary must either seek amendment or
comply with them and bear the risk of failure to do so.
3. As per the standard application for letter of credit evolved by FEDAI, documents are required to be
sought for "IN ENGLISH IN DUPLICATE UNLESS OTHERWISE SPECIFIED".
Part Shipment :
Application should clearly specify whether part shipment is allowed or prohibited. As per Article 31 (a)
of UCP 600 partial shipments are allowed if the LC is silent.
Set of transport documents evidencing shipment commencing on the same means of conveyance and for
the same journey, provided they indicate the same destination, it will not be regarded as partial shipment
even if the transport documents indicate different dates of shipment / different ports of loading / placing
of taking charge or despatch. (Article 31 (b) of UCP 600)
Transhipment :
As per Article 20b of UCP 600 - unloading from one vessel and re-loading to another vessel during the
carriage from the port of loading to the port of discharge stated in the Credit.
Application should clearly specify whether transhipment is permitted or prohibited. (Article 20 (c) & (d)
of UCP 600 allows transhipment in certain cases even, if the Credit specifically prohibits the
transhipment).
Where transhipments are to be permitted, care should be taken to call for a single transport document for the
entire voyage (i.e., Carriage from the port of shipment till the port of final discharge is covered by one and
the same bill of lading).
Period of Shipment
· Application should stipulate the last date of shipment without fail. The terms like immediately,
promptly, as soon as possible or 30 days from the date of LC should not be used.
· The expression "on or about" or similar will be interpreted as a stipulation that an event is to
occur during a period of five calendar days before until five calendar days after the specified date,
both start and end dates included.
· The words "to", "until", "till", "from" and "between" when used to determine a period of shipment
include the date or dates mentioned, and the words "before" and "after" exclude the date
mentioned.
· It should be noted that the interpretation of the words "from" and "after" when used to determine
the maturity date, exclude the date mentioned.
· The terms "first half" and "second half" of a month shall be construed respectively as the 1st to
15th and the 16th to the last day of the month, all dates inclusive.
· The terms "beginning", "middle" and "end" of a month shall be construed respectively as the 1st to the
10th, the 11th to the 20th and the 21st to the last day of the month, all dates inclusive.
· If the FLC is to cover import of merchandise under an Import Licence, it is to be ensured that the
last date of shipment as per FLC application falls within the validity period for shipment as per
the Import Licence. In case more than one import licence is utilised each expiring on various
dates, the last date of shipment of FLC application should not be later than the earliest expiry date
of any of the licences.
Period for Presentation of Documents

FLC application should also stipulate a period for presentation of documents commencing from the date of
shipment during which the beneficiary should submit the documents to the nominated Bank. If no such
period is stipulated, as per Article 14 c of UCP 600, the presentation must be made not later than 21
Calendar days after date of shipment, but in any event not later than the expiry of the Credit. At times, if
the Credit allows stale documents, the documents presented later than 21 calendar days after the date of
shipment, are acceptable as long as they are presented no later than the expiry date for presentation as
stated in the Credit.
Expiry Date of Letters of Credit
FLCs should stipulate the expiry date and Place for presentation of documents by the beneficiary. As per
Article 6.d.i of UCP 600, the Credit must state the expiry date for presentation. An expiry date stated for
honour of negotiation will be deemed to be the expiry date for presentation. It may be noted that LCs to
stipulate expiry date only for presentation of documents and not date of expiry for negotiation
Place of Expiry
Credit must also specify the place for presentation of documentation. According to Article 6(b)(ii ) of UCP
600, the place of the Bank with which the credit is available, is the place for the presentation of document.
The place of presentation for the Credit available with any bank is that of any Bank. The place for
presentation other than that of issuing Bank is in addition to the place of issuing Bank. Bank Charges
To be clearly stated as to who (importer or beneficiary) has to bear the bank charges outside India. In the
absence of specific instructions, FLCs will be established providing for charges outside India for account
of the Beneficiary. Sometimes the opener may desire to bear all other charges except confirmation charges
and any such instructions should be unambiguously stated in the FLC application. In terms of UCP 600,
where the advising / nominated / confirming bank could not recover their charges from the beneficiary (as
stated in FLC), such charges are to be borne by the openers if demanded. Additional Conditions
Additional conditions, if any, stipulated by the openers should not be in the nature of any performance by
beneficiary / negotiating bank etc., but such conditions should be in the nature of submission of any
document / certificate, certifying compliance with such additional conditions.
As example "Shipments to be made in containers" is a condition which can be evidenced by mentioning the
container number on the transport document or by a separate certificate. Thus, depending upon the nature of
the applicants requirement, suitable conditions may be stipulated in the Credit.
As per Article 14.h of UCP 600, if the Credit contains the condition without stipulating the documents to
indicate compliance with the conditions, Banks will deem such condition as not stated and will disregard
it.
Incorporation of certain additional documents / conditions require some extra caution / prior permission of
sanctioning authorities
Indication of availability
As per Article 6 of UCP 600, the Credit issuing Bank must indicate how a credit is available, whether by
Sight Payment, Deferred Payment, Acceptance or Negotiation. Banks in India mostly open letter of credit
available by Negotiation (i.e. Negotiation credits)
Nomination of Bank for settlement

As per Article 6 of UCP 600, a credit must state the bank with which it is available or whether it is
available with any bank. A credit available with a nominated bank is also available with the issuing bank.
Unless the Credit is available only with the issuing bank, or it is a freely negotiable credit, the issuing
Bank is duty bound to nominate a bank (called a Nominated Bank) for effecting settlement of the drawing
made by the beneficiary as per credit terms.
Our FLCs are generally restricted for negotiation at the counters of advising bank. If desired by applicant,
FLCs can be made available for negotiation at more banks. However, if name of negotiating banks are not
specified (i.e. freely negotiable LCs) or if such negotiating banks are not our correspondent Banks,
simultaneous reimbursement provision should not be extended. In other words simultaneous
reimbursement facility can be extended only to our correspondent banks.

Adding Confirmation by Advising Bank
If applicant requests for adding confirmation by the advising bank or some other correspondent bank, the
applicant should be informed that though the bank will request the advising bank to do so, it is the
prerogative of the correspondent bank to add their confirmation to our FLCs.
Further where confirmation charges are for the account of the beneficiary, the instruction for adding
confirmation should be subject to payment of confirmation charges by the beneficiary. Such instructions
should be incorporated as additional condition.
1.13 Examination of Documents under Documentary credit:

The revised ISBP - International Standard Banking Practice is critical to correctly applying the practices of
the UCP 600. International Standard Banking Practice (ISBP) for the examination of documents under
Documentary credits, 2007 Revision for UCP 600, an update of the successful ICC Publication No. 645,
reflects international standard banking practice for all parties to a documentary credit under UCP 600. ISBP
was conceived as an intelligent checklist of procedures for document checkers to follow in examining the
documents presented under letters of credit. While not a substitute for the UCP, which remains the guiding
text, the ISBP demonstrates how the UCP is to be integrated into day-to-day practice.
Guidelines:
Scrutiny of documents presented under a Letter of credit is a crucial and sensitive function of banks in
entire credit operations, particularly for the issuing Bank and the confirming Bank. Decision to make
payment or not against the document presented will depend solely on the result of this scrutiny. Hence the
official scrutinizing the documents must be vigilant and give his undivided attention to the matter. He
should have complete and comprehensive information and knowledge of the conditions of the relative
credit, provisions of UCP 600, URR 725, ISBP 745 and their implications. Since in credit operations
Checklist for scrutiny of LCs :

