EXIM FINANCING

Document Sample
EXIM FINANCING Powered By Docstoc
					EXPORT FINANCING
               The Preamble
   Refers to the credit facilities extended to
    the exporters at pre-shipment (also called
    ‘packing credit’) and post-shipment
    stages.
   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
    export proceeds
      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
    trade.
  Pre-Shipment Finance - Definition &
             Objectives

 “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
 Processing
 Packing
 Transportation
 Warehousing
 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
  (PCFC)
      Packing Credit – Basis
   Packing credit is normally granted on
    secured basis.
   Sometimes clear advance may also be
    granted. These 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 or pledge
       Eligibility for Packing Credit
   Available to merchant exporters or export
    houses, manufacturer exporters,
    manufacturers of goods supplying to
    Export Houses
   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
    RBI
   ‘Running Account Holders’ are also eligible to
    this facility
         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.
                            Contd.
    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
       the L/C.
      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
      product profile,
      political and economic details about
       country,
      status report of the prospective
       buyer
   Banks can seek the help of institutions
    like ECGC or international agencies like
    Dun and Bradstreet etc.
       contd
Appraisal & Sanction of Limits contd
   Whether the exporter is a regular customer, a
    bona fide exporter and has a good standing in
    the market.
   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
    perceived
       The Amount of Packing Credit
               Extended
   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
    services.
   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
    this basis.
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
    shipment credit.
   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)

   PCFC is available to exporters for domestic
    and imported inputs of exported goods at
    LIBOR related rates of interest as decided
    by RBI.
   From Nov 11, the rate has been revised to
    LIBOR plus 350 basis points, till March 31,
    2012.
   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
         (PCFC)         contd



   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
    US dollars.
   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
    of exporter.
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
    days
   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.
                 The Features
   Post -shipment finance 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.
   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
    collection basis.
   Advance against export on consignment
    basis
   Advance against claims of Duty Drawback.
Thank You

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:9
posted:7/16/2012
language:English
pages:27