Foreign Exchange Operations

(Certificate Course for CAIIB of IIBF)

Only Points

Book No 98 from The Banking Tutor

Compiled by Sekhar Pariti
+ 91 94406 41014

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 Preface
I have shared Notes related to Certificate Course in Foreign Exchange
Operations based on syllabus provided by IIBF, vide Book No 97 on
14th March, 2024.

I have picked up Points from Book 97 from Examination point of view

and compiled this Book.

This Book help the examinee for quick recapitulation of contents of

Book No 97 (Notes)

This Book contains 27 Chapters.

Chapters from 1 to 26 are prepared based on the Syllabus provided
by IIBF for Certificate Examination in Foreign Exchange Operations.
Chapter from 27 is added over and the above the prescribed syllabus
with a view to share other relevant information related to Forex
Operations.

18-03-2024 Sekhar Pariti

+91 9440641014

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 Certificate Course in
Foreign Exchange Operations
Syllabus 2024

I. a) FEDAI Role and Rules

b) Foreign Exchange Rates and Risk Management

c) Code of Conduct, Ethics/ Compliance, Corporate Governance

II. Regulatory Requirements under FEMA for Resident/ Non-resident

Individuals

a) Remittance Facilities under LRS

b) Other Remittance Facilities for Resident Indians/ others
c) Various foreign currency accounts in India/ abroad
d) Acquisition of Assets, Immovable properties outside India,
including investments in securities abroad
e) Remittance of Assets
f) Facilities for Non-resident Indians – Deposits Accounts,
Investments, Borrowing etc.

III. Regulatory Requirements under FEMA for Resident/ Non-resident

Entities

a) Import of Goods & Services and other non-import remittance

b) External commercial borrowing
c) Export of goods and services
d) Investments outside India
e) Investments in India by non-resident Corporates/ FPIs/ Others
Entities
f) Establishments of LO/ BO/ PO in India by foreign entities

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IV. Documentary Credits & Standby Credits

a) ICC guidelines pertaining to INCOTERMS 2010, URC 522

b) UCP 600, eUCP version 1.1
c) ISBP - ICC PUB. 745, URBO - ICC PUB. 750, URDG 758
d) DOCDEX Rules - ICC PUB.872

V. Export Finance

a) Various finance available by way for Pre-shipment/ Post-shipment

finance in Rupees and Foreign Currency
b) International Factoring, Forfaiting
c) Export Credit Guarantee Corporation (ECGC)

VI. Foreign Trade Policy (FTP) 2015-20

a) Various policy issues with specific relevance to AD Banks with latest

updation

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 Index
Chapter Topic Page No
No
01 FEDAI Role and Rules 006-014
02 Foreign Exchange Rates and Risk Management 015-019
03 Fx Global Code 020-020
04 Regulatory Requirements under FEMA for 021-024
Resident/ Non-resident Individuals
05 Liberalised Remittance Scheme (LRS) & Other 025-030
Remittance Schemes.
06 Foreign Currency Accounts in India/ Abroad 031-035
07 Acquisition of Assets & Securities Abroad 036-039
08 Facilities for Non-resident Indians – Deposits 040-041
Accounts, Investments, Borrowing etc.
09 Import of Goods & Services & non-import 042-047
remittance
10 External Commercial Borrowing 048-049
11 Export of goods and services 050-055
12 ODI 056-056
13 Offshore Investing 057-057
14 FDI, FPI and FII 058-061
15 Setting up LO;BO and PO by Foreign Entities 062-065
16 UCP 600 066-066
17 INCOTERMS 2010 & 2020 067-070
18 URC 071-071
19 ISBP 072-073
20 URBO 074-076
21 URDG 077-077
22 DOCDEX Rules 078-078
23 Export Credit 079-090
24 International Factoring & Forfaiting 091-092
25 ECGC 093-094
26 Foreign Trade Policy (FTP) 2015-20 095-096
27 Miscellaneous Concepts related to Forex 097-111

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01. FEDAI
01. Foreign Exchange Dealer’s Association of India (FEDAI) was set up
in 1958

02. FEDAI is an Association of banks dealing in foreign exchange in

India (Authorised Dealers – Ads) is incorporated under The
Companies Act, 1956.

03. FEDAI is a self-regulating organization (SRO)

04. FEDAI formulates rules around Indian interbank forex dealings.

05. FEDAI impart Training of Bank Personnel in the areas of Foreign

Exchange Business.

06. FEDAI extends Accreditation of Forex Brokers

07. FEDAI represent member banks on Government/Reserve Bank of

India/Other Bodies.

08. FEDAI Announce daily and periodical rates to member banks.

09. The member banks of FEDAI are free to determine their own
charges for various types of forex transactions.

10. Banks should take care to ensure that customers with low volume
of activities are not penalised.

11. All members shall abide by FEDAI Code of Conduct 2017 and shall
submit their ‘Statement of Commitment’ in prescribed format.

12. The normal market hours for FCY/INR transactions in Inter-bank

forex market as well as client transactions in India would be from 9.00
a.m. to 5.00 p.m. IST on all working days.

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13. Authorised dealers may undertake customer (persons resident in
India and persons resident outside India) and inter-bank transactions
on all working days beyond normal market hours.

14. Transactions, including value cash transactions, for individual

persons (including joint account or proprietary firm) can be
undertaken even on Saturdays, Sundays and holidays as per banks
internal policy.

15. NOOP Limit is maintained all the times [including transactions

executed from EOD to 9.00 am IST (market opening time) next
working day].

16. NOOP stands for Net Overnight open Position

17. Spot date Roll over for FCY/INR transactions will take place at
12.00 midnight IST.

18. For the purpose of Foreign Exchange business, Saturday will not
be treated as a working day except for specified transactions.

19. “Known holiday” is one which is known at least 3 working days

before the date.

20. A holiday that is not a “known holiday” is defined as a “suddenly

declared holiday”.

21. Foreign Currency bills will be purchased/discounted/negotiated

at the Authorised Dealer’s current bill buying rate or contracted rate.

22. For crystallisation into Rupee liability, the Authorised Dealer shall
apply its TT selling rate of exchange.

23. After receipt of advice of realisation, the authorised dealer will

apply TT buying rate or contracted rate to convert foreign currency
proceeds.

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24. In case of dishonour of a bill before crystallisation, the bank shall
recover Rupee equivalent amount of the bill and foreign currency
charges at TT selling rate.

25. In case of early realisation, interest for the unexpired period shall
be refunded to the customer.

26. The bank shall pay or recover notional swap cost as in the case of
early delivery under a forward contract.

27. Normal transit period comprises of the average period normally

involved from the date of negotiation/purchase/discount till the
receipt of bill proceeds.

28. In the case of export usance bills, where due dates are fixed or are
reckoned from date of shipment or date of bill of exchange etc., the
actual due date is known. Therefore, in such cases, normal transit
period is not applicable.

29. NTP if the Bill drawn on DP/At Sight Basis and not under Letter
of Credit (LC) - Bill in Foreign Currencies – 25 days

30. NTP if the Bill drawn on DP/At Sight Basis and not under Letter
of Credit (LC) - Bills in Rupees – 20 days

31. In case of extending finance beyond prescribed NTP, maximum

period is restricted up to 90 days from the date of shipment.

32. No changes in due date shall be permitted subsequent to the

purchase, discounting or negotiation of export bill.

33. If the Bills are drawn in Rupees under Letters of Credit(L/C) -

Reimbursement provided at centre of negotiation – 3 days

34. If the Bills are drawn in Rupees under Letters of Credit(L/C) -

Reimbursement provided in India at centre different from centre of
negotiation – 7 days

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35. If the Bills are drawn in Rupees under Letters of Credit(L/C) -
Reimbursement provided by banks abroad – 20 days

36. If the Bills are drawn in Rupees under Letters of Credit(L/C) -

Exports to Russia if RBI reimburses – 20 days

37. If L/C provides for reimbursement by electronic means –

Reimbursement provided within 5 days

38. The conversion of foreign currency proceeds of export bills sent

for collection or of goods sent on consignment basis shall be done at
prevailing TT buying rate or the Fx contract rate, as the case may be.

39. The conversion to Rupee equivalent shall be made only after the
foreign currency amount is credited to the Nostro account of the
bank.

40. On receipt of credit advice/statement of Nostro account and

compliances of guidelines, requirements of the Bank and FEMA, the
Bank shall transfer funds for the credit of exporter’s account within
two working days. If the above stipulated time limit is not observed,
the Bank shall pay compensation for the delayed period at the
minimum interest rate charged on export credit.

41. Retirement of import bills Exchange rate as per hedge contract, if

hedge contract is in place. Prevailing Bill Selling rate, in case there is
no hedge contract.

42. For Crystallisation of Import bill Prevailing Bill Selling rate, in case
there is no hedge contract.

43. Bills negotiated under import letters of credit shall carry

commercial rate of interest.

45. Outward remittance shall be effected at TT selling rate of the bank

ruling on that date or at the Fx contract rate.

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46. The applicable exchange rate for conversion of the foreign
currency inward remittance shall be TT buying rate or the contracted
rate as the case may be.

47. Authorised Dealers shall pay or send intimation, as the case may
be, to the beneficiary in two working days from the date of receipt of
credit advice / Nostro statement. In case of delay, the bank shall pay
the beneficiary interest @ 2% over its savings bank interest rate. The
bank shall also pay compensation for adverse movement of exchange
rate, if any.

48. In case, the beneficiary does not respond within five working days
from receipt of credit intimation as above and the bank does not
return the remittance to the remitting bank, the bank shall initiate
action to crystallize the remittance;

49. In case of any dispute between the banks, the matter may be
referred to FEDAI. FEDAI will appoint a sub-committee of 3 members
from the Managing Committee and give directions to the parties
concerned.

50. Exchange contracts shall be for definite amounts and periods.

51. Unless the date of delivery is fixed, option period may be specified
at the discretion of the customer subject to maximum not extend
beyond one month.

52. If the fixed date of delivery or the last date of delivery option is a
known holiday; the last date for delivery shall be the preceding
working day.

53. In case of suddenly declared holidays, the contract shall be

deliverable on the next working day.

54. Contracts permitting option of delivery must state the first & last
dates of delivery.

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55. “Ready” or “Cash” merchant contract is deliverable on the same
day.

56. “Value next day” contract shall be deliverable on the working day
immediately succeeding the contract date.

57. A spot contract shall be deliverable on second succeeding

working day following the contract date.

58. A forward contract is a contract deliverable at a future date,

beyond Spot Date.

59. Duration of the contract being computed from spot value date at
the time of transaction.

60. All contracts shall be understood to read “to be delivered or paid

for at the Bank” and “at the named place”.

61. The exchange rate shall be quoted in direct terms i.e. so many
Rupees and Paise for 1 unit or 100 units of foreign currency.

62. Settlement of all merchant transactions may be effected by

rounding off rupee amount or in actual paise.

63. If a bank accepts or gives early delivery, the bank shall

recover/pay swap difference, if any. Interest on outlay/inflow of
funds for such swaps shall also be recovered / paid.

64. Foreign exchange contracts where extension is sought by the

customers shall be cancelled (at an appropriate selling or buying rate
as on the date of cancellation) and rebooked simultaneously only at
the current rate of exchange. The difference between the contracted
rate, and the rate at which the contract is cancelled, shall be
recovered from/paid to the customer.

65. Request for extension of Forex Contracts shall be made on or

before the maturity date of the contract.

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66. In case of cancellation of a contract at the request of a customer
(if the request is made on or before the maturity date) the Authorised
Dealer shall recover/ pay, as the case may be, the difference between
the contracted rate and the rate at which the cancellation is effected.

67. Purchase contracts shall be cancelled at TT selling rate of the

contracting Authorised Dealer

68. Sale contracts shall be cancelled at TT buying rate of the

contracting Authorised Dealer

69. Where the contract is cancelled before maturity, the appropriate

forward TT rate shall be applied.

70. In the absence of any instructions from the customer, a contract

which has matured shall be cancelled by the bank within the period
of not exceeding three working day after the maturity date.

71. For contract is cancelled after the maturity date the customer
shall not be entitled to the exchange difference. Customer shall,
however, be liable to pay the exchange difference, against him.

72. In all cases of early delivery of a contract, swap cost shall be

recovered from the customer, irrespective of whether an actual swap
is made or not.

73. Authorised Dealer shall recover interest on outlay of funds for the
purpose of arranging the swap, in addition to the swap cost in case
of early delivery of a contract.

74. If a swap leads to inflow of funds, interest shall be paid to the

customer.

75. Funds outlay/ inflow shall be arrived at by taking the difference

between the original contract rate and the rate at which the swap
could be arranged.

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76. Exchange brokers, Multi Bank Portals (MBP), Electronic Order
Matching Systems (EOMS) are some of the commonly used
intermediaries in foreign exchange markets.

77. Authorised Dealers shall use the services of intermediaries

accredited by FEDAI/RBI.

78. No brokerage, fees, charges or any other form of remuneration

shall be paid by the Authorised Dealers to other bank employees on
any foreign exchange contracts.

79. A voice broker (Exchange Broker) is a match maker who brings

market participants together, typically financial intermediaries,
seeking to transact financial instruments. Such brokers/ agents used
to carry out a transaction over phone (and hence, the voice element),
rather than via an electronic trading system.

80. All contracts/confirmations/advices in relation to foreign

exchange business must bear the clause “Subject to the Rules &
Regulations of the Foreign Exchange Dealers’ Association of India.”

81. No foreign exchange contract shall be made with an intermediary

as a principal.

82. A bank must refuse to give delivery to or take delivery from any
party other than the declared principal – an authorised dealer.

83. In the event of late delivery of any currency (including Indian

Rupee) in foreign exchange contract, interest for the number of days
of delay (regardless of the causes for delay) shall be payable by the
seller-bank. The interest for the overdue period shall be payable at
the rate of 2% over the benchmark rate of the currency concerned.

84. The claim for the delay in receipt of funds by the buyer bank
should be made within 15 working days from the due date of the
contract. The seller bank in such a case shall be liable to pay interest
for the full period of delay.

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85. If the claim is not made within 15 working days, the interest will
be payable by the selling bank for the maximum period of 60 days
only.

86. The selling bank has to settle the claim (with interest for overdue
period) within 15 working days from the date of receipt of claim.

87. If a claim is not settled within 15 working days, the seller bank
will be required to pay interest at the rate mentioned in 8.2 above for
the entire overdue period. The cap of 60 days for interest payment
will not apply in such cases.

88. In case the claim is not settled within 60 days from the date of
lodgement of claim, the matter may be referred to FEDAI for final
decision, which shall be binding on both the banks concerned.

89. In case of interbank forward contract, that allows option of

delivery, the buyer bank shall take up such forward contract after
giving a notice of 2 working days to the seller bank.

90. All interbank Forex Forward contracts should be subjected to the

CCIL’s Forex Forward Settlement segment.

91. When expiry date of an option contract falls on a “known

holiday”, expiry date is preponed to the previous working day.

92. If an option expiry date falls on a “suddenly declared holiday”,

the expiry date should be postponed to the next working day.

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02. Foreign Exchange Rates & Risk Management
01. A currency printed in another country is called Foreign currency.

02. Changing one currency to another in a local bank is called Foreign

Exchange.

03. Forex trading is trading of a currency pair where one currency is

sold and the other is simultaneously bought.

04. Foreign Exchange Rate is defined as the price of the domestic

currency with respect to another currency.

05. Exchange rates of a currency can be either fixed or floating.

06. Fixed exchange rate is determined by the central bank of the

country while the floating rate is determined by the dynamics of
market demand and supply.

07. There are three types of exchange rate systems

a) Fixed exchange rate System or Pegged exchange rate system.

b) Flexible exchange rate system is also known as the floating

exchange rate system.

c) Managed floating exchange rate system.

08. There is no intervention of the central banks or the government

in the floating exchange rate system.

09. Floating Exchange Rate System is dependent on the market forces

of supply and demand.

10. Managed floating exchange rate system is the combination of the

fixed (managed) and floating exchange rate systems.

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11. Under Managed floating exchange rate system the central banks
intervene or participate in the purchase or selling of the foreign
currencies.

12. Foreign Currency Option or Foreign Exchange Option is a

derivative financial instrument that gives the right to exchange
money denominated in one currency into another currency at a
specified rate on a specified date. This right to exchange cannot be
considered as an obligation.

13. Retail forex traders can avail 2 primary types of options – Call or
Put Option and Single Payment Options Currency Trading (SPOT)

14. When the buyer has the right to purchase a currency pair at a
given exchange rate in the future, then it is called the call option.

15. When the buyer has the right to sell a currency pair at a given
exchange rate in the future, then it is called the put option.

16. Single Payment Options Currency Trading (SPOT) are easier to set
and execute. They have higher premium costs compared to
traditional options.

17. FX options are also called Forex options or currency options.

18. The price of foreign exchange option tries to represent the

measure of risk.

19. The price of the currency option can be split into 2 components –
intrinsic value and time value.

20. Intrinsic value is the amount of money realized by exercising our

option, under the assumption that the FX spot rate will be the same
as the current rate on the date of expiry.

21. European Style – Only the price is relevant at the expiration date.

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22. American Style – Can exercise any time on or before its expiry, the
option is more flexible and more expensive.

23. Currencies are bought and sold in the foreign exchange market.

24. India has two kinds of foreign exchange markets – Spot Market &
Forward Market.

25. Presently, India follows a floating exchange rate system where the
exchange rate of currencies depends much on the market forces.
However, the RBI intervenes in the system during times of volatility
by buying and selling the currencies to stabilize the rate.

