Wednesday, February 25, 2015

Delay in Utilization of Advance Received for Exports and Foreign Exchange Management Act, 1999 – Import of Goods into India

Delay in Utilization of Advance Received for Exports
1. ADs banks is invited to the sub-regulation (1) of Regulation 16 of the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000, in terms of which an exporter receiving an advance payment for exports (with or without interest) from a buyer outside India shall be under an obligation to ensure that the shipment of goods is made within the stipulated period from the date of receipt of advance payment. 

2. As it has been observed that there is substantial increase in the number and amount of advances received for exports remaining outstanding beyond the stipulated period on account of non-performance of such exports (shipments in case of export of goods), ADs banks are advised to efficiently follow up with the concerned exporters in order to ensure that export performance (shipments in case of export of goods) are completed within the stipulated time period. 

3. It is further reiterated that ADs banks should exercise proper due diligence and ensure compliance with KYC and AML guidelines so that only bonafide export advances flow into India. Doubtful cases as also instances of chronic defaulters may be referred to Directorate of Enforcement (DoE) for further investigation. A quarterly statement indicating details of such cases may be forwarded to the concerned Regional Offices of RBI within 21 days from the end of each quarter.

(RBI/2014-15/461 A. P. (DIR Series) Circular No.74 Dated 9 Feb, 2015)

Foreign Exchange Management Act, 1999 – Import of Goods into India

Authorised Dealer banks is invited to the A.P.(DIR Series) Circular No. 82 dated February 21, 2012 in terms of which applications by persons, firms and companies for making payments, exceeding USD 5,000 or its equivalent towards imports into India must be made in Form A-1. To further liberalise and simplify the procedure, it has been decided to dispense with the requirement of submitting request in Form A-1 to the ADs Banks for making payments towards imports into India. ADs bank may however, need to obtain all the requisite details from the importers and satisfy itself about the bonafides of the transactions before effecting the remittance.

(RBI/2014-15/467 A. P. (DIR Series) Circular No.76 Dated 12 Feb, 2015

Do You Know?

a. An insurance document, such as an insurance policy, an insurance certificate or a declaration under an open cover, must appear to be issued and signed by an insurance company, an underwriter or their agents or their proxies. Any signature by an agent or proxy must indicate whether the agent or proxy has signed for or on behalf of the insurance company or underwriter.

b. When the insurance document indicates that it has been issued in more than one original, all originals must be presented.

c. Cover notes will not be accepted.

d. An insurance policy is acceptable in lieu of an insurance certificate or a declaration under an open cover.

e. The date of the insurance document must be no later than the date of shipment, unless it appears from the insurance document that the cover is effective from a date not later than the date of shipment.

(Source: UCP 600- Article - 26: Insurance Document and Coverage)

Market Wrap Up

  • Indian Rupee depreciated during the week and touched a low of 62.47, in line with most Asian currencies, as they tumbled after the latest US jobs data which helped buoy the greenback. A fall in local stocks that triggered worries about foreign fund outflows also hurt the local currency.
  • Suspected dollar purchases by the nation’s central bank and news of uncertainty surrounding Greece’s debt agreement continues to weigh on the currencies and dampened global risk appetite, which kept Indian Rupee under pressure throughout the week before closing at 62.19.
  • CPI for January, as measured by a new methodology, has inched up to 5.11 percent, compared to 4.28 percent (also on new methodology) in December. IIP for December stood at 1.7 percent compared to 3.9 percent in previous month.
  • India’s trade deficit shrank to $8.32 billion in January, its lowest since February 2014, from $9.43 billion a month earlier.
  • Rupee is expected to trade in the range of 61.80-62.60 next week. USD/INR forward premiums are expected to remain in downward trend with upticks likely to be received.

Movement of major currency pair during the week:

                                     OPEN     HIGH     LOW       CLOSE
USD/INR                      62.0000   62.4700   61.9250   62.1900
EUR/USD                     1.1314     1.1441     1.1269     1.1383
GBP/USD                     1.5244     1.5422     1.5195     1.5397

Monday, February 16, 2015

Highlights of the RBI’s Sixth Bi-monthly Monetary Policy Statement for 2014-15 – February 2015

1) Enhanced Limits under Liberalised Remittance Scheme (LRS) – Owing to the relative stability in the foreign exchange market, the RBI has doubled the upper limit on remittances under LRS to USD 0.25 million per person per year. It’s believed that this step is indicative of the RBI’s confidence in the stability of the rupee against most advanced economy (AE) currencies and in the ability of the government to maintain a healthy Balance of Payments (BOP).

