FEDAIRules

FEDAI RULES

GENERAL GUIDELINES/INSTRUCTIONS

1. The directives issued by the Reserve Bank of India in respect of Interest rates on Export & Import Finance shall be adhered to by the Authorised Dealers.

2. The member banks are totally free to determine their own charges for various types of forex transactions, keeping in view the advice of RBI that such charges are not out of line with the average cost of providing services.

3. Authorised Dealers shall ordinarily not be parties to any guarantees for an unlimited amount and/or an unlimited period. Authorised Dealers shall ensure to include a specific clause in all the guarantees stating the exact period within which claims must be made under the guarantee besides the expiry date for the guarantee.

4. With a view to simplifying and liberalising import, authorised dealers are permitted to open standby letters of credit on behalf of their importer constituents for importing goods into India permissible under Foreign Trade Policy. RBI vide its AP (Dir Series) Circular No. 84 dated 3rd March 2003 advised the authorised dealers to open standby letters of credit subject to adherence to the guidelines issued by FEDAI. The detailed guidelines were issued by FEDAI vide Special Circular No. SPL-16/Standby LC/2003 dated 1st April 2003.

5. Guidelines for calculation of Merchant Rate have been deleted from the Rule Book as the procedure for calculating the rate for Merchant transactions have been left for our member banks to decide.

6. Information regarding various forex related programmes, exchange related rates advised at various times, important circulars issued by FEDAI etc. are available at our website. www.fedai.org.in. e-mail address of FEDAI is [email protected].

RULE 1

HOURS OF BUSINESS

1.A-1 Each Authorised Dealer will establish its business hours for various types of foreign exchange transactions at each centre where its branches undertake forex business.

1.A-2 It is upto the management of each Authorised Dealer to decide whether they would like to have uniform hours of business for all categories or different business hours for different categories of forex business.

1.A-3 Heads of International Divisions/Forex Departments of Authorised Dealers shall advise their designated branches regarding the establishment of business hours for various types of foreign exchange transactions.

1.A-4 In terms of paragraph 7.1 of Reserve Bank of India guidelines for Internal Control over Foreign Exchange Business, Authorised dealers are permitted to undertake forex business on behalf of the bank during extended hours subject to the condition that the Management in each bank lays down the working hours of the dealers.

Dealing Hours*

“The dealing hours will ordinarily be the recognised working hours of the banks at the respective centres. But if dealers are required to work longer hours it is essential that the Managements lay down the extended working hours” (para 7.1 of ICG).

1.A-5 Authorised Dealers are therefore required to decide on the business hours of their forex branches, dealing rooms etc. particularly in regard to uniform hours of business for all categories of business or different business hours for different categories of forex business. Head offices of member banks should advise all their designated category “A”, “B” and “C” branches their bank’s policy in this regard so that their customers become aware of business hours within which they could place the concerned transactions with their offices.

*AR Circular No. 3/05, dated 10-3-2005

RBI Foreign Department have advised that exchange trading hours for inter-bank market would be from 9AM to 4PM.

RULE 2

EXPORT TRANSACTIONS

2.A-1 General

Authorised Dealers will purchase only Approved Bills and the decision as to what is an approved bill lies solely

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with Authorised Dealers. This includes bills tendered under forward contracts, letters of credit, letters of guarantee, letters of authority, orders to negotiate, orders for payment and any other type of document of similar nature. Authorised Dealers will have the discretion to handle export bills on purchase/discount/negotiation or collection basis.

1[2.A-2 Export Bills purchased/discounted/negotiated

i. Application of rates

Foreign currency bills will be purchased/negotiated/discounted at the Authorised Dealers’ current bill buying rate or at the contracted rate. Interest for the normal transit period, and usance period shall be recovered simultaneously.

ii. Crystallisation and Recovery

Exporters are liable for the repatriation of proceeds of the export bills negotiated/purchased/discounted or sent for collection by the Authorised Dealers. Authorised Dealers should take into account the exchange risk inherent in an unpaid export bill negotiated/purchased/discounted and transfer the exchange risk to the exporter by crystallising the foreign currency liability into rupee liability.

Considering that authorised dealers are required to manage various risks, they are given freedom to decide on the period for crystallisation which may be linked to risk factors like credit perception of different types of exporter clients, operational aspects etc. Such norms devised by the banks in this regard should be transparent and should be advised to their customers well in advance.

For crystallisation into Rupee liability the Authorised Dealer shall apply the ready TT selling rate of exchange ruling on the date of crystallisation.

Exchange difference arising out of crystallisation to be recovered from or passed on to the customer, as the case may be.

Interest shall be recovered on the date of crystallisation for the period from the date of expiry of the normal transit period/notional due date to the date of crystallisation at the appropriate rate of interest as per the guidelines issued by RBI from time to time.

Export bills payable in countries with externalisation problems shall also be crystallised into rupee liability like any other unpaid export bill notwithstanding receipt of advice of payment in local currency.

