FCR (forwarder's cargo receipt)

 Differences between FCR and carrier B/L

1. The B/L is issued by the ocean carrier. The FCR is issued by a freight
forwarder, acting as agent on behalf of a consignee. 

2. The B/L is a document of title and can be endorsed. The FCR is not. The FCR cannot be consigned “to order”.

 3.The B/L is evidence of contract of carriage with the carrier. The FCR is not.

 4. A duly endorsed B/L must be presented to the carrier at destination to obtain
release of the goods. The FCR does not have this function. 

5. Under a FCR, logistic's company is only responsible for the goods while they are in their custody. If goods are lost or damaged during transit, the client must file claim against the ocean carrier under the B/L (or SWB).

FCR – Differences between FCR and carrier SWB 

1. The SWB is issued by the ocean carrier. The FCR is issued by a freight forwarder, acting as agent on behalf of a consignee. 

2. The SWB is evidence of contract of carriage with the carrier. The FCR is not. 

3. The carrier will release the goods at destination to a person who can identify himself as a representative of the consignee stated in the SWB. The FCR does not have this function. The FCR is only used at origin and is not a release document. 

 4.Under a FCR, Logistics company is only responsible for the goods while they are in their custody. If goods are lost or damaged during transit, the client must file claim against the ocean carrier under the B/L (or SWB).  

"Forwarder's Certificate of Receipt".

FCR is a standard form of document which was prepared by FIATA (International Federation of Freight Forwarders Associations) for general use in international shipments. FCR is available to FIATA members only. 

A freight forwarder by preparing a FCR certificate confirms to the consignor of the document that as a freight forwarder he has taken over the consignment and has assumed responsibility of the goods from thereon. 

FCR is not a contract of carriage as a result it is not a transport document unlike bill of lading, multimodal bill of lading, air waybill, road transport document or rail transport 

Why exporters and importers are using a FCR certificate?

FCR certificate mainly used in international transactions where  Ex Works (EXW) trade term is selected by the parties. 

According to ICC’s Incoterms 2010 rules “Ex Works” means that the seller delivers when it places the goods at the disposal of the buyer at the seller’s premises or at another named place (i.e., works, factory, warehouse, etc.). The seller does not need to load the goods on any collecting vehicle, nor does it need to clear the goods for export, where such clearance is applicable. 

Seller can prove to the buyer that he has already places the goods at the disposal of the buyer’s forwarder with the presentation of Forwarder's Certificate of Receipt. Also if the payment will be made via a letter of credit, banks would like to see the FCR document.

What are the main characteristics of a FCR certificate?

FCR document does not contain a contract of carriage. For this reason it is not accepted as a transport document.

By signing a FCR document a freight forwarder certifies to the consignor that,

a- they have assumed control of the goods as indicated on the forwarder’s certificate of receipt in apparent good order and condition at the disposal of the consignee or

b- they have assumed control of the goods as indicated on the forwarder’s certificate of receipt in apparent good order and condition with irrevocable instructions to be forwarded to the consignee. 

FCR document is not negotiable. It is non-negotiable so that consignee need not to present an original copy to collect the goods from the transport company.

Non-resident guarantee for domestic fund based and non-fund based facilities

Non-resident guarantee for domestic fund based and non-fund based facilities: 

Borrowing and lending in Indian Rupees between two residents does not attract any provisions of the Foreign Exchange Management Act, 1999. In cases where a Rupee facility which is either fund based or non-fund based (such as letter of credit / guarantee / letter of undertaking / letter of comfort) or is in the form of derivative contract by residents that are subsidiaries of multinational companies, is guaranteed by a non-resident (non resident group entity in case of derivative contracts), there is no transaction involving foreign exchange until the guarantee is invoked and the non-resident guarantor is required to meet the liability under the guarantee. The arrangements shall be with the following terms:

The non-resident guarantor may discharge the liability by 

i) payment out of rupee balances held in India or 

ii) by remitting the funds to India or 

iii) by debit to his FCNR(B)/NRE account maintained with an AD bank in India.

In such cases, the non-resident guarantor may enforce his claim against the resident borrower to recover the amount and on recovery he may seek repatriation of the amount if the liability is discharged either by inward remittance or by debit to FCNR(B)/NRE account. However, in case the liability is discharged by payment out of Rupee balances, the amount recovered can be credited to the NRO account of the non-resident guarantor.

General Permission is available to a resident, being a principal debtor to make payment to a person resident outside India, who has met the liability under a guarantee.

In cases where the liability is met by the non-resident out of funds remitted to India or by debit to his FCNR(B)/ NRE account, the repayment may be made by credit to the FCNR(B)/ NRE/ NRO account of the guarantor provided, the amount remitted/credited shall not exceed the rupee equivalent of the amount paid by the non-resident guarantor against the invoked guarantee.

AD Category I banks are required to furnish at quarterly interval details of guarantees availed of/ invoked, by all its branches, in a format specified by RBI, so as to reach the Department not later than 10th day of the month following quarter to which the data pertain to.

