1. What is the Asian Clearing Union (ACU)?
Ans. The Asian Clearing Union (ACU) was established with its head-quarters at Tehran, Iran, on December 9, 1974 at the initiative of the United Nations Economic and Social Commission for Asia and Pacific (ESCAP), for promoting regional co-operation. The main objective of the clearing union is to facilitate payments among member countries for eligible transactions on a multilateral basis, thereby economizing on the use of foreign exchange reserves and transfer costs, as well as promoting trade among the participating countries.
2. Who are the members of the ACU?
Ans. The Central Banks and the Monetary Authorities of Bangladesh, Bhutan, India, Iran, Maldives, Myanmar, Nepal, Pakistan and Sri Lanka are currently the members of the ACU.
3. Where are the instructions, relating to the ACU, available?
Ans. The detailed procedural instructions issued by RBI are contained in the A.P.(DIR Series) Circular No. 35 dated February 17, 2010 and in Master Direction No.16/20115-16 dated January 1, 2016 on export of goods and services, as amended from time to time.
4. How the ACU transactions are to be handled by Authorised Dealers in India?
Ans. All transactions to be settled through the ACU will be handled by AD Category-I banks in the same manner as other normal foreign exchange transactions, through correspondent arrangements.
5. What is the unit of settlement of ACU transactions?
Ans. The Asian Monetary Units (AMUs) is the common unit of account of ACU and is denominated as ‘ACU Dollar’ and ‘ACU Euro’, which is equivalent in value to one US Dollar and one Euro respectively. All instruments of payments under ACU have to be denominated in AMUs. Settlement of such instruments may be made by AD Category-I banks through the ACU Dollar Accounts and ACU Euro Accounts, which should be distinct from the other US Dollar and Euro accounts respectively maintained for non ACU transactions. As the payment channel for processing ‘ACU Euro’ is under review, the operations in ‘ACU Euro’ have been temporarily suspended with effect from July 01, 2016 and accordingly, all eligible current account transactions including trade transactions in “Euro” are permitted to be settled outside the ACU mechanism until further notice.
6. What is the procedure for settlement of ACU transactions?
Ans. i) Majority of transactions, as possible, should be settled directly through the accounts maintained by AD Category-l banks with banks in the other participating countries and vice versa; only the spill-overs in either direction are required to be settled by the Central Banks in the countries concerned through the Clearing Union. At all times, the balances maintained in the ACU Dollar and ACU Euro accounts should be commensurate with requirements of the normal business. With effect from July 01, 2016, all eligible current account transactions including trade transactions in “Euro” are permitted to be settled outside the ACU mechanism until further notice. ii) AD Category-l banks are permitted to settle commercial and other eligible transactions in much the same manner as other normal foreign exchange transactions.
7. Can Authorized Dealer Category-l banks open ACU Dollar and ACU Euro Accounts in the name of all banks in all member countries including Pakistan without the prior approval of Reserve Bank of India?
Ans. Yes, this is permissible. With effect from July 01, 2016, all eligible current account transactions including trade transactions in “Euro” are permitted to be settled outside the ACU mechanism until further notice.
8. What is the mechanism for settlement through the ACU?
Ans. Detailed operational guidelines are available in A.P. (DIR Series) Circular No. 35 dated February 17, 2010 and Master Direction No. 16/2015-16 dated January 1, 2016 on export of goods and services, as amended from time to time.
9. What are the transactions which are eligible to be settled through the ACU?
Ans. The following payments are eligible to be settled through ACU:-
- for export / import transaction between ACU member countries on deferred payment terms; and
- not declared ineligible as mentioned under Q.10
Note:- Trade transaction with Myanmar may be settled in any freely convertible currency, in addition to the ACU mechanism.
10. What are the payments that are not eligible to be settled through the ACU?
Ans. The following payments are not eligible to be settled through ACU:-
- Payments between Nepal and India and Bhutan and India, exception being made in the case of goods imported from India by an importer resident in Nepal who has been permitted by the Nepal Rastra Bank to make payments in foreign exchange. Such payments may be settled outside ACU mechanism; and
- Payments that are not on account of export / import transactions between ACU members countries except to the extent mutually agreed upon between the Reserve Bank and the other participants; and
- All eligible current account transactions including trade transactions with Iran should be settled in any permitted currency outside the ACU mechanism until further notice.
11. Are all eligible transactions between member countries required to be settled through the ACU?
Ans. Yes. Except the transactions mentioned at Q.10 above. However, trade transactions with Myanmar may be settled in any freely convertible currency, in addition to the ACU mechanism. Further, with effect from July 1, 2016, all eligible current account transactions including trade transactions in “Euro” are permitted to be settled outside the ACU mechanism till further notice.
Q.1. What is meant by contravention and compounding of contravention?
Ans. Contravention is a breach of the provisions of the Foreign Exchange Management Act (FEMA), 1999 and rules/ regulations/ notification/ orders/ directions/ circulars issued there under. Compounding refers to the process of voluntarily admitting the contravention, pleading guilty and seeking redressal. The Reserve Bank is empowered to compound any contraventions as defined under section 131 of FEMA, 1999 except the contravention under section 3(a)2 ibid, for a specified sum after offering an opportunity of personal hearing to the contravener. It is a voluntary process in which an individual or a corporate seeks compounding of an admitted contravention. It provides comfort to any person who contravenes any provisions of FEMA, 1999 [except section 3(a) of the Act] by minimizing transaction costs. Willful, malafide and fraudulent transactions are, however, viewed seriously, which will not be compounded by the Reserve Bank. Further, in terms of the proviso to rule 8 (2) of Foreign Exchange (Compounding Proceedings) Rules, 2000 inserted vide GOI notification dated February 20, 2017, if the Enforcement Directorate is of the view that the compounding proceeding relates to a serious contravention suspected of money laundering, terror financing or affecting sovereignty and integrity of the nation, such cases will not be compounded by the Reserve Bank.
Q.2. Who can apply for compounding?
Ans. Any person who contravenes any provision of the FEMA, 1999 [except section 3(a)] or contravenes any rule, regulation, notification, direction or order issued in exercise of the powers under this Act or contravenes any condition subject to which an authorization is issued by the Reserve Bank, can apply for compounding to the Reserve Bank. Applications seeking compounding of contraventions under section 3(a) of FEMA, 1999 may be submitted to the Directorate of Enforcement.
Q.3 When should one apply for compounding?
Ans. When a person is made aware of the contravention of the provisions of FEMA, 1999 by the Reserve Bank or any other statutory authority or the auditors or by any other means, she/he may apply for compounding. One can also make an application for compounding, suo moto, on becoming aware of the contravention.
Q.4. What is the procedure for applying for compounding?
Ans. The reporting and other form requirements listed in the FED Master Direction No. 18/2015-16 titled ‘Master Direction – Reporting under Foreign Exchange Management Act, 1999’ dated January 01, 2016 (Updated as on January 24, 2018) can be used for applying for compounding. The above Master Direction can be downloaded from the Reserve Bank’s website by clicking on the link https://www.rbi.org.in/scripts/FS_Notification.aspx?fn=5&fnn=2764 and the documents as applicable therein should be submitted along with the application.
Q.5. Are any fees required to be paid for seeking compounding?
Ans. Yes. The application in the prescribed format along with necessary documents and a demand draft for Rs. 5000/- (Rupees five thousand only) drawn in favour of the “Reserve Bank of India” should be sent to the Reserve Bank of India while sending the request for compounding.
Q.6. What are the details required to be filled in the application form?
Ans. Along with the application in the prescribed format, the applicant may also furnish the details as per the Annexes – relating to Foreign Direct Investment, External Commercial Borrowings, Overseas Direct Investment and Branch Office / Liaison Office, as applicable, (annexes available in the FED Master Direction No. 18/2015-16 as mentioned in answer to Q.5 above) along with an undertaking that they are not under investigation of any agency such as DOE, CBI, etc., a copy of the Memorandum of Association and latest audited balance sheet while applying for compounding of contraventions under FEMA, 1999.
Q.7. Where should one apply for compounding?
Ans. The powers to compound the contraventions have been vested with the Regional Offices of Foreign Exchange Department (FED), Reserve Bank. For further details please go through Master Direction on Compounding of Contravention under FEMA 1999.
Q.8. Can an application for compounding be sent to the Reserve Bank pending fulfillment of certain obligations?
Ans. No. all requisite approvals should be obtained and compliances should be completed before seeking compounding of contravention. Compounding can be done only after rectifying the records by way of obtaining post-facto approvals or unwinding the transactions in cases where such transactions are not permissible under FEMA, 1999. Copies of approvals and other compliances should be enclosed along with the application.
Q.9. What action is taken by the Reserve Bank on receipt of the application?
Ans. The Reserve Bank makes a scrutiny of the application to verify whether the required details and documents furnished by the applicant are prima-facie in order. Applications with incomplete details or where the contravention is not admitted will be returned to the applicant. On the admission of applications, the Reserve Bank will examine and decide if the contravention is technical, material or sensitive in nature. If technical, the applicant will be issued a cautionary advice. If the contravention is material, it will be compounded by imposing an amount after giving an opportunity to the contravener to appear before the compounding authority for a personal hearing. If the contravention is sensitive in nature requiring further investigations, the same would be referred to the Directorate of Enforcement (DoE) for further investigation/ action.
Q.10. What are sensitive contraventions?
Ans. Cases of contravention, such as, those having serious contravention suspected of money laundering, terror financing or affecting sovereignty and integrity of the nation are sensitive contraventions.
Q.11. Who should classify the contravention as technical, material or sensitive?
Ans. Whether contravention under the Foreign Exchange Management Act (FEMA) is to be treated as technical and/ or minor or serious would be decided by the Reserve Bank on the merits of the case. The application will be disposed of keeping in view the procedure notified in this regard. Persons who have contravened the provisions of FEMA should not take upon themselves suo moto, or on the basis of external advice to decide whether a particular contravention is technical or minor in nature and, hence, no compounding application need be submitted to the Reserve Bank. If such applications for compounding are not made, the person concerned shall expose himself/herself to such action under the provisions of FEMA as the authorities may deem appropriate. The persons concerned should, therefore, in their own interest submit their applications for compounding of contravention under FEMA to the Reserve Bank at the earliest opportunity.
Q.12. When can a contravention be classified as technical?
Ans. It is clarified that whenever a contravention is identified by the Reserve Bank or brought to its notice by the entity involved in contravention by way of a reference other than through the prescribed application for compounding, the Bank will continue to decide (i) whether a contravention is technical and/or minor in nature and, as such, can be dealt with by way of an administrative/ cautionary advice; (ii) whether it is material and, hence, is required to be compounded for which the necessary compounding procedure has to be followed or (iii) whether the issues involved are sensitive / serious in nature and, therefore, need to be referred to the Directorate of Enforcement (DOE). However, once a compounding application is filed by the concerned entity suo moto, admitting the contravention, the same will not be considered as ‘technical’ or ‘minor’ in nature and the compounding process shall be initiated in terms of section 15 (1) of Foreign Exchange Management Act, 1999 read with Rule 9 of Foreign Exchange (Compounding Proceedings) Rules, 2000.
