Why exporters maintain EEFC Accounts in banks?

Exchange Earners’ Foreign Currency Account (EEFC) is an account maintained in foreign currency with an Authorised Dealer Category – I bank i.e. a bank authorized to deal in foreign exchange.
In this scheme of bank accounts, the exchange earners who are residents of India, such as individuals, companies, etc., SEZ developers (except SEZ Units) can open an EEFC account in any of the permitted foreign currencies viz.  USD, GBP, Euro, JPY, etc. The documents required for opening an EEFC Account are the same as the list of documents required for opening a Current Account, as per the constitution of the entity. Resident individuals are permitted to include resident relative(s) [as defined in section 2(77) of the Companies Act, 2013] as joint holder(s) in their EEFC account on a ‘former or survivor’ basis.

The payments received in foreign exchange by a unit in the Domestic Tariff Area, for the supply of goods to a unit in the Special Economic Zone (SEZ) in India is also treated as inward remittance for the purpose. The foreign exchange earnings received through an international credit card for which reimbursement has been made in foreign exchange may be regarded as remittance through normal banking channels and the same can be credited to the EEFC account. The disinvestment proceeds of the ADR/GDR Scheme approved by the Foreign Investment Promotion Board of the Government of India are also treated as inward remittance and therefore permitted to be credited to the EEFC account. However, remittances received on account of foreign currency loans or investments received from abroad or received for meeting specific obligations by the account holder cannot be credited to the EEFC account.

We can call an ‘EEFC account’ a type of resident Indian’s current account wherein funds are maintained in foreign currency. No interest will be paid on the balance held in the account. Reserve Bank has directed the authorized dealers not to grant any credit facilities both fund-based and non-fund-based, against the balances held in EEFC accounts. Marking lien over the balances in the EEFC A/C is not permitted for any purpose except Merchanting Trade.

A Status Holder Exporter (as defined in EXIM Policy in force), a 100 % Export Oriented Unit or a Unit in an Export Processing Zone, Individual, professionals such as lawyers, doctors, artists, architects, engineers, economists, cost/chartered accountants, directors on board of overseas companies, Scientist/Professor in Indian University/Institution and any other person rendering professional services in his individual capacity, as may be specified by the Reserve Bank from time to time are allowed to keep 100% of their foreign exchange earnings from consultancy and other services rendered to persons or bodies outside India in their EEFC account. (In all the above-mentioned categories, 100% foreign exchange earnings are allowed credit to the EEFC account subject to the condition that the sum total of the accruals in the account during a calendar month should be converted into Rupees on or before the last day of the succeeding calendar month after adjusting for utilization of the balances for approved purposes or forward commitments.).

Utility of EEFC accounts:

1. The depositor who receives inward remittance can directly credit the proceeds to his EEFC account without converting the foreign currency into Rupees. Thereby exporter saves transaction cost towards converting foreign currency into Indian Rupees.
2. EEFC account holders can use the funds available in their account for the purpose of payment towards the cost of goods and services imported, including payment towards customs duty, airfare, and hotel expenditure.
3. The foreign currency funds maintained in the EEFC account are useful to the account holder when he needs to make payment for his imports in foreign currency at a future date. The funds available in his EEFC account are protected from fluctuations in the exchange rates while making payments. Consequently, the account holder incurs minimum transaction costs while making payments in foreign currency for imports.
4. The balances available in the EEFC account can be hedged so that the currency held by the account holder can be sold on a future delivery date which will be at a rate favourable to the account holder. In that case, the balances in the account sold forward by the account holders have to remain earmarked for delivery. Such forward contracts can also be rolled over.
5. Payment in foreign exchange through EEFC account towards goods supplied by a 100 percent Export Oriented Unit or a Unit in (a) Export Processing Zone (b) a Software Technology Park or (c) Electronic Hardware Technology Park in India is permitted.
6. The account holders do not have any restriction in withdrawing funds in Indian Rupees from their EEFC account.
7. The amount withdrawn in Indian Rupees is not eligible for conversion into foreign currency and for re-credit to the account. However, unutilised foreign currency earlier withdrawn from the account can be re-credited to the account.

EEFC account holders are permitted to purchase foreign exchange from the Forex market only after utilizing fully the available balances in the EEFC accounts.  ADs are obtaining a declaration, to this effect, while selling foreign exchange to their EEFC account holders.