26. The foreign exchange market serves two major functions – to

facilitate currency conversions and to provide insurance against
foreign exchange risks.

27. The primary types of foreign exchange systems are – Spot Market,
Forward Market, and Futures Exchange, in reference to Exchange
Rate Management.

28. FEMA (Foreign Exchange Management Act) is much simpler than

FERA (Foreign Exchange Regulation Act) and contains only 49
sections, with regard to Exchange Rate Management.

29. A common definition of exchange rate risk relates to the effect of

unexpected exchange rate changes on the value of the firm.

30. The three main types of exchange rate risk are : Transaction risk,
Translation risk and Economic risk,

31. Transaction risk, which is basically cash flow risk and deals with
the effect of exchange rate moves on transactional account exposure
related to receivables (export contracts), payables (import contracts)
or repatriation of dividends.

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32. An exchange rate change in the currency of denomination of any
such contract will result in a direct transaction exchange rate risk to
the firm.

33. Translation exposure (also known as translation risk) is the risk

that a company's equities, assets, liabilities, or income will change in
value as a result of exchange rate changes.

34. Economic risk concerns the effect of exchange rate changes on

revenues (domestic sales and exports) and operating expenses (cost
of domestic inputs and imports).

35. Value-at-Risk (VaR) model is used to Measure Exchange Rate Risk

36. Value at Risk is defined as the maximum loss for a given exposure
over a given time horizon with z% confidence.

37. The two most commonly used cross-currency swaps are the Cross-
Currency Coupon Swap and The Cross-Currency Basis Swaps.

38. The cross-currency coupon swap is defined as buying a currency

swap and at the same time pay fixed and receive floating interest
payments.

39. Cross-currency basis swap is defined as buying a currency swap

and at the same time pay floating interest in a currency and receive
floating in another currency.

40. The most common type of option structure is the plain vanilla call,
which is defined as buying an upside strike in an exchange rate with
no obligation to exercise.

41. Currency futures are exchange-traded contracts specifying a

standard volume of a particular currency to be exchanged on a
specific settlement date.

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42. Currency futures are similar to forward contracts in that they
allow a firm to fix the price to be paid for a given currency at a future
point in time.

43. The price of currency futures will normally be similar to the

forward rates for a given currency and settlement date.

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03. FX Global Code
01. The FX Global Code is a set of principles of good practice for
foreign exchange market participants.

02. FX Global Code aims to promote the integrity and effective

functioning of the wholesale foreign exchange market.

03. The Global Code was developed by the FX Working Group, a

collaborative initiative between Central Banks and private sector
market participants under the auspices of the Markets Committee.

04. FX Global Code is a set of global principles of good practice in the

foreign exchange market. It contains 55 principles that provide a
common set of guidelines to promote the integrity and effective
functioning of the wholesale foreign exchange market.

05. FX Global Code is intended to promote a robust, fair, liquid, open,

and appropriately transparent market.
06. The Global Code does not impose legal or regulatory obligations
on Market Participants.

07. The Global Code is maintained by the Global Foreign Exchange

Committee (GFXC).

08. The GFXC was established in May 2017 as a forum bringing

together central banks and private sector participants to promote
collaboration and communication on FX matters, exchange views on
trends and developments in FX markets.

The Global Code is organised around six leading principles:

Ethics; Governance; Execution; Information Sharing; Risk

Management and Compliance; Confirmation and Settlement
Processes.
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04. Regulatory Requirements under FEMA
for Resident/ Non-resident Individuals

01. FEMA stands for Foreign Exchange Management Act, which is a

regulatory framework in India that governs foreign exchange
transactions, including those involving NRIs.

02. The Government of India enacted the Foreign Exchange

Management Act (FEMA) in 1999 to formulate rules and regulations
concerning the flow of currency across international borders.

03. An NRI cannot maintain a Resident Savings Account in India.

04. FEMA regulations allow NRIs to open three types of bank

accounts, namely,

Non Resident External (NRE),

Non Resident Ordinary (NRO) and
Foreign Currency Non Resident (Bank) Accounts [FCNR (B)].

05. While NRE and NRO Accounts are maintained in Indian Rupees,
the FCNR (B) Account stays denominated in the foreign currency
itself.

06. An NRI is free to open NRI Accounts with any authorised bank.

07. An NRI can remit foreign currency into India without any limit.

08. In case if NRI carries currency notes, travellers’ cheques and

banknotes while travelling to India, a declaration is required to be
made to Custom authorities on arrival in India through a specified
Currency Declaration Form (CDF).

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09. Currency Declaration Form (CDF) is not required; if the foreign
currency notes are less than or equal to US$ 5,000, or total of
travellers’ cheques and banknotes are less than or equal to US$
10,000.

10. There is no restriction specifically on NRIs to purchase residential

or commercial property in India.

11. NRIs can also receive immovable properties through inheritance

or as gifts from relatives.

12. NRIs cannot acquire agricultural land, plantations, and

farmhouses, etc., (except through inheritance) as the transactions are
covered under the list of prohibited transactions.

13. NRIs are allowed to invest in Indian securities, mutual funds, and
other financial instruments under FEMA, subject to certain limits and
conditions specified by RBI.

14. NRIs are allowed to inherit immovable property in India under

FEMA.

15. Under FEMA, the RBI allows NRIs to give gifts to residents in India,
subject to certain monetary limits and conditions.

16. Resident and Ordinarily Resident (ROR) is a residential status

classification under the Indian Income Tax Act.

17. An individual is considered a ROR if they have been present in

India for 182 days or more in the financial year or for 60 days or more
in the financial year and have been present in India for 365 days or
more during the four years immediately preceding the relevant
financial year.

18. An individual will be considered an Ordinarily Resident if they

have been a resident of India for at least two out of the ten previous
years immediately preceding the relevant financial year.

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19. ROR individuals are taxed on their global income, i.e., income
earned in India as well as income earned abroad.

20. Resident but Not Ordinarily Resident (RNOR) is a residential

status classification under the Indian Income Tax Act.

21. An individual is considered an RNOR if they have been a non-

resident in India in 9 out of the 10 previous years immediately
preceding the relevant financial year, or if they have been present in
India for 729 days or less in the preceding seven financial years.

22. RNOR individuals are taxed on their income earned in India, and
income received or deemed to be received in India. However, income
earned abroad is not taxed in India.

23. Non-Resident (NR) is a residential status classification under the

Indian Income Tax Act.

24. An individual is considered an NR if they do not satisfy the criteria

to be classified as a Resident or an RNOR.

25. NR individuals are taxed only on income earned or received in

India. Income earned abroad is not taxed in India.

26. NR individuals are required to file a tax return in India only if their
income in India exceeds the basic exemption limit, which is currently
Rs 2.5 lakhs per annum.

27. Non-Resident Indians (NRIs) who earn income in India but are
residents in another country may be eligible for tax benefits under
the Double Taxation Avoidance Agreement (DTAA) between India
and their country of residence.

28. The criteria to determine residential status in India are different

under Income Tax (IT) Act and Foreign Exchange Management Act
(FEMA).

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29. As per the IT laws, a person can either be a resident or a non-
resident in India. Individuals are treated as residents in India if they
fulfil any one of the two conditions: They were in India for 182 days
or more during the relevant financial year or were in India for 60 days
or more in the relevant FY and their cumulative stay in India is 365
days or more in the four preceding FYs.

30. FEMA recognises individuals as a ‘Person Resident in India’ or

‘Person Resident Outside India’. If during the previous financial year
a person stays for more than 182 days in India, then the person will
be treated as resident under FEMA; in all other cases he will be treated
as non-resident. However, there are some exceptions to this rule.

31. The key difference in determining residential status as per IT Act

and FEMA are that under the former, there is only one residential
status for the relevant year, while there can be more than one
residential status for the relevant year under FEMA .

32. Under the IT Act, citizenship of the person is important, if an

individual wishes to get exemption from paying tax in India.
However, under FEMA, citizenship is not important.

33. The nationality of a person doesn’t impact its residential status

neither under IT Act nor under FEMA.

34. Residency status as per IT Act determines taxability of the total

income and it is also relevant for filing Income Tax Return (ITR).

35. Residency status under FEMA doesn’t affect tax liability because
in this case an individual’s residency changes from a particular date
and may not be the same for the full year.

36. Under FEMA, the residency status mainly impacts Cross Border
Payments and who can exercise the Liberalised Remittance Scheme
(LRS) as it is not allowed to non-residents.

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05. Liberalised Remittance Scheme (LRS) &
Other Remittance Schemes.
01. The legal framework for administration of foreign exchange
transactions in India is provided by the Foreign Exchange
Management Act, 1999, (FEMA), which came into force with effect
from June 1, 2000.

02. Under FEMA, all transactions involving foreign exchange have

been classified either as capital or current account transactions.

03. All transactions undertaken by a resident that do not alter his /

her assets or liabilities, including contingent liabilities, outside India
are current account transactions.

04. In terms of Section 5 of the FEMA, persons resident in India are

free to buy or sell foreign exchange for any current account
transaction except for those transactions for which drawal of foreign
exchange has been prohibited by Central Government.

05. RBI (Reserve Bank of India) introduced the LRS to facilitate

smooth foreign transactions.

06. Under the Liberalised Remittance Scheme, Authorised Dealers

may freely allow remittances by resident individuals up to USD
2,50,000 per Financial Year (April March) for any permitted current
or capital account transaction or a combination of both.

07. The LRS is not available to corporates, partnership firms, HUF,

Trusts, etc.

08. The Scheme is available to all resident individuals including

minors.

09. In case of remitter being a minor, the Form A2 must be

countersigned by the minor’s natural guardian.

Page 25 of 116
10. The LRS scheme applies to the residents of India, and thus, the
remittance takes place through a savings account.

11. Remittances under the Scheme can be consolidated in respect of

family members subject to individual family members complying
with its terms and conditions. However, clubbing is not permitted by
other family members for capital account transactions such as
opening a bank account/investment , if they are not the co-
owners/co-partners of the overseas bank account/ investment

12. A resident cannot gift to another resident, in foreign currency, for

the credit of the latter’s foreign currency account held abroad under
LRS.

13. The limit of USD 2,50,000 per Financial Year (FY) under the
Scheme also includes/subsumes remittances for current account
transactions (viz. private visit; gift/donation; going abroad on
employment; emigration; maintenance of relatives abroad; business
trip; medical treatment abroad; studies abroad) available to resident
individuals.

14. Release of foreign exchange exceeding USD 2,50,000, requires

prior permission from the Reserve Bank of India.

15. Banks should not extend any kind of credit facilities to resident
individuals to facilitate capital account remittances under the
Scheme.

16. The Scheme is not available for remittances for any purpose
specifically prohibited.

17. The Scheme is not available for capital account remittances to

countries identified by Financial Action Task Force (FATF)

18. The resident individual seeking to make the remittance should

furnish Form A2 as at Annex for purchase of foreign exchange under
LRS.

Page 26 of 116
19. It is mandatory for the resident individual to provide his/her
Permanent Account Number (PAN) to make remittance under the LR
Scheme.

20. Resident individual is permitted to lend to a Non-resident Indian

(NRI)/ Person of Indian Origin (PIO) relative by way of crossed
cheque/ electronic transfer subject to the conditions:

a) the loan is free of interest and the minimum maturity of the loan
is one year;

b) the loan amount should be within the overall limit under the
Liberalised Remittance Scheme of USD 2,50,000

c) the loan shall be utilized for meeting the borrower’s personal

requirements or for his own business purposes in India except
specified purposes.

d) the loan amount should be credited to the NRO a/c of the NRI /
PIO. Credit of such loan amount may be treated as an eligible credit
to NRO a/c;

e) the loan amount shall not be remitted outside India; and

f) repayment of loan shall be made by way of inward remittances

through normal banking channels or by debit to the Non-resident
Ordinary (NRO) /Non-resident External (NRE) / Foreign Currency
Non-resident (FCNR) account of the borrower or out of the sale
proceeds of the shares or securities or immovable property against
which such loan was granted.

21. A resident Individual can make a rupee gift to a NRI/PIO who is a

relative of the resident individual by way of crossed cheque
/electronic transfer. The amount should be credited to the Non-
Resident (Ordinary) Rupee Account (NRO) a/c of the NRI / PIO and
credit of such gift amount may be treated as an eligible credit to NRO
a/c. The gift amount would be within the overall limit of USD 250,000.

Page 27 of 116
22. NRIs are permitted to transfer up to USD 10,000 from an NRO
account.

23. No limitations apply to payments made from an NRE or FCNR

account.

24. Profits gained from overseas investments made through LRS are
taxable in India depending on the investment’s holding period.

25. Investments (under LRS) over two years are considered long-term
capital gains and impose a tax of 20% on the total profit earned.

26. Profits earned from investments (under LRS) below two years are
taxed at normal income tax slab rates.

27. Under the LRS scheme, we are liable to pay a 5% TCS (Tax
Collected at Source) for remittances exceeding the limit of Rs.
7,00,000. However, we can claim a refund for the deducted TCS while
filing ITR (income tax return) using Form 26AS.

28. Outward remittance indicates the transfer of funds from an Indian

account to a foreign account.

29. The Liberalised Remittance Scheme only covers the provisions of

foreign remittance, i.e., sending money outside India.

30. The Foreign Contribution (Regulation) Act, 2010, covers the

provisions for accepting and utilising foreign income for individuals
and companies in India.

31. There are no restrictions on the frequency of remittances under

LRS. However, the total amount of foreign exchange purchased from
or remitted through, all sources in India during a financial year should
be within the cumulative limit of USD 2,50,000.

Page 28 of 116
32. Once a remittance is made for an amount up to USD 2,50,000
during the financial year, a resident individual would not be eligible
to make any further remittances under this scheme, even if the
proceeds of the investments have been brought back into the
country.

33. There are no restrictions towards remittances for current account

transactions to Mauritius and Pakistan.

34. The remittances can be made in any freely convertible foreign

currency.

35. LRS does not envisage extension of fund and non-fund based
facilities by the AD banks to their resident individual customers to
facilitate remittances for capital account transactions under LRS.

36. AD banks may extend fund and non-fund based facilities to

resident individuals to facilitate current account remittances under
the Scheme.

37. Bankers cannot open foreign currency accounts in India for

residents under LRS.

38. An Offshore Banking Unit (OBU) in India cannot be treated on par

with a branch of the bank outside India for the purpose of opening
of foreign currency accounts by residents under the LR Scheme.

39. If a sole proprietorship firm intends to remit the money under LRS
by debiting its current account then the eligibility of the proprietor
in his individual capacity has to be reckoned. If an individual in his
own capacity remits USD 250,000 in a financial year under LRS, he
cannot remit another USD 250,000 in the capacity of owner of the
sole proprietorship.

40. No prior approval is required to open, maintain and hold foreign

currency account with a bank outside India for making remittances
under the LRS.

Page 29 of 116
41. Persons other than individuals can Donate up-to one per cent of
their foreign exchange earnings during the previous three financial
years or USD 5,000,000, whichever is less.
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06. Foreign Currency Accounts in India/ Abroad

01. Foreign currency accounts are essential, particularly for business

owners that operate on an international level.

02. A foreign currency account is a multi-currency borderless account

that allows the account holder to send and receive payments in
various currencies in a single account (i.e. same account details for all
currencies).

03. Foreign currency account can be maintained by a bank in the

home country (onshore) or in a bank in another country (offshore).

04. A multi-currency account is a type of account that offers multiple

currencies for transactions in a single bank account with the same
account details.

05. Multi-currency account users can manage international

transactions, hold different currencies, and leverage currency
exchange rates.

06. Foreign currency accounts act as bridges between nations,

facilitating international financial interactions with unprecedented
simplicity and seamlessness.
07. Exchange Earner’s Foreign Currency (EEFC) Account is used by
Special Economic Zones (SEZ) developers and certain exporters.

08. All categories of Foreign Exchange Earners including Individuals

are allowed to credit 100% of their Foreign Exchange Earnings to their
EEFC account subject to condition that Sum total of accruals during a
calendar month in the EEFC account should be converted into Rupees
on or before the last day of succeeding calendar month after
adjusting for utilization of the balances for approved purposes like
Forward commitment and import commitment.

Page 31 of 116
09. EEFC accounts cannot be opened wherever RBI has specifically
permitted exporters to maintain foreign currency accounts with
banks abroad.

10. The resident beneficiaries of the payments received in foreign

exchange from the EEFC account holders are not eligible for EEFC
facility.
11. Only Current Account in USD, GBP, EURO, AUD & CAD can be
opened in EEFC.
12. EEFC is Non-interest bearing current account.

13. In case of EEFC, No Minimum balance stipulated.

14. No credit facilities, either fund based or non-fund based should
be permitted against the security of balances held in EEFC accounts.

15. Further no lien can be marked for the balance held in EEFC
accounts.

16. Resident Individuals are permitted to include Resident Close

Relative/s as Joint A/c Holder/s in their EEFC account on “Former or
Survivor” basis. Such Resident Indian Close Relative/s shall not be
eligible to operate the account during the life time of the Resident
Account Holder.

17. Resident Foreign Currency Account (RFC) can be in the form of a

current, savings or term deposit.

18. RFC allows for the free utilisation of foreign currency balances.
19. RFC accounts are especially useful for Non Resident Indians (NRI)
who return to India for good (permanently) and would like to bring
back/maintain the Foreign Currency from their overseas bank
accounts.

20. The funds in RFC account can be freely utilized by the Account
Holder for any bonafide remittance outside India through normal
banking channels including for investments abroad.

