The Reserve Bank of India (RBI) on Wednesday permitted banks to give
exporters, with a minimum of 3 years satisfactory track record, long-term
export advance up to a maximum period of ten years. The easing the previous
norms that only allowed on loans above one year.
The Indian exporters can receive export advance from banks
(authorised to deal in foreign exchange or / Authorised Dealer Bank) only for
execution of long-term supply contracts for export of goods, subject to
conditions.
The conditions specified by the central bank RBI include firm
irrevocable supply orders & company having capacity, systems and processes
in place to ensure that the orders over the duration of the said tenure can
actually be executed.
The RBI said the contract with the overseas party / buyer should be
vetted and clearly specify the nature, amount and delivery timelines of
products over the years & penalty in case of non-performance or contract
cancellation. Product pricing should be in consonance with prevailing
international prices.
The facility (of receiving long-term export advance) is to be
provided only to those entities that have not come under the adverse notice of
the Enforcement Directorate or any such regulatory agency or / have not been
caution listed.
The Authorised Dealer bank is required to duly evaluate and monitor
the progress made by the exporter on utilisation of the advance and submit an
Annual Progress Report to the RBI. Receipt of such advance of $10 crore or
/ more has to be immediately reported to
the RBI.
Further, double financing for working capital for execution of export
orders should be avoided.
The RBI said such advances should be adjusted through future exports.
The rate of interest payable, if any, should not exceed the benchmark London
Interbank Offered Rate plus 2%. The export documents should be route d through
one Authorised Dealer bank only.
The AD bank should ensure compliance with anti-money laundering/
Know-Your-Customer guidelines and also undertake due diligence for the overseas
buyer so as to ensure it has good standing/ sound track record.
The RBI said such export advances will not be permitted to be used to
liquidate rupee loans, which are classified as non-performing assets according
to the Reserve Bank of India’s asset classification norms.
In case AD bank is required to issue bank guarantee (BG) / Stand-by
Letter of Credit (SBLC) for export performance, the RBI has issued guidelines
it needs to adhere to.
A bank guarantee ensures that the liabilities of a debtor will be
met. An SBLC is a guarantee of payment issued by a bank to pay a sum of money
to a beneficiary on behalf of their customer if the customer does not pay the
beneficiary.
Issuance of BG/SBLC, being a non-funded exposure, should be
rigorously evaluated as any other credit proposal keeping in view, among
others, prudential requirements based on board approved policy. Such facility
can be extended only for guaranteeing export per- formance.
BG/SBLC may be issued for a term not exceeding two years at a time
and further rollover of not more than two years at a time may be allowed
subject to satisfaction with relative export performance according to the
contract.
BG/SBLC should cover only the advance on reducing balance basis.
BG/SBLC issued from India in favour of overseas buyer should not be discounted
by the overseas branch/ subsidiary of the bank in India.
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