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

transferBuyers 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 needed for smooth transition. For understanding let assume,

  • X Bank: Existing Bank of Importer
  • Y Bank: New Bank of Importer where limits are shifted
  • A Bank: Existing Overseas Bank from where buyers credit is arranged
  • B Bank: New Overseas Bank from where the rollover buyers credit will be arranged.

Process

  1. Importer arranges for NOC from X Bank in favour of Y  Bank to arrange buyers credit.
  2. Importer arranges quote from overseas bank (other than existing overseas bank).
  3. Y Bank issues lou to B Bank against the existing import transaction
  4. B Bank transfer funds to the Nostro Account of Y Bank
  5. Y Bank transfer funds  to the Nostro Account of X Bank
  6. X Bank transfer funds to the Nostro Account of A Bank, thus completing the whole transaction.

Documents to be submitted by Importer to Y Bank

  1. ECB Form for Extension
  2. Photocopy of the Import document and Bill of Entry
  3. Fresh Offer Letter, LOU Format & Swift Address
  4. NOC from X Bank

Note

In the above example it is assumed that buyers credit rollover is taken from bank other than existing buyers credit providing overseas bank to avoid complications. From Importers perspective its an ideal position. Reason: Incase of rollover from the same bank there is no transfer of funds but only extension of tenure. As buyers credit is taken against LOU issued by X Bank whereas because of takeover rollover LOU needs to be sent by Y bank, there is issue of knocking of transaction at A Bank level.  Also issue will arise on how existing liability of X bank against A bank to be removed. 

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8 thoughts on “Transfer of Limits from One Bank to Another : Buyers Credit Rollover Process”

    1. Shifting of bank limits from one bank to another is a tedious process. Thus when a client takes such a decision it would be based on multiple factors like Limited lines available with international banks, poor service by existing bank, additional limit from new bank, lesser interest rates and so on. This would vary from case to case.

    1. Incase of single banker case it cannot be done for single transaction. For multiple banking arrangement or consortium banking arrangement, it can be done for single transaction as well.

  1. I’ve been following your website for my buyers credit doubts. sir i would like to know that,

    – is ECB 6 form is compulsory for availing buyers credit & at the time of rollover,
    – if it is compulsory, when will it have to be submitted, prior to getting quote from overseas bank or after with buyers credit request to our lou issuing bank.
    – what happens if we not submit ECB 6 form,please clarify sir,

    1. 1. ECB 6 form has been discontinued since 2004.
      2. Currently ECB Form is in use.
      3. At the time of taking buyers credit as well rollover ECB form would be required to be submitted to bank.
      4. This has to be submitted after taking offer from overseas bank, as their details have to be filled in the same.
      5. Incase you do not submit, your bank will not process the transaction.

  2. Sir, your articles are awesome and self explanatory. Kindly clarify whether Buyers Credit for import of coal & Iron ore (Raw materials) already availed for 360 days can be extended for another period for 360 or 720 days, due to difficulties faced by the importer on account of states troubles like Telengana. If possible, please give the details of procedure involved including RBI approval if any. Thanks.

    1. RBI in its circular clearly mentions that

      No roll-over/extension will be permitted beyond the permissible period.

      If you still wish to pursue, you can fill up Form ECB along with forwarding letter stating reasons for seeking extension and submit the same to your banker. Banker if is satisfied, will have to forward it to RBI (Mumbai Office) for approval with their recommendation letter.

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