Role of Fedai

Role of FEDAI
In a regime where exchange rates were fixed and there were restrictions on outflow of
foreignexchange, the RBI encouraged the banks to constitute a self regulatory body and lay down
rulesfor the conduct of forex business. In order to ensure that all the banks participated in
thearrangement, the RBI placed a condition while issuing foreign exchange licence that everylicensee
agree to be bound by the rules laid down by the banker’s body – the FEDAI. FEDAI alsoaccredited
brokers through whom the banks put through deals. There is increasing emphasis nowon
competition, and fixing or advising charges by professional bodies is being viewed withdisfavour and
often treated as a restrictive trading practice. It is currently argued by some thatwith the growth in
volumes and giant strides in telecommunication, banks may no longer need todeal through brokers
when efficient match making arrangements exist. As in some other markets,the deals are concluded
on the basis of voice broking and it is sometimes held that this oftenresults in conclusion of deals
which are less than transparent, evidenced by instances wheredeals have been called off on payment
of differences. Under the circumstances, there is perhapsa need to review several aspects, viz.,
compatibility of advising or prescribing fees with pro-competition policy; role of brokers; electronic
dealing vis-à-vis voice broking; and relationshipbetween the RBI, FEDAI and authorised dealers.
Issues that Require Further Consideration
First, there are some limits on freedom accorded to banks, such as ones on borrowingand investing
overseas; ceilings on interest rates and maturities of non-resident foreigncurrency deposits; and
these could be reviewed at appropriate time, with a view toliberalising them prudently.
Second, the medium-term objective of reducing cash reserve requirements to theminimum

prescribed in the statute and the longer term objective of proposingamendments to the statute to
make all the reserve requirements flexible will be pursued,consistent with developments in fiscal and
monetary conditions.
Third, the restoration of freedom to corporates to hedge anticipated exposures iscontinuously under
review. However, the issue of restoration of facility to rebookcancelled contracts needs to be
reviewed with caution.
Fourth, the extension of facility of forward cover to FIIs is also under continuous review,though
facilities available now are yet to be fully utilised by FIIs.
Fifth, trading in derivatives is a desirable objective, but a number of preconditions are tobe satisfied
in the matter of institutional as well as regulatory arrangements. This is acomplex task, but certainly
is on the agenda of reform.
•
Sixth, setting up a forex clearing house is on the agenda and it is essential to design it onpar with
other leading clearing systems in the world.
Seventh, a number of recommendations of Tarapore Committee have been accepted,and others are
also reviewed from time to time. A view will have to be taken on each oneof them only in the context
of overall liberalisation of capital account, which in turn,depends on, among other things, progress of
our financial sector reforms and evolvinginternational financial architecture.
Eighth, development of deep and liquid money market with a well-defined yield curve inplace is an
accepted objective of RBI. The actions taken and those contemplated toperform this hard task have
already been articulated in my earlier speeches on money
and debt markets, and the recent Monetary and Credit Policy Statement of April 1999 hasprovided
evidence of RBI's approach in this regard.
Ninth, implementation of the recommendations of the Report on Public Sector Enterprises will
facilitate the efficient management of their foreign currency risks and alsoeven out lumpy demand
and supply situations in the forex market.
Tenth, while there is a dominant view that setting up Mumbai as an off-shore financialcentre is no
longer a necessity, the views of CII, which is posing the issue, may have tobe awaited and considered
seriously.
Eleventh, in any effort to develop markets, role of self regulatory bodies is critical. Therole of FEDAI in
achieving greater competition, efficiency and transparency in the forexmarkets needs to be reviewed
on a continuous basis, so as to keep pace withdevelopments in technology and financial sector
reforms.
Twelfth, a number of legislative changes are under contemplation, and of these the onesrelating to
Foreign Exchange Management and Money Laundering are critical todevelopment of forex markets.
Harmonisation between existing institutions, regulationsand practices, including transition path to
new legislative framework would be asignificant task in the context of forex market development.
•
Thirteenth, several representations have been received by Regulations Review Authorityto simplify,
streamline and rationalise some of the regulatory and reporting requirementspertinent to foreign
exchange. The RRA should be taking a final view in the matter, on thebasis of expected report of
group of Amicus Curiae, within a few weeks.
Fourteenth, in the area of technology, on-line connectivity has been initiated in respect of data
transmission by market to the RBI. Once this system is fully established, it will leadto a very prompt
and effective on-line monitoring by RBI as well as reduction inmultiplicity of reporting statements.
Similarly, initiatives are underway to expedite backoffice linkage between banks themselves and with
RBI for settlement, which will fructifyonce the VSAT is fully operational.
FEDAI Guidelines for Foreign

Exchange.
Established in 1958, FEDAI (Foreign Exchange Dealers' Association of India) is a group of

banks that deals in foreign exchange in India as a self regulatory body under the Section
25 of the Indian Company Act (1956).
The role and responsibilities of FEDAI are as follows:
 Formulations of FEDAI guidelines and FEDAI rules for Forex business.
 Training of bank personnel in the areas of Foreign Exchange Business.
 Accreditation of Forex Brokers.
 Advising/Assisting member banks in settling issues/matters in their dealings.
 Represent member banks on Government/Reserve Bank of India and other bodies.
 Rules of FEDAI also include announcement of daily and periodical rates to its
member banks.
FEDAI guidelines play an important role in the functioning of the markets and work in
close coordination with Reserve Bank of India (RBI), other organizations like Fixed Income
Money Market and Derivatives Association (FIMMDA), the Forex Association of India and
various other market participants.
Table of Contents
 Chapter 1 - Payment Methods In Export Import
 Chapter 2 - Payment Collection Against Bills
 Chapter 3 - Letter Of Credit (L/c)
 Chapter 4 - Trade Documents
 Chapter 5 - Pre Shipment Trade Finance
 Chapter 6 - Post Shipment Finance
 Chapter 7 - Forfeiting Factoring
 Chapter 8 - Bank Guarantees
 Chapter 9 - Transport Risk
 Chapter 10 - Contract Credit Risk
 Chapter 11 - Country Political Risk
 Chapter 12 - Currency Risk
 Chapter 13 - Export Import (Exim) Policy
 Chapter 14 - Foreign Exchange Management Act (FEMA)
 Chapter 15 - Fedai Guidlines
Payment Methods in Export

Import Trade.
 Clean Payments
o Advance Payment
o Open Account
 Payment Collection of Bills in International Trade
o Documents Against Payment D/P
o Documents Against Acceptance D/A
o Letter of Credit L/c
 Revocable & Irrevocable Letter of Credit (L/c)
 Sight & Time Letter of Credit
 Confirmed Letter of Credit (L/c)
There are 3 standard ways of payment methods in the export import trade international
trade market:
1. Clean Payment
2. Collection of Bills
3. Letters of Credit L/c
1. Clean Payments
In clean payment method, all shipping documents, including title documents are handled
directly between the trading partners. The role of banks is limited to clearing amounts as
required. Clean payment method offers a relatively cheap and uncomplicated method of
payment for both importers and exporters.
There are basically two type of clean payments:
Advance Payment
In advance payment method the exporter is trusted to ship the goods after receiving
payment from the importer.
Open Account
In open account method the importer is trusted to pay the exporter after receipt of
goods.
The main drawback of open account method is that exporter assumes all the risks while
the importer get the advantage over the delay use of company's cash resources and is
also not responsible for the risk associated with goods.
2. Payment Collection of Bills in
International Trade
The Payment Collection of Bills also called “Uniform Rules for Collections” is published by
International Chamber of Commerce (ICC) under the document number 522 (URC522)
and is followed by more than 90% of the world's banks.
In this method of payment in international trade the exporter entrusts the handling of
commercial and often financial documents to banks and gives the banks necessary
instructions concerning the release of these documents to the Importer. It is considered to
be one of the cost effective methods of evidencing a transaction for buyers, where
documents are manipulated via the banking system.
There are two methods of collections of bill :
Documents Against Payment D/P

In this case documents are released to the importer only when the payment has been
done.
Documents Against Acceptance D/A

In this case documents are released to the importer only against acceptance of a draft.
3. Letter of Credit L/c
Letter of Credit also known as Documentary Credit is a written undertaking by the

importers bank known as the issuing bank on behalf of its customer, the importer
(applicant), promising to effect payment in favor of the exporter (beneficiary) up to a
stated sum of money, within a prescribed time limit and against stipulated documents. It is
published by the International Chamber of Commerce under the provision of Uniform
Custom and Practices (UCP) brochure number 500.
Various types of L/Cs are :
Revocable & Irrevocable Letter of Credit (L/c)

A Revocable Letter of Credit can be cancelled without the consent of the exporter. An
Irrevocable Letter of Credit cannot be cancelled or amended without the consent of all
parties including the exporter.
Sight & Time Letter of Credit

If payment is to be made at the time of presenting the document then it is referred as the
Sight Letter of Credit. In this case banks are allowed to take the necessary time required
to check the documents.
If payment is to be made after the lapse of a particular time period as stated in the draft
then it is referred as the Term Letter of Credit.
Confirmed Letter of Credit (L/c)

Under a Confirmed Letter of Credit, a bank, called the Confirming Bank, adds its
commitment to that of the issuing bank. By adding its commitment, the Confirming Bank
takes the responsibility of claim under the letter of credit, assuming all terms and
conditions of the letter of credit are met.
Payments collection methods in

Export Import International
Trade.
 Introduction
 Role of Various Parties
o Exporter
o Exporter's Bank
o Buyer/Importer
o Importe's Bank
 Documents Against Payments (D/P)
 Docuemts Against Aceptance (D/A)
 Usance D/P Bills
Introduction
Payment Collection Against Bills also known documentary collection as is a payment

method used in international trade all over the world by the exporter for the handling of
documents to the buyer's bank and also gives the banks necessary instructions indicating
when and on what conditions these documents can be released to the importer.
Collection Against Bills is published by International Chambers of Commerce (ICC), Paris,
France. The last updated issue of its rule was published on January 1, 1966 and is know as
the URC 522.
It is different from the letters of credit, in the sense that the bank only acts as a medium
for the transfer of documents but does not make any payment guarantee. However,
collection of documents are subjected to the Uniform Rules for Collections published by
the International Chamber of Commerce (ICC).
Role of Various Parties
Exporter
The seller ships the goods and then hands over the document related to the goods to
their banks with the instruction on how and when the buyer would pay.
Exporter's Bank
The exporter's bank is known as the remitting bank , and they remit the bill for collection
with proper instructions. The role of the remitting bank is to :
 Check that the documents for consistency.
 Send the documents to a bank in the buyer's country with instructions on collecting
payment.
 Pay the exporter when it receives payments from the collecting bank.
Buyer/Importer
The buyer / importer is the drawee of the Bill.
The role of the importer is to :
 Pay the bill as mention in the agreement (or promise to pay later).
 Take the shipping documents (unless it is a clean bill) and clear the goods.
Importer's Bank
This is a bank in the importer's country : usually a branch or correspondent bank of the
remitting bank but any other bank can also be used on the request of exporter.
The collecting bank act as the remitting bank's agent and clearly follows the instructions
on the remitting bank's covering schedule. However the collecting bank does not
guarantee payment of the bills except in very unusual circumstance for undoubted
customer , which is called availing.
Importer's bank is known as the collecting / presenting bank. The role of the collecting
banks is to :
 Act as the remitting bank's agent
 Present the bill to the buyer for payment or acceptance.
 Release the documents to the buyer when the exporter's instructions have been followed.
 Remit the proceeds of the bill according to the Remitting Bank's schedule instructions.
If the bill is unpaid / unaccepted, the collecting bank :

 May arrange storage and insurance for the goods as per remitting bank instructions on
the schedule.
 Protests on behalf of the remitting bank (if the Remitting Bank's schedule states Protest)
 Requests further instruction from the remitting bank, if there is a problem that is not
covered by the instructions in the schedule.
 Once payment is received from the importer, the collecting bank remits the proceeds
promptly to the remitting bank less its charges.
Documents Against Payments (D/P)
This is sometimes also referred as Cash against Documents/Cash on Delivery. In effect

D/P means payable at sight (on demand). The collecting bank hands over the shipping
documents including the document of title (bill of lading) only when the importer has paid
the bill. The drawee is usually expected to pay within 3 working days of presentation. The
attached instructions to the shipping documents would show "Release Documents Against
Payment"
Risks :
Under D/P terms the exporter keeps control of the goods (through the banks) until the
importer pays. If the importer refuses to pay, the exporter can:
 Protest the bill and take him to court (may be expensive and difficult to control from
another country).
 Find another buyer or arrange a sale by an auction.
With the last two choices, the price obtained may be lower but probably still better than
shipping the goods back, sometimes, the exporter will have a contact or agent in the
importer's country that can help with any arrangements. In such a situation, an agent is
often referred to as a CaseofNeed, means someone who can be contacted in case of
need by the collecting bank.
If the importers refuses to pay, the collecting bank can act on the exporter's instructions
shown in the Remitting Bank schedule. These instructions may include:
 Removal of the goods from the port to a warehouse and insure them.
 Contact the case of need who may negotiate with the importer.
 Protesting the bill through the bank's lawyer.
Docuemts Against Aceptance (D/A)
Under Documents Against Acceptance, the Exporter allows credit to Importer, the period
of credit is referred to as Usance, The importer/ drawee is required to accept the bill to
make a signed promise to pay the bill at a set date in the future. When he has signed the
bill in acceptance, he can take the documents and clear his goods.
The payment date is calculated from the term of the bill, which is usually a multiple of 30
days and start either from sight or form the date of shipment, whichever is stated on the
bill of exchange. The attached instruction would show "Release Documents Against
Acceptance".
Risk
Under D/A terms the importer can inspect the documents and, if he is satisfied, accept the
bill for payment o the due date, take the documents and clear the goods; the exporter
loses control of them.
The exporter runs various risk. The importer might refuse to pay on the due date
because :
 He finds that the goods are not what he ordered.
 He has not been able to sell the goods.
 He is prepared to cheat the exporter (In cases the exporter can protest the bill and take
the importer to court but this can be expensive).
 The importer might have gone bankrupt, in which case the exporter will probably never
get his money.
Usance D/P Bills
A Usance D/P Bill is an agreement where the buyer accepts the bill payable at a specified
date in future but does not receive the documents until he has actually paid for them. The
reason is that airmailed documents may arrive much earlier than the goods shipped by
sea.
The buyer is not responsible to pay the bill before its due date, but he may want to do so,
if the ship arrives before that date. This mode of payments is less usual, but offers more
settlement possibility.
These are still D/P terms so there is no extra risk to the exporter or his bank. As an
alternative the covering scheduled may simply allow acceptance or payments to be
deferred awaiting arrival of carrying vessel.
There are different types of usance D/P bills, some of which do not require acceptance
specially those drawn payable at a fix period after date or drawn payable at a fixed date.
Bills requiring acceptance are those drawn at a fix period after sight, which is necessary to
establish the maturity date. If there are problems regarding storage of goods under a
usance D/P bill, the collecting bank should notify the remitting bank without delay for
instructions.
However, it should be noted that it is not necessary for the collecting bank to follow each
and every instructions given by the Remitting Banks.
Table of Contents
Letter of Credit(L/c) Documentry

Collection.
 Introduction
 Parties to Letters of Credit
 Types of Letter of Credit
 Standby Letter of Credit L/c

 Import Operations Under L/c
 Export Operations Under L/c
 Fees And Reimbursements
 Regulatory Requirements
 Trade Control Requirements
 Exchange Control Requirements
 UCPDC Guidelines
 ISBP 2002
 FEDAI Guidelines
 Fixing limits for Commercial Stand by Letter of Credit L/c
Introduction
Letter of Credit L/c also known as Documentary Credit is a widely used term to make
payment secure in domestic and international trade. The document is issued by a financial
organization at the buyer request. Buyer also provide the necessary instructions in
preparing the document.
The International Chamber of Commerce (ICC) in the Uniform Custom and Practice for
Documentary Credit (UCPDC) defines L/C as:
"An arrangement, however named or described, whereby a bank (the Issuing bank) acting
at the request and on the instructions of a customer (the Applicant) or on its own behalf :
1. Is to make a payment to or to the order third party ( the beneficiary ) or is to
accept bills of exchange (drafts) drawn by the beneficiary.
2. Authorised another bank to effect such payments or to accept and pay such bills
of exchange (draft).
3. Authorised another bank to negotiate against stipulated documents provided that

the terms are complied with.
A key principle underlying letter of credit (L/C) is that banks deal only in documents and
not in goods. The decision to pay under a letter of credit will be based entirely on
whether the documents presented to the bank appear on their face to be in accordance
with the terms and conditions of the letter of credit.
Parties to Letters of Credit
 Applicant (Opener): Applicant which is also referred to as account party is normally a

buyer or customer of the goods, who has to make payment to beneficiary. LC is initiated
and issued at his request and on the basis of his instructions.
 Issuing Bank (Opening Bank) : The issuing bank is the one which create a letter of credit
and takes the responsibility to make the payments on receipt of the documents from the
beneficiary or through their banker. The payments has to be made to the beneficiary
within seven working days from the date of receipt of documents at their end, provided
the documents are in accordance with the terms and conditions of the letter of credit. If
the documents are discrepant one, the rejection thereof to be communicated within seven
working days from the date of of receipt of documents at their end.
 Beneficiary : Beneficiary is normally stands for a seller of the goods, who has to receive
payment from the applicant. A credit is issued in his favour to enable him or his agent to
obtain payment on surrender of stipulated document and comply with the term and
conditions of the L/c.
If L/c is a transferable one and he transfers the credit to another party, then he is referred
to as the first or original beneficiary.
 Advising Bank : An Advising Bank provides advice to the beneficiary and takes the
responsibility for sending the documents to the issuing bank and is normally located in the
country of the beneficiary.
 Confirming Bank : Confirming bank adds its guarantee to the credit opened by another
bank, thereby undertaking the responsibility of payment/negotiation acceptance under
the credit, in additional to that of the issuing bank. Confirming bank play an important role
where the exporter is not satisfied with the undertaking of only the issuing bank.
 Negotiating Bank: The Negotiating Bank is the bank who negotiates the documents
submitted to them by the beneficiary under the credit either advised through them or
restricted to them for negotiation. On negotiation of the documents they will claim the
reimbursement under the credit and makes the payment to the beneficiary provided the
documents submitted are in accordance with the terms and conditions of the letters of
credit.
 Reimbursing Bank : Reimbursing Bank is the bank authorized to honor the

reimbursement claim in settlement of negotiation/acceptance/payment lodged with it by
the negotiating bank. It is normally the bank with which issuing bank has an account from
which payment has to be made.
 Second Beneficiary : Second Beneficiary is the person who represent the first or original
Beneficiary of credit in his absence. In this case, the credits belonging to the original
beneficiary is transferable. The rights of the transferee are subject to terms of transfer.
Types of Letter of Credit
1. Revocable Letter of Credit L/c

A revocable letter of credit may be revoked or modified for any reason, at any time by the
issuing bank without notification. It is rarely used in international trade and not considered
satisfactory for the exporters but has an advantage over that of the importers and the
issuing bank
There is no provision for confirming revocable credits as per terms of UCPDC, Hence they
cannot be confirmed. It should be indicated in LC that the credit is revocable. if there is no
such indication the credit will be deemed as irrevocable.
2. Irrevocable Letter of CreditL/c

In this case it is not possible to revoked or amended a credit without the agreement of
the issuing bank, the confirming bank, and the beneficiary. Form an exporters point of
view it is believed to be more beneficial. An irrevocable letter of credit from the issuing
bank insures the beneficiary that if the required documents are presented and the terms
and conditions are complied with, payment will be made.
3. Confirmed Letter of Credit L/c

Confirmed Letter of Credit is a special type of L/c in which another bank apart from the
issuing bank has added its guarantee. Although, the cost of confirming by two banks
makes it costlier, this type of L/c is more beneficial for the beneficiary as it doubles the
guarantee.
4. Sight Credit and Usance Credit L/c

Sight credit states that the payments would be made by the issuing bank at sight, on
demand or on presentation. In case of usance credit, draft are drawn on the issuing bank
or the correspondent bank at specified usance period. The credit will indicate whether the
usance draft are to be drawn on the issuing bank or in the case of confirmed credit on the
confirming bank.
5. Back to Back Letter of Credit L/c

Back to Back Letter of Credit is also termed as Countervailing Credit. A credit is known as
backtoback credit when a L/c is opened with security of another L/c.
A backtoback credit which can also be referred as credit and countercredit is actually a
method of financing both sides of a transaction in which a middleman buys goods from
one customer and sells them to another.
The parties to a BacktoBack Letter of Credit are:
1. The buyer and his bank as the issuer of the original Letter of Credit.
2. The seller/manufacturer and his bank,
3. The manufacturer's subcontractor and his bank.
The practical use of this Credit is seen when L/c is opened by the ultimate buyer in favour
of a particular beneficiary, who may not be the actual supplier/ manufacturer offering the
main credit with near identical terms in favour as security and will be able to obtain
reimbursement by presenting the documents received under back to back credit under
the main L/c
The need for such credits arise mainly when :
1. The ultimate buyer not ready for a transferable credit
2. The Beneficiary do not want to disclose the source of supply to the openers.
3. The manufacturer demands on payment against documents for goods but the
beneficiary of credit is short of the funds
6. Transferable Letter of Credit L/c

A transferable documentary credit is a type of credit under which the first beneficiary
which is usually a middleman may request the nominated bank to transfer credit in whole
or in part to the second beneficiary.
The L/c does state clearly mentions the margins of the first beneficiary and unless it is
specified the L/c cannot be treated as transferable. It can only be used when the company
is selling the product of a third party and the proper care has to be taken about the exit
policy for the money transactions that take place.
This type of L/c is used in the companies that act as a middle man during the transaction
but don’t have large limit. In the transferable L/c there is a right to substitute the invoice
and the whole value can be transferred to a second beneficiary
The first beneficiary or middleman has rights to change the following terms and
conditions of the letter of credit:
1. Reduce the amount of the credit.
2. Reduce unit price if it is stated
3. Make shorter the expiry date of the letter of credit.
4. Make shorter the last date for presentation of documents.
5. Make shorter the period for shipment of goods.
6. Increase the amount of the cover or percentage for which insurance cover must
be effected.
7. Substitute the name of the applicant (the middleman) for that of the first
beneficiary (the buyer).
Standby Letter of Credit L/c

Initially used by the banks in the United States, the standby letter of credit is very much
similar in nature to a bank guarantee. The main objective of issuing such a credit is to
secure bank loans. Standby credits are usually issued by the applicant’s bank in the
applicant’s country and advised to the beneficiary by a bank in the beneficiary’s country.
Unlike a traditional letter of credit where the beneficiary obtains payment against
documents evidencing performance, the standby letter of credit allow a beneficiary to
obtains payment from a bank even when the applicant for the credit has failed to perform
as per bond.
A standby letter of credit is subject to "Uniform Customs and Practice for Documentary
Credit" (UCP), International Chamber of Commerce Publication No 500, 1993 Revision, or
"International Standby Practices" (ISP), International Chamber of Commerce Publication
No 590, 1998.
Import Operations Under L/c

The Import Letter of Credit guarantees an exporter payment for goods or services,
provided the terms of the letter of credit have been met.
A bank issue an import letter of credit on the behalf of an importer or buyer under the
following Circumstances
 When a importer is importing goods within its own country.
 When a trader is buying good from his own country and sell it to the another country for
the purpose of merchandizing trade.
 When an Indian exporter who is executing a contract outside his own country requires
importing goods from a third country to the country where he is executing the contract.
The first category of the most common in the day to day banking
Fees And Reimbursements

The different charges/fees payable under import L/c is briefly as follows
1. The issuing bank charges the applicant fees for opening the letter of credit. The fee
charged depends on the credit of the applicant, and primarily comprises of :
(a) Opening Charges This would comprise commitment charges and usance charged to
be charged upfront for the period of the L/c.
The fee charged by the L/c opening bank during the commitment period is referred to as
commitment fees. Commitment period is the period from the opening of the letter of
credit until the last date of negotiation of documents under the L/c or the expiry of the
L/c, whichever is later
Usance is the credit period agreed between the buyer and the seller under the letter of
credit. This may vary from 7 days usance (sight) to 90/180 days. The fee charged by bank
for the usance period is referred to as usance charges
(b)Retirement Charges
1. This would be payable at the time of retirement of LCs. LC opening bank scrutinizes the
bills under the LCs according to UCPDC guidelines , and levies charges based on value of
goods
2. The advising bank charges an advising fee to the beneficiary unless stated otherwise
The fees could vary depending on the country of the beneficiary. The advising bank
charges may be eventually borne by the issuing bank or reimbursed from the applicant
3. The applicant is bounded and liable to indemnify banks against all obligations and
responsibilities imposed by foreign laws and usage
4. The confirming bank's fee depends on the credit of the issuing bank and would be
borne by the beneficiary or the issuing bank (applicant eventually) depending on the
terms of contract
5. The reimbursing bank charges are to the account of the issuing bank.
Risk Associated with Opening Imports L/cs

The basic risk associated with an issuing bank while opening an import L/c are :
1. The financial standing of the importer
As the bank is responsible to pay the money on the behalf of the importer,
thereby the bank should make sure that it has the proper funds to pay.
2. The goods
Bankers need to do a detail analysis against the risks associated with perishability
of the goods, possible obsolescence, import regulations packing and storage, etc.
Price risk is the another crucial factor associated with all modes of international
trade.
3. Exporter Risk
There is always the risk of exporting inferior quality goods. Banks need to be
protective by finding out as much possible about the exporter using status report
and other confidential information.
4. Country Risk
These types of risks are mainly associated with the political and economic scenario
of a country. To solve this issue, most banks have specialized unit which control
the level of exposure that that the bank will assumes for each country.
5. Foreign exchange risk

Foreign exchange risk is another most sensitive risk associated with the banks. As
the transaction is done in foreign currency, the traders depend a lot on exchange
rate fluctuations.
Export Operations Under L/c
Export Letter of Credit is issued in for a trader for his native country for the purchase of
goods and services. Such letters of credit may be received for following purpose:
1. For physical export of goods and services from India to a Foreign Country.
2. For execution of projects outside India by Indian exporters by supply of goods
and services from Indian or partly from India and partly from outside India.
3. Towards deemed exports where there is no physical movements of goods from

outside India But the supplies are being made to a project financed in foreign
exchange by multilateral agencies, organization or project being executed in India
with the aid of external agencies.
4. For sale of goods by Indian exporters with total procurement and supply from
outside India. In all the above cases there would be earning of Foreign Exchange
or conservation of Foreign Exchange.
Banks in India associated themselves with the export letters of credit in various capacities
such as advising bank, confirming bank, transferring bank and reimbursing bank
In every cases the bank will be rendering services not only to the Issuing Bank as its agent
correspondent bank but also to the exporter in advising and financing his export activity.
1. Advising an Export L/c
The basic responsibility of an advising bank is to advise the credit received from
its overseas branch after checking the apparent genuineness of the credit
recognized by the issuing bank. It is also necessary for the advising bank to go
through the letter of credit, try to understand the underlying transaction, terms
and conditions of the credit and advice the beneficiary in the matter.
The main features of advising export LCs are:

1. There are no credit risks as the bank receives a onetime commission for
the advising service.
2. There are no capital adequacy needs for the advising function.
2. Advising of Amendments to L/Cs
Amendment of LCs is done for various reasons and it is necessary to fallow all the
necessary the procedures outlined for advising. In the process of advising the
amendments the Issuing bank serializes the amendment number and also ensures
that no previous amendment is missing from the list. Only on receipt of
satisfactory information/ clarification the amendment may be advised.
3. Confirmation of Export Letters of Credit
It constitutes a definite undertaking of the confirming bank, in addition to that of
the issuing bank, which undertakes the sight payment, deferred payment,
acceptance or negotiation.
Banks in India have the facility of covering the credit confirmation risks with ECGC
under their “Transfer Guarantee” scheme and include both the commercial and
political risk involved.
4. Discounting/Negotiation of Export LCs

When the exporter requires funds before due date then he can discount or
negotiate the LCs with the negotiating bank. Once the issuing bank nominates the
negotiating bank, it can take the credit risk on the issuing bank or confirming
bank.
However, in such a situation, the negotiating bank bears the risk associated with
the document that sometimes arises when the issuing bank discover discrepancies
in the documents and refuses to honor its commitment on the due date.
5. Reimbursement of Export LCs

Sometimes reimbursing bank, on the recommendation of issuing bank allows the
negotiating bank to collect the money from the reimbursing bank once the goods
have been shipped. It is quite similar to a cheque facility provided by a bank.
In return, the reimbursement bank earns a commission per transaction and enjoys
float income without getting involve in the checking the transaction
documents.reimbursement bank play an important role in payment on the due
date ( for usance LCs) or the days on which the negotiating bank demands the
same (for sight LCs)
Regulatory Requirements
Opening of imports LCs in India involve compliance of the following main regulation:
Trade Control Requirements

The movement of good in India is guided by a predefined se of rules and regulation. So,
the banker needs to assure that make certain is whether the goods concerned can be
physically brought in to India or not as per the current EXIM policy.
Exchange Control Requirements

The main objective of a bank to open an Import LC is to effect settlement of payment due
by the Indian importer to the overseas supplier, so opening of LC automatically comes
under the policies of exchange control regulations.
UCPDC Guidelines
Uniform Customs and Practice for Documentary Credit (UCPDC) is a set of predefined
rules established by the International Chamber of Commerce (ICC) on Letters of Credit.
The UCPDC is used by bankers and commercial parties in more than 200 countries
including India to facilitate trade and payment through LC
UCPDC was first published in 1933 and subsequently updating it throughout the years. In
1994, UCPDC 500 was released with only 7 chapters containing in all 49 articles .
The latest revision was approved by the Banking Commission of the ICC at its meeting in
Paris on 25 October 2006. This latest version, called the UCPDC600, formally commenced
on 1 July 2007. It contain a total of about 39 articles covering the following areas, which can
be classified as 8 sections according to their functions and operational procedures
Serial No. Article Area Consisting
1. 1 to 3 General Application, Definition and

Interpretations
2. 4 to 12 Obligations Credit vs. Contracts, Documents

vs. Goods
3. 13 to 16 Liabilities and Reimbursement, Examination of
responsibilities. Documents, Complying,
Presentation, Handling
Discrepant Documents
4. 17 to 28 Documents Bill of Lading, Chapter Party Bill of

Lading, Air Documents, Road Rail
etc. Documents, Courier , Postal etc.
Receipt. On board, Shippers' count,
Clean Documents, Insurance documents
5. 29 to 33 Miscellaneous Extension of dates, Tolerance in

Provisions Credits, Partial Shipment and
Drawings. House of Presentation
6 34 to 37 Disclaimer Effectiveness of Document

Transmission and Translation
Force Majeure
Acts of an Instructed Party
7 38 & 39 Others Transferable Credits

Assignment of Proceeds
ISBP 2002
The widely acclaimed International Standard Banking Practice(ISBP) for the Examination of
Documents under Documentary Credits was selected in 2007 by the ICCs Banking
Commission.
First introduced in 2002, the ISBP contains a list of guidelines that an examiner needs to
check the documents presented under the Letter of Credit. Its main objective is to reduce
the number of documentary credits rejected by banks.
FEDAI Guidelines
Foreign Exchange Dealer's Association of India (FEDAI) was established in 1958 under the
Section 25 of the Companies Act (1956). It is an association of banks that deals in Indian
foreign exchange and work in coordination with the Reserve Bank of India, other
organizations like FIMMDA, the Forex Association of India and various market participants.
FEDAI has issued rules for import LCs which is one of the important area of foreign
currency exchanges. It has an advantage over that of the authorized dealers who are now
allowed by the RBI to issue stand by letter of credits towards import of goods
As the issuance of stand by of letter of Credit including imports of goods is susceptible to
some risk in the absence of evidence of shipment, therefore the importer should be
advised that documentary credit under UCP 500/600 should be the preferred route for
importers of goods
Below mention are some of the necessary precaution that should be taken by authorised
dealers While issuing a stands by letter of credits:
1. The facility of issuing Commercial Standby shall be extended on a selective basis
and to the following category of importers
i. Where such standby are required by applicant who are independent power
producers/importers of crude oil and petroleum products
ii. Special category of importers namely export houses, trading houses, star
trading houses, super star trading houses or 100% Export Oriented Units.
2. Satisfactory credit report on the overseas supplier should be obtained by the

issuing banks before issuing Stands by Letter of Credit.
3. Invocation of the Commercial standby by the beneficiary is to be supported by

proper evidence. The beneficiary of the Credit should furnish a declaration to the
effect that the claim is made on account of failure of the importers to abide by his
contractual obligation along with the following documents.
i. A copy of invoice.
ii. Nonnegotiable set of documents including a copy of non negotiable bill of

lading/transport document.
iii. A copy of Lloyds /SGS inspection certificate wherever provided for as per
the underlying contract.
4. Incorporation of a suitable clauses to the effect that in the event of such invoice
/shipping documents has been paid by the authorised dealers earlier, Provisions
to dishonor the claim quoting the date / manner of earlier payments of such
documents may be considered.
5. The applicant of a commercial stand by letter of credit shall undertake to provide

evidence of imports in respect of all payments made under standby. (Bill of Entry)
Fixing limits for Commercial Stand by Letter of Credit L/c

1. Banks must assess the credit risk in relation to stand by letter of credit and explain
to the importer about the inherent risk in stand by covering import of goods.
2. Discretionary powers for sanctioning standby letter of credit for import of goods
should be delegated to controlling office or zonal office only.
3. A separate limit for establishing stand by letter of credit is desirable rather than
permitting it under the regular documentary limit.
4. Due diligence of the importer as well as on the beneficiary is essential .
5. Unlike documentary credit, banks do not hold original negotiable documents of

titles to gods. Hence while assessing and fixing credit limits for standby letter of
credits banks shall treat such limits as clean for the purpose of discretionary
lending powers and compliance with various Reserve Bank of India's regulations.
6. Application cum guarantee for stand by letter of credit should be obtained from
the applicant.
7. Banks can consider obtaining a suitable indemnity/undertaking from the importer

that all remittances towards their import of goods as per the underlying contracts
for which stand by letter of credit is issued will be made only through the same
branch which has issued the credit.
8. The importer should give an undertaking that he shall not raise any dispute
regarding the payments made by the bank in standby letter of credit at any point
of time howsoever, and will be liable to the bank for all the amount paid therein.
He importer should also indemnify the bank from any loss, claim, counter claims,
damages, etc. which the bank may incur on account of making payment under the
stand by letter of credit.
9. Presently, when the documentary letter of credit is established through swift, it is

assumed that the documentary letter of credit is subject to the provisions of
UCPDC 500/600 Accordingly whenever standby letter of credit under ISP 98 is
established through SWIFT, a specific clause must appear that standby letter of
credit is subject to the provision of ISP 98.
10. It should be ensured that the issuing bank, advising bank, nominated bank. etc,
have all subscribed to SP 98 in case stand by letter of credit is issued under ISP
98.
11. When payment under a stand by letter of credit is effected, the issuing bank to
report such invocation / payment to Reserve Bank of India.
xport Finance and

Documentation.
 Introduction
 Air Waybill
 Bill of Lading
 Certificate of Origin
 Combined Transport Document
 Draft (or Bill of Exchange)
 Insurance Policy (or Certificate)
 Packing List/Specification
 Inspection Certificate
Introduction
International market involves various types of trade documents that need to be produced
while making transactions. Each trade document is differ from other and present the
various aspects of the trade like description, quality, number, transportation medium,
indemnity, inspection and so on. So, it becomes important for the importers and
exporters to make sure that their documents support the guidelines as per international
trade transactions. A small mistake could prove costly for any of the parties.
For example, a trade document about the bill of lading is a proof that goods have been
shipped on board, while Inspection Certificate, certifies that the goods have been
inspected and meet quality standards.So, depending on these necessary documents, a
seller can assure a buyer that he has fulfilled his responsibility whilst the buyer is assured
of his request being carried out by the seller.
The following is a list of documents often used in international trade:

 Air Waybill
 Bill of Lading
Air Waybills
Air Waybills make sure that goods have been received for shipment by air. A typical air
waybill sample consists of of three originals and nine copies. The first original is for the
carrier and is signed by a export agent; the second original, the consignee's copy, is
signed by an export agent; the third original is signed by the carrier and is handed to the
export agent as a receipt for the goods.
Air Waybills serves as:
• Proof of receipt of the goods for shipment.

