Fedai Rules

FEDAI RULES
R.GOVINDARAJAN
Head-Professional Development centre,
Indian institute of Banking and Finance,
South Zone- Chennai
GOVINDARAJAN RENGACHARY-CTP- 16 09 2022

INDIAN INSTITUTE OF BANKING & FINANCE 1
Session Objectives
1. FEDAI and its Role
2. Hours of Business for Quoting rates
3. Export Transactions
4. Import transactions
5. Clean Instruments
6. Foreign Exchange contracts
7. Early Delivery/Extension and cancellation of FX
contracts
8. Business through Intermediaries
9. Inter Bank Settlement
ABOUT FEDAI
 Foreign Exchange Dealer's Association of India (FEDAI)
was set up in 1958
 It is an Association of banks dealing in foreign exchange
in India (typically called Authorised Dealers - ADs)
 As a self regulatory body
 and incorporated under Section 25 of The Companies Act,
1956.
 It's major activities include framing of rules governing the
conduct of inter-bank foreign exchange business among
banks vis-à-vis public
 and liaison with RBI for reforms and development of forex
market.
FUNCTIONS OF FEDAI
• Guidelines and Rules for Forex Business.
• Training of Bank Personnel in the areas of Foreign Exchange Business.
• Accreditation of Forex Brokers
• Advising/Assisting member banks in settling issues/matters in their dealings.
• Represent member banks on Government/Reserve Bank of India/Other
Bodies.
• Announcement of daily and periodical rates to member banks.
▪ Due to continuing integration of the global financial markets and increased
pace of de-regulation, the role of FEDAI has also transformed. In such an
environment, FEDAI plays a catalytic role for smooth functioning of the
markets through closer co-ordination with the RBI, other organizations like
FIMMDA, the Forex Association of India and various market participants.
▪ FEDAI also maximizes the benefits derived from synergies of member banks
through innovation in areas like new customized products, bench marking
against international standards on accounting, market practices, risk
management systems, etc.
GENERAL GUIDELINES
▪ Member Banks are free to determine their own charges for
various types of forex transactions
▪ Not to be out of line with the average cost of providing
services
▪ Low volume activities are not penalised
▪ Display of merchant card rates
▪ Threshold Amount up to which card rate will apply
▪ Frequency and time of publishing the card rate
▪ All Members shall abide by FEDAI code of conduct 2017 ( as
updated from time to time)and shall submit "Statement of
Commitment” in prescribed format from all the concerned
employee by April each year.
RULE 1- HOURS OF BUSINESS
1. Inter bank transactions in INR/FCY will be from 9.00 AM to 5.00 PM IST on all
working days. ( including client transactions in India). AD may undertake customer
(Person resident in India and persons resident outside India) and inter Bank
transactions on all working days beyond normal market hours.
2. Transactions can be undertaken through foreign branches and subsidiaries can be
undertaken on all working days beyond normal market hours.
3.Transactions, including value cash transactions, for individual persons
(including joint account or proprietary firm) can be undertaken even on Saturdays,
Sundays and holidays as per banks internal policy.
4. For any transaction undertaken beyond normal market hours, NOOP
( Net Overnight Open Position Limit) is to be maintained all the times ( including
transactions executed from EOD to 9.00 AM IST( market opening time) next working
day.)
5. Spot date for Roll over for FCY/INR transactions will take place at 12.00 Midnight
IST. For the purpose of FX transaction business, Saturday will not be treated as a
working day except for the transactions mentioned in 3 as above.

