CHAPTER 3
FOREIGN EXCHANGE TRANSACTIONS
PART A - PURCHASES
3A.1 Purchase of TT's, MT's, etc. from public
3A.2 Inward Remittances
3A.3 Acquisition of Foreign Exchange by Residents
3A.4 Payment of Inward Remittances in Rupees
3A.5 Foreign Inward Remittance Payment
3A.6 Issue of Bank Certificates
3A.7 Refund of Inward Remittances
PART B - SALES
3B.1 General
3B.2 Sales to Residents
3B.3 Procedures for making Applications
3B.4 Reserve Bank Permits
3B.5 Manner of Payment of Rupees against sale of Foreign
Exchange
3B.6 Submission of Unutilised Permits
3B.7 Recurring Remittances
3B.8 Issue of Foreign Exchange to Residents under Instructions
from Overseas Correspondents
3B.9 Deleted
3B.10 Undertaking/Certificate regarding payment of Income-tax
PART C - RISK MANAGEMENT
3C.1 Forward Exchange Contracts
3C.2 Foreign Currency - Rupee Swaps
3C.3 Hedging of Loan Exposures
3C.4 Other Derivatives - Foreign Currency Options
3C.5 Hedging of Commodity Price Exposures
3C.6 Facilities for Non-Residents
3C.8 Management of Bank's Assets-Liabilities
3C.9 Hedging of Gold Prices
PART D - FOREIGN CURRENCY NOTES AND COINS
3D.1 General
3D.2 Purchases from Public
3D.3 Purchases against Currency
3D.4 Encashment Certificates
3D.5 Purchase on Authorised Dealers' Own Responsibility
3D.6 Import of Foreign Currency Notes
3D.7 Sale to Public Under General Authority
3D.8 Reconversion of Indian Currency
3D.9 Sales to Foreign Tourists
3D.9A Providing foreign currency travellers cheques and notes
to the Master/Captain of foreign vessels against inward remittance
3D.10 Cash Memo
3D.11 Sales to other Authorised Dealers, Exchange Bureaux and
Money-changers
3D.12 Rates of Exchange
3D.13 Display of Exchange Rate Chart
3D.14 Regulation of Authorised Dealers' Sales to Travellers
3D.15 Export of Surplus Foreign Currency Notes and Coins
3D.16 Records Maintained by Exchange
3D.17 Reporting of Transactions by Exchange Bureaux
ANNEXURE I
CBDT's Circular No.759 dated 18th November 1997 regarding
deduction of tax at source
ANNEXURE II
Guidelines for hedging of commodity price exposures
FOREIGN EXCHANGE TRANSACTIONS WITH PUBLIC
PART A - PURCHASES
Purchase of TTs, MTs, etc. from public
3A.1 Authorised dealers may freely purchase from the public in
India TTs, MTs, drafts, bills, etc. drawn in any foreign currency against
rupees.
Inward Remittances
3A.2 There are no restrictions on receipt of remittances in
India from any foreign country through authorised dealers in India. Reserve Bank
has also permitted by its Notification No. FERA.48/77-RB dated 24th November
1977, any person to receive directly from persons resident outside India,
foreign exchange in the form of bank drafts or travellers cheques issued outside
India or cheques drawn on banks situated outside India, provided the foreign
exchange so received is surrendered to an authorised dealer within seven days of
receipt.
NOTE:
Where the amount of remittance exceeds Rs. 100,000, the purpose of inward
remittance, i.e. whether it represents transfer of capital, savings, profit,
dividend, etc. should be ascertained and reported in the supplementary statement
annexed to the relative R Return. The payment should not, however, be delayed
for want of this information which may be obtained separately and furnished to
Reserve Bank later.
Acquisition of Foreign Exchange by Residents
3A.3 Reserve Bank has permitted by its Notification
No.FERA.158/94-RB dated 24th February 1994, any person to receive payment in
foreign currency/ies from any person resident outside India and who is on a
visit to India for services rendered or in settlement of any lawful obligation,
provided that any such foreign currency/ies held in excess of U.S.$ 2000 (Two
thousand US dollars) inclusive of foreign currencies, if any, held for
numismatic purposes or its equivalent, taking into account existing foreign
currency holdings, if any, is sold to an authorised dealer within seven days
from its receipt.
Payment of Inward Remittances in Rupees
3A.4 Under Central Government Notification F.No. 10/22/ 90/NRI
Cell dated 17th July 1992, any person in or resident in India (other than
certain exempted categories) receiving foreign exchange is under an obligation
to offer it for sale to an authorised dealer within the prescribed period.
Except where specifically provided in this Manual or where the specific
permission of Reserve Bank has been obtained, no authorised dealer shall open an
account, in favour of a resident or a non-resident, in foreign currency.
