SME Times News Bureau | 22 Feb, 2012
The Reserve Bank of India has allowed banks to permit exporters to receive advance payment for shipment of goods which would take more than one year to manufacture, a step which will reduce transaction time.

"With a view to liberalising the procedure with respect to receipt of advance payment for export of goods involving shipment (manufacture and ship) beyond one year, it has since been decided to permit 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 the same subject to certain conditions," said the apex bank in a notification on Tuesday.

As per the old rule under the Foreign Exchange Management (Export of Goods and Services) Regulations, prior approval of the apex bank was required to be obtained by an exporter for receipt of advance in case the agreement provided for shipment of goods extending beyond the period of one year from the date of receipt of advance payment.

In its notification, the RBI said that relaxation could be availed of subject to certain conditions like compliance with Know Your Customer (KYC) norms and Anti Money Laundering standards and other guidelines, besides due diligence by the concerned bank.

Some other conditions include: progress payment, if any, should be received directly from the overseas buyer strictly in terms of the contract; the rate of interest, if any, payable on the advance payment shall not exceed London Inter-Bank Offered Rate (LIBOR) + 100 basis points; there should be no instance of refund exceeding 10% of the advance payment received in the last three years; the documents covering the shipment should be routed through the same authorised dealer bank; and

The RBI notification adds that 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 apex bank.