Reporting of Foreign Exchange Transactions by IBUs for India’s External Account Statistics

Page 1 of 41 CIRCULAR F. No. 722/IFSCA/Banking/2022-23/1 September 19, 2022 To, All IFSC Banking Units Madam / Sir, Sub: Reporting of Transactions for India’s External Account Statistics 1. The Balance of Payment (BOP) and International Investment Position (IIP) Manual – Sixth Edition (BPM6) of the International Monetary Fund (IMF) provides a statistical framework for a comprehensive, consistent and flexible set of macroeconomic accounts and prescribes international standards for economy-wide external sector statistics (ESS). BPM 6 is produced and released under the auspices of the United Nations (UN), the European Commission (EC), the Organisation for Economic Co- operation and Development (OECD), the IMF and the World Bank (WB) Group. 2. With the signing of General Agreement on Trade in Services (GATS) under World Trade Organisation (WTO), the member countries are required to disseminate the data on international trade in services as per Manual on Statistics on International Trade in Services (MSITS). Accordingly, detailed BOP statistics are released on a quarterly basis and BOP for services are released on a monthly basis. The Reserve Bank of India (RBI), compiles and disseminates India’s BOP and other external sector statistics as per the global prescriptions, encapsulating a national perspective. 3. As you are aware, in terms of the Foreign Exchange Management (International Financial Services Centres) Regulations No. FEMA.339/2015-RB, dated March 2, 2015 - issued by the RBI under the Foreign Exchange Management Act, 1999 (FEMA), a financial institution or a branch of a financial institution (referred as IFSC entities) set up in the IFSC is treated as a non-resident entity, for the purposes of the FEMA. The IFSC entities shall conduct permitted business activities in such foreign currency and with such persons, whether resident or otherwise, as the concerned Regulatory Authority may determine. Page 2 of 41 4. However, as the entities operating in International Financial Services Centre (IFSC) with an Indian address, are residents of India, under the global framework of BPM6, the transactions between resident (with Indian address) and non-resident, facilitated by IFSC Banking Units (IBUs), need to be included in the external sector statistics for India. The rationale for the same is explicitly provided under BPM 6, that notes “… a free trade zone or offshore financial center may be exempt from certain taxation or other laws. Because of the need to view the whole economy, to have comprehensive global data, and to be compatible with partner data, these special zones always should be included in the economic statistics of that economy…”. 5. In view of the rapidly growing volumes and significant value of transactions in IFSC, it has been decided, in consultation with the RBI, that the IBUs shall be required to report the transactions between resident (Indian address) with the rest of the world, for the compilation of India’s BOP statistics and other external statistics as per international guidelines given by the International Monetary Fund (IMF). This information is also important for policy making and other macroeconomic management purposes. The IBUs shall capture and report the purpose, currency, amount, and country of their foreign exchange transactions in the Foreign Exchange Transaction Electronic Reporting System (FETERS) managed by the RBI, as per the formats prescribed by the RBI. 6. In this regard, the IBUs are advised to refer to the RBI circulars viz. A.P. (DIR Series) Circular No. 84 dated February 29, 2012, A.P. (DIR Series) Circular No. 50 dated February 11, 2016 and A.P.(DIR Series) Circular No. 25 dated March 25, 2019 giving guidelines for compilation and reporting of foreign exchange transactions in R-return and A .P. (DIR Series) Circular No. 3, dated August 10, 2017 for compilation and reporting of banking assets and liabilities in BAL return under the FETERS. While these AP Dir Circulars issued by the RBI under the FEMA are addressed to the Authorised Persons (AD banks) in India, they are being referred to by the IFSCA for the limited purpose of providing the relevant guidelines to IBUs in setting up their internal processes for reporting under the FETERS. 7. Accordingly, the IBUs are, hereby, directed to report the details of their foreign exchange transactions undertaken from November 1, 2022 onwards on a fortnightly basis (i.e., 15th day of the month and end of the month), within seven calendar days from the close of the reporting period to which it relates, through the designated web portal at https://bop.rbi.org.in, as per the attached R-return format (Annex I). The IBUs may also prepare themselves to report the past data on such transactions since April 1, 2022 on the same portal latest by December 31, 2022. Page 3 of 41 8. The IBUs shall also take note of the following with regard to reporting under the FETERS: (a) The IBUs shall indicate economic activity (purpose for the transaction) for all foreign exchange transactions under FETERS, capturing the purpose codes as per the attached prescribed classification (Annex II). The IBUs shall indicate date of transaction, purpose code, currency, amount, country and other details for all foreign exchange transactions and submit data files on the FETERS. (b) The IBUs are also required to submit a statement in form BAL giving details of their holdings of all foreign currencies for October 31, 2022 onwards through the same web-portal (https://bop.rbi.org.in) as per the format given in Annex III on a fortnightly basis (i.e., 15th day of the month and end of the month), within seven calendar days from the close of the reporting period to which it relates. (c) The IBUs are advised to follow the attached guidelines (on file-layouts, delimiters, consistency checks, nomenclature, inter-relationship between files, glossary of external sector statistics etc.) for submission of data (Annex IV). (d) Due to inherent difference in the scope and nature of permitted foreign exchange transactions of IBUs vis-à-vis the AD banks in India, the existing purpose codes for FETERS may not be able to capture all the relevant granular details under certain fields. Accordingly, for some specific purposes, the IBUs may be advised to provide additional information for the purpose of BOP statistics, outside of the FETERS reporting portal. In this regard, IBUs are being further directed to furnish the disaggregated information on transactions related to short-term loans and long-term loans extended and export bill discounting, under the prescribed format to the RBI under advice to IFSCA, along with the FETERS reporting beginning from November 1, 2022. 9. The IBUs shall follow the operational instructions by the RBI for such reporting and may ensure that the returns and statements reflect all the relevant foreign exchange transactions undertaken by them accurately and completely. Failure on the part of the IBUs to furnish the mandated information accurately and in a timely manner will be viewed seriously by the IFSCA. 10. Apart from the reporting formats, the enclosures to this circular also provide detailed guidelines and a glossary of key terms used in compilation of BOP statistics for facilitating the reporting by IBUs. The IFSCA, in collaboration with the Department of Statistics and Information Management (DSIM), RBI shall organize workshops / sessions for familiarization of the staff of all IBUs. The general and specific queries of Page 4 of 41 the IBUs, with regard to reporting under the FETERS, shall be suitably addressed through FAQs and through such initial / periodic (need based) virtual / physical workshops. 11. The reporting by the IBUs on the FETERS to the RBI under these directions being issued by the IFSCA, shall be in addition to and separate from the regulatory reporting or supervisory returns to be filed in compliance with the directions contained in the IFSCA Banking Handbook and other circulars / directions / guidelines issued, under the IFSCA Banking Regulations. 12. The directions contained in this circular have been issued by the IFSCA in exercise of powers conferred on it by under section 35A of the Banking Regulation Act,1949 and section 13(1) of International Financial Services Centres Authority Act, 2019.