RBI Update Trade Credit Policy

 

Legal Update | RBI Update – Trade Credit Policy

 

By its circular RBI/2015-16/175 A.P. (DIR Series) Circular No.13 dated 10 September 2015 (“Circular”), the Reserve Bank of India (“RBI”) has reviewed the guidelines on rupee denominated trade credit facility to provide greater flexibility for structuring of trade credit arrangements.

 

In accordance with the Circular, a resident importer can raise trade credit in Rupees (INR) within the following framework after entering into a loan agreement with the overseas lender :

 

    • Trade credit can be raised under the extant Foreign Trade Policy for import of all items (except gold) permissible under the said policy.

 

    • For import of non-capital goods, trade credit period can be upto 1 (one) year from the date of shipment or upto the operating cycle, whichever is lower.

 

    • For import of capital goods, trade credit period can be upto 5 (five) years from the date of shipment.

 

    • (iv) no roll over / extension can be permitted by the AD Category -1 bank beyond the permissible period.

 

    • Trade credit upto USD 20 million equivalent per import transaction can be permitted by AD Category – I banks.

 

    • Guarantee, letter of undertaking or letter of comfort in respect of the trade credit for a maximum period of 3 (three) years from the date of shipment may be given by AD Category – I banks.

 

    • All-in-cost of such Rupee (INR) denominated trade credit should be at par with prevalent market conditions.

 

    • For such INR denominated trade credits, all other guidelines for trade credit will be applicable.

 

In accordance with the Circular, overseas lenders of INR denominated trade credits will be eligible to hedge their exposure in Rupees through permitted derivative products in the on-shore market with an AD Category – I bank in India.

 

To view the full text of the Circular, click here.

 

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