In earlier article “Trade Credit Extended Upto 5 Years for Infrastructure Firms” we had seen that RBI had allowed buyers credit to infrastructure firms till 5 years subject to conditions.
- Tenure of Trade Credit (buyers credit / suppliers credit) for import of capital goods has been extended from 3 years to 5 years for companies in all sectors.
- Minimum tenure of buyers credit has been relaxed from 15 months to 6 Months. Which means trade credit can be taken and rollover in multiple of 6 months or more
- But banks cannot issue Letter of Credit / Letter of Undertaking /Comfort beyond 3 years (from the date of shipment)
- Amended Trade Credit Policy will come to force with immediate effect
- Policy cover both existing buyers credit as well as fresh buyers credit against capital goods. (As per RBI Master Circular : External Commercial Borrowing (ECB) and Trade Credit.
- Further clarity is required from RBI on “Banks cannot issue lou for period beyond 3 years“. As it seems that only large corporates will be able to take benefit of this extended tenure as overseas bank will not be keen on providing funds to SME without LOU / LOC issued by Indian Banks.
- Overseas Branches of Indian Bank and Foreign Banks will have to come out with a structure to take benefit of the extended tenure without LC /Letter of Undertaking / Letter of Comfort.
- RBI Circular : Trade Credit for Import India: Dated: 24 September 2013
- 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
- Revised Guidelines: Trade Credit for Import into India: Dated: 11-09-2012
- Buyers Credit Cost Calculation Sheet