• An invoice for the freight.
• A certificate of insurance.
• A guide to airline staff for the handling, dispatch and delivery of the consignment.
The principal requirement for an air waybill are :

 The proper shipper and consignee must be mention.
 The airport of departure and destination must be mention.
 The goods description must be consistent with that shown on other documents.
 Any weight, measure or shipping marks must agree with those shown on other
documents.
 It must be signed and dated by the actual carrier or by the named agent of a named
carrier.
 It must mention whether freight has been paid or will be paid at the destination point.
Bill of Lading (B/L)
Bill of Lading is a document given by the shipping agency for the goods shipped for
transportation form one destination to another and is signed by the representatives of the
carrying vessel.
Bill of landing is issued in the set of two, three or more. The number in the set will be
indicated on each bill of lading and all must be accounted for. This is done due to the
safety reasons which ensure that the document never comes into the hands of an
unauthorised person. Only one original is sufficient to take possession of goods at port of
discharge so, a bank which finances a trade transaction will need to control the complete
set.The bill of lading must be signed by the shipping company or its agent, and must
show how many signed originals were issued.
It will indicate whether cost of freight/ carriage has been paid or not :
"Freight Prepaid" : Paid by shipper

"Freight collect" : To be paid by the buyer at the port of discharge
The bill of lading also forms the contract of carriage.
To be acceptable to the buyer, the B/L should :

 Carry an "On Board" notation to showing the actual date of shipment, (Sometimes
however, the "on board" wording is in small print at the bottom of the B/L, in which cases
there is no need for a dated "on board" notation to be shown separately with date and
signature.)
 Be "clean" have no notation by the shipping company to the effect that goods/ packaging
are damaged.
The main parties involve in a bill of lading are:

 Shipper
o The person who send the goods.
 Consignee
o The person who take delivery of the goods.
 Notify Party
o The person, usually the importer, to whom the shipping company or its agent
gives notice of arrival of the goods.
 Carrier
o The person or company who has concluded a contract with the shipper for
conveyance of goods
The bill of lading must meet all the requirements of the credit as well as complying with
UCP 500. These are as follows :
 The correct shipper, consignee and notifying party must be shown.
 The carrying vessel and ports of the loading and discharge must be stated.
 The place of receipt and place of delivery must be stated, if different from port of loading
or port of discharge.
 Any weight or measures must agree with those shown on other documents.
 Shipping marks and numbers and /or container number must agree with those shown on
other documents.
 It must state whether freight has been paid or is payable at destination.
 It must be dated on or before the latest date for shipment specified in the credit.
 It must state the actual name of the carrier or be signed as agent for a named carrier.
Certificate of Origin
The Certificate of Origin is required by the custom authority of the importing country for
the purpose of imposing import duty. It is usually issued by the Chamber of Commerce
and contains information like seal of the chamber, details of the good to be transported
and so on.
The certificate must provide that the information required by the credit and be consistent
with all other document, It would normally include :
 The name of the company and address as exporter.
 The name of the importer.
 Package numbers, shipping marks and description of goods to agree with that on other
documents.
 Any weight or measurements must agree with those shown on other documents.
 It should be signed and stamped by the Chamber of Commerce.
Combined Transport Document
Combined Transport Document is also known as Multimodal Transport Document, and is

used when goods are transported using more than one mode of transportation. In the
case of multimodal transport document, the contract of carriage is meant for a combined
transport from the place of shipping to the place of delivery. It also evidence receipt of
goods but it does not evidence on board shipment, if it complies with ICC 500, Art. 26(a).
The liability of the combined transport operator starts from the place of shipment and
ends at the place of delivery. This documents need to be signed with appropriate number
of originals in the full set and proper evidence which indicates that transport charges have
been paid or will be paid at destination port.
Multimodal transport document would normally show :
 That the consignee and notify parties are as the credit.
 The place goods are received, or taken in charges, and place of final destination.
 Whether freight is prepaid or to be collected.
 The date of dispatch or taking in charge, and the "On Board" notation, if any must be
dated and signed.
 Total number of originals.
 Signature of the carrier, multimodal transport operator or their agents.
Commercial Invoice
Commercial Invoice document is provided by the seller to the buyer. Also known as
export invoice or import invoice, commercial invoice is finally used by the custom
authorities of the importer's country to evaluate the good for the purpose of taxation.
The invoice must :
 Be issued by the beneficiary named in the credit (the seller).
 Be address to the applicant of the credit (the buyer).
 Be signed by the beneficiary (if required).
 Include the description of the goods exactly as detailed in the credit.
 Be issued in the stated number of originals (which must be marked "Original) and copies.
 Include the price and unit prices if appropriate.
 State the price amount payable which must not exceed that stated in the credit
 include the shipping terms.
Bill of Exchange
A Bill of Exchange is a special type of written document under which an exporter ask
importer a certain amount of money in future and the importer also agrees to pay the
importer that amount of money on or before the future date. This document has special
importance in wholesale trade where large amount of money involved.
Following persons are involved in a bill of exchange:

Drawer: The person who writes or prepares the bill.
Drawee: The person who pays the bill.
Payee: The person to whom the payment is to be made.
Holder of the Bill: The person who is in possession of the bill.
On the basis of the due date there are two types of bill of exchange:
 Bill of Exchange after Date: In this case the due date is counted from the date of
drawing and is also called bill after date.
 Bill of Exchange after Sight: In this case the due date is counted from the date of
acceptance of the bill and is also called bill of exchange after sight.
Insurance Certificate
Also known as Insurance Policy, it certifies that goods transported have been insured
under an open policy and is not actionable with little details about the risk covered.
It is necessary that the date on which the insurance becomes effective is same or earlier
than the date of issuance of the transport documents.
Also, if submitted under a LC, the insured amount must be in the same currency as the
credit and usually for the bill amount plus 10 per cent.
The requirements for completion of an insurance policy are as follow :
 The name of the party in the favor which the documents has been issued.
 The name of the vessel or flight details.
 The place from where insurance is to commerce typically the sellers warehouse or the port
of loading and the place where insurance cases usually the buyer's warehouse or the port
of destination.
 Insurance value that specified in the credit.
 Marks and numbers to agree with those on other documents.
 The description of the goods, which must be consistent with that in the credit and on the
invoice.
 The name and address of the claims settling agent together with the place where claims
are payable.
 Countersigned where necessary.
 Date of issue to be no later than the date of transport documents unless cover is shown to
be effective prior to that date.
Packing List
Also known as packing specification, it contain details about the packing materials used in
the shipping of goods. It also include details like measurement and weight of goods.
The packing List must :
 Have a description of the goods ("A") consistent with the other documents.
 Have details of shipping marks ("B") and numbers consistent with other documents
Inspection Certificate
Certificate of Inspection is a document prepared on the request of seller when he wants
the consignment to be checked by a third party at the port of shipment before the goods
are sealed for final transportation.
In this process seller submit a valid Inspection Certificate along with the other trade
documents like invoice, packing list, shipping bill, bill of lading etc to the bank for
negotiation.
On demand, inspection can be done by various world renowned inspection agencies on

nominal charges.
Table of Contents

Export Finance and

Documentation.
 Introduction
 Air Waybill
 Bill of Lading
Introduction
International market involves various types of trade documents that need to be produced
while making transactions. Each trade document is differ from other and present the
various aspects of the trade like description, quality, number, transportation medium,
indemnity, inspection and so on. So, it becomes important for the importers and
exporters to make sure that their documents support the guidelines as per international
trade transactions. A small mistake could prove costly for any of the parties.
For example, a trade document about the bill of lading is a proof that goods have been
shipped on board, while Inspection Certificate, certifies that the goods have been
inspected and meet quality standards.So, depending on these necessary documents, a
seller can assure a buyer that he has fulfilled his responsibility whilst the buyer is assured
of his request being carried out by the seller.
The following is a list of documents often used in international trade:

 Air Waybill
 Bill of Lading
Air Waybills
Air Waybills make sure that goods have been received for shipment by air. A typical air
waybill sample consists of of three originals and nine copies. The first original is for the
carrier and is signed by a export agent; the second original, the consignee's copy, is
signed by an export agent; the third original is signed by the carrier and is handed to the
export agent as a receipt for the goods.
Air Waybills serves as:
• Proof of receipt of the goods for shipment.

• An invoice for the freight.
• A certificate of insurance.
• A guide to airline staff for the handling, dispatch and delivery of the consignment.
The principal requirement for an air waybill are :

 The proper shipper and consignee must be mention.
 The airport of departure and destination must be mention.
 Any weight, measure or shipping marks must agree with those shown on other
documents.
 It must be signed and dated by the actual carrier or by the named agent of a named
carrier.
 It must mention whether freight has been paid or will be paid at the destination point.
Bill of Lading (B/L)
Bill of Lading is a document given by the shipping agency for the goods shipped for
transportation form one destination to another and is signed by the representatives of the
carrying vessel.
Bill of landing is issued in the set of two, three or more. The number in the set will be
indicated on each bill of lading and all must be accounted for. This is done due to the
safety reasons which ensure that the document never comes into the hands of an
unauthorised person. Only one original is sufficient to take possession of goods at port of
discharge so, a bank which finances a trade transaction will need to control the complete
set.The bill of lading must be signed by the shipping company or its agent, and must
show how many signed originals were issued.
It will indicate whether cost of freight/ carriage has been paid or not :
"Freight Prepaid" : Paid by shipper

"Freight collect" : To be paid by the buyer at the port of discharge
The bill of lading also forms the contract of carriage.
To be acceptable to the buyer, the B/L should :

 Carry an "On Board" notation to showing the actual date of shipment, (Sometimes
however, the "on board" wording is in small print at the bottom of the B/L, in which cases
there is no need for a dated "on board" notation to be shown separately with date and
signature.)
 Be "clean" have no notation by the shipping company to the effect that goods/ packaging
are damaged.
The main parties involve in a bill of lading are:

 Shipper
o The person who send the goods.
 Consignee
o The person who take delivery of the goods.
 Notify Party
o The person, usually the importer, to whom the shipping company or its agent
gives notice of arrival of the goods.
 Carrier
o The person or company who has concluded a contract with the shipper for
conveyance of goods
The bill of lading must meet all the requirements of the credit as well as complying with
UCP 500. These are as follows :
 The correct shipper, consignee and notifying party must be shown.
 The carrying vessel and ports of the loading and discharge must be stated.
 The place of receipt and place of delivery must be stated, if different from port of loading
or port of discharge.
 Any weight or measures must agree with those shown on other documents.
 Shipping marks and numbers and /or container number must agree with those shown on
other documents.
 It must state whether freight has been paid or is payable at destination.
 It must be dated on or before the latest date for shipment specified in the credit.
 It must state the actual name of the carrier or be signed as agent for a named carrier.
Certificate of Origin
The Certificate of Origin is required by the custom authority of the importing country for
the purpose of imposing import duty. It is usually issued by the Chamber of Commerce
and contains information like seal of the chamber, details of the good to be transported
and so on.
The certificate must provide that the information required by the credit and be consistent
with all other document, It would normally include :
 The name of the company and address as exporter.
 The name of the importer.
 Package numbers, shipping marks and description of goods to agree with that on other
documents.
 Any weight or measurements must agree with those shown on other documents.
 It should be signed and stamped by the Chamber of Commerce.

Combined Transport Document
Combined Transport Document is also known as Multimodal Transport Document, and is

used when goods are transported using more than one mode of transportation. In the
case of multimodal transport document, the contract of carriage is meant for a combined
transport from the place of shipping to the place of delivery. It also evidence receipt of
goods but it does not evidence on board shipment, if it complies with ICC 500, Art. 26(a).
The liability of the combined transport operator starts from the place of shipment and
ends at the place of delivery. This documents need to be signed with appropriate number
of originals in the full set and proper evidence which indicates that transport charges have
been paid or will be paid at destination port.
Multimodal transport document would normally show :
 That the consignee and notify parties are as the credit.
 The place goods are received, or taken in charges, and place of final destination.
 Whether freight is prepaid or to be collected.
 The date of dispatch or taking in charge, and the "On Board" notation, if any must be
dated and signed.
 Total number of originals.
 Signature of the carrier, multimodal transport operator or their agents.
Commercial Invoice
Commercial Invoice document is provided by the seller to the buyer. Also known as
export invoice or import invoice, commercial invoice is finally used by the custom
authorities of the importer's country to evaluate the good for the purpose of taxation.
The invoice must :
 Be issued by the beneficiary named in the credit (the seller).
 Be address to the applicant of the credit (the buyer).
 Be signed by the beneficiary (if required).
 Include the description of the goods exactly as detailed in the credit.
 Be issued in the stated number of originals (which must be marked "Original) and copies.
 Include the price and unit prices if appropriate.
 State the price amount payable which must not exceed that stated in the credit
 include the shipping terms.
Bill of Exchange
A Bill of Exchange is a special type of written document under which an exporter ask
importer a certain amount of money in future and the importer also agrees to pay the
importer that amount of money on or before the future date. This document has special
importance in wholesale trade where large amount of money involved.
Following persons are involved in a bill of exchange:

Drawer: The person who writes or prepares the bill.
Drawee: The person who pays the bill.
Payee: The person to whom the payment is to be made.
Holder of the Bill: The person who is in possession of the bill.
On the basis of the due date there are two types of bill of exchange:
 Bill of Exchange after Date: In this case the due date is counted from the date of
drawing and is also called bill after date.
 Bill of Exchange after Sight: In this case the due date is counted from the date of
acceptance of the bill and is also called bill of exchange after sight.
Insurance Certificate
Also known as Insurance Policy, it certifies that goods transported have been insured
under an open policy and is not actionable with little details about the risk covered.
It is necessary that the date on which the insurance becomes effective is same or earlier
than the date of issuance of the transport documents.
Also, if submitted under a LC, the insured amount must be in the same currency as the
credit and usually for the bill amount plus 10 per cent.
The requirements for completion of an insurance policy are as follow :
 The name of the party in the favor which the documents has been issued.
 The name of the vessel or flight details.
 The place from where insurance is to commerce typically the sellers warehouse or the port
of loading and the place where insurance cases usually the buyer's warehouse or the port
of destination.
 Insurance value that specified in the credit.

 Marks and numbers to agree with those on other documents.
 The description of the goods, which must be consistent with that in the credit and on the
invoice.
 The name and address of the claims settling agent together with the place where claims
are payable.
 Countersigned where necessary.
 Date of issue to be no later than the date of transport documents unless cover is shown to
be effective prior to that date.
Packing List
Also known as packing specification, it contain details about the packing materials used in
the shipping of goods. It also include details like measurement and weight of goods.
The packing List must :
 Have a description of the goods ("A") consistent with the other documents.
 Have details of shipping marks ("B") and numbers consistent with other documents
Inspection Certificate
Certificate of Inspection is a document prepared on the request of seller when he wants
the consignment to be checked by a third party at the port of shipment before the goods
are sealed for final transportation.
In this process seller submit a valid Inspection Certificate along with the other trade
documents like invoice, packing list, shipping bill, bill of lading etc to the bank for
negotiation.
On demand, inspection can be done by various world renowned inspection agencies on

nominal charges.
Table of Contents

Export Pre Shipment and Post

Shipment Finance.
 Types of Pre Shipment Finance

 Requirment for Getting Packing Credit
o Eligibility
o Quantum of Finance
 Different Stages of PreShipment Finance
o Appraisal and Sanction of Limits
 Disbursement of Packing Credit Advance
 Follow up of Packing Credit Advance
 Liquidation of Packing Credit Advance
 Overdue Packing
 Special Cases
 Packing Credit to Sub Supplier
 Running Account facility

 Preshipment Credit in Foreign Currency (PCFC)
 Packing Credit Facilities to deemed Exports
 Packing Credit facilities for Consulting Services
 Advance against Cheque / Drafts received as advance payment
Pre Shipment Finance is issued by a financial institution when the seller want the payment
of the goods before shipment. The main objectives behind preshipment finance or pre
export finance is to enable exporter to:
 Procure raw materials.
 Carry out manufacturing process.
 Provide a secure warehouse for goods and raw materials.
 Process and pack the goods.
 Ship the goods to the buyers.
 Meet other financial cost of the business.
Types of Pre Shipment Finance
 Packing Credit
 Advance against Cheques/Draft etc. representing Advance Payments.
Preshipment finance is extended in the following forms :

 Packing Credit in Indian Rupee
 Packing Credit in Foreign Currency (PCFC)
Requirment for Getting Packing

Credit
This facility is provided to an exporter who satisfies the following criteria

 A ten digit importerexporter code number allotted by DGFT.
 Exporter should not be in the caution list of RBI.
 If the goods to be exported are not under OGL (Open General Licence), the exporter
should have the required license /quota permit to export the goods.
Packing credit facility can be provided to an exporter on production of the following
evidences to the bank:
1. Formal application for release the packing credit with undertaking to the effect
that the exporter would be ship the goods within stipulated due date and submit
the relevant shipping documents to the banks within prescribed time limit.
2. Firm order or irrevocable L/C or original cable / fax / telex message exchange
between the exporter and the buyer.
3. Licence issued by DGFT if the goods to be exported fall under the restricted or
canalized category. If the item falls under quota system, proper quota allotment
proof needs to be submitted.
The confirmed order received from the overseas buyer should reveal the information
about the full name and address of the overseas buyer, description quantity and value of
goods (FOB or CIF), destination port and the last date of payment.
Eligibility
Pre shipment credit is only issued to that exporter who has the export order in his own
name. However, as an exception, financial institution can also grant credit to a third party
manufacturer or supplier of goods who does not have export orders in their own name.
In this case some of the responsibilities of meeting the export requirements have been
out sourced to them by the main exporter. In other cases where the export order is
divided between two more than two exporters, pre shipment credit can be shared
between them
Quantum of Finance
The Quantum of Finance is granted to an exporter against the LC or an expected order.
The only guideline principle is the concept of NeedBased Finance. Banks determine the
percentage of margin, depending on factors such as:
 The nature of Order.
 The nature of the commodity.
 The capability of exporter to bring in the requisite contribution.

Different Stages of Pre Shipment
Finance
Appraisal and Sanction of Limits

1. Before making any an allowance for Credit facilities banks need to check the different
aspects like product profile, political and economic details about country. Apart from
these things, the bank also looks in to the status report of the prospective buyer, with
whom the exporter proposes to do the business. To check all these information, banks
can seek the help of institution like ECGC or International consulting agencies like Dun
and Brad street etc.
The Bank extended the packing credit facilities after ensuring the following"
a. The exporter is a regular customer, a bona fide exporter and has a goods
standing in the market.
b. Whether the exporter has the necessary license and quota permit (as mentioned
earlier) or not.
c. Whether the country with which the exporter wants to deal is under the list of
Restricted Cover Countries(RCC) or not.
Disbursement of Packing Credit

Advance
2. Once the proper sanctioning of the documents is done, bank ensures whether exporter
has executed the list of documents mentioned earlier or not. Disbursement is normally
allowed when all the documents are properly executed.
Sometimes an exporter is not able to produce the export order at time of availing packing
credit. So, in these cases, the bank provide a special packing credit facility and is known as
Running Account Packing.
Before disbursing the bank specifically check for the following particulars in the submitted
documents"
a. Name of buyer
b. Commodity to be exported
c. Quantity
d. Value (either CIF or FOB)
e. Last date of shipment / negotiation.
f. Any other terms to be complied with
The quantum of finance is fixed depending on the FOB value of contract /LC or the
domestic values of goods, whichever is found to be lower. Normally insurance and freight
charged are considered at a later stage, when the goods are ready to be shipped.
In this case disbursals are made only in stages and if possible not in cash. The payments
are made directly to the supplier by drafts/bankers/cheques.
The bank decides the duration of packing credit depending upon the time required by
the exporter for processing of goods.
The maximum duration of packing credit period is 180 days, however bank may provide a
further 90 days extension on its own discretion, without referring to RBI.
Follow up of Packing Credit Advance

3. Exporter needs to submit stock statement giving all the necessary information about
the stocks. It is then used by the banks as a guarantee for securing the packing credit in
advance. Bank also decides the rate of submission of this stocks.
Apart from this, authorized dealers (banks) also physically inspect the stock at regular
intervals.
Liquidation of Packing Credit Advance

4. Packing Credit Advanceneeds be liquidated out of as the export proceeds of the
relevant shipment, thereby converting preshipment credit into postshipment credit.
This liquidation can also be done by the payment receivable from the Government of
India and includes the duty drawback, payment from the Market Development Fund
(MDF) of the Central Government or from any other relevant source.
In case if the export does not take place then the entire advance can also be recovered at
a certain interest rate. RBI has allowed some flexibility in to this regulation under which
substitution of commodity or buyer can be allowed by a bank without any reference to
RBI. Hence in effect the packing credit advance may be repaid by proceeds from export
of the same or another commodity to the same or another buyer.However, bank need to
ensure that the substitution is commercially necessary and unavoidable.
Overdue Packing
5. Bank considers a packing credit as an overdue, if the borrower fails to liquidate the
packing credit on the due date. And, if the condition persists then the bank takes the
necessary step to recover its dues as per normal recovery procedure.
Special Cases
Packing Credit to Sub Supplier

1. Packing Credit can only be shared on the basis of disclaimer between the Export Order
Holder (EOH) and the manufacturer of the goods. This disclaimer is normally issued by
the EOH in order to indicate that he is not availing any credit facility against the portion of
the order transferred in the name of the manufacturer.
This disclaimer is also signed by the bankers of EOH after which they have an option to
open an inland L/C specifying the goods to be supplied to the EOH as a part of the
export transaction. On basis of such an L/C, the subsupplier bank may grant a packing
credit to the subsupplier to manufacture the components required for exports.
On supply of goods, the L/C opening bank will pay to the sub supplier's bank against the
inland documents received on the basis of the inland L/C opened by them.
The final responsibility of EOH is to export the goods as per guidelines. Any delay in
export order can bring EOH to penal provisions that can be issued anytime.
The main objective of this method is to cover only the first stage of production cycles, and
is not to be extended to cover supplies of raw material etc. Running account facility is not
granted to subsuppliers.
In case the EOH is a trading house, the facility is available commencing from the
manufacturer to whom the order has been passed by the trading house.
Banks however, ensure that there is no double financing and the total period of packing
credit does not exceed the actual cycle of production of the commodity.
Running Account facility

2. It is a special facility under which a bank has right to grant preshipment advance for
export to the exporter of any origin. Sometimes banks also extent these facilities
depending upon the good track record of the exporter.
In return the exporter needs to produce the letter of credit / firms export order within a
given period of time.
Preshipment Credit in Foreign Currency (PCFC)

3. Authorised dealers are permitted to extend Preshipment Credit in Foreign Currency
(PCFC) with an objective of making the credit available to the exporters at internationally
competitive price.This is considered as an added advantage under which credit is
provided in foreign currency in order to facilitate the purchase of raw material after
fulfilling the basic export orders.
The rate of interest on PCFC is linked to London Interbank Offered Rate (LIBOR).
According to guidelines, the final cost of exporter must not exceed 0.75% over 6 month
LIBOR, excluding the tax.
The exporter has freedom to avail PCFC in convertible currencies like USD, Pound,
Sterling, Euro, Yen etc. However, the risk associated with the cross currency truncation is
that of the exporter.
The sources of funds for the banks for extending PCFC facility include the Foreign
Currency balances available with the Bank in Exchange, Earner Foreign Currency Account
(EEFC), Resident Foreign Currency Accounts RFC(D) and Foreign Currency(NonResident)
Accounts.
Banks are also permitted to utilize the foreign currency balances available under Escrow
account and Exporters Foreign Currency accounts. It ensures that the requirement of
funds by the account holders for permissible transactions is met. But the limit prescribed
for maintaining maximum balance in the account is not exceeded. In addition, Banks may
arrange for borrowings from abroad. Banks may negotiate terms of credit with overseas
bank for the purpose of grant of PCFC to exporters, without the prior approval of RBI,
provided the rate of interest on borrowing does not exceed 0.75% over 6 month LIBOR.
Packing Credit Facilities to Deemed Exports

4. Deemed exports made to multilateral funds aided projects and programmes, under
orders secured through global tenders for which payments will be made in free foreign
exchange, are eligible for concessional rate of interest facility both at pre and post supply
stages.
Packing Credit facilities for Consulting Services

5. In case of consultancy services, exports do not involve physical movement of goods out
of Indian Customs Territory. In such cases, Preshipment finance can be provided by the
bank to allow the exporter to mobilize resources like technical personnel and training
them.
Advance against Cheque/Drafts received as advance

payment
6. Where exporters receive direct payments from abroad by means of cheques/drafts etc.
the bank may grant export credit at concessional rate to the exporters of goods track
record, till the time of realization of the proceeds of the cheques or draft etc. The Banks
however, must satisfy themselves that the proceeds are against an export order.
Table of Contents
Export Post Shipment Finance.

