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Introduction to Buyers Credit Interest Rates and Calculation Process

Buyers Credit is short-term loan offered by overseas financial institutions/Bank to importers in India. Buyer’s credit provides access to cheap and easy availability of funds. The funds are provided to an importer for the purchase of capital goods and non-capital goods. Buyer’s credit facility can be availed for eligible goods and services in India on deferred payment terms. The available funds are used to make payments to exporter’s bank against import bill on the due date. Funds are charged closed to Libor rates which are less costly than the local source of funds. Normally, it is calculated as Libor + Margin rates. The Interest rates offered by FI’s involve factors which play important roles in finalising them. They are: To examine whether sufficient funds are available to borrow for the transaction. Tenure for which funds are borrowed. When banks are running in scarcity they would prefer higher margins compared to other bank lines. The cost of funds that is what rates these banks get to borrow from their local market. There is an Internal Minimum margin or the cut-off margin decided by the committee or treasury. The bank is not allowed to offer pricing below the cut off margin. Banks adds their margin above the cost of funds (L+X) borrowed. External factors like economic conditions, inflations, market volatility and recent events like US downgrade, Greece and Portugal debt crisis etc also impact margin rates. Check Points for before availing Buyers Credit Maximum duration of Buyers Credit Facility for Capital Goods in 3 Yrs Maximum duration of Buyers Credit for Non-Capital Goods is 1 Yr. Maximum credit limit per Buyers Credit transaction is $20 MN. Ceiling Cost of buyer’s credit is 6 Months LIBOR + 350 BPS  (L+350 bps) Cost involved in buyer’s credit Buyer’s credit process involves a number of steps and through the process flow there are cost involved to extract its benefits: Interest cost:  Any margin charged above LIBOR forms Interest Margin, this is a financing cost  charged by banks. Interest costs usually vary with Cost of funds with respective banks. Normally it is calculated as Libor+Margin rates, it is also quoted as “3M L+350 bps” where 3M is 3 month, L is libor and bps is basis points. “Basis point” is a unit that is equal to 1/100th of 1%. It can also be put across as 3M L+3.50%. Libor will change depending upon tenure. Letter of undertaking/letter of credit:It is the cost charged by the existing bank or local bank in India for issuing LOU. It is charged as high as 1.5%. Currency risk premium: Depends on the risk perceived on the transactions. Forward booking cost /hedging cost:  In case of long terms BC, Bankers/AD insists on availing  hedging strategies to cover Foreign exchange fluctuations which comes with an additional cost of up to 3%. It is optional for the importer to book for forwards and in few banks, it is a mandatory process. Arrangement fee: it is paid to the arranger also known as broker or agent. It is the sum paid for the service rendered by authorised dealer in arranging buyer’s credit quotes to the importer. Withholding tax(WHT): tax has to be deducted by the Indian importer on the interest amount paid for the loans borrowed. Rates charged by the overseas  lenders are net of taxes; thus it has to be grossed up at the time of calculation of interest and the borrower bears tax payment as his additional  cost. WHT will not be applicable  if the loans raised are from overseas branch of Indian banks. Export credit agency(ECA) guarantee charges: They may provide credit insurance and financial guarantee. To avail this facility a sum has to be paid. Other charges: A2 payments on maturity, charges for documents 15CA and 15CB on maturity, intermediary bank charges, out-of-pocket charges etc come under this category which cost him additional money. Interest Rate Calculation Process: - Bank mentions Interest rate on Offer letter usually under below heading 3M L + 20 BPS  (Volume along with Specific Tenure will be mentioned) 6M L + 20 BPS  (Volume along with Specific Tenure will be mentioned) For instance, if the customer avails Buyers Credit of $100K from FI for 90 days, below interest will be applicable in above two scenarios 1 USD = INR 65 BPS ( Basis Point ) = 0.2% 3 Month Libor = 1.2% 6 Month Libor= 1.4% Case 1 :- a.  3M LIBOR + 60 BPS = 1.8% =  100000*65*1.8*90/360*1/100= 29250 Case 2: b.  6M LIBOR + 60 BPS = 2% =100000*65*2/100*90/360= 32500 Thus under same situations customer will pay an additional INR 3250 to avail BC for the same tenure. To read about Importance of hedging Buyers Credit
Introduction to Buyers Credit Interest Rates and Calculation Process
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Introduction to Buyers Credit Interest Rates and Calculation Process 817 Introduction to Buyers Credit Interest Rates and Calculation Process Blog
Saurabh Jain Nov 30, 2017
Buyers Credit is short-term loan offered by overseas financial institutions/Bank to importers in India. Buyer’s credit provides access to cheap and easy availability of funds. The funds are provided to an importer for the purchase of capital go...
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After $32 Billion Bailout the Govt has Planned on Lending Reforms as Bankers Fear New Bad Debt Crisis

