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.
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:
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.
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.
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.
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.
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.
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.