 Introduction
 Basic Features
 Financing For Various Types of Export Buyer's Credit
 Supplier's Credit
 Types of Post Shipment Finance
 Crystallization of Overdue Export Bills
Introduction
Post Shipment Finance is a kind of loan provided by a financial institution to an exporter

or seller against a shipment that has already been made. This type of export finance is
granted from the date of extending the credit after shipment of the goods to the
realization date of the exporter proceeds. Exporters don’t wait for the importer to deposit
the funds.
Basic Features
The features of postshipment finance are:

 Purpose of Finance
Postshipment finance is meant to finance export sales receivable after the date of
shipment of goods to the date of realization of exports proceeds. In cases of deemed
exports, it is extended to finance receivable against supplies made to designated agencies.
 Basis of Finance
Postshipment finances is provided against evidence of shipment of goods or supplies
made to the importer or seller or any other designated agency.
 Types of Finance
Postshipment finance can be secured or unsecured. Since the finance is extended against
evidence of export shipment and bank obtains the documents of title of goods, the finance is
normally self liquidating. In that case it involves advance against undrawn balance, and is
usually unsecured in nature.
Further, the finance is mostly a funded advance. In few cases, such as financing of project
exports, the issue of guarantee (retention money guarantees) is involved and the financing is
not funded in nature.
 Quantum of Finance
As a quantum of finance, postshipment finance can be extended up to 100% of the
invoice value of goods. In special cases, where the domestic value of the goods increases
the value of the exporter order, finance for a price difference can also be extended and
the price difference is covered by the government. This type of finance is not extended in
case of preshipment stage.
Banks can also finance undrawn balance. In such cases banks are free to stipulate margin
requirements as per their usual lending norm.
 Period of Finance
Postshipment finance can be off short terms or long term, depending on the payment
terms offered by the exporter to the overseas importer. In case of cash exports, the
maximum period allowed for realization of exports proceeds is six months from the date
of shipment. Concessive rate of interest is available for a highest period of 180 days,
opening from the date of surrender of documents. Usually, the documents need to be
submitted within 21days from the date of shipment.
Financing For Various Types of Export

Buyer's Credit
Postshipment finance can be provided for three types of export :

 Physical exports: Finance is provided to the actual exporter or to the exporter in whose
name the trade documents are transferred.
 Deemed export: Finance is provided to the supplier of the goods which are supplied to
the designated agencies.
 Capital goods and project exports: Finance is sometimes extended in the name of
overseas buyer. The disbursal of money is directly made to the domestic exporter.
Supplier's Credit
Buyer's Credit is a special type of loan that a bank offers to the buyers for large scale
purchasing under a contract. Once the bank approved loans to the buyer, the seller
shoulders all or part of the interests incurred.
Types of Post Shipment Finance

The post shipment finance can be classified as :
1. Export Bills purchased/discounted.
2. Export Bills negotiated
3. Advance against export bills sent on collection basis.
4. Advance against export on consignment basis
5. Advance against undrawn balance on exports
6. Advance against claims of Duty Drawback.
1. Export Bills Purchased/ Discounted.(DP & DA Bills)

Export bills (Non L/C Bills) is used in terms of sale contract/ order may be discounted or
purchased by the banks. It is used in indisputable international trade transactions and the
proper limit has to be sanctioned to the exporter for purchase of export bill facility.
2. Export Bills Negotiated (Bill under L/C)

The risk of payment is less under the LC, as the issuing bank makes sure the payment. The
risk is further reduced, if a bank guarantees the payments by confirming the LC. Because
of the inborn security available in this method, banks often become ready to extend the
finance against bills under LC.
However, this arises two major risk factors for the banks:
1. The risk of nonperformance by the exporter, when he is unable to meet his terms
and conditions. In this case, the issuing banks do not honor the letter of credit.
2. The bank also faces the documentary risk where the issuing bank refuses to
honour its commitment. So, it is important for the for the negotiating bank, and
the lending bank to properly check all the necessary documents before
submission.
3. Advance Against Export Bills Sent on Collection Basis

Bills can only be sent on collection basis, if the bills drawn under LC have some
discrepancies. Sometimes exporter requests the bill to be sent on the collection basis,
anticipating the strengthening of foreign currency.
Banks may allow advance against these collection bills to an exporter with a concessional
rates of interest depending upon the transit period in case of DP Bills and transit period
plus usance period in case of usance bill.
The transit period is from the date of acceptance of the export documents at the banks
branch for collection and not from the date of advance.
4. Advance Against Export on Consignments Basis

Bank may choose to finance when the goods are exported on consignment basis at the
risk of the exporter for sale and eventual payment of sale proceeds to him by the
consignee.
However, in this case bank instructs the overseas bank to deliver the document only
against trust receipt /undertaking to deliver the sale proceeds by specified date, which
should be within the prescribed date even if according to the practice in certain trades a
bill for part of the estimated value is drawn in advance against the exports.
In case of export through approved Indian owned warehouses abroad the times limit for
realization is 15 months.
5. Advance against Undrawn Balance

It is a very common practice in export to leave small part undrawn for payment after
adjustment due to difference in rates, weight, quality etc. Banks do finance against the
undrawn balance, if undrawn balance is in conformity with the normal level of balance left
undrawn in the particular line of export, subject to a maximum of 10 percent of the export
value. An undertaking is also obtained from the exporter that he will, within 6 months
from due date of payment or the date of shipment of the goods, whichever is earlier
surrender balance proceeds of the shipment.
6. Advance Against Claims of Duty Drawback

Duty Drawback is a type of discount given to the exporter in his own country. This
discount is given only, if the inhouse cost of production is higher in relation to
international price. This type of financial support helps the exporter to fight successfully in
the international markets.
In such a situation, banks grants advances to exporters at lower rate of interest for a
maximum period of 90 days. These are granted only if other types of export finance are
also extended to the exporter by the same bank.
After the shipment, the exporters lodge their claims, supported by the relevant
documents to the relevant government authorities. These claims are processed and
eligible amount is disbursed after making sure that the bank is authorized to receive the
claim amount directly from the concerned government authorities.
Crystallization of Overdue Export Bills

Exporter foreign exchange is converted into Rupee liability, if the export bill purchase /
negotiated /discounted is not realize on due date. This conversion occurs on the 30th day
after expiry of the NTP in case of unpaid DP bills and on 30th day after national due date
in case of DA bills, at prevailing TT selling rate ruling on the day of crystallization, or the
original bill buying rate, whichever is higher.
Table of Contents
Export Post Shipment Finance.
 Introduction
 Basic Features
 Financing For Various Types of Export Buyer's Credit
 Supplier's Credit
 Types of Post Shipment Finance
 Crystallization of Overdue Export Bills

Introduction
Post Shipment Finance is a kind of loan provided by a financial institution to an exporter

or seller against a shipment that has already been made. This type of export finance is
granted from the date of extending the credit after shipment of the goods to the
realization date of the exporter proceeds. Exporters don’t wait for the importer to deposit
the funds.
Basic Features
The features of postshipment finance are:

 Purpose of Finance
Postshipment finance is meant to finance export sales receivable after the date of
shipment of goods to the date of realization of exports proceeds. In cases of deemed
exports, it is extended to finance receivable against supplies made to designated agencies.
 Basis of Finance
Postshipment finances is provided against evidence of shipment of goods or supplies
made to the importer or seller or any other designated agency.
 Types of Finance
Postshipment finance can be secured or unsecured. Since the finance is extended against
evidence of export shipment and bank obtains the documents of title of goods, the finance is
normally self liquidating. In that case it involves advance against undrawn balance, and is
usually unsecured in nature.
Further, the finance is mostly a funded advance. In few cases, such as financing of project
exports, the issue of guarantee (retention money guarantees) is involved and the financing is
not funded in nature.
 Quantum of Finance
As a quantum of finance, postshipment finance can be extended up to 100% of the
invoice value of goods. In special cases, where the domestic value of the goods increases
the value of the exporter order, finance for a price difference can also be extended and
the price difference is covered by the government. This type of finance is not extended in
case of preshipment stage.
Banks can also finance undrawn balance. In such cases banks are free to stipulate margin
requirements as per their usual lending norm.
 Period of Finance
Postshipment finance can be off short terms or long term, depending on the payment
terms offered by the exporter to the overseas importer. In case of cash exports, the
maximum period allowed for realization of exports proceeds is six months from the date
of shipment. Concessive rate of interest is available for a highest period of 180 days,
opening from the date of surrender of documents. Usually, the documents need to be
submitted within 21days from the date of shipment.
Financing For Various Types of Export

Buyer's Credit
Postshipment finance can be provided for three types of export :

 Physical exports: Finance is provided to the actual exporter or to the exporter in whose
name the trade documents are transferred.
 Deemed export: Finance is provided to the supplier of the goods which are supplied to
the designated agencies.
 Capital goods and project exports: Finance is sometimes extended in the name of
overseas buyer. The disbursal of money is directly made to the domestic exporter.
Supplier's Credit
Buyer's Credit is a special type of loan that a bank offers to the buyers for large scale
purchasing under a contract. Once the bank approved loans to the buyer, the seller
shoulders all or part of the interests incurred.
Types of Post Shipment Finance

The post shipment finance can be classified as :
1. Export Bills purchased/discounted.
2. Export Bills negotiated
3. Advance against export bills sent on collection basis.
4. Advance against export on consignment basis
5. Advance against undrawn balance on exports
6. Advance against claims of Duty Drawback.
1. Export Bills Purchased/ Discounted.(DP & DA Bills)

Export bills (Non L/C Bills) is used in terms of sale contract/ order may be discounted or
purchased by the banks. It is used in indisputable international trade transactions and the
proper limit has to be sanctioned to the exporter for purchase of export bill facility.
2. Export Bills Negotiated (Bill under L/C)

The risk of payment is less under the LC, as the issuing bank makes sure the payment. The
risk is further reduced, if a bank guarantees the payments by confirming the LC. Because
of the inborn security available in this method, banks often become ready to extend the
finance against bills under LC.
However, this arises two major risk factors for the banks:
1. The risk of nonperformance by the exporter, when he is unable to meet his terms
and conditions. In this case, the issuing banks do not honor the letter of credit.
2. The bank also faces the documentary risk where the issuing bank refuses to
honour its commitment. So, it is important for the for the negotiating bank, and
the lending bank to properly check all the necessary documents before
submission.
3. Advance Against Export Bills Sent on Collection Basis

Bills can only be sent on collection basis, if the bills drawn under LC have some
discrepancies. Sometimes exporter requests the bill to be sent on the collection basis,
anticipating the strengthening of foreign currency.
Banks may allow advance against these collection bills to an exporter with a concessional
rates of interest depending upon the transit period in case of DP Bills and transit period
plus usance period in case of usance bill.
The transit period is from the date of acceptance of the export documents at the banks
branch for collection and not from the date of advance.
4. Advance Against Export on Consignments Basis

Bank may choose to finance when the goods are exported on consignment basis at the
risk of the exporter for sale and eventual payment of sale proceeds to him by the
consignee.
However, in this case bank instructs the overseas bank to deliver the document only
against trust receipt /undertaking to deliver the sale proceeds by specified date, which
should be within the prescribed date even if according to the practice in certain trades a
bill for part of the estimated value is drawn in advance against the exports.
In case of export through approved Indian owned warehouses abroad the times limit for
realization is 15 months.
5. Advance against Undrawn Balance
It is a very common practice in export to leave small part undrawn for payment after
adjustment due to difference in rates, weight, quality etc. Banks do finance against the
undrawn balance, if undrawn balance is in conformity with the normal level of balance left
undrawn in the particular line of export, subject to a maximum of 10 percent of the export
value. An undertaking is also obtained from the exporter that he will, within 6 months
from due date of payment or the date of shipment of the goods, whichever is earlier
surrender balance proceeds of the shipment.
6. Advance Against Claims of Duty Drawback

Duty Drawback is a type of discount given to the exporter in his own country. This
discount is given only, if the inhouse cost of production is higher in relation to
international price. This type of financial support helps the exporter to fight successfully in
the international markets.
In such a situation, banks grants advances to exporters at lower rate of interest for a
maximum period of 90 days. These are granted only if other types of export finance are
also extended to the exporter by the same bank.
After the shipment, the exporters lodge their claims, supported by the relevant
documents to the relevant government authorities. These claims are processed and
eligible amount is disbursed after making sure that the bank is authorized to receive the
claim amount directly from the concerned government authorities.
Crystallization of Overdue Export Bills

Exporter foreign exchange is converted into Rupee liability, if the export bill purchase /
negotiated /discounted is not realize on due date. This conversion occurs on the 30th day
after expiry of the NTP in case of unpaid DP bills and on 30th day after national due date
in case of DA bills, at prevailing TT selling rate ruling on the day of crystallization, or the
original bill buying rate, whichever is higher.
Table of Contents

Foreifting and Factoring.

 Introduction
 Definition of Forfeiting
 How forfeiting Works in International Trade
 Documentary Requirements
 Forfeiting
 Benefits to Exporter
 Benefits to Banks
 Definition of Factoring
 Characteristics of Factoring
 Different Types of Factoring
Introduction
Forfeiting and factoring are services in international market given to an exporter or seller.
Its main objective is to provide smooth cash flow to the sellers. The basic difference
between the forfeiting and factoring is that forfeiting is a long term receivables (over 90
days up to 5 years) while factoring is a shorttermed receivables (within 90 days) and is
more related to receivables against commodity sales.
Definition of Forfeiting
The terms forfeiting is originated from a old French word ‘forfait’, which means to
surrender ones right on something to someone else. In international trade, forfeiting may
be defined as the purchasing of an exporter’s receivables at a discount price by paying
cash. By buying these receivables, the forfeiter frees the exporter from credit and the risk
of not receiving the payment from the importer.
How forfeiting Works in International

Trade
The exporter and importer negotiate according to the proposed export sales contract.
Then the exporter approaches the forfeiter to ascertain the terms of forfeiting. After
collecting the details about the importer, and other necessary documents, forfeiter
estimates risk involved in it and then quotes the discount rate.
The exporter then quotes a contract price to the overseas buyer by loading the discount
rate and commitment fee on the sales price of the goods to be exported and sign a
contract with the forfeiter. Export takes place against documents guaranteed by the
importer’s bank and discounts the bill with the forfeiter and presents the same to the
importer for payment on due date.
Documentary Requirements
In case of Indian exporters availing forfeiting facility, the forfeiting transaction is to be

reflected in the following documents associated with an export transaction in the manner
suggested below:
 Invoice : Forfeiting discount, commitment fees, etc. needs not be shown separately
instead, these could be built into the FOB price, stated on the invoice.
 Shipping Bill and GR form : Details of the forfeiting costs are to be included along with
the other details, such FOB price, commission insurance, normally included in the "Analysis
of Export Value "on the shipping bill. The claim for duty drawback, if any is to be certified
only with reference to the FOB value of the exports stated on the shipping bill.
Forfeiting
The forfeiting typically involves the following cost elements:

1. Commitment fee, payable by the exporter to the forfeiter ‘for latter’s’ commitment to
execute a specific forfeiting transaction at a firm discount rate with in a specified time.
2. Discount fee, interest payable by the exporter for the entire period of credit involved
and deducted by the forfaiter from the amount paid to the exporter against the availised
promissory notes or bills of exchange.
Benefits to Exporter
 100 per cent financing : Without recourse and not occupying exporter's credit line That
is to say once the exporter obtains the financed fund, he will be exempted from the
responsibility to repay the debt.
 Improved cash flow : Receivables become current cash in flow and its is beneficial to the
exporters to improve financial status and liquidation ability so as to heighten further the
funds raising capability.
 Reduced administration cost : By using forfeiting , the exporter will spare from the
management of the receivables. The relative costs, as a result, are reduced greatly.
 Advance tax refund: Through forfeiting the exporter can make the verification of export
and get tax refund in advance just after financing.
 Risk reduction : forfeiting business enables the exporter to transfer various risk resulted
from deferred payments, such as interest rate risk, currency risk, credit risk, and political
risk to the forfeiting bank.
 Increased trade opportunity : With forfeiting, the export is able to grant credit to his
buyers freely, and thus, be more competitive in the market.
Benefits to Banks
Forfeiting provides the banks following benefits:

 Banks can offer a novel product range to clients, which enable the client to gain 100%
finance, as against 8085% in case of other discounting products.
 Bank gain fee based income.
 Lower credit administration and credit follow up.
Definition of Factoring
Definition of factoring is very simple and can be defined as the conversion of credit sales
into cash. Here, a financial institution which is usually a bank buys the accounts receivable
of a company usually a client and then pays up to 80% of the amount immediately on
agreement. The remaining amount is paid to the client when the customer pays the debt.
Examples includes factoring against goods purchased, factoring against medical
insurance, factoring for construction services etc.
Characteristics of Factoring
1. The normal period of factoring is 90150 days and rarely exceeds more than 150 days.
2. It is costly.
3. Factoring is not possible in case of bad debts.
4. Credit rating is not mandatory.
5. It is a method of offbalance sheet financing.
6. Cost of factoring is always equal to finance cost plus operating cost.
Different Types of Factoring
1. Disclosed
2. Undisclosed
1. Disclosed Factoring
In disclosed factoring, client’s customers are aware of the factoring agreement.
Disclosed factoring is of two types:
Recourse factoring : The client collects the money from the customer but in case
customer don’t pay the amount on maturity then the client is responsible to pay the
amount to the factor. It is offered at a low rate of interest and is in very common use.
Nonrecourse factoring : In nonrecourse factoring, factor undertakes to collect the debts
from the customer. Balance amount is paid to client at the end of the credit period or
when the customer pays the factor whichever comes first. The advantage of nonrecourse
factoring is that continuous factoring will eliminate the need for credit and collection
departments in the organization.
2. Undisclosed
In undisclosed factoring, client's customers are not notified of the factoring arrangement.
In this case, Client has to pay the amount to the factor irrespective of whether customer
has paid or not.
Table of Contents

Foreifting and Factoring.

 Introduction
 Definition of Forfeiting
 How forfeiting Works in International Trade
 Documentary Requirements
 Forfeiting
 Benefits to Exporter
 Benefits to Banks
 Definition of Factoring
 Characteristics of Factoring
 Different Types of Factoring

Introduction
Forfeiting and factoring are services in international market given to an exporter or seller.
Its main objective is to provide smooth cash flow to the sellers. The basic difference
between the forfeiting and factoring is that forfeiting is a long term receivables (over 90
days up to 5 years) while factoring is a shorttermed receivables (within 90 days) and is
more related to receivables against commodity sales.
Definition of Forfeiting
The terms forfeiting is originated from a old French word ‘forfait’, which means to
surrender ones right on something to someone else. In international trade, forfeiting may
be defined as the purchasing of an exporter’s receivables at a discount price by paying
cash. By buying these receivables, the forfeiter frees the exporter from credit and the risk
of not receiving the payment from the importer.
How forfeiting Works in International

Trade
The exporter and importer negotiate according to the proposed export sales contract.
Then the exporter approaches the forfeiter to ascertain the terms of forfeiting. After
collecting the details about the importer, and other necessary documents, forfeiter
estimates risk involved in it and then quotes the discount rate.
The exporter then quotes a contract price to the overseas buyer by loading the discount
rate and commitment fee on the sales price of the goods to be exported and sign a
contract with the forfeiter. Export takes place against documents guaranteed by the
importer’s bank and discounts the bill with the forfeiter and presents the same to the
importer for payment on due date.
Documentary Requirements
In case of Indian exporters availing forfeiting facility, the forfeiting transaction is to be

reflected in the following documents associated with an export transaction in the manner
suggested below:
 Invoice : Forfeiting discount, commitment fees, etc. needs not be shown separately
instead, these could be built into the FOB price, stated on the invoice.
 Shipping Bill and GR form : Details of the forfeiting costs are to be included along with
the other details, such FOB price, commission insurance, normally included in the "Analysis
of Export Value "on the shipping bill. The claim for duty drawback, if any is to be certified
only with reference to the FOB value of the exports stated on the shipping bill.
Forfeiting
The forfeiting typically involves the following cost elements:

1. Commitment fee, payable by the exporter to the forfeiter ‘for latter’s’ commitment to
execute a specific forfeiting transaction at a firm discount rate with in a specified time.
2. Discount fee, interest payable by the exporter for the entire period of credit involved
and deducted by the forfaiter from the amount paid to the exporter against the availised
promissory notes or bills of exchange.
Benefits to Exporter
 100 per cent financing : Without recourse and not occupying exporter's credit line That
is to say once the exporter obtains the financed fund, he will be exempted from the
responsibility to repay the debt.
 Improved cash flow : Receivables become current cash in flow and its is beneficial to the
exporters to improve financial status and liquidation ability so as to heighten further the
funds raising capability.
 Reduced administration cost : By using forfeiting , the exporter will spare from the
management of the receivables. The relative costs, as a result, are reduced greatly.
 Advance tax refund: Through forfeiting the exporter can make the verification of export
and get tax refund in advance just after financing.
 Risk reduction : forfeiting business enables the exporter to transfer various risk resulted
from deferred payments, such as interest rate risk, currency risk, credit risk, and political
risk to the forfeiting bank.
 Increased trade opportunity : With forfeiting, the export is able to grant credit to his
buyers freely, and thus, be more competitive in the market.
Benefits to Banks
Forfeiting provides the banks following benefits:

 Banks can offer a novel product range to clients, which enable the client to gain 100%
finance, as against 8085% in case of other discounting products.
 Bank gain fee based income.
 Lower credit administration and credit follow up.
Definition of Factoring
Definition of factoring is very simple and can be defined as the conversion of credit sales
into cash. Here, a financial institution which is usually a bank buys the accounts receivable
of a company usually a client and then pays up to 80% of the amount immediately on
agreement. The remaining amount is paid to the client when the customer pays the debt.
Examples includes factoring against goods purchased, factoring against medical
insurance, factoring for construction services etc.
Characteristics of Factoring
1. The normal period of factoring is 90150 days and rarely exceeds more than 150 days.
2. It is costly.
3. Factoring is not possible in case of bad debts.
4. Credit rating is not mandatory.
5. It is a method of offbalance sheet financing.
6. Cost of factoring is always equal to finance cost plus operating cost.
Different Types of Factoring
1. Disclosed
2. Undisclosed
1. Disclosed Factoring
In disclosed factoring, client’s customers are aware of the factoring agreement.
Disclosed factoring is of two types:
Recourse factoring : The client collects the money from the customer but in case
customer don’t pay the amount on maturity then the client is responsible to pay the
amount to the factor. It is offered at a low rate of interest and is in very common use.
Nonrecourse factoring : In nonrecourse factoring, factor undertakes to collect the debts
from the customer. Balance amount is paid to client at the end of the credit period or
when the customer pays the factor whichever comes first. The advantage of nonrecourse
factoring is that continuous factoring will eliminate the need for credit and collection
departments in the organization.
2. Undisclosed
In undisclosed factoring, client's customers are not notified of the factoring arrangement.
In this case, Client has to pay the amount to the factor irrespective of whether customer
has paid or not.
Table of Contents
Export Bank Guarantees.
 Introduction
 Benefits of Bank Guarantees
 Types of Bank Guarantees
 How to Apply for Bank Guarantee
 Bank Guarantees vs. Letters of Credit
Introduction
A bank guarantee is a written contract given by a bank on the behalf of a customer. By
issuing this guarantee, a bank takes responsibility for payment of a sum of money in case,
if it is not paid by the customer on whose behalf the guarantee has been issued. In return,
a bank gets some commission for issuing the guarantee.
Any one can apply for a bank guarantee, if his or her company has obligations towards a
third party for which funds need to be blocked in order to guarantee that his or her
company fulfils its obligations (for example carrying out certain works, payment of a debt,
etc.).
In case of any changes or cancellation during the transaction process, a bank guarantee
remains valid until the customer dully releases the bank from its liability.
In the situations, where a customer fails to pay the money, the bank must pay the amount
within three working days. This payment can also be refused by the bank, if the claim is
found to be unlawful.
Benefits of Bank Guarantees
For Governments
1. Increases the rate of private financing for key sectors such as infrastructure.
2. Provides access to capital markets as well as commercial banks.
3. Reduces cost of private financing to affordable levels.
4. Facilitates privatizations and public private partnerships.
5. Reduces government risk exposure by passing commercial risk to the private sector.
For Private Sector

1. Reduces risk of private transactions in emerging countries.
2. Mitigates risks that the private sector does not control.
3. Opens new markets.
4. Improves project sustainability.
Legal Requirements
Bank guarantee is issued by the authorised dealers under their obligated authorities
notified vide FEMA 8/ 2000 dt 3rd May 2000. Only in case of revocation of guarantee
involving US $ 5000 or more need to be reported to Reserve Bank of India (RBI).
Types of Bank Guarantees
1. Direct or Indirect Bank Guarantee: A bank guarantee can be either direct or indirect.
Direct Bank Guarantee It is issued by the applicant's bank (issuing bank) directly to the guarantee's
beneficiary without concerning a correspondent bank. This type of guarantee is less expensive and is
also subject to the law of the country in which the guarantee is issued unless otherwise it is mentioned
in the guarantee documents.
Indirect Bank Guarantee With an indirect guarantee, a second bank is involved, which is basically a
representative of the issuing bank in the country to which beneficiary belongs. This involvement of a
second bank is done on the demand of the beneficiary. This type of bank guarantee is more time
consuming and expensive too.
2. Confirmed Guarantee
It is cross between direct and indirect types of bank guarantee. This type of bank
guarantee is issued directly by a bank after which it is send to a foreign bank for
confirmations. The foreign banks confirm the original documents and thereby assume the
responsibility.
3. Tender Bond
This is also called bid bonds and is normally issued in support of a tender in international
trade. It provides the beneficiary with a financial remedy, if the applicant fails to fulfill any
of the tender conditions.
4. Performance Bonds
This is one of the most common types of bank guarantee which is used to secure the
completion of the contractual responsibilities of delivery of goods and act as security of
penalty payment by the Supplier in case of nondelivery of goods.
5. Advance Payment Guarantees

This mode of guarantee is used where the applicant calls for the provision of a sum of
money at an early stage of the contract and can recover the amount paid in advance, or a
part thereof, if the applicant fails to fulfill the agreement.
6. Payment Guarantees
This type of bank guarantee is used to secure the responsibilities to pay goods and
services. If the beneficiary has fulfilled his contractual obligations after delivering the
goods or services but the debtor fails to make the payment, then after written declaration
the beneficiary can easily obtain his money form the guaranteeing bank.
7. Loan Repayment Guarantees
This type of guarantee is given by a bank to the creditor to pay the amount of loan body
and interests in case of nonfulfillment by the borrower.
8. B/L Letter of Indemnity

This is also called a letter of indemnity and is a type of guarantee from the bank making
sure that any kind of loss of goods will not be suffered by the carrier.
9. Rental Guarantee
This type of bank guarantee is given under a rental contract. Rental guarantee is either
limited to rental payments only or includes all payments due under the rental contract
including cost of repair on termination of the rental contract.
10. Credit Card Guarantee

Credit card guarantee is issued by the credit card companies to its customer as a
guarantee that the merchant will be paid on transactions regardless of whether the
consumer pays their credit.
How to Apply for Bank Guarantee
Procedure for Bank Guarantees are very simple and are not governed by any particular
legal regulations. However, to obtained the bank guarantee one need to have a current
account in the bank. Guarantees can be issued by a bank through its authorised dealers
as per notifications mentioned in the FEMA 8/2000 date 3rd May 2000. Only in case of
revocation of guarantee involving US $ 5000/ or more to be reported to Reserve Bank of
India along with the details of the claim received.
Bank Guarantees vs. Letters of Credit
A bank guarantee is frequently confused with letter of credit (LC), which is similar in many
ways but not the same thing. The basic difference between the two is that of the parties
involved. In a bank guarantee, three parties are involved; the bank, the person to whom
the guarantee is given and the person on whose behalf the bank is giving guarantee. In
case of a letter of credit, there are normally four parties involved; issuing bank, advising
bank, the applicant (importer) and the beneficiary (exporter).
Also, as a bank guarantee only becomes active when the customer fails to pay the
necessary amount where as in case of letters of credit, the issuing bank does not wait for
the buyer to default, and for the seller to invoke the undertaking.
Table of Contents

Export Bank Guarantees.
 Introduction
 Benefits of Bank Guarantees
 Types of Bank Guarantees
 How to Apply for Bank Guarantee
 Bank Guarantees vs. Letters of Credit
Introduction
A bank guarantee is a written contract given by a bank on the behalf of a customer. By
issuing this guarantee, a bank takes responsibility for payment of a sum of money in case,
if it is not paid by the customer on whose behalf the guarantee has been issued. In return,
a bank gets some commission for issuing the guarantee.
Any one can apply for a bank guarantee, if his or her company has obligations towards a
third party for which funds need to be blocked in order to guarantee that his or her
company fulfils its obligations (for example carrying out certain works, payment of a debt,
etc.).
In case of any changes or cancellation during the transaction process, a bank guarantee
remains valid until the customer dully releases the bank from its liability.
In the situations, where a customer fails to pay the money, the bank must pay the amount
within three working days. This payment can also be refused by the bank, if the claim is
found to be unlawful.
Benefits of Bank Guarantees
For Governments
1. Increases the rate of private financing for key sectors such as infrastructure.
2. Provides access to capital markets as well as commercial banks.
3. Reduces cost of private financing to affordable levels.
4. Facilitates privatizations and public private partnerships.
5. Reduces government risk exposure by passing commercial risk to the private sector.
For Private Sector

1. Reduces risk of private transactions in emerging countries.
2. Mitigates risks that the private sector does not control.
3. Opens new markets.
4. Improves project sustainability.
Legal Requirements
Bank guarantee is issued by the authorised dealers under their obligated authorities
notified vide FEMA 8/ 2000 dt 3rd May 2000. Only in case of revocation of guarantee
involving US $ 5000 or more need to be reported to Reserve Bank of India (RBI).
Types of Bank Guarantees
1. Direct or Indirect Bank Guarantee: A bank guarantee can be either direct or indirect.
Direct Bank Guarantee It is issued by the applicant's bank (issuing bank) directly to the guarantee's
beneficiary without concerning a correspondent bank. This type of guarantee is less expensive and is
also subject to the law of the country in which the guarantee is issued unless otherwise it is mentioned
in the guarantee documents.
Indirect Bank Guarantee With an indirect guarantee, a second bank is involved, which is basically a
representative of the issuing bank in the country to which beneficiary belongs. This involvement of a
second bank is done on the demand of the beneficiary. This type of bank guarantee is more time
consuming and expensive too.
2. Confirmed Guarantee
It is cross between direct and indirect types of bank guarantee. This type of bank
guarantee is issued directly by a bank after which it is send to a foreign bank for
confirmations. The foreign banks confirm the original documents and thereby assume the
responsibility.
3. Tender Bond
This is also called bid bonds and is normally issued in support of a tender in international
trade. It provides the beneficiary with a financial remedy, if the applicant fails to fulfill any
of the tender conditions.
4. Performance Bonds
This is one of the most common types of bank guarantee which is used to secure the
completion of the contractual responsibilities of delivery of goods and act as security of
penalty payment by the Supplier in case of nondelivery of goods.
5. Advance Payment Guarantees

This mode of guarantee is used where the applicant calls for the provision of a sum of
money at an early stage of the contract and can recover the amount paid in advance, or a
part thereof, if the applicant fails to fulfill the agreement.
6. Payment Guarantees
This type of bank guarantee is used to secure the responsibilities to pay goods and
services. If the beneficiary has fulfilled his contractual obligations after delivering the
goods or services but the debtor fails to make the payment, then after written declaration
the beneficiary can easily obtain his money form the guaranteeing bank.
7. Loan Repayment Guarantees

This type of guarantee is given by a bank to the creditor to pay the amount of loan body
and interests in case of nonfulfillment by the borrower.
8. B/L Letter of Indemnity

This is also called a letter of indemnity and is a type of guarantee from the bank making
sure that any kind of loss of goods will not be suffered by the carrier.
9. Rental Guarantee
This type of bank guarantee is given under a rental contract. Rental guarantee is either
limited to rental payments only or includes all payments due under the rental contract
including cost of repair on termination of the rental contract.
10. Credit Card Guarantee
Credit card guarantee is issued by the credit card companies to its customer as a
guarantee that the merchant will be paid on transactions regardless of whether the
consumer pays their credit.
How to Apply for Bank Guarantee
Procedure for Bank Guarantees are very simple and are not governed by any particular
legal regulations. However, to obtained the bank guarantee one need to have a current
account in the bank. Guarantees can be issued by a bank through its authorised dealers
as per notifications mentioned in the FEMA 8/2000 date 3rd May 2000. Only in case of
revocation of guarantee involving US $ 5000/ or more to be reported to Reserve Bank of
India along with the details of the claim received.
Bank Guarantees vs. Letters of Credit
A bank guarantee is frequently confused with letter of credit (LC), which is similar in many
ways but not the same thing. The basic difference between the two is that of the parties
involved. In a bank guarantee, three parties are involved; the bank, the person to whom
the guarantee is given and the person on whose behalf the bank is giving guarantee. In
case of a letter of credit, there are normally four parties involved; issuing bank, advising
bank, the applicant (importer) and the beneficiary (exporter).
Also, as a bank guarantee only becomes active when the customer fails to pay the
necessary amount where as in case of letters of credit, the issuing bank does not wait for
the buyer to default, and for the seller to invoke the undertaking.
Table of Contents

Export International Trade

Transport Risk.
 Introduction
 Transport Insurance
 Scope of Coverage
 Specialist Covers
 Seller's Buyer's Contingent Interest Insurance
 Loss of Profits/ Consequential Loss Insurance
Introduction
It is quite important to evaluate the transportation risk in international trade for better financial
stability of export business. About 80% of the world major transportation of goods is carried out
by sea, which also gives rise to a number of risk factors associated with transportation of goods.
The major risk factors related to shipping are cargo, vessels, people and financing. So it becomes
necessary for the government to address all of these risks with broadbased security policy
responses, since simply responding to threats in isolation to one another can be both ineffective
and costly.
While handling transportation in international trade following precaution should be taken

into consideration.
 In case of transportation by ship, and the product should be appropriate for
containerization. It is worth promoting standard order values equivalent to
quantities loaded into standard size containers.
 Work must be carried out in compliance with the international code concerning
the transport of dangerous goods.
 For better communication purpose people involve in the handling of goods

should be equipped with phone, fax, email, internet and radio.
 About the instructions given to the transport company on freight forwarder.

 Necessary information about the cargo insurance.
 Each time goods are handled; there risk of damage. Plan for this when packing for
export, and deciding on choice of transport and route.
 The expected sailing dates for marine transport should be built into the
production programme, especially where payments is to be made by Letter of
Credit when documents will needs to be presented within a specified time frame.
 Choice of transport has Balance Sheet implications. The exporter is likely to

received payments for goods supplied while they are in transit.
 Driver accompanied road transport provides peace of minds, but the ability to fill
the return load will affect pricing.
Transport Insurance
Export and import in international trade, requires transportation of goods over a long
distance. No matter whichever transport has been used in international trade, necessary
insurance is must for ever good.
Cargo insurance also known as marine cargo insurance is a type of insurance against
physical damage or loss of goods during transportation. Cargo insurance is effective in all
the three cases whether the goods have been transported via sea, land or air.
Insurance policy is not applicable if the goods have been found to be packaged or
transported by any wrong means or methods. So, it is advisable to use a broker for
placing cargo risks.
Scope of Coverage
The following can be covered for the risk of loss or damage:
 Cargoimport, export cross voyage dispatched by sea, river, road, rail post, personal
courier, and including associated storage risks.
 Good in transit (inland).
 Freight service liability.
 Associated stock.
However there are still a number of general exclusion such loss by delay, war risk,
improper packaging and insolvency of carrier. Converse for some of these may be
negotiated with the insurance company. The Institute War Clauses may also be added.
Regular exporters may negotiate open cover. It is an umbrella marine insurance policy
that is activated when eligible shipments are made. Individual insurance certificates are
issued after the shipment is made. Some letters of Credit Will require an individual
insurance policy to be issued for the shipment, While others accept an insurance
certificate.
Specialist Covers
Whereas standard marine/transport cover is the answer for general cargo, some classes
of business will have special requirements. General insurer may have developed specialty
teams to cater for the needs of these business, and it is worth asking if this cover can be
extended to export risks.
Cover may be automatically available for the needs of the trade.
Example of this are:

 Project Constructional works insurers can cover the movement of goods for the project.
 Fine art
 Precious stonesSpecial Cover can be extended to cover sending of precious stones.
 Stock through put cover extended beyond the time goods are in transit until when they
are used at the destination.
Seller's Buyer's Contingent Interest Insurance

An exporter selling on, for example FOB (INCOTERMS 2000) delivery terms would
according to the contract and to INCOTERMS, have not responsibility for insurance once
the goods have passed the ship's rail. However, for peace of mind, he may wish to
purchase extra cover, which will cover him for loss or will make up cover where the other
policy is too restrictive . This is known as Seller's Interest Insurance.
Similarly, cover is available to importers/buyers.
Seller's Interest and Buyer's Interest covers usually extended cover to apply if the title in
the goods reverts to the insured party until the goods are recovered resold or returned.
Loss of Profits/ Consequential Loss Insurance

Importers buying goods for a particular event may be interested in consequential loss
cover in case the goods are late (for a reason that id insured) and (expensive)
replacements have to be found to replace them. In such cases, the insurer will pay a claim
and receive may proceeds from the eventual sale of the delayed goods.
Table of Contents
Credit Risk in Export Business.

