Buyers Credit is arranged against Letter of Undertaking (LOU) / Letter of Comfort (LOC) issued by Importer’s Bank. During this period if importer decides to shift his limits from X bank to Y bank, few complications arise. For a Raw material transaction, importer may decide not to rollover the transaction to avoid complications; but for Capital goods Importer has lesser options. If the buyers credit does not get rolled over, the same would get converted into term loan which would cost the importer higher rate of interest. This article provides details on process to be followed and what documents are needed for smooth transition. For understanding let assume,
- X Bank: Existing Bank of Importer
- Y Bank: New Bank of Importer where limits are shifted
- A Bank: Existing Overseas Bank from where buyers credit is arranged
- B Bank: New Overseas Bank from where the rollover buyers credit will be arranged.
- Importer arranges for NOC from X Bank in favour of Y Bank to arrange buyers credit.
- Importer arranges quote from overseas bank (other than existing overseas bank).
- Y Bank issues lou to B Bank against the existing import transaction
- B Bank transfer funds to the Nostro Account of Y Bank
- Y Bank transfer funds to the Nostro Account of X Bank
- X Bank transfer funds to the Nostro Account of A Bank, thus completing the whole transaction.
Documents to be submitted by Importer to Y Bank
- ECB Form for Extension
- Photocopy of the Import document and Bill of Entry
- Fresh Offer Letter, LOU Format & Swift Address
- NOC from X Bank
In the above example it is assumed that buyers credit rollover is taken from bank other than existing buyers credit providing overseas bank to avoid complications. From Importers perspective its an ideal position. Reason: Incase of rollover from the same bank there is no transfer of funds but only extension of tenure. As buyers credit is taken against LOU issued by X Bank whereas because of takeover rollover LOU needs to be sent by Y bank, there is issue of knocking of transaction at A Bank level. Also issue will arise on how existing liability of X bank against A bank to be removed.