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CHAPTER 24 FOREIGN CURRENCY LOAN (FCL)

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CHAPTER -24 FOREIGN CURRENCY LOAN

INDEX

Para No Topic Page No

24 The Scheme 4

24 1 Purpose 4

24 2 Eligibility 4

24 3 Limit 5

24 4 Source 5

24 5 Currency 5

24 6 Quantum 5

24 7 Tenor 5

24 8 Rate of Interest/ Pricing 6

24 9 Validity of pricing 6

24 10 Charges 6

24 11 Guide lines for hedging FCL/FCTL 7

24 11 1 Delegated Authority for waiver of Hedge 7

24 11 2 Other related issues 8

24 12 Roll Over 9

24 12 1 Working Capital Finance 9

24 12 2 Term Loan 9

24 12 3 Rollover at existing level 9

24 13 Documentation 10

24 14 Modes of Repayment 10

24 15 Repayment 10

24 15 1 Working Capital 10

24 15 2 Term Loan 11

24 16 Cases 11

24 16 1 Case I 12

24 16 2 Case II 13

24 16 3 Case III 13

24 17 Prepayment 14

24 18 Treatment of Overdue 14

24 19 General Guidelines 14

24 20 Accounting 15

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24 21 Records / Reporting 15

24 22 Journal Entries 16

24 22 1 Inception 16

24 22 2 Recovery of interest 17

24 22 3 Crystallisation of interest income 17

24 22 4 Repayment 18

24 22 5 Inception ‘A’ cat branches 18

24 22 6 Recovery of interest 19

24 22 7 Repayment 19

Add No Addendum

1 FCL/FCTL-Calculation of Interest through

FINACLE

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Annex No Annexure

1 REQUEST FOR AVAILMENT OF FOREIGN CURRENCY LOAN 24

2 PROPOSAL FOR FOREIGN CURRENCY LOAN 27

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24 The Scheme

Reserve Bank of India vide para 4 (I) (ii) of Notification No.FEMA-3/2000-RB dated

03.05.2000 permits Authorised Dealers to grant loans to their constituents in India

in Foreign Currency for meeting their Foreign Currency requirements or for their

rupee working capital requirements or capital expenditure subject to compliance

with prudential norms, interest rate directives and guidelines, if any, issued by

Reserve Bank of India in this regard. The scheme is mostly based on the earlier

notification by RBI.

In line with the permission given by RBI, a scheme is a scheme for grant of Foreign

Currency Loans to resident constituents is prepared by us, salient features of which

are as under:

24.1. PURPOSE:

FCL can be granted for following purposes:

1. Working Capital Purpose.

a. Importers to make payment of import bills received under import LCs

established on sight/usance basis or make payment of import sight/usance

bills received on collection basis for merchandise imports.

b. In substitution of Working Capital Demand Loan.

c. Outstanding in Cash Credit account.

2. Term Loan requirements.

a. To importer of capital goods under LC mechanism or outside LC mechanism.

b. In substitution of term loans approved by the bank in favour of constituents

in Indian rupees.

d. Pre-payment of high cost External Commercial Borrowings subject to RBI

norms, guidelines and prior approval wherever necessary.

e. Takeover of high cost term loans from other banks and financial institutions

in India.

24.2. ELIGIBILITY:

1 )Resident constituents of good track record and classified under Standard Assets

as per Prudential norms of classification.

2) Foreign currency loan will be considered of parties having credit ratings of CR1

to CR5 only.

3) Constituents with lower rating will be considered for FCL/FCTL only on a

selective basis. Generally, such exceptions will be considered only in case of

stressed accounts and with an intension of protecting the asset. GM (LC) and

GM(SME) will give clearance to such exception on case to case basis.

4) New account will be considered for FCL/FCTL on case to case basis by GM (LC)

and GM (SME), C.O. based on value of connection, allied business available to the

bank from the client etc.

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5) Other conditions relating to eligibility are as under

a) Limit should have been availed in Rupee before conversion to Foreign

Currency Loan

b) All terms and conditions of the sanction of the facility in INR should be

complied with fully. In case of term loan , as on date of availing FCL , there

should not be any overdue installment / interest.

c) Limits in INR enjoyed by constituent should not be overdue for renewal.

24.3. LIMIT:

1. FCL/FCTL be made available on short term basis with the existing credit

facilities sanctioned in Indian Rupees subject to approval by competent authority.

2. FCL in lieu of Cash Credit Limit will be restricted to 60 % of the sanctioned cash

credit limit. Exceptions will be approved by General Manager (IBD) depending upon

the availability of the foreign currency resources and the availability of working

funds with the customer to meet the day to day operational requirement. In any

case it should not exceed 80 % of the limit.

3. Adhoc limits approved shall not be eligible for FCL/FCTL.

4. No stand alone FCL/FCTL be sanctioned by credit sanctioning authority. Only

sub-limit with-in Rupee Credit to be approved. Availment and pricing shall be

determined by IBD subject to availability of the funds. Only in case of JVs/ WOS of

Indian Companies Foreign Currency Loans up to one year can be approved.

24.4. SOURCE:

1) FC funds representing deposit liabilities.

2) Any other source permitted by RBI.

24.5. CURRENCY:

Loans will be normally extended in US Dollars. Request for FCL in other currencies

i.e. GBP and EURO will be considered subject to availability of resources in that

currency.

24.6. QUANTUM:

1. Minimum amount of USD 0.50 Million or equivalent thereof.

2. The amount of FCL/FCTL will be restricted to only 60 % of the total limits

enjoyed by the party in INR. This amount should be more than the minimum

amount of USD 0.50 million stipulated above. GM (IBD), depending upon the

availability of the funds, may increase the quantum above 60 % subject to the

maximum of 80 %.

24.7. TENOR:

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1. FCL against working capital limits for a period of 6/12 months at a price

with at a price with benchmark LIBOR of 6/12 months.

2. FCTL beyond 12 months will be considered on case-to-case depending up on

the available funds and ALM. Pricing will be bench marked to either 6

months/ 12 months LIBOR only.

