Update: (March 2nd): It appears that Paypal will no longer require an Export Code, but a ‘Purpose Code. Much easier, this way. Read the update here.

Earlier (Feb 27th): The Reserve Bank of India has allowed Paypal to continue local bank withdrawals for settlements for exports of goods and services, Paypal has announced. The online payment and wallet service expects that users involved in export of goods and services should be able to use their that bank withdrawal service by March 3rd, after it has complied with the Indian regulations. For personal remittances, it will have to apply for approvals, which are likely to take time. These developments are along expected lines.

Among the changes being made, is that users will have to enter an Export Code when a withdrawal is requested, which indicate that the transactions will be cross-border merchant transactions, and not P2P money transfer. Personal payments will be suspended until approvals are received. It’s unlikely that many Indian companies using Paypal have an Export Code, so a majority of individual developers and startups will not be able to withdraw money to their bank account from Paypal. More details are expected from Paypal by March 1st (a holiday in India on account of Holi).

Paypal is trying to put a positive spin on the limited approval it’s received: “With purpose codes for export transactions and FIRCs (Foreign Inward Remittance Certificates), you should now be able to get the export related benefits you seek.” Read a related post on the PayPal blog here.

For details of the case, read our earlier report:Updated: eBay’s PayPal Disallows P2P Payments, Transfers To Local Banks

The email sent to Paypal users:

We have been diligently working with the RBI and our business partners to resume Indian bank withdrawals for the thousands of Indian businesses who depend on PayPal to sell their goods or services in the global marketplace.

Today, we are happy to announce that the RBI has allowed us to continue local bank withdrawals for settlements for exports of goods and services. We are currently making changes to comply with Indian regulations for settlements for exports of goods and services, and we anticipate that, as of Wednesday, March 3rd, customers will be able to use our bank withdrawal service.

As part of the changes, you will be required to fill out a new field entitled ‘Export Code’ when you request a withdrawal. This information is required under the current laws of India in order to identify the nature of cross-border merchant transactions.

On Monday, March 1st, we will be back in touch with specific instructions on how you can move your money into your bank account.

Moving forward, the RBI has told us that PayPal needs specific approvals to allow personal remittances to India, which we currently do not have. Until we get these approvals, personal payments into India will remain suspended. However, if you are an exporter, you will continue to be able to use the PayPal service for payments of goods and services. In fact, with the changes we are making to our system, PayPal is now set to be a more powerful engine for exporters in India. With purpose codes for export transactions and FIRCs (Foreign Inward Remittance Certificates), you should now be able to get the export related benefits you seek.