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EXPORT FINANCE : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 EXPORT FINANCE

WHAT IS EXPORT FINANCE ? : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 WHAT IS EXPORT FINANCE ? Working capital finance Export Credit Performance Indicator for Banks :Banks are required to reach a level of outstanding export credit equivalent of 12% of each bank's Adjusted Net Bank Credit. (Our bank is less than 6% since last 2 years ) The RBI first introduced the scheme Export Financing in 1967 Distinct stages of finance Dimension of risks Concessive credit – End use Monitoring ECGC Cover Refinance Better profit margins for exporters Higher income opportunity for bankers

RISKS IN EXPORT BUSINESS : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 RISKS IN EXPORT BUSINESS COMMERCIAL RISKS Tracking the movement of goods. Buyer’s Default / Insolvency Re import / Alternative buyers. Legal tangles. COUNTRY RISK / Political Risk War, Civil War, Riots, Diversion of Voyage, Public Buyer’s Default, etc Externalization Risk. Regulatory Risk. EXCHANGE RISK

Appraisal of Export Credit : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 Appraisal of Export Credit No compromise on viability/integrity Exporter’s capacity ( timely delivery/ tech/mange -expertise) Need-based (turn-over/cost of inputs) Opinion report on buyer Political/regulatory/financial conditions of importing country Acceptability of LC opening bank/LC conditions

Appraisal of Export CreditRBI GUIDELINES : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 Appraisal of Export CreditRBI GUIDELINES Time norms for sanction(new-45/ren-30/adhoc-15) Online Credit (limits should continue uninterrupted in case of delay in renewal) Peak/non-peak credits for seasonal commodities Interchangeability in pre & post shipment facilities TL requirements for modernization etc Not be denied merely on collateral security considerations

INSTITUTIONAL FRAMEWORK : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 INSTITUTIONAL FRAMEWORK Foreign Trade Policy RBI ( FED) RBI directives. (Time norms, period, interest, liquidation, documentary evidence, refinance.) FEMA FEDAI ECGC EXIM Bank Export Promotion Councils GIC (Marine Insurance Cover) UCPDC, URC

Slide 7: 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 Under ECGC Party to whom credit extended not under ECGC’s Specific Approval List (SAL) Country of import not under Restricted Cover Countries (RCC) Limit proposed to be sanctioned to be within Discretionary Limit prescribed by ECGC per borrower for the bank. Reporting to ECGC within 30 days from date of sanction in the prescribed format

FEMA : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 FEMA Earlier FERA (Regulatory) More of control because foreign exchange was scarce. FEMA-Declaration forms for exports-GR, SDF,PP, SOFTEX Manner of Payment- Rupee, ACU Countries (Myanmar, Pakistan, Bangladesh, Iran, Sri Lanka) Foreign Currency Accounts- Temporary Accounts for participation in International Trade fairs, EEFC Accounts.

Slide 9: 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 Foreign Trade Policy, 2009-2014 The Policy shall come into force w.e.f. 27th August, 2009. The UPA Government has assumed office at a challenging time when the entire world is facing an unprecedented economic slow-down. The year 2009 is witnessing one of the most severe global recessions in the post-war period. Countries across the world have been affected in varying degrees and all major economic indicators of industrial production, trade, capital flows, unemployment, per capita investment and consumption have taken a hit.

FTP : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 FTP The recessionary trend has huge social implications. The World Bank estimate suggests that 53 million more people would fall into the poverty net this year and over a billion people would go chronically hungry. Though India has not been affected to the same extent as other economies of the world, yet our exports have suffered a decline in the last 10 months due to a contraction in demand in the traditional markets of our exports

FTP : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 FTP Agriculture and industry has shown remarkable dynamism in contributing to a healthy growth in exports. In the last five years our exports witnessed robust growth to reach a level of US$ 168 billion in 2008-09 from US$ 63 billion in 2003-04. Our share of global merchandise trade was 0.83% in 2003; it rose to 1.45% in 2008 as per WTO estimates. Our share of global commercial services export was 1.4% in 2003; it rose to 2.8% in 2008. India’s total share in goods and services trade was 0.92% in 2003; it increased to 1.64% in 2008. On the employment front, studies have suggested that nearly 14 million jobs were created directly or indirectly as a result of augmented exports in the last five years.