24.8. RATE OF INTEREST/PRICING:

1. Interest to be charged on floating rate basis and will be related to the LIBOR

corresponding to the tenor of the loan prevailing at the time of the disbursal of

the loan plus a predetermined spread.

2. LIBOR for shorter tenor with re-setting will be considered only at the discretion

of the bank.

3. Pricing of the FCL/FCTL will be done based on the Credit Rating enjoyed by the

constituents and the interest rate being charged on the rupee finance in

substitution of which the FCL/FCTL is considered.

4. Interest will be recovered separately from the party in Foreign Currency on

monthly basis. The same will be recovered at the end of every month as is done

in the case of loans in Indian rupees.

5. Re-setting of LIBOR if stipulated will be done at the agreed intervening periods

and interest will be recovered at the revised rates at the end of every month

including for the broken period if resetting is done during the month.

6. In case the FCL/FCTL Loan is denominated in USD, number of days for the calc

ulation of interest will be taken as 360 days in a year and for rest of the curren

cies viz GBP,EUR and JPY etc, 365 days in a year.

7. As the FCLs are mostly interest savings measures, the normal interest saved

should not exceed 2.5 %. Exceptions will be made for the following cases

a) In case of stressed accounts.

b) Where customer provides foreign currency resources through their friends

and relatives

c) Where loans for JV/WOS is sanctioned in foreign currency

d) Financing of Imports

e) Loan against FCNR deposits

f) Any other case as approved by CMD/ED

24.9. VAILIDITY OF PRICING:

The pricing given by IBD will be valid only for 15 days from the date of conveying of

the sanction to the borrower. The bank will have the liberty to re-price the loan if

the borrower desires to avail the same after the lapse of the said period of 15 days.

24.10. CHARGES:

Processing Charges at the rate of Rs 5,000/- per USD 5 mn. or part thereof with

minimum Rs 5,000/- will be recovered upfront by the branch concerned for

processing each request of a Foreign Currency Loan. Rollover of the FCL done with

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due date falling within a period of one year from the date of disbursal of the

original loan will be exempted from charging of processing charges. Any roll over

with repayment date beyond the period of one year from the date of disbursal of

the original loan will be charged processing charges on annual basis at the above-

specified rate of Rs 5,000/- per USD 5 mn, min Rs 5,000/-.This is over and above

normal credit processing charges. The charges will be revised periodically along

with other service charges.

24.11. Guide lines for hedging FCL/FCTL

These guidelines will apply to all Foreign Currency Loan/ Foreign Currency Term

Loans given to customers including exporters and importers.

All customers except those specified below having availed Foreign Currency Loan in

substitution of working capital, Working Capital Demand Loan or Term Loan in

Indian Rupees, shall hedge their currency exchange risk through one or more

derivatives product offered by the bank.

Exceptions

a) Where there is a natural hedge by means of future foreign currency flows by

exports in foreign currency. Export customers having un-hedged surplus

export receivables to the extent of FCL/FCTL can seek exemptions from

hedging from the competent authority.

b) Where the loan in foreign currency is granted for meeting forex expenditure

provided the customer has un-hedged export receivables to the extent of

loan.

c) Corporates who have exchange risk management cell and have laid down

policies manages the overall exposure of the company on a regular and day-

to-day basis through their experienced dealers in foreign exchange. The

company should give the details of such arrangements along with other

details as required by the bank and seek specific exemptions from the

hedging of FCL and also undertake to bear the exchange risk and absorbs

any losses arising from keeping their positions open. The competency of the

persons manning the cells, past track record of risk management, policy of

the company on exchange risk etc should be ascertained by the branch.

24.11.1. Delegated Authority for waiver of Hedge

Delegated authority for permitting waiver of booking forward contracts or other

derivatives is as follows

Delegation at FGMO

(i) All customers having unhedged exposure less than USD 2.00 Mio would be

generally asked to fully hedge their unhedged foreign currency exposure through

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one or more derivatives like forwards, options etc. However, in exceptional case,

FGMO may permit waiver based on financial strength of the customers, Credit

Rating, association with our bank provided collateral upto 25% of fund based

exposure is obtained. Permitting obtaining collateral less than 25% rests with CAC-

II for unhedged exposure less than USD 2.00 Mio.

(ii) Unhedged exposure more than USD 2.00 Mio to USD 5.00 Mio provided account

otherwise falls within delegated authority of FGMO or below

Delegation at CAC-II

Unhedged exposure more than USD 5.00 Mio to USD 25.00 Mio provided account

otherwise falls within delegated authority of CAC-II or below.

Delegation at CAC-I

Unhedged exposure more than USD 25.00 Mio to USD 50.00 Mio provided otherwise

falls within delegated authority of CAC-I or below.

Delegated authority for permitting waiver of booking forward contracts or other

derivatives with regard to unhedged exposure more than USD 50 Mio, rests with

MCM.

24.11.2. Other related issues

a) Branch Manager will have delegated authority to book forward contract, options

and other hedging products to the extent of FCL/FCTL. This limit for forward hedge

will be over and above the limit available to exporters & importers as per IC No

7916 dated 27.02.2008.

b) Forward cover for repayment of the Foreign Currency Loan for appropriate

maturity is to be booked at the time of disbursal of the Foreign Currency Loan.

c) Forward contract for the repayment of the installments falling due during the

currency of the FCL and for conversion of the balance amount at the end of the

tenor of the FCL into Indian Rupees is to be booked at the time of disbursal of the

FCTL.

d)Past track record of the client, risk management policy of the client, experience

of the persons managing the treasury operations of the company, Net Worth,

Turnover etc

e) Internal credit rating of the client is preferably CR 5 and above While approving

waiver, the approving authority may also stipulate obtaining collaterals specifically

for unhedged foreign currency exposure i.e. collaterals need not be common for all

limits.

