RBI Expands Trade Credit for Capital Goods Imports
Current · Source: Reserve Bank of India · RBI/2013-14/290 · issued 24 Sep 2013 · ~2 min read
Quick answerRBI now allows all sectors to avail trade credit up to USD 20 million for five years for importing capital goods, and reduces the minimum contract period from 15 to 6 months. AD Category-I banks must comply but cannot issue LCs/guarantees/LoUs/LoCs beyond three years.
The rule, in the simplest words
RBI now allows all sectors to get trade credit up to USD 20 million for 5 years for importing capital goods.
The minimum contract period for trade credits has been reduced from 15 months to 6 months.
AD Category-I banks must comply but cannot issue LCs/guarantees/LoUs/LoCs beyond 3 years.
How it plays out — a real example
A forex & trade-finance officer in Indore, Mr. Kumar, is helping a textile company import machinery from China. He can now approve a 5-year trade credit of up to USD 20 million for the company, giving them more time to pay for the machinery. This will help the company save on interest payments and invest in other areas of their business.
What changed
Previously, the USD 20 million five-year trade credit facility was limited to infrastructure sector companies for capital goods imports. Now, RBI has extended this benefit to all sectors for importing capital goods as classified by DGFT. Additionally, the minimum ab-initio contract period for all trade credits has been reduced from 15 months to 6 months.
What it means for you
Banks can now approve longer-term trade credit (up to 5 years) for capital goods imports across all sectors, not just infrastructure, potentially boosting import financing demand. The shorter 6-month contract period gives borrowers more flexibility in structuring trade credits. However, banks must still ensure no roll-over or extension beyond the permissible period and cannot issue LCs/guarantees/LoUs/LoCs for periods beyond three years.
What you must do
Update internal trade credit policies to reflect the sector-agnostic eligibility for USD 20 million five-year credit for capital goods imports.
Adjust systems to accept a minimum ab-initio contract period of 6 months for all trade credits.
Continue to prohibit issuance of LCs, guarantees, LoUs, or LoCs for periods exceeding three years.
Ensure compliance with all other unchanged trade credit guidelines and monitor for future reviews.
Who it affects
AD Category-I banks, Importers of capital goods across all sectors, Infrastructure sector companies (now part of broader eligibility)
❓ Common questions
Can we now approve trade credit for any sector for capital goods imports?
Yes, RBI has removed the infrastructure sector restriction, allowing all sectors to avail trade credit up to USD 20 million for up to five years for importing capital goods as classified by DGFT.
What is the new minimum contract period for trade credits?
The ab-initio contract period has been reduced from 15 months to 6 months for all trade credits, giving borrowers more flexibility.
Are we allowed to issue LCs or guarantees for the full five-year period?
No, AD Category-I banks cannot issue Letters of Credit, guarantees, LoUs, or LoCs for any period beyond three years, even if the underlying trade credit is for five years.
📜 Read the original circular — full text as issued by RBI
RBI/2013-14/290
A.P. (DIR Series) Circular No. 53
September 24, 2013
To,
All Category - I Authorised Dealer Banks
Madam / Sir,
Trade Credits for Import into India
Attention of Authorized Dealer Category - I (AD Category - I) banks is invited to A.P. (DIR Series) Circular No. 87 dated April 17, 2004 , A.P. (DIR Series) Circular No. 24 dated November 01, 2004 , A.P. (DIR Series) Circular No. 28 dated September 11, 2012 and A.P. (DIR Series) Circular No. 59 dated December 14, 2012 regarding Trade Credits for import into India.
2. As per the extant guidelines, AD Category - I banks may approve availing of trade credit not exceeding USD 20 million up to a maximum period of five years (from the date of shipment) for companies in the infrastructure sector, subject to certain terms and conditions stipulated therein. It is also stipulated that AD Category - I banks are not permitted to issue Letters of Credit/guarantees/Letter of Undertaking (LoU) /Letter of Comfort (LoC) in favour of overseas supplier, bank and financial institution for the extended period beyond three years. No roll-over/extension is permitted beyond the permissible period.
3. On a review, it has been decided to allow companies in all sectors to avail of trade credit not exceeding USD 20 million up to a maximum period of five years for import of capital goods as classified by Director General of Foreign Trade (DGFT). It has also been decided to relax the ab-initio contract period of 15 (fifteen) months for all trade credits to 6 (six) months.
4. AD Category - I banks are, however, not permitted to issue Letters of Credit/guarantees/Letter of Undertaking (LoU) /Letter of Comfort (LoC) in favour of overseas supplier, bank and financial institution for the extended period beyond three years.
5. All other aspects of Trade Credit policy will remain unchanged and should be complied with. The amended Trade Credit policy will come into force with immediate effect and is subject to review based on the experience gained in this regard.
6. The directions contained in this circular have been issued under Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions / approvals required, if any, under any other law.
Yours faithfully
(Rudra Narayan Kar)
Chief General Manager-in-Charge
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2013-14/290 · issued 24 Sep 2013. The plain-English explanation above is BankPulse’s own independent summary.
Update internal trade credit policies to reflect the sector-agnostic eligibility for USD 20 million five-year credit for capital goods imports.
Adjust systems to accept a minimum ab-initio contract period of 6 months for all trade credits.
📜 Compliance
Continue to prohibit issuance of LCs, guarantees, LoUs, or LoCs for periods exceeding three years.
Ensure compliance with all other unchanged trade credit guidelines and monitor for future reviews.
Grouped from the action items above — a single circular may involve more than one team.
Worked example & action-note template
Example: if you are an IT/Systems lead at a bank this circular applies to (AD Category-I banks, Importers of capital goods across all sectors, Infrastructure sector companies (now part of broader eligibility)), your first concrete step on “RBI Expands Trade Credit for Capital Goods Imports” is: “Update internal trade credit policies to reflect the sector-agnostic eligibility for USD 20 million five-year credit for capital goods imports.” (RBI issued this 24 Sep 2013).
Circular: RBI/2013-14/290 -- RBI Expands Trade Credit for Capital Goods Imports
Issued: 24 Sep 2013
Action required: Update internal trade credit policies to reflect the sector-agnostic eligibility for USD 20 million five-year credit for capital goods imports.
Action required: Adjust systems to accept a minimum ab-initio contract period of 6 months for all trade credits.
Action required: Continue to prohibit issuance of LCs, guarantees, LoUs, or LoCs for periods exceeding three years.
Action required: Ensure compliance with all other unchanged trade credit guidelines and monitor for future reviews.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.
💬 Banker Discussion
Discuss this circular with fellow bankers — reply, upvote what helps, report what doesn’t belong. Be professional; no client data. Views are the commenter’s own, not BankPulse’s.
BankPulse Compliance Evidence Pack — generated 03 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly). Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=8459&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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