SUMMARY OF RECENT RBI - A. P. (DIR Series) Circulars

Circular No.36 dated April 02, 2002

Re: Issue of General Insurance Policies in Foreign Currency

Issue of general insurance policies in foreign currency other than those covered by the provisions of GIM require prior approval from the Reserve Bank. Such insurance companies are permitted to issue policies denominated in foreign currency and to receive premium in foreign currency.

This circular has now permitted insurance companies registered with IRDA to issue general insurance policies denominated in foreign currency and receive premium in foreign currency without prior approval of the Reserve Bank.

The type of Cases where the insurance companies registered with IRDA can issue insurance policies have been specified in the circular

The circular further specifies that authorised dealers may allow remittances towards settlement of claims for the above cases subject to compliance of the conditions stipulated in AP (DIR Series) circular No. 8 dated 13th October 2001.

Circular No.37 dated April 09, 2002

Re: Two-way fungibility of ADRs / GDRs

This circular makes amendments in the item 'h' on page 2 of the operative guidelines for the limited two-way fungibility under the "Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993"

The word 'NSDL' in item 'h' on page 2 of the operative guidelines shall be replaced by the words 'NSDL/CDSL'.

Circular No.38 dated April 12, 2002

Re: Foreign Exchange Management Act, 1999 Exports of goods and services - Reduction in value

In terms of item (i) of paragraph C.12 (b) of A.P. (DIR Series) Circular No. 12 dated September 9, 2000 the authorised dealers have been permitted to allow reduction in invoice value of export, which does not involve gold or silver jewellery or articles made out of cut and polished diamonds.

This circular now allows authorised dealers to consider requests for reduction upto 10% in invoice value of export bills also, in respect of export of gold or silver jewellery or articles made out of cut and polished diamonds.

All other terms and conditions of the paragraph C.12 remain unchanged.

Circular No.39 dated April 20, 2002

Re: Foreign Exchange Management Act, 1999 Current Account Transactions

Indian companies are permitted to open Trading Office / Non-trading Office / Branch office / representative Office abroad and allowing remittance for initial expenses and recurring expenses for maintenance of such office abroad.

The authorised dealers are required to obtain from the applicants a statement in form ORR where remittance is allowed from EEFC account and to submit copies of such statements to the Regional office of Reserve Bank of India after adding their certification thereon along with the monthly statement in form ORA

This circular now permits discontinuance of forwarding the statement in form ORR to Reserve Bank. Further the statement in form ORA should be submitted to the Regional office of Reserve Bank on half yearly basis instead of on a monthly basis by the authorised dealers.

Circular No.41 dated April 29, 2002

Re: External Commercial Borrowings - Crystallisation of Liability

In cases where the loan liability of the Corporates of India, who have raised External Commercial Borrowings (ECBs) for which a Guarantee or a Letter of comfort has been given by a bank in India, and such liability has devolved on the banks, this circular now permits banks to crystallize their foreign exchange liability in rupees, in select cases where circumstances so warrant, keeping in view the status of the account of the borrower who had raised external commercial borrowings.
The circular also suggests the method of making application to the RBI for the said purpose.

Circular No.43 dated April 30, 2002

Re: Indian Direct Investments in Joint Ventures/ Wholly owned subsidiaries Outside India.
This circular is in supplement to Notification No. FEMA a9/ RB-2000 dated 3rd May 2000.

For streamlining the monitoring mechanism for overseas direct investment by Indian parties, it has been decided that authorised dealers may designate select branches at different centres to undertake foreign exchange transactions in connection with overseas direct investment under Regulation 6 and 17B of Notification No FEMA. 19/RB - 2000 dated May 3, 2000

Circular No.45 dated May 14, 2002

Re: Remittance of Current Income By NRIs.
ADs can allow remittance of Current Account in India by debit to the Non - resident (Ordinary) Rupee (NRO) accounts of the account holder vide paragraph 3(B)(ii) of Schedule 3 to Notification No 5 (Foreign Exchange Management Deposit Regulation 2000) dated May 3, 2000 under the FEMA, 1999.

Through this circular RBI has now permitted the ADs to allow repatriation of current income like Rent, Dividend, Pension, Interest etc. of NRIs who do not maintain an NRO account in India based on an appropriate certification by a Chartered Accountant, certifying that the amount proposed to be remitted is eligible for remittance and the applicable taxes have been paid/provided for.

Circular No.47 dated May 17, 2002

Re: Foreign Exchange Management Act, 1999 - Insurance
Notification No 12 dated 3rd May 2000 prohibits a person resident in India from taking any general or life insurance policy issued by an insurer outside India.

RBI has through this circular now exempted units in Special Economic Zones (SEZs) from the purview of the above notification for the purpose of taking general insurance policies.

ADs can allow remittances towards premium for general insurance policies taken by units located in SEZs from insurers outside India provided the premium is paid by the units out of their foreign exchange balances.

Circular No.49 dated June 4, 2002

Re: Remittance for participation in lottery etc., schemes

In terms of Circular No 22 dated December 7, 2000 and Circular No 2 dated July 27, 2001 which prohibits remittance in any form towards participation in lottery schemes or lottery like schemes, functioning under different names like money circulation scheme, or remittances for the purpose of securing prize money/awards etc., under FEMA, 1999.

RBI has now further clarified that the prohibition on such payments includes payment not only by a resident by use of cash/draft/credit card/debit card etc. but also payments made by non-residents on behalf of residents. As such any person resident in India effecting/remitting such payment directly/indirectly would make himself liable to be proceeded against the contravention of the FEMA, 1999.

Circular No.51 dated June 24, 2002

Re: Indian Direct Investment in Joint Ventures (JV)/wholly owned subsidiaries (WOS) outside India

In terms of Circular No 13 dated June 24, 2002, investments made under the automatic route for overseas direct investment, authorised dealers are required to forward to RBI, form ODA alongwith the prescribed document6s and a report on remittance in form ODR.

RBI has through this circular clarified that for streamlining the procedure for reporting overseas direct investments in JV/WOS, it has been decided to dispense with the requirement of forwarding of form ODA alongwith the prescribed documents to RBI for investments made under the automatic route by Indian Parties.

RBI has also revised the format of Form ODR (which is to be forwarded by Authorised Dealers)

Circular No.53 dated June 27, 2002

Re: Use of Credit Cards
RBI through this circular, has clarified that International Credit Cards can be used for any purpose for which exchange can be purchased from an authorised dealer in India e.g.: - for import of books, downloadable software or any permissible item under EXIM policy. International Credit Cards cannot be used on Internet or otherwise for purchase of prohibited items, like lottery tickets, banned or proscribed magazines, participation in sweepstakes, payment for call-back services etc., since no drawal of foreign exchange is permitted for such items/services.

RBI has also clarified that Debit Card and ATM Cards can also be used for any purpose for which foreign exchange can be purchased from an AD in India.

RBI has further clarified that Authorised Dealers may receive payment for exports made out of India by debit to the credit cards of an importer, where the reimbursement from the card issuing bank/organisation will be received in foreign exchange.

Circular No.54 dated June 29, 2002
Re: Maintenance of foreign currency account abroad by a company/firm/a body corporate registered or incorporated in India.

This circular is in reference to Notification No. 47 which permits, an Indian entity to open, hold and maintain in the name of its office/branch set up outside India, a foreign currency account with a bank outside India by making remittance for the purpose of normal business operations of the said office/branch or representative subject to conditions stated in the notification.

This circular specifies the terms and conditions for allowing remittances for the purpose of normal business operations of the office. The overseas office (trading/non-trading) /branch representative should not create any financial liabilities, contingent or otherwise for Head office in India, nor should it invest surplus funds abroad without prior approval of RBI and such surplus funds should be repatriated to India.

The overseas office/branch of software exporter company/ firm may repatriate to India 100% of the contract value of each 'off-site' contract as also atleast 30% of the contract value of each 'on-site' contract and may utilise the balance amount (70%) of the contract value of 'on-site' contracts for contract related expenses including office/branch expenses abroad. A duly audited yearly statement showing receipts under 'off-site' and 'on-site' contracts undertaken by the overseas office, expenses and repatriation thereon may be sent to the ADs.

The circular also requires reporting to the ADs about the details of bank account opened in the overseas country.