Trade Credit Extended Upto 5 Years for Infrastructure Firms

Reserve Bank of India (RBI) issued a fresh circular on September 11, 2012 in relation to Trade Credit for Import into India. Please find below summary of changes made into existing policy:

  1. Maximum tenure under 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). Infrastructure sectoris defined as under:
    1. Power
    2. Telecommunication
    3. Railways
    4. Roads including Bridges
    5. Sea Port and Airport
    6. Industrial Parks
    7. Urban Infrastructure (water supply, sanitation and sewage projects)
    8. Mining
    9. Exploration and Refining
    10. Cold storage or cold room facility, including for farm level pre-cooling, for preservation or storage of agricultural and allied produce, marine products and meat.
  2. Trade Credit must be availed for Minimum fifteen months at one go and should not be in the nature of short-term roll overs.
  3. For Existing Trade Credit transactions availed on or before 14th December 2012, abinitio (from beginning) buyers credit would be for min tenure of 6 months.
  4. Banks are not permitted to issue Letters of Credit/guarantees/Letter of Undertaking (LoU) /Letter of Comfort (LoC) in favour of overseas supplier, bank and financial institution for the extended period beyond three years.
  5. All-in-cost ceiling for upto 5 years is 6 Month Libor + 350 bps. The all-in-cost ceilings include arranger fee, upfront fee, management fee, handling/ processing charges, out of pocket and legal expenses, if any.
  6. All other policy of trade credit remains unchanged and needs to be complied with.
  7. Starts from : Immediately
  8. Ends on: Subject to review based on the experience gained in this regard by RBI
  9. RBI has allowed refinancing of such bridge finance (if in the nature of buyers’/suppliers’ credit) availed of, with an ECB under the automatic route subject to conditions.

Reference:

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4 thoughts on “Trade Credit Extended Upto 5 Years for Infrastructure Firms”

    1. Buyers Credit for any amount paid as advance either part or full is not allowed as RBI Caster Circular on External Commercial Borrowing and Trade Credit. Inference has to drawn the above circular. Circular says maximum tenure allowed for buyers credit from the date of shipment is (shipped on board date) upto 360 days in case of non capital goods (Raw Material, Consumables, Accessories, Spares, Components, Parts etc) and upto 3 years in case capital goods. Any Advance Payment always done before shipment of goods. And thus not allowed.

      RBI Circular: Refer Section of Trade Credit

  1. If compnay had lost Bill of Entry and AD Bank asked for BOE than how to arrange duplicate BOE or what is the way to handle missing BOE.

    1. There are two solutions for the given issue.

      1. From Reserve Bank if India

      Master Circular Import of Goods and Services, provides below provision in case of non availability of Bill of Entry

      C.7.2. Evidence of import in lieu of Bill of Entry

      (i) AD Category – I bank may accept, in lieu of Exchange Control copy of Bill of Entry for home consumption, a certificate from the Chief Executive Officer (CEO) or auditor of the company that the goods for which remittance was made have actually been imported into India provided :-

      (a) the amount of foreign exchange remitted is less than USD 1,000,000 or its equivalent,
      (b) the importer is a company listed on a stock exchange in India and whose net worth is not less than Rs.100 crore as on the date of its last audited balance sheet, or, the importer is a public sector company or an undertaking of the Government of India or its departments.

      (ii) The above facility may also be extended to autonomous bodies, including scientific bodies/academic institutions, such as Indian Institute of Science / Indian Institute of Technology, etc. whose accounts are audited by the Comptroller and Auditor General of India (CAG). AD Category – I bank may insist on a declaration from the auditor/CEO of such institutions that their accounts are audited by CAG

      2. From Custom’s Side:

      Refer the link: Procedure for issuing certificate / duplicate copy of bill of entry, when the importer’s copy of EDI Bill of Entry is lost / misplaced / mutilated / destroyed

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