Page 32 of 116
21. Returning Indians, i.e. those Indians, who were Non-Residents
earlier and are returning now for permanent stay, are permitted to
open, hold and maintain with an Authorized Dealer in India a Foreign
Currency Account – RFC

22. CA/SB, FDR, KDR Accounts can be opened in 5 currencies (USD,

GBP, EURO, AUD & CAD)
23. No Cheque Book Facility for RFC SB and RFC CA.

23. Min. 100 units of any of the above Currency for opening of RFC
SB/RFC CA Accounts.

24. For RFC SB/ RFC CA, no Interest if balance below 1000 units in
each currency. However, Min Interest Payable USD 10 per Half Year
or in equivalent in other currencies.

25. Minimum amount of 1000 units required in each currency for

opening of KDR/FDR

26. Period for RFC FDR Min.1-month Max 3 years.

27. If the RFC Deposit amount is USD 2,50,000/- or its equivalent in

in other currencies, the minimum period can be accepted is of One
Week or less than One month

28. RFC FDR – Minimum One month and maximum 3 Years

29. Non-Resident individual(s) may include resident close relative(s)
as a joint holder(s) in their RFC bank accounts on ‘Former Or Survivor’
basis. However, such resident close relative shall not be eligible to
operate the account during the life time of the Resident Account
Holder.

30. Employees/Ex-employees of the bank are not eligible for

preferential rate of interest on RFC deposits.

31. Odd amounts also be accepted in RFC accounts

Page 33 of 116
32. Resident Foreign Currency (Domestic) Account [RFC(D)] Account
can be opened from foreign exchange acquired in various forms,
including gifts, honorariums and unspent foreign exchange.

33. RFC (D) is a non-interest-earning current account with specific

conversion requirements.
34. Person Resident in India is permitted to open, hold an maintain
with an Authorized Dealer in India a Foreign Currency Account to be
known as “Resident Foreign Currency [Domestic] Account”, out of
foreign exchange acquired in the form of currency notes, bank notes
and travellers cheques subject to certain terms and conditions.

35. RFCROI – Permitted currency USD, GBP, EURO.

36. There is no stipulation regarding maintenance of Minimum
Balance in RFC (D)
37. No cheque book should be issued in RFC (D)

38. The balances in the RFC (D) account may be allowed to be credited
to NRE/FCNR account, at the option/request of the account holder,
consequent upon the change of the residential status of the account
holder from Resident to Non-resident.
39. Diamond Dollar Account (DDA) is maintained in US Dollars as a
current account without interest for Gems & Jewellery Exporters

40. Maximum open 5 DD Accounts (in US$ only) as current accounts

41. Intra-Account Transfer: No intra-account transfer should be

allowed between the DDAs maintained by the account holder.
42. Exporter Firms and companies maintaining foreign currency
accounts, excluding EEFC accounts, with banks in India or abroad, are
not eligible to open Diamond Dollar Accounts.

43. DDA account holders are allowed to retain 100% of foreign

exchange earnings in their non-interest bearing DDA accounts

Page 34 of 116
44. DDA account holders can access the forex market for purchasing
foreign exchange without utilizing the balances in their DDA
accounts.

45. There is no minimum balance requirement in case of Diamond

Dollar Account.
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Page 35 of 116
07. Acquisition & Remittance of Assets Abroad
01. According to section 6(4) of the FEMA, a person resident in India
can hold, own, transfer or invest in any immovable property situated
outside India if such property was acquired, held or owned by him/
her when he/ she was resident outside India or inherited from a
person resident outside India.

02. A resident individual can send remittances under the Liberalised

Remittance Scheme (LRS) for purchasing immovable property
outside India.

03. A person resident in India may acquire immovable property

outside India by way of inheritance or gift or purchase from a person
resident in India who has acquired such property as per the foreign
exchange provisions in force at the time of such acquisition.
04. NRI/OCI (Oversees Citizen of India) can Purchase immovable
property in India (other than agricultural land/ farmhouse/
plantation etc) from Resident/ NRI/ OCI

05. NRI can acquire as gift immovable property in India (other than
agricultural land/ farmhouse/ plantation etc) from Resident/ NRI/
OCI who is a relative

06. NRI can acquire immovable property in India as inheritance from

a. Any person who has acquired it under laws in force

b. Resident
07. NRI/OCI can Sell (other than agricultural land/ farmhouse/
plantation etc) to Resident/ NRI/ OCI

08. NRI/OCI can Sell (agricultural land) to Resident

09. NRI/OCI can Gift (other than agricultural land) to Resident/ NRI
/ OCI

10. NRI/OCI can Gift (agricultural land) to Resident

Page 36 of 116
11. NRI/OCI can Gift residential/ commercial property to Resident/
NRI/ OCI

12. Payment for immovable property has to be received in India

through banking channels and is subject to payment of all taxes and
other duties/ levies in India. The payment can also be made out of
funds held in NRE/ FCNR(B)/ NRO accounts of the NRIs/ OCIs.
Payments should not be made through travellers’ cheque and foreign
currency notes.

13. Foreign Embassy/ Diplomat/ Consulate General, can purchase/

sell immovable property (other than agricultural land/ plantation
property/ farm house) in India provided –
Clearance from the Government of India, Ministry of External Affairs
is obtained for such purchase/sale, and
The consideration for acquisition of immovable property in India is
paid out of funds remitted from abroad through banking channels.

14. Citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China,

Iran, Nepal, Bhutan, Macau, Hong Kong or Democratic People’s
Republic of Korea (DPRK), irrespective of their residential status,
cannot, without prior permission of the Reserve Bank, acquire or
transfer immovable property in India, other than on lease, not
exceeding five years. This prohibition shall not be applicable to an
OCI.

15. Foreign nationals of non-Indian origin resident in India (except

11 countries specified) can acquire immovable property in India.

16. Foreign nationals of non-Indian origin resident outside India can

acquire/ transfer immovable property in India, on lease not
exceeding five years and can acquire immovable property in India by
way of inheritance from a resident.

Page 37 of 116
17. If a foreign national leaves India after being in employment here,
his Indian bank account may be designated as NRO account.

18. Long Term Visa (LTV) holder acquire property in India

19. Citizen of Pakistan, Bangladesh or Afghanistan belonging to

minority community (Hindu, Christian, Sikh, Parsi, Buddhist, Jain) in
that country and residing in India who has been granted an LTV by
the Central government can purchase only one residential immovable
property in India as dwelling unit for self-occupation and only one
immovable property for carrying out self-employment. However,
such acquisition is subject to the conditions as specified under FEMA
Rules, 2019.

20. A person resident outside India, not being a Non-Resident Indian

or an Overseas Citizen of India, who is a spouse of a Non-Resident
Indian or an Overseas Citizen of India may acquire one immovable
property (other than agricultural land/ farm house/ plantation
property), jointly with his/ her NRI/ OCI spouse subject to the
conditions laid down in FEMA Rules, 2019.
21. A person who has acquired the property or his successor cannot
repatriate the sale proceeds of such property without RBI approval.

22. NRIs/ PIOs can remit the sale proceeds of immovable property
(other than agricultural land/ farm house/ plantation property) in
India subject conditions.
23. In the case of residential property, the repatriation of sale
proceeds is restricted to not more than two such properties.

24. As per section 2(ze) of FEMA transfer means, sale, purchase,

exchange, mortgage, pledge, gift, loan or any other form of transfer
of right, title, possession or lien.
25. A foreign national of non-Indian origin (other than Nepal/
Bhutan/ PIO) may remit proceeds from the following assets up to
USD 1 Million in a financial year.

Page 38 of 116
26. Section 6(5) of FEMA states that a person resident outside India
may hold, own, transfer or invest in any immovable property situated
in India if such property was acquired, held or owned by such person
when he was resident in India or inherited from a person who was
resident in India.

27. An NRI/ PIO may remit proceeds from the following assets up to
USD 1 Million in a financial year

28. RBI approval is required if Remittance is in excess of USD

1,000,000 (US Dollar One million only) per financial year.

29. The sale proceeds of all the assets shall first be transferred to the
NRO account.
30. A Non – Resident Indian/ or a PIO may remit an amount of USD 1
million per financial year out of the balance lying in his NRO account.
However, this remittance facility is not available to the citizens of
Pakistan, Bhutan, Nepal and Bangladesh.
31. The current income like rent, interest, pension, dividend may be
credited directly to the NRE account of the PIO/NRI, if AD is satisfied
that applicable taxes have been paid/provided for.
32. Students can receive USD 100000 from close relatives towards
maintenance (this includes fees for education).
33. An Indian resident employed by a foreign company wherein the
Indian resident is working in the Indian branch/ joint venture/ rep
office of the foreign company is allowed to open, hold & maintain a
foreign currency account. However, the income tax payable on such
salary should be paid as per provisions of Income Tax Act, 1961. 34.
34. A Foreigner who is resident in India and is employed in an Indian
Company may transfer his Indian Salary to a foreign currency account
provided the relevant Indian Income Tax has been paid/ provided for.

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Page 39 of 116
08. Facilities for Non-resident Indians
(Deposits, Investments, Borrowing etc.)
01. In India, there are three types of accounts that Non-Resident
Indians (NRIs) can open – NRE Account, NRO Account, and FCNR (B)
Account.

02. NRI accounts can only be opened by individuals who have been
residing out of the geographical territories of India for at least 120
days in a year and spent less than 365 days in India in four previous
years. It is because such individuals’ residential status would then
change to an NRI, as per the Income Tax Act 1961.

03. If an individual leaves India with the purpose of employment in a

different nation, he/she shall be declared NRI immediately.

04. NRE stands for Non-Resident External Account,

05. NRO stands for Non-Resident Ordinary Account,
06. FCNR - Foreign Currency Non-Resident) bank Account.

07. Non-Residential External or NRE Account can be opened and

maintained by NRIs with earnings originating from the respective
individual’s country of residence but shall be held in Indian rupee
denominations.

08. An NRO or Non-Residential Ordinary Account can be opened with

income earned from within India and shall be held in that deposit
account in INR denominations. The source of income can either be
rent, dividends, etc.

09. FCNR or Foreign Currency Non-Residential Account facilitates

deposits made by Non-Residential Indians (NRIs) or Persons of Indian
Origin (POI). NRIs or POI can make these deposits in the currency of
their country of residence and shall be held in that account in any one
of the foreign currencies prescribed by RBI.

Page 40 of 116
10. The currencies in which deposits can be held in an FCNR (B)
Account are – US Dollars (USD), Canadian Dollar (CAD), Australian
Dollar (AUD), Euro (EUR), Great Britain Pound Sterling (GBP),
Singapore Dollar (SGD), Hong Kong Dollar (HKD), Japanese Yen (JPY)
and Swiss Franc (CHF).

11. NRE and FCNR accounts permit full repatriation, which means you
can transfer both the principal amount and the interest earned to
your foreign bank account without any restrictions. NRO accounts
have limitations on repatriation.

12. NRI accounts can be held jointly with resident (Operating

Instructions – Former or Survivor) or non-resident (Operating
Instructions – Either or Survivor) close family members by providing
power of attorney to manage finances together.

13. An NRI between the age of 18 years to 60 years can open an NPS
account with a POP (Point of Presence) in India.

14. One can continue with PPF account which he opened when he
was a resident Indian. However, he cannot extend the PPF account
after the maturity period of 15 years.

15. An NRI cannot open a PPF account in India.

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Page 41 of 116
09. Import of Goods/Services & Non-import remittance

01. Except for goods included in the negative list which require
licence under the Foreign Trade Policy in force, AD may freely open
letters of credit and allow remittances for import.

02. While opening letters of credit, the ‘For Exchange Control

purposes’ copy of the licence should be called for and special
conditions, if any, attached to such licences should be adhered to.

03. After effecting remittances under the licence, AD may preserve

the copies of utilised licence /s till they are verified by the internal
auditors or inspectors.

04. Any person acquiring foreign exchange is permitted to use it

either for the purpose mentioned in the declaration made by him to
an AD or to use it for any other purpose for which acquisition of
foreign exchange is permissible under the said Act.
05. Where foreign exchange acquired has been utilised for import of
goods into India, the AD should ensure that the importer furnishes
evidence of import viz., Exchange Control Copy of the Bill of Entry,
Postal Appraisal Form or Customs Assessment Certificate, etc., and
satisfy himself that goods equivalent to the value of remittance have
been imported.

06. In addition to the permitted methods of payment for imports,

payment for import can also be made by way of credit to non-
resident account of the overseas exporter maintained with a bank in
India. In such cases also AD should ensure compliance with the
instructions related to obtention of evidence of imports (Bill of Entry
etc.

07. Remittances against imports should be completed not later than

six months from the date of shipment, except in cases where
amounts are withheld towards guarantee of performance, etc.

Page 42 of 116
08. AD may permit settlement of import dues delayed due to
disputes, financial difficulties, etc. Interest in respect of delayed
payments, usance bills or overdue interest for a period of less than
three years from the date of shipment.

09. Any deferred payment arrangements (including suppliers’ and

buyers’ credit) entered into, for up to three years in case of import of
capital goods and up to one year or the operating cycle whichever is
less, in case of import of non-capital goods, shall be treated as trade
credits.

10. Remittances against import of books may be allowed without

restriction as to the time limit, provided, interest payment, if any, on
usance bills or overdue interest on delayed payments for a period of
less than three years from the date of shipment at the rate prescribed
for trade credit from time to time.

11. AD Category – I banks can consider granting extension of time for

settlement of import dues up to a period of six months at a time
(maximum up to the period of three years) irrespective of the invoice
value for delays on account of disputes about quantity or quality or
non-fulfilment of terms of contract; financial difficulties and cases
where importer has filed suit against the seller.
12. Any person resident in India who had gone out of India on a
temporary visit, may bring into India at the time of his return from
any place outside India (other than from Nepal and Bhutan), currency
notes of Government of India and Reserve Bank of India notes up to
an amount not exceeding Rs.25,000 (Rupees twenty five thousand
only).

13. A person may bring Into India from ”Nepal’ or Bhutan, currency
notes of G.O.I and Reserve Bank of India for any amount in
denominations up to Rs.100/-.

Page 43 of 116
14. An authorised dealer may give a guarantee in respect of any debt,
obligation or other liability incurred by a person resident in India and
owned to a person resident outside India, as an importer, in respect
of import on deferred payment terms in accordance with the
approval by the Reserve Bank of India for import on such terms.

15. An authorised dealer may give guarantee, Letter of Undertaking

of Letter of Comfort in respect of any debt, obligation or other
liability incurred by a person resident in India and owned to a person
resident outside India (being an overseas supplier of goods, bank or
a financial institution), for import of goods, as permitted under the
Foreign Trade Policy.
16. An authorised dealer may give a guarantee for an amount
exceeding USD 500,000 in favour of a non-resident service provider,
on behalf of a resident customer who is a service importer, subject to
such terms and conditions as stipulated by Reserve Bank of India
from time to time:

17. Physical import of goods into India is made within six months
(three years in case of capital goods) from the date of remittance and
the importer gives an undertaking to furnish documentary evidence
of import within fifteen days from the close of the relevant period.
18. AD bank shall create Outward Remittance Message (ORM) for all
outward remittances in IDPMS.

19. AD may allow payment of interest on usance bills or overdue

interest for a period of less than three years from the date of
shipment at the rate prescribed for trade credit from time to time.

20. In case of pre-payment of usance import bills, remittances may

be made only after reducing the proportionate interest for the
unexpired portion of usance at the rate at which interest has been
claimed or LIBOR/any other widely accepted/Alternative reference
rate of the currency of invoice of the currency in which the goods
have been invoiced, whichever is applicable.

Page 44 of 116
21. Import bills and documents should be received from the banker
of the supplier by the banker of the importer in India.

22. AD should not make remittances where import bills have been
received directly by the importers from the overseas supplier, except
in the following cases:
i) Where the value of import bill does not exceed USD 300,000.
ii) Import bills received by wholly-owned Indian subsidiaries of
foreign companies from their principals.

iii) Import bills received by Status Holder Exporters, 100% EOU / Units
in SEZ PSUs and All Limited Companies (viz. public limited, deemed
public limited and private limited companies.
23. ADs are permitted to allow remittance for imports up to USD
300,000 where the importer of rough diamonds, rough precious and
semi-precious stones has received the import bills / documents
directly from the overseas supplier and the documentary evidence for
import is submitted by the importer at the time of remittance.

24. In case of all imports, where value of foreign exchange remitted

/ paid for import into India exceeds USD 100,000 or its equivalent, it
is obligatory on the part of the AD through whom the relative
remittance was made, to ensure that the importer submits :-
(a) The Exchange Control Copy of the Bill of Entry for home
consumption, or

(b) The Exg Control Copy of BoE for warehousing, in case of 100%
EOU, or
(c ) Customs Assessment Certificate or Postal Appraisal Form, as
declared by the importer to the Customs Authorities, where import
has been made by post, as evidence that the goods for which the
payment was made have actually been imported into India.

Page 45 of 116
25. In respect of imports on D/A basis, AD should insist on production
of evidence of import at the time of effecting remittance of import
bill.

26. AD may accept, in lieu of Exchange Control Copy of Bill of Entry

for home consumption, a certificate from the Chief Executive Officer
(CEO) or auditor of the company that the goods for which remittance
was made have actually been imported into India provided :-

(a) The amount of foreign exchange remitted is less than USD

1,000,000 or its equivalent.

(b) The importer is a company listed on a stock exchange in India and

whose net worth is not less than Rs.100 crore as on the date of its last
audited balance sheet, or, the importer is a public sector company or
an undertaking of the Government of India or its departments.

The above facility may also be extended to autonomous bodies,

including scientific bodies /academic institutions, such as IIS / IIT etc.
whose accounts are audited by the Comptroller and Auditor General
of India (CAG).

