Import credit norms tightened

The Reserve Bank of India (RBI) has barred banks from providing short-term loans for imports above $20 million per transaction with a tenure exceeding a year but less than three years will be available only for capital good imports.

Extant guidelines pertaining to credit for import of all items up to $ 20 million per import transaction with a tenor of up to one year, however, remain unchanged.

The RBI has clarified that credit extended for imports directly by the overseas supplier, bank and financial institution for original maturity of less than three years will be referred to as 'trade credit' for imports.

Effective September 27, 2002, authorised dealers had been permitted by the RBI to approve short-term credit up to $ 20 million per import transaction for a period less than three years.

Short-term credit exceeding $20 million per import transaction requires prior approval of the RBI. The all-in-cost ceiling for trade credit of maturity period up to one year is 50 basis points over the six months Libor and that of maturity period more than one year but less than three years is 125 basis points above Libor.

The RBI said authorised dealers shall not roll-over/extend trade credits beyond the permissible period. Buyers' credit and suppliers' credit for three years and above comes under the category of external commercial borrowings.

Bankers feel that the review and simplification of trade credits for imports into India hints at the desire of the central bank to see importers avail rupee credit for import of non-capital goods for long maturity (exceeding one year but less than three years) as commercial banks are flush with liquidity.