The Reserve Bank of India has today issued the revised Guidelines for “Internal Control over Foreign Exchange Business”.

First framed in 1981, the Internal Control Guidelines (ICG) were revised in December, 1996. The need to revise them once again was felt in the context of rapid pace of evolution of the forex markets in India and abroad as also, developments in information technology and its progressive usage in banks. A Group comprising officials from the Reserve Bank of India, Foreign Exchange Dealers’ Association of India, Fixed Income Money Market and Derivatives Association of India, State Bank of India, ICICI Bank and Standard Chartered Bank looked into the updation of the Internal Control Guidelines to make them contemporary and benchmark document.

The document is designed to provide a scale of standards for the banks in the conduct of their foreign exchange business and is available on our website (www.rbi.org.in).

Ques 1: How can the old transactions of ODI where APRs have not been submitted for previous years be entered in the ODI Package?

Response : If old transaction is related to APR, APR may be submitted online by ensuring that the figures are in sync with the previous and ensuing year APRs. If the old transactions are related to Section C of ODI Part I it may be reported online irrespective of whether APRs are submitted or not.

Query 2: Can an AD submit an APR without receipt of share certificate and/or audited financials of the overseas entity? If the corporate were not willing to share the audited financial statements of their overseas entities how to ensure that the APRs are submitted based on audited financial statements?

Response: Submission of APR and receipt of share certificate are two different aspects. IP submitting APRs prior to March 28, 2012 were supposed to be on the basis of audited accounts only. IP desiring to submit the APRs on the basis of unaudited accounts may be guided by the instructions contained in Regulation 15(v) of Notification No. FEMA 120/RB-2004 dated July 07, 2004 as amended from time to time.

Query 3: How can an AD be responsible for submission of APRs in respect of all overseas entities when an Indian Party has the option to use different ADs for different Overseas ventures?

Response: AD is not responsible for submission of APRs for the UINs for which they are not the designated AD. However the AD has to put in place a mechanism to monitor the submission of APR for the UINs for which they are the designated AD. To protect the interest of the ADs a revised Sec E & F has been introduced wherein the IP declares that all the APRs in respect of all other UINs are submitted to RBI.

Query 4: Can ODI form to have a declaration regarding submission of share certificate?

Response: ODI form is submitted at the time of transaction whereas time period available for submission of share certificate is 180 days hence it would not be proper to take the declaration in the ODI form.

Query 5: Whether the amount of credit facility availed by the JV / WOS / SDS shall be reckoned for computation of financial commitment when the JV / WOS creates a charge on assets / pledges the shares of the SDS?

Response: A JV/ WOS/ SDS availing credit facility for itself by pledging the shares held by them in favor of overseas lender may not be reckoned for financial commitment.

Developments in Foreign Exchange Management 2014-15 Part I

Developments in Foreign Exchange Management 2014-15 Part II

Q : Whether entities which have come under adverse notice of Enforcement Directorate or any other regulatory agency are eligible to receive long term export advance pending the outcome of such investigations / adjudications/appeal (Para 2(c) of AP DIR Series Circular No. 132 dated May 21, 2014).

A. Yes, mere receipt of show cause notice by Enforcement Directorate or any of the law enforcing agencies does not disqualify any entity from availing long term export advance, if it is otherwise eligible for the same. AD banks can consider such proposals without prejudice to any action that may be taken by any such law enforcing agency in the matter. However, while approving the proposal, the AD banks should endorse a copy of the approval letter to the concerned agencies, without fail.

We have received a query from Standard Chartered Bank asking whether there is a requirement of form A4 preparation for operations in the Non- resident accounts viz NRO, NRE and FCNR (B).

Reply: We have advised Standard Chartered that the requirement of preparation of form A4 may be discontinued.

The same may be noted by all Authorised Dealers.

Banks may refer to the response to question number 105 to the questionnaire on the AD Conference held on January 10, 2015 stating that transfers are not permitted between NRO accounts.

2. We have been receiving queries from AD Banks stating that the prohibition on transfers between two NRO accounts is giving rise to genuine difficulties as it may prohibit transfer which are otherwise permissible under Schedule 3 to Notification No. FEMA 5/2000-RB dated May 3, 2000, as amended from time to time.

3. In view of this, it is clarified that such restriction on transfers between NRO accounts will not apply to transfers which are otherwise as per the debits and credits to NRO account as laid down in Para 3 of Schedule 3 to FEMA 5.