Raising of loans as Trade Credit

 Raising of loans as Trade Credit

1.Trade Credit: Trade Credits refer to the credits extended by the overseas supplier, bank and financial institution for maturity up to five years for imports into India. Depending on the source of finance, such trade credits include suppliers’ credit or buyers’ credit. Suppliers’ credit relates to the credit for imports into India extended by the overseas supplier, while buyers’ credit refers to loans for payment of imports into India arranged by the importer from overseas bank or financial institution. Imports should be as permissible under the extant Foreign Trade Policy of the Director General of Foreign Trade (DGFT).

2 Routes and Amount of Trade Credit: The available routes of raising Trade Credit are mentioned below:

2.1 Automatic Route: ADs are permitted to approve trade credit for import of non-capital and capital goods up to USD 20 million or equivalent per import transaction.

2.2 Approval Route: The proposals involving trade credit for import of non-capital and capital goods beyond USD 20 million or equivalent per import transaction are considered by the RBI.

3 Maturity prescription: Maturity prescriptions for trade credit are same under the automatic and approval routes. While for the non-capital goods, the maturity period is up to one year from the date of shipment or the operating cycle whichever is less, for capital goods, the maturity period is up to five year from the date of shipment. For trade credit up to five years, the ab-initio contract period should be 6 (six) months. No roll-over/extension will be permitted beyond the permissible period.

4 Cost of raising Trade Credit: The all-in-cost ceiling for raising Trade Credit is 350 basis points over 6 months LIBOR (for the respective currency of credit or applicable benchmark). The all-in-cost include arranger fee, upfront fee, management fee, handling/ processing charges, out of pocket and legal expenses, if any.

5 Guarantee for Trade Credit: AD Category I banks are permitted to issue guarantee/ Letters of Undertaking /Letters of Comfort in favour of overseas supplier, bank or financial institution up to USD 20 million per import transaction for a maximum period up to one year in case of import of non-capital goods (except gold, palladium, platinum, rhodium, silver, etc). For import of capital goods, the period of guarantee/ Letters of Credit/ Letters of Undertaking by AD can be for a maximum period up to three years. The period is reckoned from the date of shipment and the guarantee period should be co-terminus with the period of credit. Further, issuance of guarantees will be subject to prudential guidelines issued by the RBI from time to time.

Acceptance of cheques bearing a date as per National Calendar (Saka Samvat) for payment

Acceptance of cheques bearing a date as per National Calendar (Saka Samvat) for payment

As you are aware that Government of India has accepted Saka Samvat as National Calendar with effect from March 22, 1957 and all Government statutory orders, notifications, Acts of Parliament, etc. bear both the dates i.e., Saka Samvat as well as Gregorian Calendar. Therefore, a cheque written in Hindi and bearing a date in Hindi is a valid instrument.

You are further advised to ascertain the Gregorian calendar date corresponding to the National Saka calendar in order to avoid payment of stale cheques.

FREQUENTLY ASKED QUESTIONS ON AVAILING FOREIGN EXCHANGE FACILITY....Cont......

Q 1. How much Indian currency can be brought in while coming into India?

Ans. A resident of India, who has gone out of India on a temporary visit may bring into India at the time of his return from any place outside India (other than Nepal and Bhutan), currency notes of Government of India and Reserve Bank of India notes up to an amount not exceeding Rs.25,000. A person may bring into India from Nepal or Bhutan, currency notes of Government of India and Reserve Bank of India notes, in denomination not exceeding Rs.100. Any person resident outside India, not being a citizen of Pakistan and Bangladesh and also not a traveller coming from and going to Pakistan and Bangladesh, and visiting India may bring into India currency notes of Government of India and Reserve Bank of India notes up to an amount not exceeding Rs. 25,000 while entering only through an airport.

Any person resident in India who had gone to Pakistan and/or Bangladesh on a temporary visit, may bring into India at the time of his return, currency notes of Government of India and Reserve Bank of India notes up to an amount not exceeding Rs. 10,000 per person.

Q. 2. How much foreign exchange can be brought in while visiting India?

Ans. A person coming into India from abroad can bring with him foreign exchange without any limit. However, if the aggregate value of the foreign exchange in the form of currency notes, bank notes or travellers cheques brought in exceeds USD 10,000 or its equivalent and/or the value of foreign currency alone exceeds USD 5,000 or its equivalent, it should be declared to the Customs Authorities at the Airport in the Currency Declaration Form (CDF), on arrival in India.

Q.3. How many days in advance one can buy foreign exchange for travel abroad?

Ans. Permissible foreign exchange can be drawn 60 days in advance. In case it is not possible to use the foreign exchange within the period of 60 days, it should be immediately surrendered to an authorised person. However, residents are free to retain foreign exchange up to USD 2,000, in the form of foreign currency notes or TCs for future use or credit to their Resident Foreign Currency (Domestic) [RFC (Domestic)] Accounts.

Q.4. Can one pay by cash full rupee equivalent of foreign exchange being purchased for travel abroad?

Ans. Foreign exchange for travel abroad can be purchased from an authorized person against rupee payment in cash below Rs.50,000/-. However, if the sale of foreign exchange is for the amount equivalent to Rs 50,000/- and above, the entire payment should be made by way of a crossed cheque/ banker’s cheque/ pay order/ demand draft/ debit card / credit card / prepaid card only.

