Loans To Importers and Exporters (Trade Finance)

LOANS TO IMPORTERS AND EXPORTERS.
OBJECTIVES
To study and understand in detail about the loan facilities provided to
the importers and exporters by the banks.
To identify the role of Banks in encouraging Exports by providing

finance. To know the Interest rates charged by the banks for various facilities. To study the fee based services provided by banks that are included in trade finance. To see the growth of trade finance in the economy.
SCOPE
This project concentrates on the following areas: Exports Finance types, objectives . Imports Finance types. Factoring and forfeiting concepts in foreign markets. Role and objectives and services of EXIM bank. Role of Export credit guarantee corporation of India. Nature of financing by banks and various interest rates charged by different banks in Mumbai. Contribution of various banks in trade finance.
LIMITATIONS.
The banks were reluctant to provide with information about the rates of interest. Lack of information on the part of employees. These was found in both private and nationalized banks.
METHODOLOGY
Methodology is the means, techniques and frames of references by which researches approach and carry out enquiry on a particular topic. Following methodology was adopted:
Primary Data
visit to banks Approaching bankers Filling up of questionnaire
Secondary Data
Internet Books Banks websites
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CHAPTER NAME
PAGE NO
1 2 3 4 5 6 7 8 9
INTRODUCTION EXPORT IMPORTS
6-7 8-22 23-30 31 32-36 37-44 45-47 48-50 51
FACTORING AND FORFEITING EXIM BANK
ECGC DIFFERENT INTEREST RATES OFFERED BY BANKS NATURE OF FINANCING BY BANKS RELATIONSHIP BETWEEN NUMBER OF TRANSACTIONS AND INTEREST CHARGES
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CONTRIBUTION BY VARIOUS BANKS IN TRADE FINANCE
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11.
CONCLUSION
53-54
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ANNEXURES
55-56
INTRODUCTION
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Imports and Exports have been an integral part of our economy since a very long time. Trade financing is a way to import and export goods and finance their business. Trade finance is a specific topic within the financial service industry. Today trade finance is a massive billion of dollars of business. Since world trade is increasing the good and commodities are bought and sold, and banks and financial institutions should lend money to finance the purchase of these goods and commodities. Trade finance refers to a wide range of tools that determine how cash, credit, investments and other assets can be used for trade. Banks also play a central role in facilitating trade, both through the provision of finance and bonding facilities and through the establishment and management of payment mechanisms such as telegraphic transfers and documentary letters of credit (L/Cs). Amongst the intermediated trade finance products, the most commonly used for financing transactions is L/Cs, whereby the importer and exporter essentially entrust the exchange process (i.e., payment against agreed delivery) to their respective banks in order to mitigate counterparty risk. Typical trade-related financial services include letters of credit, import bills for collection, import financing, shipping guarantees, letter of credit confirmation, checking and negotiation of documents, pre-shipment export financing, invoice financing, and receivables purchase. Trade finance instruments can be structured to include export credit guarantees or insurance. Trade finance differs from other forms of credit (e.g., investment and working capital) in several ways.
Trade finance is much different than commercial lending, mortgage lending or insurance. A product is sold and shipped overseas; therefore, it
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takes longer to get paid. Extra time and energy is required to make sure that buyers are reliable and creditworthy. Also, foreign buyers - just like domestic buyers - prefer to delay payment until they receive and resell the goods. Due diligence and careful financial management can mean the difference between profit and loss on each transaction. All sellers want to get paid as quickly as possible, while buyers usually prefer to delay payment, at least until they have received and resold the goods. This is true in domestic as well as international markets.
Increasing globalization has created intense competition for export markets. Importers and exporters are looking for any competitive advantage that would help them to increase their sales. Flexible payment terms have become a fundamental part of any sales package. Trade finance is the lifeline of trade because more than 90% of trade transactions involve some form of credit, insurance or guarantee. Import export trade assumes huge importance in the context of overall performance of the world economy. An upward trend of import export is indicative of smooth functioning of the world economy; whereas a downward trend results from economic instability.
1. EXPORTS
Export is one of the most lucrative business activities in India. Exporting is a major component of international trade. Exports entail transfer of goods and services from a home country to the foreign consumers. Export in simple words means selling goods abroad. International market being a very wide market, huge quantity of goods can be sold in the form of exports. Export refers to outflow of goods and services and inflow of foreign exchange. Export occupies a very prominent place in the list of priorities of the economic set up of developing countries because they contribute largely to foreign exchange pool. Exports play a crucial role in the economy of the country. In order to maintain healthy balance of trade and foreign exchange reserve it is necessary to have a sustained and high rate of growth of exports. Exports are a vehicle of growth and development. They help not only in procuring the latest machinery, equipment and technology but also the goods and services, which are not available indigenously. Exports leads to national self-reliance and reduces dependence on external assistance which howsoever liberal, may not be available without strings. Exports play a very vital role for Indian macroeconomic settings as they influence the underlying conditions in the domestic economy and also help in keeping the balance of payments under control. It is seen that there exists a close relationship between export earnings and domestic investment. Higher rates of economic growth tend to be associated with higher rates of exports growth. Conversely, most countries with low rates of export growth also tend to have, in general, low rates of economic growth. Though Indias export compared to other countries is very small, but one of the most important aspects of our export is the strong linkages it is
forgoing with the world economy which is a great boon for a developing nation like India.