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f) The approving authority would also take into consideration the customer‟s ability

to pass on their input cost fluctuations to the market.

g) All such unhedged exposure should be priced for credit risk premium as per

internal credit rating.

h) The clients, who have been approved waiver, should undertake that –

i) It has the capability and financials to absorb the losses, if any, arising out of

unhedged exposure.

ii) It will at appropriate time hedge its position to the extent of 100% of UFCE

progressively and if called upon to do, will arrange to furnish acceptable

securities/margins/collaterals etc

iii) Such undertaking is to be signed by the Director/Chief Financial

Officer/Finance Director/Partner or any person who heads the Finance / Treasury

operations.

24.12. ROLLOVER:

24.12.1. Working Capital Finance:

Rollover of the loan may be considered at the request of the party and at the

option of the bank with fresh pricing, for a maximum period of 12 months.

24.12.2. Term Loan:

Rollover of the Term Loan may be considered at the request of the party and at the

option of the bank with fresh pricing for a period of 12 months to 3 years but not

beyond the tenor of the original rupee loan.

NOTE: The party should make Request for rollover of the FCL, two weeks prior to

the date of repayment.

24.12.3. Rollover at existing level

In order to obviate the delays, FGM/ DGMs head of regions not coming under

jurisdiction of FGMO are empowered to permit rollover of FCL/FCTL at the existing

level after getting the fresh pricing from IBD, CO, as the facility is fully secured

and regular Working Capital Limits / Term Loan sanctioned by the competent

authority are earmarked. The FGM/ DGMs head of regions not coming under

jurisdiction of FGMO cannot sanction FCL/FCTL by earmarking Working Capital

Limits/ Term Loans but permit only the rollover of FCL/FCTL originally sanctioned

by the competent authority.

Rollover of FCL/FCTL at the existing level can be permitted by the FGM provided

- Limits are in force and valid documents held on records

- All sanction stipulated have been complied with

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- There are no audit or other irregularities persisting in the account

- Operations in the account are satisfactory

- No deterioration in credit rating

- No overdue in any facility

- Rollover of FCL/FCTL by FGM will be permitted only for a period of 6

months at a time. Rollover for longer tenors will be referred to the

competent authority under the policy.

24.13. DOCUMENTATION:

In addition to security documents being obtained for rupee finance following

documents are to be obtained for working capital FCL:

1. Letter of request as per specified format (annexure1)

2. Demand Promissory (DP) Note in foreign currency

3. Board Resolution to avail loan in Foreign Currency.

4. Agreement of Hypothecation (Annexure II) to avail working capital directly in

Foreign Currency.

5. Draft agreement of modification (for disbursal of working capital demand loans

in substitution of finance outstanding in INR.)

6. Undertaking to execute any other additional documents.

All other terms and conditions of sanction as well as formalities regarding

registration of charge, collateral security, personal guarantees etc. as stipulated in

sanction advice are to be complied with.

Documentation for the Foreign Currency Term Loans and facilities in substitution of

C/C Hyp facility are under compilation. Till such time, apart from the

documentation obtained for the rupee finance, the undertaking to execute any

other additional documents should be obtained. The documents obtained should be

vetted as per the prescribed guidelines by RO/the Bank's advocate on approved

panel.

24.14. MODES OF REPAYMENT:

Foreign Currency for repayment of the loan and interest thereon can be recovered

from the party in any of the following manner:

o Purchasing of Foreign Currency from the market at contracted rate or at ready

rate in cases where booking of forward contract is waived by the appropriate

authority.

o Debit to EEFC a/c.

o Inward remittance or out of export proceeds for which no PC has been granted.

24.15. REPAYMENT:

24.15.1. Working Capital:

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o Bullet repayment (lump sum) of the principal amount in foreign currency on the

date of repayment at the pre-agreed exchange rate (incase where forward

contract/ hedge contract is booked) or at ready rate where booking of forward

contract/hedge contract is waived by the sanctioning authority.

o Consequent to the volatility and depreciation of rupee in case of FCL/FCTL,

there could be occasions of the outstanding in Rupee terms are in excess of the

sanctioned limits on account of adverse exchange rate movement. In such case,

the actual outstanding in Rupee terms should be determined on the basis of the

rate at which the forward contract/ hedge contract is booked. In case, no

forward contract/ hedge contract has been booked, the outstanding should be

determined on the basis of the ongoing TT selling rates. On the due date, if

there is any excess in the loan on converting into Indian rupees as compared to

the loan amount in rupees terms as per original sanction terms, which may be

on account of forward premium / adverse moment of rates, it should be

recovered immediately.

o If further rollover is requested by the customer, it should be recommended for

the original amount of Rupee loan sanctioned. In other words, the rupee

equivalent of FCL should not exceed loan amount sanctioned even in cases of

rollover.

o In the event the reconverted amount is less than the amount originally

sanctioned due to forward discounts enjoyed or favourable movement of spot

rates, the benefit should be passed to the customers accounts classified as

"Standard Assets." The benefit however should not be passed on in case of

irregular accounts and the benefit accrued should be utilized for reduction of

the exposure by way of the outstanding in the working capital facilities to the

extent required.

o Interest to be recovered separately every month at the current ready

rate/forward rate.

24.15.2. Term Loan

o Repayment of the term loan in FC will be as per the original repayment

schedule determined for the Indian Rupee term loan.

o The installments payable in Indian Rupees as per the original repayment

schedule during the currency of the FCTL will be converted into FC at the same

ready TT buying rate at which the outstanding loan in INR is converted into

FCTL.

o Payment of the installments in foreign currency as per the repayment schedule

and re-conversion of loan in INR at the end of the tenor of the FCTL will be

done at the pre-agreed exchange rate (incase where forward contract/ hedge

contract is booked) or at ready rate where booking of forward contract is

waived by the sanctioning authority.

o On re-conversion of liability into INR, any excess in the amount so converted as

compared to the loan amount as per sanction terms, on account of forward

premium / adverse movement of spot rates should be recovered immediately to

ensure that the balance outstanding after such recoveries tallies with the

outstanding installments as per the original sanction/ repayment schedule.

