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    Export-Import Finance By Bank

    Executive Summary

    After globalization and liberalization there was an enormous growth in foreigntrade in Indian economy. Thus to this there was a tremendous growth in export

    import finance. Initially importer did` t gets any finance facility form financial

    institute. They only got a letter of credit from the financial Institutions. In India

    there are 27 nationalized banks which are playing a major role in financing each

    and every sector. Initially public sector banks were providing few facilities to the

    exporter and importer but globalization banks and government started providing

    more facilities to the exporter and importer Export is the major commercial

    activity which offers many advantages to the economy. In financial system

    export finance is divided in two parts 1) Pre-shipment 2) Post-shipment finance.

    In per-shipment export finance exporter gets facility like packaging facility, like

    packaging facility, Advance against incentives and finance in foreign currency.

    where as in post-shipment finance exporter get facilities negotiation export bill

    under letter of credit; purchase/ discounting of foreign bill, advance against bill

    sent on collection, advance against goods sent on consignment, advance against

    export incentive, advances against retention money advance against undrawn

    balance, post shipment in foreign currency etc.

    Similarly import is also useful for country. The major facility which importer

    gets from bank is letter of credit than importers also get facilities like financing

    bills under collection, financing against deferred payment, financing underforeign currency etc.

    INDEX1

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    Ch.

    No

    Particulars Page

    No.

    1. Introduction 06.

    2. Export Import Finance in India

    1.The Role of the Collecting Bank

    2.The Role of Bank in Export

    Import Finance

    07.

    3. Export Import Bank of India

    Operation of EXIM Bank

    Finance and Services

    11.

    4. Export Credit & Guarantee

    Corporation

    Major Functions of E.C.G.C.

    13.

    5. Export Finance By Bank 15.

    6. Importance of Export Finance 17.

    7. Mode of Bank Finance to

    Exporter

    18.

    8. Stages of Export Finance

    i) Pre-shipment Finance

    ii) Post-shipment Finance

    19.

    9. Recent Development in Export

    Finance

    35.

    10. Import Finance By Bank 38.

    11. Methods of Import Finance

    Types of Letter of Credit.

    43.

    12. Payment Method in Export &

    Import Trade

    47.

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    13. Document used in Foreign

    Trade

    49.

    14. Foreign Trade Policy 53.

    15. Limitations & Conclusion 59.

    DESIGN OF STUDY

    SCOPE

    Limited only to public sector bank.

    Limited to financial services which are taken against document.

    RBI schemes and EXIM facilities are not covered.

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    OBJECTIVE

    To study export import service by public sector bank in India

    Procedure of how bank finance

    To know which type of document are used and against which exporter and

    importer can take loan or finance.

    To understand all the dimensions of import & export finance.

    To learn about the strategies & techniques used by banks to finance the

    importer & exporter.

    To find various types of import export finance.

    RESEARCH METHODOLOGY

    Planning: Firstly I planned to make the project and which topic should cover &

    design the outline of project.

    Research work: Then I search books and Website to collect information. The

    information is collected partly from book and web.

    Visit: After that I visit the public sector bank in Mulund & Export Import Bank

    of India Head Office in Mumbai and collect primary data.

    Presentation: Then I have combined the data& made the project.

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    CHAPTER 1

    INTRODUCTION

    The statutory basis for control of imports into India is found in the Foreign

    Trade Act, 1992 which empowers the Central Government to prohibit or

    otherwise control imports. Import and export financing provides importers who

    have orders from customers in the United States, or foreign customers backed by

    a letter of credit, with the necessary financial backing to provide their overseas

    supplier with a letter of credit to guarantee payment of goods.

    The whole process works because the importer will supply you with basic

    information on the import company and their customers. For each of the

    approved customers, the importer will supply us with copies of purchase orders

    that are to be filled. Financing can be arranged to cover 100% of the transaction.

    This provides the importer with sufficient financial strength to sell larger orders

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    than they would be able to on their own financial strength. Depending on the

    strength of the buyer, this may be done on open account with the domestic buyer,

    allowing the buyer to increase their purchasing power.

    Export finance is a short term working capital finance allowed to an exporter.

    An exporter may avail financial assistance from any bank, which is taking care

    of the following factors: Funds should be available to the exporter at the required

    time to ensure availability of funds to eligible borrowers. Reserve Bank has

    prescribed time schedule to Commercial banks for speedy sanctioning of export

    credit limits. Further, banks are advised that 12% of their total credit should be

    for export finance

    CHAPTER 2

    EXPORT IMPORT FINANCE IN INDIA

    The statutory basis for regulation of exports from India is the Foreign Trade

    (Development and Regulation) Act 1992. The Government is empowered to ban

    the export of certain goods from India and/ or restrict export in quantity, value

    etc. Export from the country is generally free.

    Finance for exports is available from commercial banks under two

    categories-

    1.) Pre-shipment finance (or packing credit)

    2.) Post shipment finance.Financing of Export and Import of Goods and Services

    Exports are a subject of significance to every economy whether developing or

    developed because they represent the biggest source of earning foreign

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    exchange. The need is all the more acute for a developing economy, which

    mostly experiences deficit on its current account as well as capital account.

    Increasing exports enable the economy to earn foreign exchange, enhance

    foreign exchange reserves, improve balance of trade, balance of payments,

    correct deficits in Balance Of Payments (BOP), and improve exchange value of

    its currency. The share of Indias exports in world trade is below 1% and along

    with the persistent deficits in its BOD necessitates the need for a major thrust on

    exports. However, over the years the exports have grown well and more so the

    compositions of exports (goods & services exported) have undergone a charge.

    The Government has treated on this objective by announcing the following

    incentives to an exporter:

    1. Cheaper rates of interest on Bank finance (export rates today hover around 8%

    to 8.50% compared to non-export rates of

    2. Duty concessions on imports for exports

    3. Cash Incentives for exports viz. Tax breaks for export units, duty drawback

    schemes.

    4. Providing Infrastructure facilities viz. Free trade Zones Export Zones etc.

    5. Establishing of EXPORT IMPORT BANK OF INDIA bank to promote exports.

    6. Establishing Export Credit Guarantee Corporation- EXPORT CREDIT AND

    GURANTEE CORPORATION to provide a protective shelter to exports against

    inherent international trade risks

    The Role of the Collecting Bank.

    Act as the remitting bank's agent

    Present the bill to the buyer for payment or acceptance.

    Release the documents to the buyer when the exporter's instructions have been

    followed.

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    Remit the proceeds of the bill according to the Remitting Bank's schedule

    instructions.

    If the bill is unpaid / unaccepted, the collecting bank :

    May arrange storage and insurance for the goods as per remitting bank

    instructions on the schedule.

    Protests on behalf of the remitting bank (if the Remitting Bank's schedule states

    Protest)

    Requests further instruction from the remitting bank, if there is a problem that is

    not covered by the instructions in the schedule.

    Once payment is received from the importer, the collecting bank remits the

    proceeds promptly to the remitting bank less its charges.

    ROLE OF BANKS IN EXPORT AND IMPORT FINANCE

    Along with public sector banks, the foreign banks also provide financial

    assistance to Indian exporters. They offer financial facilities to exporters and

    thereby contribute for export promotion. In addition, the exchange banks also

    provide banking and financial facilities to importers from their respectivecountries.

    It is a fact that foreign exchange banks are in a better position to offer finance

    to exporters due to their worldwide banking contacts, huge financial resources

    and expert staff.

    Foreign banks are banks incorporated in foreign countries (UK, USA, France,

    Japan, etc.) but are functioning in India through their branches or branch offices

    opened at important commercial centers such as Mumbai, Chennai, Calcutta, and

    Delhi and so on.

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    Foreign banks operate under the supervision of the RESERVE BANK OF

    INDIA and have to function as per the provision made in the Banking

    Regulation Act, 1949.

    These banks provide financial support to international trade as per the

    policies of the government. In addition, they also conduct other banking

    functions and offer banking and financial services to their customers (exporters)

    Foreign banks operating in India include Lloyds Bank, Standard Chartered Bank,

    Citi Bank, Grind lays Bank, and so on. These banks have their offices at

    important commercial centers in India.

