Revised Framework for Trade Credits

RBI has, pursuant to the circular dated March 13, 2019, introduced changes and rationalised the extant framework for trade credits (‘TC’), with effect from the date of the circular. Some of the key additions and amendments introduced by the circular are set out below.

i.       TC can now be raised in any freely convertible foreign security as well as in Indian Rupees.

ii.      The circular has increased the limits under which TC could be raised under the automatic route and provides for a higher limit for sectors such as for oil / gas refining & marketing, airline and shipping where the transaction value is generally larger, and has specified the persons who can grant TC depending on the type of TC proposed to be availed.

iii.     The circular has aligned the tenure of TC for import of capital goods, non-capital goods and shipyards / shipbuilders with the changes in the minimum average maturity for external commercial borrowings.

iv.      The circular has also reduced the all-in cost ceiling for raising TC and borrowers availing TC are now permitted to hedge their exposure created by the TC.

v.       The circular now permits change of currency of TC from one freely convertible foreign currency to any other freely convertible foreign currency as well as to Rs, but not from Rs to any freely convertible foreign currency.

In addition to guarantees, the circular now permits creation of security over certain movable and immovable assets for the TC.