CHAPTER 1.

INTRODUCTION TO EXPORT FINANCE

Export Credit Scheme
The RBI first introduced the scheme of Export Financing in 1967. The scheme is intended to make short-term orking capita! finance a"ai!a#!e to exporters at internationa!!$ compara#!e interest rates. %nder the ear!ier scheme in force upto &une '() *(1() RBI fixed on!$ the cei!ing rate of interest for export credit "ie hi!e #anks ere free to decide the rates of interest ithin the cei!ing rates keeping in the B+,R and spread guide!ines and taking into account track record of the #orro ers and the

risk perception. In order to enhance transparenc$ in #anks- pricing of their !oan products) #anks ere ad"ised to fix their Benchmark +rime ,ending Rate .B+,R/ after taking into account .i/ actua! cost of funds) .ii/ operating expenses and .iii/ a minimum margin to co"er regu!ator$ re0uirement of pro"isioning 1 capita! charge and profit margin. 2o e"er) the B+,R s$stem) introduced in *((') fe!! short of its origina! o#3ecti"e of #ringing transparenc$ to !ending rates. This under the B+,R s$stem) #anks cou!d !end #e!o as main!$ #ecause B+,R. For the same reason) it as a!so difficu!t to

assess the transmission of po!ic$ rates of the Reser"e Bank to !ending rates of #anks. 4ccording!$) #ased on the recommendations of the 5orking 6roup on Benchmark +rime ,ending Rate .7hairman8 9hri :eepak ;ohant$/ #anks ere ad"ised to s itch o"er to the s$stem of Ba e Rate !.e.". #$%& 1' ()1). The Base Rate 9$stem is aimed at enhancing transparenc$ in ,ending Rates of #anks and ena#!ing #etter assessment of transmission of monetar$ po!ic$. %nder the Base Rate 9$stem app!ica#!e .e.f. &u!$ (1) *(1( interest rates app!ica#!e for a!! tenors of rupee export credit ad"ances i!! #e at or a#o"e Base Rate. The $ear *((9 itnessed one of the se"ere g!o#a! recessions in the post ar period. 7ountries across the or!d ha"e #een affected in "ar$ing degrees and a!! ma3or economic indicators of industria! production) trade) capita! f!o s) unemp!o$ment) per capita in"estment and consumption ha"e taken a hit. The g!o#a! trade has dec!ined #$ 9< in "o!ume terms. Though India has not #een affected to the same extent as other economies of the or!d) $et our exports ha"e suffered a dec!ine due to contraction in demand in the traditiona! market of our exports. =o ) there is some turn around and emergence of >green shoots?. The 7urrent Foreign Trade +o!ic$ *((9-1@ estimates to dou#!e the exports of goods and ser"ices #$ *(1@. The !ong term po!ic$ o#3ecti"e is to dou#!e IndiaAs share in g!o#a! trade #$ *(*(. In order to meet these o#3ecti"es) the 6o"ernment ou!d fo!!o a mix of po!ic$ measures inc!uding fisca! incenti"es) institutiona! changes) procedura! rationa!iBation) and

enhanced market access across the indirect taxes and !e"ies +o!ic$ Target.

or!d and di"ersification of export markets. Impro"ement in hich i!! support the achie"ement of the Trade

infrastructure re!ated to exportsC #ringing do n transportation costs and pro"iding fu!! refund of a!! ou!d #e the three pi!!ars

Importa*t term to +e $*der tood a*d their preci e ro%e i* Export,Fi*a*ce

I* tit$tio*a% Frame!or- "or De%i.eri*/ Export Fi*a*ce0 The export acti"it$ of the countr$ is regu!ated) monitored) promoted and financed #$ "arious institutiona! arrangements ha"ing distinct functions to perform. 1o.er*me*t o" I*dia 23i*i tr& o" Fi*a*ce4 The 7ustoms on #eha!f of the 6o"ernment of India .;inistr$ of Finance/ c!ears the export consignments. Re er.e Ba*- o" I*dia 2RBI4 FE;4 authoriBes RBI to frame ru!es for the conduct of Foreign Exchange #usiness. RBIAs directions to 4uthorised :ea!ers on the conduct of export acti"it$ are contained in the 4+ .:IR/ series circu!ars issued from time to time and conso!idated in ;aster 7ircu!ars as on 1st &u!$ e"er$ $ear. Directorate 1e*era% o" Forei/* Trade 1e*era% o" Forei/* Trade 2D1FT4 $*der 3i*i tr& o" commerce :6FT frames the Foreign Trade +o!ic$ gi"ing roadmap for de"e!opment of IndiaAs foreign trade #usiness. The !atest Foreign Trade +o!ic$ is from *((9- 1@ issued on *7th 4ugust *((9. The IT7 .29/ c!assification of the Foreign Trade +o!ic$ gi"es the c!assification of commodities traded. Forei/* Excha*/e Dea%er A ociatio* o" I*dia. FE:4I is an association of a!! 4uthorised :ea!ers such as +u#!ic 9ector %ndertaking .+9% Banks/) foreign Banks) pri"ate sector #anks) cooperati"e #anks) and financia! institutions. It !a$s do n the ground ru!es) #ased on RBIAs directions for the da$ to da$ conduct of foreign exchange acti"it$ #$ 4ds. It acts as a faci!itator #et een mem#er #anks and RBI) Export DrganiBations1 7ham#ers of 7ommerce and other #odies and a!so among the mem#ers. hich can #e

Faci%itati*/ I* tit$tio* EXI3 Ba*- promotes and faci!itates foreign trade for India. It coordinates institutions and companies. Export 7redit and 6uarantee 7orporation 2EC1C4. 1IC pro"ide the transit insurance co"er to exporters. It is common!$ kno n as marine insurance co"er. Internationa! 7ham#er of 7ommerce 2ICC4. I77 framed %R7 for hand!ing Bi!!s under 7o!!ection. i.e. other than those under ,etters of 7redit. It a!so framed %niform 7ustoms and +ractices on :ocumentar$ 7redit that are guide!ines to sett!e pa$ments through the :ocumentar$ 7redit. %RR i.e %niform Ru!es for Bank to Bank Reim#ursements in ,etter of 7redit transactions is a!so an I77 pu#!ication to faci!itate Reim#ursements. %niform Ru!es for :emand 6uarantees i.e. %R:6 is another pu#!ication from I77. Export +romotion 7ounci! 2EPC4 ;inistr$ of 7ommerce set up Export +romotion 7ounci!s to promote exports of different commodities. E+7 he!ps to interface forums. D$* 5 Brad treet :un E Bradstreet is an internationa! agenc$ #ranches ith hom 9BI has a strategic a!!iance to pro"ide its ith opinion reports on re0uest on foreign #u$ers. The o#tention of such reports is ith the ministr$ on matters affecting their mem#ers and a!so represent their "ie points to he!p formu!ate po!icies and the countr$As response at internationa! trade ork of "arious agencies

engaged in financing exports and imports. It pro"ides finance to foreign go"ernments) financia!

preferred if the #i!!s are not dra n under ,etters of 7redit. 9uch reports are a!so re0uired to #e taken for a!! high "a!ue ,7s. Federation of Indian Export DrganiBation 2FIEO4. FIED is the !eading exporterAs um#re!!a group in the countr$ representing their interests. It is a!so the apex #od$ for a!! Export +romotion 7ounci!s. It a!so pro"ides trade information ser"ices to

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exporters and he!ps the mem#er exporters in expanding export "o!umes. 7onfederation of Indian Industries .CII4. 7onfederation of Indian Industr$ .7II/ is the apex #od$ for Indian industr$ supporting Indian #usiness. Federation of Indian 7ham#er of 7ommerce and Industr$ .FICCI4. FI77I is a nationa! organiBation that represents and aggregates mu!tip!e cham#ers of commerce.

CHAPTER (. EXPORT CREDIT AT STATE BAN6 OF INDIA

SBI7 8oa* Po%ic& o* Export Credit tate0 Export sector has #een recogniBed as a thrust area considering its importance and contri#ution of this sector to the econom$. Therefore this sector is #eing present!$ extended finance at concessiona! rates) ith f!exi#i!it$ in financing norms. Export 7redit- .pre shipment1 post shipment/ is !arge!$ regu!ated through directi"es1 guide!ines issued #$ RBI) :6FT E FE:4I and fo!!o ed #$ the Bank present!$ #eing extended finance at concessiona! rates ith f!exi#i!it$ in financing norms. Ba*-7 /ro!th i* Export Credit0 The BankAs export credit gro th is not keeping pace is a !ot of potentia! hich the Bank has to tap. 9BIAs re!ati"e figures for Export 7redit dispensed ith stood at Rs @'6F' crores in =o"A1'. ;arket ith countr$As exports gro th. Therefore) there

share of our Bank "is-a G"is 497B has come do n from 1F.''< in *((9-1( to 1H.@1< in *(11-1* . This sho s that though rate of gro th of exports from India ma$ #e hindered) other #anks are performing #etter than 9tate Bank of India e"en in the tight market condition. Though man$ reasons ma$ #e attri#uted for the dec!ine) much orr$ing fact is that e are a!so !osing our market share to other #anks as far as export credit is concerned.

