Credit extension period to ease operational difficulties for diamond processors

RBI has allowed banks to extend credit period for exporters of precious ornaments over six months from date of shipments with a caveat

Country's diamond processors have welcomed government's move to extend credit period on import of rough and polished diamond against the foreign remittance receipt beyond 180 days.

The Reserve Bank of India (RBI) in a circular on Thursday allowed banks to extend credit period for exporters of precious ornaments over six months from the date of shipments with a caveat.

"Previously, banks were permitted to approve clean credit i.e. credit given by a foreign supplier to its Indian customers, without any letter of credit (suppliers' credit) from any Indian financial institution for import of rough, cut and polished diamonds for a period not exceeding 180 days from the date of shipment. To ease the operational difficulties faced by the importers, it has been decided, in consultation with the government to delegate the powers for permitting such clean credit for a period exceeding 180 days from the date of shipment to the authorized dealer category - I banks (AD - 1 banks) with conditions associated with it.

"It is a welcome move which would ease operational difficulties. Jewellery exports require lots of operational challenges which take sometimes more than 180 days for the remittances to come into our account. We needed earlier to seek RBI's intervention justifying the delay with valid reasons to avail credit against such receivables. But now, banks would be able to extend credit against such receivable which would improve overall efficiency of the entire value chain in jewellery exports," Vipul Shah, Managing Director, Asian Star Company Ltd, a city based jewellery exporter.

Meanwhile, banks would have to get ensured with bonafide reasons for extending such a credit. Clean credit is a loan given by a foreign supplier to its Indian customer/buyer, without any Letter of Credit (Suppliers' Credit) / Letter of Undertaking (Buyers' Credit) / Fixed Deposits from any Indian financial institution for importing diamonds.

"The move will ease operational difficulties faced by exporters in terms of credit squeeze because of the circumstances beyond their control," said Sanjay Kothari, Director, Kunal Diamonds.