Foreign Inward Remittance Payment System (FIRPS)
3A.5 FEDAI has evolved the Foreign Inward Remittance Payment
System(FIRPS) to facilitate quick transmission of funds to beneficiaries in
India against inward remittances received from abroad through banking channels
in rupees as well as foreign currencies. This system is used by authorised
dealers for arranging payment of proceeds of personal remittances received from
abroad in favour of resident Indians as well as for credit to Ordinary
Non-Resident accounts / Non-resident (External) accounts in India of persons of
Indian nationality or origin. The essence of the system is that authorised
dealers must without delay convert into rupees foreign currency remittances
received from abroad in the form of TTs, MTs and Pay Orders and arrange payment
of the proceeds by the FIRPS instruments which are encashable at par at all
branches in India of all authorised dealers and of other scheduled commercial
banks who, though not authorised to deal in foreign exchange, agree to abide by
regulations framed by FEDAI, governing issue and encashment of FIRPS
instruments. Authorised dealers will be guided by rules and regulations framed
from time to time by FEDAI with the approval of Reserve Bank in the matter of
issue etc. of instruments under FIRP System. Authorised dealers may also freely
employ other methods like money orders, MTs, TTs, drafts and telegraphic pay
orders for transmitting inward remittances to beneficiaries but they should bear
in mind the need for speed in transmitting funds to beneficiaries, particularly
those living in remote parts of the country, in view of the importance attached
to inward remittances.
Issue of Bank Certificates
3A.6
- Authorised dealers should issue certificates in form BCI against receipt
of inward
remittances or realisation of foreign exchange on security paper if the
amount exceeds
Rs.15,000/- in value, bearing distinctive serial numbers and reference
numbers. In case the amount of inward remittance or realisation of foreign
exchange is upto Rs.15,000/- certificates in form BCI with serial numbers
and reference numbers may be issued on the letter-head of the authorised
dealer (with their 'Logo' printed on it). Since inward remittances received
for opening of or credit of Non-Resident (External) accounts/FCNR accounts
can be repatriated freely, authorised dealers should not issue certificates
against such remittances.
- Authorised dealers may also be required to issue bank certificates to
exporters in the
prescribed form for submission to the Director General of Foreign Trade
immediately after negotiation of documents, but prior to realisation of
export proceeds. Such certificates cannot contain the value actually
realised and date of realisation of export proceeds. Hence while issuing
such certificates authorised dealers may merely indicate the FOB value under
column 14 of the certificate withour certifying that the amount has been
actually realised. Authorised dealers should make a specific remark on such
certificates that it is not an export realisation certificate.
- Authorised dealers may also issue a certificate of inward remittances in
Form 10 H to
assessees for submission to Income-tax Authorities alongwith the Return of
Income. The format of Form 10 H has been prescribed in terms of Section
80RRA of the Income-tax Act read with the Rule 29A of the Income-tax Rules
and is similar to form BCI.
A.D.(M.A. Series) Circular No.42
Refund of Inward Remittances
3A.7
Authorised dealers may comply with requests received from their overseas
correspondents for cancellation of inward remittances in foreign exchange
and refund
the amounts without reference to Reserve Bank after satisfying themselves
that the refunds are not being made in cover of transactions of a
compensatory nature, resulting in remittances which should have normally
accrued to India being either lost to the country or used by residents in
India other than the original beneficiaries.
PART B - SALES
General
3B.1 All sales of foreign exchange are subject to regulation by Exchange Control
and authorised dealers may sell foreign exchange only in accordance with the
regulations laid down in this Manual.
Sales to Residents only
3B.2 Authorised dealers may sell foreign exchange only to
persons, firms and banks resident in India and in accordance with the procedure
detailed in this Part. No sales should be made to non-residents except as
specifically provided in this Manual.
NOTE:
For the purpose of sale of foreign exchange, persons, firms, companies or other
organisations resident in Nepal and Bhutan should be treated like any other
non-residents.
Procedure for making Applications
3B.3
- Applications by persons, firms and banks other than authorised dealers
for remittances
in any foreign currency to a beneficiary abroad must be made to an
authorised dealer on
form form A1 bearing the legend 'Application for remittance in 'foreign
currency', if the purpose of remittance is import of goods into India and on
form A2 bearing a similar legend in every other case.
- Questionnaire forms have been prescribed in the Manual to elicit additional
information
required for dealing with applications for remittances in certain cases. In
certain other cases, the applicants may have to furnish supporting
information by letter. In all such cases, the requisite questionnaire form
etc. should accompany the application on form A1 or A2 as the case may be.
NOTE:
Applications for release of foreign exchange from members of the public will
be entertained by Reserve Bank only if they are received through an
authorised dealer.
- If the remittance is for an approved purpose and is otherwise within the
powers of
authorised dealers, the authorised dealer may sell the foreign exchange
applied for, provided he has satisfied himself as to the bona fides of the
application.
