Export Credit
Export Credit
Export Credit
Export Credit
Indias position in world trade:
The year 2009 witnessed one of the severe global recessions in the post war
period. Countries across the world have been affected in varying degrees and all
major economic indicators of industrial production, trade, capital flows,
unemployment, per capita investment and consumption have taken a hit. The
global trade has declined by 9% in volume terms. Though India has not been
affected to the same extent as other economies of the world, yet our exports
have suffered a decline due to contraction in demand in the traditional market of
our exports. Now, there is some turn around and emergence of green shoots.
The Current Foreign Trade Policy 2009-14 estimates to double the exports of
goods and services by 2014. The long term policy objective is to double Indias
share in global trade by 2020. In order to meet these objectives, the
Government would follow a mix of policy measures including fiscal incentives,
institutional changes, procedural rationalization, and enhanced market access
across the world and diversification of export markets. Improvement in
infrastructure related to exports; bringing down transportation costs and
providing full refund of all indirect taxes and levies would be the three pillars
which will support the achievement of the Trade Policy target.
Performance Guarantees.
Establishment of Letters of Credit
Arranging Lines of credit in foreign countries.
Export Credit to AEZ units.
Trade Information Services.
Forex Advisory Services.
Facilitating Institutions:
EXIM BANK
EXIM Bank promotes and facilitates foreign trade for India. It coordinates
work of various agencies engaged in financing exports and imports. It
provides finance to foreign governments, financial institutions and companies.
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The concept of need based finance is the guiding principle to decide the
quantum of finance to be granted to the exporter. The period of packing
credit depends upon the manufacturing cycle or specific requirements of the
export, normally not exceeding 180 days (270 days at present).The
percentage of margin is dependent on the nature of order, commodity and
capability of exporter.
The basic considerations in the assessment of EPC are:
Undertaking
The exporter should provide an undertaking that advance would be
utilized for the specific purpose of procuring/ manufacturing/ shipping
etc, the goods are meant for export only as stated in the relative
confirmed export order/ LC.
Confirmed export order
The exporter should provide confirmed export order/ LC in original.
Preliminary examination of contract
If the customer wants to avail packing credit advance against preliminary
information of contract whereby at a later stage the contract or LC, as
the case may be will be received by him, an undertaking to the effect
that the same will be produced to the bank within a reasonable time (say
within a month) for verification and endorsement.
If the need is of a recurring nature, we may extend running account
facility to those exporters with good track record.
Packing credit for a sub supplier
If the customer asking or packing credit is a sub supplier and wants to
supply the goods to the Export House or Merchant exporter, an
undertaking from Export House/ Merchant Exporter stating that they
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Extension:
Any extension of the PCFC will be subject to the same terms and conditions as
applicable for extension of Rupee Packing Credit. It will entail an interest of 2%
over the original spread above six months LIBOR prevailing at the time of
extension for the extended period.
No export:
If no export takes place even within 360 days, PCFC is adjusted at the ruling TT
selling rate for the currency concerned. Interest right from the date of
disbursement till the date of payment should be recovered at 2% over the
interest rate applicable for the cash credit of the exporter and the interest earlier
recovered at LIBOR related rates should be adjusted there from. Remittance of
foreign exchange for repayment of principal with interest does not require RBI
approval.
PCFC-Type of Account
PCFC is made available by way of cash credit account. ,
PCFC can be carved out of the EPC limits available to them subject to the
outstandings under both the rupee and foreign currency facilities
(converted at the prescribed notional rate) not exceeding the limits
sanctioned.
There is no need for sanction of a separate sub limit for PCFC.
Export Packing Credit (EPC) in Rupees in part and PCFC in part can be
granted against the same order.
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ACU Mechanism:
PCFC can be granted for Exports under ACU mechanism.
Discounted under EBR Scheme:
Before granting PCFC, it should be made clear to the exporters that LCs should
not be restricted to other banks and the bills should be invariably discounted
with the Bank under EBR scheme. Exporters availing PCFC at the Banks
branches should not be allowed to book Forward/ Cross Currency forward
contracts with any other bank in respect of the relative bills.
