Preamble
(Rule 1) Hours of Business
Rule 2 Export Transactions
Rule 3 Imports Sharing of
Commission
Rule 5 Clean Instruments
Rule 6 Guarantees
Rule 8 Forward Contracts
Rule 17 (old)
Preamble
Chapter 14
Clarification, explanatory Notes and Certain other Important
Information
Preamble :
While effort has been made in this Chapter to incorporate the
clarifications/amplifications relating to the FEDAI Rules, as much as possible,
member banks would be advised to make a reference to the circulars issued by the
Association earlier and from time to time in regard to various types of foreign
exchange transactions and be guided by the instructions contained therein.
Clarification, explanatory notes and certain other important information
(Rule 1)
Hours of Business
In terms of paragraph 8.2 of Reserve Bank of India Guidelines for internal
Control over Foreign Exchange Business appended below authorized on behalf of
the bank during extended hours subject to the condition that the management in
each bank lay down the working hours of the dealers.
8.2 Dealing Hours
“The dealing hours will be ordinarily the recognized working hours of the banks
at the respective centers. But the conditions of the exchange markets and time
zone differences may require the dealers to work longer hours. In such an event,
dealers would also undertake operations of purchase, sale etc. of foreign
currencies on behalf of the bank during extended hours. It is essential that the
Management in each bank should lay down the working hours of the dealers.”
In the circumstances it is our considered view that FEDAI Rule 1 should be read
in conjuction with the provision of paragraph 8.2 referred to above.
(Refer our Special Circular no: 2314/Dlg.Hrs/SPL-73/95 dated 22nd June 1995)
Rule 2 Export Transactions
- Letter of credit restricted to a particular bank
but forward contract for the relative export fixed through another bank
A commission of 0.35% shall be charged by the negotiating bank for
negotiating bills/documents under letters of credit restricted to themselves
against issue of foreign currency drafts/TTs in favour of the bank with whom
the forward exchange is fixed in payment of such negotiations.
The bank with whom the contract is fixed shall pay this charge of the
negotiating bank and shall recover from the exporters to the extent of 0.20%
and absorb the balance of 0.15% of the said charges. (AR Circular No. 4/86
dated 26th August 1986).
- Export letters of credit
- Letters of credit include letters of credit,
letters of guarantee, letters of authority, orders to negotiate, orders
for payment and all types of documents of similar nature.
- The Uniform Customers and Practice for Documentary
Credits in force will not apply to:
Letter of credit issued by banks in countries which do not subscribe to
the said Uniform Customs and advices to the beneficiaries of such
letters of credit should indicate that the credit is not subject to the
Uniform Customs unless the issuing bank to apply it. (Old Rule 10 II C).
- Advising letter of credit/amendments
- Letters of credit/amendments may be advised
through the intermediary of a bank. The advising bank reserves its right
to negotiate or not documents under the credit. It must however verify
the authenticity of the letter of credit advised to the beneficiary. If
an exporter receives a letter of credit direct, the negotiating bank
should have the genuineness of the instrument verified before
negotiating/purchasing/discounting documents thereunder.
- The advising banks should not on their own
restrict negotiations to their counters merely because the credit has
been advised through them.
- Forwarding the credit/amendment by V.P.Post is
prohibited.
- Recovery of charges for transfer of proceeds of
export bills negotiated under restricted letters of credit to outside the
centre of negotiation
Bank which has negotiated letters of credit documents received from another
bank outside the centre of negotiation under restricted letters of credit
and transferred the proceeds to that bank is entitled to charge commission
applicable to inland remittances.
(Circular Letter No.48/90 dated 20th December 1990).
- Bills of Lading
Banks will not accept bills of lading made out “received for shipment” or
containing any other similar objectionable clause, unless such a clause is
permitted in a letter of credit or similar authority under which the
purchasing bank is protected. Also banks will accept only those bills of
lading the signature on which has been manually inscribed. Short form bills
of lading as defined in Article 23(v) in Uniform Customs and Practice for
Documentary Credits ICC Brochure 500 should be acceptable under letter of
credit.
- Insurance
Unless otherwise stipulated in the credit, or unless it appears
from the insurance document(s) that the cover is effective at the latest
from the date of loading on board or dispatch or taking in charge of the
goods, banks will refuse insurance documents presented which bear a date
later than the date of loading on board or dispatch or taking in charge of
the goods as indicated by the transport document(s). {Article 34(e) of UCP
500}
The Marine Insurance clause should therefore read as under:
Marine Insurance Policies/Certificates (dated as above) unto order and blank
endorsed for 10% over invoice value covering institute Cargo Clause A
Institute War Clause (Cargo) and Institute Strikes Clause (Cargo) with
claims payable in India. (Circular Letter 17th December 1985).
