Foreign Exchange Regulations

Foreign Exchange
- Means Foreign Currency and includes Deposits,
credits and balances payable in any Foreign currency.

- The FOREX stock includes foreign currency assets,

balance kept abroad, instruments payable in foreign
currency and instruments drawn abroad but payable
in Indian currency.
 Exchange Control Regulations

• First introduced in India in 1939

• Placed on statutory footing through
FERA in 1947.
• FERA consolidated in 1973.
 Exchange Control Regulations
Objective of ECR:
i) Conservation of Foreign exchange.
ii) Proper accounting of forex receipts and payments.
iii) Stabilizing of external value of Rupee.
iv) Control over remittances abroad to prevent flight of scarce
capital
v) Supervision of NRI accounts to prevent BOP deficit.
vi) To check smuggling.
vii) To fulfill IMF obligations.
 Foreign Exchange Management
Act (FEMA)
-Act passed on Dec.02,1999 replacing Foreign Exchange Regulation
Act (FERA), 1973.
-Act deals with entire Foreign Exchange Matters.
-Came into effect from 01 June 2000.
- Extends to entire Country, all branches, offices, agencies outside
India (owned or controlled by a person in India)
- Offence in case of FERA was Criminal and in FEMA it is Civil.
 Forex Transactions
• No person can make any payment directly to or
for the credit of any person residing outside India.
• No person can receive any payment directly from
or on behalf of any person outside India.
• All transactions to be routed through an authorized
agent (i.e. AD or FFMC)
 Authorized Persons
1) AD category – I:
- Comprises of Commercial, State & Urban Co-op Banks.
- All current and capital account transactions as per RBI
directions can be undertaken
2) AD category – II
- Comprises of upgraded FFMCs, Co-op banks, RRBs and
others.
- Specified non-trade related current account transactions
undertaken by AD III and activities permitted to FFMCs
- Any other activity decided by RBI.
 Authorized Persons

3) AD category – III:
- Comprises of Select financial and other institutions.
- Specified non-trade related current account
transactions.
4) Full Fledged Money Changers (FFMCs)
- Comprises department of posts, urban co-op banks and
other institutions authorized by RBI.
 Functions of Authorized Dealers
• Authorized Dealer can handle all kinds of Foreign Exchange
transaction. Following are the main function of an Authorized Dealer.
i. Exchange of Foreign Currencies.
ii. To make arrangement with Foreign Correspondent.
iii. Buying and Selling foreign Currencies
iv. Handling of Inward and Outward Remittance
v. Opening of L/C and Settlement of Payment
vi. Investment in Foreign Trade
vii. Opening & maintenance of Accounts with Foreign Banks.
viii. Export Documents handling.
 Type of Transactions
(1) Current Account Transactions
- The transactions which are not capital
transactions.
- Mainly relate to Import and Export of goods and
services
- Current account transactions are of following
categories:
..Current Account Transactions……….categories
a) Schedule I (prohibited category)
 Transactions with Nepal & Bhutan.
 Remittance of earnings from lottery/racing etc.
b) Schedule II
 Transactions requiring Govt. approval
c) Schedule III
 Transactions where ADs can freely allow remittances up to prescribed limits.

 RBI permission will be required for remittance exceeding the limits.

d) all other transactions:
 for which ADs can allow remittances without monetary limits
 The exporters and importers get most of their transactions through ADs. Few
cases require RBI permission.
2) Capital Account Transactions

The transactions that change the asset or liability

position. These include:
• Investment in foreign securities.
• Purchase/sale of assets.
• Acquisition and transfer of immovable property.
• Any other transaction which is of capital in nature.
 Convertibility

Means if the holder of any currency can

convert it into gold or any other generally
acceptable foreign currency, without any
restrictions of Monetary authority.
 Current Account Convertibility
• Full convertibility on current account transactions was introduced by
RBI in 1994.
• Current account convertibility allows free inflows and outflows for all
purposes.
• It allows residents to make and receive trade-related payments --
receive dollars (or any other foreign currency) for export of goods and
services and pay dollars for import of goods and services
• Make sundry remittances, access foreign currency for travel, studies
abroad, medical treatment and gifts, etc.
 Capital Account Convertibility

