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.
- 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
- 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.
- Master Direction – External Commercial Borrowings, Trade Credit, Borrowing and Lending in Foreign Currency by Authorised Dealers and Persons other than Authorised Dealers: Dated: 19-09-2016
- RBI Master Direction – Import of Goods and Services: Dated: 31-03-2016
- 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