Direct Receipt of Import Bills / Documents - Liberalisation

At present AD Category - I banks are permitted to make remittances for imports, where the import bills / documents have been received directly by the importer from the overseas supplier and the value of import bill does not exceed USD 100,000.

Now with a view to liberalizing the procedure, RBI has  decided to enhance the limit for direct receipt of import bills / documents to USD 300,000. Accordingly, AD Category – I banks may make remittances for imports, where the import bills / documents have been received directly by the importer from the overseas supplier and the value of import bill does not exceed USD 300,000, subject to the following conditions :

(i) The import would be subject to the prevailing Foreign Trade Policy.

(ii) The transactions are based on their commercial judgment and they are satisfied about the bonafides of the transactions.

(iii) The importer is a customer of AD Category – I bank and the customer's account is fully compliant with extant KYC / AML guidelines issued by the Reserve Bank.

(iv) AD Category - I banks should do the due diligence exercise and should be fully satisfied about the financial standing / status and track record of the importer customer.

(v) It is customary in that trade to receive import documents directly from the overseas exporter.

(vi) In case the AD Category – I bank has suspicions about the genuineness of the transaction, it should be reported through the Suspicious Transaction Report (STR) to FIU_IND (Financial Intelligence Unit in India).

Orders of the President of India on the recommendations  made by the Parliamentary Committee on Official  Language in the 8th volume of its Report

Government of India, Ministry of Finance, Financial Services Department have advised us vide their letter No. 13014/7/2007-Hindi dated August 18, 2008 that on the recommendations made by the Parliamentary Committee on Official Language in the 8th volume of its report, the Honourable President of India has passed the following orders :

1. The work of data processing should be done by the public sector banks either in Hindi or in bilingual form and only standard encoding (Unicode font/software) should be used for Hindi.

2. Credit card, ATM etc. services should be provided in Hindi or in bilingual form.

Foreign Exchange Management Act, 1999 – Advance Remittances for Import of Services

In  terms of the existing guidelines, AD Category – I banks are required to obtain a guarantee from a bank of international repute situated outside India or a guarantee from an AD Category – I bank in India, if such a guarantee is issued against the counter guarantee of a bank of international repute situated outside India for advance remittances exceeding USD 100,000 or its equivalent for import of services into India.

Now with a view to liberalizing the procedure RBI has  decided to raise the limit of USD 100,000 for advance remittance for all admissible current account transactions for import of services without bank guarantee to USD 500,000 or its equivalent.  AD Category – I banks may frame their own guidelines to deal with such cases as per the policy approved by the bank’s Board of Directors. 

Thus, where the amount of advance exceeds USD 500,000 or its equivalent, a guarantee from a bank of international repute situated outside India, or a guarantee from an AD Category – I bank in India, if such a guarantee is issued against the counter-guarantee of a bank of international repute situated outside India, should be obtained from the overseas beneficiary.

AD Category – I banks should also follow-up to ensure that the beneficiary of the advance remittance fulfils his obligation under the contract or agreement with the remitter in India, failing which, the amount should be repatriated to India.

Alteration in the name of Bank in the Second Schedule to the Reserve Bank of India Act, 1934 –" Industrial Development Bank of India Limited to IDBI Bank Limited".

RBI has advised that the name of "Industrial Development Bank of India Limited" has been changed to "IDBI Bank Limited" in the Second Schedule to the Reserve Bank of India Act, 1934 with effect from May 7, 2008.

Display of information relating to Interest Rates and Service Charges –  Rates at a quick glance

Banks are advised to display the information as per the format given in the Annex on their web-sites. Banks are however free to modify the format to suit their requirements, without impairing the basic structure or curtailing the scope of disclosures.   Banks may also ensure that only latest updated information in the above format is placed on their web-sites and the same is easily accessible from the Home Page of their web-sites. 

Reclassification of NBFCs

Please refer to Company Circular DNBS.PD. CC No. 85 / 03.02.089 /2006-07   dated December 06, 2006 on the captioned subject. It was advised therein that NBFCs financing real / physical assets for productive / economic activity will be classified as Asset Finance Company (AFC) as per the criteria given under paragraph 4 of that circular.  Consequent upon re-classification of NBFCs, in the proposed structure the following categories of NBFCs will emerge:

(i) Asset Finance Company
(ii) Investment Company
(iii) Loan Company 

External Commercial Borrowings Policy - Liberalisation

It has been decided to modify some aspects of the ECB policy as indicated below:-

(a) At present, borrowers in the infrastructure sector are allowed to avail ECB up to USD 100 million per financial year for Rupee expenditure for permissible end-uses under the Approval Route. Considering the huge funding requirements of the sector, particularly for meeting Rupee expenditure, the existing limit of USD 100 million has been raised to USD 500 million per financial year for the borrowers in the infrastructure sector for Rupee expenditure under the Approval Route. ECBs in excess of USD 100 million for Rupee expenditure should have a minimum average maturity period of 7 years.

(b) In view of widening of credit spreads in the international financial markets, the all-in-cost ceilings for ECBs are modified as follows:

The amendments to the ECB guidelines will come into force with immediate effect. All other aspects of the ECB policy such as USD 500 million limit per borrower per financial year under the Automatic Route, eligible borrower, recognised lender, end-use of foreign currency expenditure for import of capital goods and overseas investments, average maturity period, prepayment, refinancing of existing ECB and reporting arrangements remain unchanged. The existing limit of USD 50 million for Rupee expenditure under the Approval Route for borrowers other than those in the infrastructure sector also remains unchanged.

