RBI permits banks to Set-off of Export receivables against Import payables

RBI permits AD banks to Set-off outstanding export receivables against outstanding import payables from/to the same overseas buyer/supplier. In the Statement on Development and Regulatory Policies dated December 4, 2020, RBI announced greater flexibility to AD banks in the areas like Direct Dispatch of Shipping Documents, / “Write-off” of unrealized export bills,/ Refund of Export Proceeds as well as Set-off of Export receivables against Import payables.

Currently, exporters and importers are allowed to set-off their export receivables against outstanding import payables from/to the same overseas buyer/supplier. With a view to further enhance the ease of doing business and quicken the approval process, RBI delegates AD banks consider such requests of set-off, and the revised guidelines, in supersession of the instructions contained in circular A.P. (DIR Series) Circular No 47 dated November 17, 2011, are issued under following conditions, the statement said. The AD banks have been requesting RBI for allowing such set-off with their client’s overseas group/associate companies either on a net basis or gross basis, through an in-house or outsourced centralized settlement arrangement, it added.

1.   The arrangement shall be operationalized/supervised through/by one AD bank only
2.   The AD bank shall be satisfied with the bonafide of the transactions and safeguards that there are no KYC/AML/CFT concerns;
3.  The invoices under the transaction are not under investigation by the Directorate of Enforcement/Central Bureau of Investigation or any other investigative agency;
4.  Import/export of goods/services should  have been undertaken as per the extant Foreign Trade policy
5.  The export/import transactions with ACU countries are kept outside the arrangement;
6.   Set-off of export receivables against goods shall not be allowed against import payables for services and vice versa

According to RBI guidelines, Import payables/export receivables shall be outstanding at the time of allowing set-off. Further, set-off shall be allowed between the export and import legs taking place during the same calendar year. In case of bilateral settlement set-off should be allowed only in respect of overseas buyer/supplier with verifiable agreement/mutual consent. In case of settlement within the group/associates companies, the set-off arrangement shall be supported by a written, legally enforceable agreement/contract. In this respect AD bank shall ensure that the terms of agreement are strictly adhered to and the arrangement shall not result in tax evasion/avoidance by any of the entities involved in such arrangement. Third party guidelines shall be adhered to by the concerned entities, wherever applicable;

While allowing set-off, the entire regulatory requirement relating to the transaction shall be complied with by the constituents. Bank may also ask for Auditors/CA certificate wherever they feel necessary. Each of the export and import transactions shall be reported separately (gross basis) in FETERS/EDPMS/IDPMS, as applicable.     AD bank to settle the transaction in E/IDPMS by utilizing the ‘set-off indicator’ and mentioning the details of shipping bills/bill of entry/invoice details being settled in the remark column (including details of entities involved)