Here is an essay on ‘Guidelines and Facilities for Importers’ especially written for school and banking students.
Essay # 1. Guidelines for Importers:
Keeping in view the need to conserve the precious foreign exchange, and to guard the country from scrupulous imports and bogus outward remittances, various export-import regulations and exchange control guidelines have been prescribed from time to time.
(a) Importer-Exporter Code (IEC):
First and foremost, the importer customer has to have a valid IEC, issued by the office of DGFT.
(b) Approved Commodity:
OGL or Import licenses: While ADs are required to ensure that the goods imported or intended to be imported are as per the current export-import policy, the goods can be under the Open List (OGL), which can be freely imported, or can be imported under specific license issued for the purpose by the DGFT.
This has to be ensured prior to making import remittance, handling of import bills for collection or opening of letters of credit for import of goods. For this purpose, the ADs should verify the Export-Import Policy Book or the public notices issued by the DGFT.
(c) Payments for Imports:
Any person, who wants to make a remittance for imports, exceeding USD 500 or its equivalent, should make an application in form A1 (as prescribed by RBI) to the authorised dealer. This form contains the details of the currency, the total value of imports, commodity, the license number, etc., along with an undertaking by the importer and Authorized Dealer that they will comply with the Exchange Control Regulations.
Payment for imports should be to the debit of party’s account. The approved method of payment relating to imports is as applicable to receipt in exports like Asian Clearing Union and other group.
(d) Time Limit for Import Payment:
The remittance against imports should be completed not later than six months from the date of shipment. Any delay beyond this period should be justified by proper explanation from the importer. If the payment is to be made on a deferred payment arrangement (i.e, payment beyond six months and up to a period of three years) it will be treated as Trade Credits.
ADs can remit interest on import bills, sight basis as also usance bills, generally up to a period of six months, and up to 3 years in case of trade credits.
(e) Advance Remittances:
ADs may allow remittances of advance payment against imports of goods, to the extent and subject to the following conditions:
(i) Up to USD 100,000 or its equivalent, after duly satisfying about the transaction, nature of trade and standing of the supplier, etc.
(ii) If the amount of advance remittance exceeds USD 100,000, or its equivalent, an irrevocable standby letter of credit or a guarantee from a bank of international repute situated outside India or a guarantee of a bank in India, if such a guarantee is issued against the counter guarantee of an international bank situated outside India.
(iii) The requirement of guarantee may not be insisted upon in case of remittances above USD 100,000 and up to USD 5,000,000, subject to a suitable policy approved by the bank’s Board of Directors, to undertake such transactions.
(iv) All cases beyond USD 5,000,000 should be referred to RBI, for prior approval.
(v) Within the above ceilings, advance remittance may be permitted after verifying the documentary evidence indicating the cost of the goods and the proof of insistence by the overseas supplier on advance payment must be produced by the importer.
(vi) The importer holds exchange control copy of a valid import licence for importing goods under reference or the goods not covered under the negative list.
(vii) Remittance is made direct to the overseas supplier or his bank, and not to any agent of the supplier.
(viii) Physical import into India should be made within six months (three years in case of capital goods) from the date of remittance and the importer should give an undertaking to produce documentary evidence of import within fifteen days from the close of the relevant period.
(ix) In case of non-import of goods into India, the AD should ensure that the amount of advance remittance is repatriated to India or is utilized for any other purposes permissible under the extant rules or regulations.
(f) Evidence of Imports:
To ascertain importation of goods into India, importers are required to produce and submit to the AD who has handled opening of LC or the remittance of import bill, the exchange control copy of the Bill of Entry/Postal appraisal form or Customs assessment certificate, duly approved by customs. Authorized dealers are required to cross check the particulars in the Bill of Entry with the particulars of LC opened/remittance made for imports.
In terms of extant RBI guidelines, an AD has to ensure receipt of Bill of entry in all cases where the value of foreign exchange remitted for import exceeds USD 100,000 or its equivalent, within three months from the date of remittance.
In case the Bill of Entry is not submitted within one month another reminder should be sent by registered post with acknowledgement due. If the importer has defaulted in submission of Bill of Entry within 21 days from the date of issue of registered reminder, AD should forward a statement consisting list of such defaulters to RBI on half yearly intervals, in the form of BEF furnishing the details of these import transactions.
For the purpose of monitoring receipt of bills of entry, proper records should be marked in the LC Register/Remittance Register. AD should in all cases acknowledge receipt of exchange control copy of Bill of Entry from the importers by issuing acknowledgement slips containing all details of Bill of Entry received by them.
The Bill of Entry should be preserved by authorised dealer and made available to Internal Auditors/RBI Inspectors for verification. In case of import through postal service and courier service, postal/courier wrapper must be obtained and preserved.
In case of imports by a company listed on a stock exchange, whose net worth is not less than Rs 100 crore as on the date of last balance sheet, ADs may accept either the copy of Bill of Exchange or a certificate from the CEO or the auditor of the company, certifying that the goods for which the remittance was made, have actually been imported into India, provided that the foreign exchange remitted is less than USD 1,000,000 or its equivalent.
