Introduction to EEFC Account
Exchange Earners’ Foreign Currency (EEFC) is an account maintained in foreign currency with an Authorised Dealer (AD) Category –an I bank i.e., a bank authorized to deal in foreign exchange. It is a facility provided to the foreign exchange earners, including exporters, to credit 100 per cent of their foreign exchange earnings into an account, so that the account holders do not have to convert foreign exchange into INR and vice versa, thereby minimizing the transaction cost. All categories of foreign exchange earners, such as individuals, companies, etc., who are resident in India, may open an EEFC account. An EEFC account can be held only in the form of a current account and no interest would be payable on it.
Quantum of Credit of Foreign Exchange Earnings into an EEFC Account
Conventionally all foreign exchange earners were permitted to retain 100% of their foreign exchange earnings into an EEFC account with any AD in India. Previously, in May 2012, the Reserve Bank of India (RBI) had stipulated that with respect to all the future foreign exchange earnings, an exchange earner was allowed to retain only 50% of the export earnings into an EEFC account and the balance 50% was to be surrendered for conversion into INR. Further on in July 2012, for operational convenience, the regulations were again reviewed and the RBI decided to restore the erstwhile stipulation of allowing credit of 100% foreign exchange earnings to the EEFC account subject to the condition that the sum total of the accruals in the account during a calendar month should be converted into INR on or before the last day of the succeeding calendar month after adjusting for utilization of the balances for approved purposes or forward commitments.
Permissible Credits to the EEFC Account
- Advances received against Exports (Goods/Services)
- Realisation of export bills
- Professional Fees (e.g., director fees, consultancy, lecture fees, etc.)
- Payment received in foreign exchange by 100% EOU, EPZ, STP, EHTP for supply of goods to similar units or to a DTA
- Payment received by foreign exchange by a DTA for supply to an SEZ
- Payment received by an exporter for the purpose of counter trade. (Counter trade is an arrangement involving adjustment of value of goods imported into India against value of goods exported from India in terms of the Reserve Bank guidelines)
Permissible Debits to the EEFC Account
- Payment towards imports (Goods/Services)
- Trade related loans/advances extended by an exporter holding such an account to an importer/customer outside India (subject to regulations)
- Investments abroad, through Overseas Direct Investment (ODI)
- Payment in foreign exchange towards the cost of goods purchased from 100% EOU, EPZ, STP or EHTP
- Payment of custom duty (as per provisions of the FTP)
- Payment outside India, towards all permissible Current Account and Capital Account transactions.
It is worthy to note that there is no restriction on withdrawal in INR of funds held in an EEFC account. However, the amount withdrawn in INR shall not be eligible for conversion into foreign currency and for re-credit into the account. Further, the EEFC account balances can also be hedged. The balances in the account sold forward by the account holders have to remain earmarked for delivery. However, the contracts can be rolled over. Exporters can even open an EEFC account in multiple currencies. They can enjoy preferential rates from bankers on conversion to INR as well.
Is it really beneficial for Exporters to have an EEFC account?
- Bearing in mind the condition stipulated for conversion of foreign currency into INR on or before the last day of the succeeding calendar month, the exporters should revisit their treasury strategy and consider opening an EEFC account depending upon the quantum of their earnings and expenditure in foreign currency and the related costs involved. It may turn out to be advantageous to have an EEFC account opened especially in the context of today’s market where INR has been fast depreciating.
