What changed
The all-in-cost ceiling for trade credits, previously set at 6-month LIBOR + 350 bps from November 15, 2011, and due for review on March 31, 2012, has been continued unchanged for another six months. The ceiling now applies up to September 30, 2012, after which it will be reviewed again.
What it means for you
Banks can continue offering trade credit to importers at the higher cost ceiling, helping borrowers manage financing costs in a tight global market. This extension provides stability for lenders structuring import loans, but they must monitor LIBOR movements and ensure all fees are within the prescribed spread.
What you must do
- Update internal trade credit pricing models to reflect the extended ceiling up to September 30, 2012.
- Inform customers about the continued all-in-cost cap of 6-month LIBOR + 350 bps for maturities up to one year.
- Ensure all arranger, upfront, management, and processing fees are included in the all-in-cost calculation.
- Review trade credit policies to align with unchanged other aspects of the policy.
Who it affects
Category-I Authorised Dealer Banks, Importers using trade credit for imports into India, Trade credit arrangers and lenders
What is the all-in-cost ceiling for trade credits under this circular?
The ceiling is 6-month LIBOR plus 350 basis points for maturities up to one year, and for maturities beyond one year up to three years, the same spread applies over the applicable benchmark.
Until when is this enhanced ceiling applicable?
It is applicable up to September 30, 2012, and subject to review thereafter.
Does this circular change any other trade credit policy aspects?
No, all other aspects of the trade credit policy remain unchanged as per the circular.