Trade Credit refers to credit extended for imports directly by the overseas supplier, bank and financial institution for maturity up to five years. RBI permits banks to approve trade credits for imports into India up to USD 20 million per import transaction for imports permissible under the current Foreign Trade Policy of the DGFT. On the basis of the source of finance, trade credits may be either suppliers’ 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 up to five years. Buyer's Credit availed by the importers should be need based and tenure of the Buyers’ Credit should be within their normal operating cycle. As per RBI Guidelines, trade credits for maturity period beyond 1 year is permissible only for capital goods. For periods beyond three years, upto five years, banks are not permitted to issue LC/LOU/LOC. Buyers’ credit is not permitted for the following kinds of transactions :

• Import of services


• Merchanting trade / intermediary trade


• Financing of advance payment for imports


• Purchase of goods by units in Domestic Tariff Area (DTA) from units in Special Economic Zone SEZ / 100% EOUs.