What changed
The all-in-cost ceiling for trade credits for imports, set in September 2012, remains unchanged and continues to apply through September 30, 2013. Additionally, RBI now advises that the trade credit period should be linked to the operating cycle and the specific trade transaction.
What it means for you
Banks can continue to apply the same cost ceiling for import trade credits without any immediate revision, providing stability for pricing. The new guidance means lenders should consider each borrower's operating cycle and transaction specifics when determining credit tenure.
What you must do
- Ensure all trade credit approvals comply with the existing all-in-cost ceiling until September 30, 2013.
- Link the trade credit period to the borrower's operating cycle and the underlying trade transaction as advised.
- Communicate these instructions to your constituents and customers handling import trade credits.
- Monitor RBI announcements for any review after September 30, 2013.
Who it affects
Category-I Authorised Dealer Banks, Importers availing trade credits, Trade finance departments
What is the all-in-cost ceiling for trade credits?
The circular does not specify the exact ceiling rate; it refers to the ceiling set in an earlier circular (A.P. DIR Series Circular No.28 dated September 11, 2012). Banks should refer to that circular for the specific rate.
Does this circular change any other trade credit rules?
No. The circular explicitly states that all other aspects of the trade credit policy remain unchanged.
What does 'operating cycle' mean in this context?
The circular does not define 'operating cycle'. Banks should interpret it based on standard accounting or trade finance practices, typically the time between acquiring inventory and receiving cash from sales.