Q.5. Is there any time-frame for a traveller who has returned to India to surrender foreign exchange?

Ans. On return from a foreign trip, travellers are required to surrender unspent foreign exchange held in the form of currency notes and travellers cheques within 180 days of return. However, they are free to retain foreign exchange up to USD 2,000, in the form of foreign currency notes or TCs for future use or credit to their Resident Foreign Currency (Domestic) [RFC (Domestic)] Accounts.

Q.6. Should foreign coins be surrendered to an Authorised Dealer on return from abroad?

Ans. The residents can hold foreign coins without any limit.

FREQUENTLY ASKED QUESTIONS ON AVAILING FOREIGN EXCHANGE FACILITY

FREQUENTLY ASKED QUESTIONS ON AVAILING FOREIGN EXCHANGE FACILITY

Q1. . What are the purposes under FEM (CAT) Amendment Rules, 2015, under which a resident individual can avail of foreign exchange facility?

Ans. Individuals can avail of foreign exchange facility for the following purposes within the limit of USD 2,50,000 only on financial year basis.

i.        Private visits to any country (except Nepal and Bhutan)

ii.        Gift or donation.

iii.        Going abroad for employment

iv.        Emigration

v.        Maintenance of close relatives abroad

vi.        Travel for business, or attending a conference or specialised training or for meeting expenses for meeting medical expenses, or check-up abroad, or for accompanying as attendant to a patient going abroad for medical treatment/ check-up.

vii.        Expenses in connection with medical treatment abroad

viii.        Studies abroad

ix.        Any other current account transaction

Any additional remittance in excess of the said limit for the above mentioned purposes shall require prior approval of the Reserve Bank of India.

“Any other current account transaction” as given at (ix) above is to cover any other current account transactions which were available to individuals in the erstwhile Schedule III to FEM (CAT) Rules, 2000 dated May 3, 2000, and which do not appear above/ in Schedule III to FEM (CAT) Amendment Rules, 2015.

However, for purposes such as emigration; expenses in connection with medical treatment abroad and studies abroad, individuals may be permitted to avail of exchange facility for an amount in excess of the overall limit prescribed under the LRS, if it is so required by a country of emigration, medical institute offering treatment or the university respectively. (To be read along with Q 5, Q8 and Q9).

The AD bank may undertake the remittance transaction without RBI’s permission for all residual current account transactions which are not prohibited/ restricted transactions under Schedule I, II or III of FEM (CAT) Rules, 2000, as amended from time to time. It is for the AD bank to satisfy themselves about the genuineness of the transaction, as hitherto.

The resident individual needs to fill up the Form A2 as well as the ‘Application cum declaration for purchase of foreign exchange under LRS of USD 250,000’.

Q.2. How much foreign exchange can one buy when traveling abroad on private visits to a country outside India?

Ans. For private visits abroad, other than to Nepal and Bhutan, any resident can obtain foreign exchange up to an aggregate amount of USD 2,50,000, from an Authorised Dealer or FFMC, in any one financial year, irrespective of the number of visits undertaken during the year. This limit has been subsumed under the Liberalised Remittance Scheme w.e.f. May 26, 2015. If an individual has already remitted any amount under the Liberalised Remittance Scheme in a financial year, then the applicable limit for travelling purpose for such individual would be reduced from USD 250,000 by the amount so remitted.

The resident individuals shall have to fill Form A2 and ‘Application cum declaration for purchase of foreign exchange under LRS of USD 250,000’ while availing foreign exchange for travelling purposes from AD banks and FFMCs.

No foreign exchange is available for visit to Nepal and/or Bhutan for any purpose. A resident Indian is allowed to take INR of denomination of Rs.100 or lesser denomination, to Nepal and Bhutan, without any limits. For denominations of Rs 500 and Rs1,000, the limit is Rs 25,000.

Further, all tour related expenses including cost of rail/road/water transportation charges outside India and remittances relating towards cost of Euro Rail; passes/tickets, etc. for Indian travellers, and overseas hotel/flight charges have been subsumed under the new enhanced limit of USD 250,000. The tour operator can collect this amount either in INR or in FCY.

Q. 3. How much foreign exchange can a resident send as gift / donation to a person resident outside India?

Ans. Any resident individual/ entity (trust; company; partnership firm, etc.), may remit up-to USD 2,50,000 in one financial year as gift to a person residing outside India or as donation to an organization outside India. Remittances exceeding the limit of USD 2,50,000 will require prior permission from the Reserve Bank. It is clarified that a resident cannot gift to another resident, in foreign currency, for the credit of the latter’s foreign currency account held abroad under LRS.

Further, general permission is available to persons other than individuals’ to remit towards donations up-to one per cent of their foreign exchange earnings during the previous three financial years or USD 5,000,000, whichever is less, for (a) creation of Chairs in reputed educational institutes, (b) contribution to funds (not being an investment fund) promoted by educational institutes; and (c) contribution to a technical institution or body or association in the field of activity of the donor Company. Any additional remittance in excess of the same shall require prior approval of the Reserve Bank of India.