The unpaid export bills will be treated as outstanding under the sanctioned limit of the customer with the exchange risk open against him.

iii. Realisation of Bills after crystallisation

After receipt of advice of realisation, the Authorised Dealers will adjust the Rupee liability on the bill crystallised as above by applying the TT buying rate of exchange or the contracted rate in case a forward contract has been booked by the customer after crystallisation. Any difference shall be recovered from/paid to the customer. Interest for the period from the date of crystallisation to the date of realisation of the bill shall be recovered from the customer at the appropriate rate of interest for overdue export bills as permitted by Reserve Bank of India.

iv. Dishonour of Bills

In case of receipt of intimation of dishonour of an export bill before the estimated crystallisation date, the bank shall recover from the customer :

a. The Rupee equivalent of the bill arrived at the current ready TT selling rate.

b. All foreign currency charges converted at the ruling ready TT selling rate.

c. Interest at appropriate rate as per the guidelines issued by Reserve Bank of India from time to time.

v. Refund of Negotiation Proceeds of unpaid bill

In case refund of negotiation proceeds of a foreign currency bill is required to be made to the negotiating bank by the customer, the rate of exchange for conversion shall be the ready TT selling rate of the negotiating bank ruling on the date of refund. In addition, the customer shall be required to pay interest as per the guidelines issued by Reserve Bank of India from time of time.]

2.A-3 Application of interest

i. The rates of interest applicable for all export transactions shall be as prescribed by Reserve Bank of India from time to time.

ii. Concept of Normal Transit Period and Notional Due Date



Concessional rate of interest on export bills is linked to the concept of normal transit period and notional due date. 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. Normal Transit Period is not to be confused with the time taken for the arrival of the goods at the destination.

In case of bills payable ‘at sight’ or ‘on demand’ basis concessional rate of interest as directed by the RBI on export bill is applicable for the normal transit period.

In case of usance bills, rate of interest as directed by the RBI on export bills is applicable for the normal transit period plus usance period. Thus an export bill payable for example at 60 days after sight will be eligible for concessional interest rate for 60 days usance plus the normal transit period of 25 days i.e. a total number of 85 days.

iii. The above Rule is not applicable to export transactions on deferred payment basis.

2.A-4 Normal Transit Period

i. Normal Transit Period for purposes of all bills in Foreign Currencies ...... 25 days

ii. Exports to Iraq

In respect of Exports to Iraq under United Nations Guidelines where payment under letters of credit is made on arrival of goods upon issuance of certificate by U.N. Agency to the effect that the exports conform to the guidelines laid down by United Nations the applicable Normal Transit Period shall be for a maximum of 120 days from the date of shipment for which concessional interest shall be recovered as directed by RBI from time to time.

iii. Normal Transit Period for purposes of bills drawn in Rupees :

2.A-5 Fixed Due Date

In case of export usance bills (foreign currency and rupee bills) where due dates are reckoned from date of shipment or date of bill of exchange etc. no Normal Transit Period shall be applicable, since the actual due date is known.

2.A-6 TT Reimbursement under letter of credit

i. In case of negotiation of export bills where the letter of credit provides for reimbursement claim upon negotiation by Cable/SWIFT/Telex or other electronic means, the Authorised Dealer shall recover at the time of negotiation Normal Transit Period interest for five days.

ii. In case such reimbursement instructions stipulate claiming of reimbursement by Cable/SWIFT/Telex or other electronic means after a certain number of days from date of negotiation/despatch of documents, this additional period shall be added to the five days stipulated above for arriving at NTP for the purpose of recovery of concessive rate of interest.

iii. Overdue interest shall be recovered at appropriate rate as advised by Reserve Bank of India from time to time, in case the claim is not paid on or before the expiry date of NTP.

2.A-7 Overdue Interest

Overdue interest in all cases shall be recovered from the customer in case payment is not received on or before the expiry date of Normal Transit Period in case of demand bills, and on or before the notional due date/actual due date as the case may be in case of usance bills as per RBI directives.

2.A-8 Early realisation

a. In the case of bills drawn under letters of credit where reimbursement is provided at the centre of negotiation

: 3 days

If reimbursement for negotiation of Rupee bills drawn under a letter of credit is obtained in the centre of negotiation by debit to the non-resident account of the credit opening bank held, either with the negotiating bank itself or with any of its branches in the same centre, interest for the transit period of 3 days as allowed shall not be collected.

b. In the case of bills drawn under letter of credit where reimbursement is provided at a centre in India other than the centre of negotiation

: 7 days

c. In the case of bills drawn under letters of credit where reimbursement is provided by banks situated outside India

and

Bills not under letter of credit : 20 days

d. Exports to Russia against letters of credit providing for reimbursement by Reserve Bank of India under State Credit arrangements.

