FEDAI Rules- 2, Export Transactions. General Export bills purchased/discounted/negotiated Application if interest Export bill for collection Transferable letters of credit RULES 2-Export Transactions General Bank will purchase only Approved Bill and the decision as to what is an approved bill lies solely with the purchasing bank. This includes bills tendered under forward contracts, letters of authority, orders to negotiate, orders for payment and any other type of document of similar nature. Bank will have the discretion to handle export bills on purchase/discount/negotiation or collection basis. Export bills purchased/discounted/negotiated Application of rates, crystallization of liabilities and recoveries Foreign currency bills will be purchased/negotiated / discounted at the Authorised Dealer’s current bill purchase rate or at the contracted rate. Interest for the normal transit, usance and grace period where applicable shall be recovered simultaneously. Exporters are liable for the repatriation of proceeds of the export bills negotiated/ purchased/ discounted or sent for collection by the Authorised Dealers. Authorised Dealers would transfer the exchange risk to the exporter by crystallising the foreign currency liability into Rupee liability on the 30th day after the transit period in case of unpaid demand bills. In case of unpaid usance bill crystallisation will take place on the 30th day from Notional due date or actual due date. Notional due date is arrived at by adding transit period, usance period and grace period if any to the date of purchase/ discount/ negotiation. In case the 30th day happens to be holiday or Saturday, the export bill will be crystallised on the next working day. For crystallisation into Rupee liability the bank will apply the spot TT selling rate of exchange ruling on the date of crystallisation. If the crystallised Rupee liability is less than the amount originally advance at the time of purchase/ discount/ negotiation the shortfall will be recovered from the customer. If, however, the crystallised rupee liability is higher than the amount originally advanced at the time of purchase/ discount/ negotiation banks will not pass on the surplus to the customers as bank consider the excess amount as an additional advance. Interest will also be recovered on the date of crystallisation for the period from the date of expiry of normal transit period/ notional due date, as the case may be, to the date of crystallisation at the appropriate rate of interest as directed by Reserve bank of India for overdue export bills. Export bills payable in counties with externalization problems would also be crystallised into Rupee liability like any other unpaid export bill notwithstanding receipt of advice of payment in local currency. The unpaid bill will be treated as outstanding under the sanctioned limit of the customer with the exchange risk open against him. After receipt of advice of realization, the Authorised Dealerwill adjust the Rupee liability on the bill crystallised as above by applying the spot TT buying rate of exchange. Any shortfall/excess shall be recovered from/ paid to the customer. Interest for the period from the date of crystallisation to the date of realization of the bill will be recovered from the customer at the appropriate rate of interest for overdue export bills as permitted by Reserve Bank of India. In case of receipt of intimation of dishonour of an export bill before the estimated crystallisation date, the bank shall recover from the customer: The Rupee equivalent of the bill arrived at the current spot TT selling rate or the amount originally advanced, whichever is higher. All foreign currency charges converted at the ruling spot TT selling rate. Other charges, if any. Interest at appropriate rate as prescribed by Reserve Bank of India from time to time. In case refund of negotiation proceeds of a foreign currency bill is required to be made to the negotiating bank, the rate of exchange for conversion shall be the spot TT selling rate of the negotiating bank ruling on the date of refund. In addition, the customer shall be required to pay charges and interest at the rate as prescribed by Reserve Bank of India from the time to time for Rupee loans granted against exports. In case of remittance of agency commission in foreign currency by deduction from the Rupee proceeds by the negotiating bank, the entire foreign currency amount of the bill shall be converted into Rupees at the appropriate spot buying rate, and from this amount the payment of commission remittable converted at the current spot TT selling rate shall be deducted. In case of payment of agency commission in foreign currency at the overseas center from the foreign currency proceeds of export bills such commission shall be deducted from the bill amount and the net amount so arrived at shall be converted at the spot bill purchase rate or the contract rate as the case may be. Application if interest This Rule is not aZpplicable to export transactions on deferred payment basis. The rate of interest applicable for all export transactions shall be as prescribed by Reserve Bank of India from time to time. For the purpose of application of interest at the time of purchase/ discount/ negotiation, export bills shall be classified as: Direct bills, viz. bills drawn in a currency of the country and made payable in that country (or reimbursable in that county). 