 Introdcution
 Credit Insurance
 Payment Risk
 Bad Debt Protection
 Confirmation of LC
 Factoring and Forfeiting
 Credit Limit
 Benefits of Credit Cover
Introduction
Contract risk and credit risk are the part of international trade finance and are quite
different from each other.
A contract risk is related to the Latin law of "Caveat Emptor", which means "Buyer Beware"
and refers directly to the goods being purchase under contract, whether it's a car, house
land or whatever.
On the other hand a credit risk may be defined as the risk that a counter party to a
transaction will fail to perform according to the terms and conditions of the contract, thus
causing the holder of the claim to suffer a loss.
Banks all over the world are very sensitive to credit risk in various financial sectors like
loans, trade financing, foreign exchange, swaps, bonds, equities, and inter bank
transactions.
Credit Insurance
Credit Insurance is special type of loan which pays back a fraction or whole of the
amount to the borrower in case of death, disability, or unemployment. It protects open
account sales against nonpayment resulting from a customer's legal insolvency or default.
It is usually required by manufacturers and wholesalers selling products on credit terms to
domestic and/or foreign customers.
Benefits of Credit Insurance
1. Expand sales to existing customers without increased risk.

2 Offer more competitive credit terms to new customers in new markets.
3. Help protect against potential restatement of earnings.
4. Optimize bank financing by insuring trade receivables.
5. Supplement credit risk management.
Payment Risk
This type of risk arises when a customer charges in an organization or if he does not pay
for operational reasons. Payment risk can only be recovered by a well written contract.
Recovery can not be made for payment risk using credit insurance.
Bad Debt Protection

A bad debt can effect profitability. So, it is always good to keep options ready for bad
debt like Confirmation of LC, debt purchase (factoring without recourse of forfeiting) or
credit insurance.
Confirmation of LC
In an international trade, the confirmation of letter of credit is issued to an exporter or
seller. This confirmation letter assures payment to an exporter or seller, even if the issuing
bank defaults on its payment once the beneficiary meets his terms and conditions.
Factoring and Forfaiting

Where debt purchase is without recourse, the bank will already have advanced the funds
in the debt purchase transaction. The bank takes the risk of nonpayment.
Credit Limit
Companies with credit insurance need to have proper credit limits according to the terms
and conditions. This includes fulfilling the administrative requirements, including
notification of overdoes and also terms set out in the credit limit decision.
Payment of the claim can only be done after a fix period, which is about 6 months for
slow pay insurance. In case of economic and political events is six or more than six
months, depending on the exporter markets.
Credit insurance covers the risk of non payment of trade debts. Each policy is different,
some covering only insolvency risk on goods delivered, and others covering a wide range
of risk such as :
 Local sales, export sales, or both.
 Protracted default.
 Political risk, including contract frustration, war transfer.
 Predelivery risks.
 Cover for sales from stock.
 Non honoring of letters of credits.
 Bond unfair calling risks.
Like all other insurance, credit insurance covers the risk of fortuitous loss. Key features of
credit insurance are:
 The company is expected to assess that its client exists and is creditworthy . This might be
by using a credit limit service provided by the insurer. A Credit limit Will to pay attention
to the company's credit management procedures, and require that agreed procedures
manuals be followed at all times.
 While the credit insurer underwrites the risk of non payment and contract frustration the
nature of the risk is affected by how it is managed. The credit insurer is likely to pay
attention to the company's credit managements procedures, and require that agreed
procedures manuals be followed at all times.
 The credit insurer will expect the sales contract to be written effectively and invoices to be
clear.
 The company will be required to report any overdue or other problems in a timely
fashion.
 The credit insurer may have other exposure on the same buyers or in the same markets. A
company will therefore benefits if other policyholder report that a particular potential
customer is in financial difficulties.
 In the event that the customer does not pay, or cannot pay, the policy reacts. There may
be a waiting period to allow the company to start collection procedures, and to resolve
nay quality disputes.
 Many credit insurer contribute to legal costs, including where early action produces a full
recovery and avoids a claim.
Benefits of Credit Cover

 Protection for the debtor asset or the balance sheet.
 Possible access to information on credit rating of foreign buyer.
 Access to trade finance
 Protection of profit margin
 Advice on customers and levels of credit.
 Disciplined credit management.
 Assistance and /or advice when debts are overdue or there is a risk of loss.
 Provides confidence to suppliers, lenders and investors.
 Good corporate governance.
Table of Contents

Export International Trade

Transport Risk.
 Introduction
 Transport Insurance
 Scope of Coverage
 Specialist Covers
 Seller's Buyer's Contingent Interest Insurance
 Loss of Profits/ Consequential Loss Insurance
Introduction
It is quite important to evaluate the transportation risk in international trade for better financial
stability of export business. About 80% of the world major transportation of goods is carried out
by sea, which also gives rise to a number of risk factors associated with transportation of goods.
The major risk factors related to shipping are cargo, vessels, people and financing. So it becomes
necessary for the government to address all of these risks with broadbased security policy
responses, since simply responding to threats in isolation to one another can be both ineffective
and costly.
While handling transportation in international trade following precaution should be taken

into consideration.
 In case of transportation by ship, and the product should be appropriate for
containerization. It is worth promoting standard order values equivalent to
quantities loaded into standard size containers.
 Work must be carried out in compliance with the international code concerning
the transport of dangerous goods.
 For better communication purpose people involve in the handling of goods

should be equipped with phone, fax, email, internet and radio.
 About the instructions given to the transport company on freight forwarder.
 Necessary information about the cargo insurance.
 Each time goods are handled; there risk of damage. Plan for this when packing for
export, and deciding on choice of transport and route.
 The expected sailing dates for marine transport should be built into the
production programme, especially where payments is to be made by Letter of
Credit when documents will needs to be presented within a specified time frame.
 Choice of transport has Balance Sheet implications. The exporter is likely to

received payments for goods supplied while they are in transit.
 Driver accompanied road transport provides peace of minds, but the ability to fill
the return load will affect pricing.
Transport Insurance
Export and import in international trade, requires transportation of goods over a long
distance. No matter whichever transport has been used in international trade, necessary
insurance is must for ever good.
Cargo insurance also known as marine cargo insurance is a type of insurance against
physical damage or loss of goods during transportation. Cargo insurance is effective in all
the three cases whether the goods have been transported via sea, land or air.
Insurance policy is not applicable if the goods have been found to be packaged or
transported by any wrong means or methods. So, it is advisable to use a broker for
placing cargo risks.
Scope of Coverage
The following can be covered for the risk of loss or damage:
 Cargoimport, export cross voyage dispatched by sea, river, road, rail post, personal
courier, and including associated storage risks.
 Good in transit (inland).
 Freight service liability.
 Associated stock.
However there are still a number of general exclusion such loss by delay, war risk,
improper packaging and insolvency of carrier. Converse for some of these may be
negotiated with the insurance company. The Institute War Clauses may also be added.
Regular exporters may negotiate open cover. It is an umbrella marine insurance policy
that is activated when eligible shipments are made. Individual insurance certificates are
issued after the shipment is made. Some letters of Credit Will require an individual
insurance policy to be issued for the shipment, While others accept an insurance
certificate.
Specialist Covers
Whereas standard marine/transport cover is the answer for general cargo, some classes
of business will have special requirements. General insurer may have developed specialty
teams to cater for the needs of these business, and it is worth asking if this cover can be
extended to export risks.
Cover may be automatically available for the needs of the trade.
Example of this are:

 Project Constructional works insurers can cover the movement of goods for the project.
 Fine art
 Precious stonesSpecial Cover can be extended to cover sending of precious stones.
 Stock through put cover extended beyond the time goods are in transit until when they
are used at the destination.
Seller's Buyer's Contingent Interest Insurance

An exporter selling on, for example FOB (INCOTERMS 2000) delivery terms would
according to the contract and to INCOTERMS, have not responsibility for insurance once
the goods have passed the ship's rail. However, for peace of mind, he may wish to
purchase extra cover, which will cover him for loss or will make up cover where the other
policy is too restrictive . This is known as Seller's Interest Insurance.
Similarly, cover is available to importers/buyers.
Seller's Interest and Buyer's Interest covers usually extended cover to apply if the title in
the goods reverts to the insured party until the goods are recovered resold or returned.
Loss of Profits/ Consequential Loss Insurance
Importers buying goods for a particular event may be interested in consequential loss
cover in case the goods are late (for a reason that id insured) and (expensive)
replacements have to be found to replace them. In such cases, the insurer will pay a claim
and receive may proceeds from the eventual sale of the delayed goods.
Table of Contents
Credit Risk in Export Business.

 Introdcution
 Credit Insurance
 Payment Risk
 Bad Debt Protection
 Confirmation of LC
 Factoring and Forfeiting
 Credit Limit
 Benefits of Credit Cover
Introduction
Contract risk and credit risk are the part of international trade finance and are quite
different from each other.
A contract risk is related to the Latin law of "Caveat Emptor", which means "Buyer Beware"
and refers directly to the goods being purchase under contract, whether it's a car, house
land or whatever.
On the other hand a credit risk may be defined as the risk that a counter party to a
transaction will fail to perform according to the terms and conditions of the contract, thus
causing the holder of the claim to suffer a loss.
Banks all over the world are very sensitive to credit risk in various financial sectors like
loans, trade financing, foreign exchange, swaps, bonds, equities, and inter bank
transactions.
Credit Insurance
Credit Insurance is special type of loan which pays back a fraction or whole of the
amount to the borrower in case of death, disability, or unemployment. It protects open
account sales against nonpayment resulting from a customer's legal insolvency or default.
It is usually required by manufacturers and wholesalers selling products on credit terms to
domestic and/or foreign customers.
Benefits of Credit Insurance
1. Expand sales to existing customers without increased risk.

2 Offer more competitive credit terms to new customers in new markets.
3. Help protect against potential restatement of earnings.
4. Optimize bank financing by insuring trade receivables.
5. Supplement credit risk management.
Payment Risk
This type of risk arises when a customer charges in an organization or if he does not pay
for operational reasons. Payment risk can only be recovered by a well written contract.
Recovery can not be made for payment risk using credit insurance.
Bad Debt Protection
A bad debt can effect profitability. So, it is always good to keep options ready for bad
debt like Confirmation of LC, debt purchase (factoring without recourse of forfeiting) or
credit insurance.
Confirmation of LC
In an international trade, the confirmation of letter of credit is issued to an exporter or
seller. This confirmation letter assures payment to an exporter or seller, even if the issuing
bank defaults on its payment once the beneficiary meets his terms and conditions.
Factoring and Forfaiting

Where debt purchase is without recourse, the bank will already have advanced the funds
in the debt purchase transaction. The bank takes the risk of nonpayment.
Credit Limit
Companies with credit insurance need to have proper credit limits according to the terms
and conditions. This includes fulfilling the administrative requirements, including
notification of overdoes and also terms set out in the credit limit decision.
Payment of the claim can only be done after a fix period, which is about 6 months for
slow pay insurance. In case of economic and political events is six or more than six
months, depending on the exporter markets.
Credit insurance covers the risk of non payment of trade debts. Each policy is different,
some covering only insolvency risk on goods delivered, and others covering a wide range
of risk such as :
 Local sales, export sales, or both.
 Protracted default.
 Political risk, including contract frustration, war transfer.
 Predelivery risks.
 Cover for sales from stock.
 Non honoring of letters of credits.
 Bond unfair calling risks.
Like all other insurance, credit insurance covers the risk of fortuitous loss. Key features of
credit insurance are:
 The company is expected to assess that its client exists and is creditworthy . This might be
by using a credit limit service provided by the insurer. A Credit limit Will to pay attention
to the company's credit management procedures, and require that agreed procedures
manuals be followed at all times.
 While the credit insurer underwrites the risk of non payment and contract frustration the
nature of the risk is affected by how it is managed. The credit insurer is likely to pay
attention to the company's credit managements procedures, and require that agreed
procedures manuals be followed at all times.
 The credit insurer will expect the sales contract to be written effectively and invoices to be
clear.
 The company will be required to report any overdue or other problems in a timely
fashion.
 The credit insurer may have other exposure on the same buyers or in the same markets. A
company will therefore benefits if other policyholder report that a particular potential
customer is in financial difficulties.
 In the event that the customer does not pay, or cannot pay, the policy reacts. There may
be a waiting period to allow the company to start collection procedures, and to resolve
nay quality disputes.
 Many credit insurer contribute to legal costs, including where early action produces a full
recovery and avoids a claim.
Benefits of Credit Cover

 Protection for the debtor asset or the balance sheet.
 Possible access to information on credit rating of foreign buyer.
 Access to trade finance
 Protection of profit margin
 Advice on customers and levels of credit.
 Disciplined credit management.
 Assistance and /or advice when debts are overdue or there is a risk of loss.
 Provides confidence to suppliers, lenders and investors.
 Good corporate governance.
Table of Contents

Country Political Risk in Export.

 Introduction
 Measuring Country Risk
 Political Risk
 PreDelivery Risks
 Pre Delivery Cover
 Binding contracts cover and noncancelable limits
Introduction
Country risk includes a wide range of risks, associated with lending or depositing funds, or doing
other financial transaction in a particular country. It includes economic risk, political risk, currency
blockage, expropriation, and inadequate access to hard currencies. Country risk can adversely
affect operating profits as well as the value of assets.
With more investors investing internationally, both directly and indirectly, the political, and
therefore economic, stability and viability of a country's economy need to be considered.
Measuring Country Risk
Given below are the lists of some agencies that provide services in evaluating the country risk.
 Bank of America World Information Services

 Business Environment Risk Intelligence (BERI) S.A.
 Control Risks Information Services (CRIS)
 Economist Intelligence Unit (EIU)
 Euromoney
 Institutional Investor
 Standard and Poor's Rating Group
 Political Risk Services: International Country Risk Guide (ICRG)
 Political Risk Services: CoplinO'Leary Rating System
 Moody's Investor Services
Political Risk
The risk of loss due to political reasons arises in a particular country due to changes in the
country's political structure or policies, such as tax laws,tariffs, expropriation ofassets, or restriction
in repatriation of profits. Political risk is distinct from other commercial risks, and tends to be
difficult to evaluate.
Some example of political risks are:
 Contract frustration by another country, government resulting in your inability to perform

the contract, following which the buyer may not make payment and or / on demand
bonds may be called.
 Government buyer repudiating the contract this may be occur if there is a significant
political or economic change within the customer's country.
 Licence cancellation or non renewal or imposition of an embargo.
 Sanctions imposed against a particular country or company.
 Imposition of exchange controls causing payments to be blocked.
 General moratorium decreed by an overseas government preventing payment
 Shortage of foreign exchange/transfer delay.
 War involving either importing or exporting country.
 Forced abandonment
 Revoking of Import/ Exports licence.
 Changes in regulations.
The following are also considered as political risks in relation to exporting :

 Confiscation of assets by a foreign government.
 Unfair calling of bonds.
Insurance companies provide political risk covers. These may be purchased:

 On their own, covering only political risk on the sale to a particular country.
 For a portfolio of political risks.
 For the political risks in relation to the sale to another company in your group (where
there is a common shareholding and therefore insolvency cover is not available).
 As part of a credit insurance policy.
PreDelivery Risks
A company can suffer financial loss, if export contract is cancelled due to commercial or political
reasons, even before the goods and services are dispatched or delivered. In such a situation, the
exposure to loss will depends on:
 The nature of the contract.

 If the company can salvage any products and resell them quickly, with a small amount of
re working
 Any stage payments
 If servicing staff have left the country.
 The extent of the commitments to suppliers.
 The horizon of pre delivery risk
 The customer and country risks
Pre Delivery Cover

Credit insurance can be extended to cover predelivery risk, in particular, the risk of
customer insolvency predelivery or political frustration predelivery.
Some times predelivery cover can be extended included the frustration of a contract
caused by non payment of a pre delivery milestone, and or non payment of a termination
account, and or bond call.
Predelivery risks are often complicated and the wording of the cover is worth careful
examination.
It is to be noted that in the event that it was clearly unwise to dispatch goods, credit risk
(payment risk) cover would not automatically apply if the company nonetheless went
ahead and dispatched head them.
Binding contracts cover and NonCancelable Limits

Binding contracts cover and noncancelable limits are not included in predelivery cover.
However, they provide a commitment from the credit insurer that the cover for dispatches
/ invoices will not be withdrawn without a prior notice.
If the company's customer is overdue, or it is imprudent to dispatch, there is no credit
insurance cover for dispatches subsequently made, even where the company holds
binding contract cover or noncancelable limits.
Table of Contents

 Introduction
 Political Risk
Introduction

 Euromoney
Political Risk



PreDelivery Risks

re working
Pre Delivery Cover

examination.


 Introduction
 Political Risk
Introduction

 Euromoney
Political Risk



PreDelivery Risks

re working

Pre Delivery Cover

examination.

Currency Risk in Export

International Trade.
 Introduction
 Currency Hedging
 FOREX Market
 Spot Rate
 Forward Price
 Forward Price vs. Spot Price
 RBI Reference Rate
 Inter Bank Rates
 Telegraphic Transfer
 Currency Rate
 Cross Rate
 Long and Short
 Bid and Ask
 Buying and Selling
 FOREX Rates vs. Interest Rates
 Calculating the Forward Rates
Introduction
Currency risk is a type of risk in international trade that arises from the fluctuation in price
of one currency against another. This is a permanent risk that will remain as long as
currencies remain the medium of exchange for commercial transactions. Market
fluctuations of relative currency values will continue to attract the attention of the
exporter, the manufacturer, the investor, the banker, the speculator, and the policy maker
alike.
While doing business in foreign currency, a contract is signed and the company quotes a
price for the goods using a reasonable exchange rate. However, economic events may
upset even the best laid plans. Therefore, the company would ideally wish to have a
strategy for dealing with exchange rate risk.
Currency Hedging
Currency hedging is technique used to avoid the risks associated with the changing value
of currency while doing transactions in international trade. It is possible to take steps to
hedge foreign currency risk. This may be done through one of the following options:
 Billing foreign deals in Indian Rupees: This insulates the Indian exporter from currency
fluctuations. However, this may not be acceptable to the foreign buyer. Most of
international trade transactions take place in one of the major foreign currencies USD,
Euro, Pounds Sterling, and Yen.
 Forward contract. You agree to sell a fixed amount of foreign exchange (to convert this
into your currency) at a future date, allowing for the risk that the buyer’s payments are
late.
 Options: You buy the right to have currency at an agreed rate within an agreed period.
For example, if you expect to receive $35,000 in 3 months, time you could buy an option
to convert $35,000 into your currency in 3 months. Options can be more expensive than a
forward contract, but you don't need to compulsorily use your option.
 Foreign currency bank account and foreign currency borrowing: These may be suitable
where you have cost in the foreign currency or in a currency whose exchange rate is
related to that currency.
FOREX Market
Forex market is one of the largest financial markets in the world, where buyers and sellers
conduct foreign exchange transactions. Its important in the international trade can be
estimated with the fact that average daily trade in the global forex markets is over US $ 3
trillion. We shall touch upon some important topics that affect the risk profile of an
International transaction.
Spot Rate
Also known as "benchmark rates", "straightforward rates"or "outright rates", spot rates is
an agreement to buy or sell currency at the current exchange rate. The globally accepted
settlementcycle for foreignexchange contracts is two days. Foreignexchange contracts are
therefore settled on the second day after the day the deal is made.
Forward Price
Forward price is a fixed price at which a particular amount of a commodity, currency or
security is to be delivered on a fixed date in the future, possibly as for as a year ahead.
Traders agree to buy and sell currencies for settlement at least three days later, at
predetermined exchange rates. This type of transaction often is used by business to
reduce their exchange rate risk.
Forward Price vs. Spot Price

Theoretically it is possible for a forward price of a currency to equal its spot price
However, interest rates must be considered . The interest rate can be earned by holding
different currencies usually varies, therefore forward price can be higher or lower than (at
premium or discount to ) the spot prices.
RBI Reference Rate
There reference rate given by RBI is based on 12 noon rates of a few selected banks in
Mumbai.
Inter Bank Rates

Interbank rates rates quotes the bank for buying and selling foreign currency in the inter
bank market, which works on wafer thin margins . For inter bank transactions the
quotation is up to four decimals with the last two digits in multiples of 25.
Telegraphic Transfer
Telegraphic transfer or in short TT is a quick method of transfer money from one bank to
another bank. TT method of money transfer has been introduced to solve the delay
problems caused by cheques or demand drafts. In this method, money does not move
physically and order to pay is wired to an institutions’ casher to make payment to a
company or individual. A cipher code is appended to the text of the message to ensure its
integrity and authenticity during transit. The same principle applies with Western
Union and Money Gram.
Currency Rate
The Currency rate is the rate at which the authorized dealer buys and sells the currency
notes to its customers. It depends on the TC rate and is more than the TC rate for the
person who is buying them.
Cross Rate
In inter bank transactions all currencies are normally traded against the US dollar, which
becomes a frame of reference. So if one is buying with rupees a currency X which is not
normally traded, one can arrive at a rupeeexchange rate by relating the rupee $ rate to
the $X rate . This is known as a cross rate.
Long and Short

When you go long on a currency, its means you bought it and are holding it in the
expectation that it will appreciate in value. By contrast, going short means you reselling
currency in the expectation that what you are selling will depreciate in value.
Bid and Ask
Bids are the highest price that the seller is offering for the particular currency. On the
other hand, ask is the lowest price acceptable to the buyer.Together, the two prices
constitute a quotation and the difference between the price offered by a dealer willing to
sell something and the price he is willing to pay to buy it back.
The bidask spread is amount by which the ask price exceeds the bid. This is essentially the
difference in price between the highest price thata buyer is willing to pay for an asset and
the lowest price for whicha seller is willing to sell it.
For example, if the bid price is $20 and the ask price is $21 then the "bidask spread" is $1.
The spread is usually rates as percentage cost of transacting in the forex market, which is
computed as follow :
Percent spread =(Ask priceBid price)/Ask price *100
The main advantage of bid and ask methods is that conditions are laid out in advance
and transactions can proceed with no further permission or authorization from any
participants. When any bid and ask pair are compatible, a transaction occurs, in most
cases automatically.
Buying and Selling

In terms of foreign exchange, buying means purchasing a certain amount of the foreign
currency at the bid or buying price against the delivery /crediting of a second currency
which is also called counter currency.
On the other hand, selling refers to a fix amount of foreign currency at the offered or
selling price against the receipt / debiting of another currency.
FOREX Rates vs. Interest Rates

Forex rates or exchange rate is the price of a country's currency in terms of another
country's currency. It specifies how much one currency is worth in terms of the other. For
example a forex rate of 123Japanese yen (JPY, ¥) to theUnited States dollar (USD, $)
means that JPY 123 is worth the same as USD 1.
Choice of currency and its interest rate is a major concern in the international trade.
Investors are easily attracted by the higher interest rates which in turns also effects the
economy of a nation and its currency value.
For an example, if interest rate on INR were substantially higher than the interest rate on
USD, more USD would be converted into INR and pumped into the Indian economic
system. This would result in appreciation of the INR, resulting in lower conversion rates of
USD against INR, at the time of reconversion into USD.
Calculating the Forward Rates

A forward rate is calculated by calculating the interest rate difference between the two
currencies involved in the transactions. For example, if a client is buying a 30 days US
dollar then, the difference between the spot rate and the forward rate will be calculated as
follow:
The US dollars are purchased on the spot market at an appropriate rate, what causes the
forward contract rate to be higher or lower is the difference in the interest rates between
India and the United States.
The interest rate earned on US dollars is less than the interest rate earned on Indian
Rupee (INR). Therefore, when the forward rates are calculated the cost of this interest rate
differential is added to the transaction through increasing the rate.
USD 100,000 X 1.5200 = INR 152,000
INR 152,000 X 1% divided by 12 months = INR 126.67
INR 152,000 + INR 126.67 = INR 152,126.67
INR 152,126.67/USD 100,000 = 1.5213
Currency Risk in Export

International Trade.
 Introduction
 Currency Hedging
 FOREX Market
 Spot Rate
 Forward Price
 Forward Price vs. Spot Price
 RBI Reference Rate
 Inter Bank Rates
 Telegraphic Transfer
 Currency Rate
 Cross Rate
 Long and Short
 Bid and Ask
 Buying and Selling
 FOREX Rates vs. Interest Rates
 Calculating the Forward Rates
Introduction
Currency risk is a type of risk in international trade that arises from the fluctuation in price
of one currency against another. This is a permanent risk that will remain as long as
currencies remain the medium of exchange for commercial transactions. Market
fluctuations of relative currency values will continue to attract the attention of the
exporter, the manufacturer, the investor, the banker, the speculator, and the policy maker
alike.
While doing business in foreign currency, a contract is signed and the company quotes a
price for the goods using a reasonable exchange rate. However, economic events may
upset even the best laid plans. Therefore, the company would ideally wish to have a
strategy for dealing with exchange rate risk.
Currency Hedging
Currency hedging is technique used to avoid the risks associated with the changing value
of currency while doing transactions in international trade. It is possible to take steps to
hedge foreign currency risk. This may be done through one of the following options:
 Billing foreign deals in Indian Rupees: This insulates the Indian exporter from currency
fluctuations. However, this may not be acceptable to the foreign buyer. Most of
international trade transactions take place in one of the major foreign currencies USD,
Euro, Pounds Sterling, and Yen.
 Forward contract. You agree to sell a fixed amount of foreign exchange (to convert this
into your currency) at a future date, allowing for the risk that the buyer’s payments are
late.
 Options: You buy the right to have currency at an agreed rate within an agreed period.
For example, if you expect to receive $35,000 in 3 months, time you could buy an option
to convert $35,000 into your currency in 3 months. Options can be more expensive than a
forward contract, but you don't need to compulsorily use your option.
 Foreign currency bank account and foreign currency borrowing: These may be suitable
where you have cost in the foreign currency or in a currency whose exchange rate is
related to that currency.
FOREX Market
Forex market is one of the largest financial markets in the world, where buyers and sellers
conduct foreign exchange transactions. Its important in the international trade can be
estimated with the fact that average daily trade in the global forex markets is over US $ 3
trillion. We shall touch upon some important topics that affect the risk profile of an
International transaction.
Spot Rate
Also known as "benchmark rates", "straightforward rates"or "outright rates", spot rates is
an agreement to buy or sell currency at the current exchange rate. The globally accepted
settlementcycle for foreignexchange contracts is two days. Foreignexchange contracts are
therefore settled on the second day after the day the deal is made.
Forward Price
Forward price is a fixed price at which a particular amount of a commodity, currency or
security is to be delivered on a fixed date in the future, possibly as for as a year ahead.
Traders agree to buy and sell currencies for settlement at least three days later, at
predetermined exchange rates. This type of transaction often is used by business to
reduce their exchange rate risk.
Forward Price vs. Spot Price

Theoretically it is possible for a forward price of a currency to equal its spot price
However, interest rates must be considered . The interest rate can be earned by holding
different currencies usually varies, therefore forward price can be higher or lower than (at
premium or discount to ) the spot prices.
RBI Reference Rate

There reference rate given by RBI is based on 12 noon rates of a few selected banks in
Mumbai.
Inter Bank Rates

Interbank rates rates quotes the bank for buying and selling foreign currency in the inter
bank market, which works on wafer thin margins . For inter bank transactions the
quotation is up to four decimals with the last two digits in multiples of 25.
Telegraphic Transfer
Telegraphic transfer or in short TT is a quick method of transfer money from one bank to
another bank. TT method of money transfer has been introduced to solve the delay
problems caused by cheques or demand drafts. In this method, money does not move
physically and order to pay is wired to an institutions’ casher to make payment to a
company or individual. A cipher code is appended to the text of the message to ensure its
integrity and authenticity during transit. The same principle applies with Western
Union and Money Gram.
Currency Rate
The Currency rate is the rate at which the authorized dealer buys and sells the currency
notes to its customers. It depends on the TC rate and is more than the TC rate for the
person who is buying them.
Cross Rate
In inter bank transactions all currencies are normally traded against the US dollar, which
becomes a frame of reference. So if one is buying with rupees a currency X which is not
normally traded, one can arrive at a rupeeexchange rate by relating the rupee $ rate to
the $X rate . This is known as a cross rate.
Long and Short

When you go long on a currency, its means you bought it and are holding it in the
expectation that it will appreciate in value. By contrast, going short means you reselling
currency in the expectation that what you are selling will depreciate in value.
Bid and Ask

Bids are the highest price that the seller is offering for the particular currency. On the
other hand, ask is the lowest price acceptable to the buyer.Together, the two prices
constitute a quotation and the difference between the price offered by a dealer willing to
sell something and the price he is willing to pay to buy it back.
The bidask spread is amount by which the ask price exceeds the bid. This is essentially the
difference in price between the highest price thata buyer is willing to pay for an asset and
the lowest price for whicha seller is willing to sell it.
For example, if the bid price is $20 and the ask price is $21 then the "bidask spread" is $1.
The spread is usually rates as percentage cost of transacting in the forex market, which is
computed as follow :
Percent spread =(Ask priceBid price)/Ask price *100
The main advantage of bid and ask methods is that conditions are laid out in advance
and transactions can proceed with no further permission or authorization from any
participants. When any bid and ask pair are compatible, a transaction occurs, in most
cases automatically.
Buying and Selling

In terms of foreign exchange, buying means purchasing a certain amount of the foreign
currency at the bid or buying price against the delivery /crediting of a second currency
which is also called counter currency.
On the other hand, selling refers to a fix amount of foreign currency at the offered or
selling price against the receipt / debiting of another currency.
FOREX Rates vs. Interest Rates

Forex rates or exchange rate is the price of a country's currency in terms of another
country's currency. It specifies how much one currency is worth in terms of the other. For
example a forex rate of 123Japanese yen (JPY, ¥) to theUnited States dollar (USD, $)
means that JPY 123 is worth the same as USD 1.
Choice of currency and its interest rate is a major concern in the international trade.
Investors are easily attracted by the higher interest rates which in turns also effects the
economy of a nation and its currency value.
For an example, if interest rate on INR were substantially higher than the interest rate on
USD, more USD would be converted into INR and pumped into the Indian economic
system. This would result in appreciation of the INR, resulting in lower conversion rates of
USD against INR, at the time of reconversion into USD.
Calculating the Forward Rates

A forward rate is calculated by calculating the interest rate difference between the two
currencies involved in the transactions. For example, if a client is buying a 30 days US
dollar then, the difference between the spot rate and the forward rate will be calculated as
follow:
The US dollars are purchased on the spot market at an appropriate rate, what causes the
forward contract rate to be higher or lower is the difference in the interest rates between
India and the United States.
The interest rate earned on US dollars is less than the interest rate earned on Indian
Rupee (INR). Therefore, when the forward rates are calculated the cost of this interest rate
differential is added to the transaction through increasing the rate.
USD 100,000 X 1.5200 = INR 152,000
INR 152,000 X 1% divided by 12 months = INR 126.67
INR 152,000 + INR 126.67 = INR 152,126.67
INR 152,126.67/USD 100,000 = 1.5213
Export Import (Exim) Policy

