RBI Extends Time Period for Outlay of Foreign Exchange in Merchanting Trade Transactions

The Reserve Bank of India (RBI) has issued an important update on October 1, 2025, through its A.P. (DIR Series) Circular No. 11, concerning Merchanting Trade Transactions (MTT). This move is set to provide much-needed relief to merchanting traders and enhance flexibility in managing foreign exchange outflows.

📌 What are Merchanting Trade Transactions (MTT)?

Merchanting Trade Transactions involve a trader in India (merchanting trader) acting as an intermediary between a supplier and a buyer overseas.

• The goods do not physically enter India.

• Instead, the trader arranges for shipment from one foreign country to another, while managing the import leg (payment to the supplier) and export leg (realization from the buyer).

• These transactions are closely regulated under Foreign Exchange Management Act (FEMA), 1999.

📝 Earlier Guidelines (January 23, 2020 Circular)

Under the RBI’s 2020 guidelines:

1. The entire MTT had to be completed within nine months.

2. Outlay of foreign exchange (i.e., payment in the import leg before realization from export leg) was restricted to four months.

3. The commencement date was defined as the earlier of shipment/export leg receipt or import leg payment.

4. The completion date was defined as the later of shipment/export leg receipt or import leg payment.

🔑 What Has Changed Now?

In its latest review, RBI has decided:

• Time period for outlay of foreign exchange has been extended from 4 months to 6 months.

• All other directions from the 2020 circular remain unchanged.

This extension gives merchanting traders two extra months to manage cash flows and balance import-export legs of the transaction.

💡 Why This Matters

1. Greater Flexibility: Traders now have more time to settle payments without defaulting on FEMA rules.

2. Eases Working Capital Pressure: Import leg payments often require upfront funds. The extension reduces immediate financing stress.

3. Encourages Trade Efficiency: Especially beneficial in times of global shipping delays, supply chain disruptions, or forex market volatility.

4. Boosts India’s Merchanting Trade: Supports Indian traders engaged in cross-border intermediary trade, thus enhancing India’s role in global supply chains.

⚖️ Legal Backing

The directions have been issued under:

• Section 10(4) and 11(1) of Foreign Exchange Management Act (FEMA), 1999.

• The instructions are effective immediately and apply to all Authorised Dealer (AD) Category-I banks.

✅ Conclusion

The RBI’s decision to extend the outlay period of foreign exchange in MTT from 4 months to 6 months is a welcome step for merchanting traders. It recognizes the challenges of modern trade flows and provides traders with greater breathing space in managing foreign exchange obligations.

This update is expected to strengthen confidence among exporters, importers, and trade finance professionals while keeping the regulatory framework robust under FEMA.

👉 If you are a trade finance professional, banker, or business engaged in international trade, this RBI circular is crucial to review. Staying updated with such regulatory changes ensures compliance and efficient trade management.