Further rollover if requested by the customer should be for only such amount

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that would have remained outstanding in Indian Rupees after reckoning

payment of the installments which would have fallen due during the period of

FCTL.

o In the event the reconverted amount is less than the amount originally

sanctioned amount due to forward discounts enjoyed or favorable movement of

spot rates, the benefit should not be passed to the customers. The rollover

should be recommended if requested by the customer at the reduced amount.

The original repayment schedule to that extent has to be realigned. The

benefit if it is to be passed on to customers, should be done only with approval

of sanctioning authority and only in case of accounts classified as "Standard

Assets."

o In case where FCTL is sanctioned

o Interest to be recovered separately every month.

24.16. Cases

For the purpose of better understanding, we give below the examples for fixing of

repayment schedules:

24.16.1. Case I

Term loan for Rs.6,00,00,000/- repayable in quarterly installments in 24 months

converted into foreign currency term loan of matching tenor.

Steps to be initiated by the account maintaining "B" category branch:-

Obtain TT buying rate from Treasury branch, Mumbai for adjustment of Term

Loan outstanding in INR. Rate obtained say 1 USD = INR 60.00

Control Term Loan in Foreign Currency for USD 1 mn, through Foreign Currency

Settlement Account (USD).

Raise POB/Debit Advice on Treasury Branch, Mumbai for Rs 6.00 crs and adjust

term loan outstanding in INR.

Book forward contracts as per terms of sanction for repayment of instalments

falling due as under.

o The Rupee term loan as per the original repayment schedule is

repayable in 8 equal quarterly instalments over a period of 24 months

each quarterly instalment will be Rs 75 lacs.

o TT buying rate for Spot conversion USD 1 = INR 60.00

o 8 quarterly instalments will be due within tenure of the foreign currency

term loan.

o Each instalment at the above TT buying rate of USD 1 = INR 60.00 will

work out to USD 1.25 lacs.

The above term loan for USD 1 mn. will be repayable in 8 quarterly instalments

of USD 1.25 lacs.

Interest to be recovered separately in foreign currency every month at the

stipulated rate of interest.

Do resetting of LIBOR as per stipulations.

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24.16.2. Case II

The above referred term loan for Rs 6,00,00,000/- repayable in quarterly

installments in 24 months is converted into foreign currency term loan for a

period of 12 months only.

Steps to be initiated by the account maintaining "B" category branch:-

Obtain TT buying rate from Treasury branch, Mumbai for adjustment of Term

Loan outstanding in INR. Rate obtained say 1 USD = INR 60.00

Control Term Loan in Foreign Currency for USD 1 mn, through Foreign Currency

Settlement Account (USD).

Raise POB/Debit Advice on Treasury Branch, Mumbai for Rs 6.00 crs and adjust

term loan outstanding in INR.

Book forward contracts as per terms of sanction for repayment of instalments

falling due, which will work out as under:

o The Rupee term loan as per the original repayment schedule is

repayable in 8 equal quarterly instalments over a period of 24 months

each quarterly instalment will be Rs 75 lacs.

o TT buying rate for Spot conversion USD 1 = INR 60.00

o 4 quarterly instalments will be due within tenure of the foreign currency

term loan.

o Each instalment at the above TT buying rate of USD 1 = INR 60.00 will

work out to USD 1.25 lacs.

Forward contracts to be booked for repayment of 4 instalments for USD 1.25

lacs each and for conversion of balance amount of USD 5 lacs at the end of

tenure of FCTL into Indian Rupees to be controlled as INR term loan.

Forward Contract Rate obtained for conversion of balance amount of FCTL of

USD.5 lacs at the end of the tenor of the FCTL i.e. after 12 months into Indian

Rupee term loan is say USD 1 = INR 61.00

Amount converted into Rupees will be USD 5 lacs X 61 = INR 3.05 crs.

Obtain the then prevailing TT selling rate at the end of the tenor of 12 months

if forward contract is not booked for the conversion of the balance amount into

INR term loan.

Amount, which should be outstanding as per the original repayment schedule

for repayment of INR Term Loan at the end of the tenor of 12 months, will be

Rs 3.00 crores.

Rs 5 lacs will be recovered from the party upfront and the Indian Rupee term

loan will be controlled at Rs 3.00 crores only.

Similar procedure to be adopted when rollover is done so that rupee liability

remains as per original terms of repayment.

24.16.3. Case III

The company has been sanctioned Working Capital Demand Loan of Rs 12.00

crores.

The company request for conversion of WCDL to FCL with prior approval of the

sanctioning authority. It is converted into FCL USD @ 60.00 and the loan amount is

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USD 20,00,000. Forward contract up to due date is booked @ Rs 59.00. On due date

FCL is converted into Rupee Loan which comes to Rs 11,80,00,000/-.Less amount of

Rs 20.00 lacs has to refund the party.

The original amount of Rs 12.00 crores is rolled over at current exchange rate of Rs

59.00 and the FCL is USD 20,33,898.

24.17. PRE-PAYMENT:

Pre-payment of the loan is not permitted. However, in the event of pre-payment

of Foreign Currency Loans the funding costs with a minimum penalty of 1% per

annum (irrespective of whether there is funding cost involved or not) is to be

levied on the amount prepaid/adjusted, for the un-expired period of the loan. The

concerned branch is to recover the amount from the party and remit the same to

Treasury Branch, Mumbai.

24.18. TREATMENT OF OVERDUES:

o In case party is not in a position to repay any particular installment of the

FCTL, said installment will be crystallised utilizing the forward contract booked

or at the prevailing TT Selling rate by debiting the amount to the original term

loan account in Indian Rupees. The overdues in the term loan controlled in

Indian Rupees will attract penal interest rate and other provisions applicable to

overdue accounts. Such overdue to be reported to Regional Office immediately

and steps taken for adjustment of the same.

o If the above overdue amount is not fully recovered within a period of 90 days,

the entire outstanding in the FCTL will be crystallized using the prevailing TT

Selling rate. All forward contracts booked for repayment of the future

installments will be cancelled and profit or loss on the same will be to the

account of the borrower. Any deviation from this condition will have to be

approved by Executive Director.

