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.
Other Factors
- 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.
Documentation
- 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.
Regulation
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.
Buyer's Credit & Supplier's Credit 
In this current market there are rumours that rbi is coming up with circulars on disallowing the rollovers on buyers credit on raw material the tenor of which is already 360 days. That is can one extend the buyers credit which are booked for 180 days now and can further be extended on maturity for further 180 days which is total and 1 year max.
During worst of economic times, there are always lot of rumors which keep on moving around. As the situations stands today, I do not foresee above happening because of below reasons:
1. Indian Corporate Dollar liability is around $137 Billion (source: various newspapers) till June 12. Because of which, there is already lot of strain on forex reserve of India and above move would worsen the situation.
2. Most of the importers are currently sitting at un-hedged position of their dollar liabilities including that of buyers credit, which has resulted into notional loss and if the above measure is put in place, it will get converted into actual loss in their books.
3. Above point 2, will also affect the books of banks, as their account would get converted to non standard assets. Banks are already under pressure of rising NPA, which inturn results into increased provisioning and thus requirement of more capital. PSU banks which are depended on Government of India (GOI) for their capital requirement being a major stake holder. Because of the current fiscal situation, GOI is not in position to provide additional funds by way of subscribing to rights issue of these banks. Most written about for such situation is SBI which is not been able to raise capital for some time.
4. Under the current provision, there are already enough safeguards in place. RBI in circular mentions that AD can approve buyers credit upto 360 days on non Capital goods (Raw Material, Consumables, Accessories, Spares, Components, Parts etc) without approaching it. Now this does not mean that default buyers credit tenure is 360 days. Banks based on their judgment of working capital cycle of the customers (Importers) would decide what is the maximum tenure till which it will allow buyers credit for each of its customer.
sir can a buyers credit ( taken for non capital goods) be rolled over for more than 360 days as a special case. are there any special provision for the same from RBI
RBI Master Circular on ECB and Trade credit clear say, “No Rollover / extension will be permitted beyond the permissible period”. The only option can be to approach RBI through AD bank’s with its recommendation giving facts and justification of the case for further extension. In its wisdom if RBI finds the case strong enough it may allow but i have not seen any precedence for the same. I have earlier tried for my clients for getting such extension but RBI has not considered the same.
Can we do the buyers credit rollover transaction with the same funding bank? What would be the formalities and benefits, if I do the rollover with same bank or would be better with other bank also ?
Technically there is no major difference betweening doing buyers credit (BC) from same bank or another bank. Incase of buyers credit from same overseas bank, you will have to send lou and interest amount of existing buyers credit before due date on due date buyers credit bank will rollover the existing transaction.
Incase BC is taken from another bank, bc bank will fund to nostro of your bank (indian bank) and indian bank in turn on due date will transfer principal and interest to old buyers credit bank.
Thus decision must be based on rate of interest first. Incase where time available is short than one should prefer existing bank.
Bank was doing rollover till date but now denied and informed that it can not be rollover according to FEMA guidelines where is till date they have rollovered BC for max one year of period within sanction limits.. can you guide for the same.
Sir in case of Buyers Credit where term loan is sub limit:
One of my client had been sanctioned a capex loan for 7 years (2 years moratorium and 5 years for repayment) where in he has rolled over buyers credit till 3 years. So how will repayment schedule workout?
Please advice
Importer will have to schedule his buyers credit transaction in such a manner that it get due on second year, meaning importer cannot take buyers credit for 3 year at one go.
Whatever is going toward principal in third year, that much amount has to be reduced at the time of taking buyers credit for third year.
How is the foreign exchange fluctuations on Buyers credit treated at the end of the year when Buyers credit is rolled over. If the Buyers credit is secured over assets and has been outstanding more or less at less at the same level for the last three years by rolling over can the foreign exchange fluctuations be transferred to Foreign Currency Translation Account
I have taken Buyers Credit on import of capital goods a year back, can i go for rollover.
& is there is any connection for rollover of buyers credit with LC
Revert on query 1: Depends on your term loan sanction. Incase your term loan allows buyers credit beyond 1 years then yes. As per RBI provision, buyers credit is allowed upto 3 years from the date of shipment.
Revert on Query 2: There is not connection between LC and buyers credit rollover.