4. We have also received queries about transfers between two NRO accounts maintained by the same person. It may be appreciated that the credits to an NRO account are limited to inward remittances and legitimate dues (as per Para 3 of Schedule 3 to FEMA 5). Therefore such transfers cannot be construed as an inward remittance and hence their credit to an NRO account would not be in compliance with the extant instructions as laid down in the Schedule ibid.

5. With regard to online transfers between NRO accounts, the AD Banks may put in place necessary safeguards to ensure that transactions in an NRO account are in compliance with the extant instructions.

6. UPDATE: With effect from April 01, 2016, transfers between NRO accounts are permissible in terms of Para 3 of Schedule 3 of FEMA 5(R) dated April 01, 2016.

In terms of Schedule III of Foreign Exchange Management (Current Account Transaction) Rules, 2000, dated May 3, 2000, as amended from time to time, a resident individual can remit up to USD 250,000 per financial year for the purposes mentioned therein. In a sole proprietorship business, there is no legal distinction between the individual / owner and as such the owner of the business can remit USD up to the permissible limit under LRS. 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. Hence, 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 business as there is no legal distinction.

Joint holder facility with residents in NRO accounts shall be provided on ‘former or survivor’ basis as stipulated at paragraph 7 of Schedule 3 of Notification No. FEMA 5(R) dated April 1, 2016. All fresh NRO accounts should be opened with this mandate only. As regard existing accounts where ‘either or survivor’ facility was provided, no fresh operations shall be allowed in the account before changing the mandate to ‘former or survivor’ basis.

Q. Can the Special Non-Resident Rupee Account (SNRR account) be used as an eligible mode of payment for FDI transactions, under Foreign Exchange Management (Non-Debt Instruments) Rules, 2019?

Ans. No, an SNRR account is not an eligible mode of payment for FDI transactions under Foreign Exchange Management (Non-Debt Instruments) Rules, 2019. The permissible modes of payment for FDI transactions are provided in Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt instruments) Regulations, 2019.

As per Foreign Exchange Management (Export and Import of Currency) Regulations, 2015 dated December 29, 2015, as amended from time to time, a person resident outside India is not permitted to send currency through postal channels. Therefore, banks may issue suitable instructions to their branches outside India not to advise people to send currencies through postal channels

For export through post/ courier, the exporter has to submit form EDF with the AD Bank concerned and AD bank has to follow the process given at para B.3 of Master Direction on Export of Goods and Services. Banks may arrange to disseminate this information to all its branches/ officials of relevant work area. This information is specially circulated as it has come to the notice of RBI that ground level staff of certain banks are not aware of the process.

"As you are aware that in cases of export realisation (including cases of export through market place like Amazon and/or cases where payment is received through Paypal, PayU or similar mechanism), it is the responsibility of remittance receiving and converting bank to, inter alia, provide, while transferring funds to exporters account, full details of overseas remitter (name, address, country), purpose of remittance, currency and amount of remittance, name and account of the beneficiary to the beneficiary’s bank, so as to help the latter in closing entries in EDPMS.

2. It has been brought to the notice of RBI, by banks as well as exporter’s associations that remittance receiving and converting banks, while transferring funds to beneficiary’s account are not providing aforesaid information to the beneficiary bank because of which export entries are lying outstanding in EDPMS. This has also led to caution listing of exporters. RBI has learnt that many a time beneficiary and/or its bank is advised by the remittance receiving and converting bank to get in touch with Amazon/Paypal, etc to get requisite information.

3. Against this background a reference is invited to Question No.4 of FAQs issued vide Circular No16/2016 dated October 17, 2016 by FEDAI on reporting under EDPMs and is clarified in no uncertain terms that remittance receiving and converting bank has to provide aforesaid information to beneficiary’s bank in all cases of export realisation (including past transactions)

4. Authorised Dealers Category I (AD Cat. I) banks may please note that their inability to provide information and/or resultant difficulty if any to the exporters would be viewed very seriously by RBI. AD Cat. I banks may please find the letter dated October 13, 2017 issued in this regard here.”

E.CO.Trade (EXP) No.4334/05.31.042/2017-18

November 16, 2017

All Authorised Dealer Category I Banks

Madam / Dear Sir

EDPMS- Clarification on closure of export bills

While monitoring the progress made by AD banks in clearing pendency in EDPMS, it is observed by RBI that as on November 15, 2017, a total of 1.43 million entries are outstanding in EDPMS with shipping bill date beyond 2 years. This comes to 12.76 per cent of the total shipping bills. Number of shipping bills outstanding beyond 9 months comes to 4.6 million as on date, which is 22.68 per cent of the total number of shipping bills in EDPMS.