Ad.a*ta/e to the Ba*- i* exte*di*/ Export Credit0

Se%",%i9$idatio* Export finance can #e !i0uidated #$ discounting1 purchasing the shipment documents #$ the exporter re!ated to the export credit. Pro"it thro$/h Forei/* Excha*/e 5hi!e con"erting export proceeds into rupees) the profit margin is #ui!t into the exchange rate. I*come "rom the other re%ated +$ i*e Besides interest income on negotiation of export #i!!s and commission on export #i!!s) ad"ising of

,etters of 7redit) income can #e deri"ed from re!ated #usiness !ike issue of ,etters of 7redit for import of ra guarantees. A et 8ia+i%it& 3a*a/eme*t Increase of components !ike #i!! financing) export negotiationsC demand !oans etc in the BankAs asset portfo!io impro"e the BankAs a#i!it$ to manage 4sset ,ia#i!it$ mismatches more efficient!$. Re"i*a*ce "rom RBI. 4s an incenti"e) RBI refinances the Bank ith hate"er the Bank has financed to the exporter. EC1C co.er E767 co"ers the risk of exporters and financing #ankers. It gi"es po!icies to the exporters and E7IB .Export 7redit Insurance for Banks/. materia!) machines etc. hich add "a!ue to the export product and issue of #ank

Characteri tic o" Export Credit0

9e!f-,i0uidation :omestic credit is not se!f-!i0uidating #ut export finance can #e !i0uidated #$ discounting1 purchasing the shipment documents #$ the exporter re!ated to the export credit. Export order1,etters of 7redit ,7 is more common in export finance than domestic credit. ;onitoring of end use Export credit is gi"en at a concessiona! rate. The #ank has to ensure the usage of the credit for the purpose it is extended. 7ountr$ Risk 7ountries are p!aced in1 remo"ed from the caution !ist #$ the Bank from time to time due to changing risk perceptions. 7orrespondent Bank Risk 9BI dea!s ith its o n #ranch a#road or through a correspondent #ank. Importing countr$ Regu!ations

The exporter needs to #e c!ear that the product he exports is a!!o ed to #e imported in the respecti"e countr$.

4dherence to time and 0ua!it$ Time and 0ua!it$ is to #e maintained) fai!ing hich the entire consignment can #e re3ected or the order ma$ #e cance!!ed. Export Inspection 7ounci! of India certifies the goods1ser"ices fit for export. Dpinion Reports on Bu$ers Dpinion Report on the #u$ers shou!d #e o#tained to ensure the safet$ of export proceeds rea!iBation. 7o"erage of po!itica! and commercia! risks The po!itica! and commercia! risks in exporting can #e co"ered #$ E767.

Export re%ated Faci%itie a.ai%a+%e "or exporter thro$/h State Ba*- o" I*dia

+re 9hipment Finance in Rupees. +ost 9hipment Finance in Rupees. +re 9hipment Finance in Foreign 7urrenc$ .+7F7/. Export Bi!!s Rediscounting .EBR/. 9BI Exporters 6o!d 7ard 9cheme. Execution of Bid Bonds. 4d"ance +a$ment Bank 6uarantees. +erformance 6uarantees. Esta#!ishment of ,etters of 7redit 4rranging ,ines of credit in foreign countries. Export 7redit to 4EI units. Trade Information 9er"ices. Forex 4d"isor$ 9er"ices.

CHAPTER :. T;PES OF EXPORT CREDIT

Export 7redit- +re 9hipment credit Export Finance as administered #$ the Bank is #$ and !arge #ased on the RBI directi"es1 guide!ines. Exporters o#tain financia! assistance from the #ank at8 Pre Shipme*t Sta/e0 +re 9hipment finance is extended as materia!s) processing) packing) transportation) extended to exporters in Rupees as orking capita! for purchase of ra

arehousing etc. +re 9hipment finance ma$ #e

e!! as in Foreign 7urrenc$. The finance extended in rupees at

+re 9hipment stage is ca!!ed Export +acking 7redit and the finance in Foreign 7urrenc$ extended at +re 9hipment stage is ca!!ed +7F7- +re 9hipment 7redit in Foreign 7urrenc$. Po t Shipme*t Sta/e0 +ost 9hipment finance is extended after shipment to #ridge the time !ag #et een the shipment of goods and rea!iBation of proceeds. 9ome of the c!ients ser"ed #$ 9tate Bank of India at #oth the stage are) ;1s. Radium 7reation +"t ,td) ;1s. ,init Exports +"t ,td) ;1s. 6umpro :ri!!ing F!uids +"t ,td) ;1s. 6omati 7hemica!s +"t ,td) ;1s. Riddhi :$echem +"t ,td) ;1s. 6!o#a! 5riting Instruments and ;1s. :eepak Traders.

T&pe o" Pre Shipme*t Credit0

+acking 7redit 4d"ance against :ut$ :ra #ack Entit!ements +re 9hipment 7redit in Foreign 7urrenc$ .+7F7/

Pac-i*/ Credit,Cate/orie o" exporter The categories of exporters ho are genera!!$ e!igi#!e for export finance are as fo!!o s8 ;anufacturer Exporter ;anufacturer Exporter is an exporter name. ;erchant Exporter ;erchant Exporter is a trader .intermediar$/ ho does not manufacture the goods himse!f #ut #u$s ho is the actua! manufacturer and exports the the same from another supp!ier .domestic or foreign/ ho actua!!$ manufactures the goods and exports in his o n

same in his name. The exporter in such cases is ca!!ed the Export Drder 2o!der .ED2/.

Export 2ouse Export 2ouse is a manufacturer exporter or a merchant exporter prescri#ed under the pre"ai!ing trade po!ic$. +acking 7redit can a!so #e extended for Export 7onsu!tanc$ 9er"ices and 7omputer 9oft are Finance against goods for Exhi#itions and 9a!e 4#road +acking 7redit to 9u# 9upp!iers ith minimum export turno"er

A e me*t o" EPC, Ba ic co* ideratio*

Export +acking 7redit is #asica!!$ orking capita! finance. To appraise1 assess a packing credit proposa!) the points to #e kept in "ie are8

Integrit$ and 7redit orthiness of the #orro er. Export +erformance for the !ast * to ' $ears . here app!ica#!e/ +eriod for packing credit hich is #ased on the trade1 manufacturing c$c!e shou!d norma!!$ not exceed 1H( da$s .4t present concessiona! credit is a"ai!a#!e for *7( da$s/. +ercentage of margin to #e decided keeping in "ie the RBI guide!ines for !i#era! finance to export sector and a!so the "arious incenti"es recei"ed #$ the export sector. The concept of need #ased finance is the guiding princip!e to decide the 0uantum of finance to #e granted to the exporter. The period of packing credit depends upon the manufacturing c$c!e or specific re0uirements of the exportC norma!!$ not exceeding 1H( da$s .*7( da$s at present/.The percentage of margin is dependent on the nature of order) commodit$ and capa#i!it$ of exporter.

The +a ic co* ideratio* i* the a e me*t o" EPC are0 %ndertaking The exporter shou!d pro"ide an undertaking that ad"ance re!ati"e confirmed export order1 ,7. 7onfirmed export order The exporter shou!d pro"ide confirmed export order1 ,7 in origina!. ou!d #e uti!iBed for the specific purpose of procuring1 manufacturing1 shipping etc) the goods are meant for export on!$ as stated in the

+re!iminar$ examination of contract If the customer ants to a"ai! packing credit ad"ance against pre!iminar$ information of contract i!! #e recei"ed #$ him) an ithin a reasona#!e time .sa$ i!! #e produced to the #ank here#$ at a !ater stage the contract or ,7) as the case ma$ #e undertaking to the effect that the same

ithin a month/ for "erification and endorsement. If the need is of a recurring nature) e ma$ extend running account faci!it$ to those exporters ith good track record. +acking credit for a su# supp!ier If the customer asking or packing credit is a su# supp!ier and ants to supp!$ the goods to the Export 2ouse or ;erchant exporter) an undertaking from Export 2ouse1 ;erchant Exporter stating that the$ ha"e not1 !i0uidated. 9ecurit$ documents. Examp!es of securit$ documents are :+ =ote) +acking 7redit agreement) !etter of guarantee the purpose. <$a*t$m The e!igi#!e !oan amount is determined against the ,71firm order) after the app!ication from the #orro er is checked for its comp!eteness and is signed #$ the authoriBed signator$ of the firm1 compan$. 4t the time of processing such proposa!s certain documents need to #e taken from the app!icant. Branches can make ad"ances to the exporters .supp!iers/ 9tate Trading 7orporations1;inera! and ;eta!s Trading 7orporation) if the #ranches can o#tain 4 !etter from the Export 2ouse stating the detai!s of the export order and the portion thereof to #e executed #$ the supp!ier) In!and !etter of credit in fa"or of the supp!ier to #e got opened #$ the Export 2ouse gi"ing re!e"ant ho do not ha"e !etters of credit or firm here there is a guarantor or an$ other specified documents as stated in the sanction ad"ice of the Bank for i!! not a"ai! of packing credit for the same purpose ti!! the origina! packing credit is

orders in their o n name and are routing their exports through the Export 2ouses or agencies !ike