    Foreign banks offer various financial services to exporters from their home

    country. For example, they issue letter of credit to their clients and also provide

    financial facilities. They collect payment for goods imported and arrange to

    make payment to Indian exporters by completing the necessary formalities and

    procedures.

    The documentary bills of exchange may be sent to these banks and collect

    payment for the goods.

    Along with such services, the foreign banks (also called foreign exchange

    banks) also provide many facilities to Indian Exporters who open the account in

    such banks.

    For example, they arrange to make payment for the goods imported. They also

    provide discounting facility to Indian exporters and also offer various types of

    guarantees. Exports proceeds are also collected on behalf of Indian exporters as a

    result; immediate cash is available to exports.

    In addition, the foreign banks provide pre-shipment and post-shipment

    finance to exporters. Similarly, they help Indian exporters in the remittance of

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    money from India to other countries for different purposes subject to rules and

    procedures prescribed by the RESERVE BANK OF INDIA.

    The following are the institutions that are directly or indirectly concerned with

    import and export financing:

    1. Commercial Banks

    2. Export Import Bank of India (EXIM Bank)

    3. Reserve Bank of India (RBI)

    4. Export Credit Guarantee Corporation of India Ltd (ECGC)

    CHAPTER 3

    EXPORT IMPORT BANK OF INDIA

    Role of Export Import Bank of India:

    The Export-Import Bank of India is a public sector financial insinuation

    crested by an Act of Parliament, the Export-import Bank of India Act. 1981. The

    Bank came in existence in January 1982 and commenced operations from March

    1, 1982. EXPORT IMPORT BANK OF INDIA is the principal financial

    institution for co-coordinating the working of institutions engaged in financing

    export and Import trade of India. The Business of EXPORT IMPORT BANK

    OF INDIA is to finance, facilitate and promote foreign trade of India.

    The process of industrial development in India resulted in diversification anexpansion of the expert sector in the seventies Development of capabilities for

    export of capital goods. Engineering goods, manufactured products, projects and

    services as also setting up of joint industrial ventures abroad are an important

    outcome of this process.

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    Operations of Export Import Bank of India:

    EXPORT IMPORT BANK OF INDIA Bank's operational philosophy comprises

    five major components.

    1.) To make the Indian exporter internationally competitive on the count of

    financing terms offered by him.

    2.) To Develop alternate financing solutions for an Indian Exporter in his effort

    to be internationally competitive.

    3.) To provide information on export opportunities in new traditional exports

    including currency adviser to Indian manufacturers so that new exportopportunities are pursued.

    4.) To provide selective production, marketing, finance for making Indian

    manufactured products internationally competitive.

    5.) To respond to export problems of Indian Exporters and pursue policy

    resolutions.

    FINANCE & SERVICES:

    EXPORT IMPORT BANK OF INDIA plays four-pronged role with regard to

    India's foreign trade: those of a co-coordinator, a source of finance, consultant

    and promoter. EXPORT IMPORT BANK OF INDIA is the Coordinator of the

    Working Group Mechanism for clearance of Project and Services Exports and

    Deferred Payment Exports (for amounts above a certain value currently US$ 100

    million).The Working Group comprises EXPORT IMPORT BANK OF INDIA,Government of India representatives (Ministries of Finance, Commerce, External

    Affairs), Reserve Bank of India, Export Credit Guarantee Corporation of India

    Ltd. and commercial banks who are authorized foreign exchange dealers. This

    inters- institutional Working Group accords clearance to contracts (at the post-

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    award stage) sponsored by commercial bank or EXPORT IMPORT BANK OF

    INDIA, and operates as a one-window mechanism for clearance of term export

    proposals. On its own, EXPORT IMPORT BANK OF INDIA can now accord

    clearance to project export up to US$100 million in value.

    CHAPTER 4

    EXPORT CREDIT AND GUARANTEE

    CORPORATION (ECGC)

    Payments for export are open to risks even at the best of times. The risks have

    assumed large proportions due to political and economic charges in the world. A

    civil war in a country may block or delay the payment for exports. Economic

    difficulties or BOP position may also force a country to restrict payments

    outflow to the exporters.

    It is also possible that the buyer may turn insolvent or may refuse to make the

    payment. In light of the above, the export business though may appear lucrative

    is fraught with risks, With a view to protect a shelter to the exporters against the

    export risks, EXPORT CREDIT AND GURANTEE CORPORATION was

    established in 1957 by the Government of India under the administrative control

    of ministry of commerce.It is managed by Board of Directors comprising of representatives of the

    Governments, Reserve Bank of India, Banks, and Insurance and exporting

    community. EXPORT CREDIT AND GURANTEE CORPORATION is the

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    fifth largest credit insurer of the world presently covers 17.31% of Indias total

    exports with a paid up capital of Rs 1.50 bn.

    Major Functions of Export Credit and Gurantee Corporation:1.) To provide a range of credit risk insurance covers to exporters against a loss in

    export of goods and services.

    2.) To offer guarantees to banks and financial institutions to enable exporters obtain

    better facilities from them.

    Export Credit and Gurantee Corporation also helps Exporters by:

    Providing insurance protection to exporters against payment risks

    Providing guidance in export related activities

    Providing information on creditworthiness of overseas buyers

    Providing information on about 180 countries with its own credit ratings

    Marketing it easy to obtain export finance from banks/ financing institutions

    Assisting exporters in recovering bad debts

    MAINACTIVITIESOFEXPORTCREDITANDGUARANTEECORPORATION:

    EXPORT CREDIT AND GURANTEE CORPORATION provides a wide range

    of credit risk insurance cover to exporters against loss in export of goods and

    services. It also offer guarantees to banks and financial institutions to enable the

    exporters to obtain better facilities from the banks.

    The covers offered by Export Credit and Guarantee Corporationto the Exporters are:

    i) Standard Policies to exporters to protect them against payment risks involved in

    exports on short term credit.

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    ii) Specific Policies designed to protect Indian firms against payment risks involved

    in

    a.) Exports on deferred payment terms

    b.) Services rendered to Foreign Parties

    c.) Construction works and turnkey projects undertaken abroad.

    CHAPTER 5

    EXPORT FINANCE BY BANK

    Export is when you sell something to another country and then ship

    it.

    Meaning of Exporter:

    The person who sends goods or commodities to a foreign country, in the way of

    commerce; opposed to importer. Is known as exporter. The seller ships the goods

    and then hands over the document related to the goods to their banks with the

    instruction on how and when the buyer would pay.

    Exporters Bank

    The exporters bank is known as the remitting bank, and they remit the bill for

    collection with proper instructions. The role of the remitting bank is to:

    Check that the documents for consistency.

    Send the documents to a bank in the buyer's country with instructions on

    collecting payment.

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    Pay the exporter when it receives payments from the collecting bank.

    Exports play a very crucial role in a developing economy and they are given a highpriority in the foreign trade policy of such an economy. The Indian economy also

    attaches great importance to export promotion. Finance is the back bone of any trade,

    whether domestic or international. Export, being a part of international trade is no

    exception. Hence, any measure, Reserves bank of India has taken steps to ensure free

    flow of financial assistance to the export sector at lower rates of interest.

    The negotiating bank or collecting bank will buy or collect the bills after a

    careful scrutiny of them such as the following-

    1. Drafts are drawn on the issuing bank.

    2. Buyers name and sellers name are correctly entered and proper endorsements are

    made.

    3. The date is within the time limit of the credit.

    4. The amount is within the credit limit granted.

    5. Exporter has an export license it is necessary and the value of shipments falls

    within the limit set by the license.

    6. The tenor of bill is correct.

    7. Credit number is given.

    8. Stamps as required by low are attached on usance bills

    9. All required documents are submitted. Insurance policy but not certificate of

    Insurance is acceptable.

    10.Bill of lading in full set must be submitted and fully examined as to the

    negotiability, correctness and accuracy to the satisfaction of the conditions of

    credit in respect of the all documents submitted.

