What changed
Exim Bank signed a Line of Credit agreement with the Government of Ethiopia on October 4, 2007, effective January 22, 2008, for USD 122 million to finance sugar industry projects. The circular outlines operational guidelines for AD Category-I banks, including sourcing requirements, timelines for LCs and disbursements, and commission restrictions.
What it means for you
AD Category-I banks must facilitate this credit line by allowing remittances for exports under the LOC, ensuring at least 85% of contract value is sourced from India. Banks can permit agency commission payments only from exporter's own resources or EEFC accounts after full contract realization. This supports Indian exports to Ethiopia's sugar sector.
What you must do
- Inform exporter constituents about Exim Bank's LOC details and direct them to Exim Bank for full information.
- Ensure all shipments under the LOC are declared on GR/SDF forms as per RBI instructions.
- Verify that at least 85% of contract value goods/services are sourced from India before processing transactions.
- Do not allow agency commission payments from LOC proceeds; only permit from exporter's own resources or EEFC after full payment realization.
- Adhere to FEMA sections 10(4) and 11(1) while processing transactions under this circular.
Who it affects
AD Category-I banks, Exporters dealing with sugar industry projects in Ethiopia, Exim Bank
What is the minimum Indian content requirement under this LOC?
At least 85% of the contract price must be supplied by the seller from India. The remaining 15% (excluding consultancy services) can be procured from outside India.
Can exporters pay agency commission under this LOC?
No agency commission is payable from the LOC proceeds. However, exporters may use their own resources or EEFC account balances to pay commission in free foreign exchange after full contract value realization.
What are the timelines for opening LCs and disbursement?
For project exports, the last date is 48 months from scheduled completion dates. For supply contracts, it is 72 months from the execution date of the Credit Agreement (January 22, 2008).