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FEDAI Rules-14, Clarification Explanatory Notes Certain Other Important Information.


Preamble
(Rule 1) Hours of Business
Rule 2 Export Transactions
Rule 3 Imports Sharing of Commission
Rule 5 Clean Instruments
Rule 6 Guarantees
Rule 8 Forward Contracts
Rule 17 (old)

Preamble Chapter 14

Clarification, explanatory Notes and Certain other Important Information

Preamble :
While effort has been made in this Chapter to incorporate the clarifications/amplifications relating to the FEDAI Rules, as much as possible, member banks would be advised to make a reference to the circulars issued by the Association earlier and from time to time in regard to various types of foreign exchange transactions and be guided by the instructions contained therein.

Clarification, explanatory notes and certain other important information

(Rule 1)
Hours of Business

In terms of paragraph 8.2 of Reserve Bank of India Guidelines for internal Control over Foreign Exchange Business appended below authorized on behalf of the bank during extended hours subject to the condition that the management in each bank lay down the working hours of the dealers.

8.2 Dealing Hours

“The dealing hours will be ordinarily the recognized working hours of the banks at the respective centers. But the conditions of the exchange markets and time zone differences may require the dealers to work longer hours. In such an event, dealers would also undertake operations of purchase, sale etc. of foreign currencies on behalf of the bank during extended hours. It is essential that the Management in each bank should lay down the working hours of the dealers.”

In the circumstances it is our considered view that FEDAI Rule 1 should be read in conjuction with the provision of paragraph 8.2 referred to above.

(Refer our Special Circular no: 2314/Dlg.Hrs/SPL-73/95 dated 22nd June 1995)


Rule 2 Export Transactions

  1. Letter of credit restricted to a particular bank but forward contract for the relative export fixed through another bank

    A commission of 0.35% shall be charged by the negotiating bank for negotiating bills/documents under letters of credit restricted to themselves against issue of foreign currency drafts/TTs in favour of the bank with whom the forward exchange is fixed in payment of such negotiations.

    The bank with whom the contract is fixed shall pay this charge of the negotiating bank and shall recover from the exporters to the extent of 0.20% and absorb the balance of 0.15% of the said charges. (AR Circular No. 4/86 dated 26th August 1986).
  2. Export letters of credit
    1.  Letters of credit include letters of credit, letters of guarantee, letters of authority, orders to negotiate, orders for payment and all types of documents of similar nature.
    2. The Uniform Customers and Practice for Documentary Credits in force will not apply to:

      Letter of credit issued by banks in countries which do not subscribe to the said Uniform Customs and advices to the beneficiaries of such letters of credit should indicate that the credit is not subject to the Uniform Customs unless the issuing bank to apply it. (Old Rule 10 II C).
  3.  Advising letter of credit/amendments
    1. Letters of credit/amendments may be advised through the intermediary of a bank. The advising bank reserves its right to negotiate or not documents under the credit. It must however verify the authenticity of the letter of credit advised to the beneficiary. If an exporter receives a letter of credit direct, the negotiating bank should have the genuineness of the instrument verified before negotiating/purchasing/discounting documents thereunder.
    2. The advising banks should not on their own restrict negotiations to their counters merely because the credit has been advised through them.
    3. Forwarding the credit/amendment by V.P.Post is prohibited.
  4. Recovery of charges for transfer of proceeds of export bills negotiated under restricted letters of credit to outside the centre of negotiation

    Bank which has negotiated letters of credit documents received from another bank outside the centre of negotiation under restricted letters of credit and transferred the proceeds to that bank is entitled to charge commission applicable to inland remittances.
    (Circular Letter No.48/90 dated 20th December 1990).
  5. Bills of Lading

    Banks will not accept bills of lading made out “received for shipment” or containing any other similar objectionable clause, unless such a clause is permitted in a letter of credit or similar authority under which the purchasing bank is protected. Also banks will accept only those bills of lading the signature on which has been manually inscribed. Short form bills of lading as defined in Article 23(v) in Uniform Customs and Practice for Documentary Credits ICC Brochure 500 should be acceptable under letter of credit.
  6. Insurance
    Unless otherwise stipulated in the credit, or unless it appears from the insurance document(s) that the cover is effective at the latest from the date of loading on board or dispatch or taking in charge of the goods, banks will refuse insurance documents presented which bear a date later than the date of loading on board or dispatch or taking in charge of the goods as indicated by the transport document(s). {Article 34(e) of UCP 500}

    The Marine Insurance clause should therefore read as under:

