Schedule II explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Trade credit is money an importer in India obtains from an overseas supplier, bank or financial institution to pay for imports, either as suppliers' credit or as buyers' credit. Schedule II gives the Regulations' framework in eight short paragraphs. The Master Direction sets out the bank-facing table with the amounts, periods and costs, and the two do not print the same figures.
Two texts are read. First, Schedule II of the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 (Notification No. FEMA.3(R)/2018-RB, December 17, 2018), as per the text on the Reserve Bank's site, amended up to February 16, 2026. Second, Part II of the Master Direction - External Commercial Borrowings, Trade Credits and Structured Obligations (March 26, 2019), updated as on September 08, 2026. Schedule II prints one amount, USD 50 million per import transaction, while paragraph 14 of the Master Direction prints USD 150 million for three named sectors and USD 50 million for others. Both are given below and not reconciled.
Authority and the two texts
The Regulations rest on the Foreign Exchange Management Act, 1999. Their preamble cites "clauses (a), (d) and (e) of Sub-Section (3) of Section 6, sub-section (2) of Section 47". The Act text now prints section 6(3) as omitted, and section 47(3) keeps earlier Reserve Bank regulations in force until amended or rescinded. See the Act articles on section 6 and sections 47 and 48. The Master Direction is the Reserve Bank's direction to Authorised Dealers, issued under sections 10(4) and 11(1) of the Act; it speaks to the bank, not to the importer directly. Its Parts I and III (paragraphs 1 to 12 and 19 and 20) are printed "" and are not read.
Schedule II is the framework named in regulation 4(B)(ii) (foreign exchange) and regulation 6(B)(iii) (rupees). Regulation 2(1)(ah) defines trade credit as credit extended by the overseas supplier or financial institution for permissible imports into India, including both suppliers' credit and buyers' credit. If your company is importing on credit terms and wants the borrowing and its reporting reviewed together, see our ECB reporting service.
Schedule II paragraph by paragraph
| Paragraph | What Schedule II prints |
|---|---|
| 1 Purpose | Import of non-capital and capital goods as permitted under the Foreign Trade Policy of the DGFT, and purchase of such goods within a Special Economic Zone (SEZ) or from a different SEZ, on terms the Reserve Bank stipulates |
| 2 Currency | Any convertible foreign currency, Indian Rupees or any other currency the Reserve Bank specifies |
| 3 Amount | Up to USD 50 million equivalent per import transaction, "or any other amount as decided by the Reserve Bank in consultation with the Government of India" |
| 4 Period | Reckoned from the date of shipment: for non-capital goods, a maximum of up to one year and linked with the operating cycle (or as the Reserve Bank's guidelines provide); for capital goods, a maximum of three years (or as the Reserve Bank's guidelines provide) |
| 5 Recognised lenders | Overseas suppliers, banks and other financial institutions, foreign equity holders, financial institutions in IFSCs in India, or other entities the Reserve Bank decides |
| 6 Cost | Foreign exchange: maximum spread of 250 basis points per annum over the benchmark "of 6-month LIBOR or applicable benchmark for the respective currency", or as the Reserve Bank prescribes. Rupees: all-in-cost commensurate with prevailing market conditions, or as prescribed |
| 7 Security and guarantee | Security to the lender or supplier, and corporate or personal guarantee, as the Reserve Bank specifies; AD Category I banks may issue bank guarantees in favour of the overseas supplier, bank or institution, ensuring the underlying import or trade credit complies with extant norms |
| 8 Reporting | As specified by the Reserve Bank from time to time |
One slip is flagged. Paragraph 6 still names "6-month LIBOR", while regulation 2(1)(e) defines the benchmark rate by reference to a widely accepted interbank rate or an Alternative Reference Rate of 6-month tenor. This article quotes it as printed.
The Master Direction table in paragraph 14 (updated as on September 08, 2026)
Paragraph 14 states that trade credit can be raised in convertible foreign currency or in Indian rupees "as per the framework given in the table below". The table rows are:
| Parameter | Foreign currency trade credit | Rupee trade credit |
|---|---|---|
| Forms | Buyers' credit and suppliers' credit | Same |
| Eligible borrower | Person resident in India acting as an importer | Same |
| Amount under automatic route | Up to USD 150 million or equivalent per import transaction for oil and gas refining and marketing, airline and shipping companies; for others, up to USD 50 million or equivalent per import transaction | Same row |
| Period | Up to three years for capital goods; for non-capital goods up to one year or the operating cycle, whichever is less; for shipyards and shipbuilders, non-capital goods up to three years | Same row |
| All-in-cost ceiling per annum | Benchmark Rate plus 350 bps spread for existing trade credits linked to LIBOR whose benchmarks are changed to ARR; benchmark rate plus 300 bps spread for new trade credits | Benchmark rate plus 250 bps spread |
| Recognised lenders | Suppliers' credit: supplier of goods located outside India. Buyers' credit: banks, financial institutions, foreign equity holders located outside India and financial institutions in IFSCs in India | Same |
The same table also covers exchange rate, hedging and change of currency. For foreign currency trade credit, a change into rupees can be at the rate on the date of the agreement or a rate less than that rate, if the lender consents. For rupee trade credit, conversion to rupees uses the rate on the date of settlement, and the table says change of currency from rupees into a convertible foreign currency is not permitted. Foreign currency borrowers need a board approved risk management policy and must follow hedging guidelines of the concerned regulator.
