Welcome to Banking Quest

Brief Introduction to FEMA

The Indian Government formulated the Foreign Exchange Management Act (FEMA) in 1999 and was effective from 1st June 2000. Its main objective was to facilitate external trade and payment and promote the orderly development and maintenance of foreign exchange market in the country. The act introduced more liberalization and Authorised Dealers have been shouldered with more delegation.

Eight decades of RBI’s policies can be divided into 3 phases: 

• Control
• Regulations
• Reforms

 At this stage, we are in the Reform phase where RBI intends to – both regulate, manage, and ensure that the trade barriers are few.

The overall structure of Foreign Exchange Management Act, 1999 is covered by legislations, rules, and regulations. 

These legislations, rules and regulations relating to Foreign Exchange Management Act, 1999, can be divided into:

• FEMA contains 7 chapters divided into 49 sections (Supreme Regulations)
• 23 sets of Regulations made by RBI under section 47 of FEMA. (Subordinate Legislations) 
• Master Directions issued by RBI at periodical intervals
• Foreign Direct Investment (FDI) policy issued by Department of Industrial Policy and Promotion (DIPP) time to time. 
• Notifications and Circulars issued by Reserve Bank of India. 
• Enforcement Directorate

FEMA contains 7 Chapters divided into 49 sections of which 12 sections cover the operational part and the rest 37 sections deal with contraventions, penalties, adjudication, appeals, enforcement directions, etc.  

FEMA makes provisions for dealings in foreign exchanges. Broadly, all current account transactions are free. However, the Central Government can impose reasonable restrictions by issuing rules. The capital account transactions will be regulated by RBI/Central Government for which necessary circulars/notifications will have to be issued under FEMA. 

 All chapters of FEMA are divided into 49 sections. 

International Trade:

 Imports & Exports – both involve movement of goods and money. Each nation will have regulations in their movement for various reasons – to protect the local industry, due to geo-political reasons, anti-dumping etc

Export of Goods and Services from India is governed by clause (a) of sub-section (1) and sub-section (3) of Section 7 of the Foreign Exchange Management Act 1999 (42 of 1999), read with Notification No. G.S.R. 381(E) dated May 3, 2000 viz. Foreign Exchange Management (Current Account Transactions) Rules, 2000, further read with FEMA Notification No.23(R)/2015-RB dated January 12, 2016. 

These Regulations are amended from time to time to incorporate the changes in the regulatory framework and published through amendment notifications and master directions.

AD Category – I banks may conduct export transactions in conformity with the Foreign Trade Policy in vogue and the Rules framed by the Government of India and the Directions issued by Reserve Bank from time to time. 

Let’s look at few Export Regulations

Export Declarations:

Every exporter is obligated to declare the exports either to customs, software technology parks and post offices depending on the mode of dispatch and the product. RBI has defined the process of such declarations and the exemptions. 

Declaration in respect of:

Export of goods through Customs ports 

(i) Customs shall certify the value declared and give a running serial number on the two copies of Export Declaration Form (EDF), submitted by the exporter at the Non- Electronic Data Interchange (EDI) port. 

(ii) Customs shall retain the original EDF for transmission to the Reserve Bank and return the duplicate copy to the exporter. 

(iii) At the time of shipment of goods, exporters shall submit the duplicate copy of the EDF to Customs. After examining the goods, Customs shall certify the quantity in the form and return it to the exporter for submission to AD for negotiation or collection of export bills. 

(iv) Within 21 days from the date of export, the exporter shall lodge the duplicate copy together with relative shipping documents and an extra copy of the invoice to the AD named in the EDF. 

(v) After the documents have been negotiated / sent for collection, the AD shall report the transaction through Export Data Processing and Monitoring System (EDPMS) to the Reserve Bank and retain the documents at their end. 

(vi) In case of exports made under deferred credit arrangement or to joint ventures abroad against equity participation or under rupee credit agreement, the number and date of the Reserve Bank approval and/or number and date of the relative RBI circular shall be recorded at the appropriate place on the EDF. 

