RBI Circular of External Commercial Borrowing and Trade Credit gives information about buyers credit. But with specific type of transaction, inference has to taken from other related circulars. For example, for Buyers Credit in case of import against direct documents received by importers, RBI Circular on Import of Goods and Services has to be referred along with Trade Credit Circular. RBI has put in various criteria under which such transactions are allowed.
Receipt of documents directly by importers are bifurcated into two parts:
A. Receipt of Import documents by the importer directly from Overseas Suppliers
Import bills and documents should be received from the banker of the supplier by the banker of the importer in India. AD Category – I bank should not, therefore, make remittances where import bills have been received directly by the importers from the overseas supplier, except in the following cases:
- Where the value of import bill does not exceed USD 300,000.
- Import bills received by wholly-owned Indian subsidiaries of foreign companies from their principals.
- Import bills 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, deemed public limited and private limited companies.
B. Receipt of import documents by the importer directly from overseas suppliers in case of specified sectors
Receipt of import documents by the importer directly from overseas suppliers in case of specified sectors. As a sector specific measure, banks are permitted to allow remittance for imports up to USD 300,000 where the importer of rough diamonds, rough precious and semi-precious stones have received the import bills / documents directly from the overseas supplier and the documentary evidence for import is submitted by the importer at the time of remittance. Banks may undertake such transactions subject to the following conditions:
- The import would be subject to the prevailing Foreign Trade Policy.
- The transactions are based on their commercial judgment and they are satisfied of the bonafides of the transactions.
- Banks should do the KYC and due diligence exercise and should be fully satisfied about the financial standing / status and track record of the importer customer.
- Before extending the facility, they should also obtain a report on each individual overseas supplier from the overseas banker or reputed overseas credit rating agency.
Based on the above information, check with your bank, under which criteria an import transaction is getting classified and whether given criteria are getting fulfilled. Based on this the amount permitted for buyers credit for import against direct documents can be derived.
Also, for cases falling under category B, please refer (ii) carefully. Even if all conditions are getting satisfied, banks should be satisfied about the bonafides of the transaction. Thus banks have discretion under that point. In such cases, it is advised to provide all information and documents related to transaction, to make the bank comfortable about the transaction.
Along with the above provision, provision of Evidence of Imports are also to be considered.
Evidence of Physical Imports
- Import on Documents AgainstPayment (DP): In case of all imports, where value of foreign exchange remitted/ paid for import into India exceeds USD 100,000 or its equivalent, it is obligatory on the part of the bank through whom the relativeremittancewas made,toensure that the importer submits :-
- The Exchange Control copy of the Bill of Entry for home consumption, or
- The Exchange Control copy of the Bill of Entry for warehousing, in case of 100% Export Oriented Units, or
- Customs Assessment Certificate or Postal Appraisal Form, as declared by the importer to the Customs Authorities, where import has been made by post, as evidence that the goods for which the payment was made have actually been imported into India.
- In respect of imports on D/A basis, Bank should insist on production of evidence of import at the time of effecting remittance of import bill. However, if importers fail to produce documentary evidence due to genuine reasons such as non-arrival of consignment, delay in delivery/ customs clearance of consignment, etc., bank may, if satisfied with the genuineness of request, allow reasonable time, not exceeding three months from the date of remittance, to the importer to submit the evidence of import.
Evidence of import in lieu of Bill of Entry
- Bank may accept, in lieu of Exchange Control copy of Bill of Entry for home consumption, a certificate from the Chief Executive Officer (CEO) or auditor of the company that the goods for whichremittancewas made have actually been imported into India provided :-
- the amount of foreign exchange remitted is less than USD 1,000,000 or its equivalent,
- the importer is a company listed on a stock exchange in India and whose net worth is not less than Rs.100 crore as on the date of its last audited balance sheet, or, the importer is a public sector company or an undertaking of the Government of India or its departments.
- The above facility may also be extended to autonomous bodies, including scientific bodies/academic institutions, such as Indian Institute of Science / Indian Institute of Technology, etc. whose accounts are audited by the Comptroller and Auditor General of India (CAG). AD Category – I bank may insist on a declaration from the auditor/CEO of such institutions that their accounts are audited by CAG.
- 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
9 thoughts on “Buyers Credit for Imports Under Direct Documents”
Can you please let me know what are the approx charges (percentage wise) bank are charging for issuing LOU.
It varies based on various factors like LOU issuing bank, security (Against 100% deposit or non fund based limits), tenure, amount etc. Indicative range is between 0.50% pa to 3.00% pa. For further details you can refer article Bankwise LOU Charges.
our supplier is asking stating payment terms of documents like 100% payment on scan copy of invoice, packing list & B/L, can we ask the bank 2 arrange the buyers credit in this case. Value of the materials is less than 250,000 usd. Chinese suppliers r not ready to do DP/DA/CAD.
Technically speaking buyers credit can be taken from date of shipment. RBI Circular on External Commercial Borrowing and Trade Credit does not specify about documents status or payment terms. From banker point of view, they have to confirm date of shipment before they allow importer to take buyers credit. In the above case as the documents are on scan, banks cannot ascertain their authenticity / genuineness. Thus most banks as a process are not doing buyers credit if either original documents are with Importer (Direct Document) or with Bank (DA/DP/LC).
if we have buyers credit limit of 120 days and payment terms for specific transactions are 60 days how i can avail 120 days buyers credit
Importer can take buyers credit for balance 60 days (120 Days – 60 days payment term)
Can we give buyers credit subsidiary company ‘s documents received directly for USD 500000 or more
If import documents are handled by one bank then on same documents Buyers credit can be taken by other bank by obtaining NOC from the bank who have handled import documents
Yes. If import documents has come in one bank, buyers credit can be taken from another bank by taking NOC. Below article has the process flow which bank will have to follow to do such transaction.
Transfer of Limits from One Bank to Another: Buyers Credit Rollover Process