Category Archives: Buyers Credit

Revised Guidelines for Merchanting / Intermediary Trade

Trade Credit product like Buyers Credit, Suppliers Credit and LC discounting for export leg will now be allowed in case of Merchanting Trade and Intermediary Trade Transactions. Continue reading

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Permitted Methods of Import Payment

Permitted method of import payments are Rupee, Permitted Currency and ACU Dollar depending on the country where import payment has to be made. Continue reading

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Buyers Credit Tenure Extended to 5 years for Import of Capital Goods

Tenure of Trade Credit (buyers credit / suppliers credit) for import of capital goods has been extended from 3 years to 5 years for companies in all sectors. Minimum tenure of buyers credit has been relaxed from 15 months to 6 Months. But banks cannot issue Letter of Credit / Letter of Undertaking /Comfort beyond 3 years Continue reading

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Buyers Credit on Import of Second Hand Machinery

Buyers credit / Trade Credit can be taken on the second hand goods without RBI Approval subject:

A. Machine delivery is not taken abroad on ‘as is where is basis’
B. Import of the given category of second hand machinery is allowed as current Foreign Trade Policy. Continue reading

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Relationship Management Application (RMA) and Buyers Credit

RMA is a system, where a sender and receiver has to authorize each other to send swift messages and also what type of swift message they can send each other. Thus making the communication system more secure. Continue reading

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Revised Forms (15CA, 15CB) and Rules for payment to Non Resident

In earlier article about Withholding Tax (WHT), we have discussed about the process and applicability of Form 15CA and 15CB. On 5th August, 2013 CBDT revised the guidelines on Form 15CA and Form 15CB. This article gives a summary of changes made. Continue reading

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Buyers Credit for Co Operative Bank Customers

Importers banking with Co operative Bank’s both AD Category and Non AD Category can avail buyers credit. Article tries to answer the requirements, costing and process flow for buyers credit through Co operative Banks. Continue reading

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Period of Buyers Credit Linked to Operating Cycle

As per RBI Circular issued on 11/07/2013, period of Trade Credit (Buyers Credit / Suppliers Credit) should be linked to the operating cycle and trade transaction. This will have impact of Rollover and Arbitrage transactions. Continue reading

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Change in LIBOR Tenures and Impact on Trade Finance

From 01 June 2013, Libor rates will be available for overnight, 1 week, 1 month, 2 months, 3 months, 6 months & 12 months tenure only. These changes as of now are not applicable to Euribor rates yet. Continue reading

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Swift Code & Messages Used in Buyers Credit Transaction

SWIFT code (ISO 9362, SWIFT-BIC, BIC code, SWIFT ID) is a standard format of Business Identifier Codes approved by the ISO. These codes are used when transferring money between banks, particularly for international wire transfers, and also for the exchange of other messages between banks. Swift Message type used in buyers credit are MT202, MT799 & MT999 Continue reading

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Tax Residency Certificate Not Required in Prescribed Format

In September 2012, CBDT had prescribe a format in which Tax Residence Certificate (TRC) was required from April 2013. In the Amendments to Finance Bill 2013, requirement of prescribed format has been done away with. Continue reading

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Surcharge and Education Cess on Withholding Tax

Withholding Tax rates may be limited by application of a tax treaty. The surcharge and education cess will not apply where the withholding tax is limited by a tax treaty. Continue reading

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Transfer of Limits from One Bank to Another : Buyers Credit Rollover Process

Buyers Credit is arranged against Letter of Undertaking (LOU) / Letter of Comfort (LOC) issued by Importer’s Bank. During this period if importer decides to shift his limits from X bank to Y bank, few complications arise. For a Raw material transaction, importer may decide not to rollover the transaction to avoid complications; but for Capital goods Importer has lesser options. If the buyers credit does not get rolled over, the same would get converted into term loan which would cost the importer higher rate of interest. This article provides details on process to be followed and what documents are need for smooth transition. Continue reading

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Buyers Credit on Import of Precious and Semi Precious Stone

Suppliers’ and Buyers’ Credit (trade credit) including the usance period of Letters of Credit opened for import of even precious stones and semi-precious stones should not exceed 90 days from the date of shipment Continue reading

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Myanmar Economic Sanctions – Background, Recent Relaxation & Trade Finance

Myanmar has been under various international economic sanction for more than a decade, which has crippled its international trade. Below article gives a background of economic sanctions on Myanmar, recent relaxations in these sanctions and what will be its likely impact on trade finance from Indian importers perspective. Continue reading

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Buyers Credit on High Sea Sales Transaction

What is High Sea Sales ? High Sea Sales (HSS) is a sale carried out by the carrier document consignee to another buyer while the goods are yet on high seas or after their dispatch from the port/airport of origin and before their arrival at the port/ airport of destination. Continue reading

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How to Calculate Total Cost of Buyers Credit

Excel Calculator to arrive at total cost on Buyers Credit transaction Continue reading

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Bank Finance for Purchase of Gold

