RBI simplifies merchanting trade norms

The Reserve Bank of India today further simplified the guidelines for merchanting trade transactions following recommendations of G Padmanabhan committee report.
The new norms will help the category-I authorised dealer banks and will be effective for merchanting trade transactions initiated after January 17, 2014.
Under the revised norms, for a trade to be classified as merchanting trade, the goods acquired should not enter the domestic tariff area and should not undergo any transformation.
Besides, goods would be the ones that are permitted for exports/imports under the prevailing foreign trade policy.
The RBI also said the AD (authorised dealer) bank should be satisfied with the bonafides of transactions. Further, KYC guidelines should be observed by the AD bank while handling them.

Both the legs of a merchanting trade transaction should also be routed through the same AD bank, which should verify the documents, it said.

The entire merchanting trade transaction should be completed within an overall period of nine months and there should not be any outlay of foreign exchange beyond four months.
The commencement of merchanting trade would be the date of shipment/export leg receipt or import leg payment, whichever is first.
The RBI further said in case advance against the export leg is received by the merchanting trader, the AD bank should ensure that the same is earmarked for making payments for imports.

However, the AD bank may allow short-term deployment of such funds for the intervening period in an interest bearing account.
Merchanting traders may be allowed to make advance payment for the import leg on demand made by the overseas seller.
It may, however, be ensured that for any such advance payment for the import leg beyond USD 200,000 per transaction, the same should be paid against bank guarantee/LC from an international bank of repute except in cases and to the extent where payment for export leg has been received in advance.