Introduction
Basis for calculation of merchant rates for all currencies :
PURCHASE
SALE
PART II
General
Accounting Procedures for Import and Export Bill Transactions
Export Bills Purchased/Negotiated/Discounted
Chapter 13
Abolition of sterling Rates Schedule, Delinking of Interest
Element from Exchange Rates and Accounting Procedures for Import and Export
Transactions (AR Circular No. 3/86 dated 7th June 1986)
- Introduction
In implementation of the instructions issued by the Reserve Bank of India
for abolition of Sterling Rates. Schedule etc., vide A.D. (M.A.Series)
Circular No. 21 of 1st November 1983, FEDAI has issued these Guidelines to
member banks. Instructions relating to maximum spread between TT purchase
and sale rates for merchant transactions in Pound Sterling will be issued by
the Reserve Bank at the appropriate time i.e. before 1st January 1984 and
member banks are, therefore, requested to read the instructions contained
herein in conjuction with future directives of the Reserve Bank. As already
emphasized in the aforesaid circular of Reserve Bank , member banks should
ensure, that the Guidelines prepared by the FEDAI are strictly followed by
the branches of member banks while handling merchant transactions.
Few examples have been worked out and given in Annexures IV and V to the
Guidelines not included) in order to assist members banks to train their
staff in adopting the new system of exchange rate quotations that will come
into operation with effect from 1st January 1984. The examples given are not
necessarily exhaustive. Member banks are, therefore, requested to conduct
trial exercises themselves in order to prepare their internal procedures for
implementation of the new system.
The Guidelines comprise of 3 parts:
- Basis for calculation of merchant rates for all
currencies.
- Segregation of interest element from exchange
rates for bill purchase transactions and calculation of interest on
export bills,etc.
- Accounting procedures for import and export
bill transactions including delinking of the relative foreign currency
amounts from currency positions.
PART I
-
Basis for calculation of merchant rates for all currencies :
2.1 The merchant rate quotations will be derived by each Authorised Dealer
from the ‘BASE RATES’
‘BASE RATES’ to be applied for arriving at Merchant purchase and sale rates
shall be derived from the ongoing Spot Market Rates for each of the
currencies. In arriving at Merchant spot TT sale and purchase rates derived
from the ‘BASE RATES’, each Authorised Dealer shall ensure that the maximum
spread between the two TT rates shall be within the range prescribed by the
RBI from time to time.
The “Base Rate” may be worked out daily by individual banks
| Name of currency |
Maximum spreads between customer rates for ready
Clean TT business from the mean TT rate (taking Both sides together)
Current Revised |
| |
Max Spreads
|
Max Spreads
|
| U.K.Pound Sterling |
0.75% |
2.00% |
| U.S. Doller |
1.00% |
1.00% |
| Deutsche Marks |
2.50% |
2.00% |
| Japanese Yen |
2.50% |
2.00% |
| French Francs |
2.50% |
2.00% |
| Swiss Francs |
2.50% |
2.00% |
| Dutch Guilders |
2.50% |
2.00% |
| Australian Dollars |
2.50% |
2.00% |
| Other currencies |
No limit for No limit the present, for The but Ads
present, shall keep but Ads the rate shall keep spreads the Rate to
the spreads minimum, to the |
Authorised Dealers will, however, be free to quote rates to customers which
are better than those warranted by the spread limits.
2.2 Exchange margins have been made flexible and Authorised Dealers may
offer rates to customers depending upon the business, etc. The following
exchange margins on the base rates have been prescribed :-
| Transaction |
Exchange Margin |
| 1. |
TT purchase |
0.025% to 0.080% |
| 2. |
Bills purchase |
0.125% to 0.150% |
| 3. |
TT sale |
0.125% to 0.150% |
| 4. |
Bills sale over the Merchant TT rate |
0.175% to 0.200% |
Transaction
Exchange Margin
1. TT purchase 0.025% to
0.080%
2. Bills purchase 0.125% to 0.150%
3. TT sale
0.125% to 0.150%
4. Bills sale over the 0.175% to 0.200%
Merchant TT rate
- For calculation of merchant rates Authorised Dealers shall apply the
following procedure :
PURCHASE
3.1 Merchant Spot T.T. Purchase Rate
i. Arrive at the BASE RATE
ii. To the above BASE RATE add the appropriate exchange margin.