1.1 EXPORT FINANCE Credit and finance is the life and blood of any business whether domestic or international. It is more important in the case of export transactions due to the prevalence of novel non-price competitive techniques encountered by exporters in various nations to enlarge their share of world markets. Export finance is a part of global finance given to the corporate. Export financing enables businesses to bring their products all over the world. India has to compete effectively with other countries in the export markets in order to penetrate into new markets and widen its hold on the existing markets. Since many countries have been pursuing policies geared to the promotion of exports through adequate export credits at low rates of interest, India has also pursued the same policy in regard to export finance. In all major industrialized countries, banks and other financial institutions are deeply involved in financing of exports on special terms. Some of them are granting mixed credits that combine export credit with foreign aid to developing countries. In all such cases, the governments and central banks of those countries are directly involved in subsidizing exports. Exporters naturally want to get paid as quickly as possible, while importers usually prefer to delay payment until they have received or resold the goods. Because of the intense competition for export markets, being able to offer attractive payment terms customary in the trade is often necessary to make a sale. Exporters should be aware of the many
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financing options open to them so that they choose the most acceptable one to both the buyer and the seller. In many cases, government assistance in export financing for small and medium-sized businesses can increase a firm's options. The following factors are important to consider in making decisions about financing: The need for financing to make the sale: - In some cases, favorable payment terms make a product more competitive. If the competition offers better terms and has a similar product, a sale can be lost. In other cases, the buyer may have preference for buying from a particular exporter, but might buy your product because of shorter or more secure credit terms. The length of time the product is being financed: - This determines how long the exporter will have to wait before payment is received and influences the choice of how the transaction is financed. The cost of different methods of financing: - Interest rates and fees vary. Where an exporter can expect to assume some or all of the financing costs, their effect on price and profit should be well understood before a pro forma invoice is submitted to the buyer. The risks associated with financing the transaction: - The riskier the transaction, the harder and more costly it will be to finance. The political and economic stability of the buyer's country can also be an issue. To provide financing for either accounts receivable or the production or purchase of the product for sale, the lender may require the most secure methods of payment, a letter of credit (possibly confirmed), or export credit insurance or guarantee. The need for pre-shipment finance and for post-shipment working capital: -Production for an unusually large order, or for a surge of orders, may present unexpected and severe strains on the exporter's working
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capital. Even during normal periods, inadequate working capital may curb an exporter's growth. However, assistance is available through public and private sector resources. OBJECTIVES OF EXPORT FINANCE To cover commercial & Non-commercial or political risks attendant on granting credit to a foreign buyer. To cover natural risks like an earthquake, floods etc. An exporter may avail financial assistance from any bank, which considers the ensuing factors: Availability of the funds at the required time to the exporter. Affordability of the cost of funds
APPRAISAL Appraisal means an approval of an export credit proposal of an exporter. While appraising an export credit proposal as a commercial banker, obligation to the following institutions or regulations needs to be adhered to. Obligations to the RBI under the Exchange Control Regulations are: Appraise to be the banks customer. Appraise should have the EXIM code number allotted by the Director General of Foreign Trade. Partys name should not appear under the caution list of the RBI. Obligations to the Trade Control Authority under the EXIM policy are: Appraise should have IEC number allotted by the DGFT. Goods must be freely exportable i.e. not falling under the negative list. If it falls under the negative list, then a valid license should be there which allows the goods to be exported.
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Country with whom the Appraise wants to trade should not be under trade barrier. Obligations to ECGC are: Verification that Appraise is not under the Specific Approval list (SAL). Sanction of Packing Credit Advances.
GUIDELINES FOR BANKS DEALING IN EXPORT FINANCE: When a commercial bank deals in export finance it is bound by the ensuing guidelines: Exchange control regulations. Trade control regulations. Reserve Banks directives issued through IECD. Export Credit Guarantee Corporation guidelines. Guidelines of Foreign Exchange Dealers Association of India.
1.2 PRE-SHIPMENT FINANCE 'Pre-shipment/Packing Credit' means any loan or advance granted or any other credit provided by a bank to an exporter for financing the purchase, processing, manufacturing or packing of goods prior to shipment /working capital expenses towards rendering of services on the basis of letter of credit opened in his favour or in favour of some other person, by an overseas buyer or a confirmed and irrevocable order for the export of goods/services from India or any other evidence of an order for export from India having been placed on the exporter or some other person, unless lodgment of export orders or letter of credit with the bank has been waived.
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IMPORTANCE OF FINANCE AT PRE-SHIPMENT STAGE: To purchase raw material, and other inputs to manufacture goods. To assemble the goods in the case of merchant exporters. To store the goods in suitable warehouses till the goods are shipped. To pay for packing, marking and labeling of goods. To pay for pre-shipment inspection charges. To import or purchase from the domestic market heavy machinery and other capital goods to produce export goods. To pay for consultancy services. To pay for export documentation expenses.
FORMS OR METHODS OF PRE-SHIPMENT FINANCE/PACKING CREDIT Packing Credit is extended in the following forms: 1. Packing Credit in Indian Rupee 2. Packing Credit in Foreign Currency (PCFC)
1. Packing credit in Indian rupee This is taken in Indian Rupees and is given to the exporter in the form of the Rupee Loan and the interest is charged at the rate as per RBI directives. When any export proceeds are realized, the packing credit is automatically adjusted. If it becomes overdue the rate of interest will be charged at the rate determined by the individual bank. 2.Packing credit in Foreign Currency (P.C.F.C.) In the case of PCFC, the bankers have their own line of credit with their foreign banks and the interest is charged at LIBOR' rate i.e.
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London Inter Bank Offered Rate plus the interest spread that is mutually agreed upon between the bankers and the exporter subject to a minimum of 1.0%, till the due date. This is denominated in a foreign currency. The above mentioned interest is for 90 days, since the period of liquidation of pre-shipment credit normally granted by the bankers for diamond Industry is 90 days from the date of availing the facility. Beyond 90 days, if the PCFC becomes overdue the interest will be charged based on fresh LIBOR rate prevalent on the 91st day plus the interest spread and additional interest at 2% for the overdue period. If the payment is not received after 30 days from the due date, the Packing credit will be crystallized. It means that the bankers will convert the balance PCFC, at the TT selling interbank rate into Indian Rupees and the interest will be charged on the entire amount at commercial rate of interest from day one of availing the PCFC. The rate of interest varies with different banks and is in the range of 15 to 20%.
DISBURSEMENT OF PACKING CREDIT i. Ordinarily, each packing credit sanctioned should be maintained as separate account for the purpose of monitoring period of sanction and end-use of funds. ii. Banks may release the packing credit in one lump sum or in stages as per the requirement for executing the orders/LC. iii. Banks may also maintain different accounts at various stages of processing, manufacturing, etc. depending on the types of goods/services to be exported, e.g. hypothecation, pledge, etc., accounts and may ensure that the outstanding balance in accounts
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are adjusted by transfer from one account to the other and finally by proceeds of relative export documents on purchase, discount, etc. iv. Banks should continue to keep a close watch on the end-use of the funds and ensure that credit at lower rates of interest is used for genuine requirements of exports. Banks should also monitor the progress made by the exporters in timely fulfillment of export orders. 'RUNNING ACCOUNT' FACILITY i. Pre-shipment credit to exporters is normally provided on lodgment of L/Cs or firm export orders. It is observed that the availability of raw materials is seasonal in some cases. In some other cases, the time taken for manufacture and shipment of goods is more than the delivery schedule as per export contracts. In many cases, the exporters have to procure raw material, manufacture the export product and keep the same ready for shipment, in anticipation of receipt of letters of credit/firm export orders from the overseas buyers. Having regard to difficulties being faced by the exporters in availing of adequate pre-shipment credit in such cases, banks have been authorized to extend Pre-shipment Credit Running Account facility in respect of any commodity, without insisting on prior lodgment of letters of credit/firm export orders, depending on the banks judgment regarding the need to extend such a facility and subject to the following conditions: a) Banks may extend the Running Account facility only to those exporters whose track record has been good as also Export Oriented Units (EOUs)/Units in Free Trade Zones/ Export Processing Zones (EPZs) and Special Economic Zones (SEZs).
