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,
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.
Latest Article: Implication on Buyers Credit because of PNB Fraud
As mentioned in article “Procedure for Buyers Credit“, Post receipt of offer letter from Indian Bank overseas branch or Foreign Bank, Indian Bank has to send Letter of Comfort / Undertaking (a type of Bank Guarantee) to overseas bank as security before funding the transaction.