What changed
RBI has permitted trade transactions with Sri Lanka under the SBI credit facility agreement dated March 17, 2022, to be settled in Indian Rupees outside the ACU mechanism. Previously, such transactions between ACU member countries were required to be routed through the ACU mechanism as per FEMA regulations.
What it means for you
This circular provides a targeted exemption for exports to Sri Lanka financed under the GOI-guaranteed SBI term loan, allowing INR settlement directly. Banks and exporters can bypass ACU hurdles, potentially speeding up payments and reducing currency conversion costs for eligible essential goods exports.
What you must do
- Inform your exporter clients about the INR settlement option for eligible exports to Sri Lanka under the SBI credit facility.
- Advise clients to obtain full details of the credit facility agreement from SBI's International Banking Group or website.
- Ensure that only transactions falling under the SBI agreement and eligible under India's Foreign Trade Policy are processed outside the ACU mechanism.
- Maintain records of such transactions for FEMA compliance purposes.
Who it affects
Category-I Authorised Dealer Banks, Exporters to Sri Lanka under the SBI credit facility, State Bank of India (as the lending bank)
Can all exports to Sri Lanka now be settled in INR?
No, only those trade transactions that fall under the specific SBI credit facility agreement dated March 17, 2022, for financing purchase of essential goods by Sri Lanka from India, and are eligible under the Foreign Trade Policy, are allowed INR settlement outside the ACU mechanism.
What is the ACU mechanism and why is this exemption needed?
The Asian Clearing Union (ACU) mechanism is the standard route for settling payments between member countries. This exemption was granted due to difficulties exporters faced in receiving export proceeds from Sri Lanka, allowing a direct INR settlement channel for this specific credit facility.
Where can we get details of the eligible goods and terms?
AD banks and exporters should contact State Bank of India's International Banking Group at its Corporate Centre in Mumbai or visit SBI's website for the complete credit facility agreement details.