AD may insist on a declaration from the auditor/CEO of such

institutions that their accounts are audited by CAG.
27. Where imports are made in non-physical form, i.e., software or
data through internet / datacom channels and drawings and designs
through e-mail / fax, a certificate from a Chartered Accountant that
the software / data / drawing/ design has been received by the
importer, may be obtained.

28. In case an importer does not furnish any documentary evidence

of import, as required within 3 months from the date of remittance
involving foreign exchange exceeding USD 100,000, the AD should
rigorously follow-up for the next 3 months, including issuing
registered letters to the importer.

Page 46 of 116
29. AD should submit a statement on half-yearly basis as at the end
of June & December of every year, in form BEF furnishing details of
import transactions, exceeding USD 100,000 in respect of which
importers have defaulted in submission of appropriate document
evidencing import within 6 months from the date of remittance using
eXtensible Business Reporting Language (XBRL) system online and
Bank-wise instead of the present system of branch-wise
submission, to the respective Regional Offices of the RBI.

The Statement should be submitted within 15 days from the close of

the half-year to which the statement relates.

30. AD need not follow up submission of evidence of import involving

amount of USD 100,000 or less provided they are satisfied about the
genuineness of the transaction and the bonafides of the remitter.
31. Nominated banks are permitted to import gold on consignment
basis.

32. Star and Premier Trading Houses (STH/PTH) can import gold on
Document against Payment (DP) basis as per entitlement without any
end use restrictions.

33. For a trade to be classified as Merchanting Trade following

conditions should be satisfied:
a. Goods acquired should not enter the Domestic Tariff Area and

b. The state of the goods should not undergo any transformation.

34. As Nepal and Bhutan are landlocked countries, there is a facility

of transit trade whereby goods are imported from third countries by
Nepal and Bhutan through India under the cover of Customs Transit
Declarations in terms of the Government of India Treaty of Transit
with these two countries. Goods consigned to the importers of Nepal
and Bhutan from third countries under merchanting trade from India
would qualify as traffic-in-transit.
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Page 47 of 116
10. External Commercial Borrowings (ECBs)
01. ECBs refer to the borrowing of funds by Indian companies from
foreign sources in the form of loans, bonds, or other financial
instruments.
02. External Commercial Borrowing (ECB) is an instrument used to
facilitate Indian companies or big corporations to raise money
outside the country in foreign currency.

03. External Commercial Borrowing is fundamentally a loan availed

by an Indian company from a non-resident foreign lender.

04. ECB can be in the form of rupee-denominated loans, which are

repaid in Indian rupees, or foreign currency-denominated loans,
which are repaid in a foreign currency.

05. ECB is subject to regulatory oversight by the RBI, which sets limits
on the amount of ECB that Indian companies can obtain and the
purposes for which it can be used.
06. ECB provides an opportunity to borrow a large volume of funds
for the long term.

07. The cost of funds is usually cheaper if borrowed from economies

with a lower rate of interest.

08. ECBs are in the form of foreign currencies. Hence, they enable the
corporate to have foreign currency to meet the import of machineries
etc.

09. ECB in Automatic route: If a company passes all the prescribed

norms specified by the government, it can raise money without any
prior approval.

10. ECB in Approval route: For specific sectors, the borrowers have to
take the permission of the government before borrowing through
ECB.

Page 48 of 116
11. External commercial borrowings typically have a three-year
minimum maturity length.

12. The Department of Economic Affairs of the Ministry of Finance,

in collaboration with the Reserve Bank of India, supervises and
regulates ECB guidelines and regulations.
13. The majority of the external debt is denominated in US dollars.
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11. Export of Goods and Services
01. Export trade is regulated by the Directorate General of Foreign
Trade (DGFT) Department of Commerce, Government of India.

02. ADs have been permitted to issue guarantees on behalf of

exporter clients on account of exports out of India subject to
specified conditions.

03. All export contracts and invoices shall be denominated either in

freely convertible currency or Indian rupees but export proceeds shall
be realized in freely convertible currency.

04. AD may consider requests for grant of EDF (Export Declaration

Form) waiver from exporters for export of goods free of cost, for
export promotion up to 2 per cent of the average annual exports of
the applicant during the preceding three financial years subject to a
ceiling of Rs.5 lakhs.

05. For status holder exporters, the limit (waiver of EDF) is Rs.10
lakhs or 2 per cent of the average annual export realization during
the preceding three licensing years (April-March), whichever is
higher.
06. Exports of goods not involving any foreign exchange transaction
directly or indirectly requires the waiver of EDF procedure from the
Reserve Bank.
07. “Financial Year” (April to March) is reckoned as the time base for
all transactions pertaining to trade related issues.

08. OPGSPs - Online Payment Gateway Service Providers

09. At the time of setting up of the office, AD may allow remittances
towards initial expenses up to fifteen per cent of the average annual
sales/income or turnover during the last two financial years or up to
twenty-five per cent of the net worth, whichever is higher.

Page 50 of 116
10. For recurring expenses, remittances up to ten per cent of the
average annual sales/income or turnover during the last two financial
years may be sent for the purpose of normal business operations of
the office (trading/non-trading)/branch or representative office
outside India subject to certain terms and conditions.

11. AD can also allow exporters having a minimum of three years’

satisfactory track record to receive long term export advance up to a
maximum tenor of 10 years to be utilized for execution of long term
supply contracts for export of goods subject to certain conditions.

12. AD may allow exporters to receive advance payment for export

of goods which would take more than one year to manufacture and
ship and where the ‘export agreement’ provides for shipment of
goods extending beyond the period of one year from the date of
receipt of advance payment subject to the certain conditions.

13. Firms participating in Trade Fair abroad can take/export goods

for exhibition and sale outside India without the prior approval of the
Reserve Bank.
14. The exporter shall produce relative Bill of Entry within one month
of re-import into India of the unsold items (Goods exported earlier
for participation in Trade Fair).

15. Where the goods being exported for testing are destroyed during
testing, AD may obtain a certificate issued by the testing agency that
the goods have been destroyed during testing, in lieu of Bill of Entry
for import.
16. Special Notified Zone of Customs - SNZ

17. Domestic Tariff Area – DTA

18. Prior approval of the Reserve Bank is required for export of

machinery, equipment, etc., on lease, hire basis under agreement
with the overseas lessee against collection of lease rentals/hire
charges and ultimate re-import.

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19. AD may permit 'Status Holder Exporters’ and units in Special
Economic Zones (SEZ) to dispatch the export documents to the
consignees outside India subject to the certain conditions. In such
case, the duplicate copy of the EDF is submitted to the AD for
monitoring purposes, by the exporters within 21 days from the date
of shipment of export.
20. AD may dispatch shipping documents direct to the consignees or
their agents resident in the country of final destination of goods in
cases where Advance payment or an irrevocable letter of credit has
been received for the full value of the export shipment and the
underlying sale contract/letter of credit provides for dispatch of
documents direct to the consignee or his agent resident in the
country of final destination of goods.
21. Exporters intending to export goods on elongated credit terms
may submit their proposals giving full particulars through their banks
for consideration to the Regional Office concerned of the Reserve
Bank.
22. Export of engineering goods on deferred payment terms and
execution of turnkey projects and civil construction contracts abroad
are collectively referred to as ‘Project Exports’.
23. Any person resident in India may take outside India (other than
to Nepal and Bhutan) currency notes of Government of India and
Reserve Bank of India notes up to an amount not exceeding Rs.25,000
(Rupees twenty five thousand only); and

24. Any person resident outside India, not being a citizen of Pakistan
and Bangladesh and also not a traveller coming from and going to
Pakistan and Bangladesh, and visiting India may take outside India
currency notes of Government of India and Reserve Bank of India
notes up to an amount not exceeding Rs. 25,000 (Rupees twenty five
thousand only) while exiting only through an airport.

Page 52 of 116
25. After the documents have been negotiated / sent for collection,
the AD should report the transaction through Export Data Processing
and Monitoring System (EDPMS) to the RBI.

26. Postal Authorities will allow export of goods by post only if the
original copy of the form has been countersigned by an AD.
Therefore, EDF forms which involve sending goods by post should
be first presented by the exporter to an AD for countersignature.

27. In cases where exporters’ present documents pertaining to

exports after the prescribed period of 21 days from date of export,
AD may handle them without prior approval of the Reserve Bank,
provided they are satisfied with the reasons for the delay.

28. The duplicate copies of EDF and shipping documents, once

submitted to the for negotiation, collection, etc., should not
ordinarily be returned to exporters, except for rectification of errors
and resubmission.

29. AD may deliver one negotiable copy of the Bill of Lading to the
Master of the carrying vessel or trade representative for exports to
certain landlocked countries if the shipment is covered by an
irrevocable letter of credit and the documents conform strictly to the
terms of the LC which provides for such delivery.

30. AD may allow payment of commission, either by remittance or

by deduction from invoice value, on application submitted by the
exporter.

31. AD through whom the export proceeds were originally realized

may consider requests for refund of export proceeds of goods
exported from India and being re-imported into India on account of
poor quality.

32. The importer-exporter code number allotted by the Director

General of Foreign Trade shall be indicated on all copies of the
declaration forms submitted by the exporter to the specified
authority and in all correspondence of the exporter with the
authorised dealer or the Reserve Bank, as the case may be.
Page 53 of 116
33. The declaration in form EDF shall be submitted in duplicate to the
Commissioner of Customs. After duly verifying and authenticating
the declaration form, the Commissioner of Customs shall forward the
original declaration form/data to the nearest office of the Reserve
Bank and hand over the duplicate form to the exporter for being
submitted to the authorised dealer.
34. The declaration in Form SOFTEX in respect of export of computer
software and audio/video / television software shall be submitted in
triplicate to the designated official of Ministry of Information
Technology, Government of India at the Software Technology Parks
of India (STPIs) or at the Free Trade Zones (FTZs) or Special Economic
Zones (SEZs) in India. After certifying all three copies of the SOFTEX
form, the said designated official shall forward the original directly
to the nearest office of the Reserve Bank and return the duplicate to
the exporter. The triplicate shall be retained by the designated official
for record.
35. On the realisation of the export proceeds, the duplicate copies of
export declaration forms viz. EDF and SOFTEX shall be retained by
the Authorised Dealers.

36. It has been decided in consultation with the Government of India

that the period of realization and repatriation of export proceeds
shall be nine months from the date of export for all exporters
including Units in Special Economic Zones (SEZs), Status Holder
Exporters, Export Oriented Units (EOUs), Units in Electronic Hardware
Technology Parks (EHTPs), Software Technology Parks (STPs) & Bio-
Technology Parks (BTPs).

37. For goods exported to a warehouse established outside India, the

proceeds shall be realized within fifteen months from the date of
shipment of goods.

Page 54 of 116
38. The documents pertaining to export shall be submitted to the
authorised dealer mentioned in the relevant export declaration form,
within 21 days from the date of export, or from the date of
certification of the SOFTEX form.

39. All eligible current account transactions including trade

transactions with Sri Lanka may be settled in any permitted currency
outside the ACU mechanism with effect from July 08, 2022, until
further notice.

40. In order to facilitate transactions / settlements, effective March

06, 2020, participants in the Asian Clearing Union will have the option
to settle their transactions either in ACU Dollar or in ACU Euro or in
ACU Japanese Yen.

41. With effect from July 11, 2022 all exports and imports may be
denominated and invoiced in Rupee (INR).

42. Accordingly, for settlement of trade transactions with any

country, AD bank in India may open Special Rupee Vostro Accounts
of correspondent bank/s of the partner trading country.

43. Exports of goods not involving any foreign exchange transaction

directly or indirectly requires the waiver of EDF procedure from the
Reserve Bank.
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12. Outward Direct Investment (ODI)
01. Outward direct investment (ODI) is a business strategy in which a
domestic firm expands operations into a foreign country.

02. ODI also called outward foreign direct investment or direct

investment abroad.

03. ODI is different from Foreign direct investment (FDI).

04. FDI occurs when a company purchases an interest in a company

by a company located outside its own borders.

05. ODI occurs when a resident company invests in a wholly-owned

subsidiary (or joint venture) in a non-resident country, in order to
expand the business.

06. ODI can be achieved through two routes: Automatic route and
Approval route.
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13. Offshore Investing (Investing Globally)
01. The Indian exchange control rules govern the overseas
investment of Indian citizens.

02. Offshore investing opens up the possibility of global

diversification and offers exposure to some of the essential
businesses and economies on the planet and to market segments
unavailable in India.

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Page 57 of 116
14. FDI ; FPI & FII
01. FDI implies investment by foreign investors directly in the
productive assets of another nation.

02. FPI means investing in financial assets , such as stocks and bonds
of entities located in another country.

03. FDI investors typically take controlling positions in domestic firm

and are actively involved in their management. FPI investors, on the
other hand, are generally passive investors who are not actively
involved in the day-to-day operations and strategic plans of domestic
companies, even if they have a controlling interest in them.

04. FDI investors perforce have to take a long-term approach to their

investments since it can take years from the planning stage to project
implementation. On the other hand, FPI investors prefer a much
shorter investment horizon.

05. FDI investors cannot easily liquidate their assets and depart from
a nation, since such assets may be very large and quite illiquid. FPI
investors can exit a nation literally with a few mouse clicks, as
financial assets are highly liquid and widely traded.
06. Foreign Investment means any investment made by a person
resident outside India on a repatriable basis in capital instruments of
an Indian company.
07. Foreign Direct Investment (FDI) is the investment through capital
instruments by a person resident outside India in an unlisted Indian
company; or in 10 % or more of the post issue paid-up equity capital
on a fully diluted basis of a listed Indian company.

08. Foreign Portfolio Investment is any investment made by a person

resident outside India in capital instruments where such investment
is less than 10 % the post issue paid-up equity capital on a fully
diluted basis of a listed Indian company or less than 10 % of the paid
up value of each series of capital instruments of a listed Indian
company.
Page 58 of 116
09. Based on Nature of Investment, there are the 3 types of foreign
direct investment - Equity Capital, Reinvested Earnings, and Intra-
company Loans.

10. Based on Nature of Business there are mainly four types of

Foreign Direct Investments – Horizontal, Vertical Conglomerate and
Platform.
11. Horizontal Investment would entail opening up the same business
in a foreign country.
12. Vertical Investment is when a slightly differentiated business is
established in a foreign country.

13. Conglomerate Investment is when the investment is made even

if the business is unrelated to its existing business.

14. Platform FDI - a business expands into a foreign country but the
output from the foreign operations is exported to a third country.
This is also referred to as export-platform FDI. Platform FDI
commonly happens in low-cost locations inside free-trade areas.

15. There are three routes through which FDI flows into India. They
are – Automatic Route; Government Route and Automatic +
Government Route.

16. Automatic Route: The non-resident or Indian company does not

require prior nod of the RBI or government of India for FDI.

17. Government Route: The government's approval is mandatory.

The company will have to file an application through Foreign
Investment Facilitation Portal, which facilitates single-window
clearance.

18. Automatic + Government Route – It is a combination of

Automatic Route and Government Route.

Page 59 of 116
19. Firstly FDI is a direct investment made in one particular business
or company. The aim is to get a controlling interest in the business.
FII, on the other hand, are funds which are invested in the foreign
financial market.

20. FDI is not only transfer of funds or capital. There is a transfer of

technology, R&D, know-how, strategies, technical knowledge, and
many other such aspects. In the case of FII, only the transfer of funds
is there.

21. Foreign Portfolio Investment (FPI) involves an investor buying

foreign financial assets. It involves an array of financial assets like
fixed deposits, stocks, and mutual funds. All the investments are
passively held by the investors. Investors who invest in foreign
portfolios are known as Foreign Portfolio Investors.
22. A foreign direct investment (FDI) is an investment made by a firm
or individual in one country into business interests located in another
country. Foreign portfolio investment (FPI) instead refers to
investments made in securities and other financial assets issued in
another country.

23. FPI Category I includes investors from the Government sector.

Such as central banks, Governmental agencies, and international or
multilateral organizations or agencies.

24. FPI Category II includes Regulated broad-based funds such as

mutual funds, investment trusts, insurance/reinsurance companies.
Also include regulated banks, asset management companies,
portfolio managers, investment advisors, and managers.

25. FPI Category III includes those who are not eligible in the first two
categories. It includes endowments, charitable societies, charitable
trusts, foundations, corporate bodies, trusts, individuals.

26. Securities and Exchange Board of India (SEBI) operates the FPIs.

27. SEBI has introduced the Foreign Portfolio Investors Regulations,

2019.

Page 60 of 116
28. FPIs also need to follow the Income-tax Act, 1961 and Foreign
Exchange Management Act, 1999.

29. Non-regulated entities can register under Category III FPIs.

30. There is no need for FPIs to directly register from SEBI. The
Registration can be granted by a designated depository participant
(DDP) instead of SEBI.
31. The purchase of equity shares of each company by a single FPI
must be below 10% of the total issued capital of the company.

32. Each FPI will be allowed to open only one depository account for
their FPI investments. Further, the purchase and sale of all eligible
securities must be transacted through that depository account only.
33. FPI can place orders directly with the broker.

34. Any NRI individual or organizations can make foreign portfolio

investments in India.

35. Foreign Institutional Investors (FII) are an investment fund or a

gathering of investors. Such a fund is registered in a foreign country,
i.e. not in the country it is investing in.

36. FDI is a direct investment made in one particular business or

company. The aim is to get a controlling interest in the business. FII,
on the other hand, are funds which are invested in the foreign
financial market.

