What changed
Exim Bank signed an agreement on March 16, 2021, with Sri Lanka for a USD 100 million LoC for solar energy projects, effective September 13, 2021. The circular outlines the India content requirement (minimum 75% of contract price) and allows up to 10% reduction with government approval. It also specifies that no agency commission is payable from LoC proceeds, though exporters may use own resources or EEFC balances for commission after export realization.
What it means for you
Banks must ensure that exports under this LoC comply with the 75% India content rule and that shipments are declared on Export Declaration Forms as per RBI instructions. AD Category-I banks can allow remittance of agency commission only from exporter's own resources or EEFC accounts after full export value realization, not from LoC funds. This facilitates Indian solar equipment exports to Sri Lanka with clear compliance requirements.
What you must do
- Advise exporter constituents about the LoC details and direct them to Exim Bank for complete information.
- Ensure that exports under this LoC meet the minimum 75% India content requirement and any approved reductions.
- Verify that no agency commission is paid from LoC proceeds; allow commission only from exporter's own resources or EEFC after full export realization.
- Ensure shipments are declared on Export Declaration Forms as per extant RBI instructions.
Who it affects
AD Category-I banks handling export transactions under this LoC, Indian exporters of solar energy goods and services to Sri Lanka, Exim Bank as the LoC administering institution
What is the minimum India content required under this LoC?
At least 75% of the contract price must be supplied from India. Exim Bank may reduce this by up to 10% with Government of India approval on a case-by-case basis.
Can agency commission be paid from the LoC proceeds?
No, agency commission is not payable from LoC funds. Exporters may use their own resources or balances in their Exchange Earners' Foreign Currency Account for commission after full export value realization.
What is the effective date and utilization period for this LoC?
The agreement is effective from September 13, 2021. The terminal utilization period is 60 months from the scheduled completion date specified in the eligible contract.