RBI Bulletin

Foreign Exchange Developments

1. Exim Bank’s Line of Credit of USD 80 million to the Government of the Republic of Burundi

Export-Import Bank of India (Exim Bank) has concluded an Agreement dated May 24, 2011 with the Government of the Republic of Burundi, making available to the latter, a Line of Credit (LOC) of USD 80 million (USD Eighty million) for financing eligible goods, machinery, equipment and services including consultancy services from India for the purpose of installation of the Kabu Hydro Electric Project in Burundi. The goods, machinery, equipment and services including consultancy services from India for exports under this Agreement are those which are eligible for export under the Foreign Trade Policy of the Government of India and whose purchase may be agreed to be financed by the Exim Bank under this Agreement. Out of the total credit by Exim Bank under this Agreement, the goods and services including consultancy services of the value of at least 75 per cent of the contract price shall be supplied by the sellers from India and the remaining 25 per cent goods and services (other than consultancy services) may be procured by the sellers for the purpose of Eligible Contract from outside India.

The Credit Agreement under the LOC is effective from April 19, 2012 and the date of execution of Agreement is May 24, 2011. Under the LOC, the last date for opening of Letters of Credit and Disbursement will be 48 months from the scheduled completion date(s) of contract(s) in the case of project exports and 72 months (May 23, 2017) from the execution date of the Credit Agreement in the case of supply contracts.

[A.P. (DIR Series) Circular No. 114 dated May 2, 2012]

2. Exim Bank’s Line of Credit of USD 70 million to the Government of the Republic of Congo

Export-Import Bank of India (Exim Bank) has concluded an Agreement dated December 14, 2011 with the Government of the Republic of Congo, making available to the latter, a Line of Credit (LOC) of USD 70 million (USD seventy million) for financing eligible goods, services, machinery and equipments including consultancy services for the purpose of the Rural Electrification Project in the Republic of Congo. The machinery, equipment, goods and services including consultancy services from India for exports under this Agreement are those which are eligible for export under the Foreign Trade Policy of the Government of India and whose purchase may be agreed to be financed by the Exim Bank under this Agreement. Out of the total credit by Exim Bank under this Agreement, the goods and services including consultancy services of the value of at least 75 per cent of the contract price shall be supplied by the seller from India and the remaining 25 per cent goods and services (other than consultancy services) may be procured by the seller for the purpose of Eligible Contract from outside India.

The Credit Agreement under the LOC is effective from March 28, 2012 and the date of execution of Agreement is December 14, 2011. Under the LOC, the last date for opening of Letters of Credit and Disbursement will be 48 months from the scheduled completion date(s) of contract(s) in the case of project exports and 72 months (December 13, 2017) from the execution date of the Credit Agreement in the case of supply contracts.

[A.P. (DIR Series) Circular No. 115 dated May 4, 2012]

3. Exim Bank’s Line of Credit of USD 382.37 million to the Government of the Democratic Socialist Republic of Sri Lanka

Export-Import Bank of India (Exim Bank) has concluded an Agreement dated January 17, 2012 with the Government of the Democratic Socialist Republic of Sri Lanka, making available to the latter, a Line of Credit (LOC) of USD 382.37 million (USD three hundred eighty two million three hundred seventy thousand) for financing export of eligible goods and services including consultancy services for the purpose of (i) Track-laying on the Pallai-Kankesanthurai Railway Line (USD 149.34 million), (ii) Setting up of signaling and telecommunications system for the Northern Railway Line (USD 86.52 million) and (iii) any other contracts that may be mutually approved by the Government of the Democratic Socialist Republic of Sri Lanka and the Government of India in Sri Lanka (USD 146.51 million). The goods and services including consultancy services from India for exports under this Agreement are those which are eligible for export under the Foreign Trade Policy of the Government of India and whose purchase may be agreed to be financed by the Exim Bank under this Agreement. Out of the total credit by Exim Bank under this Agreement, the goods and services including consultancy services of the value of at least 75 per cent of the contract price shall be supplied by the seller from India and the remaining 25 per cent goods and services (other than consultancy services) may be procured by the seller for the purpose of Eligible Contract from outside India.