- If the remittance does not fall within the powers of authorised dealers and
therefore
requires prior approval of Reserve Bank, the authorised dealer should obtain
the application in duplicate and forward it to Reserve Bank for
consideration. Authorised dealers will do well to obtain an additional copy
of the form for their reference and record. The authorised dealer should
verify the correctness of the statements made in the applications, ensure
that they are complete in all respects and are duly signed by the applicants
and certify them in token of having done so over his stamp and signature
before forwarding them to Reserve Bank. Comments, if any, of the authorised
dealer should also be recorded on the application form or if appropriate, by
a separate letter. The sale of foreign exchange should not be made until a
copy of the application form (A1 or A2 as the case may be) has been returned
by Reserve Bank together with a permit authorising the remittance.
NOTES:
A.
Forms A1 and A2 are required to be completed even in cases where sale of
foreign exchange is not involved but payment is made in rupees by credit to
an account of non-resident bank with the authorised dealer or through ACU.
B.
Sub-paragraphs (iii) and (iv) also apply, mutatis mutandis, to remittances
made to foreign countries otherwise than by direct sale of a foreign
currency.
Reserve Bank Permits
3B.4
If an application for remittance is approved, Reserve Bank will issue a
permit printed
on special security paper which will, inter alia, indicate name of
applicant, amount
sanctioned, name of beneficiary abroad and authorised dealer through whom
remittance can be effected. All Reserve Bank permits for remittance of
foreign exchange will be issued over the signatures of two officials.
Authorised dealers may make remittances under the authority of the permit
after verifying that
- the permit has been issued on security paper;
- all alterations/corrections thereon, if any, have been duly authenticated;
- the permit bears two full signatures on behalf of the issuing office
- Exchange Control Department of Reserve Bank;
and
- the permit appears prima facie to be genuine.
Authorised dealers should endorse the amount of foreign exchange sold or
remitted against the permit on the reverse of it under their stamp and
signature. If the authorised dealer has any grounds to suspect that the
permit presented for remittance is not in order or appears to have been
fraudulently issued, he should immediately refer the matter to the issuing
office. If any conditions have been prescribed by Reserve Bank while
approving the remittance, authorised dealers should ensure that the
conditions are fulfilled before making the remittance.
Manner of Payment of Rupees against sale of Foreign Exchange
3B.5
- It is a basic understanding that when any person applies to an authorised
dealer or to
Reserve Bank for sale of foreign exchange to him, the foreign exchange is
required for
meeting his own commitments abroad or for his own use. The rupee funds
against sales of foreign exchange should, therefore, be provided by the
applicants themselves. Authorised dealers should, however, ensure that in
all cases of sale of foreign exchange/remittance in foreign exchange
equivalent to Rs.20,000/- or more, irrespective of whether remittances are
made under powers delegated to authorised dealers or against Reserve Bank
permits, the relative payment is received from the applicant only by a
crossed cheque drawn on the applicant's bank account or on the bank account
of the firm/company. Authorised dealers may also accept payment in the form
of a Banker's Cheque/Pay Order and/or Demand Draft. In no circumstances
should payment in respect of such sale of foreign exchange/remittance in
foreign exchange be accepted in cash.
- As an exception to the above rule, authorised dealers may sell foreign
exchange
equivalent to amount not exceeding Rs.50,000/- for travel abroad for
business, BTQ, etc. purposes against payment in cash. Where the sale of
foreign exchange to residents for the visits abroad exceeds the amount
equivalent to Rs.50,000/-, the payment must be received only by a crossed
cheque drawn on the applicant's bank account or on the bank account of the
firm/company sponsoring business visit of the applicant. Authorised dealers
may also accept payment in the form of Bankers' Cheque/Pay Order/Demand
Draft in above cases.
- Where the rupee equivalent for drawing foreign exchange exceeds Rs.50,000
either
for any single instalment or for more than one instalment reckoned together
for a single journey/visit it should be paid by the traveller by means of a
cross cheque/demand draft/pay order as stated above.
NOTE:
- This provision will also apply in the case of payments made in rupees by
credit to accounts of non-resident banks or through ACU.
- Where the rupee equivalent of foreign exchange drawn, in a single
transaction for studies abroad is Rs.50,000 or more it should be paid by
means of a crossed cheque/demand draft/pay order as stated above.
Submission of utilised Permits and Remittance Forms
3B.6
After making the remittance, the authorised dealer should surrender both the
utilised permit
and the remittance application in form A1 / A2 to Reserve Bank under cover
of the R Return
in which the sale is reported. Remittance applications covering sales of
foreign exchange made within the powers delegated to authorised dealers
should also be attached to the R Return for the relevant period, stating
clearly on the forms the relative paragraph/s of the Manual and/or A.D.
Circular relied upon for making the remittances.