Where the two texts differ
On amount, the Regulations' Schedule II prints USD 50 million per import transaction "or any other amount as decided by the Reserve Bank", and the Master Direction prints two amounts by class of importer. On period, both give three years for capital goods; for non-capital goods, Schedule II says up to one year linked with the operating cycle, and the Master Direction says up to one year or the operating cycle, whichever is less, with a three-year position for shipyards and shipbuilders. On cost, Schedule II prints 250 basis points for foreign exchange trade credit, while the Master Direction prints 350 and 300 basis points in two situations, with 250 for rupees. This article does not reconcile them; read both and confirm the current Reserve Bank direction.
Paragraphs 15 to 18 of the Master Direction
- 15 (SEZ, FTWZ and DTA). Trade credit may be raised by a unit or developer in an SEZ, including an FTWZ, to buy goods within an SEZ or from a different SEZ, subject to paragraph 14 parameters; a unit in the DTA may raise it to buy from an SEZ unit or developer. For SEZ transactions the date of transfer of ownership is the trade credit date, and the inter-unit receipt generated through NSDL can stand as the import document.
- 16 (security). ADs may give bank guarantees for the importer in favour of the overseas lender, not exceeding the trade credit amount and its permitted period; a letter of undertaking or letter of comfort by AD Category I banks for trade credit is not permitted. The importer may also offer security of assets or corporate or personal guarantee, with a security clause in the loan agreement, a no objection certificate from existing lenders where necessary, a co-terminus arrangement, and total payments on invocation not exceeding the trade credit dues.
- 17 (reporting). AD Category I banks furnish a consolidated monthly statement in Form TC so as to reach the Reserve Bank not later than the 10th of the following month, as the paragraph prints. Suppliers' credit beyond 180 days is also reported.
- 18 (role of ADs). The importer carries primary responsibility; ADs are expected to ensure compliance, and the Reserve Bank has prescribed no format for documenting the arrangement.
Example
Falcon Steel Imports Private Limited, an invented importer, buys machinery from an overseas supplier on a two-year credit. Under Schedule II paragraph 4 and paragraph 14 of the Master Direction, capital goods credit may run to three years from shipment. The importer checks the amount per transaction against Schedule II and the table, and the cost against both. The company's AD bank reports the credit in Form TC by the 10th of the next month.
Trade credit that runs under three years is outside the ECB definition (see Schedule I paragraph 4). Our guide on ECB, trade credits and the debt instrument route gives context. Amendments and circulars after the stated dates should be checked.
Need help with trade credit?
Trade credit sits between the import contract, the lender and the bank's reporting. Our ECB reporting team can review the terms against both texts before the first shipment.
Key takeaways
- Schedule II allows trade credit for imports of capital and non-capital goods and for SEZ purchases, in foreign currency or rupees.
- The Regulations print USD 50 million per import transaction; the Master Direction prints USD 150 million for three named sectors and USD 50 million for others.
- Period: up to one year (operating-cycle linked) for non-capital goods and three years for capital goods, with the shipyard rule in the Master Direction.
- Cost ceilings differ between the two texts; Schedule II still prints "6-month LIBOR".
- Banks report in Form TC by the 10th of the following month; they may not issue a letter of undertaking or comfort for trade credit.
Read next
- ECB conversion, change of terms and reporting: Schedule I paragraphs 13 to 16
- Borrowing in foreign exchange: regulation 4
- ECB all-in-cost ceiling and pricing
- Import payment under FEMA
Disclaimer: Based on the rules, regulations and Reserve Bank Master Directions under the Foreign Exchange Management Act, 1999 that this article names, each in the version and up to the date stated in the article, as consulted on 2 October 2026. Some texts are third-party copies or older prints and are identified as such. Limits, forms and time limits change by amendment and circular; later changes should be checked on the Reserve Bank and Gazette sites. This article is general information, not legal advice; check the official text before acting.