Role of NRB in Regulating Foreign Exchange and Penalties Presented By: Group 3

Introduction currency other than the Nepalese currency a party purchases a quantity of one currency by paying a quantity of another currency The modern foreign exchange market started forming during the 1970s when countries gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed as per the Bretton Woods system Foreign Currency Regulation Act 2019

Importance of Foreign Exchange National currencies are independently valued due to their backing in a central banking system that is specific to its nation The trade between currencies is an important part of the overall value of a single nation's currency The Forex market is the place where all of this happens

Importance of Foreign Exchange The major players in foreign exchange markets are banks, large commercial enterprises, national central banks, investment management firms, retail traders, and individual investors National central bank is the most influential participant in the foreign currency market

Importance of Foreign Exchange Central banks trade on the market for a variety of reasons. –to stabilize their own currencies, or to synchronize their interest rates with other national interest rates. –to manipulate their currency in order to manage economic influences like inflation, and to control the supply of money

Monetary Policy 08/09: Highlights of ForEx Management the NRB's prior approval for repatriation is required arrangements will be made to provide such repatriation facility from banks of category "A" on the basis of the necessary documents

Monetary Policy 08/09: Highlights of ForEx Management contd… The limit for making advance payments while importing goods from third countries other than India through Draft/TT will be increased to US$ 50,000 from the existing limit of US$ 30,000 provisions are made to allow licensed remittance companies including the national level financial institutions of category "B" to participate in foreign exchange intervention market

Monetary Policy 08/09: Highlights of ForEx Management contd… The existing provision of foreign exchange facility up to US$ 2,500 to individual, organizations/institutions and banks & financial institutions directly receivable from the banks of category "A" and national level financial institutions of category "B" for various purposes on the basis of necessary documents has been increased up to US$ 4,000

Monetary Policy 08/09: Highlights of ForEx Management contd… The existing provision of granting the NRB's approval for releasing the amount of 10 percent guarantee while making advance payments in foreign currency through the L/C and other modes has been amended From now onwards, provisions will be made to release such amount from the banks of category "A" and the national level financial institutions of category "B" on the basis of the documents showing the completion of the transactions

Monetary Policy 08/09: Highlights of ForEx Management contd… Currently, the number of goods permitted to import from India by paying the US dollar is 124

Monetary Policy 08/09: Highlights of ForEx Management contd… A provision has been made to provide foreign exchange facilities to the foreign embassies located in Nepal for the repatriation of their visa fees to their respective countries by the banks of category "A" and national level financial institutions of category "B". Prior to this, the NRB had been providing such facility to the foreign embassies located in Nepal

Licensing procedure

"Foreign Exchange Transaction" means the acts of purchase and sale of foreign currencies "License holder" means an individual, firm, company or institution that has obtained license from the Bank for foreign exchange transaction “License” means permission obtained to operate foreign currency transactions issued by NRB under foreign exchange regulation act 2019

Licensing procedure contd… Any person, firm or company to transact in foreign currency shall obtain license from NRB, herein after called Bank. Such person, firm or company shall in a prescribed format apply for license After receipt of application the bank shall as per the standard norms and after inspecting and verifying the submitted application documents can issue the license.

Licensing procedure contd… The license shall include the type of foreign exchange, time to operate foreign exchange and any other necessary terms and conditions. The bank shall from time to time provide necessary orders or directions to the license holder for regulating and managing the foreign currency transactions. It is a responsibility of the license holder to comply with such directions and orders. The license holder shall submit the annual fees and deposits as prescribed by the bank

Licensing procedure contd… The bank shall cancel or suspend the license if such fees and deposit not paid in time. If any person, firm or company or institution wants to transact in foreign currency on a one off basis then the bank shall issue such license on a one off basis

Control on Foreign Exchange

Nepal Rastra Bank through its various directives and circulars, from time to time, controls the foreign exchange transaction in Nepal

Import L/C against payment of convertible foreign currencies Procedure of opening L/C –Document to be submitted by the importer –Fills the BBN form No. 3 –Issue BBN from No. 4 –Declaration of Custom point in import L/C –Amendment of L/C amount –Monitoring by the central level

Payment procedure for import L/C Security deposit arrangement Import of specified merchandise by Honorable Members of House of Parliament. Obtaining BCI (Business Credibility Information) Banned on import and distribution of Milk Powder and other food items produced in china. L/C transactions in FOB value

Special arrangement for imports –Import from Tibet through Tatopani Custom point. –Import of Raw wool –Trade between Nepal and Bhutan in Indian Currency –Import against payment through TT (telegraph transfer) –Import against payment through DAP (document against payment) –Asian Clearing Union transaction

Restricted items for import –Merchandize fully prohibited for import –Prior approval required for export/import of alcohol –Import of Old/Used cloth, metal and plastic scraps and second hand equipments –Ozone depleting substances. –Restriction to import Bird/Bird Related products. –Import of refined oil

Import from India against payment in convertible foreign currency Eligible importers to open L/C Procedures to be completed for opening L/C

Transaction in Indian currency Import exceeding Rs. 16,000 Exchange remittance of Indian currency Arrangement of managing transaction of IC

