SBI Import Checklist Guide 2011

SBI IMPORT CHECKLIST

Job Card No

Contents Page No

1 Issue of Letters of Credit 2-8

2Amendments/ Cancellation/ Expiry of LCs Issued

9-11

3 Import Bills for Collection 12-16

4Scrutiny/ Retirement of Bills drawn under Import LCs

17-26

5 Suppliers Credit & Buyers Credit 27-32

6 Advance Remittances - Imports 33-34

7 Loans from FCNB Funding - 35-46

8 Issuance of Foreign Bank Guarantees 47-57

Job Card (Imports) No. 1

IMPORT LETTERS OF CREDIT

BASIC INFORMATION:

Letter of Credit can be characterised as an arrangement of making payment against documents. It contains a written undertaking given by the importer’s bank, to pay a certain sum of money to the exporter, on presentation of stipulated documents and fulfillment of all the terms and conditions incorporated therein. All letters of credit are subject to.

(a) Uniform Customs and Practice for Documentary Credits (UCPDC) 600. (b) FEMA Regulations (c) Trade Control Requirements. (d) Public Notices issued by the Director General of Foreign Trade from time to

time. (e) Uniform rules for bank to bank reimbursements under documentary credits

ICC Publication no.525. (f) Credit norms of RBI. (g) Know Your Customer (KYC) guidelines (h) Bank’s internal procedures.

Since the bank establishing the credit undertakes the responsibility of honouring the drafts drawn there under, every care should be taken by it, to ensure the ability of the importer to meet its obligation, the integrity of the exporter, the nature of goods under export etc., besides observance of FEMA Regulations.

The different types of letters of credit are as under:- (a) Revocable letter of credit (buyer can call back the credit). (b) Irrevocable letter of credit (the credit cannot be called back without the

agreement of all the concerned parties) (c) Irrevocable and confirmed letter of credit (where in addition to the opening

bank, another bank undertakes to honour the credit) (d) Transferable Credit (e) Clean Credit (a credit payable on presentation of one or more drafts or

demand for payment with no other documents) (f) Revolving letter of credit (amount is renewed or reinstated, without specific

amendment to the credit) (g) Back to Back letter of credit (when a credit is opened with the security of

another credit, the credit thus opened is termed as back-to-back-credit). (h) Domestic credit ( also known as inland letter of credit – where all the parties to

the LC are situated in the same country )

Imports Page 2 of 57

(i) Red clause credit – red clause is a special clause authorising the advising or confirming bank to make advances to beneficiary before the shipment.

(J) Stand by credit – issuing bank undertaking an obligation to make payment to the beneficiary on account of any indebtedness of the applicant/ money borrowed/ or any default ( generally used as a substitute for financial guarantees and are popular in countries like USA, banks, by law, are precluded from issuing guarantees.

OPENING OF LETTER OF CREDIT: The opening of a letter of credit involves two stages

A. Receipt and scrutiny of the application from the importer-customer

&

B. Opening of the letter of credit through our foreign office/correspondent.

JOB SET-UP

A. Scrutiny of application: On receipt of the application for opening a letter of credit, ensure that -

1. (i) All the documents mentioned in the covering letter are enclosed. The documents will generally consist of:

(a) Stamped Application cum Guarantee form.

(b) Exchange Control copy of the Import Licence or declaration form in case the items of import are freely importable under the Foreign Trade policy in force.

(c) Letter of authority where appropriate, signed by the licensee in favour of the applicant, in case the applicant is not the holder of the licence.

(d) Proforma invoice/indent/sale contract, etc, covering the goods to be imported.

(e) Mandate signed by the applicant for transferring the foreign currency liability to rupee liability in case, the documents received under the letter of credit remain unpaid beyond 10 days of the receipt.

(f) Board Resolution in the case of limited companies conferring the powers to the company to establish the letter of credit etc. This need not be obtained in case of sanctioned limit.

(g) Evidence for the Importer Exporter Code Number allotted by DGFT to the importer.

(ii) Declaration-cum-undertaking to be obtained by ADs under section 10(5) chapter III of FEMA.

(iii) Application cum guarantee is duly dated and stamped, as an agreement.


(iv) It is signed by person/s authorised to do so.

(v) His/their signature/s is/are verified by the authorised official.

(vi) All the columns in the form have been duly filled and all the corrections/alterations are authenticated.

(vii) Essential particulars furnished in the application viz. description of goods, quantity, value (including unit price, terms of sale, etc), conform to the proforma invoice/contract/indent backing the letter of credit

(viii) All the terms and conditions are compatible with each other.

(ix) Ensure that there is no clause in the LC which may lead to a contradiction or a requirement which can not be verified by documents because non-documentary conditions have no validity.

(x) Ensure that shipping terms are clear viz.FOB, CIF, CFR etc.

(xi) Ensure that wherever necessary the type of insurance and risks to be covered are clear.

(xii) Application must contain a list of documents and number of copies of each required. Documentary conditions must be clear and precise.

(xiii) Ensure that expiry date and place are written clearly. Dates must be mentioned with month written in words.

(xiv) Indent/contract continues to be valid.

(xv) Import licence (wherever necessary bears the number with its prefixes and suffixes and is duly signed and sealed by the import Licensing Authority. All the correction/alterations have been authenticated.

(xvi) Endorsements or special remarks on the import licence are strictly complied with (e.g. General Currency Area -GCA).

(xvii) The goods to be imported are specifically permitted under the licence and are covered by the available balance in the licence.

(xviii) The amount available in the licence is sufficient to cover the CIF value of the goods under import. If the LC is established on FOB basis the amount should be reduced by 10% or more for freight and 1% for insurance. Whenever applicable provision for payment of agency commission (upto a maximum of 2.5% of FOB value of imports)/interest payable locally or abroad should be made. If however import is made through our national carrier freight amount can also be utilised for import.

(xix) The period of placing the order is in conformity with that mentioned in the import licence, if the licence indicates so.

(xx) The country from which the goods are to be consigned appearing in the application is in conformity with that of import licence, if the licence specifically stipulates the country of origin/export.

(xxi) The shipment date given in the application is within the validity period of licence.


(xxii) If it is an AID licence all the conditions spelt out in the relative public notice of Import Trade Control are complied with.

(xxiii) The imports conform to the description given in the Current EXIM Policy Book.

(xxiv) Letter of credit validity is within the validity period of import licence/ if freely importable upto the licensing year as per the current Exim Policy.

(xxv) The tenor of the bill of exchange called for does not exceed the period permitted under FEMA Regulations in force viz. 180 days from the date of bill of lading. In case the tenor exceeds 180 days the credit can be established only after obtaining RBI approval.

(xxvi) Currency in which payment for import is to be made is in accordance with FEMA Regulations

(xxvii) If the applicant desires any addition/specific conditions to be incorporated in the letter of credit, it is not violative of the Exchange/Import Control Regulations and provisions of Uniform Customs & Practice for Documentary Credits.

(xxviii) Goods are not to be consigned directly to the buyer under Air Way Bill/Bill of Lading/Post Parcel and documents of title to goods are not required to be sent directly to the importer (However, under specific sanctions consignment direct to importer may be allowed under proper authority).

(xxix) No onerous clause is incorporated in the letter of credit which will hamper the security vis-à-vis the Bank.

(xxx) Ensure that the following clause is incorporated in the LC “shipment by sea-worthy vessels which are not more than 25 years old, classed 100 A1 by Lloyds or equivalent classification Society and approved by General Insurance Corporation of India”

(xxxi) Endorsements to be made at the predetermined rate where such a rate is indicated in the Licence.

2. If there are any short comings/discrepancies, get them rectified by the applicant.

3. Verify the credit report on the beneficiary if available and see whether it can be considered as satisfactory.

4. Where the party is enjoying a regular sanctioned limit for opening letters of credit put up the papers for approval by the authorised official.

5. If no regular limit has been sanctioned to the party, obtain the sanction of the Manager/Branch Manager/Controlling Authority.

B. Opening of the Credit On obtaining the approval/sanction to open the letter of credit -


i) If the import is against a line of credit extended to India by a foreign country, verify whether the formalities prescribed for the purpose have been complied with.

ii) In the case of deferred payments, see whether permission of Foreign Exchange Department, Reserve Bank has been obtained, wherever necessary. .

iv) Ensure that the date of opening the letter of credit is within the validity period of the Import Licence:

Note: The last day of the month relating to the period of validity of the licence is reckoned as the date of expiry of the licence.

v) Endorse the CIF value of the import, on the Licence, by applying the Bill Selling rate/conversion rate given in the licence/Forward Contract Rate, whichever is applicable.

vi) If the letter of credit is opened on FOB or CFR basis, earmark sufficient amount towards freight and insurance from the licence.

vii)If the letter of credit calls for usance draft, ensure that usance period does not exceed 6 months from the date of shipment.

viii) Ensure that in case of letter of credit on CFR and FOB terms, the applicant holds insurance cover note in the Bank’s name and opener and covers at least 110% of invoice value, is valid for shipment period and invariably covers War & SRCC risks

ix) Ensure that there are no conditional clauses in the insurance cover note/policy, incorporated in the letter of credit.

x) Ensure that all import LC opened by the branch are advised through our foreign office and IS RESTRICTED FOR NEGOTIATION TO THEM AS PER THE BANKS’ DIRECTION OF BUSINESS GUIDELINES.

xi) Recover the necessary margin wherever applicable and keep it in Current Account or T.D. Mark lien on TD/CA. Recover Bank’s charges

xii) EXIMBILL BRANCHES: LC particulars have to be entered in Import Letter of Credit issuance / Amendment Menu and verified by the authorized official. Upload the same to SFMS (IN MT 700) and transmit it after due verification and authorization.

xiii) File the acknowledged copy MT 700

xiv) Arrange to send reimbursement instructions to the reimbursing bank (Swift MT-740), wherever applicable.

xv) Advise the importer about the availability of forward cover.

Note: Branches, while opening USD denominated Letters of Credit on SBI, Hong Kong should give the reimbursement authorization to SBI, Hong Kong instead of SBI, New York. The relative Sale entry should also be reported to GMUK against SBI, Hong Kong (CRCD: SBHKU) and not against SBI, New York. This requirement also applies to LCs opened on SBI, Los Angeles(SBLA).


ACCOUNTING PROCEDURE & ENTRIES

For Margin - Debit : Customer’s account Credit : TD/CA

For Charges - Debit : Customer’s account Credit : Commission account, Postages and

Telegram charges recovered Account

Proforma GL entries to be passed.(In the currency of LC issue)

Debit : Constituents liability on Bank LCs opened a/c Credit : Bank LCs issued / confirmed a/c.

COMMISSION AND CHARGES:

Collect commission as per applicable rates

DOCUMENTS & FORMS

Letter of Credit application cum guarantee stamped as an agreement form, Customer’s undertaking to pay the bills drawn under Letter of Credit and the Bank’s charges. Declaration-cum-undertaking to be obtained by APs under section 10(5) chapter III of FEMA. Mandate for de-linking foreign currency liability in case of non-payment of bills within 10 days of receipt (sight bills) / due date (usance).

Annexure

Applicable Charges to be recovered for opening of Import Letters of Credit Opening of Import Letters of Credit:

MISCELLANEOUS:

Credit options available:

Credit may be available by negotiation/ acceptance/ deferred payment/ payment.

Negotiation: giving of value under the LC; it can be either sight or usance; bills of exchange – drafts- are drawn as per the terms of the LC.

Acceptance: usance drafts to be drawn on the nominated bank and upon acceptance, the money becomes payable on the accepted due date.

Deferred payment: liability under the LC arises on the due date. NO drafts are drawn in this case.

