What changed
Exim Bank signed a Line of Credit agreement with Sri Lanka on November 26, 2010, effective January 24, 2011, for USD 416.39 million. The credit funds three railway track laying projects: Omanthai-Pallai (USD 185.35 mn), Madhu Church-Tallaimannar (USD 149.74 mn), and Medawachchiya-Madhu (USD 81.30 mn).
What it means for you
Indian exporters can now bid for these Sri Lankan railway contracts with Exim Bank financing. At least 85% of contract value must be sourced from India, boosting domestic exports. AD banks must ensure no agency commission is paid from the credit proceeds, though exporters can use their own EEFC funds for commissions post-realization.
What you must do
- Inform exporter clients about the LOC and direct them to Exim Bank for full details.
- Ensure shipments under this LOC are declared on GR/SDF Forms as per RBI instructions.
- Verify that no agency commission is paid from the LOC proceeds; allow remittance from EEFC only after full contract value realization.
- Monitor that at least 85% of contract price is supplied from India for eligible contracts.
Who it affects
AD Category-I banks handling export transactions, Indian exporters of goods and services to Sri Lanka, Exim Bank and IRCON as executing agencies
What is the last date for opening Letters of Credit under this LOC?
For project exports, LCs must be opened within 48 months from the scheduled completion date of the contract. For supply contracts, the deadline is 72 months from the credit agreement execution date, i.e., November 25, 2016.
Can exporters pay agency commission under this LOC?
No agency commission is payable from the LOC proceeds. However, exporters may use their own resources or EEFC account balances to pay commission in free foreign exchange after full contract value is realized.