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    CHAPTER 6

    IMPORTANCE OF EXPORT FINANCE

    Export finance is a part of global finance given to the corporate. Importance of

    credit to exporters cannot be overemphasized. India has to compete effectively

    with other countries in the export markets in order to penetrate into new markets

    and widen its hold on the existing markets. Since many countries have been

    pursuing policies geared to the promotion of export through adequate export

    credit at low rates of interest, India has also pursued the same policy in regard to

    export finance. In all major industrialized countries, banks and other financial

    institutions are deeply involved in financing of exports on special terms. Some of

    them are granting mixed credit that combine export credit with foreign aid to

    developing countries. In all such cases, the governments and/or central banks of

    those countries are directly involved in subsidizing exports Example of the

    institution involved in such credits in foreign countries are EXIM Banks of USA

    and Japan.

    In India, starting with the Export Bills Credit Scheme of 1963, the refinance

    provided by the RBI has always been at concessional rate. Export credit

    Refinance limits have been provided by the RBI for banks on the basis of export

    credit, granted by them. A similar facility has also been given under pre-

    shipment or packing credit scheme of 1968 by the Industrial Development Bank

    of India during the 6th and 7th five- year plans greater importance was given to

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    the export promotion measures in view of the continuing stagnancy of our

    exports and declining flow of foreign aid from international financial institute

    CHAPTER 7

    MODE OF BANK FINANCE TO EXPORTERS

    1.) Running an overdraft to cover miscellaneous expenses of exporters and their

    production costs.

    2.) Pre-shipment loans for specific requirements of exporter relating to a specific

    order-example are packing credit for exporter to buy raw materials and up to the

    stage of manufacturing.

    3.) Purchase of bills of exchange after shipment and providing cash against credit

    sales.

    4.) Negotiation, accepting and collecting the bills and documents of trade, which

    involve examination of documents, transmitting them to the importer or his

    banker for collecting the proceeds, when they are due.

    5.) Banks provide information on foreign countries, their markets, and their

    currencies and about the credit rating of the importer and his country.

    6.) Banks extend introduction to parties and safeguard and protect the interest of

    the concerned parties.

    7.) Banks provide risk coverage and safeguard the parties from currency rate

    fluctuations.

    8.) Bank would help importers in the form of O/D, loan facilities for shipments,

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    overseas finance (buyer credit) from exporter country or another country.

    CHAPTER 8

    STAGES OF EXPORT FINANCE:

    Export finance is broadly classified into two categories, depending upon at what

    stage of export activity the finance is extended wiz

    1. Pre-shipment Finance

    2. Post-shipment Finance

    Financial assistance extended to the exporters, prior to shipment of goods,

    falls within the scope of pre-shipment finance. Financial assistance extended

    after the shipment of goods falls within the scope of post-shipment finance.

    Export Finance (both at pre-shipment and post-shipment stages) in India is

    governed by and large by Reserve Bank of India directives and Foreign

    Exchange Dealers Association of India (FEDAI) Rules.

    PRE-SHIPMENT FINANCE

    INTRODUCTION

    Pre-shipment finance is nothing but working capital finance (mainly inventory

    finance) extended to an exporter in anticipation of his exporting the goods. The

    basic purpose of extending pre-shipment finance is to enable the eligible

    exporters to procure raw material/process/manufacture/warehouse/ship the goods

    meant for export.

    Forms Required for Application of Per-shipment Credit

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    1. Confirmed export order/contract or L/C etc. In original where it is not available,

    an undertaking to the effect that the same will be produced to the Bank within a

    reasonable time for verification and endorsement should be given.

    2. An undertaking that the advance will be utilized for the specific purpose of

    procuring/manufacturing/shipping etc., of the goods meant for export only, as

    stated in the relative confirmed export order or the lie.

    3. If you are a sub-supplier and want to supply the goods to the Export/Trading/Star

    Trading House or Merchant Exporter, an undertaking from the Merchant

    Exporter or Export/Trading/Stat Trading House stating that they have not/will

    not avail themselves of packing credit facility against the same transaction for

    the same purpose till the original packing credit is liquidated.

    4. Copies of Income Tax/Wealth Tax Assessment Order for the last 2/3 years in the

    case of sole proprietary and partnership firm.

    5. Copy of Importers Exporters Code Number.

    6. Copy of a valid RCMC (Registration-cum-membership Certificate) held by you

    and/or the Export/Trading/Star Trading House Certificate.

    7. Appropriate policy/guarantee of the ECG e.g. any other document required by

    the Bank

    QUANTUM OF FINANCE

    There is no fixed formula for determining the quantum of finance, to be granted

    to an exporter, against a specific order/letter of credit or an expected order. In

    respect of established exporters, pre-shipment credit is also allowed on running

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    account basis (i.e.) without insisting on any documentary evidence. However,

    exporters have to submit periodical statements of Letters of credit or export

    orders in hand.

    PERIOD OF FINANCE

    Pre-shipment finance, being working capital finance, is basically short

    term finance. The maximum period for which pre-shipment finance can be

    extended at concessive rates is to be decided by banks taking into account

    the production cycle of the commodity and related aspects subject to a

    maximum period of 180 days. This period can be extended beyond 180

    days up to 270 days (i.e. 180 +90 days) by bank themselves without

    reference to the Reserve Bank of India.

    RATE OF INTEREST

    For encouraging exports, R.B.I. has instructed the banks to grant pre-shipment

    advance at a concessional rate of interest.

    PRE-SHIPMENT ADVANCES AVAILABLE TO THE

    EXPORTERS:

    PACKING CREDIT:

    The basic purpose of packing credit is to enable the eligible exporters to procureprocess, manufacture or store the goods meant for export. Packing credit refers

    to any loan to an exporter for financing the purchase, processing, manufacturing

    or packing of goods as defamed by the Reserve Bank of India. It is a short term

    credit against exportable goods. Packing credit is normally granted on secured

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    The loan amount is decided on the basis of export order and 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.

    PERIOD

    The packing credit can be granted for a maximum period of 180 days from the

    date of disbursement. The banks are authorized period of 180 days from the date

    of disbursement. The banks are authorised by RBI to extend this period. This

    period can be extended for a further period of 90 days, in case of non-shipment

    of goods within 180 days

    RATE OF INTEREST

    The interest payable on pre-shipment finance is usually lower than the normal

    rate, provided the credit is extinguished by lodging the export bills on

    remittances from abroad. If the exporter fails to do so they would not be able to

    avail concessional rate of interest. In order to avail the packing credit; exporters

    are expected to make a formal application to the bank giving details of credit

    requirements along with the required documents.

    ADVANCE AGAINST INCENTIVES

    When the value of the materials to be procured for export is more than FOB

    value of the contract, the exporters may get packing credit advance more than the

    FOB value of the goods. The excess of cost of production over the FOB value of

    the contract represent incentives receivables.

    PRE-SHIPMENT CREDIT IN FOREIGN CURRENCY (PCFC)

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    In order to help the exporters to avail of export credit at internationally

    competitive rates, the Reserve Bank of India, in November 1993, introduced a

    scheme called Pre-shipment Credit in Foreign Currency (PCFC). The facility is

    an additional window along with the existing facility of Pre-shipment Rupee

    Credit. Banks can extend pre-shipment Credit in Foreign Currency in all

    convertible currencies. Banks may source their funds from balances available

    under Exchange Earners Foreign Currency (EEFC) Accounts, Residents Foreign

    Currency (RFC) Accounts (Banks) and by means of lines of credit arranged

    abroad; prior permission of the Reserve Bank of India For raising the lines of

    credit abroad is not required so long as the cost of borrowing abroad does not

    exceed 1 per cent over LIBOR. The pre-shipment credit in foreign currency has

    to be made available to the exporters presently at a cost not exceeding one per

    cent over the appropriate LIBOR, EUROLIBOR, and EURIBOR excluding

    withholding tax up to 180 days. On pre-shipment credit in foreign currency

    beyond 180 days and up to 360 .

    This is an additional window to rupee packing credit scheme. This credit is

    available to cover both the domestic and imported inputs of the goods exported

    from India. The facility is available in any of the convertible currencies. The

    credit will e self-liquidating in nature and accordingly after the shipment of

    goods the bills will be eligible discounting/rediscounting or for pre-shipment

    credit in foreign currency. The exporters can avail this finance under the

    following two options.

    i. The exporters may avail pre-shipment credit in rupees and, then, the post-

    shipment credit either in rupees or in foreign currency denominated credit or

    discounting/rediscounting of the export bills.