1[Export bills drawn in the currency ‘euro’ on drawees in EMU countries shall be termed as ‘Direct bills’ Export bill drawn in existing currencies of EMU member countries (DM, FFC etc.) and payable in euro shall also be termed as ‘Direct Bills’] Indirect bills, viz. bills drawn in a currency other than that of drawee’s country and made payable in that country (in an indirect manner). However, if reimbursement of proceeds of such bill is to be made in the country of the currency (expressed therein) they are to be treated as ‘Direct Bills’. Examples A bill for a.$10,000-drawn on Melbourne (Australia) and payable in Melbourne is a “Direct Bills”. A bill for Stg.Pd. ($) 5,000-drawn on Melbourne and payable in Melbourne is an “Indirect Bills”. A bill for Stg.Pd. ($) 5,000-drawn on Melbourne and payable in Melbourne but reimbursement to be obtained in London is a “Direct Bill”. iv. The normal transit period as follows: Table-1 Normal Transit Period for Purpose of bills in Foreign Currencies – Direct and Indirect Bills Transit Period – No. of Days For indirect bills drawn on CurrenciesOf Countries ForDirectBills U.K.,EuropeN.America AfricaAsia Australia N.Zealand And Pacific Islands W. Indies Central &SouthAmerica UK, Europe & N. America 20 25 30 30 35 Africa, Asia 20 30 25 35 35 Australia, N.Zealand,Pacific Islands &W.Indies 20 30 35 25 30 Central and SouthAmerica 25 35 35 35 30 Note: In case of export usance bill where due dates are reckoned from date of shipment or date of bill of exchange no. Normal Transit Period will be applicable. Table – II Normal Transit Period for Purpose of Bills Drawn in Rupees In the case of bills drawn under letters of credit where reimbursement is provided at the center of negotiation If reimbursement for negotiation of Rupee bills drawn under a letter of credit is obtained in the center of negotiation by debit to the nonresident account of the credit opening bank held, either with the negotiating/ bank itself or with any of its branches in the same center, interest for the transit period of 3 days as followed shall not be collected. : 3 days In the case of bills drawn under letter of credit where reimbursement is provided at a center in India other than the center of negotiation In the case of bills ( )Drawn under letters of ( ) Credit where reimbursement ( ) is provided by ( ) Banks situated outside ( ) India : 20 days AND Bill not under letter of credit Export to Russia against letter of credit providing for reimbursement by Reserve Bank of India under State Credit arrangement ( A R 6/95 dated 14.10.95 ) Countries where Grace period is applicable: Aden (see Southern Yemen) Anguilla (W.Indies) Antigua (-do-) Australia Bahamas (W.Indies) Barbados Bermuda Borneo Burma British Honduras British Solomon Islands Cameroon (Formerly British British South Cameroon Area only) Canada Carriacou Cayman Island (W.Indies) Ethiopia Falkland Island Fiji Islands Gambia Ghana Gibraltar Grenada (W.Indies) Guyana Hongkong India Ireland Jamaica Jordan Kenya Korea M. Malawi Malaysia Malta Montesserrat (W.Indies) Mauritius New Zealand Nevis (W.Indies) Nigeria Norfolk Island Pakistan Papua & New Guinea Portugese Timor Sabah Sierra Leonne Seychelles Singapore Somali Southern Yemen (Aden) Sri Lanka St. Helena St. Kitts (W.Indies) St. Lucia (W.Indies) St. Vincent (W.Indies) Sudan Swaziland Tanzania Thailand Trinidad & (British) Turk & Caricos Islands Uganda Virgin Island (British) Western Samoa Zambia TT Reimbursement under letter of credit In case of bill where reimbursement is to be obtained by TT (i.e. where the reimbursing bank is other than the one where the one where the negotiating bank maintains its nostro account), the bank will recover at the time of negotiation transit period interest for 5 days and telex charges from the customer. If funds are not received by the negotiating bank in its nostro account on the 5th day, the bill will be treated as overdue and interest will be recovered from customer for the delayed period at the rate prescribed by Reserve Bank of India till the date of realisation i.e. receipt of funds into the nostro account of the bank. Where the negotiating bank is authoriased to draw TT directly (i.e. where the reimbursing bank maintains the negotiating bank’s nostro account) no interest will be charged to the customer. However, telex charges will be recovered from the customer. In case of delay in receipt of funds, overdue interest will be recovered from the customer.] In case of bill negotiated under a letter of credit and reimbursement claimed by TT from opening bank which arranges reimbursement through another bank, interest for 5 days and telex charges shall be recovered from the days, overdue interest will be recovered from the customer from 6th day onwards till date if reimbursement. Early realisation In case of early realisation of export bill proportionate interest will be refunded from the date of realisation i.e. by credit to nostro account in case of a foreign currency bill, and by debit to vostro account in case of a Rupee bill, upto the last date of normal transit period in the case of demand bill and upto the notional due date in case of usuance bill. Such a refund shall become payable only on receipt of relative credit advice/ statement of account by bank. In case of early realisation of usance export bill Athorised dealer would recover or pay swap cost as in case of early deliveries under a forward contract. Export credit interest The rates of interest for export credit will be as per directive from Reserve Bank of India, Industrial and Export Credit Department, Central Office, Bombay from time to time. Application of charges For each foreign currency bill purchased/ discount/ negotiated (upto US $ 