(use of deferred credits has developed primarily to avoid high stamp duty that certain countries have applied to drafts)


Payment: payment made upon presentation of credit compliant documents (at sight) – no drafts drawn.

Incoterms 2010: (WEF 01.01.2011)

EXW - Ex Works FCA - Free Carrier FAS - Free Alongside Ship. FOB - Free On Board CFR - Cost and Freight CIF - Cost Insurance Freight CPT - Carriage Paid To CIP - Carriage and Insurance Paid to DDP - Delivered Duty Paid. DAT - Delivered at TerminalDAP - Delivered at Place

Accounting in EXIMBILLS

Import LC Issuance / Amendment > A. Transaction Menu > Issuance > 1. Register LC Application. On confirming this step, LC number is generated.

ISSUE LC

Import LC Issuance/Amendment > A.Transaction Menu > Issuance >1. Issue LC (After Register)



AMENDMENTS TO/ CANCELLATION OF/ EXPIRY OF LETTERS OF CREDIT

BASIC INFORMATION:

An irrevocable letter of credit, in principle, cannot be amended as any amendment will mean certain changes in the terms and conditions of the original Letter of Credit. However, if the parties to the Letter of Credit, namely, the beneficiary, opener, opening bank and the advising bank agree to the changes in the terms and conditions of the original Letter of Credit, the amendments can be effected.

A. Amendments To Import Letters of Credit

The UCPDC 600 Article 10 (a) and 10 (e) reads as:

“Except as otherwise provided by Article 38, an irrevocable Credit can neither be amended nor cancelled without the agreement of the issuing bank, the confirming bank (if any) and the beneficiary.

“Partial acceptance of amendments is not allowed and will be deemed to be notification of rejection of the amendment.”

As such, the beneficiary cannot exercise the option of accepting only certain amendments of a single amendment letter.

Nature of Amendments:

(i) Extension of last date for shipments and negotiation.

(ii) Enhancement or reduction in the value of credit.

(iii) Change in the specification or description of the commodity.

(iv) Changes in the mode of shipment.

(v) Change in the insurance policy or any other documents.

(vi) Extension of validity period of Letter of Credit.

(vii) Change of any clause in the letter of credit concerning documents to be tendered under the credit.

JOB SET-UP

(i) Obtain applicant’s request in writing. Verify from the communications exchanged between the seller and the buyer that the beneficiary is agreeable to enhancement/reduction in the value of L/C.


(ii) Ensure that the amendments sought are in conformity with Import Licence Conditions (if any), FEMA Regulations, Public Notices, Indent/Purchases order.

(iii) hen shipment dates are extended, ensure that extended date falls within the validity period for shipment as per the Import License (if any).

(iv)When the value of Letter of Credit is enhanced ensure that the enhancement is still within the value of Import license (if any) and the sanctioned limit.

(v) Put up for orders of the authorised official, if the above conditions are fulfilled.

(vi) Collect additional margin in case of enhancements.

(vii) Collect additional commission and commitment charges as applicable and also out of pocket expenses.

(viii) Record details of amendment in Eximbills.

(ix) Upload the Swift MT 707 and transmit the same through SFMS after due verification and authorization.

(x) If the value is enhanced or validity extended - intimate the same to the reimbursing bank.

(xi) Endorse Import Licence (if any) with C.I.F. value of the enhancement.

(xii) In case of enhancement, proforma entries for the difference to be passed.

B. Cancellation of Documentary Credit

(a) An irrevocable documentary credit cannot be cancelled without the consent of the issuing bank, the confirming bank if any and the beneficiary (Article 10 (A) of UCPDC)

(b) Verify whether the request is for cancellation of documentary credit or cancellation of unutilised portion.

(c) Obtain a letter from the opener containing his instructions on the above.

(d) Send a Swift MT 707 to advising bank requesting them to obtain beneficiary’s letter of consent for cancellation.

(e) If beneficiary has advised his consent, advise him to return the documentary credit to the bank, through the advising bank.

(f) Instead of returning the documentary credit if beneficiary issues a letter agreeing for cancellation, request the advising bank to send Swift MT 730, to this effect.

(g) Also request the advising bank to cancel the documentary credit, to prevent further use.

(h) Reduce the customer’s liability with the value of letter of credit.

(i) Reinstate the cancelled amount to relevant Import Licence (if any).


(j) Reverse the proforma entries.

C. Expiry of Documentary Credit (a) Documentary credits are deemed to have expired one month after validity

date if documents are not received. However, actual position is to be ascertained from the advising bank.

(b) Restore the expired/unutilised amount to customer’s liability.

(c) Reinstate the expired/unutilised amount to relevant Import Licence.

(d) Refund margin, if any, collected earlier.

(e) Charges collected while opening credit and amendment are NOT to be refunded.

(f) Reverse the proforma entries.

Charges to be recovered on Amendment of Letters of CreditAs applicable to the Service Charges being updated from time to time.

For revival of expired L/Cs within 3 months from date of expiry, collect Commitment and usance charge from the date of expiry to the validity date of the revived L/C.

Control entries as in the case of Issue of Lcs are to be passed only in case of amendment of value of the LC. Otherwise, entries relating to recovery of charges only are to be passed.

Process in Eximbills:

Import LC Issuance/Amendment > A. Transaction Menu > Issuance > Amendment of LC.



IMPORT BILLS FOR COLLECTION

BASIC INFORMATION

These include import bills which have been received on collection basis either being purchased or without being purchased by a foreign branch or correspondent (remitting bank). Some of the bills might have been purchased by the branch/correspondent, (remitting bank). Nonetheless, all the bills at this end will fall under the category of ‘Bills for Collection’ only.

Import bills and documents should be received from the banker of the seller by the banker of the buyer in India. Branches should not, therefore, make remittances where import bills have been received directly by the importers from the overseas seller, except in the following cases

Documents may be received directly by importers from the overseas sellers, provided,

a. The import is subject to the prevailing Foreign Trade Policy.b. The transactions are based on their commercial judgment

and they are satisfied about the bonafides of the transactions.

c. The importer is a customer of the branch and the customer’s account is fully compliant with extant KYC / AML guidelines issued by the RBI.

d. Due diligence exercise is done by the branch and is fully satisfied about the financial standing / status and track record of the importer customer.

e. It is customary in that trade to received import documents directly from the overseas exporter.

f. Suspicion about the genuineness of the transaction is reported through the Suspicious Transaction Report (STR) to FIU_INDM(Financial Intelligence Unit in India)

Branches (but not the importers) may receive import bills valued upto US$100,000/- or its equivalent direct from the overseas sellers if the importer requests so, at the request of their importer clients, provided the branch is satisfied about the financial standing/status and track record of the importer. Branch should also obtain satisfactory reports on the seller from overseas banker or reputed credit agencies.

a) As per Article.2 of URC 522; “Collection” means handling of documents by banks in accordance with the instructions received in order to:


1) obtain payment and /or acceptance or 2) deliver documents against payment and/or acceptance or 3) deliver documents on other terms and conditions.

b) Art 10a of URC 522 states that goods should not be despatched directly to the address of a bank or consigned to or to the order of a bank without prior agreement on the part of that bank.

c) As per Article.12(a) banks must determine whether the documents received appear to be as listed in the collection instruction and must advice by telecommunication or by any other expeditious means, without delay, the party from whom the collection instruction was received of any documents missing or found to be other than listed.

d) Article.24 states that the collection instruction should give specific instructions regarding “protesting” in the event of non-payment or non-acceptance. In the absence of such specific instructions, the banks concerned with the collection have no obligation to have the documents protested. Collection of bills is subject to: (a) Uniform Rules for collections incorporated International Chamber of

CommercePublication - 522

(b) FEMA Regulations (c) Foreign Trade policy (d) Public Notices Issued by the Director General of Foreign Trade from time to

time.

JOB SET-UP

(i) On receipt, verify whether all the documents mentioned in the covering schedule, have been received.

(ii) Check whether the documents/instructions are in conformity with the Foreign Trade policy/ FEMA Regulations and specific requirements in the case of imports under AID license as applicable.

(iii) In case there are any deficiencies/short comings advise the remitting branch/correspondent bank.

(iv) The Presentation Memo should be scrutinized by an Official before being forwarded to the drawee. .

(v) Where the bills have been drawn on usance basis, advise the applicable stamp duty, through the presentation memo.

A. In the case of sight bills :

(a) enter the transaction through Eximbill Menu and advise customer;(b) call for the Exchange Control copy of the import license if the

relative import is under License.


(c) If not so, verify and ensure that the goods do not fall under negative list.

(d) get Form A-I duly signed by the importer. (e) make the necessary endorsement on the Import license under

proper authentication. (f) payment of the bill to be recorded in Eximbill.(f) deliver the documents duly discharged by the authorised official.

B. In the case of usance bills ensure that : (a) the bill particulars are recorded in Eximbills.(b) the bill is presented for acceptance. (c) the acceptance is received within 48 hours of presentation. (d) the remitting branch/correspondent is notified, if it is not accepted

and further instruction is sought. (e) when the acceptance is received, check that the person who has

signed, has the necessary authority therefor. (f) his signature is verified/authenticated by the authorised official. (g) the remitting branch/correspondent is advised of the due date. (h) the accepted draft is kept under proper custody. (i) the documents are delivered against acceptance/payment, as

appropriate on submission of Form A 1& relative Exchange Control copy of the license, if applicable after obtaining the approval of the authorised official.

(j) at the time payment, enter particulars in the Eximbills.(k) the accepted draft is delivered to the party duly discharged by the

authorised official on receipt of payment in the case of D.A. bills. (vi) Remit the proceeds less charges (if they are to be deducted from the

proceeds) to the remitting branch/Correspondent. The proceeds will have to be remitted by draft/swift as per instructions contained in the bill covering schedule of the foreign branch/Correspondent.

(vii) Report the sale to RBI in the R-Return appropriate for the relevant period. (viii) Ask for the submission of documentary evidence of import after clearance

of goods. (ix) Diarise the due dates for follow up. (x) Report to Reserve Bank if the party fails to submit documentary evidence of

import even after reminding, through the BEF statement. (xi) Follow the instructions covered in RBI’s AP DIR Circular No.9 of 2000 for

precautions in handling import documents.

COMMISSION

As applicable


ACCOUNTING PROCEDURE & ENTRIES

(i) a) On receipt of bill, the following entries are to be passed. In case of Eximbills branches when the Bill particulars are entered under Inward Collections for transaction types GS and NS, the system passes these entries.

Debit : Bills for Collection Account Credit : Bills lodged account

b) If it is a Foreign Currency Non-credit usance bill discounted by our foreign offices, the following entries are to be passed. In case of Eximbills branches when the Bill particulars are entered as Inward Collections for transaction types PS and RS, the system passes these entries.

Debit : Banks Bills Receivable a/c (BBR) Credit : SBI Bills a/c

(ii) a) On payment the following entries are to be passed. In case of Eximbills

branches where the bill was lodged in system, the payment has to be made as Inward Collections and the entries are passed by the system.

Debit : Importer's a/c or cash Credit : Currency Control Account (Send payment by Swift

MT400 to the collecting bank and MT 202 our nostro correspondent)

On Realisation : Reverse the above control (contra) entries. DOCUMENTS & FORMS (i) Documentary evidence of import to be retained at the branch. STATEMENTS & RETURNS

(i) A half yearly return as at the end of June and December on outstanding cases of non submission of documentary evidence of import (BEF) should be submitted to RBI.

(ii) Branches should submit to their controlling authority a return of overdue bills as on the 15th and last working day of each month.