    Marine Insurance Policies/Certificates (dated as above) unto order and blank endorsed for 10% over invoice value covering institute Cargo Clause A Institute War Clause (Cargo) and Institute Strikes Clause (Cargo) with claims payable in India. (Circular Letter 17th December 1985).
  7. Clean TTs
    1. Clean TT purchase contracts can be substituted for underlying TT purchase contracts in respect of export bills, provided swap difference, where applicable, shall be recovered from/paid to the merchant, as the case may be.
    2. Clean TT rate shall be conceded for the purchase of the proceeds of bills sent for collection or of goods sent on consignment basis provided payment is made in India only after the foreign currency amounts are credited to the nostro account of the bank concerned.
  8.  Rates of exchange applicable for issuance of bank certificates to exporters

    The following rates of exchange should be applied for issuance of bank certificates as per Import-Export Policy:

    The FOB value should be arrived at from the rupee equivalent of the foreign currency amount actually credited to the exporter’s account at the time negotiation of bills or upon realization of bills sent for collection.

    Member banks should take into account 100% of the FOB value of the relative bill/invoice including the rupee equivalent of the portion of the foreign currency amount to be kept in EEFC account irrespective of whether the customer was granted 100% advance or not. The applicable rate for the purpose of conversion in this case would be the market rate applied for the relative bill. (Circular letter No: 19/92 dated 1.6.92, Circular letter no: 29/92 dated 15.7.92)
  9. Crystallisation of Export Bills

    It is clarified that the customer’s liability to the bank after crystallization would be either the rupee equivalent of the bill negotiated or the rupee equivalent of the bill crystallized, whichever is higher. (Mg.Com. 6/96 dated 30.03.96)

Rule 3 Imports Sharing of Commission

  1. Letter of credit opened by an Authorised Dealer against the undertaking of another bank who is not an Authorised Dealer

    In case where an Authorised Dealer opens a letter of credit against the undertaking of another bank who is not an Authorised Dealer, to honour the commitments thereunder, the L/C commission with that bank to the extent of 50% of such commission, provided the said bank undertakes that no portion of such commission will be passed on to the opener of the L/C. (AR Circular No.117/83 dated 18th November 1983).
  2.  Letter of credit issued by one Authorised Dealer against counter-indemnity of another Authorised Dealer

    On any letter of credit issued by an authorized Dealer in foreign exchange against the counter-indemnity of another Authorised Dealer, commission collected shall be shared between them equally.
  3. Letters of credit issued by one Authorised Dealer against the counter-indemnities of more than one Authorised Dealer

    In case where more than one Authorised Dealer participate in the issue of a letter of credit commission shall be shared in proportion to the risk assumed by each Authorised Dealers. (AR Circular No. 5/87 dated 11th November 1987)

    Where the bank issuing the letter of credit is not a member of the consortium the consortium banks will be treated as a single unit vis-à-vis the issuing bank for the above purpose. (Special Circular No. 410/RULE-SPL-12/89 dated 2nd March 1989).
  4. Insurance

    Unless otherwise stipulated in the credit, or unless it appears from the insurance document(s)that the cover is effective at the latest from the date of loading on board or dispatch or taking in charge of the goods, banks will refuse insurance documents presented which bear a date later than the date of loading on board or dispatch or taking in charge of the goods as indicated by the transport document L(s). (Article 34(e) of UCP 500)

    The Marine Insurance clause should therefore read as under :

    “Marine Insurance Policies/Certificate (dated as above) unto order and blank endorsed for 10% over invoice value covering Institute Cargo Clause A Institute War Clause (Cargo) and Institute Strikes Clause (Cargo) with Claims payable in India. (Circular Letter No. 74/85 dated 17th December 1985).”
  5. Bank Guarantee covering import of goods into India under various AID loans
    1. Where the guarantee to be issued is to be followed by issue of letter of credit.
      1. On the L/C to be established in due course L/C opening commission should be collected at the time of opening the L/C.
      2. On that part of the amount of the guarantee which is in excess of authorisation applied for commission for the full period of guarantee should be collected at the time of issuing the guarantee.
    2. Where the guarantee does not result in a letter of credit and import bills are received by guarantor bank on collection basis.
      1. Initially commission should be recovered on the full amount for a period of 3 months @ 0.25%
      2.  Commission should be reckoned from the time guarantee is issued till the relative bills received on collection basis are paid by the customer and shortfall if any to be recovered.
      3. For that part of the guarantee which is in excess of the bill amount the usual guarantee commission for the full period of the guarantee should be recovered. (Circular letter No.40/90 dated 27th November 1990).
  6. Booking of forward sale contract in respect of import bills drawn under letter of credit opened by another bank