: 20 days



i. In case of early realisation of export bill proportionate interest shall be refunded from the date of realisation i.e., by credit to nostro account in case of a foreign currency bill, and by debit to vostro account in case of a Rupee bill, upto the last date of normal transit period in the case of demand bill and upto the notional due date in case of usance bill. Such a refund shall become payable only on receipt of relative credit advice/statement of account by bank.

ii. In case of early realisation of an export bill Authorised Dealers shall recover or pay swap cost as in case of early deliveries under a forward contract.

2.A-9 Substitution/Change in Tenor etc.

i. In the case of change in the usance of a bill, concessive interest on post-shipment credit shall be charged to the customers in accordance with the directives of the Reserve Bank of India in force at the material time. In addition, the bank shall also recover/pay swap difference. Interest on outlay of funds, if any, for such swaps shall also be recovered from the customer at the rate not below the prime lending rate of the respective bank.

ii. It is optional for a bank to accept delivery of bills under a contract made for the purchase of a clean TT. If a bank accepts such bills, the swap difference for the relative cover (irrespective of whether an actual swap has been done or not) shall be recovered from/paid to the merchant. Interest at the rate not below the prime lending rate of the respective bank on outlay of funds, if any, shall also be recovered from the customer.

2.B Export bills sent for collection

2.B-1 Application of rates

For disposal of the proceeds of export bills sent for collection or of goods sent on consignment basis the TT buying rate ruling on the date of payment of proceeds to the exporter or the forward contract rate as the case may be shall be applied and the payment will be made in India only after the foreign currency amount is credited to the nostro account of the bank.

2.B-2 Application of interest

On all Rupee loans granted against export bills sent on collection, interest shall be charged as prescribed by Reserve Bank of India from time to time for export credit.

2.B-3 Payment of Interest to exporter

Authorised Dealers shall also pay interest for delay in payment to the exporters on export bills sent for collection and realised.

On the assumption that the customer has complied with FEMA Guidelines and bank’s own requirements, the following are time limits within which the transaction should be completed by an Authorised Dealer or his Authorised Branch after the date of receipt of credit advices/statements :

If transfers are not completed within the above time schedule fixed for execution of the payment orders the compensation shall be payable from the expiry of the period for execution of payment order.

The rate of compensation shall be the minimum interest charged by banks on export credit as directed by Reserve Bank of India from time to time.

In respect of exports to Russia, rupee settlements are made through Reserve Bank of India at present.

2.C Letter of Credit

Forwarding letters of credit/amendments by VP Post is prohibited.

RULE 3

IMPORT TRANSACTIONS

3.A-1 General

i. “Bills” shall include all documentary/clean bills received under letter/s of credit, standby letter/s of credit, letter/s of guarantee, letter/s of authority, order/s to negotiate, order/s for payment and other document/s or

Type of transactions Working day/s Transfer of funds received from abroad against export bills to the exporters’ bank. Foreign Currency bills i. Where payment is to be effected in the same branch 1 ii. Where payment is to be effected at the same centre but to another branch of the

same bank or another bank 2

iii. Where payment is to be effected to a branch of the same bank or another bank at outstation centre

3



undertaking/s of a similar nature or on collection basis covering imports into India.

ii. Establishment and amendment of all import letters of credit shall be at the discretion of the Authorised Dealers.

3.A-2 Application of rates

i. For the purpose of retirement of import bills whether received under letters of credit or otherwise, the bills selling rate ruling on the date of retirement or the forward sale contract rate as the case may be shall be applied.

For the purpose of crystallisation vide para 3.A-4 below, of importer’s liability into Rupees the bills selling rate ruling on the date of such crystallisation or the forward sale contract rate as the case may be shall be applied.

ii. For the purpose of determining stamp duty on import bills, the foreign currency amount of the bills shall be converted into Rupees at the exchange rates prescribed by Government of India from time to time.

3.A-3 Application of interest

i. Bills negotiated under import letters of credit shall carry commercial rate of interest as applicable to banks’domestic advances from time to time and shall be recovered from the date of debit to the Authorised Dealer’s Nostro account to the date of crystallisation/retirement whichever is earlier.

From the date of crystallisation up to the date of retirement the bills shall carry the penal rate of interest as determined by Authorised Dealers from time to time.

ii. Interest remittable on interest bearing bills shall be subject to the directives of Reserve Bank of India.

iii. Interest, if any, on import bills shall be recovered in full and shall not be set off against interest, if any, payable on any margins which may be held against such bills or the relative letters of credit.

3.A-4 Crystallisation of Import Bills under Letters of Credit

i. All foreign currency import bills drawn under letters of credit, in the event of non-retirement shall be crystallised into Rupee liability on the 10th day after the date of receipt of documents at the letter of credit opening branch of the bank, in case of demand bills and on due date in case of usance bills at Bills Selling Rate/contracted rate as the case may be. In case the 10th day or the due date falls on a holiday or Saturday, the importer’s liability shall be crystallised into Rupee liability on the next working day.

