Buyers Credit Interest Rates
( This Article was First Published by Myforexeye Fintech Pvt Ltd )
Buyer’s Credit Interest Rate- How Is It Determined?
Buyer’s Credit is a short term credit available to an importer from overseas lenders such as banks and other financial institutions for goods they are importing. on the basis of an Standby Letter of Credit (SBLC) issued by the importer’s bank, the overseas banks lends the funds to an importer by crediting the nostro account of the Issuing bank. The funds received are used to make payment to exporter’s bank against import bill on the due date. These funds are charged close to LIBOR rates, this is less expensive than the local source of funds. They are calculated as LIBOR + Margin rates.
LIBOR (London interbank offered rate) is a benchmark rate that represents the interest rate at which banks offer to lend funds to one another in the international interbank market for short-term loans. LIBOR is an average value of the interest-rate which is calculated from estimates submitted by the leading 11 to 18 global banks on a daily basis..Libor is calculated for five currencies and seven maturities which leads to a total of 35 different LIBOR rates calculated and reported each business day at 11:45 am IST.
The cost involved in buyer’s credit includes Interest cost. This is charged by overseas bank as a financing cost. LIBOR + Spread (maximum 250 bps)& Swift& Negotiation Charges (Charged voluntary by bank) and Withholding Taxes (in case availing trade credit from foreign Banks). Normally it is quoted as say “3M L + 250bps”, where 3M is 3months, L is LIBOR, and bps is Basis Points (A unit that is equal to 1/100th of 1%). To put it simpler: 3M L + 3.50%. One should also check the tenure which is used for LIBOR, as depending on tenure LIBOR will change.
You must fulfill the following conditions in order to avail Buyers credit:
Maximum duration of Buyers credit facility for capital goods is 3 years.
Maximum duration of Buyers credit for Non Capital goods is 1 year.
Maximum credit limit per Buyers credit transaction is $150 Million.
Maximum Maturity in case of import of capital goods for companies classified as Infrastructure sector is up to 5 years from the date of shipment.
No financing is allowed for advance imports.
Ceiling cost of Buyers credit is LIBOR +250BPS (L+250BPS).
Buyers Credit Process:
In order to avail credit to finance import payments the customers should be an existing current account holder in a bank. Buyer’s credit can be availed on a transaction basis. The RBI, in its circular on external commercial borrowing and trade credit has laid down some parameters on the process flow for importers to access Buyer’s Credit.
Read Full Article Detail: Buyers Credit








