Buyers Credit Outstanding Down by $25 Billion

Since RBI Stopped Buyers Credit Transactions against LOU and LOC, few questions kept on coming up regularly

What was the outstanding amount of buyers credit in overseas branches of Indian Bank as RBI data did not provide bifurcation products wise ?
What is the run down in books of these bank since 13 March 2018 RBI Circular ?
What is its impact on Libor based finance available to Indian importers ?

In this article we have provided the data and analysis which will answer the first two questions.

Summary

Overall Buyers Credit Outstanding is down by Rs. 172413 Cr ($25 Billion) since June 2017 and most of these run down is post March 2018 RBI decision. Above amount will be still higher as the available data does not include :
- HDFC Bank and Axis Bank Overseas Branches Outstanding.
- Offshore banking unit (International Financial Service Centre i.e. IFSC based in GIFT City) outstanding is not separately provided in the quarterly results. Many banks like Yes Bank, Kotak Bank, ICICI Bank, HDFC Bank etc were increasingly using IFSC branches for buyers credit business.
- Buyers Credit Outstanding data for Foreign banks is not available
SBI, BOB and BOI are the main banks affected.
With available data, now it is clear that Buyers Credit used to be a major chunk of business of Overseas branches of Indian Banks. With this option closed, pace of consolidation of overseas branches of Indian will increase.
Alternate products like Letter of Credit and Bank Guarantee which were supposed to be alternative of LOU / LOC have failed to pick up as predicted. Thus taking a toll on Indian Importers.
Simultaneously it has also somewhere impacted the below two :
- Foreign currency reserves have come down from peak of $426 billion to $400 billion during this period.
- Rupee has weakened from 64.50 level to 69.50 level

Rs. In Crores

Buyers Credit Outstanding is down by Rs. 1,21,763 Cr ($17.52 Billion) for these 3 banks.
For SBI overseas branches buyers credit outstanding used to contribute 24.09% of total advances which is down to 4.92%.
For BOB overseas branches buyers credit outstanding used to contribute 42% of total advance which is down to 17.38%.
Outstanding balance will see further run down in the next quarterly results as buyers credit taken against raw material import gets repaid. Post which pace of run down will reduce as outstanding amount will be related to capital goods import. Buyers credit was allowed for upto 1 year for raw material import and for capital goods import it was allowed for tenure upto 3 years with LOU / LOC.

* BOI Data is for overall advance in overseas branches, as bifurcation of buyers credit outstanding is not provided.

For rest of the banks international branches advances has gone down Rs. 50650 Cr ($7.29 billion) in last one year and more so after RBI ban on LOU/LOC
Outstanding balance will see further run down in the next quarterly results as buyers credit taken against raw material import gets repaid. Post which outstanding amount will be related to capital goods import.

Rs in Crore

Reference: Quarterly Results are taken from BSE India

For the above banks, outstanding amount is total advance of their international branches, as specific bifurcation of their buyers credit outstanding is not provided.
Data may or may not include offshore banking unit outstanding as quarterly result does not provide any clarification on the same (International Financial Service Centre based in GIFT City).
Number of branches data is based on Jan 2018 RBI data. Post which many branches have been closed.
ICICI Bank Data was in $ terms, conversion taken at 69.50 rate
For HDFC Bank and Axis Bank, their international branches advance outstanding is not available in quarterly result and thus it has been kept blank. Will update it as an when further information is available.

Reference