Q. 13. Is it mandatory to appear for the personal hearing?
Ans. It is not mandatory to attend the personal hearing. In case a person opts not to attend the personal hearing he may indicate his preference in writing. The application would be disposed of on the basis of documents submitted to the Compounding Authority. It may be noted that appearing for or opting out of the personal hearing does not have any bearing whatsoever on the amount imposed in the compounding order.
Q.14. Can the applicant authorise another person to attend the personal hearing?
Ans. Yes, another person may be authorised by the applicant to attend the personal hearing on his behalf but only with proper written authority. It has to be ensured that the person appearing on behalf of the applicant is conversant with the nature of contravention and the related matters. However, the Reserve Bank encourages the applicant to appear directly for the personal hearing rather than being represented/ accompanied by legal experts/consultants, etc. as the compounding is only for admitted contraventions.
Q.15. How is the compounding process brought to conclusion?
Ans. The Compounding Authority passes an order indicating details of the contravention and the provisions of FEMA, 1999 that have been contravened. The sum payable for compounding the contravention is indicated in the compounding order. The contravention is compounded by payment of the amount imposed.
Q.16 Are compounding orders made public?
Ans. Compounding orders passed on or after June 1, 2016 will be published on the RBI’s website. The data on the website will be updated on monthly intervals in the following format:
|Sr.No.||Name of Applicant||Amount imposed||Paid / Not paid||Download order|
A.P. (DIR Series) Circular No. 73 dated May 26, 2016.
Q.17 What is the criteria for calculation of compounding amount?
Ans. Please refer to Master Direction on Compounding of Contravention under FEMA 1999 for guidance structure for calculating the amount to be imposed on compounding.
Q.18. When should the amount indicated in the order be paid?
Ans. The amount should be paid within 15 days from the date of the order by way of a demand draft drawn on “Reserve Bank of India” and payable at the Regional office which has issued the compounding order and at Mumbai if the order is issued by CEFA, Mumbai.
Q. 19. How does the application for compounding finally get disposed of?
Ans. On realization of the sum for which contravention is compounded, a certificate shall be issued by the Reserve Bank indicating that the applicant has complied with the order passed by the Compounding Authority.
There cannot be a second adjudication by any authority on the contravention compounded. In terms of FEMA, 1999, where a contravention has been compounded, no proceeding or further proceeding, as the case may be, can be initiated or continued, as the case may be, against the person committing such contravention under that section, in respect of the contravention compounded.
Q.20. What happens if the amount is not paid within 15 days of the order?
Ans. In case of non-payment of the amount indicated in the compounding order within 15 days of the order, it will be treated as if the applicant has not made any compounding application to the Reserve Bank and the other provisions of FEMA, 1999 regarding contraventions will apply. Such cases will be referred to the Directorate of Enforcement for necessary action.
Q.21. Can there be an appeal against the order of the Compounding Authority?
Ans. As compounding is based on voluntary admissions and disclosures, there is no provision under the Compounding Rules for an appeal against the order of the Compounding Authority or for a request for reduction of amount compounded or extension of period for payment of the amount imposed.
Q.22. What is the timeframe for completing the compounding process?
Ans. The compounding process is completed within 180 days from the date of receipt of the application complete in all aspects, by the Reserve Bank.
Q.23. Where can one get more details about compounding?
Ans. One can visit the Master Direction on Compounding of Contraventions under FEMA, 1999 available on Reserve Bank’s website.
Purchase of immovable property outside India by Resident Individuals:
Q.1 Can a resident continue to hold immovable property outside India which was acquired by him when he was a non-resident?
Answer: According to section 6(4) of the FEMA, a person resident in India can hold, own, transfer or invest in any immovable property situated outside India if such property was acquired, held or owned by him/ her when he/ she was resident outside India or inherited from a person resident outside India.
Q.2 Can a resident individual send remittances and purchase property outside India?
Answer: A resident individual can send remittances under the Liberalised Remittance Scheme (LRS) for purchasing immovable property outside India. In case members of a family pool their remittances to purchase a property, then the said property should be in the name of all the members who make the remittances.
Q.3 To whom do the restrictions of transferring property outside India not apply?
Answer: The prohibition of a resident acquiring property outside India is not applicable if:
- The resident is a foreign national; or
- The property was acquired before July 8, 1947 and continued to be held after obtaining permission; or
- If it is acquired on a lease not exceeding five years
Q.4 How can immovable property be acquired outside India by a resident?
Answer: Immovable property can be acquired outside India:
- Under section 6(4) of FEMA.
- As an inheritance/ gift from a person (i) referred to in sec 6(4) of FEMA; or (ii) who has acquired it prior to July 8, 1947 (iii) who has acquired such property in accordance with the foreign exchange provisions in force at the time of such acquisition.
- Purchased with balances in the Resident Foreign Currency (RFC) account of the resident.
- As a gift from persons at (b) & (c) above, provided he is a relative of such persons.
- Purchased with remittances made under the Liberalised Remittance Scheme (LRS).
- Jointly with a relative provided there are no outflow of funds from India.
- By an Indian company having overseas offices, for housing its business or for residence of staff.
Purchase of immovable property in India by Non-Resident Individuals:
Q.1 How can a Non-resident Indian (NRI)i and an Overseas Citizen of India (OCI) acquire immovable property in India?
|Particulars||NRI/ OCI (regulation of FEMA 20(R))|
|Purchase (other than agricultural land/ farmhouse/ plantation etc) from||Resident/ NRI/ OCI [3(a)]|
|Acquire as gift (other than agricultural land/ farmhouse/ plantation etc) from||Resident/ NRI/ OCI [3(b)] who is a relativeiii|
|Acquire (any IP) as inheritance from||a. Any person who has acquired it under laws in force [3(c)];
b. Resident [3(c)]
|Sell (other than agricultural land/ farmhouse/ plantation etc) to||Resident/ NRI/ OCI [3(e)]|
|Sell (agricultural land) to||Resident [3(d)]|
|Gift (other than agricultural land) to||Resident/ NRI/ OCI [3(e)]|
|Gift (agricultural land) to||Resident [3(d)]|
|Gift residential/ commercial property||Resident/ NRI/ OCI [3(e)]|
Q.2 What are the accepted modes of payment for property acquired in India?
Answer: Payment for immovable property has to be received in India through banking channels and is subject to payment of all taxes and other duties/ levies in India. The payment can also be made out of funds held in NRE/ FCNR(B)/ NRO accounts of the NRIs/ OCIs. Payments should not be made through travellers’ cheque and foreign currency notes.
Q.3 Can Foreign Embassies/ Diplomats/ Consulate Generals acquire property in India?
Answer: Foreign Embassy/ Diplomat/ Consulate General, can purchase/ sell immovable property (other than agricultural land/ plantation property/ farm house) in India provided –
- Clearance from the Government of India, Ministry of External Affairs is obtained for such purchase/sale, and
- The consideration for acquisition of immovable property in India is paid out of funds remitted from abroad through banking channels.
Q.4 Can foreign nationals acquire property in India?
- Citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Macau, Hong Kong or Democratic People’s Republic of Korea (DPRK), irrespective of their residential status, cannot, without prior permission of the Reserve Bank, acquire or transfer immovable property in India, other than on lease, not exceeding five years. This prohibition shall not be applicable to an OCI.
- Foreign nationals of non-Indian origin resident in India (except 11 countries listed at (a) above) can acquire immovable property in India.
- Foreign nationals of non-Indian origin resident outside India can acquire/ transfer immovable property in India, on lease not exceeding five years and can acquire immovable property in India by way of inheritance from a resident.
All other acquisitions/ transfers by foreign nationals will require the prior permission of RBI
Q.5 How can a Long Term Visa (LTV) holder acquire property in India?
Answer: Citizen of Pakistan, Bangladesh or Afghanistan belonging to minority community (Hindu, Christian, Sikh, Parsi, Buddhist, Jain) in that country and residing in India who has been granted an LTV by the Central government can purchase only one residential immovable property in India as dwelling unit for self-occupation and only one immovable property for carrying out self-employment. However, such acquisition is subject to the conditions as specified under Regulation 7 of Notification No. FEMA 20 (R)/2018-RB dated March 26, 2018.
Q.6 Can a spouse of an NRI/ OCI who is not a NRI/ OCI acquire property in India?
Answer: A person resident outside India, not being a Non-Resident Indian or an Overseas Citizen of India, who is a spouse of a Non-Resident Indian or an Overseas Citizen of India may acquire one immovable property (other than agricultural land/ farm house/ plantation property), jointly with his/ her NRI/ OCI spouse subject to the conditions laid down in regulation 6 of FEMA 21(R).
Q.7 Can a non-resident repatriate the sale proceeds of immovable property in India?
(a) A person who has acquired the property U/s 6(5) of FEMA or his successor cannot repatriate the sale proceeds of such property without RBI approval.
(b) Repatriation up to USD 1 million per financial year is allowed, along with other assets under (Foreign Exchange Management (Remittance of Assets) Regulations, 2016) for NRIs/ PIOs and a foreign citizen (except Nepal/ Bhutan/ PIO) who has (i) inherited from a person referred to in section 6(5) of FEMA, or (ii) retired from employment in India or(c) is a non-resident widow/ widower and has inherited assets from her/ his deceased spouse who was an Indian national resident in India.
(c) NRIs/ PIOs can remit the sale proceeds of immovable property (other than agricultural land/ farm house/ plantation property) in India subject to the following conditions:
- The immovable property was acquired in accordance with the provisions of the foreign exchange law in force at the time of acquisition or the provisions of Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations 2018;
- The amount for acquisition of the property was paid in foreign exchange received through banking channels or out of the funds held in foreign currency non-resident account or out of the funds held in non-resident external account;
- In the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties.
Q.8 What is the meaning of transfer?
Answer: As per section 2(ze) of FEMA transfer means, sale, purchase, exchange, mortgage, pledge, gift, loan or any other form of transfer of right, title, possession or lien.
The Principal Regulations
- Notification No. FEMA 7(R)/2015-RB dated January 21, 2016
- Notification No. FEMA 21(R)/2018-RB dated March 26, 2018
(NRI refers to a person resident outside India who is a citizen of India
Overseas Citizen of India (OCI) is a person resident outside India who is registered as an Overseas Citizen of India Cardholder under Section 7(A) of the Citizenship Act, 1955;
Relative is as defined in section 2(77) of the Companies Act, 2013
Section 6(5) of FEMA states that a person resident outside India may hold, own, transfer or invest in any immovable property situated in India if such property was acquired, held or owned by such person when he was resident in India or inherited from a person who was resident in India.)