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b) In all cases where Pre-shipment Credit Running Account facility has been extended, letters of credit/firm orders should be produced within a reasonable period of time to be decided by the banks. c) Banks should mark off individual export bills, as and when they are received for negotiation/collection, against the earliest outstanding pre-shipment credit on 'First In First Out' (FIFO) basis. Needless to add that, while marking off the pre-shipment credit in the manner indicated above, banks should ensure that concessive credit available in respect of individual pre-shipment credit does not go beyond the period of sanction or 360 days from the date of advance, whichever is earlier. d) Packing credit can also be marked-off with proceeds of export documents against which no packing credit has been drawn by the exporter. ii. If it is noticed that the exporter is found to be abusing the facility, the facility should be withdrawn forthwith. iii. In cases where exporters have not complied with the terms and conditions, the advance will attract commercial lending rate ab initio. In such cases, banks will be required to pay higher rate of interest on the portion of refinance availed of by them from the RBI in respect of the relative pre-shipment credit. Running account facility should not be granted to sub-suppliers.
1.3 POST-SHIPMENT FINANCE 'Post-shipment Credit' means any loan or advance granted or any other credit provided by a bank to an exporter of goods/services from India from the date of extending credit after shipment of goods/rendering of services to the date of realization of export proceeds and includes any
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loan or advance granted to an exporter, in consideration of, or on the security of any duty drawback allowed by the Government from time to time. TYPES OF POST-SHIPMENT CREDITS: 1. Purchase of Export Documents drawn under Export Order: Purchase or discount facilities in respect of export bills drawn under confirmed export order are generally granted to the customers who are enjoying Bill Purchase/Discounting limits from the Bank. As in case of purchase or discounting of export documents drawn under export order, the security offered under L/C by way of substitution of credit-worthiness of the buyer by the issuing bank is not available, the bank financing is totally dependent upon the credit worthiness of the buyer, i.e. the importer, as well as that of the exporter or the beneficiary. The documents dawn on DP basis are parted with through foreign correspondent only when payment is received while in case of DA bills documents (including that of title to the goods) are passed on to the overseas importer against the acceptance of the draft to make payment on maturity. DA bills are thus unsecured. The bank financing against export bills is open to the risk of non-payment. Banks, in order to enhance security, generally opt for ECGC policies and guarantees which are issued in favor of the exporter/banks to protect their interest on percentage basis in case of non-payment or delayed payment which is not on account of mischief, mistake or negligence on the part of exporter. Within the total limit of policy issued to the customer, drawee-wise limits are generally fixed for individual customers. At the time of purchasing
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the bill bank has to ascertain that this drawee limit is not exceeded so as to make the bank ineligible for claim in case of non-payment. 2. Advances against Export Bills Sent on Collection: It may sometimes be possible to avail advance against export bills sent on collection. In such cases the export bills are sent by the bank on collection basis as against their purchase/discounting by the bank. Advance against such bills is granted by way of a 'separate loan' usually termed as 'post-shipment loan'. This facility is, in fact, another form of post- shipment advance and is sanctioned by the bank on the same terms and conditions as applicable to the facility of Negotiation/Purchase/Discount of export bills. A margin of 10 to 25% is, however, stipulated in such cases. The rates of interest etc., chargeable on this facility are also governed by the same rules. This type of facility is, however, not very popular and most of the advances against export bills are made by the bank by way of negotiation/purchase/discount. 3. Advance against Goods Sent on Consignment Basis: When the goods are exported on consignment basis at the risk of the exporter for sale and eventual remittance of sale proceeds to him by the agent/consignee, bank may finance against such transaction subject to the customer enjoying specific limit to that effect. However, the bank should ensure while forwarding shipping documents to its overseas branch/correspondent to instruct the latter to deliver the document only against Trust Receipt/Undertaking to deliver the sale proceeds by specified date, which should be within the prescribed date even if according to the practice in certain trades a bill for part of the estimated value is drawn in advance against the exports.
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4. Advance against Undrawn Balance: In certain lines of export it is the trade practice that bills are not to be drawn for the full invoice value of the goods but to leave small part undrawn for payment after adjustment due to difference in rates, weight, quality etc. to be ascertained after approval and inspection of the goods. Banks do finance against the undrawn balance if undrawn balance is in conformity with the normal level of balance left undrawn in the particular line of export subject to a maximum of 10% of the value of export and an undertaking is obtained from the exporter that he will, within 6 months from due date of payment or the date of shipment of the goods, whichever is earlier surrender balance proceeds of the shipment. Against the specific prior approval from Reserve Bank of India the percentage of undrawn balance can be enhanced by the exporter and the finance can be made available accordingly at higher rate. Since the actual amount to be realised out of the undrawn balance, may be less than the undrawn balance, it is necessary to keep a margin on such advance. 5. Advance against Retention Money: Banks also grant advances against retention money, which is payable within one year from the date of shipment, at a concessional rate of interest up to 90 days. If such advances extend beyond one year, they are treated as deferred payment advances which are also eligible for concessional rate of interest. 6. Advances against Claims of Duty Drawback: Duty Drawback is permitted against exports of different categories of goods under the 'Customs and Central Excise Duty Drawback Rules, 1995'. Drawback in relation to goods manufactured in India and exported means a rebate of duties chargeable on any imported materials or
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excisable materials used in manufacture of such goods in India or rebate on excise duty chargeable under Central Excises Act, 1944 on certain specified goods. The Duty Drawback Scheme is administered by Directorate of Duty Drawback in the Ministry of Finance. The claims of duty drawback are settled by Custom House at the rates determined and notified by the Directorate. As per the present procedure, no separate claim of duty drawback is to be filed by the exporter. A copy of the shipping bill presented by the exporter at the time of making shipment of goods serves the purpose of claim of duty drawback as well. This claim is provisionally accepted by the customs at the time of shipment and the shipping bill is duly verified. The claim is settled by customs office later. As a further incentive to exporters, Customs Houses at Delhi, Mumbai, Calcutta, Chennai, Chandigarh, and Hyderabad have evolved a simplified procedure under which claims of duty drawback are settled immediately after shipment and no funds of exporter are blocked. However, where settlement is not possible under the simplified procedure exporters may obtain advances against claims of duty drawback as provisionally certified by customs.