PCFC and EBR Nostro Loan Accounts
Designated branches should not be sending any messages relating to debits/
credits in the PCFC and EBR Nostro Loan accounts of GMU (K) to the foreign
offices concerned directly. The foreign offices act only on the instructions of GMU
(K) which is the nodal centre and ignore messages relating to PCFC and EBR
transactions from the other domestic offices.
Liquidation of PCFC:
Exporters who availed PCFC have to necessarily avail EBR and cannot avail
Rupee post shipment finance for discounting the relative bills.
Other Aspects of Pre Shipment Credit:
Execution of Bid Bonds/ Tender Guarantees on behalf of exporters and in
favour of overseas buyers in lieu of earnest money for the supply of goods
or services abroad.
Issue of Guarantees in respect of Advance Payments:
Bank Guarantees are issued in favour of overseas buyers in respect of
advance payments to be made by them. Such advance payments are a
common feature in contracts pertaining to export of capital goods or
turnkey projects.
Establishment of Letters of Credit at the request of exporters in favour of
suppliers of raw materials, components and services. Back to Back Letters
of Credit are issued at the request of export houses and merchant
exporters in favour of domestic manufacturing units for the supply of
goods contracted for export.
Arranging Lines of Credit in foreign countries is usually required where the
execution of an export order involves work to be done in buyers country.
The local cost may be financed by arranging a line of credit from a foreign
branch or a correspondent bank against the Banks guarantee wherever
necessary.
Execution of Performance Guarantees at the request of exporter for the
performance of machinery, equipment, etc supplied by them. Performance
Guarantees are generally stipulated in contracts pertaining to the export
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Each bank has five banking days for scrutiny of documents as per
UCPDC 600.
The documents have been submitted within the validity of the Letter of
Credit.
All documents called for are submitted and in the requisite number.
Each document is issued as per the stipulation in the LC and their
content satisfies the provisions of UCPDC and the LC.
The description of goods in invoice and documents corresponds to that
in the LC.
Shipment has been made before stipulated date.
Documents are presented within the period permitted from shipment
date as per UCPDC 600/FEMA i.e. 21 days from the date of shipment.
Insurance Policy covers the risk as stipulated in the LC and is for
adequate amount.
The amount of bill is within the LC value.
Full set of clean on board Bill of Lading is submitted and the Bill of
Lading is issued or endorsed in favour of LC opening Bank, or as
stipulated in the LC.
Stamps and alterations if any, on any of the documents are duly
authenticated.
All export bills are exempted from stamp duty.
The branches may send the bills on collection basis and finance the exporter
after retaining a suitable margin out of the total bill amount and debit such
advances to an account styled Advance against bills sent on collection basis.
(rupee advance). This may be sanctioned as cash credit or overdraft.
The advance should be liquidated out of the export proceeds. The advances
against bills sent on collection basis would attract interest rate as applicable for
post shipment credit i.e. as per the tenure of the bill.
Advance against goods sent on Consignment Basis
The Branches may finance goods exported on consignment basis at the risk of
the exporter for sale and eventual remittance of sale proceeds to him by the
agent/ consignee subject to the customer enjoying specific limit for the purpose.
When goods are exported on consignment basis, branches should:
Instruct the Banks overseas branch/ Correspondent while forwarding
shipping documents to deliver the documents only against Trust Receipt/
Undertaking to deliver the sale proceeds by a specified date within the
time prescribed for realisation of export proceeds.
Retain appropriate margin while granting advance against such exports.
Advance against Duty Drawback Entitlements:
The exporter is entitled to various incentives as per the Foreign Trade Policy of
the country. One such incentive is Duty Drawback Entitlement Scheme.
