New Rbi Fiat On Escrow Accounts

The Reserve Bank of India (RBI) has permitted banks to hold trade-related surpluses of their customers' escrow accounts as short term deposits for three months in a year.

Earlier, the RBI permitted such escrow surpluses to be held as bank deposits for a total of one month in a period of six months.

The central bank has issued a notification to banks informing them of the change in its exchange-control regulations.

Bankers said the move was aimed at providing flexibility with regard to access to funds in the escrow account as well as the management of the funds with benefits both for the bank and the holder of the escrow account.

 

The apex bank allows corporates involved in export and import to hold escrow accounts for net payment adjustment purposes with its permission.

Such counter-party proposals include adjustments of the value of goods imported into the country against the value of goods exported from as part of an agreement voluntarily entered into between the local party and the overseas party through an escrow account opened in the country in US dollars.

As part of the agreement, all imports and exports should be executed at international prices, the RBI said. The transactions must be routed through the account, it added. The entire transaction must be in conformity with the Indian trade and exchange control regulations, the RBI noted.

Banks are not required to pay interest on the surplus balances credited to the escrow account. However, if these balances are held as bank deposits, the banks will have to pay the applicable rate of interest, the RBI said.

The central bank clarified that no overdraft will be permitted in the escrow account nor will any loans be granted against funds in the account.