RBI Circular : Trade Credit – New Regulatory Framework

RBI has issued a new regulatory framework for Trade Credit (TC) on March 13, 2019 effective immediately. Details of the circular is given below. In next articles we will cover the major changes in the RBI circular.

Continue reading RBI Circular : Trade Credit – New Regulatory Framework

Correspondent Banking: Issues and Current Initiatives

Correspondent banking services are essential for companies and individuals to transact internationally and make cross-border payments. Recently read a report “Cross-Border  Interbank Payments and Settlements – Emerging Opportunities for Digital Transformation” which highlighted many issues related to existing cross border payments and how Central Banks around the world are working towards solving these problems.

This article highlights issues related to Cross Border payments from  the perspective of Sender and Beneficiary, Commercial Banks and what initiatives are underway to solve those problems.

Continue reading Correspondent Banking: Issues and Current Initiatives

Major changes in ITR 4 (Sugam) Form for AY 2019-20

Income Tax Return Form – ITR-4 (Sugam) is applicable to Resident Individuals, HUFs and Firms (other than LLP) having total income upto Rs. 50 Lakh and having Presumptive Business Income under sections 44AD or Presumptive Income from Profession under section 44ADA or Presumptive Income from Goods Carriages under section 44AE.

ITR4 applicable to

The new ITR-4 form is not applicable to:

  • Non-residents and Residents but not ordinarily resident (RNOR)
  • An individual who is either Director in a company or has invested in unlisted equity shares

Continue reading Major changes in ITR 4 (Sugam) Form for AY 2019-20

Major changes in New ITR 1 (Sahaj) Form for AY 2019-20

Income Tax Return Form – ITR-1 (Sahaj) is applicable to only Resident Individuals having total income upto Rs. 50 lakhs, having Incomes from Salaries or Pension, One House property, Other sources (Interest etc.), and agricultural income upto Rs.5,000.

ITR 1 for Resident Individuals

The new ITR-1 form is not applicable to:

  • Non-residents and Residents but not ordinarily resident (RNOR)
  • An individual who is either Director in a company or has invested in unlisted equity shares

Continue reading Major changes in New ITR 1 (Sahaj) Form for AY 2019-20

Unregulated Deposit Schemes Banned

Government issued an ordinance “The Banning of Unregulated Deposit Schemes Ordinance 2019” on 21 Feb 2019.

This article discusses what is deposit, what is regulated deposits scheme and unregulated deposit scheme, what is banned and what is not banned, from when is the Ordinance applicable, to whom, List of Regulated Deposit Scheme and FAQ

Continue reading Unregulated Deposit Schemes Banned

Cross Border Payments – SWIFT vs RippleNet xCurrent

Blockchain has been a buzz word for sometime, but now it has started touching our day to day life by solving actual problems.  In relation to international trade, blockchain technology has made progress in

  1. Cross Border Payments:
    1. With RippleNet – xCurrent
      • Business to Business Payment
      • Retail Payments
    2. IBM World Wire
    3. Corda Settler
  2. Trade Finance (Some of the platform)
    • Marco Polo Blockchain Platform for Open Account
    • Voltron: R3’s Corda Platform for LC
    • TradeLens – IBM & Maerks for E Bill o f Lading
    • Cargo X
    • we.trade : a platform for open account trade
    • Komgo : a solution for commodity trade finance
    • Bolero: for issuing and managing electronic bills of lading etc…

Continue reading Cross Border Payments – SWIFT vs RippleNet xCurrent

What can be termed as Suppliers Credit?

Over the years Indian importers have used Suppliers Credit and Buyers Credit as two different modes of Import financing. RBI had defined them as Trade Credit under Master Direction for ECB and Trade Credit.

Suppliers Credit structure was understood as financing of import usance Letter of Credit (LC) by Overseas branches / Foreign banks  where as Buyers Credit was considered as financing against LOU/LOC till it was stopped by RBI.

Continue reading What can be termed as Suppliers Credit?

RBI FAQs on Trade Credit : Updated as on 26 Dec 2018

Below given are RBI FAQs on Trade Credit updated as on 26- Dec-2018. RBI has issued revised guidelines under” Trade Credit : New Regulatory Framework“. Will update this article as when RBI updates the FAQs with revised guidelines.

Continue reading RBI FAQs on Trade Credit : Updated as on 26 Dec 2018

Trade Credit : Changes in All-in-Cost Ceiling

As discussed in the earlier article, RBI issued a circular related to Trade Credit – New Regulatory Framework which has provided clarity on many aspects of Trade credit  (Buyers Credit / Suppliers Credit). One of this aspect is All-in-Cost Ceiling.

This article is about All-in-Cost definition, relevant extracts of RBI circular, what has changed and what will be its impact on trade credit products offered by banks.