Process in Eximbills:

Import Collection Lodgment of Bills > A. Transaction Menu > 01.Lodgment of Bills under Collection.

Register Non Acceptance / Non Payment:


Import Collection Lodgment of Bills > A. Transaction Menu > 06. Register Non Acceptance / Non Payment

Return Unpaid Unaccepted DocumentsImport Collection Lodgment of Bills > A. Transaction Menu > 07. Return Unpaid

Unaccepted Documents.

Payment of Collection BillsImport collection payment of Bill > 1. Payment > 03.Register payment at

maturity > 04. Payment at Maturity

Note: All the above steps require supervisory release and at the appropriate place, rates to be taken through Mercury FX.



SCRUTINY & RETIREMENT OF BILLS DRAWN UNDER IMPORT LETTERS OF CREDIT

BASIC INFORMATION

Imports into India are regulated by the Foreign Trade Policy announced by Government of India and the subsequent Public Notices issued from time to time. Where the bank has opened a letter of credit for import of goods, it has given an undertaking that it will honour the draft/s drawn by the exporter, provided that the documents called for, are received and terms and conditions stipulated in the credit are strictly complied with. Since reliance has to be placed entirely on the documents, as in documentary credit operations all parties concerned deal with documents and not with goods (vide article 5 of UCPDC), the scrutiny of documents assumes paramount importance. Every care and caution should, therefore be exercised in carrying out the scrutiny, as the documents may be ultimately rejected by the importer, if any discrepancies are found therein, however minor they may be.

JOB SET-UP

i) Ensure that all the documents listed in the covering schedule of the negotiating bank have been received.

ii) In case the duplicate set of documents has been received earlier than the original set, treat the same as first set and carry out the scrutiny. Also inform the negotiating bank.

iii) Counter-check, by a reference to the letter of credit, whether all the documents called for therein have been submitted and arrange them in the order in which they have been stipulated.

iv) In the case of documents drawn under AID credits, ensure that they are in conformity with the AID conditions.

v) In the light of the provisions of UCPDC and various terms and conditions spelt out in the letter of Credit and the subsequent amendments, if any, carry out the scrutiny and list out the discrepancies. The bills received under import letters of credit should be carefully scrutinised to ensure that there are no discrepancies. This exercise is necessary even if the negotiating bank/branch has indicated no discrepancies in their covering schedule.

Enter the particulars in Eximbills under the Menu – Import LC Bills Lodgement / Payment – Lodgement of LC Bills.

If Documents are in order and as per the terms of Letter of Credit, send an advice to the customer and acknowledge the documents to remitting Bank.


In case of discrepant documents, choose the option ‘yes” and record the details of discrepant documents. After supervisory approval, upload the MT734 (advise of discrepancies in documents) to SFMS. Generate the Vouchers and the advice to customer to be dispatched promptly. If beneficiary accepts the discrepancies, go to MENU- Register Acceptance, Update Discrepant Documents field to ‘No’ and give supervisory approval. Upload the acceptance message in form MT 799 to SFMS for eventual transmission to collecting / negotiating bank.

Bills of entry – registration. Bills of entry have to be recorded after their receipt from the customers in Eximbills.

Check List for Scrutiny

REFERENCE MATERIAL: (1)LC Copy (2)UCPDC, ISBP (a) GENERAL SCRUTINY:

Ensure that - (i) All documents, in full sets, as per letter of credit terms have been

received. (ii) Documents have been presented/negotiated before the expiry date. (iii) Cancellations/over writings/alterations in all the documents are

authenticated. (iv) All the documents are in conformity with LC terms and consistent with

each other.

(b) SCRUTINY OF DRAFT/BILLS OF EXCHANGE: Ensure that - (i) It is drawn on the bank as indicated in the letter of credit. (ii) It is drawn and duly signed by the beneficiary of the credit. (iii) Drawing is within letter of credit amount. (iv) Drawn in the same currency as per the letter of credit (v) Tenor is as per letter of credit. (vi) The amount in words and figures are the same and identical with the amount stated in the invoice. (vii) Superscription, regarding drawing under letter of credit has been made.

(c) SCRUTINY OF INVOICE: Ensure that - (i) It is made out in the name of the person who has opened the letter of

credit. (ii) It is signed by the beneficiary of the letter of credit, if stipulated in the LC. (iii) Quantity, unit price and value are quoted as per letter of credit.


(iv) Whether contract terms such as FOB, CFR, and CIF etc. is as per letter of credit.

(v) The description of the merchandise correspond to the description in the letter of credit

(vi) The arithmetical calculations are correct. (vii)Import Licence / Contract Number/Order Number/Indent Number

mentioned as per letter of credit terms. (viii) No charges other than those stipulated in letter of credit are included. (ix) The date and number of the Licence indicated, if any.

(d) SCRUTINY OF TRANSPORT DOCUMENTS: Ensure that -

(i) The date of shipment is before the last date for shipment as per LC. (ii) Full quantity of goods is shipped, if part shipment is not allowed. (iii) Full set is submitted. (iv) Freight is shown as prepaid/payable at destination, as per letter of credit. (v) Bill of lading shows ‘on board’ notation with date. (vi) Parties are notified as per letter of credit terms. (vii) Carrying vessel’s name has been mentioned in bill of lading. (viii) The beneficiary’s name is shown as consignor, unless letter of credit

permits third party bill of lading. (ix) The consignee’s name is as per letter of credit. (x) The bill of lading is signed or otherwise authenticated. (xi) The description of goods is consistent with letter of credit. (xii) The ports of loading/destination are mentioned as per letter of credit

terms. (xiii) Marks, numbers, quantity and weight agree with the invoice. (xiv) The carrying vessel belongs to the particular line as per letter of credit. (xv) Adequately stamped. (xvi) Properly endorsed. (xvii) If AWB, whether flight number and date of departure is mentioned. (xviii) If freight has been added separately in invoice and no separate freight

certificate of shipping company is submitted, bill of lading shows freight amount.

(xix) Ensure that the Bill of Lading contains name & address of Authorised Dealer in India.

(e) INSURANCE : Ensure that - (i) Certificate/policy is according to letter of credit terms. In case of policy, all

negotiable copies are available. (ii) Risk commences with effect from date of bill of lading. (iii) Amount of insurance is as per letter of credit terms. (iv) Whether drawn in the same currency as the letter of credit. (v) Description of goods agrees with bill of lading.


(vi) Risks as per letter of credit are covered. (vii)The place where claims are payable is as per letter of credit terms. (viii) Adequately stamped. (ix) Details such as name of carrying vessel, port of loading/destination marks

agree with the bill of lading. (f) CERTIFICATE OF ANALYSIS, WEIGHMENT ETC.

Ensure that - (i) The certificates are issued by the authority stipulated in letter of credit. (ii) Name of the shipper is properly shown. (iii) Description of goods is properly shown. (iv) The samples drawn relate to the goods actually shipped. (v) Date of sample verification is within the date of shipment.

(g) CERTIFICATE OF ORIGIN : Ensure that - (i) It is issued by the authority stipulated in the letter of credit. (ii) The description of goods agrees with that given in the invoice.

(h) OTHER DOCUMENTS : Ensure that - (i) All other documents stipulated in the letter of credit are verified. (ii) They are issued by the authorities specified in the letter of credit. (iii) They contain the details as required by the letter of credit.

Note : (i) In case any discrepancy is observed, the negotiating bank/branch should

be advised by Swift MT 734 without delay, not later than the close of the 5th banking day following the day of receipt of the documents, of the nature of discrepancy indicating that the documents are being held at their disposal or are being returned. The Swift message should also contain a request to refund the amount of the bill with interest for the period involved at the rate, ruling in the country from which reimbursement was provided.

(ii) The discrepancy should then be advised to the applicants immediately and their confirmation that the documents are acceptable to them despite the discrepancy must be obtained, in writing, before the release of the relative documents. If the documents are acceptable to the drawee, a Swift MT 732 is to be sent to the negotiating bank.

(iii) While advising the discrepancies the importer should be asked to convey their acceptance/rejection of the discrepant documents within a definite time limit so as to avoid crystallisation of the import bill on the 10th day from the date of receipt of the relative bill.


iv) All bills should be branded with the Bank’s Crossing stamp. Also affix rubber stamp on all the documents received and indicate the number as per the import Bills Register.

v) Prepare the prescribed presentation memo listing out the discrepancies in the documents, if any. vi) in respect of all foreign currency import bills negotiated by debit to any of the Bank’s foreign currency accounts (nostro accounts) abroad the following proforma entries are passed:

Dr. ‘Foreign currency Import Bills Account Cr. ‘Foreign Currency Import Bills contra Account’.

In case the branch is having Eximbills system, the details of the Bill to be entered in to the system against the respective import letter of credit The above entries are passed by the system and vouchers are generated. vii) After getting the approval of the authorised official and under his signature - a) Send a Swift MT 734 to the negotiating bank stating the reasons

(discrepancies) for which the documents are being held at its disposal, in respect of discrepant documents and advising them to refund proceeds if reimbursement for negotiations has already been obtained by them.

b) Send bill intimation to the importer, soliciting his response on discrepancies. viii) Verify from the Post Parcel/Air Cargo Arrival Notice Register, whether necessary notice has been sent to the importer and whether delivery order has already been issued to the importer against margin. ix) If the importer is willing to retire the documents in spite of the discrepancies listed, he should declare in writing that the drawers are released from their liability. Send Swift MT 732 to the negotiating bank communicating acceptance of discrepancies. x) In the case of C F R and FOB contracts inform the particulars of shipment to the Insurance Company which has provided the Insurance cover at the time of opening the letter of credit and get the Insurance Policy, where necessary. xi) Pending retirement of the bill, keep the documents under proper custody. These are to be checked by an authorised official once a week. xii) Duplicate set of documents as and when received should NOT be handed over to the importer before retirement/acceptance of the bill. xiiii) In the case of sight bills, they may be retired by the importer either- a) against payment by cheque or debit to account. (No cash to be accepted)

OR (b) by availing of an import loan, if a line of credit has been extended - recover

the rupee equivalent at Bill selling rate / contracted forward rate along with other charges, and also get Form A-1 signed by the Importer and endorse the licence, where applicable under proper authentication.

xiv) Deliver the documents duly discharged (retaining one copy of the invoice) after obtaining the approval (and signature of the authorised official)


xv) Obtain an acknowledgement from the customer for the receipt thereof. xvi) In the case of usance bills, ensure that- (a) the negotiating bank is advised of the due date. (b) The due date is diarised. (c) the accepted draft is kept in proper custody. (d) the documents are delivered against acceptance, on submission of Form A-1

duly signed by the importer and the Exchange Control copy of the licence, if applicable.

(e) the accepted draft on payment is delivered to the party on receipt of payment, duly discharged by the authorised official.

xvii) If payment is not forthcoming within 10 days for sight bills or on due date for usance bills, please follow the procedures for crystallisation of import bills. xviii) Call for the Bill of Entry, in respect of paid bills for submission after clearance of goods. Diarise for follow up (if the value of the import exceeds USD 100,000 or its equivalent). xix) Payment is to be done through EximbillsIn case the Bills have been received on collection basis due to discrepancies which are later accepted by the importers, remit proceeds as per foreign bank’s instructions. xx) Report the sale to Foreign Department through Eximbills /Mercury FX as the case may be using transaction sub-types as under. a) Foreign Demand Bills under LC (FDLC) - SS b) Foreign Usance Bills under LC (FBLC) - US xxi) Report the sale in the appropriate R-Return for the relevant period. xxii) Obtaining of documentary evidence of import: In case of all imports made into India through Post or otherwise, 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 branches through whom the relative remittance was made to ensure that the importer submits the documentary evidence prescribed.

a) The Exchange Control copy of the Bill of Entry for home consumption / photocopy of “ex-Bond Bill of Entry” for home consumption (in case where EDI system has been implemented by Customs), or

b) In case of 100% Export Oriented Units the exchange control copy of the Bill of Entry for warehousing, 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.