ü FLC application IF(IMP) 1601 obtained( in triplicate) and firm sale order/indent of authorised
agents of overseas supplier or purchase order of the applicant and the original application duly
stamped.
ü Obtained Exchange control copy of Import Licence, wherever applicable.
ü Sanction limit is available and all the sanction terms are complied with.
ü Applicant is eligible to import the merchandise as per Import Trade Policy.
ü Whether the contents of LC application confirms to the terms of sale order/ indent?
ü Whether the Exchange Control Copy of Import Licence where applicable, is valid for import of
merchandise mentioned in FLC application as to description, quantity, value and last date of
shipment?
ü If the terms of shipment are CFR/CPT(C£tF) OR FOB, applicant has to submit insurance policy
or insurance cover note of requisite value.
ü The terms of FLC application are in conformity with various provisions of Foreign Exchange
Regulations viz usance period, method of payment, interest etc.
ü Whether the inclusion/exclusion of any document or condition as per FLC application requires
the permission of higher authority’s viz. calling for Charter Party BL/House Airway Bill or non
inclusion of SGS Pre-shipment inspection Certificate or Lloyds’ certificate etc?
ü Whether the terms of FLC application are in conformity with various provisions ( Pl refer
manual of instruction of Imports General, Chapter 2 – Foreign Imports letter of Credit )
ü Whether the LC application is signed by the authorised person of the firm/ company?
Margin :
Margin as per sanction terms.
Posting FLC Liability:
FLC liability is to be arrived at Bill Selling Rate prevailing as on the date of processing of FLC
application at Branch level. (No better rate will be available and no reporting of sale is to be made for this

purpose). In case forward contract is booked, contracted rate is to be applied for
arriving the liability.
CertificationandCompliance Certificate:
1) All sanction terms are to be adhered to without any deviations including collection of appropriate
margin. Commission @ applicable rate as specified from time to time, postage, cost of stamp and
actual out of pocket expenses incurred by branch are to be collected and credited to appropriate
heads in the books of the branch.
2) Upon compliance with all the above formalities, the branch official has to certify on the reverse
of FLC application to this effect, except Importer’s copy.
3) Signed jointly by two authorized signatories of the bank i.e. Officer / Manager-in-charge of the
import department and the Head of the Branch.
4) Branches not designated to handle import business should prepare the certificates in duplicate
and forward the original to the concerned FD / Fex Cell along with the LC application / Import
collection bill and the duplicate copy is to be retained along with the office copy of FLC
application / Import collection bill.
5) Fex Cells, Overseas Branches, Forex branches and other Import designated branches should
prepare one copy of the said compliance certificates and retained the same along with the FLC
application/Import collection bill.
Disposal of FLC Applications

1) The original FLC application (stamped) should be preserved in double lock along with insurance
cover note (where applicable)
2) The duplicate copy along with sale contract, FEMA Declaration-cum-Undertaking as per
Annexure II (a) and Exchange Control copy of Import Licence (where applicable) are to be
forwarded to FD / Fex Cell for opening the FLC other than import designated branch.
3) The Triplicate copy is to be returned to the importer acknowledging receipt.
4) The quadruplicate copy of the FLC application to be retained. Receiving the copies of FLC from
FD / Fex Cell other than designated branch.Verify its contents If any variation is found, same is
to be taken up with the FD/Fex Cell.
5) Quadruplicate copy of the FLC application should be filed alongwith the copy of FLC in
respective CR file.
6) The FLC copy meant for opener should be delivered to them.
1.14 Expressions not defined in UCP 600 :

Expressions such as "shipping documents", "stale documents acceptable", "their party documents
acceptable", and "exporting country" should not be used as they are not defined in UCP 600. If used in
Credit, their meaning should be made apparent. If not, they have the following meaning under
International Standard Banking Practice.
i. "Shipping documents" - all documents (not only transport documents), except drafts, required
by the credit.
ii. "stale documents acceptable" - documents presented later than 21 calendar days after the date
of shipment are acceptable as long as they are presented no later than the expiry date for
presentation as stated in the Credit.
iii. "Third party documents acceptable" - all documents, excluding drafts but including invoices,
may be issued by a party other than the beneficiary. If it is the intention of the issuing bank that
the transport or other documents may show a shipper other than the beneficiary, the clause is not
necessary because it is already permitted by sub-article 14(k)

iv. "Exporting country" - the country where the beneficiary is domiciled, or the country or
origin of the goods, or the country of receipt by the carrier or the country from which shipment or
despatch is made.
Opening of FLCs in non-position currencies :

Customers may request for establishment of FLCs in currencies in which our bank does not maintain
'position'. Foreign Department will provide for payment to the negotiating bank in US Dollars or in Pound
Sterling as stipulated on the reverse of the FLC Application-cum-Agreement.
Our bank at present maintains 'position' in the following foreign currencies:
1) Sterling Pounds (GBP)
2) US Dollars (USD)
3) Japanese Yens (JPY)
4) Swiss Frances (CHF / SFR)
5) Swedish Kroner’s (SEK)
6) Singapore Dollars (SGD)
7) Australian Dollars (AUD)
8) Canadian Dollars (CAD)
9) EURO (EUR)
10) Hong Kong Dollars (HKD)
11) Danish Kroner’s (DKK)
12) Arab Emirates Dirham (AED)
Delegation For Permitting Waiver Of Lloyd And SGS Certificates By BRANCH AND CIRCLE
HEAD When The Same Is Not Obtained At The Time Of Sanction.
(Cir no 565/2017)
A. LloydsandSGS Certificates :
With a view to reduce instances of maritime frauds, certain preventive steps have been imposed from
credit angle, while opening FLCs of large value.
These are:
a. Calling for Lloyds Certificate, a certificate issued by Lloyds Registry of Shipping certifying the age,
classification and seaworthiness of the vessel in order to ensure marine insurance cover under Institute
Classification Clause. (Refer Note below)
b. Calling for SGS Certificate, a certificate of Pre-shipment Inspection of merchandise by a well

known International inspection agency like Societe Generale De Survilence (SGS) or its subsidiary or
Lloyds Inspection Agency certifying that the quality, quantity and description of merchandise
loaded on the vessel conform to the sale contract / FLC. Inspection agencies also undertake supervision
while loading the cargo on board the vessel.
In terms of existing guidelines, the above requirements are applicable to FLCs exceeding the value of
Rs.15 lacs for Lloyds certificate purposes and Rs.30 lacs for SGS certificate purposes.
The sanctioning authorities will invariably mention in their sanction letters the conditions calling for the
above 2 certificates (where the waiver is not intended) and these conditions are to be conveyed by the
branches to the importers to make them aware in advance of the Bank's requirements.
Note: Full text of Institute Classification Clause is reproduced in Para 02.04.05.02 of Manual of Imports
General. The Insurance Policy / Certificate /Cover Note will also stipulate shipment by vessels
conforming to this clause. The Insurance Company or their agents will not entertain any claims if the
carrying Vessel was later found to be not seaworthy. In order to ensure the vessel is seaworthy Lloyd's

Certificate is called for.There are certain other equivalent registries with corresponding equivalent
classification as defined in Institute Classification Clause (c.f. Para 02.04.05.02 of Manual of Imports
General.) and their certificate can be treated on par with Lloyd's Certificate
B. Waiver of Lloyds Certificate by Branch Head
Lloyds certificate can be waived at the discretion of the branches in respect of imports made by:

3. Parties other than (1) E (2) if:-
a. they are financed by a consortium of Banks where other member banks do not insist on Lloyds
Certificate,
b. Where the value of the LC is less than Rs.50 lacs, or the value of each Part-shipment is less than
Rs.50 lacs even if the value of LC exceeds Rs.50 lacs;
c. Where the LCs are established on Cost Insurance and Freight (CIF) or Cost and Insurance (CEI)
terms and the insurance clause stipulating the requirement to mention the name of the carrying vessel
specifically in the insurance policy without giving choice to ship in any other vessel.
Note: Where Lloyd's Certificate is waived, but the Insurance Cover Note submitted by the importer
(under FOB / CFR contracts) specify Institute Classification Clause, necessary amendment from the
Insurance Company should be insisted for deletion of the said clause. (The importer will have to pay an
additional premium towards such deletion).
C. Waiver of SGS Certificate by Branch Head
The SGS Certificate can be waived at the discretion of the branches in respect of the following parties:

