Indian Regulatory Framework
Banks can provide buyer’s credit up to USD 20 million per import transactions for a maximum maturity period of one year from date of shipment. In case of import of capital goods, banks can approve buyer’s credits up to USD 20 million per transaction with a maturity period of up to three years. No rollover beyond that period is permitted.
RBI has issued directions under Sec 10(4) and Sec 11(1) of the Foreign Exchange Management Act, 1999, stating that authorised dealers may approve proposals received (in Form ECB) for short-term credit for financing—by way of either suppliers' credit or buyers' credit—of import of goods into India, based on uniform criteria. Credit is to be extended for a period of less than three years; amount of credit should not exceed $20 million, per import transaction; the `all-in-cost' per annum, payable for the credit is not to exceed LIBOR + 50 basis points for credit up to one year, and LIBOR + 125 basis points for credits for periods beyond one year but less than three years, for the currency of credit.
All applications for short-term credit exceeding $20 million for any import transaction are to be forwarded to the Chief General Manager, Exchange Control Department, Reserve Bank of India, Central Office, External commercial Borrowing (ECB) Division, Mumbai. Each credit has to be given `a unique identification number' by authorised dealers and the number so allotted should be quoted in all references. The International Banking Division of the authorised dealer is required to furnish the details of approvals granted by all its branches, during the month, in Form ECB-ST to the RBI, so as to reach not later than 5th of the following month. (Circular AP (DIR Series) No 24 dated September 27, 2002.
As per RBI Master circular on External Commercial Borrowing and Trade Finance 1 July 2011, the all-in cost ceiling for interest is now six month L + 200 bps(bps is Basis Points . A unit that is equal to 1/100th of 1%) for buyer's credit arrange for tenure up to three years. All cost ceiling includes arranger fee, upfront fee, management fee, handling and processing charges, out-of-pocket and legal expenses, if any.
The above ceiling go revised on 15/11/2011 to 6 Month Libor + 350 bps and got further extended on 30/03/2012 till 30/09/2012. From 01-10-2012 Maximum cap of 6 Month Libor + 350 bps has been extended till further review.
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