LIAISON / BRANCH / PROJECT OFFICES OF FOREIGN ENTITIES IN INDIA:
(UPDATED 26th December 2016)
Q.1. What action the AD is required to take in case of any adverse reporting in Annual Activity Certificate (AAC) of LO/BO or non-submission of AACs?
Ans. In case the designated AD Category I bank notices any adverse findings by the auditor in respect of LO/BO or the LO/BO is defaulting in submission of AACs, then the same should be immediately reported to the Reserve Bank.
Q.2. Can LO/BO maintain more than one account in India?
Ans. No, if an LO/BO wants to open more than one account it has to obtain prior permission of the Reserve Bank through its AD Category I bank justifying the reason for additional account.
Q.3. Are LO/BO/PO required to register/report with Police authorities?
Ans. Only applicants from Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong, Kong, Macau and Pakistan shall have to register with the State Police authorities. Copy of approval letter for persons from these countries shall be marked by the AD Category I bank to the Ministry of Home Affairs, Internal Security Division – I, Government of India, New Delhi for necessary action and record. All other countries are exempted from registering with the State Police authorities.
Q.4. Can an LO/BO/PO acquire property for its operation?
Ans. The BO /PO of a foreign entity, excluding an LO, are permitted to acquire property for their own use and to carry out permitted/incidental activities but not for leasing or renting out the property. However, entities from Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, Nepal, Bhutan, China, Hong Kong and Macau require prior approval of the Reserve Bank to acquire immovable property in India for a BO/PO. BOs/LOs/POs have general permission to carry out permitted/ incidental activities from leased property subject to lease period not exceeding five years.
Q.5. Can an LO upgraded into BO, continue to have same PAN and bank account?
Ans. Yes provided the bank account is re-designated as a BO account.
Q.6. Whether credit facility can be provided in foreign currency for PO?
Ans. Yes, the AD bank should ensure compliance to the extant instructions issued by the Department of Banking Regulation.
Q.7. Once the PO has been set up in India for executing a specific project in India under general permission, at times, the overseas entity is awarded another project by the same or a different project awarding entity. In view of the same, can maintaining of bank account at entity level, filing of AACs, complying with submission of closure documentations on completion of the project and maintaining of books of accounts at entity level be complied with at PO entity level instead of at specific project level?
Q.8. Can agents of overseas shipping or airline companies continue to maintain foreign currency account with the designated AD Bank in India after such airline or shipping companies have set up BO in India?
Ans. Yes, however, BO’s transactions should be restricted to its designated INR account and it should not put any transactions through the agent’s foreign currency account.
Q.9. Whether there is any specific format in which application with State Police has to be filed for registration?
Ans. Yes, please refer to the Master Directions on Reporting (https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10202). The registration is required to be done once the AD bank’s approval for the establishment of office is issued.
Q.10. Whether an LO can be upgraded under automatic route to BO under AD approval if overseas entity is eligible to open the BO under general permission?
Ans. Yes, under advice to Reserve Bank, FED, CO Cell, Sansad Marg, New Delhi 110 001.
Q.11. Whether for closure of additional office, the same procedures as mentioned in ‘Closure of BO/LO/PO’ need to be adhered to?
Q.12. Do AD banks need to obtain UIN from RBI for PO?
Q.13. If the applicant is a citizen of or is registered/incorporated in Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau and the application is for opening a BO/LO/PO in other cities/states excluding Jammu and Kashmir, North East region and Andaman and Nicobar Islands, can the AD bank permit the same without referring the matter to the Reserve Bank?
Q.14. Whether AD bank can approve the transfer of assets of LO/BO/PO to third resident party?
Q.15. Can a subsidiary of Indian company abroad open a BO in India and whether this will come under automatic route?
Q.16. If the subsidiary of Indian company is not financially sound can they submit a Letter of Comfort from their parent company which is an Indian company?
Q.17. Can AD bank approve for extension of the project account after the tenure of the project for genuine reasons like completion of warranty period, statutory works like Income tax assessments, VAT assessments, Service tax assessments, to make arrangements for the sale of assets etc.
Ans. Yes, under intimation to Reserve Bank, FED, CO Cell, Sansad Marg, New Delhi 110 001.
Q.18. Can BO open FCY account for doing normal business transactions?
Q.19. Can BO/PO/LO have one more account with another AD bank (Agency bank for tax payment) for statutory payments when the AD with whom the account is maintained is not the agency bank?
Q.20. What are the permissible credits and debits to INR account of Project Office?
Ans. The credits to the account should represent the funds received from head office through normal banking channels for meeting the expenses of the office and/or the rupee amounts receivable if any, under the contract and no other amount should be credited without prior permission of the Reserve Bank. Similarly debits to this account could be raised only for meeting the local expenses of the office and intermittent remittances pending winding up / completion of the project.
For the intermittent remittances, the AD bank should be satisfied with the bonafides of the transaction and ensure submission of the following documents:
a. An Auditors’ / Chartered Accountants’ Certificate to the effect that sufficient provisions have been made to meet the liabilities in India including Income Tax, etc.
b. An undertaking from the PO 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.
Q.21. Whether LC can be opened for BO in India for export/import of goods & in case of PO, local LC can be open for purchase of goods locally in India (local purchase of goods to execute a project)?
Q.22. Whether a branch office (BO) or project office (PO) can send outward remittances, permissible under FEMA, through any AD Category I bank or it has to be through the designated AD Category I bank only?
Ans. Wherever the BO or PO is required to remit funds outside India, within the applicable guidelines under FEMA, they may do so not necessarily through the designated AD Category I bank but through any AD Category I bank of its choice subject to obtaining no objection certificate (NOC) from the designated AD Category I bank. The remittances have to be for transactions settling on Cash / Tom / Spot basis only. The remittance has to be through banking channel in either of the two methods:
(1) The designated AD category I bank will transfer equivalent INR amount to the transaction handling bank. The transaction handling bank can remit the amount to the overseas parent office of BO / PO through SWIFT. However, the transaction handling bank will have to ensure KYC compliance and the necessary documentation. It will also be required to share the SWIFT message along with the details like UIN No, beneficiary and remittance details with the designated AD category I bank.
(2) The designated AD category I bank will transfer equivalent INR amount to the transaction handling bank. The transaction handling bank will then credit the NOSTRO account of the designated AD Category I bank which in turn will remit the amount to the final beneficiary.
Q1. Who is a person resident in India?
Answer: Sec 2(v) of the Foreign Exchange Management Act, 1999 (FEMA) defines a person resident in India as:
(i) 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-
(A) a person who has gone out of India or who stays outside India, in either case-
- for or on taking up employment outside India, or
- for carrying on outside India a business or vocation outside India, or
- for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;
(B) a person who has come to or stays in India, in either case, otherwise than-
- for or on taking up employment in India, or
- for carrying on in India a business or vocation in India, or
- for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period;
(ii) any person or body corporate registered or incorporated in India,
(iii) an office, branch or agency in India owned or controlled by a person resident outside India,
(iv) an office, branch or agency outside India owned or controlled by a person resident in India;
Q2. What is a foreign currency account?
Answer: A Foreign Currency Account is an account held or maintained in currency other than the currency of India or Nepal or Bhutan.
Q3. What are the major foreign currency accounts that can be opened in India by a resident individual?
Answer: Some of the foreign currency accounts that can be opened by resident individuals with an Authorised Dealer bank in India, along with their features are given below:
|Particulars||Exchange Earners Foreign Currency (EEFC) Account||Resident Foreign Currency (Domestic) [RFC(D)] Account||Resident Foreign Currency (RFC) Account|
|Who can open the account||Exchange Earners||Individuals||Individuals|
Jointly with eligible persons;
With resident relative(s) on former or survivor’ basis.
Relative as defined under Companies Act, 2013 (viz. members of HUF, spouse, parents, step-parents, son, step-son, daughter-in-law, daughter, son-in-law, brother/sister, step-brother/ step-sister)
Relative joint account holder cannot operate the account during the life time of the account holder
|Jointly with any person eligible to open the||Same as EEFC|
|Type of Account||Current only||Current only||Current/ savings/ term deposits|
|Interest||Non-interest earning||Non-interest earning||De-regulated (As decided by the AD bank)|
1) 100% of foreign exchange received on account of export transactions.
2) advance remittance received by an exporter towards export of goods or services
3) Repayment of loans given to foreign importers
4) Disinvestment proceeds on conversion of ADR/ GDR
5) professional earnings like director’s/ consultancy/ lecture fees, honorarium and similar other earnings received by a professional by rendering services in his individual capacity
6) Interest earned on the funds held in the account
7) Re-credit of unutilised foreign currency earlier withdrawn from the account
8) Payments received in foreign exchange by an Indian startup arising out of sales/ export made by the startup or its overseas subsidiaries
1) Foreign exchange received as payment/ service/ gift/ honorarium while on visit abroad or from a non-resident who is on a visit to India
2) Unspent amount of foreign exchange acquired from AD for travel abroad
3) Gift from close relative
4) Earning through export of goods/ services, royalty
5) Disinvestment proceed on conversion of shares into ADR/ GDR
6) foreign exchange received as earnings of LIC claims/ maturity/ surrendered value settled in forex from an Indian insurance company
1) Foreign exchange received by him as superannuation/ other monetary benefits from overseas employer
2) Foreign exchange realised on conversion of the assets referred to in Sec 6(4) of FEMA
3) Gift/ inheritance received from a person referred to in Sec 6(4) of FEMA
4) Foreign exchange acquired before the July 8, 1947 or any income arising on it held outside India with RBI permission
6) Foreign exchange received as earnings of LIC claims/ maturity/ surrendered value settled in forex from an Indian insurance company
7) Balances in NRE/ FCNR (B) accounts on change in residential status
1) Any permissible current or capital account transaction
2) Cost of goods purchased
3) Customs duty
4) Trade related loans and advances
|Can be used for any permissible current/ capital account transactions.||No restrictions on utilisation in/ outside India.|
Q4. In what form can a foreign currency account in India be opened?
Answer: Unless otherwise specifically stated in the features of the account, a foreign currency account maintained by a person resident in India with an authorized dealer in India can 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.
Q5. When can a resident individual open a foreign currency account outside India?
Answer: A resident individual can open a foreign currency account with a bank outside India in the following cases:
1) A resident student who has gone abroad for studies for the period of stay abroad. All credits to the account from India should be made in accordance with FEMA and the rules and regulations made thereunder. On the student’s return to India after completion of studies, the account will be deemed to have been opened under the Liberalised Remittance Scheme (LRS).