HOLIDAY DEFINITION
▪ “known Holiday” is one which is known at least 3
working days before the date.
▪ A holiday that is not a “ known Holiday” is defined
as a “Suddenly declared holiday”
▪ (e.g.) suppose days 1,2,3 and 4 are all working
days.
▪ If day 4 is declared as a holiday on or after day 1, it
will be a “suddenly declared holiday”
▪ If day 4 is declared as a holiday prior to day 1, it
would be a “known holiday”
RULE 2 – EXPORT TRANSACTIONS
▪ Application of exchange rate (Purchase, Discount and negotiation)
▪ Crystallisation and recovery (Policy/Transparency/customer)
▪ Realisation of bill after crystallisation (TT Buying or
Contracted Rate)
▪ Dishonour of bills (before crystallisation/TT selling rate)
▪ Application of interest ( as per RBI guidelines)
▪ Normal Transit Period ( Notional date and transit period linked to Int.)
✓ Fixed due date ( reckoned from date of shipment/bill of exchange)
✓ DP/sight ( Bill in FC -25 days and Bill under rupees and not
under Letter of Credit - 20 days)
▪ Extending finance beyond prescribed NTP – Max. Period is
restricted up to 90 days from date of shipment.
RULE 2 – EXPORT TRANSACTIONS (contd..)
▪ Export to country under United nations Guidelines – Max 120 days

▪ Bills drawn in Rupees under Letter of Credit (LC)
➢ Reimbursement provided at centre of negotiation – 3 days
➢ Reimbursement provided in India at centre different from centre of
negotiation - 7 days
➢ Reimbursement provided by banks outside India – 20 days
➢ Exports to Russia where reimbursement is provided by RBI – 20 days
▪ TT reimbursement under Letter of credit (LC) – 5 days
( electronic) and with usance –additional period
▪ Substitution/change in tenor ( notional swap cost/outlay of funds)
▪ Export Bill sent for collection

RULE 2 – EXPORT TRANSACTIONS (contd..)
 On receipt of credit advice/statement of Nostro
account and compliances of guidelines requirements
of the Bank and FEMA, the Bank shall transfer funds
for the credit of exporter’s account within two
working days.
 If the above stipulated time limit is not observed,
the Bank shall pay compensation for the delayed
period at the minimum interest rate charged on
export credit.
 Compensation for adverse movement of exchange
rate, if any, shall also be paid as per the
compensation policy of the bank.
RULE 3 – IMPORT TRANSACTIONS
Retirement of import bills Exchange rate as per hedge contract,
if hedge contract is in place
Prevailing bill selling rate, in case

there is no hedge contract
Crystallisation of import bill Same as above
For determination of stamp duty on As per exchange rate provided by the

Import bills authority concerned

RULE 3 – IMPORT TRANSACTIONS (Contd..)
▪ Application of Interest
▪ Bills negotiated under import letters of credit shall
carry commercial rate of interest as applicable to
Bank’s domestic advances from time to time.
▪ Interest remittable on interest bearing bills shall be
subject to the directive of RBI in this regard
▪ Crystallisation of import bills under Letters of
credit
➢ Unpaid foreign currency import bills drawn under
letters of credit shall be crystallised as per the
stated policy of the Bank in this respect.
RULE 4 – CLEAN INSTRUMENTS
▪ Outward remittance ( TT selling or contracted Rate)
▪ Encashment or sale of foreign currency notes and instruments (
appropriate buying or selling rate respectively at AD’s Option)-
FCTC/currency notes/FC in prepaid card/Debit/credit)-ruling on the date
and time of encashment or sale.
▪ Payment of foreign inward remittance- up to certain amount to be
converted immediately provided all information regarding the
beneficiary is available in the remittance
▪ Payment in excess of the certain amount can be converted with due
intimation or consent from the beneficiary. Inward remittance –
applicable exchange rate- TT buying rate or the contracted rate
▪ Compensation for delayed payment
✓ AD should pay or send intimation to the beneficiary in two working days
from the date of receipt of credit advice/ Nostro statement.

RULE 4 – CLEAN INSTRUMENTS (contd.)
✓ On disposal of instructions/required documents the bank shall transfer

funds for the credit of beneficiaries account immediately not exceeding
two business days from date of such receipt.
✓ In case of any delay bank shall pay interest 2% over its Savings Bank rate
and any exchange loss due to currency movement as per its compensation
policy.
✓ If the beneficiary does not respond within five working days from credit
intimation as above, and the Bank does not return the remittance to the
remitting Bank, the bank shall initiate action to crystallise the
remittance subject to:
1) Bank notify due action to the remitting bank and the beneficiary
2) Bank shall crystallize the remittance within certain period as per their
policy, not exceeding the time allowed for surrendering of foreign
currency under any stature or regulation or RBI directions.

