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7/29/2019 LEB assignment
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POST SHIPMENT CREDIT
SUBMITTED TO:- SUBMITTED BY:-
Ms. Nupur Chopra Palak Agrawal
Jasleen Sardar
Rutu Patel
LEB ASSIGNMENT
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TRADING
Imports" consist of transactions in goods and services(sales, barter, gifts or grants) from non-residents
to residents. In national accounts "exports" consist of
transactions in goods and services (sales, barter,gifts or grants) from residents to non-residents.
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TYPES OF FINANCE
Trade finance provides the opportunity to bridge the gap betweenthe payment requirements of the seller and the funding constraintsof the buyer. Trade Finance is a process to ease the pressure oncash-flows in International Trade.
Trade finance includes responsibility for working Letters of Credit
(LC) or Bills of Exchange (Bof Ex) with banks, credit insurers andother agencies
outline the two broad categories of trade finance:
1. Pre-shipment financing to produce or purchase the material and
labour necessary to fulfil the sales order; or
2. Post-shipment financing to generate immediate cash whileoffering payment terms to buyers.
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STAGES OF EXPORT FINANCE
Pre-shipment Finance
Financial assistance extended for execution of an
export order from the date of receipt of an exportorder till the date of shipment.
Post-shipment Finance
Financial assistance from the date of shipment to the
date of realization.
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Pre-Shipment Finance
Pre-shipment credit is provided to the exporters for meeting
their need of getting the shipment ready. It is generallyoffered as Packing Credit (PC).
The exporter has to submit the prescribed application formfor obtaining packing credit together with the required papers
to the bank. The documents required generally are the export order, letter
of credit, proof of business address, financial papers likeprofit & loss account and the balance sheet.
Banks also require the exporter to obtain an insurance coverfrom ECGC against payment risks.
This facility entitles the exporter to borrow funds as pre-shipment credit in foreign currencies like US Dollar, Japanese
Yen, Pound Sterling or Euro.
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Types of Pre-shipment Finance
Packing Credit (Merchant Exporter/Manufacturer)
Advance against Cheques/Drafts representingAdvance Payment
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Post-Shipment Credit
Post-shipment finance is provided at concessional interest rates as
per RBI guidelines. The proof of shipment of goods, serves as thebasis of grant of such facility. The basic purpose of this credit isto finance export receivables.
Purpose: meant to finance export sales receivable after the date of
shipment of goods to the date of realization of exports proceeds.In cases of deemed exports it is extended to finance receivableagainst supplies made to designated agencies.
Basis: provided against evidence of shipment of goods/supplies
Nature: Can be secured or unsecured. Since the finance isextended against evidence of export shipment and bank obtainsthe documents of title of goods, the finance is normally selfliquidating. In case it involves advance against un-drawn balance, it
is usually unsecured in nature.
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Quantum: Can be extended up to 100% of the invoice value
Period : Can be short terms or long term, depending on thepayment terms offered by the exporter to the importer Six
months in case of cash terms offered by the exporter to theimporter. Six months in case of cash exports.
Type of Exports covered Type of Exports covered: Physicalexports Deemed export Physical exports, Deemed export
(provided to the supplier of the goods which are supplied tothe designated agencies) and for Capital goods and projectexports.
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THE TYPES OF POST SHIPMENT FINANCE
The following options are available to the exporter for post-
shipment credit: Export bills purchase/discounting
Export bills negotiated (against letter of credit)
Advances against bills for collection
Advances against duty drawback receivable from thegovernment
Advances against exports on consignment basis Advances against undrawn balances
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1.Export Bills Purchased/ Discounted. (DP & DA Bills)Export bills (Non L/C Bills) is used in terms of sale contract/order may be discounted or purchased by the banks. It is used in
indisputable international trade transactions and the proper limit hasto be sanctioned to the exporter for purchase of export bill facility.
2. Export Bills Negotiated (Bill under L/C)The risk of payment is less under the LC, as the issuing bank
makes sure the payment. The risk is further reduced, if a bankguarantees the payments by confirming the LC. Because of theinborn security available in this method, banks often become readyto extend the finance against bills under LC.
3. Advance against Export Bills Sent on Collection BasisBills can only be sent on collection basis, if the bills drawn underLC have some discrepancies. Sometimes exporter requests the billto be sent on the collection basis, anticipating the strengthening offoreign currency.
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4. Advance against Export on Consignments BasisBank may choose to finance when the goods are exported on consignment basis atthe risk of the exporter for sale and eventual payment of sale proceeds to him bythe consignee.
5. Advance against Undrawn BalanceIt is a very common practice in export to leave small part undrawn for paymentafter adjustment due to difference in rates, weight, quality etc. Banks do financeagainst the undrawn balance, if undrawn balance is in conformity with the normallevel of balance left undrawn in the particular line of export, subject to a maximumof 10 percent of the export value.
6. Advance against Claims of Duty Drawback
Duty Drawback is a type of discount given to the exporter in his own country. Thisdiscount is given only, if the in house cost of production is higher in relation tointernational price. This type of financial support helps the exporter to fightsuccessfully in the international markets.
In such a situation, banks grants advances to exporters at lower rate of interest for
a maximum period of 90 days.
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BANKS PROVIDING EXPORT FINANCE
Sources:
Commercial banks Commercial banks which aremembers of the Foreign Exchange which are membersof the Foreign Exchange
Dealers Association provide finance at a concessionalrate of interest and are refinanced by the Reserve Bank/Export Import
Bank of India In case they do not wish to avail refinance
they Bank of India. In case they do not wish to availrefinance, they are entitled for an interest rate subsidy.
Export Import Bank of India, in certain cases,participates with commercial bank in extending medium
term loans to exporters.
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Other Related Institutions: Other Related Institutions:
Reserve Bank of India, being the central bank ofcountry, lays down the policy frame work and providesguidelines. The RBI functions as refinancinginstitution for short and medium term loansrespectively, provided by commercial banks.
Export Credit & Guarantee Corporation (ECGC) alsoplays an important role through various policies and
guarantees providing cover for commercial andpolitical risks involved in export trade.
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