• Means freedom to convert local financial assets into

foreign financial assets and vice versa at market
determined exchange rates.
• Residents Indians can convert their rupee savings into
foreign currency over the counter and sell assets held in
India and remit the proceeds overseas to acquire assets in
foreign country.
• However, investments and borrowings are restricted.
 Balance of Payment
Summary of the economic transactions of the residents of a country with the non-
residents outside India is BoP.
1) Export of goods
2) Import of goods
3) Balance of Trade (1-2) (surplus of deficit)
4) Export of services (invisibles)
5) Import of services (invisibles)
6) Net position of invisibles (4-5) (+ or -)
7) Current account (3+6) (+ or -)
8) Net position of Capital account (FDI in India and abroad, Loans, Banking
capital, NRI deposits etc.)
9) Balance of Payment (net of 7 and 8) (If +ve it is called surplus and if –ve
it is called deficit)
 Currency Accounts
1) Nostro Account:
• Account maintained by a bank in India (say
PNB) with a bank abroad (say CitiBank) in
US$.
• Also called our account with you.
• All txns. In foreign exchange (viz. issue of
draft, collection of bills abroad) are routed
through Nostro account.
 Currency Accounts
2) Vostro Account:
• Account maintained by a Foreign bank (say CitiBank)
with a bank in India (say PNB) in Indian Rupees.
• Also called your account with us.
• Credits to Vostro account amounts to remittance of
FOREX from India.
• Debits in Vostro account mean inflow of foreign
currency in-to India.
 Currency Accounts
3) Loro Account:
• If a bank in India (say PNB) has Nostro
account with Citibank, NY and another Indian
bank (say Vijaya Bank) wants to refer to that
Nostro account while corresponding with
Citibank. This account will be called LORO
for Vijaya Bank
• Also called their account with them.
 Currency Accounts
4) Mirror Account:
• The account of a foreign bank, as maintained
in the books of a bank in India.
• It is the exact copy of the entries in Nostro
account.
• While, in Nostro account , credit entry is made
on purchase of foreign currency and debit on
sale, the reverse entries are made in Mirror
account.
 Categorization of Branches
Category ‘A’: Branch that maintains Nostro &
Vostro accounts.
Category ‘B’: Branches that do not maintain
Nostro/Vostro accounts but could operate such
accoutns maintained by category ‘A’ branches
Category ‘C’: Branches that conduct their business
through ‘A’ or ‘B’ category branches
Exchange rate Quotations:
• Exchange rate is the rate at which one currency is converted into
another currency.
• Foreign currency in FOREX dealings is considered as commodity
with varying prices.
• All debit or credit transactions in foreign currency are termed as sale
or purchase.
• When bank acquires foreign currency, it is a purchase transaction.
(encashment of FTC)
• When bank parts with foreign currency, it is a sale transaction.
(issuance of Traveler cheque)
• Banks quote two different rates i.e selling rate and buying rate, to
keep margin between the rate for sale and purchase.
• Exchange quotations are of 2 categories:
1) Direct Quotations: (prevalent in India)
 Fixed units of foreign currency and variable units of home
currency (1 US$ = Rs.49.10)
 To earn profit ‘Buy low and sell high’
 When Rs. Appreciates it is beneficial to the importer and when it
depreciates it is beneficial to the exporter.
2) Indirect Quotations:
 fixed units of home currency and variable units of foreign
currency. (Rs.100 = US $ 2.15)
 To earn profit ‘buy high and sell low’.
Inter Bank Rates
In the inter bank market, both buying and selling rates are
quoted (viz. 43.20/40).
This indicates that market buying rate for 1$ is Rs.43.20 and
selling rate for 1$ is 43.40
Bid and Offer Rate
- Bid rate means buying rate for quoting bank.
- Offer rate means selling rate for quoting bank
- These are quoted as 1 US $ 43.20/40
Spot and Forward Transactions
In a contract, the actual payment in rupees and receipt in foreign
currency may take place on the same day, two days later or a
month later.
Value Date
- The time factor is taken into consideration by the banks while
quoting rates (i.e. how much time is going to be taken to get
foreign currency credited in NOSTRO account).
- The date arrived at accordingly is known as Value Date.
- There are following rates defined according to the time frames :
Cash/Ready Rate
When payment in rupees and receipt in foreign currency
takes place on same day.
Tom Rate and Spot Rate
- When the contract is deliverable after some time due to
time involved in administration of transaction:
- It may be TOM rate, if deal is settled on the immediately
succeeding working day (T+1 day)
- It may be SPOT rate, if the deal is settled within 48 hours
(T+2 days).
 Forward Rate
- When the contract is deliverable on some pre-determined future date it
is called forward contract and forward rates apply.
- The forward rate is either costlier or cheaper than its spot rate.
- It may be at premium or at discount.
- When foreign currency is available at higher price on future date, it is
said to be on Premium.
- When foreign currency is available at lower price on future date, is
said to be at a Discount.

