RBI Circular on Trade Credits in INR

As per the circular issued by RBI on 10 Sep 2015, resident importers can avail trade credit (buyers & suppliers credit) in Rupees after entering into a loan agreement with the overseas lender.Trade credit can be availed by the importer for import of all goods as per the Foreign Trade policy barring gold.Trade credit period for non-capital goods can either be maximum of 1 year from date of shipment or as per the operating cycle of the company.Trade credit period for import of capital goods can be a maximum of 5 years from the shipment date.Rollover/extension is strictly prohibited over and above the permissible period.Trade credit per import transaction can’t exceed USD 20 million.Banks can issue LOU/LOC with respect to trade credits up to 3 years from the date of shipment.Overall costs associated with INR denominated trade credits should be in line with the market.All other guidelines for availing trade credits would be applicable for INR denominated trade credits.Process Flow:Importer can import goods in any freely convertible foreign currency.Importer requests either their bank or consultant for Buyer’s Credit/Supplier’s Credit quote on the payment due date. INR amount can be calculated based on the prevailing market rate of the respective currency pair.Importers Bank issues LOC/LOU in rupee to the Overseas Branch.Importers Bank Nostro account is funded in rupees by the Overseas Branch as the trade credit is being availed in INR.Importers Bank however, converts the amount received to respective currency in which the importer has imported the goods and makes the payment to the exporter.Importer pays the principal and interest on the due date.Overseas Bank is paid in INR by the importers bankOverseas lenders can hedge their exposure with a Bank in India as they have lent in INR, this would obviate any risks associated with currency movement and its volatility.For more information on buyer's credit please Click here
Kranthi Tilak Reddy
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RBI Circular on Trade Credits in INR

Kranthi Tilak Reddy
Blog
28th Aug, 2017
RBI Circular on Trade Credits in INR

As per the circular issued by RBI on 10 Sep 2015, resident importers can avail trade credit (buyers & suppliers credit) in Rupees after entering into a loan agreement with the overseas lender.

  1. Trade credit can be availed by the importer for import of all goods as per the Foreign Trade policy barring gold.

  2. Trade credit period for non-capital goods can either be maximum of 1 year from date of shipment or as per the operating cycle of the company.

  3. Trade credit period for import of capital goods can be a maximum of 5 years from the shipment date.

  4. Rollover/extension is strictly prohibited over and above the permissible period.

  5. Trade credit per import transaction can’t exceed USD 20 million.

  6. Banks can issue LOU/LOC with respect to trade credits up to 3 years from the date of shipment.

  7. Overall costs associated with INR denominated trade credits should be in line with the market.

All other guidelines for availing trade credits would be applicable for INR denominated trade credits.

Process Flow:

  1. Importer can import goods in any freely convertible foreign currency.

  2. Importer requests either their bank or consultant for Buyer’s Credit/Supplier’s Credit quote on the payment due date. INR amount can be calculated based on the prevailing market rate of the respective currency pair.

  3. Importers Bank issues LOC/LOU in rupee to the Overseas Branch.

  4. Importers Bank Nostro account is funded in rupees by the Overseas Branch as the trade credit is being availed in INR.

  5. Importers Bank however, converts the amount received to respective currency in which the importer has imported the goods and makes the payment to the exporter.

  6. Importer pays the principal and interest on the due date.

  7. Overseas Bank is paid in INR by the importers bank

Overseas lenders can hedge their exposure with a Bank in India as they have lent in INR, this would obviate any risks associated with currency movement and its volatility.

For more information on buyer's credit please Click here

Kranthi
Blog Author

Kranthi Tilak Reddy is one of the co founders and COO of White Matter Advisory services P Ltd. He is an Engineering graduate from SRM University and has done his Masters in finance.Being a true go-getter and an optimist to the core he has grown up the ranks in banking industry at an astonishing rate, his last stint being Associate Director, Business Clients -South with Standard Chartered Bank. With over 10 years of association with SME businesses and clients he certainly brings rich vein of expertise to the WMA table but more importantly his alluring passion towards great and customer service” the foundation on which he asserts WMA has been built.

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