FTP : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 FTP The short term objective of our policy is to arrest and reverse the declining trend of exports and to provide additional support especially to those sectors which have been hit badly by recession in the developed world. We would like to set a policy objective of achieving an annual export growth of 15% with an annual export target of US$ 200 billion by March 2011. In the remaining three years of this Foreign Trade Policy i.e. up to 2014, the country should be able to come back on the high export growth path of around 25% per annum. By 2014, we expect to double India’s exports of goods and services. The long term policy objective for the Government is to double India’s share in global trade by 2020.

FTP : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 FTP In order to meet these objectives, the Government would follow a mix of policy measures enhanced market access across the world and diversification of export markets. Improvement in infrastructure related to exports; bringing down transaction costs, and providing full refund of all indirect taxes and levies, would be the three pillars, which will support us to achieve this target. A Special thrust needs to be provided to employment intensive sectors which have witnessed job losses in the wake of this recession, especially in the fields of textile, leather, handicrafts, etc. As part of our policy of market expansion, we have signed a Comprehensive Economic Partnership Agreement with South Korea which will give enhanced market access to Indian exports.

FTP : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 FTP An important element of the Foreign Trade Policy is to help exporters for technological up gradation. Technological up gradation of exports is sought to be achieved by promoting imports of capital goods for certain sectors under EPCG at zero percent duty. . For technological up gradation of the export sector, these status holders will be permitted to import capital goods duty free (through Duty Credit Scrips equivalent to 1% of their FOB value of exports in the previous year), of specified product groups. This will help them to upgrade their technology and reduce cost of production. For up gradation of export sector infrastructure, ‘Towns of Export Excellence’ and units located therein would be granted additional focused support and incentives.

FOREIGN TRADE POLICY(2009-2014) : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 FOREIGN TRADE POLICY(2009-2014) FTP is framed by (DGFT) functioning under the Ministry Of Commerce, Government Of India. FTP IS A ROADMAP FOR THE DEVELOPMENT OF INDIA’S FOREIGN TRADE. To act as an effective instrument of economic growth by giving a thrust to employment generation. Special focus on Sectors with significant export prospects with potential for employment generation especially in rural and semi urban areas. Agriculture, Handicrafts, Handlooms, Leather and Gems & Jewellery, Marine, Electronics and IT hardware manufacturing industries and Sports goods.

FOREIGN TRADE POLICY : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 FOREIGN TRADE POLICY FTP contains provisions relating to exports and imports of goods and services Policy Handbook of Procedures Part 1 Handbook of Procedures Part II ITC(HS) Classification Classification- Free Restricted Banned

IE-CODE NO. : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 IE-CODE NO. EVERY EXPORTER WHETHER INDIVIDUAL/FIRM/CO EXPORTING GOODS FROM INDIA WILL REQUIRE A CODE NO.(IE CODE NO) EXPORT TRADE-REGULATED BY DGFT. THE CUSTOM AUTHORITIES WILL NOT ALLOW ANY PERSON TO EXPORT GOODS FROM INDIA UNLESS SUCH PERSON HOLDS A VALID EXIM CODE NO Wherever applicable, the exporter should also possess an export license/quota granted by the Export Promotion Council.

CHARACTERISTICS : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 CHARACTERISTICS Released against Export Order / LC Refinance available Advance in Foreign Currency or Rupees Advance liquidated by Exports Stringent monitoring of end-use Country Risk Correspondent Bank Risk Importing country regulations Opinion Reports (D&B) Adherence to quality & time schedules

Slide 19: 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 EOU-Letter of Permit issued by Development Commissioner/DGFT. SEZ-Notified by Ministry of Commerce and Industries Department of Commerce. Status Holder –An exporter recognized as EXPORT HOUSE/ TRADING HOUSE. Export houses divided into 5 categories depending on their total export performance during the current year plus the previous three years as under: Category Export Turnover (In Rs. crores) Export House 20 Star Export House 100 Trading House 500 Star Trading House 2500 Premier Trading House 10000

EXPORT FINANCE : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 EXPORT FINANCE Pre-Shipment Finance, also referred to as EPC(EXPORT PACKING CREDIT), is extended as WC for purchase of RM, processing, packing, transportation, warehousing, etc., of goods meant for exports. Post-Shipment Finance is extended after shipment to bridge the time lag between the shipment of goods and the realisation of proceeds.

PACKING CREDIT : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 PACKING CREDIT This advance is granted to the exporter (and in some cases even to the sub-suppliers who are not exporters) for procuring the goods from the market may be of a clean nature at initial stage, It should be converted into secured advance as soon as the goods are procured by the exporter and are undergoing further processing/manufacturing, by hypothecating the goods in the name of the Bank. The security offered may further be perfected by pledging the goods to the Bank when the physical / constructive custody of the goods remains with the Bank or Bank’s approved clearing agent. However, this stage will arise when the goods are ready for shipment and do not require further processing.

