Export credit useful for CAIIB and certified credit professionals
Export Credit
Export credit is allowed in two stages namely pre shipment or packing credit and post
shipment. Salient
features of packing credit are as under:
1. For packing credit eligibility conditions are (a) Exporter should have Import Export
Code Number
(b)Exporter should not be on the caution list of RBI
(c) Exporter should not be on the specific approval list of ECGC
(d) He should have confirmed order of LC. However, if running packing credit facility has
been allowed confirmed order can be submitted later on.
2. Amount of PCL: on the basis of FOB value
3. Period of PCL: As per need of exporter. If pre-shipment advances are not adjusted by
submission of export documents within 360 days fromthe date of advance, the
advances will cease to qualify for prescribed rate of interest for export credit to the
exporter ab initio.
Adjustment of PCL: Normally through proceeds of export bills or export incentives or
debit to EEFC account.
Post shipment credit
1. As per Exchange Control Regulations, bills should be submitted for negotiation within
21 days of shipment.
2. Export proceeds should in general be realized within 12months fromdate of shipment.
(Earlier it was 6 months and for status holder exporters, 100%EOU, units in EHTP/STP,
the period was 12months fromthe date of shipment). In case of export for warehousing
the period of realization is 15months. In case of exports by units in Special Economic
Zone there is nomaximumperiod prescribed by RBI.
3. Authorised Dealer can grant extension up to 6months if invoice amount is up to USD
1 million.
4. If any export is not realized within 180 days of date of shipment, in all cases, a report
should be sent to RBI on XOS statement which is a half yearly statement submitted as
at the end of June & Dec of each year. This is to be submitted by 15th of July / January.
5. Normal Transit Period is the period between negotiation of bills and credit to Nostra
account. It is fixed by FEDAI and presently it is 25 days irrespective of the country.
Interest Rate on Export Credit
1. Export credit in rupees: Interest rates applicable for all tenors of rupee export credit
advances sanctioned on or after July 01, 2010 will be at or above Base Rate. Interest
Rates under the BPLR system effective upto June 30, 2010 will be 'not exceeding BPLR
minus 2.5 percentage points per annum' for the following categories of Export Credit:
Pre-shipment Credit (fromthe date of advance) : (a) Up to 270 days (b)Against
incentives receivable from Government covered by ECGC Guarantee up to 90 days. If
pre-shipment advances are not liquidated from proceeds of bills on purchase, discount,
etc. on submission of export documents within 360 days from the date of advance, the
advances will cease to qualify for prescribed rate of interest for export credit ab initio.
Post-shipment Credit (from the date of advance):
(a) On demand bills for transit period (as specified by FEDAI);
(b) Usance bills (for total period comprising usance period of export bills, transit period
as specified by FEDAI, and grace period, wherever applicable): i) Up to 180 days; ii) Up
to 365 days for exporters under the Gold Card Scheme.
(c) Against incentives receivable from Govt. (covered by ECGC Guarantee) up to 90
days
(d) Against undrawn balances (up to 90 days);
(e) Against retention money (for supplies portion only) payable within one year from the
date of shipment (up to 90 days)
(f) In respect of overdue export bills also interest rate should be charged at not
more than BPLR minus 2.5%up to 180 days from date of advance.
2. Export Credit in Foreign Currency:
Pre-shipment Credit in foreign currency (from the date of advance):
(i) up to 180 days not more than LIBOR/ EURO LIBOR/ EURIBOR plus 200 basis
points.
(ii) Beyond 180 days and up to 360 days: Rate for initial period of 180 days
prevailing at the time of extension plus 200 basis points.
(iii) Beyond 360 days as per bank discretion
Post shipment in foreign currency:
(a) On. demand bills for transit period: Not exceeding 200 basis points over
LIBOR/EURO LIBOR/EURIBOR.
(b) Against usance bills for total period comprising usance period of export bills, transit
period and grace period up to 6 months from the date of shipment: Not exceeding 200
basis points over LIBOR/EURO LIBOR/EURIBOR
(c) Export Bills (Demand or Usance) realized after due date but up to
date of crystallization: 200 basis points over the rate charged up to due date.
