Exporter agrees disounts to buyer on prepayment of usance bills. How to treat by exporter's Bank?
According to Reserve Bank of India update as on 08th January 2021, the directions on RBI formalities to account the discount allowed by exporter for prepayment of usance bill is given below:
C.16 Reduction in invoice value on account of prepayment of usance bills
Occasionally, exporters may approach AD Category – I banks for reduction in invoice value on account of cash discount to overseas buyers for prepayment of the usance bills. AD Category – I banks may allow cash discount to the extent of amount of proportionate interest on the unexpired period of usance, calculated at the rate of interest stipulated in the export contract or at the prime rate/LIBOR of the currency of invoice where rate of interest is not stipulated in the contract.
C.17 Reduction in invoice value in other cases
(i) If, after a bill has been negotiated or sent for collection, its amount is to be reduced for any reason, AD Category – I banks may approve such reduction, if satisfied about genuineness of the request, provided:
a) The reduction does not exceed 25 per cent of invoice value:
b) It does not relate to export of commodities subject to floor price stipulations
c) The exporter is not on the exporters’ caution list of the Reserve Bank,
d) The exporter is advised to surrender proportionate export incentives availed of, if any.
(ii) In the case of exporters who have been in the export business for more than three years, reduction in invoice value may be allowed, without any percentage ceiling, subject to the above conditions as also subject to their track record being satisfactory, i.e., the export outstanding do not exceed 5 per cent of the average annual export realization during the preceding three financial years.
(iii) For the purpose of reckoning the percentage of export bills outstanding to the average export realizations during the preceding three financial years, outstanding of exports made to countries facing externalization problems may be ignored provided the payments have been made by the buyers in the local currency.
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