What changed
Exim Bank signed a credit agreement on March 10, 2010, with Sri Lanka's government for a USD 67.4 million line of credit to finance the Southern Railway corridor upgrade. The credit became effective from August 16, 2010. Last date for opening LCs and disbursement is 48 months from project completion for project exports, or 72 months (March 9, 2016) from the agreement date for supply contracts.
What it means for you
Indian exporters can now bid for contracts under this LOC, with a mandatory 85% local sourcing requirement boosting domestic industry. AD banks must ensure LCs and remittances comply with FEMA guidelines, including no agency commission from the LOC proceeds. This strengthens India's export credit footprint in Sri Lanka's infrastructure sector.
What you must do
- Inform exporter clients about the LOC and direct them to Exim Bank for full details.
- Ensure all shipments under this LOC are declared on GR/SDF forms as per RBI instructions.
- Allow remittance of agency commission only from exporter's own resources or EEFC account after full contract value realization.
- Verify that at least 85% of contract value goods/services are sourced from India before processing LCs.
Who it affects
AD Category-I banks, Indian exporters of goods and services, Exim Bank, Sri Lankan government and railway project contractors
What is the minimum Indian content requirement under this LOC?
At least 85% of the contract price must be supplied from India. The remaining 15% can be procured from outside India, excluding consultancy services.
Can exporters pay agency commission from the LOC proceeds?
No, agency commission is not payable under this LOC. Exporters may use their own resources or EEFC balances for commission, and AD banks can allow such remittance only after full contract value is realized.
What is the deadline for opening Letters of Credit under this facility?
For project exports, LCs must be opened within 48 months from the scheduled completion date of the contract. For supply contracts, the deadline is 72 months from the agreement execution date, i.e., March 9, 2016.