No.CLE-HO/POL/CIRCULAR/15-16
March 25, 2015

Members of the Council,

Sub : RBI regulations on advance payments for exports

Dear Sirs,

As you are kindly aware RBI Notification No. FEMA 23/RB-2000 dated May 3, 2000 specified the procedure involved in export of goods involving advance payments from buyers as detailed below.

Advance payment against exports :-
(1) Where an exporter receives advance payment (with or without interest), from a buyer outside India, the exporter shall be under an obligation to ensure that –
(i) Where an exporter receives advance payment (with or without interest), from a buyer outside India, the exporter shall be under an obligation to ensure that –
(ii) the rate of interest, if any, payable on the advance payment does not exceed London Inter-Bank Offered Rate (LIBOR) + 100 basis points, and
(iii) the documents covering the shipment are routed through the authorised dealer through whom the advance payment is received;

Provided that in the event of the exporter’s inability to make the shipment, partly or fully, within one year from the date of receipt of advance payment, no remittance towards refund of unutilised portion of advance payment or towards payment of interest, shall be made after the expiry of the said period of one year, without the prior approval of the Reserve Bank.

(2) Notwithstanding anything contained in clause (i) of sub-regulation (1), where the export agreement provides for shipment of goods extending beyond the period of one year from the date of receipt of advance payment, the exporter shall require the prior approval of the Reserve Bank.

Subsequently, RBI has issued circular No.AP (DIR Series) Circular No.74 dated Feb 9, 2015 stating that banks should exercise proper due diligence and ensure compliance with KYC and AML guidelines so that only bonafide export advances flow into India. Banks have been asked to refer the Doubtful cases as also instances of chronic defaulters to Directorate of Enforcement (DoE) for further investigation and also send a quarterly statement indicating details of such cases (as per Annex) to the concerned Regional Offices of RBI within 21 days from the end of each quarter. Members may kindly note the above.
With regards

R Ramesh Kumar,IAS
Executive Director
COUNCIL FOR LEATHER EXPORTS

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