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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.

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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.

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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
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