24.19. GENERAL GUIDELINES:

o Application for the loan to be made by the borrower in the format enclosed as

annexure No.24(1)

o The branch concerned will forward the application on the format enclosed vide

annexure No.24(2) to Large Corporate Dept/ SME Dept. through their

controlling office with a copy to IBD for pricing purpose.

o Specific recommendations regarding the spreads to be stipulated are to be

made by the branch and endorsed by the controlling office. It should be the

effort of branch to keep themselves informed of market rates specially those

being offered by consortium member banks / other banks and persuade the

applicant to accept market realistic spreads. Branches while recommending the

spread over LIBOR should also take into account the loss of spreads that the

bank will suffer if the finance was to continue as a Rupee advance.

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o Pricing will be conveyed by IBD to Branch as well as Large Corporate Dept/ SME

Dept. with a copy to the Treasury Branch, Mumbai / FGMO/ RO. Large

Corporate Dept/ SME Dept. will convey the final sanction of the Foreign

Currency Loan including the pricing to the concerned branch/FGMO/RO.

o Loans are made available at 'A' category branches and designated 'B' category

branches. In case of customers of 'C' category branches, loans to be controlled

at designated 'B' category branch. 'C' category branches should control

drawings/adjustment in dummy loan ledger without passing accounting entries

and show outstanding loan amount as a footnote in W-1 STATEMENT.

o Permission to control the loan at “C” category branch will be given by IBD on

selective basis on recommendation of the concerned FGMO and after

ascertaining that the necessary expertise is available at the “C” category

branch to handle transactions in foreign currency.

o Transactions are to be reported to Treasury branch, Mumbai, two clear days

prior to draw down confirming compliance of sanction stipulations including

obtaining of security documents. Treasury branch, Mumbai will quote interest

rate taking into account the relevant ruling LIBOR + agreed spread.

o In case of Rupee conversion, transactions are to be reported to Treasury

Branch, Mumbai on the day of draw down and entries to be passed at the

exchange rate (TT Buying) obtained.

o The loan is to be availed within 15 days from the date of conveying of the

sanction to the party. However, disbursal of the loan after 15 days of

communication of the sanction will be at the sole discretion of the Bank as the

pricing conveyed will be valid only for 15 days. The bank reserves the right of

re-pricing of the loan in case of disbursal of the same beyond 15 days of the

conveying of the sanction.

o The account should be monitored as per our usual guidelines issued for the

monitoring of respective loans which otherwise would be outstanding in

Indian Rupees. It is the primary responsibility of the branch where the loan

was sanctioned to monitor the operations, verify securities and renew the

limits.

o If for any reason, as per the prevailing guidelines issued for the monitoring

of the various loans (Non submission of stock statement, MSOD, QIS etc.) the

account becomes liable for charging of penal interest, the same at 2% should

be recovered in foreign currency till the time the loan is outstanding in

foreign currency till the time the loan is outstanding in foreign currency.

24.20. ACCOUNTING TREATMENT:

o Term Loans -- Inland Term Loans - G.L. code 556009

o Working Capital -- Inland Loans repayable on Demand GL code 544001.

(Including CC Hyp)

24.21. RECORDS AND REPORTING:

o Borrowing branch to maintain separate numbering register for Foreign

currency Loan in substitution of working capital facilities and term loans

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(separate folios in one register for this purpose can be allocated), recording

the following details:

Date Ref No. Name of Customer Currency Amt. in FC

_(1)__________(2)_______________(3)____________(4)__________(5)_________

Amt. In Rs. at Tenor Due date Interest

Remarks

Notional rate

___(6)______________(7)______________(8)_____________(9)_________(10)___

o Monthly report on loans granted is to be sent by Treasury Branch, Mumbai

and to IBD in the format stated above.

o The liability of the customers to be controlled by designated branch, both in

Foreign Currency as well as in Rupees. Dual currency posting at control rate

at the forex dept. and in rupees in subsidiary and general ledger level.

Separate customer wise / advance wise accounts to be opened in Dual

Currency ledgers at forex dept. Dual currency ledger to be maintained for

each currency separately.

24.22. JOURNAL ENTRIES:

(At designated 'B' category branch)

24.22.1. INCEPTION

Inception

1. At the time of disbursal of the loan in foreign currency.

Dr. Foreign Currency Loan a/c.(Name of the customer)

Cr. Foreign Currency Settlement a/c.

[Amt. of Foreign Currency Loan at notional rate after informing Treasury Branch,

Mumbai and obtaining rate of interest]

(Dual currency voucher / posting)

In case of utilisation for payment of import bills,

o Send payment instructions

o Inform payment details to 'A' category branch

o In case Nostro account of any other 'A' category branch, other than Treasury

Branch, Mumbai is operated, instruct Treasury Branch, Mumbai to transfer

funds to that 'A' category branch.

2. In case of conversion of foreign currency loan into Indian rupees for domestic

purchase purposes, obtain ready purchase (TT Buying) from Treasury Branch,

Mumbai

Dr. Local Branch / POB a/c. FEX, Treasury Branch, Mumbai

17

Cr. Customer's CD/CC/WCDL/TL a/c.

[Entry to be passed in rupees by converting amount of FCL reported to Treasury

Branch, Mumbai at the exchange rate (TT Buying) obtained from them].

24.22.2. RECOVERY OF INTEREST

Recovery of Interest

I. Accounting for Interest receivable:

Dr. Foreign Currency Loan a/c.

Cr. Foreign Currency Settlement a/c.

[Amt. of interest calculated at the interest rate obtained from Treasury Branch,

Mumbai converted at notional rate] -

(Dual currency voucher/posting.)

II. Recovery of interest in foreign currency can be made either by;

1. Sale of the foreign currency to the borrower after obtaining TT Selling rate

from the Treasury Branch, Mumbai.

i) Dr. C.D., CC a/c. of Customer

Cr. Local Branch a/c. / C.O. a/c. Treasury Branch, Mumbai

[Entry to be passed in Rupees for sale of foreign currency to the borrower at TT

selling rate obtained from Treasury Branch, Mumbai towards repayment of amount

of interest].

ii) Dr. Foreign Currency Settlement a/c.