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    ii. The exporters may avail pre-shipment credit in foreign currency and

    discounting/rediscounting of the export bills in foreign currency

    PCFC credit will also be available both to the supplier units of EPZ/EOU and the

    receiver units of EPZ/EOU. The credit in foreign currency shall also be available

    on exports to Asian Clearing Union (ACU) Countries. This will be extended

    L/Cs. The Running Account Facility will not be available under the scheme

    POST-SHIPMENT FINANCE

    Post-shipment finance is defined as any loan or advance granted or any othercredit provided by an institution to an exporter of goods from India from the date

    of extending the credit after shipment of the goods to the date of realizations of

    export proceeds and includes any loan or advance granted to an exporter in

    consideration of or on the security of any duty draw back or any receivables

    from Government of India.

    Post-shipment finance can be classified as a finance granted on negotiation/

    acceptance of export documents under letter of credit/ purchase/ discount of

    export documents under confirmed orders/export contracts, etc. and advances

    against export bills sent on collection basis/export on consignment basis/against

    undrawn balance on exports/receivables from Government of India/relation

    money relating to exports/approved deemed exports.

    Persons Eligible for Post-shipment Finance:

    As a general rule, in case of physical exports, post-shipment finance is extended

    to the actual exporter who has exported the goods or to an exporter in whose

    name the export documents are transferred. In case of deemed exports, finance is

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    extended to the suppliers of goods who supply goods to the designated agencies.

    In the case of export of capital goods and project exports, credit is sometimes

    extended to the overseas buyer (importer of the goods/Services), by

    banks/financial institutions in India and the exporter realizes the export value in

    Indian rupees straightaway from the banks/financial institutions extending such

    credit. Such credit is referred to as buyers Credit. Buyers credit is extended

    under Buyers Credit Scheme of EXIM Bank and requires prior approval of

    the Working Group and the Reserve Bank of India.

    Purpose of Finance:

    Post-shipment Finance, being basically an export sales Finance, is meant for

    financing export sales receivables after the shipment of goods to the date of

    realization of export proceeds. In the case of deemed export, it is extended to

    finance the receivables against supplies made to designated agencies.

    Form of Finance

    Post-shipment finance can be secured or unsecured. Since the Finance is

    extended against evidence of export and banks obtain the documents of title to

    goods, the finance is secured and self-liquidating. In a few cases like advances

    against undrawn balances etc., it is unsecured in nature. Further, the finance is

    mostly funded in advance. In the case of financing of project exports, facilities

    such as bid bond guarantees, performance guarantees, retention money

    guarantees are also extended.

    Quantum of Finance

    Post-shipment finance can be extended up to 100 per cent of invoice value of

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    goods. However, where the domestic value of goods exceeds the value of export

    order/invoice value, finance for the price difference can also be extended if such

    price difference covered by receivables from Government and such finance is not

    already extended at the pre-shipment stage. Banks can also finance undrawn

    balances. But in such cases normally margin stipulations are made. Banks are

    free to stipulate margin requirements as per their usual lending norms.

    Period of Finance

    Post-shipment finance though basically bill finance can be short term finance or

    long term finance depending upon payment terms offered by Indian exporters to

    overseas buyers. In the case of cash exports, maximum period allowed for

    realization of export proceeds is 6 months from the date of shipment in terms of

    foreign Exchange Management (Export if Goods and Services) Regulations,

    2000 made under Foreign Exchange Management Act, 1999. Banks can extend

    post-shipment finance at interest rates prescribed by the Reserve Bank of India

    up to normal transit period (NTP) Notional due dates. Post-shipment finance can

    be extended at free rates up to the approved periods.

    Rates of Interest

    The post-shipment credit interest is applicable period-wise on slab basis, as per

    interest rate directive issued from time to time.

    VARIOUS POST-SHIPMENT AVAILABLE TO EXPORTER

    1) Negotiation of Export Documents Under Letters of Credit

    Where the exports are under letter of credit arrangements, the banks will

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    negotiate the export bills provided it is drawn in conformity with the letter of

    credit. When documents are presented to the Bank for negotiation under L/C

    they should be scrutinized carefully taking into account all the terms and

    conditions of the credit. All the documents tendered should be strictly in

    accordance with the L/C terms. It is to be noted that the L/C issuing bank

    undertakes to honour its commitment only if the beneficiary submits the

    stipulated documents. Even the slightest deviation from those specified in the

    L/C can give an bank excuse to the issuing bank of refusing the reimbursement

    of the payment that might have been already made by the negotiating.

    2) Purchase/Discount of Foreign Bills:

    Purchase or discount facilities in respect of export bills drawn under confirmed

    export order are generally granted to the customers who are enjoying Bill

    Purchase/Discounting limits from the Bank. As in case of purchase or

    discounting of export documents drawn under export order, the security offered

    under L/C by way of substitution of credit-worthiness of the buyer by the issuing

    bank is not available, the bank financing is totally dependent upon the credit

    worthiness of the buyer, i.e. the importer, as well as that of the exporter or the

    beneficiary.

    3)Advance against Bills Sent on Collection:

    It may sometimes be possible to avail advance against export bills sent on

    collection. In such cases the export bills are sent by the bank on collection basis

    as against their purchase/discounting by the bank. Advance against such bills is

    granted by way of a 'separate loan' usually termed as 'post-shipment loan'. This

    facility is, in fact, another form of post- shipment advance and is sanctioned by

    the bank on the same terms and conditions as applicable to the facility of

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    Negotiation/Purchase/Discount of export bills. A margin of 10 to 25% is,

    however, stipulated in such cases. The rates of interest etc., chargeable on this

    facility are also governed by the same rules. This type of facility is, however, not

    very popular and most of the advances against export bills are made by the bank

    by way of negotiation/purchase/discount.

    .

    4)Advance against Goods Sent on Consignment:

    Sometimes exports are affected on consignment basis. In such condition

    payment is receivable to sale of goods. Goods are exported at the risk of exporter

    for sale. The banks may finance against such purpose. The overseas

    branch/correspondent of the bank are instructed to deliver documents against

    Trust Receipt.

    When the goods are exported on consignment basis at the risk of the exporter for

    sale and eventual remittance of sale proceeds to him by the agent/consignee,

    bank may finance against such transaction subject to the customer enjoying

    specific limit to that effect. However, the bank should ensure while forwarding

    shipping documents to its overseas branch/correspondent to instruct the latter to

    deliver the document only against Trust Receipt/Undertaking to deliver the sale

    proceeds by specified date, which should be within the prescribed date even if

    according to the practice in certain trades a bill for part of the estimated value is

    drawn in advance against the exports.

    5)Advance against Export Incentives:

    Advances against the export incentives are given at the pre-shipment stage

    as well as the post-shipment stage. However, the major part of the advance is

    given at the post-shipment stage. The advance is granted to an exporter in

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    from the Government. The banks follow their own procedure in granting the

    advance. The most common practice is to obtain a power of attorney from the

    exporter executed in their favor by the banks. It is sent to the concerned

    government department like the Director General of Foreign Trade,

    Commissioner of Customs, etc. These advances are extended to the exporter by

    the same bank.

    6)Advance against Undrawn Balance:

    In some of the export business, it is the trade practice that the bills are not drawn

    for the full invoice value of the goods. A small part of the bills is left undrawn

    for payment after adjustments due to difference in weight quality, etc. Advances

    are granted against such undrawn balances. In this case the export proceeds must

    be realized within 90 days. The advances are granted provided the undrawn

    subject to a maximum of 5% of the full export value. The exporters are supposed

    to give an undertaking that they will surrender the balance proceeds within 6

    months from the date of shipment.

    7) Advance against Retention Money:

    Banks grant advances against retention money, which is payable within one year

    from the date of shipment. The advances are granted up to 90 days. If such

    advance which are also eligible for concessional rate of interest? Banks also

    grant advances against retention money, which is payable within one year from

    the date of shipment, at a concessional rate of interest up to 90 days. If such

    advances extend beyond one year, they are treated as deferred payment advances

    which are also eligible for concessional rate of interest.

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    8)Post-shipment Export Credit Guarantee and Export Finance

    Guarantee:

    Post-shipment finance given to exporters by banks though purchase, negotiation

    or discount of export bills or advances against such bills qualifies for this

    guarantee. Exporters are expected to hold appropriate shipment or contracts

    policy of ECGC to cover the overseas credit risks. Export Finance Guarantee

    cover post-shipment advances granted by banks to exporters against export

    incentives receivables in the form of duty drawback, etc.