2) A resident who is on a visit to a foreign country for the period of stay abroad. The balance in the account should be repatriated to India on return of the account holder to India.
3) A person going abroad to participate in an exhibition/ trade fair for crediting the sale proceeds of goods. The balance should be repatriated to India within one month from the date of closure of the exhibition/ trade fair.
4) The following persons for remitting/ receiving their entire salary payable to them in India:
- A foreign citizen resident in India, who is an employee of a foreign company and is on deputation to the office/ branch/ subsidiary/ joint venture/ group company in India;
- An Indian citizen who is an employee of a foreign company and is on deputation to the office/ branch/ subsidiary/ joint venture/ group company in India; and
- A foreign citizen who is a resident in India and is employed with an Indian company.
5) For the purpose of sending remittances under the Liberalized Remittance Scheme.
Q6. Can a resident continue to maintain an account outside India which was opened by him when he was a non-resident?
Answer: A person resident in India may maintain a foreign currency account outside India if he had opened it when he was resident outside India or inherited it from a person resident outside India.
Q7. What is the status of the account held outside India on the demise of the account holder?
Answer: A resident nominee of an account held outside India has to close the account and bring back the proceeds to India through banking channels
1. Who can issue?
Any corporate (entity registered as a company under the Companies Act, 1956/ 2013) or body corporate (entity specially created out of a specific act of the Parliament) and Indian banks are eligible to issue Rupee denominated bonds overseas. Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) coming under the regulatory jurisdiction of the Securities and Exchange Board of India (SEBI) are also eligible. Other resident entities like Limited Liability Partnerships and Partnership firms, etc. are also not eligible to issue these bonds.
2. Where can these bonds be issued?
The Rupee denominated bonds can only be issued in a country and can only be subscribed by a resident of a country:
- that is a member of Financial Action Task Force (FATF) or a member of a FATF-Style Regional body; and
- whose securities market regulator is a signatory to the International Organization of Securities Commission’s (IOSCO’s) Multilateral Memorandum of Understanding (Appendix A Signatories) or a signatory to bilateral Memorandum of Understanding with the SEBI for information sharing arrangements; and
- should not be a country identified in the public statement of the FATF as:
(i) A jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply; or
(ii) A jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies.
3. Who can subscribe or invest in such bonds?
The Rupee denominated bonds can be subscribed / invested by an investor who is a resident of a country satisfying criteria given at 2 above or by Multilateral and Regional Financial Institutions where India is a member country. However, related party within the meaning as given in Ind-AS 24 cannot subscribe or invest in òr purchase such bonds.
4. Can Indian banks issue these bonds?
Yes, Indian banks can issue these bonds in the forms of (i) Perpetual Debt Instruments (PDI) qualifying for inclusion as Additional Tier 1 capital and debt capital instruments qualifying for inclusion as Tier 2 capital, and (ii) Long term Rupee Denominated Bonds overseas for financing infrastructure and affordable housing. Indian banks should ensure that Rupee denominated bonds issued by them overseas conform to the provisions contained in the Master Circular DBR.No.BP.BC.1/21.06.201/2015-16 dated July 01, 2015 on Basel III Capital Regulations and Circular DBOD.BP.BC.No. 25/08.12.014/2014-15 dated July 15, 2014 on ‘Guidelines on Issue of Long Term Bonds by Banks – Financing of Infrastructure and Affordable Housing’ issued by the Reserve Bank and as amended from time to time.
5. Can Indian banks participate in the process of issuance of Rupee denominated bonds overseas in any other manner?
Indian banks are also permitted to act as arranger / underwriter for issuance of these bonds provided their holdings (which would be subject to applicable prudential norms), while performing these functions, is not more than 5 per cent of the issue size beyond 6 months from the date of issue. Indian banks, are, however, not permitted to perform any other role, including trading and market making, in respect of these bonds. Further, for bonds issued by an Indian bank, another Indian bank cannot act as an underwriter.
6. What would be the minimum maturity of such bonds?
The minimum maturity period for Masala Bonds raised up to USD 50 million equivalent in INR per financial year should be 3 years and for bonds raised above USD 50 million equivalent in INR per financial year should be 5 years. In case the subscription to the bonds/ redemption of the bonds is in tranches, minimum average maturity period should be 3/5 years, as mentioned above.
7. Whether the Rupee bonds can provide option for prepayment to the issuer?
The bonds cannot have any optionality clause for prepayment before completing applicable maturity.
8. Can bonds be placed privately?
Yes, the bonds can either be placed privately or listed on exchanges as per host country regulations.
9. Is there any ceiling on the all-in-cost of such bonds?
The all-in-cost ceiling for such bonds will be 450 basis points over the prevailing yield of the Government of India securities of corresponding maturity.
10. Where to submit applications for issuance of Rupee Denominated Bonds?
Applications for issuance of Rupee Denominated Bonds, whether under Automatic Route or Approval route, by eligible Indian entities will be submitted to Foreign Exchange Department, Central Office, Mumbai of the Reserve Bank through AD Bank only.
11. For what all purposes the proceeds of Rupee bonds can be used?
The proceeds can be used for all purposes except for the following:
- Real estate activities other than for development of integrated township / affordable housing projects;
- Investing in capital market and using the proceeds for equity investment domestically;
- Activities prohibited as per the Foreign Direct Investment (FDI) guidelines;
- On-lending to other entities for any of the above objectives; and
- Purchase of land.
12. Are there any requirements in respect of end-uses not mentioned at 11 above?
End-uses should also be in compliance with other applicable laws and regulations and should be permitted by respective sectoral regulator.
13. Whether sale / transfer / pledge of bonds permitted?
Yes, sale / transfer / pledge of bonds overseas is freely permitted provided conditions at question No. 2 and 3 are satisfied.
14. What is the meaning of integrated township and affordable housing projects for the purpose of end-use of proceeds of the bonds?
The term Integrated township will mean township as defined in the extant FDI policy. Affordable housing projects will also be as defined in the extant FDI policy.
15. Can proceeds from issuance of Rupee bonds overseas be used for other real estate activities other than what is given at 11 above?
16. Whether the non-resident investor will be eligible to hedge their exposure?
The non-resident investors will be eligible to hedge their exposure in Rupee denominated bonds through permitted derivative products with AD Category – I banks in India. The investors can also access the domestic market through branches / subsidiaries of Indian banks abroad or branches of foreign banks with Indian presence abroad on a back to back basis.
17. What will be the exchange rate for foreign currency-Rupee conversion for such bonds?
The foreign currency-Rupee conversion will be at the market rate on the date of settlement of transactions undertaken for issue and servicing of the bonds, including its redemption.
18. Whether ECB liability: equity ratio, as applicable for raising ECB from foreign equity holder, is applicable in case of Rupee denominated bonds?
19. What are the reporting requirements in respect of such bonds?
Bonds can be issued only after obtaining Loan Registration Number (LRN) from the Reserve Bank as applicable to ECBs. Borrowers are required to submit duly certified Form 83 in duplicate to the designated AD Category I bank. In turn, the AD Category I bank will forward one copy to the Director, Balance of Payments Statistics Division, Department of Statistics and Information Management (DSIM), Reserve Bank of India, Bandra-Kurla Complex, Mumbai – 400 051 for obtaining LRN. The reporting through ECB 2 Return will also be required. Additionally, the borrower is required to fulfil reporting requirements/ maintain details of issuance of such bonds as required by government or by other regulators/ bodies/ Acts.
20. Can an entity issuing Rupee denominated bonds overseas, assume foreign currency risk on account of liabilities arising out of these bonds?
Any entity issuing Rupee denominated bonds overseas is not permitted to convert the liability arising out of the bonds into a foreign currency liability in any manner or assume foreign currency risk in any manner by either entering into a derivative contract or otherwise.
21. Whether the framework of External Commercial Borrowings (ECB) overlaps the framework for issuance of Rupee Denominated bonds overseas?
No. The two frameworks run separately. For example, limit of borrowing under the ECB framework would be separate from the borrowing under the framework for issuance of Rupee Denominated bonds overseas.
1. Who are Authorised Money Changers?
Authorised Money Changers (AMCs) are entities, authorised by the Reserve Bank under Section 10 of the Foreign Exchange Management Act, 1999. An AMC is a Full Fledged Money Changer (FFMC) authorised by the Reserve Bank to deal in foreign exchange for specified purposes.
2. The objective behind allowing Authorised Money Changers to do business?
To widen the access of foreign exchange facilities to residents and tourists while ensuring efficient customer service through competition.
3. What are the different types of AMCs?
The different types of AMCs are Authorised Dealer Category -I Banks (AD Category–I Banks), Authorised Dealers Category – II (ADs Category–II) and Full Fledged Money Changers (FFMCs).
4. Whether licence is mandatory for AMCs?
Yes. No person shall carry on or advertise that he carries on money changing business unless he is in possession of a valid money changer’s licence issued by the Reserve Bank. Any person found undertaking money changing business without a valid licence is liable to be penalised.
5. Who can apply for FFMC licence?
The applicant has to be a company registered under the Companies Act, 1956. The minimum Net Owned Funds (NOF) required for consideration as FFMC is Rs.25 lakh for Single branch FFMC and Rs.50 lakh for Multiple branch FFMC.
6. Where can one submit the application (fresh/renewal) for FFMC licence?
Application in the prescribed form, along with the required documents should be submitted to the respective Regional Office of the Foreign Exchange Department of the Reserve Bank under whose jurisdiction the registered office of the applicant falls
7. How to calculate Net Owned Funds?
The Net Owned Funds of applicants, other than banks, should be calculated as per the following:
- Owned Funds: (Paid-up Equity Capital + Free reserves + Credit balance in Profit & Loss A/c) minus (Accumulated balance of loss, Deferred revenue expenditure and Other intangible assets)
- Net Owned Funds: Owned funds minus the amount of investments in shares of its subsidiaries, companies in the same group, all (other) non-banking financial companies as also the book value of debentures, bonds, outstanding loans and advances made to and deposits with its subsidiaries and companies in the same group in excess of 10 per cent of the Owned funds.
8. Is NOF to be maintained on an ongoing basis?
AMCs are expected to maintain the minimum NOF on an ongoing basis.
9. Under what circumstances can Reserve Bank revoke the FFMC licence?
The Reserve Bank reserves the right to revoke the licence granted to an AMC at any time if the Reserve Bank is satisfied that:
- it is in public interest to do so or
- the AMC has failed to comply with any condition subject to which the authorisation is granted or has contravened any of the provisions of the Foreign Exchange Management Act, 1999 or any rule, regulation, notification, direction or order made there-under.
Reserve Bank also reserves the right to revoke the authorization of any of the offices for infringement of any statutory or regulatory provision. The Reserve Bank may at any time vary or revoke any of the existing conditions of a money changer’s licence or impose new conditions.
