India Tightens Trade Credit Rules for Precious Metals and Diamonds: Key Updates for Banks and Importers

The Reserve Bank of India (RBI) has overhauled trade credit regulations for imports of platinum, palladium, rhodium, silver, and diamonds, introducing stricter timelines and compliance mandates for AD Category-I banks. These changes, effective May 2025, aim to curb speculative trading while streamlining legitimate imports. Here’s what businesses and financial institutions need to know.

1. 90-Day Trade Credit Cap: What’s New?

A. Expanded Scope to Diamonds

• Previous Rule: The 90-day limit for Suppliers’/Buyers’ credit and Letters of Credit (LCs) applied only to platinum, palladium, rhodium, and silver.
• 2025 Amendment: The cap now includes rough, cut, and polished diamonds, closing a loophole that allowed extended credit periods for gemstone imports.

B. Exceptions for Clean Credit Facilities AD banks can approve clean credit (no LC/bank guarantee) beyond 90 days for diamond imports if:

• The importer has a 3-year certified trade record (up from 2 years) verified by GJEPC.
• The overseas supplier is among RBI’s pre-approved mining companies (e.g., ALROSA Russia, De Beers UK).
• No interest payments are involved beyond the 90-day period to prevent arbitrage.

2. Stricter Due Diligence: KYC/AML Overhaul

A. Enhanced Scrutiny for High-Value Transactions Volume Thresholds: Banks must flag transactions exceeding ₹10 crore/month for a single importer.

Documentation: Importers must submit:

• GST Returns (last 3 years).
• Consignment Agreements with mining companies.
• Bill of Entry within 30 days of shipment.

B. Red Flags for Suspicious Activity

• Mismatched Consignments: A Chennai bank blocked a ₹12 crore palladium import after discovering the stated “industrial use” conflicted with the importer’s jewelry business.
• Frequent Limit Violations: Importers with 3+ late submissions of Bill of Entry in a year face automatic account freezes.

3. Diamond Dollar Accounts (DDAs): Higher Eligibility Bars

A. 3-Year Trade Record Mandate

• Previous Requirement: 2 years of import/export history.
• 2025 Change: Exporters must now demonstrate 3 years of certified trade in diamonds/gemstones to open a DDA.
• Impact: Over 1,200 small exporters became ineligible overnight, per GJEPC data.

B. Operational Constraints

• Account Limits: Firms can operate up to 5 DDAs but must justify each account’s purpose (e.g., separate accounts for rough vs. polished diamonds).
• Audit Trails: Banks must preserve transaction records for 7 years (up from 5) under updated FEMA guidelines.

4. Advance Remittance Rules: Balancing Flexibility and Control

A. Rough Diamond Imports AD banks can permit advance payments without bank guarantees if:

• The supplier is a pre-approved miner (e.g., NDTC Namibia).
• The importer is a GJEPC-certified processor with a 3-year export track record.
• Payments are routed directly to the miner’s account (no intermediaries).

B. Public Sector Exemptions

• Government entities (e.g., MMTC) require a Ministry of Finance waiver for advance remittances exceeding USD 100,000, ensuring taxpayer funds aren’t misused.

5. Penalties for Non-Compliance

• Late Documentation: ₹5 lakh/day fine for missing Bill of Entry beyond 30 days.
• KYC Lapses: Suspension of AD licenses for banks with 3+ violations in a quarter.
• Overdue Credits: 15% annual interest on trade credits exceeding 90 days.
• Real-World Impact: In Q1 2025, HDFC Bank paid a ₹2.3 crore penalty after failing to detect a ₹78 crore round-tripping scheme involving fake rhodium imports.

6. Strategic Recommendations for Importers

• Revisit Contracts: Renegotiate terms with miners to align with the 90-day cap.
• Leverage DDAs: Use DDAs for interest-free credit via EEFC balances, avoiding trade credit limits.
• Pre-Clearance Checks: Submit GST returns and consignment agreements to banks before initiating LCs.