(vii) Where a duplicate copy of EDF is misplaced or lost, AD may accept a copy of duplicate EDF duly certified by Customs. 

Export of goods/ software done through EDI ports 

(i) The shipping bill shall be submitted in duplicate to the authority concerned (Commissioner of Customs or the SEZ, if the export is made through it). 

(ii) After verifying and authenticating, the authority concerned shall hand over to the exporter, one copy of the shipping bill marked ‘Exchange Control (EC) Copy’ for being submitted to the AD bank within 21 days from the date of export for collection/negotiation of shipping documents. However, in cases where EC copy of shipping bill is not printed in terms of CBEC’s Circular No. 55/2016-Customs dated November 23, 2016 and data of shipping bill is integrated with EDPMS, requirement of submission of EC copy of shipping bill with the AD bank would not be there. 

(iii) The manner of disposal of EC copy of Shipping Bill shall be the same as that for EDF. The duplicate copy of the form together with a copy of invoice etc. shall be retained by ADs and may not be submitted to the Reserve Bank. The question of disposal of EC copy of shipping bill will, however, not arise where EC copy of shipping bill is not printed in terms of CBEC’s Circular No.55/2016-Customs dated November 23, 2016 and data of shipping bill is integrated with EDPMS. 

Export of Software

All software exporters can now file single as well as bulk SOFTEX form in the form of a statement in excel format to the competent authority for certification. Since the SOFTEX data from STPI/SEZ are being transmitted in electronic format to RBI, the exporters now have to submit the SOFTEX form in duplicate as per the revised procedure. STPI/SEZ will retain one copy and handover duplicate copies to exporters after due certification. As hitherto, the exporters have to provide information about all the invoices including the ones lesser than US$25000, in the bulk statement in excel format. 

A common “SOFTEX Form” has been devised to declare single as well as bulk software exports. 

Reserve Bank of India has extended the facility for online generation of the EDF Form Number and the SOFTEX Form Number (Single as well as Bulk for use in off-site software exports). The facility of manual allotment of single as well bulk SOFTEX form number by Regional Offices of RBI has been dispensed with accordingly. 

Export of Services 

it is clarified that, in respect of export of services to which none of the Forms specified in these Regulations apply, the exporter may export such services without furnishing any declaration but shall be liable to realise the amount of foreign exchange which becomes due or accrues on account of such export, and to repatriate the same to India in accordance with the provisions of the Act, and these Regulations, as also other rules and regulations made under the Act. 

Export of goods through Post 

Postal Authorities shall allow export of goods by post only if the original copy of the EDF has been countersigned by an AD. Therefore, EDF which involves sending goods by post should be first presented by the exporter to an AD for countersignature. The procedure is as under: 

(i) AD shall countersign EDF after ensuring that the parcel has been addressed to their branch or correspondent bank in the country of import and return the original copy to the exporter, who shall then submit the EDF to the post office with the parcel. 

(ii) The duplicate copy of EDF shall be retained by the AD to whom the exporter shall submit relevant documents together with an extra copy of invoice for negotiation/collection, within the prescribed period of 21 days. 

(iii) The concerned overseas branch or correspondent shall be instructed to deliver the parcel to the consignee against payment or acceptance of the relative bill. 

(iv) AD may, however, countersign EDF covering parcels addressed direct to the consignees, provided: 

• (a) An irrevocable letter of credit for the full value of export has been opened in favor of the exporter and has been advised through the AD concerned. 
  • Or 
• (b) The full value of the shipment has been received in advance by the exporter through an AD. 
  • Or 
• (c) The AD is satisfied, on the basis of the standing and track record of the exporter and the arrangements made for realization of the export proceeds. 

In such cases, particulars of advance payment/letter of credit / AD’s certification of standing, etc., of the exporter should be furnished on the form under proper authentication. 

