Borrowing and Lending in Foreign currency by persons other than authorised dealer

 Borrowing and Lending in Foreign currency by persons other than authorised dealer:::

1 Borrowing in foreign currency by persons other than an authorised dealer: The circumstances and the conditions regarding borrowing in foreign currency by persons other than an authorised dealer are mentioned below:

i. For execution of projects outside India and for exports on deferred payment terms: A person resident in India may borrow, whether by way of loan or overdraft or any other credit facility, from a bank situated outside India, for execution outside India of a turnkey project or civil construction contract or in connection with exports on deferred payment terms, provided the terms and conditions stipulated by the authority which has granted the approval to the project or contract or export is in accordance with the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000.

ii. For imports: An importer in India may, for import of goods into India, avail of foreign currency credit for a period not exceeding six months extended by the overseas supplier of goods, provided the import is in compliance with the Export Import Policy of the Government of India in force.

iii. Borrowing by resident individual: An individual resident in India may borrow a sum not exceeding US$ 250,000/- or its equivalent from his close relative outside India, subject to the conditions that:

1. the minimum maturity period of the loan is one year;
2. the loan is free of interest; and
3. the amount of loan is received by inward remittance in free foreign exchange through normal banking channels or by debit to the NRE/FCNR account of the non-resident lender.

Raising of loans as Trade Credit-(updated)

Raising of loans as Trade Credit

5.1 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).

5.2 Routes and Amount of Trade Credit: The available routes of raising Trade Credit are mentioned below:

5.2.1 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.

5.2.2 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.

5.3 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.

5.4 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.

5.5 Guarantee for Trade Credit: AD Category I banks are permitted to issue guarantee/ Letters of Undertaking /Letters of Comfort in favour of overseas supplier, bank or financial institution up to USD 20 million per import transaction for a maximum period up to one year in case of import of non-capital goods (except gold, palladium, platinum, rhodium, silver, etc). For import of capital goods, the period of guarantee/ Letters of Credit/ Letters of Undertaking by AD can be for a maximum period up to three years. The period is reckoned from the date of shipment and the guarantee period should be co-terminus with the period of credit. Further, issuance of guarantees will be subject to prudential guidelines issued by the RBI from time to time.