Benifits for Export Business.
 Introduction
 Highlight of Exim Policy 200207
 Service Exports
 Status Holders
 Hardware/Software
 Gem & Jewellery Sector
 Removal of Quantitative Restrictions
 Special Economic Zones Scheme
 EOU Scheme
 EPCG Scheme
 DEPB Scheme
 DFRC Scheme
 Miscellaneous
Introduction
Export Import Policy or better known as Exim Policy is a set of guidelines and instructions related
to the import and export of goods. The Government of India notifies the Exim Policy for a period
of five years (1997 2002) under Section 5 of the Foreign Trade (Development and Regulation Act),
1992. The current policy covers the period 2002 2007. The Export Import Policy is updated every
year on the 31st of March and the modifications, improvements and new schemes becames
effective from 1st April of every year. All types of changes or modifications related to the Exim
Policy is normally announced by the Union Minister of Commerce and Industry who coordinates
with the Ministry of Finance, the Directorate General of Foreign Trade and its network of regional
offices.
Highlight of Exim Policy 2002 - 07
1. Service Exports
Duty free import facility for service sector having a minimum foreign exchange earning of
Rs. 10 lakhs. The duty free entitlement shall be 10% of the average foreign exchange
earned in the preceding three licensing years.
However, for hotels the same shall be 5 % of the average foreign exchange earned in the
preceding three licensing years. Imports of agriculture and dairy products shall not be
allowed for imports against the entitlement. The entitlement and the goods imported
against such entitlement shall be non transferable.
2. Status Holders
a. Duty free import entitlement for status holder having incremental growth of more
than 25% in FOB value of exports (in free foreign exchange). This facility shall
however be available to status holder having a minimum export turnover of Rs. 25
crore (in free foreign exchange).
b. Annual Advance Licence facility for status holder to be introduced to enable them
to plan for their imports of raw material and component on an annual basis and
take advantage of bulk purchase.
c. Status holder in STPI shall be permitted free movement of professional

equipments like laptop/computer.
3. Hardware/Software
a. To give a boost to electronic hardware industry, supplies of all 217 ITA1 items
from EHTP units to Domestic Tariff Area (DTA) shall qualify for fulfillment of export
obligation.
b. To promote growth of exports in embedded software, hardware shall be
admissible for duty free import for testing and development purpose. Hardware
up to a value of US$ 10,000 shall be allowed to be disposed off subject to STPI
certification.
c. 100% depreciation to be available over a period of 3 years to computer and

computer peripherals for units in EOU/EHTP/STP/SEZ.
4. Gem & Jewellery Sector
a. Diamonds & Jewellery Dollar Account for exporters dealing in purchase /sale of
diamonds and diamond studded jewellery .
b. Nominated agencies to accept payment in dollar for cost of import of precious
metals from EEFC account of exporter.
c. Gem & Jewellery units in SEZ and EOUs can receive precious metal
Gold/silver/platinum prior to export or post export equivalent to value of jewellery
exported. This means that they can bring export proceeds in kind against the
present provision of bringing in cash only.
5. Removal of Quantitative Restrictions

a. Import of 69 items covering animals products, vegetables and spice antibiotics
and films removed from restricted list
b. Export of 5 items namely paddy except basmati, cotton linters, rare, earth, silk,
cocoons, family planning device except condoms, removed from restricted list.
6. Special Economic Zones Scheme

a. Sales from Domestic Tariff Area (DTA) to SEZ to be treated as export. This would
now entitle domestic suppliers to Duty Drawback / DEPB benefits, CST exemption and
Service Tax exemption.
b. Agriculture/Horticulture processing SEZ units will now be allowed to provide
inputs and equipments to contract farmers in DTA to promote production of
goods as per the requirement of importing countries.
c. Foreign bound passengers will now be allowed to take goods from SEZs to
promote trade, tourism and exports.
d. Domestics sales by SEZ units will now be exempt from SAD.
e. Restriction of one year period for remittance of export proceeds removed for SEZ
units.
f. Netting of export permitted for SEZ units provided it is between same exporter
and importer over a period of 12 months.
g. SEZ units permitted to take job work abroad and exports goods from there only.
h. SEZ units can capitalize import payables.
i. Wastage for sub contracting/exchange by gem and jewellery units in transactions

between SEZ and DTA will now be allowed.
j. Export/Import of all products through post parcel /courier by SEZ units will now
be allowed.
k. The value of capital goods imported by SEZ units will now be amortized uniformly
over 10 years.
l. SEZ units will now be allowed to sell all products including gems and jewellery
through exhibition and duty free shops or shops set up abroad.
m. Goods required for operation and maintenance of SEZ units will now be allowed
duty free.
7. EOU Scheme
Provision b,c,i,j,k and l of SEZ (Special Economic Zone) scheme , as mentioned above,
apply to Export Oriented Units (EOUs) also. Besides these, the other important provisions
are:
a. EOUs are now required to be only net positive foreign exchange earner and there
will now be no export performance requirement.
b. Period of Utilization raw materials prescribed for EOUs increased from 1 years to
3 years.
c. Gems and jewellery EOUs are now being permitted sub contracting in DTA.
d. Gems and jewellery EOUs will now be entitled to advance domestic sales.
8. EPCG Scheme
a. The Export Promotion Capital Goods (EPCG) Scheme shall allow import of capital
goods for preproduction and post production facilities also.
b. The Export Obligation under the scheme shall be linked to the duty saved and
shall b 8 times the duty saved.
c. To facilities upgradation of existing plant and machinery, import of spares shall be

allowed under the scheme.
d. To promote higher value addition in export, the existing condition of imposing an

additional Export Obligation of 50% for products in the higher product chain to
be done away with.
e. Greater flexibility for fulfillment of export obligation under the scheme by allowing
export of any other product manufactured by the exporter. This shall take care of
the dynamics of international market.
f. Capital goods up to 10 years old shall also be allowed under the Scheme.
g. To facilitate diversification in to the software sector, existing manufacturer

exporters will be allowed of fulfill export obligation arising out of import of capital
goods under the scheme for setting up of software units through export of
manufactured goods of the same company.
h. Royalty payments received from abroad and testing charges received in free
foreign exchange to be counted for discharge of export obligation under EPCG
Scheme.
9. DEPB Scheme
a. Facility for pro visional Duty Entitlement Pass Book(DEPB) rates introduced to
encourage diversification and promote export of new products.
b. DEPB rates rationalize in line with general reduction in Customs duty.
10. DFRC Scheme

a. Duty Free Replenishment Certificate (DFRC) scheme extended to deemed export
to provide a boost to domestic manufacturer.
b. Value addition under DFRC scheme reduced from 33% to 25%.
11. Miscellaneous
a. Actual user condition for import of second hand capital goods up to 10 years old
dispensed with.
b. Reduction in penal interest rate from 24% to 15% for all old cases of default
under Exim policy
c. Restriction on export of warranty spares removed.
d. IEC holder to furnish online return of importers/exporters made on yearly basis.
e. Export of free of cost goods for export promotion @ 2% of average annual

exports in preceding three years subject to ceiling of Rs. 5 lakhs permitted.
Foreign Exchange Management

Act (FEMA) for Export Import
Foreign Exchange.
 Introduction
 Some Highlights of FEMA
 Buyers's /Supplier's Credit
Introduction
Foreign Exchange Management Act or in short (FEMA) is an act that provides guidelines
for the free flow of foreign exchange in India. It has brought a new management regime
of foreign exchange consistent with the emerging frame work of the World Trade
Organisation (WTO). Foreign Exchange Management Act was earlier known as FERA
(Foreign Exchange Regulation Act), which has been found to be unsuccessful with the
proliberalisation policies of the Government of India.
FEMA is applicable in all over India and even branches, offices and agencies located
outside India, if it belongs to a person who is a resident of India.
Some Highlights of FEMA
 It prohibits foreign exchange dealing undertaken other than an authorised person;

 It also makes it clear that if any person residing in India, received any Forex payment
(without there being a corresponding inward remittance from abroad) the concerned
person shall be deemed to have received they payment from a nonauthorised person.
 There are 7 types of current account transactions, which are totally prohibited, and
therefore no transaction can be undertaken relating to them. These include transaction
relating to lotteries, football pools, banned magazines and a few others.
 FEMA and the related rules give full freedom to Resident of India (ROI) to hold or own or
transfer any foreign security or immovable property situated outside India.
 Similar freedom is also given to a resident who inherits such security or immovable
property from an ROI.
 An ROI is permitted to hold shares, securities and properties acquired by him while he was
a Resident or inherited such properties from a Resident.
 The exchange drawn can also be used for purpose other than for which it is drawn
provided drawl of exchange is otherwise permitted for such purpose.
 Certain prescribed limits have been substantially enhanced. For instance, residence now
going abroad for business purpose or for participating in conferences seminars will not
need the RBI's permission to avail foreign exchange up to US$. 25,000 per trip irrespective
of the period of stay, basic travel quota has been increased from the existing US$ 3,000 to
US$ 5,000 per calendar year.
Buyers's /Supplier's Credit

Trade Credit have been subjected to dynamic regulation over a period of last two years.
Now, Reserve Bank of India (RBI) vide circular number A.P. (DIR Series) Circular No. 24,
Dated November 1, 2004, has given general permission to ADs for issuance of
Guarantee/ Letter of Undertaking (LoU) / Letter of Comfort (LoC) subject to certain terms
and conditions . In view of the above, we are issuing consolidated guidelines and process
flow for availing trade credit .
1. Definition of Trade Credit : Credit extended for imports of goods directly by the
overseas supplier, bank and financial institution for original maturity of less than
three years from the date of shipment is referred to as trade credit for imports.
Depending on the source of finance, such trade credit will include supplier's credit
or buyers credit , Supplier 's credit relates to credit for imports into India
extended by the overseas supplier , while Buyers credit refers to loans for
payment of imports in to India arranged by the importer from a bank or financial
institution outside India for maturity of less than three years.
It may be noted that buyers credit and suppliers credit for three years and above
come under the category of External Commercial Borrowing (ECB), which are
governed by ECB guidelines. Trade credit can be availed for import of goods only
therefore interest and other charges will not be a part of trade credit at any point
of time.
2. Amount and tenor : For import of all items permissible under the Foreign Trade
Policy (except gold), Authorized Dealers (ADs) have been permitted to approved
trade credits up to 20 millions per import transaction with a maturity period ( from
the date of shipment) up to one year.
Additionally, for import of capital goods, ADs have been permitted to approved
trade credits up to USD 20 millions transactions with a maturity period of more
than one year and less than three years. No roll over/ extension will be permitted
by the AD beyond the permissible period.
3. All in cost ceiling : The all in cost ceiling are as under: Maturity period up to one
year 6 months LIBOR +50 basis points.
Maturity period more than one year but less than three years 6 months LIBOR* +
125 basis point
* for the respective currency of credit or applicable benchmark like EURIBOR.,
SIBOR, TIBOR, etc.
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
I. 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.
II. Export bills purchased/discounted/negotiated
a. Application of rates, crystallization of liabilities and recoveries
i. 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.
ii. 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.
iii. 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.
iv. In case of receipt of intimation of dishonour of an export bill before

the estimated crystallisation date, the bank shall recover from the
customer:
a. The Rupee equivalent of the bill arrived at the current spot

TT selling rate or the amount originally advanced, whichever
is higher.
b. All foreign currency charges converted at the ruling spot TT

selling rate.
c. Other charges, if any.
d. Interest at appropriate rate as prescribed by Reserve Bank

of India from time to time.
v. 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.
vi. 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.
b. Application if interest
i. This Rule is not aZpplicable to export transactions on deferred

payment basis.
ii. The rate of interest applicable for all export transactions shall be as
prescribed by Reserve Bank of India from time to time.
iii. For the purpose of application of interest at the time of purchase/

discount/ negotiation, export bills shall be classified as:
a. 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’]
b. 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
1. A bill for a.$10,000-drawn on Melbourne (Australia)

and payable in Melbourne is a “Direct Bills”.
2. A bill for Stg.Pd. ($) 5,000-drawn on Melbourne and

payable in Melbourne is an “Indirect Bills”.

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
a. 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
b. 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
c. 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
d. 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:
a. Aden (see Southern Yemen)

Anguilla (W.Indies)
Antigua (-do-)
Australia
b. Bahamas (W.Indies)
Barbados
Bermuda
Borneo
Burma
British Honduras
British Solomon Islands
c. Cameroon (Formerly British

British
South Cameroon Area only)
Canada
Carriacou
Cayman Island (W.Indies)
e. Ethiopia
f. Falkland
Island
Fiji
Islands
g. Gambia
Ghana
Gibraltar
Grenada (W.Indies)
Guyana
h. Hongkong
i. India
Ireland
j. Jamaica
Jordan
k. Kenya
Korea
m. M. Malawi
Malaysia
Malta
Montesserrat
(W.Indies)
Mauritius
n. New Zealand
Nevis (W.Indies)
Nigeria
Norfolk Island
p. Pakistan
Papua & New Guinea
Portugese Timor
s. 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
t. Tanzania
Thailand
Trinidad & (British)
Turk & Caricos Islands
u. Uganda
v. Virgin Island (British)
w. Western Samoa
z. Zambia
TT Reimbursement under letter of

credit
1. 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.
2. 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.]
3. 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
1. 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
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.
2. 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.
b. Application of charges
i. For each foreign currency bill purchased/ discount/

negotiated
a. (upto US $ 5000/- Rs. 100/-

or equivalent Minimum
b. (over US $ 5000/- Rs. 500/-

or equivalent) Minimum
(AR 10/95 dated 20.12.95)
ii. 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.
iii. 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)
iv. 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)
v. 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.
vi. 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.
vii. 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.
viii. Where applicable, stamp duty payable on export bills

shall be recovered from the customer.
ix. 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.
x. In the case of substitution/ charge in tenor of export

bill, the bank shall recover charges as mentioned
below from the exporters :
a. 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)
b. 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
from the customer.
(AR 1/95 dated 10.02.95)
c. 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.
II. Export bill for collection

a. Application of rates
i. 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.
ii. 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.
b. 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)
c. Application of charges
i. 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.
ii. 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.
iii. 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.
iv. All actual out of pocket expense such as correspondent bank

charges, postage, telegram/telex/cable charges etc. shall be
recovered from the exporter.
v. Where bank charges are to be recovered from the drawee but are
refused by them, such charges shall be recovered from the
exporter.
vi. Export letters of credit
Where in terms of the letter of credit, the charges are recoverable

from the exporter:
i. 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)
ii. The charges for adding confirmation to a letter of credit

shall be as under :
a. Commitment charge for the full validity of the credit @0.15%

for every quarter or part thereof and
b. Usance charge according to the tenor of the bill as

under:
1. 0.15% for bills upto 10 days sight.
2. 0.30% for bills over 10 days and upto 3

months’ sight.
3. 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 :
1. 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.
2. 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.
3. 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.
V. 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)
VI. 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.
VII.
i. 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)
ii. 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)
iii. 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.
4.
FEMA regulations have an immense impact in international trade transactions and
different modes of payments.RBI release regular notifications and circulars,
outlining its clarifications and modifications related to various sections of FEMA.
FEDAI Guidelines for Foreign

Exchange.
Established in 1958, FEDAI (Foreign Exchange Dealers' Association of India) is a group of

banks that deals in foreign exchange in India as a self regulatory body under the Section
25 of the Indian Company Act (1956).
The role and responsibilities of FEDAI are as follows:
 Formulations of FEDAI guidelines and FEDAI rules for Forex business.
 Training of bank personnel in the areas of Foreign Exchange Business.
 Accreditation of Forex Brokers.
 Advising/Assisting member banks in settling issues/matters in their dealings.
 Represent member banks on Government/Reserve Bank of India and other bodies.
 Rules of FEDAI also include announcement of daily and periodical rates to its
member banks.
FEDAI guidelines play an important role in the functioning of the markets and work in
close coordination with Reserve Bank of India (RBI), other organizations like Fixed Income
Money Market and Derivatives Association (FIMMDA), the Forex Association of India and
various other market participants.
FEDAI Rules
 FEDAI Rules-1-Hours-Of-Business
 FEDAI Rules-2-Export-Transactions
 FEDAI Rules-3-Import-Transactions
 FEDAI Rules-4-Merchanting-Tradeing
 FEDAI Rules-5-Clean-Instruments
 FEDAI Rules-6-Guarantees
 FEDAI Rules-7-Exchange-Contracts
 FEDAI Rules-8-Early-Delivery-Extension-And-Cancellation-Of-Forward
-Exchange-Contracts
 FEDAI Rules-9-Schedule-Of-Charges
 FEDAI Rules-10-Business-Through-Exchange-Brokers
 FEDAI Rules-11-Inter-Bank-TT-Settlement-And-Dispatch
 FEDAI Rules-12-Inter-Bank-TT-Settlement-Of-Inter-Bank-TTs-And-
Despatch Fedai
 FEDAI Rules-13-Abolition-Of-Sterling-Rates-Schedule
 FEDAI Rules-14-Clarification-Explanatory-Notes-Certain-Other-Important-
Information
RULE 1–Hours of Business

The hours during which foreign exchange business will be conducted by banks at various
centers in India will be normal banking hours of the banks (Authorised Dealers) at the
respective centers.
On Saturday, however, no commercial transactions in foreign currencies will be conducted

by banks with the exception of the following:
a. transactions relating to purchase/ sale of travelers cheques and currency
notes;
b. transactions in regard to which the exchange rates may have been settled
by prior engagement (like delivery of export bills/ retirement of import bills
under forward exchange contracts) or will be fixed by subsequent
negotiations (like business handled on a provisional basis at bank’s own
discretion);
c. transactions relating to drawings under travelers letters of credit and any
remittances payable to bonafide travelers or tourists.
RULES 2-Export Transactions
I. 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.
II. Export bills purchased/discounted/negotiated
a. Application of rates, crystallization of liabilities and recoveries
i. 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.
ii. 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.
iii. 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.
iv. In case of receipt of intimation of dishonour of an export bill before

the estimated crystallisation date, the bank shall recover from the
customer:
a. The Rupee equivalent of the bill arrived at the current spot

TT selling rate or the amount originally advanced, whichever
is higher.
b. All foreign currency charges converted at the ruling spot TT

selling rate.
c. Other charges, if any.
d. Interest at appropriate rate as prescribed by Reserve Bank

of India from time to time.
v. 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.
vi. 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.
b. Application if interest
i. This Rule is not aZpplicable to export transactions on deferred

payment basis.
ii. The rate of interest applicable for all export transactions shall be as
prescribed by Reserve Bank of India from time to time.
iii. For the purpose of application of interest at the time of purchase/

discount/ negotiation, export bills shall be classified as:
a. 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’]
b. 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
1. A bill for a.$10,000-drawn on Melbourne (Australia)

and payable in Melbourne is a “Direct Bills”.

payable in Melbourne is an “Indirect Bills”.

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
a. 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
b. 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
c. 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
d. 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:
a. Aden (see Southern Yemen)

Anguilla (W.Indies)
Antigua (-do-)
Australia
b. Bahamas (W.Indies)
Barbados
Bermuda
Borneo
Burma
British Honduras
British Solomon Islands
c. Cameroon (Formerly British

British
South Cameroon Area only)
Canada
Carriacou
Cayman Island (W.Indies)
e. Ethiopia
f. Falkland
Island
Fiji
Islands
g. Gambia
Ghana
Gibraltar
Grenada (W.Indies)
Guyana
h. Hongkong
i. India
Ireland
j. Jamaica
Jordan
k. Kenya
Korea
m. M. Malawi
Malaysia
Malta
Montesserrat
(W.Indies)
Mauritius
n. New Zealand
Nevis (W.Indies)
Nigeria
Norfolk Island
p. Pakistan
Papua & New Guinea
Portugese Timor
s. 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
t. Tanzania
Thailand
Trinidad & (British)
Turk & Caricos Islands
u. Uganda
v. Virgin Island (British)
w. Western Samoa
z. Zambia
TT Reimbursement under letter of

credit
1. 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.
2. 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.]
3. 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
1. In case of early
realisation of export bill
proportionate interest
will be refunded from
the
date of realisation i.e. by
credit to nostro
foreign currency bill, and
by debit to vostro
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.
2. 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.
i. For each foreign currency bill purchased/ discount/

negotiated
a. (upto US $ 5000/- Rs. 100/-

or equivalent Minimum
b. (over US $ 5000/- Rs. 500/-
or equivalent) Minimum
(AR 10/95 dated 20.12.95)
ii. 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.
iii. 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)
iv. 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)
v. 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.
vi. 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.
vii. 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
viii. Where applicable, stamp duty payable on export bills

shall be recovered from the customer.
ix. 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.
x. In the case of substitution/ charge in tenor of export

bill, the bank shall recover charges as mentioned
below from the exporters :
a. 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
from the customer at the rate not below the
prime lending rate of the respective bank. (AR
1/95 dated 10.02.95)
b. 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
from the customer.
(AR 1/95 dated 10.02.95)
c. 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.
II. Export bill for collection

i. 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.
ii. 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.
b. 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)
i. 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.
ii. 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.
iii. 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.
iv. All actual out of pocket expense such as correspondent bank

charges, postage, telegram/telex/cable charges etc. shall be
recovered from the exporter.
v. Where bank charges are to be recovered from the drawee but are
refused by them, such charges shall be recovered from the
exporter.
vi. Export letters of credit
Where in terms of the letter of credit, the charges are recoverable

from the exporter:
i. 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)
ii. The charges for adding confirmation to a letter of credit

shall be as under :
a. Commitment charge for the full validity of the credit @0.15%

for every quarter or part thereof and
b. Usance charge according to the tenor of the bill as

under:

2. 0.30% for bills over 10 days and upto 3
months’ sight.
3. 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 :
1. 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.
2. 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.
3. 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.
V. 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)
VI. 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.
VII.
i. 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)
ii. 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)
iii. 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.
FEDAI Rule 3, Import

Transactions.
 General
 Application of Interest
 Application of charges
 Commission on bills (Not under Letter of Credit)
RULE 3- Import Transactions
I. General
i. “Bills” shall include all document/clean bills received under letter/s of

credit, letter/ s of guarantee, letter/ s of authority, order/ s to negotiate,
order/ s for payment and other document /s or undertaking/ s of a similar
nature or on collection basis covering imports into India.
ii. Establishment and amendment of all import letters of credit shall be at the
discretion of the Authorised Dealers.
iii. Commission shall be payable at the time of opening of the letter of credit
or at the time of amendment thereof and no refund will be allowed under
any circumstances whatsoever.
II.
i.
a. For the purpose of retirement of import bill whether

received under letters of credit or otherwise, the bills selling
rate ruling on the date of retirement or the forward sale
contract rate as the case may be shall be applied.
b. For the purpose of crystallisation vide para II. C.x. below, of

importer’s liability into Rupees the bills selling rate ruling on
the date of such crystallisation or the forward sale contract
rate as the case may be shall be applied.
ii. . When local payments are required to be made out of the

proceeds of foreign currency import bill the proceeds of foreign
currency amount of the local payment shall be deducted from the
bill amount at the time of remittance. The full amount of the bill
shall be arrived at the bank’s appropriate bills selling rate and
foreign currency amount of the local payment shall be converted
into Rupees at the prevailing TT buying rate.
iii. For the purpose of determining stamp duty on import bills, the
foreign currency amount of the bills shall be converted into Rupee
at the exchange rates prescribed by government of India from time
to time.
b. Application of Interest
i.
a. Bills negotiated under import letters of credit shall carry

domestic commercial rate of interest as application to
advances prescribed by Reserve Bank of India from time to
time and shall be recovered from the date of crystallisation/
retirement whichever is earlier
b. From the date of crystallisation upto the date of retirement

the bills shall carry the penal rate of interest as specified by
Reserve Bank of India from time to time.
ii. Interest remittable on interest bearing bills shall be subject to the

directives of Reserve Bank India.
iii. Interest, if any on import bills shall be recovered in full and shall not
be set off against interest, if any, payable on any margins which
may be held against such bill or the relative letter of credit.
i. The following charges shall be recovered from the importers for

establishing irrevocable letters of credit
a. Commitment charges for the full validity of the credit (i.e.
from the date of opening of the L/C to the last date of its
validity) @ 0.15% for every quarter or part thereof and
b. Usance charge according to the tenor of the bill as under :
2. 0.30% for bills 0ver 10 days and upto 3 months’ sight.
3. 0.30% for the first three months plus 0.0750% per

month in excess of three months for bills over 3
month’s sight.
Note 1:
The above scale of charges shall be collected by
banks on letters of credit, as
under :
i. Where the amount of a letter of credit does

not exceed Rs. 8 crores (or in equivalent
foreign currency) – Commission will be
charged at rates as specified above.
ii. Where the amount of a letter of credit does exceed

Rs. 8 crores (or in equivalent foreign currency) –
Commission will be charged as under :
Table
a. On the first Rs. 8 crores (or in equivalent foreign currency) At fu

abov
b. On the amount which is in excess of Rs. 8 crores (or in At on

equivalent foreign currency) upto Rs.16 crores. the R
c. On the balance amount, which is in excess of Rs. 16 crores At on

(or in equivalent foreign the R
iii.
1 Note 2:
i. Where the letter of credit amount is less
than the equivalent of Rs. 10,000/- a minimum
charge of Rs. 100/- will be collected. (AR
10/95 dated 20.12.95)
ii. If any extension of the validity of the letter of
credit falls within a three month period for
which commitment charge has already been
collected a minimum, amendment commission
of Rs. 250/- shall be recovered. However, for
an amendment extending the validity of the
letter of credit beyond a three month period
(for which commitment charge has already
been collected) a fresh commitment charge at
0.15% per quarter or part there of shall be
recovered subject to a minimum of Rs. 250/-.
(AR 10/95 dated 20.12.95)
iii. In case of enhancement of the value of a letter of credit, both the

usance and commitment charge as applicable to establishing a
letter of credit, would be recovered for the additional amount.
iv. In case of amendment altering the tenor of the Bill of Exchange

appropriate additional usance charge shall be collected.
v. Any amendment to a letter of credit, other than extension of its

validity or enhancement of its value, shall attract an amendment
commission of minimum Rs.250/- (AR 10/95 dated 20.12.95)
vi. Any revival or reinstatement of an expired letter of credit shall be at

the option of the bank but within 3 months from the date of expiry
and shall be subject to recovery of usance charge and commitment
charge from the date of expiry upto the validity period of the
revived letter of credit.
vii. For countersigning bills of exchange drawn on importers in India

commission of 0.085% per month with a minimum of 0.25% for the
tenor of the bill shall be collected.
viii. In case where revolving letters of credit are establishing as per the
provision of the Exchange Control regulations and for restoration of
the credit to the extent of drawings honoured, the charges shall be
recovered as under :
a. Commitment charge at 0.15% for every period of 3 month or part

thereof :
1. On the maximum amount of drawing permitted at

any one time during the period from the date of
establishment of the letter of credit to the last date of
its validity;
2. On each amount reinstated from the date of

reinstatement to the date of subsequent
reinstatement or the last date of the validity of the
letter credit.
And
b. Usance charge for each drawing :
1. 0.15% for bills upto 10 days sight
2. @ 0.30% for bills over 10 days sight and upto 3

months sight
3. @ 0.30% for the 3 months plus 0.075% for each

month in exceed of 3 months for bills over 3 months
sight.
The minimum charges (both commitment charge and

usance charge added together) for reinstatement
shall be Rs. 100/-.
ix. Deferred imports

The charges on letters of credit covering import of goods on deferred payment terms
shall be as under : (AR 2/95 dated 31.3.95)
a. On letters of credit covering import of goods deferred payment

terms; commission shall be charged at the rate of 0.40% per
quarter or part thereof calculated on the amount of liability under
such credit at the beginning of every quarter. If the credit is valid
for more than two years, the amount of the commission may, at the
bank’s discretions, be collected in instalments subject to the
following:
1. the size of the instalments shall be proportionate to

the amount of outstanding liability at the beginning
of each year;
2. the first instalment shall be collected at the time of

issuing the credit, and the subsequent instalments
shall be collected thereafter annually, at the
beginning of each year. The entire commission must
be recovered by the commencement of the last year
of validity of the credit.
3. in the event of reduction or early cancellation of the

credit, there shall be no reduction of commission and
the uncollected instalments shall be collected
immediately.
4. the minimum commission to be charged annually will

be Rs.250/-: adjustment in instalment, if any, to be
done in the last instalment which could be less than
this amount.
5. in the event of default in payment of instalments,
interest shall be recovered at domestic commercial
rate as prescribed by Reserve Bank of India from time
to time from the date of default to the date of actual
payment.Where a letter of credit covered under this
Rule contains a definite provision for the possibility of
its becoming inoperative at a particular time or date,
the period upto such possible time or date may be
considered as the initial validity period for which the
commission should initially be recovered. In the event
the letter of credit does not become inoperative at
the end of that period, the balance period may be
considered as an extension of the initial period and
commission would then be recovered for the balance
period.However, for the purpose of considering
whether commission may be collected in instalment s
as above, the total commission must be taken to be
that amount payable for the initial validity period
only. If a letter of credit qualifies for that concession
and if the concession is granted for the initial validity
period the same concession may also be granted for
the extended period irrespective of the total quantum
of commission payable for the latter period.
6. when the amount of an import letter of credit

covering import on deferred payment terms is
enhanced commission at the rate of 0.40% for a
period of 3 months or part thereof shall be recovered
on the amount so enhanced. (AR 2/95 dated 31.3.95)
7. if the validity period of a letter of credit covering

import on deferred payment terms is extended
payment terms is extended, only a flat amendment
commission of Rs. 400/- shall be charged if the last
date of extended validity falls within the three month
period for which commission has already been
collected. However, for any amendment extending
the validity of the letter of credit beyond a three
month period commission at 0.40% per quarter or
part thereof shall be recovered. (AR 2/95 dated
31.3.95)
x. . Crystallisation
a. All foreign currency import bills drawn under letters of credit shall
be crystallisation into Rupee liability on the 10th day from the date
of receipt of documents at the letter of credit opening branch of
the bank in the case of demand bills and on the due date in the
case of usance bills. In case the 10th day or the due date falls on a
holiday or a Saturday, the importer’s liability shall be crystallized
into Rupee liability on the next working day.
b. if the crystallisation of the Rupee liability of an import of an

import bill under the Forward Exchange Contract results in
early/ late delivery, the bank shall recover swap charges and
interest, if any, as per Rule 8.
c. A commission of 0.15% shall be recovered on each foreign

currency import bill received under a letter of credit at the
time of retirement or crystallisation whichever is earlier.
d. In case of each Rupee import bill drawn under a letter of

credit commission of 0.25% shall be recovered.
e. If the Rupee import bills are not retired within 10 days from
the date of receipt of documents, in the case of demand bills
or on the due date in the case of usance bills a late payment
commission of 0.15% shall be recovered.
f. A commission of 0.25% on the bill amount shall be

recovered on foreign currency import bills received under
letters of Credit on which no exchange benefit accrues to
the opening bank. (Circular letter No:26/92 dated 10.7.92)
II. Commission on bills (Not under Letter of Credit)
a. On each bill drawn in foreign currency, on which the collecting bank earns
exchange margin, collection commission will be charged at the rate of 0.25% with a
minimum of Rs.50/-.
b. On each bill drawn in Rupee and on each bill drawn in foreign currency on which the
collecting bank does not earn exchange margin, commission of 0.50% with a
minimum of Rs. 50/- shall be charged by the collecting bank.In case the value of
Rupee import bills received on collection basis, exceeds Rupees One crore, bank shall
charge collection commission on a graded scale as under:
TABLE
a. On the First Rs.One crore At full rates specified in the Rule as above.
b. On the amount which is in excess of Rs.One crore At one half of the rate specified in the Rule as above.
c. On bills/document covering project imports under inter- governmental aid

scheme (including those financed by international agencies like World
Bank, IMF, ADB etc. where no letters of credit are opened, commission
shall be collected at a flat rate irrespective of the amount of each drawing
at 0.03125%.
d. Banks shall collect commission at half the rates applicable for import bills
received for collection at the time of effecting remittance in case of
document received by importers directly from the overseas exporters. (AR
10/95 dated 20.12.95)
Proceeds of collection bills
If the overseas remitting bank or the exporter abroad requests for the
proceeds of collection bills under III(A) above, to be remitted in a currency
other than the currency of the bill, addition commission of 0.25% will be
charged.
[The additional charge of 0.25% for handling payment in currencies other

than the currency of the bill shall not be applicable, where the import bill is
received in EMU member country currency but remittance is made in Euro
or vice versa].
III. On any local payment out of the proceeds of any import bill such as payments in
connection with barter business, to cases of need, etc., a minimum charge of Rs.
250/- shall not be recovered in respect of genuine allowances in order to effect
settlement of a dishonoured bill or in respect of commission payable to the
drawee. (AR 10/95 dated 20.12.95)
IV. Where applicable, Stamp Duty payable on all imports bills shall recovered from
the importer.
V. All actual out of pocket expenses such as correspondent bank charges,

postages,telex/telegram charges etc. shall be recovered from the importer.
VI. When the value of parcel relating to an import bill exceed Rs. 1 Lac, an advalorem
charge based on rental value and insurance cost will be collected on a monthly
basis.
RULE 4-Merchanting trade
I. Banks will make remittances or open letter of credit in favour of the overseas
suppliers provided an advance remittance for the full value or an irrevocable letter
of credit for the full value has been received/ opened in favour of the
merchanting trader who is not a more financial intermediary.
II. Back-to-back letter will be treated as separate transaction and commission as per
Rule 3 II.C. shall be charged to the customer.
III. The banks are allowed to fix Forward Purchase Contract if so desired by the
merchant for the difference period of receipt of the proceeds of the on-sale.
IV. If foreign currency remittance are received in advance from the overseas buyer,
the banks may at the specific request of merchanting trade customer hold the
foreign currency funds in their Nostro account without converting the amount into
Indian Rupee till the date of payment to the overseas supplier. Bank shall not
apply buying and selling rates of exchange. Commission at 0.25% shall not pay
interest on such advance remittances or grant Rupee advances against foreign
currency funds thus received.
FEDAI Rules 5, Clean

Instruments.
Application of exchange and interest rates
Application of charges
Certificates
RULE 5-Clean Instruments

I. Inward remittances
a. Application of exchange and interest rates

For the purpose of encashment of TTs/ payment of foreign currency Demand
Drafts, Mail Transfer, etc. the application of exchange and interest rates shall be
as under table Type of transaction: Exchange and interest rates applicable:
1. Encashment of TTs/ Purchase of MTs/ DDs current IT buying rate (NO
exchange margin in respect of which cover has been received orinterest to
be charged) in Nostro Accounts.
2. Type of transaction: Encashment of TTs/ Exchange and interest rates

applicable:
Purchase of MTs/ DDs where reimbursement is to be obtained in cover by
drawing demand drafts on overseas branches or correspondent banks.
Current TT buying rate plus exchange Margin of 0.125%. Interest to be
recovered separately from the customer
at the rate of 15% per annum for a transit period of 10 days.
3. Type of transaction: Encashment of customer’s Exchange and interest rates

applicable: personal cheques, demand drafts, international money orders,
bankers pay orders payable abroad.
TT buying rate plus exchange margin of 0.15%. Interest to be recovered
separately for a transit period of 15 days from the customer at commercial
rate of interest.
Note:
It shall be optional for the encashing bank in India to pay on application or
await receipt of cover in respect of Demand Drafts/ Mail Transfers/
Telegraphic Transfers and pay therefore.
i. A flat charge of Rs. 25/- shall be recovered in respect of each clean

payment effected under instructions from a foreign correspondent. (Bank
may waive this charge at their discretion.) (AR 10/95 dated 20.12.95)
Where the inward remittance has to be executed in foreign currency by

issuing a demand draft/ mall transfer/ payment order/ telegraphic transfer
a charge of 0.10% subject to a minimum of Rs. 10/- shall be recovered
from the beneficiary.
ii. Clean instruments for collection:
A commission of 0.25%, subject to a minimum of Rs.10/- shall be

recovered on clean instruments for collection abroad. Bank may at their
discretion waive this commission if the value of the instrument does not
exceed the equivalent of Rs.5000/-. (ar 3/96 dated 30.03.96)
iii. All actual out of pocket expenses of the bank such as postage, telegram,
telex charges, including those of the correspondent bank will be recovered
from the beneficiary.
b. Certificates
I. A flat charge of Rs.25/- shall be recovered for issuing bank certificates on

security paper in respect of payment of clean remittances from abroad
and/ or for encashment of foreign currency notes. (Bank may waive this
charge at their discretion.) (AR 10/95 dated 20.12.95)
Note:
Banks are authorized by Reserve Bank of India to issue the required
certificates on their ordinary printed letter heads in the undernoted
circumstances and they may reduce collection of the charge to Rs.20/- in
such instances (Bank may waive this charge at their discretion.) (AR 10/95
dated 20.12.95)
i. Where the Rupee value of the inward remittance of foreign

currency encashed does not exceed Rs.15, 000/-
ii. Where the certificate (irrespective of amount) is required to be

produced to Reserve Bank of India for approval of a remittance for
refund or reconversion or for any other purpose to be made
through the same bank branch which has received the inward
remittance or encashed the foreign currency.
iii. Where the certificate (irrespective of amount) is required to be filed

with Reserve Bank of India for completion of records and no facility
there against involving foreign exchange directly (i.e. refund,
reconversion etc.) or indirectly (i.e. payment of passage fare freight)
GR/pp waiver etc. will be asked for.
(Illustratively, where certificate are require to be submitted to

Reserve Bank of India in regard to repatriation of foreign exchange
against bank guarantees given to Reserve Bank of India,
repatriation of dividends/ balances held in foreign currency
accounts etc.)
II. Encashment of foreign currency travellers cheques and currency notes
Foreign currency travellers cheques/ currency notes will be encashed at the

bank’s option at the travellers cheques/ currency note encashment rates
ruling on the date of such encashment.
III. Outward remittances
i. Outward remittances will be effected at the TT selling rate of the

bank ruling on the date of such remittance or at forward contract
rate.
ii. A minimum commission of Rs.100/- will be levied on all foreign

currency outward remittances not being proceeds of import bills.
(AR 10/95 dated 20.12.95)
iii. On all Rupee outward remittance, a commission at the following

rates shall be charged:Upto Rs. 10,000/- @0.25% Minimum Rs.10/-
Over Rs. 10,000/- @0.125% Minimum Rs. 25/-
iv. All actual out of pocket expenses of the bank such as postage, telex
charges including those, of the correspondent bank shall be
IV. Issue of foreign currency travellers cheques/ currency notes
1. Foreign currency travellers cheques shall be issued at the option of

the bank at the bank’s selling rate for the travellers cheque ruling
on the date of issue. Banks will collect a commission not exceeding
1% on Rupee equivalent payable by the customer.
2. Foreign currency notes shall be issued b banks as per the exchange

control regulation and at the foreign currency note selling rates.
3. Where at the request of the beneficiary other than an Indian
resident, foreign currency travellers cheques are issued by a bank
against foreign currency remittance received from abroad, the bank
will collect in Indian Rupees a commission of 0.25%.
FEDAI Rules 6, Guarantees.