- Clean TTs
- Clean TT purchase contracts can be substituted for
underlying TT purchase contracts in respect of export bills, provided
swap difference, where applicable, shall be recovered from/paid to the
merchant, as the case may be.
- Clean TT rate shall be conceded for the purchase
of the proceeds of bills sent for collection or of goods sent on
consignment basis provided payment is made in India only after the
foreign currency amounts are credited to the nostro account of the bank
concerned.
- Rates of exchange applicable for issuance
of bank certificates to exporters
The following rates of exchange should be applied for issuance of bank
certificates as per Import-Export Policy:
The FOB value should be arrived at from the rupee equivalent of the foreign
currency amount actually credited to the exporter’s account at the time
negotiation of bills or upon realization of bills sent for collection.
Member banks should take into account 100% of the FOB value of the relative
bill/invoice including the rupee equivalent of the portion of the foreign
currency amount to be kept in EEFC account irrespective of whether the
customer was granted 100% advance or not. The applicable rate for the
purpose of conversion in this case would be the market rate applied for the
relative bill. (Circular letter No: 19/92 dated 1.6.92, Circular letter no:
29/92 dated 15.7.92)
- Crystallisation of Export Bills
It is clarified that the customer’s liability to the bank after
crystallization would be either the rupee equivalent of the bill negotiated
or the rupee equivalent of the bill crystallized, whichever is higher. (Mg.Com.
6/96 dated 30.03.96)
Rule 3
Imports
Sharing of Commission
- Letter of credit opened by an Authorised Dealer
against the undertaking of another bank who is not an Authorised Dealer
In case where an Authorised Dealer opens a letter of credit against the
undertaking of another bank who is not an Authorised Dealer, to honour the
commitments thereunder, the L/C commission with that bank to the extent of
50% of such commission, provided the said bank undertakes that no portion of
such commission will be passed on to the opener of the L/C. (AR Circular
No.117/83 dated 18th November 1983).
- Letter of credit issued by one Authorised
Dealer against counter-indemnity of another Authorised Dealer
On any letter of credit issued by an authorized Dealer in foreign exchange
against the counter-indemnity of another Authorised Dealer, commission
collected shall be shared between them equally.
- Letters of credit issued by one Authorised
Dealer against the counter-indemnities of more than one Authorised Dealer
In case where more than one Authorised Dealer participate in the issue of a
letter of credit commission shall be shared in proportion to the risk
assumed by each Authorised Dealers. (AR Circular No. 5/87 dated 11th
November 1987)
Where the bank issuing the letter of credit is not a member of the
consortium the consortium banks will be treated as a single unit vis-à-vis
the issuing bank for the above purpose. (Special Circular No.
410/RULE-SPL-12/89 dated 2nd March 1989).
- Insurance
Unless otherwise stipulated in the credit, or unless it appears from the
insurance document(s)that the cover is effective at the latest from the date
of loading on board or dispatch or taking in charge of the goods, banks will
refuse insurance documents presented which bear a date later than the date
of loading on board or dispatch or taking in charge of the goods as
indicated by the transport document L(s). (Article 34(e) of UCP 500)
The Marine Insurance clause should therefore read as under :
“Marine Insurance Policies/Certificate (dated as above) unto order and blank
endorsed for 10% over invoice value covering Institute Cargo Clause A
Institute War Clause (Cargo) and Institute Strikes Clause (Cargo) with
Claims payable in India. (Circular Letter No. 74/85 dated 17th December
1985).”
- Bank Guarantee covering import of goods into
India under various AID loans
- Where the guarantee to be issued is to be followed
by issue of letter of credit.
- On the L/C to be established in due course L/C
opening commission should be collected at the time of opening the
L/C.
- On that part of the amount of the guarantee
which is in excess of authorisation applied for commission for the
full period of guarantee should be collected at the time of issuing
the guarantee.
- Where the guarantee does not result in a letter of
credit and import bills are received by guarantor bank on collection
basis.
- Initially commission should be recovered on
the full amount for a period of 3 months @ 0.25%
- Commission should be reckoned from the
time guarantee is issued till the relative bills received on
collection basis are paid by the customer and shortfall if any to be
recovered.
- For that part of the guarantee which is in
excess of the bill amount the usual guarantee commission for the
full period of the guarantee should be recovered. (Circular letter
No.40/90 dated 27th November 1990).