LIQUIDATION OF POST-SHIPMENT CREDIT: Post-shipment credit is to be liquidated by the proceeds of export bills received from abroad in respect of goods exported/services rendered .Further, subject to mutual agreement between the exporter and the banker it can also be repaid/prepaid out of balances in Exchange Earners Foreign Currency Account (EEFC A/C) as also from proceeds of any other unfinanced (collection) bills. Such adjusted export bills should
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however continue to be followed up for realization of the export proceeds and will continue to be reported in the XOS statement.
RUPEE POST-SHIPMENT EXPORT CREDIT PERIOD i. In the case of demand bills, the period of advance shall be the Normal Transit Period (NTP) as specified by FEDAI. ii. In case of usance bills, credit can be granted for a maximum duration of 180 days from date of shipment inclusive of Normal Transit Period (NTP) and grace period, if any. However, banks should closely monitor the need for extending post-shipment credit upto the permissible period of 180 days and they should influence the exporters to realise the export proceeds within a shorter period. iii. 'Normal transit period' means the average period normally involved from the date of negotiation/purchase/discount till the receipt of bill proceeds in the Nostro account of the bank concerned, as prescribed by FEDAI from time to time. It is not to be confused with the time taken for the arrival of goods at overseas destination. iv. An overdue bill:
a) In the case of a demand bill, is a bill which is not paid before the expiry of the normal transit period, and b) In the case of a usance bill, is a bill which is not paid on the due date
1.4 GOLD CARD SCHEME FOR EXPORTERS The applicable rate of interest to be charged under the Gold Card Scheme will not be more than the general rate for export credit in the respective bank and within the ceiling prescribed by RBI. In keeping with the spirit
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of the Scheme banks will endeavour to provide the best rates possible to Gold Card holders on the basis of their rating and past performance. In respect of the Gold Card holders, the concessive rate of interest on post-shipment rupee export credit applicable up to 90 days may be extended for a maximum period up to 365 days. The salient features of the scheme are: i. All creditworthy exporters, including those in small and medium sectors with good track record would be eligible for issue of Gold Card by individual banks as per the criteria to be laid down by the latter; ii. Banks would clearly specify the benefits they would be offering to Gold Card holders iii. request from card holders would be processed quickly by banks within 25 days/15 days and 7 days for fresh application/renewal of limits and ad hoc limits, respectively; iv. in principle limits would be set for a period of 3 years with a provision for stand by limit of 20% to meet urgent credit needs; v. card holders would be given preference in the matter of granting of packing credit in foreign currency; vi. banks would consider waiver of collaterals and exemption from ECGC guarantee schemes on the basis of card holders creditworthiness and track records, and vii. The concessive rate of interest on post-shipment rupee export credit applicable upto 90 days may be extended for a maximum period upto 365 days.
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2. IMPORTS Each country has different natural resource and different climatic conditions. Some are rich in minerals while some are rich in forest resources. A country cannot produce all the commodities required by the nation. It may have some commodities in excess while some commodities which are available in limited quantity. Hence countries have to depend on other countries. A country exports those commodities which are in excess with the country and import those which are not available at large within the country, this interdependency of one country on other result into international trade. The exchange of goods helps both the countries in developing their economy. An import (also termed as international purchasing) activity may be defined as a process of procuring goods and service from the supplier/s situated in the foreign countries. This activity involves inflow of goods and service from the foreign country (exporter country) into the base country (importing country) & in-tune outflow of foreign currency from base country to the foreign country towards payments for the goods and services purchased. There are basically four main reasons for which a country may decide to import a certain good or service: 1. It simply does not exist in the country: a mineral which is not in the country's soil, an agriculture product that can't be produced there, an innovation that has been introduced in other countries; 2. It does not exist at a specific level of quality; thus, a country imports better products than domestic production, also as far as advertising or packaging are concerned;
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3. It is cheaper abroad, since producers there are more efficient, are faced by lower costs, better exploit economies of scale and/or accept lower profits; 4. At the current domestic price, producers do not supply enough good or service as the demand requires, also because of ex ante coordination problems; accordingly, consumers buy abroad for insufficient domestic production.
2.1 IMPORT FINANCE Banks normally do not extend a fund based finance to meet import needs of their customers, barring few exceptions. However, they enable industrial units and others to have access to imported inputs and machinery by establishing letters of credit in favour of the overseas suppliers/sellers. Letter of Credit is a non-fund credit facility offered by banks to their constitutes of integrity and proven track record in meeting their commitments promptly without need for any post import finance.
2.2 LETTER OF CREDIT: A Letter of Credit is a signed instrument including an undertaking by the banker of a buyer to pay the seller a certain sum of money on presentation of documents evidencing shipment of specified goods and subject to compliance with the stipulated terms and conditions.
Banks establish LCs only on account of their customers, who hold a valid Importer-Exporter Code Number from the Regional Licensing Authorities and produce underlying sales contract between the Indian importer and the overseas sellers, accompanied by valid import license in the name of the importers, wherever necessary. Banks take into account
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the norms for holding imported inventory, make an appraisal of the request for opening an LC like any other fund based working capital facility, prescribe suitable margin/securities and then decide to establish the LC. Banks have simplified the documentation procedures for LC limits sanctioned to their customer and usually, every time when an LC is to be established, and LC application-cum-agreement is obtained from the importer which will also serve as an advance document for the LC.
Documents that can be presented for payment To receive payment, an exporter or shipper must present the documents required by the letter of credit. Typically, the payee presents a document proving the goods were sent instead of showing the actual goods. However, the list and form of documents is open to imagination and negotiation and might contain requirements to present documents issued by a neutral third party evidencing the quality of the goods shipped, or their place of origin or place. Typical types of documents in such contracts might include:
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Financial Documents Bill of Exchange, Co-accepted Draft
Commercial Documents Invoice, Packing list Shipping Documents Transport Document, Insurance Certificate, Commercial, Official or Legal Documents Official Documents License, Embassy legalization, Origin Certificate, Inspection Certificate, Phytosanitary certificate Transport Documents Bill of Lading (ocean or multi-modal or Charter party), Airway bill, Lorry/truck receipt, railway receipt, CMC Other than Mate Receipt, Forwarder Cargo Receipt, Deliver Challan...etc Insurance documents Insurance policy or Certificate but not a cover note.
RISKS INVOLVED IN LETTER OF CREDIT Fraud Risks
The payment will be obtained for nonexistent or worthless merchandise against presentation by the beneficiary of forged or falsified documents.
Credit itself may be forged.
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Sovereign and Regulatory Risks
Performance of the Documentary Credit may be prevented by government action outside the control of the parties.
