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)
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.