Cr. Foreign Currency Loan a/c.

[Actual recovery of the Interest in foreign currency from the borrower]

(Dual currency voucher/posting).

2. Recovery of interest from EEFC account.

Dr. EEFC a/c

Cr. Foreign Currency Loan a/c

[Actual recovery of interest in foreign currency from EEFC account of the

borrower.]

(Dual currency voucher/posting).

24.22.3. CRYSTALIZATION OF INTEREST INCOME

Crystallisation of interest income

To be done immediately on the day it is charged and recovered from the borrower.

The amount of interest to be crystallized at TT Buying rate to be obtained from

Treasury Branch, Mumbai.

Dr. Local Branch a/c. / POB a/c. FEX Treasury Branch, Mumbai

Cr. Income a/c interest on loans/cash credits/overdrafts etc. (FCD 44).

Cr. Local Branch a/c / CO, "C" category branch.

18

[Amount of interest recovered in foreign currency from party crystallized and

accounted as income of the branch. Income pertaining to "C" category branch

remitted to the concerned "C" category branch]

24.22.4. REPAYMENT

REPAYMENT

Repayment of the loan in foreign currency after recovery of interest up to date in

foreign currency can be made either by;

1. Sale of the foreign currency to the borrower after obtaining TT Selling rate

from the Treasury Branch, Mumbai / Utilisation of forward sale contract

booked.

i) Dr. CD/CC/WCDL/TL a/c. of Customer

Cr. Local Branch a/c. / C.O. a/c. Treasury Branch, Mumbai

[Entry to be passed in Rupees for sale of foreign currency to the borrower at TT

selling rate obtained from Treasury Branch, Mumbai / Utilisation of forward sale

contract towards repayment of amount of principal].

ii) Dr. Foreign Currency Settlement a/c.

Cr. Foreign Currency Loan a/c.

[Actual recovery of the principal amount in foreign currency from the borrower]

(Dual currency voucher/posting).

2. Recovery of the principal from EEFC account.

Dr. EEFC a/c

Cr. Foreign Currency Loan a/c

[Actual recovery of principal amount in foreign currency from EEFC account of the

borrower.]

(Dual currency voucher/posting).

3. Recovery by way of inward remittance.

Dr. Foreign Currency Settlement a/c.

Cr. F. C. Loan a/c

[Treasury branch to be informed of the inward remittance and disposal instructions

to be given for retaining the amount in foreign currency for the repayment of F. C.

Loan]

JOURNAL ENTRIES:

(At designated 'A' category branch)

24.22.5. INCEPTION

Inception

1. For making import payments etc.

Dr. Foreign Currency Settlement a/c.

Cr. Nostro

19

[Amt. of Disbursal of the Foreign Currency Loan at notional rate by way of payment

made through Nostro]

(Dual currency voucher / posting)

2. Conversion of foreign currency loan into Indian rupees for domestic purchase

purposes.

Dr. Foreign Currency Settlement a/c. (Notional Rate)

Cr. L/B, C.O. (Ready Rate)

Dr./Cr. Income a/c exchange (Difference)

[Entry to be passed in for disbursal by way of converting amount of FCL at the

exchange rate (TT Buying)].

24.22.6. RECOVERY OF INTEREST

Recovery of interest

1. Sale of foreign currency for interest recovery from customers.

Dr. L/B, POB (Ready Rate)

Cr. Foreign Currency Settlement a/c. (Notional rate)

Dr./Cr. Income a/c exchange (Difference)

2. Recovery of interest from EEFC account.

Dr. Foreign Currency Settlement a/c.(Notional Rate for payment out of

EEFC)

Cr. Foreign Currency Settlement a/c.(Notional Rate for Interest on FCL)

3. Purchase of foreign currency representing Income earnings of "B" category

branch.

Dr. Foreign Currency Settlement a/c. (Notional Rate)

Cr. L/B, POB (Ready Rate)

Dr./Cr. Income a/c exchange (Difference)

24.22.7. REPAYMENT

Repayment

1. Recovery by Rupee payment.

Dr. L/B, POB (Ready Rate)

Cr. Foreign Currency Settlement a/c. (Notional Rate)

Dr./Cr. Income a/c exchange (Difference)

2. By payment from EEFC account.

Dr. Foreign Currency Settlement a/c.(Notional Rate for payment out of

EEFC)

Cr. Foreign Currency Settlement a/c.(Notional Rate for FCL repayment)

3. By inward remittance.

Dr. Nostro (Notional Rate)

Cr. Foreign Currency Settlement a/c.(Notional Rate)

20

24.23 Addendum FCL/FCTL-Calculation of Interest through Finacle

The process of calculation of interest in FCL/FCTL accounts

will be effective from the month ended November, 2014.

Branches are informed that for calculation of interest for the

existing accounts for the first time, they have to run the above

process once before end of November, 2014 from beginning of

the account to the date upto which interest was last

calculated/ charged, say 31st October, 2014, to enable the

system to calculate and register the interest upto above date

for future calculation. Once the same is done, Branches are to

run the process for the current month for which the interest

will be calculated, say from 1st November, 2014 to last date of

the month or the date of the month upto which interest is to be

recovered.

Sr.No. Process Description Action

1. Interest

Rate

Recording of

interest rate

in the existing

accounts

- Go to Menu Option `INITM'

- Function 'DX

- A/c./Bill/Disb : 'A'

- A/c./Bill/Disb. ID : Enter

FCL/FCTL Account No.

- Press F4.

In the next screen :

- In field `A/c. Bill Pref. Int.

Dr.', enter the rate of

interest as approved by

DFB&IBD, i.e. total of applicable

LIBOR and spread. For

example, if the interest has

been approved at 6 Months'

LIBOR+500 basis points, the

branch shall enter the total

of LIBOR as given by Treasury

Branch at the Time of

reporting the FCL/FCTL

transaction, say 0.33% and the

spread 500bps, i.e. total

5.33%.

- In field 'Start Date', give

the date on which the

FCL/FCTL account was

actually opened.