(v) Any alteration in the name and address of consignee on the EDF form should also be authenticated by AD under its stamp and signature.

Exemption from Declaration 

The requirement of declaration of export of goods and software in the prescribed form will not apply to the cases indicated in Regulation 4 of Foreign Exchange Management (Export of Goods and Services) Regulations dated January 12, 2016. The exporters shall, however, be liable to realize and repatriate export proceeds as per FEMA Regulations. 

Grant of EDF waiver 

AD Category – I banks may consider requests for grant of EDF waiver from exporters as under: 

Status holders shall be entitled to export freely exportable items (excluding Gems and Jewellery, Articles of Gold and precious metals) on free of cost basis for export promotion subject to an annual limit as below: 

1. Annual limit of 2% of average annual export realization during preceding three licensing years for all exporters (excluding the exporters of following sectors-(1) Gems and Jewellery Sector, (2) Articles of Gold and precious metals sector). 
2. Annual limit of Rupees One Crore or 2% of average annual export realization during preceding three licensing years, whichever is lower. (for exporters of the following sectors-(1) Gems and Jewellery Sector, (2) Articles of Gold and precious metals sector).
3. In case of supplies of pharmaceutical products, vaccines and lifesaving drugs to health programmes of international agencies such as UN, WHO-PAHO and Government health programmes, the annual limit shall be upto 8% of the average annual export realisation during preceding three licensing years. 

Such free of cost supplies shall not be entitled to Duty Drawback or any other export incentive under any export promotion scheme. 

Exports of goods not involving any foreign exchange transaction directly or indirectly requires the waiver of EDF procedure from the Reserve Bank.

EDF Approval for Trade Fair/Exhibitions abroad 

Firms / Companies and other organizations participating in Trade Fair/Exhibition abroad can take/export goods for exhibition and sale outside India without the prior approval of the Reserve Bank. Unsold exhibit items may be sold outside the exhibition/trade fair in the same country or in a third country. Such sales at discounted value are also permissible. It would also be permissible to 'gift’ unsold goods up to the value of USD 5000 per exporter, per exhibition/trade fair. AD Category – I banks may approve EDF of export items for display or display-cum-sale in trade fairs/exhibitions outside India subject to the following: 

• The exporter shall produce a relative Bill of Entry within one month of re-import into India of the unsold items. 
• The exporter shall report to the AD Category – I banks the method of disposal of all items exported, as well as the repatriation of proceeds to India. 
• Such transactions approved by the AD Category – I banks will be subject to 100 per cent audit by their internal inspectors/auditors. 

EDF approval for export of goods for re-imports 

AD Category – I banks may consider request from exporters for granting EDF approval in cases where goods are being exported for re-import after repairs / maintenance / testing / calibration, etc., subject to the condition that the exporter shall produce relative Bill of Entry within one month of re-import of the exported item from India. 

Where the goods being exported for testing are destroyed during testing, AD Category – I banks may obtain a certificate issued by the testing agency that the goods have been destroyed during testing, in lieu of Bill of Entry for import.

Delay in submission of shipping documents by exporters 

In cases where exporters’ present documents pertaining to exports after the prescribed period of 21 days from date of export, AD Category – I banks may handle them without prior approval of the Reserve Bank, provided they are satisfied with the reasons for the delay.

Realisation and repatriation of Export Proceeds:

It is obligatory on the part of the exporter to realize and repatriate the full value of goods / software / services to India within a stipulated period from the date of export, as under: 

1. It has been decided in consultation with the Government of India that the period of realization and repatriation of export proceeds shall be nine months from the date of export for all exporters including Units in Special Economic Zones (SEZs), Status Holder Exporters, Export Oriented Units (EOUs), Units in Electronic Hardware Technology Parks (EHTPs), Software Technology Parks (STPs) & Bio-Technology Parks (BTPs) until further notice. 
2. In view of the outbreak of pandemic COVID-19, it has been decided, in consultation with the Government of India, to increase the period of realization and repatriation to India of the amount representing the full export value of goods or software or services exported, from nine months to fifteen months from the date of export, for the exports made up to or on July 31, 2020 
3. For goods exported to a warehouse established outside India, the proceeds shall be realized within fifteen months from the date of shipment of goods.

