What changed
Previously, exporters needed RBI approval for advances where shipment extends beyond one year. Now, AD Category-I banks can directly permit such advances up to 10 years for exporters with a minimum three-year satisfactory track record, provided conditions like firm orders, pricing, and AML checks are met.
What it means for you
Banks can now facilitate longer-term export financing without seeking RBI approval for each case, reducing processing time. This empowers exporters to secure advance payments for multi-year contracts, but banks must rigorously vet the exporter's track record, capacity, and the overseas buyer's standing to avoid defaults.
What you must do
- Verify exporter has at least three years' satisfactory track record and is not under adverse notice from Enforcement Directorate or caution-listed.
- Ensure firm irrevocable supply orders are in place with clear product details, delivery timelines, and penalty clauses.
- Check that the advance is adjusted through future exports and not used to repay NPA Rupee loans.
- Report any advance of USD 100 million or more immediately to RBI's Trade Division and concerned Regional Office.
- For BG/SBLC issuance, limit term to two years at a time, ensure it covers advance on reducing balance, and avoid discounting by overseas branches.
Who it affects
AD Category-I banks, Exporters with long-term supply contracts, Overseas buyers providing advance payments
What is the maximum tenor allowed for long-term export advances under this circular?
The maximum tenor is 10 years, but the exporter must have a minimum three-year satisfactory track record and the advance must be used for executing long-term supply contracts.
Can the advance be used to repay existing Rupee loans classified as NPA?
No, the circular explicitly prohibits using such export advances to liquidate Rupee loans that are classified as non-performing assets (NPA) as per RBI norms.
What reporting is required for large advances?
Any receipt of advance of USD 100 million or more must be immediately reported to the Trade Division, Foreign Exchange Department, RBI Central Office, with a copy to the concerned Regional Office, using the format in Annex-I.