Unit – 7 : Role of Exim Bank, Reserve Bank of India, Exchange Control in India – FEMA and FEDAI and Others

Exim Bank – its functions

Exim Bank (Export/Import Bank) was established in 1981 with the objective of financing Import Export Trade specially on Long term basis. The functions of Exim bank are as under:

• Offering Finance for Exports at competitive rates.
• Developing alternate financial solution
• Data and Information about new export opportunities.
• Respond to export problems and pursue Policy solutions.

The finance activities of Exim bank consist of :

• Arranging Suppliers’ credit and Buyers’ credit
• Consultancy and Technical services for exporters
• Pre-shipment credit – over 6 months
• Setting up of EOU in EPZ (Export Processing Zones)
• Finance for DTA (Domestic Tariff Area) units exporting minimum 25% of annual sales.
• Finance for Import of Computer System and Development of Software. Plant and Machinery and Technical up-gradations etc.
• Services for Overseas Investments.
• Line of Credit to exporters on the basis of which they receive export orders.

EXIM Bank performs following functions for Commercial Banks:

• Export Bills Rediscounting – Usance period should not exceed 180 days.
• SSI Export Bills Rediscounting.
• Refinance of Export credit
• Refinance of TL to EOU, Software Capital goods up to 100%
• Participates with banks in Issuance of Guarantees.
• Besides above, the EXIM bank arranges Relending facilities for Overseas Banks, sanctions direct credit to foreign importers and arranges line of credit for foreign importers.

DPG (Deferred Payment Guarantees)

• It is normally beyond 6M and meant for SHE (Status Holder Exporters) only.
• Banks can approve proposals up to 25 crore.
• Above 25 crore up to 100 crore are referred to EXIM bank.
• Above 100 crore proposals will be considered by Inter institutional Working Group consisting of members from RBI, FEDAI, ECGC and EXIM.

Other services of EXIM bank

Besides above, the EXIM bank provides assistance for :

• Project Exports – export of Engineering goods on Deferred Payment terms
• Turnkey Projects- supply of equipment along with related services like design, detailed engineering etc.
• Construction Projects
• Funded facilities.
• EXIM Bank is nodal agency designated by GOI to manage Export Marketing Fund (EMF) which consists of loan made available to India by World bank to promote International Trade.

Reserve Bank of India

RBI controls Foreign Exchange

RBI is empowered to

• Control and regulate Foreign Exchange Reserves
• Supervise Foreign Exchange dealings
• Maintain external value of Rupee

FERA was replaced by FEMA in the year 1999.

FEMA provisions The important FEMA guidelines with regard to Foreign exchange are as under:

No drawl of exchange for Nepal and Bhutan

If Rupee equivalent exceeds Rs. 50000/-, payment by way of crossed cheque.

During visit abroad, one can carry Foreign currency notes up to USD 3000 or equivalent. For Libya and Iraq, the limit is USD5000 and the entire amount for Iran and Russian states.

Indian citizens can retain and possess Foreign currency up to USD 2000 or its equivalent.

Unspent currency must be surrendered within a period of 180 days after arrival in India.

AD can release Foreign Exchange 60 days ahead of journey

What are the purposes under FEM (CAT) Amendment Rules, 2015, under which a resident individual can avail of foreign exchange facility?

Individuals can avail of foreign exchange facility for the following purposes within the limit of USD 2,50,000 only on financial year basis.

1. Private visits to any country (except Nepal and Bhutan)

2. Gift or donation.

3. Going abroad for employment

4. Emigration

5. Maintenance of close relatives abroad

6. 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.