Recurring Remittances
3B.7
Wherever regular periodic remittances have to be made for purposes which are
not
covered by authorised dealers' authority, Reserve Bank issues in approved
cases
permits for recurring remittances on account of family maintenance, savings,
maintenance of offices abroad, etc. authorising such remittances. These
permits will, inter alia, indicate name of applicant, name of beneficiary
abroad, amount authorised to be remitted each time, intervals at which it
may be remitted, period for which remittances may be continued and name of
authorised dealer through whom remittances can be made. Authorised dealers
may make remittances in accordance with the terms of such permits after
getting applications on form A2 completed for each such remittance by the
applicant (or on his behalf). Purpose of remittance and full particulars of
Reserve Bank permit should be clearly stated in the applications. Such
applications should be attested and submitted to Reserve Bank with relevant
R Returns in the same manner as in respect of other remittances. Each
remittance effected should be recorded on the reverse of the permit against
stamp and signature of authorised dealer and the permit retained with
authorised dealer. Permit may be returned to remitter if required by him on
bona fide grounds. Permit against which the last remittance has been made
should not be returned to applicant but attached to the remittance
application covering the last remittance and surrendered to Reserve Bank
with the relative R Return.
Issue of Foreign Exchange to Residents under
Instructions from Overseas Correspondents
3B.8
Issue of foreign exchange in any form (such as travellers cheques, notes,
coins etc.)
to persons resident in India under instructions from overseas
branches/correspondents
of authorised dealers requires prior approval of Reserve Bank. (See
paragraph 11D.8 regarding sale of foreign exchange to foreign tourists,
transit passengers and foreign nationals not permanently resident in India).
Cancellation of Sales
3B.9
Deleted
Undertaking/Certificate regarding payment of Income-tax
3B.10
- Certain types of remittances are being allowed by Reserve Bank or
by authorised dealers under the powers delegated to them subject, inter
alia, to production of Income-tax clearance certificate/NOC from Income-tax
authorities. Under the revised procedure notified by the Government of
India, Ministry of Finance, Department of Revenue, Central Board of Direct
Taxes, New Delhi, vide their circular No. 759 dated 18th November 1997, it
will be in order for authorised dealers to allow such remittances without
insisting on tax clearance certificate/NOC from Income-tax authorities,
provided the person making the remittance furnishes an undertaking (in
duplicate) addressed to the Assessing Officer accompanied by a certificate
from an Accountant (other than an employee) as defined in the explanation
below Section 288 of the Income-tax Act, 1961 in the form prescribed by
Government. A copy of CBDT's circular dated 18th November 1997 and the
specimen forms of undertaking to be furnished by the remitter and that of
the certificate to be furnished by the Accountant are given in the Annexure
to this Chapter. Authorised dealers should, before allowing the remittance,
obtain the aforesaid undertaking/certificate from the remitter/Accountant
for compliance with the Income-tax provisions, where necessary.
- Authorised dealers should after making the remittance (irrespective of
whether the remittance has been made against Reserve Bank permit or under
the powers delegated to them) immediately forward a copy of the applicant's
undertaking together with a copy of the Accountant's certificate, to the
assessing officer of the Income-tax Department as indicated in the
undertaking. The other copy each of the undertaking and the certificate
should be kept on record for verification by the Internal Auditors of the authorised dealer/Inspecting Officers of Reserve Bank
A.D.(M.A. Series) Circular No.24
A.D.(M.A. Series) Circular No.48
PART C - RISK MANAGEMENT
Facilities for Residents
Forward Exchange Contracts:
3C.1
- Authorised dealers may enter into contracts for forward purchase and
sale of foreign currency with residents who have a crystallised exposure to
exchange risk in respect of genuine transactions permitted under Exchange
Control Regulations.
- The choice of the currency and tenor are left to the customer. Where
the exact amount is not ascertainable owing to the rates/costs being linked
to variable factors, contracts may be booked on the basis of a reasonable
estimate. However, the maturity of the cover should not exceed the maturity
of the underlying transaction.
- Foreign currency loans/bonds become eligible for cover only after
final approval is accorded by the Reserve Bank for the arrangement. In
respect of Global Depository Receipts (GDRs) the issue price should have
been finalised to be eligible for cover.
- Balances in the EEFC accounts may be allowed to be sold forward by the
account holders provided they remain earmarked for delivery. Such contracts
should not, however, be cancelled.
- While booking contracts, suitable documentary evidence should be
verified to ensure that an exposure exists, to the extent of the amount of
cover sought. Full particulars of contract should be marked on such
documents under proper authentication and copies thereof retained on record
for verification.
- Contracts involving rupee as one of the currencies, once cancelled
cannot be re-booked. They may, however, be rolled over at ongoing rates on
or before maturity.
- As an exception to (vi) above, contracts covering export transactions
may be cancelled, re-booked and rolled over at ongoing rates.
- Substitution of contracts covering trade transactions may be
permitted, if the authorised dealer is satisfied after verification of
suitable documentary evidence, with the circumstances under which such
substitution has become necessary.
Foreign Currency - Rupee Swaps:
3C.2 Authorised dealers may arrange foreign currency - rupee swaps between
corporates who run long-term foreign currency exposures. Entities who do not
have any forex exposure but are willing to assume a forex liability in lieu
of their long term rupee liability may also become counter parties in the
arrangement. As far as possible such transactions should be concluded on a
matched basis. However, where this is not feasible authorised dealers may
temporarily warehouse the swaps/absorb the mis-matches within their open
position and gap limits.
