Type of Transaction Where Buyer’s Credit Cannot be Done
- Incase of local trade
- Advance payment for Imports: Buyers Credit for any amount paid as advance either part or full is not allowed as RBI Caster Circular on External Commercial Borrowing and Trade Credit. Inference has to drawn the above circular. Circular says maximum tenure allowed for buyers credit from the date of shipment is (shipped on board date) upto 360 days in case of raw material and upto 3 years in case capital goods. Any Advance Payment always done before shipment of goods. And thus not allowed.
- Not allowed for import of services
Type of Transaction Where Buyer’s Credit can be Done for Limited Amount
Case where import bill are directly received by importer from his overseas supplier, buyers credit amount is restricted upto $ 3,00,000.
- Import bill received by wholly owned Indian subsidiary of foreign companies from their principal
- Import bill received by Status Holder Exporters as defined in the Foreign Trade Policy, 100% Export Oriented Units, Units in Special Economic Zones, Public Sector Undertakings and Limited Companies
- Import bills received by all limited companies viz. public limited companies, deemed public limited and private limited companies.
Type of Transaction Where Buyer’s Credit can be Done for Limited Tenure
When below given goods / commodity are involved, buyer’s credit and suppliers credit cannot exceed 90 days from the date of shipment as per Reserve Bank of India (RBI) guidelines
- Rough, Cut and Polishes Diamonds
- Silver, Platinum, Palladium, Rodhium
- Master Direction – External Commercial Borrowings, Trade Credit, Borrowing and Lending in Foreign Currency by Authorised Dealers and Persons other than Authorised Dealers
- RBI Master Direction – Import of Goods and Services
- Buyer’s / Supplier’s Credit on Rough, Cut and Polished Diamonds
- Import of Platinum, Palladium, Rhodium, Silver
15 thoughts on “Transaction where Buyer’s Credit is Restricted”
Sir,for maximum of how many days credit can be availed according to RBI requlations on imports of plastic raw materials i.e lc and buyers credit taken together
As per master circular on External Commercial Borrowing and Trade, RBI has delegated approval right to AD (Bank) for Trade Credit. Maximum tenure that banks can approve is upto 1 years from the date of shipment. There are two points additional considered are
1. There is no specific clause on plastic raw material as for other products like Gold, diamond or other precious metal. Thus buyers credit on plastic raw material import can be allowed by bank upto 1 year from the date of shipment. This includes both Lc, Buyers Credit or any other combination of payment mode.
2. Bank based on their analysis can limit for a less tenure based on credit criteria. Banks use working capital cycle as one of the criteria at the time of deciding what tenure it will allow importer under Lc / Buyers Credit. This done to avoid importer from using buyers credit as arbitrage.
Can you also arrange for Buyers Credit on Import of Services? If not, please let me know what are the regulations restricting the same?
As a market practice buyers credit on import of services is not done. I do not have a clear reply on why it is not done / cannot be done. RBI Master circular on External Commercial Borrowing and Trade Credit, and Import of Goods and Services are silent on the subject. RBI Master Circular on External Commercial Borrowing Trade Credit has two points which requires further detailing to find possible reasons on the same.
1. Imports permissible under the current Foreign Trade Policy of DGFT
2. Maturity Period up to one year (from the date of shipment)
Can you tell whether buyers credit available on ATF ( Aviation Turbine Fuel ) payments??
A. Is it possible for me to avail the buyers credit after making the payment to the overseas supplier, as part of disbursement of Term loan in Capital Goods.
B. is it possible to change the original bank who disburse the term loan, in way of availing the buyers credit from another bank.
To avail buyers credit, there should be foreign currency outstanding. Once payment is made to overseas supplier, as mentioned in above case, buyers credit cannot be availed against it.
Is Buyers Credit is allowed for freight charges separately if the charges for freight is borne by the importer?
Buyers Credit can be taken on Invoice value of goods.
It means we can’t give BC to clints not having limits with the banks ??
Or some other alternative are available for such clients.
Without limit buyers credit cannot be provided to client. Limits can be either backed by security or 100% – 120% FD.
Dear sir your article is really helpful but my case is that i had opened FLC against 100% fixed deposit , in that case for how much time i can avail buyer credit facility? and operating cycle applicability on me?
Operating Cycle concept is applicable irrespective if the same is used against limit or FD. RBI not made any differentiation against it.
For Further details please refer article: RELEVANCE OF OPERATING CYCLE IN BUYERS CREDIT TRANSACTION
I am a PSU banker and have a query.
Can buyers credit be availed by a sole proprietorship/patnership firm?
There is no restriction on form of company in relation to Trade credit. Thus sole proprietorship and partnership firm can take buyers credit.