7. Expenses in connection with medical treatment abroad

8. Studies abroad

9. Any other current account transaction

Any additional remittance in excess of the said limit for the above mentioned purposes shall require prior approval of the Reserve Bank of India

@@ For revised details/Limits of LRS for different needs refer to the Link: FAQ's on Liberised Remittance Scheme and Table below and also the link under LRS for updated details,

FEX Remittance Limit

Purpose	Limit	Documentation
Basic Travel Quota (BTQ) - For Holidays, Personal visits etc	USD $250,000.00 per financial year	Application Form, Form A2 and Self Declaration
Business Travel	USD $250,000.00 per Year	Application Form with authorization from the Company, Form A2, Letter from the Company stating that the employee is going abroad on business with details of places of stay
Immigration - For people who settle abroad in countries like Canada, New Zealand etc.	USD $250,000.00 per year	Application Form, Form A2 and Self Declaration
Employment Abroad - For a person who is going to work abroad	USD $250,000.00 per year	Application Form, Form A2 and Self Declaration
Medical Treatment - For people who are travelling abroad for treatment	USD $250,000.00 per year	Application Form, Form A2 and Self Declaration
Studies Abroad - For students pursuing studies abroad	USD $250,000.00 per academic year	Application Form, Form A2 and Self Declaration
Maintenance of close relatives abroad	USD $250,000.00 per year	Application Form, Form A2 and Self Declaration
Investments overseas in shares(listed companies), Gifts & Donations etc (under liberalised remittance scheme only)	USD $2,50,000.00 per year	Application form, Declaration for purchase of foreign exchange under the liberalized remittance scheme of USD 250000 and Form A2 (Only for Individual residents a/c holders)

This Table contains the FEMA permissible limits wef 26.05.2015. BTQ is a part of the LRS limit, the new LRS forms apply when you draw foreign exchange for the purposes of your foreign travel.

What is the limit for Online Outward Remittances?

Limit for Online Outward remittance is upto USD 25,000 per month per transaction; subject to purpose specific limit specified by Reserve Bank of India.

LRS (Liberalized Remittance Scheme)

What is the Liberalised Remittance Scheme (LRS) of USD 2,50,000 ?

Under the Liberalised Remittance Scheme, all resident individuals, including minors, are allowed to freely remit up to USD 2,50,000 per financial year (April – March) for any permissible current or capital account transaction or a combination of both. Further, resident individuals can avail of foreign exchange facility for the purposes mentioned in Para 1 of Schedule III of FEM (CAT) Amendment Rules 2015, within the limit of USD 2,50,000 only. If an individual remits any amount under LRS in a financial year, then the applicable limit for such individual would be reduced from USD 250,000 by the amount so remitted.

In case of remitter being a minor, the LRS declaration form must be countersigned by the minor’s natural guardian.

The scheme is meant for Resident Indians individuals. They can freely remit up to USD 250000 per financial year in respect of any current or capital account transaction (e.g. to acquire property outside India) without prior approval of RBI. The precondition is that the remitter should have been a customer of the bank for the last 1 year. PAN is mandatory.
The limits under Liberalized Remittance Scheme has since been reviewed by RBI vide RBI Master Direction vide:                            "RBI/FED/2015-16/3 -FED Master Direction No. 7/2015-16 dated January 1, 2016(Updated as on February 11, 2016*)" as under:

A. Liberalised Remittance Scheme (LRS) of USD 2,50,000 for resident individuals

1. Under the Liberalised Remittance Scheme, Authorised Dealers may freely allow remittances by resident individuals up to USD 2,50,000 per Financial Year (April-March) for any permitted current or capital account transaction or a combination of both. The Scheme is not available to corporates, partnership firms, HUF, Trusts, etc.

2. The LRS limit has been revised in stages consistent with prevailing macro and micro economic conditions. During the period from February 4, 2004 till date, the LRS limit has been revised as under:

(Amount in USD3)
Date	Feb 4, 2004	Dec 20, 2006	May 8, 2007	Sep 26, 2007	Aug 14, 2013	Jun 3, 2014	May 26, 2015
LRS limit (USD)	25,000	50,000	1,00,000	2,00,000	75,000	1,25,000	2,50,000

For full details on the changes please click on the following Link: Master Direction - Liberalized Scheme - Revised Guidelines
and Forex Facilities including the Liberalised Remittance Scheme (LRS) for Residents 

Not Applicable

The scheme is not applicable for remittance to Nepal, Bhutan, Pak, Mauritius or other counties identified by FATF.

