**Summary:**
This circular, RBI/2022-2023/53 A.P. (DIR Series) Circular No. 03, issued by the Reserve Bank of India (RBI) on May 19, 2022, addresses the settlement of trade transactions with Sri Lanka in Indian Rupees (INR) outside the Asian Clearing Union (ACU) mechanism. This decision was made in response to difficulties faced by Indian exporters in receiving export proceeds from Sri Lanka.
The circular pertains to all Category-I Authorised Dealer (AD Category-I) banks. It references Regulations 3 and 5 of the Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2016, which generally mandate that export/import transactions between ACU member countries be routed through the ACU mechanism.
However, an exception is being made for trade transactions with Sri Lanka financed under the Government of India guaranteed USD 1 billion term loan extended by the State Bank of India (SBI) to the Government of Sri Lanka. This credit facility agreement, dated March 17, 2022, is specifically intended to finance Sri Lanka's purchase of essential goods from India.
Under this arrangement, the financing of exports of eligible goods and services from India, as defined under the agreement and compliant with the Foreign Trade Policy of the Government of India, will be permitted, provided SBI agrees to finance the purchase.
The instructions outlined in the circular took effect immediately upon issuance. AD Category-I banks are directed to inform their constituents and advise them to obtain complete details of the credit facility agreement from SBI's International Banking Group, Corporate Centre, State Bank Bhavan, Madame Cama Road, Nariman Point, Mumbai 400021, or from the SBI website: https://sbi.co.in/web/international-banking/credit-finance/commercial-loans.
The directions are issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act (FEMA), 1999 (42 of 1999) and are without prejudice to other applicable laws and required approvals.
Vivek Srivastava, Chief General Manager, signed the circular.
Key Entities Referenced
Reserve Bank of India: The issuing authority of the circular, responsible for regulating banks and financial institutions in India.
Government of Sri Lanka: The recipient of the term loan guaranteed by the Government of India.
State Bank of India: The bank extending the Government of India guaranteed term loan to the Government of Sri Lanka.
INR: Indian Rupee, the currency in which trade transactions with Sri Lanka can be settled under the arrangement.
Asian Clearing Union: An arrangement to facilitate payments among member countries for eligible transactions; settlements with Sri Lanka can occur outside this mechanism under certain conditions.
Foreign Exchange Management Act FEMA, 1999: Indian legislation governing foreign exchange transactions and regulations.
Foreign Trade Policy: The export of eligible goods and services from India must comply with this policy.
Mumbai, Maharashtra: Location of State Bank of India's International Banking Group, Corporate Centre.
RBI/2022-2023/53
A.P. (DIR Series) Circular No.03 May 19, 2022
To
All Category-I Authorised Dealer Banks
Madam/Sir,
Government of India guaranteed term loan extended by SBI to the Government of
Sri Lanka- Settlement in INR
Attention of Authorised Dealer Category – I (AD Category-I) banks is invited to
Regulations 3 and 5 of Foreign Exchange Management (Manner of Receipt and
Payment) Regulations, 2016 in terms of which export / import transactions between ACU
member countries are to be routed through the ACU mechanism.
2. In view of the difficulties being experienced by exporters in receipt of export proceeds
from Sri Lanka and State Bank of India’s credit facility agreement dated March 17, 2022
with the Government of Sri Lanka for sanction of Government of India guaranteed USD
1000 million term loan to the latter for financing purchase of essential goods by Sri Lanka
from India, it has been decided that such trade transactions with Sri Lanka, falling under
the said arrangement, may be settled in INR outside the ACU mechanism.
3. Under the arrangement, financing of export of eligible goods and services from India,
as defined under the agreement, would be allowed subject to their being eligible for export
under the Foreign Trade Policy of the Government of India and whose purchase may be
agreed to be financed by SBI under this agreement.
4. The above instructions shall come into force with immediate effect. AD Category-I
banks may bring the contents of this circular to the notice of their constituents concerned
and advise them to obtain complete details of the credit facility agreement from State
Bank of India’s office at International Banking Group, Corporate Centre, State Bank
Bhavan, Madame Cama Road, Nariman Point, Mumbai- 400021 or from their website
https://sbi.co.in/web/international-banking/credit-finance/commercial-loans.5. The directions contained in this circular have been issued under sections 10(4) and
11(1) of the Foreign Exchange Management Act (FEMA), 1999 (42 of 1999) and are
without prejudice to permissions / approvals, if any, required under any other law.
Yours faithfully,
(Vivek Srivastava)
Chief General Manager