Forward Premium Forward Discount

Spot rate 1US $=Rs.48.20 Spot rate 1 US $= Rs.48.20
Forward 1 US $=Rs.48.50 Forward 1 US $= Rs.48.00
 Buying and Selling Rates
- Depending upon the time taken in realisation of FOREX by the bank
to its NOSTRO account, banks charge different rates for different
transactions:
TT Buying rate
- when no delay is involved in realization of forex by correspondent
bank, or Nostro account is already credited. (e.g. purchase of draft
issued by correspondent bank)
Bills Buying rate
- When there is some delay in realization of foreign exchange in Nostro
account. (e.g. purchase, discount, negotiation of foreign bills).
TT Selling rate
- When forex is deemed to be parted with immediately, this rate is
applied.
- Handling of document by the banks is not involved.
(e.g. clean outward remittances such as DD, TC etc., cancellation
of inward remittances)
Bills Selling rate
- When transaction involve the handling of documents by banks
this rate apply.
(e.g. retirement of import bills even if proceeds are by way of DD
or TT)
 Forward Contracts in FOREX
- Under these contracts, a banker and a customer enter into agreement
to:
• Buy or sell a fixed amount of foreign currency
• On a future specified date.
• At a predetermined rate of exchange.
- These contracts afford adequate protection to an exporter or an
importer against exchange risk.
- Where delivery of forex should take place on specified future date
(say February 10), it is called ‘Fixed Forward Contract’.
- Where customer can sell/buy forex on any day during given period
(say between February 5 to February 15), is known as ‘Option
Forward Contract.
Cover Deal
- Purchase and sale of Forex done by bank to acquire or dispose off
foreign currency as a result of sale of purchase made by a
customer.
- The objective is to save the bank from exchange rate fluctuation.
- To keep the stock of FOREX near zero.
SWAPs
- Simultaneous sale and purchase of a currency for identical amount
but for different maturities.
- Unlike ordinary deals, the difference between buying and selling
rates is ignored and buying and selling is done at same rate.
Arbitrage
Simultaneous buying and selling of same
currencies in different markets, for the
purpose of profit booking.
(purchase of USD 25000 in Mumbai at
prevailing rate of 48.20 and simultaneous
sale of USD 25000 in New York at 48.00)
Positions in foreign currency
Where no balance is receivable of payable Closed position
(sale = purchase)
Where balance is either receivable or payable Open position
(sale = purchase)
Sale > purchase Oversold or Short position
Purchase > sale Overbought or Long position
Short position is squared up by Purchase of Foreign currency
If rates increase while squaring short position Bank incurs loss
If rates decline while squaring short position Bank gains
Positions in foreign currency
Long position is squared by Sale of foreign currency
If rates increase while squaring long position Bank gains
If rates decline while squaring long position Bank incurs loss
Balance in hand during day time Day light position
Balance in hand at close of the day Overnight position
How the parties gain and loose in rate movement

Party Forex becoming Forex becoming

costlier cheaper
Exporter (who has Gains Loses
forex
Importer Loses Gains
Bank with overbought Gains Loses
position
Bank with oversold Loses gains
position
 Resident Indian
In terms of FEMA 1999 a person resident in India means:
• A person residing in India for more than 182 days during the
course of preceding financial year but does not include:-

A person who has gone out of India or who stays outside India, in
either case-
- for or an taking up employment outside India or
- for carrying on outside India a business or
- vocation outside India or
- for any other purpose, in such circumstances as
- would indicate to stay outside India for an uncertain period;
 Resident Indian
- any person or body Corporate registered or
incorporated in India,
- an office, branch or agency in India owned
or controlled by a person resident outside
India
- an office, branch or agency outside India
owned or controlled by a person resident in
India.
 Non Resident & Non- Resident
Indian
As per FEMA, a person who is not a resident, called Non-
resident.
NON RESIDENT INDIAN (NRI)
A person holding Indian Passport, who has gone abroad
for:
- Gainful employment or
- Business or vocation or
- Any other purpose indicating and indefinite stay outside
India or
- Working abroad on temporary foreign assignment
- Indian students pursuing studies abroad.
 Person of Indian Origin (PIO)
Is a person:
- Who at any time held an Indian Passport
- A foreigner (except citizen of Pakistan,
Bangladesh, Sri Lanka, Afghanistan, China,
Nepal, Bhutan, Iran) whose parents or
grand parents were the citizen of India.
- Foreigner spouse of Indian citizen.
Overseas Corporate Body (OCB)

