Friday, October 9, 2015

Rupee Denominated trade credit

The resident importer can raise trade credit in Rupees (INR) within the following framework after entering into a loan agreement with the overseas lender:
i.        Trade credit can be raised for import of all items (except gold) permissible under the Foreign Trade Policy
ii.        Trade credit period for import of non-capital goods can be upto one year from the date of shipment or upto the operating cycle whichever is lower
iii.        Trade credit period for import of capital goods can be upto five years from the date of shipment
iv.        No extension can be permitted by the AD Category - I bank beyond the permissible period
v.        AD Category - I banks can permit trade credit upto USD 20 million equivalent per import transaction
vi.        AD Category - I banks are permitted to give guarantee, Letter of Undertaking or Letter of Comfort in respect of trade credit for a maximum period of three years from the date of shipment
vii.        The all-in-cost of such Rupee denominated trade credit should be commensurate with prevailing market conditions
viii.        All other guidelines for trade credit will be applicable for such credits.
Overseas lenders of Rupee (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.

Based on RBI Circular dt 10/09/15. Please visit for any further clarification if required…..Poppy