The finance ministry officials and the bankers will have a meeting to talk about the lending reforms drafted to prevent bad loan crisis after the $32 billion bailout of state-run banks that has been disclosed by the government recently.After the announcement of capital injection in the previous month, the policymakers and the bankers fear that India would throw all the good cash after bad, and this can be reduced if the lending rules are reinforced and the government reforms need to protect banks from the political pressure."After bailing out the banks with taxpayer money, the government wants to ensure that such a problem doesn't happen again," said a senior finance ministry official having direct knowledge of the matter, who refused to share details.The Finance Minister Arun Jaitley has affirmed that the recapitalisation will not only go along with bank reforms but will also take steps to merge weak banks with stronger rivals. According to bankers, one of the biggest issues is government's reticence in dealing political interference in lending.India is close to $147 billion pile of unpleasant loans backed by powerful and politically provided to businesses which are defaulting on loans. One of the high-profile cases of conspiracy and fraud in relation to loans by the owner of Kingfisher Airlines is one of the best examples."There's a risk of a rise in stressed assets unless bank corporate governance improves," said N. Bhanumurthy, an economist at the National Institute of Public Finance and Policy, a think-tank funded by the finance ministry.A spokesman for the finance ministry mentioned that, there is a bulk of bad loans made by the corporate defaults which is developing stress in loans worth about 4 trillion rupees extended to more than 70 million small enterprises under the Modi’s programme to generate jobs from the last 3 years."We are scared about these risky loans, 50 percent of which may become stressed assets soon," said D. Franco, a manager at State Bank of India's branch in Chennai and general secretary of the All India Bank Officers' Confederation.
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After $32 Billion Bailout the Govt has Planned on Lending Reforms as Bankers Fear New Bad Debt Crisis

After $32 Billion Bailout the Govt has Planned on Lending Reforms as Bankers Fear New Bad Debt Crisis

Saravana Bhaskar
The finance ministry officials and the bankers will have a meeting to talk about the lending reforms drafted to prevent bad loan crisis after the $32 billion bailout of state-run banks that has been d...
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Manufacturing Exporters Can Claim Their Refunds For The GST Paid

On the GST network portal, the merchant exporters can begin collecting their tax refunds through a new facility that has been activated from November 15th night, GSTN CEO Prakash Kumar has said.An exporter, through this new facility RFD-1A can claim his refunds of GST paid for  buying the goods in the relevant months."GST RFD-1A for refund of input tax credit on export of goods and services and additional amount in cash ledger would go live on GSTN portal tonight," Kumar told.The refund claims can be submitted for July, August, and September and that would be in conformance with GSTR-3B registered  by the exporter.Kumar further added that the newly introduced functionality on the portal facilitates the business GST practitioner (GSTP) to engage or disengage.Previously, for those exporters who had paid Integrated GST (IGST) during the export of goods, GSTN had also launched a utility that aids in processing the refund claims.Central tax officers are loaded with validating applications, as there are around 46,000 people who have enrolled."The list of practitioners would be put up on the GSTN portal and businesses can search for a GSTP in their locality and send request. The practitioner can then decide to accept it or reject," Kumar said.In addition, he explained that after the business has appointed a practitioner, any communications made would be automatically sent to the GSTP as well as the taxpayer.Besides this, to facilitate the registration of non-resident taxable persons engaging in supply of goods or services once in a while without a fixed place in India, GSTN has come up with form REG-09.“All foreign exhibitors participating in fairs like IITF who also want to sell their goods are required to register as non-resident taxpayer”, Kumar said.
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Manufacturing Exporters Can Claim Their Refunds For The GST Paid