PACKING CREDIT ADVANCE : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 PACKING CREDIT ADVANCE Packing credit advance - available to the eligible exporter against lodgement of irrevocable LC established/transferred in his favour by the foreign buyer through the medium of a First Class bank or confirmed order/contract placed by the buyer for export of goods from India. However, branches may grant advances without insisting on lodgement of LC or confirmed order/contract at initial stage, In case of exporters with good track record and if the reasons for delayed submission of LC/orders are genuine

PACKING CREDIT ADVANCE : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 PACKING CREDIT ADVANCE In case LC or confirmed order/contract is expected in the near future, the relevant evidence - form of a cable/telex, is also acceptable Such communication contains at least the following information: a) Name of the buyer b) Value of the order c) Quantity and particulars of the goods to be exported d) Date of shipment e) Terms of payment EPC loan is given normally not exceeding the FOB value of order/LC or domestic cost of production, whichever is less, irrespective of sales contract terms

EXCEPTION : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 EXCEPTION EPC-available to the extent of domestic market value of the goods even though such value is higher than the FOB value of the goods, provided the goods are covered by Export Incentive Scheme of Government of India/ Duty Drawback Scheme. Excess advance should be liquidated from the Cash Incentive/ Duty Drawback received Reserve Bank of India -Packing credit advances to exporters of Hand Picked and Selected (HPS) groundnut and of de oiled and defatted cakes against the security of oilseeds or other raw material (e.g. groundnut, rice bran, etc.) to the extent of the value of raw materials required, even though the value thereof exceeds the value of the export order. The advance in excess of export order is required to be adjusted either in cash or by sale of residual groundnuts or by-product oil, Within a period not exceeding 30 days in case of export of deoiled and defatted cakes and 15 days in case of HPS groundnuts from the date of advance. The balance in the packing credit advance is to be adjusted by the proceeds of the relative export bills.

INTERCHANGEABILITY : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 INTERCHANGEABILITY Interchangeability between domestic and export limits on account of change in the mix of domestic and export turnovers Similarly, need based interchangeability between pre shipment and post shipment credit limits may be permitted to take care of bunched export orders or physical exports

Slide 26: 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 If Packing credit is to a sub-supplier and he wants to supply the goods to the Export House or Merchant Exporter, an undertaking from Export House/Merchant Exporter stating that they will not avail of packing credit facility against the same transaction for the same purpose till the original packing credit is liquidated. Security documents : D.P. Note, Packing credit agreement, letter of guarantee where there is a guarantor

Monitoring and control : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 Monitoring and control Packing credit loans - concessional rates of interest and specific purpose oriented advances, to ensure proper end use of the amounts disbursed by the exporters. Advances should not be disbursed in lump sum amounts, Instead they should be disbursed in a phased manner Taking into account specific purpose and needs of the exporter, Shipment schedules, production cycles Rules regarding submission of stock statement and insurance would also have to be complied with by them.

CANCELLATION OF EXPORT ORDER : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 CANCELLATION OF EXPORT ORDER The exporter who has availed of pre-shipment credit, is confronted with the cancellation of the export order against which he obtained the advance and is therefore not in a position to tender export documents for liquidation of the advance by the relative export proceeds, The outstanding advance can be adjusted against the export bill drawn on some other importer either in the same country or in any other country, Provided the relative export bill is in respect of the same goods for which pre-shipment credit was originally granted.

COLLATERAL SECURITY : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 COLLATERAL SECURITY Collateral Security: Third party guarantee /equitable mortgage of immovable property. The assessment of export credit (both pre- and post- shipment) should be need-based and not directly linked to the availability of collateral security. Requirement of credit limit – The exporter’s performance and track record, not be denied merely on the grounds of non-availability of collateral security.

ECNOS : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 ECNOS ECNOS means Export Credit Not Otherwise Specified in the Interest Rate structure For which banks are free to decide the rate of interest keeping in view the BPLR and spread guidelines. Banks should not charge penal interest in respect of ECNOS

Pre-shipment credit when exports do not materialise : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 Pre-shipment credit when exports do not materialise If pre-shipment advances are not adjusted by submission of export documents within 180 days The advance will attract a higher interest rate for the period exceeding 180 days up to 270 days (i.e. for the additional 90 days). If shipment takes place after 360 days from the date of advance, the advance will cease to qualify for concessive rate of interest and interest rate applicable to ‘Export Credit Not Otherwise Specified’ should be charged from the date of advance. In case, exports do not materialise at all, branches should charge on the relative packing credit, Domestic lending rate plus penal interest not exceeding 2 per cent per annum, from the date of advance. RBI would provide refinance only for a period not exceeding 180 days.

