LEB ASSIGNMENT

POST SHIPMENT CREDIT

SUBMITTED TO:Ms. Nupur Chopra SUBMITTED BY:Palak Agrawal Jasleen Sardar Rutu Patel

TRADING

Imports" consist of transactions in goods and services

(sales, barter, gifts or grants) from non-residents to residents. In national accounts "exports" consist of transactions in goods and services (sales, barter, gifts or grants) from residents to non-residents.

TYPES OF FINANCE
Trade finance provides the opportunity to bridge the gap between

1. 2.

the payment requirements of the seller and the funding constraints of the buyer. Trade Finance is a process to ease the pressure on cash-flows in International Trade. Trade finance includes responsibility for working Letters of Credit (LC) or Bills of Exchange (Bof Ex) with banks, credit insurers and other agencies outline the two broad categories of trade finance: Pre-shipment financing to produce or purchase the material and labour necessary to fulfil the sales order; or Post-shipment financing to generate immediate cash while offering payment terms to buyers.

 STAGES OF EXPORT FINANCE

Pre-shipment Finance

Financial assistance extended for execution of an export order from the date of receipt of an export order till the date of shipment. Post-shipment Finance Financial assistance from the date of shipment to the date of realization.

Pre-Shipment Finance
Pre-shipment credit is provided to the exporters for meeting

their need of getting the shipment ready. It is generally offered as Packing Credit (PC). The exporter has to submit the prescribed application form for obtaining packing credit together with the required papers to the bank. The documents required generally are the export order, letter of credit, proof of business address, financial papers like profit & loss account and the balance sheet. Banks also require the exporter to obtain an insurance cover from ECGC against payment risks. This facility entitles the exporter to borrow funds as preshipment credit in foreign currencies like US Dollar, Japanese Yen, Pound Sterling or Euro.

Types of Pre-shipment Finance

Packing Credit (Merchant Exporter/Manufacturer) Advance against Cheques/Drafts representing

Advance Payment

Post-Shipment Credit
Post-shipment finance is provided at concessional interest rates as

per RBI guidelines. The proof of shipment of goods, serves as the basis of grant of such facility. The basic purpose of this credit is to finance export receivables. Purpose: meant to finance export sales receivable after the date of shipment of goods to the date of realization of exports proceeds. In cases of deemed exports it is extended to finance receivable against supplies made to designated agencies. Basis: provided against evidence of shipment of goods/supplies Nature: Can be secured or unsecured. Since the finance is extended against evidence of export shipment and bank obtains the documents of title of goods, the finance is normally self liquidating. In case it involves advance against un-drawn balance, it is usually unsecured in nature.

 Quantum: Can be extended up to 100% of the invoice value

Period : Can be short terms or long term, depending on the

payment terms offered by the exporter to the importer Six months in case of cash terms offered by the exporter to the importer. Six months in case of cash exports. Type of Exports covered Type of Exports covered: Physical exports Deemed export Physical exports, Deemed export (provided to the supplier of the goods which are supplied to the designated agencies) and for Capital goods and project exports.

THE TYPES OF POST SHIPMENT FINANCE

The following options are available to the exporter for postshipment credit:
Export bills purchase/discounting Export bills negotiated (against letter of credit) Advances against bills for collection Advances

against duty drawback receivable from the

government Advances against exports on consignment basis Advances against undrawn balances

 1.Export

Bills Purchased/ Discounted. (DP & DA Bills) Export bills (Non L/C Bills) is used in terms of sale contract/ order may be discounted or purchased by the banks. It is used in indisputable international trade transactions and the proper limit has to be sanctioned to the exporter for purchase of export bill facility. 2. Export Bills Negotiated (Bill under L/C) The risk of payment is less under the LC, as the issuing bank makes sure the payment. The risk is further reduced, if a bank guarantees the payments by confirming the LC. Because of the inborn security available in this method, banks often become ready to extend the finance against bills under LC. 3. Advance against Export Bills Sent on Collection Basis Bills can only be sent on collection basis, if the bills drawn under LC have some discrepancies. Sometimes exporter requests the bill to be sent on the collection basis, anticipating the strengthening of foreign currency.

 4. Advance against Export on Consignments Basis

Bank may choose to finance when the goods are exported on consignment basis at the risk of the exporter for sale and eventual payment of sale proceeds to him by the consignee.
5. Advance against Undrawn Balance

It is a very common practice in export to leave small part undrawn for payment after adjustment due to difference in rates, weight, quality etc. Banks do finance against the undrawn balance, if undrawn balance is in conformity with the normal level of balance left undrawn in the particular line of export, subject to a maximum of 10 percent of the export value.
6. Advance against Claims of Duty Drawback

Duty Drawback is a type of discount given to the exporter in his own country. This discount is given only, if the in house cost of production is higher in relation to international price. This type of financial support helps the exporter to fight successfully in the international markets. In such a situation, banks grants advances to exporters at lower rate of interest for a maximum period of 90 days.

BANKS PROVIDING EXPORT FINANCE

Sources: Commercial

banks Commercial banks which are members of the Foreign Exchange which are members of the Foreign Exchange Dealers Association provide finance at a concessional rate of interest and are refinanced by the Reserve Bank/ Export Import Bank of India In case they do not wish to avail refinance they Bank of India. In case they do not wish to avail refinance, they are entitled for an interest rate subsidy. Export Import Bank of India, in certain cases, participates with commercial bank in extending medium term loans to exporters.

 Other Related Institutions: Other Related Institutions: Reserve Bank of India, being the central bank of

country, lays down the policy frame work and provides guidelines. The RBI functions as refinancing institution for short and medium term loans respectively, provided by commercial banks. Export Credit & Guarantee Corporation (ECGC) also plays an important role through various policies and guarantees providing cover for commercial and political risks involved in export trade.