Manufacturing Exporters Can Claim Their Refunds For The GST Paid

Kranthi Tilak Reddy
On the GST network portal, the merchant exporters can begin collecting their tax refunds through a new facility that has been activated from November 15th night, GSTN CEO Prakash Kumar has said.An exp...
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Simplified Hedging Norms For Exchange Rate Risks By RBI

There are simplified norms set up by RBI recently for hedging exchange rate risks. Under this, the companies are allowed to take up to USD 30 million on a gross basis.  Though the draft scheme of simplified hedging facility was released in April 2017, its first official announcement was made by the Reserve Bank of India in August 2016."The facility is being introduced with a view to simplify the process for hedging exchange rate risk by reducing documentation requirements, avoiding prescriptive stipulations regarding products, purpose and hedging flexibility, and to encourage a more dynamic and efficient hedging culture," said an RBI notification.The provisions for resident and non-resident firms (other than individuals) contracted or anticipated, to hedge exchange rate risk on transactions, made permissible under Foreign Exchange Management Act (FEMA) will come into force from  January 1, 2018.“The products covered under this will be any Over the Counter (OTC) derivative or Exchange Traded Currency Derivatives(ETCD)”, the RBI said, adding cap on outstanding contracts is "USD 30 million, or its equivalent, on a gross basis"."If hedging requirement of the user exceeds the limit in course of time, the designated bank may re-assess and, at its discretion, extend the limit up to 150 percent of the stipulated cap," the guidelines read.It also said that internal policy is mandatory for banks with respect to the deadline up to which a hedge contract for a given latent can be rebooked by the user or rolled over.
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Simplified Hedging Norms For Exchange Rate Risks By RBI

Simplified Hedging Norms For Exchange Rate Risks By RBI

Piuesh Daga
There are simplified norms set up by RBI recently for hedging exchange rate risks. Under this, the companies are allowed to take up to USD 30 million on a gross basis.  Though the draft scheme of si...
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Suresh Prabhu: Shift of Focus on New Sectors To Boost Manufacturing, Exports