NOTE : Authorised dealers should not allow the swap route to become a
surrogate for forward contracts for those who do not qualify for forward
cover under paragraph 3C.1.
Hedging of Loan Exposures
3C.3
- Authorised dealers may offer the undernoted products to corporates
either on a back-to-back basis or by booking the transaction overseas with
the branch of an authorised dealer in India.
- Interest rate swaps
- Currency swaps
- Coupon swaps
- Interest rate caps/collars (purchase)
- Forward Rate Agreements
- Before entertaining any request for any of these facilities, the authorised dealer should ensure that
- the Reserve Bank has accorded final approval for the conclusion of the
underlying loan transaction;
- the notional principal amount of the hedge does not exceed the outstanding
amount of the foreign currency loan;
- the maturity of the hedge does not exceed the remaining life to maturity of
the underlying loan;
- the Board of Directors of the corporate has drawn up a risk management
policy, laid down clear guidelines for concluding transactions, and
institutionalised arrangements for a quarterly review of operations and
annual audit of transactions to verify compliance with the regulations.
- the hedge results in reduction of the risk of exposure and there is no net
inflow of premium, direct or implied in cases where option components are
built into the hedge strategy;
- Corporates may be permitted to unwind a hedge transaction.
- A report of the transaction (booked/cancelled), verified by the authorised dealer should be submitted to the concerned Regional Office of
the Reserve Bank, within a week of its conclusion.
- Authorised dealers should obtain from the concerned corporates copies of
the quarterly reviews and annual audit reports vide paragraph (ii) (d)
above.
- Payment of upfront premia, if any, as well as all other charges
incidental to the hedge transaction may be effected without the prior
approval of Reserve Bank.
Other Derivatives - Foreign Currency Options
3C.4
- Authorised dealers may offer cross currency options to residents to
cover their genuine exposures including contingent exposures like tender
bids. Cost effective risk reduction strategies like range forwards,
ratio-range forwards and such other variables may also be offered to
customers provided there is no net inflow of premium. These products may be
allowed to be freely booked and cancelled.
- The option should be written on a fully covered back-to-back basis. The
cover transaction may be undertaken with overseas banks/internationally recognised approved option exchanges/other authorised dealers in India.
Note: As an exception to this rule, options offered to clients to hedge loan
exposures may be directly booked overseas with the branch of an authorised
dealer in India.
- Option premium may be remitted without the prior approval of Reserve
Bank.
- Authorised dealers who propose to write options, should apply to the
Chief General Manager, Exchange Control Department, (Forex Markets
Division), Reserve Bank of India, Central Office, Mumbai for permission.
Hedging of Commodity Price Exposures
3C.5 Indian corporates seeking to hedge commodity price exposures (excluding
oil and petroleum products) should approach Reserve Bank through a bank. The
guidelines to be followed in this regard are given in Annexure II. The
proposal with the bank's recommendation should be forwarded to the Chief
General Manager, Exchange Control Department (Forex Markets Division),
Reserve Bank of India, Central Office, Mumbai 400001.
Facilities for Non-Residents
3C.6 Authorised dealers may offer forward cover to:
- Foreign Institutional Investors (Fund-wise or FII-wise) for their
investments in India as detailed below:
- Debt instruments
|
To the entire extent of the current market value. |
- Equity (Portfolio)
|
15% of the market value (reckoning pipeline transactions) as at the close of
business on 31st March 1999 converted at the rate of US$ 1 = Rs.42.43 and
the increase in market value/inflows subsequent to that date. Forward Cover
once taken may be allowed to continue so long as it does not exceed the
value of the underlying investment. |
Note: Applications for need-based additional limit may be made to the Chief
General Manager, Exchange Control Department (Forex Markets Division),
Reserve Bank of India, Central Office, Mumbai 400 001.
- Non-Resident Indians (NRIs) and Overseas Corporate Bodies (OCBs):
- Portfolio investments
|
On the same terms as applicable to equity investments of FIIs [cf. item
(A)(b) above and the Note thereunder]. |
- Balances held in FCNR/Non-Resident (External) Rupee accounts and the
interest payable thereon.
|
Entire amount |
- The cover may be provided only by the designated account-maintaining
banks.
- Eligibility for cover may be determined on the basis of the declaration
of the FII. A quarterly review may be undertaken on the basis of market
price movements, fresh inflows, amounts repatriated and other relevant
parameters to ensure that the forward cover outstanding is supported by
underlying exposure.
- The cost of roll-overs should be met out of repatriable funds/inward
remittance.
- All outward remittances incidental to the hedge may be allowed subject
to the payment of tax, if any.
- In these cases, the contracts once cancelled cannot be re-booked. They
may, however, be rolled over on or before the maturity.