3. Parties other than (1) and (2) if –
a. they are financed by a consortium of banks where other member banks do not insist for SGS
Certificate;
b. the value of LC is less than Rs. 1.00 crore, or the value of each part shipment is less than Rs. 1.00
crore even if the value of the LC exceeds Rs.1.00 crore.
The waiver of Lloyds / SGS Certificates should be permitted only on specific representation from the
importer and not as a matter of routine.
D. Waiver of Lloyds and SGS certificate by Circle Head CAC
Discretion to the Circle Head CAC (CGM/GM /DGM-CO-CAC) for waiving Lloyds / SGS Certificates:
The Circle Head CAC can relax the conditions and waive the requirements of Lloyds Certificate and SGS
Certificate under the following cases:
(i) Lloyds Certificate may be waived where the value of LCs or the value of each part-shipment is less
than Rs.1.00 crore, subject to obtaining a satisfactory OPL report on the suppliers, good track record of
the importer client and stipulation of additional margin of 5%.
(ii) SGS Certificate may be waived where the value of LC or the value of each part-shipment is less
than Rs. 2.00 crore, subject to obtaining satisfactory OPL report on the supplier, good track record of
the importer and stipulation of an additional margin of 5%.

The waiver will be permitted only on representation by the importers and on the
recommendations by the branches.
NOTE:
1. While forwarding FLC / Amendment applications to FD / FEX Cell,branches have to certify to the
effect that prior permission of sanctioning authorities is obtained or branch has exercised their
discretionary powers to call for / waive certain documents as per Manual of Imports General
2. Wherever waiver of SGS / Lloyds Certificate is requested by the importer-clients, branches are advised to
explain the implications /consequences arising out of such waiver. Such requests for waivers as
enumerated above may be acceded to only after obtaining a Declaration-cum-Undertaking from the
importer seeking waiver of SGS / Lloyds Certificates. The draft format of "Declaration-cum-
Undertaking" to be obtained from the importer is given in Para 02.04.05.02 of Manual of Imports General.
In case the importer-client is not agreeable to give the Undertaking, the request for waiver should not be
acceded to.
3. Branch Head and Circle Head can permit waiver of Lloyds and SGS Certificate as per para B(3), C
(3) and D , only if rating of entity is BBB and above or they are internally rated as Low Risk/Normal
Risk/Moderate Risk.
4. In case of New Borrower with BBand Below rating, where waiver was not obtained from appropriate
authority, at the time of sanction, waiver of these 2 certificates be permitted by CGM/GM-HO-CAC
Et above authorities upto their delegated powers.
5. In case of MC Power account, where waiver was not obtained from appropriate authority, at the
time of sanction, waiver of these 2 certificates be permitted by CAC of the Board
FOREIGN EXCHANGE REGULATIONS ON OPENING FLCs: Opening of Letter of Credit is

governed by the following:
1. Credit guidelines.
2. FEMA Regulations
3. FEDAI Guidelines and provisions of UCPDC
4. Internal guidelines.
Apart from the general Foreign Exchange Regulations, following are the specific Foreign Exchange
requirements applicable for opening Import Letters of Credit (FLCs).
Ø Import letters of credit can be opened only on behalf of our KYC complaint regular customers who
maintain accounts with us having satisfactory dealings and are known to be participating in the trade.
However, FLCs can be opened on behalf of government departments/public sector units even if they
do not maintain any account with us. Letter of credit will be issued in favour of overseas supplier,
manufacturer or shipper of goods and not in favour of applicant himself or his nominee.
Ø FLCs should be opened only on the basis of firm sale contracts and the proposed imports are
permitted under the prevailing foreign trade policy. In the absence of sales contract, purchase
order/proforma invoice/indent of offer is acceptable. Such documents should have the confirmation
and acceptance of both overseas supplier and their importer.
Ø FLCs should be made available for negotiation only against documents evidencing despatch of goods
viz., BL/AWB/lorry/railway receipts/post parcel or courier receipts.
Ø While opening FLCs, branches should follow normal banking procedures viz., credit appraisal,
calling for OPLs etc., and UCPDC provisions.

Ø FLCs should stipulate that bills of lading or airway bills indicate the name & address of the importer
in India as well as the bank.
Ø If import is from Nepal or Bhutan the payment must be made in Indian rupees treating the same for
all practical purposes as a domestic LC.
Ø If LC is opened in favour of beneficiary of ACU country or letter of credit envisages goods to be
shipped from a ACU Country, payments under such LCs should be settled as per ACU mechanism.
Ø If import is of technology drawings and designs, applicant must be advised to pay Research and
Development Cess, before allowing remittances, as required under Research and Development Cess
Act 1987.
Ø Even in the absence of Advance remittance from the Overseas Buyer, Import LC can be opened under
Merchanting Trade transactions based on Confirmed Orders from the Overseas Buyer (Export leg of
transactions), provided it is ensured that the total outlay of funds does not exceed four months and the
entire Merchanting transactions are completed within nine months.
Ø Letter of credit, where the payment against import is to be settled beyond six months but less than one
year from the date of shipment in case of non capital goods and 1 year and above but within 3 years
in case of capital goods from the date of shipment, such L/Cs are to be opened only on compliance of
Trade Credit formalities.
Ø Credit should be issued in such a way that the last date of shipment of goods is within the validity of
the licence or relative licensing period.

FORWARD CONTRACT
Definition: Forward contract is a mechanism by which foreign currency is bought / sold from/ to a
customer for delivery at a future date at an agreed rate of exchange (contracted rate). Conversion of
currencies takes place at a future date (known as delivery date) at the contracted rate. By this mechanism
the customer can safeguard himself from any probable adverse movements / fluctuations of rates of
exchange at a later date. By booking a forward contract, the customer has the right to acquire or dispose
off the foreign currency on a future date at the predetermined exchange rate, but at the same time has an
obligation to do so.
TYPES OF FORWARD CONTRACTS: Forward contracts are of two types; Forward Purchase
Contracts and Forward Sale Contracts. Whenever foreign exchange is bought from the customer for a
future date, it is called “Forward Purchase Contract”. Whenever foreign exchange is sold to the
customer for a future date it is termed as “Forward Sale Contract”.
FEATURES OF FORWARD CONTRACTS:
Ø Forward contract booked by one customer cannot be utilised by another customer.

Ø Forward contract shall be for definite amount and such amount is expressed in foreign currency and
equivalent Rupees (rounded off to the nearest Rupee).
Ø Exchange rate, at which the transaction is agreed to be put through, is known as the contracted
rate.
Ø The underlying transaction will be specified against which the forward contract is booked.
Date of Delivery or Delivery Period: Each forward contract should specify either a fixed date of
delivery or option period of delivery of foreign exchange. Forward purchase contracts booked against
sight/ usance export bills to be purchased/discounted at a later date, will specify the usance period
also.
DETERMINATION OF FORWARD RATES: Forward rates of a foreign currency are quoted at

premium or discount against Indian Rupees. When the forward value of a currency is dearer (costlier),
such currency is said to be at premium against Rupees. Premium is always added to the spot rate to arrive
at forward rates. When the forward value of a currency is cheaper, such currency is said to be at discount
against Rupees. Discount is always deducted from the spot rate to arrive at forward rates.
If a currency is at premium, it will be favourable to the exporter; but the premium will be adverse to the
importer as he will have to pay more rupees at the forward rate than at the spot rate.
OBTENTION OF DECLARATION CUM UNDERTAKING AS PER FEMA, 1999:

