At the time of taking Buyers Credit, one would consider availability of tenure by banks, price variation based on tenure, etc. to arrive at tenure for which buyers credit is to be availed. On the due date, either the buyers credit is paid off or it can be further rollover for additional tenure.
Process to be followed for Buyers Credit Rollover from Existing Bank
- Fresh offer letter issued by Buyers Credit Bank
- On or before due date, local bank will send lou and make interest payment of existing buyers credit
- On due date buyers credit bank rollover existing buyers credit and gives a confirmation to local bank with MT799. MT799 would include new due date and interest amount payable on fresh maturity
Process to be followed for Buyers Credit Rollover from Other Banks
- Reason for doing same it mostly better pricing. But one should also consider all the other charges (swift charges, intermediary bank charges etc) in their costing before going for rollover from another bank.
- Get fresh quote issued from new buyers credit providing bank
- Send lou with value date at least 1 day prior to due date of existing buyers credit to avoid any delay payment charges.
- Once funds are received, local bank makes the payment to existing buyers credit bank along with Interest. Interest payment is made using A2 Form.
- Operating Cycle incase of non Capital goods import: As per RBI norms buyers credit is not allowed beyond operating cycle.
- Cost Factor: Every time you rollover LIBOR will change, Margin might change, LOU charges (like nationalized bank charges some fixed amount for as commitment charge plus usance charges. Because of this, the overall cost might go up)
- Incase of delay payment of buyers credit, buyers credit bank charges delay payment charges which needs to factored in at the time of deciding value date of rollover transaction.
- Few banks also charge additional charge ($50 – $100) than interest cost for rollover of their existing buyers credit.
- Fresh offer letter, LOU format and Swift address.
- Form A2, Form 15CA and Form15CB for interest payment of earlier buyers credit. Form 15CA and Form 15CB is applicable only in cases where interest payment is being made to foreign bank. Most of the lou issuing bank do not allow interest payment included in rollover buyers credit amount. There is nothing prescribed by RBI on the subject, but its depends on bank internal polices.
- Any other document are required by bank.
From RBI Regulation perspective, RBI allows buyer’s credit on import of raw material (non capital goods) upto 1 year from the date of shipment, on Capital Goods upto 5 years (Beyond 3 years banks are not allowed to provide Letter of Undertaking / comfort)
From the point of view of Importer’s Working Capital Bank, Non-Fund Based Limit is sanctioned based on your working capital cycle and clients requirement. At the same time they decide a cap upto which tenure they would issue Letter of Credit (LC) / Bank Guarantee (BG) / Letter of Comfort (LOC). Further rollover above the tenure specified would not be allowed by working capital bank.