Thursday, 12 November 2015

RBI PERMITS AD CATEGORY - I BANKS TO OFFER THE FACILITY TO REMIT IMPORT RELATED PAYMENTS

Introduction

The Reserve Bank of India (“RBI”) had vide its Circular No 109 dated June 11, 2013 (“Export Circular”), permitted the AD Category - I banks (“AD Banks”) to offer the facility to repatriate export related remittances by entering into standing arrangements with Online Payment Gateway Service Providers (“Service Provider”) for export of goods and services subject to the conditions stipulated contained in the Export Circular.  Although the Export Circular provided specific sanction to export related remittances, the e-commerce companies were not permitted from remitting sales proceeds directly to the bank account of the overseas vendors for import of goods.  With a view to facilitate e-commerce, the RBI has vide its Circular No 16 dated September 24, 2015 (“Revised Circular”), permitted AD Banks to enter into arrangements with the Service Providers to offer similar facility of payment for import transactions also in addition to the export transactions.

Operationalization 

The Revised Circular requires the AD Banks to report the details of the arrangements entered into with the Service Providers to the RBI. The Revised Circular lays down certain steps to be taken by the AD Banks for operationalizing such arrangements, which include (a) due diligence on the Service Provider; (b) maintenance of separate export and import collection accounts in India for each Service Provider; and (c) conducting reconciliation and audit of the collection accounts on a quarterly basis.

 In the event a foreign entity wishes to operate as a Service Provider, it will be required to, with the prior approval of the RBI, open a liaison office in India, before operationalizing arrangements with the AD Banks. The foreign entity will have to, inter alia, (a) ensure compliance with the Information Technology Act, 2000; (b) put in place a mechanism for resolution of disputes and redressal of complaints; and (c) create a reserve fund appropriate to its return and refund policy.

Indian entities which are functioning as intermediaries for electronic payment transactions and are desirous of undertaking cross border transactions will be required to maintain separate accounts for domestic and cross border transactions. 

Import Transactions

In terms of the Revised Circular, the facility is available for import of goods and software (as permitted in the prevalent Foreign Trade Policy) of value not exceeding USD 2,000. Further, immediately on receipt of funds from the importer and, in no case, later than two days from the date of credit to the collection account, the balances held in the import collection account is to be remitted to the respective overseas exporter's account.

While the permitted debits in the Service Provider’s import collection account include (a) payment to overseas exporters in permitted foreign currency; (b) payment to Indian importers for returns and refunds; (c) payment of commission at rates/frequencies as defined under the contract to the current account of the OPGSP; and (d) bank charges, the permitted credits in such account include (a) collection from Indian importers for online purchases from overseas exporters electronically through credit card, debit card and net banking; and (b) charge back from the overseas exporters.

Export Transactions

In terms of the Revised Circular the facility is available for exports of goods and services (as permitted in the prevalent Foreign Trade Policy) of value not exceeding USD 10,000. Further, the AD Banks providing such facilities are required to open a NOSTRO collection account for receipt of the export related payments facilitated through such arrangements. If the exporter availing of this facility is required to open notional accounts with the Service Provider, it has to be ensured that no funds are allowed to be retained in such accounts and all receipts should be automatically swept and pooled into the NOSTRO collection account opened by the AD Bank. Immediately on receipt of the confirmation from the importer and, in no case, later than seven days from the date of credit to the NOSTRO collection account the balances held in the NOSTRO collection account is required to be repatriated to the export collection account in India and then credited to the respective exporter's account with a bank in India.

While the permitted debits to the Service Provider’s export collection account maintained in India include (a) payment to the respective Indian exporters’ accounts; (b) payment of commission at rates/frequencies as defined under the contract to the current account of the Service Provider; and (c) charge back to the overseas importer where the Indian exporter has failed in discharging his obligations under the sale contract, the permitted credit in such account includes repatriation from the NOSTRO collection accounts electronically only.

Impact of the Revised Circular


With the advent of online marketplaces, the Revised Circular is definitely a step forward by the RBI. The online marketplaces which have products from the overseas vendors listed, can now appoint Service Provider to make payments to such vendors. The Indian e-commerce companies have the comfort that they can remit the money to the overseas vendor, through a Service Provider, without requiring any approval from RBI, the overseas vendors are now assured that the money will be remitted to their accounts hassle free.

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