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.
Recently a query from importer came in after buyers credit transaction was funded for replacing the underlying import document with another document.
Continue reading Replacing Import Documents after Buyers Credit Funding
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.
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
Buyers Credit transactions are funded on Libor rates. Thus any change in Libor directly impact overall costing of the transaction.
Libor rates started rising in 2015 and pace of which got picked up since beginning of 2017. Below 3 Month Libor and 6 Month Libor charts shows the trend. There are two charts for two range.
Continue reading Rising Libor Rates and Its Impact on Buyers Credit
Trigger for this topic is a question that a reader asked:
Can I take buyer credit quote of 12M+LIBOR for capital goods import. Is there any specified guidelines that we have to take 6M+LIBOR / 3M+LIBOR only.
Continue reading Link Between Libor Periods & Buyers Credit Tenure
Form 15CA and Form 15CB Certificate may be applicable in few cases of Buyers Credit Repayment. Over the period of time there has been many changes to regulation and latest one issued on 16th December 2015 and got implemented from April 1, 2016.
Continue reading Form 15CA and Form 15CB for Buyers Credit Repayments
European Central Bank (ECB) started Quantitative Easing (QE) program last year for European Banks which has resulted into
Continue reading Impact of Negative Euribor on Buyers Credit
Post below article CBDT has revised rules for form 15CA and Form 15CB effective from April 01, 2016. Refer article: Form 15CA and Form 15CB not Required for Import Payments
In revised notification issued by CDBT on 16th December 2015, effective 01’st April 2016, import payment has been made part of exempted list. Hence forth Form 15CA and Form 15CB will not required for the same during import transactions.
Continue reading Form 15CA & Form 15CB applicable on All Payment
Indian Bank Overseas Branches / Foreign Bank has to carry out many processes pre and post disbursement of buyers credit. Below are the steps from end to end.
Continue reading Steps followed by Overseas Branches during Buyers Credit
Directorate General of Foreign Trade (DGFT) on March 12, 2015 reduced mandatory documents for Import and Export of goods to below 3 documents:
Continue reading Revised Mandatory Documents for Import & Export
Trigger for this topic is a question that a reader asked:
“Can Exporter retain dollar in EEFC A/c for buyers credit repayment ?”
Below article gives basic details about EEFC account and revert to above query.
Continue reading Can Exporter Retain EEFC A/c Balance for Buyers Credit Repayment
Importer regularly gets multiple bills from same supplier and from multiple suppliers. Clubbing these multiple import bills to a single Buyers Credit transaction will reduce overseas bank interest cost.
Continue reading Clubbing Import bills for Single Buyers Credit Transaction
In earlier article we have discussed about costing of buyers credit, list of which is given below.
Continue reading Should Importer accept Buyers Credit Quote including LOU charges
Letter of Undertaking in simple terms is bank guarantee issued by Indian bank against which overseas bank provide finance on Libor rates. Libor linked finance used by importers are Buyers Credit, Suppliers Credit, ECB etc. Libor linked finance used by exporters is PCFC (Packing Credit in foreign currency)
In earlier articles, terms Letter of Undertaking (LOU) and Letter of Comfort are used regularly. Below article gives difference between both these terms from perspective of buyers credit.
Continue reading Difference Between Letter of Comfort and Letter of Undertaking
The trigger for this topic is a question that a reader asked:
“I would like to know whether service tax is applicable under Section 66A of the erstwhile Act on availing Buyer’s credit? It is not only the interest which is paid but a number of other fees like the management fees, arrangement fees, hedging cost etc which is paid to banks by the importer”
Continue reading Is Service Tax Applicable on Buyers Credit ?
The trigger for this topic is a question that a reader asked:
We have a processing facility of granite. Can we use buyers credit for consumables (our banker refusing for consumables). As per them only raw material is allowed for buyer credit
Continue reading Buyers Credit on Import of Non Capital Goods
A credit rating represents the rating agency’s opinion on the likelihood of a rated debt obligation being repaid in full and on time. Usually alphanumeric symbols are used to convey a credit rating. Credit rating can be Internal Rating (Banks rate customers internally) or External Rating by external agencies like CRISIL, ICRA and others.
Incase of raw material imports, RBI had delegated approving powers to Authorised Dealers (Banks) for Trade Credit (Buyers Credit / Suppliers Credit) for a tenure upto 1 year from the date of shipment. Bank’s based on internal policies decided customerwise tenure. Because of variation in policies between banks, few importers used buyers credit for arbitrage.
