What changed
Exim Bank signed an agreement with Sri Lanka on February 2, 2022, for a USD 500 million LoC to finance petroleum product imports from India. The LoC became effective on February 18, 2022, with a terminal utilization period of 6 months, extendable up to 12 months. RBI has now issued operational instructions to AD Category-I banks for handling related export transactions.
What it means for you
Indian banks can now process export payments under this LoC, which requires at least 75% of contract value to be sourced from India. No agency commission is payable, but if needed, exporters can use their own foreign currency accounts after full export value realization. This strengthens India's export financing framework and supports bilateral trade with Sri Lanka.
What you must do
- Advise exporter constituents about the LoC details and direct them to Exim Bank for complete information.
- Ensure shipments under this LoC are declared on Export Declaration Forms as per RBI instructions.
- Do not allow agency commission payments under this LoC; if required, permit only from exporter's own resources after full export value realization.
- Verify that at least 75% of contract value is sourced from India for each eligible contract.
Who it affects
AD Category-I banks handling export transactions, Exporters of petroleum products and eligible goods/services to Sri Lanka, Exim Bank as the LoC administering agency
What is the purpose of this USD 500 million LoC to Sri Lanka?
The LoC is specifically for financing the purchase of petroleum products from India, as per the agreement between Exim Bank and the Government of Sri Lanka.
Can exporters pay agency commission on exports under this LoC?
No agency commission is payable. However, if required, exporters may use their own resources or balances in their Exchange Earners' Foreign Currency Account to pay commission in free foreign exchange, but only after full realization of the eligible export value.
What is the sourcing requirement for goods under this LoC?
At least 75% of the contract price must be supplied from India. The remaining 25% can be procured from outside India for the eligible contract.