2. As the aforesaid position cannot be treated as satisfactory, we advise you to give due attention for clearance of pendency in EDPMS. Further, for the purpose of helping AD banks to clearing outstanding entries in EDPMS, following clarification are issued:-

a) Export payment through credit card: In cases where payment for export has been made through a credit card, certain information like remitter’s name, address, country, etc may not be available thus leading non-closure of Shipping Bills/Inward Remittance Message (IRM). In such cases of payment of export transactions through credit cards, AD bank may close the relevant entries by using the following information:

b) Involvement of two different currencies: As extant regulations permit raising of export invoices either in freely convertible currency or Indian rupees with condition that export proceeds have to be realized in freely convertible currency. It is clarified that export proceeds may be realized in any freely convertible currency which may be different from the currency mentioned in the shipping bill. In the EDPMS, the AD banks may use two fields for reporting the amount – one in realised currency and other in equivalent amount of declared currency in shipping bill (invoiced currency). For example, if the amount is declared in the shipping bill in USD but export realisation is in Euro, then the AD bank should lodge the bill in USD in their internal system based on export documents submitted by exporters and, at the time of realisation, the currency and amount should be reported in EURO while the invoiced amount should be reported in USD. At the same time, if the freight and insurance amount is paid in INR by the exporter itself, the same may be reported in EDPMS under the same logic. The extract of currency and amount of settlement (prn.xml) file as given below may be referred for closing the entries in EDPMS.

c) Tracking of cases referred to Directorate of Enforcement (DoE): AD banks are required to follow up with the exporters for submission of export documents for closing the entries in EDPMS. In case of non-submission of documents /non-cooperation by the errant exporters even after several follow up including sending of letters through registered post by AD, they may refer such cases to DoE. To track the cases reported to DoE, a suitable flag in EDPMS will be added shortly so that AD bank can mark the same in EDPMS.

Yours faithfully

Vivek Kumar
Assistant General Manager

As you are aware that RBI is continuously following up with AD banks for clearance of pendency in Export Data Processing and Monitoring System (EDPMS). During the course of discussion on various issues related to outstanding entries in EDPMS with select bankers and more recently with select exporters, RBI has come across following areas on which instructions / clarifications are required to be issued so as to help AD banks in closure of entries:

1. Export realisation through entities like Paypal and Amazon;

2. Export through FTWZ units;

3. Export through courier ports.

2. Accordingly, the following instructions/clarifications are issued:

i. Export Payment through Paypal and Amazon: In cases of export realisation through market place like Amazon and/or cases where payment is received through Paypal, PayU or similar mechanism, if certain information regarding actual buyer’s name, address, country, etc. is not available, the AD banks who are maintaining the account of the exporters may use the following information in respect of relevant fields for generation of Inward Remittance Message (IRM )and close the entries in EDPMS provided they are otherwise satisfied with the bonafides of transactions and also they are sure that there is no KYC / AML concern:

ii. Exports through FTWZ units: In case of export of goods held on behalf of the DTA unit by a Free Trade Warehouse Zone (FTWZ) unit, if the IE code (IEC) of latter was captured in the SEZ system, (and, accordingly, instead of actual exporter’s, the IEC of FTWZ unit is getting reflected in EDPMS) and where the export proceeds is realised by the actual exporter, AD banks may close the outstanding entries in EDPMS based on the name of actual exporter declared as a second party in the Shipping bill against the proceeds realised by the latter.

iii. Export through Courier Ports: In cases of export through Courier Port, where courier agency is filing shipping bills in bulk with the Express Cargo Clearance System (ECCS) of Customs through a simplified form called Courier Shipping Bill (CSB) (as the exports are neither captured in the Customs‘ centralised system (ICEGATE) nor manual bill of entry/EDF forms are generated at Customs level, no corresponding shipping bill entry gets added in the EDPMS but Inward Remittance Message gets added in EDPMS) the AD banks may close open IRM using the IRM adjustment/closure message by selecting indicator as export done through couriers based on submission of CSB by the exporter to AD banks.

AD banks may please find the letter dated December 14, 2017 issued in this regard ‘here’.

In terms of Part VI of the Master Direction on Reporting dated January 01, 2016 as amended from time to time, with a view to having access to more real time data the AD - Category I banks are required to furnish the monthly statement on remittances made from NRO Accounts in the requisite format to General Manager-in-Charge, Foreign Exchange Department, Foreign Investments Division (NRFAD), Reserve Bank of India, Central Office Cell, Parliament Street, New Delhi 110 001 within 7 days of the end of the reporting month.