21

- Press F10.

- Get it verified.

For new

accounts opened

from date of

issue of this

circular and

thereafter.

For any new FCL/FCTL

accounts to be opened from

date of issue of the revised

guidelines, interest rates as

described above to be

entered in field A/ c .

Pref.Int. (Dr.)' at the time of

opening only.

2. Calculation

of Interest

Amount in

Foreign

currency

Interest amount

for the relevant

period will be

calculated in the

respective

currency of

FCL/FCTL

Menu Option `LADGEN'

- Enter currency of

FCL/FCTL.

- Enter A/c No. in field 'A/C

From' and To‟ (separately

for each of the accounts).

- Enter D' in field 'Interest

Print Details'

- Enter 'N' in field 'Force

Interest Run' .

- In field 'Interest Till Date',

enter the date up to which

interest has been last

calculated manually and

recovered in the previous

month (say, 31-10-2014).

- Generate the report.

Once the above process has

been completed for the

interest calculation upto

previous month for which

interest has been calculated

manually by the branches,

the branches shall do the

following process for the

current month in which the

interest is to be charged.

- Enter date upto which

interest is to be calculated in

field 'Interest Till Date',

say 28-11-2014.

- Press F4 and generate the

report from background.

- Print the report.

- For each account, the

interest report to be

generated separately.

22

3. Application

of interest

Accounting

entries to be

passed

All the accounting entries as

per the extant guidelines to

be passed through 'TM' Menu.

RECOVERY OF INTEREST:

I. Accounting for Interest receivable:

Dr. Foreign Currency Loan a/c.

Cr. Foreign Currency Settlement a/c.

(Dual currency voucher/posting.)

II. Recovery of interest in foreign currency can be made either by;

1. Sale of the foreign currency to the borrower after obtaining TT

Selling rate from the Treasury Branch, Mumbai.

i) Dr. C.D., CC a/c. of Customer

Cr. Local Branch a/c. / C.O. a/c. Treasury Branch, Mumbai

[Entry to be passed in Rupees for sale of foreign currency to the

borrower at TT selling rate obtained from Treasury Branch, Mumbai

towards repayment of amount of interest].

ii) Dr. Foreign Currency Settlement a/c.

Cr. Foreign Currency Loan a/c.

[Actual recovery of the Interest in foreign currency

from the borrower] (Dual currency oucher/posting).

2. Recovery of interest from EEFC account.

Dr. EEFC a/c

Cr. Foreign Currency Loan a/c

[Actual recovery of interest in foreign currency from EEFC account

of the borrower.] (Dual currency voucher/posting).

III. Crystallisation of interest income:

23

To be done immediately on the day it is charged and recovered

from the borrower. The amount of interest to be crystallized at

TT Buying rate to be obtained from Treasury Branch, Mumbai.

Dr. Local Branch a/c. / POB a/c. FEX Treasury Branch,

Mumbai

Cr. Income a/c interest on loans/cash

credits/overdrafts etc. Cr. Local Branch a/c / CO, "C"

category branch.

24

24.24. ANNEXURES

24.1. ANNEXURE (1) REQUEST FOR AVAILMENT OF FOREIGN CURRENCY LOAN

Annexure 24(1)

The Manager

Union Bank of India

__________ Branch.

Dear Sir,

Request for availment of Foreign Currency Loan

I/We request you to grant us Foreign Currency loan as per details shown herein

below:

1. Amount of Loan:

2. Purpose of Loan: 1. Working Capital Purpose

a. To make payment of sight/usance import bills

received

i. Under LC mechanism

ii. Outside LC mechanism

b. In substitution of Working Capital Demand Loan.

c. In substitution of outstanding in Cash Credit

account

2. Term Loan requirements.

a. Import of capital goods

i. Under LC mechanism

ii. Outside LC mechanism

b. Substitution of term loans outstanding with our

bank.

c. Prepayment of ECB in terms of RBI norms.

d. Takeover of high cost borrowings of other

banks/financial institutions.

3. I/We undertake to repay the Loan, together with the interest at rates as

stipulated by the bank, on maturity date in one of the following ways.

a. By submission of Export documents for purchase

b. From proceeds of Exports bills sent on collection basis.

c. By purchase of Foreign Currency from the Bank on maturity, at Banks

Spot Selling rate; or at the agreed rate in case of forward contracts.

d. Out of balances in EEFC account.

4. The loan will be availed by me/us within 15 days from the date of conveying of

the approval by the bank. I/We undertake to pay commitment charges @ 1%

25

p.a. for the period of delay in availing of the loan beyond 15 days from the date

of communication of sanction of the facility by the bank to me. I/We on the

amount of FCL sanctioned will pay such commitment charges. In addition I/We

understand that bank has the liberty to do the re-pricing of the loan, as the

pricing will be valid for 15 days only.

5. In case the Loan is required to be extended for a further period, I/we shall give

a request for extension sufficiently in advance (at least two weeks notice), to

enable Bank to consider the same. It is understood that any extension/Rollover

of the Loan is at the option of the bank and subject to availability of foreign

currency funds of appropriate maturity and at fresh pricing.

4. I/We authorize bank to recover interest by debit to CD/C.C. accounts at

appropriate TT selling rate/forward contract rate on a monthly basis and

before adjustment/ extension/Rollover of the Loan.

5. In the event of prepayment of the loan, I/we undertake to pay the funding cost

subject to minimum of 1% p.a. (irrespective of whether there is a funding cost

involved or not) on the amount outstanding at that time for the un-expired

period of the loan.

6. It is understood that outstanding under „Foreign Currency Loan‟ is exposed to

Exchange Rate Risk. I/We undertake to hedge the exchange risk, either by

matching export receivables to the amount and maturity or by booking of

Forward Contract. It is understood that Exchange Cover is to be taken, unless

the Bank permits waiver of the same. In case of waiver, the bank may stipulate

a suitable margin, in lieu of Exchange cover, which I/we undertake to maintain

with the Bank. In case the exchange risk of Foreign Currency Loan remains,

uncovered, I/we undertake to repay the Loan plus interest thereon, by

purchase of Foreign Currency from the bank at appropriate rate prevalent on

the date of repayment.