TYPES OF EXPORTER : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 TYPES OF EXPORTER Manufacturer Exporter, i.e., an exporter who actually manufactures the goods and exports in his own name. Merchant Exporter, i.e., an exporter who is a trader (intermediary), and who does not manufacture the goods himself but buys the same from another supplier (domestic or foreign) who is the actual manufacturer, and exports the same in his name. The exporter in such cases is also called the Export Order Holder (EOH). Export House, i.e., a Manufacturer Exporter or a Merchant Exporter with minimum export turnover prescribed under the prevailing trade policy.

REPAYMENT/LIQUIDATION : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 REPAYMENT/LIQUIDATION Repayment / liquidation of packing credit, this could be with export documents relating to any other order covering the same or any other commodity exported by the exporter. While allowing substitution of contract in this way, banks should ensure that it is commercially necessary and unavoidable. Banks should also satisfy themselves about the valid reasons as to why packing credit extended for shipment of a particular commodity cannot be liquidated in the normal method. As far as possible, the substitution of contract should be allowed if the exporter maintains account with the same bank or it has the approval of the members of the consortium, if any.

PRE-SHIPMENT CREDIT : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 PRE-SHIPMENT CREDIT Export Finance is by and large governed by RBI directives / guidelines. Pre-Shipment Credit can be classified as: Packing Credit Advances (PCA) in Rupees Advance against Duty Drawback entitlements Pre-Shipment Credit in Foreign Currency (PCFC)

OTHER FACILITIES : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 OTHER FACILITIES PCA advance: Project Exports Execution of Bid Bonds / Tender Guarantees Bid bonds/tender guarantees are issued in favor of overseas buyers in lieu of earnest money. Such guarantees have to be submitted by the exporters at the time they participate in tenders for the supply of goods/services abroad. Issue of BGs in respect of Adv. Payments Bank guarantees are issued in favor of overseas buyers in respect of advance payments to be made by them. Common feature in contracts pertaining to export of capital goods or turnkey jobs

OTHER FACILITIES : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 OTHER FACILITIES Establishment of LC: Letters of credit are issued at the request of exporters in favor of suppliers of raw materials, components, services Back-to-back letters of credit are issued at the request of export houses and merchant-exporters in favor of domestic manufacturing units for the supply of goods contracted for export Arranging Lines of Credit in foreign COUNTRIES: This facility is usually required where the execution of an export contract involves work to be done in the buyer’s country. The local costs may be financed by arranging a line of credit from a foreign branch or a correspondent bank against the Bank’s guarantee

OTHER FACILITIES : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 OTHER FACILITIES Execution of Performance Guarantees: At the request of exporters, the Bank issues guarantees for the performance of machinery, equipment, etc. supplied by them. Such guarantees are generally stipulated in contracts pertaining to the export of capital goods or turnkey jobs.

OTHER FACILITIES : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 OTHER FACILITIES Export Credit to Processors Exporters of Agrl. Products Agri-Export Oriented Units located within / outside Agri Export Zones. Special Financial package for large value exports.

EPC – IMPORTANT POINTS : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 EPC – IMPORTANT POINTS Not in ECGC’s SAL & RBI’s List of Defaulters Standing of the L/C Opening Bank Need based release on a case-to-case basis Max. period : 180 days (+90 days) If EPC is > 360 days, ECNOS rate of interest RBI : Liberal finance to Export Sector IEC No. Registration with Export Promotion Council concerned Lack of Collaterals : Not reason for denial ECGC – Obtention or waiver CA is operative account / No cheque operations

ASSESSMENT : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 ASSESSMENT Manufacturing units: Fund based limits upto Rs 5 crores, Nayak Committee (Projected Annual Turnover) method used. For limits above Rs 5 crores - PBS method, or cash budget method may be adopted While assessing the working capital limits for export oriented units: Relaxations are permissible in respect of NWC, Current Ratio, collateral security etc. Projected low CR may be accepted provided profitability and cash flow are acceptable.

