RBI/2018-2019/140
A.P. (DIR Series) Circular No. 23
March
13, 2019
To
All Category-I Authorised Dealer
Banks
Madam / Sir,
Trade
Credit Policy – Revised framework
Attention of Authorised Dealers
is invited to the rationalised principal regulation governing the External
Commercial Borrowings (ECB) and Trade Credits already notified on December
17, 2018 through the Foreign Exchange Management (Borrowing and Lending) Regulations,
2018 gazetted vide Notification No.
FEMA.3R/2018-RB dated December 17, 2018. The new ECB framework based
on the above regulation was issued on January 16, 2019 vide A. P. (DIR Series) Circular No. 17. The Trade
Credit framework based on the aforementioned notified regulation is being
issued now. Detailed instructions are set out in the Annex to this
circular.
2. Trade Credits can be raised
under the automatic route up to the amount specified in the Annex to this circular and in compliance
with the other applicable norms. 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.
3. The amended Trade Credit
policy will come into force with immediate effect. Authorised Dealer banks
may bring the contents of this circular to the notice of their constituents
and customers. The Master Direction No. 5
dated January 01, 2016 on the subject is being revised to
reflect the above changes.
4. The direction contained in
this circular has been issued under sections 10(4) and 11(1) of the Foreign
Exchange Management Act, 1999 (42 of 1999) and is without prejudice to
permissions /approvals, if any, required under any other law.
Yours
faithfully
Ajay
Kumar Misra
Chief General Manager – in- Charge
ANNEX
Trade
Credit Policy - Revised framework
{c.f.: A.P. (DIR Series) Circular No. 23 dated March 13, 2019}
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.
1. Important terms used:
1.1. All-in-Cost: It includes rate of interest, other fees,
expenses, charges, guarantee fees whether paid in foreign currency or INR.
Withholding tax payable in INR shall not be a part of all-in-cost.
1.2. Approval route: TC can be raised either under the automatic route
or the approval route. Under the approval route, the prospective importers
are required to send their requests to the Foreign Exchange Department,
Central Office, Reserve Bank of India through their Authorised Dealer (AD)
Banks for examination.
1.3. Automatic route: For the automatic route, the cases are examined by
the Authorised Dealer Category-I banks.
1.4. Special Economic Zone &
Free Trade Warehousing Zone: They
shall have the same meaning as assigned to them in Special Economic Zones
Act 2005 as amended from time to time.
Note: Other important terms like Authorised Dealer,
Benchmark Rate and Foreign Equity Holder used in this circular shall have
the same meaning as assigned to them in the New External Commercial
Borrowings framework (A. P. (DIR Series) Circular
No. 17 dated January 16, 2019).
2. 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
|
i
|
Forms of TC
|
Buyers’ Credit and Suppliers’
Credit
|
ii
|
Eligible borrower
|
Person resident in India
acting as an importer
|
iii
|
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.
|
iv
|
Recognised lenders
|
1. For suppliers’ credit: Supplier of 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.
|
v
|
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.
|
vi
|
All-in-cost ceiling per annum
|
Benchmark rate plus 250 bps
spread.
|
vii
|
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.
|
viii
|
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 through permitted 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.
|
ix
|
Change of currency of
borrowing
|
Change of currency of TC from
one freely convertible foreign currency to any 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.
|
3. Trade Credits in Special
Economic Zone (SEZ)/Free Trade Warehousing Zone (FTWZ)/ Domestic Tariff
Area (DTA):
3.1. TC can be raised by a unit
or a developer in a SEZ including FTWZ for purchase of non-capital and
capital goods within an SEZ including FTWZ or from a different SEZ
including FTWZ subject to compliance with parameters given at paragraph 2
above. Further, an entity in DTA is also allowed to raise TC for purchase
of capital / non-capital goods from a unit or a developer of a SEZ
including FTWZ.
3.2. TC transactions in respect
of SEZs and DTAs as permitted above should also be in compliance with
applicable provisions of SEZ Act, 2005 as amended from time to time. For TC
transactions related to SEZ, date of transfer of ownership of goods will be
treated as TC date. As there will be no bill of entry for sale transactions
within SEZ, the inter unit receipt generated through NSDL can be treated as
an import document.
4. Security for trade credit: The provisions regarding security for raising TC
are as under:
4.1. Bank guarantees may be
given by the ADs, on behalf of the importer, in favour of overseas lender
of TC not exceeding the amount of TC. Period of such guarantee cannot be
beyond the maximum permissible period for TC. TC may also be secured by
overseas guarantee issued by foreign banks / overseas branches of Indian
banks. Issuance of such guarantees i.e. guarantees by Indian banks and
their branches/subsidiaries located outside India will be subject to
compliance with the provisions contained in Department of Banking
Regulation Master Circular
No.DBR.No.Dir.BC.11/13.03.00/2015-16 dated July 1, 2015 on
“Guarantees and Co-acceptances”, as amended from time to time.
4.2. For the purpose of raising
TC, the importer may also offer security of movable assets (including
financial assets) / immovable assets (excluding land in SEZs) / corporate
or personal guarantee for raising TC. ADs may, therefore, be allowed to
permit creation of charge on security offered / accept corporate or
personal guarantee, duly ensuring that (i) there exists a security clause
in the loan agreement requiring the importer to create charge, in favour of
overseas lender / security trustee on immovable assets / movable assets /
financial securities / issuance of corporate and / or personal guarantee;
(ii) No Objection Certificate, wherever necessary, from the existing
lenders in India has been obtained; (iii) such arrangement is co-terminus
with underlying TC; (iv) In case of invocation, the total payments towards
guarantee should not exceed the dues towards TC; and (v) Creation/
enforcement / invocation of charge shall be as per the provisions contained
in Foreign Exchange Management (Acquisition and Transfer of Immovable
Property in India) Regulations, 2000 and Foreign Exchange Management
(Transfer or Issue of Security by a Person Resident Outside India)
Regulations, 2000 or any other relative Regulations framed under the
Foreign Exchange Management Act, 1999 and should also comply with
FDI/FII/SEZ policy/ rules/ guidelines. The directions on issuance of
guarantee mentioned under this provision shall come into force from the
date of publication, in the Official Gazette, of the relative Regulations
issued under FEMA.
5. Reporting requirements: TC transactions are subject to the following
reporting requirements:
5.1. Monthly reporting: AD Category I banks are required to furnish
details of TCs like drawal, utilisation, and repayment of TC approved by
all its branches, in a consolidated statement, during a month, in Form TC
to the Director, Division of International Trade and Finance, Department of
Economic Policy and Research, RBI, Central Office, Fort, Mumbai – 400 001
(and in MS-Excel file through email) so as to reach not later than 10th day
of the following month. Each TC may be given a unique identification number
by the AD bank. Format of Form TC is available at Annex IV of Part V
of Master Directions – Reporting under
Foreign Exchange Management Act dated January 1, 2016, as amended
from time to time.
Note: Suppliers’ credit beyond 180 days and up to one
year/three years from the date of shipment for non-capital/capital goods
respectively, should also be reported by the AD banks. Further, permissions
granted by the AD banks/Regional offices of Reserve Bank for settlement of
delayed import dues in terms of paragraphs B.5 and C.2 of the Master Direction on Import of Goods and Services dated
January 1, 2016, as amended from time to time, should also be
reported by the AD banks as per the aforesaid procedure.
5.2. Quarterly reporting: AD Category I banks are also required to furnish
data on issuance of bank guarantees for TCs by all its branches, in a
consolidated statement, at quarterly intervals on the eXtensible Business
Reporting Language (XBRL) platform. For the above purpose AD banks may
login to the site https://secweb.rbi.org.in/orfsxbrl/ using
their User name, Password and Bank code. For downloading the relevant form,
AD banks may follow the link ‘Download Returns Package’ and download the
form. After following the successive steps, AD banks may upload the file.
For User name and Password, AD banks may write by email along with contact details.
Clarification required, if any, may also be sent to the aforesaid email of
the Reserve Bank and/ or may be communicated at Telephone No. 022-22601000
(extension- 2715). Guide for using XBRL website is also available under the
Help option on the same page. Format of this statement is also available at
Annex V of Part V of Master Directions –
Reporting under Foreign Exchange Management Act dated January 1, 2016,
as amended from time to time.
6. Role of ADs: While the primarily responsibility of ensuring
adherence to the TC policy lies with the importer, the ADs are also
expected to ensure compliance with applicable parameters of the TC policy /
provisions of Foreign Exchange Management Act, 1999 by their constituents.
As the Reserve Bank has not prescribed any format or manner in which TC
arrangements / loan agreements are to be documented, ADs may consider any
document to satisfy themselves with the underlying TC arrangement. ADs
should ensure that there is no double financing on account of these
transactions between a unit or a developer in a SEZ including FTWZ for
purchase of non-capital and capital goods within an SEZ including FTWZ or
from a different SEZ including FTWZ. ADs should also ensure that for import
of non-capital goods, the period of TC, as applicable, is lower of operating
cycle or one year (three years for shipyards / shipbuilders).
|