What changed
Previously, AD banks needed RBI approval to issue guarantees, LoUs, or LoCs for trade credits. Now, they have general permission to issue these instruments up to USD 20 million per transaction for imports under the Foreign Trade Policy, with specific tenor limits for non-capital and capital goods.
What it means for you
Banks can now process import trade credit guarantees faster without seeking RBI nod, reducing turnaround time for importers. This liberalization supports investment activity by easing financing for capital goods imports, but banks must adhere to prudential norms and quarterly reporting to RBI.
What you must do
- Update internal policies to allow guarantee issuance up to USD 20 million per transaction without prior RBI approval.
- Ensure guarantees are co-terminus with the credit period (up to 1 year for non-capital goods, up to 3 years for capital goods).
- Set up quarterly consolidated reporting to RBI's ECB Division by the 10th of the following month (reporting started December 2004).
- Communicate the new facility to all importer constituents and branches.
Who it affects
Authorised Dealer banks handling trade credits, Importers of non-capital goods (excluding gold) and capital goods, Overseas suppliers, banks, and financial institutions receiving guarantees
Does this circular apply to gold imports?
No, the general permission excludes import of gold. Gold imports still require prior RBI approval for guarantee issuance.
What is the maximum tenor for guarantees on capital goods imports?
Guarantees for capital goods imports can be issued for up to three years, co-terminus with the credit period from the date of shipment.
What reporting is required after issuing these guarantees?
AD banks must submit a consolidated quarterly statement (format in Annex) to RBI's ECB Division by the 10th of the month following the quarter, starting December 2004.