- Booking of forward sale contract in respect of
import bills drawn under letter of credit opened by another bank
Where an importer has arranged for fixation of a forward contract with a
bank other than the one through whom the letter of credit has been opened,
the customer would be liable to pay L/C opening bank 0.25% commission in
lieu of exchange in addition to swap cost and proceeds in the bank’s nostro
account. (Managing Committee Circular No.27/87 dated 8th December 1987).
- Recovery of commission on import bills under L/C
payments of which are settled out of foreign currency loans arranged abroad
Banks are entitled to collect 0.15% commission as per FEDAI Rules and 0.25%
commission in lieu of exchange in respect of letters of credit opened by
Authorised Dealers, payments of which are settled out of foreign currency
loans arranged abroad. In case of bills not covered L/Cs appropriate bill
commission should be recovered together with 0.25% commission in lieu of
exchange (Managing Committee Circular No. 13/89 dated 9th September 1989.)
- Definition of a collecting bank
Collecting bank is the bank which receives a bill from abroad and the bank
through whom the receiving bank is instructed to present it.
- Import bills for collection
In respect of foreign currency collection bills the collecting bank shall be
entitled to exchange and commission.
- If for any reason the collecting bank is required to
present the bill through another bank, the former (the collecting bank)
shall be entitled to commission and the latter (the presenting bank)
shall the payment in the currency of the draft/bill. Where the
presenting bank is unable to effect a remittance in the currency of the
draft/bill, the presenting bank shall arrange to obtain a demand
draft/effect remittance in the foreign currency of the draft/bill.
- In respect of bills drawn in Rupees the commission
shall always be earned by the collecting bank. If for any reason the
collecting bank is required to present the bill through another bank the
latter may charge a commission as on any other inland collection.
Rule 5
Clean Instruments
- Payment of a foreign currency draft by the drawee bank
by issuing their own draft In the same currency in favour of the beneficiary
bank of the former draft with whom the relative foreign currency amount is
to be deposited in a FCNR account.
The drawee bank of a foreign currency draft shall pay such draft at the
request of the beneficiary bank in case the draft is received for depositing
the foreign currency amount with the beneficiary bank in a FCNR account, by
issuing their own draft in the same currency in favour of the said
beneficiary bank and may levy a service charge for the issue of their own
draft at the rate of 0.10% with a minimum of Rs.50/- and a minimum of
Rs.10/-. The said drawee bank may also collect any ouit-of-p0ocket expenses
incurred by them for issuing their own draft. The said beneficiary bank
shall absorb this charge of the said drawee bank and shall not recover it to
the debit of the relative FCNR account. (AR Circular No.5/76 dated 15th
April 1976).
- Payment of foreign inward remittances
All foreign currency inward remittance upto an equivalent of Rs. 100,000/-
shall be immediately converted into Indian Rupee. Remittance in excess of
equivalent of Rs.100.000/- shall be executed in foreign currency and the
beneficiary has the option of presenting the relative instrument for payment
to the executing bank within the maximum period prescribed under the
Exchange Control Regulations. In this connection, we further clarify as
under.
- Any request from the beneficiary of the remittance
for subsequent reconversion to foreign currency, including request for
opening Exchange Earner’s Foreign Currency (EEFC) accounts should be
done at market rate.
- FIRPS instruments should continue to be issued
only for personal remittances, upto an equivalent of Rs. 1 Lakh. (AR
2/93 dated 1.3.93 & AR 11/95 dated 20.12.95).
- Where inward remittances are in respect of export
transactions covered under forward exchange contracts the relative forward
contract rate shall be applied.
- Clean Rupee remittances
On clean Rupee remittances (not being proceeds of import bill) which are
covered by crediting non-resident bank accounts maintained in India,
commission shall be charged by the bank originating payment instruction to
the foreign bank. The bank with whom the relative non-resident account is
maintained shall not be entitled to any commission but shall receive from
the originating bank out-of-pocket expenses and telegram or postage charges
actually incurred in advising the receipt of cover to the non-resident bank.
- Collection of clean instruments for non-Authorised
Dealers
In case where an Authorised Dealer undertakes collection of foreign currency
clean instruments tendered by a bank who is not an Authorised Dealer
received from their non-resident account holders of Indian nationally or
origin and also handles remittances from India for such account holders
(request routed through their banker) the member banks may share the
commission with that bank, not more than 50% to be charge as prescribed in
FEDAI Rules provided that no portion of such commission will be passed on to
the customer.(AR Circular No.7/86 dated 30th December 1986).
- Sharing of Commission on sale of foreign
currency travelers cheques by Authorised Dealers
Member banks are not permitted to share the commission on sale of travellers
cheques with travel agents/others. (Circular Letter No.28/88 dated 5th
October 1988).