7. In the unlikely event of Foreign Currency Loan becoming overdue, we

undertake to abide by the banks policy on crystallization of the foreign

currency exposure into Indian Rupees and pay overdue interest at appropriate

rate specified by the bank from time to time, for the overdue period.

8. I/We undertake to apply the amount of Foreign Currency Loan advanced by the

bank to me/us exclusively towards the purpose specified above in para 2.

9. I/We further undertake to execute such documents as may be required by the

bank in the form and the manner prescribed by the bank from time to time and

also discharge such obligation which may arise out of the aforesaid request and

consequential granting of the above loan to me/us.

10. I/We undertake agree that in the event of breach of any of the Terms

mentioned herein above/and or contained in the agreement executed by

me/us, to be executed by me/us, with the bank from time to time and/or

Terms and Condition prescribed by the bank from time to time, the bank shall

be entitled to recall the said loan along with interest due.

11. I/We undertake to adjust the said loan along with interest due in Foreign

Currency within one week from the date of receipt of notices issued by the

Bank.

12. In the event of any dispute regarding interpretation of the Terms of this

letter/and or agreement that will be executed by me/us, the interpretation

26

that may be made by the Bank shall be final and conclusive and binding on

me/us.

13. I/we agree and undertake to comply with the provision of all statutes, rules,

regulations made from time to time in respect of Import/Export of goods.

14. Nothing in this letter of request, shall entitle me/us to claim any right, to get

the aforesaid loan in foreign currency and the bank shall be entitled to grant or

refuse the said loan it its sold discretion.

27

24.2. ANNEXURE (2) PROPOSAL FOR FOREIGN CURRENCY LOAN

Annexure 24(2)

UNION BANK OF INDIA

PROPOSAL FOR FOREIGN CURRENCY LOAN

INFORMATION TO BE PROVIDED BY THE BRANCH

1. NAME OF BRANCH :

2. NAME OF "B"/"A". CATEGORY :

BRANCH THROUGH WHICH FEX

BUSINESS ROUTED

(APPLICABLE TO C CAT. BR.)

3. BORROWER PROFILE

NAME OF THE BORROWER :

OFFICE ADDRESS :

YEAR OF ESTABLISHMENT :

BANKING WITH US SINCE :

LINE OF ACTIVITY :

NAME OF DIRECTORS :

/PARTNERS/PROPRIETOR

ADVANCE SINCE :

ASSET CLASSIFICATION : STD/SUB-STD/DOUBTFUL/LOSS

SINCE______________

4. LIMITS DETAILS

LIMITS VALID/RENEWED :

UPTO

SANCTIONING AUTHORITY :

5. LIMIT PARTICULARS

SANCTIONING AUTHORITY :

28

MONTH OF REVIEW :

LIMIT DATA :

(RS. IN LACS)

NATURE OF LIMIT OUTSTANDING TURNOVER FOR OVERDUES

FACILITY AMOUNT AS OF_______ 1 YEAR (IF ANY)

6. RATING AS PER SCORING :

PATTERN

7. RATE OF INTEREST CHARGED

ON WORKING CAPITAL :

ON TERM LOANS :

8. FINANCIAL ANALYSIS

SALES TURNOVER :

NET PROFIT :

NET WORTH :

CURRENT RATIO :

DEBT / EQUITY RATIO :

GENERAL COMMENTS ON :

FINANCIALS

9. PRESENT REQUEST FOR

CONVERSION INTO FCL

NATURE OF LIMIT AND O/S :

AMOUNT OF INR OUTSTANDING :

TO BE CONVERTED INTO

FOREIGN CURRENCY LOAN

29

TENOR OF LOAN :

NO. OF INSTALLMENTS :

PERIODICITY OF : MONTHLY / QUARTERLY / HALF YRLY

INSTALLMENTS YEARLY / BULLET

INTEREST : FIXED / FLOATING

INTEREST RATE : ______MTS. LIBOR + ________BPS

(AS REQUESTED BY CUSTOMERS)

RESETTING OF INTEREST IF ANY :

RECOVERY OF INTEREST : MONTHLY

FORWARD EXCH. COVER : TO WAIVE / NOT TO WAIVE

10. AUDIT IRREGULARITIES IF ANY :

11. HIGHLIGHTS OF MONITORING :

REPORTS

12. GENERAL EXPERIENCE OF :

THE CONDUCT OF THE A/C.

13. RECOMMENDATION :

DATE: CHIEF MANAGER/ASST. GEN. MANAGER

FOR USE BY ZONAL OFFICE / FGMO

DETAILS FOR SANCTION / RECOMMENDATION

30

AMOUNT OF F. C. LOAN :

TENOR OF F. C. LOAN :

INTEREST RATE : _______MTS. LIBOR + _______BPS

INTEREST TO BE CHARGED : QTLY / HALF. YR. RESTS./ BULLET

FORWARD COVER : 1. TO WAIVE / NOT TO WAIVE

DOCUMENTS NEEDED

i ) BOARD RESOLUTION TO AVAIL FOREIGN CURRENCY LOAN

ii) DEMAND PROMISSORY NOTE IN FOREIGN CURRENCY

iii) AGREEMENT OF HYPOTHECATION

iv) AGREEMENT OF MODIFICATION

v) UNDERTAKING TO EXECUTE ADDITIONAL SECURITY DOCUMENTS

AS MAY BE PRESCRIBED.

vi) UNDERTAKING TO BEAR EXCHANGE RISK IN THE EVENT LOAN IS PAID

IN DOMESTIC CURRENCY OR IN ANY OTHER CONVERTIBLE CURRENCY.

vii) ANY OTHER DOCUMENTS TO BE SPECIFIED:

SANCTIONED / DECLINED / RECOMMENDED TO C.O.

DATE: REGIONAL HEAD / ZONAL HEAD / GENERAL MANAGER

FOR THE USE OF CENTRAL OFFICE

DATE: