CIR. NO. 22/2006-07-RB, DT. 13/12/2006

Booking of Forward Contracts Based on Past Performance

Attention of Authorised Dealer Category - I (AD Category - I) banks is invited to A.P.(DIR Series) Circular No.19 dated January 24, 2002, A.P.(DIR Series) Circular No.63 dated December 21, 2002 and A.P. (DIR Series) Circular No.26 dated November 1, 2004. At present, AD Category - I banks may allow importers and exporters to book forward contracts on the basis of a declaration of an exposure and based on past performance upto the average of the previous three financial years (April to March) actual import/export turnover or the previous year’s actual import/export turnover, whichever is higher, subject to the specified conditions. Forward contracts booked in excess of 25 per cent of the eligible limit shall be on a deliverable basis and cannot be cancelled. The aggregate forward contracts booked during the year and outstanding at any point of time should not exceed the eligible limit. Further, the eligible limits are to be computed separately for import and export transactions.

2. As announced in the Mid-term Review of Annual Policy for the Year 2006-07 (para 105), with a view to providing greater flexibility to importers and exporters it has been decided to further liberalise the above facility. Accordingly, the forward contracts booked on the basis of declaration of exposures by importers/exporters and based on past performances in excess of 50 per cent of the eligible limit shall be on a deliverable basis and cannot be cancelled. All other conditions and reporting requirements prescribed for this facility will remain unchanged.

3. AD Category - I banks may bring the contents of this circular to the notice of their constituents and customers.

4. The direction contained in this circular has been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act 1999 (42 of 1999) and is without prejudice to permissions/approvals, if any, required under any other law.

Yours faithfully,

(Salim Gangadharan)
Chief General Manager-In-Charge

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Master Circular

A 2. AD banks may also allow importers and exporters to book forward contracts on the basis of a declaration of an exposure and based on past performance upto the average of the previous three financial years’ (April to March) actual import/export turnover or the previous year’s actual import/export turnover, whichever is higher, subject to the following conditions:

a) The forward contracts booked in the aggregate during the year and outstanding at any point of time should not exceed the eligible limit i.e the average of the previous three financial years’ (April to March) actual import/ export turnover or the previous year’s actual import/export turnover, whichever is higher. Contracts booked in excess of 25 per cent of the eligible limit will be on deliverable basis and cannot be cancelled. These limits shall be computed separately for import/export transactions.

b) Any forward contract booked without producing documentary evidence will be marked off against this limit.

c) Importers and exporters should furnish a declaration to the AD banks regarding amounts booked with other authorised dealers category-I under this facility.

d) An undertaking may be taken from the customer to produce supporting documentary evidence before the maturity of the forward contract.

e) Outstanding forward contracts higher than 50 per cent of the eligible limit may be permitted by the AD bank on being satisfied about the genuine requirements of their constituents after examination of the following documents:

I) A certificate from the Chartered Accountant of the customer that all guidelines have been adhered to while utilizing this facility.

II) A certificate of import/export turnover of the customer during the past three years duly certified by their Chartered Accountant/bank in the format given in Annex-VI.

f) In the case of an exporter, the amount of overdue bills should not be in excess of 10 per cent of the turnover, to avail the above facility.

g) AD banks are required to submit a monthly report (as on the last Friday of every month) on the limits granted and utilized by their constituents under this facility in the format given in Annex-IX. The report may be forwarded to The Chief General Manager, Reserve Bank of India, Foreign Exchange Department, Forex Markets Division, Central Office, Mumbai-400 001.

NOTE: Limits specified in paragraph A.2 pertain to forward contracts booked on the basis of declaration of an exposure. When forward contracts are booked by the AD bank after verification of documentary evidence, these limits are not applicable and such contracts may be booked up to the extent of the underlying.

A.P.(DIR Series) Circular No.63, December 21, 2002

A.P.(DIR Series) Circular No.19, January 24, 2002

A.P.(DIR Series) Circular No.93, April 5, 2003

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