    Where an importer has arranged for fixation of a forward contract with a bank other than the one through whom the letter of credit has been opened, the customer would be liable to pay L/C opening bank 0.25% commission in lieu of exchange in addition to swap cost and proceeds in the bank’s nostro account. (Managing Committee Circular No.27/87 dated 8th December 1987).
  7. Recovery of commission on import bills under L/C payments of which are settled out of foreign currency loans arranged abroad

    Banks are entitled to collect 0.15% commission as per FEDAI Rules and 0.25% commission in lieu of exchange in respect of letters of credit opened by Authorised Dealers, payments of which are settled out of foreign currency loans arranged abroad. In case of bills not covered L/Cs appropriate bill commission should be recovered together with 0.25% commission in lieu of exchange (Managing Committee Circular No. 13/89 dated 9th September 1989.)
  8. Definition of a collecting bank

    Collecting bank is the bank which receives a bill from abroad and the bank through whom the receiving bank is instructed to present it.
  9. Import bills for collection

    In respect of foreign currency collection bills the collecting bank shall be entitled to exchange and commission.
    1. If for any reason the collecting bank is required to present the bill through another bank, the former (the collecting bank) shall be entitled to commission and the latter (the presenting bank) shall the payment in the currency of the draft/bill. Where the presenting bank is unable to effect a remittance in the currency of the draft/bill, the presenting bank shall arrange to obtain a demand draft/effect remittance in the foreign currency of the draft/bill.
    2. In respect of bills drawn in Rupees the commission shall always be earned by the collecting bank. If for any reason the collecting bank is required to present the bill through another bank the latter may charge a commission as on any other inland collection.

Rule 5 Clean Instruments

  1. Payment of a foreign currency draft by the drawee bank by issuing their own draft In the same currency in favour of the beneficiary bank of the former draft with whom the relative foreign currency amount is to be deposited in a FCNR account.

    The drawee bank of a foreign currency draft shall pay such draft at the request of the beneficiary bank in case the draft is received for depositing the foreign currency amount with the beneficiary bank in a FCNR account, by issuing their own draft in the same currency in favour of the said beneficiary bank and may levy a service charge for the issue of their own draft at the rate of 0.10% with a minimum of Rs.50/- and a minimum of Rs.10/-. The said drawee bank may also collect any ouit-of-p0ocket expenses incurred by them for issuing their own draft. The said beneficiary bank shall absorb this charge of the said drawee bank and shall not recover it to the debit of the relative FCNR account. (AR Circular No.5/76 dated 15th April 1976).
  2. Payment of foreign inward remittances All foreign currency inward remittance upto an equivalent of Rs. 100,000/- shall be immediately converted into Indian Rupee. Remittance in excess of equivalent of Rs.100.000/- shall be executed in foreign currency and the beneficiary has the option of presenting the relative instrument for payment to the executing bank within the maximum period prescribed under the Exchange Control Regulations. In this connection, we further clarify as under.
    1. Any request from the beneficiary of the remittance for subsequent reconversion to foreign currency, including request for opening Exchange Earner’s Foreign Currency (EEFC) accounts should be done at market rate.
    2.  FIRPS instruments should continue to be issued only for personal remittances, upto an equivalent of Rs. 1 Lakh. (AR 2/93 dated 1.3.93 & AR 11/95 dated 20.12.95).
  3. Where inward remittances are in respect of export transactions covered under forward exchange contracts the relative forward contract rate shall be applied.
  4. Clean Rupee remittances

    On clean Rupee remittances (not being proceeds of import bill) which are covered by crediting non-resident bank accounts maintained in India, commission shall be charged by the bank originating payment instruction to the foreign bank. The bank with whom the relative non-resident account is maintained shall not be entitled to any commission but shall receive from the originating bank out-of-pocket expenses and telegram or postage charges actually incurred in advising the receipt of cover to the non-resident bank.
  5. Collection of clean instruments for non-Authorised Dealers

    In case where an Authorised Dealer undertakes collection of foreign currency clean instruments tendered by a bank who is not an Authorised Dealer received from their non-resident account holders of Indian nationally or origin and also handles remittances from India for such account holders (request routed through their banker) the member banks may share the commission with that bank, not more than 50% to be charge as prescribed in FEDAI Rules provided that no portion of such commission will be passed on to the customer.(AR Circular No.7/86 dated 30th December 1986).
  6. Sharing of Commission on sale of foreign currency travelers cheques by Authorised Dealers

    Member banks are not permitted to share the commission on sale of travellers cheques with travel agents/others. (Circular Letter No.28/88 dated 5th October 1988).

