Export Import

RBI’s Guidelines on International Trade Settlement in Indian Rupees (INR) – Explanation

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Introduction

The Reserve Bank of India (RBI) has introduced a mechanism to facilitate international trade settlements in Indian Rupees (INR), aiming to bolster India’s role in global trade and simplify transactions. This arrangement, effective from July 11, 2022, offers an alternative for invoicing, payment, and settlement of trade in INR. Let’s break down the key aspects of this framework as outlined in the RBI’s circular (RBI/FED/2015-16/11 FED Master Direction No. 16/2015-16).

Key Clauses and Explanations

Clause (a): “In order to promote growth of global trade with emphasis on exports from India and to support the increasing interest of global trading community in INR, it has been decided to put in place with effect from July 11, 2022 an additional arrangement for invoicing, payment, and settlement of exports / imports in INR.”

Explanation: The RBI has initiated a new arrangement to facilitate the use of INR in international trade, beginning from July 11, 2022. This move aims to enhance India’s global trade presence and simplify the process for exporters and importers.

Clause (b): “The broad framework for cross border trade transactions in INR under Foreign Exchange Management Act, 1999 (FEMA) is as delineated below:”

Explanation: The framework outlined under FEMA specifies how trade transactions can be conducted in INR, covering aspects like invoicing and settlement procedures.

Clause (i): “All exports and imports under this arrangement may be denominated and invoiced in Rupee (INR).”

Explanation: Transactions involving exports and imports can now be invoiced and denominated in INR, providing a standardized approach for dealing in Indian currency.

Clause (ii): “Exchange rate between the currencies of the two trading partner countries may be market determined.”

Explanation: The exchange rate for converting between INR and the trading partner’s currency will be determined by the market, allowing for flexible and real-time conversion rates.

Clause (iii): “The settlement of trade transactions under this arrangement shall take place in INR in accordance with the procedure laid down in Para c.”

Explanation: Trade transactions under this arrangement will be settled in INR, following the procedures specified in the circular.

Clause (c): “In terms of Regulation 7(1) of Foreign Exchange Management (Deposit) Regulations, 2016, AD banks in India have been permitted to open Rupee Vostro Accounts. Accordingly, for settlement of trade transactions with any country, AD bank in India may open Special Rupee Vostro Accounts of correspondent bank/s of the partner trading country.”

Explanation: Authorized Dealer (AD) banks in India can open Rupee Vostro Accounts to facilitate trade settlements with partner countries, allowing for smooth transaction processing.

Clause (i): “Indian importers undertaking imports through this mechanism shall make payment in INR which shall be credited into the Special Vostro account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller /supplier.”

Explanation: Indian importers must make payments in INR to the Special Vostro Accounts of correspondent banks in the partner country, which will then be credited against invoices.

Clause (ii): “Indian exporters undertaking exports of goods and services through this mechanism, shall be paid the export proceeds in INR from the balances in the designated Special Vostro account of the correspondent bank of the partner country.”

Explanation: Indian exporters will receive their payments in INR from the Special Vostro Accounts held in the partner country’s correspondent bank.

Clause (d): “The export / import undertaken and settled in this manner shall be subject to usual documentation and reporting requirements.”

Explanation: Transactions settled under this mechanism must adhere to standard documentation and reporting requirements, ensuring transparency and compliance.

Clause (e): “Indian exporters may receive advance payment against exports from overseas importers in Indian rupees through the above Rupee Payment Mechanism.”

Explanation: Exporters can receive advance payments in INR, provided that available funds are first used to meet existing export obligations. Banks must verify these advances to ensure proper handling.

Clause (f): “‘Set-off’ of export receivables against import payables in respect of the same overseas buyer and supplier with facility to make/receive payment of the balance of export receivables/import payables, if any, through the Rupee Payment Mechanism may be allowed.”

Explanation: The mechanism allows for the set-off of export receivables against import payables with the ability to settle any remaining balance through the INR payment system.

Clause (g): “Issue of Bank Guarantee for trade transactions, undertaken through this arrangement, is permitted subject to adherence to provisions of FEMA Notification No. 8, as amended from time to time and the provisions of Master Direction on Guarantees & Co-acceptances.”

Explanation: Bank guarantees for transactions under this arrangement are allowed, provided they comply with FEMA regulations and the Master Direction on Guarantees & Co-acceptances.

Clause (h): “The Rupee surplus balance held may be used for permissible capital and current account transactions in accordance with mutual agreement.”

Explanation: Surplus balances in INR can be used for capital and current account transactions, such as investments and project payments, as per mutual agreements.

Clause (i): “Reporting of cross- border transactions need to be done in terms of the extant guidelines under FEMA 1999.”

Explanation: All cross-border transactions must be reported according to the existing FEMA guidelines, ensuring compliance and proper record-keeping.