    9)Purchase of Export Documents drawn under Export Order:

    Purchase or discount facilities in respect of export bills drawn under Confirmed

    export order are generally granted to the customers who are enjoying Bill

    Purchase/Discounting limits from the bank. As in case of Purchase or

    Discounting of export documents drawn under export order, the security offered

    under UC by way of substitution of credit-worthiness of the buyer by the issuing

    bank is not available, the bank financing is totally dependent upon the creditworthiness of the buyer, i.e. the importer, as well as that of the exporter or the

    beneficiary.

    Post-shipment Export Credit denominated in

    Foreign Currency

    A scheme of Post-shipment Export credit denominated in

    Foreign Currency (PSCFC) was introduced with effect from

    January 1, 1992, with a view to enabling exporter to avail of

    post-shipment credit denominated in foreign currency and to

    pay interest at rates applicable to the foreign currency

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    concerned. US dollar denominated export credit was provided at

    interest rates linked to international rates. Banks were also

    allowed refinance facility under the scheme.

    Consequently on introduced of a regular scheme for providing

    post-shipment credit in foreign currency, viz. the Export bills

    rediscounting (EBR) scheme, the post-shipment Export credit

    denominated in US dollars (PSCFC) was discontinued effective

    February8, 1996.

    The exporter has the option of availing of export credit at the

    post- shipment stage either in rupee or in foreign currency. The

    credit is granted under the rediscounting of Export Bills Abroad

    Scheme (EBR) at LIBOR linked interest rates. The scheme covers

    export bills with usance period up to 180 days from the date of

    shipment. Discounting if bills beyond 180 days requires prior

    approval from RBI. The exporters have the option to avail of pre-shipment credit and post-shipment credit either in rupees or in

    foreign currency. If pre-shipment credit has been availed of in

    foreign currency, the post-shipment credit necessarily to be

    under the EBR scheme. This is done because the foreign

    currency pre-shipment credit has to be liquidated in foreign

    currency.

    Rediscounting of export bills abroad

    This facility was introduced as an additional window available to

    exporter along with the existing rupee post-shipment finance

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    from october1993. The facility is available in all convertible

    currencies and covers export bills up to 180 days from date of

    shipment (inclusive of normal transit period and grace period).

    Under the scheme, authorized dealer have the freedom to

    utilize the foreign exchange resources available with them in

    Exporter Currency Earners Foreign Currency Accounts (EEFC),

    Resident Foreign Currency Account (RFC), foreign currency (N

    on Resident) Account (Banks) scheme to discount usance bills

    and retain them in their portfolio without resorting to

    rediscounting. It is also to them to rediscount the bills with an

    overseas banks or rediscounting agency or any other agency

    such as factoring agency as also to raise funds from such

    agencies through Bankers Acceptance Facility (BAF). Prior

    permission of the Reserve Bank of India is not requires for

    arranging the rediscounting or BAF facility abroad so long as he

    spreads does not exceed one per cent over the six months

    LIBOR. Exporter on their own are also allowed to arrange a line

    credit worth an overseas banks/agency through a bank in India

    in the case of rediscounting facility arranged by the exporter on

    his own; in such a case, the rate of remuneration for the banks

    is to be decided between the bank and the exporter.

    EXPOERS UNDER DEFERRED PAYMENT

    All export proceeds must be surrendered to an authorized

    dealer within 10 days from the date of shipment. Exporters are

    requires to obtain permission from the Reserve Bank through

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    authorized dealer in the events of non- realization of export

    proceeds within the prescribed period. However, realizing the

    special needs of exports of engineering goods and projects,

    Reserve Bank has formulated special schemes permitting

    deferred credit arrangements. This will enable realization of

    export proceeds over a period exceeding six months. Hence,

    contracts for export of goods and services against payment to

    be secured partly or fully beyond 180 days are treated as

    deferred payment exports. The credit extended is termed as

    deferred payment term credit Commercial banks that are

    authorized dealers in foreign exchange in principle clearance for

    contracts valued up to Rs.25 crores. They can avail refinance

    from EXIM bank.

    i. EXIM bank is empowered to give clearance for contracts of value

    of above Rs.25 crores and up to Rs.100 crores.

    ii. A working group considers proposals of contract of value beyond

    Rs. 100 crores. The working group consist of representatives of

    all the above institution to provide single window clearance.

    CHAPTER 9

    RECENT DEVELOPMENTS IN EXPORTFINANCING

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    As stated earlier, offer of attractive credit terms is a crucial factor in winning

    export contracts. Hence, financial institutions are offering several innovative

    financial services to exporters. Some of these services are discussed below:

    Factoring: it is an attractive way of providing export finance to exporters. In this

    system, factor bears the complete credit risk. Who is a factor? A factor is a

    special type of agent who, depending upon the type of agreement, offers a

    variety of services, these services include coverage of credit risk, collection of

    export proceeds, and maintenance of accounts receivables and advance of funds.

    Purchase of receivables of its clients without recourse is the most important

    service of the factor, a big advantage to the exporter is that it is without recourse

    financing. This means that the risk of non-payment by the importer is to be borne

    entirely by the factor.

    In India, international export factoring services on with recourse basis have been

    approved by the RBI. it provides a new dimension to management of export

    receivables, SBI factors and commercial services Pt. Ltd., Bombay has been

    permitted to provide international export factoring, IN this system, the exporter

    enters into an export factoring agreement with exporters factor, the exporters

    ship goods to approved foreign buyers.

    Exporters factor will make prepayment to the export against approved export

    receivables. On receipt of payments from the importer on due date of invoice,

    importers factor. The exporters factor pays to the exporter after deducting the

    amount of prepayments.Reserve bank has now permitted the authorized dealers (bank) to arrange

    forfeiting of medium term export receivables on the same lines as per the scheme

    of EXIM bank and many international forfeiting agencies have now become

    active in Indian market. Forfeiting may be usefully employed as an additional

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    window of export finance particularly for exports to those countries for which

    normal export credit is not intended by commercial banks.

    It must be noted that charges of forfeiting are eventually to be passed on to the

    ultimate buyer and should, therefore, be so declared on relative export

    declaration forms.

    Forfeiting: forfeiting refers to the non-recourse discounting of export

    receivable . it is a mechanism of financing exports that involves less risk and

    enhances international competitiveness. It converts a credit sale into cash sale for

    an exporter. In this system forfeiting agency discounts international trade

    receivables of the exporter. The forfeiter pays the exporter in cash and

    undertakes the risk associated with the export deal. The exporter surrenders,

    without recourse to him, his rights to claim for payment on goods delivered to an

    importer.

    GOLD CARD SCHEME FOR EXPORTERS

    The gold card facility is provide by bank toothier regular customer whos annual

    term over is more than 10 lacks such facility is allowed by bank after taking

    permission of head office. In such facility the bank charge 20% less commission

    and interest rate s also less as compared to normal facility. The silent features of

    the scheme are (i) all creditworthy exporter, including those in small and

    medium sectors with good track record would be eligible for issue of gold card

    by individual banks as per the criteria to be laid down by the latter; (ii) banks

    would clearly specify the benefits they would be offering to gold cardholders ;

    (iii) requests from card holders would be processed quickly by banks within 25

    days/I 5 days and 7 days for fresh application/renewal of limits and ad hoe limits

    , respectively; (iv) in-principle limits would be set for a period of 3 years with a

    provision for stand-by limit of 20 per cent to meet urgent credit needs; (v) card

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    holders would be given preference in the matter of granting of packing credit in

    foreign currency; (vi) bank would consider waiver of collaterals and exemption

    from ECGC guarantee schemes on the basis of card holders creditworthiness

    and track record, and (vii) the concessive rat of interest on post-shipment rupee

    export credit applicable up to 90 days may be extended for a maximum period up

    to 365 days.

    CHAPTER 10

    IMPORT FINANCE BY BANK

    Import is when you buy something from another country and get it

    shipped to you.