Q.4 . How much foreign exchange is available to a person going abroad on employment?

Ans. A person going abroad for employment can draw foreign exchange up to USD 2,50,000 per financial year from any Authorised Dealer in India on the basis of self-declaration in Form A2 and ‘Application cum declaration for purchase of foreign exchange under LRS of USD 250,000’. This limit has been subsumed under the Liberalised Remittance Scheme w.e.f. May 26, 2015. If an individual remits any amount under the Liberalised Remittance Scheme in a financial year, then the applicable limit for such individual would be reduced from USD 250,000 by the amount so remitted.

Q. 5. How much foreign exchange is available to a person going abroad on emigration?

Ans. A person going abroad on emigration can draw foreign exchange from AD Category I bank and AD Category II up to the amount prescribed by the country of emigration or USD 250,000. This amount is only to meet the incidental expenses in the country of emigration. Further, this remittance is not for undertaking any capital account transactions such as overseas investment in government bonds; land; commercial enterprise; etc. No amount of foreign exchange can be remitted outside India to become eligible or for earning points or credits for immigration.

Q. 6. How much foreign exchange can a person resident in India remit towards maintenance of close relatives abroad?

Ans. A person resident in India can remit up-to USD 250,000 per financial year towards maintenance of close relative (‘relative’ as defined in section 6 of the Companies Act, 1956) abroad. . This limit has been subsumed under the Liberalised Remittance Scheme w.e.f. May 26, 2015. If an individual remits any amount under the Liberalised Remittance Scheme in a financial year, then the applicable limit for such individual would be reduced from USD 250,000 by the amount so remitted.

Q. 7. How much foreign exchange is available for a business trip?

Ans. For business trips to foreign countries, resident individuals/ individuals having proprietorship firms can avail of foreign exchange up to USD 2,50,000 in a financial year irrespective of the number of visits undertaken during the year. This limit has been subsumed under the Liberalised Remittance Scheme w.e.f. May 26, 2015.

Visits in connection with attending of an international conference, seminar, specialised training, apprentice training, etc., are treated as business visits. Release of foreign exchange exceeding USD 2,50,000 for business travel abroad, irrespective of the period of stay, by residents require prior permission from the Reserve Bank.

However, if an employee is being deputed by a company and the expenses are borne by the company, then such expenses shall be treated as residual current account transactions and may be permitted by the AD bank, without any limit, subject to verifying the bonafides of the transaction.

Q.8 . How much foreign exchange can be drawn for medical treatment abroad?

Ans. AD Category I banks and AD Category II, may release foreign exchange up to USD 2,50,000 or its equivalent to resident Indians for medical treatment abroad on self-declaration basis in Form A2 and ‘Application cum declaration for purchase of foreign exchange under LRS of USD 250,000’, without insisting on any estimate from a hospital/doctor in India/abroad. However, a person visiting abroad for medical treatment can obtain foreign exchange from AD banks exceeding the above limit, provided the request is supported by an estimate from a hospital/doctor in India/abroad.

In addition to the above, an amount up to USD 250,000 per FY is allowed to a person for accompanying as attendant to a patient going abroad for medical treatment/check-up.

Q. 9. What is meant by ‘any other current account transaction” as given at item no. (ix) of para 1 of Schedule III to FEM (CAT) Amendment Rules, 2015?

Ans. “Any other current account transaction” as given at item no. (ix) of Rules ibid is to cover any other current account transactions which were available to individuals in the erstwhile Schedule III to FEM (CAT) Rules, 2000 dated May 3, 2000, and which do not appear in Para 1 to Schedule III to FEM (CAT) Amendment Rules, 2015.

Q.10. Resident individuals (but not permanently resident in India) can remit up to net salary after deduction of taxes. However, if he has exhausted the limit of USD 2,50,000 as net salary remittance and desires to remit any other income under LRS is it permissible as the limit will be over and above USD 2,50,000?

Ans. A person who is resident but not permanently resident in India and

(a) is a citizen of a foreign State other than Pakistan; or

(b) is a citizen of India, who is on deputation to the office or branch of a foreign company or subsidiary or joint venture in India of such foreign company,

may make remittance up to his net salary (after deduction of taxes, contribution to provident fund and other deductions).

Explanation: For the purpose of this item, a person resident in India on account of his employment or deputation of a specified duration (irrespective of length thereof) or for a specific job or assignments, the duration of which does not exceed three years, is a resident but not permanently resident. It is clarified that salary includes earnings from stage shows and other earnings from modelling assignments and acting assignments etc.

Further, resident individuals (but not permanently resident in India) who have remitted their entire earnings and salary and wish to further remit ‘other income’ may approach RBI through their AD bank for consideration with documents.

Q.11 . Whether the limit of USD 2,50,000 per financial year as mentioned in Para 1 of Schedule III of FEM (CAT) Amendment Rules, 2015 is also applicable to person other than individuals?

Ans. Yes, the limit of USD 2, 50,000 is applicable to persons other than individuals (such as corporates, trusts; etc.) who wish to avail of facilities under Para 1 of Schedule III to FEM (CAT) Amendment Rules, 2015. Such entities will have to fill up the Form A2 while remitting foreign exchange.