For all forward contract booked, branches should obtain a Declaration-cum-Undertaking as per
ANNEXURE I (a) of MOI. This is in addition to the documents/ papers/ control forms/licences, etc. to be
obtained as prescribed for the relevant transaction. Branches should forward the Declaration-cum -
Undertaking so obtained, to FD/FEX Cell concerned along with other documents.
REGULATORY GUIDELINES -RBI

DIRECTIVES FACILITIES FOR
PERSONS RESIDENT IN INDIA
FORWARD CONTRACT- CONTRACED EXPOSURE: person resident in India may enter into a
forward contract with an AD Category I bank in India to hedge exchange rate risk in respect of
transactions for which sale and / or purchase of foreign exchange is permitted under the FEMA 1999,
subject to the following terms and conditions:

a) AD Category I banks have to evidence the underlying documents so that the existence of underlying
foreign currency exposure can be clearly established. AD banks, should be satisfied about the
genuineness of the underlying exposure, irrespective of the transaction being a current or a capital
account.
b) While details of the underlying have to be recorded at the time of booking the contract, a
maximum period of 15 days may be allowed for production of the documents. If the documents are
not submitted by the customer within 15 days, the contract may be cancelled, and the exchange
gain, if any, should not be passed on to the customer. In the event of non-submission of the
documents by the customer within 15 days on more than three occasions in a financial year,
booking of forward contracts in future may be allowed only against production of the underlying
documents, at the time of booking the contract.
c) The maturity of the hedge should not exceed the maturity of the underlying transaction. However in
cases where there is delay in receiving the export proceeds, booking of forward contract 15 days
beyond maturity date of underlying transaction or month-end whichever is later may be permitted.
Contracts may be booked for shorter maturities with a view to reducing costs to the customer as per
the choice of the customer.
d) Branches may also allow their ‘Importer’ customers to book forward contracts 15 days beyond
maturity of underlying import collection transaction (other than documents covered under Import
LCs) or month-end whichever is later.
e) The currency of hedge and tenor, are left to the customer. Where the currency of hedge is different
from the currency of the underlying exposure, the risk management policy of the corporate, approved
by the Board of the Directors, should permit such type of hedging.
f) Where the exact amount of the underlying transaction is not ascertainable, the contract may be
booked on the basis of reasonable estimates. However, there should be periodical review of the
estimates.
g) Foreign currency loans / bonds will be eligible for hedge only after final approval is accorded by the
Reserve Bank, where such approval is necessary or Loan Registration Number is allotted by the
Reserve Bank.
h) Balances in the Exchange Earner’s Foreign Currency (EEFC) accounts sold forward by the account
holders shall remain earmarked for delivery and such contracts shall not be cancelled. They are,
however, eligible for rollover, on maturity.
i) Forward contracts under contracted exposures in respect of all Current Account transactions and
Capital Account transactions with a residual maturity of less than one year to be freely cancelled and
rebooked.
j) In case of forward contracts, involving Rupee as one of the currencies, booked by residents if
cancelled with one AD Category I bank can be rolled over with another AD Category I bank.
k) Residents having overseas direct investments are permitted to hedge exchange rate risk in respect of
the market value of overseas direct investments (in equity and loan) subject to verification of
exposure.
FORWARD CONTRACT - PROBABLE EXPOSURES BASED ON PAST PERFORMANCE
AD Category I banks may allow importers and exporters of goods and services to book forward
contracts to hedge currency risk on the basis of a declaration based on past performance. This will be
subject to the following conditions;
a) The contracts booked during the current financial year and the outstanding contracts at any point of
time should not exceed 100 percent of the eligible limit i.e. the average of the previous three financial
years’ actual export turnover or the previous year’s actual export turnover, whichever is higher for
exports or the average of the previous three financial years’ actual import turnover or the previous
year’s actual import turnover, whichever is higher for imports.
b) Forward contracts booked up to 75 percent of the eligible limit mentioned above may be cancelled
with the exporter/importer bearing/being entitled to the loss or gain as the case may be. Contracts
booked in excess of 75 percent of the eligible limit mentioned above shall be on a deliverable basis

and cannot be cancelled, and in the event of cancellation, the exporter/importer shall bear the loss but
will not be entitled to receive the gain.
c) These limits shall be computed separately for import / export transactions.
d) Higher limits will be permitted on a case-by-case basis on application to the Foreign Exchange
Department, Central Office, Reserve Bank of India. The additional limits, if sanctioned, shall be on a
deliverable basis.
For an exporter customer to be eligible for this facility, the aggregate of overdue bills shall not exceed 10
per cent of the turnover. Aggregate outstanding contracts in excess of 50 per cent of the eligible limit may
be permitted by the AD Category I bank on being satisfied about the genuine requirements of their
customers duly obtaining Customer Declaration as per Annexure VII of MOI duly signed by the CFO and
CS.
FORWARD CONTRACT -SPECIAL DISPENSATION SCHEME
Small and Medium Enterprises (SMEs) – AD Category I banks may allow Small and Medium
Enterprises (SMEs) having direct and / or indirect exposures to foreign exchange risk to book / cancel /
roll over forward contracts without production of underlying documents to manage their exposures
effectively, subject to the following conditions:
a) Such contracts may be allowed to be booked after ensuring that the entity qualifies as SME.
b) Such contracts may be booked through AD Category I banks with whom the SMEs have credit
facilities and the total forward contracts booked should be in alignment with the credit facilities
availed by them for their foreign exchange requirements or their working capital requirements or
capital expenditure.
c) AD Category I bank should carry out due diligence regarding “user appropriateness” and
“suitability” of the forward contracts to the SME customers.
d) The SMEs should furnish a declaration regarding the amounts of forward contracts already booked,
if any, with other AD Category I banks under this facility.
SIMPLIFIED HEDGING FACILITY
Resident and non-resident entities, other than individuals are eligible for this facility. This facility is to
hedge exchange rate risk on transactions, contracted or anticipated, permissible under Foreign Exchange
Management Act (FEMA), 1999. (Rupee denominated bonds issued overseas may be hedged provided it is
permitted under contracted exposure)
Products: Any Over the Counter (OTC) derivative or Exchange Traded Currency Derivative (ETCD)
permitted under FEMA, 1999. Cap on USD 30 million, or its equivalent, on a gross basis.
Resident Individuals: Resident Individuals can book forward contracts to hedge their foreign exchange
exposures arising out of actual or anticipated remittances, both inward and outward, without production
of underlying documents, up to a limit of USD 1,000,000, based on self-declaration and subject to the
following conditions :
a) The contracts booked under this facility would normally be on a deliverable basis. However, in case
of mismatches in cash flows or other exigencies, the contracts booked under this facility may be
allowed to be cancelled and re-booked.
b) The notional value of the outstanding contracts should not exceed USD 1,000,000 at any time.
c) The contracts may be permitted to be booked up to tenors of one year only.
d) Such contracts may be booked through AD-I banks with whom the resident individual has banking
relationship, on the basis of an application-cum-declaration as per format given in Annex XI of
MOI.