(xxiii) where the amount of foreign exchange remitted for import is less than USD 1 million or its equivalent, branches may accept, either Exchange Control copy of Bill of Entry for home consumption / photocopy of “ex-Bond Bill of Entry” for home consumption (in case where EDI system has been implemented by Customs)or 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 importer is a company listed on a stock exchange in India and whose net worth is not less than Rs.100 crores as on the date of last audited balance sheet, or; b) the importer is a Public Sector Company or an Undertaking of the Government of India or its Departments. This facility is also extended to autonomous bodies including scientific bodies/academic institutions, such as Indian Institute of Science / Indian Institute of Technology etc. whose accounts are audited by Comptroller & Auditor General of India. In such cases a declaration from the auditor/CEO of such institutions that their accounts are audited by CAG may be insisted upon.

(xxiv) Acknowledge receipt of evidence of import from importers by issuing acknowledgement slips containing the following particulars.

a) Importer’s full name and address with code numbers; b) Import licence number and date (wherever applicable); c) Bank’s reference of letter of credit number, etc., if any; d) Number and date of Exchange Control copy of the Bill of Entry / photocopy of “ex-Bond Bill of Entry” for home consumption (in case where EDI system has been implemented by Customs) / Postal appraisal form / certificate from the Chief Executive Officer (CEO) or Auditor of the company or Customs Assessment Certificate and the amount of import; and e) Particulars of goods imported.

(xxv) Internal inspectors or auditors should carry out 100 percent verification of the documents evidencing import. (xxvi)Documents evidencing import into India should be preserved for a period of one year from the date of its verification. However, in respect of cases which are under investigation by investigating agencies, the documents should be destroyed only after obtaining clearance from the investigating agency concerned. (xxvii)In case an importer does not furnish the document of evidence of import, as required within 3 months from the date of remittance involving foreign exchange exceeding USD 100,000 or its equivalent, the branch should rigorously follow-up for the next 3 months, including issue of registered letters to the importer concerned. Branches may accept either Exchange Control copy of Bill of Entry for home consumption or 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 the amount of foreign exchange remitted is less than USD 1 million or its equivalent and subject to conditions given at (xxvi) above.

(xxviii) Report the cases of importers who have failed to submit document of evidence of import, to Reserve bank, on half yearly basis as at the end of June


and December every year, in form BEF. In a few cases particularly in case of new accounts through which import bills are routed, branches should send copies of few bills of entry on random basis for verification by the concerned office of customs and follow-up for confirmation or report from them. .Such correspondence should be kept on record for verification by internal auditors and inspecting officials of RBI. xxix) Remittance of interest to be endorsed on the import licence.

ACCOUNTING PROCEDURE & ENTRIES: A. On receipt of the bill (Where Bank's nostro a/c has been debited) the following

entries are to be passed. (When the details are entered in Eximbills system (if the branch is having Eximbills). the entries are passed by the system): i) Dr. Foreign Currency Import Bills A/c

Cr. Liability on Foreign Currency Import Bills A/c ii) Reverse these proforma entries for L/C to the extent of bill amount by

applying the same rate with which the foreign currency amount of the L/C was converted into rupees.

B. On retirement of the bill (within 10 days) the following entries are to be passed. The details have to be entered in Eximbills system (if the branch is having Eximbills) or the Bank Master – Forex Module as sale transaction , the entries are passed by the system and a data string gets generated for transmission of transaction details to Foreign Department. i) Dr. Importer’s A/c (at bill selling rate on date or the contracted rate) Cr. Currency control account ii) Reverse Proforma entries stated as A(i). The reversal will be done also if

the bill is returned unpaid to the foreign bank. iii) Dr. Importer’s A/c Cr. Branch Interest A/c (at domestic commercial rate of

interest i.e., cash credit interest rate as per borrower’s credit rating. For non-borrowers-maximum rate of interest on cash credit advance) ( for the period from the date of negotiation/from the date of debit to our nostro a/c till the date of retirement)

iv) Dr. Importer’s A/c Cr. Commission A/c (as applicable)

v) Dr. Importer’s A/c Cr. Forex Clearing general A/c ( with the amount of foreign bank’s charges, if

any, to be converted at spot bill selling rate) vi) Refund appropriate margin, if any, already recovered at the time of opening

the L/C.


COMMISSION TO BE RECOVERED ON IMPORT BILLS UNDER L/CS:

Applicable charges to be recovered. DOCUMENTS & FORMS

(i) Form A 1 (ii) Bill of Entry/post parcel / Courier wrapper. (iii) Photocopies of those import licences against which exchange has been released.

RETURNS & STATEMENTS

(1) Half yearly return to Reserve Bank at the end of June and December every year, of outstanding cases with regard to submission of Evidence of import in respect of import transactions equivalent to or exceeding USD 100,000(BEF Statement).

(2) A report each of Bills of entry for Advance import payment and for import collection bills is available under Trade Finance reports with file names <Br.Code>IBA.prt and <Br.Code>IBC.prt respectively.

CRYSTALLISATION OF IMPORT BILLS

In case of non-payment of sight bills within 10 days/usance bills on the due date, the bill amount will be crystallised by converting foreign currency into rupees. If the material day falls on a holiday or Saturday the importer’s liability shall be crystallised on the next working day. In the case of bills containing discrepancies, the importer’s liability should not be crystallised till these have been rectified / accepted by the customer.

Entries to be passed: I. A. Dr. Advances made to customers against import bills ( General Ledger A/c in

case of sight bills) or

Dr. Importer’s A/c (in case of usance bills) Cr. CURRENCY CONTROL A/c (at the bill selling rate on the date or the contracted rate)

B. Reverse proforma entries passed earlier in the Foreign Currency Import Bills Account and Foreign Currency Import Bills Contra Account

C. Dr. Importer’s A/c Cr. Interest A/c (at domestic commercial rate of interest i.e. cash credit interest rate as per borrower’s credit rating. For non-borrowers-maximum rate of interest on cash


credit advance) period from the date of negotiation at the foreign centre to the date of crystallisation.

D. Dr. Importer’s A/c Cr. Commission A/c

II. After crytallisation, rigorous follow-up with the importers is to be made so that the bill is retired as early as possible. Following entries are to be passed on retirement: A. Dr. Importer’s A/c

Cr. Advances made to customers against Import Bills A/c B. Dr. Importer’s A/c

Cr. Interest A/c (2% above the rate of interest charged under 1.c above. The ceiling if any, of RBI as regards recovery of interest is to be abided at this stage) Period from the date of crystallisation to the date of retirement of the bill.

III. Necessary swap cost to be recovered by debit to importer’s account as per FEDAI rule 9 in case of early delivery where forward contract is booked.

IV.In case of non-retirement of the bill by the customers within a reasonable time A. Dr. Importer’s A/c

Cr. Advances made to customers against Import Bills A/c B. Dr. Importer’s A/c

Cr. Interest A/c Period : from the date of crystallisation till date

Rate : As mentioned earlier at entry No. II.B.

CARE: Obtain authority from the importer at the time of opening letter of credit, to crystallise the bill in case of non- retirement within 10 days from the date of receipt.

Process in Eximbills:Import LC Bill Lodgment:Import LC lodgment and payment of bills > A. Transaction Menu > 1.Bill Lodge and Payment > 01.Lodgment of LC Bills.Import LC Bill PaymentThis is done two steps. 1. Register payment of Bills and 2. Payment of Bills.Register Payment of Bills:Import LC Lodgment and payment of Bills > A. Transaction Menu > 1. Bill Lodge and Payment > Register payment of BillsPayment of bills (After registration)Import LC Lodgment and Payment of Bills > A. Transaction Menu > 1. Bill Lodge and Payment >06.Payment of Bills (After Registry)All the above steps require supervisory authorization and forex rates to be taken at the appropriate stage through Mercury FX.



Trade Credits (Suppliers Credit & Buyer’s Credit)

BASIC INFORMATION Trade Credits for Imports into India: Trade Credits refer to credits extended for imports directly by the overseas supplier, bank and financial institution with original maturity of less than three years. Depending on the source of finance, such trade credits include Suppliers’ Credit or Buyer’s Credit.

Suppliers’ Credit relates to credit for imports into India extended by the overseas supplier, while Buyers’ Credit refers to loans for payment of imports in to India arranged by the importer from a bank or financial institution with a maturity of less than three years.

The Buyers’ credit and Suppliers’ credit for three years and above come under the category of External Commercial Borrowings (ECB) which are governed by ECB guidelines issued to RBI from time to time.

We can approve trade credits for imports in to India up to USD 20 million per import transaction for import of all items (permissible under foreign trade policy) with a maturity period (from the date of shipment) up to one year. For import of capital goods, we may approve trade credits up to USD 20 million per import transaction with a maturity period of more than one year and less than three years. No roll-over / extension will be permitted beyond the permissible period. SBI’s SUPPLIER’S CREDIT: There is a product called Supplier’s Credit available at our foreign offices. where the settlement is done within 180 days of shipment. The salient features of this product are as follows:

a) When the supplier is not in a position to provide the trade credit, through this arrangement the buyer will make him agree for his usance bill to be discounted at our foreign office, so that the buyer will eventually get the credit for the usance period. The supplier will also get the principal amount at the beginning of the usance period.

b) The arrangement leads to L/C backed 180 days usance bills discounting c) A non- L/C usance bill discounting can be done with recourse to the supplier


d) Any other credit facility arranged with recourse to supplier for financing up to 180 days import into India which is not backed up in the form of any other document/guarantee agreement

Salient Features

(i) Domestic office to ascertain from FO in the supplier’s country the rate at which the usance bills for the specific period would be discounted by them.

(ii) The underlying contract between the exporter and the importer should provide for usance drafts.

(iii) The L/Cs should be opened strictly in accordance with the payment terms of the underlying contracts and should be restricted for negotiation at our FO concerned.

(iv) The L/Cs should provide for our FO concerned to claim reimbursement only on the due dates of the bills drawn under the L/Cs.

(v) There should not be any clause in the L/Cs or in the covering letters forwarding the credits indicating that the bills drawn under the credits should be discounted by our FO. No mandate/LOC/guarantee should be sent to our FO for discounting bills drawn under the L/Cs.

Other Conditions:

a) The tenor of the bills should not exceed 180 days from the date of shipment. b) All in cost ceilings (including interest payable) should not exceed 6 months

LIBOR plus 200 basis points for the respective currency of credit. c) No withholding tax is payable d) The rate of interest should be negotiated with the FO keeping in view the

competition.

BUYER’S CREDITS (UP TO 3 YEARS):

Buyer’s credits can be arranged by our branches for the importer clients by issuing Guarantee, Letter of Undertaking (LOU), Letter of Comfort (LoC) favouring our FOs or Foreign banks up to USD 20 million per transaction for a period upto one year for import of all non-capital goods permissible under Foreign Trade Policy (except Gold) and up to three years for import of capital goods, subject to prudential guidelines issued by Reserve Bank from time to time. The period of such guarantees/LoUs/ LoCs has to be co-terminus with the period of credit, reckoned from the date of shipment. Accordingly proposals received for short term credits, in ECB-4 for financing by way of Buyer’s Credit for import of goods into India may be approved, provided


a) The credit is being extended for a period of less than 3 years. b) The amount of credit does not exceed USD 20 mio, per import transaction.

