EXPORT FINANCE

Introduction
 Export finance is short term, working capital finance allowed to an exporter.
 Banks are advised to ensure timely availability of credit to eligible exporter.
 Cost of the funds should be affordable.

Relevant regulations
 RBI GUIDELINES
*FOREIGN EXCHANGE DEPT
*DBOD
 TRADE CONTROL REGULATIONS
*FTP 2009-2014
 ICC GUIDELINES (UCPDC 600,URC 522)
 ECGC
 FEDAI

Stages of Export finance

 Pre-shipment
 Post –shipment

Types of pre-shipment finance

 Packing credit
 Advance against govt. receivables.
 Advance against cheques/drafts representing advance payment.

Definition
Pre-shipment finance/packing credit means any loan or advance granted or any credit
provided by a Bank to an Exporter for financing the Purchase, processing, manufacturing,
or packing of goods prior to shipment.
Eligibilty

 To bonafide exporter
 IEC number allotted by DGFT.
 Against LC firm export order
 Capacity to export
 Commodity should be permissible for export.
 Exporter not under caution list of RBI
 Exporter not under specific approval list (SAL)of ECGC.

Quantum of advance
 Normally not exceeding FOB value or domestic cost whichever is less.
 Margin may be stipulated.

Security and documents

  Hypothecation or pledge of goods
 Sometimes advance may remain as clean advance also.
 Demand pro-note
 Hypothecation or pledge agreement

Accounts
 Normally separate loan account for each export order.
 Running account facility may be extended to exporters with good track record.
 Under running account liquidation is done on FIFO basis.
Interest
 For PC in INR
* BPLR minus 2.5 % (maximum) up to 270 days.
*Above 270 days to 360 days- Higher rate at the discretion of Bank.
*If the advance is not liquidated within 360 days. commercial rate of interest is charged
for entire period of advance (ECNOS rate)

 For PCFC
* LIBOR plus 350 bps (maximum) up
to 180 days.
*Overdue interest 200 bps extra.

Repayment
 Bills drawn for export
 Export incentives like duty drawback etc.
 Balances in EEFC account
 Rupee resources of the exporter to the extent export have actually taken place.
 If export can not take place at all, Advance will be repaid from local funds and
the Bank will charge domestic commercial rate of interest plus penalty for entire
period.
Packing credit in foreign currency
 Permitted with a view to making credit available to exporters at internationally
competitive rates.
 Allowed for domestic and imported inputs of goods to be exported.
 Facility can be extended in any convertible currency.viz.USD,EUR,GBP,JPY etc.
 Can be extended in currency other than that of export order, if desired by the
exporter.
 All instructions for Rupee packing credit apply to PCFC also.

Source of funds for Banks

 FCNR deposits

 EEFC balances

 RFC balances
  Borrowings

PC Or PCFC ?
 Factors to be considered
* Interest rate difference between
INR and FC.
*Forward premium
*Outlook for currency movement

Post shipment finance

 Post shipment finance is essentially an advance against receivables, which will be
in the form of shipping documents.
 It is a bill finance after the shipment till the export proceeds are realized.

Types of post shipment finance

 Export bill purchased
 Export bill discounted
 Export bill negotiated
 Advance against bill sent for collection
 Advance against consignment export
 Advance against undrawn balance
 Advance against duty drawback.

Various payment modes

1. Open account
2. D/A collection bills
3. D/P Collection bills
4. Unconfirmed L/C
5. Confirmed L/C
6.Advance payment

Important trade documents

 Draft or Bill of Exchange
 Commercial Invoice
 Transport document – B/L,AWB,RR,LR,PPR
 Packing list
 Certificate of origin
 Insurance policy/certificate
 Inspection/Analysis certificate
 Declaration form-GR/SDF/SOFTEX

Period and interest

 For DP bills for a period of normal transit period (NTP 25 days)
 For DA bills up to notional due date
  Concessional rate of interest up to 180 days.
 Normally no margin in bill finance.

FEMA on export bills

 Export declaration forms
GR/SDF/PP/SOFTEX
 Time limit for export realization (12 months from date of shipment)
 Reduction in Invoice value
 Change of buyer
 Extension of time for realization
 Export claims
 Refund of export proceeds
 Write off of unrealized export bills.
 Payment of agency commission
 Crystallization of overdue export bills

Special schemes for exporters

 Gold card scheme
 Export finance interest rate subvention
scheme.

Further reading
 Master circular dated 01.07.09 on export credit issued by RBI.