FORWARD CONTRACT FACILITIES FOR PERSONS RESIDENT OUTSIDE INDIA:
A person resident outside India may enter into a forward contract with an AD-I bank in India to hedge
exchange rate risk only in respect of capital account transactions, subject to verification of underlying
exposure. Transactions arising out of trade in merchandise goods as well as services with resident are not
permitted to be hedged. However, Non-resident importer and exporter are permitted to hedge the
currency risk arising out of genuine trade transactions involving exports from and imports to India,
invoiced in Indian Rupees, with AD Category I banks in India.
Facilities for Foreign Institutional Investors (FIIs)
Designated branches of AD-I banks maintaining accounts of FIIs may provide forward cover to FIIs to
hedge currency risk on the market value of entire investment in equity and / or debt in India as on a
particular date, subject to the following conditions:
a) The eligibility for cover may be determined on the basis of the declaration of the FII.
b) AD-I banks may undertake periodic reviews, at least at quarterly intervals, on the basis of market
price movements, fresh inflows, amounts repatriated and other relevant parameters to ensure that the
forward cover outstanding is supported by underlying exposures.
c) If a hedge becomes naked in part or in full, for reasons other than sale of securities, the hedge may be
allowed to continue till the original maturity, if so desired.
d) Forward contracts booked by FIIs/QFIs/Other Portfolio Investors, once cancelled, can be rebooked
upto the extent of 10 per cent of the value of the contracts cancelled. The forward contracts
booked, may be rolled over on or before maturity.
e) The cost of hedge should be met out of repatriable funds and / or inward remittance through normal
banking channel.
f) All outward remittances incidental to the hedge are net of applicable taxes.
Facilities for Non-resident Indians (NRIs)
AD-I banks may enter into forward contracts with for Non-resident Indians (NRIs) with rupee as one of
the currencies to hedge exchange rate risk on the market value of investments made under the portfolio
scheme in accordance with provisions of FERA, 1973 or under notifications issued there under or in
accordance with provisions of FEMA, 1999 for the following;
 To hedge exchange rate risk on the amount of dividend due on shares held in Indian companies.
Ø To hedge exchange rate risk on the amount held in FCNR (B) deposits.
Ø To hedge the exchange rate risk on balances held in NRE Term Deposit Account.
In respect of contracts to hedge exchange rate risk on the market value of investments made in India,
contracts once cancelled are not eligible to be rebooked. The contracts may, however, be rolled over. With
regard to balances in FCNR(B) accounts, cross currency (not involving the Rupee) forward contract may
also be booked to convert the balances in one foreign currency to another foreign currency in which
FCNR(B) deposits are permitted to be maintained.
NRIs may access the ETCD market as per the following terms and conditions:
i NRIs shall designate an AD Cat-I bank for the purpose of monitoring and reporting their combined
positions in the OTC and ETCD segments.
ii NRIs may take positions in the currency futures / exchange traded options market to hedge the currency
risk on the market value of their permissible Rupee investments in debt and equity and dividend and
balances held in NRE accounts.
iii The exchange/ clearing corporation will provide details of all transactions of the NRI to the designated
bank.

iv The designated bank will consolidate the positions of the NRI on the exchanges as well as the OTC
derivative contracts booked with them and with other AD banks. The designated bank shall monitor
the aggregate positions and ensure the existence of underlying Rupee currency risk and bring
transgressions, if any, to the notice of RBI / SEBI.
v The onus of ensuring the existence of the underlying exposure shall rest with the NRI concerned.
REPORTS TO RESERVE BANK OF INDIA
AD-I banks have to forward details of exposures in foreign exchange as at the end of every quarter.
This report should be submitted based on bank’s books and not based on corporate returns. AD-I
banks are required to submit a monthly report (as on the last Friday of every month) on the limits
granted and utilized by their constituents under the facility of booking forward contracts on past
performance basis. A monthly statement should be furnished before the 10th of the succeeding month,
in respect of cover taken by FIIs, indicating the name of the FII / fund, the eligible amount of cover,
the actual cover taken.
AD Category - I banks are also required to submit a quarterly report on the forward contracts booked &
cancelled by SMEs and Resident Individuals within the first week of the following month
BOOKING OF FORWARD PURCHASE CONTRACT BASED ON CONTRACTED EXPOSURES-

EXPORTS
An annual certificate certifying that the forward contract transactions are authorized and that the Board
is aware of the same should be obtained along with necessary Board Resolution annually and held on
record. Before booking forward contract branches must ensure that the corporate has submitted such
annual certificate along with necessary board resolution. In case of sole proprietorship or partnership
firms, a letter signed by the proprietor/ partner(s) covering the details of names of the authorised
persons to book/cancel Forward Contracts and the details of limits fixed for each of them should be
obtained annually and held on record.
Customer has to submit an annual certificate, issued by a statutory auditor of the customer confirming that
the contracts outstanding at any point of time during the year with all AD category I banks did not exceed
the value of the underlying exposure. Branches should obtain the same from the customer on yearly basis
and held on record. Such certificate is to be obtained immediately within three months after fiscal year
end. In case of new customers, who are already in business, the same should be obtained before extending
the facility of booking forward contract.
DELIVERY DATE/DELIVERY PERIOD:
Forward Purchase Contracts can be booked either for fixed date of delivery or option period of delivery.
In the case of fixed delivery date forward contract, delivery of foreign exchange is to take place and
accounted for on the fixed date. Where the date of delivery is not fixed, option period of delivery may be
specified at the discretion of the customer subject to the condition that such option period of delivery shall
not exceed one month. Contracts permitting option delivery must state the first and the last dates of
delivery.
If the fixed date of delivery or the last date of delivery option is a known holiday; the delivery is to be
effected on the preceding working day. In case of suddenly declared holidays, the contract shall be
deliverable on the next working day. “Known holiday” is one which is known at least 3 working days before
the date. A holiday that is not a “known holiday” is defined as a suddenly declared holiday.

BOOKING OF FORWARD PURCHASE CONTRACT BASED ON CONTRACTED
EXPOSURES-OTHER THAN EXPORTS
EXPORTS TO ACU COUNTRIES: In the case of exports to ACU Countries, the settlement shall be in
ACU Dollars/ ACU Euro the value of which is the same as US Dollars/EURO. Forward contracts can be
booked for such transactions like exports to any other country and denominated in USD/EURO.
PROJECT EXPORTS OR DEFERRED PAYMENT EXPORTS: Where the transaction is project

exports or deferred payment exports, the exporter has the option to book forward contract either for the
installment due within next six months or the entire (realisable) value on roll over basis. At the beginning
of the next half year the outstanding balance may be rolled over for a further period of six months (by
cancellation and rebooking simultaneously).
FORWARD CONTRACT ON ACCOUNT OF PCFC: Exporters are allowed to book forward

contracts towards their export orders against which they intend to avail PCFC.
FORWARD COVER TO EEFC ACCOUNT HOLDERS: The balances held in EEFC accounts are
allowed to be sold forward by the account holders at their option provided such funds remain earmarked for
delivery. Such contracts should not, be cancelled. They are however, eligible for roll over on maturity.
FORWARD CONTRACT FOR GDR/ADR: Global Depository Receipts (GDRs)/American Depository

Receipts (ADRs) will be eligible for hedge only after the issue price has been finalized.
BOOKING OF FORWARD CONTRACT BASED ON PAST PERFORMANCE
RBI has permitted Authorised Dealers to allow importers and exporters of goods and services to book
Forward Contracts on the basis of a self-declaration of an exposure, based on past performance subject to
following.
Ø Importers/Exporters of goods and services those are in Import/Export business at least for the last
three financial years are only eligible to avail this facility. Further in the case of an exporter client if
the aggregate of overdue bills is in excess of 10 percent of the turnover, they are not eligible to avail
of this facility.
Ø The limit should be got fixed by the branch at the beginning of the financial year. This is subject to
availability of sanctioned limit for booking forward contract as per delegation of powers. In other
words the total outstanding liability of all forward contracts booked for the customer on
production of the documentary evidence or without production of the documentary
evidence
at any point of time should be within the sanctioned forward contract credit limit, for the said
purpose.
 In addition to the customer’s declaration, branches should also arrive at the limits basing on the turnover
passed on by the customer in the previous years, as per the records of the branches.  These limits shall
be computed separately for Import/Export transactions.
 The limit computed for export should not exceed the average of the previous three financial years’
(April to March) actual Export turnover or the previous years’ actual export turnover whichever is
higher.
 Similarly, the limit computed for import should not exceed the average of the previous three financial
years’ (April to March) actual Import turnover or previous years’ actual import turnover whichever is
higher.
 Higher limits will be permitted on a case-by-case basis on application to the Foreign Exchange
Department, Central Office, Reserve Bank of India. The additional limits, if sanctioned, shall be on a
deliverable basis.
 Aggregate outstanding contracts in excess of 50 per cent of the eligible limit may be permitted on being