However, the import bill payable on demand may be crystallised before the said period of 10 days with the specific understanding and written request from the customer.

ii. If the crystallisation of the Rupee liability of an import bill under the Forward Exchange Contract results in early/late delivery, the bank shall recover swap cost and interest, if any, as per Rule.

RULE 4

CLEAN INSTRUMENTS

4.A-1 Encashment of foreign currency travellers cheques and currency notes

Foreign currency travellers cheques/currency notes will be encashed at the Authorised Dealer’s option at the travellers cheques/currency note encashment rates ruling on the date of such encashment.

4.A-2 Outward remittances

Outward remittances shall be effected at the TT selling rate of the bank ruling on the date of such remittance or at the forward contract rate.

1[4.A-3 Miscellaneous Instructions

i. Payment of foreign inward remittances

All foreign currency inward remittances up to an equivalent of USD 5000 shall be immediately converted into Indian Rupees. Remittances in excess of equivalent of USD 5000 shall be executed in foreign currency and the beneficiary has the option of presenting the relative instrument for payment within the maximum period prescribed under FEMA, 1999.

The applicable exchange rate for conversion of the foreign currency inward remittances shall be the one prevailing as on the date of conversion of foreign currency amount into Indian Rupees by the concerned Authorised Dealer.

In this connection, it is further clarified that any request from the beneficiary of the remittance for subsequent reconversion to foreign currency, including request for opening Exchange Earner’s Foreign Currency (EEFC) Accounts shall be done at market rate.



ii. Compensation for delayed payment

Authorised Dealers shall compensate the beneficiary of an inward remittance by payment of interest @ 2% over the applicable Savings Bank rate of interest in case the proceeds of the inward remittance are not paid within 10 days from the date of receipt of remittance advice from abroad for remittance up to equivalent USD 5000, or an intimation not sent to the beneficiary within 3 working days (reckoning Saturday as a working day) from the date of receipt of credit advice in respect of remittances exceeding equivalent of USD 5000. Saturday may continue to be treated as working day except for transactions involving conversion at confirmed exchange rate (other than travel related transactions like issue/encashment of foreign currency travellers’ cheques, foreign currency notes etc.).

iii. Exchange rate of foreign currency travellers cheques and foreign currency notes

Authorised Dealers shall put through transactions relating to foreign currency travellers cheques and foreign currency notes at rates of exchange determined by market conditions.]

RULE 5

FOREIGN EXCHANGE CONTRACTS

5.A-1 Contract amounts

Exchange contracts shall be for definite amounts and periods.

When a bill contract, mentions more than one rate for bills of different deliveries, the contract must state the amount and delivery against each such rate.

5.A-2 Option period of delivery

Unless date of delivery is fixed and indicated in the contract, the option period may be specified at the discretion of the customer subject to the condition that such option period of delivery shall not extend beyond one month. If the fixed date of delivery or the last date of delivery option is a holiday/declared a holiday the delivery shall be effected/delivery option exercised on the preceding working day. Contracts permitting option of delivery must state the first and last dates of delivery.

For Example 18th January to 17th February, 31st January to 28th (29th) February.

“Ready” or “Cash” merchant contract shall be deliverable on the same day.

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

A spot contract shall be deliverable on second succeeding business day following the day when the transaction is closed.

A forward contract is a contract deliverable at a future date, duration of the contract being computed from spot value date at the time of transaction.

5.A-3 Place of delivery

All contracts shall be understood to read “to be delivered or paid for at the Bank” and “at the named place”.

5.A-4 Date of delivery

Date of delivery under forward contracts shall be :

i. In case of bills/documents negotiated, purchased or discounted - the date of negotiation/purchase/discount and payment of Rupees to the customer.

However, in case the documents are submitted earlier to, or later than the original delivery date, or for a different usance, the bank may treat it as proper delivery, provided there is no change in the expected date of realisation of foreign currency calculated at the time of booking of the contract. No early realisation or late delivery charges shall be recovered in such cases.

ii. In case of export bills/documents sent for collection - date of payment of Rupees to the customer on realisation of the bills.

iii. In case of retirement/crystallisation of import bills/documents - the date of retirement/crystallisation of liability whichever is earlier.

5.A-5 Option of delivery

In all forward merchant contracts, the merchant whether a buyer or a seller will have the option of delivery.

5.A-6 Option of usance



The merchant purchase contract should state the tenor of the bills/documents. Acceptance of delivery of bills/documents drawn for a different tenor will be at the discretion of the bank.

5.A-7 Merchant quotations

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

5.A-8 Rounding off Rupee equivalent of the foreign currency at the agreed merchant rate

Settlement of all merchant transactions shall be effected on the principle of rounding off the Rupee amounts to the nearest whole Rupee i.e., without paise.

