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Processing and Settlement of Export Payments through Online Payment Gateway Service Providers (OPGSP’s)

Keeping in mind the ever-growing e-commerce business in India, RBI has decided to permit AD category-1 banks to facilitate export payments by entering into an arrangement with OPGSP’s. The latest guidelines for the same are given below- AD Category-1 banks should diligently report each such arrangement to Foreign Exchange Department, RBI. (i) Banks have to carry out due diligence on the OPGSP that they are making an arrangement with.(ii) Maintain separate Export and Import Collection accounts in India for each OPGSP.(iii) They have to make sure the transactions are genuine and ensure that the purpose codes reported to the RBI are in line with the actual transaction.(iv) Any pertinent information relating to such transactions should be submitted to RBI as and when advised. (v) AD Category-1 banks have to do the reconciliation and conduct an audit of collection accounts on a quarterly basis.Foreign companies, operating as OPGSP should open a liaison office in India after an approval from RBI before entering into such arrangement with any AD category-I bank. OPGSPs have to strictly adhere to the below-mentioned conditions.(i) Adherence to the Information Technology Act, 2000 and all other applicable laws/regulations for such transactions.(ii) There has to be an infallible system for resolution of disputes and complaints related to these transactions. Any issues related to payments should be resolved by the concerned OPGSP.(iii) There has to be reserve fund in line with their refund on returns policy.(iv) Sellers should be signed up after conducting necessary due diligence.Domestic companies, which are intermediaries for electronic payment transactions and want to take up cross-border transactions, should have separate accounts for both domestic and cross border transactions.Export transactions(i) This facility is made available only for export of goods and services (as permitted under the current Foreign Trade Policy) and the transaction cannot exceed USD 10,000 per transaction.(ii) AD Category-I banks offering such facilities should open a NOSTRO collection account for receipt of the export-related payments enabled through such setup. Exporters availing this facility should mandatorily open notional accounts with the OPGSP. Funds cannot be retained in notional accounts and should be transferred to NOSTRO collection accounts of the banks.(iii) Any balance held in the NOSTRO collection account should be repatriated to Export Collection account in India and transferred within 7 days to the respective exporter’s account with the bank, post receipt of confirmation from the importer.   Below debits are permitted to the OPGSP Export Collection account maintained in India.Any payments to the respective Indian exporter’s account.Commission at rates or frequencies as per the contract to the current account of the OPGSP andCharge the importer in cases where the Indian exporter has failed to execute as per contract.Export Collection accounts can only receive credits from the NOSTRO collection accounts.Also read Processing and Settlement of Import Payments through Online Payment Gateway Service Providers (OPGSP’s) 
Processing and Settlement of Export Payments through Online Payment Gateway Service Providers (OPGSP’s)
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Processing and Settlement of Export Payments through Online Payment Gateway Service Providers (OPGSP’s) 715 Processing and Settlement of Export Payments through Online Payment Gateway Service Providers (OPGSP’s) Blog
Kranthi Tilak Reddy Oct 03, 2017
Keeping in mind the ever-growing e-commerce business in India, RBI has decided to permit AD category-1 banks to facilitate export payments by entering into an arrangement with OPGSP’s. The latest guidelines for the same are given below- AD Category...
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RBI’s policy on ECB’s ( External commercial borrowings) for startups

AD Category-1 banks can allow Startups raise ECB under the automatic route as per the below guidelines:Eligibility:  If the Central Government of India, recognizes an entity as a Startup, as on the date of raising ECB would be eligible to avail this facility.Maturity: Minimum average maturity period is 3 years.Recognized Lender: Lender should be resident of a country that is a member of FATF or regional bodies associated with FATF (Financial Action Task Force)Overseas branches of Indian banks and overseas wholly owned subsidiary/ joint venture of an Indian entity can not be a lender as per this policy. ECB can be raised by Startups as below:LoansPreference shares (non-convertible, optionally convertible and partially convertible preference shares)Cap on Amount:Startups can only borrow maximum of USD 3 million or equivalent per FY in INR or any convertible currency or combination of both.The lender and the borrower can mutually agree on costs associated with the deal.End use of ECB proceeds:Funds raised through ECB can be only used for anything associated with the borrower’s business.ECB can be converted into equity as long as it’s in line with the regulations associated with foreign investments in startups.Collateral: Lender and borrower can agree upon the collateral/security and it can be movable, immovable assets, patents, IP rights or financial securities.Guarantees: Corporate or personal guarantees can be issued. However, in case of a non-resident they need to qualify as lender to issue the same.Indian banks, Indian FI’s and NBFC’s (Non Banking Financial Company) aren’t permitted to issue a guarantee either in the form of LC, LOU or LOC.Currency Hedging: If the ECB is raised in INR, overseas lender is permitted to hedge the exposure through various derivative products available with AD category -1 banks in India. It is imperative startups availing ECB have the appropriate Forex Risk Management Policy to obviate any risks associated with the currency movement.Retention or investment of ECB proceeds:ECB proceeds can be retained abroad only for expenses in foreign currency, until utilization funds can be invested in the below mentioned liquid assets.Deposits or products offered by banks rated not less than AA (-) by Standard & Poor/ Fitch IBCA or Aa3 by Moody’s.Treasury bills or other instruments of one-year maturity with similar rating mentioned above.Deposits with overseas branches or subsidiaries of Indian banks abroad.Proceeds meant for INR expenditure should be transferred immediately to the borrower’s INR account. Borrowers are allowed to deposit the proceeds, pending utilization, in term deposits with AD category-1 banks not exceeding a period of 1 year.Please click here for Capital Raising Services 
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RBI’s policy on ECB’s ( External commercial borrowings) for startups