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15. Setting up LO;BO and PO by Foreign Entities
01. BO stands for Branch Office
02. LO stands for Liaison Office

03. PO stands for Project Office

04. A person resident outside India for opening of a BO/LO/PO in

India shall require prior approval of Reserve Bank of India.
05. There is a general permission to non-resident companies for
establishing BO in the Special Economic Zones (SEZs) to undertake
manufacturing and service activities subject to the conditions
06. A BO may approach any AD Category-I Bank in India to open an
account for its operations in India. Credits to the account should
represent the funds received from Head Office through normal
banking channels for meeting the expenses of the office and any
legitimate receivables arising in the process of its business
operations. Debits to this account shall be for the expenses incurred
by the BO and towards remittance of profit/winding up proceeds.

07. Any foreign entity except an entity from Pakistan who has been
awarded a contract for a project by the Government authority/Public
Sector Undertakings or are permitted by the AD to operate in India
may open a bank account without any prior approval of the Reserve
Bank.
08. An entity from Pakistan shall need prior approval of Reserve Bank
of India to open a bank account for its project office in India.

09. AD Category – I banks can open non-interest bearing foreign

currency account for POs in India subject to the following:

10. Each PO can open two foreign currency accounts, usually one
denominated in USD and other in home currency of the project
awardee, provided both are maintained with same AD Category–I
bank.

Page 62 of 116
11. The foreign currency accounts have to be closed at the completion
of the project.

12. The designated AD Category - I bank may extend the validity

period of LO/s for a period of 3 years from the date of expiry of the
original approval /extension granted.
13. Entities engaged in construction and development sectors and
Non-Banking Finance Companies are permitted to open a liaison
office for two years only. No further extension would be considered
for liaison offices of these entities.

14. If the number of offices exceeds 4 (i.e. one BO / LO in each zone

viz; East, West, North and South), the applicant has to justify the need
for additional office/s and it shall require prior approval of RBI.
15. Whenever the existing BO/LO is shifting to another city in India,
prior approval from the AD Category-I bank is required.
16. AD Category-I bank, may extend fund/non-fund based facilities
to BOs/POs only.

17. BOs are permitted to remit outside India profit of the branch net
of applicable Indian taxes.
18. AD Category – I bank can permit intermittent remittances by POs
pending winding up / completion of the project provided they are
satisfied with the bonafides of the transaction.

19. Designated AD Category-I bank may allow remittance of winding

up proceeds in respect of offices of banks and insurance companies,
after obtaining copies of permission of closure from the sectoral
regulators along with the documents mentioned above.

20. Transfer of assets by way of sale to the JV/WoS be allowed by AD

Category-I bank only when the non-resident entity intends to close
their BO/LO/PO operations in India.

21. AD Category-I bank must ensure payment of all applicable taxes

while permitting transfer of assets.

Page 63 of 116
22. A BO/LO/PO or any other place of business by whatever name
called is required to register with the Registrar of Companies (ROCs)
once it establishes a place of business in India if such registration is
required under the Companies Act, 2013.

23. The BOs / LOs shall obtain Permanent Account Number (PAN)
from the Income Tax Authorities on setting up of their office in India
and report the same in the AACs.

24. The existing PAN and bank accounts can be continued when an
LO is permitted to upgrade into a BO.

25. Each BO/ LO/PO are required to transact through one designated
AD Category-I bank only.
26. BO/LO/PO can change their existing AD Category-I bank subject
to both the AD banks giving consent in writing for the transfer and
the transferring AD bank confirming submission of all AACs and
absence of any adverse features in conducting the account by the
BO/LO/PO.
27. Acquisition of property by BO/PO shall be governed by the
guidelines issued under Foreign Exchange Management (Acquisition
and transfer of immovable property outside India) Regulations.
28. As per section 6 (3) (h) of the Foreign Exchange Management Act,
1999, BOs/LOs/POs have general permission to carry out permitted/
incidental activities from leased property subject to lease period not
exceeding five years.
29. Change in the name of the existing LO/BO may be permitted by
the AD Category-I bank only if the non-resident entity changes its
name without change in ownership.

30. Change in the Top Management or CEO/MD/CMD etc. of the

BO/LO does not require prior approval from the Reserve Bank/AD
Category-I bank. However, AD Category-I bank should be intimated
about the same.

Page 64 of 116
31. The Corporate Identity Number (CIN) serves as a unique identifier
for an Indian company. It is assigned to each company registered in
India and helps in identifying and distinguishing it from other
companies. The CIN is a combination of alphanumeric characters and
is used for various regulatory and compliance purposes.

32. On the other side, the Foreign Company Registration Number

(FCRN) is a unique identifier specific to foreign companies operating
in India. It is a six-digit number assigned to foreign companies upon
the approval of eForm FC-1, which is filed during the establishment
of a liaison office, project office, or branch office in India.

33. The FCRN helps in identifying and tracking the activities and
compliance of foreign companies operating in the Indian market.

34. While the CIN is a unique identifier for Indian companies, the
FCRN serves as a unique identifier for foreign companies operating
in India, and it is generated upon the approval of the eForm FC-1
during the registration process.

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16. UCP 600
(Uniform Customs & Practice for Documentary Credits)
01. The Uniform Customs & Practice for Documentary Credits (UCP
600) is a set of rules agreed by ICC (the International Chamber of
Commerce), which apply to finance institutions which issue Letters of
Credit – financial instruments helping companies finance trade.
02. The UCP 600 (“Uniform Customs & Practice for Documentary
Credits”) is the official publication which is issued by the
International Chamber of Commerce (ICC).

03. UCP is a set of 39 articles on issuing and using Letters of Credit,

which applies to 175 countries around the world.

04. The UCP 600 replaced the UCP 500 on the 1st July 2007.
05. The first UCP was created in 1933 and has been revised by the ICC
up to the point of the UCP 600.
06. An accompaniment to the UCP 600 is the International Standard
Banking Practice for the Examination of Documents under
Documentary Credits (ISBP), ICC Publication 745.
07. ISBP assists with understanding whether a document complies
with the terms of Letters of Credit. The ISBP is used to clarify points.

08. Credits that are issued and governed by UCP 600 will be
interpreted in line with the entire set of 39 articles contained in UCP
600.

09. The ICC updated eUCP 600 rules (eRules), to accelerate the
digitilisation of trade finance.

10. Trade Finance Global have published the updates on the eRules
for ‘eUCP 600’, which are supplementary rules to these UCP 600 rules.
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17. INCOTERMS 2020
01. “Incoterms” is an acronym standing for international commercial
terms.

02. “Incoterms®” is a trademark of International Chamber of

Commerce, registered in several countries.

03. Different practices and legal interpretations between traders

around the world necessitated a common set of rules and guidelines.
As a response, ICC published the first Incoterms® rules in 1936.

04. A series of three-letter trade terms related to common contractual

sales practices, the Incoterms rules are intended primarily to clearly
communicate the tasks, costs, and risks associated with the global or
international transportation and delivery of goods.

05. Incoterms are intended to reduce or remove altogether

uncertainties arising from differing interpretation of the rules in
different countries. As such they are regularly incorporated into sales
contracts worldwide.
06. The first work published by the ICC on international trade terms
was issued in 1923, with the first edition known as Incoterms
published in 1936.
07. The difference between the 2000 and the 2010 version is the
number of Incoterms has been reduced from 13 to 11.
08. Incoterms define how shipments should be delivered, who pays
for shipping costs, what happens if something goes wrong during
shipment, and who bears responsibility for any damage caused
during transport.

09. The incoterm Ex Works (EXW) means that the seller delivers the
goods at the buyer's disposal at the place of destination, such as a
factory, warehouse, or workplace.

Page 67 of 116
10. Ex-works delivery term determines the maximum obligation on
the buyer (the importer) and the minimum responsibility on the seller
(the exporter).

11. In the Free Carrier (FCA) delivery method, the seller delivers the
cargo at a point requested by the buyer.
12. In the form of Free Alongside Ship (FAS) delivery, the seller is
obliged to deliver the goods at the port of shipment where the ship
is located to the vessel's side. From this point onwards, the seller's
obligation ends and the buyer must take care of all costs and risks
associated with the transportation of the goods.

13. In the form of Free on Board (FOB) delivery, the seller, the
exporter, must deliver the cargo to the port requested by the buyer,
i.e., the importer, according to the ship loading date.

14. Cost and Freight (CFR) is when the supplier assumes all the risk
for the shipment until the consignee collects the cargo at its final
destination. The supplier must arrange and pay for the freight costs
up to the port of delivery.

15. The exporting company is responsible for the overseas shipment

in the form of Carriage Paid To (CPT) delivery. The seller delivers the
goods to the buyer at the place of destination in the importer's
country.

16. In the form of Cost Insurance Freight (CIF) delivery, the seller
organizes the international shipment process by undertaking the
freight and insurance costs to be delivered to the buyer at a port in
the importer's country. It is commonly used for containerized and
bulk cargo.

17. According to the Carriage and Insurance Paid to (CIP) mode of

transport, the exporter is responsible for all processes, except import
customs clearance, until the goods are delivered to the importer's
country. CIP mode of transportation is widely used in road vehicle
transportation, and it is also a suitable incoterm for multimodal
shipments.
Page 68 of 116
18. The Delivered at Place Unloaded (DPU) mode of transport entered
into force with Incoterms 2020 rules instead of the DAT transport
form in Incoterms 2010. As a result, the buyer bears all risks involved
in bringing the goods to and unloading them at the place of
destination.

19. Delivered At Place (DAP) is the delivery term describing a deal

where the seller is responsible for all costs and responsibilities,
excluding insurance and import customs. If the DAP has been
accepted, the parties must specify who will obtain insurance and add
it to the contract.

20. DDP (Delivered Duty Paid) is the only Incoterms that require the
seller covers all duties and taxes at the time of delivery. Therefore,
the seller must bear all the costs and risks associated with delivering
the goods. DDP means that the seller bears all of the risk and costs to
deliver cargo to a pre-decided location. The seller's obligation is also
to unload the goods from the arriving means of transport.

21. The main benefits of using Incoterms are that they provide a
common language across borders, make it easy to compare prices
from different suppliers, and enable you to calculate your freight
charges.
22. The disadvantages of using Incoterms are that they may not cover
every possible scenario, and sellers and buyers may have different
preferences for their business.

23. Most B2B sales contracts will be either EXW, CPT, or CIF, while
most B2C sales will be CPT or CIF. However, some B2C sales may be
made using DDP instead of CPT or CIF.

24. Seven Incoterms may be used for air freight: EXW, FCA, CPT, CIP,
DAT, DPU, and DDP.

25. Incoterms can be used for domestic shipping as long as both

parties agree to the terms and conditions of the shipment.

Page 69 of 116
26. The Incoterms that are most successful with letters of credit are
CIF, CIP, CFR, or CPT. With all of these rules, delivery occurs before
the primary carriage.

27. Parties may add qualifications or variations to the Incoterms rules

as long as they are not contrary to the terms of the Incoterms.

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Page 70 of 116
18. URC 522 and eURC
01. The ICC Uniform Rules for Collections (URC) are a set of Rules
helping all the counterparties in a collection process of debt, owned
money or assets.
02. The latest revision of the URC, drafted in the mid-1990s,

03. The last draft of the Uniform Rules for Collections, otherwise
known as URC 522, sets out the need for the primary or remitting
bank to draw up and attach a sheet that explicitly explains the
purpose of, and the process that should be followed when, collecting
debts.

04. In essence, the URC 522 rules outline what banks should do with
documents against acceptance (D/A) and documents against
payment (D/P).
05. Documents against acceptance are an arrangement between the
importer and the exporter, specifying that the importer is not to be
given documentation that confirms their ownership of the imported
goods until the Bill of Exchange/ Bill of Lading has been paid for, or
an agreement to pay has been made.
06. The URC 522 states that the buyer (importer) should make full
payment on the goods once they are delivered, after which the
documents confirming ownership can be handed over by the bank.
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Page 71 of 116
19. The International Standard Banking Practice
(ISBP 745)
01. The International Standard Banking Practice (ISBP) is a
publication of the International Chamber of Commerce (ICC).

02. ISBP offers crucial guidance on the documents presented against

letters of credit.

03. ISBP does not change UCP 600 rules when it comes to letters of
credit. However, it is a valuable guide to Uniform Customs and
Practice (UCP).

04. UCP 600 articles 19 – 25 that talk about transport documents do

not apply when copies rather than originals of transport documents
are required.

05. ISBP 745 has some crucial elements with regards to air waybills.
To start, a carrier should not only use their IATA code. This means
airlines such as Singapore Airlines and British Airways need more
than SQ and BA respectively. With this in mind, airports such as Los
Angeles and London Heathrow can use LAX and LHR respectively.

06. According to ISBP 745, if a letter of credit requires details of a

shipping mark on certain documents, they should be present even if
they are not in the exact same sequence as seen on the letter of credit.
Some people find this odd since they follow the same sequence in all
their documents. All the same, it is something worth noting.
07. As long as a bill of lading meets the requisites of UCP 600 article
20, they can be issued by a different entity apart from the captain or
carrier. In some cases, a letter of credit may include a stipulation. For
instance, it may include one that states “bills of lading from freight
forwarder is not acceptable” or a statement similar to this effect. In
such a case, the words do not affect the context of the signing,
content, format, or title of a bill of lading.

Page 72 of 116
08. The description of goods in the letter of credit and the description
of the same in the invoice is one of the areas that creates a lot of
debate among documentary credit practitioners.

09. The UCP 600 article 18 uses “correspond” when talking about how
goods should be described on a letter of credit and on an invoice.
This is reinforced in ISBP 745.
10. ISBP clarifies any misunderstandings by stating that invoices may
include additional data when in regards to performance, services or
goods. Take note this should work only if the additional information
does not refer to a different category, classification, performance or
services provided and nature of goods.

11. ISBP 745 clearly states that a bill of lading should explicitly
stipulate the port of lading presented in the credit. For example,
when “Felixstowe” was stated on the port of loading, and
“Felixstowe, UK” was stated on the credit, there was a discrepancy
that ensued. The same case applies for air waybills.

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Page 73 of 116
20. URBPO
Uniform Rules for Bank Payment Obligation
01. Bank Payment Obligation (BPO) is a framework which is
endorsed by the ICC (International Chamber of Commerce) and
SWIFT ( The Society for Worldwide Interbank Financial
Telecommunication, which stands as a middle ground between
traditional Letters of Credit (LCs) and Open Account Trade.

02. A Bank Payment Obligation is an e-commerce

(paperless)solution which offers a form of risk mitigation between
suppliers and buyers via a bank.
03. A BPO is an irrevocable document given from a buyer’s bank
(Obligator Bank) to a supplier or seller’s bank (Recipient Bank) ,
where an agreement is made to pay a specified amount of money
on an agreed future date under the condition of successful
electronic matching of data.

04. Letters of Credit are governed by the UCP600 , BPO are

governed by the Uniform Rules for Bank Payment Obligations ICC
publication No. 750 (URBPO) .

05. The BPO and Letter of Credit (LC) are quite similar for the
following reasons:
a)The end result is the same; payment is normally advanced to the
seller/supplier if certain conditions are met
b)The bank stands as the intermediary or independent third party
guaranteeing the payment is undertaken under a traditional
documentary letter of credit, a bank is obligated to pay subject to
the physical presentation of compliant documents.

06. Under a Bank Payment Obligation (BPO) a bank is similarly

obligated to pay subject to the electronic presentation of compliant
data.

Page 74 of 116
Therefore, a BPO offers assurance of payment, risk mitigation for
all parties, and possible use as collateral for finance. A BPO can
be seen as an alternative instrument for trade settlement.

07. In case of LC, Bank services based on paper document processing,

whereas in case of BPO, Bank services based on electronic trade data
exchange.
08. The BPO is not only a Trade Finance Tool, but an enabler of
SCF (Supply Chain Finance).
09. BPO present an opportunity to provide post-shipment
financing to suppliers, allowing them to access finance at earlier
stages in their supply chain cycles.
10. BPO is not an electronic letter of credit.

11. BPO is a Bank-to-Bank transaction, whereas normally LC

is a Bank-to-Seller transaction. (LC can be Bank-to-Bank transaction
as well).
12. LC is paper intensive, whereas BPO is an electronic payment
method.

13. LC is slow, whereas BPO is fast.

14. In case of LC, documents to be verified by Bank manually,

whereas in BPO, data match completed by online means.
15. Under BPO transaction, shipment documents would not be sent
to Banks.
16. BPO is more secure than Advance Payment because BPO is a
conditional payment method.

17. Under BPO transactions, banks send payment amount to

exporters only after shipment of the goods, not before.

Page 75 of 116
18. The Bank Payment Obligation is an instrument designed to
provide risk mitigation and the basis for financing of transactions
between buyers and Seller who chose not to use documentary
instruments but rely upon the exchange and validation of data to
effect payment.

19. TMA stands for Transaction Matching Application

20. TSU stands for SWIFT Trade Services Utility

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Page 76 of 116
21. URDG The Uniform Rules for Demand Guarantees
01. The Uniform Rules for Demand Guarantees (URDG) are the rules
underpinning the commonly used trade finance instruments, demand
guarantees.
02. URDG (Uniform Rules for Demand Guarantees) Rules are
internationally recognised guidelines established by the International
Chamber of Commerce (ICC).

03. URDG provide a standardised framework for demand guarantees,

promoting transparency, efficiency, and fairness in international
trade and financial transactions.

04. By adhering to URDG Rules, all parties can minimise disputes and
conflicts that may arise during the process of demand guarantee
issuance and utilisation.
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Page 77 of 116
22. DOCDEX Rules
01. The International Chamber of Commerce ("ICC") sets out
Amicable Dispute Resolution (ADR) Rules. These ADR Rules are
known as DOCDEX Rules.
02. In the absence of an agreement of the parties on a settlement
technique, mediation shall be the settlement technique used under
the Rules.

