RBI Allows Exporters to Receive Advance Amount Beyond One Year

In a recent Circular Issued by RBI, it has permitted the AD Category- I banks to allow exporters to receive advance payment for export of goods which would take more than one year to manufacture and ship and where the ‘export agreement’ provides for shipment of goods extending beyond the period of one year from the date of receipt of advance payment subject to the flowing conditions:

1. the KYC and due diligence exercise has been done by the AD Category –I bank for the overseas buyer;
2. compliance with the Anti Money Laundering standards has been ensured;
3. the AD Category-I bank should ensure that export advance received by the exporter should be utilized to execute export and not for any other purpose i.e., the transaction is a bona-fide transaction;
4. progress payment, if any, should be received directly from the overseas buyer strictly in terms of the contract;
5. the rate of interest, if any, payable on the advance payment shall not exceed London Inter-Bank Offered Rate (LIBOR) + 100 basis points;
6. there should be no instance of refund exceeding 10% of the advance payment received in the last three years;
7. the documents covering the shipment should be routed through the same authorised dealer bank; and
8. in the event of the exporter's inability to make the shipment, partly or fully, no remittance towards refund of unutilized portion of advance payment or towards payment of interest should be made without the prior approval of the Reserve Bank

This would ease the financial burden of the manufacturers in such a way that they can receive the advance amount from the foreign importer well in advance and adjust the manufacture of the goods accordingly. Necessary amendments will be made to the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000.