RULE 4 – CLEAN INSTRUMENTS (contd.)
Transfer of funds between Vostro accounts with Two banks (w.e.f. 1st April
2013)
▪ Transferor Bank messages carrying Vostro funds should mention in the
Remarks column – “ We undertake to send form A3 separately”
▪ Time limit to receive form A3 is 5 days. Delay beyond 5 days would attract
penalty. The transferee bank should lodge claim with the remitting bank
within 15 days, from the date of transfer of funds.
▪ The penalty amount will be at the rate of Rs. 1000 per day for the period
excess of 5 days from the date of transfer of funds till A3 form is received.
▪ If the beneficiary bank lodges claim after 15 days from the date of
transfer of funds, the claim amount is capped at Rs. 10,000/-
▪ Any dispute between the banks, the matter will be referred to FEDAI

RULE 5- FOREIGN EXCHANGE CONTRACTS
▪ Contract amounts
✓ Definite amount and period
✓ If the contract mentions more than one rate for bills of different
deliveries, the contract must state the amount and delivery against such
rate.
▪ Option period of delivery
✓ Option period is at the discretion of the customer
✓ If the date of delivery is fixed, the date will be mentioned in the
contract. If not, the period of option delivery shall not extend beyond one
month.
✓ If the fixed date of delivery or the last date of delivery option is a known
holiday; the last date for delivery shall be the preceding working day.
✓ In case of suddenly declared holidays, the contract shall be deliverable
on the next working day.
RULE 5- FOREIGN EXCHANGE CONTRACTS (..)
▪ Contracts permitting option of delivery must state the first and last dates
of delivery.
✓ (e.g.) 18th Jan to 17th Feb, 31st Jan to 29th Feb 2016
✓ “Ready” or “cash” merchant contact is deliverable on the same day.
✓ “Value next day” contract shall be deliverable on the working day
immediately succeeding the contract date.
✓ A “spot contract” shall be deliverable on second succeeding working day
following the contract date.
✓ A “forward contract” is a contract is a contract deliverable at a future
date, beyond spot date.
✓ Duration of the contract being computed from spot value date at the
time of transaction.

RULE 5- FOREIGN EXCHANGE CONTRACTS (..)
▪ Place of delivery:
✓ All contracts shall be understood to read “ to be delivered or paid for at
the bank” and “ at the named place.”
▪ Date of delivery: ( for forward contracts)
✓ In case of bills/documents negotiated/purchased/discounted – the date
of negotiation/purchase/discount/ payment of rupees to the customer.
✓ In case the documents are submitted earlier to/or later than the original
delivery date/ or for different usance – the bank may treat it as proper
delivery, provided there is no change in the expected date of realisation
of foreign currency calculated at the time of booking of the contract.
✓ no early realisation or late delivery charges shall be recovered in such
cases.

RULE 5- FOREIGN EXCHANGE CONTRACTS
✓ In case of export bills/documents sent for collection – date of payment of rupees
to the customer on realisation of the bills.
✓ in case of retirement/crystallisation of import bills/documents – the date of
retirement/crystallisation of liability, whichever is earlier.
▪ Option of delivery
✓ In all forward merchant contracts except NDDC ( Non Deliverable derivative
contracts), the merchant, whether a buyer or a seller, will have the option of
delivery.
▪ Option of Usance
✓ The merchant purchase contract should state the tenor of the bills/documents
▪ Merchant Quotations
✓ The exchange rate shall be quoted in direct terms (i.e) so many rupees and paise
for 1 unit or 100 units of foreign currency.
✓ Settlement of all merchant transactions may be effected by rounding off rupee
amount or in actual paise, as per Bank's own policy.
WHAT IS NDDC
 Non-deliverable derivative contract (NDDC) means a foreign
exchange derivative contract involving the Rupee, entered
into with a person resident outside India and which is settled
without involving delivery of the Rupee.
 This derivative contracts can be offered by ADs situated in
IFSC, involving rupee or otherwise to persons not resident in
India.
 It should be undertaken through AD’s IBU or through their
branches in India or through their foreign Branches ( In case
of foreign Banks operating in India, through any branch of
the Parent Bank)

