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 FundsNon- delivery of Foreign Currency
Delay in payment of Rupee equivalent of inter-bank TTs in foreign currencies.
Period for settlement of interest claims in RupeesThe 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)

1. GENERAL
   
   1. 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.
   2. 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.
   3.  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.
   4. 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.
   5. 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.
   6.  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.
      
      
2. TIMINGS
   
   1. 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).
   2.  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.
      
      
   3. 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.
      
      
   4. 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.
      
      
3. Settlement of interest claims on the delayed delivery of Foreign Currency Funds
   
   1. 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.
   2. 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.
   3. 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.
      
   4. 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.
      
      
4. 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.
   
   
5. 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.
   
   
6. 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.
   
   
7. 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.