To shift focus on the recent emerging sectors such as genomic, commerce and industry minister Suresh Prabhu has indicated for a shift in India’s export and manufacturing strategy, especially on the goods that are not currently among the top 10 items that are being shipped out of the country. The new person in Udyog Bhavan is strategizing mainly on India’s political relationships to push Indian exports to new markets in countries like Cuba and many places in Africa.Prabhu has informed that India has its own model, as it is looking forward to increasing from under 20% of GDP share from manufacturing to incline employment and also aid sectors like agriculture and their food processing."If India has to have a competitive advantage, we can't keep copying others because that has already been used and become redundant. We have to find India's own model and we are identifying that in consultation with global experts and our own industry”, Prabhu mentioned in one of his recent statements.As the share of services is growing faster, it is definitely not an easy task to increase the share of manufacturing. We have to ensure that manufacturing also has to be kept up with the pace of growth in services, the minister exclaimed.Prabhu is aiming at presenting India in the global arena, for these efforts are being made to launch “Make in India 2.0” along with other similar schemes.Specific targets will be set up with additional steps to support the manufacturing sector and the new focused areas as genomic. For example, to cut down the reliance on imports from China, development and progress of basic chemicals has been identified as a priority."It is more like backward integration for the industry." The success of the plan hinges on investment by the domestic industry, which he admitted was grappling with idle capacity as well as financial stress. He said exports could help use up the excess production capacity and added that there were indications that the strain on the balance sheet was easing as companies de-leveraged.To accelerate the economic growth, the government is looking forward to dealing with investments. Prabhu also mentioned that it is not necessary for an immediate review of the FDI regime.The minister also added that he has marked some of the issues on the export side with Finance minister Arun Jaitley which also includes some issues related to GST, and signified that his ministry has called for more resources.The move to get export promotion councils to sketch the business plans for India’s traditional focus areas like engineering, textiles, and plantations are pushed forward.While the minister is bringing back the focus on project exports through advancing project financing especially in West Africa to handle the competition from China, he also acknowledged that nation did not possess deep pockets like our neighbour.It is known that 'Pvt sector has driven India's growth story' and the concept here is to forge the partnerships. For instance, the minister has invited Korean companies to make investments in the marine space. "They will themselves import, so that will aid the economy”.Also, the Korean companies are known for good brand equity, as a result, Japanese and others will be responsive in buying from them. Meanwhile, we can also use their technology and investments to make export to other countries.Prabhu declared that China has agreed to study India’s sector-specific problems with Rita Teaotia, commence secretary who is handling the task from India side.Prabhu stated, "India's growth story is a private sector-driven growth story as many of the restrictive practices which were impeding their growth were removed since 1991. We will allow this spirit to grow. I have appointed a regulatory review committee under the chairmanship of secretary, industrial policy and promotion. This will allow unleashing of entrepreneurial spirit. We will make software by removing hurdles, hardware by providing space and partnering with states."
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Suresh Prabhu: Shift of Focus on New Sectors To Boost Manufacturing, Exports

Suresh Prabhu: Shift of Focus on New Sectors To Boost Manufacturing, Exports

Saurabh Jain
To shift focus on the recent emerging sectors such as genomic, commerce and industry minister Suresh Prabhu has indicated for a shift in India’s export and manufacturing strategy, especially on the ...
Continue reading

For The Next WTO Meet, India Has Marked Its Red Line

For the coming month’s ministerial meeting of WTO (World Trade Organisation), India has marked its red lines, and has stated that  it is not ready for discussions on setting up a global regime for new issues related to e-commerce until it addresses issues related to public stock holding and resolves earlier disparities in the global trading system.  “We have certain long-term issues which are developmental issues. The Doha Development Round was an important beginning but somehow lost its way. We are not expecting Buenos Aires (ministerial meeting) to be another reinventing of the Doha developmental issues. We don’t want any new issues to be brought in because there is a tendency of some countries to keep discussing new things instead of discussing what’s already on the plate. We want to keep it focused,” commerce and industry minister Suresh Prabhu said in an interview.India has always tried to resist discussions involving issues like e-commerce to investment facilitation. Countries like US, Japan, Canada, the EU and Australia are demanding a global regime for e-commerce as it aids companies such as Amazon set foot in markets like India, China and Brazil easily. Presently, India for example does not allow business-to-consumer (B2C) e-commerce and is prompting companies like Amazon to function in “marketplaces” where there are restrictions on how much a vendor can sell.There is a need for the government to address several basic issues such as labour and gender which WTO does not cover. These are under “non-trade issues” which India has maintained.Rita Teaotia, the commerce secretary, said at a CII event- “Our position has been continuously that we will not refuse to engage (on new issues such as e-commerce). We are ready to engage. Nevertheless, the technical work must happen at the committee level. These issues must be thrashed out and only when they reach a sufficient level of maturity, they can be brought to a (WTO) ministerial. This is clearly our position.”India’s Ambassador to the WTO, JS Deepak mentioned that India without its own national policy on investment facilitation and e-commerce should not be taking commitments in the WTO. Prabhu has informed that at the Buenos Aires meeting, India will make efforts and look for a solution to public stockholding issues as it curbs its capability to support all its farmers. Also, in the most popular and developed countries apart from the Indian farm goods, it will drive for domestic subsidy reduction for agriculture especially in Australia, Canada, the EU and the US. American government’s approach is important as Donald Trump has seen plenty of questions about free trade agreements that the US had signed.
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For The Next WTO Meet, India Has Marked Its Red Line