Prudential Norms on utilisation of Floating Provisions - Agricultural Debt Waiver and Debt Relief Scheme, 2008

In terms of paragraph 2 (ix) (a) of the Annex to circular RPCD.No.PLFS.BC.73 /05.04.02/2007-08 dated May 30, 2008, on Agricultural Debt Waiver and Debt Relief Scheme, 2008, lending institutions shall neither claim from the Central Government, nor recover from the farmer, interest in excess of the principal amount, unapplied interest, penal interest, legal charges, inspection charges and miscellaneous charges, etc. All such interest / charges will be borne by the lending institutions.

In view of the extraordinary circumstances in which the banks are required to bear the interest/ charges mentioned at paragraph 2 above, it has been decided to allow the banks to utilise, at their discretion, the Floating Provisions held for ‘advances’ portfolio, only to the extent of meeting the interest /charges referred to in paragraph 2 above. The Floating Provisions should not, however, be utilised for meeting any other provisioning requirements without RBI’s prior approval, as hitherto.

‘Issue of Foreign Currency Exchangeable Bonds Scheme, 2008’

 it has been decided to operationalise the abovementioned Scheme in order to facilitate the issue of FCEB by Indian companies.

“Foreign Currency Exchangeable Bond” means a bond expressed in foreign currency, the principal and interest in respect of which is payable in foreign currency, issued by an Issuing Company and subscribed to by a person who is a resident outside India, in foreign currency and exchangeable into equity share of another company, to be called the Offered Company, in any manner, either wholly, or partly or on the basis of any equity related warrants attached to debt instruments. The FCEB may be denominated in any freely convertible foreign currency.

4. Eligible Issuer : The Issuing Company shall be part of the promoter group of the Offered Company and shall hold the equity share/s being offered at the time of issuance of FCEB.

5. Offered Company : The Offered Company shall be a listed company, which is engaged in a sector eligible to receive Foreign Direct Investment and eligible to issue or avail of Foreign Currency Convertible Bond (FCCB) or External Commercial Borrowings (ECB).

6.  Entities not eligible to issue FCEB :  An Indian company, which is not eligible to raise funds from the Indian securities market, including a company which has been restrained from accessing the securities market by the SEBI shall not be eligible to issue FCEB.

7.  Eligible Subscriber :  Entities complying with the Foreign Direct Investment policy and adhering to the sectoral caps at the time of issue of FCEB can subscribe to FCEB.  Prior approval of Foreign Investment Promotion Board, wherever required under the Foreign Direct Investment policy, should be obtained.

8. Entities not eligible to subscribe to FCEB : Entities prohibited to buy, sell or deal in securities by the SEBI will not be eligible to subscribe to FCEB.

9.  End-use of FCEB proceeds:
Issuing Company:

(i) The proceeds of FCEB may be invested by the issuing company overseas by way of direct investment including in Joint Ventures or Wholly Owned Subsidiaries abroad, subject to the existing guidelines on overseas investment in Joint Ventures / Wholly Owned Subsidiaries.

(ii) The proceeds of FCEB may be invested by the issuing company in the promoter group companies.

Promoter Group Companies:

Promoter Group Companies receiving investments out of the FCEB proceeds may utilise the amount in accordance with end-uses prescribed under the ECB policy.

10. End-uses not permitted : The promoter group company receiving such investments will not be permitted to utilise the proceeds for investments in the capital market or in real estate in India.

11. All-in-cost :  The rate of interest payable on FCEB and the issue expenses incurred in foreign currency shall be within the all-in-cost ceiling as specified by Reserve Bank under the ECB policy.

12. Pricing of FCEB:  At the time of issuance of FCEB the exchange price of the offered listed equity shares shall not be less than the higher of the following two:

(i) The average of the weekly high and low of the closing prices of the shares of the offered company quoted on the stock exchange during the six months preceding the relevant date; and

(ii) The average of the weekly high and low of the closing prices of the shares of the offered company quoted on a stock exchange during the two week preceding the relevant date.

13. Average Maturity :  Minimum maturity of FCEB shall be five years. The exchange option can be exercised at any time before redemption. While exercising the exchange option, the holder of the FCEB shall take delivery of the offered shares.  Cash (Net) settlement of FCEB shall not be permissible.

14.  Parking of FCEB proceeds abroad :

The proceeds of FCEB shall be retained and / or deployed overseas by the issuing / promoter group companies in accordance with the policy for the ECB.

It shall be the responsibility of the issuing company to ensure that the proceeds of FCEB are used by the promoter group company only for the permitted end-uses prescribed under the ECB policy. The issuing company should also submit audit trail of the end-use of the proceeds by the issuing company / promoter group companies to the Reserve Bank duly certified by the designated Authorised Dealer bank.

15. Operational Procedure – Issuance of FCEB shall require prior approval of the Reserve Bank under the Approval Route for raising ECB. The Reporting arrangement for FCEB shall be as per extant ECB policy.

16. This Scheme will come into force with immediate effect.

Exclusion from the Second Schedule to the Reserve Bank of India Act, 1934 – Centurion Bank of Punjab Ltd

We advise that the name of "Centurion Bank of Punjab Ltd" has been excluded from the Second Schedule to the Reserve Bank of India Act, 1934.