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JC - Legal Updates - RBI notification on International Trade Settlement in Indian Rupees

Legal Updates

14 Jul 2022

RBI notification on International Trade Settlement in Indian Rupees

With a view to promote growth of global trade, the Reserve Bank of India (“RBI”)hasissued a notification on International Trade Settlement in Indian Rupees (“INR”) dated 11th July 2022 (“Notification”).

Some of the key highlights of the Notification are as follows:

1)   Invoicing and exchange rate: All exports and imports under the arrangement may be denominated and invoiced in INR and the exchange rate between the currencies of the two trading partner countries may be market determined.

2)    Settlement procedure: The settlement of trade transactions under this arrangement shall take place in INR. As for the settlement of international trade transactions, the following arrangement has been put in place:

(a)  Indian importers: Under this arrangement, Indian importers are required to make INR payment which shall be credited into the special vostro account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller / supplier; and

(b)  Indian exporters: Under this arrangement, Indian exporters shall be paid the export proceeds in INR from the balances in the designated special vostro account of the correspondent bank of the partner country.

3)    Documentation: The export / import will require usual documentation and reporting requirements. The banks of the partner trading countries may mutually agree on Letter of Credit and other trade related documentation under the overall framework of Uniform Customs and Practice for Documentary Credits and incoterms.

4)    Advance against exports: Before receiving advance payment against exports from overseas importers in INR, Indian banks are required to ensure that funds in these accounts are first utilised towards payment obligations arising out of already executed export orders / export payments. Further, the Indian bank maintaining the special vostro account of its correspondent bank is required to verify the claim of the exporter with the advice received from the correspondent bank before releasing the advance.

5)    Setting-off of export receivables: ‘Set-off’ of export receivables against import payables in respect of the same overseas buyer and supplier with facility to make / receive payment of the balance of export receivable / import payables subject to Master Direction on Export of Goods and Services 2016 (as amended from time to time).

6)    Bank Guarantee: Issue ofbank guarantee is permitted subject to adherence to the provisions of Foreign Exchange Management (Guarantees) Regulations, 2000 and the provisions of Master Direction on Guarantees & Co-acceptances dated 9th November 2021 (each as amended from time to time).

7)    Surplus Balance: The INR surplus balance held may be used for permissible capital and current account transactions in mutual agreement.

8)    Approval Process: Thebank of a partner country may approach an authorised dealer category – I bank (“AD Bank”) in India to open a special INR vostro account. The AD Bank will seek approval from the RBI with details of the arrangement. The AD Bank maintaining the special vostro account shall ensure that the correspondent bank is not from a country or jurisdiction in the updated Financial Action Task Force (“FATF”) Public Statement on High Risk & Non-Co-operative Jurisdictions on which the FATF has called for counter measures.

Reserve Bank of India - Notifications (rbi.org.in)

For any further information, please contact Mr. Vedanarayanan Lakshmanan (ved.lakshmanan@jclex.com), Mr. Ankit Sinha (ankit.sinha@jclex.com), Mr. Saurabh Sharma (saurabh.sharma@jclex.com), Ms. Rupul Jhanjee (rupul.jhanjee@jclex.com) or Ms. Teza Jose (teza.jose@jclex.com).