New Article: RBI Circular : Trade Credit – New Regulatory Framework
Updated on 19 October 2016
Trade Credits refer to the credits extended by the overseas supplier, bank and financial institution for maturity up to five years for imports into India. Depending on the source of finance, such trade credits include suppliers’ credit or buyers’ credit. Suppliers’ credit relates to the credit for imports into India extended by the overseas supplier, while buyers’ credit refers to loans for payment of imports into India arranged by the importer from overseas bank or financial institution. Imports should be as permissible under the extant Foreign Trade Policy of the Director General of Foreign Trade (DGFT).
A. Routes and Amount of Trade Credit
Automatic Route: ADs are permitted to approve trade credit for import of non- capital and capital goods up to USD 20 million or equivalent per import transaction.
Approval Route: The proposals involving trade credit for import of non-capital and capital goods beyond USD 20 million or equivalent per import transaction are considered by the RBI.
B. Maturity
- Maximum Maturity in case of import of non capital goods (Raw Material, Consumables, Accessories, Spares, Components, Parts etc): upto 1 year from the date of shipment or operating Cycle whichever is less.
- Maximum Maturity in case of import of capital goods : upto 5 years from the date of shipment (Beyond 3 years banks are not allowed to provide Letter of Undertaking / comfort)
- Incase of Capital Goods, the ab-initio (from beginning) contract period should be 6 (six) months for all trade credits.
- No Rollover / Extension will be permitted beyond permissible limits
C. All-in-cost Ceilings
6 Month Libor (respective currency of credit) + 350 bps
D. Guarantee
- Up to USD 20 million per import transaction
- For a maximum period up to one year in case of import of non-capital goods (except gold, palladium, platinum, rhodium, silver, etc).
- For import of capital goods, the period of guarantee/ Letters of Credit/ Letters of Undertaking by AD can be for a maximum period up to three years.
- The period is reckoned from the date of shipment and the guarantee period should be co-terminus with the period of credit.
- Further, issuance of guarantees will be subject to prudential guidelines issued by the RBI from time to time.
Reference
- Master Direction – External Commercial Borrowings, Trade Credit, Borrowing and Lending in Foreign Currency by Authorised Dealers and Persons other than Authorised Dealers
- RBI Master Direction – Import of Goods and Services
- RBI Latest Circular: Trade Credit for Imports into India – Review of all-in-cost ceiling:Dated 09-10-2012
- RBI Circular : Trade Credit for Imports into India – Review of All-in-cost ceiling:Dated: 30-03-2012
- Trade Credit for Import Into India: Dated 11-09-2012
Buyer's Credit & Supplier's Credit 
i want to know the advance payment by TT for import of capital goods are eligible buyers credit
Clarification: Below given are cases were Buyers Credit cannot be done or amount is capped
1. In case on non import transaction
2. In case of Advance Payment for Import. Reason: As per RBI provision Buyers Credit is allowed for 360 days from Shipped on Board date of BL. Incase of Advance payment which is not possible
3. Incase of import transaction where document are directly received by importer (instead of banking channel), in that case cap is $300000.
i would like to know i had taken 120 days BC and in my sanction limit it is mentioned usance upto 180 days. My banks say i can do rollover only upto 60 days now.
Is there any circular passed in recent months which say u cannot rollover till 360 days but only upto sanction days given by bank
RBI Circular on External Commercial Borrowing and Trade credit says Banks can approve buyers credit upto 1 years (from the date of shipment) for import of non capital goods (Raw Material, Consumables, Accessories, Spares, Components, Parts etc). Thus RBI has given approving authority to bank on trade credit and banks based on their internal criteria decides on what is the maximum tenure they would allow for each of their customer. Banks mainly uses working capital cycle to come to this decision.
1. Thus what your banker is telling is right.
2. If you wish to have tenure upto to 360 days, you will have to justify with your bank and get your sanction letter amended.
3. Above norm has been there for long time and there has been no change of late in this policy.
My bank is not agreed on import transaction without banking channel.Where in RBI guidelines
is mentioned that cap is $300000 for import documents recieved directly.
You are correct in pointing out that under RBI Circular on Import of Goods and Services, RBI has allowed payment upto $300000 but it allowed with some terms and condition. Details of it is given below.
Import of documents directly by importers is bifurcated into two parts.
A. Receipt Regular Import documents by the importer directly from Overseas Suppliers
Import bills and documents should be received from the banker of the supplier by the banker of the importer in India. AD Category – I bank should not, therefore, make remittances where import bills have been received directly by the importers from the overseas supplier, except in the following cases:
(i) Where the value of import bill does not exceed USD 300,000.
(ii)Import bills received by wholly-owned Indian subsidiaries of foreign companies from their principals.
