KATHMANDU, Aug 15: Nepal Rastra Bank (NRB) has made letter of credit (LC) mandatory for imports from India worth above 50 million Indian rupees from India.
Issuing a new circular on Tuesday, the central bank made it compulsory for importers to open LC in banking institution to make payment for import of any goods or services worth above IRs 50 million, removing other available choices of payment methods like draft and telegraphic transfer (TT).
So far, the central bank was allowing traders to make imports from India without opening LC. NRB introduced the new rule as per the announcement made in the Monetary Policy to bring payment of Indian imports under LC progress.
However, traders say that payment of imports from India is not as convenient with other countries. “The requirement of bill of export while importing goods and services from India makes the process to make payment through LC process difficult,” Kamalesh Kumar Agrawal, vice president of Nepal Chamber of Commerce, said.
He, however, added that the exemption for imports up to IRs 50 million is a welcome step as small importers will not be affected by the new rule.
Similarly, the NRB has also slashed the limit of payment of third country imports through draft and TT to US$ 40,000 from the earlier limit of $50,000. According to NRB officials, the new rules are aimed at easing the payment process for import of goods and services to Nepal while also controlling under-invoicing and misuse of foreign currency exchange service. They also say that the central bank is moving toward gradual liberalization of foreign exchange regime of the country.
The central bank has also allowed banking institutions to provide foreign exchange of up to $1,000 for those who are travelling abroad on travel document issued by the Government of Nepal.
Meanwhile, the NRB has also moved toward simplifying the process for government agencies to open LC to make payment for purchase of goods and services from foreign suppliers. According to the circular, commercial banks can now open LC for government agencies carrying out development projects upon submission of application to open LC for making payment to foreign vendors.
The maturity period for foreign currency loans issued by banks for import of raw materials for industries has also been increased to 180 days from existing 90 days.