ASSESSMENT OF EPC : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 ASSESSMENT OF EPC EPC is basically a WC finance and the assessment has to be made exactly on the lines of assessment done for normal WC advances. In case of Packing Credit Advances secured by pledge / hypothecated of stocks, D.P. should be determined on the basis of lowest of: Aggregate value of firm orders / LCs lodged and outstanding, OR Advance Value of Stocks pledged / hypothecated to Bank.

ASSESSMENT OF EPC – Basic Concept : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 ASSESSMENT OF EPC – Basic Concept Estimated/Projected Export Sales for the year: say,…………………………. Rs 50 crs Less estimated profit(10%) Rs 5 crs Export sales (sans profit) Rs 45 crs Av export sales per month Rs 3.75 crs Av production cycle, say 3.25 months EPC required (3.75x3.25) Rs 12.19 crs Say ………………………………… Rs 12.20 crs

REPAYMENT OF EPC : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 REPAYMENT OF EPC The repayment period is the earliest of: Processing / Shipment time The validity of Export Order 180 days

CONDUCT OF EPC ACCOUNT : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 CONDUCT OF EPC ACCOUNT Since Packing Credit Advances are granted at concessional rates of interest and are specific purpose oriented advances, it is the responsibility of branches to ensure proper end use of the amounts disbursed by the exporters. Disbursement as far as possible directly to the suppliers of RM. Lump sum credit to special Current Account for genuine reasons.

CONDUCT OF EPC ACCOUNT : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 CONDUCT OF EPC ACCOUNT It should also take into account specific purpose and needs of the exporter, shipment schedules, production cycles and other aspects. Branches should also monitor the progress made by the exporters in timely fulfillment of export orders. If L/C is not restricted to us for negotiation, mark grant of EPC to alert negotiating bank.

EPC ACOUNT : LIQUIDATION : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 EPC ACOUNT : LIQUIDATION Proceeds of Export Bills Advance Remittances Proceeds of Duty Drawback Out of EEFC balances Not by debit to CC Account

RUNNING ACCOUNT FACILITY : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 RUNNING ACCOUNT FACILITY This facility is permitted in the case of exporters with good track record, but not automatically to their Sister / Associate / Group concerns. Exporters with good track record: For this purpose, exporters whose overdues do not exceed 5% of the average annual export realisations during the preceding 3 calendar years may be considered as exporters with good track record.

RUNNING ACCOUNT : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 RUNNING ACCOUNT Pre-shipment credit to exporters is normally provided on lodgment of L/Cs or firm export orders. 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 lodgement of letters of credit / firm export orders, depending on the bank’s judgment regarding the need to extend such a facility.

ADVANCE AGAINST CHEQUES,DRAFTS : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 ADVANCE AGAINST CHEQUES,DRAFTS Exporters receive direct remittances from abroad by means of cheques, drafts Export credit at concessive interest rate to exporters of good track record Till the realisation of proceeds of the cheque, draft received from abroad, after satisfying themselves that it is against an export order, Banks may give effect to concessive export credit rate retrospectively and refund the difference to the exporter

Rupee Export PC : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 Rupee Export PC Manf Suppliers for Exports Routed through STC/MMTC/Other Export Houses, Agencies etc Obtain from the export house a letter Banks may grant export packing credit to manufacturer suppliers who do not have export orders/letters of credit in their own name Goods are exported through the State Trading Corporation/Minerals and Metal Trading Corporation or other export houses, agencies etc. Such advances will be eligible for refinance, Certifying that the export house has not obtained and will not ask for packing credit in respect of such portion of the order as is to be executed by the supplier.

PC TO EXPORT HOUSE/SUPPLIER : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 PC TO EXPORT HOUSE/SUPPLIER The concessionary rates of interest on the pre-shipment credit will be available up to the stipulated periods in respect of the export house/agency and the supplier put together. The export house should open inland L/Cs in favor of the supplier giving particulars of the export L/Cs or orders And the out standings in the packing credit account should be extinguished by negotiation of bills under such inland L/Cs. The supplier should draw bills on the export house in respect of the goods supplied for export and adjust packing credit advances from the proceeds of such bills.

Rupee PC to Construction Contractors : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 Rupee PC to Construction Contractors Initial working capital requirements for execution of contracts abroad On the basis of a firm contract secured from abroad, in a separate account, On an undertaking -For incurring preliminary expenses in connection with the execution of the contract 1.For transporting the necessary technical staff 2.Purchase of consumable articles for the purpose of executing the contract abroad, etc. The advances should be adjusted within 365 days of the date of advance by negotiation of bills relating to the contract or by remittances received from abroad in respect of the contract executed abroad.

