The Reserve Bank of India vide notification dated 23rd January 2020 has reviewed the guidelines of the Merchanting Trade Transactions(MTT) issued on 28th March 2014 and issued revised guidelines with a view to further facilitate Merchanting Trade Transactions .
Revised Guidelines:
- RBI has directed dealer banks that for a trade to be classified as merchanting trade, goods acquired shall not enter the Domestic Tariff Area. Considering that in some cases, the goods acquired may require certain specific processing/ value-addition, the state of goods so acquired may be allowed transformation subject to the AD bank being satisfied with the documentary evidence and bonafides of the transaction.
- The MTT shall be undertaken for the goods that are permitted for exports / imports under the prevailing Foreign Trade Policy (FTP) of India as on the date of shipment. The entire merchanting trade is to be routed through the same AD bank. Further, KYC and AML guidelines shall be scrupulously adhered to by the AD bank while handling such transactions.
- The entire MTT shall be completed within an overall period of nine months and there shall not be any outlay of foreign exchange beyond four months.
- Short-term credit either by way of suppliers’ credit or buyers’ credit may be extended for MTT to the extent not backed by advance remittance for the export leg.
- Payment for import leg may also be allowed to be made out of the balances in EEFC account of the merchant trader. Merchanting traders may be allowed to make advance payment for the import leg on demand made by the overseas supplier. Letter of Credit to the supplier for the import leg is permitted against confirmed export order.
- AD bank shall ensure one-to-one matching in case of each MTT and report defaults in any leg by the traders to the concerned Regional Office of the Reserve Bank, on half yearly basis, within 15 days from the close of each half year, i.e. June and December.
- Merchant traders with outstanding of 5% or more of their annual export earnings shall be liable for caution listing.
- Third party payments for export and import legs of the MTT are not allowed. Agency commission is not allowed in MTTs.
- AD bank may approach Regional Office (RO) concerned of the Reserve Bank for regularization of the MTT for deviation.
Click here to read the revised guidelines.