- In respect of forward cover to FIIs, a monthly statement should be
furnished to the Chief General Manager, Reserve Bank of India, Exchange
Control Department (Forex Markets Division), Central Office, Mumbai 400001
before the 10th of the succeeding month indicating the name of the FII/Fund,
the eligibility, amount of cover and the actual amount of cover.
-
| To non-resident shareholders for the amount of dividend due to them on
shares held in Indian companies on repatriation basis |
For the actual amount of dividend due. |
3C.7 Reserve Bank will consider on case to case basis applications for
forward cover in respect of foreign direct investments made in India since
1st January 1993. Applications with full particulars may be submitted for
consideration to the Chief General Manager, Exchange Control Department (Forex
Markets Division), Reserve Bank of India, Central Office, Mumbai 400001.
Facilities for Authorised Dealers
3C.8 Management of Bank's Assets-Liabilities:
Authorised dealers may use the following instruments to hedge their
assets-liability portfolio after an appropriate policy in this regard is
approved by their Top Management -
- Interest rate swaps;
- Currency swaps; and
- Forward rate agreements.
The use of these instruments is subject to the following conditions:
- The value and maturity of the hedge do not exceed that of the underlying.
- No 'stand alone' transactions are initiated. If a hedge becomes naked in
part or full owing to shrinking of the portfolio, it may be allowed to
continue till maturity and marked to market at regular intervals.
- The net cash flows arising out of these transactions are booked as income
and expenditure. This will form part of the exchange position.
Hedging of Gold Prices
3C.9 Banks authorised to operate the Gold Deposit Scheme may use
Exchange-traded and over-the-counter hedging products available overseas to
manage price risk. However, while using products involving options, it may
be ensured that there is no net receipt of premium, either direct or
implied. Banks, which are allowed to enter into forward Gold contracts in
India in terms of the guidelines issued by the Department of Banking
Operations and Development, are also allowed to cover their price risk by
hedging abroad in the manner indicated above.
PART D - FOREIGN CURRENCY NOTES AND COINS
General
3D.1 Besides authorised dealers, certain established firms,
hotels and other organisations have been granted money-changer's licences by
Reserve Bank to deal in foreign currency notes, coins and travellers cheques,
subject to directions issued to them from time to time. Certain authorised
dealers have also been permitted to operate exchange bureaux at important
airports and seaports for the purpose of providing money changing facilities to
travellers. The Memoranda of Instructions FLM and RLM contain the directions
issued by Reserve Bank to 'full-fledged' and 'restricted' money changers
respectively. The regulations governing purchase and sale of foreign currency
notes, coins, etc. by authorised dealers and their exchange bureaux are laid
down in the succeeding paragraphs.
NOTES:
- By its Notification No. FERA.48/77-RB dated 24th November 1977, Reserve
Bank has permitted any person to receive foreign currency notes directly
from out of India, provided the foreign currency so received is offered for
sale to an authorised dealer within seven days of its receipt.
- By its Notification No. FERA.158/94-RB dated 24th February 1994, Reserve
Bank has permitted any person to receive payment in any foreign currency/ies
from any person resident outside India and who is on a visit to India for
services rendered or in settlement of any lawful obligation, provided that
any such foreign currency/ies in excess of U.S.$ 2000 (US Dollars Two
thousand) or its equivalent, taking into account existing foreign currency
holdings, if any, is sold to an authorised dealer within seven days from its
receipt.
- Reserve Bank has granted general permission vide its Notification No.
FERA.127/93-RB dated 22nd March 1993 to persons, who have entered into
agreements with (one or more) credit card servicing banks/organisations in
India, to receive payment in Indian rupees for goods and/or services sold in
India against charge slips raised in Indian rupees on internationally
recognised credit cards of persons resident outside India, provided that the
dues are realised in foreign exchange through an authorised dealer from the
overseas credit card issuing institutions. Charge slips raised on
'add-on'/'supplementary'/ 'sponsored' credit cards issued overseas in favour
of persons resident in or outside India are also covered by the above
Notification.
- In pursuance of Central Government Notification F.No.10/22/90-NRI Cell dated
17th July 1992, persons in or resident in India can hold foreign coins
without any limit. Residents are also permitted to hold foreign
currency/currencies upto a value equivalent of U.S.$ 2000 for personal
purpose inclusive of foreign currencies, if any, held for numismatic
purpose. The amount of foreign currencies held as stated above for personal
purpose can also be taken out of India. [cf. paragraph 6G.3(i)]
Purchases from Public
3D.2
Authorised dealers and their exchange bureaux may freely purchase foreign
currency
notes and coins from any person, whether a traveller or not, against payment
in rupees.
Reserve Bank has granted general permission to persons resident in India to
receive foreign currency notes, directly from out of India, or to receive
them from any person resident outside India while on a visit to India, for
services rendered or in settlement of any lawful obligation subject to the
condition that foreign currency notes so received are surrendered to an
authorised dealer within seven days of its receipt or acquisition as the
case may be. Authorised dealers should note that the person tendering the
notes being a resident need not necessarily possess a passport and hence its
production should not be insisted upon as a matter of course before
encashing foreign currency notes, etc.