The Credit Agreement under the LOC is effective from April 11, 2012 and the date of execution of Agreement is January 17, 2012. Under the LOC, the last date for opening of Letters of Credit and Disbursement will be 48 months from the scheduled completion date(s) of contract(s) in the case of project exports and 72 months (January 16, 2018) from the execution date of the Credit Agreement in the case of supply contracts.

[A.P. (DIR Series) Circular No. 116 dated May 4, 2012]

4. Transfer of Funds from Non-Resident Ordinary (NRO) account to Non- Resident External (NRE) Account

As per recommendations of the Committee to Review the Facilities for Individuals Under FEMA, 1999 (Chairperson: Smt. K.J. Udeshi) it has been decided that henceforth NRI as defined in Foreign Exchange Management (Deposit) Regulations, 2000 contained in Notification No. FEMA.5/2000-RB dated 3rd May 2000, as amended from time to time, shall be eligible to transfer funds from NRO account to NRE account within the overall ceiling of USD one million per financial year subject to payment of tax, as applicable (i.e., as applicable if funds were remitted abroad). Such credit of funds to NRE account shall be treated as eligible credit in terms of paragraph 3(j) of Schedule-1 of Notification No. FEMA.5/2000-RB dated 3rd May 2000.

[A.P. (DIR Series) Circular No. 117 dated May 7, 2012]

5. Release of Foreign Exchange for Miscellaneous Remittances

With a view to further liberalising the documentation requirements, the limit for foreign exchange remittance for miscellaneous purposes without documentation formalities, has been raised from USD 50,00 to USD 25,000 with immediate effect.

It is clarified that Authorised Dealers need not obtain any document, including Form A-2, except a simple letter as stated above as long as the foreign exchange is being purchased for a current account transaction (not included in the Schedules I and II of Government Notification on Current Account Transactions), and the amount does not exceed USD 25000 or its equivalent and the payment is made by a cheque drawn on the applicant’s bank account or by a Demand Draft. AD banks shall prepare dummy A-2 so as to enable them to provide purpose of remittance for statistical inputs for Balance of Payment.

[A.P. (DIR Series) Circular No. 118 dated May 7, 2012]

6. External Commercial Borrowings (ECB) Policy – Utilisation of ECB proceeds for Rupee expenditure

It has been decided that at the time of availing Loan Registration Number (LRN) from the Reserve Bank, borrowers should provide bifurcation of the utilisation of the ECB proceeds towards foreign currency and Rupee expenditure in Form-83.

The primary responsibility to ensure that the ECB proceeds meant for Rupee expenditure in India are repatriated to India for credit to their Rupee accounts with AD Category-I banks in India as per A.P. (DIR Series) Circular No. 52 dated November 23, 2011 is that of the borrower concerned and any contravention of the ECB guidelines will be viewed seriously and will invite penal action under the Foreign Exchange Management Act (FEMA), 1999. The designated AD bank is also required to ensure that the ECB proceeds meant for Rupee expenditure are repatriated to India immediately after drawdown.

[A.P. (DIR Series) Circular No. 119 dated May 7, 2012]

7. Foreign Direct Investment (FDI) in India – Issue of equity shares under the FDI scheme allowed under the Government route

With a view to incentivising use of machinery embodying the latest state-of-the-art technology, compliant with international standards, in terms of being green, clean and energy efficient, it has now been decided to exclude conversion of imported second-hand machinery from the purview of this provision.

[A.P. (DIR Series) Circular No. 120 dated May 8, 2012]

8. Foreign investment in Commodity Exchanges and NBFC Sector – Amendment to the Foreign Direct Investment (FDI) Scheme

The extant policy for foreign investment in commodity exchanges, has since been reviewed and it has been decided that prior approval of the Government (FIPB) would be required only for FDI component and Government approval would not be required for investment by registered FIIs in commodity exchanges.