RBI gas advised that no advances should be granted by banks for purchase of gold in any form, including primary gold, gold bullion, gold jewellery, gold coins, units of gold Exchange Traded Funds (ETF) and units of gold Mutual Funds. Continue reading

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Buyers Credit with 6 Month Libor Reset

Banks and Importers consider various factors before going for Buyers Credit transaction for more than 6 months tenure. One such factor is buyers credit with 6 Month Libor Reset option. The below article elaborates on these factors. Continue reading

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Review of Trade Credit All-In-Cost Ceiling

After the expiry of deadline of 30-09-2012, there was a prolonged uncertainty for last 9 days on what is the all in cost ceiling for Trade Credit (Buyers Credit / Suppliers Credit). Reserve Bank of India (RBI) issued a clarification or revised circular today clarifying the same. Summary of the same is given below Continue reading

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Impact of Libor Review on Trade Finance in India

Trade Credit (Buyers Credit, Suppliers Credit etc.) perspective, recommendation which are the most relevant are the number of currencies and tenors for which LIBOR is published to be reduced and market participants using LIBOR should be encouraged to consider and evaluate their use of LIBOR Continue reading

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Pushing the reset button on LIBOR – Speech by Martin Wheatley

To Avail Buyer’s / Supplier’s Credit: E: sanjaymandavia@gmail.com, M: +919825560186 Note: Since this article was written, below regulation has been implemented. Also Refer Article: Change in LIBOR Tenures and Impact on Trade Finance Mr. Martin Wheatley – Managing Director, FSA, and CEO Designate, FCA – … Continue reading

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Certificate of Tax Residency under DDTA (Withholding Tax)

From April 2013 onwards when buyers credit is taken from foreign bank, importer will also need to collect Certificate of Tax Residency in specific format from these foreign banks to claim benefit of lesser Withholding Tax (WHT) rates under DDTA or else standard rate of 20% will be applicable. Continue reading

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Buyers Credit on Jewellery

uppliers’ and Buyers’ credit (Trade Credit) including the usance period of Letters of Credit opened for import of gold in any form including jewellery made of gold/precious metals or/ and studded with diamonds/ semi precious / precious stones should not exceed 90 days, from the date of shipment. Continue reading

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Overdue Interest and Late Payment Charges on Buyers Credit

Overdue Interest is applicable for the period after due date on which payment of principal and interest is payable to the buyers credit bank. Some banks have been clearly stating these charges in their offer letter or in letter of undertaking format. Continue reading

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Prepayment of Buyers Credit

Prepayment of buyers credit from both Importers perspective and Banks perspective and related RBI regulation Continue reading

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Trade Credit Extended Upto 5 Years for Infrastructure Firms

Buyers Credit for import of capital goods has been extended from 3 years to 5 years for company classified as Infrastructure as defined in guidelines on External Commercial Borrowings (ECB). Trade Credit must be availed for Minimum fifteen months at one go and should not be in the nature of short-term roll overs. Continue reading

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Difference Between EURIBOR & EUR Libor

EURO based buyers credit is currently funded by most of the banks using EURIBOR which is issued by European Banking Federation and ACI. A similar rate is issued by British Banking Association known as EUR Libor but is not often used by bankers for funding buyers credit transactions Continue reading

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5% WHT as per Sec 194LC not applicable to Buyers Credit

Section 194 LC for Tax Deduction by Indian Specified Company on Interest paid to Non resident / Foreign Company is not applicable to Buyers Credit. Continue reading

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Form 15CA & 15CB Not Applicable on Interest payment to Indian Bank Branches

As per Income Tax circular 04/2009 dated 29th June, 2009 (Circular Link provided below), Form 15CA and 15CB Certificate under Section 195 of Income Tax is required to be submitted in cases where payments are made to a non-resident. Continue reading

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Basel III – Future Impact of Trade Finance

To Avail Buyer’s / Supplier’s Credit: E: sanjaymandavia@gmail.com, M: +919825560186 The Basel Committee on Banking Supervision (BCBS, or Basel Committee) is an institution created by the central bank Governors of 27 members from both developed and emerging economies. The most influential publications by the BCBS … Continue reading

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Suppliers’ Credit or Buyers’ Credit is not available for Merchanting Trade

The supplier of goods will be resident in one foreign country. The buyer of goods will be resident in another foreign country. The merchant or the intermediary will be resident in India. He will book the order from the buyer, place the order with the supplier, supervise and coordinate the shipment of goods from the supplier’s country and deliver the same to buyer’s country. Continue reading

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IMO Number and Its importance in case of Buyers Credit

To Avail Buyer’s / Supplier’s Credit: E: sanjaymandavia@gmail.com, M: +919825560186 What is IMO Number ? The IMO ship identification number is made of the three letters “IMO” followed by the seven-digit number assigned to all ships by IHS Fairplay when constructed. This is a unique seven … Continue reading

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Country-wise Double Taxation Summary Chart on Interest