5.A-9 Common Currencies

A list of common currencies and the unit of rate quotations are as detailed below :

Currencies to be quoted against one unit of foreign currency :

1. Australian Dollar

2. Bahraini Dinar

3. Canadian Dollar

4. Danish Kroner

5. Egyptian Pound

6. Hongkong Dollar

7. Kuwaiti Dinar

8. Malaysian Ringgit

9. New Zealand Dollar

10. Norwegian Kroner

11. Oman Rial

12. Qatar Riyal

13. Saudi Riyal

14. Singapore Dollar

15. Sterling Pound

16. Swedish Kroner

17. Swiss Franc

18. Thai Baht

19. UAE Dirham

20. US Dollar

21. Euro

Currencies to be quoted against 100 units of foreign currencies :

1. Indonesian Rupiahs

2. Japanese Yen

3. Kenyan Schilling

RULE 6

EARLY DELIVERY, EXTENSION AND CANCELLATION OF FOREIGN EXCHANGE CONTRACTS

6.A-1 General

i. At the request of the customer, unless stated to the contrary in the provisions of FEMA, 1999, it is optional for a bank to :

a. Accept or give early delivery.

b. Extend the contract.

ii. It is the responsibility of the customer to effect delivery or to request the bank for extension/cancellation as the case may be on or before the maturity date of the contract.



6.A-2 Early delivery

If a bank accepts or gives early delivery, the bank shall recover/pay swap difference, if any.

6.A-3 Extension

Foreign exchange contracts either short term or long term contracts where extension is sought by the customers shall be cancelled (at appropriate Selling or Buying Rate as on the date of cancellation) and rebooked simultaneously only at 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 at the time of extension. Such request for extension shall be made on or before the maturity date of the contract.

6.A-4 Cancellation

i. In the case of cancellation of a contract at the request of the customer (the request shall be 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. The recovery/payment of exchange difference on cancellation of forward contracts before the maturity dates may be either upfront or back-ended in the discretion of banks.

ii. Rate at which cancellation is to be effected :

a. Purchase contracts shall be cancelled at the contracting Authorised Dealers spot T.T. selling rate current on the date of cancellation.

b. Sale contracts shall be cancelled at the contracting Authorised Dealers spot T.T. buying rate current on the date of cancellation.

c. Where the contract is cancelled before maturity, the appropriate forward T.T. rate shall be applied.

iii. Exchange difference not exceeding Rs. 100 shall be ignored by the contracting bank.

iv. Notwithstanding the fact that the exchange contract between the customer and the bank becomes impossible of performance, for whatever reason, including Government prohibitory order, the exchange contract shall not be deemed to have become void and the customer shall forthwith apply to the Authorised Dealer for cancellation subject to provisions of paragraphs 6.A.4.i to iii above.

v. a. In the absence of any instructions from the customer, vide para 6.A.1.ii contracts which have matured shall be automatically cancelled on the 15th day after maturity date. In case 15th day falls on a Saturday or holiday, the contract shall be cancelled on the next succeeding working day.

However the contract may also be cancelled after the maturity date but before the 15th day with specific understanding and written request from the customer.

b. Swap cost, if any, shall be recovered from the customer under advice to him.

c. When the contract is cancelled after the due date, the customer shall not be entitled to the exchange difference, if any, in his favour, since the contract is cancelled on account of his default, he shall, however, be liable to pay the exchange difference, against him.

6.A-5 Swap cost/gain

i. In all cases of early delivery of purchase or sale contracts, swap cost shall be recovered from customers irrespective of whether an actual swap is made or not. Such recoveries should be made either back-ended or upfront in the discretion of banks.

ii. Payment of swap gain to the customer will normally be made at the end of the swap period.

6.A-6 Outlay and Inflow of funds

i. Interest at not below the prime lending rate of the respective Authorised Dealer on outlay of funds by the Authorised Dealer for the purpose of arranging the swap shall be recovered in addition to the swap cost in case of early delivery of purchase or sale contracts. The amount of funds outlayed shall be arrived at by taking the difference between the original contract rate and the rate at which the swap could be arranged.

ii. If such a swap leads to inflow of funds, the amount shall be arrived at as above and interest shall be paid in the discretion of banks to the customer at the appropriate rate applicable for term deposits for the period for which the funds remained with the bank.

RULE 7

BUSINESS THROUGH EXCHANGE BROKERS



7.A-1 Exchange Brokers

When Authorised Dealers make contracts through brokers, such contracts shall only be made through and exchange brokerage be paid only to accredited exchange brokers.

No brokerage or other form of remuneration shall be paid by the Authorised Dealers to other bank employees on contracts made in respect of any foreign exchange business.

Accredited exchange brokers are permitted to contract exchange business on behalf of Authorised Dealers in foreign exchange only upon the understanding that they will conform to the rates, rules and conditions laid down by this Association.

Direct Dealings between banks, who are Authorised Dealers in foreign exchange, are permitted in all centres without prescribing minimum lots for such direct deals.