Continue reading Trade Credit : Changes in All-in-Cost Ceiling

Can SEZ, FTWZ and DTA units avail Buyers Credit ?

As discussed in earlier article, RBI issued a circular related to Trade Credit – New Regulatory Framework which has provided clarity on many aspects of Trade credit. One of the aspect is Trade Credit  (Buyers Credit / Suppliers Credit) availed by units based in SEZ/FTWZ/DTA.

In this article we have provided relevant extracts related to SEZ/FTWZ/DTA, definition, documentation and process to be followed by developers and units.

Continue reading Can SEZ, FTWZ and DTA units avail Buyers Credit ?

How to Endorse a Negotiable Bill of Lading ?

In the earlier articles we have discussed about documents required under letter of credit (LC) and how to prepare and submit compliant document.

In this article we will discuss about, what is Negotiable Bill of Lading, Why endorsement is required, who should endorse and what are the endorsements required.

Continue reading How to Endorse a Negotiable Bill of Lading ?

How to Check if Letter of Credit is Workable

In the earlier articles,  we have discussed about LC format MT700, and how to prepare and check documents under LC. This article provides a checklist for exporter after Letter of Credit (LC) is opened before shipment of goods. This will help exporter better understand the details in LC and whether exporter will be able to comply with its terms. If not, exporter should ask to get amendment in relevant clause.

Continue reading How to Check if Letter of Credit is Workable

Buyers Credit Against Standby Letter of Credit (SBLC) / Bank Guarantee

Post RBI disallowed LOU and LOC for buyers credit transactions, importers and banks are trying different structures which can assist in  Import finance. Some of these structures are

  1. Suppliers Credit
  2. Buyers Credit Against SBLC (Standby Letter of Credit) / Bank Guarantee
  3. Reimbursement Finance (Usance LC Reimbursement at Sight)

This article is about Buyers Credit Against Standby Letter of Credit (SBLC), its meaning, process flow, documents required, costing, applicable rules, issues with the current structure and what should importer do to avail it.

Continue reading Buyers Credit Against Standby Letter of Credit (SBLC) / Bank Guarantee

Revised Guidelines for Trade Credit

New Article: RBI Circular: Trade Credit : New Regulatory Framework

RBI revised Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 on December 17, 2018 (link in reference). Revision is made to ECB guidelines, Trade Credit, borrowing by banks outside India and others.

This articles covers changes made to Trade Credit guidelines.

Continue reading Revised Guidelines for Trade Credit

Reimbursement Finance (Usance LC Reimbursement at Sight)

Post RBI disallowed LOU and LOC for buyers credit transactions, importers and banks are trying different structures which can assist in  Import finance. Some of these structures are

  1. Suppliers Credit
  2. Buyers Credit Against SBLC (Standby Letter of Credit)
  3. Reimbursement Finance (Usance LC Reimbursement at Sight)

Continue reading Reimbursement Finance (Usance LC Reimbursement at Sight)

Guidelines on Early Delivery, Extension & Cancellation of Forward Contract

Forward contract being an agreement to exchange currencies at a future date, it is likely that sometimes the customer may be unable to adhere to the contracted delivery schedule or the underlying transaction may itself get modified or cancelled. The importer/exporter may, therefore, in these cases request for

  1. Early delivery
  2. Cancellation

Continue reading Guidelines on Early Delivery, Extension & Cancellation of Forward Contract

How to Prepare and Check Letter of Credit Documents

Purpose of Letter of credit (“LC”) is to give payment security to the beneficiary subject to documents presented under the LC complying with the requirements of the LC.

To check if documents are compliant, banks examine the required documents based on:

  • The terms and conditions of the documentary credit.
  • The applicable rules of UCP 600.
  • The applicable content of ISBP 745.

Continue reading How to Prepare and Check Letter of Credit Documents

Buyers Credit Outstanding Down by $25 Billion

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

  1. What was the outstanding amount of buyers credit in overseas branches of Indian Bank as RBI data did not provide bifurcation products wise ?
  2. What is the run down in books of these bank since 13 March 2018 RBI Circular ?
  3. 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.

Continue reading Buyers Credit Outstanding Down by $25 Billion

Why are Indian Banks Closing Overseas Branches ?

Indian Banks have closed 37 Overseas branches till date and another 60 – 70 branches are under review. This article gives an overall summary of Indian banks presence internationally, reason for reducing number of branches and bankwise update on branches closed or in process of closing.

Continue reading Why are Indian Banks Closing Overseas Branches ?

LoU/ LoC should be restored with proper safeguards: Standing Committee Report

Department Related Parliamentary Standing Committee on Commerce Chaired by Shri Naresh Gujral, presented it report on 06 August 2018 on “Impact of Banking Misappropriation on Trade and Industry

The report extensively covers  RBI Ban on LOU / LOC and its impact on the Industry and committee’s recommendations. In summary,  Committee  has recommends that LoU/ LoC should be restored at the earliest albeit with proper safeguards.”

