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
Further to article published below, RBI received suggestion from merchanting traders and trade bodies, based on which guidelines on merchanting trade transactions have been further reviewed on 28th March 2014 and with effect from 17th January 2014. Summary of the changes are given below.
Continue reading Revised Guidelines for Merchanting / Intermediary Trade
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.
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
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
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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 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
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.
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.
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
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
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
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
Buyer's Credit & Supplier's Credit 