1(

particu!ars of the export !etters of credit1 orders and the outstanding of the packing credit account to #e extinguished #$ negotiation of #i!!s under such In!and ,etters of 7redit. Bi!!s dra n on the Export 2ouse #$ the supp!ier for goods supp!ied for export and ad3ust packing credit ad"ances from the proceeds of such #i!!s. 4 certificate from the Export 2ouse stating the goods ha"e in fact #een exported to #e taken at the end of e"er$ 0uarter) in case #i!!s are not accompanied #$ #i!!s of !ading or other export documents. This certificate shou!d ha"e particu!ars of #i!! date) #i!! amount and name of the #ank through hich #i!!s ha"e #een negotiated. 4n undertaking from the supp!ier that the ad"ance pa$ment) if an$) recei"ed from the Export 2ouse against the export order ou!d #e credited to the packing credit account. 4 !etter of disc!aimer from 9tar Export 2ouse. Di +$r eme*t The Branches shou!d ensure the fo!!o ing things hi!e making dis#ursements8 :is#ursements are made in a phased manner 4d"ances shou!d not #e dis#ursed in !ump sum amounts instead the$ shou!d #e dis#ursed in parts taking into account purpose and needs of the exporter) shipment schedu!es) production c$c!es and other aspects. 4!so) the progress made #$ exporters in time!$ execution of export orders has to #e monitored. :irect!$ through pa$ orders1 drafts to supp!iers To ensure the end use of funds) !oan amount shou!d #e dis#ursed direct!$ through issue of pa$ orders1 drafts to the supp!iers #$ taking necessar$ authoriBation !etter from the #orro er. There are certain exceptions !ike fe agricu!tura! or marine products that demand cash pa$ments. In such cases) the sanction accorded #$ the 9anctioning 4uthorit$ shou!d pro"ide for it. To Borro erAs account 5here direct dis#ursa!s are not possi#!e) the proceeds are credited to #orro erAs account and dis#ursa!s are super"ised herefrom. If !oan proceeds are credited to the current account or cash

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credit account) cash ithdra a!s for sma!! pa$ments1 !a#our pa$ments ma$ #e a!!o ed. 9ecurit$ 4s a genera! ru!e) export packing credit ad"ances shou!d #e secured #$ p!edge or h$pothecation of stocks. It ma$ not #e feasi#!e for manufacturer- exporters ha"ing extensi"e domestic operations and export #usiness to segregate stocks meant for export and p!edge1 h$pothecate them separate!$ to the Bank. In such cases) it is ade0uate if it is ensured that the aggregate outstanding in domestic cash credit account.s/ and export packing credit account are fu!!$ co"ered #$ the ad"ance "a!ue of the stocks p!edged1 h$pothecated to the Bank. 7o!!atera! 9ecurit$ Branches ma$ o#tain co!!atera! securit$ #$ means of a third part$ guarantee1 e0uita#!e mortgage of immo"a#!e propert$. Branches shou!d assess export credits on the condition that it is need #ased and not direct!$ !inked to the a"ai!a#i!it$ of co!!atera! securit$.

Export Credit I* $ra*ce "or Ba*- 2ECIB4 a*d Po%icie o" EC1C0
Bank has opted out of the 5ho!e turno"er +acking 7redit 6uarantee of E767 1171*((' hich ear!ier co"ered a!! packing credit ad"ances. The Bank shou!d no ith effect from o#tain indi"idua!

+acking 7redit Insurance for Banks .E7IB-+7/ on a case to case #asis if the o#tention of such a co"er is part of the terms of sanction of the packing credit. E767 premium shou!d #e paid at the prescri#ed periodicit$. 5here"er app!ica#!e) it shou!d #e checked hether notification to E7671 E767 appro"a! is on record in cases of exports to restricted countries) reporting of defau!ts and nursing of accounts. ;onitor and 7ontro! Branches shou!d monitor and contro! packing credit !oans to ensure proper end use of the amounts as the$ are granted at concessiona! rates of interest and are specific purpose oriented ad"ances. The Borro ers shou!d strict!$ comp!$ ith ru!es regarding su#mission of stock statements and insurance. 5hen dis#ursement is to #e made in stages .depending on the needs of the exporter/) the schedu!e of dis#ursement ma$ #e ca!!ed for #efore granting the ad"ance. :ue date diar$ shou!d #e maintained sho ing the due dates of repa$ments and it shou!d #e ensured that documents are recei"ed e!! in

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time or proper extension app!ications are o#tained from the exporter inspected.

here"er necessar$. 5here

stipu!ated) separate periodic stock statements for export stocks shou!d #e o#tained and stocks

If export takes p!ace and the Bi!! is purchased1 discounted1 negotiated etc) such export proceeds or an$ ad"ance pa$ment recei"ed co"ering the re!ati"e export order shou!d #e ad3usted through the packing credit account and the re!ati"e packing credit account shou!d #e c!osed. In this regard) if the exporter makes a re0uest to ad3ust the proceeds other ise) it shou!d not #e granted. For a proper contro! o"er the pre shipment credit granted to exporters) #ranches need to8 ;aintain separate account in respect of each packing credit granted to an exporter except for those ith JRunning 4ccountA faci!it$. ,i0uidate the pre shipment credit from the proceeds of the re!ati"e export #i!! discounted1 negotiated. If the export #i!! against hich the ad"ance is o#tained is cance!!ed) then the exporter i!! #e una#!e hen purchased1

to tender export documents for ad3ustment1 !i0uidation of the ad"ance #$ the re!ati"e export proceeds. 4s a resu!t) the outstanding ad"ance is ad3usted against the export #i!! dra n on some other importer either in the same countr$ or in an$ other countr$) pro"ided the re!ati"e export #i!! is in respect of the same goods for hich the pre shipment credit as origina!!$ granted. ,i0uidation of +re 9hipment ad"ances The Bank decides the period of packing credit ad"ance depending upon the time re0uired to procure) manufacture or process . here necessar$/ ship the re!ati"e goods. 5ith the introduction of Base Rate from 1st &u!$ *(1() the interest rate app!ica#!e to a!! market segments for +re 9hipment credit upto *7( da$s is 1.F< a#o"e Base Rate and to specified categories of #orro ers is (.*F< #e!o Base Rate for *7( da$s. In case the shipment takes p!ace after '6( da$s from the date of ad"ance the ad"ance ceases to 0ua!if$ for concessi"e rate of interest a# initio. Interest app!ica#!e to JExport 7redit =ot Dther ise specifiedA is app!ica#!e and in case the exports do not materia!iBe at a!! pena! interest rate is app!ica#!e from the date of ad"ance.

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Extension of Time ,imit for !i0uidation of +re 9hipment 7redit Extensions in the period for !i0uidation are to #e a!!o ed on!$ in genuine cases and for "a!id reasons. In case of extensions in the time !imit for !i0uidation of pre shipment credit) #ranches shou!d8 ;onitor the progress made #$ exporters in time!$ fu!fi!!ment of export orders so that the period of credit does not exceed the actua! re0uirement of the #orro er and the pre shipment credit does not remain !ocked up for unnecessar$ !ong period. Running 4ccount Faci!it$ In a running account #asis) the first de#it in the account is ad3usted1 repaid against the first credit to the account. This is irrespecti"e of the fact) that the packing credit !oan pertaining to the first de#it ma$ not re!ate to the export order under hich the export #i!! is su#mitted for negotiation1 purchase1 discount.

Bra*che ma& exte*d pre hipme*t credit o* =R$**i*/ Acco$*t7 +a i the "o%%o!i*/ co*ditio* ?
9atisfactor$ track record This faci!it$ is a"ai!a#!e on!$ to >Exporters exporter ith good track record is one

$+>ect to

ith 6ood Track Record? as defined #$ RBI. 4n

hose o"erdue export #i!!s are not more than F< of the

a"erage annua! export rea!iBations of the preceding three ca!endar $ears. 9tatus can #e certified #$ the 7hartered accountant and needs to #e o#tained e"er$ $ear. ,etter of 7redit1 7onfirmed order The exporter shou!d su#mit re!ati"e ,etter of 7redit1 7onfirmed Drder in a reasona#!e time after a"ai!ing pre shipment finance a!so su#mit them hene"er ca!!ed for #$ the #ranch. ;arked off export #i!!s. The indi"idua! export #i!!s shou!d #e marked off) hene"er the$ are recei"ed for negotiation and

co!!ection) against the ear!iest outstanding pre shipment credit on >First in First out #asis?. The concessiona! credit shou!d not #e ((6F extended #e$ond a period of *7( da$s.

