In a bid to give a leg-up to oil/ gas refining and marketing, airline and shipping companies, the Reserve Bank of India’s amended Trade Credit Policy has allowed them to raise trade credits of up to $150 million or equivalent per import transaction under the automatic route.
For others, trade credits (TCs) can be raised up to $50 million or equivalent per import transaction, the central bank said in its amended trade credit policy, which was issued to banks authorised to deal in foreign exchange (Category-I Authorised Dealer Banks or ADs). The policy comes into force with immediate effect.
The all-in-cost (including rate of interest, other fees, expenses, charges, guarantee fees whether paid in foreign currency or rupee) ceiling per annum has been pegged at the benchmark rate plus 250 basis points spread. TC refers to the credits extended by the overseas supplier, bank, financial institution, and other permitted recognised lenders for maturity – as prescribed under this framework – for imports of capital/non-capital goods permissible under the Foreign Trade Policy of the government.
Depending on the source of finance, such TCs include suppliers’ credit and buyers’ credit from recognised lenders.
The period of TC, reckoned from the date of shipment, will be up to three years for import of capital goods. For non-capital goods, this period will 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. When it comes to security for TC, the RBI said bank guarantees may be given by ADs, on behalf of the importer, in favour of the overseas lender of TC, not exceeding the amount of TC. The period of such guarantee cannot be beyond the maximum permissible period for TC.