What changed
The threshold for advance remittance without requiring a bank guarantee or standby letter of credit has been increased from USD 1,000,000 to USD 5,000,000. This applies to importers (excluding public sector entities) who cannot obtain a guarantee from overseas suppliers, provided the AD bank is satisfied with the importer's track record and bonafides.
What it means for you
Banks can now facilitate larger advance import payments without the need for a costly bank guarantee, easing cash flow for importers. However, the onus is on AD Category-I banks to strengthen their internal guidelines and due diligence processes, as they must rely on commercial judgment and KYC compliance for transactions up to USD 5 million.
What you must do
- Update internal board-approved policies to reflect the enhanced USD 5 million limit for advance remittance without guarantee.
- Ensure robust KYC/AML checks for both the importer and the overseas manufacturer/supplier before processing such transactions.
- Monitor compliance with import timelines: physical import within 6 months (3 years for capital goods) and follow up for documentary evidence within 15 days of the period end.
- Verify that advance payments are made directly to the manufacturer/supplier as per the sale contract and repatriate funds if goods are not imported.
Who it affects
AD Category-I banks handling import remittances, Importers (excluding public sector companies and government entities) making advance payments for goods, Overseas manufacturers/suppliers receiving advance payments from Indian importers
What is the new limit for advance remittance without a bank guarantee?
The limit has been increased from USD 1,000,000 to USD 5,000,000 or its equivalent, effective immediately.
Are there any conditions for availing this higher limit?
Yes, the importer must be a customer of the AD bank with compliant KYC/AML records. The bank must be satisfied with the importer's track record and bonafides, and the transaction must be based on commercial judgment. Physical import must occur within six months (three years for capital goods).
Does this circular apply to imports of rough diamonds or aircraft?
No, advance remittance for rough diamonds and aircraft/helicopters/aviation products continues to be governed by separate circulars issued earlier.