1@

4mount of pre shipment credit exceeds the "a!ue of export order. For instance) to procure the ra materia!s re0uired to execute the export order as in the case of 2+9 ground nuts) de oi!ed cakes etc. Then the excess shou!d #e ad3usted either in cash #$ sa!e of non-exporta#!e #$ products period of '( da$s from the date of ad"ance. Reser"e Bank Refinance. Reser"e Bank refinance is a"ai!a#!e for export finance not exceeding 1H( da$s. Fre0uent re"ie of dra a!s. Branches shou!d constant!$ re"ie the dra a!s in the account "is a "is the export #i!!s tendered for ithin a

negotiation1 co!!ection to ad3ust the pre shipment credit and ensure that the exporter does not misuse the faci!it$ #$ dra ing funds in excess of their genuine re0uirement for in"entor$ #ui!dup1 other purposes. The faci!it$ shou!d #e ithdra n immediate!$ if it is mis- used and #ranches shou!d insist on production of firm order1 ,7 #efore granting further pre shipment ad"ances. +acking 7redit for Export 7onsu!tanc$ 9er"ices and 7omputer 9oft are. In case of consu!tanc$ ser"ices and computer soft are the pre shipment finance at concessiona! rate of interest is extended to exporters to ena#!e them to undertake pre!iminar$ arrangements such as mo#i!iBing technica! and other staff) training staff and for purchase of materia!s re0uired. Finance against 6oods for Exhi#itions and 9a!e a#road Branches ma$ pro"ide finance against goods for exhi#ition and sa!e a#road in the norma! course at pre shipment stage and after the sa!e is comp!eted. +acking 7redit to 9u# 9upp!iers +acking 7redit granted to su# supp!iers co"ers the ,7 or export order recei"ed in fa"our of Export 2ouse1 Trading 2ouse1 9tar Trading 2ouse etc or manufacturer exporters on!$. The faci!it$ of concessiona! finance can #e shared ith su# supp!ier or a supporting manufacturer if a merchant exporter or an export house ha"ing recei"ed a confirmed order or ,7) needs to procure goods and get the same processed1 manufactured #$ another supp!ier or manufacturer. In such a case) the manufacturer1 su# supp!ier norma!!$ a"ai!s the export packing credit and supp!ies good to the merchant exporter1 export house against pa$ment or against an in!and ,7 or an$ other simi!ar

1F

arrangements. 4 supp!ier ho ants to a"ai! the pre shipment ad"ance against the export contract or ,7 recei"ed in the name of an Export 2ouse or an$ ;erchant Exporter shou!d su#mit to the Bank a !etter from the Export 2ouse1 ;erchant Exporter incorporating detai!s of the goods to #e supp!ied and confirming that he has not a"ai!ed an$ packing credit from an$ other #ank1 source against the same contract1 ,7. 9uch ad"ance shou!d #e repaid against the proceeds of the #i!! dra n under In!and ,7 .Back to Back/ opened #$ the Export 2ouse1 ;erchant Exporter in fa"our of the su# supp!ier) in case it is not possi#!e to open Back to Back ,7) su# supp!ier can dra #i!!s on the Export 2ouse1 ;erchant Exporter and ad3ust the ad"ance from the proceeds of such #i!!s. If the #i!! is not accompanied #$ a Bi!! of ,ading indicating that the export is affected) a certificate shou!d #e o#tained from the Export 2ouse1 ;erchant Exporter stating that the goods ha"e actua!!$ #een exported. The credit extended under the s$stem is treated as export credit from the date of ad"ance to the su# supp!ier to the date of !i0uidation #$ ED2 under the in!and export ,7 s$stem or to the date of !i0uidation of packing credit on shipment of goods #$ ED2. 4fter the su# supp!ier has made a"ai!a#!e the goods as per terms of in!and ,7 to the ED2) his o#!igation of performance under the scheme is treated as comp!ied pena! pro"isions are not app!ica#!e to him for de!a$ #$ ED2) if an$. It is the responsi#i!it$ of the ED2 to export the goods as per export order1 ,7. 4n$ de!a$ in the process i!! su#3ect him to the pena! pro"isions issued from time to time. 5hen credit is extended under this s$stem) refinance from RBI to the respecti"e #anks is made a"ai!a#!e for appropriate periods. It is necessar$ to ensure that no dou#!e financing of the same transaction is in"o!"ed. ith. In such circumstances)

Ad.a*ce a/ai* t D$t& Dra!+ac- e*tit%eme*t

Export 7redit can #e gi"en at pre shipment !e"e! for an amount in excess of export order. The excess that represents dut$ dra #ack recei"a#!e is e!igi#!e for interest at concessionar$ rate. If Export +roduction Finance 6uarantee of E767 co"ers the transaction) the amount of dra #ack can #e reco"ered from appropriate authorities and !i0uidated from :ut$ :ra #ack recei"ed.

16

The in!and ,7 in fa"our of 9u# 9upp!ier can #e issued for an amount higher than the re!ati"e export order or the ,7 from a#road as the export documents are in the name of the exporter manufacturer gets packing credit to co"er fu!! manufacturing cost. D"erdraft or 7ash 7redit granted on account of dut$ dra #acks shou!d #e secured #$ h$pothecation of dut$ dra #ack entit!ements. ,etters of 4uthorit$1 +o ers of 4ttorne$ shou!d #e o#tained from the #orro ers and registered ith the dis#ursing agencies concerned) if such agencies are prepared to accept the !etters in fa"our of the #ank and agree to pa$ to the Bank direct c!aims !odged #$ the exporter. 4 suita#!e margin ma$ #e retained on the dut$ dra #ack recei"a#!es financed depending on the credit risks. Pre Shipme*t Credit i* Forei/* C$rre*c& 2PCFC4 The scheme of +re 9hipment credit in foreign currenc$ ena#!es the exporters to a"ai! packing credit at internationa! interest rates through 4uthorised +ersons. The scheme co"ers the cost of #oth domestic and imported inputs of exported goods. The scheme is operated on!$ at designated #ranches as ad"ised from time to time #$ the IB6) 7orporate 7entre. Exporter customers of nondesignated #ranches .=:B9/ can a"ai! the faci!it$ at the nearest designated #ranch .:B/. E!igi#i!it$8 4!! exporters ha"ing firm export orders1 irre"oca#!e ,etters of 7redit are norma!!$ e!igi#!e for +7F7) pro"ided the$ satisf$ other credit norms. Exporters ho ant to a"ai! +7F7 are o#!igated to discount the export #i!!s under Export Bi!! Rediscounting .EBR/ 9cheme. 7urrenc$8 +7F7 can #e a"ai!ed in8 %9 :o!!ar +ound 9ter!ing E%RD &apanese Ken +eriod8 ho a!one is entit!ed to dut$ dra #ack reco"era#!e from appropriate authorities. This is to ensure that

17

+7F7 is a"ai!a#!e for a maximum period of 1H( da$s from the date of dis#ursement. Rate of Interest8 4s per the current stipu!ations) the rate of interest app!ica#!e ef 19th Fe#A1( is *(( #asis points

o"er six months ,IBDR1 E%RD,IBDR1E%RIBDR as on the date of dis#ursement. Extension8 4n$ extension of the +7F7 i!! #e su#3ect to the same terms and conditions as app!ica#!e for

extension of Rupee +acking 7redit. It i!! entai! an interest of *< o"er the origina! spread a#o"e six months ,IBDR pre"ai!ing at the time of extension for the extended period. =o export8 If no export takes p!ace e"en ithin '6( da$s) +7F7 is ad3usted at the ru!ing TT se!!ing rate for the

currenc$ concerned. Interest right from the date of dis#ursement ti!! the date of pa$ment shou!d #e reco"ered at *< o"er the interest rate app!ica#!e for the cash credit of the exporter and the interest ear!ier reco"ered at ,IBDR re!ated rates shou!d #e ad3usted there from. Remittance of foreign exchange for repa$ment of principa! ith interest does not re0uire RBI appro"a!.

PCFC @ T;PES OF ACCOUNTS

+7F7 is made a"ai!a#!e #$ a$ of cash credit account. +7F7 can #e car"ed out of the E+7 !imits a"ai!a#!e to them su#3ect to the out standings under #oth the rupee and foreign currenc$ faci!ities .con"erted at the prescri#ed notiona! rate/ not exceeding the !imits sanctioned. There is no need for sanction of a separate su# !imit for +7F7. Export +acking 7redit .E+7/ in Rupees in part and +7F7 in part can #e granted against the same order. +7F7- su#stitution of Drders and commodities8 Repa$ment of packing credit ma$ #e a!!o ed ith export documents re!ating to an$ other order

co"ering the same or an$ other commodit$ exported #$ the exporter. The re!axation is a!!o ed su#3ect to the conditions "iB) it is necessar$ and una"oida#!e) it is not #$ its sister1 associate1 group

1H

concerns) dec!aration from the exporter to #e o#tained that he has not a"ai!ed +7F7 from an$ #ank against such orders1 documents from hom repa$ment is #eing made.