satisfied about the genuine requirements of the customer, duly obtaining Customer Declaration duly
signed by the CFO and CS.
COLLECTION OF CHARGES:
Following charges are to be collected and credited to branch’s Commission-Forward Contract Account.
(a) For Booking Forward Contract : Rs. 750/- flat per contract
(b) For each request for early delivery, extension, Roll over or cancellation of contract: Rs. 750/- flat per
request plus swap cost and cancellation charges
Exchange Difference, Swap Cost/Gain and Interest on Outlay / Inflow of Funds are to be collected from/
paid to the customer and remitted to or claimed from the Integrated Treasury Wing
INTRODUCTION OF LEGAL ENTITY IDENTIFIER (LEI) FOR OVER THE COUNTER (OTC)
DERIVATIVES MARKET ( Ref: Circular no. FX/41/2017 dated 20.06.2017)
The LEI system for all participants in the Over-the-Counter (OTC) markets for Rupee Interest Rate
derivates, foreign currency derivates and credit derivatives in India, has been implemented. Accordingly,
all current and future participants would be required to obtain the unique LEI code). Entities (i.e.
Corporate Clients) without an LEI code would not be eligible to participate in the OTC derivative
markets. In India, LEI code may be obtained from Legal Entity Identifier India Limited (LEIL)
(https://www.ccilindia-lei.co.in) which has been recognized by the Reserve Bank as issuer of LEI under
the Payment and Settlement Systems Act, 2007 and is accredited by the GLEIF as the Local Operating
Unit (LOU) in India for issuance and management of LEI.
DELIVERY /CANCELLATION / REBOOKING /ROLLOVER/SUBSTITUTION
 Forward Contracts can be booked either for fixed date of delivery or option period of delivery. In the
case of fixed delivery date forward contract, delivery of foreign exchange is to take place and
accounted for on the fixed date. Option period of delivery may be specified at the discretion of the
customer subject to the condition that such option period of delivery shall not exceed one month.
Contracts permitting option delivery must state the first and the last dates of delivery as per FEDAI
Rule 5.2.
EARLY DELIVERY:
Instances may arise where the customers like to put through the transactions under forward contracts, before
the fixed date of delivery or prior to the first date of option period of delivery. Such delivery is known as
Early Delivery under forward contract. Such early delivery shall be put through at the originally contracted
rate of exchange. However, an early delivery may cause the bank to enter into a swap transaction for
adjusting the mis-maturity arising on account of such early delivery, the resultant swap charges may be
either recoverable from or payable to the customer.
LATE DELIVERY:
Ø It is the responsibility of the customer to effect delivery on or before the maturity date of the contract.
The customer may request to allow him to pick up/effect delivery of the expired forward contract for
putting through the relative foreign exchange transactions at the contracted rate after expiry of
forward contracts but before the bank undertakes automatic cancellation, such requests Capital
Account transactions with a residual maturity of less than one year to be freely cancelled and
rebooked.
Ø The facility of rebooking should not be permitted unless the corporate has submitted the exposure
information as prescribed in Annexure X-b of MOI.

Ø All non-INR forward contracts can be rebooked on cancellation.
Ø All hedge transactions undertaken by residents, involving Rupee as one of the currencies, if cancelled
with one AD Category I bank can be rebooked with another AD Category I bank on the maturity date
of the contract, subject to the following conditions: (i) the switch is warranted by competitive rates on
offer, termination of banking relationship with the AD Category I bank with whom the contract was
originally booked; (ii) The cancellation and rebooking are done simultaneously on the maturity date
of the contract; and (iii) The responsibility of ensuring that the original contract has been cancelled
rests with the AD Category I bank who undertakes rebooking of the contract.
FORWARD CONTRACTS IN A THIRD CURRENCY

A customer, having genuine exposure in a foreign currency against Indian Rupees, is permitted to shift his
exposure to another (i.e., a third) foreign currency. Eventually the customer also has the choice to book a
forward contract in the third currency against Rupees.
cannot be acceded to. In such cases, the relative forex transaction should be put through as a fresh
transaction by reporting the same afresh to FD/FEX Cell.
REBOOKING /ROLLOVER/ EXTENSION
Ø Forward contracts under contracted exposures in respect of all Current Account transactions and

EXCHANGE RATE MECHANISM
Foreign Exchange Rates express the value of one currency in terms of another currency. They involve:
Base currency : usually one unit of fixed amount currency
Terms currency : variable amounts of local currency
Example : 1 EURO = USD 1.3612
1 GBP = USD 1.6748
In an exchange rate of USD 1 = INR 58.93 USD is the commodity/base currency as it is this currency which is being priced and rupee is
the terms/variable currency in which the price has been expressed.
The foreign exchange transactions take place at the exchange rate agreed to between the two parties. The transactions where foreign
currencies are purchased by Banks from the customers are called purchase transactions and where the foreign currencies are sold by
Banks to customers are known as Sale transactions.
Method of quoting rates: Whenever a bank quotes a rate of exchange it quotes a two way price i.e. its buying rate and the selling rate
for the currencies involved in the quote.
Example of quoting rates: Whenever a bank quotes a rate of exchange it quotes a two way price i.e. its buying rate and the selling rate
for the currencies involved in the quote.
Example: 1 USD = Rs. 58.93/94
USD is the base currency & Rupee is the variable currency.

The first rate, i.e. 58.93 is the price at which the quoting bank is prepared to buy one Dollar i.e. its
buying (BID) rate.
The second number i.e. 58.94 is the price at which the Quoting bank is prepared to sell one Dollar i.e. selling (OFFER) rate.
The median between the bid and offer is known as middle rate. The difference of 0.01 between the buying and selling rate is the
quoting bank’s spread to cover the cost of brokerage and communication and a profit margin.
The first rate 58.93 is referred as the bid figure and the remaining decimals are known as pips/points.
There are two methods of quoting rates –by keeping the home currency either as the fixed (base) unit or as the variable unit.
Direct quotations (Home currency quotation): In this method the Foreign currency as the fixed (base) unit and Home currency as the
variable unit.
Example : 1 USD – Rs. 58.93/94

I n di r e c t q uo t a t i on ( Fo r e i g n c ur r e nc y q uot a t i o n) : I n t hi s m e t ho d t h e h om e c ur r e nc y i s t he f i xe d/ c on s t a nt
u ni t a nd t he f or e i gn c ur r e n c y i s t h e va r i a bl e c ur r e nc y E xa m pl e : Rs . 1 00 = U SD 1. 69 90 / 6 97 0
Here the cost of a single unit of foreign currency can be obtained only by arithmetical calculation and not straight as in the case of
direct quotation.
= Rs.100 divided by USD1.6990= 1 USD = Rs.58.93
In U.K., Australia,
and New Zealand,
the exchange rates are quoted in the indirect form. The home currency is the base currency and USD is the variable currency. In
India, we were following the indirect quotation system till 01.08.1993. From 02.08.1993, we are following the direct quotation
method. Banks quote rates against one unit of foreign currency except for certain currencies specified by Foreign Exchange

Dealers’ Association India, (FEDAI) for which rates are to be quoted against 100 units of foreign currency.
Example: JAP YEN 100 = Rs.60.77