The scheme is not meant for remittance by Corporate.

Import and Export of Indian Rupees Limit is Rs. 7500/- while leaving India and while coming to India.

RETURNS TO BE SUBMITTED TO RBI

Following important returns are submitted to RBI

• R- Returns - Forex Operations (Fortnightly)
• BAL statement - Balance in Nostro/Vostro account
• STAT 5 - Transactions in FCNR B accounts
• STAT 8 - Transactions in NRE/NRO accounts
• LRS Statement - UP to USD 200000 (monthly)
• Trade Credit Statement - Buyers’ and Suppliers’ Credit
• XOS O/S - Overdue Export bills
• BEF - Import Remittance effected but Bill of Entry not submitted for >3M.
• ETX Form - Seeking relaxation from RBI after expiry of 12M when export proceeds are not received.

RFC accounts

Resident Foreign Currency account is opened by Indian residents who were earlier NRIs and forex is received by them from their overseas dues:

• The accounts can be opened as SB/CA/FD type.
• Proceeds are received from overseas.
• Out of Monetary benefits accruing abroad
• The funds are freely repatriable.
• Minimum amount is USD 5000.

RFC- D accounts Resident Foreign Currency (Domestic) accounts are opened:

• By Indian residents who visit abroad: and
• Bring with them Foreign Exchange;
• As honorarium, gift etc.
• Unspent money can also be deposited.
• These are CA nature accounts and no interest is paid.

FEDAI Foreign Exchange association of India is a non-profit body established in 1958 by RBI. All public sector banks, Private Banks, Foreign Banks and Cooperative banks are its members. The functions of FEDAI are:

• Forming uniform rules
• Providing training to bankers; and
• Providing guidance and information from time to time.

The important rules are:

Export Transactions :

• Forex liability must be crystallized into Indian rupees on 30th day after expiry of NTP (Notional Transit Period) in case of Sight bills and on 30th day after notional due date in case of Usance bills. The rule has since been relaxed and bank can frame its own rule for nos. of days for crystallization.
• Concessional rate of interest is applied up to Notional due date or up to value date of realization of export dues (whichever is earlier)

Import Transactions:

• For retirement of Import bills whether under LC or otherwise, banks Bill selling rate on date of retirement or the Forward rate will be applied.
• DP Bills (sight) are retired after crystallization on 10th day after receipt.
• DA Bills are retired (crystallized) on Due Date.
• All Foreign Currency bills under LC, if not retired on receipt, shall be crystallized into Rupee liability on 10th day after date of receipt of documents at TT Selling Rate.

Normal Transit Period is:

- 25 days for export bills,

- 3 days for Rupee bills drawn under LC and payable locally

- 7 days for rupee bills drawn under LC and payable at other centers

- 20 days for Rupee bills not drawn under LC.

- For exports to Iraq, normal transit period is 60 days.

Compensation on Delayed payment:

All Foreign Inward remittances up to Rs.1.00 lac should be converted into Indian Rupees immediately.

The proceeds of any Inward remittance should be credited to the account within 10 days and advice of receipt is to be sent within 3 days, failing which, compensation @2% above SB rate will be paid to the beneficiary.

Forward Contracts

• Exchange contracts will be for definite amount and period.
• Contracts must state first and last date of contracts e.g. from 1-31 Jan or from 17th Jan to 16th Feb.
• For contracts up to 1 month, option period for delivery may be specified.
• In case of extension of contract, previous contract will be cancelled at TT Buying rate or TT selling rate as the case may be. 

Overdue contracts are liable to be cancelled on 7th working day after maturity date if no instructions are received. The contracts must state first and last date of the contract.

