Foreign Exchange Developments

August 2011

1. Exim Bank’s Line of Credit of USD 4 million to the Government of the Co-operative Republic of Guyana

Export-Import Bank of India (Exim Bank) has concluded an Agreement dated July 26, 2010 with the Government of the Co-operative Republic of Guyana, making available to the latter, a Line of Credit (LOC) of USD 4 million (USD four million) for financing eligible goods, services, machinery and equipment including consultancy services to be exported from India for the purpose of acquiring, installing and commissioning of fixed and mobile irrigation pumps in Guyana.

The Credit Agreement under the LOC is effective from July 19, 2011 and the date of execution of Agreement is July 26, 2010. Under the LOC, the last date for opening of Letters of Credit and Disbursement will be 48 months from the scheduled completion
date(s) of contract(s) in the case of project exports and 72 months (July 25, 2016) from the execution date of the Credit Agreement in the case of supply contracts.

[A.P. (DIR Series) Circular No. 07 dated August 02, 2011]

2. Investment in the Units of Domestic Mutual Funds

It has been decided, in consultation with the Government and the Securities and Exchange Board of India (SEBI), to allow non-resident investors (other than SEBI registered FIIs and SEBI registered FVCIs) who meet the Know Your Customer (KYC) requirements of SEBI, hereinafter called ‘Qualified Foreign Investors’ (QFIs), to purchase on repatriation basis rupee denominated units of equity schemes of domestic MFs issued by SEBI registered domestic MFs in accordance with the terms and conditions as stipulated by the SEBI and the Reserve Bank from time to time in this regard.

The QFIs may invest in rupee denominated units of equity schemes of domestic MFs issued by the SEBI registered domestic MFs under the two routes, namely:

1. Direct Route – SEBI registered Depository Participant (DP) route

2. Indirect Route – Unit Confirmation Receipt (UCR) route

These investments would be subject to the following terms and conditions:

General Conditions

i) Investments by the QFIs would be subject to a ceiling of USD 10 billion under both the routes. For the purpose of this ceiling of USD 10 billion, total amount invested for the purchase of domestic MFs units by all QFIs and the money lying in the single rupee pool bank accounts of DPs would be added. SEBI will monitor the ceiling of USD 10 billion on daily basis through the concerned domestic MFs and DPs.

ii) The investment under both the routes by the QFIs will be in the units which are directly issued by the domestic MFs and no secondary market purchases would be allowed.

iii) Only QFIs from jurisdictions which are compliant with the FATF standards and are signatories to the IOSCO’s Multilateral Memorandum of Understanding will be eligible to invest in domestic MFs under this Scheme.

iv) DPs will ensure KYC of the QFIs as per the norms prescribed by SEBI.

v) Domestic MFs would also undertake KYC of the QFIs.

vi) Units and UCRs issued under this scheme to QFIs, would be non-tradable and nontransferable.

vii) The DP route will be operated through separate single rupee pool bank account to be maintained by the DP with a AD Category I Bank in India. The funds received from the QFIs into this account shall be remitted to the domestic MF either on the same day of the receipt of the funds from QFIs or by next business day in case money is received after business hours, failing which the funds would be immediately repatriated back to the QFI’s overseas bank account. The redemption proceeds of the units will also be received from the domestic MF into this account and shall be repatriated to the overseas bank account of the QFI within two working days of the same having being received in the rupee pool account of the DP. Within these two working days the redemption proceeds can also be utilised for further investment by the QFI under this scheme. The foreign inward remittances in to the single rupee pool bank account of DPs shall be received only in permissible currency (i.e., freely convertible currency). Dividend payments on units held by QFIs would have to be directly remitted to the overseas accounts of the QFIs by the domestic MFs and dividend payments to QFIs would not be allowed as an eligible credit to the single rupee pool bank account.

viii) QFIs would be allowed to open a single demat account with a DP in India for investment in rupee denominated units of different domestic MFs equity schemes. However, the QFIs would not be allowed to open a bank account in India.

ix) Domestic MFs would be allowed to open foreign currency accounts outside India for the limited purpose of receiving subscriptions from the QFIs as well as for redeeming the UCRs.

x) The UCR will be issued against units of domestic MF equity schemes.

It has also been decided to allow QFIs to invest (under both the routes – Direct and Indirect, subject to the terms and conditions mentioned in para 3 above) up to an additional amount of USD 3 billion in units of domestic MF debt schemes which invest in infrastructure (‘Infrastructure’ as defined under the extant ECB guidelines) debt of minimum residual maturity of 5 years, within the existing ceiling of USD 25 billion for FII investment in corporate bonds issued by infrastructure companies.

Investments by QFIs in units of domestic MFs, as above, shall also comply with the provisions of FEMA Notification 1 dated May 3, 2000, as amended from time to time.

[A.P. (DIR Series) Circular No. 08 dated August 09, 2011]

3. Opening and Maintenance of Rupee/ Foreign Currency Vostro Accounts of Non-resident Exchange Houses

Attention of Authorised Dealer Category-I (AD Category-I) banks is invited to the A.P.(DIR Series) No.28 [A.P(FL/RL Series) Circular No.02] dated February 06, 2008 on the Memorandum of instructions for Opening and Maintenance of Rupee/Foreign Currency Vostro accounts of Non-resident Exchange Houses and the subsequent amendments thereto.

In terms of para (A) (1) of Annex-I of the aforementioned circular, under the Rupee Drawing Arrangements (RDAs), inward remittances for permissible purposes are received in India through Exchange Houses situated in Gulf countries, Hong Kong and Singapore, with prior approval of the Reserve Bank. With a view to extending the scope of the said Arrangement to other jurisdictions, it has been decided to extend the Rupee Drawing Arrangements (RDAs) only under the Speed Remittance procedures to Exchange Houses situated in Malaysia.

The other instructions issued vide the above mentioned circular, as amended from time to time remain unchanged.

[A.P. (DIR Series) Circular No. 09 dated August 29, 2011]