The Reserve Bank of India (RBI) has imposed a tougher limit on letter of credit (L/C) tenors for imports of precious and semi-precious stones.

The new measure is one several introduced by the Indian authorities with the aim of improving foreign currency controls.

Precious stones

India's banks have been told that a maximum 90-day tenor now applies to L/Cs used for imports of precious and semi-precious stones.

This latest instruction follows an RBI regulation introduced earlier stipulating that L/Cs for gold imports should be limited to 90-days from the date of shipment.

Exchange controls

The measures aim to help reduce India's current account deficit and discourage importers from using L/Cs for valuable commodities solely for arbitrage.

Some importers have been using L/Cs, ostensibly for commodity imports, and then using the commodity as collateral for a bank loan or selling it for cash.

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