What changed
The per-transaction limit for bank guarantees issued by AD Category-I banks in favor of non-resident service providers has been raised from USD 100,000 to USD 500,000. This applies to resident service importers, excluding public sector companies or government entities, which still need Ministry of Finance approval above USD 100,000.
What it means for you
Banks can now support larger service import contracts without seeking additional approvals, reducing processing time for customers. This liberalization is expected to facilitate smoother trade in services, especially for businesses with recurring or high-value service imports.
What you must do
- Update internal policies and systems to reflect the new USD 500,000 guarantee limit for service importers.
- Ensure due diligence on bonafides, documentary evidence of service import, and direct contractual liability for each guarantee.
- Communicate the revised limit to your trade finance and forex teams, and inform customers through circulars or notices.
- For public sector or government entity customers, continue to require Ministry of Finance approval for guarantees above USD 100,000.
Who it affects
AD Category-I banks, Resident service importers, Non-resident service providers, Trade finance departments of banks
Does this circular apply to public sector companies?
No, for public sector companies or government departments/undertakings, the previous limit of USD 100,000 applies, and any guarantee above that requires Ministry of Finance approval.
What conditions must banks verify before issuing a guarantee under the new limit?
Banks must be satisfied about the bonafides of the transaction, ensure submission of documentary evidence for import of services, and confirm the guarantee secures a direct contractual liability between a resident and a non-resident.
Are other terms from the earlier circular still valid?
Yes, all other terms and conditions from A.P. (DIR Series) Circular No. 13 dated November 17, 2006, remain unchanged.