Other Feat$re o" PCFC0 Funding8 6!o#a! ;arkets %nit .Lo!kata/ acts as the noda! centre to raise1 dep!o$ the offshore and on shore funds to !end under +7F7. It maintains +7F7 !oan nostro account to raise funds and route +7F7 repa$ments at the macro !e"e! and Tok$o .Ken/. 4ccounting8 Dn!$ designated #ranches ha"e to open a 6enera! ,edger account st$!ed >7ash 7redit Foreign 7urrenc$ account? to route a!! transactions under +7F7. The rupee #a!ances under this head is merged 7redits?. E767 7o"er8 E767 co"er is a"ai!a#!e is respect of +7F7 ad"ances on indi"idua! #asis as in the case of Rupee +acking 7redit. 5ithho!ding Tax8 4s the Bank a"ai!s !ines of credit from its o n foreign offices and a!so uti!iBes the F7=B corpus for funding the +7F7) the exporters need not pa$ 5ithho!ding Tax. For ard 7ontracts8 For ard 7ontract can #e #ooked in respect of future dra a!s) if the$ are to #e con"erted to Indian Rupees for purchase of domestic ra minimum amount #eing %9: *F()(((. materia!s. 7ross 7urrenc$ for ard contracts can a!so #e hich +7F7 is a"ai!ed) a"ai!ed in an$ of the permitted currencies against the in"oiced currenc$ in ith the 7ash 7redit #a!ances in the 5eek!$ 4#stract under the head >,oans and 7ash ith the BankAs =assau .%9:/) Frankfurt .E%RD/) ,ondon .6B+/

19

+7F7 G Running 4ccount Faci!it$8 Running 4ccount faci!it$ is permitted to exporters ith good track record . hose export outstanding are not more than F< of a"erage of past three $earAs export proceeds rea!iBations/. In cases Running 4ccount faci!it$ has #een extended to exporters8 ,7 or firm order need not #e insisted upon initia!!$ for dis#ursements of +7F7. 4s and hen the here

exporter recei"es ,7 or Firm order) the particu!ars thereof shou!d #e noted separate!$ in Registers. ,7 or firm order need not #e ph$sica!!$ deposited ith the Bank. 2o e"er) statement of ho!ding of

the ,7s1 firm orders from the #orro er co"ering the outstanding in +7F7 shou!d #e o#tained at month!$ inter"a!s. The #ranches need to introduce a suita#!e s$stem of ho!ding of ,7s1 firm orders and a!so arrange for ph$sica! scrutin$ of the ,71 Firm orders) hene"er considered necessar$. ,i0uidation of +7F7 can #e done on a/ First in First Dut #asis. +7F7 account is opened in the name of the exporter. 5hi!e a!!o ing repa$ments into the +7F7 account) order to order app!ication of repa$ments ma$ not #e necessar$. But order to order monitoring through :ra ing +o er register is essentia! to ensure proper end use of funds and repa$ment of particu!ar +7F7 ithin the stipu!ated period. #/ The proceeds of #i!!s re!ating to another contract for can a!so #e used to pa$ off the +7F7. hich no packing credit has #een a"ai!ed)

PCFC, Other pro.i io*

+7F7 for :eemed Exports8 +7F7 can a!so #e granted for :eemed Exports co"ering supp!ies to pro3ects financed #$ mu!ti!atera!1 #i!atera! agencies1funds. +7F7 granted for deemed exports shou!d #e !i0uidated #$ EBR ithin a maximum period of '( da$s or upto the date of pa$ment #$ pro3ect authorities hiche"er is ear!ier) su#3ect to comp!iance ith other conditions re!ating to deemed exports. +7F7 sharing #et een ED2 and manufacturer supp!ier8 +7F7 can #e granted to a manufacturer supp!ier against the ,7 or export order recei"ed #$ the ED2

*(

on the #asis of the disc!aimer from the ED2 through his #anker. The manufacturer can #e repaid #$ transfer of foreign currenc$ from the ED2 #$ a"ai!ing of +7F7 or discounting of #i!!s under EBR. This shou!d #e done in a a$ that dou#!e financing is a"oided and the tota! period of packing credit is !imited to the actua! c$c!e of production of the exported goods. +7F7 sharing #et een t o ED%1 E+I units8 +7F7 can a!so #e made a"ai!a#!e to #oth the supp!ier ED%1 E+I unit for purchase of ra materia!s1 components of goods and fina!!$ exported #$ the recei"er ED%1E+I unit. 9upp!ier ED%1E+I unit has to #e !i0uidated #$ receipt of foreign exchange from the recei"er ED%1E+I unit for recei"er ED%1E+I can a"ai! +7F7. ,i0uidation of +7F7 #$ pa$ment in Foreign Exchange8 Transfer of foreign Exchange from the #anker of the recei"er ED%1E+I unit to the #anker of supp!ier ED%1E+I unit meets the stipu!ation regarding the !i0uidation of +7F7 #$ pa$ment in foreign exchange. Thus) there i!! not norma!!$ #e an$ post shipment credit in the transaction from the supp!ier ED%1E+I unitAs point of "ie . :ou#!e financing has to #e a"oided in this transaction. +7F7 granted to recei"er ED%1E+I unit i!! #e !i0uidated #$ discounting of export #i!!s. E+7 Dutstanding8 Existing E+7 outstanding of the exporters in rupees cannot #e con"erted into +7F7 ad"ances. Exporter a"ai!ing 9upp!iers 7redit8 In case the Exporter a"ai!s 9upp!iers 7redit in respect of his imports) he on!$ for purchase of domestic inputs. 7omp!iance ith norma! credit discip!ine8 +7F7 amounts are taken into account for the purpose of comp!iance !ike tota! assessed !imits. 47% ;echanism8 +7F7 can #e granted for Exports under 47% mechanism. :iscounted under EBR 9cheme8 ith norma! credit discip!ine i!! #e e!igi#!e for +7F7 hich the

*1

Before granting +7F7) it shou!d #e made c!ear to the exporters that ,7s shou!d not #e restricted to other #anks and the #i!!s shou!d #e in"aria#!$ discounted ith the Bank under EBR scheme. Exporters a"ai!ing +7F7 at the BankAs #ranches shou!d not #e a!!o ed to #ook For ard1 7ross 7urrenc$ for ard contracts ith an$ other #ank in respect of the re!ati"e #i!!s. +7F7 and EBR =ostro ,oan 4ccounts8 :esignated #ranches shou!d not #e sending an$ messages re!ating to de#its1 credits in the +7F7 and EBR =ostro ,oan accounts of 6;% .L/ to the foreign offices concerned direct!$. The foreign offices act on!$ on the instructions of 6;% .L/ hich is the noda! centre and ignore messages re!ating to +7F7 and EBR transactions from the other domestic offices. ,i0uidation of +7F78 Exporters ho a"ai!ed +7F7 ha"e to necessari!$ a"ai! EBR and cannot a"ai! Rupee post shipment

finance for discounting the re!ati"e #i!!s. Dther 4spects of +re 9hipment 7redit8 Execution of Bid Bonds1 Tender 6uarantees on #eha!f of exporters and in fa"our of o"erseas #u$ers in !ieu of earnest mone$ for the supp!$ of goods or ser"ices a#road. Issue of 6uarantees in respect of 4d"ance +a$ments8 Bank 6uarantees are issued in fa"our of o"erseas #u$ers in respect of ad"ance pa$ments to #e made #$ them. 9uch ad"ance pa$ments are a common feature in contracts pertaining to export of capita! goods or turnke$ pro3ects. Esta#!ishment of ,etters of 7redit at the re0uest of exporters in fa"our of supp!iers of ra materia!s) components and ser"ices. Back to Back ,etters of 7redit are issued at the re0uest of export houses and merchant exporters in fa"our of domestic manufacturing units for the supp!$ of goods contracted for export. 4rranging ,ines of 7redit in foreign countries is usua!!$ re0uired order in"o!"es necessar$. here the execution of an export here"er

ork to #e done in #u$erAs countr$. The !oca! cost ma$ #e financed #$ arranging a

!ine of credit from a foreign #ranch or a correspondent #ank against the BankAs guarantee

**

Execution of +erformance 6uarantees at the re0uest of exporter for the performance of machiner$) e0uipment) etc supp!ied #$ them. +erformance 6uarantees are genera!!$ stipu!ated in contracts pertaining to the export of capita! goods or turnke$ 3o#s. 6uarantees are a!so issued in !ieu of retention mone$. Export 7redit to Exporters of 4gricu!tura! +roducts8 To maintain the desired 0ua!it$ in the commodit$ to #e exported) exporters of 4gricu!tura! products1 4gri Export Driented %nits .processing/ ma$ procure and supp!$ 0ua!it$ inputs to the farmers. Branches ma$ treat such inputs to farmers as ra materia! and sanction export credit to co"er the cost of such inputs. Branches ma$ ith o"erseas #u$er or contracts extend the faci!it$ in case of Tie up arrangements) arrangement entered ith farmers in respect of crops to #e purchased. 9pecia! Financia! +ackage for ,arge "a!ue Exports introduced #$ RBI. 5hi!e extending such credit faci!ities) #ranches shou!d #e go"erned #$ interna! guide!ines) RBI .:BD:1IE7:1E7:/ guide!ines) ru!es of FE:4I) FE;4 and 7odes of I77 "iB.) %7+:7) %R7 etc.

