Raising of loans as Trade Credit
1
Trade Credit: 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).
2 Routes and Amount of Trade Credit: The available
routes of raising Trade Credit are mentioned below:
2.1 Automatic Route: ADs are permitted to approve trade
credit for import of non-capital and capital goods up to USD 20 million or
equivalent per import transaction.
2.2 Approval Route: The proposals involving trade credit
for import of non-capital and capital goods beyond USD 20 million or equivalent
per import transaction are considered by the RBI.
3 Maturity prescription: Maturity prescriptions for trade credit
are same under the automatic and approval routes. While for the non-capital
goods, the maturity period is up to one year from the date of shipment or the
operating cycle whichever is less, for capital goods, the maturity period is up
to five year from the date of shipment. For trade credit up to five years, the
ab-initio contract period should be 6 (six) months. No roll-over/extension will
be permitted beyond the permissible period.
4 Cost of raising Trade Credit: The all-in-cost ceiling for
raising Trade Credit is 350 basis points over 6 months LIBOR (for the
respective currency of credit or applicable benchmark). The all-in-cost include
arranger fee, upfront fee, management fee, handling/ processing charges, out of
pocket and legal expenses, if any.
