Trade Credit Policy – Revised framework
Trade Credits (TC) refer to the credits extended by the overseas supplier, bank, financial institution and other permitted recognised lenders for maturity, as prescribed in this framework, for imports of capital/non-capital goods permissible under the Foreign Trade Policy of the Government of India. Depending on the source of finance, such TCs include suppliers’ credit and buyers’ credit from recognised lenders.
Trade Credit Framework: TC can be raised in any freely convertible foreign currency (FCY denominated TC) or Indian Rupee (INR denominated TC), as per the framework given in the table below:
| Sr No | Parameters | FCY denominated TC | INR denominated TC |
| 1 | Forms of TC | Buyers’ Credit and Suppliers’ Credit | |
| 2 | Eligible borrower | Person resident in India acting as an importer | |
| 3 | Amount under automatic route | Up to USD 150 million or equivalent per import transaction for oil/gas refining & marketing, airline and shipping companies. For others, up to USD 50 million or equivalent per import transaction. | |
| 4 | Recognised lenders | 1. For suppliers’ credit: Supplierof goods located outside India.
2. For buyers’ credit: Banks, financial institutions, foreign equity holder(s) located outside India and financial institutions in International Financial Services Centres located in India. Note: Participation of Indian banks and non-banking financial companies (operating from IFSCs) as lenders will be subject to the prudential guidelines issued by the concerned regulatory departments of the Reserve Bank. Further, foreign branches/subsidiaries of Indian banks are permitted as recognised lenders only for FCY TC |
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| 5 | Period of TC | The period of TC, reckoned from the date of shipment, shall be up to three years for import of capital goods. 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. | |
| 6 | All-in-cost ceiling per annum | Benchmark rate plus 250 bps spread. | |
| 7 | Exchange rate | Change of currency of FCY TC into INR TC can be at the exchange 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. | For conversion to Rupee, exchange rate shall be the rate prevailing on the date of settlement.
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| 8 | Hedging provision | The 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. Such entities shall have a board approved risk management policy. | The overseas investors are eligible to hedge their exposure in Rupee throughpermitted 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. |
| 9 | Change of currency of borrowing | Change of currency of TC from one freely convertible foreign currency toany other freely convertible foreign currency as well as to INR is freely permitted. | Change of currency from INR to any freely convertible foreign currency is not permitted. |
The designated AD Category I bank while considering the Trade Credit proposal is expected to ensure compliance with applicable Trade Credit guidelines by their constituents. Any contravention of the applicable provisions will invite penal action or adjudication under the Foreign Exchange Management Act, 1999 .
The amended Trade Credit policy will come into force with immediate effect.
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