Buyers Credit for Imports Under Direct Documents

RBI Circular of External Commercial Borrowing and Trade Credit gives information about buyers credit. But with specific type of transaction, inference has to taken from other related circulars. For example, for Buyers Credit in case of import against direct documents received by importers, RBI Circular on Import of Goods and Services has to be referred along with Trade Credit Circular. RBI has put in various criteria under which such transactions are allowed.

Import of documents directly by importers are 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:

1. Where the value of import bill does not exceed USD 300,000.
2. Import bills received by wholly-owned Indian subsidiaries of foreign companies from their principals.
3. 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.
4. 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 have 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:

1. The import would be subject to the prevailing Foreign Trade Policy.
2. The transactions are based on their commercial judgment and they are satisfied of the bonafides of the transactions.
3. 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.
4. 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 an import transaction is getting classified and whether given criteria are getting  fulfilled. Based on  this the amount permitted for buyers credit for import against direct documents can be derived.

Also, for cases falling under category B, please refer (ii) carefully. Even if all conditions are getting satisfied, banks should be satisfied about the bonafides of the transaction. Thus banks have discretion under that point. In such cases, it is advised to provide all information and documents related to transaction, to make the bank comfortable about the transaction.

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