Trade Credit Policy- Revised Framework

Reserve Bank of India (RBI) vide RBI/2018-2019/140 A.P. (DIR Series) Circular No. 23 dated March 13, 2019 have introduced revised framework for Trade Credit Policy .The amended Trade Credit policy will come into force with immediate effect. 

Meaning of Trade Credit (TC) - It 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. TCs include suppliers’ credit and buyers’ credit from recognised lenders.

Highlights of the revised framework:

Parameters	FCY denominated TC	INR denominated TC
Forms of TC	Buyers’ Credit Suppliers’ Credit	Same as FCY denominated TC
Eligible borrower	Person resident in India acting as an importer	Same as FCY denominated TC
Amount under Automatic route	For oil/gas refining & marketing, airline and shipping companies - Up to USD 150 million or equivalent per import transaction.  For others, up to USD 50 million or equivalent per import transaction.	Same as FCY denominated TC
Recognised lenders	For suppliers’ credit: Supplier of goods located outside India.  For buyers’ credit: Banks, financial institutions, foreign equity holder(s) located outside India and financial institutions in International Financial Services Centres located in India.	Same as FCY denominated TC
Period of TC	For import of capital goods-The period of TC, reckoned from the date of shipment, shall be up to three years. 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.	Same as FCY denominated TC
All-in-cost ceiling per annum	Benchmark rate plus 250 bps spread.	Same as FCY denominated TC
Exchange rate	Exchange rate shall be the 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	Exchange rate shall be the rate prevailing on the date of settlement.
Hedging provision	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. Entities shall have a board approved risk management policy.	Entities can hedge the 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.
Change of currency of borrowing	Change of currency is freely permitted	Change of currency is not permitted.