3.2 Merchant Spot Bill Buying Rate
i. Arrive at the BASE RATE
ii. To the above BASE RATE add the appropriate exchange margin.
a. Add/deduct on-going forward discount/premium depending upon the transit
period of the bill such as sight, usance and grace period, etc.
b. Add appropriate exchange margin.
3.3 Merchant Forward T.T. Buying Rate
i. Arrived at the BASE RATE
ii. To the above BASE RATE
a. Add/deduct on-going forward discount/premium depending upon the delivery
period of the bill.
b. Add appropriate exchange margin.
3.4 Merchant Forward Bill Buying Rate
i. Arrive at the BASE RATE
ii. To the above BASE RATE
a. Add/deduct on-going forward discount/premium depending upon the delivery
period of the bill, transit period, tenor of the bill such as sight, usance
and grace period, etc.
3.5 “The Merchant Purchase Rates so arrived shall not be worse than those
derived from the RBI buying rates in respect of currencies in which the RBI
provides spot and forward cover.”
3.6 Recovery of interest on bill transactions at the time of purchase :
The Rupee equivalent of the foreign currency bill amount shall be payable to
the customer on the basis of the Rate arrived at as above. Simultaneously,
interest shall be recovered on the Rupee amount, from the customer by
applying the appropriate interest factor as stated in the table attached
vide Annexure 1. (Annexure not attached since factor varies as and when
rates of interest are changed by Reserve Bank of India).
3.7 Purchase of Rupee Bills
In the case of Rupee bill purchases the entire bill amount shall be first
payable to the customer. Simultaneously interest shall be recovered on the
Rupee amount from the customer by applying the appropriate interest factor.
- SALE
4.1 Merchant Spot TT Sale Rate :
i. Arrive at the BASE RATE
ii. From the above BASE RATE deduct appropriate exchange margin.
4.2 Merchant Spot Bill Sale Rate
From the merchant TT Sale rate as determined above, deduct appropriate
exchange margin.
4.3 Spot Merchant Sale Rates for TT and Bill Transactions shall not be worse
for the customer than those derived from RBI’s Spot Selling Rate for Pound
Sterling as the basis.
4.4 Merchant Forward Sale Rate
For quoting Merchant Forward Sale Rates’ for import TT/Bill transactions,
Authorised Dealers shall base their quotations on the appropriate cover rate
from which appropriate exchange margins for TT and /or Bills as mentioned
above shall be deducted.
PART II
- Delinking of Interest Element from the Exchange Rates for Bill Purchase
Transations
5.1 To fall in line with the international practice, Authorised Dealers
shall effective from 1st January, 1984, quote rates for export bills on the
basis of on-going market rates . The exchange margins are to be loaded in
the rate, quoted to the customer. Interest for the entire notional transit
period, usance, grace period (where applicable) shall be recovered
simultaneously at the time of purchasing, discounting or negotiating the
bill by applying the appropriate interest factor on the Rupee amount of the
bill.
The procedure to be followed shall be as under :-
- Arrive at the Rupee equivalent of the foreign currency amount
at the appropriate buying rate.
- Credit the Rupee amount to the customer’s account.
- Simultaneously recover the interest amount and credit it to
“Interest on Export Bills Account.”
- Overdue interest, where applicable, shall be recovered separately.
Note :
In case of payment to a party, not being a customer of the payee bank,
only the net amount shall be payable. Full details of the interest and
other deductions shall be
Advised.
- General
6.1 The spreads between Spot T.T. Sale and Spot T.T. Purchase rates for all
currencies shall be in compliance with RBI directives issued from time to
time.
6.2 Rounding off the rates will be as per FEDAI Rule 4 (III) (d) vide
Annexure III. (Since amended as per our Circular AR No.1/88 dated 21st
November 1988).
6.3 All Authorised Dealers shall keep a record of :-
a. The BASE RATES for the purpose of arriving at the merchant rates, and
b. Any changes made in the BASE RATES during the day. Such record shall be
made available for audit.
6.4 The time of executing all merchant transactions shall be recorded so as
to establish the application of the correct prevalent rates.
6.5 All Authorised Dealers shall correctly apply the forward/usance margins
and exchange margins before quoting merchant rates,etc.
6.6 In case of forward contracts for export bills, the contract rate shall
be worked out without loading interest factor and interest for the period (transit,usance,grace)shall
be recovered at the time of negotiation/purchase/discount. The recovery of
interest at the time of purchase/discount/negotiation shall not be lost
sight of.