DEEMED EXPORTS : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 DEEMED EXPORTS “Deemed Exports” refer to those transactions in which goods supplied do not leave country, and payment for such supplies is received either in Indian rupees or in free foreign exchange. SUPPLIES TO PROJECTS IN INDIA AIDED / FINANCED BY MULTILATERAL / BILATERAL AGENCIES / FUNDS (including World Bank) THROUGH INTERNATIONALCOMPETITIVE BIDDING– WHERE DEEMED EXPORT PROCEEDS WILL BE REALISED IN FOREIGN CURRENCY Supply to projects funded by UN Agencies

Export of Services : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 Export of Services Pre-shipment and post-shipment finance may be provided to exporters of all the 161 tradable services covered under the General Agreement on Trade in Services where payment for such services is received in free foreign exchange as stated at Chapter 3 of the Foreign Trade Policy 2009-14. A list of services is given in Appendix 36 of Handbook (Vol.1) of the Foreign Trade Policy 2009-2014.. The financing bank should ensure that there is no double financing and the export credit is liquidated with remittances from abroad. Banks may take into account the track record of the exporter/overseas counter party while sanctioning the export credit. Exporters of services qualify for working capital export credit (pre and post shipment) for consumables, wages, supplies etc

PC TO FLORICULTURE,GRAPES,AGRO BASED : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 PC TO FLORICULTURE,GRAPES,AGRO BASED For purchase of cut-flowers All post-harvest expenses incurred for making shipment. Concessional credit for working capital purposes in respect of export-related activities Of all agro-based products including purchase of fertilizers, pesticides and other inputs for growing of flowers, grapes etc. The activities are not covered by direct/indirect finance schemes of NABARD or any other agency,

PC TO PROCESSORS/EXPORTERS/AGRI EX ZONE : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 PC TO PROCESSORS/EXPORTERS/AGRI EX ZONE Government of India have set up Agri- Export Zones in the country to promote Agri Exports. Agri- Export Oriented Units (processing) are set up in Agri- Export zones as well as outside the zones and to promote such units, Production and processing are to be integrated. The producer has to enter into contract farming with farmers Ensure supply of quality seeds, pesticides, micro-nutrients and other material to the group of farmers from whom the exporter would be purchasing the products as raw material for production of the final products for export. The Government, suggested that such export processing units may be provided packing credit for the purpose of procuring and supplying inputs to the farmers so that quality inputs are available to them which in turn will ensure that only good quality crops are raised. (exporters should have made contract farming arrangement with farmers and finalized export contracts with overseas buyers)

PC TO PROCESSORS/EXPORTERS/AGRI EX ZONE : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 PC TO PROCESSORS/EXPORTERS/AGRI EX ZONE Banks treat the inputs supplied to farmers by exporters as raw material for export Consider :sanctioning the lines of credit/export credit to processors/exporters to cover the cost of such inputs required by farmers to cultivate such crops to promote export of agri products. The processor units would be able to effect bulk purchases of the inputs And supply the same to the farmers Banks have to ensure that the exporters have made the required arrangements with the farmers and overseas buyers in respect of crops to be purchased and products to be exported

PCFC SCHEME : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 PCFC SCHEME The PCFC Scheme enables exporters to avail Packing Credit at international interest rates through Authorised Persons. The Scheme covers the cost of both domestic as well as imported inputs of exported goods.

ELIGIBILITY : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 ELIGIBILITY All exporters having firm export orders / irrevocable L/Cs are normally eligible for PCFC, As regards existing customers, PCFC can be carved out of the the EPC limits available to them, subject to the outstandings under both the Rupee & Forex facilities (Converted at the prescribed notional rate) not exceeding the limits sanctioned.

ELIGIBILITY : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 ELIGIBILITY There is no need for sanction of a separate sub-limit for PCFC. EPC in part and PCFC in part can be granted against the same export order. Exporters desirous of availing PCFC are obligated to discount Export Bills under EBR Abroad Scheme (EBR). PCFC is exempt from CRR / SLR.