However, all residual current account transactions undertaken by such entities are otherwise permissible without any specified limit as hitherto. All such residual current account transactions, irrespective of the amount, are to be disposed off at the level of AD Category I bank, as hitherto. It is for the AD Category I bank to satisfy themselves about the genuineness of the transaction.

Q.12 . How much foreign currency can be carried in cash for travel abroad?

Ans. Travellers going to all countries other than (a) and (b) below are allowed to purchase foreign currency notes / coins only up to USD 3000 per visit. Balance amount can be carried in the form of travellers cheque or banker’s draft. Exceptions to this are (a) travellers proceeding to Iraq and Libya who can draw foreign exchange in the form of foreign currency notes and coins not exceeding USD 5000 or its equivalent per visit; (b) travellers proceeding to the Islamic Republic of Iran, Russian Federation and other Republics of Commonwealth of Independent States who can draw entire foreign exchange (up-to USD 250, 000) in the form of foreign currency notes or coins.

For travellers proceeding for Haj/ Umrah pilgrimage, full amount of BTQ entitlement (USD 250, 000) in cash or up to the cash limit as specified by the Haj Committee of India, may be released by the ADs and FFMCs.

Overseas Citizenship of India Scheme -OCI

Overseas Citizenship of India Scheme:

In response to persistent demands for "dual citizenship" particularly from the Diaspora in North America and other developed countries and keeping in view the Government's deep commitment towards fulfilling the aspirations and expectations of Overseas Indians, the Overseas Citizenship of India (OCI) Scheme was introduced by amending the Citizenship Act, 1955 in August 2005. The Scheme was launched during the Pravasi Bharatiya Divas convention 2006 at Hyderabad. The Scheme provides for registration as Overseas Citizen of India (OCI) of all Persons of Indian Origin (PIOs) who were citizens of India on 26th January, 1950 or there after or were eligible to become citizens of India on 26th January, 1950 except who is or had been a citizen of Pakistan, Bangladesh or such other country as the Central Government may, by notification in the Official Gazette, specify.

OCI is not to be misconstrued as 'dual citizenship'. OCI does not confer political rights. The registered Overseas Citizens of India shall not be entitled to the rights conferred on a citizen of India under article 16 of the Constitution with regard to equality of opportunity in matters of public employment. 

The OCI documents consist of OCI Registration Booklet and a Universal visa sticker. It is mandatory for registered OCIs to carry their passports which carry the Universal visa sticker for entry into / exit from India.

A registered Overseas Citizen of India is granted multiple entry, multi purpose, life-long visa for visiting India, he/she is exempted from registration with Foreign Regional Registration Officer or Foreign Registration Officer for any length of stay in India, and is entitled to general 'parity with Non-Resident Indians in respect of all facilities available to them in economic, financial and educational fields except in matters relating to the acquisition of agricultural or plantation properties'. Specific benefits/parity is notified by the Ministry from time to time.

Non Resident Indians under FEMA :-

Non Resident Indians under FEMA :-

A Non Resident Indian is  Indian Citizen who stays abroad for :

(a) Employment/ carrying on business  or

(b) Vocation outside India   or

(c) Stays abroad under circumstances indicating an intention for an uncertain duration of stay abroad is a non-resident. 

 Persons posted in U.N. organizations and officials deputed abroad by Central/ State Government and Public Sector Undertakings on temporary assignments are also treated as non-resident.

Non-resident foreign citizens of Indian Origin are treated on par with non-resident Indian citizens.

Who is a person of Indian Origin? :-

A> For the purpose of availing of the facilities of opening and maintenance of bank accounts and investments in shares/ securities in India:

A foreign citizen ( other than a citizen of Pakistan or Bangladesh ) is deemed to be of Indian Origin, if,
(i) he, at any time, held an Indian passport,
(ii) he or either of his parents or any of his grand parents was a citizen of India buy virtue of the Constitution of India or Citizenship Act, 1956( 57 of 1955)
A spouse( not being a citizen of Pakistan or Bangladesh ) of an Indian citizen /Indian origin is also treated as a person of Indian origin provided the Bank accounts are opened or investments in shares/securities in India are made by such persons jointly with their NRI spouses.

B>. For Investment in immovable properties:

A foreign citizen ( other than a citizen of Pakistan, Bangladesh, Afghanistan, Bhutan, Sri lanka or Nepal ), is deemed to be of Indian origin if,
(i) he held an Indian passport at any time, OR
(ii) he or his father or paternal grand-father (Not his parents or any of his grand parents) was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 ( 57 of 1955)..

What is money laundering?

What is Money Laundering? Money Laundering is the process by which money derived from criminal activities are used to conceal their illicit origin. Some people believe that money laundering originated at the time of the famous American Gangsterism that arose out of prohibition of  the banning of alcoholic drinks, Gangsters were facing difficulty in storing money that was in cash,often in small denomination in coins. So, they created businesses, one of which was laundries,for hiding ill-gotten money. The phrase 'Money Laundering' was first coined by British Newspaper 'The Guardian in 1972 in connection with Water Gate Scandal.

