What changed
Exim Bank signed a Line of Credit agreement with Nepal on October 21, 2011, effective June 29, 2012, for USD 250 million. The credit finances Indian exports for infrastructure projects like highways, airports, and hydropower. Last date for LC opening and disbursement is 48 months from project completion for project exports, or 72 months (October 20, 2017) from agreement date for supply contracts.
What it means for you
Indian exporters can now tap this LOC to supply machinery, equipment, and services to Nepal's infrastructure sector. Banks must ensure at least 75% Indian content in contracts, though the government may relax this. No agency commission is payable under the LOC, but exporters can use their own EEFC funds for commission after full payment realization.
What you must do
- Inform exporter customers about Exim Bank's USD 250 million LOC to Nepal 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 remittance of agency commission only after full contract value realization and compliance with existing commission rules.
- Advise exporters that no agency commission is payable under the LOC; if needed, they must use own resources or EEFC balances.
Who it affects
AD Category-I banks, Indian exporters to Nepal, Exim Bank
What is the minimum Indian content required under this LOC?
At least 75% of the contract price must be supplied from India. The remaining 25% can be procured from outside India, but the government may reduce the Indian content upon request.
Can exporters pay agency commission under this LOC?
No agency commission is payable under the LOC. However, exporters may use their own resources or EEFC balances to pay commission in free foreign exchange after full contract value realization.
What is the last date for opening LCs under this LOC?
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., October 20, 2017.