Legal Risks
Possibility that performance of a Documentary Credit may be disturbed by legal action relating directly to the parties and their rights and obligations under the Documentary Credit
Force Majeure and Frustration of Contract
Performance of a contract including an obligation under a Documentary Credit relationship is prevented by external factors such as natural disasters or armed conflicts
Risks to the Applicant

Non-delivery of Goods Short Shipment Inferior Quality Early /Late Shipment Damaged in transit Foreign exchange Failure of Bank viz Issuing bank / Collecting Bank
Risks to the Issuing Bank

Insolvency of the Applicant Fraud Risk, Sovereign and Regulatory Risk and Legal Risks
Risks to the Reimbursing Bank
No obligation to reimburse the Claiming Bank unless it has issued a reimbursement undertaking.
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Risks to the Beneficiary

Failure to Comply with Credit Conditions Failure of or Delays in Payment from, the Issuing Bank Credit Issued by Party other than Bank
Risks to the Advising Bank
The Advising Banks only obligation if it accepts the Issuing Banks instructions is to check the apparent authenticity of the Credit and advising it to the Beneficiary
Risks to the Nominated Bank
Nominated Bank has made a payment to the Beneficiary against documents that comply with the terms and conditions of the Credit and is unable to obtain reimbursement from the Issuing Bank
Risks to the Confirming Bank
If Confirming Banks main risk is that, once having paid the Beneficiary, it may not be able to obtain reimbursement from the Issuing Bank because of insolvency of the Issuing Bank or refusal of the Issuing Bank to reimburse because of a dispute as to whether or not payment should have been made under the Credit
Margin The banks while sanctioning import Letter of Credit limits may require additional securities to cover their risk. A cash margin as per RBI/banks rules is also stipulated for Letter of Credit limits. Third party margin or security is acceptable subject to certain conditions. The margin is taken at the time of establishing the Letter of Credit is released only after the bill under Letter of Credit has been retired. It is, therefore, necessary that the margin may preferably be kept in the
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shape of fixed deposit for a suitable period to earn interest on the margin deposit.
2.3 POST IMPORT FINANCE Issuing bank in, in receipt of documents under the LC established by it, examines them and ensures that they conform to the terms of LC. If so, they intimate the importer/applicant to pay for and retire the documents. The applicant, at this stage, may utilize the balance in his Cash Credit Account (the item of import is a raw material, etc) or Term loan limit (if the item of import is a capital good or equipment) and retire the documents. In respect of imports made by exporters, banks may grant packing credit advances to meet the cost of imported goods. Otherwise, normally banks do not extend any specific post import finance to importers who have to suitably manage their own funds to meet the bills in time/on the due dates. Before handing over the import documents to the applicant, banks collect charges by way of interest commission, etc. to the debit of applicants account. Within 3 months from date of retirement of import documents, importers are required to submit the documentary proof of import in the form of Customs certified Exchange Control copy of Bill of Entry to the bank, failing which banks will report the importers as defaulters to RBI.
2.4 BANK GUARANTEES At the request of the customer, the bank issues guarantees favoring the beneficiaries. Thus the contract of a guarantee is a tri-partite contract. The
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customer is the person at whose request the guarantee is issued, the bank is the guarantor and the payee / beneficiary i.e. the person in whose favor the guarantee is issued. The bank charges commission for issue of guarantee, which is an income for the bank. The guarantee is a non-fund based facility as the liability on the bank may or may not crystallize on the due date based on the failure to perform the contract by the borrower. Therefore they are shown as contingent liability by way of footnote to accounts. The guarantees are of 2 types they are as follow:i. Performance Guarantee: - performance guarantees normally guarantees the performance of the contract. For e.g. the borrower getting a contract for construction of a bridge against which the BMC may insists on issue of guarantee towards the performance of the contract from the borrower.
ii.
Financial Guarantee: - Financial guarantees represent the guarantee for ensuring the financial obligations. For instance:- BEST may float a tender for supply of BUS from interested contractors and may insists on 10% tender money / earnest money to be deposited along with the quotations. This is to invite only capable and serious bidders. In case, the bidders who are awarded the contract do not accept the same; the bid money will be forfeited. Through the credit facility at the same stage of issue of guarantee is a non fund based facility, the bank has to be careful in assessing the credit facility viz. Borrowers standing, financial position, business record etc. to lending a fund based facility. Therefore, many times the bank insists on cash margin ranging from 5% to 100% depending upon the customer.
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3. FACTORING & FORFEITING Factoring, or invoice discounting, receivables factoring or debtor financing, is where a company buys a debt or invoice from another company. In this purchase, accounts receivable are discounted in order to allow the buyer to make a profit upon the settlement of the debt. Essentially factoring transfers the ownership of accounts to another party that then chases up the debt. Factoring therefore relieves the first party of a debt for less than the total amount providing them with working capital to continue trading, while the buyer, or factor, chases up the debt for the full amount and profits when it is paid. The factor is required to pay additional fees, typically a small percentage, once the debt has been settled. The factor may also offer a discount to the indebted party. Forfeiting (note the spelling) is the purchase of an exporter's receivables the amount importers owe the exporter at a discount by paying cash. The purchaser of the receivables, or forfeiter, must now be paid by the importer to settle the debt. As the receivables are usually guaranteed by the importer's bank, the forfeiter frees the exporter from the risk of non-payment by the importer. The receivables have then become a form of debt instrument that can be sold on the secondary market as bills of exchange or promissory notes.
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4. EXIM BANK INTRODUCTION Export-Import Bank of India is the premier export finance institution of the country, set up in 1982 under the Export-Import Bank of India Act 1981. Government of India launched the institution with a mandate, not just to enhance exports from India, but to integrate the countrys foreign trade and investment with the overall economic growth. Since its inception, EXIM Bank of India has been both a catalyst and a key player in the promotion of cross border trade and investment. Commencing operations as a purveyor of export credit, like other Export Credit Agencies in the world, EXIM Bank of India has, over the period, evolved into an institution that plays a major role in partnering Indian industries, particularly the Small and Medium Enterprises, in their globalization efforts, through a wide range of products and services offered at all stages of the business cycle, starting from import of technology and export product development to export production, export marketing, preshipment and post-shipment and overseas investment.
OBJECTIVES for providing financial assistance to exporters and importers, and for functioning as the principal financial institution for coordinating the working of institutions engaged in financing export and import of goods and services with a view to promoting the countrys international trade
shall act on business principles with due regard to public interest
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INITIATIVES EXIM Bank in India has been a prime mover in encouraging project exports from India. The Bank extends lines of credit to overseas financial institutions , foreign Govt. And agencies , enabling them to finance Import of goods and services from India. The Banks overseas Investment finance program offers a variety of facilities for Indian Investments and acquisition overseas. Under its Export Marketing Finance Programme , Exim Bank supports small and medium enterprises (SME) in their export marketing efforts. The Bank has launched the rural initiatives program with the objective of linking Indian rural industry to global market. It also provides value-added information , advisory and support services.
