What changed
Exim Bank signed a Line of Credit agreement with Sri Lanka on July 23, 2008, effective from October 3, 2008, for USD 100 million to upgrade the Colombo-Matara railway line. The circular outlines the terms, including that at least 85% of goods and services must be from India, and sets deadlines for letter of credit opening and disbursement.
What it means for you
AD Category-I banks must facilitate this credit line by advising exporters and ensuring compliance with FEMA rules on GR/SDF forms and agency commission payments. The 85% local sourcing requirement boosts Indian exports, while the 48-72 month timelines for project and supply contracts give clarity on disbursement schedules.
What you must do
- Inform exporter clients about the Line of Credit and direct them to Exim Bank for full details.
- Ensure shipments under this LOC are declared on GR/SDF forms as per RBI instructions.
- Allow agency commission remittances only after full contract value realization and compliance with prevailing rules.
- Verify that at least 85% of contract value is sourced from India for eligible contracts.
Who it affects
AD Category-I banks, Exporters dealing with Sri Lanka railway projects, Exim Bank
What is the minimum Indian content requirement under this Line of Credit?
At least 85% of the contract price for goods and services must be supplied from India. The remaining 15% (excluding consultancy) can be procured from outside India.
What are the deadlines for opening Letters of Credit and disbursement?
For project exports, the last date is 48 months from the scheduled completion date of the contract. For supply contracts, it is 72 months from the credit agreement execution date (July 22, 2014).
Can exporters pay agency commission under this LOC?
No agency commission is payable under the LOC itself. However, exporters may use their own resources or EEFC balances to pay commission in free foreign exchange after full contract value realization, subject to RBI guidelines.