What changed
RBI superseded earlier 2003 guidelines on merchanting trade with revised rules effective January 17, 2014. The new framework sets a 9-month overall completion period and a 4-month limit on foreign exchange outlay. It mandates that both legs of a transaction be routed through the same AD bank and requires half-yearly default reporting to RBI within 15 days after each half-year.
What it means for you
Banks must now strictly enforce the 9-month timeline and 4-month forex outlay cap for merchanting trades, ensuring no extended exposure. The one-to-one matching requirement and half-yearly default reporting increase operational oversight. AD banks need to assess merchanting traders' genuine trading capabilities and avoid financial intermediaries, with repeated defaults (3+ in a year) triggering restrictions and possible caution listing.
What you must do
- Update internal policies to reflect the 9-month completion period and 4-month forex outlay limit for merchanting trades.
- Ensure both import and export legs of each merchanting transaction are routed through the same AD bank.
- Verify documents (invoice, packing list, transport, insurance) to confirm trade genuineness and trader capabilities.
- Implement half-yearly default reporting to RBI within 15 days after each half-year, using the prescribed format.
- Monitor for repeated defaults (3 or more in a year) and restrain such traders from further merchanting transactions.
Who it affects
All Category-I Authorised Dealer Banks, Merchanting traders (intermediary trade entities), Exporters and importers involved in merchanting trade
What is the maximum period allowed for completing a merchanting trade transaction?
The entire merchanting trade must be completed within nine months from the commencement date, which is the earlier of shipment/export leg receipt or import leg payment.
What happens if a trader defaults repeatedly in merchanting trade?
If a trader has three or more defaults in a year, AD banks must restrain them from further merchanting transactions and may recommend caution listing to RBI.
Can a merchanting trader receive advance payment for the export leg?
Yes, if advance payment is received, it may be held in a separate deposit or current account in foreign currency or Indian rupees, and AD banks need not insist on an export LC.