Continue reading LoU/ LoC should be restored with proper safeguards: Standing Committee Report

Letter of Credit Clauses Related to Suppliers Credit

New Article: What can be termed as Suppliers Credit?

Supplier’s Credit is a structure of financing Import into India. In this structure, overseas suppliers or financial institutions outside India provide financing to importer on Libor linked rates against Usance letter of credit (LC). Supplier’s credit internationally is also known as Usance Payable at Sight (UPAS) structure.

Continue reading Letter of Credit Clauses Related to Suppliers Credit

Letter of Credit – MT 700 Format

Earlier article “Types of Swift Message used in Letter of Credit and Suppliers Credit” discussed details related to Category 7 message. This article further explore MT700 used for Letter of Credit Issuance. This will help importers understand various fields in MT700, related UCP 600 reference etc.

Continue reading Letter of Credit – MT 700 Format

Types of SWIFT Message used in Letter of Credit and Suppliers Credit

SWIFT system is used for Bank to Bank communication and Bank to Corporate communication. There are different type of Swift messages format related to specific purpose. This article focuses on Category 7 message.

Continue reading Types of SWIFT Message used in Letter of Credit and Suppliers Credit

Major changes in ITR 1 (Sahaj) for AY 2018-19

Income Tax Return Form – 1 (Sahaj) is applicable to only Resident Individuals having Incomes from Salaries or Pension, One House property, Other sources and having total income upto Rs. 50 lakhs.  The new ITR-1 form is not applicable to Non-residents and Residents but not ordinarily resident (RNOR).

Continue reading Major changes in ITR 1 (Sahaj) for AY 2018-19

Nature of Business or Profession Codes for ITR Forms – AY 2019-20

Nature of Business or Profession Code is required to be furnished in ITR 3, ITR 4, ITR 5 and ITR 6. In the new Income tax return (ITR) forms for A.Y. 2019-20 F.Y. 2018-19, below changes are made in Nature of Business or Profession Codes. 

Continue reading Nature of Business or Profession Codes for ITR Forms – AY 2019-20

Legal Entity Identifier (LEI) Number

What is Legal Entity Identifier (LEI) ?

The LEI is a 20-digit, alpha-numeric code that identifies legal entities participating in financial transactions. Each LEI is unique and contains reference information that enables simple and quick identification of an entity. As an international standard (based on ISO 17442), all LEI information is openly published and accessible to all.

Continue reading Legal Entity Identifier (LEI) Number

How to Resolve IGST Refund Issues for Exporters

IGST refund for Exporters – Provisions

As per Rule 96 of the CGST Rules 2017, the shipping bill filed by an exporter shall be deemed to be an application for refund of integrated tax paid on the goods exported out of India. Being so, opting LUT/NA or mentioning “0” against “IGST Paid” field, will keep away the exporter to avail refund claim even if they have paid the IGST as the exporter himself has declared the same in the Shipping Bill. However, following Circular No. 8/2018-Cus dated 23.03.2018, an option has been made available by the DG Systems in ICES for sanctioning IGST refund in respect of those cases where the exporter has erroneously declared that the shipment is without payment of IGST, although they have declared and paid the IGST in GST Returns.

Continue reading How to Resolve IGST Refund Issues for Exporters

Statement of Financial Transaction (SFT / Form 61A) Preliminary Response

The due date for furnishing Statement of Financial Transaction (SFT) for any Financial Year is May 31 of that year e.g for F.Y. 2018-19 it is May 31, 2019.

Communications are being received by the Income Tax Department for furnishing Form 61, Statement of Financial Transactions (Form 61A) / Statement of Reportable Accounts (Form 61B) on the Reporting Portal

Continue reading Statement of Financial Transaction (SFT / Form 61A) Preliminary Response

Reserve Bank’s decision to ban LoUs will badly Impact SME

Reserve Bank’s decision to ban LoUs is a knee-jerk reaction; can backfire badly, warn traders

Article in firstpost.com printed with permission: 

An industry-wide practice that worked well until the end of business hours on Tuesday, which allowed D Dhanasekaran’s Tiruppur-based textiles firm — Abi Tex Mills — import machinery from Oman and boost production, has now gone haywire with the Reserve Bank of India’s (RBI) decision to bar banks from issuing guarantees in the form of letters of undertaking (LoUs) and letters of comfort. “My machinery took a year to be imported and has been installed in the factory for a few months now. But now with buyer’s credit cancelled, I am focused on how to make payments instead of my production,” Dhanasekaran said.