It has been observed that some of the AD Category I banks are forwarding the said statement to Foreign Investments Division (NRFAD), Reserve Bank of India, Central Office, Mumbai. It is therefore, reiterated that the statement may be sent to Foreign Exchange Department, Foreign Investments Division (NRFAD), Reserve Bank of India, Central Office Cell, Parliament Street, New Delhi (and not to Foreign Investments Division (NRFAD), Reserve Bank of India, Central Office, Mumbai).

As you are aware, reporting of transactions on the online ODI portal is being done through Nodal Office/IBD of the AD Bank concerned. In terms of Para 3 (2) of ‘Operational Instructions to Authorised Dealer Banks’ of Master Direction on Direct Investment by Residents in Joint Venture (JV) / Wholly Owned Subsidiary (WOS) Abroad, online reporting would be required to be made by the Centralized Unit/Nodal Office of AD Category - I banks.

2. However, it has come to our notice that fresh cases for investment in JV/WOS are being received directly at RBI Central Office from different branches all across India which can either be handled at bank’s level itself under the automatic route or involve routine queries seeking clarification on different policy issues. As the Nodal Office/International Banking Division (IBD) of the banks concerned are considered to be a repository of information about interpretation of RBI instructions issued from time to time, it has therefore been decided that all the fresh approval cases shall also be routed through the Nodal Office/IBD of the Bank along with specific recommendation/observations, reason for submission to RBI and relevant documents. The system of online reporting through the Centralized Unit/Nodal Office shall continue, as hitherto.

3. The instructions shall be applicable with effect March 1, 2018. AD Category - I banks may bring the contents of this clarification to the notice of their constituents and customers concerned.”

AD Category I banks have been instructed vide A.P(DIR)Cir. No. 23 dated April 12, 2018 to upload daily transaction-wise information undertaken by them under LRS at the close of business of the next working day by accessing XBRL site. It is clarified that the AD Category I banks shall also include the details of transactions carried out by the AD Category II banks and other entities in AD Category II as well as FFMCs attached to them/maintaining an account with them while reporting the said transactions. All the LRS remittances allowed by these entities since April 2, 2018 should be uploaded to have a holistic position available for all individual remitters.

In addition to the daily reporting, AD Category I banks shall continue  to report the LRS data on a monthly basis in ORFS as prescribed in Part II - Para 1 of Master Direction on Reporting under Foreign Exchange Management Act, 1999 dated January 1, 2016 (updated as on April 26, 2018).

In terms of A.P. (DIR Series) Circular No.23 dated April 12, 2018, AD Category – I banks are required to upload the data of the transactions undertaken by them under LRS, latest by close of business of the next working day on the XBRL platform.

2. It is observed that though the amount remitted has to be indicated in USD, as specified in the format prescribed, some AD banks continue to report the amount in the actual currency of remittance, which is not in order; e.g. if the currency of remittance is JPY, data under amount remitted should be the USD equivalent of JPY. AD banks are advised to ensure this while uploading the data.

3. We have come across certain cases where the amount remitted is shown to be marginally higher than the prescribed ceiling, which is attributed by the ADs, to the difference between the rate offered and the rate used for MIS. All ADs are advised to report the transactions at the rate offered, to avoid such instances.

4. It is reiterated that in order to ensure compliance with the prescribed LRS limit, AD banks must check the utilization of the limit by the remitter from the system, before allowing further remittances under the Scheme to ensure that the objective of introducing ‘daily reporting of transactions’ is not defeated.

In terms of Para 4.11 of FED Master Direction No.8/2015-16 dated January 01, 2016 (updated as on February 11, 2016) on Other Remittance Facilities, ADs are allowed to effect remittances on behalf of agents in India who have tie-up arrangements with hotels / agents, etc., abroad for providing hotel accommodation or making other tour arrangements for travel from India. It is understood that many times these agents are required to make remittances towards booking of hotels/other travel arrangements much in advance, even before the list of travellers is finalized.

2. It is clarified that, such advance remittances made by tour operators/agents, are regular business transactions which should be reported by the ADs in FETERS as per extant reporting guidelines under FEMA. However, once the ADs obtain the traveller-wise details (including PAN) from the tour operators, these remittances should be reported by them in the daily reporting system under LRS to ensure that the limit utilized by the individual remitter is captured and is available for monitoring.