Third Party Payments

 Taking into account the evolving international trade practices, it has been decided to permit third party payments for export / import transactions can be made subject to conditions as under: 

• Firm irrevocable order backed by a tripartite agreement should be in place. However, it may not be insisted upon in cases where documentary evidence for circumstances leading to third party payments / name of the third party being mentioned in the irrevocable order/ invoice has been produced subject to:  
  • AD banks should be satisfied with the bona-fides of the transaction and export documents, such as invoice / FIRC. 
  • AD banks should consider the FATF statements while handling such transactions.
• Third party payment should be routed through the banking channel only
• The exporter should declare the third party remittance in the Export Declaration Form and it would be responsibility of the Exporter to realize and repatriate the export proceeds from such third party named in the EDF
• It would be responsibility of the Exporter to realize and repatriate the export proceeds from such third party named in the EDF
• Reporting of outstanding, if any, in the XOS would continue to be shown against the name of the exporter. However, instead of the name of the overseas buyer from where the proceeds have to be realized, the name of the declared third party should appear in the XOS
• In case of shipments being made to a country in Group II of Restricted Cover Countries, (e.g. Sudan, Somalia, etc.), payments for the same may be received from an Open Cover Country; and 
• In case of imports, the Invoice should contain a narration that the related payment has to be made to the (named) third party, the Bill of Entry should mention the name of the shipper as also the narration that the related payment has to be made to the (named) third party and 
• the importer should comply with the related extant instructions relating to imports including those on advance payment being made for import of goods.

Receipt of advance against exports 

In terms of Regulation 15 of Notification No. FEMA 23 (R)/2015-RB dated January 12, 2016, where an exporter receives advance payment (with or without interest), from a buyer outside India, the exporter shall be under an obligation to ensure that the shipment of goods is made within one year from the date of receipt of advance payment; the rate of interest, if any, payable on the advance payment does not exceed London Interbank Offered Rate (LIBOR) + 100 basis points; and the documents covering the shipment are routed through the AD Category – I bank through whom the advance payment is received. 

In the event of the exporter’s inability to make the shipment, partly or fully, within one year from the date of receipt of advance payment, no remittance towards refund of unutilized portion of advance payment or towards payment of interest, shall be made after the expiry of the said period of one year, without the prior approval of the Reserve Bank. 

EDPMS will capture the details of advance remittances received for exports in EDPMS. Henceforth, AD Category – I banks will have to report all the inward remittances including advance as well as old outstanding inward remittances received for export of goods/ software to EDPMS. Further, AD Category – I banks need to report the electronic FIRC to EDPMS wherever such FIRCs are issued against inward remittances. 

Long Term Export Advance (Beyond 1 Year)

AD Category- I banks may allow exporters to receive advance payment for export of goods which would take more than one year to manufacture and ship and where the ‘export agreement’ provides for shipment of goods extending beyond the period of one year from the date of receipt of advance payment subject to the following conditions: 

1. The KYC and due diligence exercise have been done by the AD Category – I bank for the overseas buyer
2. Compliance with the Anti-Money Laundering standards has been ensured.
3. The AD Category-I bank should ensure that export advance received by the exporter should be utilized to execute export and not for any other purpose i.e., the transaction is a bonafide transaction
4. Progress payment, if any, should be received directly from the overseas buyer strictly in terms of the contract 
5. The rate of interest, if any, payable on the advance payment shall not exceed London Interbank Offered Rate (LIBOR) + 100 basis points
6. There should be no instance of refund exceeding 10% of the advance payment received in the last three years
7. The documents covering the shipment should be routed through the same authorised dealer bank; and 
8. In the event of the exporter's inability to make the shipment, partly or fully, no remittance towards refund of unutilized portion of advance payment or towards payment of interest should be made without the prior approval of the Reserve Bank