- Company, partnership firm, society and

other corporate body owned directly of
indirectly to the extent of at least 60% by
NRIs
 Deposit Accounts of Non Resident Indians
FCNR (Foreign currency NRE (Non resident external NRO (Non resident ordinary
Particulars
Non resident A/c) rupee A/c account
Who Can Open NRIs* NRIs* Any person resident outside India*
*Individuals/entities of Bangladesh/Pakistan Nationality/ownership require permission from RBI.
Joint Account Permitted with Non Residents Permitted with Non residents Permitted with Residents
Type of Accounts Term Deposits only SB, CA, FD, RD SB, CA, FD, RD
Currency GBP, USD, Euro, Yen, Aus & INR INR
Can dollar
Repatriability Repatriable Repatriable Current Income and Interest
Repatriable. Principal Not-
repatriable
Source of Funds Foreign Inward Remittance & Foreign Inward Remittance & Local funds or Foreign inward
Transfer from NRE account Transfer from FCNR account remittance

Period of FD 1 -5 years 1-3 years As applicable in domestic

Rate of Interest Fixed/Floating. Within ceiling TD-Within ceiling of TD – Banks are free to determine.
rate of LIBOR/SWAP+100 BP. LIBOR/SWAP + 175 BPfor
SF – As fixed for domestic deposit.
For floating interest reset at 6 USD of corresponding maturity
months SF-as applicable to
domestic deposit
Others Interest is payable HY basis on Funds of local origin cannot be Repatriation up to USD 1 million/FY
360 days a year basis. credited in these accounts allowed subject to payment of taxes.
No interest paid is deposit No holding period for repatriation of
withdrawn within one year sale proceeds of IP (earlier 10 years)
Other Features of NRI deposit accounts
- Nomination facility available in all the accounts.
- Loan can be given against security of Term Deposit for
personal/business purpose except for
agriculture/plantation/real estate/relending purpose
- Ceiling of loan against FCNR/NRE deposit is Rs.100 lac.
(previously Rs.20lac)
- No new NRE/FCNR/NRO account in the name of OCBs
should be opened and no renewals be made.
- Banks may accept FD for more than 3 yrs in NRE account
but should not offer higher rate for this period.
- Facility of operation of accounts by power of attorney
holder extended to NRO accounts
- Foreign tourists can open NRO account up to a max.
period of 6 months.
 DEPOSIT SCHEMES FOR RESIDENT INDIANS
Particulars Resident Foreign Currency (RFC) Resident Foreign Currency- Exchange Earner’s Foreign Currency
A/c Domestic (RFC-D) A/c (EEFC) A/c
Who Can Open Earlier NRI, became Resident on Resident Individuals Resident individuals including firms
of after 18/04/92 companies etc.
Source of Fund 1. Forex received as pension/ Forex acquired: All categories of foreign exchange
superannuation/ other earners are now allowed to credit
1.While on visit abroad by way
benefits from employer upto 100% of their Forex earnings
of honorarium/gift.
abroad to EEFC A/c
2.From any person on visit to
2. Realisation of assets abroad Ineligible Credits:
India or honorarium/gift/for
3. Forex acquired as gift or services/settlement of any -Foreign currency loans or
inheritance from person who lawful obligation investments received from outside.
was NRI
3.Representing unspent forex - Funds received for meeting specific
4. From FCNR/NRE A/c. acquired during travel abroad obligations

