It covers payment methods and information on, banking systems, foreign exchange controls, and U.S. and correspondent banking.
Methods of Payment
Import financing procedures in India adhere to western business practices. The safest method of receiving payments from Indian importers is through an irrevocable letter of credit (L/C). The L/Cs should be payable in favor of the supplier against presentation of shipping documents through the importer’s bank. Importers open L/Cs valid for three to six months depending upon the terms of the agreement. Typically, L/Cs are opened for a specified period to cover production and shipping. There are several lines of credit available to U.S companies.
The Indian Rupee is a partially convertible currency. The Reserve Bank of India (RBI) and Foreign Exchange Management Act, 1999, govern transactions involving foreign exchange. RBI delegates its powers to authorized dealers within suitable guidelines to deal in foreign exchange.
Indian importers must comply with RBI guidelines in Master Direction-Import of goods and services for import related payments. The guidelines specify time limits for import payments and advance remittances including the interest payment mechanism. They also cover procedures for receiving import documents and for purchases of foreign currency, gold, aviation goods, non-physical imports, and other special situations such as import payments through online Payment Gateway Service Providers (OPGSP).
A resident Indian may pay for the import of goods in foreign currency with an international credit card or debit card issued through the credit/debit card servicing bank in India against the charge slip signed by the importer (and if the transaction conforms to the foreign trade policy in force). However, international cards are often not accepted by vendors as payment processors regularly refuse to complete such transactions.
RBI authorized banks can enter into factoring arrangements with international factoring companies, preferably members of the Factors Chain International. RBI approval is not required for transactions compliant with the latest foreign trade policy and import related foreign exchange guidance.
Deferred payment arrangements (including suppliers’ and buyers’ credit) up to five years are treated as trade credits. The RBI has issued related guidance in Master Direction - External Commercial Borrowings, Trade Credits and Structured Obligations. Indian importers have access to trade credits extended by overseas suppliers, banks, financial institutions, and other lenders recognized in this framework. They can choose between local currency or foreign currency for import of capital goods and non-capital goods allowed under India’s foreign trade policy.
The Securities and Exchange Board of India (SEBI) registers and authorizes Indian credit rating agencies. Such agencies compute and share credit scores and reports with financial institutions and applicants. Credit rating agencies in India include Credit Rating Information Services of India Limited, India Rating and Research Private Limited, The Investment Information and Credit Rating Agency, Credit Analysis and Research Limited, Brickwork Ratings India Private Limited, SMERA Ratings Limited, and Infometrics Valuation and Rating Private Limited.
India allows a wide variety of debit and credit cards issued by banks and supported by the Visa, MasterCard, Discover, American Express, RuPay and JCB networks. According to the RBI, the number of credit and debit cards issued has soared to 62 million and 900 million, respectively, as of March 2021. As noted above, international credit cards issued by these networks may not be accepted in India.
For more information about the methods of payment or other trade finance options, please read the Trade Finance Guide.
India has an extensive banking network in urban and rural areas that includes 12 public sector, 22 private sector, and 46 foreign commercial banks. Eleven small finance banks and six payment banks are the latest additions to the banking network to improve financial inclusion in the country. In addition, there is a large network of regional rural banks and cooperative banks. Public sector banks in India that have dominated the Indian banking industry for many years have witnessed turmoil in recent years due to poor quality and non-performing assets. The Government of India recently led a massive restructuring and recapitalization of public sector banks to address of non-performing assets and rising loan defaults.
Open banking in India is gaining popularity with the emergence of the Unified Payment Interface (UPI) and mobile wallets for digital payments. Indian banks, realizing the need to be a part of digital innovation, have embraced financial technology solutions by offering digital lending, insurance, capital market and asset management, and robo-advisory services.
RBI, as the central banking institution, has the sole authority to issue bank notes and is also responsible for granting licenses for new bank branches. RBI is also the supervisory body for banking operations in India, and administers exchange control, banking regulations and the government’s monetary policy. Indian banks must also adhere to the prudential norms laid down by the Basel Group.
Indian companies that are importing goods or borrowing from U.S. companies should comply with RBI guidelines in administering Foreign Exchange Management Act, 1999.
Foreign Exchange Controls
The RBI sets India’s exchange-control policy and administers foreign exchange regulations in consultation with the Government of India. RBI also acts as a custodian of foreign exchange reserves in India. India’s foreign exchange control regime is governed by the Foreign Exchange Management Act (FEMA). FEMA facilitates external trade and payments and promotes the orderly development and maintenance of the foreign exchange market in India and to liberalize economic policies.
Export-Import Bank of the United States (EXIM):
The Export-Import Bank of the United States (EXIM) is the official export credit agency of the United States. When private sector lenders are unable or unwilling to provide financing, EXIM fills the gap for American businesses by equipping them with the financing tools necessary to compete for global sales. In doing so, the Bank levels the playing field for U.S. goods and services going up against foreign competition in overseas markets, so that American companies can create more jobs at home. EXIM consistently maintains a low default rate and closely monitors credit and other risks in its portfolio. This ensures comprehensive management of EXIM transactions throughout the entire transaction lifecycle. EXIM’s County limitation schedule lists the level of support available for India.