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 effective from April 01, 2016. Please refer above article for further detail.
Continue reading Form 15CA and 15CB under Section 195 of Income Tax
Continue reading OFAC Countries & Implication on Buyers Credit
In its Circular dated 15/11/2011, RBI had increased the all-in-cost ceiling for Buyers Credit from 6 Month L+ 200 bps to 6 Month L + 350 bps subject to condition that is only upto 31/03/2012 and after subject to review there after.
Continue reading Buyers Credit All-In-Cost Ceiling may move back to L+200bps from 01/04/2012
RBI Circular of External Commercial Borrowing and Trade Credit gives information about buyers credit. But with specific type of transaction, inference has to taken from other related circulars. For example, for Buyers Credit in case of import against direct documents received by importers, RBI Circular on Import of Goods and Services has to be referred along with Trade Credit Circular. RBI has put in various criteria under which such transactions are allowed.
Continue reading Buyers Credit for Imports Under Direct Documents
1. LC is one of the payment mode used in the International Trade between importer and exporter to cover third-party credit risk. Meaning if the importer defaults, his bank will have to pay on his behalf. Whereas, Buyers credit is a funding mechanism used by importer to funds his transaction. Continue reading Difference between Buyers Credit and Letter of Credit (LC)
RBI via circular dated 28/12/2010 revised the extant guidelines on OTC (Over the Counter) Foreign Exchange Derivatives and which became effective from 1st February 2011. Below is the extract of the guidelines related to importers and exporters.
Continue reading Comprehensive Guidelines on Foreign Exchange Derivatives
RBI reviewing the developments in global finance markets and the fact that domestic importers are experiencing difficulties in raising Trade Credit (Buyers Credit / Suppliers Credit) within the existing all-in-cost ceiling, RBI has made below changes in the existing policy.
Continue reading RBI Increase Buyers Credit All-in-Cost Ceiling
Buyers Credit Essential Accounting Entries, Classification and Disclosures in Books of Accounts:
Considering the specific needs of the Infrastructure sector, RBI under its circular External Commercial Borrowing (ECB) – Bridge Finance for Infrastructure Dated 23-09-2011, reviewed the ECB policy. An amendment was made in this policy on 21-09-2012. Brief summary is given below:
Continue reading Infrastructure Companies – Bridge Finance before availing ECB
New Article: Moratorium Period Impact on Buyers Credit
Buyers Credit can be used both for Raw Material and Capital Goods. Below article gives complete detailed information along with process and sample sanction letters.
Term Loan Sanction –> LC Issuance for import of Machinery –> On the due date of payment of LC convert it to Buyers Credit and rollover it for 3 years –> At end of 3 years convert to term loan
Below given are Letter of Undertaking (LOU) / Letter of Comfort (LOC) charges: These charges detail information is as provided by respective bank’s website. These rates may vary from customer to customer, based on their negotiation with bank.
Continue reading Bankwise Letter of Comfort / Undertaking Charges
As per RBI Circular, Bank can open Letters of Credit and allow remittances on behalf of EOUs, units in SEZs in the Gem & Jewellery sector and the nominated agencies / banks, for direct import of gold, subject to the following
Continue reading Transaction where Buyer’s Credit is Restricted
Reserve Bank of India (RBI) in its circular dated 06-05-2011 has revised guidelines for import of Rough, Cut and Polished Diamonds. Extracts are given below.
Supplier’s Credit and Buyer’s Credit (Trade Credit) including the usance period of Letter of Credit (LC) opened for import of rough, cut and polished diamonds has been restricted to 90 days from the date of shipment from immediate effect.
Continue reading Buyer’s / Supplier’s Credit on Rough, Cut and Polished Diamonds
At the time of taking Buyers Credit, one would consider availability of tenure by banks, price variation based on tenure, etc. to arrive at tenure for which buyers credit is to be availed. On the due date, either the buyers credit is paid off or it can be further rollover for additional tenure.
Person / Firm who co ordinates with Indian Overseas Branches or Foreign Bank and arranges best possible quote for transactions. They do not directly represent any of these bank. They are also known as Buyers Credit Brokers & Buyers Credit Agents
Continue reading Buyers Credit and Suppliers Credit Consultants
Note: Since the time this article was written, 6 Month Euribor has come down from 1.79% (July 2011) to 0.070%. Concept of cross currency still holds but the example would change. Please take below example as reference only.
Question of Buyers Credit in Cross Currency comes up in below cases.
At the time of receipt of the document, importer will book a cross currency Spot+2 or forward as per his comfort with his bank, to get the exact conversion from one currency to other currency. Rest of the process is same as buyers credit which importers already carry out.
Example of Cross Currency from Arbitrage perspective
Cross currency can at times, lead to cost saving. An Example of import payment due in Euro to buyer’s credit into Dollar is given below.
Assumption
Transaction Value: EURO $100000
USD Value of Buyers Credit: $141713 (as per current market)
Tenure: 6 Months
Quote under both USD and EURO is L + 1.50%
LOU Charges are same for both transactions
Forward for both currency is booked (Rate taken from NSE India Website)
Market Rates – 15/07/2011
6 Month EURO Libor Rate: 1.79188%
6 Month USD Libor Rate: 0.41575%
6 Month EURO Forward Premium: 1.60 (64.64 – 63.07)
6 Month USD Forward Premium: 1.235 (45.73-44.49)
Calculations (LOU charges not are taken below, as per assumption that it is same in both transaction)
| Currency Amount | LIBOR | Margin | L + M | 180 days | INR Interest Cost | Forward Premium | In INR | |
| EURO 100000 | 1.79 | 1.5 | 3.29 | 1646 | 106394 | 160000 | 266394 | |
| USD 141713 | 0.42 | 1.5 | 1.92 | 1357 | 62075 | 175016 | 237091 | |
| Savings | 29303 |
Cross currency Foreign Exchange margin charged by bank on such transaction
Latest Article:
Note: Since the article is written, lou charges of BOB has changed but concept still holds true as some banks still have such differential pricing.
Continue reading Letter of Comfort / Undertaking (LOC/LOU) Charges
1. ECB Form (Application Form for Buyers Credit /Supplier Credit)
2. Buyers Credit Cost Calculation Sheet
3. Current Exchange Rate
4. Future / Forward Rates of USD, EURO, GBP, JPY
New Article: RBI Circular : Trade Credit – New Regulatory Framework
Updated on 19 October 2016
Trade Credits refer to the credits extended by the overseas supplier, bank and financial institution for maturity up to five years for imports into India. Depending on the source of finance, such trade credits include suppliers’ credit or buyers’ credit. Suppliers’ credit relates to the credit for imports into India extended by the overseas supplier, while buyers’ credit refers to loans for payment of imports into India arranged by the importer from overseas bank or financial institution. Imports should be as permissible under the extant Foreign Trade Policy of the Director General of Foreign Trade (DGFT).
Continue reading RBI Trade Credit (Buyers/Suppliers Credit) Circular Extract
Further to my earlier article, Importer will have to follow below procedure and internal checks to avail buyers credit.
Buyer’s Credit refers to loans for payment of imports into India arranged by the importer from a bank or financial institutions outside India. Based on letter of undertaking of Importer’s bank, Overseas bank credits the Nostro of the importer’s bank which in turn uses the funds to make payment to the Suppliers bank against the import bill.
Continue reading Buyers Credit – Meaning, Process, Cost & Regulations
Buyer's Credit & Supplier's Credit 