To

All Authorised Dealers in Foreign Exchange

Dear Sirs/Madam,

Exchange Earners' Foreign Currency(EEFC) Account Scheme – Trade Related Loans/Advances

Attention of Authorised Dealers is invited to A.P.(DIR Series) Circulars Nos.78 and 104 dated February 14, 2003 and May 31, 2003 in terms of which, exporters have been permitted to grant trade related loans / advances from their EEFC Account to their overseas importer customer without any ceiling, subject to compliance with terms of sub-regulation (4) of regulation 5 of Notification No.FEMA 3/2000-RB dated May 3, 2000, viz. Foreign Exchange Management Act (Borrowing or Lending in Foreign Exchange) Regulations,2000. Further, as per Notification No.FEMA.3/2000-RB, where the amount of loan exceeds USD 25,000 a guarantee of a bank of international repute situated outside India is required to be provided by the overseas borrower in favour of the lender.

2. As a measure of further liberalisation, it has now been decided to raise the above limit to USD 1,00,000 from USD 25,000. Accordingly, guarantee of a bank of international repute situated outside India will be required to be provided by the overseas borrower in favour of the lender where the amount of trade related loan / advance by exporter out of his EEFC Account exceeds USD 1,00,000.

3. The reporting requirement will continue as per A.P. (DIR Series) Circular 78 dated February 14, 2003.

4 The necessary amendment to the Foreign Exchange Management Act (Borrowing or Lending in Foreign Exchange) Regulations,2000 has been issued vide Notification No.FEMA 112/2004-RB dated March 6,2004 (copy enclosed).

5. Authorised Dealers may bring the contents of the circular to the notice of their constituents concerned.

6. The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999).

Encl : One

Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) (Amendment) Regulations 2004