With fund flow from overseas posing a problem, the RBI has decided to enhance the all-in-cost ceiling for trade credits of six months to less than three-year tenure to Libor-plus 200 basis points. This will open up the window for importers, when liquidity improves in the overseas markets.
Trade credit is available for imports from overseas suppliers, banks and financial institution for a duration of six months to three years from the date of shipment.
Earlier, the all-in-cost ceiling was 75 basis points above Libor for trade credits with a duration of six months to a year and 125 basis points for trade credits of more than a year. Libor is the international interest rate benchmark.
As it was impossible to find money at such rates, importers paid a premium in rupees to bank branches in India. “It also brings in new lenders into the fray,’’ said Seshagiri Rao, chief financial officer, JSW.
That’s because a Swiss Bank, which did not have a branch in India and could collect the premium, will now be able to lend to Indian importers.
The all-in-cost ceilings include arranger fee, upfront fee, management fee, handling and processing charges, out of pocket and legal expenses.
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In view of the tight liquidity conditions in the global credit markets, domestic importers are experiencing difficulties in raising trade credits within the existing all-in-cost ceilings.
"It is a positive development which would have helped importers in normal circumstance. But given the liquidity crunch, even with these limits, not very many people will be interested to lend," said Prabal Banerji, group president finance and group chief financial officer, Hinduja Group.