RBI’s Policy on Trade Credits for Imports

“Trade credits” are credits extended to importer for imports directly by overseas seller, bank & FI for maturity up to five years. Based on the source of finance we have trade credits such as Buyer’s Credit & Suppliers credit. Buyers Credit: Loan extended to importer by a bank or financial institution outside India for funding of his import payments is known as “Buyer's Credit”. Suppliers Credit: Credit extended by the overseas supplier to the importer for his imports into India is known as “Supplier’s Credit”.  Amount and Maturity: (i) AD banks are permitted to allow trade credits for imports up to USD 20 million per import transaction with a maturity period up to one year (from the date of shipment).All such imports should be permissible under the current Foreign Trade Policy of the DGFT (ii) AD banks can approve trade credits up to USD 20 million per import transaction with a maturity period of more than one year and up to five years (from the date of shipment ) for import of capital goods. Roll-over or extension isn’t allowed beyond this period. (iii) Trade credit period should be in line with the operating cycle and trade transaction. It’s responsibility of AD Category banks to ensure  these instructions are diligently complied with. Cost Ceilings on Trade Credits: The current all-in-cost ceilings are as under The all-in-cost ceilings include arrangement fee, upfront fee, management fee, handling/ processing charges, out of pocket and legal expenses, if any. c) Letter of Undertaking or Letter of comfort issuance: For import of non-capital goods AD banks are allowed to issue Letters of guarantee/Letter of Undertaking (LoU) /Letter of Comfort (LoC) in favor of exporter’s bank and financial institution, for an amount not exceeding USD 20 million per transaction for a period up to one year. For capital goods the permissible period is three years from the date of shipment, subject to guidelines issued by Reserve Bank. The AD banks are not allowed 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. d) Reporting AD banks have to diligently furnish details of approvals, drawal, utilization, and repayment of trade credit granted by all its branches, in a consolidated statement, during the month, in form TC from April 2004 onwards not later than 10th of the following month. Each trade credit may be given a unique identification number by the AD bank. AD banks are required to furnish data on issuance of LCs / Guarantees / LoU / LoC by all its branches, in a consolidated statement at quarterly intervals from December 2004 onwards, not later than 10th of the following month.
Kranthi Tilak Reddy
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RBI’s Policy on Trade Credits for Imports

Kranthi Tilak Reddy
Blog
14th Aug, 2017
RBI’s Policy on Trade Credits for Imports

“Trade credits” are credits extended to importer for imports directly by overseas seller, bank & FI for maturity up to five years. Based on the source of finance we have trade credits such as Buyer’s Credit & Suppliers credit.

Buyers Credit:

Loan extended to importer by a bank or financial institution outside India for funding of his import payments is known as “Buyer's Credit”.

Suppliers Credit:

Credit extended by the overseas supplier to the importer for his imports into India is known as “Supplier’s Credit”.

 Amount and Maturity:

(i) AD banks are permitted to allow trade credits for imports up to USD 20 million per import transaction with a maturity period up to one year (from the date of shipment).All such imports should be permissible under the current Foreign Trade Policy of the DGFT

(ii) AD banks can approve trade credits up to USD 20 million per import transaction with a maturity period of more than one year and up to five years (from the date of shipment ) for import of capital goods. Roll-over or extension isn’t allowed beyond this period.

(iii) Trade credit period should be in line with the operating cycle and trade transaction. It’s responsibility of AD Category banks to ensure  these instructions are diligently complied with.

Cost Ceilings on Trade Credits:

The current all-in-cost ceilings are as under


The all-in-cost ceilings include arrangement fee, upfront fee, management fee, handling/ processing charges, out of pocket and legal expenses, if any.

c) Letter of Undertaking or Letter of comfort issuance:

For import of non-capital goods AD banks are allowed to issue Letters of guarantee/Letter of Undertaking (LoU) /Letter of Comfort (LoC) in favor of exporter’s bank and financial institution, for an amount not exceeding USD 20 million per transaction for a period up to one year. For capital goods the permissible period is three years from the date of shipment, subject to guidelines issued by Reserve Bank.

The AD banks are not allowed 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.

d) Reporting

AD banks have to diligently furnish details of approvals, drawal, utilization, and repayment of trade credit granted by all its branches, in a consolidated statement, during the month, in form TC from April 2004 onwards not later than 10th of the following month. Each trade credit may be given a unique identification number by the AD bank.

AD banks are required to furnish data on issuance of LCs / Guarantees / LoU / LoC by all its branches, in a consolidated statement at quarterly intervals from December 2004 onwards, not later than 10th of the following month.

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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