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Export Credit 1 Ashit Hegde. Pre-Shipment/Packing Credit Any loan granted to an exporter for purchase, processing, manufacturing or packing prior to shipment.

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Presentation on theme: "Export Credit 1 Ashit Hegde. Pre-Shipment/Packing Credit Any loan granted to an exporter for purchase, processing, manufacturing or packing prior to shipment."— Presentation transcript:

1 Export Credit 1 Ashit Hegde

2 Pre-Shipment/Packing Credit Any loan granted to an exporter for purchase, processing, manufacturing or packing prior to shipment. In case of service exports the loan could be for working capital expenses. Normally, such advances are given against an LC or Confirmed orders. 2 Ashit Hegde

3 Period of Advance -Depends on the time required to procure, process and export the goods. -Sanctioned period of 360 days whichever is earlier. -If the advance is not liquidated within 360 days by submission of export documents, the advance will cease to be eligible for concessional ROI ab-initio. -Where period of PC is not extended beyond the sanctioned period, concessional ROI is available only up to sanctioned period. Rate of Interest Concessional ROI is charged. Normally, ROI is linked to base rate and is dependent on internal credit rating. 3 Ashit Hegde

4 Liquidation Of PC. Should be done by submission of Export Documents or from EEFC balance. Running Account Facility The Banks may extend this facility to exporters with good track record. Prior lodgement of LC/ Orders is not insisted in this case. 4 Ashit Hegde

5 Post Shipment credit May be in the form of, Export Bills Purchased/discounted/negotiated. Advances against bills for collection. Advances against duty drawback receivable from Govt. Liquidation Normally from proceeds of the Export Bill. For all over due export bills over due interest will be charged. For bills where recovery is effected from rupee resources, comm ercial rate may be charged ab-initio. 5 Ashit Hegde

6 Period For Demand Bills  Normal Transit Period (NTP) For Usance Bills  365 Days It should be noted that 365 days is allowed from FEMA angle and not from credit appraisal angle. ECGC Cover Premium for cover under WTPSG should be borne by the bank and not passed on to the borrower. 6 Ashit Hegde

7 Note: Where partial domestic sale is involved In case of agro based products like tobacco, pepper, cardamom, cashew nuts etc, a larger quantity is purchased and graded into exportable and non-exportable variety. For advance covering the non-exportable portion, banks have to charge commercial rate of interest. In case of export of HPS groundnut and deoiled/defatted cakes, value of raw materials required will be higher than the export order. The advance in excess of export order should be repaid within 30 days to be eligible for concessional ROI. 7 Ashit Hegde

8 Rupee Export Credit Subvention Scheme The present scheme is operative from Jan 1, 2013 to 31 st Mar a. A subvention of 3% (w.e.f. Aug 1, 2013) on the interest rates is available for export credit (both pre and post shipment) to specified sectors. b. The benefit has to be passed on to the exporter upfront. The Bank has to claim the amount from RBI on quarterly basis against certification by concurrent auditors/ statutory auditors. c. The sectors benefitted are Handicrafts, Handlooms, SMEs, readymade garments, engineering products etc. 8 Ashit Hegde

9 Export Credit in Foreign Currency i. Preshipment Credit is disbursed in Foreign Currency (FCY) ii. FCY so disbursed can be converted into INR and credited to Export C/A. iii. The FCY amt can also be used to retire import bills without conversion. iv. Either way the exporter’s liability will be in FCY. 9 Ashit Hegde

10 v. The Export bill is purchased or discounted (under EBR scheme) and the PCFC a/c is credited. vi. On realization of the export bill, the FCY received is applied towards the bill purchased and the bill liability is closed. vii. Any shortfall on account of foreign banks charges etc. is debited to exporters’ a/c. Thus the entire cycle is completed in FCY only. 10 Ashit Hegde

11 Interest Rates The interest rates charged to the customer are linked to LIBOR (i.e. LIBOR plus spread). Banks are free to determine the rates. Crystallisation of Overdue Export Bill When a bill becomes overdue and remains overdue for say, 15 days it is crystallized and converted into INR. Thereafter, rupee interest rates will become applicable till the date of payment by the exporter. By this process the bank crystallizes the exporters’ liability in INR. The exchange risk thereafter is borne by the exporter. 11 Ashit Hegde

12 The export bill will be held in collection portfolio. As and when the bill is paid, the FCY amount will be paid to the exporter. Sources of FCY funds for banks a.EEFC, RFC balances b.FCNR (B) funds c.Borrowings from Banks abroad Note: In case of decreased availability of FCY limit due to depreciation of rupee, banks are advised to reassess the limits. OR Banks may denominate foreign currency (FC) component of the limit in FC only so that exporters are insulated from rupee fluctuations. 12 Ashit Hegde

13 Export Credit Refinance (ECR) RBI provides refinance to banks who have extended export credit at Repo rate. The eligible amount is 50% of outstanding export credit. The amount (each drawal) is repayable on expiry of 180 days. Export credit in foreign currency is not eligible for refinance. Ashit Hegde 13


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