Buyers Credit via SBLC Route

Since RBI has discontinued the process of issuance of LOU/ LOC for Buyers Credit, few Indian bank abroad(Funding banks) have recently started to accept Standby Letter of Credits( SBLC) for Buyers Credit as per their approved format. The process note is annexed below.

• Working Capital Bank(India Based Bank/ Domestic Branches (DB) to sanction the Non-Fund Based Limits for Issuance of SBLC for the importer corporate who require Buyer’s Credit through overseas Indian Bank(Funding Bank). This SBLC limit would be within the overall working capital limits if it is for raw material purchases.
• Corporate Client will approach SME CAPITAL SOLUTIONS to approach overseas Indian Bank for funding of their Imports, SME CAPITAL SOLUTIONS will arrange a quote for Buyer’s Credit transaction
• Only LC routed through WORKING CAPITAL BANK are to be considered for SBLC funding.
• Overseas Indian Bank(Funding bank) will provide the quote to SME CAPITAL SOLUTIONS and if quote is acceptable to the customer, a request letter for Buyer credit will be sent by borrower to the overseas Indian Bank, Sydney through the working capital bankers
• The SBLC issuing Bank will provide information vide an MT 799 with the all the details to overseas Indian Bank as per the funding bank approved format Annexure-V, along with the scanned copies of documents evidencing shipment of goods and commercial invoices.
• Overseas Indian Bank will approve the Buyer Credit Limits and will issue a sanction letter for the Buyer’s Credit.
• Issuing Bank will also send the duly signed scanned copy of agreement between Overseas Indian Bank(Funding Bank) and the corporate as their approved format Annexure-III and then the original agreement through courier.
• Based on the sanction letter, the issuing Bank will issue an SBLC as per approved format of the funding bank ie Annexure-IV, the tenor of the same would be 15 days more than the proposed Buyer’s Credit tenor, against which Overseas Indian Bank(Funding Bank) will disburse the Buyer’s Credit.
• A SWIFT message confirming the funding, due date, interest payable including delayed period interest rate and other charges will be sent by Overseas Indian Bank(Funding Bank) to working capital bank immediately after funding.
• On buyers Credit maturity date, the working capital bank recovers the amount from the importer and makes the payment as our payment instructions.
• Upon receipt of the Funds, Overseas Indian Bank(Funding Bank) will close the loan account and send an SBLC release SWIFT to working capital bank.
• Overseas Indian Bank(Funding Bank) will send an invocation claim under SBLC in case of non-payment by the applicant (Importer).
• In case of extension of SBLCs (rollover of Buyer’s credit), all rollover should also be within the provision of overall credit sanction/ working capital cycle.
• The Transactions will be reported to RBI as hitherto done under the LOU/LOC transactions vide TC I and TC II.
• Domestic Branches to follow RBI guidelines related to trade credit at all times.