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Presently, an exporter has to obtain prior permission of RBI for receipt of advance where the export agreement provides for shipment of goods extending beyond the period of one year from the date of receipt of advance payment. Also, banks have been authorised to permit exporters to receive advance payment for export of goods which can take more than one year to manufacture and ship if the ‘export agreement’ provides for the same.
This circular authorises banks to permit exporters who have a minimum of 3 years satisfactory track record to receive long term export advance up to a maximum tenor of 10 years. This advance has to be utilised for execution of long term supply contracts for export of goods and is subject to the following conditions: –
a) Firm irrevocable supply orders should be in place. The contract with the overseas party / buyer must be vetted and it must clearly specify the nature, amount and delivery timelines of products over the years and penalty in case of nonperformance or contract cancellation. Also, product pricing must be in consonance with prevailing international prices.
b) The company should have the capacity, systems and processes in place to ensure that the orders over the duration of the said tenure can actually be executed.
c) The company must not have come under the adverse notice of Enforcement Directorate or any such regulatory agency or must not be caution listed.
d) Such advances must be adjusted through future exports.
e) The rate of interest payable on such advance, if any, must not exceed LlBOR plus 200 basis points.
f) Documents must be routed through one bank only.
g) Bank have to ensure compliance with AML/KYC guidelines and also undertake due diligence of the overseas buyer to ensure that it has good stand-in/soundtrack record.
h) Such export advances must not be used to liquidate Rupee loans, which are classified as NPA as per the RBI asset classification norms.
i) Double financing for working capital for execution of export orders must be avoided.
j) Receipt of advance of $ 100 million or more must be immediately reported to the Trade Division, Foreign Exchange Department, RBI, Central Office, 5th Floor, Amar Building, Mumbai under copy to the concerned Regional Office of RBI as per the format given in Annex – I to this circular.
Banks, if required, can issue bank guarantee (BG)/Stand by Letter of Credit (SBLC) for export performance, subject to the following guidelines:
a) Issuance of BG/SBLC, being a non-funded exposure, must be rigorously evaluated as any other credit proposal and such facility must be extended only for guaranteeing export performance.
b) BG/SBLC must be issued for a term not exceeding two years at a time and further rollover of not more than two years at a time is permitted, and is subject to satisfaction of relative export performance as per the contract.
c) BG/SBLC must cover only the advance on reducing balance basis.
d) BG/SBLC issued from India in favour of overseas buyer cannot be discounted by the overseas branch / subsidiary of bank in India.
e) Banks must duly evaluate and monitor the progress made by the exporter on utilisation of the advance and submit an Annual Progress Report to the Trade Division, Foreign Exchange Department, RBI, Central Office, 5th Floor, Amar Building, Mumbai under copy to the concerned Regional Office of RBI in format given in Annex – II to this circular within a month from the close of each financial year.