PCFC : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 PCFC PCFC MAY BE AVAILED : - IN FOREIGN CURRENCY(FC) FOR PAYMENT OF IMPORTED RAW MATERIALS, etc – i.e. DIRECT PAYMENT IN FC FROM PCFC LOAN - IN INDIAN RUPEES(INR) FOR DOMESTIC PURCHASES, i.e. PCFC LOAN/PORTION CONVERTED TO INR AT TT BUYING RATE AND CREDITED TO EXPORTER’S CASH CREDIT / CURRENT ACCOUNT - FORWARD CONTRACT CAN BE BOOKED FOR FC COMPONENT OF PCFC TO BE AVAILED IN INR FOR DOMESTIC PURCHASES

RUNNING ACCOUNT FACILITY : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 RUNNING ACCOUNT FACILITY In all cases where Running Account Facility has been extended, L/C or firm orders need not be insisted upon initially for disbursement of PCFC. As and when the relative L/C or firm order is received by the exporter, the particulars thereof should be noted in the relative registers.

RUNNING ACCOUNT FACILITY : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 RUNNING ACCOUNT FACILITY The L/C or firm order need not be physically deposited with the Bank. However, statement of holding of LCs / Firm Orders from the borrower covering the outstandings in PCFC Account should be obtained at monthly intervals. Single operational account.

RUNNING ACCOUNT FACILITY : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 RUNNING ACCOUNT FACILITY Branches need to introduce a suitable system to closely monitor the submission and meticulous scrutiny of statement of holding of LCs / firm orders and also arrange for physical scrutiny of the same whenever considered necessary. The drawals already made under Rupee Running Account Facility earlier should not be converted into PCFC Advances.

PERIOD OF CREDIT : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 PERIOD OF CREDIT PCFC will be available as in the case of Rupee Credit initially for a maximum period of 180 days from the date of first disbursement. Any extension of the Credit will be subject to the same T & C as applicable for extension of Rupee Packing Credit And it will entail an interest cost of 2% plus the original spread above 6 months LIBOR prevailing at the time of extension for the extended period.

INTEREST RATE ON PCFC : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 INTEREST RATE ON PCFC For RUPEE PC eg. ROI -13-2.5=10.5 WHEREAS FOR PCFC IT IS LIBOR (IF IT IS 2% + 3.5 = 5.5%(WORKS CHEAPER THAN RUPEE CREDIT) a) up to 180 days – not exceeding 3.50% over LIBOR/EURO LIBOR /EURIBOR b) beyond 180 days & up to 360 days – rate for initial period of 180 days prevailing at the time of extension plus 2%, i.e. (a) + 2%

PERIOD OF CREDIT : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 PERIOD OF CREDIT 1.If no export takes place even within 360 days, PCFC will be adjusted at the ruling TT Selling Rate for the currency concerned. Crystallisation If no export within 360 days, sell FC to exporter against rupees at TT selling rate to adjust PCFC. 2.Interest right from the date of disbursement till the date of payment should be recovered at 2% over the interest rate applicable for CC Account of the exporter and the interest earlier recovered should be adjusted therefrom.

Diamond Dollar Account (DDA) Scheme : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 Diamond Dollar Account (DDA) Scheme Under the Foreign Trade Policy firms/companies dealing in purchase/sale of rough or cut and polished diamonds, diamond studded jewellery, with good track record of at least three years in import or export of diamonds with an annual average turnover of Rs. 5 crore or above during the preceding three licensing years (from April to March) are permitted to carry out their business through designated Diamond Dollar Accounts (DDAs). Under the DDA Scheme, it would be in order for banks to liquidate PCFC granted to a DDA holder by dollar proceeds from sale of rough, cut and polished diamonds by him to another DDA holder.

MISCELLANEOUS : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 MISCELLANEOUS Existing EPC outstandings of the exporter in Rupees cannot be converted into PCFC advances. EPC and PCFC Advances are to be covered by ECGC, unless waived on a case-to-case basis.

POST-SHIPMENT CREDIT : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 POST-SHIPMENT CREDIT Post-Shipment Credit means any loan or advance granted or any other credit provided by the Bank to an exporter of goods from India from the date of extending the credit after shipment of the goods to the date of realisation of the sale proceeds. Standing of L/C Opening Bank is vital. The period prescribed for realization of export proceeds is 12 months from the date of shipment

POST-SHIPMENT CREDIT : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 POST-SHIPMENT CREDIT Post-Shipment Credit can be classified as follows: Negotiation / Payment / Acceptance of export documents under L/C. Purchase / Discount of export documents under confirmed orders / export contracts. Advances against bills sent on collection basis. Advances against exports on consignment basis. Advances against Duty Drawback Entitlements. Advances against undrawn balances / retention money. Re-discounting of Export Bills abroad (EBR).