Purchases against Currency Declaration Forms
3D.3
Where foreign exchange was brought into India by the tenderer against
declaration
on Currency Declaration Form (CDF), he should be asked to produce the form.
The
production of CDF need not be insisted upon if the tenderer is unable, for
any reason, to produce it. Where CDF is produced, particulars of purchases
made should be endorsed on the reverse of the form giving number and date of
the encashment certificate issued to the tenderer under the stamp and
signature of authorised dealer/exchange bureau. If the entire foreign
exchange covered by the CDF is encashed, CDF should not be returned to the
tenderer, but retained by the authorised dealer or exchange bureau. The
exchange bureaux should submit the fully used CDFs to Reserve Bank along
with the monthly statement of purchases and sales of foreign currency
notes/coins.
NOTE:
In cases where foreign exchange offered for sale by traveller had been
originally obtained from an authorised dealer/exchange bureau/authorised
money-changer in India, the repurchase thereof should on request be endorsed
on the traveller's passport in red ink.
Encashment Certificates
3D.4
Authorised dealers and their exchange bureaux should issue encashment
certificates
in form ECF in all cases of purchase from the public, irrespective of
whether CDF
has been submitted or not by the tenderer of foreign exchange and whether
the tenderer asks for the certificate or not. These certificates should be
issued on security paper if the foreign currency encashed exceeds
Rs.15,000/- in value and in other cases on letter-head of the authorised
dealer (with their 'Logo' printed on it). Certificates should be serially
numbered. Duplicate copies of all such certificates should be preserved in
book form for production to Reserve Bank as and when required.
NOTE:
The certificate should invariably be issued on the date of purchase of the
foreign currency and should be made valid for three months for the purpose
of reconversion of the unspent balance, if any, into foreign exchange (see
paragraph 3D.8). The validity period of the certificate for the purpose of
reconversion should be prominently indicated at the top right hand corner of
each certificate.
Purchase on Authorised Dealers' Own Responsibility
3D.5
All purchases of foreign currency notes made by authorised dealers and their
exchange
bureaux are at their own risk and responsibility. They must accordingly make
their own
arrangements for realising proceeds of surplus foreign currency notes
purchased by them by sale to other authorised dealers, authorised
money-changers or through their overseas branches and correspondents. Many
countries operate restrictions on the import of their own (as well as
foreign) currency notes, whether by travellers or on account of persons or
banks resident abroad, and authorised dealers should arrange to keep
themselves fully informed through their overseas branches or correspondents
of these restrictions as also events like demonetisation, currency reform
etc. taking place in foreign countries.
Import of Foreign Currency
Notes
3D.6
When the stock of foreign currency notes with authorised dealers is not
adequate for
meeting their normal business requirements, they could import foreign
currency notes
from their overseas branches or correspondents.
Sales to Public under General Authority
3D.7 Branches/offices of authorised dealers (including their exchange
bureaux at airports and seaports) may sell foreign currency notes and coins
upto U.S.$ 50 or its equivalent per person to outgoing travellers, other
than (i) transit passengers who are holding foreign passports, (ii)
passengers holding foreign passports and travelling on open-dated return
tickets issued outside India and (iii) travellers proceeding to Bhutan and
Nepal, after verifying from the travellers’ passage tickets that they are
about to leave India and have not availed of U.S.$ 50 from city/town office
of an authorised dealer. Authorised dealers’ branches/offices in the
city/town area should sell foreign currency notes/coins not earlier than 30
days from the date of departure on production of a confirmed journey ticket.
All such sales should be endorsed on the travellers’ passports.
NOTE: The facility in this paragraph may also be extended to eligible
travellers who are proceeding out of India by land route, at the branches of
authorised dealers, if any, operating at the Land Customs Stations on the
concerned routes.
Reconversion of Indian Currency
3D.8
Authorised dealers and their exchange bureaux may sell foreign currency
against
Indian rupees held by persons who are not residents of India but are passing
through
or leaving India after a visit, at the time of their departure from India,
provided a bank/encashment certificate issued on the prescribed form by an
authorised dealer, exchange bureau or authorised money-changer (in form BCI,
ECF or ECR, as the case may be) is produced to show that the rupee had been
acquired by sale of foreign exchange to an authorised dealer or
money-changer in India and the certificate is valid for such reconversion
i.e. a period of three months is not over from the date of sale of the
foreign currency by the traveller. Where encashment certificates issued by
restricted money-changers in form ECR are produced, care must be taken to
see that the sale of foreign currency is restricted to the amount indicated
at item C of the certificate. All such sales should be endorsed on the
appropriate page of the traveller's passport under the stamp and signature
of authorised dealer/exchange bureau. Certificates tendered by the
travellers should be retained by authorised dealer/exchange bureaux for
record and production to Reserve Bank during inspection.