For The Next WTO Meet, India Has Marked Its Red Line

Saravana Bhaskar
For the coming month’s ministerial meeting of WTO (World Trade Organisation), India has marked its red lines, and has stated that  it is not ready for discussions on setting up a global regime for ...
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India-Canada To Emphasize On Free Trade Pact

A recent official statement tips that India and Canada at the annual ministerial dialogue will strive for the swift termination of a Comprehensive Economic Partnership Agreement on goods and services.  For the 4th Annual Ministerial Dialogue (AMD), a high-level delegacy guided by the Francois-Philippe Champagne, Canadian International Trade Minister are visiting India. The Commerce and Industry Minister Suresh Prabhu will be leading the Indian delegation.The release stated that in the present round more focus will be laid on some of the vital commercial drivers to emphasize the bilateral partnership."Efforts would be made to work towards the expeditious conclusion of the Comprehensive Economic Partnership Agreement (CEPA) for a progressive, balanced, and mutually beneficial agreement covering both goods and services," it stated.Down by 1.87% from the last year, India-Canadian merchandise stood at USD 6.13 billion (2016-2017).To boost the bilateral trade and investments, the discussions on the agreement  were launched in Nov 2010.In accordance to the release, the two trade ministers are most likely to discuss problems on finding ways to accelerate the swift conclusion of the CEPA and the Foreign Investment Promotion and Protection Agreement on considering the high potential for bilateral trade."They would also explore options for Indian interests in addressing the Temporary Foreign Workers Programme of Canada, which is affecting the movement of Indian professionals seeking short-term visas, address equivalence by the Canadian Food Inspection Agency for Indian organic product exports and exploring two-way investment opportunities," it said.Currently, more than 3% (i.e, 1.2 million) of the Canadian population comprises Persons of Indian Origin (PIO’s)."Though India's commercial ties with the US have seen an upswing in the last few years, trade and investment relations between India and Canada are yet to realise their full potential," the release said.“Given enormous complementarities, a concerted effort to boost bilateral trade and investment from both sides would provide a fruitful outcome” it added.
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India-Canada To Emphasize On Free Trade Pact

India-Canada To Emphasize On Free Trade Pact

Kranthi Tilak Reddy
A recent official statement tips that India and Canada at the annual ministerial dialogue will strive for the swift termination of a Comprehensive Economic Partnership Agreement on goods and services....
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Asian Bankers Association To Be Hosted By Mumbai For The First Time

The Asian Bankers Association (ABA) 34th annual conference will be hosted in the nation’s financial capital, Mumbai, for the first time. This two-day conference, which will commence this week is based on the “Asia’s turn to transform” theme and will be held from November 16 at Megapolis, hosted by the State Bank of India.An SBI spokesperson informed that the event is anticipating the presence of more than 160 domestic and international bankers, the deputy governor of Reserve Bank, Viral V Acharya, will be addressing the special opening on the second day.To advance the cause of the banking industry and encourage the regional economic co-operation throughout the continent, ABA forum was founded in 1981. It currently consists around 80 members from 25 different countries.   The conferences are based on problems concerning the banking sector, training programmes, and policy advocacy discussions. The summit held this year will mainly focus on the impacts of the current global downturn on the Asian economies such as, the American policies under Trump administration, Brexit economic consequences in March 2019 on Asia and the implications of fintech on banks.Some of the important speakers at the event are Chikahisa Sumi of IMF, ADB’s Noritaka Akamatsu & Cheng Cheng-Mount of Financial Supervisory Commission of Taiwan. Kotak Bank’s Uday Kotak and the State Bank chairman Rajnish Kumar will also be addressing the meet.
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Asian Bankers Association To Be  Hosted By Mumbai For The First Time

Asian Bankers Association To Be Hosted By Mumbai For The First Time

Saurabh Jain
The Asian Bankers Association (ABA) 34th annual conference will be hosted in the nation’s financial capital, Mumbai, for the first time. This two-day conference, which will commence this week is bas...
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Dubai Bank Emirates NBD Has Plans To Invest USD 100 Million In Its Operations in India

