In view of the difficulties being experienced by exporters in receiving export proceeds from Sri Lanka, the Reserve Bank of India (RBI) has allowed trade transactions with the island country to be settled in Indian Rupees (INR) outside the Asian Clearing Union (ACU) mechanism.

The settlement of transactions in INR is under an arrangement whereby the Indian Government guaranteed a term loan of $1 billion extended by the State Bank of India to Sri Lanka (via a credit facility agreement dated March 17, 2022) for financing purchase of essential goods and services (such as food items, medicines, fuel and industrial raw material).

Under the arrangement, financing of export of eligible goods and services from India, as defined under the agreement, would be allowed subject to their being eligible for export under the Foreign Trade Policy of the Indian Government and whose purchase may be agreed to be financed by SBI under this agreement.

RBI said the aforementioned instructions come into force with immediate effect. The Credit Facility under the agreement is available for draw-down up to 12 months from the signing Date of Facility Agreement—up to 16th March 2023.

The Asian Clearing Union (ACU) was established with its head-quarters at Tehran, Iran, on December 9, 1974 at the initiative of the United Nations Economic and Social Commission for Asia and Pacific (ESCAP), for promoting regional co-operation.

The main objective of the clearing union is to facilitate payments among member countries for eligible transactions on a multilateral basis, thereby economising on the use of foreign exchange reserves and transfer costs, as well as promoting trade among the participating countries.

The central banks and the monetary authorities of Bangladesh, Bhutan, India, Iran, Maldives, Myanmar, Nepal, Pakistan and Sri Lanka are currently the members of the ACU.

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