(This indicates that short term Buyer’s Credit is only for import purposes) c) The ‘ all-in-cost’ per annum, payable for credit does not exceed LIBOR + 200 basis

points.

The proposals of Buyer’s Credit when received from the clients will be processed by the domestic branch including obtention of the necessary approval from the concerned authorities etc. The interest rates would be finalized in consultation with the foreign office from where the Buyer’s Credit will be released. In case of interest rates finer than those indicated above the domestic branch may consult Credit Wing of International Division at Corporate Centre in the matter.

The domestic branches will furnish details of approvals of Buyer’s Credits granted by them during the month, in Form TC to their LHO for onward submission to RBI so as to reach not later than 10th of the following month. Each credit will be given a unique identification number by the Branch, which will be quoted in all the future references.

All applications, in form ECB, for availing of short term credit for amount exceeding USD 20 mio for any import transactions may be forwarded to the CGM, Foreign Exchange Deptt, ECB Division, RBI. Documentation:

Foreign offices would be extending the Buyer’s Credits based on the authenticated SWIFT messages received from the Indian branches. A copy of the SWIFT message format is enclosed.

Along with the SWIFT message an acknowledgement of Debt / Letter of Undertaking

(copy enclosed) is to be furnished by the Indian branch/ other banks. A copy of the internal approval would also be sent to the concerned foreign

office.

Formalities at the Indian Branches

The Buyer’s Credits would be in the books of foreign offices. But the exposure in the rupee leg will be taken by the domestic branch. The following precautions have therefore to be taken while handling such credits.

a) The domestic branch has to ensure that sufficient fund based and non-fund based limits are in place to cover the exposure of Buyer’s Credit.

b) Short term Buyer’s Credit up to 6 months can be arranged on the basis of the LC limits also, but appropriate marking has to be made in the LC limit so that the borrower is not issued additional LC increasing the exposure.


c) Buyer’s Credits for more than 6 months may be arranged either from the fund based limits or segregating the term loan limits analysing the cash flow.

d) Care has to be taken to see that sufficient securities have been taken against the above-said fund based/ non-fund based limits from which Buyer’s Credit has been apportioned.

e) Commission for arranging Buyer’s Credit may be collected up front on annualized basis, like LOU in case of foreign currency loan, depending upon the relationship with the customer.

Note: Short term credit by way of Suppliers’ Credit or Buyers’ Credit, as envisaged above is not available for merchant trade or intermediary trade transactions.


ANNEXURE -I

Format of Authenticated Swift Message –Undertaking Please refer your quote dated _______________________ for the following transaction: Name of the Importer/End user: Amount of Loan: Tenor: Interest Rate: RBI Approval Number and Date, if any: 2. Please extend the loan for ____________________________ to us for the above import transaction and remit the amount to ____________________ quoting our reference. 3. We, _______________ (Bank) hereby unconditionally agree to pay the principal and interest at applicable LIBOR + __________bps for this loan. We undertake to credit your designated account on the due date as per your instructions. We hereby undertake to pay you on demand the loan amount and interest thereon and/or the amount of any losses, costs & damages you may suffer in our failure to credit your designated account on due date.


Annexure II ACKNOWLEDGEMENT OF DEBT OF STATE BANK OF INDIA … BRANCH IN FAVOUR OF STATE BANK OF INDIA Date: Principal: ________________________ (Currency & amount) Interest: LIBOR plus per cent p.a. Subject: CREDIT FOR END USE BY INDIAN IMPORTERS

WHEREAS, pursuant to our Swift Message Undertaking dated _____________ in favour of State Bank of India, ________________ Branch (“SBI”), which is fully incorporated herein and made a part hereof, SBI has extended the requested credit to us accordingly, in consideration for the execution, acknowledgement, and delivery to SBI of the said Undertaking and other good and valuable consideration, and SBI has remitted on the ____ day of ______20 as per our instructions the sum of $ _________________ (Currency & amount) We hereby expressly acknowledge our liability for the purpose of Section 18 of the Indian Limitation Act, 1963, in terms of the aforesaid Undertaking and any security created therefor. IN WITNESS WHEREOF, the party hereunder has duly executed this Acknowledgement of Debt on the date first written above. The individual signing below certifies that he is duly authorised to execute this instrument on behalf of State Bank of India __________________ Branch, and that he signed his name thereto, for and on behalf of the said Bank by order of its Board of Directors. STATE BANK OF INDIA ________________ BRANCH, By: ______________________, Name: _____________________, Title: _______________________.



ADVANCE REMITTANCES FOR IMPORTS

Advance remittances made for imports must be recorded in a register styled “Advance remittances for imports register” and should be diarised for ensuring that bills of entry are submitted in time. Branches may allow advance remittance for import of goods into India as under :

(i) Advance remittance must be made direct to the suppliers. If the amount sought to be remitted as advance remittance exceeds US$ 100,000/- or its equivalent, an unconditional, irrevocable standby Letter of Credit or guarantee from an international bank of repute situated outside India or a guarantee of an authorized dealer in India, if such a guarantee is issued against the counter guarantee of an international bank of repute situated outside India, should be obtained. However, Bank can, under its discretion, allow customers with SB 5 (new) rating and above to remit upto USD 5,000,000 (USD Five Million) as advance against imports without insistence on a Bank Guarantee. Care should be taken to ensure that there is not more than one outstanding remittance under this category at any point of time and the outstanding in no circumstances exceeds the networth of the company.

(ii) In cases where the importer (other than a Public Sector Company or a Department/Undertaking of the Government of India/State Governments) is unable to obtain bank guarantee from overseas suppliers and the Bank is satisfied about the track record and bonafides of the importer, the requirement of the bank guarantee/ standby Letter of Credit may not be insisted upon for advance remittances up to USD 1,000,000 (US dollar one million). Such waiver should be permitted on a case to case basis with the approval of appropriate authority.

(iii) In the case of a Public Sector Company or a Department/Undertaking of Central/State Governments the requirement of bank guarantee has to be specifically waived by the Ministry of Finance, Government of India for advance remittances exceeding USD100,000 (USD one hundred thousand) .

Physical import into India should take place within six months (three years in case of capital goods) from the date of such remittance and the importer should give an undertaking to furnish documentary evidence of import within fifteen days from the close of the relevant period.

In the event of non-import of goods, branches should ensure that the amount of advance remittance is repatriated to India or is utilized for any other purposes for


which release of exchange is permissible under the Act, Rules or Regulations made thereunder.

In cases of non submission of BEFs, the particulars to be reported in half yearly return BEF to RBI.



LOANS FROM FCNR(B) FUNDS

BASIC INFORMATION

The scheme became operational from December 1996 in the Bank.

1. Salient features of the scheme are as follows:

a) FCNR (B) Loans can be granted for manufacturing as well as trading activities of units. Exporters and Industries/Hotels with matching forex inflows will be preferred.

b) Loans can be granted for working capital as well as Term Loan requirements by way of FCNR (B) DLs for SB4 (Old) and SB-8;9 (NEW) rated and FCNR (B) TLs for SB 5 (Old) and SB 10 (NEW) rated units.. FCNR (B) Demand loans can be sanctioned for a maximum period of 12 months. FCNR (B) Term Loans can be sanctioned for duration of 1 to 5 years. Whenever Term loans are considered for a period of above 3 years a specific prior clearance needs to be obtained from GMUK. In case of loans sanctioned for a period of above 3 years, Bank will retain the option to convert the loan in to Rupee loan at any time after 3 years from the date of sanction.

c) Loans will be granted in USDollars , Pound Sterling, Euro and Yen if funds are available Minimum: US Dollars 50000 or equivalent in other currencies and in multiples of USD/GBP/EUR 10,000 and JPY 1,000,000 thereafter. Maximum: US Dollars 5 million per borrower in general for working capital and term loan put together. After that approval of Dy MD (IBG) will be required.

d) Prior funds clearance should be obtained from GMUK before commitment to borrowers. In no case sanction of FCNR (B) loans should be communicated to the borrower before funds allocation clearance is obtained from GMU Kolkata.

e) Rate of interest: Base rate is LIBOR for demand loans and for term loans. The base rate and the spread over it range according to the credit rating of the unit.

Pricing of FCNR(B) – DEMAND LOAN (w.e.f. 04.01.2010) (for drawals up to 12 months)

Credit Rating (New CRA within brackets) Pricing

SB-1 (SB-1, SB-2) Libor+4.25%

SB-2 (SB-3 to SB-5) Libor+5.00%


SB-3 (SB-6, SB-7) Libor+5.50%

SB-4 (SB-8, SB-9) Libor+6.50%

SB-5 (SB-10) Libor+7.00%

Pricing of FCNR(B) – TL (w.e.f. 04.01.2010) (for drawals up to 12 months)

Credit Rating (New CRA within brackets) Pricing

SB-1 (SB-1, SB-2) Libor+4.50%

SB-2 (SB-3 to SB-5) Libor+5.25%

SB-3 (SB-6, SB-7) Libor+5.75%

SB-4 (SB-8, SB-9) Libor+6.50%

SB-5 (SB-10) Libor+7.25%

As per present situation TL above 12 months, fresh FCNR (B) Term Loans above 12 months to be discouraged. Existing Term Loans will be considered under the 12 months bucket. The interest rates indicated in the above tables are the minimum; branches should endeavor to negotiate and get higher mark-up in view of low Libor rates.f) Withholding Tax-nil g) Processing Fee- for FCNR (B) DLs -there is no separate processing fee if it

is already recovered at the time of fixing the overall limit. For FCNR (B) TLs processing fee applicable to the equivalent to the Rupee term loan should be recovered.

h) Transaction Cost-Upfront Rs.25,000/- for each FCNR(B) DL Rs.35,000/- for each FCNR(B) TL to be credited to Branch Commission A/C.

i) Commitment Charge- (for both DLs and TLs)For disbursement, time allowed without commitment charge is 15 days from the date of allocation of funds. If availment of disbursement is after 15 days but before three months, commitment charge @ 1% per annum is chargeable which should be credited to Branch Interest account. If not availed within three months apart from charging commitment charge @ 1% per annum, the loan would be treated as cancelled.

j) Branches to revalue the balances half-yearly at rates advised by GMUK. k) Penalty for early payment (Minimum lock-in period of 3 months)

For early repayment of the loan, a penalty at 1.5% per annum on the amount of the loan prepaid, for the unexpired period of the loan is charged.


l) For repayment of FCNR (B) loans, Authorised Dealers can sell foreign currency to borrowers without RBI permission. These loans can also be repaid by adjustment of advances/inward remittances/export proceeds/balances in EEFC accounts/other forex inflows. In the event of no funds being available in the borrower’s account, an overdraft/irregularity is to be created for remitting the FCNRB (DL) / instalments of FCNRB(TL) on due date to GMU. Kolkata.

m) The scheme envisages opening three General Ledger Accounts in Branches- FCNR(B) Demand Loans Account FCNR(B) Term Loans Account. FCNR(B) Funds Borrowed From Foreign Department Account (all entries other than purchases/sales would be passed at fixed notional rate (FNR).

n) The scheme is operated at designated branches (DBs). Other branches can operate the scheme through DBs.

o) For asset classification, notional rates should be used. p) The purchase and sale entries at market rates for disbursement and

repayment of FCNRB Loans will form part of purchase and Sales for reporting in P form and R Returns .

q) If customers wish to book forward sale contracts for their interest liability they may be permitted to do so by giving these contracts separate treatment

2. FCNR(B) DEMAND LOANS a) Period: Up to a period a twelve months. b) Within the Rupee MPBF fixed for the borrower and the Fund Based Working

Capital sanctioned by the Bank. c) It can be part of either working capital demand loan or cash credit

component. If Rupee WCDL has been converted to FCNR (B) DL then maturity of the FCNR (B) DL will be same as that of Rupee WCDL. Availment of FCNR (B) DL for broken period is also permitted

d) Disbursed in one lump sum, so also the repayment. e) Loans can be granted on fully hedged basis. Waiver for booking of Forward

cover can be approved by the Credit sanctioning authority not below the rank of CCC-1, if the corporate has natural hedge or well laid out corporate hedging policy. However, wherever waiver is permitted, Bank reserves the right to insist on hedging any time during the currency of the loan based on period reviews undertaken or whenever major adverse movement in exchange rates take place.

f) FCNR (B) DL can be utilised to prepay the WCDL, with the approval of the controlling authority.

g) The number of WCDL and FCNR (B) DLs put together should not exceed seven per borrower.


h) For exporters, FCNR(B) DL in lieu of EPC (carved out of EPC limits) can be sanctioned. Such credits to exporters would amount to export credit. At present. In view of availability of PCFC / EBR loans to exporters at substantially lower rate of interest than FCNR(B) loans, it has been decided to withdraw the provision of offering FCNR(B) loans to exporters at marginally better interest rates than the regular FCNR(B) loans.

