Refers to the credit facilities extended to
the exporters at pre-shipment (also called
‘packing credit’) and post-shipment
Includes any loan to an exporter for
financing the preparation of goods meant
for overseas markets
Credit is also extended after the shipment
of goods to the date of realization of
The Institutions Responsible
The guidelines and policy framework is provided by
the Reserve Bank of India
The Institutions normally engaged for providing
finance comprises Reserve Bank of India,
Commercial Banks, Export Import Bank of India and
Export Credit and Guarantee Corporation
Finance, short or medium term, is provided
exclusively by the Indian and foreign commercial
banks which are members of the Foreign Exchange
Dealer's Association of India (FEDAI).
The Reserve Bank of India function as refinancing
institution for short and medium term loans provided
by commercial banks. Contd.
The Institutions Responsible Contd .
Commercial banks provide finance at a
concessional rate of interest and in turn are
refinanced by the Reserve Bank/Export Import
Bank of India
Export Import Bank of India, in certain cases,
participates with commercial bank in extending
medium term loans to exporters.
Export Credit & Guarantee Corporation (ECGC)
also plays an important role through its various
policies and guarantees providing cover for
commercial and political risks involved in export
Pre-Shipment Finance - Definition &
“The assistance provided to the exporter
before shipment of goods is known as
pre-shipment finance." It is provided for
working capital needs to:
The purchase of raw material
Meet other financial cost of business
Pre-shipment Finance - Forms
Pre-shipment finance is extended in
the following forms :
Packing Credit in Indian Rupee
Packing Credit in Foreign Currency
Packing Credit – Basis
Packing credit is normally granted on
Sometimes clear advance may also be
granted. These advances are clean at
their initial stage when goods are not yet
Once the goods are acquired and are in
the custody of the exporter, banks usually
convert the clean advance into
hypothecation or pledge
Eligibility for Packing Credit
Available to merchant exporters or export
houses, manufacturer exporters,
manufacturers of goods supplying to
An exporter should usually hold an export
order or letter of credit in his own name
to perform an export contract.
Exporter should not be in the caution list of
‘Running Account Holders’ are also eligible to
Running Account Facility
The RBI has permitted banks to grant packing
credit advances even without production of L/C or
firm order/ contract under this scheme Facility
subject to the following conditions :
The facility may be extended, provided the
need for Running Account Facility has been
established by the exporters to the satisfaction
of the bank
The banks may extend this facility only to
those exporters whose track record has been
established to the satisfaction of the bank.
Running Account Facility contd.
L/C or firm order is produced within a
reasonable period of time.
For commodities under selective credit
control, banks should insist on production of
L/Cs or firm orders within one month from the
date of sanction.
Packing credit may also be given under the
Red Clause letter of credit.
The credit is given at the instance and
responsibility of the foreign bank establishing
Here, the packing credit advance is made
against a simple receipt and is unsecured
Appraisal & Sanction of Limits
Before any sanction is made, banks
need to check aspects like
political and economic details about
status report of the prospective
Banks can seek the help of institutions
like ECGC or international agencies like
Dun and Bradstreet etc.
Appraisal & Sanction of Limits contd
Whether the exporter is a regular customer, a
bona fide exporter and has a good standing in
Whether the exporter has the necessary license
and quota permit or not.
Whether the country with which the exporter
wants to deal is under the list of Restricted
Cover Countries (RCC) or not.
ECGC classifies the countries into seven
categories in the ascending order of risks
The Amount of Packing Credit
Basically depends on the export order & the credit
rating of the exporter by the bank
Generally the amount of packing credit will not
exceed FOB value of the export goods or their
domestic value whichever is less.
The usual banking practice is to extend up to 90%
of the FOB value of the order or 75% of the CIF
value of the order.
Sometimes it can be to the extent of domestic
value of the goods even though such value is
higher than their FOB value, provided the goods
are entitled to duty draw back and the exporter is
covered by the Export Production Finance
Guarantee of the ECGC.
The Period of Funding
Banks decide the period for which a
packing credit advance may be given
Relevant factors are considered so that
the period is sufficient to enable the
exporter to ship the goods / render the
Pre-shipment advances should be
adjusted by submission of export
documents within 270 days & max 360
days from the date of advance
Cost of Pre-shipment Finance
The Base Rate System is applicable from
July 1, 2010 and accordingly interest rates
applicable for all tenors of rupee export
credit advances sanctioned on or after July
01, 2010 are at or above Base Rate.
Different banks have fixed different pre-
shipment interest rate on export credit on
Liquidation of Packing Credit Advance
Packing Credit Advance needs be liquidated out
of the export proceeds of the relevant shipment,
thereby converting pre-shipment credit into post
If exports do not materialize at all, then the entire
advance can be recovered and charged on
relative packing credit domestic lending rate plus
penal rate of interest to be decided by the banks
RBI has allowed some flexibility into this
regulation under which substitution of commodity
or buyer can be allowed by a bank without any
reference to RBI.
Pre-shipment Credit Foreign Currency
PCFC is available to exporters for domestic
and imported inputs of exported goods at
LIBOR related rates of interest as decided
From Nov 11, the rate has been revised to
LIBOR plus 350 basis points, till March 31,
The scheme is an additional window for
providing pre-shipment credit to Indian
exporters at internationally competitive
rates of interest. contd
Pre-shipment Credit Foreign Currency
The exporters/export houses with a good
track record can avail of a running account
facility with the Bank for PCFC.
To qualify for this purpose, the exporters
overdue bill should not exceed 5% of the
average annual export realization during
the preceding three years.
Key Benefits of PCFC
In case of cancellation of export
order, the PCFC can be closed by
selling equivalent amount of foreign
exchange at TT selling rate
prevalent on the date of liquidation.
The forward covers can be booked
in respect of future PCFC drawings.
Terms & Conditions - PCFC
The corporations/exporters having firm
export orders or confirmed L/C are
eligible for PCFC, provided they satisfy
other credit norms of the Bank.
PCFC is to be repaid with the proceeds of
the export bill submitted after shipment.
Multi-currency drawings against the same
orders are not permitted due to
operational inconvenience. contd
Terms & Conditions – PCFC contd
Cross-country drawings are restricted to
In case, the export order is in a non-
designated currency like Swiss Franc etc.
PCFC will be given only in US$.
For orders in Euro, Pound Sterling and
JPY, PCFC can be availed in the
respective currencies or US$ at the choice
Post Shipment Financing
Need For Post Shipment Financing
Time gap between shipment of goods and
collection of export proceeds
Time consumed in process of preparing
documents, submitting them to the bank
and then forwarding of them by the bank
Includes a minimum time period of 25
To bridge this gap commercial banks
provide post shipment financing
What is it?
A kind of loan provided by a financial
institution to an exporter or seller against a
shipment that has already been made.
This type of export finance is granted from
the date of extending the credit after
shipment of the goods to the realization
date of the exporter proceeds.
Post -shipment finance can be secured or
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.
Can be extended up to 100% of the invoice
value of goods.
Can be of short term or long term, depending
on the payment terms offered by the
exporter to the overseas importer.
Concessional rate of interest is available for a
maximum of 180 days from the date of
surrender of documents.
Types of Post-shipment Finance
Export Bills negotiated
Advance against export bills sent on
Advance against export on consignment
Advance against claims of Duty Drawback.