Export Fi*a*ce, Po t Shipme*t Fi*a*ce

Exporters ho se!! goods a#road ha"e to ait for a !ong time #efore pa$ment is recei"ed from o"erseas #u$ers. The period of aiting depends upon the terms of pa$ment. To tide o"er this period) exporter needs post shipment finance. +ost 9hipment credit is an$ !oan or ad"ance granted or an$ other credit pro"ided #$ the Bank to an exporter of goods from India from the date of extending the credit after shipment ti!! the date of rea!iBation of the export proceeds i.e. ti!! the #ankAs nostro account is credited a#road. E!igi#i!it$8 +ost 9hipment finance shou!d a! a$s #e extended to actua! exporter ho has exported the goods) an exporter in hose name the export documents are transferred and supp!iers of goods ho supp!$ goods to the designated agencies in case of deemed exports. E"idence of 9hipment8 Export Finance shou!d a! a$s #e extended against e"idence of shipment of exports or supp!ies made. The export has to su#mit the Export :ec!aration Forms as prescri#ed #$ RBI.

*'

Basis of Finance8 +ost 9hipment finance can #e gi"en after shipment against export documents su#mitted #$ the exporter against ,etter of 7redit recei"ed #$ the exporter from the supp!ierAs #ank or against a purchase order recei"ed in his fa"our. The Bank is said to =egotiate the Bi!!s :iscount in case of #i!!s su#mitted against order on Issuance #asis. Muantum of Finance8 +ost 9hipment finance can #e extended upto 1((< of the in"oice "a!ue of goods. :epending upon the pa$ment terms offered #$ Indian exporters to o"erseas #u$ers) post shipment finance can #e short term or !ong term finance. +eriod of finance8 The maximum period usua!!$ a!!o ed for rea!isation of export proceeds is six months from the date of shipment. Rate of interest8 5ith the introduction of Base Rate from 1st &u!$ *(1() the interest pa$a#!e on post shipment finance upto 1H( da$s is 1.F< a#o"e Base Rate. The interest rate app!ica#!e for the specified categories of #orro ers is (.*F< #e!o Base Rate for post shipment credit upto 1H( da$s. ;argin8 In case of post shipment finance) other than #i!! negotiation1 purchase1 discount) the margin ma$ #e stipu!ated depending upon the merits of each proposa! and t$pe of securit$ that is8 ,7) firm order or co!!atera! and E767 co"er. ,imits to #e sanctioned8 9eparate !imits shou!d prefera#!$ #e sanctioned for #i!!s dra n under !etters of credit and #i!!s dra n ithout !etters of credit. In case of 9pecified Branches) !imits for negotiation of #i!!s under !etters of credit of foreign offices1 correspondents of the Bank can #e fixed outside the 4ssessed Bank Finance and in such cases) #ranch managers of the specified #ranches ha"e un!imited po ers to fix !imits for negotiation of #i!!s. In case of non-specified #ranches) Bi!! !imit ou!d #e part of 4ssessed Bank hen extending finance against ,etter of 7redit and +urchase in case of ad"ance against order on sight #asis and

*@

Finance. E767 co"er8 E767 co"ers po!itica! and commercia! risks. 5hen re0uired) E767 post shipment po!ic$ du!$ assigned to the Bank shou!d #e stipu!ated as a condition of sanction) especia!!$ if the post shipment finance is not #acked #$ an ,7. It shou!d a!so #e stipu!ated that the exporter shou!d authoriBe the #ank to de#it his account ith the amount of premium pa$a#!e under Export 7redit Insurance for Banks-+9 .E7IB-+9/ of E767. Interchangea#i!it$ #et een pre shipment and post shipment finance8 =eed #ase interchangea#i!it$ #et een pre shipment and post shipment faci!ities ma$ #e permitted to take care of #unched export orders or ph$sica! exports. The #ranches shou!d comp!$ ith instruction in regard to the extent to hich such interchangea#i!it$ is permitted and the authorit$ to permit such interchangea#i!it$. Basic 7onsiderations for +ost 9hipment8 5hi!e purchasing the #i!! dra n #$ exporters on foreign #u$ers) the Bank takes into consideration8 The track record of the exporter 7ountr$ risk =ature of merchandise Terms of pa$ment +a$ment record of the dra ee. 6uide!ines for +ost 9hipment

Foreign Trade +o!ic$ re0uirements. FE;4 pro"isions 9pecific 4ppro"a! ,ist of E767 Dur BankAs o n guide!ines from IB616;%. FE:4I Ru!es +ro"isions of I77 "iB.) %7+:7) %R7 etc

C%a i"icatio* o" Po t Shipme*t Fi*a*ce0

=egotiation1+a$ment14cceptance of export documents under ,etters of 7redit

*F

+urchase1 :iscount of export documents under confirmed orders1 export contracts 4d"ances against #i!!s sent on co!!ection #asis. 4d"ances against exports on consignment #asis. 4d"ances against dut$ dra #ack entit!ements 4d"ances against undra n #a!ances1 retention mone$

=egotiation1 +a$ment1 4cceptance of export documents under ,etter of 7redit8 The exporters need to su#mit documents for negotiation strict!$ in accordance ith the terms and

conditions of the ,7. It is e0ua!!$ necessar$ for the negotiating #ranch to check this comp!iance ith reference to the documents su#mitted "is- a "is the ,7. It shou!d # ensured that a!! documents are ,7 comp!iant. 4!! !etters of credit are su#3ect to guide!ines of Internationa! 7ham#ers of commerce in the form of %niform 7ustoms and +ractices of :ocumentar$ 7redit .%7+:7/. The ,atest pu#!ication of %7+:7 is %7+:7 6(( effecti"e from 1st &u!$ *((7. The examination of documents su#mitted against ,etters of 7redit must ensure the fo!!o ing8 Each #ank has fi"e #anking da$s for scrutin$ of documents as per %7+:7 6((. The documents ha"e #een su#mitted ithin the "a!idit$ of the ,etter of 7redit. 4!! documents ca!!ed for are su#mitted and in the re0uisite num#er. Each document is issued as per the stipu!ation in the ,7 and their content satisfies the pro"isions of %7+:7 and the ,7. The description of goods in in"oice and documents corresponds to that in the ,7. 9hipment has #een made #efore stipu!ated date. :ocuments are presented ithin the period permitted from shipment date as per %7+:7 6((1FE;4 i.e. *1 da$s ithin the ,7 "a!ue. Fu!! set of c!ean on #oard Bi!! of from the date of shipment. Insurance +o!ic$ co"ers the risk as stipu!ated in the ,7 and is for ade0uate amount. The amount of #i!! is ,ading is su#mitted and the Bi!! of ,ading is issued or endorsed in fa"our of ,7 opening Bank) or as stipu!ated in the ,7. 9tamps and a!terations if an$) on an$ of the documents are du!$ authenticated. 4!! export #i!!s are exempted from stamp dut$. +urchase1 :iscount of Bi!!s8 In case of =on 7redit #i!!s) fo!!o ing points need to #e considered8

4 satisfactor$ status or opinion report on the importer. E767 has fixed the credit !imit on the #u$er .Bu$er ise !imit/ and the exposure is that

ithin

!imit. The exporter shou!d o#tain the 7ontracts19hipments .7omprehensi"e/ Risks

*6

+o!ic$ of E767. 4!! documents su#mitted are in accordance #e passed on to the #u$er direct!$. 7redit orthiness of the exporter 9tatus report on the dra ee .importer/ +ast experience E767 Risk Insurance a"ai!a#i!it$. e*t o* Co%%ectio* Ba i 0

ith firm order1 sa!es contract The shipping tit!e to the goods to

documents are to #e dra n1 endorsed1 consigned to #ank and not a!!o

Ad.a*ce a/ai* t Bi%%

Branches ma$ a!so sometimes grant ad"ances against #i!!s sent on co!!ection #asis. The need to resort to this arrangement norma!!$ arises8

5hen the accommodation a"ai!a#!e under the Foreign Bi!!s +urchased ,imit is exhausted. 5hen some export #i!!s dra n under ,7 ha"e discrepancies. 5here it is customar$ practice in the particu!ar !ine of trade. In the case of exports to countries here there are pro#!ems of externa!iBation .7ountries un i!!ing or una#!e to permit remittance in a con"erti#!e currenc$ outside the countr$.