10. During what time frame a new FFMC should commence operations?
The FFMC should commence operations within a period of six months from the date of issuance of licence. A copy of the registration under Shops & Establishment Act or any other documentary evidence such as rent receipt, copy of lease agreement, etc. should be submitted to the Reserve Bank before commencement of business.
11. What are the Money Changing facilities presently available in India?
At present, the conversion of currency notes, coins or travellers’ cheques designated in foreign currency into Indian Rupees and vice versa is possible through AD Category-I banks, ADs Category-II and Full Fledged Money Changers (FFMCs). Further, AD Category –I banks, ADs Category – II and FFMCs may appoint franchisees (also known as Agents) to undertake purchase of foreign currency.
12. What is the objective of the Scheme for appointing Franchisees by AD Category Banks, ADs Category-II and FFMCs for undertaking Restricted Money Changing Activities?
The objective of the Scheme is to provide easier foreign exchange conversion facilities for travellers and tourists, including Non Resident Indians (NRIs), by enlarging the network of money changing facilities in the country. It is expected that the facility of Franchisee arrangement will enable AD Category-I banks, ADs Category-II and FFMCs to provide such facilities at all tourist centers and major cities during extended hours and on holidays.
13. What are the salient features of Franchisee Agreement?
Under the Scheme, the Reserve Bank permits AD Category – I banks, ADs Category – II and FFMCs to enter into franchisee agreements at their option for the purpose of carrying on Restricted Money Changing business, i.e. conversion of foreign currency notes, coins or travelers’ cheques into Rupees by the franchisees.
A franchisee can be any entity which has a place of business and a minimum Net Owned Funds of Rs. 10 lakhs. Franchisees can undertake only restricted money changing business.
AD Category – I banks, ADs Category – II and FFMCs as the Franchisers are free to decide on the tenor of the arrangement as also the commission or fee through mutual agreement with the franchisee. The Franchisee agreement to be entered into should include the following conditions:
(a) The franchisees should display the names of their franchisers, exchange rates and that they are authorized only to purchase foreign currency prominently in their offices. Exchange Rate for conversion of foreign currency into Rupees should be the same or close to the daily exchange rate charged by the AD Category – I Bank / AD Category – II / FFMC at its branches.
(b) The foreign currency purchased by the franchisee should be surrendered only to its franchiser within 7 working days from the date of purchase.
(c) The franchisee should maintain proper records of transactions.
(d) The on-site inspection of the franchisee by the franchiser should be conducted at least once a year.
14. What is the procedure for submission of application by AD Category – I bank/ AD Category – II/ FFMC to the Reserve Bank for appointment of franchisees?
An AD Category – I bank/ AD Category – II/ FFMC should apply to the respective Regional Office of the Reserve Bank, in Form RMC-F (Annex-IV of the A.P. (DIR Series) Circular No. 57 [A.P. (FL/RL Series) Circular No. 04] dated March 9, 2009) for appointment of franchisees under this Scheme. The application should be accompanied by a declaration that while selecting the franchisees, adequate due diligence has been carried out and that such entities have undertaken to comply with all the provisions of the franchising agreement and prevailing Reserve Bank regulations regarding money changing. Approval would be granted by the Reserve Bank for the first franchisee arrangement. Thereafter, as and when new franchisee agreements are entered into, these would have to be reported to the Reserve Bank in Form RMC-F (Annex-IV of the A.P. (DIR Series) Circular No. 57 [A.P. (FL/RL Series) Circular No. 04] dated March 9, 2009) on a post-facto basis, along with similar declaration as indicated above.
15. What are the checks to be ensured by AD Category-I banks/ADs Category-II/FFMCs while conducting due diligence of Franchisees before appointing them?
The AD Category – I banks / ADs Category – II / FFMCs should undertake the following minimum checks while conducting the due diligence of the franchisees:
- existing business activities of the franchisee and its position in the area.
- minimum Net Owned Funds of the franchisee.
- Shop & Establishment / other applicable municipal certification in favour of the franchisee.
- verification of physical existence of location of the franchisee, where restricted money changing activities will be conducted.
- conduct certificate of the franchisee from the local police authorities (certified copy of Memorandum and Articles of Association and Certificate of Incorporation in lieu of conduct certificate in respect of franchisees which are incorporated entities. Accordingly, Item No. 6 of the Form RMC-F in Annex-IV of the A.P. (DIR Series) Circular No. 57 [A.P. (FL/RL Series) Circular No. 04] dated March 9, 2009 may suitably be modified for corporate franchisees.) [Note: – Obtaining of Conduct Certificate of the franchisee from the local police authorities is optional for the franchisers. However, the franchisers may take due care to avoid appointing individuals/ entities as franchisees who have cases / proceedings initiated / pending against them by any law enforcing agencies.]
- declaration regarding past criminal cases, if any, and cases initiated / pending against the franchisee or its directors / partners by any law enforcing agency, if any.
- PAN Card of the franchisee and its directors / partners.
- photographs of the directors / partners and the key persons of franchisee.
The above checks should be done on a regular basis, at least once in a year. The AD Category – I banks / ADs Category – II / FFMCs should obtain from the franchisees proper documentary evidence confirming the location of the franchisees in addition to personal visits to the site. The AD Category – I Banks/ ADs Category – II / FFMCs should also obtain a Chartered Accountant’s certificate confirming the maintenance of the Net Owned Funds of the franchisees, i.e. Rs. 10 lakh on an ongoing basis.
16. What are the criteria for selection of centres?
The AD Category – I banks / AD Category – II / FFMCs may appoint franchisees within a distance of 100 kms. from their controlling branches concerned.
However, this distance criterion is exempted in case of a recognised group/ chain of hotels appointed as franchisees, provided the headquarters of the group/ chain of hotels falls within a distance of 100 kms. of the controlling branch of the AD Category – I banks / ADs Category – II / FFMCs(franchiser) concerned.
Further, in case of areas declared as hilly areas (as defined by the respective State Governments/Union Territories) and the North-Eastern States, the distance restriction given in point (i) above is not applicable.
17. What are the guidelines on provision for training of franchisees?
Franchisers are expected to impart training to the franchisees as regards operations and maintenance of records.
18. What are the guidelines in respect of Reporting, Audit and Inspection of franchisees?
The franchisers i.e. the AD Category – I banks / ADs Category – II / FFMCs are expected to ensure that franchisees put in place adequate arrangements for reporting of transactions by the franchisees to the franchisers on a regular basis (at least monthly). Regular spot audits of all locations of franchisees, at least once in six months, should be conducted by AD Category – I Banks / ADs Category – II / FFMCs. Such audits should involve a dedicated team and ‘mystery customer’ (Individuals acting as potential customers to experience and measure the extent up to which people and processes perform as they should) concept should be used to test the compliance level of the franchisees. A system of annual inspection of the books of the franchisees should also be put in place. The purpose of such inspection is to ensure that the money changing business is being carried out by the franchisees in conformity with the terms of the agreement and prevailing Reserve Bank guidelines and that necessary records are being maintained by the franchisees.
19. Does a franchisee need to adhere to KYC/AML/CFT Guidelines?
Franchisees are required to strictly adhere to the KYC/AML/CFT guidelines, as applicable to ADs Category – I / ADs Category – II / FFMCs.
Note:- No licence for appointment of franchisees will be issued to any FFMC / non-bank AD Category – II, against whom any major Directorate of Enforcement (DoE) / Directorate of Revenue Intelligence (DRI) / Central Bureau of Investigation (CBI) / Police case is pending. In case where any FFMC / non-bank AD Category – II has received one-time approval for appointing franchisees and subsequent to the date of approval, any DoE / DRI / CBI / Police case is filed, the FFMC / non-bank AD Category – II should not appoint any further franchisees and bring the matter to the notice of the Reserve Bank immediately. A decision will be taken by the Reserve Bank regarding allowing the FFMC / non-bank AD Category – II to appoint franchisees.
20. Can AMCs issue Forex prepaid cards?
Authorised Dealers Category-II can issue forex pre-paid cards to residents travelling on private/business visit abroad, subject to KYC/AML/CFT requirements. However, the settlement in respect of forex pre-paid cards has to be effected through AD Category-I banks.
21. Whether Forex Prepaid Cards can be used at Duty Free Shops located at International Airports in India?
Yes. Forex Prepaid Cards can be used in the same manner as foreign currency notes / travellers’ cheques.
22. What is the position of Papua New Guinea Paper Banknotes?
As per the Public Notice (https://www.bankpng.gov.pg/wp-content/uploads/2014/08/Full-page_-potrait_Paper-Bank-Notes2.pdf) issued by Bank of Papua New Guinea on their website www.bankpng.gov.pg Papua New Guinea paper banknotes ceased to be legal tender on June 30, 2012 and only polymer banknotes are legal tender in Papua New Guinea. Further, Bank of Papua New Guinea has also shared the following range of serial numbers of banknotes which were never issued (and were sold to a recycler in Europe) and are therefore, not legal tender in Papua New Guinea:
|K2||ABJ – AJS||000001||003000|
|K10||AC – AY||030000||031000|
|K50||HTT – HUU||080000||090000|
1. What are the pre-conditions for the FCNR (B) deposits mobilised by a bank for being eligible to be swapped with RBI under the swap window?
Only fresh FCNR (B) deposits mobilized in any of the permitted currencies after September 6, 2013 with a minimum three years maturity and having a lock in period of one year are permissible deposits under the swap window.
Banks are free to mobilise other types of permitted FCNR (B) deposits as specified in the RBI Master Circular on Interest Rates on FCNR (B) Deposits dated July 1, 2013 read with Circular DBOD.Dir.BC. 38/13.03.00/2013-14 dated August 14, 2013. However, such deposits will not qualify as eligible deposit for the purpose of swap with RBI. Banks are advised to maintain separate ledgers for FCNR (B) deposits mobilised under both the schemes along with proper audit trail of transactions.
2. What is the nature of swap offered by RBI?
The swap is in the nature of a simple buy/sell foreign exchange swap from the RBI side covering just the principal portion of the deposits and not the interest component.
3. Can the maturing FCNR (B) deposits be renewed and construed as fresh deposits for the purpose of swap?
Yes. However, only such deposits which are renewed on maturity for a minimum tenor of three years and having a lock in period of one year would qualify as eligible deposits for undertaking swap with RBI.
4. How will the swap cost of 3.5 per cent be computed?
The swap cost of 3.5 per cent will be compounded semi-annually for the tenor of the swap.
5. When can a bank approach RBI for the swap?
As and when the bank mobilizes USD one million or more of FCNR (B) deposits, it may approach RBI. Normally, banks may enter into swap transactions with RBI once in a week in consultation with the Financial Markets Department of RBI.
