RBI relaxes norms on forex exchange earning retention
Amid rupee volatility, the Reserve Bankon Tuesday, Jul 31 eased norms by allowing corporates and exporters to keep their entire forex earnings in the respective foreign currency for a limited period.
As per the existing provision, 50 per cent of exporters earning in foreign currency (EEFC) are required to be converted into rupee. Compulsory conversion of a portion of foreign exchange into rupee was enforced to deal with sharp volatility of in the forex market since March this year.
The decision comes following recovery of the rupee after hitting a record low of Rs 57.42 against a dollar in June. This is aimed at addressing concerns of some companies that felt the regulations were restricting their foreign exchange risk management.
According to a RBI circular this was to "restore the erstwhile stipulation of allowing credit of 100 percentforeign exchange earnings to the EEFC accounts. "It is subject to the condition that the sum total of the accruals in the account during a calendar month should be converted into rupees on or before the last day of the succeeding calendar month...," the circular said.
Exchange Earners' Foreign Currency Account (EEFC) is an account maintained in foreign currency with a bank. It is a facility provided to the foreign exchange earners, including exporters, to credit 100 per cent of their foreign exchange earnings to the account.
The account holders did not have to convert foreign exchange into rupees and vice versa, thereby minimising the transaction costs. The latest decision will help exporters and corporates save conversion fee and enable them to hedge against volatility in forex market.
The RBI also permitted exporters to cancel and rebook forward contracts comprising up to 25 per cent of their total hedged exposure. Meanwhile, the rupee dropped by seven paise to close at 55.65 against the US currency in volatile trade.