RULE 6 – EARLY DELIVERY/EXTENSION AND CANCELLATION OF FOREIGN
EXCHANGE CONTRACTS
▪ General
✓ At the request of a customer, unless stated to the contrary in the
provisions of FEMA 1999, it is optional for a Bank to:
1) Accept or give early delivery, or
2) Extend the contract
✓ It is the responsibility of a customer to effect delivery or request the
bank for extension/cancellation as the case may be, on or before the
maturity date of the contract.
▪ Early Delivery
✓ If a bank accepts or gives early delivery, the bank shall recover/pay
swap difference, if any. Interest on outlay/inflow of funds for such
swaps shall also be recovered/paid as under:

RULE 6 – EARLY DELIVERY/EXTENSION AND
CANCELLATION OF FOREIGN EXCHANGE CONTRACTS
✓ AD shall recover interest on outlay of funds for the purpose of arranging swap, in
addition to the swap cost in case of early delivery of a contract.
✓ If such swap leads to inflow of funds, interest shall be paid to the customer.
✓ funds outlay/ inflow shall be arrived at by taking the difference between the
original contract rate and the rate at which the swap could be arranged.
✓ The rate of interest to be recovered/paid and the threshold limit for the same may
be determined by Bank’s as per their policy in this regard.
✓ In case of early delivery of “ optional delivery date Forward contract” interest on
inlay/outlay of funds should be calculated up to the date for which the swap is
done, on account of early delivery.
▪ Extension of contract
✓ The existing contract will be cancelled and rebooked simultaneously only at the
current rate of exchange. The difference between the contracted rate and at the
rate the contract is cancelled shall be recovered from/paid to the customer as
under. Such request for cancellation shall be made on or before the maturity
date of the contract.

RULE 6 – EARLY DELIVERY/EXTENSION AND
CANCELLATION OF FOREIGN EXCHANGE CONTRACTS
▪ Cancellation
✓ In case of cancellation of a contract is at the request of a customer ( if the
request is made on or before the maturity date) the AD shall recover/pay, as the
case may be, the difference between the contracted rate and the rate at which
the cancellation is effected.
✓ The process of recovery of exchange difference ( on cancellation on or before the
maturity date) is as under:
▪ The recovery can be either in lump sum or in instalments
▪ Repayment period should not extend beyond the maturity date of the contract
▪ The repayment instalments should be uniformly received over the remaining
maturity of the contract and its periodicity should be at least once in a quarter.
▪ The Banks should have Board approved policy with recovery and payment of
exchange difference and other charges. The details should be made available to
the customer on upfront basis.

RATE AT WHICH CANCELLATION IS TO BE EFFECTED
❑ Rate at which cancellation is to be effected:
✓ Purchase contracts shall be cancelled at TT selling rate by the contracting AD
✓ sales contracts shall be cancelled at TT buying rate by the contracting AD
✓ when the contract is cancelled before maturity, the appropriate forward TT rate
shall be applied.
▪ If the exchange contract is impossible for performance , for whatever reason,
including government prohibitory orders, the exchange contract shall not be
deemed to have become void and the customer will approach AD for cancellation.
▪ In the absence of any instructions from the customer, a contract which has matured
shall be cancelled by the bank within the three working days after the maturity date
as per the policy of the respective bank.
▪ Swap cost will be recovered from the customer under advice to him.
▪ For contract cancelled after maturity date, the customer will not be eligible for any
exchange difference standing in his favour, because the cancellation is at his
default. However, any exchange difference due to cancellation will be recovered
from the customer.
▪ Exchange Gain can be passed on to the client if the Bank is satisfied that the delay
in contract cancellation is beyond the control of the client. Such instances with
specific justifications, shall be kept on record.