Clause (j): “The bank of a partner country may approach an AD bank in India for opening of Special INR VOSTRO account. The AD bank will seek approval from the Reserve Bank with details of the arrangement.”

Explanation: Partner country banks can request AD banks in India to open Special INR Vostro Accounts. The AD banks must get RBI approval for these arrangements.

Conclusion

The RBI’s guidelines on international trade settlements in INR aim to streamline and enhance India’s position in global trade. By facilitating transactions in INR, this framework supports exporters, importers, and financial institutions in managing their cross-border trade efficiently.

UCP600 Article 33 Explanation: Hours of Presentation

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Clause:

“A bank has no obligation to accept a presentation outside of its banking hours.”

Explanation:

Article 33 of the UCP600 stipulates that banks are not required to accept documents presented to them outside of their official banking hours. This clause ensures that the bank’s responsibilities regarding the acceptance and processing of documentary presentations are limited to the time frames during which they are officially open for business. This provision protects banks from having to accommodate document presentations at any time, which could otherwise lead to logistical challenges and increased risk of errors.

Examples:

  1. Example 1:
    • Scenario: A bank’s official banking hours are from 9 AM to 5 PM. An exporter attempts to present the required documents for a letter of credit at 6 PM.
    • Application: The bank is not obligated to accept or process these documents at 6 PM. The exporter will need to return during the bank’s official hours.
  2. Example 2:
    • Scenario: A bank’s official banking hours are from 9 AM to 5 PM. A document is presented at 4:50 PM, just ten minutes before closing.
    • Application: The bank is required to accept and begin the processing of the document, provided it is within the banking hours. If the processing cannot be completed by 5 PM, the bank can continue the process on the next working day.
  3. Example 3:
    • Scenario: An importer submits documents at 9:30 AM on a public holiday when the bank is closed.
    • Application: The bank is not obligated to accept the documents on a public holiday since it is outside of its banking hours. The importer will need to present the documents on the next working day.

UCP600 Article 31 Explanation: Partial Drawings or Shipments

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Partial Drawings or Shipments

Clause (a): Partial drawings or shipments are allowed.

Explanation: This clause means that under a letter of credit, shipments can be made in parts. There is no requirement for the entire shipment to be made in one go. Each part of the shipment can be drawn upon separately, and the exporter can present documents for each partial shipment to claim payment.

Example: An exporter has a letter of credit for $100,000 to be shipped to a buyer. The exporter sends $40,000 worth of goods in the first shipment and $60,000 worth in the second. The exporter can present the documents for the $40,000 shipment, get paid for it, and later present the documents for the $60,000 shipment to get paid for the remaining amount.

Clause (b): A presentation consisting of more than one set of transport documents evidencing shipment commencing on the same means of conveyance and for the same journey, provided they indicate the same destination, will not be regarded as covering a partial shipment, even if they indicate different dates of shipment or different ports of loading, places of taking in charge or dispatch. If the presentation consists of more than one set of transport documents, the latest date of shipment as evidenced on any of the sets of transport documents will be regarded as the date of shipment.

Explanation: If multiple sets of transport documents are presented for shipments that start on the same means of transport and are headed to the same destination, it will not be considered as partial shipments. This holds true even if the documents indicate different shipment dates, different ports of loading, or places of taking charge. The latest shipment date on any of the transport documents will be considered as the shipment date.

Example: An exporter ships goods using the same vessel but loads goods at different ports on different dates. The vessel then proceeds to the same destination. The exporter presents multiple sets of bills of lading indicating these different loading ports and dates. Since all the goods are on the same vessel going to the same destination, it is not considered a partial shipment. The latest date on the bills of lading will be the official shipment date.

Clause (b) continued: A presentation consisting of one or more sets of transport documents evidencing shipment on more than one means of conveyance within the same mode of transport will be regarded as covering a partial shipment, even if the means of conveyance leave on the same day for the same destination.

Explanation: If the shipment is made using multiple means of transport within the same mode (e.g., multiple trucks, ships, or planes), even if they leave on the same day for the same destination, it will be considered a partial shipment.

Example: An exporter sends goods using two different ships departing on the same day to the same destination. Each ship carries part of the total consignment. Since the shipment is on different vessels, it is considered a partial shipment even though they are headed to the same place on the same day.

Clause (c): A presentation consisting of more than one courier receipt, post receipt or certificate of posting will not be regarded as a partial shipment if the courier receipts, post receipts or certificates of posting appear to have been stamped or signed by the same courier or postal service at the same place and date and for the same destination.

Explanation: Multiple courier or postal receipts indicating shipments from the same service, stamped or signed at the same place and date for the same destination, will not be considered partial shipments. This implies that the entire consignment is viewed as a single shipment, despite being sent in separate packages.

Example: An exporter sends goods in three different packages using the same courier service. All packages are stamped at the same location and on the same date, and all are addressed to the same destination. Although there are three receipts, it will not be considered a partial shipment since all receipts show the same courier service, place, date, and destination.