To Avail Buyer’s / Supplier’s Credit: E: sanjaymandavia@gmail.com, M: +919825560186 Below Country-wise double taxation summary chart provides Tax rate and Article reference number applicable on interest payments to beneficiary outside India. Same will be useful at the time of filling up Form … Continue reading

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Consequence of Non Deduction of Withholding Tax (WHT / TDS)

Disallowance of the amounts paid under Section 40 (a) (i). It should be noted that the scope of the section dealing with payments to non residents is wider than that of 40 (a) (ia) which deals with residents. Continue reading

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Form 15CA and 15CB under Section 195 of Income Tax

To Avail Buyer’s / Supplier’s Credit: E: sanjaymandavia@gmail.com, M: +919825560186 Note: Post below article, CBDT has made few changes in guidelines. Refer article: Revised Forms (15CA, 15CB) and Rules for payment to Non Resident Finance Act, 2008 inserted a new sub section (6) … Continue reading

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OFAC Countries & Implication on Buyers Credit

To Avail Buyer’s / Supplier’s Credit: E: sanjaymandavia@gmail.com, M: +919825560186 What is OFAC Sanctions ? The Office of Foreign Assets Control (OFAC) is an office of the Treasury Department of United States of America (US). OFAC administers and enforces economic and … Continue reading

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Review of all-in-cost ceiling – Trade Credit

To Avail Buyer’s / Supplier’s Credit: E: sanjaymandavia@gmail.com, M: +919825560186 In its circular dated 30/03/2012, RBI has decided to continue with the enhanced all-in-cost ceiling for Trade Credit for further period of six months. Maximum Cap on Interest Rate for tenure … Continue reading

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Buyers Credit All-In-Cost Ceiling may move back to L+200bps from 01/04/2012

To Avail Buyer’s / Supplier’s Credit: E: sanjaymandavia@gmail.com, M: +919825560186 In its Circular dated 15/11/2011, RBI had increased the all-in-cost ceiling for Buyers Credit  from 6 Month L+ 200 bps to 6 Month L + 350 bps subject to condition that … Continue reading

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Buyers Credit for Imports Under Direct Documents

To Avail Buyer’s / Supplier’s Credit: E: sanjaymandavia@gmail.com, M: +919825560186 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 … Continue reading

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Difference between Buyers Credit and Letter of Credit (LC)

LC is one of the payment mode used in the International Trade between importer and exporter to cover third-party credit risk. Meaning if the importer defaults, his bank will have to pay on his behalf. Whereas, Buyers credit is a funding mechanism used by importer to funds his transaction. Continue reading

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Recent Changes to India’s Currency Forward Contract Norms for Hedging

To Avail Buyer’s / Supplier’s Credit: E: sanjaymandavia@gmail.com, M: +919825560186 RBI via circular dated 15/12/2011 made changes in Foreign Exchange Derivative Contacts with immediate effect until further review. Below is the extract of the same related to importers and exporters. 1). … Continue reading

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RBI Increase Buyers Credit All-in-Cost Ceiling

To Avail Buyer’s / Supplier’s Credit: E: sanjaymandavia@gmail.com, M: +919825560186 RBI reviewing the developments in global finance markets and the fact that domestic importers are experiencing difficulties in raising Trade Credit (Buyers Credit / Suppliers Credit) within the existing all-in-cost ceiling, RBI has … Continue reading

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Buyers Credit Accounting Entries

Buyers Credit Essential Accounting Treament, Entries and Disclosures in books of Accounts Continue reading

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Infrastructure Companies – Bridge Finance before availing ECB

RBI allowed Indian companies which are in infrastructure sector to import capital goods by availing of short-term credit (including buyer’s credit and supplier’s credit) in the nature of “Bridge Finance” under the approval route,subject to following conditions Continue reading

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Buyers Credit on Capital Goods

Buyers Credit can be used both for Raw Material and Capital Goods. Below article gives complete detailed information about buyers credit on Capital Goods along with process and sample sanction letters. Continue reading

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Buyers Credit Interest Rate (LIBOR + Margins)

Factors which play important roles in Margin are Availability of Funds, Cost of Funds, Tenure, Banks Lines, Internal Minimum Margin and External Factors. Continue reading

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Bankwise Letter of Comfort / Undertaking Charges

Letter of Undertaking (LOU) / Letter of Comfort (LOC) charges as given in respective bank’s website. These rates may vary from customer to customer, based on their negotiation with bank. Continue reading

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LIBOR Rates: Brief, History, Currencies, Maturities

LIBOR stands for London InterBank Offered Rate, indicative average interest rate at which a selection of banks are prepared to lend one another unsecured funds on the London money market. There are 150 different LIBOR interest rates and is calculated for 15 different maturities and for 10 different currencies. Continue reading

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Transaction where Buyer’s Credit is Restricted

Type of transaction where buyer’s credit cannot be done are Local Trade, Advance Payment, Merchanting Trade, Intermediary Trade Transaction and Import of Services. Continue reading

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