Export Advance for Very Long-Term Exports

AD Category- I banks can also allow exporters having a minimum of three years’ satisfactory track record to receive long term export advance up to a maximum tenor of 10 years to be utilized for execution of long-term supply contracts for export of goods subject to the conditions as under: 

1. Firm irrevocable supply orders and contracts should be in place. The contract with the overseas party/ buyer should be vetted and the same shall clearly specify the nature, amount and delivery timelines of the products over the years and penalty in case of non-performance or contract cancellation. Product pricing should be in consonance with prevailing international prices. 
2. Companies should have capacity, systems and processes in place to ensure that the orders over the duration of the said tenure can actually be executed. 
3. The facility is to be provided only to those entities, which have not come under the adverse notice of the Enforcement Directorate or any such regulatory agency or have not been caution listed. 
4. Such advances should be adjusted through future exports.
5. The rate of interest payable, if any, should not exceed LlBOR plus 200 basis points.
6. The documents should be routed through one Authorized Dealer bank only. 
7. ADs should comply with AMC/KYC guidelines
8. Such export advances shall not be permitted to be used to liquidate Rupee loans classified as NPA
9. Double financing for working capital for execution of export orders should be avoided
10. Receipt of such advance of USD 100 million or more should be immediately reported to the Trade Division, Foreign Exchange Department, Reserve Bank of India, Central Office, Mumbai

As it has been observed that there is substantial increase in the number and the amount of advances received for exports remaining outstanding beyond the stipulated period on account of non-performance of such exports (shipments in case of export of goods), AD Category –I banks are advised to efficiently follow up with the concerned exporters in order to ensure that export performance (shipments in case of export of goods) are completed within the stipulated time period. 

It is further reiterated that AD category –I banks should exercise proper due diligence and ensure compliance with KYC and AML guidelines so that only bonafide export advances flow into India. Doubtful cases as also instances of chronic defaulters may be referred to Directorate of Enforcement (DoE) for further investigation. A quarterly statement indicating details of such cases may be forwarded to the concerned Regional Offices of RBI within 21 days from the end of each quarter. 

Issue of BG 

In case Authorized Dealer banks are required to issue bank guarantee (BG) / Stand by Letter of Credit (SBLC) for export performance, then the issuance should be rigorously evaluated as any other credit proposal keeping in view, among others, prudential requirements based on board approved policy. 

• BG / SBLC may be issued for a term not exceeding two years at a time and further rollover of not more than two years at a time may be allowed subject to satisfaction with relative export performance as per the contract. 
• BG / SBLC should cover only the advance on a reducing balance basis.
• BG / SBLC issued from India in favour of overseas buyer should not be discounted by the overseas branch / subsidiary of bank in India

Refund of Advance Payment

AD Category – I banks may allow the purchase of foreign exchange from the market for refunding advance payment credited to EEFC accounts only after utilizing the entire balances held in the exporter’s EEFC accounts maintained at different branches/banks. 

Dispatch of documents by the exporter 

AD Category – I banks should normally dispatch shipping documents to their overseas branches/correspondents expeditiously. However, they may dispatch shipping documents direct to the consignees or their agents resident in the country of final destination of goods in cases where: 

1. Advance payment or an irrevocable letter of credit has been received for the full value of the export shipment and the underlying sale contract/letter of credit provides for dispatch of documents direct to the consignee or his agent resident in the country of final destination of goods. 
2. The AD Category – I banks may also accede to the request of the exporter provided the exporter is a regular customer and the AD Category – I bank is satisfied, on the basis of standing and track record of the exporter and arrangements have been made for realization of export proceeds.
3. AD Category – I banks may also permit 'Status Holder Exporters’ (as defined in the Foreign Trade Policy), and units in Special Economic Zones (SEZ) to dispatch the export documents to the consignees outside India subject to the terms and conditions that: 

