Non-resident guarantee for non-fund based facilities entered between two resident entities

Non-resident guarantee for non-fund based facilities entered between two resident entities

 

Attention of Authorised Dealer Category – I (AD Category – I) banks is invited to Notification No. FEMA 29 / 2000-RB dated September 26, 2000 viz. Payment to person resident outside India on invocation of guarantee, A.P. (DIR Series) Circular No. 28 dated March 30, 2001 and A.P. (DIR Series) Circular No. 5 dated August 1, 2005 relating to External Commercial Borrowings (ECB).

 

2. Borrowing and lending of Indian Rupees between two persons resident in India does not attract the provisions of the Foreign Exchange Management Act, 1999. In case where a Rupee loan is granted against the guarantee provided by a person resident outside India, there is no transaction involving foreign exchange until the guarantee is invoked and the non-resident guarantor is required to meet the liability under the guarantee. The Reserve Bank vide Notification No. FEMA 29/2000-RB dated September 26, 2000 has granted general permission to a person resident in India, being a principal debtor, to make payment to a person resident outside India, who has met the liability under a guarantee.

 

3. On a review, it has been decided to extend the facility of non-resident guarantee under the general permission for non-fund based facilities (such as Letters of Credit/guarantees/Letter of Undertaking (LoU) /Letter of Comfort (LoC) ) entered into between two persons resident in India. The method of discharge of liability by the non-resident guarantor under the guarantee and the subsequent repayment of the liability by the principal debtor would continue, as hitherto, as detailed in A.P. (DIR Series) Circular No. 28 dated March 30, 2001.

 

4. It has also been decided to introduce a reporting format to capture such guarantees issued and invoked. Authorized Dealer Category-I banks are required to furnish such details by all its branches, in a consolidated statement, during the quarter, as per the format in Annex to the Chief General Manager, Foreign Exchange Department, ECB Division, Reserve Bank of India, Central Office Building, 11th floor, Fort, Mumbai – 400 001 (and in MS-Excel file through email) so as to reach the Department not later than 10th day of the following month.

 

 

 

 

 

 

Ref:RBI/2012-13/179---A. P. (DIR Series) Circular No. 20 dated August 29, 2012

 

Review of the Foreign Direct Investment policy - permitting investments from Pakistan.

Review of the Foreign Direct Investment policy - permitting investments from Pakistan. or Bangaladesh.

1.0Present Position: 1.1 As per paragraph 3.1.1 of Circular 1 of 2012- Consolidated FDI Policy`, effective from 10.04.2012, investment from a citizen of Pakistan or an entity incorporated in Pakistan is not permitted. 2.0Revised Position: 2.1The Government of India has reviewed the policy, as contained in paragraph 3.1.1 of the circular ibid and decided to permit a citizen of Pakistan or an entity incorporated in Pakistan to make investments in India, under the Government route, in sectors/activities other than defence, space and atomic energy. 3.0Amendment to paragraph 3.1.1: 3.1Accordingly, Paragraph 3.1.1 of Circular 1 of 2012- Consolidated FDI Policy`, effective from 10.4.2012, is amended to read as below: "3.1.1 A non-resident entity can invest in India, subject to the FDI Policy. A citizen of Bangladesh or an entity incorporated in Bangladesh can invest only under the Government route. A citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defence, space and atomic energy." Dept. of Industrial Policy & Promotion, Ministry of Commerce & Industry New Delhi:August 1, 2012

REVIEW OF GUIDELINES ON Exchange Earner's Foreign Currency (EEFC) Account, Diamond Dollar Account (DDA) & Resident Foreign Currency (RFC) Account

Exchange Earner's Foreign Currency (EEFC) Account, Diamond Dollar Account (DDA) & Resident Foreign Currency (RFC) Account - Review of Guidelines

Attention of the Authorised Dealer (AD) Category - I banks is invited to A.P. (DIR Series) Circular No.15 dated November 30, 2006 in terms of which all foreign exchange earners were permitted to retain 100% of their foreign exchange earnings in EEFC account with any AD in India. Subsequently, in terms of A.P. (DIR Series) Circular No. 124 dated May 10, 2012, it was stipulated, inter alia, that in respect of all future foreign exchange earnings, an exchange earner will be eligible to retain only 50% of her/his export earnings in EEFC accounts and the balance 50% shall be surrendered for conversion to rupee balances. This provision was, made applicable, mutatis mutandis, to Diamond Dollar Account and Resident Foreign Currency (RFC) Account as well. Further, in terms of A.P. (DIR Series) Circular No. 8 dated July 18, 2012, the RFC accounts were subsequently taken out of the purview of the provisions of the aforesaid Circular dated May 10, 2012.

2. For operational convenience, the regulations have been reviewed. It has now been decided to restore the erstwhile stipulation of allowing credit of 100% foreign exchange earnings to the EEFC account subject to the condition that the sum total of the accruals in the account during a calendar month should be converted into Rupees on or before the last day of the succeeding calendar month after adjusting for utilization of the balances for approved purposes or forward commitments. Accordingly, balances outstanding in an EEFC account as on July 31, 2012 and those balances that would accrue in the account with effect from August 1, 2012 shall get converted to Rupee balances on or before close of business on September 30, 2012. Similar procedure may be followed for accruals during the subsequent months.

3. The above stipulations would also apply to RFC (Domestic) and Diamond Dollar accounts.


Ref:
RBI/2012-13/151 -A. P. (DIR Series) Circular No. 12 dated 31st July 2012

FURTHER CLARIFICATION ON COMPOUNDING OF OFFENSES UNDER FEMA BY RBI

Foreign Exchange Management Act, 1999 (FEMA)-
Compounding of Contraventions under FEMA, 1999

Attention of all the Authorised Dealer Category - I (AD Category - I) banks and their constituents is invited to A.P. (DIR Series) Circular no. 56 dated June 28, 2010 and the subsequent Press Release dated August 13, 2010, clarifying the position on ‘technical’ contravention and subsequent compounding thereof.

2. In this connection, it is clarified that whenever a contravention is identified by the Reserve Bank or brought to its notice by the entity involved in contravention by way of a reference other than through the prescribed application for compounding, the Bank will continue to decide (i) whether a contravention is technical and/or minor in nature and, as such, can be dealt with by way of an administrative/ cautionary advice; (ii) whether it is material and, hence, is required to be compounded for which the necessary compounding procedure has to be followed or (iii) whether the issues involved are sensitive / serious in nature and, therefore, need to be referred to the Directorate of Enforcement (DOE). However, once a compounding application is filed by the concerned entity suo moto, admitting the contravention, the same will not be considered as ‘technical’ or ‘minor’ in nature and the compounding process shall be initiated in terms of section 15 (1) of Foreign Exchange Management Act, 1999 read with Rule 9 of Foreign Exchange (Compounding Proceedings) Rules, 2000.

 Ref:RBI/2012-13/153-A.P. (DIR Series) Circular No.11 dated 31st July 2012