Buyer's credit is extended by an overseas financial institutions to the importer to make purchases against large imports. This is a unique credit facility that aids the importer to access the international trade transactions at cheaper rates as they are quoted close to LIBOR rates.

1. BUYER’S CREDIT

2. Buyer’s credit is a loan facility arranged to the importer by
overseas financial institutions.
This credit facility is used to make payments against
imports into India.
This loan gives access to cheap foreign funds to importer
WHAT IS
BUYER’S CREDIT?

3. BUYER’S CREDIT FOR
CAPITAL GOODS AND NON-CAPITAL GOODS
Buyer’s credit is extended to both capital and noncapital
goods.
They are regulated under Foreign Trade Policy.
The funds are charged basis LIBOR rates (Libor + Margin
rates).

4. CAPITAL GOODS
Capital goods are those which are the primary factors of production.
Capital goods are authorised to borrow upto USD 20 million per
import transactions.
Maturity period is spread upto three years.
Incumbency is permitted for 36 months from the date of shipment.
This can be taken in one go or rollover can be extended for every 6/12
months or any other combination.

5. NON-CAPITAL GOODS
Non-capital goods are useful in the production of other goods.
They include accessories, spare parts, raw materials etc.
Authorised dealers (AD) banks can sanction credit of USD 20 million
per transaction.
Maturity period is extended upto one year.

6. PROCESS FLOW
The funds are advanced on the basis of LOU (letter of undertaking)/LUT( Letter of Undertaking)
and credited to importer’s bank Nostro account.
The customer should hold a current account in the bank to avail buyer’s credit.
The importer request the SaveDesk’s tech platform to arrange for Buyer’s credit.
SaveDesk approaches’ approaches FI’s housed in different countries for buyers credit
quote.
“SaveDesk’ algo compares and display cheapest quotes available for buyer.
Upon acceptance of quote , Offer letters is arranged from lender.
As per the instructions in LOC/LUT, overseas financial institutions funds the Nostro
account.
Utilizing the funds credited, payments are made against the import bills (cross currency
contract is also permitted).
The importer’s bank recovers the required amount from the importer and remits it to the
overseas bank.

7. BC Process Flow
Issues LOU - Day 2
Shares Offer Letter - Day 2
Recieves
Payment
Day 2
Exporter’s
Bank Funded
4.ReqOffer
Letter
Issues
5.Offer
Letter
1. Day 1: Req Quote
IMPORTER
PORTAL
Get Instant Quote 2.
Offer Letter Issued- Day 1 6.
3. Accepts Quotes
FINANCIAL
INSTITUTIONS
IMPORTER’S
BANK
EXPORTER’S BANK
SAVEDESK
EXPORTER
7.
8.
9.
10.
Funding

8. BENEFITS
Funds are provided at cheap interest rates as they are offered in LIBOR/Euribor rates.
The exporter is paid on the due date of the bill.
The importer gets extended date for making import payments.
The funding currency can be chosen by the customer.
Funding currency and currency of imports can be different, enabling importer to take
favourable view of a particular currency.
Supplier receives the payments as per LC payment terms.
Further rollover can also be requested.
Open account, collections or LCs can be used to finance the trade.

9. WITHHOLDING TAX
Withholding tax has been issued under sec 195 of Income tax act 1961.
Withholding tax is deducted on the interest amount borrowed by the importer.
The charged rates are net of taxes, thus it has to be grossed up at the time of
calculation.
Tax payment has to be borne as an additional payment by the importer.
WHT will not be applicable if the loans raised are from overseas branch of Indian
banks.

10. Interest Cost: Any margin charged above LIBOR forms Interest Margin for bank, which
usually varies with Cost of funds for respective banks.
LOU/LOC (Letter of undertaking/ Letter of Comfort): Charged as high as 1.5%, issued
post acceptance of quotes.
Arrangement Fee: Charged by AD (Authorized Dealer) for arranging BC quotes.
WHT(With Holding Cost ): Customer will incur additional cost of with holding tax if
funds are arranged from foreign Banks housed in India. Same is applicable as per local
tax regulations.
COST INVOLVED

11. COST INVOLVED
Hedging Cost : Incase of long terms BC, Bankers/AD insists on availing hedging
strategies to cover Foreign exchange Fluctuations which comes with additional cost of
upto 3%.
Charges at time of Repayment: Customer will have to submit A2+ 15CA & CB
certified by Chartered accountant which cost him additional money.

12. Check Points
Maximum duration of Buyers Credit Facility for Capital Goods in 3 Yrs.
Maximum duration of Buyers Credit for Non Capital Goods is 1 Yr.
Maximum credit limit per Buyers Credit transaction is $20MN.
Ceiling Cost of Buyers Credit is 6 Months LIBOR + 350 BPS (L+350BPS).
Applicant should have buyer’s credit limits with his banker. Cash backed buyer’s credit
is not approved by RBI.

13. Thanks
Any Questions? You can find me at
Advisor@savedesk.co