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October 2015

A. P. (DIR Series) Circular No. 13 dated September 10, 2015

By Gaurang Gandhi Chartered Accountant
Reading Time 2 mins
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Trade Credit Policy – Rupee (INR ) Denominated trade credit

This circular permits Indian importers to enter into loan agreements with overseas lenders to avail trade credit in Rupees (INR) based on the guidelines mentioned below: –

i. Trade credit can be raised for import of all items (except gold) permissible under the extant Foreign Trade Policy.

ii. Trade credit period for import of non-capital goods can be up to one year from the date of shipment or up to the operating cycle, whichever is lower.

iii. Trade credit period for import of capital goods can be up to five years from the date of shipment.

iv. Banks cannot permit roll-over/extension beyond the permissible period.

v. Banks can permit trade credit up to US $ 20 million or its equivalent per import transaction.

vi. Banks can 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 the shipment.

vii. The all-in-cost of such Rupee (INR) denominated trade credit must be commensurate with prevailing market conditions.

viii. All other guidelines for trade credit will be applicable for such Rupee (INR) denominated trade credits.

Overseas lenders can hedge their exposure in Rupees through permitted derivative products in the on-shore market with a bank in India.

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