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RBI - Revised Framework for Trade Credit Policy
 

CHEMEXCIL
Basic Chemicals, Cosmetics & Dyes Export Promotion Council
(Set-up by Ministry of Commerce and Industry, Govt of India)

Jhansi Castle, 4th Floor, 7 Cooperage Road, Mumbai - 400 001.India.

Tel : +91 22 22021288 / * Fax : +91 22 22026684

* E-mail : info@chemexcil.gov.in Web : https://chemexcil.gov.in

 

EPC/LIC/RBI/TC

14.3.2019

 

 

ALL  THE MEMBERS OF THE COUNCIL

 

RBI

 

Revised Framework for Trade Credit Policy

 

 

 

Dear Members,

 

We would like to inform you that the Reserve Bank of India (RBI) has issued A.P. (DIR Series) Circular No. 23 dated March 13, 2019   regarding Trade Credit Policy – Revised framework.

 

As you might be aware,  Trade Credits (TC) refer to the credits extended by the overseas supplier, bank, financial institution and other permitted recognised lenders for maturity, for imports of capital/non-capital goods permissible under the Foreign Trade Policy of the Government of India. Depending on the source of finance, such TCs include suppliers’ credit and buyers’ credit from recognised lenders.

 

Trade Credits can be raised under the automatic route up to the amount specified in the Annex to  RBI  circular and in compliance with the other applicable norms. The designated AD Category I bank while considering the Trade Credit proposal is expected to ensure compliance with applicable Trade Credit guidelines by their constituents.

 

Trade Credit Framework:


TC can be raised in any freely convertible foreign currency (FCY denominated TC) or Indian Rupee (INR denominated TC), as per the framework given in the table below:

 


Sr. No.

Parameters

FCY denominated TC

 

INR denominated TC

i

Forms of TC

Buyers’ Credit and Suppliers’ Credit

ii

Eligible borrower

Person resident in India acting as an importer

iii

Amount under automatic route

Up to USD 150 million or equivalent per import transaction for oil/gas refining & marketing, airline and shipping companies.

For others, up to USD 50 million or equivalent per import transaction.

iv

Recognised lenders

1. For suppliers’ credit: Supplier of goods located outside India.

2. For buyers’ credit: Banks, financial institutions, foreign equity holder(s) located outside India and financial institutions in International Financial Services Centres located in India.

Note: Participation of Indian banks and non-banking financial companies (operating from IFSCs) as lenders will be subject to the prudential guidelines issued by the concerned regulatory departments of the Reserve Bank. Further, foreign branches/subsidiaries of Indian banks are permitted as recognised lenders only for FCY TC.

v

Period of TC

The period of TC, reckoned from the date of shipment, shall be up to three years for import of capital goods. For non-capital goods, this period shall be up to one year or the operating cycle whichever is less. For shipyards / shipbuilders, the period of TC for import of non-capital goods can be up to three years.

vi

All-in-cost ceiling per annum

Benchmark rate plus 250 bps spread.

vii

Exchange rate

Change of currency of FCY TC into INR TC can be at the exchange rate prevailing on the date of the agreement between the parties concerned for such change or at an exchange rate, which is less than the rate prevailing on the date of agreement, if consented to by the TC lender.

For conversion to Rupee, exchange rate shall be the rate prevailing on the date of settlement.

viii

Hedging provision

The entities raising TC are required to follow the guidelines for hedging, if any, issued by the concerned sectoral or prudential regulator in respect of foreign currency exposure. Such entities shall have a board approved risk management policy.

The overseas investors are eligible to hedge their exposure in Rupee through permitted derivative products with AD Category I banks in India. The investors can also access the domestic market through branches / subsidiaries of Indian banks abroad or branches of foreign banks with Indian presence on a back to back basis.

ix

Change of currency of borrowing

Change of currency of TC from one freely convertible foreign currency to any other freely convertible foreign currency as well as to INR is freely permitted.

Change of currency from INR to any freely convertible foreign currency is not permitted.

 

 

Trade Credits in Special Economic Zone (SEZ)/Free Trade Warehousing Zone (FTWZ)/ Domestic Tariff Area (DTA):

 

Ø TC can be raised by a unit or a developer in a SEZ including FTWZ for purchase of non-capital and capital goods within an SEZ including FTWZ or from a different SEZ including FTWZ subject to compliance with parameters given above. Further, an entity in DTA is also allowed to raise TC for purchase of capital / non-capital goods from a unit or a developer of a SEZ including FTWZ.

 

Ø TC transactions in respect of SEZs and DTAs as permitted above should also be in compliance with applicable provisions of SEZ Act, 2005 as amended from time to time. For TC transactions related to SEZ, date of transfer of ownership of goods will be treated as TC date. As there will be no bill of entry for sale transactions within SEZ, the inter unit receipt generated through NSDL can be treated as an import document.

 

For further details on points like Security for Trade Credit, Reporting, Role of AD’s etc, members may refer  to  above said RBI circular  using below link-

https://rbi.org.in/Scripts/NotificationUser.aspx?Id=11499&Mode=0

 

Members may take note of RBI’s  Revised Framework for Trade Credit Policy and for further information/ modalities, please contact your AD  Bank.

 

Thanking You,

 

Yours faithfully,

 

 

(S. G. BHARADI)
EXECUTIVE DIRECTOR
CHEMEXCIL

 

 

 

 

 

 

 

 

 

 

 

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