After the expiry of deadline of 30-09-2012, there was a prolonged uncertainty for last 9 days on what is the all in cost ceiling for Trade Credit (Buyers Credit / Suppliers Credit). Reserve Bank of India (RBI) issued a clarification or revised circular today clarifying the same. Summary of the same is given below
- Maximum Interest cap for Upto 5 Years : 6 Month Libor + 350 bps. This rate has been referred in it circular 11-09-2012 (Link given below)
- Until further review, the rate remains same. Thus, this time there is no deadline set for the review of the above rate to avoid any slippage like above.
Reference
- RBI Latest Circular: Trade Credit for Imports into India – Review of all-in-cost ceiling: Dated 09-10-2012
- Trade Credit for Import Into India: Dated 11-09-2012
- RBI Circular : Trade Credit for Imports into India – Review of All-in-cost ceiling:Dated: 30-03-2012
- RBI Circular : Trade Credit for Imports into India – Review of All-in-cost ceiling:Dated 15-11-2011
- RBI Master Direction – Import of Goods and Services: Dated: 31-03-2016
- Master Direction – External Commercial Borrowings, Trade Credit, Borrowing and Lending in Foreign Currency by Authorised Dealers and Persons other than Authorised Dealers: Dated: 19-09-2016
Buyer's Credit & Supplier's Credit 
For Trade credits RBI says 6 months libor + 350bps. does it mean any buyers credit arranged for 12 months or more we should always have a reset clause after every 6 months to get 6 months libor qoute to comply with the guidelines.
When RBI say maximum interest ceiling for buyers credit transaction is 6 Month LIBOR + 350, that means total interest should not exceed 0.51025 (transaction day’s 6 Month Libor) + 3.50 i.e 4.01% in case of today. Based on this, any permutation combination can be used by importer / bankers while quoting for a buyers credit transaction. Thus, it is not necessary that incase of transaction above 6 months there should be always with reset clause.
Incase of buyers credit transaction above 12 months will by default with reset clause but should be within the cap of 6 Month Libor + 350bps. Reason is not regulatory but because LIBOR are issued for maximum of 12 Month tenure . Thus, any transaction above 12 months tenure will always be issued with reset clause normally with 6 month or 12 month reset