03. The DOCDEX stand for “Documentary Instruments Dispute

Resolution Expertise”, which are administered by the ICC
International Centre for ADR , a separate administrative body within
the ICC.
04. DOCDEX is a dispute resolution procedure specifically designed
for the world of trade finance, whereby a panel of three independent
and impartial experts render a decision on a dispute arising out of a
trade finance instrument, undertaking or agreement.
05. Since 1997 the ICC DOCDEX Rules have provided a trusted dispute
resolution system for documentary credits incorporating ICC banking
rules.
06. In 2002 the DOCDEX Rules were extended to guarantees and
collections also incorporating ICC banking rules.

07. The 2015 revision DOCDEX Rules further extends their scope to a
wider range of trade finance instruments such as trade loans,
syndications, negotiable instruments, risk purchase agreements,
conflicts of priority and fraud in letters of credit.
08. DOCDEX process is digitalised to facilitate electronic submissions
according to standard templates available online.
09. To ensure transparency, the parties are not informed of the
identity of the experts and only liaise with the Centre.
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23. Export Credit
01. Pre-shipment finance is a working capital finance (mainly
inventory finance) extended to exporters at pre-shipment stage
enabling them to procure / process / produce /manufacture / pack
the goods meant for export. This facility is commonly referred to as
Packing Credit.
02. Pre-shipment credit is governed by the regulations stipulated by
the Reserve Bank of India and is per Reserve Bank of India extended
at concessional interest rates as directives, which are subject to
modifications.
03. Pre-shipment credit may be extended either in Indian Rupees or
in designated currencies (presently USD, GBP and EURO) at the
option of the exporter. Packing Credit extended in designated
currencies, other than Indian Rupee, is known as PCFC.

04. Goods and services going into SEZ from Domestic Tariff Area
(DTA) shall be treated as Deemed Exports. Supply of goods and
services from domestic tariff area to special economic zone would
therefore be eligible for export credit facilities.
05. Normally, the packing credit is to be cleared from the proceeds
of the related Bill only. However, in case of PC where Running
Account Facility (RAF) is permitted, the export proceeds will be
marked against the earliest outstanding in the account on ‘First-in-
First-Out’ (FIFO) basis.

06. Sub-suppliers are not eligible for Running account facility.

07. If PC is liquidated by submitting the export documents of some

other export order for which no PC is availed. Then such substitution
is termed as Order Substitution.

08. Clean Packing Credit (CPCs) are granted where the exporter is
unable to procure the material immediately on making payment or
within a short transit period as he has to procure the goods from the
outstation market.
Page 79 of 116
09. The CPCs are to be granted only in those cases where advance
payments are to be made by the buyer to the seller in terms of the
contractual arrangement and there is a time gap between the date of
payment of advance and the date of delivery of the material.

10. The scheme of Duty Draw Back allows the refund of Excise /
Customs Duty paid on indigenous / imported raw materials,
components etc., used in exported products.

11. “Draw Back‘” means refund of duty chargeable on any imported

materials or refund of excise duty in case of indigenous raw materials
used in the manufacture of goods to be exported from India. Banks
may extend finance against such Receivables from Government.

12. Advances against Duty Draw Back Entitlements can be considered

either at pre-shipment stage or at post-shipment stage.

13. Packing Credit is basically a short term finance. The period for
which Pcs should be granted depends upon shipping schedule,
production cycle etc. Period depends on time required for procuring,
manufacturing or processing, and shipping; and, if not adjusted by
submission of export documents within 360 days of advance, the
advance will cease to qualify for concessional rate of interest ab-initio

14. RBI will provide refinance only for a period up-to 180 days.
15. The maximum period for which PC can be granted at concessional
rate of interest as per Reserve Bank of India directives is 180 days.
This period can be extended further by additional 90 days i.e. up-to
an aggregate period of 270 days at a higher concessional rate of
interest as per Reserve Bank of India directive.

16. Export trade is regulated by the Directorate General of Foreign

Trade (DGFT).
17. The DGFT regulate the physical export of commodities through
Export & Import (EXIM) Policy.

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18. A unique identification code number has been allotted for each
item known as 'ITC (HS) Code Number' and the relevant information
regarding the exportability of the goods will be specified against this
number.

19. The repatriation of export proceeds into India is monitored by

Reserve Bank of India through Foreign Exchange Regulations under
Foreign Exchange Management Act.

20. As per Foreign Exchange Regulations, every exporter of goods or

software in physical form or through any other form, either directly
or indirectly, to any place outside India, other than Nepal and Bhutan,
(except those exempted) should furnish a declaration in the
appropriate form.

21. A common form called “Export Declaration Form” (EDF) has been
devised to declare all types of export of goods from NON-EDI PORTS.

22. The EDF has replaced the GR/PP form used for declaration of
Export of Goods.
23. Softex Form is meant for declaration of export of computer
software and audio /video/ television software otherwise than in
physical form i.e., magnetic tapes/discs and paper media. A common
“Softex Form” has been devised to declare single as well as bulk
software exports.

24. In respect of export of services, no Forms specified Form is

advised. The exporter of Services may export such services without
furnishing any declaration, but shall be liable to realise the amount
of foreign exchange which becomes due or accrues on account of
such export, and to repatriate the same to India in accordance with
the provisions of FEMA and regulations/rules made under it.

25. EDF and SOFTEX forms will bear specific identification numbers.
In all applications / correspondence with the Reserve Bank, this
identification number should invariably be cited. Export of goods not
involving any foreign exchange transaction directly or indirectly
requires the waiver of EDF procedure from RBI.
Page 81 of 116
26. ADs are permitted to consider requests for grant of EDF (GR)
waiver from exporters for export of goods free of cost, for export
promotion upto 2 percent of average annual exports of the applicant
during the preceding three years subject to a ceiling of Rs.5 lakhs. For
Status Holder Exporters, the limit as per the present Foreign Trade
Policy is Rs.10 lakhs or 2% of average annual exports realization
during the preceding 3 licensing years whichever is lower.

27. Postal Authorities shall allow export of goods by post only if the
original copy of the EDF has been countersigned by an AD Bank.
Therefore, EDF which involve sending goods by post should be first
presented by the exporter to an AD Bank for counter-signature.
28. As per Foreign Exchange Regulations, the exporters should
submit the documents pertaining to export to the Authorised Dealer
mentioned in the relevant declaration form, within 21 days from the
date of export or from the date of certification of Softex Form, as
the case may be. The 'on board' date of Bill of Lading, the date of
issue of Air Consignment Note, the date of Cross Border Certificate
and the date of Post Parcel Receipt are to be construed as date of
export.

29. In cases where exporters present documents pertaining to exports

after the prescribed period of 21 days from the date of export,
Authorised Dealers are permitted to handle them without prior
approval of RBI, provided they are satisfied with the reasons for the
delay, which are beyond the control of the exporter.
30. The amount representing the full value of export value of goods
or software exported must be realised and repatriated to India within
prescribed period from the date of export ,presently, 9 months from
the date of export.
31. In respect of exports made to warehouses established outside
India, time limit for realization of export proceeds is 15 months from
the date of export.

Page 82 of 116
32. As per Foreign Exchange Regulations, unless otherwise authorised
by Reserve Bank of India, the amount representing the full export
value of the goods exported should be received through an
Authorised Dealer, whether by way of remittance from a foreign
country (other than Nepal and Bhutan) or by way of reimbursement
from his branch or correspondent outside India in the following
manner: -

33. Member countries in the Asian Clearing Union (ACU)(except

Nepal) namely, Bangladesh, Islamic Republic of Iran, Myanmar,
Pakistan and Sri Lanka - Payment for all eligible current transactions
by debit to the Asian Clearing Union Dollar account in India of a bank
of the member country.

34. All countries other than those mentioned in (1) - Payment in

Rupees from the account (i.e., from Vostro account in India) of a
bank situated in any country other than a member country of Asian
Clearing Union or Nepal or Bhutan; or (b) Payment in any permitted
currency.
35. As per the Export Data Processing and Monitoring System
(EDPMS) which has been in operation since March 1, 2014, the
primary data on exports transactions including offsite software
exports from all the sources viz. Customs/SEZ/STPI will flow to RBI
secured server and then the same will be shared by RBI with the
respective banks for follow up with the exporters.
36. Generalised System of Preference (GSP) is a system under which
Indian goods receive preferential tariff treatment upon imports into
developed markets such as member states of European Union, USA,
Japan, New Zealand, Australia, Canada, Switzerland, Norway, Russia,
etc.
37. Providing finance against export documents covered by drafts
drawn "at sight". The foreign currency amount of the bill is purchased
at spot Bill buying rate and the resultant Rupee equivalent is
financed.

Page 83 of 116
38. Providing finance against export documents covered by drafts
drawn "on usance" basis. The foreign currency amount of the bill is
purchased at the long rate (usance bill buying rate) corresponding to
the maturity of the bill and the resultant Rupee equivalent is
financed.

39. Providing finance against documents drawn under export letters

of credit. Accounting principle is similar to purchase/Discount with
reference to the tenor of the draft.

40. Rupee Advance: Providing finance in Indian Rupees without

purchasing the foreign currency element of the bill against exports
documents under following circumstances – Bills drawn in Non-
position Currency ; Non availability of Exchange Rate, Bills drawn on
and payable in Listed Countries and Bills sent on collection where the
Customer request for Rupee Advance without purchasing the foreign
currency amount of the Bill.
41. The export bills purchased/discounted/negotiated are eligible for
concessional rate of interest during NTP in the case of sight bills and
NDD in the case of usance bills.

42. Normal Transit Period comprises the average period normally

involved from the date of negotiation/purchase/ discount till the
receipt of bill proceeds in the Nostro account of the bank.

43. While purchasing an export bill already sent for collection, NTP
should be reckoned from the date of forwarding the documents on
collection basis and not from the date of purchase/ discount/
negotiation.

44. In case of dispatch of documents directly by eligible exporters

calculation of the NTP of 25 days is to commence from the date of
evidencing dispatch of documents by the exporter to the consignee
or from the date of submission of copies of documents by the
exporter to the branch, whichever is earlier.

Page 84 of 116
45. Before extending any type of post-shipment finance facility to the
customers, branches should obtain General Power of Attorney duly
executed by an authorised signatory of the exporter firm/company
in appropriate stamp paper of requisite value. This should be
obtained afresh as and when customer’s limits are renewed.

46. The process of converting foreign currency liability of the

exporter into Indian Rupee liability is called ‘crystallization of foreign
currency export bills’.

47. The purpose of crystallization is to transfer the exchange risk

involved in a belated receipt of export bill payment to the exporter.

48. where the proceeds of any export bill is not realised within 15
days within 15 days from the expiry of Notional Due Date or actual
due date, as the case may be, the foreign currency element of the
transaction is delinked and customer's liability is crystallized in Indian
Rupees.

49. The delinking is done at TT Selling Rate of the foreign currency

ruling on the date of delinking.

50. The bill may be crystallized before the above said period of 15th
day with specific understanding and written request from the
customer.
51. Bill of Lading (BL or BoL) is a legal document issued by a carrier
to a shipper (Exporter) that details the type, quantity, and destination
of the goods being carried.
52. A bill of lading also serves as a shipment receipt when the carrier
delivers the goods at a predetermined destination.
53. A bill of lading is a document of title, a receipt for shipped goods,
and a contract between a carrier and shipper.

54. Clean On Board Bills of Lading: Bills of lading which are issued by
Shipping companies evidencing shipment of goods on board the
vessel and do not contain any clauses expressly declaring the
defective conditions of the goods and/or packing.
Page 85 of 116
55. Conference Vessels Bill of Lading: Bills of Lading covering goods
shipped on a vessel that belongs to a conference line or having a
regular voyage route or schedule.

56. Bills of Lading covering shipment per a vessel, which does not
have a regular route/schedule. Normally shipment of large quantity
of merchandise like coal, ore, etc., may not be accommodated in
conference line vessel but only in Tramp Vessel.

57. Short form Bills of Lading: Bills of Lading, which do not contain
all the conditions of the carriage of goods. They require the shippers
to refer to rules and regulations available at the office of the Shipping
Company.

58. Through Bills of Lading: Bills of Lading covering the entire voyage
of the goods in more than one vessel from the port of loading to the
port of ultimate destination despite transhipment.

59. Combined Transport Bills of Lading / Multimodal Transport

Document: Bills of Lading covering the entire voyage including
overland journey of the goods.

60. Direct (Straight) Bills of Lading: Bills of Lading made out in the
name of the consignee. In such cases, title to the goods passes
directly to the consignee from the consignor.
61. Country Craft Bills of Lading: Bills of Lading issued by Tindal or a
Country Craft, generally involving shipments to neighbouring
countries like Sri Lanka, Pakistan, Bangladesh etc.,
62. Sailing Vessel Bills of Lading: Bills of Lading covering goods
shipped per vessel sailing with the aid of sails.
63. Charter Party Bills of Lading: Bills of Lading issued by the parties
who charter (hire) the vessels. The vessel may belong to a regular
liner; but if it is chartered, the Bills of Lading will be issued by the
`charter party' and the liner i.e., the shipping company does not
accept any liability for non-delivery of merchandise by the charter
party.

Page 86 of 116
64. Received for Shipment Bills of Lading: Bills of Lading which are
issued by the Shipping Companies or their Agents prior to loading of
the goods `on board' of the vessel. However, after actual shipment of
the goods on board of the vessel, `Received for shipment' Bills of
Lading will be affixed with `on board' endorsement, which should
bear a date and signature of the official of the Shipping Company.
After affixing such `on board' endorsement, the `received for
Shipment' Bills of Lading are deemed as `On Board' Bills of Lading.

65. Bills of Lading issued by Forwarding Agents: Ordinarily, Bills of

Lading are issued in the prescribed form of the concerned Shipping
Company. Such Bills of Lading will be either signed by the Shipping
Company or by their Agents. At times forwarding agents issue Bills
of Lading in their own form covering shipment by a vessel belonging
to regular liner, which are a called `Forwarding Agent's Bills of
Lading'.
66. ‘LASH' (Lighters Aboard the Ship) Bills of Lading: Bills of Lading
covering shipments by non-mechanized barges (treated as
containers), which are later, loaded in a ship. Under this arrangement
ship, known as Inter-lighter or feeder or mother vessel, will not call
at the ports. They wait in high seas where the non-mechanized barges
filled with goods will be pulled by a tug from the shore. These barges
will be lifted by a crane by the ship (Inter-lighter vessel) and kept in
its hold. Nearer to the port of discharge, in an arranged place in the
overseas, the barges will be unloaded which will be pulled by a tug to
the shore.

67. LASH BL will be given immediately after the containers are loaded
on the barges. However after actual shipment of containers on board
the inter-lighter vessel, shipping company will affix endorsement to
that effect under their stamp and signature. After affixing such
endorsement LASH BL shall be deemed as regular "On Board Bill of
Lading" as stated in (a) above.

Page 87 of 116
68. Offshore Bills of Lading: Bills of Lading covering shipments to be
unloaded at a place other than the regular ports. At an agreed place
the consignee will arrange to receive the goods. Such types of
shipment are in vogue due to port congestion.

69. Stale Bills of Lading: If the carrying vessel reaches the port of
destination prior to the date of receipt of the Bills of Lading by the
consignee, the B/L is considered as stale. While handling the bills the
staleness of a B/L is to be decided on the basis of estimated time
taken for the voyage. The unreasonable delay in submitting the
documents to the Bank renders the B/L stale.

70. On Deck Shipment Bills of lading: Bills of lading evidencing

shipment of the goods `over board' (on deck) of the vessel. As per
normal practice goods are carried in the hold (on board) of the vessel.
71. Non-Negotiable Sea Way Bill: BLs are negotiable and documents
of title to goods. The consignee/endorsee can take delivery of
merchandise only against submission of any one copy of original BL
and not otherwise.
Seaway Bill is a non-negotiable transport document. After issuing a
seaway bill to the shipper (Indian Exporter), the shipping company
will fax a copy of seaway Bill to their agent at destination, who will
issue a stamped "shipped on board" or mate receipt to the consignee.
Such receipt will enable the consignee to take delivery of the cargo
even before receipt of documents.

72. Do not accept following types of Bill of Lading in normal course,

as they do not afford good security to the Bank. You may accept such
BL after only taking certain precautions.

Country Craft, Sailing Vessel, Charter Party, Direct, Received for

Shipment, Issued by Forwarding Agents, Forwarder's Cargo Receipt ,
LASH, Stale, On Deck Shipment, Offshore Bills of Lading etc.

Page 88 of 116
73. Airway Bill (AWB)

In laymen terms an Airway Bill is a document, which is the proof of

receipt of goods from the shipper (exporter) and issued by the air
carrier. The air waybill is the document issued by a carrier either
directly or through its authorized agent. It is a non-negotiable
transport document that covers the transport of cargo from airport
to airport.

74. Although there is no specific restriction as per Foreign Exchange

Regulations, the exporters are advised to consign the goods in the
name of a bank abroad and not in the name of drawees. If the goods
are consigned directly to the drawees, it enables them to take
delivery of the goods from the Airways Company prior to their
effecting payment for the bill. From the point of safety of our
advances also, it is advisable to consign the goods to a bank abroad.

75. Air Consignment Note is not a document of title to goods.

76. There are two different types of airway bills based upon the party
that is arranging the freight of the shipment. These are called Master
airway bill (MAWB) and House airway bill ( HAWB).

77. When a shipper books cargo with a freight forwarder by air, he

(Feight Forwarder) issues a document of reciept of goods from
shipper which is called House airway Bill.