5000/- Rs. 100/- or equivalent Minimum (over US $ 5000/- Rs. 500/- or equivalent) Minimum (AR 10/95 dated 20.12.95) On each Rupee bill 0.25% Minimum purchased/ discount Rs.100/- per billed/negotiated on which no exchange is earned (AR 4/93 dated 5.5.93) Note 1: In case a purchase/ discount/ negotiated bill (both in foreign currency as well as in Rupees) is later converted into a collection bills shall not be charged. Note 2: In case an export bill for collection (both in foreign currency as well as in Rupees) is subsequently purchase/discounted, the bank will recover the charges as applicable to export bills purchased/discounted and will not levy the commission as applicable to collection bills. Where a bank forwards export documents on which no collection commission and/ or exchange accrues to the remitting bank a minimum charge of Rs. 100/- per bill or set of documents shall be collected from the customer. (AR 10/95 dated 20.12.95) Where reimbursement under a letter of credit is claimed by a bank in India with another Authorised Dealer in India, a reasonable reimbursement commission with a minimum of Rs. 500/- per reimbursement may be recovered by the reimbursing bank. (AR 3/96 dated 30th March 1996) Where a bank which has booked a forward contract for its customer, submits the export documents delivered thereunder to another bank for negotiation owing to the letter of credit being restricted to that bank, the bank with whom the forward contract is fixed shall recover from the customer commission at the rate of 0.20 percent. A commission of 0.25% with a minimum of Rs. 50/- shall be charged for joining in customer’s guarantees/ indemnities and for giving guarantees/ indemnities on behalf of customers to other banks in India in respect of discrepancies in documents negotiated under letter of credit. All actual out of pocket expenses such as correspondent bank charges, postages, telegram/ cable/ telex charges including expenses incurred, to secure bank’s and customer’s interest shall be recovered from the customer. Where applicable, stamp duty payable on export bills shall be recovered from the customer. In case of overdue export bills purchased/ discounted/ negotiated i.e. where the proceeds are not received in India within the stipulated period of six months, additional commission not exceeding Rs. 250/- per quarter shall be charged. In case of export bills drawn on countries with externalisation problems but paid in local currency and the exporter has obtained necessary approval from Reserve Bank of India for extension, this charge shall nit be levied. This charge may not be recovered in the case of exports on deferred payment terms if the relative export proceeds are received from time to time on due dates within a reasonable time (say 10 days) or if at the time of export, the exporter has obtained the necessary approval from Reserve Bank of India for deferment of receipt of proceeds. The aforesaid charge will apply if proceeds are not received in India within such deferred periods. In the case of substitution/ charge in tenor of export bill, the bank shall recover charges as mentioned below from the exporters : In the case of change in the usance of a bill, concessive Interest on post-shipment credit shall be charged in accordance with apparent original tenor of instrument upto the notional due date of the export bill subject to maximum of 180 days. In addition, the bank shall also recover/ pay swap difference. Interest on outlay of funds, if any shall also be recovered from the customer at the rate not below the prime lending rate of the respective bank. (AR 1/95 dated 10.02.95) It is optional for a bank to accept or agree to accept Delivery of bills under a contract made for the purchase of a clean TT. If a bank accepts such bills, the swap difference for the relative cover (irrespective of whether an actual swap has been done or not) shall be recovered from/ paid to the merchant. Interest at the rate not below the prime lending rate of the respective bank on outlay of funds, if any shall also be recovered from the customer. (AR 1/95 dated 10.02.95) It is optional for a bank to accept or agree to accept bills drawn at a usance other than agreed to be delivered under a forward contract either prior to or at the time of delivery. When a bank agrees for a change in the usance it shall recover from/pay to the customer the swap difference. Interest at the rate not below the prime lending gate of the respective bank on outlay of funds, if any, shall also be recovered from the customer. (AR 1/95 dated 10.02.95) If the currency of the bill is one of the EMU member country currencies, redenomination of theses bills, for the purposes of receipt, payment, issuance of certificate, shipping guarantee or any other related purpose, into the euro shall be permitted at the option of the bank customer. The rate of conversion of these currencies into the euro shall be at fixed conversion rate as announced by the ECB. Export bill for collection Application of rates For disposal of the proceeds of bills sent for collection or of goods sent in consignment basis the TT buying rate ruling on the date of payment of proceeds or the forward contract rate as the case may be shall be applied and the payment will be made in India only after the foreign currency amount is credited to the nostro account of the bank. In the case of payment of agency commission in foreign currency at the overseas center from the foreign currency proceeds of export bills sent for collection, such commission shall be deducted and the net amount so