**Policy Summary: RBI Circular on Settlement of Export/Import Transactions in Currencies Without Direct Exchange Rates**
This circular, A.P. DIR Series Circular No. 42, issued by the Reserve Bank of India (RBI) on February 4, 2016, addresses the settlement of export and import transactions invoiced in a freely convertible currency but settled in the beneficiary's currency, even if that currency lacks a direct exchange rate. It is addressed to All Category I Authorised Dealer (AD Category I) Banks.
The circular aims to further liberalize procedures and facilitate these transactions, excluding those processed through the ACU (Asian Currency Unit) mechanism. AD Category I banks may now permit such settlements provided the following conditions are met:
* The exporter/importer is a customer of the AD Bank.
* A signed contract/invoice exists in a freely convertible currency.
* The beneficiary agrees to receive payment in their own currency as full and final settlement.
* The AD bank is satisfied with the transaction's legitimacy.
* The counterparty is not from a country or jurisdiction listed in the updated FATF Public Statement on High Risk Non-Cooperative Jurisdictions subject to FATF countermeasures.
This circular updates Master Direction No. 16/2015-16 on Export of Goods and Services and Master Direction No. 17/2015-16 on Import of Goods and Services to reflect these changes.
The directions are issued under Section 10(4) and Section 11(1) of the Foreign Exchange Management Act (FEMA), 1999, and are without prejudice to other applicable laws.
AD Category I banks are instructed to inform their constituents and customers about the circular's contents.
The issuing authority is the Reserve Bank of India, Mumbai. Further inquiries can be directed to B.P. Kanungo, Principal Chief General Manager.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for regulating the banking system and foreign exchange management.
Mumbai, Maharashtra: The city where the Reserve Bank of India is located.
Authorised Dealer Category I: A category of banks authorized by the Reserve Bank of India to deal in foreign exchange.
Notification No. FEMA. 14/RB-2000: A notification issued under the Foreign Exchange Management Act (FEMA) regarding receipt and payment for exports and imports.
Foreign Exchange Management Act, 1999: An Act of the Parliament of India to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.
Master Direction No. 16 of 2015-16 on Export of Goods and Services: A master direction issued by the Reserve Bank of India regarding the export of goods and services.
Master Direction No. 17 of 2015-16 on Import of Goods and Services: A master direction issued by the Reserve Bank of India regarding the import of goods and services.
FATF Public Statement on High Risk Non-Cooperative Jurisdictions: A statement issued by the Financial Action Task Force (FATF) identifying jurisdictions with significant deficiencies in their anti-money laundering/combating the financing of terrorism (AML/CFT) regimes.
RESERVE BANK OF INDIA
Mumbai - 400 001
RBI/2015-16/307 February 4, 2016
A.P. (DIR Series) Circular No. 42
To
All Category – I Authorised Dealer Banks
Madam/ Sir,
Settlement of Export/ Import transactions in currencies not having a
direct exchange rate
Attention of Authorised Dealer Category I (AD Category – I) banks is invited to
Notification No. FEMA. 14 /RB -2000, dated 3rd May 2000, as amended from
time to time, dealing with manner of receipt and payment, in terms of which
export proceeds for exports from India and import payments for imports to
India may be received / made in any mode in accordance with the directions
issued by the Reserve Bank of India to the Authorized Dealers from time to
time.
2. To further liberalize the procedure and facilitate settlement of export and
import transactions where the invoicing is in a freely convertible currency and
the settlement takes place in the currency of the beneficiary, which though
convertible, does not have a direct exchange rate, it has been decided that
AD Category-I banks may permit settlement of such export and import
transactions (excluding those put through the ACU mechanism), subject to
conditions as under:
a) Exporter/ Importer shall be a customer of the AD Bank,
b) Signed contract / invoice is in a freely convertible currency,c) The beneficiary is willing to receive the payment in the currency of
beneficiary instead of the original (freely convertible) currency of the
invoice/ contract/ Letter of Credit as full and final settlement,
d) AD bank is satisfied with the bonafides of the transactions, and;
e) The counterparty to the exporter / importer of the AD bank is not
from a country or jurisdiction in the updated FATF Public Statement
on High Risk & Non Co-operative Jurisdictions on which FATF has
called for counter measures.
3. The Master Direction No. 16 of 2015-16 (on Export of Goods and Services)
and Master Direction No. 17 of 2015-16 (on Import of Goods and Services)
have been updated accordingly to incorporate the above changes.
4. AD Category-I banks may bring the contents of this circular to the notice of
their constituents and customers concerned.
5. The directions contained in this circular have been issued under Section
10 (4) and Section 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,
(B P. Kanungo)
Principal Chief General Manager