(iii)Import bills received by Status Holder Exporters as defined in the Foreign Trade Policy, 100% Export Oriented Units / Units in Special Economic Zones,
Public Sector Undertakings and Limited Companies.
(iv) Import bills received by all limited companies viz. public limited, deemed public limited and private limited companies.
B. Receipt of import documents by the importer directly from overseas suppliers in case of specified sectors
Receipt of import documents by the importer directly from overseas suppliers in case of specified sectors As a sector specific measure, AD Category – I banks are permitted to allow remittance for imports up to USD 300,000 where the importer of rough diamonds, rough precious and semi-precious stones has received the import bills / documents directly from the overseas supplier and the documentary evidence for import is submitted by the importer at the time of remittance. AD Category – I banks may undertake such transactions subject to the following conditions:
(i) The import would be subject to the prevailing Foreign Trade Policy.
(ii)The transactions are based on their commercial judgment and they are satisfied about the bonafides of the transactions.
(iii)AD Category – I banks should do the KYC and due diligence exercise and should be fully satisfied about the financial standing / status and track record of
the importer customer. Before extending the facility, they should also obtain a report on each individual overseas supplier from the overseas banker or reputed
overseas credit rating agency.
Based on the above information, check with your bank, under which criteria they are classifying your transaction and whether you are full filling all the required conditions for the same. Also, If your case is falling under category B, please refer (ii) carefully. Even if you are satisfying the conditions, banks should get satisfied about the bonafides of the transaction. Thus bank have discretion under that point. In that given case, you provide as much information and documents to make them comfortable about the transaction.
Can one make 5 lac usd import payment against an invoice raised in 2008?
for import of rough diamond?
There is no specific guidelines which RBI prescribe for rough Diamond. Thus one needs to refer RBI guidelines on time limit for settlement for import payment given in Master Circular Import of Goods and Services. Please find extract of the same given below. For your case, if you wish to make such a payment, your bank has to approve such a payment and if you are paying an interest on such delayed payment maximum interest is as per trade credit circular is allowed and not more than 3 year interest. Your bank will approve based on below guidelines (and any additional guidelines given by RBI) and justification provided by you for your case. Incase with complication, RBI can be approached through your bank to seek such approval.
Extract from RBI Master Circular Import of Goods and Services
B.5.Time Limit for Settlement of Import Payments
B.5.1. Time limit for normal imports
(i)In terms of the extant regulations, remittances against imports should be completed not later than six months from the date of shipment, except in cases
where amounts are withheld towards guarantee of performance, etc.
(ii) AD Category – I banks may permit settlement of import dues delayed due to disputes, financial difficulties, etc. Interest in respect of delayed payments,
usance bills or overdue interest for a period of less than three years from the date of shipment may be permitted in rate prescribed for trade credit from time to time.
I want to know that if a company A has availed buyers credit for the goods being imported by them and before it reached India, the company A sold the goods to company B in High Sea. The bill of landing was initially in name of company A. What are the docs required for the aove transaction by bank ?
Please refer the article on buyers credit against high sea sales.
Although buyer’s credit maturity period for non-capital goods is 1 year, then why Banks doesn’t allow Importers to take Buyer’s credit more than 6 months?
You are right in quoting RBI provision. But it say AD (Banks) may approve upto to 360 days from the date of shipment. In order to decide on the maximum tenure for a client to avail buyers credit, banks looks at working capital cycle of the customer. Working capital cycle in simple term is the tenure between purchase of raw material till collection of funds post sales. If as per assessment of bank based on financial submitted by customer and industry trend, working capital cycle of client is for 90 days, bank would only allow buyers credit for that tenure and so on for other tenure. This done to make sure that buyers credit issued as funding mode and not for the purpose of just arbitrage.
Can we do buyer credit against direct payment/ part payment of contract ????
Request you to refer the below article in relation to your query. Except advance payment, buyers credit can be taken against all payment mode. Incase of direct documents, banks are insisting on Bill on Entry copy before making remittance. (As per RBI norm bank can make remittance upto $100000, where bill of entry copy can be submitted by importer within 90 days of remittance)
Buyers Credit for Imports Under Direct Documents
Can i take the buyer credit quote of 12M+LIBOR for capital goods import. Is there any specified guidelines that we have to take 6M
+LIBOR/3M+LIBOR only.
Suppose a Lc is opened on 1.1.2017 at 60 days from BL date and BL date is 25.01.2017.The LC is payable on 25.03.2017.The cash cycle of the unit is at suppose 100 days. So for what period can we give buyers credit. Is the LC period to be considered from LC opening date or BL date ? So is it 100 – 85 days ie 15 days or 100 – 40 days ie 60 days?
Buyers Credit tenure is to be considered from the date of shipment. In above case 60 days credit is already enjoyed from the BL date. Buyers Credit can provided for balance 40 days. (100 Days Operating Cycle – 60 credit enjoyed from BL date)