Continue reading Reserve Bank’s decision to ban LoUs will badly Impact SME

Reuters: Indian importers face funding crunch with clampdown on credit guarantees

Article in Reuters printed with permission: 

Continue reading Reuters: Indian importers face funding crunch with clampdown on credit guarantees

Bank Audit – Buyers Credit and Nostro Account

A bank branch goes through four kinds of audits and inspection

  • Internal audit (done by bank staff) on regular basis
  • Concurrent audit (done by a third party), on monthly or quarterly basis
  • Statutory audit (done by the statutory auditor) on quarterly basis
  • Inspection by RBI (annual basis).

In relation to buyers credit transaction, below are the few audit point which are covered by above audits.

Continue reading Bank Audit – Buyers Credit and Nostro Account

Buyers Credit Secondary Market

During the PNB Fraud case, one of the Banks made a statement that:

“It is an active participant in the secondary market for buyer’s credit transactions and it has sold “all the referred transactions’’.

This article tries to throw some light on what is buyers credit secondary market, how the structure works and why banks do transaction in secondary market.

Continue reading Buyers Credit Secondary Market

RBI 2016 Circular : Frauds Related to Trade Finance Transactions – Misuse of SWIFT

RBI in its 2016 Circular to banks had mentioned problem in relation to process followed for issue and reconciliation of SWIFT messages related to Trade finance products and corrective actions banks should take to prevent any fraud. Worth a read.

Continue reading RBI 2016 Circular : Frauds Related to Trade Finance Transactions – Misuse of SWIFT

Implication on Buyers Credit because of PNB Fraud

Latest Articles:

  1. RBI Stops Buyers Credit Transactions (LOU & LOC)
  2. Indian Banks adds Additional Control to SWIFT System
  3. Bank Audit – Buyers Credit and Nostro Account

This article gives layman summary of the PNB fraud case and its impact on buyers credit product and various stake holders like Indian Bank Overseas Branches, Local Banks in India and Importers.

Continue reading Implication on Buyers Credit because of PNB Fraud

Suppliers Credit Process Flow

New Article: What can be termed as Suppliers Credit?

Supplier’s Credit is a structure of financing Import into India. In this structure, overseas suppliers or financial institutions outside India provide financing to importer on Libor linked rates against Usance letter of credit (LC). Importer and Overseas Bank will have to follow below process

Continue reading Suppliers Credit Process Flow

EU list of Non-Cooperative Jurisdictions : No Impact on Buyers Credit

On 5 December 2017, European Union (EU) Council approved and published a list of non-cooperative jurisdictions. Criteria used were:

  • Tax Transparency
  • Fair Taxation
  • Implementation of Anti – BEPS (Base Erosion and Profit Shifting) standards

Continue reading EU list of Non-Cooperative Jurisdictions : No Impact on Buyers Credit

Interest Payment to Mauritius: 7.5% Withholding Tax

In earlier article “WHT (Withholding Tax) on Interest on Buyers Credit” and “Withholding Tax (WHT) on Suppliers Credit Transaction”, we had discussed that if buyers credit or suppliers credit is arranged from Mauritius based bank / branches, there was no withholding tax on interest payment as per Double Taxation Avoidance Agreements (DTAA).

India-Mauritius Tax Treaty was amended on 10 May 2016 and got effective from 01 April 2017. In this article, only amendment related to Interest Payment  (Article 11) is covered.

Continue reading Interest Payment to Mauritius: 7.5% Withholding Tax

Post Libor World – Impact on Buyers Credit

In earlier article we have discussed about various aspect of Libor and its Impact on buyers credit transaction.

In brief, Libor attempts to answer a fundamental question: What is the  cost of money? It does this for a range of currencies (dollars, euros,  pounds, etc.) and for a range of maturities.

Continue reading Post Libor World – Impact on Buyers Credit

Stronger Rupee Impact on Buyers Credit

Currency fluctuation is one of the factor effecting  Buyers Credit.

Chart: www.xe.com

From 62 Level starting 2015, USD INR moved to 68 levels and since then has come back to 64 levels in 2017. This article explores impact of stronger rupee on importers who have availed buyers credit.

Continue reading Stronger Rupee Impact on Buyers Credit

Moratorium Period Impact on Buyers Credit

As per RBI Master Direction on External Commercial Borrowing and Trade Credit banks are allowed to sanction buyers credit on import of capital goods for  3 years with Letter of Undertaking.

In order to avail above buyers credit, Importer will have to get term loan sanctioned with buyers credit as sub-limit with his bank. As seen in earlier article “Buyers Credit on Capital Goods“, moratorium period is one of the factor which importer needs to take care at time of sanctioning of term loan. This article explains

Continue reading Moratorium Period Impact on Buyers Credit

Meaning, Process, Quote, Interest Rate, SBLC, RBI & More

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