SWAP COST/GAIN
▪ In all case of early delivery of a contract, swap
cost shall be recovered from the customer,
irrespective of whether the actual swap is made or
not.
▪ Such recoveries should be made either upfront or
back ended at the discretion of the Bank.
▪ Similarly payment of swap gain may be made at
the beginning or at the end of swap period as per
Bank’s own policy.

OUTLAY AND INFLOW OF FUNDS
 Authorised Dealer shall recover interest on outlay of funds
for the purpose of arranging the swap, in addition to the
swap cost in case of early delivery of a contract.
 If such a swap leads to inflow of funds, interest shall be paid
to the customer. Funds outlay/ inflow shall be arrived at by
taking the difference between the original contract rate and
the rate at which the swap could be arranged.
 The rate of interest to be recovered/ paid and the threshold
limit for the same may be determined by banks as per their
policy in this regard.
 In case of early delivery of ‘Optional Delivery Date Forward
Contract’ interest on inlay/outlay of funds should be
calculated up to the date for which the Swap is done on
account of early delivery.
RULE 7 – BUSINESS THROUGH INTERMEDIARIES
▪ Intermediaries:
▪ Exchange Brokers/Multi Bank Portal/Electronic Order
Matching systems (EOMs) are some of the commonly used
intermediaries in FX markets.
▪ Earlier FEDAI has accredited above the systems. Since 5th
October 2018, FEDAI is accrediting for Exchange
Brokers(Voice) only. All other platforms require to obtain
permission from RBI.
▪ AD shall use the services of intermediaries accredited by
FEDAI/RBI.
▪ No brokerage, fees, charges or any other form of
remuneration shall be paid by the authorised dealers to
other bank employees on any foreign exchange contracts.

RULE 7 – BUSINESS THROUGH INTERMEDIARIES (Contd.)
▪ Accredited intermediaries will conform to the rules/conditions and code
of conduct laid down by FEDAI and their working will be reviewed from
time to time. Any intermediary working contrary to the code of conduct
his accreditation will be withdrawn.
▪ It shall be the duty of AD and association of Exchange Brokers (voice) to
report to FEDAI, the name of the an intermediary who suggests, purposes
or transacts any business contrary to the rules of FEDAI.
▪ Any changes in the constitution/address/material changes calling
assistants/key employees/Managers in the case of Exchange Brokers
(Voice) should be reported to FEDAI immediately.
▪ All contracts/confirmations/advices in relation to foreign exchange
business must bear the clause “ subject to the rules and regulations of the
foreign exchange dealer’s association of India”
▪ No foreign exchange contract shall be made with an intermediary as a
principal. A bank must refuse to give delivery from any party other than
the declared principal – an authorised dealer.
RULE 8 – INTER BANK SETTLEMENT
▪ Interest for delayed delivery
✓ In the event of late delivery of any currency ( including Indian rupee) in FX contract,
interest for the number of days of delay ( regardless of the causes for delay) shall be
payable by the seller bank. The interest rate will be 2% over the benchmark rate of the
currency concerned. The Benchmark rates for the currencies are listed below:
1. INR – FBIL MIBOR overnight rate

