HSBC has issued its first renminbi (RMB)-denominated documentary credit (DC) in India for a Mumbai-based pharmaceuticals company.
A DC is a commitment issued by a bank to pay a supplier within a prescribed time limit as long as clearly defined terms and conditions have been met. DCs can safeguard traders against cash flow issues, ensuring that the terms of payments between two parties are met.
“Indian businesses have long-recognised the enormous growth potential of doing business with suppliers in China,” said Sandeep Uppal, managing director and head of commercial banking, HSBC India. “HSBC’s research estimates that approximately US$2 trillion, or a third of China’s annual trade, will be settled in RMB by 2015.
“Momentum is building fast as more than 10% of China’s trade was settled in RMB in the first quarter of 2012. As trade between these two economic powerhouses gathers pace, Indian businesses that use DCs in RMB can expect increased discounts from their Chinese suppliers who no longer need to hedge against the US dollar.”
According to HSBC’s Global Connections Report, China is India’s largest import partner with growth between the two countries projected to increase by 11% annually over the next five years. The report also identifies China as India’s third largest export partner with annualised growth rates at 10% over the next five years. Iron ore, copper and cotton lead these exports.
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