What changed
RBI reduced the minimum initial tenor for existing trade credits from 15 months to 6 months, applicable only to infrastructure sector companies importing capital goods. The 15-month 'abinitio' condition continues to apply for new trade credits. AD banks remain barred from issuing Letters of Credit, guarantees, LoUs, or LoCs for periods beyond three years.
What it means for you
Banks can now process restructuring or extension of existing trade credits with a shorter initial maturity of 6 months, offering more operational flexibility to infrastructure borrowers. However, the stricter 15-month condition for new trade credits and the three-year cap on bank instruments remain unchanged, so lenders must carefully distinguish between existing and new facilities.
What you must do
- Update internal trade credit policies to reflect the reduced 6-month 'abinitio' condition for existing infrastructure sector trade credits.
- Ensure clear segregation of existing versus new trade credit applications to apply the correct minimum tenor condition.
- Continue to comply with the prohibition on issuing Letters of Credit, guarantees, LoUs, or LoCs for periods beyond three years.
- Communicate the revised guidelines to relevant relationship managers and trade finance teams handling infrastructure sector accounts.
Who it affects
AD Category-I banks handling trade credit for infrastructure sector imports, Infrastructure companies importing capital goods under trade credit, Trade finance and credit teams in banks
Does this relaxation apply to all trade credits or only infrastructure sector?
The relaxation applies only to trade credits for infrastructure sector companies importing capital goods, as defined under ECB guidelines.
Can we now issue Letters of Credit for periods beyond three years?
No, the prohibition on issuing Letters of Credit, guarantees, LoUs, or LoCs for periods beyond three years remains unchanged.
What is the 'abinitio' condition for new trade credits after this circular?
For new trade credits, the 'abinitio' buyers' credit condition of 15 months continues to apply.