Money laundering involves disguising financial assets so that they can be used without detection of the illegal activity that produced them. Through money laundering, the launderer transforms the monetary proceeds derived from criminal activity into funds with an apparently legal source. Section 3 - Offence of Money-Laundering.— Offence of money-laundering.—Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected 1*[proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming] it as untainted property shall be guilty of offence of money-laundering. 1*. Subs. by Act 2 of 2013, sec. 3, for “with the proceeds of crime and projecting” (w.e.f. 15-2-2013, vide S.O. 343(E), dated 8-2-2013). Section 4 - Punishment for Money-Laundering "Whoever commits the offence of money-laundering shall be punishable with rigorous imprisonment for a term which shall not be less than three years but which may extend to seven years and shall also be liable to fine 1[***]: Provided that where the proceeds of crime involved in money-laundering relates to any offence specified under paragraph 2 of Part A of the Schedule, the provisions of this section shall have effect as if for the words “which may extend to seven years”, the words “which may extend to ten years” had been substituted. 1***. The words “which may extend to five lakh rupees” omitted by Act 2 of 2013, sec. 4 (w.e.f. 15-2-2013, vide S.O. 343(E), dated 8-2-2013).

DIFFERENCE BETWEEN 

GROSS NPA AND NET NPA

Gross NPA: Gross NPA is the amount outstanding in the borrowal account, in books of the bank other than the interest which has been recorded and not debited to the borrowal account.

Net NPA: Net NPA is the amount of Gross NPAs less 

(1) interest debited to borrowal and not recovered and not recognized as income and kept in interest suspense.

(2) amount of provisions held in respect of NPAs and

(3) amount of claim received and not appropriated.

The Reserve Bank of India defines Net NPA as
Net NPA = Gross NPA – (Balance in Interest Suspense account + DICGC/ECGC claims received and held pending adjustment + Part payment received and kept in suspense account + Total provisions held).

The Reserve Bank of India Banks has advised the banks to compute their Gross Advances, Net Advances, Gross NPAs and Net NPAs as per the following format w.e.f. September 2009.

Non-Fund Based Facility to Non-constituent Borrowers of Bank

Non-Fund Based Facility to Non-constituent Borrowers of Bank January 07, 2016 Non-Fund Based Facility to Non-constituent Borrowers of Bank Please refer to paragraph 2(iii) of RBI circular DBOD.Dir.BC.62/13.07.09/2002-03 dated January 24, 2003 on ‘Discounting/ Rediscounting of Bills by banks’ advising banks not to extend any non-fund based facilities to non-constituents borrowers of the banks. The restriction was imposed to prevent frauds, diversion of funds etc. in case bank sanctions “one-off” transaction facilities without assessment of credit needs of the borrowers on well established credit norms. 2. The above restriction has led to the problems faced by those customers, who require Non-Fund based facilities like Letter of Credits (LCs), Bank Guarantees, but do not avail of any Fund based facility from any bank. In view of recent developments in strengthening the system of collection and maintenance of credit information, the above restrictions have been reviewed. Accordingly, it has been decided that Scheduled Commercial Banks can grant non-fund based facilities including Partial Credit Enhancement (PCE) to those customers, who do not avail any fund based facility from any bank in India, subject to the following conditions: a) Board Approved Policy Banks shall formulate a comprehensive Board approved loan policy for grant of non-fund based facility to such borrowers. b) Verification of Customer credentials The banks shall ensure that the borrower has not availed any fund based facility from any bank operating in India. However, at the time of granting non-fund based facilities, banks shall obtain declaration from the customer about the non- fund based credit facilities already enjoyed by them from other banks. c) Credit Appraisal and due-diligence Banks shall undertake the same level of credit appraisal as has been laid down for fund based facilities. d) Compliance with Know Your Customer (KYC) Norms / Anti-Money Laundering (AML) Standards / Combating of Financing of Terrorism (CFT) / Obligation of banks under PMLA, 2002 The instructions/ guidelines on KYC/AML/ CFT applicable to banks, issued by RBI from time to time, shall be adhered to in respect of all such credit facility. e) Submission of Credit Information to CICs Credit information relating to grant of such facility shall mandatory be furnished to the Credit Information Companies (specifically authorized by RBI). Such reporting shall be subject to the guidelines under Credit Information Companies (Regulation) Act, 2005. f) Exposure Norms Banks shall adhere to the exposure norms as prescribed by RBI from time to time. 3. As hitherto, banks are, however, prohibited from negotiating unrestricted LCs of non-constituents in terms of para 2.3.9 of RBI Master Circular RBI/2015-16/95. DBR.No.Dir.BC.10/13.03.00/2015-16 dated July 1, 2015 on Loans and Advances- Statutory and Other Restrictions. In cases where negotiation of bills drawn under LC is restricted to a particular bank and the beneficiary of the LC is not a constituent of that bank, the bank shall have the option to negotiate such LCs, subject to the condition that the proceeds are remitted to the regular banker of the beneficiary. Based on RBI circular dt 07/01/2016. please visit www.rbi.org.in for any further classification if required.

