RBI Discontinues Letters of Undertaking (LoUs) and Letters of Comfort (LoCs) for Trade Credits

RBI Discontinues Letters of Discontinuance of Letters of Undertaking (LoUs) and Letters of Comfort (LoCs) for Trade Credits with immediate effect. 

In 2004, LoUs/LoCs were permitted by RBI allowing Authorised Dealers to Issue Guarantees upto USD 20 Million for Imports. Further, Master Direction No.5 of 2016 on ‘ External Commercial Borrowings, Trade Credit, Borrowing and Lending in Foreign Currency by Authorised Dealers and Persons other than Authorised Dealers’ also permitted AD Category I banks to issue guarantee/ Letters of Undertaking /Letters of Comfort in favour of overseas supplier, bank or financial institution up to USD 20 million per import transaction for a maximum period up to one year in case of import of non-capital goods (except gold, palladium, platinum, rhodium, silver, etc) and for a maximum period up to three years for import of capital goods.

With the discontinuance of the issuance of LoUs/ LoCs for Trade Credits for imports into India by AD Category –I banks Letters of Credit and Bank Guarantees for Trade Credits for imports into India may continue to be issued subject to compliance with Master Circular of 2015 on “Guarantees and Co-acceptances”, as amended from time to time.

Download RBI Notification for Discontinuance of LoUs/LoCs Click Here >>