Reserve Bank of India, every quarter reviews the all-in-cost ceiling of bank credit rate for trade credits for import into India. The all-in-cost ceilings include arranger, upfront and management fees, handling/ processing charges, and out-of-pocket and legal expenses, if any.
Trade credit is an arrangement whereby a customer can purchase goods on credit, paying the supplier at a later date. It is noted here that the suppliers offers discount if cash is paid immediately and no discount is offered, if the suppliers offers credit.
The buyer after analyzing the tradeoff between cash discount and supplier’s credit decide what is best for him.
The Reserve Bank of India on Tuesday said the all-in-cost ceiling of up to 350 basis points over the six months London Inter-Bank Offered Rate benchmark for trade credit will continue to be applicable till June 30, 2013. The all-in-cost ceiling rate was last modified by RBI in September 12, and the same benchmark continues till date.
Trade Credits’ (TC) refer to credits extended for imports directly by the overseas supplier, bank and financial institution for maturity of less than three years.
Depending on the source of finance, such trade credits include suppliers’ credit or buyers’ credit.
Suppliers’ credit relates to credit for imports into India extended by the overseas supplier, while buyers’ credit refers to loans for payment of imports into India arranged by the importer from a bank or financial institution outside India for maturity of less than three years.
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