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In terms of existing provision of the Foreign Exchange
Management Act, 1999 (‘FEMA’), Indian
Rupee is not a freely convertible currency.
The Reserve Bank of India (RBI) vide Circular No. 10 dated July
11, 2022, has permitted international trade invoices and payments
and settlements of exports/import to be made in Indian Rupees (INR)
for encouraging trade as under:
- Indian importers shall now make payments in Indian Rupees, to
be credited to the Special Indian Rupee Vostro Account of the
correspondent bank of the partner country. - In case of exports, Indian exporters shall be paid the export
proceeds in INR from the balances in the partner country’s
designated Vostro account.
The Circular has laid down the mechanism cross border trade
transactions in INR, which is described as under:
- The export/import undertaken and settled shall be subject to
usual documentation and reporting requirements. Letter of Credit
(LC) and other trade related documentation to be decided mutually
between banks of the partner trading countries under the overall
framework of Uniform Customs and Practice for Documentary Credits
(UCPDC) and incoterms.
- Indian exporters can also receive advance payment against
exports from overseas importers in Indian rupees. Before allowing
any receipt of such advance payment, Indian Banks shall ensure that
available funds in accounts are first used towards payment
obligations arising out of already executed export orders / export
payments in the pipeline.
- In order to ensure that the advance is released only as per the
instructions of the overseas importer, the Indian bank maintaining
the Special Vostro account of its correspondent bank, shall verify
the claim of the exporter with the advice received from the
correspondent bank before releasing the advance.
- Facility of ‘Set-off’ of export receivables against
import payables in respect of the same overseas buyer and supplier
allowed subject to specified conditions.
- Issue of Bank Guarantee for trade transactions, undertaken
through such arrangement is permitted subject to adherence to
provisions under FEMA read with the updated Notifications.
- Rupee surplus balance held may be used for permissible capital
and current account transactions.
- Reporting of cross-border transactions required to be done in
terms of the guidelines under FEMA.
- Bank of a partner country can approach an Authorized Dealers
(‘AD’) bank in India for opening of
Special INR VOSTRO account. AD bank shall seek approval from the
RBI with details of the arrangement. AD bank maintaining the
special Vostro Account shall ensure that the correspondent bank is
not from a country or jurisdiction in the updated Financial Action
Task Force(‘FATF’), Public Statement on
High Risk and Non-Co-operative Jurisdictions on which FATF has
called for counter measures.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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