7 Easy Ways to Facilitate Buyers Credit For Capital Goods



Buyer’s credit finance means finance for payment of imports arranged by the importer from a bank or a financial institution outside the country. The finance is based on a guarantee given by the importer’s bank. This credit facility may be extended either from an overseas branch of the domestic bank or an international bank in foreign country. This helps local importers to access cheaper foreign funds, close to cheaper LIBOR rates compared to local sourcing of funds. If one took a rupee loan, the rate is around 9-10 percent, but in buyer’s credit, the interest rate is around 2.5 percent. 
  • Banks are permitted to approve trade credits up to USD 20 million per transaction for the imports permissible with maturity period up to one year from date of shipment.
  • For import of capital good permissible under DGFT, bank may approve credit up to USD 20 million per import transaction for the imports with maturity period of more than one year upto five years from date of shipment for industries of all sectors.
  • The ab-initio contract period should be six months for all trades credits. It means Buyers Credit For Capital Goods can be taken and roll over in multiple of six months up to five years.
  • No roll over or extension will be permitted for trade credits beyond the permissible period.
  • Banks can issue letter of credit (LC) or letter of undertaking (LoU) or letter of comfort (LoC) in favour of overseas supplier, bank or financial institutions up to USD 20 million per transaction for a period of up to one year for non-capital goods and up to three years for capital goods permitted under Foreign Trade Policy.
  • Letter of credit h to be co-terminus with the period of credit reckoned from date of shipment and are issued by Banks subject to prudential norms issued by RBI from time to time.
  • Banks have stopped allowing credit to an importer beyond operating cycle tenure. 
          Read more about Foreign Exchange Risk Management

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