Banks have been advised to have their own policy, duly approved by their Board of Directors, for follow up of the submission of evidence of import involving amount of USd 100.000 or less.
Import Letter of Credit:
This is the most used method of financing imports. The importer gets LC limits sanctioned from his bank and establishes LC on DA basis (usance), there by getting credit from the overseas supplier on the strength of his banks credibility (LC).
At times import LC are also used to generate liquidity, by way of establishing DA LCs for commodities, which can be sold immediately on sight basis, or for cash.
We have seen how Letters of credit work, in earlier unit. LC transaction also supports Buyers credit and suppliers’ credit, being other modes for financing of imports.
Import Loan:
Such loans are at times granted against imported raw material, or goods meant for trading. The loans can be against pledge of goods or hypothecation to the financing bank. Importers prefer such loans, even at higher rates of interest, to hoard goods and to take benefit of depreciating domestic currency.
The financing against imported material/stocks and local stocks is at times differentiated, due to difference in interest rates, surcharge, interest tax laws, etc., which are imposed keeping in view the need for restrictions required for imports and the position of country’s forex reserves, where outflows are required to be monitored and checked.
Essay # 2. Trade Credit – Supplier’s Credit and Buyer’s Credit:
1. Supplier’s Credit:
Supplier’s Credit is credit directly extended by the overseas supplier of goods to the importer. As in domestic markets, in the international markets also, the payment terms are either sight or on credit. The period of credit, normally depends on the necessity for the exporter/seller of the goods to increase sales, the demand of the goods in the market, requirement of the importer and the current market practices.
The exporter may avail finance against the bills, after making the shipment, from his banker and the bank would receive funds on the maturity date. However, the exporter shall be liable to repay his bank, in case the overseas buyer does not make payment on due date.
In India, the period of supplier’s credit is governed in terms of exchange control guidelines issued by Reserve Bank of India. Earlier, importers in India were allowed to avail supplier’s credit, for a period of up to six months from the date of shipment, without any approval of Reserve Bank of India.
However, supplier’s credit availed beyond six months from the date of shipment, was termed as short-term loan, and therefore, required Reserve Bank of India’s approval.
Subsequently, with the implementation of more and more liberalized steps by the Government, and Reserve Bank of India and also due to comfortable position of country’s forex reserves, relaxations were announced for import of goods as well.
To facilitate their operations and to make approvals hassle free, the suppliers’ credit extended by the overseas supplier, for a period of more than six months from the date of shipment and up to less than three years has been termed as ‘Trade Credit’. Any credit extended for three years or more shall be in the category of External Commercial Borrowings (ECB).
Banks can now, at their level itself, approve proposals received from their importer clients, for availing supplier’s credit for a period beyond six months from the date of shipment, with maturity up to three years, for import of all items permissible under the Exim Policy, up to USD 20 million per import transaction. Similarly, for import of capital goods, banks can approve proposals for supplier’s credit, with maturity up to less than three years, up to USD 20 million per transaction.
2. Buyer’s Credit:
The buyer’s credit is credit arranged by the importer (buyer), from a bank/financial institution outside his country, to settle the payment of imports. In short, it is credit arranged by the buyer to settle import payments, irrespective of the period of credit.
In this type of credit, the supplier of the goods need not worry about the payment, as the payment is assured by the bank/financial institution, provided he completes his responsibility as per the requirement of the buyer. The modus operandi is that, in some cases on one hand the supplier (exporter) is not ready to give any credit (supplier’s credit) while the buyer (importer) is also not in a position to make immediate payment.
As such, the importer approaches his bank and requests for arrangement of payment to the exporter on immediate terms. The bank, through their own resources, or correspondent relationships, ties up with a foreign bank/financial institution, and after agreeing upon on the pricing/costing, makes arrangement to make payment to the exporter on submission of shipping documents. The importer then repays on the due date.
In India, the buyer’s credit, as in the case of supplier’s credit also, is regulated by exchange control guidelines issued by Reserve Bank of India, from time to time. In terms of earlier guidelines, buyer’s credit, irrespective of the period of credit, required Reserve Bank of India’s approval.
In an era of restricted regulations, efforts were made to restrict imports and thereby conserve precious foreign exchange. Accordingly, importers were not freely allowed to raise foreign currency loans and had to approach Reserve Bank of India for necessary approvals.
Now in a liberalised era and with the comfortable position of country’s foreign exchange reserves, Reserve Bank of India has permitted banks to approve at their level itself, proposals received from their importer clients, for availing buyers’ credit for a period with maturity up to one year, for import of all items permissible under the EXIM Policy, up to USD 20 million per import transaction.
Similarly, for import of capital goods, banks can approve proposals for buyers’ credit, with maturity less than three years for an amount not exceeding USD 20 million per transaction.
Interest ceilings:
The present ceilings for all in cost, including interest for buyers/suppliers credit, as fixed by RBI is as under:
(i) Up to 365 days, LIBOR plus 200 bps
(ii) Above one year – up to 3 years LBOR plus 200 bps.
Above ceilings are for all in cost, and include management fees, arrangement fees, etc.