Limitations
Charges
On letter of guarantee
RULE 6-Guarantees
I. Limitations
In respect of any business directly connected with import and export trade, banks
shall not be parties to any of the following guarantees:
i. Any guarantee for an unlimited amount and/ or for an unlimited period
with the following exceptions:
a. Where such guarantees are given to automobile associations to

enable tourists to take motor cars into foreign countries for short
period without payment of duty.
b. Where such guarantees involve the interest of the issuing banks

either by way of bills under their letters of credit or purchased by
their own overseas branches.
c. Where such guarantees, in case of collection item, are given against

counter guarantees by correspondent banks unlimited as to time
and/ or amount.
d. Where such guarantees are issued against cash deposit for the full
invoice value of the goods received by the issuing bank from the
customer or where the relative goods are pledged with the issuing
bank so long the guarantees remain current.
ii.
i. Guarantees to steamer companies to cover the issue of bills of

lading without surrender of the relative mate’s receipt to the
steamer company. In the event of genuine loss of the mate’s
receipt, banks may be parties to such guarantees to procure the
issue of bills of lading but such guarantees should not be for a
period exceeding one year.
ii. Guarantees to the Collector of Customs to cover the delivery of
goods without production of the relative import licence. However, if
adequate proof is produced indicating the existence of an import
licence, the bank may be a party to such a guarantee.
iii. Guarantees to the Collector of Customs (given on behalf of

exporters) in respect of indirect shipments to a country through
another country either via or in transit shipments.
iv. Standing guarantees to the Collector of Custom for export covering

declaration of optional destination ports in shipping bills.
v. Shipping guarantees for missing bills of lading in respect of purely

barter transactions for which no document pass through any bank,
except joining in the shipping guarantees given by firms and
companies who received documents direct from their branches or
affiliated concerns in other countries.
II. Charges
The minimum charges for any guarantee shall be Rs.250/-
The commission for the full specified period of liability shall be collected at the
time of signing a guarantee, except in respect of guarantees by item 5 above.
The “specified period of liability” shall mean the actual validity period of the
guarantee plus the additional period, if any, during which claims can be made on
the bank under the guarantee.
Note 1:
Customer should in their own interest obtain the return of cancelled guarantees
at the earliest.
Note 2:
Commission for issuing bid-bonds for supplies to projects carried out abroad as
well as to supplies to IBRD/IDA/UNICEF aided projects/ programmes in India
which are deemed as exports by the Reserve Bank of India, shall be recovered to
the extent of 25% thereof for the full period of validity of the bonds at the time of
issue. If the bid materialises the balance 75% of the commission shall be
recovered. However, if the bid gets frustrated there will not be refund of that part
of the commission collected.
III. Note 3:
In respect of Export Performance Guarantees (including Bid-bods
forearnest Money and Guarantees for Advance payments) commission may
be collected in yearly instalments where the amount of commission is more
than Rs.1 lac.
Note 7:
The currency of the bank guarantee can be the ‘euro’ at the option of the
applicant even though the underlying transaction is in one of the EMU
member country currencies.
IV. On letter of guarantee covering import of goods on deferred payment

terms and letters of guarantee covering repayment of foreign currency
loans extending over one year commission shall be charged at the rate of
0.40% per quarter or part thereof calculated on the amount of liability
under such guarantee at the beginning of every quarter. If the guarantee is
valid for more than two years, the amount of the commission may, at the
bank’s discretion, be collected by instalments subject to the following: (AR
2/95 dated 31.3.95)
i. the size of the instalments shall be proportionate to the amount of

outstanding liability at the beginning of each year;
ii. the first instalment shall be collected at the time of issuing the
guarantee, and the subsequent instalments shall be collected
thereafter annually, at the beginning of each year. The entire
commission must be recovered by the commencement of the last
year of validity of the guarantee.
iii. in the event of reduction of the value of the guarantee, there shall
be no refund of the commission collected.
iv. in the event of early redemption of deferred payment guarantee,

commission for the unexpired period of guarantee may be refunded
subject to the condition that the original guarantee has been
received to the effect that there are no claims against the guarantee.
(AR 2/95 dated 31/03/95)
v. the minimum commission to be charged annually shall Rs.400/-.

Adjustment in instalment, if any, to be done in the last instalment
which could be less than this amount.
vi. In the event of default in payment of instalment, interest shall be

recovered at the domestic commercial rate of interest, as prescribed
by Reserve Bank of India from time to time from the date of default
to the date of actual payment.
Where a guarantee covered under this Rule contains a definite

provision for its possible redemption, even though at beneficiary’s
option, at a particular time or date or on completion of a certain
portion of the repayment prior to the expiry of the full period of the
guarantee, the period upto the possible redemption may be
considered as the initial validity period for which the commission
should initially be recovered. In the event the guarantee is not
redeemed at the end of that period, the balance periods may be
considered as an extension of the initial period and commission
should then be recovered for the balance period. However for the
purpose of considering whether the commission mayCollected in
instalments as above, the total commission must be taken to be that
amount payable for the initial validity period only. If a guarantee
qualifies for that concession and if the concession granted for the
initial validity period, the same concession may also be granted for
the same concession may also be granted for the extended period
irrespective of the total quantum of commission payable for the
latter period.In the case of guarantees covered by this Rule, if they
are backed by a counter guarantee of the Government of India the
rate of commission shall be 0.0625% instead of 0.40% per quarter.
All other conditions laid down above shall apply but the commission
shall be charged at the time of (i) the execution of the guarantee, (ii)
the extension of the validity period of the guarantee and (iii) the
increase in the amount of the guarantee, as the case may be. (AR
2/95 dated 31.3.95).
RULE 6-Guarantees
I. Limitations
In respect of any business directly connected with import and export trade, banks
shall not be parties to any of the following guarantees:
i. Any guarantee for an unlimited amount and/ or for an unlimited period
with the following exceptions:
a. Where such guarantees are given to automobile associations to

enable tourists to take motor cars into foreign countries for short
period without payment of duty.
b. Where such guarantees involve the interest of the issuing banks

either by way of bills under their letters of credit or purchased by
their own overseas branches.
c. Where such guarantees, in case of collection item, are given against

counter guarantees by correspondent banks unlimited as to time
and/ or amount.
d. Where such guarantees are issued against cash deposit for the full
invoice value of the goods received by the issuing bank from the
customer or where the relative goods are pledged with the issuing
bank so long the guarantees remain current.
ii.
i. Guarantees to steamer companies to cover the issue of bills of

lading without surrender of the relative mate’s receipt to the
steamer company. In the event of genuine loss of the mate’s
receipt, banks may be parties to such guarantees to procure the
issue of bills of lading but such guarantees should not be for a
period exceeding one year.
ii. Guarantees to the Collector of Customs to cover the delivery of

goods without production of the relative import licence. However, if
adequate proof is produced indicating the existence of an import
licence, the bank may be a party to such a guarantee.
iii. Guarantees to the Collector of Customs (given on behalf of

exporters) in respect of indirect shipments to a country through
another country either via or in transit shipments.
iv. Standing guarantees to the Collector of Custom for export covering

declaration of optional destination ports in shipping bills.
v. Shipping guarantees for missing bills of lading in respect of purely

barter transactions for which no document pass through any bank,
except joining in the shipping guarantees given by firms and
companies who received documents direct from their branches or
affiliated concerns in other countries.
II. Charges
The minimum charges for any guarantee shall be Rs.250/-
The commission for the full specified period of liability shall be collected at the
time of signing a guarantee, except in respect of guarantees by item 5 above.
The “specified period of liability” shall mean the actual validity period of the
guarantee plus the additional period, if any, during which claims can be made on
the bank under the guarantee.
Note 1:
Customer should in their own interest obtain the return of cancelled guarantees
at the earliest.
Note 2:
Commission for issuing bid-bonds for supplies to projects carried out abroad as
well as to supplies to IBRD/IDA/UNICEF aided projects/ programmes in India
which are deemed as exports by the Reserve Bank of India, shall be recovered to
the extent of 25% thereof for the full period of validity of the bonds at the time of
issue. If the bid materialises the balance 75% of the commission shall be
recovered. However, if the bid gets frustrated there will not be refund of that part
of the commission collected.
Note 3:
In respect of Export Performance Guarantees (including Bid-bods forearnest
Money and Guarantees for Advance payments) commission may be collected in
yearly instalments where the amount of commission is more than Rs.1 lac.
Note 7:
The currency of the bank guarantee can be the ‘euro’ at the option of the
applicant even though the underlying transaction is in one of the EMU member
country currencies.
III. On letter of guarantee covering import of goods on deferred payment terms and
letters of guarantee covering repayment of foreign currency loans extending over
one year commission shall be charged at the rate of 0.40% per quarter or part
thereof calculated on the amount of liability under such guarantee at the
beginning of every quarter. If the guarantee is valid for more than two years, the
amount of the commission may, at the bank’s discretion, be collected by
instalments subject to the following: (AR 2/95 dated 31.3.95)
i. the size of the instalments shall be proportionate to the amount of

outstanding liability at the beginning of each year;
ii. the first instalment shall be collected at the time of issuing the guarantee,
and the subsequent instalments shall be collected thereafter annually, at
the beginning of each year. The entire commission must be recovered by
the commencement of the last year of validity of the guarantee.
iii. in the event of reduction of the value of the guarantee, there shall be no
refund of the commission collected.
iv. in the event of early redemption of deferred payment guarantee,

commission for the unexpired period of guarantee may be refunded
subject to the condition that the original guarantee has been received to
the effect that there are no claims against the guarantee. (AR 2/95 dated
31/03/95)
v. the minimum commission to be charged annually shall Rs.400/-.

Adjustment in instalment, if any, to be done in the last instalment which
could be less than this amount.
vi. In the event of default in payment of instalment, interest shall be

recovered at the domestic commercial rate of interest, as prescribed by
Reserve Bank of India from time to time from the date of default to the
date of actual payment.
Where a guarantee covered under this Rule contains a definite provision

for its possible redemption, even though at beneficiary’s option, at a
particular time or date or on completion of a certain portion of the
repayment prior to the expiry of the full period of the guarantee, the
period upto the possible redemption may be considered as the initial
validity period for which the commission should initially be recovered. In
the event the guarantee is not redeemed at the end of that period, the
balance periods may be considered as an extension of the initial period
and commission should then be recovered for the balance period.
However for the purpose of considering whether the commission
mayCollected in instalments as above, the total commission must be taken
to be that amount payable for the initial validity period only. If a guarantee
qualifies for that concession and if the concession granted for the initial
validity period, the same concession may also be granted for the same
concession may also be granted for the extended period irrespective of the
total quantum of commission payable for the latter period.In the case of
guarantees covered by this Rule, if they are backed by a counter guarantee
of the Government of India the rate of commission shall be 0.0625%
instead of 0.40% per quarter. All other conditions laid down above shall
apply but the commission shall be charged at the time of (i) the execution
of the guarantee, (ii) the extension of the validity period of the guarantee
and (iii) the increase in the amount of the guarantee, as the case may be.
(AR 2/95 dated 31.3.95).
FEDAI Rules-7, Exchange

Contracts.
Contact amounts
Option period of deliver
Place of delivery
Date of delivery
Option of delivery
Option of usance
Merchant quotation
Rounding off Rupee equivalent of the foreign currency
Charges
Contract amount
Contract Amounts RULE 7-Exchange
contracts
I. Contact amounts
Exchange contracts shall be for definite amounts i.e. there shall be no

provision for excess or shortfall.
When a bill contract mentions more than one rate for bill of different
deliveries, the contract must state the amount and delivery against each
such rate.
Illustration
Value of the export order dated 1.1.96 for US$60,000/- expiring – Delivery
period 31.3.96, 30.4.96 and 30.6.96 –
US$20,000/- each.
CONTRACT NO VALUE DELIVERY PERIOD RATE
96/1 US$20,000 1.3.96 TO 31.3.96 RS 36
96/2 US$20,000 1.4.96 TO 30.4.96 RS 37
96/3 US$20,000 1.6.96 TO 30.6.96 RS 37
II. For the first shipment effected say on 15.3.1996 the exporter should indicate the
contract No. as 96/1 and the rate as Rs. 36.6200.
III. Option period of deliver
Unless date of delivery is fixed and indicated in the contract, the option period of
delivery should be specified
as a calendar week (i.e. 1st to 7th, 8th to 15th, 16th to 23rd or 24th to last
working day of the month) or a calendar fortnight (i.e. 1st to 15th or 16th to last
working day of the month). In any case, the option of delivery shall not extend
beyond one calendar month, (i.e. 1st to last working day of the month). If the
fixed date of delivery or the last date of delivery option is a holiday/ declared a
holiday the delivery shall be effected/ delivery option exercised on the preceding
working day. Contracts permitting option of delivery must state the first and last
dates of delivery.dy” or “cash” merchant contract shall be deliverable on the same
day. “Value next day” contract shall be deliverable on the day immediately
succeeding the contract date. A spot contract shall be deliverable on second
succeeding business day following the day when the transaction is closed.
IV. Place of delivery
All contracts shall be understood to read “to be delivered or paid for at the bank”
and “at the named place”.
V. Date of delivery
Date of delivery under forward contracts will be:
I. In case of bills/ document negotiated, purchased or discounted – date of

negotiated, purchased/ discount and payment of rupees to customer.
II. In case of bills/ documents sent for collection-date of payment of Rupees

to customer on realization of the bills.
III. In case retirement/ crystallisation of import bills/ document- the date of

retirement/ crystallisation of liability whichever is earlier.
VI. Option of delivery
In all forward merchant contracts, the merchant whether a buyer or a seller will
have the option of delivery.
VII. Option of usance
The merchant purchase contract should state the tenor of the bills/ documents.
Acceptance of delivery of bills/ documents drawn for a different tenor will be at
the discretion of the bank.
VIII. Merchant quotation
In order to simplify and establish transparency, the exchange rate will be quoted
in direct terms i.e. so many Rupees and Paise for 1 unit of foreign currency or 100
units of foreign currencies (with effect from 2nd August 1993).
The merchant (as well as interbank) rate should be quoted upto four decimals, the
last two digits being in multiples of 25 (for example US$1 = Rs. 34.3250, 1 Pound
Sterling = Rs. 52.4350). The card rates of member banks should be quoted in two
rates decimals. For the sake of software programming the card rates may be
indicated in four decimals, provide the last two decimals are “00” (i.e. US$ = Rs.
34.9000).
[The exchange rate for the euro will be quoted in direct terms i.e. so many rupees
and paise for 1 unit of the euro. The merchant (as well as interbank) rates for the
euro shall be quoted upto four decimal, the last two digits being in multiples of
25. The card rates of member banks shall be quoted in two decimals. For the sake
of software programming the card rate may be indicated in four decimals
provided the last two decimal are 00.]
A list of common currencies and the unit of rate quotations are as detailed below:
Currencies to be quoted against one unit of foreign currency:
1. Australian Dollar
2. Austrian Schilling
3. Bahraini Dinar
4. Canadian Dollar
5. Danish Kroner
6. Deutsche Mark
7. Dutch Guilder
8. Egyptian pound
9. European Currency Unit (E.C.U.)
10. Finnish Mark
11. French Franc
12. Hongkong Dollar
13. Irish Punt
14. Kuwaiti Dinar
15. Malaysian Ringgit
16. New Zealand Dollar
17. Norweigian Kroner
18. Omani Rial
19. Qatar Rial
20. Saudi Riyal
21. Singapore Dollar
22. Sterling Pound
23. Swedish Kronor
24. Swiss Franc
25. Thai Bhat

26. UAE Dirham
27. US Dollar
28. EURO2
Currencies to be quoted against 100 unit of foreign currencies:
29. Belgian Franc

30. Indonesian Rupiah
31. Italian Lira
32. Japanese yen
33. Kenyan Schilling
34. Spanish Peseta
Asian Clearing Union currencies to be quotes against 100 units of foreign

currencies:
35. Bangladesh Taka

36. Burmese Kyat
37. Iranian Rial
38. Pakistan Rupee
39. Sri Lanka Rupee
(Note: With effects from 01.01.96 the settlement procedure has been revised to
ACU Dollar)
II. Rounding off Rupee equivalent of the foreign currency at the agreed merchant
rate Settlement of all merchant transactions shall be effected on the principle of
rounding off the Rupees amounts to the nearest whole Rupee i.e. without paise.
Note: In terms of the above Rule amount upto 49 paise of the Rupee shall be
ignored and amount from 50 to
99 paise of the Rupee equivalent shall be rounded off to the next Rupee.
III. Charges
On each forward sale or purchase contract booked, a minimum commission of Rs.
250/- shall be recovered from the customer. (AR 10/95 dated 20.12.95)
IV. Contract amount
Any excess amount over the amount stated in a contract, or shortfall therein, shall
be bought or sold, as the case may be, at the bank’s current spot rate of the day
and the amount of the excess in the contract shall be cancelled as per Rule 8 IV.
Please see “Clarification” at the end of this chapter Rule 7 Exchange contracts
FEDAI Rules-8 Early Delivery

Extension and Cancellation of
Forward
 Exchange contracts
 General
 Early delivery
 Extension
 Cancellation
 Swap cost
 Outlay and inflow of funds
RULE 8-Early Delivery, Extension and

Cancellation of Forward
Exchange contracts
I. General
a. At the request of the customer, unless stated to the contrary in the
provisions of the Exchange Control Manual, it is optional for a bank
to –
i. Accept or give early delivery;
ii. Extend the contract;

b. It is the responsibility of the customer to effect delivery or to request
the bank for extension/ cancellation as the case may be on or before
the maturity date of the contract.
c. Banks will levy a minimum charge of Rs. 100/- for every request from
a cancellation of a contract.
d. Merchant Foreign Exchange Contracts booked prior to 31st

December, 1998 and delivery of which is effected after 1st January,
1999 wherein one of the currencies is EMU member country
currency- the delivery of the said currency can be in the euro or in
the currency of contract, at the option of the bank customer.
II. Early delivery
If a bank accept or gives early delivery, the bank shall recover/ pay swap
difference, if any.
III. Extension
Forward contract, either short term or long term contracts where extension
is sought by the customers (or are rolled over) shall be cancelled (at T.T.
Selling or Buying Rate as on the date of cancellation) and rebooked only at
current rate of exchange. The difference between the contracted rate and
the rate at which the contract is cancelled should be recovered from/ paid
to the customer at the time of extension. Such request for extension should
be made on or before the maturity date of the contract.
IV. Cancellation
a. In the case of cancellation of a contract at the request of the

customer, the bank shall recover/ pay, as the case may be, the
difference between the contacted rate and the rate at which the
cancellation is effected.
b. Rate at which cancellation is to be effected:
i. Purchase contracts shall be cancelled at the contracting

bank’s spot T.T. selling rate current on the date of
cancellation.
ii. Sale contracts shall be cancelled at the contracting bank’s

spot T.T. buying rate current on the date of cancellation.
iii. Where the contract is cancelled before maturity, the

appropriate forward T.T. rate shall be applied.
c. Exchange difference not exceeding Rs. 50/- shall be ignored by the
contracting bank.
d. In case a purchase contract becomes overdue, due to the bank’s

inability to accept the bills tendered as approved bills and the
exporter takes up the contract by tendering other approved bills or
cancels the contract within a reasonable time, such cancellations
shall be governed by IV (a), (b) and (c) above.
e. Notwithstanding the fact that the exchange contract between the

customer and the bank becomes impossible of performance, for
whatever reason, including Government prohibitory order, the
exchange contract shall not be deemed to have become void and
the customer shall forthwith apply to the bank for cancellation
subject to provisions of paras IV (a), (b) and (c) above.
f.
i. In the absence of any instructions from the customer, vide

para a(b) contracts which have matured shall on the 15th day
from the date of maturity be automatically cancelled. In case
the 15th day falls on a Saturday or holiday, the contract will
be cancelled on the next succeeding working day.
Note:
The customer cannot effect delivery extend or cancel the
contract after the maturity date and the procedure for
automatic cancellation on the 15th day from maturity date
should be adhered to in all cases of default by the customer.
ii. Swap cost, if any, shall be recovered from the customer under
advice to him.
iii. In case, the contract is ultimately cancelled, the customer will

not be entitled to the exchange difference, if any, in his
favour, since the contract is cancelled on account of his
default.
iv. In case of delivery subsequent to automatic cancellation the

approapriate current rate prevailing on such delivery date
shall be applied.
V. Swap cost
a. Swap cost to be recovered from customers. In all cases of early

delivery of purchase or sale contracts, swap cost shall be recovered
from customers irrespective of whether an actual swap is made or
not. Such recoveries should be made either back-ended or
frontended in the discretion of banks.
b. Swap Gain
Payment of swap gain to the customer will normally be made at the
end of the swap period.
VI. Outlay and inflow of funds
a. Interest at not below the prime lending rate of the respective bank
on outlay of funds by the bank for the purpose of arranging the
swap shall be recovered in addition to the swap cost in case of early
delivery of purchase or sale contracts and early realization of export
bills negotiated. The amounts of funds outlayed shall be arrived at
by taking the difference between the original contract rate and the
rate at which the swap could be arranged.
b. If such a swap leads to inflow of funds, the amount shall be arrived

at as above and interest shall be paid in the discretion of banks to
the customer at the appropriate rate applicable for term deposits for
the period for which the funds remained with the bankdeposits for
180 days (presently 8% per
FEDAI Rules-9, Schedule Of

Charges.
Chapter 9- Schedule of Charges
I. Exports
Type of Transaction
1. Bills purchased/ discounted/ negotiated
a. Processing charges for each foreign

currency export bill
b. Processing charges for each Rupee

export bill
c. For forwarding export documents

on which no collection commission or
exchange accrues to the bank (i.e. from
one bank to the other in India).
d. Reimbursement charges under Letter

of Credit.
e. Forwarding export documents to

another bank for negotiation to whom
L/C is restricted by the bank which has
Booked the forward contract.
f. For joining customer’s guarantees and

giving guarantees on behalf of custom-
ers in respect of discrepant documents
g. In case of overdue export bill purchased/

discounted/ negotiated where proceeds
are not received within the stipulated
period of 6 months.
i. Applicable also in case of deferred

exports if the relative export proceeds are
not received within the stipulated period.
ii. Not applicable in case of bills drawn

on countries with externalisation problems
but paid in local currency and the exporter
has obtained necessary approval from
Reserve Bank of India.
2. Collection Bills
a. (Both foreign currency and rupees export bills)
i. Equivalent of uptoRs.50,000
ii. Equivalent of Rs.50,000 and above but

unto Rs.2,00,000.
iii. Equivalent of Rs.2,00,000 and above
b. Overdue export bill sent for collection

Rs.250/- per quarter where proceeds
are not received within 6 months.
i. Applicable also in case of deferred

exports if the relative proceeds are not
received within the stipulated period.
ii. Not applicable in case of bills drawn on

countries with externalization problems
but paid in local currency and the exporter
has obtained necessary approval from
Reserve Bank of India.
c. Where proceeds of bills are received

through a bank other than the collecting
bank at the instance of exporter/ overseas
buyer additional charge.
3. Certificates
Issuance of certificated/ attestations in
respect of export transactions.
4. Registration of export contracts.
5. For advance against duty drawback Entitlements.
6. Export Letter of Credit
a. Advising letter of credit
b. Advising amendment
c. Confirmation charges
i. Commitment charges
ii. Usance charge
Note:
Where the amount of a L/C exceeds Rs.8 crores (or in equivalent foreign currency) b
recover charges at their discretion subject to minimum charge recoverable on Rs.8 c
d. Transfer of letter of credit of transfer.
e. Acceptance commission for accepting

usance drafts to be drawn on and accepted
by banks in India.
II. Imports
Types of Transaction
1.
A. Opening of Import Letters of Credit
a. Commitment charge
b. Usance charge
On the first Rs.8 crores
On the next Rs.8 crores
On the balance
B. Where the L/C amount is less than

Rs.10,000/-
2. Amendments to L/C
a. Extension of validity of L/C within

3 months period (for which commitment
charge has been collected)
b. Where extension of validity of credit

goes beyond 3 months (for which
commitment charge has been collected
upto 3 months).
c. In case of enhancement of value of credit

be collected as stated under 1.A. (a & b)
above.
d. In case of amendment extending the tenor

of the Bill of Exchange.
e. Amendment other than extension of

validity or enhancement of tenor of
the Bill of Exchange.
f. For revival of expired L/Cs within

3 months from date of expiry.
2. Countersigning bills of exchange drawn on

importers under L/Cs
3. Revolving Letters of Credit
a. Commitment charge
on the maximum amount of drawings
permitted at any one time during the period
from date of establishment of L/C to the last
date of validity.
(2) On each amount reinstated from the date
of reinstatement to the date of subsequent
reinstatement or the last date of validity of
L/C. (Minimum charge for reinstatement
Rs. 100/-).
b. Usance charge
(2) 0.30% for the bills over 10 days sight
and upto 3 months sight.
(3) 0.30% for the first 3 months plus
0.0750% for each month in excess of 3
months for bills over 3 months’ sight.
4. For establishing L/Cs/ Guarantees on

Deferred payment terms covering import
of goods.
Note:
If the Deferred Payment Guarantee is backed by a counter guarantee of the Government of India the
be at 0.0625% instead of 0.40% per quarter.
5. Amendments
a. Extending validity period within

3 months (for which commission has
already been collected).
b. Where validity period is extended beyond

3 months period part thereof.
6. Commission on import bills (under L/C)

a. Foreign currency bills at the time of
crystallization or retirement whichever
is earlier.
b. Import bills received under Letter of

Credit on which no exchange benefit
Accrues to opening bank.
c.
i. Rupees bills at the time of retirement.
ii. If bills are not retired within 10 days

from date of receipt of bills in case of
demand bills and on the due date in
case of usance bills.
2. Commission on import bills (not under L/C)
a. Where exchange margin is earned on a

foreign currency bill.
b. On each bill drawn in Rupees and on

each bill drawn in foreign currency on
which no exchange margin accrues.
c. On Rupee import bills received on

collection basis exceeding Rs. 1 crore
banks shall charge commission as under:
i. On the first Rs. 1 crore
ii. On the amount which is in excess of

Rs. 1 crore.
d. On bills/ documents covering project

imports under inter-government aid
scheme (including those financed by
international agencies like World Bank
IMF, ADB, etc.) where no letters of
credit are opened, commission shall be
collected at a flat rate irrespective of the
amount of each drawing at 0.03125%.
e. In case of documents received by
importers directly from overseas
exporters, commission at half the rates
applicable for import bills for collection
should be recovered at the time of
effecting the remittance.
3. If the overseas remitting bank or the exporter

abroad requests proceeds of collection bills
to be remitted in a currency other than the
currency of the bill.
4. Local Payments
Local payments out of proceeds of import
bill such as payments in connection with
barter business or payments to cases of
need etc.
5. Parcels When the value of the parcel exceeds

Rs. 1 lac and advalorem charge based on
Rental value and insurance cost will be
Collected on a monthly basis.
II. Inward Remittances

1. Type of Transaction Exchange and Interest rates applicable
a. Encashment of TTs/ Purchase of MTs/

DDs in respect of which cover has been
Received in Nostro Accounts.
b. Encashment of TTs/ Purchase of MTs/

DDs where reimbursement is to be
obtained in cover by drawing demand
drafts on overseas branches or corres-
pondent banks. 10 days.
c. Encashment of customer’s personal

cheques, demand drafts, international
money orders, banker’s pay orders,
payable abroad. Customer at domestic commercial rate of
interest.
2. Clean Payments
a. Effected under instructions from foreign
correspondents.
b. Where the inward remittance has to be

be paid in foreign currency by way of
a demand draft/ mail transfer/ payment
order/ telegraphic tansfer.
3. Certificates
a. For issuing bank certificates on security

paper in respect of clean remittances
from abroad and/ or for encahment of
foreign currency travelers cheques/
foreign currency notes.
b. Bank’s own letter head (where Rupee

value of inward remittance does not
exceed Rs. 5,000/-)
III. Outward Remittances
Type of Transaction Exchan
a. On all foreign currency outward Minim

remittances not being proceeds of
import bills.
b. Rupee remittances
0.25%
i. Upto s. 10,000/- 0.125%
ii. Over Rs. 10,000/-
II. Clean Instruments for collection
Type of Transaction Exchange and Interest

