Handling forex business has become simpler and easier with the use of latest technology and significant liberalisation in the rules, regulations and procedures under the FEMA regime. Against the above backdrop, the responsibility of the banks has increased many fold and the principle of “Know Your Customer” has assumed critical importance. Money laundering is one such activity which is drawing the attention of the sovereign and regulatory authorities all over the world, who have started taking measures to put a stop to these activities. The deadline for submission of this information has been stipulated to be 120 hours following receipt of request for such information.
Accordingly, in respect of all US Dollar transactions through these accounts, branches may need to furnish, at very short notice, information on any transaction called for. In the above backdrop, the criticality of properly maintaining and promptly providing any information requested by branches in the US, cannot be over emphasized, and considering the severe consequences of non compliance, it has to be ensured that branches respond within the stipulated time frame.
Accordingly, branches should ensure that whenever a request is received at the branch from our US branches for information on any US dollar transaction, the information is furnished well within the stipulated time frame failing which the very existence of our US operations could be jeopardized. Remittance facilities for employment abroad, emigration, education, maintenance of close relatives, medical treatment abroad, business visit, private visit etc. have been liberalised from the angle of monetary ceilings as well as from the requirement of production of documentary evidence.
The authorized dealer need not now insist on documents in support of the request. In fact, they are supposed to rely on self-declaration and self-certification of essential information about the transactions furnished by the customers and the onus of furnishing the correct details in the application now remains with the applicant who has certified the details relating to the purpose of such remittances.
All forex transactions have to be reported promptly and correctly to the Foreign Department by the branches for application of appropriate exchange rates, cover operations and reconciliation of NOSTRO account entries. From the above, it can be concluded that the regulatory/compliance requirements for forex business have been liberalised to a very large extent but at the same time handling forex business involves higher amounts of credit risk, market risk and operational risk at all levels i.e. branch , dealing room, mid office and back office etc.
Forward contract should be booked after verifying the underlying exposure and overdue contracts should be automatically cancelled on the 15th day after the due date. A person resident in India may enter into a forward contract with an authorized dealer in India to hedge an exposure to exchange risk in respect of a transaction for which sale and/or purchase of foreign exchange.
The authorised dealer through verification of documentary evidence is satisfied about the genuineness of the underlying exposure, irrespective of the transaction being in the nature of a current or a capital be marked on such documents under proper authentication and copies thereof retained for verification. The maturity of the hedge should not exceed the maturity of the underlying transaction. The currency of hedge and tenor is left to the choice of transaction is not a reasonable estimate. Foreign currency loans/bonds are eligible for hedge only after final approval is accorded by the Reserve Bank where such approval is necessary or loan identification number is given by the Reserve Bank.
Global Depository Receipts are eligible for hedge after the issue price has been finalised. Balances in the exchange earner’s foreign currency accounts, sold forward by account holders shall remain earmarked for delivery and such contracts should not be cancelled. They may,however, be rolled-over. Forward contracts booked in respect of foreign currency exposures of residents, falling due within one year may, be cancelled and re-booked.
This facility may be made available only to customers who submit details of exposure to authorize dealers. Forward contracts booked to cover exposures falling due beyond one year, once cancelled, cannot be rebooked. All forward contracts may be rolled-over to on-going market rates. Substitution of contracts for hedging trade transactions may be permitted by an authorised dealer on being satisfied with the circumstances under which such substitution has become necessary.
Authorised dealers may also allow importers and exporters to book forward contracts on the basis of a declaration of an exposure and based on past performance subject to the following conditions: The forward contracts booked in the aggregate, should not exceed the limits worked out on the basis of the average of the previous three financial years’ (April to March) actual import/export turnover. This is subject to so booked shall not exceed 25% of the limit within a cap of our $ 100 million. Any forward contract booked without producing documentary evidence should be marked off against this limit.
Importers and exporters should furnish a declaration to the authorized dealer regarding amounts booked with other banks under this facility. An undertaking should be taken from the customer to produce supporting documentary evidence before the maturity of the forward contract. A forward contract cancelled with one authorised dealer can be rebooked with another authorised dealer subject to the following conditions: The switch is warranted by competitive the authorised dealer with whom the contract was originally booked, etc. The cancellation and rebooking are done simultaneously on the maturity date of the contract . The responsibility for ensuring that the original contract has been cancelled rests with the authorised dealer who undertakes rebooking of the contract.
Safeguards on imports:
Even though provisions in respect of the following issues have been liberalised to a very large extent, certain basic safeguards as detailed below have to be ensured. Time limit for settlement of import payments has been extended upto a period of less than three years subject to the amount not exceeding USD 20 million and all in cost per annum not exceeding LIBOR plus 50 basis points upto one year and LIBOR plus 125 basis points for period beyond one year but less than three years.
Making advance payment for imports has been permitted without any ceiling but if the amount exceeds USD 100,000 or its equivalent, a standby letter of credit or a bank guarantee from an international bank of repute has to be obtained but in case of a Public Sector Company or Department/Undertaking of the Central/State Government this requirement has been specifically waived.
Obtention of evidence of import is obligatory on the part of the authorised dealer in the case of imports exceeding USD 100,000. Receipt of import documents/bills direct by the importers has been permitted in most of the cases of imports. Merchantmen trade transactions should be completed within a period of six months.
Crystallisation on the prescribed dates i.e. the 10th day after the date of receipt of documents in case of sight bills, and due date, in case of usance bills, must be done. Follow up for submission of documentary evidence of import i.e. bill of entry form should be done meticulously and non-submission of the same should be reported to Interest payment on overdue bills should not exceed the prescribed rates.
Remittance facilities for employment abroad, emigration, education, maintenance of close relatives, medical treatment abroad from the angle of monetary ceilings as well as from the requirement of production of documentary evidence. The authorised dealer need not now insist on documents in support of the request. In fact, they are supposed to rely on self declaration and self-certification of essential information about the transactions furnished by the customers and the onus of furnishing the correct details in the application now remains with the applicant who has certified the details relating to the purpose of such remittances. Hence, it is essential to exercise enhanced due diligence & certain basic precautions at the time of undertaking any forex remittances on behalf of the customers in letter & spirit.
In view of the above and the mind boggling number and volume of transactions, there is tremendous pressure on the dealing officials at all levels. Hence, there is now greater need for better internal control and meticulous compliance with the laid down systems and procedures. This can be better achieved by putting the right man in the right job for safety, profitable, smooth and speedy handling of forex transactions. Their knowledge must also be kept updated by periodic training and supported by the latest information dissemination services.