    Meaning of Importer:

    The person who brings or carry in from an outside source, especially to

    bring in (goods or materials) from a foreign country for trade or sale is known as

    importer.The buyer / importer are the drawee of the Bill.

    The role of the importer is to:

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    Pay the bill as mention in the agreement (or promise to pay later).

    Take the shipping documents (unless it is a clean bill) and clear the goods.

    Importer's Bank:

    This is a bank in the importer's country: usually a branch or correspondent bank

    of the remitting bank but any other bank can also be used on the request of

    exporter The collecting bank act as the remitting bank's agent and clearly

    follows the instructions on the remitting bank's covering schedule. However the

    collecting bank does not guarantee payment of the bills except in very unusual

    circumstance for undoubted customer, which is called availing. Importer's bank

    is known as the collecting / presenting bank.

    Imports play an important role in the economy of every country, rich and poor

    alike. Rich countries need to import capital goods, raw materials and technology

    to ensure an optimum utilization of their production capacity. They need to

    import a wide variety of consumer goods to enable their people to enjoy a high

    standard of living. Poor countries needs to import technology and capital

    equipment and sometime strategic raw materials to develop industries for

    accelerating pace of their development, in India

    In the case of consignment sales, banks enter into transactions as remitting or

    collecting agents, in the case of documentary credits, they act either as paying

    agents or as collecting or negotiating agents for the exporter. So far as the

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    importer is concerned, the bank issues the L/C, revocable or irrevocable,

    confirmed or unconfirmed. The buyer makes a request on an application form for

    opening of; \c in favour of a foreign party. The buyer is a customer of the bank

    and if the foreign party is not known to him, the former requests his bank to

    make enquiries about the partys credit standing abroad, this service is rendered

    for a nominal charge, the banker has to see before opening the L\C:

    (i)whether import is covered under the import license, which is current and

    unexpired;

    (ii) Whether the import value is within the limits set by the import license.

    (iii) Whether arrangements are made for warehousing and storing of goods in

    good condition until sold;

    (iv) Whether specific mention is made of the documents to be collected from

    exporter such as invoice, weight certificate, certificate of origin, bill of lading,

    insurance policy, etc.

    The bank issuing the L\C has an obligation to pay in terms of L\C agreement to

    the exporters bank if all the necessary documents are received. In case it is

    payment against documents accepted. It is paid immediately on sight or within a

    grace period of two days. If the bill is a usance bill, on the expiry of the period,

    the payment is made by the importers bank as the bank has an obligation that all

    formalities are observed before payment, the bank observes all these formalities

    are observed before payment, the band observes all these formalities before

    debiting the importer.

    THE REGULATORY FRAME WORK

    The principal objective of Indias export import policy is to accelerate the

    countrys transaction to as international oriented economy with a view to derive

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    maximum benefit from the expanding global market. Various policy objectives

    are achieved basically through three legislations these are:

    1. Foreign trade (development & regulation) act, 1993 administered by director

    general, foreign trade ( DGFT) replacing the earlier legislation import & export

    (control) act, 1947, administered by the chief controller if imports & export

    (CCIE)

    2. Foreign exchange management act 1999 administered by the department of

    economic affairs, ministry of finance and the exchange control development of

    the reserve bank of India. FEMA has been brought is place of foreign exchange

    regulation act.

    3. Indian customs and excise act, 1962 administered by central board of excise and

    customs, the foreign exchange dealers association of India (FEDAI) frames the

    rules and operational procedures and changes relating to imports. In addition,

    uniform customs & practice for documentary credit (UPDC) formulated by

    international chamber of commerce, Paris that has a global acceptance, is

    indispensable to cover transactions under documentary credits.

    EXCHANGE CONTROL REGULATIONS ON EARNING

    IMPORTS

    Exchanges control regulations refer to rules and regulations frames and

    administered by the reserve band if India (RBI) under the provisions of foreign

    exchange management act, 1999. These regulations aim at pooling resource for

    national development in the best interest of the country. under the provisions of

    the act, RBI regulates sale and purchase of foreign currencies; commercial bank

    with a license to deal in foreign currencies, called authorized dealers (Ads) buy

    and sell foreign currencies in accordance with the guidance provided by the RBI.

    Let us learn various regulations regarding payment of imports.39

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    Mode of payment: exchange control regulations govern sales of foreign

    currencies to non-residents against import of goods from any country except

    Nepal and Bhutan. It may be pointed out that residents for the purposes of

    exchange control regulations; hence, Ads cannot sell any foreign exchange for

    financing import from these two countries.

    Under the existing regulations. Ads provide foreign currencies to importer:

    For remittance to foreign supplies as advance payments.

    ii) Paying the foreign supplies in compliance of their undertaking under the

    letter of credit.

    iii) Discounting on purchasing except documents

    iv) Advances against shipping documents.

    Authorizes dealers can open a letter of credit (L\C) to facilitate imports, subject

    to

    FOLLOWING REGULATIONS:

    A) Letters of credit may be opened by banks only on behalf of their customer who

    maintain account with them.

    B) L\c should be opened in favour of overseas suppliers of shipper of goods.

    Application for L\C must be accompanied by sale contract and other

    documentary evidence relating to the order and its confirmation and import

    license, if any. Authorized dealers have been permitted to sell foreign currencies

    for making payment towards imports into India. For this purpose, importers have

    to submit an application in form a gibing the necessary details including

    classification of goods based on harmonized system. It is also obligatory on the

    part of an importer to submit exchange control copy of customs bill of entry to

    the authorized dealer through whom the relative remittance was made have

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    actually been imported into India within three months from the date of

    remittance. In respect of imports by post parcel, postal wrappers are required to

    be submitted as documentary evidence in support of imports into India.

    CHAPTER 11

    METHODS OF IMPORT FINANCE

    The methods of import financing include: financing under L\C financing against

    bills under collection, financing against deferred payment, financing under

    foreign credit and finance by EXIM bank of India. Let us discuss them in detail.

    1. Financing import under letter of credit

    Letter of credit can be defined as a commitment of bank to pay the seller of

    goods or services a certain amount provided he presents stipulated documents

    evidencing the shipment of goods or the performance of services within a

    prescribed period of time. As a credit instrument and as a means of making and

    securing payment, the letter of credit is an essential instrument for conductingworld trade today. it fulfils all the requirements provided the conditions

    regarding its use are stated in clear and unambiguous stages:

    i) Requesting bank to open a letter of credit

    ii) Retiring documents under letter of credit

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    iii) Import trust receipt facility.

    Each time a L\C is opened, the importer has to file a formal stamped letter of

    credit application and agreement in the prescribed form? The application should

    set forth the precise; terms and conditions under which the importer wishes his

    bank to establish the credit, and describe the documents covering the goods

    purchased which the bank is to receive in exchange for payments.

    L/C is sent by the issuing bank to a bank in the suppliers country with a request

    to deliver the same to the supplier, called the beneficiary. If the beneficiary is

    satisfied with terms and conditions mentioned in L/C he ships the goods, obtains

    the require documents and submits them to bank, usually his own, unless a name

    has been specified in the credit. Bank scrutinizes the documents and if he finds

    them in conformity with the L/C and the reimbursement instructions, he pays the

    suppliers.

    Thereafter he sends the documents to the issuing banker who again scrutinizes

    the documents with reference to the terms of the credit. If he is satisfied, he pays

    the negotiating banker. After pays the negotiating banker the issuing banker

    releases documents of title to the importer on his executing a stamped Letter of

    Trust. It means that the importer undertakes to deposit with the bank the sale

    proceeds immediately on realization but in no case later then period stipulated in

    the trust letter. The banks give the import trust receipts facility to first class

    customers only.

    Types of Letter of Credit

    A letter of credit may be revocable or irrevocable. If there is no indication of

    this reference, the credit will be deemed as irrevocable.

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    A revocable credit may be amended or cancelled at any moment without prior

    notice to the beneficiary. However, the issuing bank is bound to reimburse for

    the negotiation made prior to receipt of such notice.

    1. Confirmed Credit:

    When another bank adds its confirmation to the irrevocable letter of the

    credit it becomes a confirmed credit and it constitutes a definite undertaking of

    the confirming bank in addition to the issuing bank.