• • The export proceeds are repatriated through the AD banks named in the EDF. 
  • The duplicate copy of the EDF is submitted to the AD banks for monitoring purposes by the exporters within 21 days from the date of shipment of export

AD Category – I banks may regularize cases of dispatch of shipping documents by the exporter direct to the consignee or his agent resident in the country of the final destination of goods, irrespective of the value of export shipment, subject to the following conditions: 

1. The export proceeds have been realized in full except for the amount written off, if any, in accordance with the extant provisions for write off. 
2. The exporter is a regular customer of AD Category – I bank for a period of at least six months.
3. The exporter’s account with the AD Category – I bank is fully compliant with the Reserve Bank’s extant KYC / AML guidelines.
4. The AD Category – I bank is satisfied about the bonafides of the transaction. 
5. In case of doubt, the AD Category – I bank may consider filing a Suspicious Transaction Report (STR) with FIU_IND (Financial Intelligence Unit in India).

Follow-up of overdue bills 

AD Category – I banks should closely watch realization of bills and in cases where bills remain outstanding, beyond the due date for payment from the date of export, the matter should be promptly taken up with the concerned exporter. If the exporter fails to arrange for delivery of the proceeds within the stipulated period or seek extension of time beyond the stipulated period, the matter should be reported to the Regional Office concerned of the Reserve Bank stating, where possible, the reason for the delay in realizing the proceeds. 

The duplicate copies of EDF/SOFTEX Forms should continue to be held by AD Category – I banks until the full proceeds are realized, except in case of undrawn balances. 

AD Category – I banks should follow up export outstanding with exporters systematically and vigorously so that action against defaulting exporters does not get delayed. Any laxity in the follow up of realization of export proceeds by AD Category – I banks will be viewed seriously by the Reserve Bank, leading to the invocation of the penal provision under FEMA, 1999. 

Reduction in invoice value on account of prepayment of usance bills 

Occasionally, exporters may approach AD Category – I banks for reduction in invoice value on account of cash discount to overseas buyers for prepayment of the usance bills. AD Category – I banks may allow cash discount to the extent of amount of proportionate interest on the unexpired period of usance, calculated at the rate of interest stipulated in the export contract or at the prime rate/LIBOR of the currency of invoice where rate of interest is not stipulated in the contract. 

Reduction in invoice value in other cases 

If, after a bill has been negotiated or sent for collection, its amount is to be reduced for any reason, AD Category – I banks may approve such reduction, if satisfied about genuineness of the request, provided: 

1. The reduction does not exceed 25 per cent of invoice value
2. It does not relate to export of commodities subject to floor price stipulations
3. The exporter is not on the exporters’ caution list of the Reserve Bank
4. The exporter is advised to surrender proportionate export incentives availed of, if any.

Special Dispensation

In the case of exporters who have been in the export business for more than three years, reduction in invoice value may be allowed, without any percentage ceiling, subject to the above conditions as also subject to their track record being satisfactory, i.e., the export outstanding do not exceed 5 percent of the average annual export realization during the preceding three financial years. 

For the purpose of reckoning the percentage of export bills outstanding to the average export realizations during the preceding three financial years, outstanding of exports made to countries facing externalization problems may be ignored provided the payments have been made by the buyers in the local currency. 

Change of buyer/consignee 

Prior approval of the Reserve Bank is not required if, after goods have been shipped, they are to be transferred to a buyer other than the original buyer in the event of default by the latter, provided the reduction in value, if any, involved does not exceed 25 per cent of the invoice value and the realization of export proceeds is not delayed beyond the period of 9 months from the date of export. Where the reduction in value exceeds 25%, all other relevant conditions stipulated in the above paragraph should also be satisfied.

