What changed
Exim Bank signed an agreement with Maldives on Feb 21, 2021, for a USD 50 million LoC for defence projects, effective Feb 8, 2022. The circular outlines operational details for AD banks, including the 75% Indian content requirement and terminal utilization period of 60 months from project completion.
What it means for you
AD Category-I banks must now process exports under this LoC with strict adherence to the 75% Indian content rule and no agency commission. Banks can allow commission payments from exporter's own resources or EEFC accounts only after full export value realization. This supports India's defence exports and bilateral ties.
What you must do
- Inform exporter constituents about the LoC details and direct them to Exim Bank for complete information.
- Ensure exports under this LoC meet the 75% Indian content requirement and are declared on Export Declaration Forms as per RBI instructions.
- Do not allow agency commission payments for exports under this LoC; if needed, permit only from exporter's own resources or EEFC after full realization.
- Verify that shipments comply with Foreign Trade Policy and the specific LoC agreement terms.
Who it affects
AD Category-I banks, Exporters dealing with defence goods and services to Maldives, Exim Bank
What is the minimum Indian content required for exports under this LoC?
At least 75% of the contract price must be supplied from India; the remaining 25% can be procured from outside India.
Can agency commission be paid for exports under this LoC?
No agency commission is payable. However, if required, exporters may use their own resources or EEFC balances for commission in free foreign exchange after full export value realization.
When did this LoC become effective and what is the terminal utilization period?
The LoC is effective from February 8, 2022, and the terminal utilization period is 60 months from the scheduled completion date of the project.