Further, under the extant FDI policy, ‘leasing and finance’ is one of the 18 NBFC activities wherein FDI up to 100 per cent is permitted under automatic route, subject to minimum capitalisation norms. It is hereby clarified that FDI is permitted only in ‘financial leases’ (financial leasing activity) and not in ’operating leases’ (operating leasing activity).

[A.P. (DIR Series) Circular No. 121 dated May 8, 2012]

9. Risk Management and Inter Bank Dealings

The Reserve Bank of India has reviewed the interest rate and the end use of the FCNR (B) deposits vide its circular DBOD.Dir.BC.102/13.03.00/2011-12 dated May 4, 2012. Accordingly, it has been decided that FCNR (B) funds representing deposit liabilities may be utilised for making loans to resident constituents for meeting -

i. their foreign exchange requirements or

ii. for the rupee working capital/capital expenditure needs of exporters/corporates who have a natural hedge or a risk management policy for managing the exchange risk subject to the prudential/interest-rate norms, credit discipline and credit monitoring guidelines in force.

[A.P. (DIR Series) Circular No. 122 dated May 9, 2012]

10. Risk Management and Inter-Bank Dealings

On a review it has been decided to fix the intra-day open position/daylight limit of the Authorised Dealers at five times the Net Overnight Open Position Limit available to them or the existing Intra-day open position limit as approved by the Reserve Bank, whichever is higher, for positions involving Rupee as one of the currencies.

[A.P. (DIR Series) Circular No. 123 dated May 10, 2012]

11. Exchange Earner’s Foreign Currency (EEFC) Account

On a review of the Scheme, it has been decided as under:-

a) 50 per cent of the balances in the EEFC accounts should be converted forthwith into rupee balances and credited to the rupee accounts as per the directions of the account holder. This process may be completed within a fortnight from the date of the circular and compliance reported to the Chief General Manager, Foreign Exchange Department, Central Office, Trade Division, Amar Building, Sir P.M. Road, Fort, Mumbai 400 001.

b) In respect of all future forex earnings, an exchange earner is eligible to retain 50 per cent (as against the previous limit of 100 per cent) in non-interest bearing EEFC accounts. The balance 50 per cent shall be surrendered for conversion to rupee balances.

c) The facility of EEFC scheme is intended to enable exchange earners to save on conversion/ transaction costs while undertaking forex transactions in future. This facility is not intended to enable exchange earners to maintain assets in foreign currency, as India is still not fully convertible on Capital Account. Accordingly, EEFC account holders henceforth will be permitted to access the forex market for purchasing foreign exchange only after utilising fully the available balances in the EEFC accounts. ADs may, accordingly, obtain a declaration while selling foreign exchange to their constituents.

It may be noted that the provisions at paragraph 2(b) and 2(c) above will apply, mutatis mutandis, also to holder of either a Resident Foreign Currency Account (RFC) or a Diamond Dollar Account (DDA).

[A.P. (DIR Series) Circular No. 124 dated May 10, 2012]

12. Exim Bank’s Line of Credit of USD 13 million to the Government of the Republic of Mozambique

Export-Import Bank of India (Exim Bank) has concluded an Agreement dated September 1, 2011 with the Government of the Republic of Mozambique, making available to the latter, a Line of Credit (LOC) of USD 13 million (USD thirteen million) for the purpose of financing of Solar Photo Voltaic Module Manufacturing plant in Mozambique. The goods, machinery, equipment and services including consultancy services from India for exports under this Agreement are those which are eligible for export under the Foreign Trade Policy of the Government of India and whose purchase may be agreed to be financed by the Exim Bank under this Agreement. Out of the total credit by Exim Bank under this Agreement, the goods and services including consultancy services of the value of at least 75 per cent of the contract price shall be supplied by the seller from India and the remaining 25 per cent goods and services (other than consultancy services) may be procured by the seller for the purpose of Eligible Contract from outside India.

The Credit Agreement under the LOC is effective from April 23, 2012 and the date of execution of Agreement is September 1, 2011. Under the LOC, the last date for opening of Letters of Credit and Disbursement will be 48 months from the scheduled completion date(s) of contract(s) in the case of project exports and 72 months (August 31, 2017) from the execution date of the Credit Agreement in the case of supply contracts.

