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Date : 31 May 2005
Foreign Exchange Transactions with Public

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.7

Forward Cover for Foreign Direct Investments

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

(i) 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.

(ii)

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.

(iii)

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

(i)

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.

(ii)

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.

(iii)

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.

(iv)

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

(a)

the permit has been issued on security paper;

(b)

all alterations/corrections thereon, if any, have been duly authenticated;

(c)

the permit bears two full signatures on behalf of the issuing office

of Exchange Control Department of Reserve Bank;

and

(d)

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

(i)

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.

(ii)

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.

(iii)

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:

(i) This provision will also apply in the case of payments made in rupees by credit to accounts of non-resident banks or through ACU.

(ii) 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 (i) 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.

(ii) 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 (i) 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.

(ii) 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.

(iii) 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.

(iv) 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.

(v) 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.

(vi) 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.

(vii) As an exception to (vi) above, contracts covering export transactions may be cancelled, re-booked and rolled over at ongoing rates.

(viii) 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 (i) 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.

    1. Interest rate swaps
    2. Currency swaps
    3. Coupon swaps
    4. Interest rate caps/collars (purchase)
    5. Forward Rate Agreements

(ii) Before entertaining any request for any of these facilities, the authorised dealer should ensure that

  1. the Reserve Bank has accorded final approval for the conclusion of the underlying loan transaction;
  2. the notional principal amount of the hedge does not exceed the outstanding amount of the foreign currency loan;
  3. the maturity of the hedge does not exceed the remaining life to maturity of the underlying loan;
  4. 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.
  5. 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;

(iii) Corporates may be permitted to unwind a hedge transaction.

(iv) 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.

(v) Authorised dealers should obtain from the concerned corporates copies of the quarterly reviews and annual audit reports vide paragraph (ii) (d) above.

(vi) 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 (i) 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.

(ii) 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.

(iii) Option premium may be remitted without the prior approval of Reserve Bank.

(iv) 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:

(A) Foreign Institutional Investors (Fund-wise or FII-wise) for their investments in India as detailed below:

(a) Debt instruments

To the entire extent of the current market value.

(b) 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.

(B) Non-Resident Indians (NRIs) and Overseas Corporate Bodies (OCBs):

(a) Portfolio investments

On the same terms as applicable to equity investments of FIIs [cf. item (A)(b) above and the Note thereunder].

(b) Balances held in FCNR/Non-Resident (External) Rupee accounts and the interest payable thereon.

Entire amount

(i) The cover may be provided only by the designated account-maintaining banks.

(ii) 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.

(iii) The cost of roll-overs should be met out of repatriable funds/inward remittance.

(iv) All outward remittances incidental to the hedge may be allowed subject to the payment of tax, if any.

(v) In these cases, the contracts once cancelled cannot be re-booked. They may, however, be rolled over on or before the maturity.

(vi) 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.

(C)

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 -

    1. Interest rate swaps;
    2. Currency swaps; and
    3. Forward rate agreements.

The use of these instruments is subject to the following conditions:

    1. The value and maturity of the hedge do not exceed that of the underlying.
    2. 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.
    3. 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:

A.

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.

B.

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.

C.

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.

D.

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

(i)

Purchases and sales made by exchange bureaux of authorised dealers should

be incorporated in the R Returns submitted by their link offices.

 
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