Queries on EEFC circular RBIs response

ANNEX

Serial No 1

Query A customer has balance of USD 4 million in his account. He has sold 3 months forward or bought 3 month put option for USD 3 million on 2nd May 2012, against the balance in his EEFC account. The customer can not convert 50% of USD 4 million balances in his EEFC account now, as amount of USD 3 million is earmarked for forward / option contract. Therefore, there is need for clarification.

Available balances may be arrived at by netting off earmarked amounts on account of outstanding forward / option contracts against the EEFC balances. Forward/option contracts based on past performance or export orders may be also excluded from available balance, if the customer instructs to earmark EEFC balance.

On 14 June 2012, a customer has an export transaction of USD 2 million and he expects realisation in October. On 1st Aug, he sells 3 month forward or bought 3 month put option for USD 2 million, against this order. Now, if he receives the proceeds in Sep 12, he needs to park entire USD 2 million in EEFC account and use it for settlement on the due date. If he is required to convert half the amount to INR i.e. USD 1 million, he will not be left with adequate balance to utilise his contract maturing in October

The customer is allowed to retain in the EEFC account amount equal to the forward cover / option contract booked and balance may be dealt with in terms of our circular.

A customer has payment obligation of USD 1 million for his imports The EEFC balances at the time of booking the purchase (of after 2 months. He has zero balance in EEFC account and he books customer) contract is to be taken into account and not on the call option or buys USD 1 million 2 month forward for this transaction. settlement date. On the due date, he has balance of USD 2 million in his EEFC account. As per the above circular, he is required to utilise the balance in his EEFC account before purchasing foreign exchange. If he does that, he will not be utilising related forward / option contract. A customer has balance of USD 1 million in his EEFC USD Yes. Customers will have to utilize the balance in the EEFC account. He receives import bill of Yen 40 million. Is he required to account irrespective of the currency in which it is held. utilise the balance in EEFC USD account to settle the import bill in JPY?

Whether 50% of the balance in EEFC account held as of the circular date today (i.e. reference date) be converted forthwith into rupee balance. For e.g. A situation where a client has 100 USD in his EEFC account as of the reference date and he intends to make import payment of 80 USD on the 5th day from the reference date. In such a scenario whether he will be able to utilise the 80 USD or be restricted to 50 USD.

Customer has to convert USD 50. Thereafter, he has to utilise balance amount of USD 50 for partial import payment. Balance import payment of USD 30 will have to be purchased from the market. EEFC account holders who based on the business cycle, hold balances for less than a week may approach Reserve Bank of India separately through their ADs.

Whether the conversion of 50% of the balances ( stock balances) for No only the future forex earnings as mentioned in para 2(b) & 2(c) RFC and DDA should be converted like that in case of EEFC. Please of the circular. note that point 4 of the circular mentions that provisions of only 2(b) and 2(c) apply for RFC and DDA accounts Where client has EEFC accounts with other banks, can the EEFC Yes balances be moved from that bank to the remitting bank for effecting payment for outward remittances. As per RBI circular EEFC account holders henceforth will be No permitted to access the forex market for purchasing foreign exchange only after utilising fully the available balances in the EEFC accounts. Can client be allowed to book forward purchase contract for a forward date even he has enough balance in his EEFC account? An export client had availed a FCY export loan (PSCFC) of USD 50M against an export bill of USD 100M which is now realised. Client wishes to use USD 50 M out of the realisation to liquidate the PSCFC and retain the remaining USD 50M in his EEFC a/c. Export proceeds of USD 50 mio will be used for liquidating PSCFC account. 50 % of the balance amount $ 50 i.e. $ 25 will have to be converted and USD 25 can be parked in EEFC account.

10

Client has USD 100M in his EEFC a/c today. He has to mandatorily No. He will have to first convert USD 50 mio. He has to thereafter convert USD 50 M into INR balances within a fortnight. The client now utilise balance amount USD 50 mio to retire import bill of USD 50 wants to utilise USD 50 Mio for retiring an import bill (within this mio. fortnight). Subsequent to this import payment the clients EEFC balance will be USD 50 M and he wishes to not convert any more USD from his EEFC a/c.

11

Client has USD 100 M in EEFC a/c. He wishes to book import forward The options at (a) and (c) may be allowed. contract for USD 50 M. Since booking a forward contract also amounts to access to forex markets we ask him to utilise the EEFC first. The client has asked for clarifications on the following 4 alternatives he has : a) Liquidate EEFC balance of USD 100 M & book forward contract of USD 50 M b) Liquidate EEFC to the extent of USD 50 M i.e. equal to the amount of import forward contract to be booked. c) Instead of liquidating EEFC to the extent of USD 100 M, client books a sell USDINR forward contract of USD 100 M to sell EEFC balances forward and simultaneously books the Import contract for USD 50M d) Client books a sell USDINR forward contract of USD 50 M to sell USD 50 M of EEFC balances forward - equal to the amount of the import forward contract he wishes to book and then books the import forward contract. Client does not give directions within a fortnight to liquidate 50% of 9th Directions from client, mentioned in the circular, relate to the May EOD EEFC balance in his account. account to which the Rupee proceeds are to be credited and not for liquidation of the EEFC balances. Client has been accumulating EEFC balances to deliver against Customer may be allowed to hold export proceeds in EEFC option contracts booked to hedged exports against Past Performance. account to the extent amount earmarked in EEFC account for Forced conversion of 50% will mean, there will be less FCY to settle utilisation of forward contract the option hedges under PP. In this case at the time of forced EEFC liquidation to the extent of 50% the client would ideally be cancelling the export hedges to that extent (he cannot early deliver because these are option hedges). However as per the current regulations PP contracts should only be settled by delivery and in cases where the PP contracts have to be cancelled the gains cannot be passed to clients. So what does a client, who has in the money PP option hedges do with his option hedges, when he is forced to liquidate his EEFC balances?

12

13

14

Will the customer be allowed to book forward contract to buy dollars if If customer undertakes to utilise $ 50,000 for imports purpose, he they already have EEFC balances on the date of booking the forward can thereafter book forward contract for USD 150,000/cover? For example, if a customer has EEFC balance of USD 50,000 in his account but he wants to book a forward contract for purchase of USD 200,000 value 31 May 2012, then will he be allowed to book a contract for USD 200,000 or he will be allowed to book only USD 150,000 (USD 200,000 less EEFC balance of USD 50,000). Declaration while selling foreign exchange to their constituents Yes. The customers need to declare that they have exhausted the Should it cover other banks also? EEFC/RFC/DDA account balances maintained with other banks also. Treatment of FCY transactions done on the same value date Can be netted off. Whether this regulations would also apply to foreign currency The regulations are only applicable to EEFC, RFC and DDA accounts opened by SEZ units accounts as mentioned in the circular.

15

16 17