Today, the Reserve Bank of India (RBI) liberalized its rules concerning the receipt of advances against exports. Previously, if an Indian exporter wished to receive an advance against exports, and if the exports were going to be shipped more than a year after the advance, the Indian exporter required prior RBI approval to receive the advance.
This approval requirement has been dropped for merchandise exporters. Exporters can now receive advances for exports of goods that will take more than a year to manufacture and ship, and where the 'export agreement' provides for shipment more than a year after the advance is received. To implement this rule Indian banks will need to verify the bona fides of the advance receipts—i.e., the banks will need to ensure that the funds are received in connection with the exports and not for any other purpose, in addition to complying with standard know-your customer (KYC) and anti-money laundering (AML) requirements.
There are a few additional conditions that apply to these advances: (i) the rate of interest on the advances should not exceed 100 basis points over LIBOR, (ii) the exporter should not have refunded more than 10% of advances received in the previous three years, (iii) any refund of the advance will require prior RBI approval, and (iv) all the export documentation has to be processed through the same bank.