Business Standard: September 11, 2015
Mumbai: The Reserve Bank of India (RBI) has decided to allow resident importers to raise trade credit in rupees, with riders. It can be raised after entering into a loan agreement with a foreign lender.
“Trade credit can be raised for import of all items, except gold, permissible under the extant Foreign Trade Policy,” said the regulator on Thursday. The credit period for import of non-capital goods can be up to a year from the date of shipment or up to the operating cycle, whichever is lower.
RBI says the trade credit period for import of capital goods can be up to five years from the date of shipment. No roll-over or extension can be permitted by a bank beyond the permissible period.
Banks can permit trade credit up to $20 million equivalent per import transaction. They may give a 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.
RBI said the all-in-cost of such rupee-denominated trade credit should be commensurate with prevailing market conditions. Foreign lenders of such trade credits will be eligible to hedge their exposure in rupees through permitted derivative products in the onshore market with a bank in India.
The regulator will separately issue the necessary guidelines for hedging.
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