On all clean instruments sent abroad 0.25% minimum Rs. 10
Discretion may waive t
Type of Transaction Charge
III. Merchanting Trade- (If foreign currency remittances are received in advance by the export
from the overseas buyer and the funds are held in nostro account at the specific request of
the exporter)
Commission
a. On import bills received under back- to-back L/C.
b. On export bills drawn by merchant exporters.
IV. Forward Contracts
For booking sale and purchase contracts Minimum Rs. 250/- per con
For each request for early delivery, extension or cancellation. Minimum Rs. 100/- + swap
V. Foreign currency travelers cheques
Sale of foreign currency traveler’s cheques
a. Commission on Rupee equivalent

value of travelers cheques sold to Indian
residents
b. Commission on foreign currency

travelers cheques issued against foreign
currency remittance at the request of the
beneficiary.
VI. Guarantees
a. Guarantees to 0.15% per month with a minimum of 0.25%

public authorities except for the specified period of liability plus an
item ‘b’ below. additional six months. If the guarantee is redeemed (i.e. returned duly cancelled) before the expiry
charge may be refunded proportionately.
0.15% per month with a minimum of 0.25%

b. Guarantees given to
public authorities for the specified period of liability.
for export of goods ex-
bonded warehouses
without payment of
excise duty.
c. For countersigning of 0.15% per month with a minimum of 0.25%

Llyod’s General on the amount which would be required as a
Average Bond and Cash deposit.
Guarantee
Minimum Rs.200/- per guarantee
d. Guarantee in favour of
shipping
companies/ agencies for
clearance of
goods pending
production of bill of
lading
relating to imports under
L/Cs opened by
the guarantor bank. 0.25% at the time of issue of the guarantee.
If the guarantee remains current beyond
e. Guarantees covering
three months additional commission of
missing bills of
lading relating to imports 0.15% per month or part thereof as long as
not covered the guarantee remains current thereafter.
by ‘d’ above.
1. In the case of guarantees covered by

f. Export performance projects exports which include ECGC counter guarantees, banks shall
guarantees for collect commission as well as ECGC
projects exports which premium at the under-noted rates and
remit the collected premium to the
ECGC.
ECGC ECGC Bank
Counter guarantees Premium w.e.f. 1.1.82 Commission w.e.f. 13.7

i. Bid-bonds
ii. Bonds for earnest Per annum

money
iii. Guarantees for

advance 75% cover 0.55% 1.35%
payment
Upto Rs.1 crore
made by foreign
buyers to Indian
exporters/
0.80% 0.30% 1.10%
contractors
90% crore Upto Rs.1 crore 0.95% 0.45%
Excess over Rs.1 crore 0.95% 0.25%
2.
3. In case of guarantees issued against

100% counter-guarantees issued by
Government of India, bank commi-
ssion shall be as under:
Upto RS. 1 crore: 0.45% p.a.
Excess over
Rs.1 crore: 0.25% p.a.
4. In case of guarantees issued against

cash deposit to the extent of bank’s
liabilities commission shall be
charged at the rate of 0.50% per
annum
5. In case of guarantees which are not

covered by cash deposits or ECGC/
Government of India counter
guarantees, commission shall be
charged at the rate of 1% per annum.
g. Export performance
guarantees, Bid 6. In case of bid bonds 25% of comm.-
bonds etc. (other than ission collected at the time of issue.
for Project If the bid materia-lises the balance
Exports) 75% commission shall be collected.
If the bid gets frustrated there will
h. Export performance be no refund to commission
guarantees covering collected.
export obligations in
terms of Import 0.085% per month with a minimum
Trade Control 0.25%
Regulations.
0.085% per month with a minimum

0.25% for the specific period of
i. All other Liability. In case of early redemp-
guarantees tion of the guarantee a minimum of
50% of the commission for the
unexpired period i.e. from the date
Minimum charge for any
of redemption to the expiry date
guarantee
may be refunded.
0.15% per month with a minimum

of 0.25% for the specified period of
liability.
Rs.250/-
II. Out of pocket expenses such as telex/ cable/ correspondent bank’s charges.
Actuals will be recovered
III. Stamp Duty Will be recovered at the rates prescribed by Government from time to
time.
Note 1:
In addition to the above schedule of charges, interest wherever applicable is payable as
mentioned in the various Rules.
Note 2:
the charges included in the above schedule of charges shall be collected irrespective of whether a
margin is obtained or not and shall not refunded or remitted in any event except a genuine
mistake in collecting them on the part of the bank, or specially permitted in the Rule itself.
All charges are recoverable upfront unless specifically provided for in the Rule.
FEDAI Rules-10, Business

Through Exchange Brokers.
Exchange brokers
Exchange Brokers’ Association
Recognition of brokers:
Exchange brokers’ contracts
Exchange brokerage payable by banks:
Chapter 10: Business
through Exchange Brokers
(Old Rule 3 reproduced)
VII. Exchange brokers
When banks make contracts through brokers, such contracts only be made
through, and exchange brokerage be paid only to accredited exchange
brokers.
No brokerage or other form of remuneration shall be paid by the banks to

Munshis or other bank employees on contracts made in respect of any
foreign exchange business.
Accredited exchange brokers are permitted to contract exchange business

on behalf of Authorised Dealers in foreign exchange only upon the
understanding that they will conform to the rates, rules and conditions laid
down by this Association.
Direct dealings between banks, who are Authorised Dealers in foreign

exchange, are permitted in centers which are serviced by recognized
borkers’ associations, provided that the minimum lots for such direct deals
shall be Pond Sterling 250,000 or US Dollar 500,000 or equivalent in other
currencies. (AR 1.85 of 2.1.1985).
In centers which are not serviced by recognized brokers’ associations,

banks, who are Authorised Dealers in foreign exchange, are permitted to
deal directly without any stipulation as to a minimum amount.
Any accredited broker who knowingly concludes any exchange business

contrary to the rules of this Association or to the intent of those rules may
have his recognition withdrawn in consultation with the recognized brokers’
association in that center and no Authorised Dealer shall transact business
with him thereafter.
It shall be the duty of each Authorised Dealer and of a recognized brokers’

association to report to the Association’s committee for the center
concerned the name of any broker who suggests or proposes any business
which is contrary to the rules of this association. (see code of conduct for
brokers/ bankers)
VIII. Exchange Brokers’ Association
In Bombay, Calcutta and Madras accredited brokers must be members of
Exchange Brokers’ Associations which are recognized by this Association or
must be brokers specially recognized by the Managing Committee in the
case of Bombay and by the respective local committees in the case of
Calcutta and Madras and must have made the required deposit of Rs.
10,000/- if in Bombay or Calcutta or Rs. 5,000/- if in Madras, in cash or in
Government Securities, of equivalent market value with recognized
Exchange Brokers’ Association or with the Association in the case of
specially accredited brokers. Should an accredited broker wish to tender a
fixed deposit receipt in lieu of cash or Government Securities required, a
fixed deposit receipt, together with a suitable letter of lien may be
accepted provided that the fixed deposit has been issued by an Authorised
Dealer in foreign exchange and that the term of the fixed deposit is less
than two years.
The recognized Exchange Borkers’ Associations must approve and notify to

this Association’s local committee at the center concerned all changes in
their membership, in the composition of their member firms, and in the
persons authorized to call on banks. Such advices must emanate from the
recognized Brokers’ Association address either this Association or any of its
Members on these matters direct.
Disputes which may arise within the membership of any recognized

Brokers’ Association must be settled by that Association among themselves.
Such disputes may not be referred to this Association nor to any of its
Members for arbitration or conciliation.
IX. Recognition of brokers:

(This authority withdrawn vide Circular No. Mg. Com 27184 dated 9th
October 1984.)
Detailed arrangements for the recognition of the Exchange Brokers’

Association, or individual brokers where no such association has been
formed, or where individual brokers are specially recognized, shall, at each
center, be decided upon by the Committee at that centre.
X. Exchange brokers’ contracts
All contracts must bear the clause:

“Subject to the Rules and Regulations of the Foreign Exchange Dealers’
Association of India”.
No exchange contract shall be made with a broker as a principal or in a

name known to be used by the broker for the purpose of jobbing. A bank
must refuse to give delivery to or take delivery from any party other than
the declared principal or a bank.
XI. Exchange brokerage payable by banks:
[AR 1/89 dated 30.6.89] [ECS. 690/86 (Spl.)-88/89 dated 4.4.89] Type of
Business Rate of brokerage (payable both by selling and buying banks) (I)
Spot & outright forward business against the Rupee: All Currencies 0.007%
i.e. 7 paise per Rs. 1000/- (II) Swap transactions in foreign currencies
against the Rupee: i. ‘Short’ swaps i.e. where the delivery of the farther leg
is due within the sport date: Rs. 500/- per US Dollar one million or
equivalent for each leg of the transaction. ii. ‘Long’ swaps (i.e. other than
‘Short’ swaps): All Currencies 0.0105% i.e. 10.50 paise per Rs. 1000/- (III)
Switches (i.e. sales of foreign currencies against foreign currencies spot or
outright forward). Rs. 650/- per US Dollar one million or equivalent. (IV)
Swaps in foreign currencies against foreign currencies (irrespective of
period). Rs. 250/- per US Dollar one million or equivalent.
Chapter 11- Inter-bank TT-Settlement of

Inter-bank TTs and Despatch
Preamble (Old RULE 5 reproduced)
In view of the importance of this Rule to toning up accounting accuracy and ‘nostro’
reconciliation systems in banks, Reserve Bank of India have, whilst giving approval to the
amended version of FEDAI Rule 5 made the following observations:-
1. Dealing in the interbank market is generally for large value items and it is in the
interest of the banking system that claims are made promptly, if funds are not
received in time, and settlements effected. International banking situation is
presently not in good shape and every care must be taken by member banks to
keep their monitoring system for execution of contracts and for watching receipts
of countervalue funds in top gear. It is therefore absolutely necessary for banks to
reconcile all dealing items and other large value items within a period of 24/48
hours by demanding cable/ telex confirmation regarding receipt of expected
credits in ‘nostro’ accounts from the correspondents maintaining those accounts
but in any event not later than a maximum period of 15 days. In this context you
would observe from amendment proposed to Rule 5(III) (D) that FEDAI itself has
recognized 5 calendar days as adequate period for identifying and settling
interest claims. Banks should not lose sight of the credit risk aspects emphasized
in para 3.1.3 of the Confidential booklet “Guidelines for Internal Control over
Foreign Exchange Business”. The requisite monitoring system therefore applies for
not only dealings with overseas banks but also to banks in India whose
correspondent banking arrangements are varied.
2. As regards Rule 5(III) (B) & (C) it is very necessary that discrepant/ default items
should be quickly identified and effectively settled between member banks within
a reasonable time. This is considered necessary also for toning up the
reconciliation system in member banks. Notices of non-receipt of funds in the
‘nostro’ account must be followed up by cable or telex with their correspondents.
Banks should not wait for receipt of statements of ‘nostro’ accounts for
reconciliation of such items because in that event corrective action will take a
much longer time. Reconciliation may be treated as a final cross check and not a
primary investigation step.
3. As opposed to virtually compulsory settlement of interest claims by the method of

back valuation the buyer bank has been given the option of acceptance of back
valued credits vide Rule 5 (III) (D).
4. All kinds of defaults in the delivery of countervalue currencies in cross currency

deals i.e. dealing in a foreign currency against another foreign currency between
Authorised Dealers in India, fall within the ambit of the provisions of Rule 5, thus,
making redundant a separate sub-rule for that purpose.
5. As regards Rule 5 (VI) the emphasis shall be that bank is should make proper
enquiries into their books before meeting interest claims thereby resulting in the
toning up of general efficiency in banks.
6. The attention of Authorised Dealers is invited in this connection to Reserve Bank

of India Circular No. ECS 113/(Gen)-83/84 dated 25th July 1983 issued to the
Chairmen/ Chief Executives of Authorised Dealers earlier.
FEDAI Rules-12, Inter Bank TT

Settlement of Inter Bank TTs
and Despatch.
GENERAL TIMINGS
Settlement of interest claims on the delayed delivery of Foreign Currency Funds Non-
delivery of Foreign Currency
Delay in payment of Rupee equivalent of inter-bank TTs in foreign currencies.
Period for settlement of interest claims in Rupees The principle of set-off in respect of the
settlement of inter-bank foreign currency transactions.
Chapter 12Inter- bank TT- Settlement of
Inter-bank TTs and Despatch
(Old RULE 5 reproduced)
I. GENERAL
a. Authorised Dealers should ensure smooth settlement of their inter-bank

transactions. The buyer-bank shall arrange payment of the Rupee
equivalent on the settlement day (i.e. date of delivery) and the seller-bank
shall lay down foreign currency funds simultaneously on the same day.
Rupee payment shall be arranged by delivery of cheques drawn on the
Reserve Bank of India unless otherwise specifically agreed to between the
banks in advance. Seller-bank shall arrange delivery of the foreign currency
funds at the contracted foreign centre by telex, cable or other expenditious
means of communication without any additional cost to the buyer-bank
and the buyer-bank shall advise their Head
Offices/Branches/Correspondents to receive the concerned amounts on
their account on the contracted dates. In their own interest banks shall
mention in their telexes or cables the “Value-dates” for receipt/ delivery of
the foreign currency funds in terms of their TT Sale/Purchase contracts.
b. In case the seller-bank is unable to substantiate to the buyer-bank that it

had intended to effect proper delivery on the settlement day, thereby
amounting to ‘deliberate’ non-delivery of funds, the seller-bank shall pay
to the buyer-bank a penalty as decided finally by the Managing Committee
of the FEDAI or any other Sub-Committee specially appointed for the
purpose by the Managing Committee. The penalty as stated above shall be
in addition to the interbank claim of the buyer-bank.
c. In case claims are not settled within 2 months from the date of lodgement
of claim, the matter shall be referred to the FEDAI for a final decision
which shall be binding upon the banks concerned.
d. Use of incorrectly paid funds (undue enrichment) In line with the

international custom, a bank which has received foreign currency funds,
not intended for its accounts, shall be liable to compensate the bank which
has been out of funds by either :
i. Returning the funds with proper value
OR
ii. Paying interest at the overdraft rate to the bank out of funds.
e. In case the seller-bank delivers foreign currency funds to the ‘nostro’

account other than the notified account of the buyer-bank, that bank shall
on request in writing, from the seller-bank accept adjustment of funds
between the accounts subject to levy of interest and miscellaneous
expenses, if any.
f. In case the seller-bank delivers foreign currency funds to a correspondent

bank for account of a branch of the bank other than the one intended, the
buyer-bank shall adjust the foreign currency funds subject to recovery of
any miscellaneous expenses. The seller-bank shall not be liable for interest
after the date of delivery of funds.
II. TIMINGS
a. Written instructions of buyer-banks, regarding their take-up of interbank

TT transactions in the permitted foreign currencies must be in the
permitted foreign currencies must be in the hands of the seller-banks not
later than one hour before the close of the general banking hours of the
latter. Seller-banks have the option of refusing to deal with applications for
TT sales or applications for take-up of the forward fixed date sale contracts
received after such banking hours. ( Refer to Circular Letter No. 17/86
dated 17th March 1986).
b. In the case of interbank forward contracts which specifically allow option

of delivery, the buyer bank shall take-up such forward contracts after
giving 2 clear days notice to the seller-bank and shall deliver Reserve Bank
of India cheques on the date of take-up as stated in the advance notice to
ensure that the Rupee as well as the foreign currency funds get transferred
on the same day. Banks shall take effective steps to avoid ‘cash’
transactions in their interbank dealings and establish the practice of
dealing among themselves on ‘spot’, ‘value next day’ or ‘forward’ basis.
On Saturdays, no interbank TT shall be dispatched.
Delivery under a ‘spot’, ‘value next day’ or ‘forward’ contract shall be
effected on the stated delivery date. In case the stated delivery date is later
declared a holiday at the overseas centre, the delivery shall be
effected on the next business day.
c. Known holiday
If at the time of conclusion of a forward contract, the fixed date of delivery
or the last date of option is a Saturday or a known holiday either at the
centre in India where the Rupee funds are to be settled or at the centre
where the foreign exchange funds are to be delivered, the contract shall
be deliverable on the day immediately preceding the Saturday or the
holiday provided that day is open for business at both the centers.
d. Subsequently declared holiday

In case the fixed date of delivery happens to be declared later a holiday
either at the centre in India where the Rupee funds are to be settled or at
the centre where the foreign exchange funds are to be delivered, the
contract shall be deliverable on the next working day when both the
centers are open for business. The same principle shall apply in the case of
contracts which allow option of delivery if the last date of option of
delivery is declared a holiday after the date of contract.
III. Settlement of interest claims on the delayed delivery of Foreign Currency Funds
a. In the event of late delivery of foreign currency amount of an interbank TT

at the stated overseas centre, interest for the number of days of the delay,
REGARDLESS OF THE CAUSE OF THE DELAY, shall be payable by the seller
bank as per Sub-Rules (B), (C) and (D) below, as the case may be.
b. In the event of late delivery in London, interest for all overdue period is to
be paid by the seller-bank in India at 2 % over the “Barclays Bank’s Base
Rate” ruling on the day the remittance should have been received in
London in the buyer-bank’s ‘nastro’ account provided the buyer-bank
lodges the interest claim within 30 days from the day on which the amount
should have been received at the overseas centre.
In case the buyer-bank lodges the claims after expiry of the said period of
30 days, interest at the applicable rate shall be paid for a maximum period
whichever is less.
c. In the event of late delivery at centers other than London, shall be paid in
India at TWO PERCENT over the PRIME RATE of the banks specified below
at the respective centers, ruling on the day the delivery should have been
made PROVIDED the buyer-bank lodges the claim for interest within 30
days from the day the delivery should have been received abroad:-
Countries Specified Banks
U.S.A. Citibank N.A.
France Credit Lyonnais
Canada Bank of Montreal
Federal Republic
Of Germany Deutsche Bank
Japan Bank of Tokyo
Belgium Societe General de Banque
Banque
Holland Amsterdam Rotterdam
Bank Switzerland Swiss Bank Corporation
In case of transactions in currencies of countries not mentioned above, the
seller-bank shall pay interest at 2% over the notional overdraft rate
payable to the buyer-bank.
In case the buyer-bank lodges the claim for interest after expiry of the
aforesaid period of 30 days, interest at the applicable rate should be paid
for a maximum period of 60 days only or the actual overdue period,
whichever is less.
d. Option of acceptance of back valued credits by buyer-bank in the event of
late payment.
In case where the seller-bank has delayed payment and is willing to rectify
the situation by offering to deliver funds on a value dated basis, the buyer
bank shall have option to accept such funds on a value dated basis
provided that such funds are delivered within 5 calendar days from
maturity of the contract. The buyer bank shall have no right to claim
interest in India in terms of (B) and (C) if it accepts back valued credits.
For funds which are delivered to the buyer-bank beyond 5 calendar days
from maturity of the contract, the buyer-bank can still exercise its option to
accept either-
a. Value dated funds
OR
b. i. Claim interest as per (B) and (C) above
ii. Claim interest in India, at 2% over the ceiling rate of interest in the inter-
bank money market as directed by I.B.A., on the Rupee equivalent of the
foreign currency amount at the Exchange Rate stated in the contract,
whichever is higher.
IV. Non- delivery of Foreign Currency

In the case of non-delivery of foreign currency funds, the seller-bank shall not
seek protection under clause III above and shall deliver foreign currency funds
within 48 hours of the receipt of the notification from the buyer-bank. Such
notification should be sent by the buyer-bank not later than 15 days, from the
contracted date of delivery.
The seller-bank in such a case shall be liable to pay interest for the full period of
delay. In case the foreign currency funds are delivered after a delay of 45 days,
from date of demand, the seller-bank shall also become subject to the provisions
of Clause I.B. as above.
V. Delay in payment of Rupee equivalent of inter-bank TTs in foreign currencies.

In the event of late payment of the equivalent Rupee funds by the buyer-bank, in
respect of inter-bank TT transactions in foreign currencies, the buyer-bank shall
pay interest for the relative period of delay at the minimum lending rate of
interest Reserve prescribed by Banks of India from time to time.
Interest shall be paid for the period from the date the Rupee funds should have
been paid by the buyer-bank to the date the amount was actually paid,
PROVIDED the seller-bank lodges the relative interest claim with the buyer-bank
within 15 days from the date the Rupee amount should have been paid to the
seller-bank. In case the seller-bank fails to lodge the claim within the said period
of 15 days, the seller-bank shall be entitled to receive interest for the maximum
period of 30 days only notwithstanding the fact that the actual delay period might
have been much higher than the said 30 days.
VI. Period for settlement of interest claims in Rupees
When a bank is served with the notice of interest claim, it must settle the claim
within 21 days of receipt thereof by making proper enquiry into its books and
investigating its records.
Payments of interest claim cannot be withheld for more than 21 days on the plea
that enquiries are being made in the matter of the interest claim.
VII. The principle of set-off in respect of the settlement of inter-bank foreign currency
transactions.
Set-off of interbank transactions in foreign currencies without actual transfer of

foreign currency/Rupee funds and settlement of the transactions merely by
transfer of the exchange difference between the two opposite foreign exchange
transactions is prohibited. Set-off of dealings with Overseas Branches/Head
Offices/ Correspondents, however, are also prohibited.
Note:
The following sections of the Rule as approved by the Reserve Bank of India require further
clarifications. Until it is received by FEDAI and circulated among member banks those sections are
held in abeyance:-
Note Rule 5(1) (D) [undue enrichment]
Rule 5(III) (D) – Option being permitted in case the delay in delivery of foreign currency funds is
within 5 days from the date of maturity of the contract.
FEDAI Rules-13, Abolition of

Sterling Rates Schedule.
Introduction
Basis for calculation of merchant rates for all currencies :
PURCHASE
SALE
PART II
General
Accounting Procedures for Import and Export Bill Transactions
Export Bills Purchased/Negotiated/Discounted
Chapter 13
Abolition of sterling Rates Schedule, Delinking of Interest Element from Exchange Rates and
Accounting Procedures for Import and Export Transactions (AR Circular No. 3/86 dated 7th June 1986)
1. Introduction
In implementation of the instructions issued by the Reserve Bank of India for

abolition of Sterling Rates. Schedule etc., vide A.D. (M.A.Series) Circular No. 21 of
1st November 1983, FEDAI has issued these Guidelines to member banks.
Instructions relating to maximum spread between TT purchase and sale rates for
merchant transactions in Pound Sterling will be issued by the Reserve Bank at the
appropriate time i.e. before 1st January 1984 and member banks are, therefore,
requested to read the instructions contained herein in conjuction with future
directives of the Reserve Bank. As already emphasized in the aforesaid circular of
Reserve Bank , member banks should ensure, that the Guidelines prepared by the
FEDAI are strictly followed by the branches of member banks while handling
merchant transactions.
Few examples have been worked out and given in Annexures IV and V to the
Guidelines not included) in order to assist members banks to train their staff in
adopting the new system of exchange rate quotations that will come into
operation with effect from 1st January 1984. The examples given are not
necessarily exhaustive. Member banks are, therefore, requested to conduct trial
exercises themselves in order to prepare their internal procedures for
implementation of the new system.
The Guidelines comprise of 3 parts:

i. Basis for calculation of merchant rates for all currencies.
ii. Segregation of interest element from exchange rates for bill purchase
transactions and calculation of interest on export bills,etc.
iii. Accounting procedures for import and export bill transactions including
delinking of the relative foreign currency amounts from currency positions.
PART I
2. Basis for calculation of merchant rates for all currencies :

2.1 The merchant rate quotations will be derived by each Authorised Dealer from the ‘BASE
RATES’
‘BASE RATES’ to be applied for arriving at Merchant purchase and sale rates shall be derived
from the ongoing Spot Market Rates for each of the currencies. In arriving at Merchant spot
TT sale and purchase rates derived from the ‘BASE RATES’, each Authorised Dealer shall
ensure that the maximum spread between the two TT rates shall be within the range
prescribed by the RBI from time to time.
The “Base Rate” may be worked out daily by individual banks
Name of Maximum spreads between customer rates for ready Clean TT business from the mean TT
currency together) Current Revised
Max Spreads Max Spreads
U.K.Pound 0.75% 2.00%

Sterling
U.S. Doller 1.00% 1.00%
Deutsche Marks 2.50% 2.00%
Japanese Yen 2.50% 2.00%
French Francs 2.50% 2.00%
Swiss Francs 2.50% 2.00%
Dutch Guilders 2.50% 2.00%
Australian 2.50% 2.00%

Dollars
Other currencies No limit for No limit the present, for The but Ads present, shall keep but Ads the rate shall k
the spreads minimum, to the
3. Authorised Dealers will, however, be free to quote rates to customers which are better than
those warranted by the spread limits.
2.2 Exchange margins have been made flexible and Authorised Dealers may offer rates to
customers depending upon the business, etc. The following exchange margins on the base
rates have been prescribed :-
Transaction Exchange Margin

1. TT purchase 0.025% to 0.080%
2. Bills purchase 0.125% to 0.150%
3. TT sale 0.125% to 0.150%
4. Bills sale over the Merchant TT rate 0.175% to 0.200%
4.
Transaction Exchange Margin
1. TT purchase 0.025% to 0.080%
2. Bills purchase 0.125% to 0.150%
3. TT sale 0.125% to 0.150%
4. Bills sale over the 0.175% to 0.200%
Merchant TT rate
5. For calculation of merchant rates Authorised Dealers shall apply the following
procedure :
PURCHASE
3.1 Merchant Spot T.T. Purchase Rate

i. Arrive at the BASE RATE
ii. To the above BASE RATE add the appropriate exchange margin.
3.2 Merchant Spot Bill Buying Rate

ii. To the above BASE RATE add the appropriate exchange margin.
a. Add/deduct on-going forward discount/premium depending upon the transit
period of the bill such as sight, usance and grace period, etc.
b. Add appropriate exchange margin.
3.3 Merchant Forward T.T. Buying Rate

i. Arrived at the BASE RATE
ii. To the above BASE RATE
a. Add/deduct on-going forward discount/premium depending upon the delivery
period of the bill.
b. Add appropriate exchange margin.
3.4 Merchant Forward Bill Buying Rate

ii. To the above BASE RATE
a. Add/deduct on-going forward discount/premium depending upon the delivery
period of the bill, transit period, tenor of the bill such as sight, usance and grace
period, etc.
3.5 “The Merchant Purchase Rates so arrived shall not be worse than those
derived from the RBI buying rates in respect of currencies in which the RBI
provides spot and forward cover.”
3.6 Recovery of interest on bill transactions at the time of purchase :

The Rupee equivalent of the foreign currency bill amount shall be payable to the
customer on the basis of the Rate arrived at as above. Simultaneously, interest
shall be recovered on the Rupee amount, from the customer by applying the
appropriate interest factor as stated in the table attached vide Annexure 1.
(Annexure not attached since factor varies as and when rates of interest are
changed by Reserve Bank of India).
3.7 Purchase of Rupee Bills

In the case of Rupee bill purchases the entire bill amount shall be first payable to
the customer. Simultaneously interest shall be recovered on the Rupee amount
from the customer by applying the appropriate interest factor.
6. SALE
4.1 Merchant Spot TT Sale Rate :

ii. From the above BASE RATE deduct appropriate exchange margin.
4.2 Merchant Spot Bill Sale Rate

From the merchant TT Sale rate as determined above, deduct appropriate
exchange margin.
4.3 Spot Merchant Sale Rates for TT and Bill Transactions shall not be worse for
the customer than those derived from RBI’s Spot Selling Rate for Pound Sterling
as the basis.
4.4 Merchant Forward Sale Rate

For quoting Merchant Forward Sale Rates’ for import TT/Bill transactions,
Authorised Dealers shall base their quotations on the appropriate cover rate from
which appropriate exchange margins for TT and /or Bills as mentioned above shall
be deducted.
PART II
7. Delinking of Interest Element from the Exchange Rates for Bill Purchase
Transations
5.1 To fall in line with the international practice, Authorised Dealers shall effective
from 1st January, 1984, quote rates for export bills on the basis of on-going
market rates . The exchange margins are to be loaded in the rate, quoted to the
customer. Interest for the entire notional transit period, usance, grace period
(where applicable) shall be recovered simultaneously at the time of purchasing,
discounting or negotiating the bill by applying the appropriate interest factor on
the Rupee amount of the bill.
The procedure to be followed shall be as under :-
1. Arrive at the Rupee equivalent of the foreign currency amount at the

appropriate buying rate.
2. Credit the Rupee amount to the customer’s account.
3. Simultaneously recover the interest amount and credit it to “Interest on

Export Bills Account.”
4. Overdue interest, where applicable, shall be recovered separately.
Note :
In case of payment to a party, not being a customer of the payee bank,
only the net amount shall be payable. Full details of the interest and other
deductions shall be
Advised.
2. General
6.1 The spreads between Spot T.T. Sale and Spot T.T. Purchase rates for all
currencies shall be in compliance with RBI directives issued from time to time.
6.2 Rounding off the rates will be as per FEDAI Rule 4 (III) (d) vide Annexure III.
(Since amended as per our Circular AR No.1/88 dated 21st November 1988).
6.3 All Authorised Dealers shall keep a record of :-

a. The BASE RATES for the purpose of arriving at the merchant rates, and
b. Any changes made in the BASE RATES during the day. Such record shall be
made available for audit.
6.4 The time of executing all merchant transactions shall be recorded so as to

establish the application of the correct prevalent rates.
6.5 All Authorised Dealers shall correctly apply the forward/usance margins and
exchange margins before quoting merchant rates,etc.
6.6 In case of forward contracts for export bills, the contract rate shall be worked
out without loading interest factor and interest for the period
(transit,usance,grace)shall be recovered at the time of
negotiation/purchase/discount. The recovery of interest at the time of
purchase/discount/negotiation shall not be lost sight of.
3. Accounting Procedures for Import and Export Bill Transactions
7.1 To bring uniformity in the handling of import bills under letters of credit and
export bills purchased/negotiated/discounted, Authorised Dealers shall follow the
procedure given below:-
7.2 Import Bills

i. Sight Import Bills received under letters of credit and conforming to credit
terms, may be held in foreign currency for a maximum period of 10 days from the
date of receipt of document by the bank.
ii. In case of non-payment by the drawee within 10 days as above, the importer’s
liability on the foreign currency bill shall be crystallized by converting the foreign
currency amount into Rupees at the B.C. Selling Rate prevailing on the 10th day
or the Forward Exchange Contract Rate where applicable.
iii. Authorised Dealers shall keep a proper record of the date of receipt of
documents.
7.3 The Authorised Dealers shall keep a proper changes in their L/C agreement/
applications to give effect to the above.
7.4 In case the 10th day is a holiday or a Saturday, the importer’s liability in
Rupees shall crystallise on the next following working day.
7.5 Authorised Dealers shall carry swap costs upto the 10th day on their own
account and shall not recover such costs from the customer.
7.6 Authorised Dealers shall charge interest at the rate as prescribed by RBI for
advances to non-priority sectors from time to time one Rupee advances made
against the import bills pending retirement by the customer. Such interest shall be
recovered from the date of negotiation to the date of crystallization of the Rupee
liability and thereafter penal interest shall be recovered. (Applicable rates of
interest amended as per our Circular Misc No. 11/90 dated 21st May 1990).
7.7 If the date when the Rupee liability on an import bill is crystallized at the
Forward Exchange Contract Rate results in early/late delivery under a Forward
Exchange Contract, the charges as per FEDAI Rule 9 (Refer to revised Rule 8) shall
be levied.
7.8 Authorised Dealers shall charge commission/handling charges at the rate of

0.15% on the bill amount at the time of converting foreign currency into Indian
Rupees irrespective of the fact whether the bill is retired within 10 days or later.
(Also refer to para x.c. of the revised Rules)
7.9 All import bills under Letters of Credit shall be reported as ‘SALES’ when the
Rupee liability is crystallized.
4. Export Bills Purchased/Negotiated/Discounted
8.1 Foreign currency bills when purchased/negotiated/discounted shall be at the