78. In turn, the freight forwarder books same cargo with main airline
carrier and he obtains MAWB under the said shipment.
79. A Master Airway Bill – MAWB is always issued by the main carrier
of goods on receipt of goods from a freight forwarder to deliver as
per agreed terms. Whereas a House Airway Bill – HAWB is issued by
a freight forwarder on receipt of goods from shipper agreeing to
deliver goods at a destination.
80. There are two types of AWBs—an airline-specific one and a
neutral one. Each airline AWB must include the carrier’s name, head
office address, logo, and air waybill number.

Page 89 of 116
81. The Neutral Air Waybill (NAWB) does not bear the name of a
specific airline.

82. An NAWB is a non-negotiable document used to transport goods

from the origin airport to the destination airport. The shipper and
consignee details — as well as the nature, quantity and value of the
cargo — are mentioned in it.
83. An air waybill has 11 numbers and came with eight copies of
varying colours. With the Multilateral Electronic Air Waybill
Resolution 672, paper air waybills are no longer required. Dubbed the
e-AWB, it’s been in use since 2010 and became the default contract
for all air cargo shipments on enabled trade lines.

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Page 90 of 116
24. International Factoring & Forfaiting
01. Factoring is a vital financial arrangement that allows businesses
to accelerate their cash flow by receiving immediate payment for
their accounts receivable. Rather than waiting for customers to make
the payment, businesses can sell their pending invoices to a third
party, known as a factor, at a discounted rate. In return, the factor
assumes or takes over the risk of non-payment and provides an
upfront payment to the business, ensuring a steady cash flow.
02. Factoring applies to both domestic and international trade. It
offers flexibility in contract negotiation, enabling parties to
determine terms of the agreement, including costs, timeframes,
legalities, and more.

03. Forfaiting, on the other hand, is another form of export financing

that allows exporters to convert credit sales into immediate cash. In
this arrangement, exporters relinquish their rights to receive the total
payment for goods or services provided to an importer in exchange
for instant cash from a forfaiter, a financial intermediary specializing
in international trade. Forfaiting transactions are typically supported
by negotiable means like bills of exchange and promissory notes.
04. Forfaiting primarily focuses on financing the sale of receivables
for capital goods.
05. Factoring involves the sale of trade receivables to a factor,
typically a bank, in exchange for immediate cash payment. On the
other hand, forfaiting is a form of export financing where the
exporter sells the rights to trade receivables to a forfaiter and
receives instant cash.

06. Factoring deals with short-term receivables that fall due within a
period of 90 days. In contrast, forfaiting focuses on medium to long-
term accounts receivables.

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07. Factoring primarily involves the sale of receivables related to
ordinary goods and services. Conversely, forfaiting is specifically
concerned with the sale of receivables on capital goods.

08. Factoring generally provides financing up to 80-90% of the value

of the receivables. On the other hand, forfaiting offers full financing,
covering 100% of the value of the export.
09. Depending on the agreement, factoring transactions can be
recourse or non-recourse. Recourse factoring means the seller retains
non-payment risk, while non-recourse factoring transfers the risk to
the factor.

10. Forfaiting is always non-recourse, as the forfaiter assumes the

risk.
11. In factoring, the seller or client typically incurs the cost.
12. Forfaiting shifts the cost burden to the overseas buyer.

13. Forfaiting involves the using bills of exchange and promissory

notes, which play a crucial role in the financing arrangement.

14. Factoring does not involve negotiable instruments.

15. Factoring does not involve a secondary market for the receivables,
meaning that the transaction is complete once the receivables are
sold to the factor.
16. Forfaiting has a secondary market where the receivables can be
traded, enhancing liquidity and providing additional opportunities
for investors.
17. A confirmed LC is a payment guarantee that assures the exporter
of payment upon meeting specified conditions.

18. A standby LC acts as a backup to support the importer’s payment

obligations in case of default.

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25. ECGC
01. ECGC is an export promotion organization, seeking to improve
the competitiveness of the Indian exporters by providing them with
credit insurance covers.
02. Based on T C Kapur Committee recommendations Government of
India established Export Risk Insurance Corporation (ERIC) on 30th
July 1957, a Pvt Ltd Company wholly owned by Govt of India.

03. After introduction of insurance covers to banks during the period

1962-64, ERIC’s name was changed to Export Credit & Guarantee
Corporation Ltd in 1964. The above name was changed to Export
Credit Guarantee Corporation of India Ltd. in the year 1983.
Subsequently in August 2014, it was renamed as ECGC Ltd.

04. The Insurance Cover offered directly to Exporters by ECGC Ltd is

known as “Policy” and the Insurance Cover offered to Banks is known
as “Guarantee”
05. Various services/products offered by ECGC Ltd
a)Export Credit Insurance for Exporters (ECIE)

b)Export Credit Insurance for Banks (ECIB)

c)Special Schemes.

06. Export Credit Insurance for Banks : (ECIB) - Products are available
from ECGC Ltd to Banks
ECGC offers 14 different Covers to Banks. The Products offered by
ECGC Ltd to Banks may be grouped under 4 categories as under:

a) ECIB – Short Term – Pre-Shipment

b) ECIB – Short Term – Post-Shipment

c) ECIB – Cover against Bank Guarantees

d) ECIB – Medium & Long Term.

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07. Features of (Export Credit Insurance for Banks Packing Credit
(ECIB-WTPC)

Eligibility: A bank or a financial institution dealing in foreign

exchange is eligible to obtain this Whole-turnover Cover for all its
accounts.
Period of Cover : 12 months - Eligible Advances: All packing credit
advances as per RBI guidelines

Protection offered : Against losses that may be incurred in extending

packing credit advances due to protracted default or insolvency of
the exporter-client.

Percentage of Cover: For banks taking the cover for the first time it is
75% up to certain Limit and 65% beyond the said Limit. (For others
varies from 55% to 75% depending on claim premium ratio of the
bank). For Small Scale Exporters (SSE)/ Small Scale Industrial Units
(SSI), it is 90%.
Premium: For a fresh cover it is 9 paise for Rs 100 p.m. (For others,
varies from 6 to 13.5 paise per Rs. 100 p.m. depending on claim
premium ratio.)
08. Features of ECGC’s Cover for Guarantees issued by Banks (ECIB-
Surety Cover (ECIB – SC)
The ECIB (SC) which is in the nature of indemnity to the bank is issued
to protect the bank against losses that it may suffer on account of
guarantees given by it on behalf of exporters. This protection is
intended to encourage banks to give guarantees on a liberal basis for
export purposes.
09. National Export Insurance Account (NEIA) has been set up by the
Government of India to facilitate medium and long-term exports,
which are commercially viable, considering the limitations of the
ECGC Limited in providing adequate cover on its own and non-
availability of reinsurance cover to such exporters.
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26. Foreign Trade Policy (FTP) 2023-28
01. The Foreign Trade Policy (FTP) also known as The EXIM Policy is
regulated by the Foreign Trade Development and Regulation Act,
1992.
02. In 2004, the EXIM Policy was renamed the Foreign Trade Policy to
provide a comprehensive approach to foreign trade in India.

03. The DGFT (Directorate General of Foreign Trade) is the governing

body concerning the EXIM Policy of India.

04. The EXIM (Export-Import) Policy contains guidelines governing

the imports and exports of products and services in and out of India.
05. EXIM Policy’s primary objective is to regulate and develop foreign
trade by facilitating imports into and exports from India.

06. The Foreign Trade Development and Regulation Act, 1992,

provides for the Indian government to announce the EXIM Policy
every five years.
07. Each EXIM Policy announced by the Indian Government is valid
for five years, and they can amend, enhance or add new provisions to
the policy every year on 31 March, taking effect from 1 April.

08. The Ministry of Commerce announced the recent FTP, which came
into effect on 1 April 2023.

09. FTP 2023-2028 seeks to make India an export hub and to integrate
India further into global value chains. It creates an enabling
ecosystem for exporters, which aligns with India’s vision of becoming
‘Atmanirbhar’.

10. In FTP 2023-28, Four new towns, i.e. Mirzapur, Faridabad,

Varanasi, and Moradabad, are designated as Towns of Export
Excellence (TEE) along with the existing 39 towns.

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11. The TEEs have priority access to export promotion funds under
the MAI (Market Access Initiative) scheme.

12. The TEES can avail of the Common Service Provider (CSP) benefits
under the EPCG scheme for export fulfilment, which boosts the
exports of handicrafts, handlooms, and carpets.
13. SCOMET stands for Special Chemicals, Organisms, Materials,
Equipment and Technologies.

14. EPCG stands for Export Promotion of Capital Goods Scheme

15. The EPCG scheme allows capital goods imports at zero customs
duty for export productions.
16. PM MITRA stands for Prime Minister Mega Integrated Textile
Region and Apparel Parks scheme is added as an additional scheme
to claim benefits under the CSP (Common Service Provider) scheme
of EPCG.

17. In FTP 2023-08, Dairy Sector Exempted from Maintaining Average

Export Obligation.

18. The Advance Authorisation Scheme provides duty-free raw

material imports for manufacturing export items and is similar to the
EOU and SEZ schemes.

19. Merchanting trade involves the shipment of goods from a foreign

country to another foreign country without touching Indian ports by
involving an Indian intermediary.
20. The government introduced a special one-time Amnesty scheme
under the FTP 2023 to address export obligation defaults. This
scheme provides relief to exporters who are not able to meet their
obligations under the EPCG and Advance Authorisation scheme and
are burdened by interest costs and high duty associated with pending
cases. The interest payable is capped at 100% of the exempted duties.

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27. Miscellaneous Concepts related to Forex
01. SWIFT (Society for Worldwide Interbank Financial
Telecommunications) is a global member-owned cooperative that
functions as a huge messaging system.
02. SWIFT is a messaging system that sets up the transfer of money
between member banks and other member financial institutions.

03. SWIFT is a payment network that allows individuals and

businesses to take electronic or card payments, even if the customer
or vendor uses a different bank than the payee.

04. SWIFT uses codes to facilitate money exchanges. It assigns each

member organization a unique code that has either eight or 11
characters.

05. Swift code consists of a series of alphanumeric characters.

06. Before SWIFT, Telex was the only way international wire transfers
could be confirmed. Low speed, security finance concerns, and a free
message format undermined its effectiveness.

07. The central banks formed a cooperative utility called the Society
for Worldwide Interbank Financial Telecommunication (SWIFT),
headquartered in Belgium.

08. SWIFT went live with its messaging services in 1977, replacing the
cumbersome Telex technology. It rapidly became a reliable global
partner for institutions worldwide.

09. Nostro means ‘Our‘,

10. Vostro means ‘Your‘

11. Loro means ‘Their‘.

12. When a bank maintains its foreign currency account in a bank in

a foreign country in the local or home currency of that country it is
called a “Nostro” account.

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13. Current Account of SBI with Citi Bank, New York in USD is a
Nostro Account to SBI.

14. When a bank maintains a local or home currency account of a

foreign bank or branch in its own country it is called a “Vostro”
account.
15. If Citibank maintains an account with SBI in India in INR, it will
be a vostro account for SBI.

16. An account which is Nostro for one bank is Vostro for another.

17. When SBI opens a Nostro account with Citibank, it is a Vostro

account for Citibank. Similarly the Vostro account for SBI is actually
a nostro account for Citibank.
18. When a bank remits its foreign currency fund to a foreign bank
for credit to an account of a third bank it is called a Loro account.
19. Loro Account : “Their Account with you.....”.

20. Loro Account means 'Third Party Account'

21. When X Bank of India is maintaining an account with B Bank in
New York in USD when R Bank of India refers the said account in
correspondence with X Bank, Now York it is said Loro account.
22. LPG - India's Economic Policy of 1991 known as the LPG or
Liberalisation, Privatisation and Globalisation model. Liberalization-
It refers to the process of making policies less constraining of
economic activity and also reduction of tariff or removal of non-tariff
barriers.
23. Foreign exchange market is described as an OTC (Over the
counter) market as there is no physical place where the participants
meet to execute their deals.

24. The term foreign exchange market is used to refer to the

wholesale segment of the market, where the dealings take place
among the banks.

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25. The largest foreign exchange market is London followed by New
York, Tokyo, Zurich and Frankfurt. The markets are situated
throughout the different time zones of the globe in such a way that
when one market is closing the other is beginning its operations. Thus
at any point of time one market or the other is open. Therefore, it is
stated that foreign exchange market is functioning throughout 24
hours of the day. However, a specific market will function only during
the business hours.

26. In most markets, US dollar is the vehicle currency, Viz., the

currency used to denominate international transactions.

27. In few centers like Paris and Brussels, foreign exchange business
takes place at a fixed place, such as the local stock exchange
buildings. At these physical markets, the banks meet and in the
presence of the representative of the central bank and on the basis
of bargains, fix rates for a number of major currencies. This practice
is called fixing.

28. The quotation in the interbank market is a Two – way quotation.

It means the rate quoted by the market maker will indicate two
prices. One at which it is willing to buy the foreign currency, and the
other at which it is willing to sell the foreign currency.
For example, a Mumbai bank may quote its rate for US dollar as under

USD 1 = Rs 48.1525/1650
More often, the rate would be quoted as 1525/1650 since the players
in the market are expected to know the “Big Number‘ i.e., Rs 48. In
the given quotation, one rate is Rs.48.1525 per dollar and the other
rate is Rs.48.1650 per dollar.

In above case the Bank is willing to buy dollars at Rs 48.1525 and sell
dollars at Rs 48.1650. If one dollar bought and sold, the bank makes
a gross profit of Rs. 0.0125.

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29. Direct Quotation - In a foreign exchange quotation, the foreign
currency is the commodity that is being bought and sold.

The exchange quotation which gives the price for the foreign
currency in terms of the domestic currency is known as direct
quotation.
In a direct quotation, bank will apply the rule: ― Buy Low; Sell High.
30. Indirect Quotation

This type of quotation which gives the quantity of foreign currency

per unit of domestic currency is known as indirect quotation.

The Mumbai bank quotes the rate for dollar as: Rs. 100 = USD
2.0762/0767

In this case, the quoting bank will receive USD 2.0767 per Rs.100
while buying dollars and give away USD 2.0762 per Rs.100 while
selling dollars.

In other world, he will apply the rule: ―Buy High: Sell Low.
31. The Buying Rate is also known as the Bid Rate and Selling Rate
as the “Offer Rate. The difference between these rates is the gross
profit for the bank and is known as the “Spread”.
32. The transactions in the interbank market may place for settlement

(a) on the same day; or (b) two days later; or (c) some day late; say
after a month

33. Where the agreement to buy and sell is agreed upon and executed
on the same date, the transaction is known as Cash or Ready
Transaction. It is also known as Value Today.

34. The transaction where the exchange of currencies takes place two
days after the date of the contact is known as the Spot Transaction.
For instance, if the contract is made on Monday, the delivery should
take place on Wednesday. If Wednesday is a holiday, the delivery
will take place on the next day, i.e. Thursday. Rupee payment is also
made on the same day the foreign currency is received.
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35. The transaction in which the exchange of currencies takes places
at a specified future date, subsequent to the spot date, is known as
a Forward Transaction.

36. The forward transaction can be for delivery one month or two
months or three months etc. A forward contract for delivery one
month means the exchange of currencies will take place after one
month from the date of contract. A forward contract for delivery two
months means the exchange of currencies will take place after two
months and so on.

37. Forward rate may be the same as the spot rate for the currency.
Then it is said to be “At Par‘ with the spot rate. But this rarely
happens. More often the forward rate for a currency may be costlier
or chapter tan its spot rate.
38. The rate for a currency may be costlier or cheaper than it’s spot
rate.

39. The difference between the forward rate and the spot rate is
known as the “Forward Margin‘ or swap points.

40. The forward margin may be either at “Premium‘ or at “Discount‘.

If the forward margin is at premium, the foreign correct will be
costlier under forward rate than under the spot rate. If the forward
margin is at discount, the foreign currency will be cheaper for
forward delivery then for spot delivery.
41. Under Direct Quotation, Premium is added to spot rate to arrive
at the forward rate. This is done for both purchase and sale
transactions. Discount is deducted from the spot rate to arrive at the
forward rate.

42. Heding refers to covering of foreign trade risks, and it provides a

mechanism to exporters and importers to guard themselves against
losses arising from fluctuations in exchange rates.

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43. Foreign Bill of Exchange

A Bill of Exchange is an unconditional order in writing, addressed by

one person to another, requiring the person to whom it is addressed
to pay a certain sum or demand or on a specified future date.

44. Important differences between inland and foreign bills. The date
on which an inland bill is due for payment is calculated from the date
on which it was drawn, but the period of a foreign bill runs from the
date on which the bill was accepted. The reason for this is that the
interval between a foreign bill being drawn and its acceptance may
be considerable, since it may depend on the time taken for the bill
to pass fro m the drawers country to that of the acceptor.

45. Swap means simultaneous sale of spot currency for the forward
purchase of the same currency or the purchase of spot for the forward
sale of the same currency. The spot is swapped against forward.

46. Arbitrage is the simultaneous buying and selling of foreign

currencies with intention of making profits from the difference
between the exchange rate prevailing at the same time in different
markets.

47. Forward price = Spot or the Cash Price + Cost of Carry

The cost of carry takes into account the payments and receipts for
storage, transport costs, interest payments, capital appreciation etc.

48. The foreign exchange dealing of a bank with its customer is

known as “Merchant business‘ and the exchange rate at which the
transaction takes place is the Merchant Rate”.