6. How will the tenor of the swap be arrived at?
The tenor of the swap will be for three years or more in line with the tenor of the underlying FCNR (B) deposits. Bank desirous of availing the swap window may approach RBI for the swap, indicating the tenor in number of days.
7. Is it necessary to pass on the benefit arising out of the swap to the depositor?
Banks would be free to price the deposit within the overall ceiling as per the extant guidelines issued by RBI (c.f. RBI Circular DBOD.Dir.BC. 38/13.03.00/2013-14 dated August 14, 2013).
8. In case of premature withdrawal of deposit, is it necessary for the bank to approach RBI for cancellation of the swap?
Yes, banks have to necessarily approach RBI for cancellation of the swap if the underlying FCNR (B) deposit has been prematurely withdrawn. For the sake of operational and mutual convenience of both RBI and the bank, the cancellation of the swap may be undertaken once a threshold amount of deposits have been prematurely withdrawn. The threshold amount will be decided by RBI and conveyed to the bank at the time of bank approaching the RBI for cancellation of swap.
9. How would the swap be re-priced once a bank approaches RBI for cancellation of the swap subsequent to premature withdrawal of the underlying FCNR (B) deposits?
The re-pricing of the swap would be done as given in the illustration at the end of the FAQ.
10. Can a bank approach RBI for termination of the swap even if the underlying FCNR (B) deposit(s) has not been prematurely withdrawn?
11. How will the FCNR (B) deposits mobilised in currencies other than US Dollars be taken into account for the purpose of entering into swap with RBI?
For FCNR (B) deposits mobilized in permissible foreign currencies other than US Dollar, banks may arrive at the equivalent dollar amount eligible to be swapped by converting the same at the prevailing market rates on the day of the swap deal. Banks may follow a consistent policy as far as conversion is concerned and should maintain a proper documentation (audit trails) of the procedure followed for such conversions.
12. On premature withdrawal, banks will have a US Dollar outflow. Can banks meet these dollar demands using any other available source of foreign currency funding?
As stated earlier, banks have to necessarily approach RBI for unwinding of the swap in case of premature withdrawal of deposits. However, banks may arrange funds from other permitted sources pending unwinding of the swap with RBI.
13. Will the banks be required to enter into ISDA agreement with RBI for undertaking swaps?
Banks are not required to enter into any ISDA agreement with RBI.
14. Can a bank enter into a swap with RBI if the original tenor of the fresh FCNR (B) deposits mobilized is more than three years but at the time of availing of the swap facility with RBI, the residual maturity is less than three years?
Since the swap with RBI will be undertaken in multiples of USD one million, it is possible that a bank may have to wait before it mobilises a minimum amount of USD one million. In such a case, the banks will be allowed to undertake swaps for tenors of marginally less than three years provided they have mobilised fresh eligible FCNR (B) for minimum original tenor of three years with one year lock in period.
15. The swap with RBI will entail very large risk limit consumption (since it would be an off-market, in-the-money swap for banks). This will impact capital requirements substantially. Are such exposures on RBI exempted from capital adequacy requirements?
Q – “Please provide the details of Exchange Rate value of INR against USD dollar from the year 1947 till date”.
Ans – Information regarding USD-INR rates for the period 1945-46 – 1970-71 is available at the following link: Exchange Rate – 1945-1971
2. Information regarding USD-INR rate for the period 1970-71 to 2013-14 is available on:
http://dbie.rbi.org.in/DBIE/dbie.rbi?site=publications -> Handbook of Statistics on the Indian Economy -> Part I -> Annual Series -> Trade & Balance of Payments -> Table 147 – EXCHANGE RATE OF THE INDIAN RUPEE VIS-À-VIS THE SDR, US DOLLAR, POUND STERLING, D. M. /EURO AND JAPANESE YEN (calendar Year – Annual Average)
3. Information for the year 2015 onwards is available on
|Average of Working Days||INR To 100 USD|
|Average of Working Days||1 USD to INR 100|
|1966-67||20.86 / 13.20|
A. External Commercial Borrowings (ECB) framework
1. Where can one get the details of extant ECB framework?
The interested party may refer to Master Direction No.5 dated January 1, 2016, as amended from time to time, on ‘External Commercial Borrowings, Trade Credit, Borrowing and Lending in Foreign Currency by Authorised Dealers and Persons other than Authorised Dealers’ (https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10204) for guidance on the extant framework on ECB.
2. Are there other documents which the interested party may refer to know more about the extant ECB framework?
The interested party may also refer to A.P. (DIR Series) Circulars at https://www.rbi.org.in/scripts/Fema.aspx pertaining to External Commercial Borrowings.
3. From when did the extant ECB framework become applicable?
The extant ECB framework announced through A.P. (DIR Series) Circular No. 32 dated November 30, 2015 became applicable from the date of publication of relative regulations in the Gazette of India, i.e., December 2, 2015.
4. What if a company had executed ECB agreement prior to December 2, 2015 and availability period is beyond March 31, 2016/ commencement of drawdown is after March 31, 2016?
Entities raising ECB under previous ECB framework can raise the said loans by March 31, 2016 provided the agreement in respect of the loan is already signed by December 1, 2015. Further, eligible entities can drawdown the ECB proceeds beyond the availability period of March 31, 2016 provided such ECBs are contracted on or before December 1, 2015 and such agreements provide availability period of ECB to be beyond March 31, 2016. In other words, all ECB loan agreements entered into prior to the date of the revised ECB framework coming into effect from December 02, 2015 may continue with the disbursement schedules post March 31, 2016, as already provided in the loan agreements without (requiring) further consent from the Reserve Bank or any AD bank.
5. Is the extant ECB framework different from the framework for issuance of Rupee denominated bonds overseas?
Yes, extant ECB framework is different from the framework for issuance of Rupee denominated bonds overseas. To know more about the framework of issuance of Rupee denominated bonds overseas, interested party may refer to aforementioned Master Direction. Both these frameworks (ECB framework and framework for issuance of Rupee denominated bonds overseas) run separately/concurrently.
6. What are the various types of ECB?
ECBs can be raised as:
1. Loans, eg., bank loans, loans from equity holder, etc.
2. Capital market instruments, e.g.,
- floating rate notes / fixed rate bonds / securitised instruments
- non-convertible, optionally convertible or partially convertible preference shares
3. Buyers’ credit / suppliers’ credit
4. Financial lease
* A foreign currency convertible bond (FCCB) is a type of corporate bond issued by an Indian company in an overseas market in a currency different from that of the issuer. Investors have the option of redeeming their investment on maturity or converting the bonds into equity any time during the currency of the bond. The repayment of the principal is in the currency in which the money is raised. In case of a foreign currency exchangeable bond (FCEB), investors have the option of converting the bonds into equity of the offered company. The company issuing FCEB shall be part of the promoter group of the offered company and shall hold the equity shares being offered at the time of issuance of FCEB.
7. Do FCNR (B) loans come under the ECB framework?
No, foreign currency loans given domestically by Authorised Dealer Category I banks out of the proceeds of FCNR (B) deposits do not come under the ECB framework.
8. Does a company, incorporated in India, raising Rupee denominated loan from an NRI / PIO by way of Non-Convertible Debentures (NCDs) through a public offer get covered under the ECB framework?
No, NRI/PIO giving loan in Rupees to resident company by way of Non-Convertible Debentures (NCDs) through a public offer is not covered under the ECB framework. It is covered under Foreign Exchange Management (Borrowing and Lending in Rupees) Regulations, 2000 issued vide Notification No. FEMA 4/2000-RB dated May 3, 2000 as amended from time to time (as per the provisions contained in these Regulations, a company incorporated in India is permitted to raise Rupee denominated loan from an NRI / PIO only by way of issuance of NCDs through a public offer and is subject to other provisions contained in these Regulations).
9. What precautions have to be taken before raising loan from overseas?
Interested party may note that borrowings from overseas have to be in compliance with the applicable ECB guidelines / provisions contained in the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000 issued vide Notification No. FEMA 3/2000-RB dated May 3, 2000 as amended from time to time, as applicable / applicable provisions contained in the Foreign Exchange Management (Borrowing and Lending in Rupees) Regulations, 2000 issued vide Notification No. FEMA 4/2000-RB dated May 3, 2000 as amended from time to time.
10. Whose responsibility is to ensure compliance with ECB guidelines?
The primary responsibility for ensuring that the borrowing is in compliance with the applicable ECB guidelines is that of the borrower concerned. Any contravention of the applicable provisions of ECB guidelines will invite penal action under the FEMA. Same would be the case for devising a structure which bypasses / circumvents ECB guidelines in any manner and / or raising borrowings in any other manner which is not permitted / disguising borrowing under the wrap of other kind of transactions (like raising export advance(s) without actual exports or raising of export advance by circumventing ECB guidelines by creating any structure overseas or otherwise, etc.) and / or contravening provisions of Regulations mentioned in question 9 above.
B. Eligibility for raising ECB
11. Where can one get more details regarding eligibility of an entity to raise ECB?
Interested party may please refer to the aforementioned Master Direction.
12. Is a Limited Liability Partnership (LLP) or Partnership firm or Proprietary concern eligible to raise ECB?
No, entities which are not covered within the provisions contained in Master Direction stated above [like companies doing trading business (whether online or otherwise), companies involve in activities like tourism, beauty parlour / beauty clinics, entertainment business, retail sales, e-commerce companies, etc., on any other activity not covered within these provisions] are not eligible to raise ECB.
13. Whether all companies operating in software sector space eligible to raise ECB?
No, only those companies in software sector space who are into development of software are eligible to raise ECB. Companies who are into designing and engineering consultancy, servicing of third-party software, providing ancillary IT related services, ITeS, etc., are not considered as software development companies for ECB purposes.
14. What does the term infrastructure sector mean for the purpose of ECB?
For the purpose of raising ECB, Infrastructure Sector has the same meaning as given in the Harmonised Master List of Infrastructure sub-sectors approved by Government of India vide Notification F. No. 13/06/2009-INF as amended / updated from time to time. Further, for the purpose of ECB, Exploration, Mining and Refinery sectors are also deemed as in the infrastructure sector. It is also clarified that addition of any sector or sub-sector in the Harmonized Master List by the Government of India automatically entitles such sector/sub-sector to raise ECB as ‘infrastructure’.
15. What are ‘companies supporting infrastructure’?
Companies who help in operations or building of infrastructure as defined in Harmonised Master List of Infrastructure sub-sectors issued by Ministry of Finance as mentioned in the question 14 above will be considered companies supporting infrastructure.
16. Whether educational institutes/ universities/ deemed universities are eligible to raise ECB?
If the educational institute/university/ deemed university is registered as a company under the Companies Act 1956/2013, it can raise ECB as a part of infrastructure sub-sector. ECB guidelines as applicable for infrastructure companies would be applicable for such ECBs.