Merchant Rates: Reserve Bank of India has been entrusted with the responsibility of managing forex reserves and maintaining
the external value of Indian Rupees. Earlier the value of Rupee was linked to a basket of currencies whose value was kept
confidential. After the introduction of Liberalized Exchange Rate Management System (LERMS) from 01/03/1992, the rupee
has been allowed to float freely, with demand and supply for rupee determining its exchange rate. The Reserve Bank of India
fixes its buying and selling rate for US Dollar on a day to day basis based on the market determined exchange rate of rupee.
These transactions are done on spot basis. Reserve Bank of India also has the right to intervene in the market as and when
necessary.
Reserve Bank of India does not deal with the exporters, importers, etc, directly and has authorised certain banks to deal with these
merchants. The banks so permitted are called authorised dealers and they deal with the merchants. The rates quoted by the
authorised dealers to merchants are called Merchant Rates.
The exchange rates for merchant transactions can be broadly classified as follows:
1. TT Buying Rate: Clean Inward remittances for which cover Funds credited to NOSTRO, Export bills on realization, Clean
Instruments payable abroad, De-linked export bills realised subsequently. Cancellation of FDD/FTT, Cancellation of forward
sales contracts on maturity.
2. Bill Buying Rate: Purchase/Discount/Negotiation of Export Bills.
3. TT Selling Rate: Outward Remittances, Remittance towards import bills received directly by the importer, Export bill returned
unpaid, Cancellation of forward purchase contract, De-linking of Export Bills/ Cheques purchased.
4. Bill Selling Rate: Remittance for import bills (Collection/LC)
The Foreign Exchange Dealers’ Association of India (FEDAI) has given detailed guidelines for computing rates for various types of
foreign exchange transactions. The merchant rates are calculated on the basis of on-going market rate which is called the ‘Base Rate’.
Banks should work out and fix the base rate after giving due consideration to market trend, its own existing position, etc, as it may not
be possible to cover the transactions immediately.
The guidelines for computing merchant rates are given below in a nutshell. The base rate should be in line with the ongoing market rate.
The spread between TT Selling and TT Buying rate should not exceed 1%
The exchange margin as directed by Top Management is loaded on the base rates to the merchant transactions.
The merchant rates so calculated are rounded off to the nearest quarter paise and is to be quoted upto four decimal places. Member
Banks are free to load exchange margins in their discretion for the transactions subject to compliance of maximum spreads and other
provisions relating to calculation of exchange rates as approved by their top management.
Cover Rate and Base Rate: The rate at which the Banks can cover the merchant transactions in the inter-bank market without any
profit or loss is called the Cover Rate. To elaborate, the rate at which the bank can buy the dollars to cover import transactions in
USD and the rate at which can sell the Dollars to cover an Export transaction in Dollars is called the Cover rate.
The base rate is arrived from the cover rate after allowing for some cushion for adverse movement of the rates. In practice there are
instances where the cover rate and the base rate are the same.
Normal Transit Period: In case of export bills, the foreign exchange is covered based on the approximate date on which the bill is
expected to be realised and the proceeds credited to Nostro account. The time taken from the date of purchase/negotiation of export bill
till the proceeds are credited to NOSTRO account is called the Normal Transit Period (NTP). Foreign Exchange Dealers’ Association of
India (FEDAI) has prescribed the Normal Transit Period (NTP) common for all countries.
Fixed Due Date Contract: The rates quoted are normally on SPOT basis. (Settlement on the second working day). If the foreign
exchange is to be delivered on a fixed/optional future date, and the exchange rates are quoted/fixed for such future deliveries it is
called “FORWARD CONTRACTS”.

Forward Optional delivery Contract: If the foreign exchange can be delivered within a specified period – between the first and the last
date of the period – it is called an Optional delivery Contract. The option period maybe specified at the discretion of the customer
subject to the condition that such option period of delivery shall not extend beyond one month. For example: 18th Jan to 17th Feb, 31st
Jan to 28th Feb etc. In the case of an option contract between the customer and the banker, the option of exercising the contract lies
with the customer. Therefore, the bank would presume that the customer will exercise the option at the time when the rates are more
favorable to him and the bank would cover accordingly.
Hence, in the case of a sight export bill, the proceeds of the bill may be received any time during the transit period. Where the
currency is at premium in the forward market, the banker would presume that the proceeds would be received immediately and
hence no premium would be passed on to the customer and the bill gets realized earlier, the Dollar has to be disposed off at that point
of time which would be a losing proposition, in a premium market. When currency is in discount in forward market compared to
spot market, the banker would presume that the proceeds of the export bill would be realized at the end of the transit period and
hence the discount for the full transit period would be loaded to the Bill Buying Rate.
Computation of SPOT Exchange Rates:
1. TT Buying rate
Select the base rate (market buying rate)
Deduct the exchange margin say maximum of 0.08 %
Round off the rate as per FEDAI guidelines.
Bill Buying rate

Select the base rate (market buying rate)
Add the forward premium or deduct the forward discount for the Normal Transit Period. Deduct the exchange
margin-Maximum of 0.15%
3. TC Buying Rate: Take one month forward buying rate. Deduct a commission of maximum 1%. Round off to the nearest 5 paise.
4. Currency buying Rate: Deduct 0.50% from TC Buying rate.
5. TT Selling Rate : Deduct 0.15% from base rate Round off to the nearest 5 paise
6. Bill Selling Rate: Deduct 0.20% from TT Selling rate. Round off to the nearest 5 paise.
7. TC Selling Rate: Take TT Selling rate, Add a margin of 0.50%, Round off to the nearest 5 paise. TC Commission of 1.5 %
(Separate)
8. Currency Selling Rate : Add 0.50% to TC Selling Rate.
The rates worked out in the above manner are floor and ceiling rates for buying and selling currency notes and therefore finer rates
should be quoted wherever possible.
Crystallization of Overdue Export Bills and Import Bills: While purchasing the foreign currency amount of export bills, Treasury
will simultaneously enter into a firm sale commitment in the interbank market to deliver the foreign currency amount to coincide with
the probable date of realisation. Whether the proceeds of export bill are realised or not, the bank's said commitment to deliver foreign
currency funds should be met with on the due date without fail. In other words bank will have to enter into a SWAP whenever there is
any delay in realisation of export bills and resultant swap charges are to be absorbed by the bank. In order to limit such swap cost to
minimum extent, FEDAI has devised a system called delinking/crystallization of export bills. The system of delinking works as an
important tool for the branches for exercising proper control over the overdue post-shipment finance. Hence, branches should not
entertain requests for non-delinking/postponement of delinking unless conclusive documentary evidence for realization/payment of
bill is produced to the satisfaction of the branch. Accordingly, where the proceeds of any export bill is not realised within 15 days
from the expiry of Normal Transit Period in case of unpaid demand bills and within 15 days from the expiry of Notional Due Date or
actual due date, as the case may be, in case of unpaid usance bills, the foreign currency element of the transaction is delinked and
customer's liability is crystallized in Indian Rupees.
The delinking is done at