Any accredited broker who knowingly concludes any exchange business contrary to the rules of this Association may have his recognition withdrawn and no Authorised Dealer shall transact business with him thereafter.

It shall be the duty of each Authorised Dealer and the Brokers’ Association to report to FEDAI, the name of any broker who suggests or proposes any business which is contrary to the rules of this Association. (See Code of Conduct for Bank Dealers/Brokers).

All changes in regard to the constitution of the accredited exchange broker including addition/deletion of Partners/Directors shall be with the prior approval of FEDAI. Changes in the names of Calling Assistants shall be advised to FEDAI and the Brokers’ Association.

7.A-2 Exchange Brokers’ Contracts

All contracts must bear the clause :

“Subject to the Rules and Regulations of the Foreign Exchange Dealers’ Association of India”.

No exchange contract shall be made with a broker as a principal or in a name known to be used by the broker for the purpose of jobbing. A bank must refuse to give delivery to or take delivery from any party other than the declared principal viz. an Authorised Dealer.

RULE 8

INTERBANK TT-SETTLEMENT OF INTERBANK TTs AND DESPATCH

8.A-1 Preamble

i. Dealing in the interbank market is generally for large value items and it is in the interest of the banking system that claims are made promptly, if funds are not received in time, and settlements effected. Every care must be taken by member banks to keep their monitoring system for execution of contracts and for watching receipts of countervalue funds in top gear. It is, therefore, absolutely necessary for Authorised Dealers to reconcile all dealing items and other large value items within a period of 24/48 hours by demanding cable/telex/SWIFT confirmation regarding receipt of expected credits in “Nostro” accounts from the correspondents maintaining those accounts but in any event not later than a maximum period of 15 days. Authorised Dealers should not lose sight of the credit risk aspects emphasised in para 3.3.1 of the RBI Confidential booklet “Guidelines for Internal Control over Foreign Exchange Business”. The requisite monitoring system, therefore, applies for not only dealings with overseas banks but also to Authorised Dealers in India whose correspondent banking arrangements are varied.

ii. It is very necessary that discrepant/default items should be quickly identified and effectively settled between Authorised Dealers within a reasonable time. This is considered necessary also for toning up the reconciliation system of Authorised Dealers. Notices of non-receipt of funds in the Nostro account must be followed up by cable, telex, SWIFT etc. with defaulting counterparty banks who should immediately take up the matter with their correspondents. Authorised Dealers should not wait for receipt of statements of ‘nostro’ accounts for reconciliation of such items because in that event corrective action will take a much longer time. Reconciliation may be treated as a final cross-check and not a primary investigation step.

iii. All kinds of defaults in the delivery of countervalue currencies in cross currency deals i.e. dealing in a foreign currency against another foreign currency between Authorised Dealers in India, fall within the ambit of the provisions of this Rule.

iv. Banks should make proper enquiries into their books before meeting interest claims thereby resulting in the toning up of general efficiency in banks.



8.A-2 General

i. Authorised Dealers should ensure smooth settlement of their interbank transactions. The buyer-bank shall arrange payment of the Rupee equivalent on the settlement day (i.e., date of delivery) and the seller bank shall lay down foreign currency funds simultaneously on the same day. Seller-bank shall arrange delivery of the foreign currency funds at the contracted foreign centre by telex, cable, SWIFT or other expeditious means of communication without any additional cost to the buyer-bank and the buyer-bank shall advise their Head Offices/Branches/Correspondents to receive the concerned amounts on their account on the contracted dates. In their own interest Authorised Dealers shall mention in their telexes or cables the “Value-dates” for receipt/delivery of the foreign currency funds in terms of their TT Sale/Purchase contracts.

ii. In case the seller-bank is unable to substantiate to the buyer-bank that it had intended to effect proper delivery on the settlement day, thereby amounting to ‘deliberate’ non-delivery of funds, the seller-bank shall pay to the buyer-bank a penalty as decided by the Managing Committee of the FEDAI or any other Sub-Committee specially appointed for the purpose by the Managing Committee. The penalty as stated above shall be in addition to the interest claim of the buyer-bank.

iii. In case claims are not settled within 2 months from the date of lodgement of claim, the matter shall be referred to the FEDAI for a final decision which shall be binding upon the banks concerned.

8.A-3 Bilateral Settlement Netting between Authorised Dealers

Authorised Dealers may in their discretion arrange for Bilateral Settlement Netting of Interbank contracts subject to the prevailing laws and the agreement between the counterparty banks concerned.

8.A-4 Use of incorrectly paid funds (undue enrichment)

In line with the international practice, Authorised Dealer which has received foreign currency funds, not intended for its accounts, shall be liable to compensate the concerned Authorised Dealer which has been out of funds by returning the funds with proper value provided the remitting bank bears the back valuation charges.