Adjustment of advance/inward remittances/export proceeds, balances in EEFC/EFCA a/cs etc. can be made in FCNR (B) DL.

i) Revaluation of out standings should be made at the beginning of each month to assess whether the Rupee liability is within the capacity of the borrower. If not FCNR (B) DLs should be converted into WCDL under advice to controllers.

j) Interest should be recovered for FCNR (B) DLs at monthly intervals at the ruling TT Selling rate for the Foreign Currency amount. If the interest amount is Rs.10 lakhs and above finer rates can be applied.

3. FCNR(B) TERM LOANS ACCOUNT a) Sanctioned for duration of one year to three years. Duration can be increased to 5 years with the specific approval of GMUK. b) Minimum amount of disbursement is USD 50,000 or equivalent in other currencies c) Disbursed as and when the machinery/equipment is purchased. d) Time gap between the first and last drawdown should not exceed three months. e) Repayments -quarterly/half yearly in line with cash flows. f) Can be utilised to liquidate existing Rupee term loan subject to fresh sanction/documentation. g) The FCNR (B) Term loan can be sanctioned by an authority not below CCC-I. h) Prepayment of existing Rupee term loans/ Foreign Currency Loans taken from outside sources by customers may be examined subject to compliance of take-over norms of the Bank, credit sanction and permission of RBI/GOI wherever necessary.

Accounting Entries in CBS: Disbursement of FCNB Loan in INR:


Pre Condition: FCNB DL/TL A/c has been opened and loan-tracking activity has been completed. User must have newly opened FCNB DL/TL A/c number of customer. The customer’s FCNB Loan A/c has been debited and FCNB Loan to be disbursed A/c has been credited by the amount, which is to be disbursed. Process in brief: Two different softwares are involved in the transaction. First part of transaction, which involves rate taking and reporting to Treasury, is to be completed on MFx Screen. The second part, which will generate and post the accounting entries, is to be completed in B@NCS-24.

I. Navigation in MFx: Log in MFx >> A Window “Branch Dash Board” will appear >> Click on the link “Add trade finance and CBS Transaction” Window “Add Trade Finance and CBS Transaction” will appear >> Select Core Banking.>>>Select:Transaction Type Select/ input, CNBFL – Conversion to INR FCNB TL / CNBFD –

Conversion to INR FCNB Demand Loan. To see the list of all dropdown values, user should input “ . “

Branch Refr. No. Enter Branch reference number/ STRN Number/ FL Number, user can input maximum 7 numeric characters.

A/c No. Enter the newly opened FCNB loan account number and click on “Get Account Details”. The system will fetch the necessary details from CBS. In case of ROI on FCNB DL is linked with LIBOR, the user will have to capture the required details pertain to LIBOR and margin in the respective fields.

Currency Select the appropriate currency, in which draft is to be issued. Maturity Date Not applicable for this transaction Customer Enter appropriate customer code for whom the transaction is to

be done. To search the code Click on “ ? ” help button. Amount Enter foreign currency amount for which the remittance to be

sent. Option Date Not applicable for this transaction Correspondent Select/ input the applicable Correspondence Code eg SBNY for

SBI New York. To search the code Click on “?” help button, the list will appear, user may select the appropriate code.

Value Date Not applicable for this transaction Nostro Date Not applicable for this transaction R-Return Code Select/ input the applicable R-Return Code. To search the code

Click on “?”, the list will appear; user may select the appropriate code.

FTC Card No. Not applicable for this transaction Corr. Reference No. Input the applicable correspondent reference number, if


available, for nostro reconciliation purpose. INR Cash Txn – In case INR Cash is involved in the transaction, this flag should

be “ Y”, otherwise “N”. For this transaction this will be “N”.

Product Details: User should click on „CBS Update‟. System will generate reference number in the format (5 digit branch code + 1 alpha character + 3 digit numeric number). This number is called „MFx Reference number‟, which will be used in CBS.

III. Navigation in B@NCS-24: Foreign Exchange BPR >>> Forex BPR Accounting (Screen No 23004 G/L Forex Accounting Prompt) will appear. User should input MFx reference numbers generated by MFx, then click on transmit. Screen no 23000 G/L Forex Accounting will appear. User should verify the details and input the desired narration in statement narrative field. The Customer’s FCNB Loan A/c No. should be replaced with BGL A/c No., naming FCNB DL/TL to be disbursed A/c.For recovery of charges: Customer A/c for Charges Input the customers INR A/c, which is to be debited

to recover the charges. Line 4 Input the Commission/ Exchange/ P & T BGL A/c No

and amount in respective fields. Line 5 (if required) Input the Commission/ Exchange/ P & T BGL A/c No

and amount in respective fields.

Then Transmit, queue will be generated and sent to the Checker for authorization. Checker should authorize the transaction. Navigation to Print the voucher and verify accounting entries: Foreign Exchange BPR>>> Enquiries >>>Forex. Accounting (Screen No 23005 G/L Forex Accounting Enquiry) will appear. User should input the MFx reference number and click on search: System will display the posted accounting entries; User should verify the displayed accounting entries and click on button “PRINT VOUCHER” to take the print of voucher.Disbursement of FCNB Loan in Foreign Currency:

Pre Condition: FCNB DL/TL A/c has been opened and loan-tracking activity has been completed. User must have newly opened FCNB DL/ TL A/c number of customer.Process in brief: Two different software are involved in the transaction. First part of transaction, which involves rate taking and reporting to Treasury, is to be completed on MFx Screen. The second part, which will generate and post the accounting entries, is to be completed in B@NCS-24.


II. Navigation in MFx:

Log in MFx >>> A Window “Branch Dash Board” will appear >>> Click on the link “Add trade finance and CBS Transaction” Window “Add Trade Finance and CBS Transaction” will appear >>> Select Core Banking.>>> Select: Transaction Type Select/ input, DS-Draft issue/ TS – TT Issue. To see the list of all

dropdown values, user should input “ . “ Branch Refr. No. Enter Branch reference number/ STRN Number / FL Number,

user can input maximum 7 numeric characters. Currency Select the appropriate currency, in which draft / TT is to be

issued. Maturity Date Not applicable for this transaction Customer Enter appropriate customer code for whom the transaction is to

be done. To search the code Click on “ ? ” help button. Amount Enter foreign currency amount for which the remittance to be

sent. Option Date Not applicable for this transaction Correspondent Select/ input the applicable Correspondence Code eg SBNY for

SBI New York. To search the code Click on “ ? ” help button, the list will appear , user may select the appropriate code.

Value Date Not applicable for this transaction Nostro Date Not applicable for this transaction R-Return Code Select/ input the applicable R-Return Code. To search the code

Click on “ ? ”, the list will appear , user may select the appropriate code.

FTC Card Number Not applicable for this transaction

Corr. Reference No.

Input the applicable correspondent reference number, if available, for nostro reconciliation purpose.

INR Cash Txn – In case INR Cash is involved in the transaction, this flag should be “ Y”, otherwise “N”. For this transaction this will be “N”.

Product Details: Product Type Select/ input applicable product type viz FL- FCNB Term Loan

and FD – FCNB Demand Loan. To see the list of all dropdown values, user should input “.“

Account Number Input the newly customer’s FCNB Loan A/c No.

Get A/c Details Click on this Icon. System will fetch the details from CBS and displays the name of the customer and the available balance in the account. In case of FCNB DL is linked with LIBOR, Branch will have to capture the requisite details in respective fields.


Maturity Date This will be popped up by the system.

Other Currencies This is the currency of the FCNB Loan account, this will be displayed by the system and system will give the conversion rate between this currency and currency field selected above. (eg. if user has selected USD in above field and customers GBP FCNB Loan A/c number was given in A/c No field. The system will display GBP in this field and rate will be given USD/ GBP). In case both currencies are same Rate will not applicable.

Amount This is amount for which transaction for this product is to be done. In case transaction is not bifurcated, user will input the entire amount.

Add Click on this Icon and system will display the details of transaction in grid format.

Care: No Rate will require for this transaction, unless it is not cross currency transaction. User should click on „CBS Update‟. System will generate reference number in the format (5 digit branch code + 1 alpha character + 3 digit numeric number). This number is called „MFx Reference number‟, which will be used in CBS.

III. Navigation in B@NCS-24: Foreign Exchange BPR >>> Forex BPR Accounting (Screen No 23004 G/L Forex Accounting Prompt) will appear. User should input MFx reference numbers generated by MFx, then click on transmit. Screen no 23000 G/L Forex Accounting will appear. User should verify the details and input the desired narration in statement narrative field. The Customer’s FCNB Loan A/c No. should be replaced with FCNB DL/TL to be disbursed A/c.For recovery of charges: Customer A/c for Charges Input the customer’s INR A/c, which is to

be debited to recover the charges. Line 4 Input the Commission/ Exchange/ P & T

BGL A/c No and amount in respective fields.

Line 5 (if required) Input the Commission/ Exchange/ P & T BGL A/c No and amount in respective fields.

Repayment of FCNB Loan by debiting INR Account: Pre Condition:

FCNB DL/TL A/c must be closed through loan module by debiting BGL A/c naming FCNB Loan to be Repaid A/c. User must verify that FCNB Loan to be Repaid A/c should have the DR balance in foreign currency and ensure that this is the amount due from customer. There should not be any other balance in this account.


Process in brief:

Two different softwares are involved in the transaction. First part of transaction, which involves rate taking and reporting to Treasury, is to be completed on MFx Screen. The second part, which will generate and post the accounting entries, is to be completed in B@NCS-24.

IV. Navigation in MFx:

Log in MFx >>> A Window “Branch Dash Board” will appear >>> Click on the link “Add trade finance and CBS Transaction” Window “Add Trade Finance and CBS Transaction” will appear >>> Select Core Banking. >>>

Select: Transaction Type Select/ input, CNSFD – Conversion from INR – FCNB

Demand Loan or CNSFL – Conversion from INR FCNB Term Loan. To see the list of all dropdown values, user should input “ . “

Branch Refr. No. Enter Branch reference number/ STRN Number, user can input maximum 7 numeric characters.

Account Number Input the customer’s FCNB Loan A/c No., which has been closed.

Get A/c Details Click on this Icon. System will fetch the details from CBS and displays the details customer, Rate of Interest etc. The user has to input LIBOR Basis /margin, if applicable.