The Mechanism of Letter Of Credit

The Mechanism of Letter Of Credit

THIS WRITE-UP IS INTENDED TO PROVIDE YOU WITH A BASIC OVERVIEW OF LETTER

LETTER OF CREDIT – HISTORY AND MEANING

Letter Of Credit was first used by King John in the year 1210 for purchasing marble from Italy. Letter Of Credit is governed by Uniform Rules which were first published in 1933 and was accepted by over 200 countries world over. These rules are known as Uniform Customs and Practice for Documentary Credits issued by International Chamber of Commerce. Present Publication No. 600 (UCP 600).

It is not an international law but a voluntary customs and practice accepted world over.

Definition of Letter Of Credit (LC)

Letter Of Credit is an instrument for assured payment. It is an undertaking of the ISSUING/OPENING Bank to make payment to beneficiary, against documents stated in LC.

Now before we go back to the definition of Letter Of Credit let us see the 

Mechanism of Letter Of Credit  and Understand it by way an example given below.

Let us understand it by an example:

Suppose M/s ABC India &Co a Indian company who is dealing in decorative lights wants to purchase / Import decorative lights from China. After some search he has zeroed in on one supplier named M/s XYZ China & Co who is willing to supply required quantity and quality at competitive rates.

So M/s ABC India &Co and M/s XYZ China & Co enter into negotiation for supply of goods (decorative lights). While going through the negotiation stages M/s XYZ China & Co asks for full advance payment before supply can be made as they were doing business fist time and had little trust on each other. M/s ABC India &Co replied that he cannot pay in advance but will pay as soon as the goods are received by him (open Account basis, reason lack of trust) as M/s ABC India &Co was also not sure whether M/s  XYZ China & Co is going to fulfil his promise of supply of goods after receiving full payment in advance.

So there was a little impasse and negotiations were about to fail as nobody wanted to be at disadvantage as far as sales contract was concerned.

M/s ABC India &Co narrated this situation to his banker and asked for some help. After discussing the matter with his banker and way out suggested by his banker, M/s ABC India &Co again approached M/s  XYZ China & Co with the following proposal:

M/s ABC India &Co suggested that he can ensure payment to M/s  XYZ China & Co by way of an irrevocable undertaking called Letter Of Credit from his banker in favour of M/s  XYZ China & Co provided goods are supplied as per their contract terms and documents in support of goods having been shipped as per contract terms are presented to M/s ABC India &Co banker within specific time.

M/s  XYZ China & Co immediately agreed to this proposal as now he was sure of this payment which was guaranteed by M/s ABC India &Co banker subject to production of documents and M/s ABC India &Co was also happy as he was also assured of supply of goods before making any payment to M/s  XYZ China & Co.

So they enter into a sales agreement with payment terms clause that settlement of payment of this contract will be by way of Letter Of Credit issued by M/s ABC India &Co banker in favour of M/s  XYZ China & Co.(this is called sales or purchase contract and is basis for issuance of any Letter Of Credit)

So on the basis of above contract we are going to explain Mechanism of LC.

So we have applicant or buyer (M/s ABC India &Co) who can be Importer also here. He has a purchase agreement with the beneficiary (M/s  XYZ China & Co) who is seller of goods and he can be exporter also. They have an agreement for sale purchase of goods, beneficiary is to sell the goods to the applicant but beneficiary wants to be sure about the payment, so to be sure about the payment the Letter Of Credit is used as an instrument of assured payment.

The applicant will make a request to his own bank with whom he has Letter Of Credit (Non-fund) sanction limit or against 100% cash margin for issuance Letter Of Credit.

So the bank which issues Letter Of Credit will be called Issuing bank or Opening Bank in this case M/s ABC India &Co banker.

Letter Of Credit issued by the Issuing bank will be send to another bank called advising bank for the purpose of advising it to beneficiary (in this case M/s XYZ China & Co)

The advising bank will verify the authenticity of the Letter Of Credit and forward it / advise it to the beneficiary.

So once Beneficiary received this Letter Of Credit he will check it and if the conditions mentioned in the Letter Of Credit are as per purchase agreement he will start manufacturing the goods and make shipment of the goods. After shipments he will prepare the documents, because he has to get the payment against the documents stated in Letter Of Credit. So he prepares and sends those documents to the nominated bank or negotiating Bank.

Nominated bank or negotiating bank after making sure that these documents received by him from the beneficiary of the Letter Of Credit are the documents which are stated in Letter Of Credit, will make payment to the beneficiary and negotiating Bank(M/s XYZ China & Co  banker) will send the documents to opening/ issuing bank and claim payment from  opening bank/issuing bank.

Opening bank in turn will get the documents accepted by the applicant /buyer / impoter and once these documents are accepted by the applicant it means that the documents are in order.

Depending upon the nature of the Letter Of Credit it is possible that the documents are delivered to the applicant before payment (Usance LC) or after making payment (Sight LC) and applicant/buyer/importer makes the payment to the issuing/opening bank and the issuing bank/opening bank in turn makes the payment to the negotiating bank. Negotiating bank has already made the payment to the beneficiary.