Calculation of exchange rate for foreign currency travelers cheques and
charging of commission (effective from 1st April 1991) T.C.Buying Rate
T.C.Selling Rate
- Take Reserve Bank one month i. Take the clean TT
Selling rate forward buying rate for the in accordance with the
guidelines foreign currency as the base rate. prescribed by FEDAI
- If the foreign currency is one ii Convert the
clean TT selling rate which is not purchased by in Rupees equal to one
unit of Reserve Bank the base rate foreign currency to get the base
should be the on-going first rate (in the case of Jap. Yen and month
forward buying rate quoted Italian Lira, the unit of foreign currency in
the exchange market in India will be 100) or abroad.
- Convert the base rate in Rupees iii Add a margin
of 0.5% equal to one unit of foreign (at the option of the Authorised
currency (in the case of Japanese Dealer). Yen and Italian Lira,the unit
of foreign currency will be 100).
iv. Deduct an all-inclusive margin iv. A commission not exceeding not
exceeding 1% from the 1% may be charged (at the option above rate to
arrive at the amount of the Authorised Dealer) on the in Rupees to be
paid for every unit Rupee equivalent of value of of foreign currency.
the foreign currency travelers cheques sold at the above rate.
The result rates may be rounded off to the nearest 5 paise on the buying
as well as selling (Special Circular No. 50/FCTC/SPL-8/91 dated 14th
March 1991.)
Rule 6
Guarantees
- Where guarantees are issued on behalf of Central and
State Governments and Corporations or Companies wholly owned by them the
scale of charges prescribed may be levied on a reduced scale at the
discretion of the banks. This discretion is not applicable for deferred
payment guarantees. (Circular Letter No: 1/93 dated 5.1.93)
- Banks should, in their own interest, continue their
efforts to obtain an early return of cancelled guarantees. They should also
ensure that all guarantees include a specific clause stating the exact
period within which claims must be made under a guarantee after its validity
has expired.
- If the commission on guarantee issued by a member bank
on behalf of a branch/foreign correspondent is subjected to tax in the
country of the branch/foreign correspondent, member bank may increase the
amount of commission in such a manner that the amount of commission net of
such tax will comform to the rate laid down under this Rule.
- Sharing of Commission Letter of guarantee issued by one
Authorised Dealer against counter-indemnity of another Authorised Dealer
On any letter of guarantee issued by an Authorised Dealer in foreign
exchange against the counter-indemnity of another Authorised Dealer
commission shall be shared between them equally.
- Guarantee issued by one Authorised Dealer against the
counter-indemnities of more than one Authorised Dealer In case where more
than one Authorised Dealer participate in the issue of guarantee,commission
shall be shared in proportion to the risk assumed by each Authorised Dealer.
(AR Circular No. 5/87 dated 11th November 1987).
Where the bank issuing the guarantee is not a member of the consortium the
consortium banks will be treated as a single unit vis-à-vis the issuing
bank, for the above purpose. (Special Circular No.410/Rule-15SPL-12/89 dated
2nd March 1989). F. Advance Payment/Performance Guarantee/Bid Bonds for
Projects in India in respect of which Global Tenders are invited.
Commission on all advance payment/performance guarantees/bid bonds for all
projects in India in respect of which global tenders are invited will be
collected at a rate to be determined by the Authorised Dealers themselves.
(AR 3/94 dated 28th November 1994)
Rule 8
Forward Contracts
- Extension of all purchase or sale contracts including
contracts relating to import/export on deferred payment basis shall be
governed by the Exchange Control Regulations.
- Contracts may be extended at any time during their
currency or within a period of 7 days from the date of maturity, provided
that if they are extending after the last delivery date, interest and swap
cost will be collected.
When contracts are extended both during their currency or within a period of
7 days from the date of their maturity interest at 15% per annum on outlay
of funds by the bank for the purpose of arranging the swap shall be
recovered in addition to the exchange difference if any. (Circular Letter
No.70/85 dated 6th November 1985).
Seven days time has been allowed as lead time for pipeline transactions from
designated branches to reach position maintaining office and to enable
inter-branch accounting adjustments. This is not meant for customers who
must give instructions regarding utilization or otherwise of the contract on
or before maturity date. (SPL 15/94 dated 6.4.94)
Rule 17 (old)
Deferred Payment Guarantees covering import of ships.
This Rule has since been withdrawn. Rule 6 would apply for DPGs in connection
with import of ships.(AR No.3/96 dated 30.3.96)