arrived at shall be converted at the TT buying rate prevailing on the date of appropriation of proceeds or at the forward contract rate as the case may be. Application of interest On all Rupee loans granted against export bills sent on collection, interest will be charged as prescribed by Reserve Bank of India from time to time for export credit. Authorised Dealers will also pay interest for delay in payment to the exporters on export bills sent for collection and realised. On the assumption that the customer has complied with Exchange Control and bank’s own requirement, the following are time limits within which the transaction should be completed by an Authorised Dealer or his Authorised Branch after the date of receipt of credit advices/ statements : Note: if transfers are not completed within seven days from the time schedule fixed for execution of the payment orders the compensation will be payable. Compensation will start from the expiary of the period for execution of payment orders. The rate of compensation would be the minimum interest charged by the banks on export credit which is currently 13% per annum. The rate will vary with the export credit interest rates as advised by Reserve Bank of India from time to time. (AR Circular no: 2/92 dated 13.04.1992) Application of charges Commission on export bills for collection and export under consignment arrangement shall be recoverable as under: Note: These charges are also recoverable from the exporters where advance payment towards exports is received. In case of overdue export bills sent on collection i.e. where proceed are not received in India within the stipulated period of 6 months, additional commission not exceeding Rs. 250/- per quarter shall be charged. In case of export bills drawn on countries with externalisation problems but paid in local currency and the exporter has obtained necessary extension from Reserve Bank of India this charge will not be levied for such extension. The above charge may not be recovered in the case of exports on deferred payment terms if the relative export proceeds are received from time to time on due dates or within a reasonable time (say 10 days); or if at the time of export, the exporter has obtained the necessary approval from Reserve Bank of India for deferment of receipt of proceeds. The aforesaid charge will apply if proceeds are not received in India within such deferred periods. Where the proceeds of export bill sent on collection are received through a bank other than the collecting bank at the instance of the exporter/ overseas buyer, an additional charge of 0.125% shall be recovered from the exporter by the collecting bank. All actual out of pocket expense such as correspondent bank charges, postage, telegram/telex/cable charges etc. shall be recovered from the exporter. Where bank charges are to be recovered from the drawee but are refused by them, such charges shall be recovered from the exporter. Export letters of credit Where in terms of the letter of credit, the charges are recoverable from the exporter: An advising commission with a minimum of Rs. 200/- shall be recovered in respect of each letter of credit. A minimum commission of Rs. 100/- shall be recovered for advising each amendment. (AR 10/95 dated 20.12.95) The charges for adding confirmation to a letter of credit shall be as under : Commitment charge for the full validity of the credit @0.15% for every quarter or part thereof and Usance charge according to the tenor of the bill as under: 0.15% for bills upto 10 days sight. 0.30% for bills over 10 days and upto 3 months’ sight. 0.30% for the first three months plus 0.0750% per month in excess of three months for bills over 3 month’s sight. Notes : Where the amount of a letter of credit exceeds Rs. 8 crores (or in equivalent foreign currency) banks will recover charges at their discretion subject to minimum charge recoverable on Rs.8 crores. In case of extension of a letter of credit to which confirmation has been added by a bank in India, If such extension exceeds 3 months (one quarter) from the date of the letter of credit additional commitment charge will be recovered as above. when the amount of a letter of credit confirmed by a bank in India is subsequently increased, both usance and commitment charge as above shall be collected on the amount so increased. Transferable letters of credit When transfers are made under a transferable letter of credit (whether full or in part and whether endorsed on the credit it self or not), a minimum charge of Rs. 200/- shall be recovered for each advice of transfer, except when the name of the beneficiary of the credit is charged on instructions received directly from the opening bank. The transfer charge shall be for the account of the original beneficiary of the credit. (AR 10/95 dated 20.12.95) On all letters of credit calling for usance bills to be drawn on and accepted by banks in India, an acceptance commission shall be charged at the rate of 0.15% per month. Certificates A charge of Rs. 20/- per certificate shall be recovered for issue of certificates/attestations in respect of export transactions. However the banks may, in their discretion waive this charge. (AR 10/95 dated 20.12.95) Registration of contracts A minimum commission of Rs. 100/- shall be recovered for registration of each export contact by a bank and Rs. 50/- for every amendment thereof. (AR 4/93 dated 5.5.93) Advances against duty draw back entitlements A commission of 0.50% with a minimum of Rs. 50/- shall be recovered for advances under the Duty Draw Back Credit Scheme, 1976.