NOTE:
Exchange bureaux of authorised dealers operating at airports/seaports may
convert, at their discretion, unspent Indian currency in the possession of
persons who are not residents of India, but are passing through or leaving
India after a visit, if for bona fide reasons, the person is unable to
produce encashment certificate, provided the amount to be reconverted does
not exceed Rs.10,000/-.
Sales to Foreign Tourists
3D.9
Sale of foreign currency notes to tourists at offices of authorised dealers
other than
their exchange bureaux operating at airports and seaports, may be made up to
a limit of
U.S.$ 500 or its equivalent, if required by them. Exchange bureaux
functioning at airports and seaports may, however, sell foreign currency
notes and coins without limit to foreign tourists and transit passengers
against encashment of foreign currency travellers cheques, drafts, etc. or
in reconversion of Indian currency at the time of their departure from
India.(See paragraph 3D.8).
Providing foreign currency travellers cheques and notes to the
Master/Captain of foreign vessels against inward remittance
3D.9A The authorised dealer through whom remittance in the name of the
Master/Captain of a foreign vessel calling at an Indian port has been
received may, on proper identification with reference to passport of the
Master/Captain in whose name the remittance has been received, provide
foreign currency travellers cheques in the name of the Master/Captain of the
ship and/or foreign currency notes for meeting the local expenses and/or
making payment to members of the crew on board. Foreign currency travellers
cheques/notes should, however, not be made available to the Master/Captain
of foreign ship where the remittance has been received in favour of the
local agent of the shipping company.
Cash Memo
3D.10
Authorised dealers and their exchange bureaux should issue to all travellers
to whom
foreign currency is sold by them a cash memo in form CM, irrespective
whether it is
demanded by the traveller or not. Cash Memos should be issued only on the
official printed letter-head of the authorised dealer. The cash memos may be
required for production to Customs Authorities while taking the foreign
currency out of India.
Sales to other Authorised Dealers, Exchange Bureaux and Money-changers
3D.11
Authorised dealers and exchange bureaux may freely dispose of their surplus
foreign currency
notes and coins by sale to other authorised dealers, exchange bureaux and
full-fledged
money changers. The rupee funds against sale of foreign currency notes and
coins to a full-fledged money changer should, however, be received by way of
a crossed cheque drawn on the latter's bank account irrespective of the
amount involved. Payment in the form of Banker's Cheque/Payment Order and/or
Demand Draft may be accepted provided it is accompanied by a certificate
from the bank issuing the relative instrument certifying that the funds for
the instruments have been received by debit to the applicant's bank account.
In no circumstances should payment in respect of such sale be accepted in
cash.
Rates of Exchange
3D.12
Authorised dealers and their exchange bureaux may buy from and sell to
public
foreign currency notes and coins at rates of exchange determined by market
conditions. Dealings in foreign currency notes and coins between authorised
dealers and between authorised dealers and money-changers would also be at
rates determined by market conditions.
Display of Exchange Rate Chart
3D.13
Exchange bureaux operated by authorised dealers should display, at a
prominent place
at or near the public counter, a chart indicating the rates for purchase of
foreign
currency notes and travellers cheques and for sale of foreign currency
notes.
Regulation of Authorised Dealers' Sales to Travellers
3D.14
Having regard to restrictions imposed by certain foreign countries on the
amount of
local currency which travellers may bring into the country, authorised
dealers and
their exchange bureaux should regulate their sales of foreign currency to
travellers in such a manner that the travellers may not be put to any loss
or inconvenience on arrival in a foreign country.
Export of Surplus Foreign Currency Notes and Coins
3D.15
Authorised dealers may freely despatch their surplus stocks of foreign
currency notes
and coins to their overseas branches or correspondents for realisation and
credit of
proceeds to their foreign currency accounts. Authorised dealers may also
export surplus foreign currency notes/coins tendered to them by the
full-fledged money changers. They may also export such surplus to private
money changer abroad subject to the condition that either the realisable
value is credited in advance to their nostro accounts or a bank guarantee
issued by an international bank of repute covering the full amount of the
foreign currency notes/coins to be exported has been received. Authorised
dealers should ensure that at any given point of time, the amount of foreign
currency notes/ coins that will be exported does not exceed the amount of
bank guarantee or the amount of remittance received in advance from the
private money changer abroad.
Records to be maintained by Exchange Bureaux
3D.16
Exchange bureaux of authorised dealers should maintain proper books and
accounts
to record all purchase and sale transactions in foreign currency notes and
coins on the
lines of provisions in paragraph 21 of Memorandum FLM. A record of sales of
notes and coins to other exchange bureaux and authorised money-changers
should also be separately maintained for production to Reserve Bank when
called for.
Reporting of Transactions by Exchange Bureaux
3D.17
- Purchases and sales made by exchange bureaux of authorised dealers shouldbe incorporated in the R Returns submitted by their link offices.