Interest Rate Interest Rate of closed FCNB Loan A/c. This will be popped up by the system

Currency CARE: The system will display the currency of closed FCNB loan and User should not make any change.

Maturity Date This will be display by system after getting the account details from CBS

Customer Enter appropriate customer code for whom the transaction is to be done. To search the code Click on “?” help button.

Amount Enter foreign currency amount, which is to be recover from customer.

Option Date Not applicable for this transaction Correspondent Select/ input the applicable Correspondence Code eg SBNY

for SBI New York. To search the code Click on “?” help button, the list will appear; user may select the appropriate code.

Value Date Not applicable for this transaction Nostro Date This is date of Nostro Credit, In case, it has been left blank,


by default system will take the transaction date.R-Return Code Select/ input the applicable R-Return Code. To search the

code Click on “?”, the list will appear; user may select the appropriate code.

FTC Card No. Not applicable for this transaction Corr. Reference No. Input the applicable reference number, for nostro

reconciliation purpose. INR Cash Txn – In case INR Cash is involved in the transaction, this flag

should be “ Y”, otherwise “N”. For this transaction this will be “N”.

Product Details: Product Type Select/ Input, RY - Ready. To see the list of all dropdown

values, user should input “ . “ Account Number Input the CA/ CC/ OD A/C Number, which is to be debited. Get A/c Details Click on this Icon. System will fetch the details from CBS and

displays the name of the customer and the available balance in the account.

Maturity Date This will be popped up by the system. Other Currencies This is the currency of the inputed account, this will be

displayed by the system and system will give the conversion rate between this currency and currency field selected above. (eg. If user has selected USD in above field and customers INR A/c number was given in A/c No field. The system will display INR in this field and rate will be given USD/ INR). In case both currencies are same Rate will not applicable.

Amount This is amount for which transaction for this product is to be done. In case transaction is not bifurcated, user will input the entire amount.

Add Click on this Icon and system will display the details of transaction in grid format.

User should click on „CBS Update‟. System will generate reference number in the format (5 digit branch code + 1 alpha character + 3 digit numeric number). This number is called „MFx Reference number‟, which will be used in CBS.

IV. Navigation in B@NCS-24:

Foreign Exchange BPR >>> Forex BPR Accounting (Screen No 23004 G/L Forex Accounting Prompt) will appear. User should input MFx reference number generated by MFx, then click on transmit. Screen no 23000 G/L Forex Accounting will appear. User should verify the details and input the desired narration in statement narrative field. The Customer’s FCNB Loan A/c No. should be replaced with BGL A/c No., naming FCNB DL/TL to be paid A/c.


For recovery of charges: Customer A/c for Charges Input the customer’s INR A/c, which is

to be debited to recover the charges. Line 4 Input the Commission/ Exchange/ P &

T BGL A/c No and amount in respective fields.

Line 5 (if required) Input the Commission/ Exchange/ P & T BGL A/c No and amount in respective fields.

Then Transmit, queue will be generated and send to be Checker, for authorization. Checker should authorize the transaction. Navigation to Print the voucher and verify accounting entries:

Foreign Exchange BPR >>> Enquiries >>> Forex Accounting (Screen No 23005 G/L Forex Accounting Enquiry) will appear. User should input the MFx reference number and click on search: System will display the posted accounting entries, User should verify the displayed accounting entries and click on button “PRINT VOUCHER” to take the print of voucher.

QUARTERLY ALIGNMENT Branches should submit a quarterly alignment statement every June, September, December, March to Products & Services Section at GMU Kolkata.



ISSUANCE OF FOREIGN BANK GUARANTEES

Basic Information:1. Issuance of Foreign Bank Guarantees are governed by ICC Uniform Rules for Demand Guarantees(URDG), ICC Publication No.758 (2010 Revision) with effect from 1st July 2010. URDG is a set of rules formulated by International Chamber of Commerce (ICC), Paris and is intended to apply worldwide to the use of demand guarantees. The rules apply to any demand guarantee or counter-guarantee where incorporated by reference in the text. The liability of the guarantor or issuer of the demand guarantees arises on presentation of a written demand and any other document specified in the Guarantee and is not conditional on actual default by the principal in the underlying transaction.

The URDG contains 35 articles, the gist of which is given in the table below.Article No.

Explanation

1 Application of URDG – Expressly indicate it is subject to the rules.2 Definitions of terms used in other rules3 Interpretation of terms4 Issue and Effectiveness5 Independence of guarantee and counter-guarantee6 Documents Vs. Goods, services or performances7 Non Documentary Conditions8 Content of instructions and guarantees9 Application not taken up10 Advising of guarantee or amendment11 Amendments12 Extent of Guarantor’s liability under guarantee13 Variation of amount of guarantee14 Presentation15 Requirement for Demand16 Information about Demand17 Partial Demand and Multiple Demands; amount of demands18 Separateness of each demand19 Examination20 Time for Examination of Demand; payment21 Currency of payment22 Transmission of copies of complying demand23 Extend or pay24 Non-complying demand, waiver or notice25 Reduction or termination26 Force Majeure27 Disclaimer on effectiveness of documents28 Disclaimer on transmission or translation29 Disclaimer for acts of another party30 Limits on exemption from liability31 Indemnity for foreign laws and usages32 Liability for charges33 Transfer of guarantee and assignment of proceeds34 Governing Law


35 Jurisdiction

2. In terms of Notification No.FEMA.8/2000-RB dated May 3, 2000, Authorised Dealer banks have the permission to give performance bond or guarantee in favour of overseas buyers on account of bona fide exports from India.

3. Prior approval of RBI should be obtained by the Authorised Dealer banks for issue of performance bonds/ guarantees in respect of caution-listed exporters. Before issuing any such guarantees, they should satisfy themselves with the bona fides of the applicant and his capacity to perform the contract and also that the value of the bid/ guarantee as a percentage of the value of the contract/ tender is reasonable and according to the normal practice in international trade, and that the terms of the contract are in accordance with the Foreign Exchange Management regulations.

4. Authorised Dealer banks, should also, subject to what has been stated above, issue counter-guarantees in favour of their branches/ correspondents abroad in cover of guarantees required to be issued by the latter on behalf of Indian exporters, in cases where guarantees of only resident banks are acceptable to overseas buyers in accordance with local laws/ regulations.5. Guarantees shall be issued only on behalf of own customers against suitable guarantee limits or against suitable cash margin as may be stipulated by the appropriate sanctioning authority.6. Offices should, carefully scrutinise before-hand all the clauses in the performance bond/guarantee forms and refrain from executing performance bond/ guarantee containing defectively worded clauses. All cases of doubt should be referred to their Controlling Authority \ Law Department.7. Branches should process requests from their customers for issuance of performance guarantee, bid-bonds with the least possible delay and send their instructions to foreign offices/correspondents well before the last date for submission of such performance guarantee/bid-bonds. Branches should also impress upon their customers the necessity of giving adequate time to our foreign branches/correspondents for proper examination of their request. Further, clear instructions regarding the forms in which such performance guarantee/bid-bonds are to be issued should invariably be sent to the foreign branches/correspondents along with the request.8. While issuing guarantees in favour of resident beneficiaries against the counter guarantees of overseas office/correspondents, the issuing branch has to obtain prior approval of the GMU-Kolkatta. 9. Indian agents of foreign airline companies who are members of International Air Transport Association (IATA), are required to furnish bank guarantees in favour of foreign airline companies/IATA, in connection with their ticketing business. As this is a standard requirement in this business, Authorised Dealer banks in their ordinary course of business can issue guarantees in favour of the foreign airline


companies/IATA on behalf of Indian agents of foreign airline companies, who are members of International Air Transport Association (IATA), in connection with their ticketing business.

Guarantees for Export Advance(i) It had come to the notice of Reserve Bank that exporters with low export

turnover are receiving large amounts as export advances, in low interest rate currencies, against domestic bank guarantees and are depositing such advances with banks in Indian Rupees for interest rate arbitrage. Further, the guarantees are being issued even before the receipt of the advances, with a proviso that the guarantees would be operational only upon receipt of the advances. The guarantees have been issued at par values, against the discounted values of the export advances. The exporters have also been allowed to freely book, cancel and rebook forward contracts without any crystallized exports and / or past performances, in contravention of the FEMA regulations. It has also been observed that the exporters keep a substantial part of their Indian Rupee – US Dollar leg of the currency exposure open, thereby exposing both the exporters and the domestic banks to foreign exchange risk. In such cases, generally no exports have taken place and the exporters have neither the track record nor the ability to execute large export orders. The transactions have basically been designed for taking advantage of the interest rate differential and currency movements and have implications for capital flows.

(ii) Guarantees are permitted in respect of debt or other liability incurred by an exporter on account of exports from India. It is therefore intended to facilitate execution of export contracts by an exporter and not for other purposes. In terms of extant instructions banks have also been advised that guarantees contain inherent risks, and that it would not be in the banks' interest or in the public interest generally to encourage parties to over-extend their commitments and embark upon enterprises solely relying on the easy availability of guarantee facilities. It is, therefore, reiterated that as guarantees contain inherent risks, it would not be in the interest of the banks or the financial system if such transactions, as mentioned in paragraph above, are entered into by banks. Banks should, therefore, be careful while extending guarantees against export advances so as to ensure that no violation of FEMA regulations takes place and banks are not exposed to various risks. It will be important for the banks to carry out due diligence and verify the track record of such exporters to assess their ability to execute such export orders.


Other Guarantees regulated by Foreign Exchange Management Rules:

i. Minor Guarantees

ii. Bank Guarantees - Import under Foreign Loans/Credits

iii. Guarantees for Non-Residents

Minor Guarantees

Authorised Dealer banks may freely give on behalf of their customers and overseas branches and correspondents, guarantees in the ordinary course of business in respect of missing or defective documents, authenticity of signatures and for other similar purposes.

Bank guarantees - Import under foreign loans/credits

Banks / Financial Institutions are not permitted to issue guarantees/ standby letters of credit or letters of comfort in favour of overseas lenders relating to External Commercial Borrowing (ECB). Applications for providing guarantees/ standby letters of credit or letters of comfort by banks relating to ECB in the case of SMEs will be considered by the Reserve Bank on merit under the Approval Route, subject to prudential norms.

Trade Credits for imports into India – Issue of Guarantees - Delegation of powers

Credit extended for imports directly by the overseas supplier, bank and financial institution for maturity of less than three years is hereinafter referred to as ‘trade credit’ for imports. Depending on the source of finance, such trade credit will include suppliers’ credit or buyers’ credit. It may be noted that buyers’ credit and suppliers’ credit for three years and above come under the category of External Commercial Borrowings (ECB), which are governed by ECB guidelines modified from time to time.

AD banks can approve trade credits for imports into India up to USD 20 million per import transaction for imports permissible under the current Foreign Trade Policy of DGFT with a maturity period up to one year from the date of shipment. For import of capital goods classified by DGFT, AD banks may approve trade credits up to USD 20 million per import transaction with a maturity period of more than one year and


less than three years. No roll-over/ extension will be permitted by the AD banks beyond the permissible period.General permission has been granted to Authorised Dealer banks to issue guarantees/ Letter of Undertaking (LoU)/ Letter of Comfort (LoC) in favour of the overseas supplier, bank and financial institution up to USD 20 million per import transaction for a period up to one year for import of all non-capital goods permissible, under the Foreign Trade Policy (except gold) and up to three years for import of capital goods, subject to prudential norms issued by the Reserve Bank from time to time. The period of such guarantees/LoUs/LoCs has to be co-terminus with the period of credit, reckoned from the date of shipment.

