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The Reserve Bank of India (RBI) on Thursday announced the trade settlement in INR with Sri Lanka outside the ACU mechanism due to difficulties faced by exporters in receiving payments due to economic and political crises in the South Asian island country.

In March this year, the State Bank of India (SBI) entered into a credit facility agreement with the Sri Lankan government to sanction the Indian government's guaranteed $1 billion term loan for financing the purchase of essential goods by Sri Lanka from India.

In a circular today, RBI said, "in view of the difficulties being experienced by exporters in receipt of export proceeds from Sri Lanka and State Bank of India’s credit facility agreement with the Government of Sri Lanka...., it has been decided that such trade transactions with Sri Lanka, falling under the said arrangement, may be settled in INR outside the ACU mechanism."

With that, RBI said, 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 Government of India and whose purchase may be agreed to be financed by SBI under this agreement.

The new instructions have come into force with immediate effect.

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