Buyers' Credit Through GIFT City
A lender in Gandhinagar now counts as offshore for buyers' credit. Same limits, different address.
GIFT City in Gandhinagar is India's International Financial Services Centre (IFSC). Banks set up IFSC Banking Units (IBUs) there that work in foreign currency and are treated as offshore, even though they are on Indian soil. RBI's trade credit rules name "financial institutions in IFSCs located in India" as recognised lenders for buyers' credit.
So an Indian importer can now take buyers' credit from a lender in Gandhinagar instead of one in Singapore or London, under the same trade credit limits. For an Indian bank with an IBU, the business can stay inside its own group.
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Overseas Lender vs IFSC Lender
Status under RBI's trade credit rules
Lender outside India
Recognised lender
Lender in GIFT IFSC
Recognised lender (financial institution in an IFSC)
Currency
Lender outside India
Any freely convertible currency
Lender in GIFT IFSC
IFSCA's specified foreign currencies
Regulator of the lender
Lender outside India
Its home regulator
Lender in GIFT IFSC
IFSCA; for an Indian bank's IBU, RBI's prudential guidelines also apply
Trade credit period, amount and cost ceiling
Lender outside India
As per RBI's TC framework
Lender in GIFT IFSC
Exactly the same
Security from the importer's Indian bank
Lender outside India
Bank guarantee; no LoU or LoC
Lender in GIFT IFSC
Bank guarantee; no LoU or LoC
| Point | Lender outside India | Lender in GIFT IFSC |
|---|---|---|
| Status under RBI's trade credit rules | Recognised lender | Recognised lender (financial institution in an IFSC) |
| Currency | Any freely convertible currency | IFSCA's specified foreign currencies |
| Regulator of the lender | Its home regulator | IFSCA; for an Indian bank's IBU, RBI's prudential guidelines also apply |
| Trade credit period, amount and cost ceiling | As per RBI's TC framework | Exactly the same |
| Security from the importer's Indian bank | Bank guarantee; no LoU or LoC | Bank guarantee; no LoU or LoC |
Case: Electronics Components for a Noida Assembler
A Noida phone assembler imports components from Taiwan worth USD 3 million on 180-day terms. Its banker is a public sector bank that also runs an IBU in GIFT City.
- 1
Eligibility check
Components are non-capital goods, so the credit can run up to one year or the operating cycle, whichever is less. The assembler's operating cycle is about 200 days, so 180 days fits.
- 2
Choosing the lender
The AD branch compares a quote from a Singapore bank with one from its own IBU in GIFT City. Both must fit within the all-in-cost ceiling: the 6-month USD benchmark plus 300 basis points.
- 3
Security
The AD branch issues a bank guarantee in favour of the IBU, within the credit amount and period. It cannot use an LoU, even though the lender is a unit of the same bank.
- 4
Disbursement and payment
The IBU pays the Taiwanese supplier in US dollars against the import documents. The assembler's IDPMS entry is closed once the import payment is made.
- 5
Repayment and reporting
On day 180 the assembler buys dollars from its AD branch and repays the IBU. The AD bank includes the credit in its monthly Form TC return to RBI.
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ITFS: Trade Finance Platforms in GIFT City
IFSCA also allows International Trade Finance Services (ITFS) platforms: electronic platforms in GIFT IFSC where exporters and importers upload invoices or bills and financiers compete to fund them, through factoring, reverse factoring and similar techniques. The framework dates from July 2021; IFSCA reissued the guidelines in December 2024 and updated them in April 2025. Think of ITFS as a cross-border cousin of TReDS, regulated by IFSCA rather than RBI.
How the IIBF Exam Tests This
IIBF lists this as a current development, so expect a question on whether an IFSC unit can lend buyers' credit (yes) and whether the limits differ from an overseas lender (no). The trap is assuming that because GIFT City is in India, the loan is a domestic rupee loan, or that an Indian bank can back its own IBU with an LoU. Check IIBF's cut-off date before relying on any newer change.
FAQs
Can GIFT City banks give buyers' credit to Indian importers?expand_more
Yes. RBI's trade credit framework names financial institutions in IFSCs in India as recognised lenders for buyers' credit, subject to the same period, amount and cost limits.
What is an IFSC Banking Unit?expand_more
A banking unit set up in an IFSC such as GIFT City, licensed under IFSCA's banking regulations, which deals in specified foreign currencies and is treated as offshore.
Can an Indian bank issue an LoU to its own IBU for buyers' credit?expand_more
No. AD banks cannot issue Letters of Undertaking or Letters of Comfort for trade credit. A bank guarantee within the credit amount and period is allowed.
What is ITFS in GIFT City?expand_more
International Trade Finance Services platforms: IFSCA-regulated electronic platforms in GIFT IFSC where trade receivables and payables of exporters and importers are financed by competing financiers.
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