Type of Accounts SB, CA, TD CA CA

Currency Any Convertible currency USD, GBP, Euro Any convertible currency
Minimum Amt. SB/CA-No min. USD-1000 Nil
FD-USD 5000
Rate of Intt. Linked to LIBOR, in line with No interest payable No interest payable
FCNR deposits, Maturity 1-5 yrs.
End Use No restrictions including For permissible current and For bonafide purposes
investment overseas capital account transactions
Other features of Resident Accounts
- Joint accounts with residents/non-residents not
permitted in above types.
- Loans and overdrafts in India and abroad not
allowed.
- Bonafied remittance in RFC account is freely
permissible.
- Balance in RFC accounts is exempted from
SLR/CRR
- Cheque book facility allowed in RFC-D and EEFC
account but not in RFC account.
Forex Remittance Facility to Residents
AD banks can release FOREX to residents in India as per
rules framed under section 5 of FEMA.
- No release of FOREX for any kind of travel to, or for any
kind of txn. With the persons of Nepal and Bhutan.
- Currency notes/coins only up to US$3000. Balance as
traveller’s cheques or drafts.
- For Iraq and Libia currency notes and coins not exceeding
US$5000 or its equivalent.
- For Iran, Russian fedration no ceiling.
- Forex to be used within 180 days of purchase.
- Unused Currency notes and TCs to be surrendered within
180 days of return.
Forex Remittance Facility to Residents
- Forex can be purchased up to Rs.50000/- in cash and
above that through DD/Cheque etc.
- Foreign currency/traveler chq. Upto US$2000 and foreign
coins without any ceiling can be retained by the traveller
for his subsequent visits abroad.
- Any person can bring/send Indian Currency upto Rs.5000
from/to any country, other than Nepal or Bhutan. AND any
amount from Nepal or Bhutan, but denomination not
exceeding Rs.100/-.
- AD may release up-to USD5000 on the basis of simple
request letter (without form A2).
- Form A2 to be preserved by banks for 1 year for
verification by auditors.
Forex Remittance Facility to Residents
- There are no restrictions on the amount of foreign currency
to be brought to India. However, if the total amount of
foreign currency notes/coins or travelers’ checks exceeds
USD 10000 or its equivalent, and/or the value of foreign
currency notes exceeds USD5000, it is required to be
declared to the Indian Customs authorities on a Currency
Declaration Form (CDF).
- A certified copy of the CDF handed over to the traveler.
This declaration is essential for the foreign traveler as it
facilitates easy conversion of foreign currency into Indian
currency and also reconversion of the unspent balance of
Indian rupees into foreign currency at the time of departure
from India.
 Release of Foreign Exchange
Purpose Amount US $
- Business Trip abroad • 25000
- Medical treatment without any proof • 100000
(beyond 100000 as per cost estimates of
doctor/hospital)
- Studies abroad (per acedimic session) • 100000
- Tour/Visit abroad (per FY) • 10000
- Immigration • 100000
- Employment • 100000
- Maintenance of relative abroad • 100000
- Remittance without specific purpose • 100000
- Remittance under liberalized remittance • 200000
scheme
 LETTER OF CREDIT

- It is an instrument by which a Bank undertakes to make

payment to a seller on production of documents stipulated
in the credit.
- Provisions of Letter of Credit transactions in the World
Trade are governed by “Uniform Customs and Practice for
Documentary Credit (UCPDC) issued by ICC Paris.
- Latest edition is UCPDC 600.
- Letter of Credit is an instrument facilitating trade wherein
all parties deal in documents and not in goods.
 DIFFERENT PARTIES TO A LETTER OF CREDIT
Applicant The buyer or importer of goods, who requests to open LC to his banker.

Issuing Bank Buyers/Importer’s bank, who opens LC and undertakes to pay seller or
his banker, if all conditions of LC are complied.
Advising Bank Issuing bank’s branch (or correspondent in exporter’s country) to whom
the LC is sent for onward transmission to the seller/seller’s bank.
Advising bank dose not assume any responsibility but to check apparent
authenticity of the LC.

Beneficiary The party to whom the credit is addressed i.e. the seller or exporter.

Negotiating Bank Seller’s bank to whom the seller presents his documents for payment,
negotiation or acceptance under the credit.
Reimbursing Bank The third bank which pays seller or funds the negotiating bank on behalf
of issuing bank.
Confirming Bank The Bank adding confirmation to the credit. It undertakes the
responsibility of payment by issuing bank and on his failure, to pay.
Article 9(b) of UCPDC provided that Confirming bank, in addition to
issuing bank, undertakes to make payment provided that the stipulated
documents are presented to the confirming bank or to any other
nominated bank and the terms of LC are complied with.
 TYPES OF LETTERS OF CREDIT
Revocable & The LC can be modified without consent of beneficiary. If it cannot be, it is
Irrevocable Credit called irrevocable LC. In terms of UCP-600 only Irrevocable LCs can be
issued.
DP Letter of Credit Where the payment is made against documents on presentation.
DA (usance) Letter Where the payment is to be made on the maturity date in terms of the credit.
of Credit The documents of title to goods are delivered to the applicant merely on
acceptance for payment.
With or Without Where the beneficiary holds himself liable to the holder of the bill if
recourse dishonoured, is With recourse. Where he does not, is without recourse. As
per RBI directives dt.23 January 2003, banks should not open LCs and
purchase/discount/negotiate bills bearing ‘without recourse’ clause.
Restricted LC Where a specified bank is designated to pay, accept or negotiate.
Confirmed LCs A credit to which the advising bank or other bank, at the request of the issuing
bank, adds confirmation that the payment will be made. By such additions the
confirming bank steps into the shoes of issuing bank.
Transferable LC Benefit be made available to one or more other parties in whole or in part, if
specifically provided in LC. This could be done only Once. Transferable LC
can be retransferred in the name of 1st beneficiary.
Back to Back LC When the exporter gets another LC issued in favor of his local suppliers on
the strength of the LC issued in his favor. The term of such credit would be
identical except that the prices may be lower and validity earlier.
Types of LCs Contd……..