Continue reading Relevance of Operating Cycle in Buyers Credit Transaction
In earlier article 5% WHT as per Sec 194LC not applicable to Buyers Credit we had discussed on Sec 194LC. This article gives difference Between Sec 195 & Sec 194LC
The trigger for this topic is a question that a reader asked:
Since Foreign Trade Policy allows imports in INR (Indian Rupees) also, what are the regulations related to buyer’s credit in respect of an import invoice which is in INR ?
Above question is more of an academic question as INR denominated import transaction are very limited but it will help in throwing light on concept of permitted methods of import payment.
Trade Credit for Import into India
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.
Continue reading Buyers Credit Tenure Extended to 5 years for Import of Capital Goods
The trigger for this topic is a question that a reader asked:
Question : What are the RBI guidelines for availing Letter of credit facility and/or buyers credit facility for the import of second hand capital goods? Is it possible for a company to avail these facilities for second hand machinery?
Continue reading Buyers Credit on Import of Second Hand Machinery
Using Swift Codes Banks and Financial Institutions send and receive swift messages. But there must have been times where you might have come across your bankers coming back to you stating that they do not have swift key arrangement with buyers credit bank. Thus they will not be able to send Letter of Undertaking (LOU) / Letter of Comfort (LOC) authenticated swift message (MT799) to buyers credit bank. Below article gives a brief about why situation arise.
Continue reading Relationship Management Application (RMA) and Buyers Credit
Refer Revised Article:
Form 15CA and Form 15CB not Required for Import Payments
Post below article CBDT has revised rules for form 15CA and Form 15CB. Please refer above article for further detail.
In earlier article about Withholding Tax (WHT), we have discussed about the process and applicability of Form 15CA and 15CB. On 5th August, 2013 CBDT revised the guidelines on Form 15CA and Form 15CB and further amended on 02nd September 2013. Below article gives a summary of changes made.
Continue reading Revised Forms (15CA, 15CB) and Rules for payment to Non Resident
Importers banking with Co operative Bank’s both AD Category and Non AD Category, face issues with arranging buyers credit because
Continue reading Buyers Credit for Co Operative Bank Customers
In the circular issued on 11th July 2013, RBI has made following two changes in relation to Trade Credit transactions:
Continue reading Period of Buyers Credit Linked to Operating Cycle
LIBOR scandal was discussed in the earlier articles like Pushing the reset button on LIBOR – Speech by Martin Wheatley and Impact of Libor Review on Trade Finance in India .
Continue reading Change in LIBOR Tenures and Impact on Trade Finance
Latest Article:
SWIFT code (also known as ISO 9362, SWIFT-BIC, BIC code, SWIFT ID or SWIFT code) is a standard format of Business Identifier Codes approved by the International Organization for Standardization (ISO). It is a unique identification code for both financial and non-financial institutions. These codes are used when transferring money between banks, particularly for international wire transfers, and also for the exchange of other messages between banks.
Continue reading Swift Code & Messages Used in Buyers Credit Transaction
In September 2012, CBDT had prescribe a format in which Tax Residence Certificate (TRC) was required from April 2013. In the Amendments to Finance Bill 2013, requirement of prescribed format has been done away with. Below article gives further details on the same.
Continue reading Tax Residency Certificate Not Required in Prescribed Format
Earlier articles have discussed about applicability of Withholding Tax on Interest payment in case of Buyers Credit and Suppliers Credit. Readers have come back asking query whether Surcharge and Education Cess is applicable or not on withholding tax amount. Below article answers these queries.
Continue reading Surcharge and Education Cess on Withholding Tax
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,
Continue reading Transfer of Limits from One Bank to Another : Buyers Credit Rollover Process
In earlier articles, we had seen that, banks are permitted by RBI to approve Suppliers’ and Buyers’ Credit (Trade Credit) including the usance period of Letters of Credit opened for Import of gold in any form including jewelery made of gold/ precious metal and or studded with diamonds /semi precious /precious stone not exceeding 90 days from the date of shipment.
Continue reading Buyers Credit on Import of Precious and Semi Precious Stone
Myanmar has been under various international economic sanction for more than a decade, which has crippled its international trade. Below article gives a background of economic sanctions on Myanmar, recent relaxations in these sanctions and what will be its likely impact on trade finance from Indian importers perspective.
