As per Ex Finance Minister of India, Mr Arun Jaitley’s detailed report presented in the parliament, there were fraudulent letter of undertakings (LOUs) issued by Nirav Modi’s companies between March 2011 and May 2017. Furthermore, 16 fake LOUs per month over the course of six years were traced contributing to fraud perpetuated by jewellers Nirav Modi and Mehul Choksi. This was then that RBI had decided to discontinue the practice of issuance of Letter of Undertaking (LOUs) / Letter of Comfort (LOCs) for trade credits for imports into India with immediate effect. (Source:-Report)
However, considering the fact that India is an import driven country, the Reserve Bank of India(RBI) circular clearly stated that banks may continue to issue Letter of Credit (LCs) and issue bank guarantee for Trade Credit subject to compliance with RBI guidelines. Thus, bank guarantees (also known as Standby letter of Credit - SBLC) backed Buyer’s Credit is what Importers in India have started availing in order to access affordable cost of borrowing to make timely payments to their supplier for goods imported.
(For detailed reference to know the difference between Suppliers Credit and Buyers Credit, do refer to our previous article).
Ever since the Reserve Bank of India had decided to discontinue the process of issuance of LOU/LOC for Buyers Credit, it is now the use of Standby Letter Of Credit (SBLC) which is used to arrange Buyer’s credit.
This facility is provided to the importers by few Indian Bank situated overseas (funding banks) as per the guidelines issued by the RBI. It is a guarantee issued by banks in India on behalf of the clients. The issuing bank guarantees the payment to the funding bank if the client fails to make the payment.
Importers importing capital goods can raise funds under the Buyer’s Credit against SBLC route for up to three years. Those businesses importing non capital goods can raise funds for up to one year or less based on the varying requirements of the individual business.
The RBI had introduced changes in the existing Trade Credit norms recently by issuing A.P. (DIR Series) Circular No. 23 dated March 13, 2019. Myforexeye’s Trade Finance Research department had covered the changes in the circular for your reference. Click here to get the highlights in detail.
Why is SBLC being transmitted inMT760 and notMT799?
The primary logic behind the moving of MT799 to MT760 is mainly due to the contributing factors-
How can Myforexeye Assist you?
Myforexeye is an emerging Fintech start-up dedicatedly working towards helping the MSMEs and large corporates in managing both FOREX and trade finance needs in best ways. We assist companies in addressing the unmet demand in terms of credit and financial guidance. With our latest technology and manpower assistance offered by veterans from trade finance industry, many businesses have benefitted largely in unleashing their business growth prospects. For better insight, feel free to view our customer testimonials.
We can arrange quotations from 99+ offshore banking institutions including both Foreign and Indian Origin Banks towards Trade Credit for our clients. These transactions are completely backed by SBLC issued by the banks in India or under an LC issued by banks in India.
Assistance from our trade finance experts helps in streamlining the overall process required to obtain trade credit in foreign currency. Through our secure and user-friendly digital platform- which includes a web portal and mobile app, clients can view instant quotes as well as calculate interest cost.
We aim at helping clients save big by providing them the lowest rate and avoid paying any hidden commission fee to the banks. For any queries, we have a dedicated support team assisting the clients in addressing their issues by offering relevant information.
29 Jun 2020 05:35 PM
Dynamic hedging is a foreign exchange risk management strategy that allows businesses and individuals to readapt their hedging positions to evolving market conditions by providing flexible solutions to protect investments from exchange rate risks.
19 Jun 2020 05:01 PM
Management of Currency Exchange Risk is of paramount importance during turbulent times, like this pandemic. The currency fluctuations are very volatile and cannot be predicted as the circumstances are uncertain.
06 Jun 2020 03:59 PM
Outrights, in FX markets refer to the type of transactions where two parties agree to buy or sell a given amount of currency at a predetermined rate, on a specified date in future.
08 May 2020 05:21 PM
Converting one exchange rate into another at a particular price makes transferring rates. Ideally all nations should be treated as equal and there shouldn’t be any exchange rate applicable which would mean to have a universal currency.
24 Apr 2020 03:08 PM
Managing risk in a financial market is required to keep a check on the adverse movements in the instrument of the market. Particularly in the foreign exchange market.
10 Apr 2020 06:12 PM
So was India’s decision on locking down the country for 21 days required? The implication on the economic growth or rather slowdown has only made many doubt the timing and preparedness of the decision.