CHAPTER - EXPORT FINANCE RBI assures: Timely finance assistance. Interest rates should be cheaper.

r. Different types of Exports (From the viewpoint of Banker) 1. Cash exports: payment here is received within 6 months from the date of shipment. 2. Project Exports: 2.a. Exports of capital goods on deferred payment (beyond 6 months) 2.b. civil construction abroad. 2.c. Turnkey projects. 2.d. Service exports / consultancy services abroad. 3. Deemed Exports: A Supplier to advance license holder or SEZ or EOU are known as deemed exporters. 4. Software Exports: 4.a. On-site software development. 4.b. offshore projects. 4.c. Branded software sales. 4.d. customized projects: foreign company floating tenders and Indian software engg. Develops projects (tailor made / customized projects) Different types of exporters (From the viewpoint of Banker) a. b. c. d. Manufacturer exporters Merchant exporters. EOUS / Units operating under EPZs / SEZs Status holder exporters.

Export Finance is a short term, working capital finance allowed to an exporter. An exporter may need financial assistance for execution of an export order from the date of receipt of an

export order till the date of realization of the export proceeds at any stage. Financial assistance extended to the exporter from the date of receipt of export order till the date of shipment is known as pre-shipment credit. Pre-shipment finance is extended to an exporter for the purpose of procuring raw materials, processing, packing, transporting, warehousing of goods meant for exports. It is also known as Packing Credit facility. Credit facility extended to an exporter from the date of shipment of goods till the realization of the export proceeds is known as post-shipment credit. f Following are the conditions for availing packing credit loan: 1. sanctioning of the loan amount depends upon every bank as per their relationship with their clients. Banks can sanction upto 100% of the pre-shipment finance. Generally banks avoid doing that. It sanctions around 80% finance. Suppose, bank has sanctioned 75% loan to an exporter than, the calculation goes as given below:
Say: the CIF Value of invoice is -------------- 1,00,000 Maximum loan available 75,000 -------------- US US $ $

(Banks generally does not give 100% loan) around 25% Margin is kept generally. US $ 75,000 * 46 (Rs. 46/-) = 33,75,000/Less 12% is the Insurance & Freight = 4,00,000/Rs. Rs. ----------------------Rs. 29,75,000/- is the loan amount obtained by the exporter initially.

Rs. 4,00,000 is released afterwards when exporter has to take the responsibility to pay insurance and freight charges. 2. Maximum Period: Till the date of shipment / date of submission of the documents OR upto a maximum period of 270 days from date of loan whichever is earlier. 3. Extension of 90 days: (270 days + 90 Days = 360 Days): if the exporter cant ship the goods then, further extension upto 90 days is given at concessional rate of interest. 4. Beyond 360 days: Packing credit can continue but at no concessional rate of interest. Types of Pre-shipment finance: i. Extended Packing Credit Loan (PCL): it is granted to the clients (exporters) for making advance payment to the suppliers for acquiring goods to be exported. Thus, it is clean in nature and is usually extended to the parties who are rated as first class, for a very short duration. However, bank should assess the procurement period and once the goods are acquired and are in the custody of the exporter client, convert the clean advance into PCL hypothecation. ii. Packing Credit loan (Hypothecation): It is extended where raw materials, Work-in Progress and finished goods meant for export are available as security. The processing / manufacturing may be undertaken by the exporter himself or thru sub-contractors unit. iii. Packing Credit Loan (Pledge): The PCL is granted as loan in the form of pledge in cases where exporters are required to collect / raw material, which is seasonal in nature and the exports take place in due course in installment as the shipping schedules agreed upon by the overseas buyers. iv. Secured shipping loan: Once the goods are ready for shipment and exporter/supplier has handed over the goods to the clearing and forwarding agent for dispatch the advances can be granted as secured shipping loan. Here bank ensures that the goods are handled by approved transport operators / C & F agents.

DOCUMENTS REQUIRED: The following documents are to be submitted along with application form for packing credit. i. Confirmed export order / contract or L/C etc. in original. Where it is not available, an undertaking to the effect that the same will be produced to the bank within a reasonable time for verification and endorsement. This undertaking is required where the exporter wants to avail him of packing credit advance against preliminary information of contract whereby at the later stage the contract or L/C, as the case may be, will be received by him. ii. An undertaking that the advances will be utilized for the specific purpose of procuring / manufacturing etc. of the goods meant for export only as stated in the relative confirmed export order or the L/C. iv. Letter of hypothecation, partnership deed in case of partnership firm or Memorandum of Association, Articles of Association for public/private business. v. vi. Audited reports of past 3/5 years. IEC Number

vii. Appropriate guarantee of the ECGC. viii. Any other document required by the bank. PCL is generally granted on secured basis. Nevertheless, clean packing advances may also be granted. Money advances are clean at their initial stage when goods are not yet acquired. Once the goods are acquired and are in the custody of the exporter, banks usually convert the clean advance into hypothecation. In such cases, rules regarding submission of stock statements and insurance would have to be complied with. Loan agreement: Before disbursement of loan, the banks require the exporter to execute a formal loan agreement. The format of this agreement differs from bank to bank.

Who is eligible for pre-shipment credit? An exporter who holds an export order or Letter of Credit (LC) in his own name to perform an export contract can avail of preshipment credit. What is the purpose of this finance? Pre-shipment finance can be availed of only for the specific purpose of procuring raw materials / purchasing / manufacturing / processing / transporting / warehousing / packing and shipping the goods meant for export. How much financing can an exporter get? The banking practice is that the exporter can obtain 90% of the FOB value of the order or 75% of the CIF value of the order. A manufacturer exporter dealing in any of the notified item is eligible for packing credit at concessional rate of interest upto 365 days. RBI has enlisted 10 products and 43 countries to implement above case. POST-SHIPMENT FINANCE Post-shipment finance is a loan or advance granted by a bank to an exporter of goods from India. This facility is available to an exporter subsequent to the date of shipment of goods upto the date of realization of export proceeds. Post shipment finance bridges the financial gap between date of shipment and actual receipt of payment from overseas buyer thereof. Some key features of post-shipment finance are as follows:

Finance is extended against evidence of shipping documents. Finance provides working capital to the exporter from the date of shipment to the date of realization of export proceeds. Concessive rate of interest is available for a maximum period of 180 days, starting from the date of submission of documents. Normally, the documents are to be submitted within 21days from the date of shipment.

Rate of interest in both the cases, i.e. pre-shipment finance and post shipment finance is determined by the bank at its discretion depending upon credit worthiness of the exporter.

What is the quantum of this finance? Post shipment finance can be extended upto 100% of the invoice value of goods. Post-shipment finance can be further classified as under: a. Export Bill Purchased (D / P Bills). b. Export Bills discounted (D / A Bills). Above two bills are Non L/C Bills.
c.

d.

e.

f.

Export Bills negotiated (L/C Bills): An exporter can avail of post-shipment credit by drawing bills or drafts under the L/C. The bank insists on production of the necessary documents as stated in the L/C. If documents are in order, the bank negotiates the bill and advance is granted. Advance against incentives / DBK: DBK means refund of custom duties paid on the import of raw materials, components and packing material used in the export product. It also includes refund of central excise duties paid on indigenous materials. Banks offer pre-shipment advances against claims for DBK. Banks offer preshipment as well as post shipment advances against claims for DBK. Advances against goods sent on consignment basis: Banks may grant post-shipment advances against goods sent on consignment basis. Advances against Retention Money: Banks advance against retention money, which is payable within one year from date of shipment.