8.A-5 Timings

i. Written instructions of buyer-banks, regarding their take-up of interbank TT transactions in the permitted foreign currencies must be in the hands of the seller-banks not later than one hour before the close of the general banking hours of the latter. Seller-banks have the option of refusing to deal with applications for TT sales or applications for take-up of the forward fixed date sale contracts received after such banking hours.

ii. In the case of interbank forward contracts which specifically allow option of delivery, the buyer-bank shall take up such forward contracts after giving two clear days notice to the seller-bank and shall deliver cheques on the date of take-up as stated in the advance notice to ensure that the Rupee as well as the foreign currency funds get transferred on the same day.

Banks shall take effective steps to avoid ‘Cash’ transactions in their interbank dealings and establish the practice of dealing among themselves on ‘spot’, ‘value next day’ or ‘forward’ basis.

On Saturdays, no interbank TT shall be despatched.

Delivery under a ‘spot’, ‘value next day’ or ‘forward’ contract shall be effected on the stated delivery date. In the case the stated delivery date is later declared a holiday at the overseas centre, the delivery shall be effected on the next business day.

*8.A-6 Known Holiday/Subsequently declared holiday

Known holiday is defined as one which is known at least seven days before the due date.

If at the time of conclusion of a forward contract, the fixed date of delivery or the last date of option is a Saturday or a known holiday either at the centre in India where the Rupee funds are to be settled or at the centre where the foreign exchange funds are to be delivered, the contract shall be deliverable on the day immediately preceding the Saturday or the holiday provided that day is open for business at both the centres.

Holidays which are not known at least seven days before the due date are to be treated as subsequently or suddenly declared holidays. In such cases the contract shall be deliverable on the next working day when all the centres are open for business.

8.A-7 Settlement of interest claims on the delayed delivery of Foreign Currency Funds

i. In the event of late delivery of foreign currency amount of an interbank TT at the stated overseas centre, inter-est for the number of days of the delay, regardless of the cause of the delay, shall be payable by the seller-bank as per sub-rules (ii) and (iii) below, as the case may be.

ii. In the event of late delivery in London, interest for the overdue period is to be paid by the seller-bank in India



at 2% over the “Barclays Bank’s Base Rate” ruling on the day the remittance should have been received in London in the buyer-bank’s nostro account provided the buyer-bank lodges the interest claim within 30 days from the day on which the amount should have been received at the overseas centre.

In case the buyer-bank lodges the claim after expiry of the said period of 30 days, interest at the applicable rate shall be paid for a maximum period of 60 days only or for the actual overdue period whichever is less.

iii. a. In the event of late delivery at centres other than London, interest for the number of days of the delay shall be paid in India at two per cent over the prime rate of the banks specified below at the respective centres, ruling on the day the delivery should have been made provided the buyer-bank lodges the claim for interest within 30 days from the day the delivery should have been received abroad :

b. In case of transactions in currencies of countries not mentioned above, the seller-bank shall pay interest at 2% over the notional overdraft rate payable to the buyer-bank.

c. In case the buyer-bank lodges the claim for interest after expiry of the aforesaid period of 30 days, interest at the applicable rate shall be paid for a maximum period of 60 days only or the actual period, whichever is less.

d. No interest claims shall be entertained if claims are preferred after 90 days from the date on which the foreign currency funds should have been received by the buyer bank.

8.A-8 Acceptance of back valued credits by buyer-bank in the event of late payment

In case where the seller-bank has delayed payment and is willing to rectify the situation by offering to deliver funds on a value dated basis, the buyer-bank shall accept such funds on a value dated basis provided that such funds are delivered within two working days abroad from the value date of the contract. The buyer bank shall have no right to claim interest in India in terms of Rule 8.A-7 (ii) and (iii) above.

For funds which are delivered to the buyer-bank beyond two working days abroad from value date of the contract, the buyer-bank may either accept (a) Value dated funds or (b) Claim interest as per Rule 8.A.7(ii) and (iii) above.

8.A-9 Wrong delivery of Foreign Currency Funds

In case the seller bank delivers the foreign currency funds to the Nostro account other than the notified account of the buyer bank, it shall compensate the buyer bank in terms of Rule 8.A-7.

8.A-10 Non-delivery of Foreign Currency Funds

In the case of non-delivery of foreign currency funds, the seller-bank shall deliver foreign currency funds within 48 hours of the receipt of the notification from the buyer-bank. Such notification shall be sent by the buyer-bank not later than 15 days from the contracted date of delivery.

The seller-bank in such a case shall be liable to pay interest for the full period of delay. In case the foreign currency funds are delivered after a delay of 45 days from date of demand, the seller-bank shall also become subject to the provisions of Rule 8.A-2 ii as above.

8.A-11 Delay in payment of Rupee equivalent of interbank TTs in foreign currencies

i. In the event of late payment of the equivalent Rupee funds by the buyer-bank in respect of interbank contracts, the buyer-bank shall pay interest for each day of delay at 2% over the NSE-MIBOR rate ruling on each such day of delay.

