Unit - 7: Role of Exim Bank, RBI, Exchange Control of India - FEMA , FEDAI and Others
CAIIB-BFM-MODULE-A-Role of Exim Bank, Reserve Bank of India, Exchange Control in India - FEMA and FEDAI and Others-Cont'd
Role of Exim Bank, Reserve Bank of India, Exchange Control in India - FEMA and FEDAI and Others 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 or more. Automatic Route 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.