17. What is the provision for individual limit regarding Housing Finance Companies (HFCs) for ECBs under the auto route?
Individual limit under auto route as applicable to NBFC-IFCs/AFCs, i.e., USD 750 million per financial year under any of the three tracks, will be now available to HFCs also.
18. Whether the restrictions in respect of the eligibility of borrowing entities also applicable to Startups?
No, any entity which is recognised as a Startup by the Central Government as on date of raising ECB, would be eligible to raise ECB, irrespective of its business activities,.
19. Whether companies engaged in the business of Maintenance, Repair and Overhaul and freight forwarding who have been made eligible borrowers should be from airline or shipping sector only or no such restrictions apply?
Companies engaged in the business of Maintenance, Repair and Overhaul and freight forwarding eligible to raise ECBs should be from airline or shipping sector only.
C. Currency of ECB
20. What are the requirements in respect of currencies of ECB?
ECB can be raised in Indian Rupees (INR) and / or any convertible currency. Any entity raising INR denominated ECB is not permitted to convert the liability arising out of this ECB into foreign currency liability in any manner or assuming foreign currency risk is any manner by either entering into a derivative contract or otherwise.
D. Recognised Lenders/ Investors
21. What do you mean by prudentially regulated financial entities?
By prudentially regulated financial entities, we mean that the overseas entity is bound by prudential norms / regulations issued by the sector regulator(s) of the host country. This can be explained by giving the example of non-banking financial companies (NBFCs) in India. These NBFCs, in order to operate in non-banking financial sector space in India are issued Certificate of Registration by RBI (sector regulator). Further, after registration these companies are subject to supervision by RBI. Similar prudential norms / regulations should be applicable to the overseas financial entity by the respective overseas sector regulator in order for such entity qualifying as a recognised lender under prudentially regulated financial entity category.
22. A foreign equity holder holding minimum 25% direct equity holding in the borrowing entity or minimum indirect equity holding of 51% in the borrowing entity is a recognised lender. Can the foreign equity holder dispose-off the holding once ECB is contracted?
No, all ECB guidelines including those related to minimum equity holding, are to be fulfilled during the whole tenure of the ECB and not only at the time of contracting of ECB.
23. Whether ECB liability: equity ratio of 7:1 is applicable for raising ECB from both direct and indirect equity holders under automatic route?
No, it is only applicable to direct equity holders.
24. Whether the equity in ECB liability to equity ratio includes non-convertible preference capital?
No, however, compulsorily and mandatorily convertible debentures (convertible within a specified time) and compulsorily and mandatorily convertible preference shares (convertible within a specified time) can be included for calculation of the equity in ECB liability to equity ratio.
E. Average Maturity Period/ Amount
25. How is average maturity period calculated?
You may refer to https://rbidocs.rbi.org.in/rdocs/Content/PDFs/12EC160712_A6.pdf for illustration purposes.
26. Can door-to-door maturity be used in lieu of average maturity?
27. For an ECB raised under Track I for general corporate purpose, can repayment of principal of ECB start before the completion of 5 years?
Yes, however, the ECB should have minimum average maturity period of 5 years.
28. Should the proposed ECB be added to all outstanding ECBs for the purpose of ECB liability to equity ratio?
Yes, apart from ECB raised for refinancing where the proposed ECB amount may not be taken into account to avoid double counting.
29. Whether ECB liability includes non-convertible / partially convertible preference shares?
Borrowing from a person resident outside India by way of issue of preference shares on or after April 30, 2007, other than those which are fully and mandatorily convertible into equity within a specified time, as well as borrowing from a person resident outside India by way of issue of debentures on or after June 07, 2007, other than those which are fully and mandatorily convertible into equity within a specified time, would be treated as ECB and has to conform to ECB guidelines. Thus, the borrowing raised through such instruments after aforesaid dates would be considered for calculation of ECB liability.
30. Should the proposed ECB be added to all outstanding ECBs for arriving at the individual limit for raising of ECBs?
The individual limit for raising ECB under the automatic route will take into account all outstanding ECBs including the proposed one. However, refinancing of ECB amount will not be considered for arriving at individual limit per financial year.
31. Can an eligible borrower simultaneously raise ECBs under Track I and Track II?
Yes, as long as the ECBs are in compliance with the ECB guidelines for the respective tracks as per RBI guidelines.
32. Does all-in-cost ceiling apply on a continuous basis or can be calculated even on average basis?
All-in-cost should be within the applicable ceiling at all times, for eg., giving interest breaching the ceiling in first year and much lower in second year so as to comply on an average, is not permitted.
33. Can ECB be raised under Track I and Track III for general corporate purpose (including working capital)? What will be its minimum average maturity period?
ECB can be raised under Track I and Track III for general corporate purpose (including working capital) only from foreign equity holders. The minimum average maturity period will be 5 years, irrespective of amount borrowed.
34. Can ECB be raised under Track II for general corporate purpose (including working capital)? What will be its minimum average maturity period?
Yes, ECB can be raised under Track II for general corporate purpose (including working capital). The minimum average maturity period will be 10 years.
35. Can ECB be used for real estate activities?
No. All activities under real estate are not permitted as eligible end use for raising ECB.
36. Is import of technical know-how which is not part of a capital good an eligible end use for the purpose of ECB?
37. Is the reimbursement of expenditure incurred in the past a permissible end-use under the ECB framework?
No. The reimbursement of expenditure incurred in the past is not a permissible end-use under the ECB framework.
38. Can proceeds of ECB, raised under previous framework be used for end uses permitted under the revised framework?
No. ECB raised under the previous framework can be used for end uses permitted under the old framework only.
39. Can ECB be availed for repayment of domestic INR loan?
Yes, however, for Tracks I and III, it is only permitted if ECB is raised from foreign equity holder.
40. Can ECB be availed for making equity investment domestically or buying goodwill?
No. Equity investment either directly or indirectly (through purchase of goodwill) is not permitted.
41. Can ECB be availed for making contribution in LLP?
No, it is not permitted under any track.
42. Can an eligible borrower raise fresh ECB under Track II for repayment of existing Rupee denominated ECB?
Refinancing of Rupee denominated ECB with Foreign Currency denominated ECB under Track II is not permitted.
43. Whether ECB proceeds can be used by eligible resident borrowers for investment in their overseas JV/WOS as per the extant overseas investment regulations?
ECB proceeds can be utilized for overseas investment as permitted under the overseas investment guidelines.
H. Refinancing of ECB
44. Can an ECB raised under the erstwhile USD 10 billion scheme be refinanced under the revised ECB framework?
No, the repayment of ECB raised under USD 10 billion scheme is to be undertaken through forex revenues.
45. Can ECB raised under the earlier ECB framework be refinanced/ partially refinanced through an ECB raised under extant ECB framework?
Yes, provided that company continues to be eligible to raise ECB under the extant ECB framework, all-in-cost is lower of the all-in-cost of existing ECB or as applicable to the respective track under the extant framework and residual maturity is not reduced.
46. Can refinancing/ partial refinancing be undertaken under auto route even for ECBs raised under approval route, subject to compliance with guidelines?
47. Can ECB under revised ECB framework be raised with average maturity period of 5 years (under Track I) to refinance ECB raised under previous ECB framework?
Yes, however, the all-in-cost should be lower of the all-in-cost of existing ECB or 6 month LIBOR+450 bps per annum. Further, the entity should be eligible to raise ECB under Track I and residual maturity should not reduce.
48. Is 100 per cent mandatory hedging applicable to infrastructure space entities for ECBs being refinanced, which were raised under the earlier ECB framework?
No. Such ECBs will be exempt from the mandatory hedging clause, however, they are encouraged to undertake hedging for the open currency risk exposure.
49. Does the condition of refinancing of ECBs at lower all-in-cost also apply to Track III ECBs?
Yes, if the original ECB raised under Track III is to be refinanced with another ECB under Track III. However, when refinancing of existing foreign currency denominated ECB (Track I/ II) is done by raising Rupee denominated ECB (Track III), the condition regarding lower all-in-cost of the fresh ECB will not apply.
I. Security/ Guarantee
50. Is corporate guarantee from overseas permitted for ECB?
Yes, but only in cases where the overseas guarantor fulfills the criteria of recognised lender under extant ECB guidelines. Fees payable, if any, for this guarantee will form part of All-in-cost of the ECB.
51. Can overseas bank give guarantee for ECB?
An overseas bank (not overseas branches / subsidiaries of Indian bank) is permitted to give guarantee from overseas for ECB, provided it is recognised as ECB lender as per extant ECB guidelines. It may be noted that guarantee fee will form part of all-in-cost of the ECB.
J. Hedging under ECB Framework
52. What is the meaning of 100 per cent hedging of ECB wherever it is so mandated by the RBI?
Wherever 100 percent hedging has been mandated by the RBI, ECB borrowers shall keep their ECB exposure hedged 100 per cent at all times, which would be verified by the Authorised Dealer Category-I bank concerned and reported to RBI through ECB 2 returns. Besides, the ECB borrower shall also have a board approved risk management policy for the ECBs.
53. What are the operational aspects of hedging of ECB wherever it is mandated by the RBI?
Wherever hedging has been mandated by the RBI, the following should be ensured:
i. Coverage: The ECB borrower will be required to fully cover principal as well as coupon through financial hedges. The financial hedge for all exposures on account of ECB should start from the time of each such exposure (i.e. the day liability is created in the books of the borrower).
ii. Tenor and rollover: A minimum tenor of one year of financial hedge would be required with periodic rollover duly ensuring that the exposure on account of ECB is not unhedged / underhedged at any point during the currency of ECB.
iii. Natural Hedge: Natural hedge, in lieu of financial hedge, will be considered only to the extent of offsetting projected cash flows / revenues in matching currency, net of all other projected outflows. For this purpose, an ECB may be considered naturally hedged if the offsetting exposure has the maturity/cash flow within the same accounting year. Any other arrangements/ structures, where revenues are indexed to foreign currency will not be considered as natural hedge.
54. What are the permitted derivative products for hedging of ECB?
Hedging for ECB purposes means hedging currency risk through products as permitted under Master Direction on Risk Management and Inter-bank dealings. Use of any cost reduction structure for hedging of ECB, which does not fully cover the foreign exchange risk currency risk associated with ECB any time during the currency of the borrowing, is not permitted.
55. What are the other requirements in respect of hedging of ECB?
An entity which is raising foreign currency denominated ECB is also required to follow the guidelines for hedging issued, if any, by the respective sector / prudential regulator in respect of foreign currency exposure.