As regards reporting arrangements, AD banks are required to furnish data on issuance of guarantees/LoUs/LoCs by all its branches, in a consolidated statement, at quarterly intervals to the Chief General Manager-in-Charge, Foreign Exchange Department, ECB Division, Reserve Bank of India, Central Office Building, 11th floor, Fort, Mumbai – 400 001so as to reach the department not later than the 10th of the following month.

Loans abroad against securities provided in India:

In terms of Regulation 4(2) of Notification No. FEMA.8/2000-RB dated May 3, 2000, an AD may give guarantee in respect of any debt, obligations or other liability incurred by a person resident outside India, among others, where such debt, obligation or liability is owed to a person resident in India in connection with a bona fide trade transaction, provided that the guarantee is covered by a counter guarantee of a bank of international repute resident abroad.

Guarantees for non-residents:

Reserve Bank has granted general permission to Authorised Dealer banks, vide its Notification No. FEMA/8/ 2000 dated 3rd May 2000, to give guarantees in favour of persons resident in India in respect of any debt or other obligation or liability of a person resident outside India, subject to such instructions as may be issued by RBI from time to time.

Authorised Dealer banks may, accordingly, give on behalf of their overseas branches/ correspondents or a bank of international repute, guarantees/ performance bonds in favour of residents of India in connection with genuine transactions involving debt, liability or obligation of non-residents, provided the bond/ guarantee is covered by a counter-guarantee of the overseas Head Office/ branch/ correspondent or a bank of international repute.

Authorised Dealer banks should ensure that counter-guarantees are properly


evaluated and their own guarantees against such guarantees are not issued in a routine manner. Before issuing a guarantee against the counter-guarantee from an overseas Head Office/branch/ correspondent/ bank of international repute, Authorised Dealer banks should satisfy themselves that the obligations under the counter-guarantee, when invoked, would be honoured by the overseas bank promptly. If the Authorised Dealer bank desires to issue guarantee with the condition that payment will be made, provided reimbursement has been received from the overseas bank which had issued the counter-guarantee, this fact should be made clearly known to the beneficiary in the guarantee document itself.

Authorised Dealer banks may make rupee payments to the resident beneficiaries immediately when the guarantee is invoked and, simultaneously, arrange to obtain the reimbursement from the overseas bank concerned, which had issued the counter-guarantee.

Guarantees Issued through certain correspondents – Special InstructionsGuarantees in favour of Syrian parties through Commercial Bank of SyriaCommercial Bank of Syria is our only correspondent in Syria. They insist on certain terms and conditions to be included in the counter-guarantee to be issued by our branches. These are

a) Guarantees to be issued as per official textb) Undertaking to pay on simple demand within the validity period regardless of

date when such demand reaches concerned domestic branchc) Undertaking and commitment that disputes will be settled under Syrian law

Branches should ensure that suitable clauses are included in the counter-guarantee obtained from the applicants to safeguard the interest of the bank.Byblos Bank Syria, Syria – Special InstructionsThe purpose behind establishment of relationship with Byblos Bank is mainly to reduce dependency on Commercial Bank of Syria, which was our only correspondent thereat that time, in guarantee related matters.However, many a time the counter guarantees issued by our branches in favour of Byblos Bank Syria do not conform to their requirements and, accordingly, issuance of guarantees by them in favour of Syrian beneficiaries is getting considerably delayed and also resulting in avoidable correspondence. Therefore, branches should contact Byblos Bank Syria by the fastest mode of communication and should submit their counter guarantee in a mutually agreed format.

JOB SET UP:


On receipt of guarantee proposal from the applicant or Standby LC/Counter guarantee from the overseas Branch/Correspondent, the guarantee can be issued under the extant instructions issued by Global Markets Unit, Kolkatta, FEMA guidelines from time to time.

Ensure that the guarantee proposal/format contain atleast the following details:

a) Name and Address of the Beneficiaryb) Amount of Guarantee

c) Commencement date and Expiry Date of the guarantee

d) Brief Details of the underlying transactions to which the guarantee relates

e) Any reference number

f) The type of guarantee i.e. bid or performance etc is ascertainable from the body of the proposal/format.

Obtain necessary approval from the concerned official.

Enter the transaction in Eximbills and generate the accounting entries for proforma and towards commission/out of pocket expenses.Generate SWIFT MT760 and transmit the message as per SWIFT standards and procedures.If the guarantee is being issued favouring a resident beneficiary against the counter-guarantee of a foreign office/correspondent, issue the guarantee as per the counter-guarantee (subject to obtention of approval from GMU-Kolkatta, wherever applicable) and send the guarantee duly signed by two authorised signatories. If the commission/charges are to the account of the foreign office/correspondent, note to claim the same from foreign office/correspondent. Ensure that Withholding tax, if any, is borne by the foreign office/correspondent and should not be deducted from the commission receivable.

Accounting Procedure

Bank has switched to multi-current accounting in respect of LC/BG transactions. In view of the new accounting system, Branches are advised to open LC/BG liability accounts in CBS for all customers currency-wise, by referring to appropriate Contingent products list and BGL list circulated by Trade Finance Department. These accounts are to be opened by the Branches for all customers enjoying foreign currency LC/BG facility and linked to Customer/Bank Module of Eximbills. The list of currencies in which a Branch can issued LC/BG is appended below. In case the Branches need to take some exposure in any exotic currency, the same would need to be referred to GMU-K before conveying the decision/intent to the customer.


Sl No. Foreign BG LC (Others) LC (Capital Goods)

1 ACD ACD ACD2 AED AED AED3 AUD AUD AUD4 CAD CAD CAD5 CHF CHF CHF6 DKK DKK DKK7 EURO EURO EURO8 GBP GBP GBP9 JPY JPY JPY10 NOK NOK NOK11 NZD NZD NZD12 SAR SAR13 SEK SEK SEK14 SGD SGD SGD15 USD USD USD16 ZAR ZAR ZAR17 * HKD HKD18 BHD19 KWD20 MYR21 OMR22 QAR23 BDT24 BTN25 ETB26 LKR27 MAD28 MUR29 NPR30 SYP31 TND*Not permitted for the present. Reference could, however, be made to GMU-K on a case-to-case basis.

Procedure for dealing with claims in case of invocationBranches should be guided by the following instruction in dealing with claims from the Foreign Bank/Beneficiaries under the guarantees issued by them.

a) Invoke the counter-guarantee of the customer on whose behalf the guarantee is issued.


b) Whenever claims are preferred under a guarantee providing for payment thereunder on first demand and without demur or protest (most of the guarantees issued by our offices provide that) the amount under such a guarantee should be remitted by our office to the concerned correspondent/foreign office immediately on first demand and without a prior reference to the applicant. A clear mandate to this effect should invariably be obtained from the applicants in the counter-guarantees furnished by them.

c) In the event of the applicant of the guarantee obtaining a restraining order from an Indian Court before payment under the guarantee is effected, the issuing office will have to comply with the court’s order. The matter must, however, be reported by the issuing offices to their controlling authorities forthwith. The issuing office should also move the court expeditiously for vacation of the injunction order. In case it is decided, in consultation with the controlling authorities, that the demand under guarantee be met by the Bank out of its own funds, a special dispensation from the court to this effect must be obtainedIn order to avoid such situations, in terms of paragraph no. 5.5. of RBI Master DBOD No. Dir.BC.18/13.03.00/2004-05, it is absolutely essential for the branches to appraise the proposal for guarantees also with the same diligence as in the case of fund based limits and obtain adequate cover by way of margin so as to prevent the constituents to develop a tendency of defaulting in payments when invoked guarantees are honoured by the banks.

d) If however, a guarantee issued by an office does not provide that the Bank’s liability there under is absolute and that the amount there under is to be paid on first demand without demur or protest, a prior reference to the applicant would be necessary in the Bank’s interest. In such a case, therefore, before meeting a claim under the guarantee, office should make a prior reference to the applicants and obtain their consent for meeting the claim.


Miscellaneous

Bank Guarantees favouring Foreign Beneficiaries – Incorporation of Jurisdiction and Governing Law

a) While issuing FBGs, the clause regarding exclusive jurisdiction of the Courts should be clearly spelt out with due concurrence of the beneficiary/applicant. The place of the Courts having jurisdiction should be clearly spelt out in the FBG. Further, keeping in view the comparative judicial strength of some countries, the jurisdiction of Courts be normally accepted as under:

b)

Area Jurisdiction of the Courts inCanada, North America and South America

New York/India

Middle East nations, Sub-Saharan countries, South Africa and Europe

London/India

South East Asia, Australia and Japan

Singapore/India

Accordingly, the following clause should invariably be included in FBGs: “This FBG is subjected to the jurisdiction of the courts situated in………./in………….

a) In all FBGs, there must be a suitable clause subjecting them to Indian Laws.

b) It is advisable that the clauses relating to jurisdiction and governing law as indicated above are incorporated in FBG, which are subjected to URDG ICC Pub No. 758 also.

c) In case where the applicant/beneficiary are reluctant to agree to the jurisdiction of the above specified courts and/or for Indian laws, the sanctioning authority would assess the risk involved and examine taking appropriate additional cash security as also arrange to charge appropriately for the additional risk involved. Also, it is necessary for the Branch to get the implications of the foreign law and the foreign jurisdiction examined by a reputed legal counsel/concerned Law Department before acceding to such requests.

d) In the event of any FBG being invoked, payment should be effected immediately provided the process of invocation and reasons of invocation, as stated in the FBG, have been complied with.


e) In case the applicant brings an injunction, the jurisdiction and governing law clauses should be kept in mind and injunction got vacated expeditiously.

f) If the appropriate Court in the country, whose jurisdiction has been accepted in the FBG, issues a payment order decree, it should be complied with immediately if it does not contain any infirmities. If the order is not sound, it should be contested immediately.

Amendment to Indian Contract Act

Indian Contract Act was amended effective 8 th January 997 by inclusion of an additional clause in Sec 28 of the Act. The amended Sec 28 has a bearing on the standard limitation clause adopted by Bank for limiting their liability under Bank Guarantees issued. The impact of the amendment in this regard has been examined by the Bank as well as some of the other Banks. IBA has also examined this matter and have issued certain advices to the Banks in this regard.

It is decided to proceed on the basis that the amended section of the Act does not adversely affect the BG transaction handled by the Bank. A revised limitation clause as suggested by IBA will henceforth be incorporated in the BGs issued by us.

BGs are now issued with a pre-printed and number standard first page of the guarantee form which contains the limitation clause. While the pre-printed form is to be used for all BGs, branches are allowed to issue a BG on non-judicial stamp paper, if in the case of a BG favouring a Govt. Department, the concerned Dept. objects to the use of pre-printed form.

The above procedure will continue to be followed, subject to the following changes.Henceforth, in all BGs issued, the limitation clause suggested by IBA, quoted below, should invariably be incorporated at the end of the text.“Not withstanding anything contained herein:a) Our liability under this Bank Guarantee shall not exceed

Rs…………………. (Rupees………………………………. Only)b) This Bank Guarantee shall be valid upto ……………….. andc) We are liable to pay the guaranteed amount or any part thereof under this

Bank guarantee only, and only if you serve upon us a written claim or demand on or before………………. (date of expiry of guarantee)


Termination of BG

After the expiry of each BG, a registered AD letter is required to be sent to the beneficiary advising that the guarantee has expired and requesting the beneficiary to return the original guarantee document. The letter is to make it clear that the beneficiary is no longer entitled to invoke the guarantee. Subsequently, after the lapse of a period of say one month, and whether or not the original BG is returned, branches are required to reverse the entries relating to BG.

N.B: For Proforma of Counter-Guarantee/Model Guarantee etc. Please refer to GMU-K Codified

Circulars.
