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

  1. Maximum Interest cap for Upto 5 Years : 6 Month Libor + 350 bps. This rate has been referred in it circular 11-09-2012 (Link given below)
  2. Until further review, the rate remains same. Thus, this time there is no deadline set for the review of the above rate to avoid any slippage like above.

Reference

  1. RBI Latest Circular: Trade Credit for Imports into India – Review of all-in-cost ceiling: Dated 09-10-2012
  2. Trade Credit for Import Into India: Dated 11-09-2012
  3. RBI Circular : Trade Credit for Imports into India – Review of All-in-cost ceiling:Dated: 30-03-2012
  4. RBI Circular : Trade Credit for Imports into India – Review of All-in-cost ceiling:Dated 15-11-2011
  5. RBI Master Direction –  Import of Goods and Services: Dated: 31-03-2016
  6. 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
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2 thoughts on “Review of Trade Credit All-In-Cost Ceiling”

  1. For Trade credits RBI says 6 months libor + 350bps. does it mean any buyers credit arranged for 12 months or more we should always have a reset clause after every 6 months to get 6 months libor qoute to comply with the guidelines.

    1. When RBI say maximum interest ceiling for buyers credit transaction is 6 Month LIBOR + 350, that means total interest should not exceed 0.51025 (transaction day’s 6 Month Libor) + 3.50 i.e 4.01% in case of today. Based on this, any permutation combination can be used by importer / bankers while quoting for a buyers credit transaction. Thus, it is not necessary that incase of transaction above 6 months there should be always with reset clause.

      Incase of buyers credit transaction above 12 months will by default with reset clause but should be within the cap of 6 Month Libor + 350bps. Reason is not regulatory but because LIBOR are issued for maximum of 12 Month tenure . Thus, any transaction above 12 months tenure will always be issued with reset clause normally with 6 month or 12 month reset

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