Continue reading Myanmar Economic Sanctions – Background, Recent Relaxation & Trade Finance
High Sea Sales (HSS) is a sale carried out by the carrier document consignee to another buyer while the goods are yet on high seas or after their dispatch from the port/airport of origin and before their arrival at the port/ airport of destination.
Continue reading Buyers Credit on High Sea Sales Transaction
The earlier article on Buyers Credit on Gold Import, specified rules and process under which buyers credit can be taken against gold import. RBI has recently come out with a circular which resulted in changes in financing of gold; which in turn would also affect buyers credit on gold import. This article gives extract of the circular and its impact on various stake holders:
Note: Post this article there are changes in maturities for which libor is issued. This article might now be relevant for long tenure transactions (12 Months and Above). Refer link for more details on change in Libor: Change in LIBOR Tenures and Impact on Trade Finance
Banks and Importers consider various factors before going for Buyers Credit transaction for more than 6 months tenure. One such factor is buyers credit with 6 Month Libor Reset option. The below article elaborates on these factors.
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
Note: Since this article was written, below regulation has been implemented. Refer Article: Change in LIBOR Tenures and Impact on Trade Finance
Continue reading Impact of Libor Review on Trade Finance in India
Sec 90 of Income Tax Act 1961 has been amended by inserting Sec 90 (4). Details of the section has been given below. Sec 90 (4) have many implications, but this article is concentrating on its implication on Buyers Credit transaction.
Continue reading Certificate of Tax Residency under DDTA (Withholding Tax)
In earlier articles on Buyers Credit on Import of Gold and Import of Platinum, Palladium, Rhodium, Silver, as stated, Reserve Bank of India (RBI) had permitted banks to approve Suppliers and Buyers Credit (Trade Credit) including the usance period of Letters of Credit for import of rough, cut and polished diamonds, for a period not exceeding 90 days, from the date of shipment.
Overdue Interest is applicable for the period after due date on which payment of principal and interest is payable to the buyers credit bank. Some banks have been clearly stating these charges in their offer letter or in letter of undertaking format. Once the buyers credit get overdue, they have been raising demand for overdue interest / charges on lou issuing bank. While giving letter of undertaking (LOU), lou issuing bank gives unconditional undertaking than they would make the payment on due date, irrespective of importer’s ability to make the payment and incase of delay would pay over due charges. Thus are under obligation to make such payments.
Continue reading Overdue Interest and Late Payment Charges on Buyers Credit
There are various reasons because of which an importer would like to make a pre-payment of buyers credit. Such as:
Reserve Bank of India (RBI) issued a fresh circular on September 11, 2012 in relation to Trade Credit for Import into India. Please find below summary of changes made into existing policy:
Continue reading Trade Credit Extended Upto 5 Years for Infrastructure Firms
EURO based buyers credit is currently funded by most of the banks using EURIBOR which is issued by European Banking Federation and ACI. A similar rate is issued by British Banking Association known as EUR Libor but is not often used by bankers for funding buyers credit transactions.
Of late few banks have started asking their clients to compulsorily book forwards against their buyers credit exposure (existing as well new transactions). This change is because of earlier and current directives given by Reserve Bank of India (RBI). Summary of which is given below:
Continue reading Banks Insisting of Forward Booking for Buyers Credit Exposure
The Basel Committee on Banking Supervision (BCBS, or Basel Committee) is an institution created by the central bank Governors of 27 members from both developed and emerging economies. The most influential publications by the BCBS are Basel Accords. The key part of Basel framework as commonly referred to, guides banking industry how to calculate risk-weighted assets (RWA) and capital requirements. The Basel Committee gave its final text of Basel III on Dec 2010 of details of updated global regulatory standards on bank capital adequacy and liquidity, which was agreed by the Governors and Heads of Supervision, and endorsed by the G20 Leaders at their November 2010 Seoul summit.
The IMO ship identification number is made of the three letters “IMO” followed by the seven-digit number assigned to all ships by IHS Fairplay when constructed. This is a unique seven digit number that is assigned to propelled, sea-going merchant ships of 100 gross tons and above. It serves the purpose of identifying ships. It is a Unique number which does not change, even if when the ship’s owner, country of registry or name changes.
Continue reading IMO Number and Its importance in case of Buyers Credit
Below Country-wise double taxation summary chart provides Tax rate and Article reference number applicable on interest payments to beneficiary outside India. Same will be useful at the time of filling up Form 15CA and Form 15CB
Continue reading Country-wise Double Taxation Summary Chart on Interest
Buyer's Credit & Supplier's Credit 