RBI’s policy on ECB’s ( External commercial borrowings) for startups

Kranthi Tilak Reddy
AD Category-1 banks can allow Startups raise ECB under the automatic route as per the below guidelines:Eligibility:  If the Central Government of India, recognizes an entity as a Startup, as on the d...
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Factoring

A financing method in which a Financier buys debt or invoice from another company, so basically seller surrenders accounts receivable at a discount to a factor (Financer) to raise capital. Upto 80% of account receivables can be discounted with factoring services. The biggest advantage of Factoring is that it is an out-of-balance sheet product and it does not create liability on balance sheet.So a Factor is :-A Financial Intermediary Buys invoice/book debts Take responsibility of collection of paymentsParties involvedSeller Debtor/Buyer Financial Institution ( Lender) Types of Factoring:Recourse Factoring:- Factoring with recourse, as the name suggests. In case of non payment of invoice, liability of paying of discounted amount from Factor will still be with the seller.Non Recourse Factoring :- Under this facility, Factor not only discounts bills, but also provides guaranteed credit protection. In case of non payment, Factor will bear the risk of bad debts.Maturity Factoring:- In Maturity Factoring, the Factor agrees to pay amount to exporter/seller on the agreed date.Cross Border Factoring: - Also referred to as two Factor system of factoring, it is almost similar to domestic factoring, except that 4 parties are involved. They are:Exporter Export Factor ImporterImport Factor Client (Exporter) enters into arrangement with Export factor in his country & delegates export receivables to him. Export Factors enters into arrangement with Import Factor & organises for credit evaluation & collection of payment for an agreed fee.Import factor collects payment from Importer and remits it to export factor , which in turn passes credit to exporter.Advantage of Factoring:1. Factoring helps to improve the current ratio,  which in turn adds liquidity to the company. This reduces working capital cycle gap.  Seller therefore can offer better credit terms and increase orders.2. Increase in the turnover of stocks. Since the cash recovery is fast, overall topline of company increases.3. It ensures prompt payment and reduction in debt.4. It helps with credit protection.5. Reduces work of collection/recovery department.Responsibility of collecting the dues solely lies with ‘Factor’/Financer.Cost involved:-Commission/Fees of 0.5-1.5% for rendering factoring services Interest Cost for discounting is charged for the specified tenor debt receivable usually varies between 10-12%.More can be read on associated links as below https://rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=10125
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Factoring

Factoring

Saurabh Jain
A financing method in which a Financier buys debt or invoice from another company, so basically seller surrenders accounts receivable at a discount to a factor (Financer) to raise capital. Upto 80% of...
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RBI Circular on Trade Credits in INR

As per the circular issued by RBI on 10 Sep 2015, resident importers can avail trade credit (buyers & suppliers credit) in Rupees after entering into a loan agreement with the overseas lender.Trade credit can be availed by the importer for import of all goods as per the Foreign Trade policy barring gold.Trade credit period for non-capital goods can either be maximum of 1 year from date of shipment or as per the operating cycle of the company.Trade credit period for import of capital goods can be a maximum of 5 years from the shipment date.Rollover/extension is strictly prohibited over and above the permissible period.Trade credit per import transaction can’t exceed USD 20 million.Banks can issue LOU/LOC with respect to trade credits up to 3 years from the date of shipment.Overall costs associated with INR denominated trade credits should be in line with the market.All other guidelines for availing trade credits would be applicable for INR denominated trade credits.Process Flow:Importer can import goods in any freely convertible foreign currency.Importer requests either their bank or consultant for Buyer’s Credit/Supplier’s Credit quote on the payment due date. INR amount can be calculated based on the prevailing market rate of the respective currency pair.Importers Bank issues LOC/LOU in rupee to the Overseas Branch.Importers Bank Nostro account is funded in rupees by the Overseas Branch as the trade credit is being availed in INR.Importers Bank however, converts the amount received to respective currency in which the importer has imported the goods and makes the payment to the exporter.Importer pays the principal and interest on the due date.Overseas Bank is paid in INR by the importers bankOverseas lenders can hedge their exposure with a Bank in India as they have lent in INR, this would obviate any risks associated with currency movement and its volatility.For more information on buyer's credit please Click here
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RBI Circular on Trade Credits in INR

RBI Circular on Trade Credits in INR

Kranthi Tilak Reddy
As per the circular issued by RBI on 10 Sep 2015, resident importers can avail trade credit (buyers & suppliers credit) in Rupees after entering into a loan agreement with the overseas lender.Trade...
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RBI’s Guidelines on Merchant’s Trade Transactions

