The Reserve Bank of India (RBI) has allowed banks to offer long-term advances to exporters to enable them enter into long-term supply contacts with importers.

“In view of requests received from exporters, it has been decided to permit … banks to allow exporters having a minimum of three years’ satisfactory track record to receive long-term export advance up to a maximum tenor of 10 years to be utilised for execution of long-term supply contracts for export of goods…” the RBI said in a notification on Wednesday.

Banks have been permitted to allow exporters to receive advance payment for export of goods which would take more than one year to manufacture and ship and where the 'export agreement' provides for the same.

The firms that will be eligible to avail themselves of this benefit must have irrevocable supply orders in place. The contract with the overseas party /buyer should be vetted and clearly specify the nature, amount and delivery timelines of products over the years and penalty in case of non- performance or contract cancellation. Product pricing should be in consonance with prevailing international prices, the RBI said.

“The company should have capacity, systems and processes in place to ensure that the orders over the duration of the said tenure can actually be executed. The facility is to be provided only to those entities which have not come under the adverse notice of Enforcement Directorate or any such regulatory agency or have not been caution listed,” the RBI said.

The advances should be adjusted through future exports, and the rate of interest payable should not exceed LIBOR (London Inter-Bank Offered Rate) plus 200 basis points.

Such export advances shall not be permitted to be used to liquidate rupee loans, which are classified as NPA as per the Reserve Bank of India asset classification norms, the RBI said.

“Double financing for working capital for execution of export orders should be avoided. Receipt of such advance of $100 million or more should be immediately reported to the Trade Division, Foreign Exchange Department, RBI, Central Office,” the RBI notification said.

“Authorised dealer bank should duly evaluate and monitor the progress made by the exporter on utilisation of the advance and submit an Annual Progress Report to the Trade Division, Foreign Exchange Department, RBI,” the notification added.

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