2. STG – Base rate of Barclays bank
3. USD – Base rate of Citibank NA
4. EUR – Marginal Lending facility rate of European Central Bank
5. JPY – Prime rate of bank of Tokyo-Mitsubishi UFJ limited
6. CHF – 3 month Rate of Swiss National Bank
7. CAD – Prime rate of bank of Nova Scotia
✓ In case of transactions in currencies not mentioned above, the seller bank shall pay
interest at 2% over notional overdraft payable by Buyer Bank.
✓ The rate of interest applied would be the average rate based on rates on each day of delay.
RULE 8 – INTER BANK SETTLEMENT( contd..)
▪ Acceptance of back valued Credit
✓ In case, the seller bank is willing to pay on value dated basis, the buyer
bank shall accept such funds, provided the funds are delivered within two
working days from the due date of the contract.
✓ In case, the funds are delivered beyond two working days from the due
date, it will be the choice of the buyer Bank to accept –
1. Value dated funds (or)
2. Claim interest 2% over the Benchmark rate of currency concerned.
▪ Time Limit for claim for delay ( for buyer bank)
✓ The claim for the delay by the buyer bank should be made within 15 days
from the due date of the contract. In such case, the seller bank shall be
liable to pay interest for the full period of delay.
✓ If the claim is not made within 15 working days, the interest will be
payable by the selling bank for the Maximum period of 60 days only.
▪ Time limit for settlement of claim ( for seller bank)
✓ The selling bank has to settle the claim ( with interest for overdue period, as
above) within 15 working days from the date of receipt of claim.
✓ If a claim is not settled within 15 days, the seller bank will be required to pay
interest at the rate 2 % over the Benchmark rate as mentioned earlier, for the
entire overdue period. The cap of 60 days for interest payment will not apply in
this case.
▪ Deliberate default
✓ In case the claim is not settled within 60 days from the date of lodgement of
claim, the matter will be referred to FEDAI for final decision which shall be
binding for both the parties.
▪ Wrong delivery of funds
✓ In case, the seller bank deliver funds to the account other than the notified
account of the buyer bank, it will compensate the buyer in terms of the above
rules.

▪ Use of incorrectly received funds ( undue enrichment)

▪ A bank which has received funds, not intended for its accounts, will
compensate the bank which has been out of funds by either:
1. Returning the funds with proper value, provided charges for back
valuation are borne by the original remitting bank (or)
2. Returning the funds with interest that is earned, less charges, if any.
▪ Settlement date change
1. When Maturity date of a FX contract falls on a month end and the said
day is declared as a holiday subsequently, the settlement should be
preponed to preceding working day, if the said day is “ known holiday.”
2. In all other cases, if the maturity date is declared as a holiday
subsequently, the settlement date should be postponed to the next
working day.

▪ Notice for option Delivery
✓ In case of interbank forward contract, that allows option of delivery,
the buyer bank shall take up such forward contract after giving a notice
of 2 working days to the seller Bank.
▪ All the member banks who deal in Forex Forward should become and
retain membership of CCIL’s forex forward guaranteed settlement
segment. All interbank Forex forward contracts should be subjected to
the CCIL’s Forex forward Settlement segment. (CCIL means clearing
corporation of India Limited)
▪ Change in expiry date of option contracts
✓ When expiry date of an option contract falls on a “ known holiday”,
expiry date is preponed to the previous working day.
✓ If an option expiry date falls on a “suddenly declared holiday”, the
expiry date should be post-poned to the next working day.

FUTURE OF LIBOR
 After several years of preparation for the London Interbank
Offered Rate (LIBOR)’s demise, on March 5, 2021 the FCA
confirmed the timeline, as listed below, for all LIBOR
settings to either cease to be provided by any
administrator or to no longer be representative.
 December 31, 2021 – all sterling, euro, Swiss franc and
Japanese yen settings, and the 1-week and 2-month US
dollar settings; and
 June 30, 2023 – remaining US dollar settings (overnight, 1,
3, 6 and 12-month)

Contact: head-pdcsz@iibf.org.in
Mobile: 9619160141


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FEDAI RULES

GOVINDARAJAN RENGACHARY-CTP- 16 09 2022

GOVINDARAJAN RENGACHARY-CTP- 16 09 2022

✓ Fixed due date ( reckoned from date of shipment/bill of exchange)

▪ Export to country under United nations Guidelines – Max 120 days

GOVINDARAJAN RENGACHARY-CTP- 16 09 2022

Prevailing bill selling rate, in case

Crystallisation of import bill Same as above

For determination of stamp duty on As per exchange rate provided by the

GOVINDARAJAN RENGACHARY-CTP- 16 09 2022

GOVINDARAJAN RENGACHARY-CTP- 16 09 2022

✓ On disposal of instructions/required documents the bank shall transfer

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1. INR – FBIL MIBOR overnight rate

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▪ Use of incorrectly received funds ( undue enrichment)

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