There is one more bank which comes into the picture in this process in case beneficiary is not satisfied with credit rating of the issuing/opening bank. In that situation beneficiary seeks guarantee for payment and that guarantee is given by another bank acceptable to beneficiary and is called confirming bank.(this additional guarantee is given on the request of issuing/opening bank).

So this confirming bank is the bank which gives guarantee on behalf of issuing bank /opening bank to make the payment in case the opening bank fails to the payment.

Now we hope from the above explanation you can easily understand the definition of Letter of Credit Given below

 We will again read the definition of Letter Of Credit “ LC IS AN INSTRUMENT FOR ASSURED PAYMENTS. IT IS AN UNDERTAKING GIVEN BY THE ISSUING BANK/OPENING BANK TO THE BENEFICIARY FOR MAKING PAYMENT AGAINST THE DOCUMENTS STIPULATED IN LETTER OF CREDIT”

Now we can discuss other aspects of Letter Of Credit:-

All Letter Of Credits are governed by the rules framed under UCPDC and we have to mention that while issuing Letter Of Credit itself.

As per UCPDC in LC’s, all parties deal in documents and not in goods and services. So the subject matter in the Letter Of Credit is the documents and not the goods and services. This has a very serious implication for all the parties involved in the Letter Of Credit. i.e applicant that is Buyer and the opening bank they  cannot refuse payment simply on the basis that there is  defective goods and services. Even if goods and services are defective but the documents are as per Letter Of Credit opening bank has obligation to make payment because all parties in LC deal in documents and not in goods and services. So that is an important element of Letter Of Credit transaction.

 

Now let us discuss parties in Letter Of Credit transaction:-

Let us see which the parties are:

 1^st party is  Applicant:

LC Applicant is normally the buyer under the sales contract and the party that initiates the request to the Issuing Bank to issue an LC on its behalf. The LC Applicant normally maintains banking facilities with the Issuing Bank.

2^nd party is Beneficiary:

LC Beneficiary is normally the seller under the sales contract and the party who will receive payment under the LC if it can fulfil all the terms and conditions of the credit.

3^rd one is the Opening/Issuing Bank:

An Issuing Bank (or LC opening bank) is the bank that issues the LC in favour of a seller at the request of the LC applicant. The Issuing Bank is normally located in the applicant’s country with established banking relationship with the applicant.

By issuing an LC, the Issuing Bank undertakes to pay the seller/beneficiary the value of the draft and/or other documents if all the terms and conditions of the LC are complied with.

4^th is the Advising Bank:

An Advising Bank (or sometimes known as notifying bank) is the bank that advises the LC beneficiary that there is an LC issued in his favour. Advising Bank is normally located in the seller’s country and is either appointed by the Issuing Bank or LC applicant. Its primary responsibility is to authenticate the LC to ensure that the LC comes from genuine source.

5^th is the Nominated Bank:

A Nominated Bank is a bank authorised by the Issuing bank in the credit to pay, negotiate, issue a deferred payment undertaking or accept drafts under the LC. If the LC does not specify a Nominated Bank, the LC is deemed as freely negotiable and any banks that receive documents from the LC beneficiary are qualified to be a Nominated Bank.

A Nominated Bank is not responsible to pay under the credit unless it has added its confirmation to the credit. In such a case, it will become a Confirming Bank.

6^th is the Negotiating Bank:

A Negotiating Bank is the bank that examines the drafts and/or documents presented by the LC beneficiary and gives values to such drafts and/or documents. Negotiation could be in the form of purchasing or agreeing to purchase the drafts and/or documents presented.

7^th is the Confirming Bank:

A Confirming Bank (normally also the Advising Bank) is the bank that adds its own undertaking to pay the LC beneficiary if all terms and conditions of the credit are complied with. Such undertaking is in addition to that given by the Issuing Bank at the request of the Issuing Bank.

The Confirming Bank will only confirm an LC upon satisfactory evaluation on the conditions of the Issuing Bank and its domicile country.

Then there are other banks like Reimbursing Bank, Paying Bank etc

LC is usually subject to the Uniform Customs and Practice for Documentary Credits, International Chamber of Commerce Publication No. 600 (UCP 600).

Availability of Letter Of Credit;

 Under UCP 600, an LC can be made available with:

        1.  Payment – Payment at sight against compliant documents.

   2. Negotiation – Payment with or without recourse to the beneficiary or bona fide holder against compliant documents presented under the credit.

  3.Acceptance by a Drawee Bank – Payment at a future determinable date against compliant documents. A tenor draft is normally required for presentation under an acceptance credit and is drawn on the acceptance bank rather than the issuing bank.

Usance Credit –

Payment at a future determinable date against compliant documents. A tenor draft is normally required (but not mandatory) for presentation under a usance credit and is drawn on the Issuing Bank. Usance credit is available by Negotiation, Acceptance and Deferred Payment. A tenor draft is not required for presentation under a deferred payment credit.

Letter Of Credit is now a widely used instrument both for International and Domestic Trade for ensuring payment and also very useful product for the banks for generating other income without deployment of Funds.

‘Thanks for reading’

please post your comment.