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
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
Trigger for this topic is a question that a reader asked:
“MSME manufacturing unit doing expansion of machinery by purchasing machinery from abroad get credit linked capital subsidy scheme (CLCSS) from Central Government.
MSME unit avails buyers credit for payment to overseas buyer and sanctioned term loan is not utilised . Can the unit be eligible for subsidy? ”
Below article gives basic details about Credit Linked Capital Subsidy Scheme and revert to above query.
Continue reading Subsidy under CLCSS Cannot be Claimed Where Buyers Credit is Availed
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:
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
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
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 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
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 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
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 