RBI allows banks to factor in export receivables on non-recourse basis

In order to facilitate exports, the Reserve Bank of India (RBI) has permitted category 1 authorised foreign exchange dealer banks to provide 'export factoring' services to exporters on 'with recourse' basis.

For this the banks may also enter into arrangements with overseas institutions without prior approval from the RBI, subject to compliance with guidelines issued by the Department of Banking Regulation in this regard, the central bank stated in a release.

RBI said the decision follows the recommendation made by the Technical Committee on Facilities and Services to the Exporters headed by G Padmanabhan, to permit dealer banks to factor the export receivables on a non-recourse basis, so as to enable the exporters to improve their cash flow and meet their working capital requirements subject to conditions.

RBI said dealer banks may take their own business decision to enter into export factoring arrangement on non-recourse basis.

However, they should ensure that their client is not over-financed. Accordingly, they may determine the working capital requirement of their clients taking into account the value of the invoices purchased for factoring. The invoices purchased should represent genuine trade invoices.

In case the export financing has not been done by the export factor, the export factor may pass on the net value to the financing bank/ institution after realising the export proceeds.

The dealer bank, being the export factor, should have an arrangement with the import factor for credit evaluation and collection of payment.

Notation should be made on the invoice that importer has to make payment to the import factor.

After factoring, the export factor may close the export bills and report this in the export data processing and monitoring system (EDPMS) of the Reserve Bank of India.

In case of single factor, not involving import factor overseas, the export factor may obtain credit evaluation details from the correspondent bank abroad.

The dealer bank or export factor should ensure KYC and due diligence on the exporter.

Meanwhile, provisional data on export receipts and import payments released by the Reserve Bank of India on Thursday showed that the country's export receipts declined to $11.87 billion in May 2015 from $13.01 billion in April, while payments against imports stood at $6.32 billion in May 2015 against $7.32 billion in April.

RBI releases provisional aggregate monthly data on India's international trade in services with a lag of around 45 days. The data being provisional would undergo revision when the balance of payments (BoP) data are released.