What’s Exchange Earner’s Foreign Currency Account?

Over the years Exports from India have been increasing owing to an unprecedented growth in sectors like software, jewellery, textiles, biotechnology, gems, etc. This has resulted in substantial increase in the inward remittances. In order to protect the companies engaged in regular export and import from the exchange rate fluctuations, Reserve Bank of India (RBI) has allowed parking of foreign currency by exporters in an account designated as Exchange Earners Foreign Currency Account (EEFC).

Reserve Bank of India defines Exchange Earners' Foreign Currency Account (EEFC) as an account maintained in foreign currency with an Authorised Dealer i.e. a bank dealing 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 to the account, so that the account holders do not have to convert foreign exchange into Rupees and vice versa, thereby minimizing the transaction costs.

All categories of foreign exchange earners, such as individuals, companies, etc. who are resident in India, may open EEFC accounts. An EEFC account can be held only in the form of a current account. No interest is payable on EEFC accounts. 100 per cent foreign exchange earnings can be credited 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 Rupees on or before the last day of the succeeding calendar month after adjusting for utilization of the balances for approved purposes or forward commitments. Cheque facility is made available for operation of the EEFC account. The bank opening the EEFC A/c requires the customer to first open a parent INR Current Account for crediting the INR leg of the transaction/converting the balance held in the EEFC account into INR as well as for paying the charges.

There is no restriction on withdrawal in Rupees of funds held in an EEFC account. However, the amount withdrawn in Rupees shall not be eligible for conversion into foreign currency and for re-credit to the account. EEFC account holders are permitted to access the forex market for purchasing foreign exchange only after utilizing fully the available balances in the EEFC accounts. EEFC account balances can be also hedged however the balances in the account sold forward by the account holders has to remain earmarked for delivery. The hedge contract is allowed to be rolled over.