Banks are now free to fix their own rates of commission and margin etc.

ECBs External Commercial Borrowings are medium and long term loans as permitted by RBI for the purpose of :

• Fresh investments
• Expansion of existing facilities
• Trade Credit (Buyers’ Credit and Sellers’ Credit) for 3 years ar more.
• Automatic Rout
• ECB for investment in Real Estate sector , Industrial sector and Infrastructure do not require RBI approval
• It can be availed by Companies registered under Indian Company Act.
• Funds to be raised from Internationally recognized sources such as banks, Capital markets etc.
• Maximum amount is USD 20 million with minimum average maturity of 3 years and USD 50 million with average maturity of 5 years.
• All in cost ceiling is LIBOR+350 bps for ECB up to 5 years and LIBOR+500 bps for ECBs above 5 years.

Approval Route

Under this route, funds are borrowed after seeking approval from RBI.

The ECBs not falling under Automatic route are covered under Approval Route.

Under this route, Issuance of guarantees and Standby LC are not allowed.

Funds are to be raised from recognized lenders with similar caps of all-in-cost ceiling.

ADRs
American Depository Receipts are Receipts or Certificates issued by US Bank representing specified number of shares of non-US Companies. defined as under:

• These are issued in capital market of USA alone.
• These represent securities of companies of other countries.
• These securities are traded in US market.
• The US Bank is depository in this case.
• ADR is the evidence of ownership of the underlying shares.

Unsponsored ADRs

It is the arrangement initiated by US brokers. US Depository banks create such ADRs. The depository has to Register ADRs with SEC (Security Exchange Commission).

Sponsored ADRs

• Issuing Company initiates the process. It promotes the company’s ADRs in the USA. It chooses single Depository bank. Registration with SEC is not compulsory. However, unregistered ADRs are not listed in US exchanges. 38

GDRs Global Depository Receipt is a Dollar dominated instrument with following features:

• Traded in Stock exchanges of Europe.
• Represents shares of other countries.
• Depository bank in Europe acquires these shares and issues “Receipts” to investors.
• GDRs do-not carry voting rights.
• Dividend is paid in local currency and there is no exchange risk for the issuing company.
• Issuing Co. collects proceeds in foreign currency which can be used locally for meeting Foreign exchange requirements of Import.
• GDRS are normally listed on “Luxembourg Exchange “ and traded in OTC market London and private placement in USA.
• It can be converted in underlying shares.

IDRs Indian Depository Receipts are traded in local exchanges and represent security of Overseas Companies.

CDF (Currency Declaration Form)

CDF is required to be submitted by the person on his arrival to India at the Airport to the custom Authorities in the following cases:

• If aggregate of Foreign Exchange including Foreign currency/TCs exceeds USD 10000 or its equivalent.
• If aggregate value of currency notes (cash portion) exceeds USD 5000 or its equivalent.

The government had announced such interest subvention scheme of three per cent in 2008-09. It expired on March 31, 2014. There was no subvention in 2014-15. Govt. is planning for Export Interest Subvention Scheme.

(Earlier Interest Subvention on Export Credit @2%)
Reserve Bank of India has now decided to extend the interest subvention of 2% on rupee export credit for the period 1.4.2012 to 31.3.2013 on the same terms and conditions to the following sectors:

1. Handicrafts
2. Carpet

iii. Handlooms

1. Small and Medium Enterprises (SMEs) (as defined in Annexure-I)
2. Readymade Garments
3. Processed Agriculture Products

vii. Sport Goods

viii. Toys

Interest subvention of up to 2% may be allowed on pre-shipment credit up to 270 days and post shipment credit up to 180 days on the outstanding amount for the period 1.4.2012 to 31.3.2013 to the above mentioned sectors subject to the condition that the rate of interest shall not fall below 7% after allowing the aforesaid subvention. Further, it should be ensured that the benefit of interest subvention is passed on completely to the eligible exporters. )