POST-SHIPMENT CREDIT : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 POST-SHIPMENT CREDIT At the Post-Shipment stage, the Bank basically finances against: Shipping Documents Duty Drawback Entitlements

POST-SHIPMENT CREDIT : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 POST-SHIPMENT CREDIT Negotiation : Export Documents under L/C Payment : Sight Bills Acceptance : Usance Bills Purchase : Sight Bills not under L/C Discounting : Usance Bills not under L/C Post-Shipment finance can be extended upto 100% of the invoice value of the goods. It can be short term or long term depending upon the payment terms offered by Indian exporters to overseas buyers.

POST-SHIPMENT CREDIT : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 POST-SHIPMENT CREDIT While purchasing the bills, the Bank takes into consideration the track record of the exporter, country risk, nature of merchandise, terms of payment, payment record of the Drawee, etc. Documents under L/C: The operations under L/C are governed by UCPDC (2007 Revision) – ICC Brochure No. 600.

Slide 75: 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 Post-shipment advance can mainly take the form of - (i) Export bills purchased/discounted/negotiated. (ii) Advances against bills for collection. (iii) Advances against duty drawback receivable from Government.

Liquidation of Post-shipment Credit : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 Liquidation of Post-shipment Credit To be liquidated by the proceeds of export bills received from abroad in respect of goods exported / services rendered. It can also be repaid / prepaid out of balances in Exchange Earners Foreign Currency Account (EEFC A/C) AND also from proceeds of any other un financed (collection) bills. Such adjusted export bills should however continue to be followed up for realization of the export proceeds and will continue to be reported in the XOS statement

Advances against Undrawn Balances on Export Bills : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 Advances against Undrawn Balances on Export Bills In respect of export of certain commodities where exporters are required to draw the bills on the overseas buyer up to 90 to 98 percent of the FOB value of the contract, The residuary amount being 'un drawn balance' is payable by the overseas buyer after satisfying himself about the quality/ quantity of goods. Payment of un drawn balance is contingent in nature. Banks may consider granting advances against un drawn balances at concessional rate of interest based on their commercial judgment and the track record of the buyer. Eligible for concessional rate of interest for a maximum period of 90 days only to the extent these are repaid by actual remittances from abroad And provided such remittances are received within 180 days after the expiry of NTP in the case of demand bills and due date in the case of usance bills. For the period beyond 90 days, the rate of interest specified for the category 'ECNOS' at post-shipment stage may be charged

Export of Goods for Exhibition and Sale : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 Export of Goods for Exhibition and Sale Banks may provide finance to exporters against goods sent for exhibition and sale abroad in the normal course in the first instance And after the sale is completed, allow the benefit of the concessive rate of interest on such advances, both at the pre-shipment stage and at the post-shipment stage, up to the stipulated periods, by way of a rebate. Such advances should be given in separate accounts

Post-shipment Credit on Deferred Payment Terms : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 Post-shipment Credit on Deferred Payment Terms Banks may grant post-shipment credit on deferred payment terms for a period exceeding one year, in respect of export of capital and producer goods as specified by RBI (FED) from time to time.

EBR : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 EBR The scheme of `Rediscounting of Export Bills Abroad’ by authorized dealers was formulated by RBI in order to make available to the exporters post shipment finance at international rates of interest. Under the scheme, exporter’s bills are discounted at the post shipment stage and simultaneously rediscounted abroad by the Bank for raising foreign currency funds which are applied to liquidate the underlying PCFC loan. Both sight and usance bills are discounted under EBR scheme Eligibility: All exporters are eligible to cover their bills drawn under LCs, Exporters availing PCFC should invariably avail EBR facility for discounting the relative export bills. But even if an exporter does not avail PCFC or rupee EPC, he can avail EBR facility. Also, exporters availing rupee EPC can avail EBR facility.

EBR : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 EBR Both demand and usance bills are eligible for coverage. EBR facility is normally available for a maximum period of 180 days i.e., export bills under EBR can be drawn for a maximum period of 180 days. If the bills discounted are not paid on the 180th day, extension can be permitted only with prior approval of RBI.

EBR : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 EBR Currency: Presently, the Scheme is restricted to four major currencies viz. US dollar, Pound Sterling, Euro and Japanese Yen. Cross currency availment is also permitted. For example, exporters having LC or export order in Swiss Francs or Italian Lira can also avail PCFC and EBR in any of the above mentioned four designated currencies. In case of cross currency disbursements, both PCFC and EBR should be availed in the same designated currency. The exchange risk in cross currency disbursements is to be borne by the exporters.

THANK YOU : 

Project SME Gyanshala – Capsule Training Programme for Officials handling SME Credit – 9.1 THANK YOU