2) Coupon Reinvestment for Foreign Portfolio Investors (FPIs) – Higher interest differential as compared to most advanced economies has contributed to G-Sec being a favoured asset class for FPIs over the last few quarters. However, with sustained investor interest, the limits in this segment for FPIs have nearly been exhausted. The RBI has now allowed FPIs to reinvest their G-Sec coupon payouts back into the G-Sec markets (over and above the permissible limit), thereby increasing the G-Sec limits for FPIs by around USD 2- 2.5 billion.

3) Position Limits in Exchange Traded Currency Derivatives (ETCDs) – The RBI eased restrictions on positions in ETCDs without having to establish the presence of an underlying exposure to USD 15 million per exchange in the USD-INR market and to USD 5 million equivalent per exchange cumulatively for EUR-INR, GBP-INR, JPY-INR currency pairs.

4) Non Callable Deposits – The RBI announced that it would soon bring out the final  guidelines for Banks to accept non-callable deposits (Deposit is not payable before maturity). Though the intention is to help Banks smooth out ALM mismatches and to meet LCR (Liquid coverage ratio) norms under Basel III, it’s believed this move is likely to increase Banks’ focus on increasing investor education towards these products while also providing higher returns.

Do You Know?

a) A transport document must not indicate that the goods are or will be loaded on deck. A clause on a transport document stating that the goods may be loaded on deck is acceptable. 

b) A transport document bearing a clause such as "shipper's load and count" and "said by shipper to contain" is acceptable.

c) A transport document may bear a reference, by stamp or otherwise, to charges additional to the freight.

(Source: UCP 600- Article - 26: On Deck", "Shipper's Load and Count", "Said by Shipper to Contain" and Charges Additional to Freight)


Q.1. Can a resident individual make a rupee gift to a NRI/PIO who is a close relative of resident individual by of crossed cheque/ electronic transfer?
Ans. A resident individual is permitted to make a rupee gift to a NRI/PIO who is a close relative of the resident individual {close relative as defined in Section 6 of the Companies Act, 1956} by way of crossed cheque/ electronic transfer. The amount should be credited to the Non-Resident (Ordinary) Rupee Account (NRO) Account of the NRI/ PIO and credit of such gift amount may be treated as an eligible credit to NRO account. The gift amount would be within the overall limit of USD 250,000 per financial year as permitted under the Liberalised Remittance Scheme (LRS) for a resident individual. It would be the responsibility of the resident donor to ensure that the gift amount being remitted is under the LRS and all the remittances under the LRS during the financial year including the gift amount have not exceeded the limit prescribed under the LRS.

Q2. Can the loans of Non-resident be repaid by resident close relatives? Can the loans of Non-Resident be repaid by close relatives who are resident in India?
Ans. Where an authorised dealer in India has granted loan to a non-resident Indian in accordance with Regulation 7 of the Notification No. FEMA 4/2000-RB dated May 3, 2000 such loans may also be repaid by resident close relative (relative as defined in Section 6 of the Companies Act, 1956) of the Non-Resident Indian by crediting the borrower’s loan account through the bank account of such relative.
(RBI FAQ on Forex Facilities for Residents (Individuals) Dated 17th July 2014)

Market Wrap Up

  • Indian Rupee opened lower at 62.00 on Monday against dollar, in comparison to its previous close of 61.87 last week, tracking its Asian peers, as disappointing factory activity data from China fuelled  concerns of global economic slowdown and weighed on risk appetite.
  • Indian Rupee traded in a narrow range for the week with strengthening bias. However, appreciation in the Rupee due to a jump in crude oil prices and expectations of a Greek debt agreement was off-set by the demand of the greenback, as a slump in local shares sparked fears of foreign fund outflows. Likely greenback purchases by the central bank also weighed on the currency.
  • RBI in its 6th bi-monthly policy kept the CRR and LAF unchanged but reduced the statutory liquidity ratio (SLR) of scheduled commercial banks by 50 basis points from 22.0 percent to 21.5 per cent of their NDTL.
  • India’s foreign exchange reserve hit a new high of $327.88 billion in the week ended January 30.
  • Rupee is expected to trade in the range of 61.40-62.25 next week. USD/INR forward premiums are expected to remain in downward trend with upticks likely to be receive.

Movement of major currency pair during the week:

                                     OPEN     HIGH       LOW       CLOSE
USD/INR                      62.0000   62.0100    61.5550    61.7000
EUR/USD                      1.1282     1.1532     1.1278      1.1313
GBP/USD                     1.5084     1.5352     1.4986      1.5243