Authorised Dealers’ bill buying rate on that day or at the contracted rate. Interest
for the transit,usance,grace period where applicable shall be recovered
simultaneously. (Also refer to our Special Circulars No. 2643/NTP/SPL-18/86 dated
27th May 1988).
8.2 For bills remaining unpaid for a period of 30 days after the transit period in
case of demand bills and the due date in case of usance bills, the foreign currency
amount shall be reversed from the “export bills purchased portfolio” on the 30th
day by the Authorised Dealer. In case 30th day happens to be holiday, or
Saturday, it shall be reversed on the next following working day. The rate
applicable to such reversal shall be the ready TT selling rate of exchange on that
day and shall be reported as ‘Notional Sale’ of foreign currency. The Rupee
equivalent of the foreign currency thus reversed, shall be held in the advances
portfolio of the bank under the head “Advances against overdue export bills
realizable account”.
The unpaid bill shall be treated as outstanding under the sanctioned limit of the
customer in a separate folio with the exchange risk open against the customer.
Interest for the overdue period shall be recovered at the appropriate rate upto
the date of realization of the bill. Appropriate rate of interest shall mean the
maximum rate of interest permissible by Reserve Bank of India for overdue export
bills or (Since amended as per our Circular Misc. No. 11/90 dated 21st May 1990)
the penal rate if the bill amount was recovered in Rupees from the customer due
to dishonour thereof by the drawee.
8.3 As and when the bill is realized and advice of realization either by cable or by
mail is received, the Authorised Dealers shall apply the TT buying rate on that day
and adjust the advances created in their books against the bill as explained above.
Any shortfall/excess shall be recovered from/paid to the customer. Authorised
Dealers shall report the ‘PURCHASE’ of foreign currency.
8.4 Authorised Dealers shall not charge or pay any swap cost for the period of 30
days i.e. the period between the relevant due date and the transfer of the item to
advance portfolio as explained in 8.2 above.
8.5 In the case of highly volatile currencies, it is up to the Authorised Dealer to

negotiate the bill at the risk and responsibility of the customer.
8.6 For the purpose of reporting the reversals of bills purchased earlier
(paragraph 8.2) in the relative R-Returns, Authorised Dealers may be guided by
the instructions issued by the Reserve Bank of India from time to time.
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
a. 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).
b. Export letters of credit
i. 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.
ii. 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).
c. Advising letter of credit/amendments
i. 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.
ii. The advising banks should not on their own restrict negotiations to their
counters merely because the credit has been advised through them.
iii. Forwarding the credit/amendment by V.P.Post is prohibited.
d. 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).
e. 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.
f. 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).
g. Clean TTs
i. 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.
ii. 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.
h. 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)
i. 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
a. 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).
b. 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.
c. 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).
d. 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).”
e. Bank Guarantee covering import of goods into India under various AID loans
a. Where the guarantee to be issued is to be followed by issue of letter of

credit.
i. 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.
ii. 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.
b. Where the guarantee does not result in a letter of credit and import bills
are received by guarantor bank on collection basis.
i. Initially commission should be recovered on the full amount for a

period of 3 months @ 0.25%
ii. 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.
iii. 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).
f. 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).
g. 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.)
h. 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.
i. Import bills for collection
In respect of foreign currency collection bills the collecting bank shall be entitled
to exchange and commission.
a. 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.
b. 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
a. 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).
b. 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.
a. 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.
b. 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).
c. Where inward remittances are in respect of export transactions covered under

forward exchange contracts the relative forward contract rate shall be applied.
d. 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.
e. 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).
f. 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
i. 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
ii. 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.
iii. 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
a. 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)
b. 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.
c. 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.
d. 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.
e. 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
a. 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.
b. 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)
XII. FEMA Rules And Regulation Under (FEMA 1999)

XIII.
XIV. Rules & Regulation under FEMA 1999
XV. S.No. Description
XVI. FOREIGN EXCHANGE MANAGEMENT (TRANSFER OR ISSUE OF ANY FOREIGN

SECURITY) (AMENDMENT) REGULATIONS, 2004
XVII. FOREIGN EXCHANGE MANAGEMENT [WITHDRAWAL OF GENERAL PERMISSION
TO OVERSEAS CORPORATE BODIES (OCBS)] REGULATIONS, 2003
XVIII. FOREIGN EXCHANGE MANAGEMENT (TRANSFER OR ISSUE OF SECURITY BY A

PERSON RESIDENT OUTSIDE INDIA ) REGULATIONS, 2000 Part – II
XIX. FOREIGN EXCHANGE MANAGEMENT (OFFSHORE BANKING UNIT) REGULATIONS,

2002
XX. FOREIGN EXCHANGE MANAGEMENT (ENCASHMENT OF DRAFT, CHEQUE,

INSTRUMENT AND PAYMENT OF INTEREST) RULES, 2000.
XXI. FOREIGN EXCHANGE (AUTHENTICATION OF DOCUMENTS) RULES, 2000
XXII. FOREIGN EXCHANGE MANAGEMENT (CURRENT ACCOUNT TRANSACTIONS)

RULES, 2000
XXIII. FOREIGN EXCHANGE MANAGEMENT (ADJUDICATION PROCEEDINGS AND

APPEAL) RULES, 2000
XXIV. FOREIGN EXCHANGE (COMPOUNDING PROCEEDINGS) RULES 2000.
XXV. FOREIGN EXCHANGE MANAGEMENT (PERMISSIBLE CAPITAL ACCOUNT

TRANSACTIONS) REGULATIONS, 2000
XXVI. FOREIGN EXCHANGE MANAGEMENT (ISSUE OF SECURITY IN INDIA BY A

BRANCH, OFFICE OR AGENCY OF A PERSON RESIDENT OUTSIDE INDIA )
REGULATIONS, 2000
XXVII. FOREIGN EXCHANGE MANAGEMENT (BORROWING OR LENDING IN FOREIGN

EXCHANGE ) REGULATIONS, 2000
XXVIII. FOREIGN EXCHANGE MANAGEMENT (BORROWING AND LENDING IN RUPEES)

REGULATIONS, 2000
XXIX. FOREIGN EXCHANGE MANAGEMENT (DEPOSIT) REGULATIONS, 2000 DEPOSIT
XXX. FOREIGN EXCHANGE MANAGEMENT (EXPORT AND IMPORT OF CURRENCY)

REGULATIONS, 2000
XXXI. FOREIGN EXCHANGE MANAGEMENT (ACQUISITION AND TRANSFER OF

IMMOVABLE PROPERTY OUTSIDE INDIA ) REGULATIONS, 2000
XXXII. FOREIGN EXCHANGE MANAGEMENT (GUARANTEES) REGULATIONS, 2000
XXXIII. FOREIGN EXCHANGE MANAGEMENT (REALISATION, REPATRIATION AND

SURRENDER OF FOREIGN EXCHANGE) REGULATIONS, 2000
XXXIV. FOREIGN EXCHANGE MANAGEMENT (FOREIGN CURRENCY ACCOUNTS BY A

PERSON RESIDENT IN INDIA ) REGULATIONS, 2000
XXXV. FOREIGN EXCHANGE MANAGEMENT (POSSESSION AND RETENTION OF FOREIGN
CURRENCY) REGULATIONS
XXXVI. FOREIGN EXCHANGE MANAGEMENT (INSURANCE) REGULATIONS, 2000
XXXVII. FOREIGN EXCHANGE MANAGEMENT (REMITTANCE OF ASSETS) REGULATIONS,

2000
XXXVIII. FOREIGN EXCHANGE MANAGEMENT (MANNER OF RECEIPT AND PAYMENT)

REGULATIONS, 2000
XXXIX. FOREIGN EXCHANGE MANAGEMENT (TRANSFER OR ISSUE OF SECURITY BY A

PERSON RESIDENT OUTSIDE INDIA ) REGULATIONS, 2000
XL. FOREIGN EXCHANGE MANAGEMENT (ACQUISITION AND TRANSFER OF

IMMOVABLE PROPERTY IN INDIA ) REGULATIONS, 2000
XLI. FOREIGN EXCHANGE MANAGEMENT (ESTABLISHMENT IN INDIA OF BRANCH OR

OFFICE OR OTHER PLACE OF BUSINESS) REGULATIONS, 2000
XLII. FOREIGN EXCHANGE MANAGEMENT (EXPORT OF GOODS AND SERVICES)

REGULATIONS, 2000
XLIII. FOREIGN EXCHANGE MANAGEMENT (INVESTMENT IN FIRM OR PROPRIETARY

CONCERN IN INDIA ) REGULATIONS, 2000
XLIV. FOREIGN EXCHANGE MANAGEMENT (FOREIGN EXCHANGE DERIVATIVE

CONTRACTS) REGULATIONS, 2000
XLV. FOREIGN EXCHANGE MANAGEMENT (TRANSFER OR ISSUE OF ANY FOREIGN

SECURITY) REGULATIONS, 2000
XLVI. APPELLATE TRIBUNAL FOR FOREIGN EXCHANGE (RECRUITMENT, SALARY &

ALLOWANCES & OTHER CONDITIONS OF SERVICE OF CHAIRPERSON &
MEMBERS) RULES, 2000
HIGHLIGHTS OF THE FOREIGN TRADE POLICY 2015-2020
Government of India
Department of Commerce
Ministry of Commerce and Industry
HIGHLIGHTS OF THE FOREIGN TRADE POLICY 2015-2020
A. SIMPLIFICATION & MERGER OF REWARD SCHEMES

Export from India Schemes:
1. Merchandise Exports from India Scheme (MEIS)
Earlier there were 5 different schemes (Focus Product Scheme, Market Linked Focus
Product Scheme, Focus Market Scheme, Agri. Infrastructure Incentive Scrip, VKGUY) for
rewarding merchandise exports with different kinds of duty scrips with varying conditions
(sector specific or actual user only) attached to their use. Now all these schemes have
been merged into a single scheme, namely Merchandise Export from India Scheme
(MEIS) and there would be no conditionality attached to the scrips issued under the
scheme. The main features of MEIS, including details of various groups of products
supported under MEIS and the country groupings are at Annexure-1.
Rewards for export of notified goods to notified markets under ‘Merchandise Exports
from India Scheme (MEIS) shall be payable as percentage of realized FOB value (in free
foreign exchange). The debits towards basic customs duty in the transferable reward duty
credit scrips would also be allowed adjustment as duty drawback. At present, only the
additional duty of customs / excise duty / service tax is allowed adjustment as CENVAT
credit or drawback, as per Department of Revenue rules.
2. Service Exports from India Scheme (SEIS)
Served From India Scheme (SFIS) has been replaced with Service Exports from India
Scheme (SEIS). SEIS shall apply to ‘Service Providers located in India’ instead of ‘Indian
Service Providers’. Thus SEIS provides for rewards to all Service providers of notified
services, who are providing services from India, regardless of the constitution or profile
of the service provider. The list of services and the rates of rewards under SEIS are at
Annexure-2.
The rate of reward under SEIS would be based on net foreign exchange earned. The
reward issued as duty credit scrip, would no longer be with actual user condition and will
no longer be restricted to usage for specified types of goods but be freely transferable
and usable for all types of goods and service taxdebits on procurement of services /
goods. Debits would be eligible for CENVAT credit or drawback.
3. Chapter -3 Incentives (MEIS & SEIS) to be available for SEZs

It is now proposed to extend Chapter -3 Incentives (MEIS & SEIS) to units located in SEZs
also.
4. Duty credit scrips to be freely transferable and usable for payment of custom duty,
excise duty and service tax.
All scrips issued under MEIS and SEIS and the goods imported against these scrips would
be fully transferable.
Scrips issued under Exports from India Schemes can be used for the following:-
(i) Payment of customs duty for import of inputs / goods including capital goods, except
items listed in Appendix 3A.
(ii) Payment of excise duty on domestic procurement of inputs or goods, including capital
goods as per DoR notification.
(iii) Payment of service tax on procurement of services as per DoR notification.
Basic Customs Duty paid in cash or through debit under Duty Credit Scrip can be taken
back as Duty Drawback as per DoR Rules, if inputs so imported are used for exports.
5. Status Holders
Business leaders who have excelled in international trade and have successfully
contributed to country’s foreign trade are proposed to be recognized as Status Holders
and given special treatment and privileges to facilitate their trade transactions, in order
to reduce their transaction costs and time.
The nomenclature of Export House, Star Export House, Trading House, Star Trading
House, Premier Trading House certificate has been changed to One, Two, Three, Four,
Five Star Export House.
The criteria for export performance for recognition of status holder have been changed
from Rupees to US dollar earnings. The new criteria is as under:-
Status category Export Performance

FOB / FOR (as converted)
Value (in US $ million) during current and previous two years
One Star Export House 3
Two Star Export House 25
Three Star Export House 100
Four Star Export House 500
Five Star Export House 2000
(d) Approved Exporter Scheme - Self certification by Status Holders
Manufacturers who are also Status Holders will be enabled to self-certify their
manufactured goods as originating from India with a view to qualify for preferential
treatment under different Preferential Trading Agreements [PTAs], Free Trade
Agreements [FTAs], Comprehensive Economic Cooperation Agreements [CECAs] and
Comprehensive Economic Partnerships Agreements [CEPAs] which are in operation. They
shall be permitted to self-certify the goods as manufactured as per their Industrial
Entrepreneur Memorandum (IEM) / Industrial Licence (IL)/ Letter of Intent (LOI).
B. BOOST TO "MAKE IN INDIA"
6. Reduced Export Obligation (EO) for domestic procurement under EPCG scheme:
Specific Export Obligation under EPCG scheme, in case capital goods are procured from
indigenous manufacturers, which is currently 90% of the normal export obligation (6
times at the duty saved amount) has been reduced to 75%, in order to promote domestic
capital goods manufacturing industry.
7. Higher level of rewards under MEIS for export items with high domestic content and
value addition.
It is proposed to give higher level of rewards to products with high domestic content and
value addition, as compared to products with high import content and less value
addition.
C. TRADE FACILITATION & EASE OF DOING BUSINESS
8. Online filing of documents/ applications and Paperless trade in 24x7 environment:
DGFT already provides facility of Online filing of various applications under FTP by the
exporters/importers. However, certain documents like Certificates issued by Chartered
Accountants/ Company Secretary / Cost Accountant etc. have to be filed in physical
forms only. In order to move further towards paperless processing of reward schemes, it
has been decided to develop an online procedure to upload digitally signed documents
by Chartered Accountant / Company Secretary / Cost Accountant. In the new system, it
will be possible to upload online documents like annexure attached to ANF 3B, ANF 3C
and ANF 3D, which are at present signed by these signatories and submitted physically.
Henceforth, hardcopies of applications and specified documents would not be required

to be submitted to RA, saving paper as well as cost and time for the exporters. To start
with, applications under Chapter 3 & 4 of FTP are being covered (which account for
nearly 70% of total applications in DGFT). Applications under Chapter-5 would be taken
up in the next phase.
As a measure of ease of doing business, landing documents of export consignment as

proofs for notified market can be digitally uploaded in the following manner:-
(i) Any exporter may upload the scanned copy of Bill of Entry under his digital signature.
(ii) Status holders falling in the category of Three Star, Four Star or Five Star Export
House may upload scanned copies of documents.
9. Online inter-ministerial consultations:
It is proposed to have Online inter-ministerial consultations for approval of export of

SCOMET items, Norms fixation, Import Authorisations, Export Authorisation, in a phased
manner, with the objective to reduce time for approval. As a result, there would not be
any need to submit hard copies of documents for these purposes by the exporters.
10. Simplification of procedures/processes, digitisation and e-governance
Under EPCG scheme, obtaining and submitting a certificate from an independent

Chartered Engineer, confirming the use of spares, tools, refractory and catalysts imported
for final redemption of EPCG authorizations has been dispensed with.
At present, the EPCG Authorisation holders are required to maintain records for 3 years
after redemption of Authorisations. Now the EPCG Authorization Holders shall be
required to maintain records for a period of two years only. Government’s endeavour is
to gradually phase out this requirement as the relevant records such as Shipping Bills, e-
BRC are likely to be available in electronic mode which can be archived and retrieved
whenever required.
Exporter Importer Profile: Facility has been created to upload documents in

Exporter/Importer Profile. There will be no need to submit copies of permanent records/
documents (e.g. IEC, Manufacturing licence, RCMC, PAN etc.) repeatedly with each
application, once uploaded.
Communication with Exporters/Importers: Certain information, like mobile number, e-

mail address etc. has been added as mandatory fields, in IEC data base. This information
once provided by exporters, would help in better communication with exporters. SMS/
email would be sent to exporters to inform them about issuance of authorisations or
status of their applications.
Online message exchange with CBDT and MCA: It has been decided to have on line
message exchange with CBDT for PAN data and with Ministry of Corporate Affairs for CIN
and DIN data. This integration would obviate the need for seeking information from IEC
holders for subsequent amendments/ updation of data in IEC data base.
Communication with Committees of DGFT: For faster and paperless communication with
various committees of DGFT, dedicated e-mail addresses have been provided to each
Norms Committee, Import Committee and Pre-Shipment Inspection Agency for faster
communication.
Online applications for refunds: Online filing of application for refund of TED is being
introduced for which a new ANF has been created.
11. Forthcoming e-Governance Initiatives

(a) DGFT is currently working on the following EDI initiatives:
Message exchange for transmission of export reward scrips from DGFT to Customs.
Message exchange for transmission of Bills of Entry (import details) from Customs to
DGFT.
Online issuance of Export Obligation Discharge Certificate (EODC).
Message exchange with Ministry of Corporate Affairs for CIN & DIN.
Message exchange with CBDT for PAN.
Facility to pay application fee using debit card / credit card.
Open API for submission of IEC application.
Mobile applications for FTP
D. Other new Initiatives
12. New initiatives for EOUs, EHTPs and STPs
EOUs, EHTPs, STPs have been allowed to share infrastructural facilities among
themselves. This will enable units to utilize their infrastructural facilities in an optimum
way and avoid duplication of efforts and cost to create separate infrastructural facilities in
different units.
Inter unit transfer of goods and services have been allowed among EOUs, EHTPs, STPs,
and BTPs. This will facilitate group of those units which source inputs centrally in order to
obtain bulk discount. This will reduce cost of transportation, other logistic costs and
result in maintaining effective supply chain.
EOUs have been allowed facility to set up Warehouses near the port of export. This will
help in reducing lead time for delivery of goods and will also address the issue of un-
predictability of supply orders.
(d) STP units, EHTP units, software EOUs have been allowed the facility to use all duty
free equipment/goods for training purposes. This will help these units in developing skills
of their employees.
100% EOU units have been allowed facility of supply of spares/ components up to 2% of
the value of the manufactured articles to a buyer in domestic market for the purpose of
after sale services.
At present, in a period of 5 years EOU units have to achieve Positive Net Foreign
Exchange Earning (NEE) cumulatively. Because of adverse market condition or any
ground of genuine hardship, then such period of 5 years for NFE completion can be
extended by one year.
Time period for validity of Letter of Permission (LOP) for EOUs/EHTP/ STPI/BTP Units has
been revised for faster implementation and monitoring of projects. Now, LOP will have
an initial validity of 2 years to enable the unit to construct the plant and install the
machinery. Further extension can be granted by the Development Commissioner up to
one year. Extension beyond 3 years of the validity of LOP, can be granted, in case unit
has completed 2/3rd of activities, including the construction activities.
At present, EOUs/EHTP/STPI units are permitted to transfer capital goods to other EOUs,
EHTPs, STPs, SEZ units. Now a facility has been provided that if such transferred capital
goods are rejected by the recipient, then the same can be returned to the supplying unit,
without payment of duty.
A simplified procedure will be provided to fast track the de-bonding / exit of the STP/
EHTP units. This will save time for these units and help in reduction of transaction cost.
EOUs having physical export turnover of Rs.10 crore and above, have been allowed the
facility of fast track clearances of import and domestic procurement. They will be allowed
fast tract clearances of goods, for export production, on the basis of pre-authenticated
procurement certificate, issued by customs / central excise authorities. They will not have
to seek procurement permission for every import consignment.
13. Facilitating & Encouraging Export of dual use items (SCOMET).
(a) Validity of SCOMET export authorisation has been extended from the present 12
months to 24 months. It will help industry to plan their activity in an orderly manner and
obviate the need to seek revalidation or relaxation from DGFT.
Authorisation for repeat orders will be considered on automatic basis subject to certain
conditions.
Verification of End User Certificate (EUC) is being simplified if SCOMET item is being
exported under Defence Export Offset Policy.
Outreach programmes will be conducted at different locations to raise awareness among

various stakeholders.
14 Facilitating & Encouraging Export of Defence Exports
Normal export obligation period under advance authorization is 18 months. Export

obligation period for export items falling in the category of defence, military store,
aerospace and nuclear energy shall be 24 months from the date of issue of authorization
or co-terminus with contracted duration of the export order, whichever is later. This
provision will help export of defence items and other high technology items.
A list of military stores requiring NOC of Department of Defence Production has been
notified by DGFT recently. A committee has been formed to create ITC (HS) codesfor
defence and security items for which industrial licenses are issued by DIPP.
15. e-Commerce Exports
Goods falling in the category of handloom products, books / periodicals, leather

footwear, toys and customized fashion garments, having FOB value up to Rs.25000 per
consignment (finalized using e-Commerce platform) shall be eligible for benefits under
FTP. Such goods can be exported in manual mode through Foreign Post Offices at New
Delhi, Mumbai and Chennai.
Export of such goods under Courier Regulations shall be allowed manually on pilot basis
through Airports at Delhi, Mumbai and Chennai as per appropriate amendments in
regulations to be made by Department of Revenue. Department of Revenue shall fast
track the implementation of EDI mode at courier terminals.
16. Duty Exemption
Imports against Advance Authorization shall also be eligible for exemption from
Transitional Product Specific Safeguard Duty.
In order to encourage manufacturing of capital goods in India, import under EPCG

Authorisation Scheme shall not be eligible for exemption from payment of anti-dumping
duty, safeguard duty and transitional product specific safeguard duty.
17. Additional Ports allowed for Export and import

Calicut Airport, Kerala and Arakonam ICD, Tamil Nadu have been notified as registered
ports for import and export.
18. Duty Free Tariff Preference (DFTP) Scheme
India has already extended duty free tariff preference to 33 Least Developed Countries
(LDCs) across the globe. This is being notified under FTP.
19. Quality complaints and Trade Disputes
In an endeavour to resolve quality complaints and trade disputes, between exporters and
importers, a new chapter, namely, Chapter on Quality Complaints and Trade Disputes has
been incorporated in the Foreign Trade Policy.
For resolving such disputes at a faster pace, a Committee on Quality Complaints

andTrade Disputes (CQCTD) is being constituted in 22 offices and would have members
from EPCs/FIEOs/APEDA/EICs.
20. Vishakhapatnam and Bhimavaram added as Towns of Export Excellence
Government has already recognized 33 towns as export excellence towns. It has been
decided to add Vishakhapatnam and Bhimavaram in Andhra Pradesh as towns of export
excellence (Product Category– Seafood)
Annexure-1
I. Merchandise Exports from India Scheme

Merchandise Exports from India Scheme has replaced 5 different schemes of earlier FTP
(Focus Product Scheme, Market Linked Focus Product Scheme, Focus Market Scheme,
Agri. Infrastructure Incentive Scrip, VKGUY) for rewarding merchandise exports which had
varying conditions (sector specific or actual user only) attached to their use.
Now all these schemes have been merged into a single scheme, namely Merchandise
Export from India Scheme (MEIS) and there would be no conditionality attached to the
scrips issued under the scheme. Notified goods exported to notified markets would be
rewarded on realised FOB value of exports.
A. Country Groups:
Category A: Traditional Markets (30) - European Union (28), USA, Canada.
Category B: Emerging & Focus Markets (139), Africa (55), Latin America and Mexico (45),
CIS countries (12), Turkey and West Asian countries (13), ASEAN countries (10), Japan,
South Korea, China, Taiwan,
Category C: Other Markets (70).
B. Products supported under MEIS
Level of Support:
Higher rewards have been granted for the following category of products:
Agricultural and Village industry products, presently covered under VKGUY.
Value added and packaged products.
Eco-friendly and green products that create wealth out of waste from agricultural and
other waste products that generate additional income for the farmers, while improving
the environment.
Labour intensive Products with large employment potential and Products with large
number of producers and /or exporters.
Industrial Products from potential winning sectors.
Hi-tech products with high export earning potential.
C. Markets Supported
Most Agricultural products supported across the Globe.
Industrial and other products supported in Traditional and/or Emerging markets only.
D. High potential products not supported earlier:
Support to 852 Tariff lines that fit in the product criteria but not provided support in the
earlier FTP. Includes lines from Fruits, Vegetables, Dairy products, Oils meals, Ayush &
Herbal Products, Paper, Paper Board Products.
E. Global support has been granted to the following category:
Fruits, Flowers, vegetables
Tea Coffee, Spices
Cereals preparation, shellac, Essential oils
Processed foods,
Eco Friendly products that add value to waste
Marine Products
Handloom, Coir, Jute, products and Technical Textiles, Carpets Handmade. Other Textile
and Readymade garments have been supported for European Union, USA, Canada and
Japan.
Handicraft, Sports Goods
Furniture, wood articles

F. Support to major markets have been given to the following product categories
Pharmaceuticals, Herbals, Surgicals
Industrial Machinery, IC Engine, Machine tools, Parts, Auto Components/Parts
Hand Tools, Pumps of All Types
Automobiles, Two wheelers, Bicycles, Ships, Planes
Chemicals, Plastics
Rubber, Ceramic and Glass
Leather garments, saddlery items, footwear
Steel furniture, Prefabs, Lighters
Wood , Paper, Stationary
iron, steel, and base metals, products
G. Other sectors supported under MEIS
352 Defence related Product with export of US$ 17.7B consisting of Core Products (20),
Dual Use products (60) ,General Purpose products (272).
283 Pharmaceutical products of Bulk Drugs & Drug Intermediates, Drug Formulations
Biologicals, Herbal, Surgicals, and Vaccines.
96 lines of Environment related Goods, Machinery, Equipment’s.
49 lines where mandatory BIS standards are prescribed.
7 lines of Technical Textiles.
H. Participation in global value chain of the items falling under the scheme:
1725 lines of Intermediate Goods - These goods become inputs in the manufacturingof
other countries and will strengthen backward manufacturing linkages which is vital for
India’s participation in Global Value Chains.
1109 lines of Capital Goods sector- will also strengthen Manufacturing Base in India.
1730 lines of Consumer Goods sector- We hope a quantum jump in export from this
sector with strengthening of Make in India Brand in near future.
I. Technology based analysis:
572 lines-Low skill Technology-intensive manufacturing.
1010 lines-Medium skill Technology-intensive manufacturing.
1309 lines-High Skill Technology-intensive manufacturing.
J. Women Centric Products supported under MEIS
(a) Women workers constitute 52% of plantation workers-203 lines of Tea Coffee, Spices,
Cashew.
(b) 69% of the aggregate female employment is concentrated in the following sectors:
(i) Manufacture of other food products -Jelly Confectionery, tomato ketchup,cooked

stuffed pasta, pawa, mudi and the like, gingerbread , papad, pastries and cakes.
Manufacture of wearing apparel-396 lines of Readymade Garments
(c) Sectors that have a significant proportion of female employment (more than 25%):
(i) Agricultural and animal husbandry service activities, except veterinary activities– 263
lines of basic Agriculture products.
(ii) Manufacture of footwear – 28 Footwear and Leather products.
Consumer Electronics and Electronic Components, watches and clocks -483 lines.
Annexure-2
II. Services Exports from India Scheme
Served from India Scheme (SFIS) has been replaced with Service Exports from India
Scheme (SEIS). SEIS shall apply to `Service Providers’ located in India’ instead of `Indian
Service Providers’. Thus SEIS provides for rewards to all Service providers of notified
services, who are providing services from India, regardless of the constitution or profile
of the service provider.
The rate of reward under SEIS would be based on net foreign exchange earned. The
reward issued as duty credit scrip, would no longer be with actual user condition and will
no longer be restricted to usage for specified types of goods but be freely transferable
and usable for all types of goods and service tax debits on procurement of
services/goods. Debits would be eligible for CENVAT credit or drawback.
The present rates of reward are 3% and 5%. The list of services and the rates of rewards
would be reviewed after 30.9.2015.
Sl No SECTORS Admissible rate
1 BUSINESS SERVICES
A Professional services Legal services, Accounting, auditing and bookkeeping

services, Taxation services, Architectural services , Engineering services, Integrated
engineering services, Urban planning and landscape architectural services, Medical and
dental services, Veterinary services, Services provided by midwives, nurses,
physiotherapists and paramedical personnel. 5%
B Research and development services R&D services on natural sciences, R&D

services on social sciences and humanities, Interdisciplinary R&D services 5%
C. Rental/Leasing services without operators Relating to ships, Relating to aircraft,

Relating to other transport equipment, Relating to other machinery and equipment 5%
D Other business services Advertising services, Market research and public opinion
polling services Management consulting service, Services related to management
consulting, Technical testing and analysis services, Services incidental to agricultural,
hunting and forestry, Services incidental to fishing, Services incidental to mining, Services
incidental to manufacturing, Services incidental to energy distribution, Placement and
supply services of personnel, Investigation and security, Related scientific and technical
consulting services, Maintenance and repair of equipment (not including maritime
vessels, aircraft or other transport equipment), Building- cleaning services, Photographic
services, Packaging services, Printing, publishing and Convention services 3%
2 COMMUNICATION SERVICES Audiovisual services Motion picture and video tape

production and distribution service, Motion picture projection service, Radio and
television services, Radio and television transmission services, Sound recording 5%
3 CONSTRUCTION AND RELATED ENGINEERING SERVICES General Construction

work for building, General Construction work for Civil Engineering, Installation and
assembly work , Building completion and finishing work 5%
4 EDUCATIONAL SERVICES (Please refer Note 1)Primary education services,

Secondary education services, Higher education services, Adult education 5%
5 ENVIRONMENTAL SERVICES Sewage services, Refuse disposal services, Sanitation

and similar services 5%
6 HEALTH-RELATED AND SOCIAL SERVICES Hospital services 5%
7 TOURISM AND TRAVEL-RELATED SERVICES
A. Hotels and Restaurants (including catering)
a. Hotel 3%
b. Restaurants (including catering) 3%
B. Travel agencies and tour operators services 5%
C. Tourist guides services 5%
8 RECREATIONAL, CULTURAL AND SPORTING SERVICES (other than audiovisual

services) Entertainment services (including theatre, live bands and circus services), News
agency services, Libraries, archives, museums and other cultural services, Sporting and
other recreational services 5%
9 TRANSPORT SERVICES (Please refer Note 2)
A. Maritime Transport Services Passenger transportation*, Freight transportation* ,

Rental of vessels with crew *, Maintenance and repair of vessels, Pushing and towing
services, Supporting services for maritime transport 5%
B. Air transport services Rental of aircraft with crew, Maintenance and repair of
aircraft, Airport Operations and ground handling 5%
Note:
(1) Under education services, SEIS shall not be available on Capitation fee.
(2) *Operations from India by Indian Flag Carriers only is allowed under Maritime
transport services.
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Role of Fedai

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Role of Fedai

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Role of FEDAI

Issues that Require Further Consideration

Second, the medium-term objective of reducing cash reserve requirements to theminimum

FEDAI Guidelines for Foreign

Established in 1958, FEDAI (Foreign Exchange Dealers' Association of India) is a group of

 Accreditation of Forex Brokers.

 Advising/Assisting member banks in settling issues/matters in their dealings.

 Represent member banks on Government/Reserve Bank of India and other bodies.

 Chapter 3 - Letter Of Credit (L/c)

 Chapter 4 - Trade Documents

 Chapter 5 - Pre Shipment Trade Finance

 Chapter 6 - Post Shipment Finance

 Chapter 7 - Forfeiting Factoring

 Chapter 8 - Bank Guarantees

 Chapter 9 - Transport Risk

 Chapter 10 - Contract Credit Risk

 Chapter 11 - Country Political Risk

 Chapter 12 - Currency Risk

 Chapter 13 - Export Import (Exim) Policy

 Chapter 14 - Foreign Exchange Management Act (FEMA)

 Chapter 15 - Fedai Guidlines

Payment Methods in Export

o Documents Against Payment D/P

o Documents Against Acceptance D/A

o Letter of Credit L/c

 Revocable & Irrevocable Letter of Credit (L/c)

 Sight & Time Letter of Credit

 Confirmed Letter of Credit (L/c)

3. Letters of Credit L/c

Documents Against Payment D/P

Documents Against Acceptance D/A

3. Letter of Credit L/c

Letter of Credit also known as Documentary Credit is a written undertaking by the

Revocable & Irrevocable Letter of Credit (L/c)

Sight & Time Letter of Credit

Confirmed Letter of Credit (L/c)

Payments collection methods in

 Documents Against Payments (D/P)

 Docuemts Against Aceptance (D/A)

 Usance D/P Bills

Payment Collection Against Bills also known documentary collection as is a payment

Role of Various Parties

If the bill is unpaid / unaccepted, the collecting bank :

This is sometimes also referred as Cash against Documents/Cash on Delivery. In effect

 Protesting the bill through the bank's lawyer.

Docuemts Against Aceptance (D/A)

Usance D/P Bills

 Chapter 3 - Letter Of Credit (L/c)

 Chapter 4 - Trade Documents

 Chapter 5 - Pre Shipment Trade Finance

 Chapter 6 - Post Shipment Finance

 Chapter 7 - Forfeiting Factoring

 Chapter 8 - Bank Guarantees

 Chapter 9 - Transport Risk

 Chapter 10 - Contract Credit Risk

 Chapter 11 - Country Political Risk

 Chapter 12 - Currency Risk

 Chapter 13 - Export Import (Exim) Policy

 Chapter 14 - Foreign Exchange Management Act (FEMA)