56. What precautions have to be taken at the time of filing of Form 83 in respect of an ECB?
Any draw-down in respect of an ECB as well as payment of any fees / charges for raising an ECB should happen only after obtaining the Loan Registration Number (LRN) from RBI by filing duly certified Form 83 to the Director, Balance of Payments Statistics Division, Department of Statistics and Information Management (DSIM), Reserve Bank of India, Bandra-Kurla Complex, Mumbai – 400 051 (Contact numbers 022-26572513 and 022-26573612). It should be ensured that all terms and conditions of the ECB are reported correctly in Form 83 and none of the columns are left blank (such columns which are not applicable for the borrowing or against which ‘nil’ information has to be given, should be suitably covered). Changes in ECB parameters, whether under the automatic route with the approval of Authorised Dealer Category –I banks or under the approval route with prior approval of the RBI, should also be reported to the DSIM through revised Form 83 at the earliest, in any case not later than 7 days from the changes effected. While submitting revised Form 83, the changes should be specifically mentioned in the communication. Any failure to comply with reporting guidelines in respect of Form 83 for an ECB may invite penal action under FEMA.
57. How are actual transactions of an ECB reported to RBI?
The borrowers are required to report actual ECB transactions, correctly and fully, through duly certified ECB 2 Return through the Authorised Dealer Category-I bank to DSIM as per the periodicity specified by the RBI. None of the columns in ECB 2 Return should be left blank (such columns which are not applicable for the borrowing or against which ‘nil’ information has to be given, should be suitably covered). The ECB 2 Return should reach DSIM within seven working days from the close of month to which it relates. Changes, if any, in ECB parameters should also be incorporated in ECB 2 Return suitably. Any failure to comply with reporting guidelines in respect of ECB 2 Return, including failure to adhere to periodicity of reporting, may invite penal action under FEMA.
58. In light of the revised ECB framework, does the borrower need to file revised Form 83?
No, in case no changes are made in terms and conditions of ECB, there is no need to file revised Form 83.
59. Can fixed deposits created out of ECB proceeds, pending utilization, be renewed after completion of maximum permitted period?
60. What are the major requirements for Indian banks to participate in ECB space?
Indian banks are not permitted to raise ECB. They can act as ECB lenders (through their overseas branches / subsidiaries) only under Track I of the ECB framework duly ensuring that the applicable prudential norms are complied with. Overseas branches/subsidiaries of Indian banks are permitted only to refinance ECBs of highly rated (AAA) corporates (or equivalent AAA(SO) rating) as well as Navratna and Maharatna PSUs, provided the outstanding maturity of the original borrowing is not reduced and all-in-cost of fresh ECB is lower than the existing ECB. Partial refinancing is also permitted subject to same conditions. Further, any case involving repayment/refinancing of any foreign currency loan by way of rupee loans from Indian banks, prudential guidelines stipulated in paragraph 4(b) of Circular No. BP.BC.85/21.04.048/2014-15 dated April 06, 2015 issued by the Department of Banking Regulation (DBR) of RBI will be applicable which interalia state that such refinance shall be treated as ‘restructuring’ (and classified/provided for as per extant prudential norms on income recognition, asset classification and provisioning), if the above is extended to a borrower who is under financial difficulty and involve concessions that the bank would otherwise not consider. It should also be noted that if the ECB borrower concerned has availed credit facilities from the Indian banking system including overseas branches/subsidiaries, any extension of tenure / change in average maturity period of ECB / change in all-in-cost of ECB/ conversion of unpaid ECBs into equity (whether matured or not) shall be subject to applicable prudential guidelines issued by the DBR of RBI, including guidelines on restructuring, as applicable. Further, such conversion of ECB into equity shall also be subject to consent of other lenders, if any, to the same borrower or at least information regarding conversions shall be exchanged with other lenders of the borrower.
61. What are the primary roles of the designated Authorized Dealer Category-I bank?
The designated Authorized Dealer Category-I bank, which is the bank branch designated by the ECB borrower, would be primarily responsible for meeting the reporting requirements including obtaining of LRN, exercising the delegated powers under these guidelines and monitoring of ECB transactions.
L. Trade Credits
62. Does discontinuance of LoU/ LoC mean that Trade Credit has been discontinued as a means of trade finance?
No, Trade Credits, including Buyers’ Credit, can be availed as a form of clean credit apart from availing Bank Guarantee for Trade Credits, subject to extant Trade Credit guidelines and compliance with provisions contained in Department of Banking Regulation Master Circular No.DBR No. Dir. BC.11/13.03.00/2015-16 dated July 1, 2015 on “Guarantees and Co-acceptances”, as amended from time to time. Letters of Credit/ Bank Guarantee arrangements continue as a form of trade finance, as hitherto.
63. Do LoUs/ LoCs, which have been issued prior to issuance of A.P. (DIR Series) Circular No.20 dated March 13, 2018, but whose tenor is not over need to be cancelled?
No, LoUs/ LoCs issued and accepted prior to the issuance of the said circular may continue till their original validity. However, no roll-over is permitted.
64. Whether SBLC can be issued by AD Category branches on behalf of their customers for availing short term trade finance from overseas lenders in Foreign currency?
AD banks can issue SBLC on behalf of their customers for availing short term trade credit from overseas lenders in foreign currency subject to such SBLCs complying with the provisions contained in Department of Banking Regulation Master Circular No. DBR. No. Dir. BC.11/13.03.00/2015-16 dated July 1, 2015 on “Guarantees and Co-acceptances”, as amended from time to time.
Q: Name the International banks which have entered into a correspondent banking relationship with Iranian banks.
Ans: The list of foreign banks working with Iran (as shared by Embassy of India in Tehran with RBI)
- VTB Bank (Bank for Foreign Trade of Russia, VTB Group, formerly Vneshtorgbank)
- Mir Business Bank C.J.S.C (Wholly owned subsidiary of Bank Melli in Russia)
- The Royal Bank of Scotland (RBS) – 73% owned by British Government
- Persia International Bank Plc (UK) (owned by Bank Mellat & Bank Tejarat – specialises in trade finance for Iranian clients)
- Bank Melli Plc (UK)
- Bank Sepah International Plc (UK)
- Svenska Handelsbanken
- DANSKE BANK (Danish bank covering Scandinavian and European trade with Iran)
- Rabobank (Netherlands)
- KBC Bank (supporting its customers from Belgium, Czech Republic, Slovakia and Hungary in their trade with Iran)
- DZ Bank (Germany – also handling other EU member states transactions with Iran)
- Deutsche Bank (cooperation with Ministry of Petroleum for clearance of oil revenues)
- Europaisch-Iranische Handelsbank AG in Hamburg (EIH – German bank with shareholders being Iran’s Bank of Industry & Mine, Bank Mellat and Bank Tejarat) – EIH handles many financial transactions between EU member states and Iran either as the main bank or as correspondent bank
- Some smaller landesbank and sparkasse financial institutions in Germany
- Bank Sepah Branch (Frankfurt)
- Natixis S.A. (France)
- Banque Worms (France)
- Some small and regional banks in France
- Bank Tejarat (Paris Branch)
- Bank Melli (Paris Branch)
- Banque de Commerce et de Placements – BCP (Switzerland)
- Banque Heritage (Switzerland)
- Bank Alpinum AG (Lichtenstein)
- Raiffeisen Bank Austria
- Erste Bank Austria
- Oberbank AG (affiliated to Erste Bank)
- Bank Polski (Poland)
- Československá obchodní banka, a.s. (ČSOB) – Czech Republic
- Česká Spořitelna (Czech Republic)
- Bank of Italy
- SACHE (Italy)
- Banca Popolare di Sondrio (Italian bank covering European trade with Iran)
- Banca Popolare di Milano (Italy)
- Banca Popolare di Vicenza (Italy)
- Banco Marroqui de Comercio Exterior (BMCE Bank) – Spain
- Aresbank S.A. (formerly Banco Árabe Español, S.A.) – Spain
- TÜRKİYE HALK BANKASI A.Ş. (Turkey) [Foreign companies with registered offices in Turkey can also use HalkBank]
- Bank Mellat Türkiye (Istanbul)
- Bank Melli Branch (Baku)
- Mellat Bank SB CJSC (Armenia)
- Bank Tejarat Branch (Tajikistan)
- Bank Melli Branch (Iraq)
- Masraf Al Rayan (Qatar)
- Bank Melli Iran UAE
- Bank Muscat (Oman – also opening a representative office in Tehran)
- UCO Bank of India (formerly United Commercial Bank – a major government owned commercial bank of India – establishing a representative office in Tehran) (under specific definitions, services of UCO may also be used by 3rd countries)
- IDBI Bank (India)
- IndusInd Bank (India)
- DBS Bank (Singapore)
- Mizuho Bank Ltd. (Japan)
- Bank of Tokyo-Mitsubishi
- Sumitomo Mitsui Banking Corporation (Japan)
- Mega International Bank (Taiwan)
- Branch of Bank Melli Plc UK (Hong Kong)
- Bank of Kunlun Co. Ltd. (a unit of state-owned China National Petroleum Corp.)
- Industrial and Commercial Bank of China Ltd. (ICBC)
- China Construction Bank
- Agricultural Bank of China
- Export-Import Bank of Korea (KEXIM)
- Woori Bank Co. Ltd. (South Korea – has recently established a representative office in Tehran)
- Korea Development Bank
It has been observed that the Central Bank of Iran has very close cooperation with the following banks: 1) Bank of Kunlun; 2) Bank Muscat; 3) HalkBank; 4) Europaisch-Iranische Handelsbank AG in Hamburg (EIH).
European Banks having Euro correspondent banking relations with the Central Bank of the Islamic Bank of the Islamic Republic of Iran.
|SR. NO.||COUNTRY||BANK NAME|
|1||Austria||OESTERREICHISCHE NATIONAL BANK VIENNA AT|
|2||OBERBANK AG, LINZ|
|3||RAIFFEISEN BANK INTERNATIONAL AG|
|4||Azerbaijan||THE INTERNATIONAL BANK OF AZERBAIJAN|
|5||Belgium||KBC BANK NV, BRUSSELS|
|7||England||BRITISH ARAB COMMERCIAL BANK (BACB)|
|8||MELLI BANK PLC, LONDON|
|9||France||BANK TEJARAT, PARIS|
|10||BANK MELLI IRAN, PARIS|
|11||Germany||EUROPAEISCH-IRANISCHE HANDELSBANK AG, HAMBURG|
|12||BANK MELLI IRAN, HAMBURG|
|14||Italy||BANCA D’ITALIA ROMA|
|15||POPOLARE DI SONDRIO|
|16||UNICREDIT S.P.A. MILANO IT|
|18||Russia||TRANSKAPITAL BANK RUSSIA|
|19||VTB BANK (PJSC), VORONT SOVSKAYA UL. MOSCOW|
|22||Swiss||BANQUE DE COMMERCE ET DE PLACEMENTS S.A., GENEVA|
|25||Turkey||TURKIYE HALK BANKASI A.S. ANKARA TR|
|26||AKTIF YATIRIM BANKASI A.S. ISTANBUL|