Extension of time 

The Reserve Bank of India has permitted the AD Category – I banks to extend the period of realization of export proceeds beyond stipulated period of realization from the date of export, up to a period of six months, at a time, irrespective of the invoice value of the export subject to the following conditions: 

1. The export transactions covered by the invoices are not under investigation by Directorate of Enforcement / Central Bureau of Investigation or other investigating agencies
2. The AD Category – I bank is satisfied that the exporter has not been able to realize export proceeds for reasons beyond his control
3. The exporter submits a declaration that the export proceeds will be realized during the extended period
4. While considering extension beyond one year from the date of export, the total outstanding of the exporter does not exceed USD one million or 10 per cent of the average export realizations during the preceding three financial years, whichever is higher
5. In cases where the exporter has filed suits abroad against the buyer, extension may be granted irrespective of the amount involved / outstanding.

Cases which are not covered by the above instructions would require prior approval from the concerned Regional Office of the Reserve Bank

All Extensions, reporting should be done in EDPMS.

Write-off of Unrealised Export Bills

There are three modes of Write-off:

• Self write-off
• By AD
• Approval Route

An exporter who has not been able to realize the outstanding export dues despite best efforts, may either self-write off or approach the AD Category – I banks, who had handled the relevant shipping documents, with appropriate supporting documentary evidence. The limits prescribed for write-offs of unrealized export bills are as under:

The above limits of self-write-off and write-off by the AD Category-1 Bank shall be reckoned cumulatively and shall be available subject to the following conditions: 

1. The relevant amount has remained outstanding for more than one year
2. Satisfactory documentary evidence is furnished indicating that the exporter had made all efforts to realise the export proceeds
3. The exporter is a regular customer of the bank for a period of at least 6 months, is fully compliant with KYC/AML guidelines and AD Category – 1 Bank is satisfied with the bonafides of the transaction. 
4. The case falls under any of the undernoted categories:

• • The overseas buyer has been declared insolvent and a certificate from the official liquidator, indicating that there is no possibility of recovery of export proceeds, has been produced.
  • The unrealized amount represents the balance due in a case settled through the intervention of the Indian Embassy, Foreign Chamber of Commerce or similar Organization
  • The goods exported have been auctioned or destroyed by the Port / Customs / Health authorities in the importing country
  • The overseas buyer is not traceable over a reasonably long period of time.
  • The unrealised amount represents the undrawn balance of an export bill (not exceeding 10% of the invoice value) remaining outstanding and turned out to be unrealisable despite all efforts made by the exporter.
  • The cost of resorting to legal action would be disproportionate to the unrealised amount of the export bill or where the exporter even after winning the course case against the overseas buyer could not execute the Court decree due to reasons beyond his control.
  • Bills were drawn for the difference between the letter of credit value and actual export value or between the provisional and the actual freight charges but the amounts have remained unrealized consequent on dishonor of the bills by the overseas buyer and there are no prospects of realization

There is another provision for the AD Category-1 bank to approve write off of unrealised export bills without any limit in respect of cases falling under:

1. The overseas buyer has been declared insolvent and a certificate from the official liquidator, indicating that there is no possibility of recovery of export proceeds, has been produced.
2. The unrealized amount represents the balance due in a case settled through the intervention of the Indian Embassy, Foreign Chamber of Commerce or similar Organization
3. The goods exported have been auctioned or destroyed by the Port / Customs / Health authorities in the importing country

Provided AD Category – 1 Bank is satisfied with the documentary evidence produced.

AD Category-1 banks may also permit write-off of outstanding amount of export bills up to the specified ceilings indicated in the above table, where the documents have been directly dispatched by the exporter to the consignee or his agent resident in the country of final destination of goods if the case falls under:

1. The overseas buyer has been declared insolvent and a certificate from the official liquidator, indicating that there is no possibility of recovery of export proceeds, has been produced.
2. The unrealized amount represents the balance due in a case settled through the intervention of the Indian Embassy, Foreign Chamber of Commerce or similar Organization
3. The goods exported have been auctioned or destroyed by the Port / Customs / Health authorities in the importing country

The AD Category-1 banks shall ensure that the exporter seeking write-off has submitted documentary evidence towards surrendering of proportionate export incentives if any, availed of in respect of the relative export bill. 