The #ranches ma$ send the #i!!s on co!!ection #asis and finance the exporter after retaining a suita#!e margin out of the tota! #i!! amount and de#it such ad"ances to an account st$!ed >4d"ance against #i!!s sent on co!!ection #asis?. .rupee ad"ance/. This ma$ #e sanctioned as cash credit or o"erdraft. The ad"ance shou!d #e !i0uidated out of the export proceeds. The ad"ances against #i!!s sent on co!!ection #asis ou!d attract interest rate as app!ica#!e for post shipment credit i.e. as per the tenure of the #i!!. 4d"ance against goods sent on 7onsignment Basis8

The Branches ma$ finance goods exported on consignment #asis at the risk of the exporter for sa!e and e"entua! remittance of sa!e proceeds to him #$ the agent1 consignee su#3ect to the customer en3o$ing specific !imit for the purpose. 5hen goods are exported on consignment #asis) #ranches shou!d instruct the BankAs o"erseas #ranch1 7orrespondent hi!e for arding shipping documents to de!i"er the documents on!$ against Trust Receipt1 %ndertaking to de!i"er the sa!e proceeds #$ a specified date ithin the time prescri#ed for rea!isations of export proceeds. Retain appropriate margin hi!e granting ad"ance against such exports.

*7

4d"ance against :ut$ :ra #ack Entit!ements8

The exporter is entit!ed to "arious incenti"es as per the Foreign Trade +o!ic$ of the countr$. Dne such incenti"e is :ut$ :ra #ack Entit!ement 9cheme. %nder this scheme #anks are a!!o ed to grant ad"ances to exporters against their entit!ements of dut$ dra #ack on export of goods. The period of such ad"ances is up to a maximum of 9( da$s #e$ond hich the Bank ma$ not a!!o the ad"ances or ma$ charge interest app!ica#!e to export credit. 4d"ance against dut$ dra #ack at post shipment stage shou!d #e co"ered under Export 7redit

I* $ra*ce "or Ba*- , EF 2ECIB,EF4.

Dther conditions to #e fu!fi!!ed #efore granting !oans against :ut$ :ra #ack Entit!ements are8

:ec!aration from the exporter to #e o#tained on the export promotion cop$ of the shipping #i!! containing the E6; num#er .Export 6enera! ;anifest =um#er issued #$ 7ustoms :epartment/ mentioning the amount of dut$ dra #ack e!igi#!e. The amount of c!aim thus dec!ared shou!d #e supported #$ a certificate from a 7hartered 4ccountant authenticating the amount of c!aim on the #asis of Trade +o!ic$17ustoms Ru!es. 4 !ien for the amount of ad"ance to #e noted ith the designated #ankAs #ranch conducting the account of the 7ustom department under E:I .E!ectronic :ata Interface/ scheme. The financing #ranch shou!d a!so make necessar$ arrangement ith the designated #ankAs #ranch for transfer of funds as and hen dut$ dra #ack is credited #$ the customs through e!ectronic fund transfer s$stem. Branches ma$ stipu!ate a margin #et een the amount of dut$ dra #ack pro"isiona!!$ certified and the amount of ad"ance to #e granted.

Ad.a*ce a/ai* t U*dra!* Ba%a*ce A Rete*tio* 3o*e&0 In certain !ines of exports) it is the practice of exporters not to dra #i!!s for the fu!! in"oice "a!ue of the goods. Exporters !ea"e a sma!! part undra n for pa$ment after ad3ustments due to differences in eight) 0ua!it$ etc ascertained after arri"a! and inspection. In such cases) #ranches ma$ a!!o ad"ance against the undra n portion for a maximum of 9( da$s) pro"ided8

%ndra n #a!ance is in conformit$

ith the norma! !e"e! of #a!ance !eft undra n in the

particu!ar !ine of export su#3ect to a maximum of 1(< of the export "a!ue) and The exporter pro"ides an undertaking that six months from the date of shipment of goods he i!! repatriate #a!ance proceeds of the shipment.

*H

Retention ;one$8 9imi!ar!$ under certain contracts) foreign #u$ers retain a sma!! portion of the #i!! amount up to an agreed period to ena#!e themse!"es to #e satisfied a#out the 0ua!it$ of the items supp!ied. 4d"ance against such retention mone$ can #e a!!o ed to the exporters pro"ided the retention mone$ is repatriated to India ithin '6( da$s from the date of export. 9uch ad"ance carries interest at concessi"e rate up to a maximum of 9( da$s. 4s regards post shipment credit not supported #$ !etter of credit) post shipment E7IB-+9 co"er is genera!!$ o#tained against commercia! and po!itica! risks. These co"ers pro"ide credit enhancements to the Bank #$ ensuring that a good portion of BankAs !oss arising from the exporter not discharging his !ia#i!ities cou!d #e made good #$ E767. Export Bi!! Rediscounting .EBR/8 RBI formu!ated the scheme of JRediscounting of Export Bi!!s 4#roadA #$ 4uthorised dea!ers to make a"ai!a#!e to the exporters post shipment finance at internationa! rates of interest. %nder the scheme) exportersA #i!!s are discounted at the post shipment stage and simu!taneous!$ rediscounted a#road #$ the #ank to raise foreign currenc$ funds that are app!ied to !i0uidate the under!$ing +7F7 !oan. Both sight and usance #i!!s are discounted under the EBR scheme. The scheme of EBR is operati"e at on!$ the designated #ranches on!$. Exporter customers of nondesignated #ranches can a"ai! the EBR faci!it$ at the nearest designated #ranch. EBR- E!igi#i!it$8

4!! exporters are e!igi#!e to co"er their #i!!s dra n under ,7s) non-credit #i!!s under sanctioned !imits under the scheme. Exporters a"ai!ing +7F7 shou!d in"aria#!$ a"ai! EBR faci!it$ to discount the re!ati"e export #i!!s. Both demand and issuance #i!!s are e!igi#!e for co"erage. EBR faci!it$ is norma!!$ a"ai!a#!e for a maximum period of 1H( da$s. If the #i!!s discounted are not paid on the 1H(th da$) extension can #e permitted on!$ ith appro"a! of RBI. If an exporter does not a"ai! +7F7 or rupee E+7) he can a"ai! EBR faci!it$. 4!so exporters a"ai!ing rupee E+7 can a"ai! EBR faci!it$.

EBR- 7urrenc$8

*9

The scheme is restricted to four ma3or currencies. The$ are8 %9 :o!!ar +ound 9ter!ing E%RD &apanese Ken 7ross 7urrenc$ sett!ements are a!so permitted8 For examp!e) exporters ha"ing ,7 or export order in 9 iss Francs or Ita!ian ,ira can a!so a"ai! +7F7 and EBR in an$ of the four designated currencies. For cross currenc$ dis#ursements) #oth +7F7 and EBR shou!d #e a"ai!ed in the same designated currenc$. The exchange risk in cross currenc$ dis#ursements is #e #orne #$ the exporters. Rate of Interest8 The rate of interest app!ica#!e as per RBI guide!ines is *(( #asis points o"er six months ,IBDR. 6;% .L/ ad"ises the six month ,IBDR rate for the designated currencies that is %9 :o!!ar) E%RD) +ound 9ter!ing and &apanese Ken. Funding8 6;% .L/ is designated as the noda! centre to raise offshore funds and use onshore funds to fund the rediscounting portfo!io. It maintains rediscounting !ine =ostro accounts to arrange for necessar$ funds ith the BankAs8 =assauAs office for %9 :o!!ars Frankfurt office for Euro ,ondon office for +ound 9ter!ing Tok$o office for &apanese Ken For ard 7ontracts8 For ard 7ontracts can #e #ooked for the surp!us portion of EBR #i!! that is to #e con"erted in to Indian rupees for credit to exporterAs account after ad3ustment of its foreign currenc$ portion to the +7F7.

