RBI raises interest rates on trade credits

[N.Sukumar]

The Reserve Bank raised the interest rate ceiling on trade credits
used for funding imports with maturity up to one year on Wednesday,
making it easier for authorised dealer banks to fund such
transactions.


The banks, as per the RBI notification, can provide short-term credit
for funding import transactions up to 75 basis points over six months
LIBOR (London Interbank Offer Rate) as against the existing 50 basis
points.



However, the ceiling rate for funding long term imports transactions
ranging between 1 and 3 years have been retained at 125 basis points
over 6 months LIBOR.



The short term credit is used for payment of arranger fee, upfront
fee, management fee, handling and processing charges, out-of-pocket
and legal expenses pertaining to imports.



The RBI has permitted the authorised banks (ADs) to approve trade
credits for imports in India up to USD 20 million per import
transaction.

N.Sukumar
Research Analyst