EXPORT FINANCING -VIKRAM S. TYAGI

EXPORT FINANCING 1-Assessing Financial Needs (Cash Flow) 2 - Type of Financial needs: -Short Term or working capital -Medium and long term 3-Financing by Internal Resources: –Reducing Current Assets –Reducing Fixed assets –Increasing Current Liabilities –Optimizing Equity Structure- Slow down/reduce distribution of profits. –Changing ratio between Liabilities and equity

..Export Financing 4-Financing by External Resources : Special features of export credit: - RBI guide lines for over riding priority -Export Credit is refinanced by RBI at lower rates to lending banks -Commercial Banks are required to finance at least 12 percent of their net credit to exporters

EXPORT FINANCING

Working Capital Finance by Banks Foreign Exchange Dealers Association (FEDAI)- Rules and schedule of charges Rupee Pre-shipment Finance (Packing Credit) -Definition and purpose Packing Credit / Pre-Shipment loan - Period of credit ( days) -Basis for disbursement (Secured/unsecured) -Liquidation of credit -Relaxations by Banks -Running account facility

…Working Capital Finance by Banks –Credit to Specific sectors/segments - Export through STS/MMTC/Export houses etc -Credit to sub-suppliers -Construction contractor -Consultancy services -Export of floriculture and other Agro based products -Agri-Export processing zone Processors -Export of wheat and wheat products Advance against Incentives Import Letter of Credits

Post Shipment Finance Definition and purpose Export Bills Finance -L/C Bills negotiated -Export Bills Purchased/discounted -Advance against collection bills -Advance against un-drawn balances Advance against Incentives (duty drawbacks)

Export Finance- Additional Facilities No Margins required - max permissible bank finance higher for exporters Lower rate of interest on pre-shipment credit -up to 180 days from the date of advance- PLR Minus 2.5 percent -Beyond 180 days up to 270 days- PLR Minus 0.5 per cent On post-shipment credit : - On demand bills for transit period- PLR Minus 2.5 per cent -Usance bills (period of credit plus transit time plus grace period PLR Minus 2.5 per cent---up to 90 days -Beyond 90 days up to six months from date of shipment –PLR Minus 0.5 per cent Concessive Rates for Deemed Exports Special Credit Package for High Value Exports

Pre-shipment Export Credit in Foreign Currency Export credits can be given by Banks in designated foreign currencies also like Dollars,Euros,Pounds and Yen Interest rates are linked to LIBOR/EURO LIBOR/EURIBOR and pegged at 0.75 % p above these benchmark rates-beyond the time line for inward remittance it would be 2 % above LIBOR

Post shipment Export Credit in Foreign Currency Rediscounting Export Bills Abroad (EBR) Maximum Interest rate –Up to 180 days- LIBOR+0.75% –180 to 360 days – LIBOR+2.0% An Example of benifits: –LIBOR Rates in Jan 2007 (12 Months) URO-About 4%; USD 5.5%; Indian Bank PLR 11%

Other Option Of International trade finance “ Forfaiting ” Finance and also known as Factoring-in short selling receivables or sundry debtors -Several advantages including increasing liquidity, Minimizing risk of deferred payments, 100 per cent finance without margin, avoiding currency and interest rate risks etc Counter Trade Arrangements ( Escrow Accounts)

EXIM Bank Finance The Export-Import Bank of India (Exim Bank)- Act of Parliament 1981 Fully Owned by Government of India- Managed by Board of Directors ( Govt., RBI, ECGC, Banks, Business community)

Operations of Exim Bank Export Credits -Regular credits to exporters including investments in JVS and wholly owned subsidiaries on INDIAN COMPANIES ABROAD -Loans to foreign Governments and financial Institutions -Loans to Commercial banks In India -Guaranteeing of Obligations - Project Financing -Trade Financing Export Capability creation –Export Product development –Export Marketing finance –Export oriented units –Euopean Community community investment partners –Export facilitation programms- Ports/Soft ware development

…Operations of Exim Bank Export services –Additional finance for range information and advisory services Supporting Groups –Accounts/MIS/EDP services –Planning & research –Legal –Coordination –HRD –Establishment Capital Goods Import Finance Equity investment in JV’s abroad

ECGS Credit Limits

Reading References Export Manual and Documentation by Nabh’s Chapter-24 Manual on Export Documentation by Commercial Law Publishers- Chapter-25