Merchanting trade Trade can qualify as merchant’s trade transactions if goods imported by the merchant trader do not enter the Domestic Tariff area and aren’t altered in any manner. Goods that are parts of the merchant trade should comply with the current Foreign Trade Policy & other relevant regulations applicable to both exports & imports to India. Period & Funding Entire cycle of merchant trade has to be completed within 9 months. In case of an advance payment, there can’t be any pending foreign exchange to be paid or received for the final settlement beyond 4 months of making the first payment. The start date for the merchant trade would be either when the trader receives exports leg advance or pays in advance for the import leg. In cases where the advance payment isn’t made, the date of shipment would be considered. The transaction can be considered to have ended on the date of payment of import settlement, or on the date of export settlement, whichever comes later. In cases where payments are received or paid in advance, the shipment date would be considered as completion date of the transaction. Credit can be availed either by way of buyer’s credit or supplier’s credit for import leg of the merchant trade transactions. Merchant trader can’t avail buyer’s/supplier’s credit for the amount received as advance payment from the overseas buyer. Merchant trader can avail discounting facility for the export leg of the transaction. Role of an AD Bank 1.Compliance of KYC, AML and other relevant guidelines while handling merchant’s trade transactions lies with the AD bank.2. Both export and import leg of the transaction should be routed through the same AD bank.3. Documents like invoice, packing list, transport documents & insurance copies should be verified by the AD bank to ensure the authenticity of the transaction.4. If the merchant trader receives an advance payment against the export, AD bank should tag the same for making the payment under import leg of the transaction. However, funds received as advance payment can be deposited in interest bearing account for short term.5. Merchant trader can issue LC (letter of credit) to the supplier against definite export order.6. Merchant trader can use his EEFC (exchange earners foreign currency) balances to make payment to the overseas seller. Reporting AD bank has to ensure matching of export/import legs of all merchant’s trade transactions and report any anomalies to the RBI on half yearly basis, not beyond 15 days of half yearly closing. Merchant traders would be caution listed if their out standings reach 5% of their yearly export earnings.
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RBI’s Guidelines on Merchant’s Trade Transactions

RBI’s Guidelines on Merchant’s Trade Transactions

Kranthi Tilak Reddy
Merchanting trade Trade can qualify as merchant’s trade transactions if goods imported by the merchant trader do not enter the Domestic Tariff area and aren’t altered in any manner. Goods that are...
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Export Data Processing and Monitoring System (EDPMS)

Export Data Processing & Monitoring System is an online system, launched by RBI, on March 1,2014 for monitoring all export activities in India. With this system all banks have come on single platform thus bringing uniformity in modus operandi on exports related transactions in India. Benefits of EDPMS system : Integration of banks with RBI system gives ease of Handling of shipping bills Unravelling delayed utilisation of advance received for exports Detect XOS/Caution ( Export Outstanding ) list Simplifying overall process as everything is online Inclusion in Caution/De-caution list To automate the process of regularisation of exporter, AD (Authorized Dealers) banks are given access to updated list of caution listed exporters through EDPMS. The list of all caution listed exporters would also be made accessible to AD banks through their registered e-mail. Criteria laid down for cautioning/de-cautioning of exporters in EDPMS are as under : Any shipping bill open for more than 2 years puts exporters in caution list. Date of shipment will be considered for the estimation of the realisation period. Once associated bills are realised, extension for realisation is granted, and Exporter will be put in caution list even before the termination of two years, based on AD bank process and recommendations. Any adverse notice of ED/CBI/DRI or any adverse media news can result in inclusion of name in caution list. Reserve Bank might caution/ de-caution the exporters under the guidance of AD banks. Handling of Shipping documents of Caution Listed Exporter AD Category informs  Exporter in caution list and by giving details of outstanding shipping bills. When caution listed exporter submits documents to AD bank for processing, bank may accept documents upon the following conditions. FIRC confirming advance payment or an irrevocable LC covering the full worth of the proposed exports; In the case of usance bills, Usance letter of credit should enclose full export value, maturity of which should be met as per LC terms Except otherwise mentioned, AD banks should not take charge of the shipping documents of caution listed exporters. Under no circumstance can AD banks, issue guarantees to cautioned exporters without RBI approval All the initial teething issues of EDPMS systems are done with effect  from June15,2016. All the inward telegraphic transfers(ITT) details along with outstandings bills are getting reported and are tracked continuously by AD banks. Banks are taking extreme measures such as putting soft hold on account to devoiding exporters to process any transaction unless past bills are regularised. All the message formats and documents relating to EDPMS enhancements are also available on the website (https://edpms.rbi.org.in). Master Direction No. 16/2015-16 dated January 1, 2016 and Master Direction No. 18/ 2015-16 dated January 1, 2016 .  
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Export Data Processing and Monitoring System (EDPMS)

Export Data Processing and Monitoring System (EDPMS)

Kranthi Tilak Reddy
Export Data Processing & Monitoring System is an online system, launched by RBI, on March 1,2014 for monitoring all export activities in India. With this system all banks have come on single platf...
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