New trade regulations in India are shifting the responsibility to commercial banks for verifying cross-border transactions, raising concerns over inconsistent decisions and heightened risks amid a changing regulatory landscape.
Banks in India are bracing for a sharper compliance burden as new trade rules due to take effect on 1 October place more responsibility on lenders to screen cross-border payments, verify contracts and monitor whether export proceeds are actually received. The changes are meant to curb money laundering and dubious trade flows, but bankers say they also create a wider risk of inconsistent decisions across institutions.
Until now, suspicious transactions were often escalated to the Reserve Bank of India or checked against its caution list. That system is being wound back, leaving commercial banks to judge whether a service contract is genuine, whether an overseas counterparty is real, and whether a payment linked to imported or exported services should be cleared. One senior banker told ET Bureau that lenders are uneasy about making calls on whether a service has truly been delivered, warning that a mistaken decision made in good faith could later attract scrutiny from investigators.
The new framework also changes how banks handle overdue export bills, advance payments and third-party remittances, where goods may be shipped to one country but payment arrives from another. According to the report, banks will now have more discretion over when to demand advance payment or a letter of credit from exporters with a poor repayment record, while importers may find the bank guarantee requirement relaxed in some cases. But that discretion is exactly what worries some bankers, who fear that weaker compliance standards at one lender could encourage clients to shop around for a more permissive institution.
Service trade is expected to be the most difficult area. For the first time, service import and export data will be pushed on to digital platforms mandated by the RBI, with banks relying on self-declarations for service exports and on contracts and invoices for service imports. One banker said access to the Goods and Services Tax Network could help lenders verify invoices and cross-check values declared to tax authorities. A trade finance specialist told ET Bureau the shift is understandable because it allows the RBI to focus on system-wide risks, but said the transition will need careful handling.
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