Under this scheme banks are allowed to grant advances to exporters against
their entitlements of duty drawback on export of goods. The period of such
advances is up to a maximum of 90 days beyond which the Bank may not allow
the advances or may charge interest applicable to export credit. Advance against
duty drawback at post shipment stage should be covered under Export Credit
Insurance for Banks- EF (ECIB-EF).
Other conditions to be fulfilled before granting loans against Duty Drawback
Entitlements are:
Declaration from the exporter to be obtained on the export promotion
copy of the shipping bill containing the EGM number (Export General
Manifest Number issued by Customs Department) mentioning the amount
of duty drawback eligible.
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Retention Money:
Similarly under certain contracts, foreign buyers retain a small portion of the bill
amount up to an agreed period to enable themselves to be satisfied about the
quality of the items supplied. Advance against such retention money can be
allowed to the exporters provided the retention money is repatriated to India
within 360 days from the date of export. Such advance carries interest at
concessive rate up to a maximum of 90 days.
As regards post shipment credit not supported by letter of credit, post shipment
ECIB-PS cover is generally obtained against commercial and political risks. These
covers provide credit enhancements to the Bank by ensuring that a good portion
of Banks loss arising from the exporter not discharging his liabilities could be
made good by ECGC.
Export Bill Rediscounting (EBR)
RBI formulated the scheme of Rediscounting of Export Bills Abroad by
Authorised dealers to make available to the exporters post shipment finance at
international rates of interest. Under the scheme, exporters bills are discounted
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Exporters availing PCFC should invariably avail EBR facility to discount the
relative export bills.
Both demand and usance bills are eligible for coverage. EBR facility is
normally available for a maximum period of 180 days. If the bills
discounted are not paid on the 180th day, extension can be permitted only
with approval of RBI.
If an exporter does not avail PCFC or rupee EPC, he can avail EBR facility.
EBR- Currency
The scheme is restricted to four major currencies. They are:
US Dollar
Pound Sterling
EURO
Japanese Yen
Cross Currency settlements are also permitted.
For example, exporters having LC or export order in Swiss Francs or Italian Lira
can also avail PCFC and EBR in any of the four designated currencies. For cross
currency disbursements, both PCFC and EBR should be availed in the same
designated currency. The exchange risk in cross currency disbursements is be
borne by the exporters.
Rate of Interest:
The rate of interest applicable as per RBI guidelines is 200 basis pints over six
months LIBOR.
GMU (K) advises the six month LIBOR rate for the designated currencies that is
US Dollar, EURO, Pound Sterling and Japanese Yen.
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EXIM Policy 2003-04 proposed to introduce Gold Card Scheme for credit
worthy exporters with good track record.
Reserve Bank of India announced a model scheme on the same lines to
be implemented by the Banks after due customization.
25 days
15 days
7 days
=
=
=
=
0.44 % p.a.
:
:
:
:
7.88
7.10
6.65
5.65
%
%
%
%
p.a.
p.a.
p.a.
p.a.
a) EPC+ FBP
b) PCFC+EBR
c) EPC+EBR
S.No.
All market
segments
EPC + FBP
9.10 + 9.10= 9.10
9.10-6.65=2.45
PCFC + EBR
2.44 + 2.44=
2.44
Gold Card to
all market
segments
Specified
category
exporters
Gold card to
specified
category
8.85 + 8.85=
8.85- 6.65=2.20
2.44 + 2.44=
2.44
7.35 + 7.35=
7.35-6.65=0.7
2.44 + 2.44=
2.44
7.10+ 7.10=
7.10-6.65=0.45
2.44 +2.44=
2.44
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EPC + EBR
9.10-7.10= 2.00
2.00+ 2.44=
4.44/2=2.22
8.85-7.10=1.75
1.75+2.44=
4.19/2=2.095
7.35-7.10=0.25
0.25+2.44=
2.69/2=1.345
7.10-7.10=0
0+2.44=
2.44/2=1.22
preffered
EPC +
EBR
EPC +
EBR
EPC +
FBP
EPC+
FBP