In case of self-write-off, the AD Category-1 bank shall obtain from the exporter, a certificate from Chartered Accountant indicating the export realization in the preceding calendar year and details of the amount of write-off, if any, already availed of during the current calendar year along with the requisite details of the EDF/Export Bill under the write-off request. This certificate shall also indicate that the export benefits, if any, availed by the exporter have been surrendered. 

The following cases, however, would not qualify for the “write-off” facility: 

1. Exports made to countries with externalization problem i.e. where the overseas buyer has deposited the value of export in local currency but the amount has not been allowed to be repatriated by the Central Bank/ authorities of the country concerned. 
2. EDF/Softex which are under investigation by agencies like, Enforcement Directorate, Directorate of Revenue Intelligence, Central Bureau of Investigation, etc. as also the outstanding bills which are subject matter of civil / criminal suit. 

AD Category -1 banks shall report write-off of export bills in EDPMS

AD Category -1 banks shall put in place a system to carry out random check / percentage check of the export bills so written-off by their internal Inspectors/Auditors (including external Auditors). 

Requests for write-off not covered under the above instructions may be referred to the Regional Office of RBI.

Issuance of Electronic Bank Realisation Certificate (eBRC) 

AD Category-I banks are required to update the EDPMS with data of export proceeds on “as and when realised basis” and, with effect from October 16, 2017, they are required to generate Electronic Bank Realisation Certificate (eBRC) only from the data available in EDPMS, to ensure consistency of data in EDPMS and consolidated eBRC. 

Remittances connected with Export 

Agency commission on exports 

AD Category – I banks may allow payment of commission, either by remittance or by deduction from invoice value, on application submitted by the exporter. The remittance on agency commission may be allowed subject to conditions as under: 

Amount of commission has been declared on EDF/SOFTEX form and accepted by the Customs authorities or Ministry of Information Technology, Government of India / EPZ authorities as the case may be.

 In cases where the commission has not been declared on EDF/SOFTEX form, remittance may be allowed after satisfying the reasons adduced by the exporter for not declaring commission on Export Declaration Form, provided a valid agreement/written understanding between the exporters and/or beneficiary for payment of commission exists.

In all Cases, the relative shipment should have already been made.

Export claims 

AD Category – I banks may remit export claims on application, provided the relative export proceeds have already been realized and repatriated to India and the exporter is not on the caution list of the Reserve Bank. 

 In all such cases of remittances, the exporter should be advised to surrender proportionate export incentives, if any, received by him.

Refund of export proceeds 

AD Category – I banks, through whom the export proceeds were originally realized may consider requests for refund of export proceeds of goods exported from India and being re-imported into India on account of poor quality. While permitting such transactions, AD Category – I banks shall: 

1. Exercise due diligence regarding the track record of the exporter
2. Verify the bona-fides of the transactions 
3. Obtain from the exporter a certificate issued by DGFT / Custom authorities that no export incentive has been availed by the exporter against the relevant export or the proportionate incentives availed, if any, have been surrendered
4. Not insist on the requirement of re-import of goods, where exported goods have been auctioned or destroyed by the Port / Customs / Health authorities/ any other accredited agency in the importing country subject to submission of satisfactory documentary evidence.

In all other cases AD banks shall ensure that procedures as applicable to normal imports are adhered to and that an undertaking from the exporter, to re-import the goods within three months from the date of refund of export proceeds, shall be obtained.

Written by :  Mr Nagaraj Susurla RamasubbaRao, Banking Consultant & Trainer. Mr Nagaraj held various assignments in SBI in India and at foreign offices. He also occupied the  position of Director, SBI’s Regional Training Institute. The article is based upon the lecture delivered by Mr Nagaraj SR in Foreign Exchange Training Program organised by Banking Quest.