    Calculation of exchange rate for foreign currency travelers cheques and charging of commission (effective from 1st April 1991) T.C.Buying Rate T.C.Selling Rate
    1. Take Reserve Bank one month i. Take the clean TT Selling rate forward buying rate for the in accordance with the guidelines foreign currency as the base rate. prescribed by FEDAI
    2. If the foreign currency is one ii Convert the clean TT selling rate which is not purchased by in Rupees equal to one unit of Reserve Bank the base rate foreign currency to get the base should be the on-going first rate (in the case of Jap. Yen and month forward buying rate quoted Italian Lira, the unit of foreign currency in the exchange market in India will be 100) or abroad.
    3. Convert the base rate in Rupees iii Add a margin of 0.5% equal to one unit of foreign (at the option of the Authorised currency (in the case of Japanese Dealer). Yen and Italian Lira,the unit of foreign currency will be 100).
      iv. Deduct an all-inclusive margin iv. A commission not exceeding not exceeding 1% from the 1% may be charged (at the option above rate to arrive at the amount of the Authorised Dealer) on the in Rupees to be paid for every unit Rupee equivalent of value of of foreign currency. the foreign currency travelers cheques sold at the above rate.

      The result rates may be rounded off to the nearest 5 paise on the buying as well as selling (Special Circular No. 50/FCTC/SPL-8/91 dated 14th March 1991.)

Rule 6 Guarantees

  1. Where guarantees are issued on behalf of Central and State Governments and Corporations or Companies wholly owned by them the scale of charges prescribed may be levied on a reduced scale at the discretion of the banks. This discretion is not applicable for deferred payment guarantees. (Circular Letter No: 1/93 dated 5.1.93)
  2. Banks should, in their own interest, continue their efforts to obtain an early return of cancelled guarantees. They should also ensure that all guarantees include a specific clause stating the exact period within which claims must be made under a guarantee after its validity has expired.
  3. If the commission on guarantee issued by a member bank on behalf of a branch/foreign correspondent is subjected to tax in the country of the branch/foreign correspondent, member bank may increase the amount of commission in such a manner that the amount of commission net of such tax will comform to the rate laid down under this Rule.
  4. Sharing of Commission Letter of guarantee issued by one Authorised Dealer against counter-indemnity of another Authorised Dealer

    On any letter of guarantee issued by an Authorised Dealer in foreign exchange against the counter-indemnity of another Authorised Dealer commission shall be shared between them equally.
  5. Guarantee issued by one Authorised Dealer against the counter-indemnities of more than one Authorised Dealer In case where more than one Authorised Dealer participate in the issue of guarantee,commission shall be shared in proportion to the risk assumed by each Authorised Dealer. (AR Circular No. 5/87 dated 11th November 1987).

    Where the bank issuing the guarantee is not a member of the consortium the consortium banks will be treated as a single unit vis-à-vis the issuing bank, for the above purpose. (Special Circular No.410/Rule-15SPL-12/89 dated 2nd March 1989). F. Advance Payment/Performance Guarantee/Bid Bonds for Projects in India in respect of which Global Tenders are invited.

    Commission on all advance payment/performance guarantees/bid bonds for all projects in India in respect of which global tenders are invited will be collected at a rate to be determined by the Authorised Dealers themselves. (AR 3/94 dated 28th November 1994)

Rule 8 Forward Contracts

  1. Extension of all purchase or sale contracts including contracts relating to import/export on deferred payment basis shall be governed by the Exchange Control Regulations.
  2. Contracts may be extended at any time during their currency or within a period of 7 days from the date of maturity, provided that if they are extending after the last delivery date, interest and swap cost will be collected.

    When contracts are extended both during their currency or within a period of 7 days from the date of their maturity interest at 15% per annum on outlay of funds by the bank for the purpose of arranging the swap shall be recovered in addition to the exchange difference if any. (Circular Letter No.70/85 dated 6th November 1985).

    Seven days time has been allowed as lead time for pipeline transactions from designated branches to reach position maintaining office and to enable inter-branch accounting adjustments. This is not meant for customers who must give instructions regarding utilization or otherwise of the contract on or before maturity date. (SPL 15/94 dated 6.4.94)

Rule 17 (old)
Deferred Payment Guarantees covering import of ships.  This Rule has since been withdrawn. Rule 6 would apply for DPGs in connection with import of ships.(AR No.3/96 dated 30.3.96)


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