Special Circular

 

Subject

Circular Number

Date

FEDAI Rule No.2 Export transactions - Crystallisation of unpaid export bills SPL-50/FEDAI Rule/05 25th Aug 2005

 

 

SPL-50/FEDAI Rule/05
25th August 2005

Dear Sir,

FEDAI Rule No.2
Export transactions - Crystallisation of unpaid export bills

Members are aware that the Managing Committee at its various meetings discussed the issues related to the crystallisation of unpaid export bills specifically in regard to passing on the exchange gain, if any, at the time of crystallisation. FEDAI have been corresponding in this regard with RBI, explaining the position.

In response to our communications, RBI vide their letter No.FE.CO.FMD.1872/02.03.107/2005-06 dated 25th July 2005 requested us to consider the following while taking a final view on the modifications in the existing rules on crystallization of unpaid export bills.

Quote

“You may please refer to paragraph 3.12 of the draft Report of the Internal Technical Group on Forex Markets which has been placed on our web site www.rbi.org.in. It has been suggested therein that both exchange gain / loss should be passed on to the exporter and also that the mandatory period of 30 days of crystallization of export bills should be done away with and ADs be given the freedom to decide on the period of crystallization which may be linked to their credit risk perception of different clients.”

Unquote

The above issue was discussed in detail at the Managing Committee meeting held on 11th August 2005 and it was decided that FEDAI Rule No.2.A.2. regarding crystallisation of unpaid export bills may be amended by allowing banks to pass on the exchange gains, if any, at the time of crystallisation of unpaid export bills just as the losses are recovered from them. However, the spirit of the current Rule namely compulsory crystallisation of unpaid export bills should be preserved.

Considering that presently banks are required to manage a variety of risks, the mandatory period of 30 days for crystallisation of export bills be done away with and authorised dealers be given freedom to decide on the period for crystallisation which may be linked to risk factors like credit perception of different types of exporter clients, operational aspects etc. Such norms devised by the banks in this regard should be transparent and should be advised to their customers well in advance. This may be implemented with immediate effect.

A Circular effecting the amendment to FEDAI Rule (AR Circular) in this regard is being issued separately. Member banks are requested to advise the designated branches in this regard.

Yours faithfully,

Chief Executive


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