Red Clause Is a clause printed in RED in LC to provide pre-shipment advance to the

seller on issuing bank’s responsibility. These advances are adjusted from
proceeds of the bills negotiated.

Green Clause LC permits the advance for storage of goods in a warehouse in addition to
pre-shipment advance.

Revolving LC Provides that, after drawings are made, the credit reverts to its original
position and made available to the beneficiary again and again during the
currency of LC. RBI prohibits revolving LCs for import into India.

Installment Credit The LC is for full value but allows for part shipment. In case any
installment is not shipped the entire credit extinguishes, unless LC permits
the same

Deferred Credit Where full or part amount is payable at some future date
Important provisions of UCP600
- Banks deal in documents and not in goods, services of performance to which
the documents may relate (Article 5)
- A presentation of documents on behalf of beneficiary must be made not later
than 21 calendar days after shipment (but before expiry date of LC).
- A nominated bank and issuing bank shall each have a 5 banking days
following the day of presentation to determine if the documents are in order.
- If there is no indication of insurance coverage requirement in the LC, the
amount of insurance coverage must be at least 110% of CIF or CIP value.
(Article 28)
- If the expiry date of a Credit or the last day for presentation falls on a day
when bank is closed (for reasons other than Force Majeure), the expiry
/presentation day shall be extended to next Banking day. But the last day of
shipment shall not be extended as a result of this (Article 29)
- Force Majeure: A bank assumes no responsibility for consequences arising out
of the interruption of its business by act of God, riots, civil commotions , war,
strike of lockout or caused beyond its control. (Article 36)
 BANK GUARANTEES

- Section 126 of Indian Contract Act, 1872,

defines guarantees as a contract to perform the
promise or discharge the liability of a third
person in case of his default.
- During the course of business, banks are often
required to furnish guarantees on behalf of
their own customers in lieu of their obligations,
performance or other requirements
 Type of Guarantees
Financial Guarantee:
- Under the contracts entered into by the
customers of the bank, cash deposit or
earnest money is required to be deposited
for due performance of contract.
- The customer may, in lieu of cash/earnest
money, furnish bank guarantee for the same
amount. This construes Financial
Guarantee.
Performance Guarantee:
- The guarantee meant for performance of
contract entered into by the customers.
- The bank agrees and undertake that his
customer shall duly and effectively observe
and perform the conditions of the contract.
- The bank further declares that in the event
of default by the customer in performing the
contract, it will make payment for such
default as agreed in the Performance
Guarantee.
Deferred Payment:
- This is a guarantee for a payment which has been deferred
or postponed.
- Issued in case of purchase of capital goods like
machineries.
- The bank undertakes to pay the installments due under the
DPG.
- Unlike other LGs here the payment has to be made by
banks on accepted due dates and thereafter installment is
recovered from the customer.
- Normally advance payment of 10-15% and payment of
another 10-15% of capital goods on receipt of goods is
made. Balance amount with interest is paid in installments
in 1-7 years which is secured by DPG
Expiry of Guarantee
- On expiry of validity period of LG, Bank sends letter to
beneficiary advising that liability of bank under LG has been
discharged.
- If no reply received by the bank within reasonable period, the
entry is reversed by the bank.
Invocation of Guarantee
- The amount claimed under the guarantee should be paid
immediately if invocation is in accordance with terms of
guarantee.
Limitation Period
- 30 Yrs. Where beneficiary is government & 3 years for others.
- The beneficiary can enforce his remedies till limitation period is
alive from the stipulated expiry date/invocation, whichever is
earlier.