Arrangements relating to exports Export against CAD (cash against document) Export of readymade garments Restriction on discounting of export bills Deemed export Issue of export advance payment certificate against local sales to tourists. Restriction of Export of Paddy, Rice and Wheat

Repatriation of foreign exchange Arrangement of repatriation and determination of fare of air ticketing cargo and courier services Other arrangements

Supply of gold and silver for export Arrangement for supply of silver Arrangement for supply of gold

Forward contract Considering the exchange rate risk arising to the entities involved in foreign currency transaction due to fluctuation in exchange rate of convertible foreign currencies, arrangement has been made to provide forward exchange facility to the entities involved in foreign exchange transaction

Exchange facility for foreign travel against passport Nepali citizens with confirmed air ticket and valid passport can receive foreign currency upto USD 2000 against passport. For an individual travelling by road to SAARC countries, china etc.., the limit is USD 1000 against passport. For children accompanying their parents, without carrying a separate passport, exchange facility up to USD 500 may be provided. Only the eligible bank branches can provide exchange facility. Exchange facility to Government of Nepal/NRB staffs shall be given by NRB

Convertible foreign exchange facility for various purposes For an individual and institution For Bank/Financial Institutions Direct exchange facility to government of Nepal entities For students going abroad for study Payment of reinsurance premium

Convertible foreign facility for participation in training, seminar and meeting For entities not having convertible foreign currency earnings, commercial banks are to provided foreign currency exchange facility for travelling countries other than India to such officials of Bank, Financial Institutions, Public Corporations, Government and semi government organizations. For entities having convertible foreign currency earnings, commercial banks are to provided foreign currency exchange facility for travelling countries other than India to such officials

Opening of convertible foreign currency accounts Earning from export and tourism sector Software exporters Permission to license institution carrying remittance business. Permission to license institution carrying money changer business. Period of license to be indicated in the concerned company’ account

Arrangement relating to credit cards Eligible person. Settlement of charges on credit cards. Procedures relating to credit card transaction

Lending in foreign currency To exporters. To manufacturing export industries. To power generating private companies. To tourism and export industries For import of raw wool

Other relevant directives Use of foreign exchange encashment receipt (FEER), the FEER shall have Full Name, Passport Number, Nationality, Address mentioned in Passport, Cash or TC, Foreign currency in amount, Exchange rate of the day, Total amount in NRS, Signature of customer, Local address in Nepal

Role of NRB in Regulating Foreign Exchange

Management of Foreign Exchange To issue license under this Act or any other prevailing laws to the persons willing to deal in foreign exchange transaction; To frame Rules and by-laws and to issue necessary order, directives or circulars in order to regulate dealings in the foreign exchange transaction by the foreign exchange dealer; To inspect, supervise and monitor the foreign exchange dealer; To set the bases, limitations and terms and conditions for the transaction of the foreign exchange dealer; and To prescribe the system of determining the foreign exchange rates of the Nepalese currency

Particulars of Foreign Exchanges Dealings The Bank shall cause the license-holder to submit to the Bank the detailed particular of exchange of foreign currency and of the transaction relating to it. The duration for submitting such particulars, the format and other documents relating to it shall be as prescribed by Bank from time to time. It shall be the duty of the concerned license holder to submit the particulars referred to in Sub-section (1) and the documents prescribed by the Bank

Dealing in Foreign Exchanges The Bank may purchase and sell foreign exchanges, gold and precious metals. The purchase and sale to be made by the Bank pursuant to Subsection (1) shall be effected through the spot, advance exchange rate, swap, option or the similar types of other instruments, cash or negotiable instrument. The Bank may, for the purpose of Sub-section (1) of Section 66, purchase or sell foreign exchange. It may affect such purchase and sale also on the basis of spot, advance exchange rate, swap, option or similar types of other of instruments. The Bank shall deal in foreign exchange after fixing its buying and selling rates. The basis, limitations and conditions of such dealing shall be as prescribed by the Bank.

Issuance of Debt Bond Against Gold and Foreign Currency The Bank may, having obtained approval from Government of Nepal, issue one or more types of debt bond denominated in gold or foreign currency for certain purpose. The types, duration, payment of principal and interest and other matters of the debt bond to be issued pursuant to Sub-section (1) shall be as prescribed by the Bank

International Clearing and Payment Agreements The Bank may, either for its own account or for government account and by the order of Government of Nepal, enter into clearing and payment agreements with public or private central clearing unions domiciled abroad. The Bank may, in order to implement the objectives of such agreement, enter into other necessary agreements

Penalties

If the license holder does not comply with any orders or directions issued by the bank under the foreign exchange regulation act 2019, the license holder shall be liable to one or any of the following penalties –Warning –To restrict from doing foreign exchange transaction. –The bank shall forfeit the deposit or make a claim on the guarantee. –To cancel or terminate the license

Penalties If any inspecting officer of the bank come across any case where he/she violates any work under this act or leaks any confidential information shall be punished up to 1 lac rupees Any director, official, employee or agent working on behalf of the licensed institution shall be personally liable for any violation there under

Penalties If any importer does not comply with the conditions of import under this act shall be liable upto 3 times the value of import. If any fine imposed under this act is not paid by the license holder then imprisonment upto 4 years may be imposed