'(

Return of Export Bi!!s %npaid8 The EBR ad"ance that is a foreign currenc$ !oan is c!osed) hen the o"erseas #u$er pa$s the #i!! and the export proceeds are rea!iBed. But if an$ export #i!! discounted under EBR scheme is returned unpaid) a sa!e entr$ is to #e put through at the pre"ai!ing TT se!!ing rate. 5ithho!ding Tax8 =o ithho!ding Tax is pa$a#!e if the interest on the foreign currenc$ !ine is remitted to the BankAs

o n foreign offices. 4s !ines of credit a"ai!ed for this purpose is on!$ from the BankAs foreign offices) the exporters ma$ not pa$ ithho!ding Tax. EBR- :irect :iscounting8 Exporters can arrange for themse!"es a !ine of credit ith an o"erseas #ank or an$ other agenc$

.inc!uding a factoring agenc$/ through a #ank in India direct!$ to discount their export #i!!s su#3ect to the condition that discounting of export #i!!s is routed through the designated #ank1 authoriBed dea!ers from hom the packing credit faci!it$ has #een a"ai!ed. If the #i!!s are routed through an$ other #ank1 authoriBed dea!er) the !atter amount outstanding under packing credit rediscounted #i!!s. 5rite Df %nrea!ised Export Bi!!s E Extension of Time ,imit to Rea!ise Export +roceeds 9e!f 5rite Dff8 4n exporter ho has not #een a#!e to rea!iBe the outstanding export dues) ma$ 9e!f 5rite off an i!! arrange to ad3ust the

ith the concerned #ank out of the proceeds of the

Export Bi!! upto the !imit specified #$ RBI i.e. 1(< of export #i!!s due during the current $ear. 4pproaching the 4:8 If the exporter has not #een a#!e to rea!iBe the outstanding export dues) the$ ma$ approach an 4uthoriBed :ea!er ho had hand!ed the re!e"ant shipping documents ith appropriate supporting documentar$ e"idence) ith a re0uest for rite off of the unrea!iBed portion. 4uthoriBed :ea!er ma$ agree to such re0uest su#3ect to the fo!!o ing conditions8

The export #i!! has #een outstanding for a period of more than one $ear. 4!! efforts ha"e #een taken to rea!iBe the export proceeds and satisfactor$ documentar$

'1

e"idence is furnished in support of that. The aggregate amount of rite off a!!o ed #$ the authoriBed dea!er during a ca!endar $ear does not exceed 1(< of the tota! export proceeds due during the current $ear.

9BI Exporters 6o!d 7ard 9cheme8 9BI ExporterAs 6o!d 7ard 9cheme as !aunched to meet orking capita! needs of exporters after--8

ENI; +o!ic$ *(('-(@ proposed to introduce 6o!d 7ard 9cheme for credit

orth$ exporters

ith good track record. Reser"e Bank of India announced a mode! scheme on the same !ines to #e imp!emented #$ the Banks after due customiBation.

Feat$re o" SBI Exporter 1o%d Card Scheme0

E!igi#i!it$8

4ccounts c!assified as 9tandard 4sset for the !ast three consecuti"e $ears. =o irregu!arities ad"erse features o#ser"ed in the conduct of the accounts. 2o e"er) occasiona! o"er dra ings shou!d not #e construed as an ad"erse feature. The exporter is not #!ack !isted #$ E767 and1 or inc!uded in RBIAs defau!ters1 7aution !ist. The unit has not incurred !osses during the !ast three consecuti"e $ears. D"erdue Export Bi!!s are not in excess of 1(< of the pre"ious $earAs turno"er. .This condition has #een ai"ed for a $ear / In case of takeo"er of the account the extant take o"er norms shou!d #e comp!ied together ith the other e!igi#i!it$ norms !isted a#o"e. 6reenfie!d +ro3ects i.e. a ne pro3ect in an existing industr$ hich an entrepreneur ith) ho

cou!d #e an exporter endea"ors to esta#!ish from scratch and run profita#!$) ma$ a!so #e

considered on a case to case #asis. Existing customers and ne connections are e!igi#!e for 9BI Exporters 6o!d card scheme.

+eriod of the 7ard8 9BI Exporters 6o!d 7ard is issued for a period of ' $ears. It is rene ed automatica!!$ for another three $ears hen the pre"ious sanctioned !imit inc!uding stand#$ !imit steps up su#3ect to the fu!fi!!ment of terms and conditions of sanction and the unit continuing to satisf$ the e!igi#i!it$ criterion for the scheme.

'*

Credit "aci%itie i* "orei/* C$rre*c&0 Exporters 6o!d 7ard ho!ders i!! #e gi"en priorit$ in sanction of +7F7 ad"ances. A e me*t o" Credit 8imit0

;anufacturing Exporters and Trading Exporters crore or #e!o

ith pro3ected export turno"er upto Rs 1((

9imp!ified Turno"er Based 4ssessment ;ethod or =a$ak committee method

%nit ith #oth export and domestic components8 Turno"er Based 4ssessment method. 9oft are Exporters8 7ash Budget ;ethod prescri#ed in respect of soft are finance) irrespecti"e of 0uantum of turno"er. %nits ith pro3ected export turno"er a#o"e Rs 1(( crore8 +ro3ected Ba!ance 9heet ;ethod or 7ash Budget ;ethod. %nits ith pro3ected export turno"er upto Rs 1(( crore or #e!o and pro3ected domestic

turno"er upto Rs *F crore or #e!o 8 Turno"er Base assessment method. %nits ith pro3ected export turno"er upto Rs 1(( crore or #e!o and pro3ected domestic turno"er a#o"e Rs *F crore8 +ro3ected Ba!ance 9heet1 7ash Budget method. =on Fund #ased faci!ities re0uired #$ the exporter i!! #e assessed as per existing norms.

9tand#$ ,imit8 9tand#$ !imit of *(< ma$ #e sanctioned to a!! 6o!d card ho!ders #$ the appropriate authorit$ a!ong ith sanction of assessed credit !imits to meet credit demands arising out of receipt of sudden orders. Exporters i!! #e e!igi#!e to a"ai! stand #$ !imit for a maximum period of 1H( da$s in one instance. 9tep up Faci!it$8 Exporters are e!igi#!e for a 9tep up faci!it$ of 1(< e"er$ $ear. Rate of Interest8 Interest Rate on 9BI Exporters 6o!d 7ard i!! #e *F #ps !o er than our norma! export credit for i!! #e 1.*F<

#oth pre and post shipment finance. 5ith the introduction of Base Rate from 1st &u!$ *(1() the interest rate app!ica#!e for +re 9hipment credit upto *7( da$s for a!! market segments a#o"e Base Rate and for specified categories of #orro ers it i!! #e (.F(< #e!o Base Rate. For

''

+ost 9hipment credit extended upto '6F da$s from the date of shipment) interest rate #e!o Base Rate for 9BI 6o!d 7ard Exporters. Time =orms8 :isposa! of Fresh app!ications *F :a$s Rene a! of !imits 1F :a$s 9anction of adhoc !imits (7 :a$s

i!! #e (.F(<

'@

EXPORT CREDIT @ COST BENEFIT ANA8;SIS , EXERCISE 4n exporter ou!d !ike to a"ai! pre shipment finance for ' months) immediate!$ against a particu!ar a #i!! for ' months. 2ence he makes a re0uest to #ook

order. 4fter shipment he intends to dra

for ard contract. 2e has approached $ou on 1*.11.*(1( for pre shipment finance for purchase of domestic ra materia!s. The data on 1*.11.*(1( is as under8 +re 9hipment 7redit8 Interest Rate8 a/ =orma! ExportersC Base Rate O 1.F< #/ 6o!d 7ard Exporters8 Base Rate O 1.*F< c/ 9pecified sector Base Rate-.*F< d/ 6o!d 7ard Exporters8 Base Rate- .F(< 7.6( O 1.F P 9.1( < 7.6( O 1.*F P H.HF < 7.6( G (.*F P 7.'F < 7.6( - (.F( P 7.1( < +ost 9hipment 7redit8 Interest Rate8 a/ Base Rate O 1.F< #/ 6o!d 7ard Exporters8 Base Rate O 1.*F< c/ 9pecified 9ector Base Rate-.*F< d/ 6o!d 7ard Exporters8 Base Rate- .F(< 6 months %9: ,IBDR (.@@ < p.a. 1; %9: for ard premium '; %9: for ard premium 6; %9: for ard premium 7.HH < +4 7.1( < +4 6.6F < +4

1*; %9: for ard premium F.6F < +4

'F

a/ E+7O FB+ #/ +7F7OEBR c/ E+7OEBR 9.=o. 4!! market segments 6o!d 7ard to a!! market segments 9pecified categor$ exporters 6o!d card to specified categor$ E+7 O FB+ 9.1( O 9.1(P 9.1( 9.1(-6.6FP*.@F H.HF O H.HFP H.HF- 6.6FP*.*( 7.'F O 7.'FP 7.'F6.6FP(.7 7.1(O 7.1(P 7.1(-6.6FP(.@F +7F7 O EBR *.@@ O *.@@ *.@@ O *.@@ *.@@ O *.@@ *.@@ O*.@@ E+7 O EBR 9.1(-7.1(P *.(( *.((O *.@@P @.@@1*P*.** H.HF-7.1(P1.7F 1.7FO*.@@P @.191*P*.(9F 7.'F-7.1(P(.*F (.*FO*.@@P *.691*P1.'@F 7.1(-7.1(P( (O*.@@P *.@@1*P1.** preferred E+7 O EBR E+7 O EBR E+7 O FB+ E+7O FB+

'6

ANNEXURE 1) Emai! 7orrespondence

'7