    2. Transferable Credit:A letter of credit is transferable only if it is expressly designated by the

    issuing bank. The beneficiary of such a credit has the right to request the

    nominated bank to transfer the credit to another party or more than one party if

    partial shipment is permitted

    3. Red Clause credit:

    Red clause credit enables the beneficiary to avail pre-shipment credit

    from the nominated bank. This credit bears normally a clause in red authorizing

    the nominated bank to make an advance to the seller prior to shipment

    4. Bank to Bank Credit:

    When the exporter used his export letter of credit as a cover for issuing a

    credit in favor of his supplier, the second credit is called back-to-back credit.

    5. Revolving Credit:

    In a revolving credit the amount of drawing is reinstated and made available

    to the beneficiary again after a period of time on notification of payment by the

    applicant or merely the fact that shipment has been made.

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    6. Deferred Payment Credits and Acceptance Credits:

    Under deferred payment credit the amount is payable in installments for a

    stipulated longer period. Usually a part is paid in advance

    Other types of letter of credit.

    1) Transit Credit.

    2) Fixed Credit..

    3) The Sight Credit.

    4) The Credit Available against Time Draft (Usance Credit).

    5) Acceptance Credit.

    6) Anticipatory Credit.

    7) Restricted and Unrestricted Credit.

    8) Fixed Credit.

    9) Clean Credit

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    CHAPTER 12

    PAYMENT METHOD IN EXPORT & IMPORT

    TRADE

    There are 3 standard ways of payment methods in the export import trade

    international trade market:

    1. Clean Payment

    2.Collection of Bills

    3.Letters of Credit

    Clean Payments :In clean payment method, all shipping documents, including title documents are

    handled directly between the trading partners. The role of banks is limited to

    clearing amounts as required. Clean payment method offers a relatively cheap

    and uncomplicated method of payment for both importers and exporters.

    There are basically two types of clean payments:

    1.)Advance Payment:

    In advance payment method the exporter is trusted to ship the goods after

    receiving payment from the importer.

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    2.)Open Account:

    In open account method the importer is trusted to pay the exporter after receipt

    of goods. The main drawback of open account method is that exporter assumesall the risks while the importer get the advantage over the delay use of

    companys cash resources and is also not responsible for the risk associated with

    goods.

    Payment Collection of Bills in International Trade:

    The Payment Collection of Bills also called Uniform Rules for Collections is

    published by International Chamber of Commerce (ICC) under the documentnumber 522 (URC522) and is followed by more than 90% of the world's banks.

    In this method of payment in international trade the exporter entrusts the

    handling of commercial and often financial documents to banks and gives the

    banks necessary instructions concerning the release of these documents to the

    Importer

    There are two methods of collections of bill:

    Documents Against Payment:

    In this case documents are released to the importer only when the payment has

    been done.

    Documents Against Acceptance:

    In this case documents are released to the importer only against acceptance of a

    draft.

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    Letter of Credit:

    Letter of Credit also known as Documentary Credit is a written undertaking by

    the importers bank known as the issuing bank on behalf of its customer, theimporter, promising to effect payment in favor of the exporter (beneficiary) up to

    a stated sum of money, within a prescribed time limit.

    CHAPTER13

    DOCUMENTS USED IN FOREIGN TRADE

    Documents are used to record a written evidence of having carried out a

    transaction in both local and international trade. This section deals with the

    documents used in international trade where there is fairly large number of

    documents required to satisfy the two basic requirements, viz.

    Nostro Account:

    The Demand Draft Deposit account belonging to a domestic bank maintained in

    an overseas bank denominated in foreign currency is nostro account.

    Vostro Account:

    The Demand Draft Deposit account belonging to a domestic bank maintained in

    an domestic bank denominated in domestic currency is vostro account.

    A list of the various document required in cross border trade is

    given below:

    Commercial Invoice

    Bills of Lading/Airway Bill

    Marine Insurance Policy and Certificate

    Bills of Exchange

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    c)It is an evidence of contract for the carriage or transportation of goods: -

    The freight contract between the shipping company and the exporter is usually

    mentioned in the Bill of Landing except in the case of a charter ship where the

    contract of charter incorporates the freight payable by the shipper.

    3. Marine Insurance Policy and Certificate:

    In International trade it is customary to insure the goods against the risks of loss

    or damage. Whether the insurance will be taken by the exporter on his own

    account or on the account of the overseas buyer depends on the terms of sale.

    A marine insurance policy can take either by an open policy or a specific policy.

    Open policy is taken by exporters who have continuous shipments to make and

    the insurance policy is issued as an open cover, which can be used for insurance

    of all consignments to one or more destinations.

    4. Bill of Exchange:

    Abill of exchange is an unconditional order in writing, addressed by the drawer

    (exporter/shipper) to the drawer (importer/buyer) requiring the drawer to pay on

    demand a stated sum of money to the bearer/specified person or organization. A

    bill of exchange is a negotiable instrument and is payable to the bearer or to the

    person in whose favor it is endorsed. In International Trade the normal practice

    is to send documents in two sets as such bill of exchange is also generally drawn

    in two sets, one each to be sent along with each set of document. When drawn in

    two sets, each one bears an exclusion clause making the other invalid.

    5. Consular Invoice:

    Aconsular invoice is a special type of invoice required by some countries for

    their imports. Such invoices are required by the USA, Canada, Philippines and

    some Middle East countries, etc. a consular invoice is made out on a prescribed

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    format certified by the consulate of the importing country stationed in the

    exporters country. The main purpose of the consular invoice to the importing

    country is to have authenticated particulars of the goods that are importing into

    their country.

    6. Customs Invoice:

    Certain countries such as Canada and the USA need customs invoice. Canada

    has prescribed a specific from of customs invoice for allowing entry of

    merchandise at preferential tariff rates.The USA, in addition to the special customs invoice, requires a particular annex

    to the invoice, for Cotton Manufacturers. The forms are supplied by the consular

    office of the respective importers country and are to be duly filled in and signed

    by the shipper.

    7. Certificate of Origin:

    In many countries, permission to import is refused unless a certificate of origin isproduced by the buyer. This document may form part of the invoice itself. The

    essential feature is certification of the country of origin indicating where the

    goods were originally produced and/or manufactured.

    8. Inspection Certificate:

    Inspection certificate by an established inspection Authority is needed under

    some contracts or by some countries. This certificate is issued by one of the

    authorized inspection agencies in the exporters country by the agency

    nominated by the importer.

    9. Packing List:

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    The exporter prepares a packing list showing, item by item, the contents of the

    containers or cases to enable the receiver of the shipment to check the identity of

    the shipment.

    CHAPTER14

    FOREIGN TRADE POLICY

    The new (FOREIGN TRADE POLICY) takes an integrated view of the overall

    development of India's foreign trade and. goes beyond the traditional focus on

    pure exports. This would be clear in itself, but a means to economic growth and

    national development. The primary purpose is not the mere earning of foreign

    exchange, but the stimulation of greater economic activity."

    OBJECTIVES AND STRATEGY OF FOREIDN TRADE

    POLICY, 2009-14:

    In line with the above focus, the FOREIDN TRADE POLICY lays down two

    major objectives:

    I. To double our percentage share of global merchandise trade within the next five

    years;

    II. . To act as an effective instrument of economic growth by giving a thrust to

    Employment generation.

    MAIN FEATURES OF FOREIGN TRADE POLICY,

    2009-14:

    The main features of FOREIGN TRADE POLICY, 2009-014, are as

    follows:

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    (iii) As far as the handlooms and handicrafts sector is concerned, the FOREIGN

    TRADE POLICY announced that a new Handicraft Special Economic Zone

    would be established. In addition, duty sops for trimmings and embellishments

    imported by handlooms and handicraft producers were increased to 5 per cent of

    the value of exports.

    (iv) In the leather and footwear sector, the duty-free entitlements of import

    trimmings, embellishments and footwear components were increased to 3

    percent. This is expected to help the leather and footwear sector save up to 5 per

    cent of its import costs. In addition, duty free import of specified items for

    leather sector was increased to 5 per cent of the value of exports.

    3. 'Served from India' to be Built as a Brand:

    Presently services contribute more than 50 per cent of the country's GDP. To

    provide a thrust to service exports, FOREIDN TRADE POLICY advocated a

    number of steps. These include:

    (i)Served from India brand will be created to catapult India the world over as a

    major global services hub.