Exim Bank offers the following Export Credit facilities, which can be availed of by Indian companies, commercial banks and overseas entities. For Indian Companies executing contracts overseas
Pre-shipment credit
Exim Bank's Pre-shipment Credit facility, in Indian Rupees and foreign currency, provides access to finance at the manufacturing stage enabling exporters to purchase raw materials and other inputs.
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Supplier's Credit This facility enables Indian exporters to extend term credit to importers (overseas) of eligible goods at the post-shipment stage.
For Project Exporters Indian project exporters incur Rupee expenditure while executing overseas project export contracts i.e. costs of mobilisation/acquisition of materials, personnel and equipment etc. Exim Bank's facility helps them meet these expenses.
For Exporters of Consultancy and Technological Services Exim Bank offers a special credit facility to Indian exporters of consultancy and technology services, so that they can, in turn, extend term credit to overseas importers.
Guarantee Facilities Indian companies can avail of these to furnish requisite guarantees to facilitate execution of export contracts and import transactions.
FINANCE FOR EXPORT ORIENTED UNITS Term Finance (For Exporting Companies)

Project Finance Equipment Finance Import of Technology & Related Services Domestic Acquisitions of businesses/companies/brands Export Product Development/ Research & Development General Corporate Finance
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Working Capital Finance (For Exporting Companies)
Funded
o o o o o
Working Capital Term Loans [< 2 years] Long Term Working Capital [upto 5 years] Export Bills Discounting Export Packing Credit Cash Flow financing
Non-Funded
o o
Letter of Credit Limits Guarantee Limits
Working Capital Finance (For Non- Exporting Companies)
Bulk Import of Raw Material
Term Finance (For Non- Exporting Companies)
Import of Equipment
Export Finance

Pre-shipment Credit Post Shipment Credit Buyers' Credit Suppliers' Credit [including deferred payment credit] Bills Discounting Export Receivables Financing Warehousing Finance
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Export Lines of Credit (Non-recourse finance)
Equity Participation (In Indian Exporting Companies)
To part finance project expenditure(Project, inter alia, includes new project/ expansion/ acquisition of business/company/ brands/research & development)
Note:a. Exim Financing is available in Indian Rupees and in Foreign Currency b. Term finance, except for long term working capital, is available for periods up to 10 years [in select cases 15 year finance can also be made available] c. Interest: Fixed & Floating options [Benchmarks for floating rates LIBOR/G-Sec/MIBOR] d. Repayments: Amortizing/ Ballooning/ Bullet [As per cash flows]
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5. ECGC (EXPORT CREDIT GUARANTEE CORPORATION OF INDIA ) What is ECGC? Export Credit Guarantee Corporation of India Limited, was established in the year 1957 by the Government of India to strengthen the export promotion drive by covering the risk of exporting on credit. Being essentially an export promotion organization, it functions under the administrative control of the Ministry of Commerce & Industry, Department of Commerce, Government of India. It is managed by a Board of Directors comprising representatives of the Government, Reserve Bank of India, banking, insurance and exporting community. ECGC is the fifth largest credit insurer of the world in terms of coverage of national exports. The present paid-up capital of the company is Rs.800 crores and authorized capital Rs.1000 crores. What does ECGC do? Provides a range of credit risk insurance covers to exporters against loss in export of goods and services Offers guarantees to banks and financial institutions to enable exporters to obtain better facilities from them Provides Overseas Investment Insurance to Indian companies investing in joint ventures abroad in the form of equity or loan How does ECGC help exporters? Offers insurance protection to exporters against payment risks Provides guidance in export-related activities Makes available information on different countries with its own credit ratings
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Makes it easy to obtain export finance from banks/financial institutions Assists exporters in recovering bad debts Provides information on credit-worthiness of overseas buyers
Need for export credit insurance. Payments for exports are open to risks even at the best of times. The risks have assumed large proportions today due to the far-reaching political and economic changes that are sweeping the world. An outbreak of war or civil war may block or delay payment for goods exported. A coup or an insurrection may also bring about the same result. Economic difficulties or balance of payment problems may lead a country to impose restrictions on either import of certain goods or on transfer of payments for goods imported. In addition, the exporters have to face commercial risks of insolvency or protracted default of buyers. The commercial risks of a foreign buyer going bankrupt or losing his capacity to pay are aggravated due to the political and economic uncertainties. Export credit insurance is designed to protect exporters from the consequences of the payment risks, both political and commercial, and to enable them to expand their overseas business without fear of loss. 5.1 STANDARD POLICIES: ECGC has designed 4 types of standard policies to provide cover for shipments made on short term credit: 1. Shipments (comprehensive risks) Policy to cover both political and commercial risks from the date of shipment 2. Shipments (political risks) Policy to cover only political risks from the date of shipment
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3. Contracts (comprehensive risks) Policy to cover both commercial and political risk from the date of contract 4. Contracts (Political risks) Policy to cover only political risks from the date of contract
RISKS COVERED UNDER THE STANDARD POLICIES: 1. Commercial Risks

Insolvency of the buyer Buyers protracted default to pay for goods accepted by him Buyers failure to accept goods subject to certain conditions
2. Political risks
Imposition of restrictions on remittances by the government in the buyers country or any government action which may block or delay payment to exporter.
War, revolution or civil disturbances in the buyers country. Cancellation of a valid import license or new import licensing restrictions in the buyers country after the date of shipment or contract, as applicable.
Cancellation of export license or imposition of new export licensing restrictions in India after the date of contract (under contract policy).
Payment of additional handling, transport or insurance charges occasioned by interruption or diversion of voyage that cannot be recovered from the buyer.
Any other cause of loss occurring outside India, not normally insured by commercial insurers and beyond the control of the exporter and / or buyer.
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RISKS NOT COVERED UNDER STANDARD POLICIES: The losses due to the following risks are not covered: 1. Commercial disputes including quality disputes raised by the buyer, unless the exporter obtains a decree from a competent court of law in the buyers country in his favour, unless the exporter obtains a decree from a competent court of law in the buyers country in his favour 2. Causes inherent in the nature of the goods. 3. Buyers failure to obtain import or exchange authorization from authorities in his county 4. Insolvency or default of any agent of the exporter or of the collecting bank. 5. loss or damage to goods which can be covered by commerci8al insurers 6. Exchange fluctuation 7. Discrepancy in documents.
5.2 COVERS ISSUED BY ECGC: The covers issued by ECGC can be divided broadly into four groups: 1. STANDARD POLICIES issued to exporters to protect then against payment risks involved in exports on short-term credit. 2. SPECIFIC POLICIES designed to protect Indian firms against payment risk involved in (i) exports on deferred terms of payment (ii) service rendered to foreign parties, and (iii) construction works and turnkey projects undertaken abroad.