The UAE’s second-largest financial lender, Emirates NBD, has begun its functions in India with an aim to pitch investments up to $100 million capital in its Indian operations, as stated by the bank.The Emirates NBD Mumbai branch is marked as the fifth international bank branch situated outside its UAE network. The bank offers a number of services to corporates, treasury services, SME, and institutional clients including trade finance, bilateral, and syndicated loans, and in addition also serves the NRI clients looking out for cross-border wealth management services.The Emirates NBD said that the bank has made plans on investing $100 million capital into its Indian operations. “We are delighted to expand our footprint to India, building on the UAE’s strong historic, cultural and commercial ties with the country. As a key trading partner of the UAE and as one of the fastest growing economies in the world, India represents an important and strategic growth market,” Shayne Nelson, Group CEO of Emirates NBD said.“Emirates NBD is the only UAE-based bank with physical presence across all of India’s important trade corridors from the Middle East and North Africa (MENA) across to Asia and the United Kingdom (UK) and our aim is to be the bank of choice for Indian corporates and individuals looking to invest and do business in the MENA region,” Nelson said.India is known for its largest expatriate community in the UAE region and a third of Emirates NBA’s clients are based from India.The company mentioned that DirectRemit which takes 60 seconds to make online funds transfer service to India has facilitated the flow of almost billions of dirhams of NRI remittances this year. The bank has its presence in almost all of India’s trade key gates across Asia (China, Singapore, and Indonesia), UK, UAE, Saudi Arabia and Egypt.
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Dubai Bank Emirates NBD Has Plans To Invest USD 100 Million In Its Operations in India

Dubai Bank Emirates NBD Has Plans To Invest USD 100 Million In Its Operations in India

Piuesh Daga
The UAE’s second-largest financial lender, Emirates NBD, has begun its functions in India with an aim to pitch investments up to $100 million capital in its Indian operations, as stated by the bank....
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Sum And Substance Of ‘Credit Limit’

What Is Credit Limit?The financial institutions set a maximum amount of credit that can be offered to their customers, which is known as the “Credit limit/Cash Credit” in financial terms. A cash credit is a short-term fund loan offered to a company. Usually this forms a part of secured loan and is offered against collateral. Banks check the credit worthiness of client basis past historicals, repayments track record for previous loans & type of business and collateral offered. Once a security for repayment is established, the business houses can draw up to pre-fixed amount mentioned on the Sanction letter.Credit Limit for Customers:If the customers want to avail credit limit, it is essential for them to have a great credit history with periodic higher value payments. This can also act as an absolute form of leverage for the customers. Banks do offer ad-hoc facilities under special request made by customer basis type of business, seasonality and repayment track record, but for all such credit limit amount, he might have to face consequences like paying higher interest rate for ad-hoc limitsCustomer should ensure that a right product mix is offered to him at the time of sanction and credit limits offered is in line with his future business requirement.To Evaluate And Estimate The Credit Limit, Following Are The Mandatory Questions:The foremost question that is asked to assess your credit limit is- how long are your payment terms? It is said that the prior sales influence the future sales, the longer the better.What is the stretch of the company's sales contracts?What is the level of competition in the market for the product or the service that is offered by different financial institutions.Is the growth rate of the borrowing company substantial or is the profit margin facing constraints?Are the bank references evident? What are the financial information you can obtain from the  customers?Can the company manage to buy credit default swaps or trade credit insurance on the customers?What is the level of confidence bestowed on the in-house collections team and their processes?What is the stretch of the company's sales contracts?Based on what criteria and formulas are companies applying to assess the credit limit based on customers' financials (i.e. percentage of net worth, etc.)?Can the sales transactions on open account or letter of credit (LC) be used? LC serves as a good tool for credit risk management, but LC requires line of credit.What is the margin of the product or the service and what is the loss rate that can be assumed? Like the credit card companies do to build the card volumes.The Benefit of Informing Credit Limit to the Customers:The customers can plan their actions on purchases when they know their credit limit.    If the credit limit extended is inadequate, it can be discussed with the credit department and additional information that increases the credit line can be provided to the credit manager.Cash can be paid for the new shipments, or it can either be paid down to the account if the customer is in need to make further purchases above the credit limit. If the customer is not qualified for a large credit, the credit manager can have a dialogue on what conditions the credit limit can be increased in the future.Informing a customer on their credit limit reduces the chances of having to tell in the future that a pending order is being held and cannot be released.The business customers are informed on the maximum amount that can be lent, as it allows them to order goods to the available limit and mitigate their risks. Credit limit is consistently done to re-evaluate the customer creditworthiness and their financial health, and all of this analysis is covered in the company’s credit policy.
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Sum And Substance Of ‘Credit Limit’