TT Selling Rate of the
foreign currency ruling on the date of delinking. The ostensible date for delinking shall be the 15th day from the expiry of the NTP in case
of unpaid sight bills and the 15th day from the expiry of Notional Due date in case of unpaid usance bills. Where the 15th day falls on a
Saturday or a Sunday or a holiday, the ostensible date for delinking shall be extended to the next following working day. In the case of

usance bills, wherever the actual due date is advised by the foreign correspondent; the ostensible date for delinking shall be revised
accordingly. In other words, branches should delink such usance bills, if remaining unpaid, on the 15th day after the expiry of actual due
date, irrespective of whether such due date falls beyond or within the ostensible date of delinking arrived at by the branch at the time of
purchase/discount/negotiation.The bill may be crystallized before the above said period of 15th day with specific understanding and
written request from the customer. Hence, wherever exporters wish to crystallise the bill before the ostensible date of delinking, the same
may be acceded to after obtaining a request letter on their letter head.
In the case of import bills drawn under letters of credit, the rupee liability will be crystallised on the 10th day from the date of receipt
of documents at the LC opening branch/ FD of the bank in the case of demand bills and on the due date in the case of USD usance
bills. The delinking is made by reporting sale at Bill Selling Rate.
CARD RATES (RATEX):The various exchange rates as at the days opening levels with full margins for different transactions /
notional rates / libor rates etc are advised by TREASURY Mumbai by CANNET TO ALL branches for information and treated as
indicative rates valid for transactions up to USD.10,000/- or its equivalent.
Definition: Swaps, in simple words, are combination of 2 outright deals done simultaneously so as not to affect the position. Hence,
a swap is a combination of a purchase and a simultaneous sale for equal amount but for different value dates or a combination of a
sale and a simultaneous purchase for equal amount but for different value dates.
Features:
The necessary things in currency swaps are:
The purchase and sale or sale and purchase should be simultaneous
Amount of one currency should be the same for both purchase and sale.
Value dates should be different.
Example : Buying and Selling of USD 500,000 against INR value 13/9 against 13/10, or
Buying and Selling of GBP 150,000 against USD value 13/9 against 20/9.
Swap Differences:
While there is no exchange risk involved in swap transactions there is a cost involved which is known as the swap cost. The swap
cost depends on the currency being in premium or discount against the other in the forward market. A currency is said to be in
premium against the other currency if it is costlier in the forward market and is said to be in discount against the other if it is cheaper
in the forward market.
Ex. a.. USD/INR value 13/1 58.93/94
USD/INR value 13/2 59.12/13
USD is in premium against the INR in the forward.
b.. GBP/USD value 13/1 1.6972
GBP/USD value 13/2 1.6772
GBP is in discount against USD in forward.
Interest Rate Differential: Normally, in a free market (as in international market) the interest rate differential of the two currencies
determines the premium or the discount. A low interest bearing currency will be at a premium against the higher interest bearing
currency.
However, in the Indian

market where Exchange
Control Regulations exist and market is restricted, the premium or discount of dollar is determined by demand and supply of forward
dollars for various deliveries.

Swap cost when the currency is in premium: When a currency is in premium against the other, then the currency is costlier in the
forwards.
So when a buying and a selling transaction is undertaken then the swap cost will be in favour (receive the swap cost).
INTER BANK QUOTE IS AS UNDER: USD/INR Value 13/9 at
58.93/94 USD/INR value 13/10 at 59.12/13
(explanation : Buy at 58.93 and sell at 58.94) –Buying the currency at a cheaper price and selling at the costlier price.
Alternatively when selling and buying transactions takes place then the swap cost has to be paid. (Explanation: Sell at 58.93 and Buy
at 58.94)
(Selling the currency at a cheaper price and buying it at a costlier price). Swap Cost when the
currency is in discount.
When a currency is in discount against the other, then the currency is cheaper in the forwards.
So when buying and selling transactions take place, then the swap cost has to be paid –Buying the currency at a costlier price and
selling at a cheaper price.
Thus, the swap cost could be determined by the following:
Types of Transactions If Currency is at
Premium Discount
Buying and Selling Receive (For ) Pay (Against)
Selling and Buying Pay (Against) Receive (For)
Types of Swaps : Swaps can be two types:
Fixed date delivery swap :The value dates for the swaps both purchase and sale have to be fixed at the time of undertaking the swap. In
the international market normally fixed date swaps are undertaken.
Option Delivery Swap: Option delivery swaps are those for which the delivery of the contract can be done over a number of days.
Normally, option period in the Indian market covers a month or part of the month. The right to exercise the option lies with the buyer.
An example of option swap is: Buy Aug delivery USD 1
Mio Sell Sept delivery USD 1 Mio

Need for Swaps:
While any foreign exchange exposure can be covered by undertaking outright deals, there are many circumstances which necessitate
doing swaps.
Funds Management, funding overdrawn account. Liquidating excess balances.

Utilisation of various deposit funds. Forward Contracts: early delivery of contracts cancellation and rebooking of contracts. USES of
SWAPS: Setting right of mismatches due to cover operation Trading interest arbitrage trading in swaps Funds Management: When
the account is overdrawn due to L/C debits, when early payments come for exports.

Basics of Foreign Exchange

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CANARA BANK

APEX CENTRE OF EXCELLENCE

CANARA BANK, APEX CENTRE OF EXCELLENCE- BENGALURU

1 Forex Market &Forex Business Overview 3

Non-Resident Deposit & Other Foreign Currency 7

3 Outward Remittances, KYC/AML Aspects 43

4 Inward Remittances, KYC/AML Aspects 50

EXPORT – FEMA Regulations, Collection, Purchase,

6 Pre Shipment Finance in INR/FC 98

7 Post Shipment Finance in INR/FC 109

8 Import FEMA Guidelines and Trade Control 110

9 Foreign Import Letters of Credit 116

10 Forward Contract 149

11 Exchange Rate Mechanism 157

CANARA BANK, APEX CENTRE OF EXCELLENCE- BENGALURU

What is foreign exchange

i) deposits, credits and balances payable in any foreign currency

Foreign Exchange Markets:

CANARA BANK, APEX CENTRE OF EXCELLENCE- BENGALURU

CANARA BANK, APEX CENTRE OF EXCELLENCE- BENGALURU

Reserve management:- Central bank, is predominantly concerned with investment of foreign

RESERVE BANK OF INDIA, CENTRAL OFFICE, MUMBAI

As 27.4.2018 01.03.2019 27.03.2020

CANARA BANK, APEX CENTRE OF EXCELLENCE- BENGALURU

The following are the major speculators in the forex markets:

Corporations, particularly Multinational Corporations (MNCs) and Transnational Corporations (TNCs),

CANARA BANK, APEX CENTRE OF EXCELLENCE- BENGALURU

CANARA BANK, APEX CENTRE OF EXCELLENCE- BENGALURU

Definition of Residents, Non Residents, NRIs and OCBs :

Persons Resident in India :

Non-resident Indian Nationals:

CANARA BANK, APEX CENTRE OF EXCELLENCE- BENGALURU

Persons of Indian Origin [Foreign Nationals of Indian Origin] :

ii. OCI (Overseas Citizens of India)

Overseas Corporate Bodies [OCBs]:

CANARA BANK, APEX CENTRE OF EXCELLENCE- BENGALURU

( A ) Non-Resident (External) Rupee Account Scheme - NRE Account

ü The following persons are eligible to open account :

a) NRIs and Person of Indian Origin (PIOs)

b) Crew members of Indian nationality or Indian origin employed in foreign airline/shipping

But in the following cases in normal way not eligible are,

Account opening form:

CANARA BANK, APEX CENTRE OF EXCELLENCE- BENGALURU

It is permitted in the following cases:

i) In the names of two or more NRIs and / or PIOs

Foreign-Born Spouse of a Non-Resident Indian :

CANARA BANK, APEX CENTRE OF EXCELLENCE- BENGALURU

b) Personal cheque drawn on his/her account abroad.

e) Transfers from other NRE / FCNR (B) accounts."(1)

f) Interest accruing on the funds held in the account.

j) Interest/Dividend Warrants of investments in shares/debentures on repatriation basis provided

2) Rate of dividend/interest payable, year/period to which it relates, gross dividend/ tax

CANARA BANK, APEX CENTRE OF EXCELLENCE- BENGALURU

k) Refund of share / debenture subscriptions to new issues of Indian companies or portion

CANARA BANK, APEX CENTRE OF EXCELLENCE- BENGALURU

b) Remittances outside India.

d) Investment in shares / securities / commercial paper of an Indian company or for purchase of

We should be very careful while remittances abroad, this is the guidelines:

2. On closure of deposit, original receipt has to be invariably obtained.

Operations in NRE accounts by residents:

VI. Letter of Authority to be kept with respective account opening form.

CANARA BANK, APEX CENTRE OF EXCELLENCE- BENGALURU

a) The non-compliance of the undertaking by the NRI is an FEMA violation.