Interest shall be paid for the period from the date the Rupee funds should have been paid by the buyer-bank to the date the amount was actually paid, Provided the seller-bank lodges the relative interest claim with the buyer-bank within 15 days from the date the Rupee amount should have been paid to the seller-bank. In case the seller-bank fails to lodge the claim within the said period of 15 days, the seller-bank shall be entitled to receive interest for the maximum period of 30 days only notwithstanding the fact that the actual delay period might have been much higher than the said 30 days.

ii. No interest claims shall be entertained if claims are preferred after 90 days from the date on which the rupee funds should have been received by the seller bank.

8.A-12 Period for settlement of interest claims in Rupees

Countries Specified Banks U.S.A. Citibank N.A. Canada Bank of Nova Scotia Japan Bank of Tokyo-Mitsubishi Ltd. Switzerland Swiss Bank Corporation EURO ABN Amro Bank



When a bank is served with the notice of interest claim, it must settle the claim within 21 days of receipt thereof by making proper enquiry into its books and investigating its records.

Payment of interest claim cannot be withheld for more than 21 days on the plea that enquiries are being made in the matter of the interest claim.

LIST OF AUTHORISED DEALERS IN FOREIGN EXCHANGE

(as on 1st September 2004)

1. Abu Dhabi Commercial Bank Ltd.

2. ABN Amro Bank NV

3. Allahabad Bank

4. American Express Bank Ltd.

5. Andhra Bank

6. Arab Bangladesh Bank Limited

7. Antwerp Diamond Bank NV

8. Bank of America NT & SA

9. Bank of Bahrain and Kuwait BSC

10. Bank of Baroda

11. Bank of Ceylon

12. Bank of India

13. Bank Internasional Indonesia

14. Bank of Maharashtra

15. Bank of Nova Scotia

16. Bank of Punjab Limited

17. The Bank of Rajasthan Ltd.

18. The Bank of Tokyo-Mitsubishi Ltd.

19. BNP Paribas

20. Barclays Bank Plc.

21. Bharat Overseas Bank Ltd.

22. Bombay Mercantile Co-op. Bank Ltd.

23. Calyon Bank

24. Canara Bank

25. The Catholic Syrian Bank Ltd.

26. Central Bank of India

27. Centurion Bank Limited

28. Chinatrust Commercial Bank

29. Chohung Bank

30. Citibank NA

31. City Union Bank Ltd.

32. Corporation Bank

33. Dena Bank

34. Deutsche Bank AG

35. The DBS Bank Ltd.

36. Development Credit Bank Ltd.

37. The Dhanalakshmi Bank Ltd.

38. Export-Import Bank of India

39. The Federal Bank Ltd.

40. The Hongkong and Shanghai Banking Corporation Limited



41. HDFC Bank Ltd.

42. ICICI Bank Ltd.

43. IDBI Bank Ltd.

44. Indian Bank

45. Indian Overseas Bank

46. IndusInd Bank Ltd.

47. Industrial Development Bank of India Limited

48. Industrial Finance Corporation of India

49. ING Bank

50. ING Vysya Bank Ltd.

51. JP Morgan Chase Bank

52. The Jammu & Kashmir Bank Ltd.

53. The Karnataka Bank Ltd.

54. The Karur Vysya Bank Ltd.

55. Krung Thai Bank Public Company Ltd.

56. Kotak Mahindra Bank Ltd.

57. The Lakshmi Vilas Bank Ltd.

58. Lord Krishna Bank Ltd.

59. The Maharashtra State Co-op. Bank Ltd.

60. Mashreq Bank psc

61. Mizuho Corporate Bank Ltd.

62. Oman International Bank S.A.O.G.

63. Oriental Bank of Commerce

64. Punjab National Bank

65. Punjab & Sind Bank

66. The Sangli Bank Ltd.

67. The Saraswat Co-op. Bank Ltd.

68. SBI Commercial & International Bank Ltd.

69. Small Industries Development Bank of India

70. Societe Generale

71. Sonali Bank

72. The South Indian Bank Ltd.

73. Standard Chartered Bank

74. State Bank of Bikaner & Jaipur

75. State Bank of Hyderabad

76. State Bank of India

77. State Bank of Indore

78. State Bank of Mauritius Ltd.

79. State Bank of Mysore

80. State Bank of Patiala

81. State Bank of Saurashtra

82. State Bank of Travancore

83. The Sumitomo Mitsui Banking Corporation

84. Syndicate Bank

85. Tamilnad Mercantile Bank Ltd.

86. Thomas Cook (I) Ltd.



87. UCO Bank

88. UFJ Bank Ltd.

89. Union Bank of India

90. United Bank of India

91. The United Western Bank Ltd.

92. UTI Bank Ltd.

93. Vijaya Bank

94. YES Bank Ltd.



Documents

FEDAIRules