Sum And Substance Of ‘Credit Limit’

Saravana Bhaskar
What Is Credit Limit?The financial institutions set a maximum amount of credit that can be offered to their customers, which is known as the “Credit limit/Cash Credit” in financial terms. A cash c...
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Decline in Remittances into India Due to the Economic Shortfall in the Gulf States

The customers from Qatar had decided to cancel orders a few months ago, which helped the eight long dhows worth of 6-9 crore each, to stay at the shores of Beypore, Kerala.“Qatar had plans to order some 100 wooden long boats. Some of the orders had come to us also… But these started getting cancelled after crude prices fell and Qatar-Saudi Arabia relations soured,” Abdulla Baramy of Baramy Ship Builders stated.Founded in 1954, Beypore-based Baramy Ship Builders have manufactured approximately 110 dhows for the customers in the UAE, Oman, Kuwait, and Qatar. But lately, their order books have recorded very little entries. “We make small boats for local fishermen these days. We also do odd repair jobs,” said Baramy.After the economic decline, there was an unusual fall in the price of crude oils and a slowly rising geopolitical tension in the Persian Gulf, which are sending shock waves to the other side of the Arabian Sea.India is the largest remittance receiving country in the world. The major NRI remittances to India are from the Gulf Cooperation Council countries (GCC) which comprises of Bahrain, Oman, Qatar, Kuwait, UAE, & Saudi Arabia. These remittances have seen a steep decline recently.As stated in the World Bank report, India has witnessed close to 9% fall in the NRI pay-in flows which nears to $62.7 billion in 2016. Inward remittances have declined by 12% to Rs 3.66 lakh crore (2016) from Rs 4.38 lakh crore in (2014-15), as per RBI scrolls. Most of this shortfall is said to result from the economic slump in GCC states“It is a case of an overall economic slowdown in the Gulf; lower oil prices have resulted in an economic slowdown in that region,” says Madan Sabnavis, chief economist at CARE Ratings. “The slowdown in that region has also resulted in paycuts and job losses. The IT slump may have impacted remittances from North America too.”Inward remittances form just 3% of the nation's GDP. But at the sub-national level, they have a significant role to play. For example, Kerala has Lion’s share of the remittances from the Gulf countries, here they form about 36% of the state domestic product. Economists say this is not a point of worry, but during the times of higher trade deficit, remittances play a crucial part. Trade deficit refers to the cost of a country’s imports exceeding the value of the country’s exports.“Remittances provide a cushion in times of higher trade deficit. The impact of lower remittances would have been higher had global commodity and raw material prices been higher,” says Devendra Pant, chief economist at India Ratings. “If there’s a slowdown in India, our current account deficit may creep up. Without adequate remittances, the rupee could come under pressure as well.”
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Decline in Remittances into India Due to the Economic Shortfall in the Gulf States

Decline in Remittances into India Due to the Economic Shortfall in the Gulf States

Saurabh Jain
The customers from Qatar had decided to cancel orders a few months ago, which helped the eight long dhows worth of 6-9 crore each, to stay at the shores of Beypore, Kerala.“Qatar had plans to order ...
Continue reading

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