[A.P. (DIR Series) Circular No. 125 dated May 10, 2012]

13. Deferred Payment Protocols dated April 30, 1981 and December 23, 1985 between Government of India and erstwhile USSR

AD Category-I banks are advised that a further revision has taken place on April 23, 2012 and accordingly, the Rupee value of the Special Currency Basket has been fixed at `73.305676 with effect from April 26, 2012.

[A.P. (DIR Series) Circular No. 126 dated May 14, 2012]

14. Foreign investment in NBFC Sector under the Foreign Direct Investment (FDI) Scheme – Clarification

It is clarified that the activity ‘leasing and finance’, which is one among the eighteen NBFC activities wherein FDI up to 100 per cent is permitted under the automatic route, subject to minimum capitalisation norms, covers only ‘financial leases’ and not ‘operating leases’, in so far as the NBFC sector is concerned.

[A.P. (DIR Series) Circular No. 127 dated May 15, 2012]

15. Exchange Earner’s Foreign Currency (EEFC) Account

It is clarified that the conversion of the EEFC balances into rupee balances will only be applicable to available balances in the EEFC account which may be arrived at by netting off earmarked amounts on account of outstanding forward/option contracts booked before May 10, 2012.

[A.P. (DIR Series) Circular No. 128 dated May 16, 2012]

16. Risk Management and Inter-Bank Dealings

In view of the recent developments in the foreign exchange market, until further review, it has been decided as under:

i. The current Net Overnight Open Position Limit (NOOPL) of the banks as applicable to the positions involving Rupee as one of the currencies shall not include the positions undertaken in the Currency Futures/Options segment in the exchanges.

ii. The positions in the exchanges (both Futures and Options) cannot be netted/offset by undertaking positions in the OTC market and vice-versa. The positions initiated in the exchanges shall be liquidated/closed in the exchanges only.

iii. The position limit for the trading member AD Category-I bank in the exchanges for trading Currency Futures and Options shall be US$ 100 million or 15 per cent of the outstanding open interest, whichever is lower.

The AD Category- I banks are advised that they may bring down their positions to the above limits within June 30, 2012.

[A.P. (DIR Series) Circular No. 129 dated May 21, 2012]

17. Deferred Payment Protocols dated April 30, 1981 and December 23, 1985 between Government of India and erstwhile USSR

AD Category-I banks are advised that a further revision has taken place on May 4, 2012 and accordingly, the Rupee value of the Special Currency Basket has been fixed at `75.594562 with effect from May 9, 2012.

[A.P. (DIR Series) Circular No.130 dated May 25, 2012]

18. Overseas Direct Investments by Indian Party-Online Reporting of Overseas Direct Investment in Form ODI

Under the online reporting system, AD Category – I banks could generate the UIN online under the automatic route. However, reporting of subsequent remittances under the automatic route as well as the approval route was to be done online in Part II of form ODI, only after receipt of the letter from the Reserve Bank confirming the UIN.

It has now been decided to communicate the UIN in respect of cases under the Automatic Route to the ADs/Indian Party through an auto generated e-mail to the email-id made available by the AD/Indian Party. Accordingly, with effect from June 01, 2012 (Friday), the auto generated e-mail, giving the details of UIN allotted to the JV/WOS under the automatic route, shall be treated as confirmation of allotment of UIN, and no separate letter shall be issued by the Reserve Bank to the Indian party and AD Category - I bank confirming the allotment of UIN.

It may also be noted that the subsequent remittances under the automatic route and remittances under the approval route are to be reported online in Part II of form ODI, only after receipt of the e-mail communication/confirmation conveying the UIN.

The applications in form ODI for overseas direct investment under the approval route would continue to be submitted to the Reserve Bank in physical form as hitherto, in addition to the online reporting of Part I of the Form as contemplated in A.P. (DIR Series) Circular No. 36 dated February 24, 2010.

[A.P. (DIR Series) Circular No.131 dated May 31, 2012]