-
Accounting Procedures for Import and Export Bill Transactions
7.1 To bring uniformity in the handling of import bills under letters of
credit and export bills purchased/negotiated/discounted, Authorised Dealers
shall follow the procedure given below:-
7.2 Import Bills
i. Sight Import Bills received under letters of credit and conforming to
credit terms, may be held in foreign currency for a maximum period of 10
days from the date of receipt of document by the bank.
ii. In case of non-payment by the drawee within 10 days as above, the
importer’s liability on the foreign currency bill shall be crystallized by
converting the foreign currency amount into Rupees at the B.C. Selling Rate
prevailing on the 10th day or the Forward Exchange Contract Rate where
applicable.
iii. Authorised Dealers shall keep a proper record of the date of receipt of
documents.
7.3 The Authorised Dealers shall keep a proper changes in their L/C
agreement/ applications to give effect to the above.
7.4 In case the 10th day is a holiday or a Saturday, the importer’s
liability in Rupees shall crystallise on the next following working day.
7.5 Authorised Dealers shall carry swap costs upto the 10th day on their own
account and shall not recover such costs from the customer.
7.6 Authorised Dealers shall charge interest at the rate as prescribed by
RBI for advances to non-priority sectors from time to time one Rupee
advances made against the import bills pending retirement by the customer.
Such interest shall be recovered from the date of negotiation to the date of
crystallization of the Rupee liability and thereafter penal interest shall
be recovered. (Applicable rates of interest amended as per our Circular Misc
No. 11/90 dated 21st May 1990).
7.7 If the date when the Rupee liability on an import bill is crystallized
at the Forward Exchange Contract Rate results in early/late delivery under a
Forward Exchange Contract, the charges as per FEDAI Rule 9 (Refer to revised
Rule 8) shall be levied.
7.8 Authorised Dealers shall charge commission/handling charges at the rate
of 0.15% on the bill amount at the time of converting foreign currency into
Indian Rupees irrespective of the fact whether the bill is retired within 10
days or later. (Also refer to para x.c. of the revised Rules)
7.9 All import bills under Letters of Credit shall be reported as ‘SALES’
when the Rupee liability is crystallized.
- Export Bills Purchased/Negotiated/Discounted
8.1 Foreign currency bills when purchased/negotiated/discounted shall be at
the
Authorised Dealers’ bill buying rate on that day or at the contracted rate.
Interest for the transit,usance,grace period where applicable shall be
recovered simultaneously. (Also refer to our Special Circulars No.
2643/NTP/SPL-18/86 dated 27th May 1988).
8.2 For bills remaining unpaid for a period of 30 days after the transit
period in case of demand bills and the due date in case of usance bills, the
foreign currency amount shall be reversed from the “export bills purchased
portfolio” on the 30th day by the Authorised Dealer. In case 30th day
happens to be holiday, or Saturday, it shall be reversed on the next
following working day. The rate applicable to such reversal shall be the
ready TT selling rate of exchange on that day and shall be reported as
‘Notional Sale’ of foreign currency. The Rupee equivalent of the foreign
currency thus reversed, shall be held in the advances portfolio of the bank
under the head “Advances against overdue export bills realizable account”.
The unpaid bill shall be treated as outstanding under the sanctioned limit
of the customer in a separate folio with the exchange risk open against the
customer. Interest for the overdue period shall be recovered at the
appropriate rate upto the date of realization of the bill. Appropriate rate
of interest shall mean the maximum rate of interest permissible by Reserve
Bank of India for overdue export bills or (Since amended as per our Circular
Misc. No. 11/90 dated 21st May 1990) the penal rate if the bill amount was
recovered in Rupees from the customer due to dishonour thereof by the drawee.
8.3 As and when the bill is realized and advice of realization either by
cable or by mail is received, the Authorised Dealers shall apply the TT
buying rate on that day and adjust the advances created in their books
against the bill as explained above. Any shortfall/excess shall be recovered
from/paid to the customer. Authorised Dealers shall report the ‘PURCHASE’ of
foreign currency.
8.4 Authorised Dealers shall not charge or pay any swap cost for the period
of 30 days i.e. the period between the relevant due date and the transfer of
the item to advance portfolio as explained in 8.2 above.
8.5 In the case of highly volatile currencies, it is up to the Authorised
Dealer to negotiate the bill at the risk and responsibility of the customer.
8.6 For the purpose of reporting the reversals of bills purchased earlier
(paragraph 8.2) in the relative R-Returns, Authorised Dealers may be guided
by the instructions issued by the Reserve Bank of India from time to time.