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3. FINANCIAL GUARANTEES issued to banks in India to protect them from risk of loss involved in their extending financial support to exporters at pre-shipment and post-shipment stages; and 4. SPECIAL SCHEMES such as Transfer Guarantee meant to protect banks which add confirmation to letters of credit opened by foreign banks, Insurance cover for Buyers credit, etc.
Commodity wise value of shipment covered under short term policies by ECGC Rs. in crores
Engineering goods Leather Manufactures 7445.41 16759.19 3325.13 3217.4 Cotton handloom Basic Chemical Pharmaceuticals Cosmetics Others 2442.23 1863.01 2153.78 Readymade Garments Chemical Allied Products
5.3 SPECIFIC POLICIES The standard policy is a whole turnover policy designed to provide a continuing insurance for the regular flow of exporters shipment of raw materials, consumable durable for which credit period does not normally exceed 180 days. Contracts for export of capital goods or turnkey projects or construction works or rendering services abroad are not of a repetitive nature. Such transactions are, therefore, insured by ECGC on a case-to-case basis under specific policies.
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Specific policies are issued in respect of Supply Contracts (on deferred payment terms), Services Abroad and Construction Work Abroad. 1) Specific policy for Supply Contracts: Specific policy for Supply contracts is issued in case of export of Capital goods sold on deferred credit. It can be of any of the four forms:
Specific Shipments (Comprehensive Risks): Policy to cover both commercial and political risks at the Post-shipment stage.
Specific Shipments (Political Risks): Policy to cover only political risks after shipment stage.
Specific Contracts (Comprehensive Risks): Policy to cover political and commercial risks after contract date.
Specific Contracts (Political Risks): Policy to cover only political risks after contract date.
2) Service policy: Indian firms provide a wide range of services like technical or professional services, hiring or leasing to foreign parties (private or government). Where Indian firms render such services they would be exposed to payment risks similar to those involved in export of goods. Such risks are covered by ECGC under this policy. If the service contract is with overseas government, then Specific Services (political risks) Policy can be obtained and if the services contract is with overseas private parties then specific services (comprehensive risks) policy can be obtained, especially those contracts not supported by bank guarantees. Normally, cover is issued on case-to-case basis. The policy covers 90%of the loss suffered. 3) Construction Works Policy: This policy covers civil construction jobs as well as turnkey projects involving supplies and services. This
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policy covers construction contracts both with private and foreign government. This policy covers 85% of loss suffered on account of contracts with government agencies and 75% of loss suffered on account of construction contracts with private parties.
5.4 FINANCIAL GUARANTEES Exporters require adequate financial support from banks to carry out their export contracts. ECGC backs the lending programmes of banks by issuing financial guarantees. The guarantees protect the banks from losses on account of their lending to exporters. Six guarantees have been evolved for this purpose. These guarantees give protection to banks against losses due to nonpayment by exporters on account of their insolvency or default. The ECGC charges a premium for its services that may vary from 5 paisa to 7.5 paisa per month for Rs. 100/-. The premium charged depends upon the type of guarantee and it is subject to change, if ECGC so desires. The six guarantees are as follows: i. Packing Credit Guarantee: Any loan given to exporter for the manufacture, processing, purchasing or packing of goods meant for export against a firm order of L/C qualifies for this guarantee. Pre-shipment advances given by banks to firms who enters contracts for export of services or for construction works abroad to meet preliminary expenses are also eligible for cover under this guarantee. ECGC pays two thirds of the loss. ii. Export Production Finance Guarantee: this is guarantee enables banks to provide finance at pre-shipment stage to the full extent of the domestic cost of production and subject to certain guidelines.
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The guarantee under this scheme covers some specified products such a textiles, woolen carpets, ready-made garments, etc and the loss covered is two third. iii. Export Finance Guarantee: this guarantee over post-shipment advances granted by banks to exporters against export incentives receivable such as DBK. In case, the exporter Does not repay the loan, then the banks suffer loss? The loss insured is up to three fourths or 75%. iv. Post-Shipment Export Credit Guarantee: post shipment finance given to exporters by the banks purchase or discounting of export bills qualifies for this guarantee. Before extending such guarantee, the ECGC makes sure that the exporter has obtained Shipment or Contract Risk Policy. The loss covered under this guarantee is 75%. v. Export Performance Guarantee: exporters are often called upon to execute bid bonds supported by a bank guarantee and it the contract is secured by the exporter than he has to furnish a bank guarantee to foreign parties to ensure due performance or against advance payment or in lieu of or retention money. An export proposition may be frustrated if the exporters bank is unwilling to issue the guarantee. This guarantee protects the bank against 75% of the losses that it may suffer on account of guarantee given by it on behalf of exporters. vi. Export Finance (Overseas Lending) Guarantee: if a bank financing overseas projects provides a foreign currency loan to the contractor, it can protect itself from risk of non-payment by the con tractor by obtaining this guarantee. The loss covered under this policy is to extent of three fourths (75%)
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6.INTEREST RATES OF DIFFERENT BANKS
PRE-SHIPMENT FINANCE
20 18 16 14 12 10 8 6 4 2 0 State Bank Of India Oriental Syndicate Bank Of Bank Commerce Saraswat Bank Citi Bank
Upto 180 days From 180 to 270 days Beyond 270 days
The above chart gives a clear picture of the rates of interest charged by various Banks for pre-shipment credit extended by the Banks to Exporters. Here, we have Banks from different sectors of the economy i.e. public sector banks, private sector banks as well as cooperative banks. Out of the above six banks SBI , Oriental Bank Of Commerce and Dena Bank are Public Sector Banks. Saraswat Bank is Co-operative Banks whereas Citi Bank is a foreign Bank. The interest rates vary from bank to banks as well as depending upon the period for which credit is given by the banks to the exporters. While providing pre-shipment credit to exporters it is categorized into three types, i.e. i. ii. for a period of 180 days From 180 to 270 days
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iii.
And Beyond 270 days.
The interest rates vary depending on the above types. As the period of credit increases, the rate of interest also increases. The rate of interest for a period of 180 days is seen to be ranging in between 8% to 12%, and that from 180 to 270 days is found to be in between 10% to 13%. The rate of interest beyond 270 days is the most highest among all i.e. in between 11% to 19%.