49. The term “Ready‘ and “Spot‘ are used synonymously to refer to
transactions concluded and executed on the same day.

50. Two points need be kept in mind while talking of a foreign

exchange transaction:

a. The transaction is always talked of from the banks point of view

b. The item referred to is the foreign currency.

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 Therefore when we say a purchase we implied that

(i) the bank has purchased

(ii) it has purchased foreign currency

Similarly, when we sale a sale, we imply that

(i) the bank has sold

(ii) it has sold foreign currency.
51. In a purchase transaction the bank acquired foreign currency and
parts with home currency. In a sale transaction the bank parts with
foreign currency and acquires home currency.
52. “Direct Quotation” is also known as “Home Currency Quotation‘

53. “Indirect Quotation” is also known as “Foreign Currency

Quotation‘ or simply “Currency Quotation”.

54. Under indirect quotation, any change in exchange rate will be

effected by changing the number of units of foreign currency.

55. Depending upon the tine of realization of foreign exchange by

the bank, two types of buying rates are quoted in India. They are
(i) TT Buying Rate (ii) Bill Buying Rate
56. TT Buying Rate (TT stands for Telegraphic Transfer)

This is the rate applied when the transaction does not involve any
delay in realization of the foreign exchange by the bank.

Any transaction where no delay is involved in the bank acquiring the

foreign exchange will be done at the TT rate.

57. Transaction where TT rate is applied is;

a. Payment of demand drafts, mail transfers, telegraphic transfers,

etc. drawn on the bank.

b. Foreign bills collected.

c. Cancellation of foreign exchange sold earlier.

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58. Bill Buying Rate

This is the rate to be applied when a foreign bill is purchased. When

a bill is purchased, the rupee equivalent of the bill value is paid to
the exporter immediately.

However, the proceeds will be realized by the bank after the bill is
presented to the drawee at the overseas centre. In case pf a usance
bill, the proceeds will be realized on the due date of the bill which
includes the transit period and the usance period of the bill.
59. Two types of selling rates are quoted in India, they are

1. TT selling rate
2. Bills selling rate

60. TT Selling Rate

This is the rate to be used for all transactions that do not involve
handling of documents by the bank. Transactions for which TT Selling
rate is quoted are:
a) Issue of demand drafts, mail transfers, telegraphic transfer, etc.,
other than for retirement of an import bill.

b) Cancellation of foreign exchange purchased earlier.

61. Bills Selling Rate

This rate is to be used for all transactions which involve handling of

document by the bank: for example, payment against import bills.

The bills selling rate is calculated by adding exchange margin to the

TT selling rate. That means the exchange margin enters into the bills
selling rate twice, once on the interbank rate and again on the TT
selling rate.
62. Cross Rate - The fixing of rate of exchange between the foreign
currency and Indian rupee through the medium of some other
currency is done by what it is known as “Chain rule”. The rate thus
obtained is the “Cross rate‘ between these currencies.

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63. The U.S. Dollar being the most commonly denominated currency
in international trade is the intervention currency where a quotation
in Rupee has to be given for a currency other than the U.S. Dollar.

64. FBIL – Financial Benchmark India Pvt Ltd was formed in December
2014 as per direction from RBI jointly by FIMMDA, FEDAI and IBA as
Benchmark Administrators.
65. NOP stands for Net Open Position

66. Foreign Currency Translation Reserve (FCTR)

AS-11 - Accounting Standard (AS) 11 – deals with The Effects of

Changes in Foreign Exchange Rates. (This is part of Acounting
Standards issued by Ministry of Company Affairs, GoI)
67. NTP not applicable in case of Bills with Fixed Due Date. In case of
Export Bills with Usance period due dates are fixed or reckoned from
the date of shipment or date of bill of exchange, the actual due date
is known. In such cases NTP not applicable.
68. Outward Remittance – Apply TT Selling ( or Fx Contract Rate).

69. Spot Buying (Cash) is the rate at which the bank buys one unit
foreign currency and gives INR.

70. Hours of Business :

The Exchange Trading Hours for INR/FCY transactions in Inter Bank
Forex Market in India would be from 9.00 am to 5.00 pm.

No Customer Transaction for INR/FCY should be undertaken by the

AD after 4.30 pm on all working days.

Cut-off limit stated above is not applicable to Cross Currency

Transactions.

Cut-off limit stated above is not applicable to Transactions for

individual person (including joint account or proprietary firm).

For the purpose of Forex Business, Saturday is not treated as a

Working Day.

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On Saturdays no commercial transaction in foreign exchange will be
conducted except, where exchange rates have been already fixed like
purchase/sale of traveller’s cheques and currency notes.

71. TC (Travelers Cheques) Buying Rate indicates the rate at which

bank buys Travellers cheques and pays INR
72. TC Selling Rate is the rate at which banks sell Travellers cheques
and receives INR.

73. Crystallisation of Export Bills :

AD would transfer the exchange risk to the exporter (in case of Export
Bills) by crystallizing, the foreign currency liability into Rupee liability
on the 30th day after the transit period in case of unpaid demand
bills. In case of unpaid usance bills crystallization will take place on
the 30th day after notional due date or actual due date.
In case 30 th day happens to be a holiday or Saturday, the export bill
will be crystallized on the next working day. For crystallization into
rupee liability the bank will apply the TT selling rate on the date of
crystallization or the original buying rate whichever is higher.

74. Crystallisation of Import Bills

All foreign currency import bills drawn under letter of credit shall be
crystallized into Rupee liability on the 10 th day from the date of
receipt of documents at the letter of credit opening bank in the case
of demand bills and on the due date in the case of usance bills.

In case the 10th day or due date falls on a holiday or Saturday the
importers liability should be crystallized, into Rupee liability on the
next working day.

75. If a bank buys more foreign exchange than what it sells, it is said
to be in “Overbought/Plus/Long Position‟.

76. In India, Entities / Persons (mostly banks) who are given a license
by RBI to deal in foreign exchange are called Authorised Dealers
(ADs).

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77. All the banks that have been authorised to deal in foreign
exchange collectively constitute what is known as `inter bank‟
market in India.

78. On account of exchange control regulations the ADs have to

conduct their foreign exchange operations as per current FEMA
guidelines.
79. Exchange Brokers, Multi Bank Portals (MBP) , Electronic Order
Matching Systems (EOMS) are some of the commonly used
Intermediaries in Forex Markets.

80. MBP and EOMS are known as ETPs (Electronic Trading Platforms)
and they require permission from RBI to operate.
81. LEI Code : Legal Entity Identifier is a reference code used across
markets to identify a legal distinct entity and would be a key
measure to improve the quality and accuracy of financial data system.
82. Overnight Limit is the maximum amount an AD is willing to put
at risk at a time that the forex market is closed in the time zone where
the AD is operating.

83. Day Light Limit refer to the maximum amount an AD willing to

put at risk at any point of time during the dealing day, to meet the
needs of customers and correspondents.
84. The Bretton Woods twins refers to the two multilateral
organizations created at the Bretton Woods Conference in 1944.
They are:

The World Bank

The International Monetary Fund.

85. The International Bank for Reconstruction and Development

(IBRD) is an international financial institution , established in 1944
and headquartered in Washington, is the lending arm of World
Bank Group.

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86. The IBRD is the first of five member institutions that compose the
World Bank Group

87. The Bretton Woods Sisters : The IMF and the World Bank were
called the Bretton Woods sister organizations. One more
organization (International Trade Organization) was also planned
but not created at that time. Instead, the General Agreement on
Tariffs and Trade (GATT), a non-organizational entity, played the role
of promoting free trade for four decades. GATT became
institutionalized as WTO (World Trade Organization) in 1995. So we
now have three sisters.

88. The World Trade Organization (WTO) is the only global

international organization dealing with the rules of trade between
nations. The goal is to help producers of goods and services,
exporters, and importers conduct their business.(Head Quarters :
Geneva; Switzerland)
89. Merchanting Trade Transaction (MTT).

The trade is called Merchanting Trade when, the supplier of goods

will be resident in one foreign country, the buyer of goods will be
resident in another foreign country and the merchant or the
intermediary will be resident in India. Sometimes what happened in
the normal course of business a person buy some goods from one
person and sale to the other person may be within the same city/
town/ village/ state or within anywhere in the domestic country. This
example is of domestic country, however if we apply the same
example in international scenario, it will become the merchanting
trade transaction. In the following circumstances in the Indian
context, a trade is called merchanting trade when:

a) The supplier of goods will be resident in one foreign country;

b) The buyer of goods will be resident in another foreign country;

c) The merchant or the intermediary will be resident in India.

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90. The merchanting trade transaction is also known as
intermediary trade.

91. Import Data Processing and Monitoring System” (IDPMS)

92. Export Data Processing and Monitoring System” (EDPMS)

93. Outward Remittance Message (ORM)

94. Online Payment Gateway Service Providers (OPGSPs)

95. R-Returns : The information about the inflows and outflows of
foreign exchange is of immense importance to the Government and
RBI for making important policy decisions. The major source of this
information is the financial transactions with the outside world that
take place through banks , i.e., Authorised Dealers (ADs) in foreign
exchange. ADs are required to submit the information pertaining to
the transactions put through their Nostro accounts and Vostro
accounts to RBI through Periodical Returns known as “R-Returns”.

96. Except for goods included in the negative list which require
licence under the Foreign Trade Policy in force, AD Category - I banks
may freely open letters of credit and allow remittances for import.

97. While opening letters of credit, the ‘For Exchange Control

purposes’ copy of the licence should be called for and special
conditions, if any, attached to such licences should be adhered to.

98. Where foreign exchange acquired has been utilised for import of
goods into India, the AD Category – I bank should ensure that the
importer furnishes evidence of import viz., Exchange Control Copy
of the Bill of Entry, Postal Appraisal Form or Customs Assessment
Certificate, etc., and satisfy himself that goods equivalent to the value
of remittance have been imported.

99. Cambist is an expert trader who rapidly buys and sells currency
throughout the day. The term comes from the Latin word "cambiere"
which means "to exchange".

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100. Blocked Currency refers to any currency that is mainly used for
domestic transactions and does not freely trade on a forex market
(usually due to government restrictions). Also referred to as a
"nonconvertible currency". It is very difficult (if not impossible) to
convert the blocked currency into a freely traded one such as the U.S.
dollar.
101. Constant Currency is an exchange rate that eliminates the effects
of exchange rate fluctuations and that is used when calculating
financial performance numbers. Companies with major foreign
operations often use constant currencies when calculating their
yearly performance measures.
For example, consider a French company that sells primarily abroad
and sets its prices according to U.S. dollars. If sales increase 10% in
dollar terms, but the dollar fell 5% against the franc during the year,
only a 5% increase in sales will be reported in the accounts, unless a
constant currency is applied in the calculation. In other words, the
use of constant currencies allows companies to show performance
unaffected by currency fluctuations.

102. Crown Currencies refers to CAD (Canadian Dollar), Aussie

(Australian Dollar), Sterling (British Pound) and Kiwi (New Zealand
Dollar) – countries off the Commonwealth.

103. Exotic Currency

A foreign exchange term for a thinly traded currency. Exotic

currencies are illiquid, lack market depth and trade at low volumes.
Trading an exotic currency can be expensive, as the bid-ask spread is
usually large.

Exotics are not considered major currencies because they are not
easily traded in a standard brokerage account. Major currencies
include the U.S. dollar, Euro, Canadian dollar and Swiss franc.
Examples of exotic currencies include the Thai baht, Uruguay peso or
Iraqi dinari.

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104. U.S. dollar is sometimes called the Greenback.

105. ISO Currency Code is the internationally standardized three-

letter abbreviation for a country's currency. For example, the ISO
Currency Code for the United States Dollar would be USD.

[Link] is a method of stabilizing a country's currency by fixing

its exchange rate to that of another country. Most countries peg their
exchange rate to that of the United States.

107. Reserve Currency is a foreign currency held by central banks and

other major financial institutions as a means to pay off international
debt obligations, or to influence their domestic exchange rate.

108. Soft Currency is another name for "weak currency". The values
of soft currencies fluctuate often, and other countries do not want to
hold these currencies due to political or economic uncertainty within
the country with the soft currency.
109. Xenocurrency is a currency that trades in markets outside of its
domestic borders. "Xeno" is a prefix meaning foreign or strange. An
example of a xenocurrency is the Chinese yuan when it is traded in
the United States.
@@@

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 List of Books compiled by The Banking Tutor
So far the following Books are compiled by me which can be shared by any one
free of cost, without any permission from me or without any intimation to me ,
without charging any amount.

Book No Name
01 Banking Jargon - Vol 01
02 Alerts - Vol 01
03 Forex - Vol 01
04 Banker and Legal Enactments - Vol 01
05 Banker and Financial Statements
06 Confusables – Vol 01
07 Banking Jargon - Vol 02
08 ABC (Awareness of Basics of Credit)
09 The Can Support_2020
10 The Core Support_2020
11 The Sundries_2020
12 The Soft Support
13 Management of W C Limits
14 The Notes_2021 (for Promotion Test)
15 Confusables - Vol 02
16 Banking Information
17 Banking Jargon - Vol 03
18 Bankers and Court Verdicts - Vol 01
19 Inland Bank Guarantees
20 The Dirty Dozen
21 SPA (Not related to Banking)
22 Banks - Supporting Agencies - Vol 01
23 Banking Jargon - Volume 4
24 Banks - Supporting Agencies - Vol 2
25 Banks - Supporting Agencies - Vol 3
26 JAIIB Notes - PPB
27 JAIIB Notes - LRB
28 JAIIB Notes – AFB
29 CAIIB Notes – ABM
30 CAIIB Notes – BFM

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31 Confusables - Vol 03
32 Banking Jargon - Vol 05
33 The Banking Regulations & Business Laws (BRBL)
34 Accounting & finance for Bankers
35 Bank Financial Management
36 Retail Banking & Wealth Management
37 Concepts for Credit Professional - OT
38 Advance Business Management
39 Principles & Practice of Banking
40 Indian Economy & Indian Financial System - OT
41 Concepts for Credit Professional - Notes
42 Less Known Forex Terminology
43 KYC & AML – Notes & MCQ
44 Treasury Management - Objective Type
45 Treasury Management - Notes
46 Indian Economy & Indian Financial System - Notes
47 MSME -Notes
48 MSME – Objective Type
49 Banking Jargon – Volume 06
50 50 Essays in Practical Banking
51 Promotion 2022
52 Basics of Bank Audits
53 The Shortens
54 Recap TIN 2022
55 NumLogEx
56 Basic Statistics for Bankers
57 JAIIB IE & IFS – All Modules
58 JAIIB IE & IFS - Mod B : Economic Concepts - Banking
59 JAIIB IE & IFS - Mod C : Indian Financial Architecture
60 JAIIB IE & IFS - Mod D : Financial Products and Services
61 Banking Jargon – Volume 07
62 JAIIB – PPB – Module A - General Banking Operations
63 JAIIB 2023 – IE & IFS – Objective Type
64 JAIIB Notes 2023 - PPB - Mod B - Functions of Banks
65 JAIIB 2023 - PPB Mod C - Technology & Mod D - Ethics
66 JAIIB 2023 – PPB – Objective Type

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 67 JAIIB 2023 – AFM - Notes
68 JAIIB 2023 – AFM – Objective Type
69 JAIIB 2023 – RBWM - Notes
70 JAIIB 2023 – RBWM - Objective Type
71 CAIIB 2023 – AFBM – Objective Notes
72 CAIIB 2023 – ABM – Objective Notes
73 CAIIB 2023 – BRBL – Objective Notes
74 CAIIB 2023 – BFM – Objective Notes
75 CAIIB 2023 – One Liners – BFM
76 JAIIB 2023 – One Liners – IE & IFS
77 CAIIB 2023 – One Liners – ABFM
78 CAIIB 2023 – One Liners – BRBL
79 CAIIB 2023 – One Liners – ABM
80 Risk Management – Objective Notes
81 Basics of Agri Lending & Essays in Rural Economy
82 IT Security – Objective Notes
83 HRM – Objective Notes
84 Rural Banking – Objective Notes
85 Rural Banking – One Liners
86 Promotion 2023
87 CRAM 2023
88 Essays Related to Banking and Finance Volume 02
89 Material for Promotion Test from Sub-Staff to SWO
90 KYC AML CFT Notes
91 The Banking Jargon (BEFIT) – Vol 8
92 Central Banking Notes (CAIIB Elective Subject)
93 Central Banking Only Points (CAIIB Elective Subject)
94 Digital Banking Notes (Certificate Course of IIBF)
95 Digital Banking Only Points (Certificate Course of IIBF)
96 Cyber Crimes & Fraud Management - Notes
97 Foreign Exchange Operations Notes (Cert Course -IIBF)
98 Foreign Exchange Operations – Only Points

19 Books marked in Red are kept out of circulation as Books based

on latest syllabus are shared.

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Book No 58, 59 & 60 are since merged with Book No 57.

Book No 72 is since merged with Book No 56.

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 My Activity
I am sharing the following in my WhatsApp Groups (The
Banking Tutor), Telegram Group of The Banking Tutor ; TBT
Exam Corner and Blog (The Banking Tutor - TBT).
1. One Point related to Banking & Finance Daily (Daily Point).
Started on 16-09-2019, so far shared 1646 points without
any break.
2. Once 3 days (on 3rd, 6th, 9th ,12th….) one Lesson on
Banking & Finance (Banking Tutor’s Lessons - BTL), started
on 06-09-2018, so far shared 645 lessons.
3. Monthly First Day – Recap of Daily Points shared during
the previous month.

My mail id – paritiss@[Link]
WhatsApp +91 94406 41014

Banking Tutor Blog – [Link]

18-03-2024 Sekhar Pariti
+91 9440641014

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