Buyer/Seller - Details

    Buyers Credit Discounting and Their Type

    Following the RBI's decision to prohibit the use of LOUs and LOCs for buyer credit transactions, importers and banks are experimenting with various structures that may be useful in facilitating import finance.

    Some of these structures are as follows:-

    1. Buyers Credit Against SBLC (Standby Letter of Credit) / Bank Guarantee -Using this procedure, loans for the payment of imports into India are negotiated on the importer's behalf through an international bank or an Indian bank's overseas branch, with the SBLC issued by the importer's bank in India as security. As soon as the payment is received, the offshore branch credits the NOSTRO of the bank in India, and the Indian bank transfers the funds to the exporter's bank as an import bill payment on or before the due date.
    2. Suppliers Credit
    3. Reimbursement Finance (Usance LC Reimbursement at Sight)

    How Does it Works


    1. The importer enters into a contract with a supplier to import products via LC/DA/DP.
    2. Suppliers ship the items and submit the documentation to the bank of the supplier (as per agreed payment terms). In turn, the supplier's bank delivers payment paperwork to the importer's bank.
    3. Importer contacts the Buyer's Credit Consultant Zircon before the bill's due date to obtain a credit quote.
    4. Consultant contacts an overseas bank to obtain indicative pricing, which is then communicated to the importer.
    5. If the importer accepts the pricing, the foreign bank issues an offer letter and discloses all relevant formats. Certain overseas branches require a separate request letter from the importer before issuing an offer letter.
    6. Acceptance of the offer letter and execution of the credit agreement by the importer (2 copies). To Overseas Bank, the importer's bank emails scanned photos of the offer letter, loan agreement, and photocopies of import documents, which are then sent by courier.
    7. SBLCs are issued by the importer's bank in the specified format using SWIFT message format MT760.
    8. The importer's bank issues MT799 in a predefined format that contains information similar to that included in the older LOU format. Rather than MT799, some banks need information on bank letterhead.
    9. Upon receipt of 6, 7, 8, foreign branches, the buyer's credit transaction is funded to the importer's bank's Nostro Account and payback information is sent by MT799.
    10. The importer's bank will pay the import bill with the amount credited.
    11. On the due date, the importer's bank must recover the principal and interest from the importer and remit the funds to the Overseas Bank.