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POST SHIPMENT FINANCE

18 16 14 12 10 8 6 4 2 0 State Bank Of India Oriental Bank Of Commerce Syndicate Bank Saraswat Bank Citi Bank On demand Bills On usance bill - Upto 90 days From 90 days to 6 months Beyond 6 months
From the above chart we can see that the interest rates on demand bills are ranging from 8% to 12%. The interest rates on usance bill for 90 days are also found to be ranging in between 8% to 12%. Also as the period of usance bill increases for 90 days to 6 months the rate of interest is found to be increasing. It stands to be ranging in between 9% to 15%. And finally the rate of interest for usance bills beyond 6 months is ranging from 9% to 18%. If we do a comparison between Oriental Bank Of Commerce and State Bank of India, we will find that the interest rate on demand bill and usance bill upto 90 days and beyond 6 months is extended at around similar interest rates however there is a difference in the interest rates on usance bill for 90 days to 6 months .
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7.NATURE OF FINANCING BY BANKS Depending upon the relationship of the borrower with the bank
Relationship
Documentation
Amount of Loan
Charges
Strong
Weak
The above table is based on the research done to find out how banks actually decide upon providing finance to a particular exporter or importer. The table gives details of how relationship of the importer and the exporter with the banker affect various aspects such as the documentation process, the amount of loan and the charges associated with it. It is found that if the relationship of the importer or exporter with the bank is strong then the documentation required is comparatively low than a weak relationship. Also as the bank know the customer well due to a strong relationship, the bank can extend higher amount of finance to them. However in case of weak relationship, the bank may not allow higher amount of finance as the banker might not be familiar with the credit standing of the importer or exporter. Similarly, the amount charged also differs with the difference in relationship. It has an inverse relationship i.e. when the relationship is strong the bank can charge comparatively less amount from the importer or exporter and vice versa.
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Depending upon the securities offered by the borrower to the bank:
Securities
Documentation
Amount of Loan
Charges
More
Less
Here the extension of finance to the importer or exporter depends upon the securities provided by them against the finance taken. To ensure the safety of funds lent, the first and most important factor considered by a bank is the capacity of borrowers to repay the amount of loan; the bank therefore, relies primarily on the character, capacity and financial soundness of the borrower. The choice of security to be provided to the lender/supplier is left to the borrower. But the bank can hardly afford to take any risk in this regard and hence it also has the security of assets owned by the borrower. In case the borrower fails to repay the loan, the bank can recover the amount by attaching the assets. It can sell the assets offered as security and realize the amount. Depending of this factor also the bank decides upon whether to provide finance to the exporter. For instance, if the securities provided by the importer or exporter are more than the bank will definitely give finance to
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the firm. This is because it will minimize the risk involved if the loan is not repaid. The bank can sell the securities and recover the loan amount. Also the charges will be less for the importer or exporter. However the documentation process will be lengthy as the bank will have to verify the securities provided by the borrower. In case if the securities provided are less than the amount of loan provided will reduce with higher charges against it. However the documentation process will not have an effect on it.
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8. RELATIONSHIP BETWEEN NUMBER OF TRANSACTIONS AND INTEREST CHARGES As the number of transaction of the importer/exporter with the bank increases the amount charged by the bank goes on decreasing. The bank would charge higher rate of interest against export finance or high charges against letter of credit to the importer or exporter at the initial stage. But if the importer/exporter approaches the same bank for its further financing, they will reduce the charges or the rate of interest. It indirectly implies that as the relationship of the banker with the importer/exporter grows older the fees charged by the bank reduces. This can be illustrated from the following diagram:
Greater the transactions with the bank Lower the charges
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9. CONTRIBUTION BY VARIOUS BANKS IN TRADE FINANCE

Private Sector Banks Public Sector Banks Co-operative Banks Foreign Banks
25%
23%
20%
32%
The above pie diagram gives us a picture of the contribution of various banks in trade finance. It is based on a research done to find out which banks are preferred by the importers and exporters while going for trade finance. The selection of banks for trade finance is strongly dependent upon the relationship of the client with the bank. According to the survey, most of the importer/exporters are found to be approaching cooperative banks for their business finance. The cooperative banks provide many facilities to the borrowers and this can be the reason why their contribution is found to be more in trade financing. The second highest preference of the borrowers is foreign banks and the least preferred banks are public sector banks. However there is not much difference between the contribution of private sector banks and public sector banks.
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CONCLUSION The questionnaire that was given to the banks covered all the aspects about the loans / services to the importers and exporters . While collecting primary data , nationalized , co-operative and private banks are taken into consideration. Following are some points that are extracted from the answers given by some banks. 1. Almost all the Banks provide trade finance facility. 2. The common type of finance which they provide are: For EXPORTERS. i. ii. iii. iv. Pre-shipment Finance Packing credit in foreign currency (PCFC) Post shipment Finance Exchange Bills Rediscounting (EBR)
For IMPORTERS. i. ii. iii. Opening of L/C Buyers Credit Foreign Currency Loan.
3. There is no ceiling on the amount of finance to be provided as such for domestic as well as foreign currency loans. 4. The finance is given only after checking the creditworthiness of the applicant. Out of total trade finance, finance for exporters is more. 5. Banks may take primary security by the way of Stock , Finished goods , Book debts, Raw material etc. and collateral security by the way of Equitable mortgage of factory, Personal property, Fixed deposit Receipt, NSCs, Personal guarantees.
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6. The documents that bank take from applicant are : Demand promissory notes Invoice of shipment Order invoice Hypothecation deed Mortgage deed 7. The interest rate charged for the foreign currency import finance is LIBOR + 200 bps maximum as per RBI guidelines.
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8. QUESTIONNAIRE
I. Name of the bank:-
II.
Do you provide finance to importers and exporters? Yes No
III.
What type of finance is provided for exporters?
IV.
What type of finance is provided for importers?
V.
What is the rate of interest charged for Preshipment finance? 180 days Beyond 270 days 180 to 270 days
VI.
What is the rate of interest charged for Post shipment finance? For 90 days 90 days to 6 months Beyond 6 months
VII.
Is there any ceiling on the amount of finance to be provided? Yes No (specify the ceiling if yes )
VIII.
What type of securities does the bank take from the applicant?
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IX.
What type of documents does the bank take from the applicant?
X.
Do you provide import/export loan in currency other than the domestic currency? Yes No
XI.
If yes, is there any ceiling on amount of loan given in foreign currency? Yes No What is the % of export import finance out of you total finance provided?
XII.
XIII.
Out of the total finance provided to importers and exporters, which finance is more? Finance to importers Finance to exporters
XIV.
Do you look for the credit worthiness of the borrower? Yes No
XV.
What is the rate of interest charged for import finance?
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Loans To Importers and Exporters (Trade Finance)

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LOANS TO IMPORTERS AND EXPORTERS.

To identify the role of Banks in encouraging Exports by providing