    (ii) An exclusive Export Promotion Council for services would be set up in order

    to map opportunities in key markets, and develop strategic market access

    programmer.

    (iii) Individual service providers who earn foreign exchange of at least Rs. 5

    lakh, and other service providers who earn foreign exchange of at least Rs. 10

    lakh would be eligible for a duty credit entitlement of 10 per cent of total foreign

    exchange earned by them.

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    (iv) Stand-alone restaurants would be entitled to duty credit equivalent to 20 per

    cent of the foreign exchange Earned. In the case of hotels, the entitlement would

    be 5 per cent.

    (v) Healthcare and educational institutions would be entitled to duty credit of 10

    per cent of the foreign exchange earned.

    4. New categories of star houses:

    The FOREIDN TRADE POLICY announced a new categorization of status

    holders. Under the new scheme, export houses were divided into five categories

    depending upon their export performance in three years. The categories were

    (i) One Star (export of Rs. 15 crores)

    (ii) Two Star (export of Rs. 100 crores)

    (iii) Three Star (export of Rs. 500 crores)

    (iv) Four Star (export of Rs. 1,500 crores); and

    (v) Five Star (export of Rs. 5,000 crores).a star export house was entitled to get

    license, certificate, permissions and customs clearances for both imports and

    exports on self-declaration basis. The star export house was also granted thebenefit of 100 per cent retention of foreign exchange in Export Earners Foreign

    Currency (EEFC) account. It was also to be eligible for consideration under the

    Target plus Scheme and enjoy a number of other privileges

    5. "Target Plus' Scheme:

    Exporters who exceed the annual export target were to be rewarded under the

    Target plus Scheme. This reward was in terms of entitlement to duty-free creditbased on incremental export earnings. With the target for 2004-05 being fixed at

    16 per cent, the lower limit for qualifying for these rewards was pegged at 20 per

    cent. Target plus scheme was abandoned in the second supplement to Foreign

    Trade Policy announced on April 7, 2006.

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    6. Setting up of Free Trade and Warehousing Zones (FTWZs):

    The FOREIDN TRADE POLICY introduced a new scheme to establish Free

    Trade and Warehousing Zones to create trade-related infrastructure to facilitate

    the import and export of goods and services with freedom to carry out trade

    transactions in free currency. This is aimed at making India into a global trading

    hub. Each zone would have minimum outlay of Rs. 100 crores and 5, 00,000

    square meters built-up area. Foreign direct investment would be permitted up to

    100 per cent in the development and establishment of the zones and theirinfrastructural facilities.

    7. Scopes for Export oriented units:

    The FOREIGN TRADE POLICY announced a number of benefits for the

    export-oriented units. These include: (i) Export Oriented Units to be exempted

    from service- tax in proportion to their exported goods and services; (ii) Export

    Oriented Units to be permitted to retain 100 per cent of export earnings in EEFCaccounts; (iii) Income tax benefits on plant and machinery to be extended to

    Domestic Tariff Areas that converting Export Oriented Units; and (iv) Import of

    capital goods to be on self- certification basis for Export Oriented Units.

    8. Reducing transactional costs and simplifying procedures:

    The FOREIGN TRADE POLICY announced a number of rationalization

    measures' to reduce transactional costs and simplify procedures. These include:(i) All exporters with minimum turnover of Rs. 5 crore exempted from

    furnishing bank guarantee ii) Import of second-hand capital goods permitted

    without any age restrictions; (iii) Minimum depreciated value for plant and

    machinery to be located into India reduced from Rs. 50 crore to Rs. 25 be filed

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    reduced; (vii) Time bound introduction of Electronic Data Interface for export

    transactions, etc

    9. Focus on infrastructure development Some:special measures announced for infrastructure development in the FOREIGN

    TRADE POLICY are: (i) The threshold limit of designate Towns of Export

    Excellence' has been reduced from Rs.1000 crores to Rs. 250 crores in the five

    thrust-sectors announced (ii) Funds from Assistance to States for infrastructure

    Development of Exports used for development of Agra Export Zones also, (iii)

    establishment of common facility center will be encouraged for use by house-

    based service providers; and (,v) Pragati Maiden at Delhi will be transformed

    into a world-class complex.

    10. Other measures:

    Of the various other measure announced in the FOREIGN TRADE POLICY.

    Thefollowing deserve specific mention

    (i) Biotechnology Parks to be set up in the country having all the facilities of 100

    per cent EXPORT ORIENTED UNITs.

    (ii) The Board of Trade to be revamped and given a clear and dynamic role.

    (iii) Financial assistance to be provided to export for meeting their costs and

    legal expenses related to trade matters like anti-dumping action and

    countervailing duties in other countries.

    (iv) Although the DEPB (Duty Entitlement and Pass book Scheme) is as it

    Covers 52 per cent of India's exports and is easy to administer.

    CHAPTER 15

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    LIMITATIONS

    Export Import finance is a vast and big subject and time frame of two months is

    not sufficient to understand the whole gamut of export & import Credit &

    finance.

    Export credit is regulated and controlled by various regulators and It is not

    possible to understand all the guidelines comprehensively with the limitedamount of access to such information.

    Export-Import bank of India do not provide detail information about their

    activities.

    Some bank does not provide information about their activity of export-import.

    .

    CONCLUSION

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    Export Import Finance is a very important study & understands the overall

    gamut of the international finance market.Credit and finance is the life and blood

    of any business whether domestic or international. The payment terms however

    depend upon the availability of finance to exporters in relation to its quantum;cost and the period at pre-shipment and post-shipment stage. The providers of

    export and import finance also extend advisory and planning assistance to the

    importers and exporters. The Government of India and RBI has conceived

    various schemes to stimulate and support exports and imports..

    The biggest benefit of import and export financing is that the

    company will get the working capital needed for growth

    The financing solutions will enhance a companys cash flow by ensuring

    that the company and its suppliers are paid in a timely fashion. The funding will

    help in taking on new opportunities, both locally and internationally. Benefits

    include:

    1. Commercial trade credit verification services and help to establish credit limits

    for national and international customers.

    2. Predictable cash flow: Advancing funds against invoices, providing working

    capital to pay employees and suppliers.

    3. Financing to pay suppliers - allowing the company to deliver its large purchase

    orders.

    4. For Importers: Import financing / purchase order financing handles supplier

    payments for large purchase orders enabling to take on orders and deliver orders

    that in the past would have exceeded its working capital capability

    ANNEXURE

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    QUESTIONNAIRE FOR MANAGER

    1. Does your bank provide Export-Import Finance to Customer?

    Yes No

    2. What is the rate of Interest charged?

    i. 5%-10%

    ii. 10%-15%

    iii. 15%-20%

    iv. More than 20%

    3. Which document does bank take from the applicant?

    4. Do you collect import bills on behalf of your customer?

    Yes No

    5. should importer & exporter maintain nostro account with you to

    enable international trade?

    Yes No

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    6. Do you discount bill drawn under letter of credit as well as outside

    it?

    Yes No

    7. Is their scope for default in loan repayment by exporter & importer?

    Yes No

    8. Do you hold any charge/Mortgage/pledge over their assets through

    which you can recover your outstanding loan?

    Yes No

    9. Do you avail export bills rediscounting facility& refinance of exportcredit from RBI and EXIM Bank?

    Yes No

    10. Are you giving bill discounting facility to non-bank customers as

    well?

    Yes No

    11. If yes, what are the general guidelines for the same?

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    BIBLOGRAPHY

    Export-What, where & How Paras Ram.

    International Finance B.P.Varma.

    Export Marketing Michael Vaz.

    How to Export Nabhis Publication

    How to Import Nabhis Publication

    Export-Import Bank of India Annual Report

    International banking and Finance Vipul Publication

    WEBLOGRAPHY

    www.rbiorg.com

    WWW.Google.com

    WWW.Yahoo.com

    WWW.eximbankindia.com

    WWW.economictimes.com

    http://www.rbiorg.com/http://www.google.com/http://www.yahoo.com/http://www.eximbankindia.com/http://www.economictimes.com/http://www.rbiorg.com/http://www.google.com/http://www.yahoo.com/http://www.eximbankindia.com/http://www.economictimes.com/