What changed
Earlier, banks could accept FCR only if both the letter of credit and the sale contract explicitly allowed it. Now, for LC-backed exports, the sale contract condition is removed—only the LC needs to specify FCR acceptance. For non-LC exports, banks may accept FCR at their discretion if the sale contract permits, but this is purely a credit decision.
What it means for you
Banks have more flexibility to process export documents using FCR, reducing paperwork hurdles for exporters. However, since FCRs are non-negotiable, banks must assess the creditworthiness of the overseas buyer and Indian supplier before purchasing or discounting such documents. This could increase operational risk for lenders if due diligence is not thorough.
What you must do
- Update internal policies to accept FCR for LC-backed exports without requiring sale contract mention of FCR.
- For non-LC exports, establish clear credit assessment criteria before accepting FCR for purchase or discount.
- Advise exporter customers to conduct due diligence on overseas buyers when using FCR.
- Ensure compliance with FEMA Section 10(4) and 11(1) while implementing these changes.
Who it affects
Authorised dealers handling export documents, Exporters using forwarder's cargo receipts, IATA-approved agents and shipping companies
Can we accept FCR for LC-backed exports if the sale contract doesn't mention FCR?
Yes, as per the new circular, you only need the letter of credit to specifically provide for FCR negotiation. The sale contract condition has been removed.
What are the risks of accepting FCR for non-LC exports?
FCRs are non-negotiable documents, so the bank must rely on the creditworthiness of the overseas buyer and Indian supplier. It's a pure credit decision, and due diligence is critical.