Interest Subvention on export credit in rupees:
TheGovernmentof India has decided to extend Interest Subvention of 2% from
April1,2010 upto March31,2011 on pre and post shipment rupeeexport credit, for
certain employment oriented export sectors as under: (i)Handloom (ii)Handicrafts
(iii)Carpets (iv)Small & Medium Enterprises, (v)Leather and Leather Manufactures (vi)
Jute Manufacturing including Floor covering (vii)EngineeringGoods (viii)Textiles.
The items marked bold added vide circulardated 9thAug 10.However, the total
subvention
Will be subject to the condition that the interest rate, after subvention will not fall
below7%which is the rate applicable to the agriculture sector under priority sector
lending. The interest subvention will be available even in cases where Base Rate
system has been introduced and banks can grant export credit below Base Rate after
considering subvention provided it is not less than 7%p.a.
Export Refinance
1. Who will provide? Export Refinance is provided by RBI.
2. Maximum period of refinance is 180 days.
3. Extent of Refinance: 15%(w.e.f. 27.10.2009) of eligible export finance outstanding on
the reporting Friday of the preceding fortnight. Outstanding Export Credit for the
purpose of working out refinance limits
will be aggregate outstanding export credit
minus export bills rediscounted with other banks/Exim Bank/Financial Institutions,
export credit against which refinance has been obtained from NABARD/Exim Bank, pre-
shipment credit in foreign currency (PCFC), export bills discounted/rediscounted under
the scheme of 'Rediscounting of Export Bills Abroad', overdue rupee export credit and
other export credit not eligible for refinance.
4. Interest rate is Repo Rate. 5. Packing Credit in Foreign Currency is not eligible for
export refinance.
Export Declaration Forms for goods and services
Every exporter of goods or software in physical form or through any other form, either
directly or indirectly, to any place outside India, other than Nepal and Bhutan, shall
furnish to the specified authority, a declaration in one of the forms set out below
containing the full export value of the goods or software.
a) FormGR: To be completed in duplicate for export otherwise than by Post including
export of software in physical form i.e.magnetic tapes/discs and papermedia.
b) Form SDF: To be completed in duplicate and appended to the shipping bill, for
exports declared to Customs Offices notified by the Central Government which have
introduced Electronic Data Interchange (EDI) system for processing shipping bills
notified by the Central Government.
c) Form PP: To be completed in duplicate for export by Post.
d) Form SOFTEX: To be completed in triplicate for declaration of export of software
otherwise than in physical form, i.e. magnetic tapes/discs, and paper media. Declaration
forms are submitted in two copies except Softex forms which are submitted in three
copies. As per
current guidelines no declaration ismandatory for exports with value up to $ 25,000 or
its equivalent. Duplicate copy of the declaration form which is submitted to the AD is-
now required to be retained by the AD for the purpose of audit and not to be forwarded
to RBI.
Gold Card Scheme for Exporters
1. Exporters with good track record eligible for the Card. Their account should have
been Standard for 3 years continuously with no irregularity.
2. Gold Card Scheme is not applicable to those exporters who are blacklisted by ECGC
or included in RBI's defaulter's list/ caution list ormaking losses for the past three years
or having overdue export bills in excess of 10 per cent of the 'previous year's turnover'.
However, RBI has advised (Oct 09) that in view of difficulties faced by exporters on
account of weakening of external demand and in realizing the dues within the stipulated
time, the requirement of
overdue export bills not exceeding 10%of the previous year's export turnover, has been
dispensed with for one year i.e. from April 1, 2009 toMarch 31, 2010.
3. Limits to Card holder exporters to be sanctioned for 3 years with provision for
automatic renewal subject to fulfilment of terms and conditions. For disposal of fresh
applications the period is 25 days, 15 days for renewal of limits and 7 days for sanction
of ad-hoc limits.
4. A stand by limit of not less than 20% of the limits sanctioned should be ma
de
available for executing sudden orders.
5. Gold Card holder exporters will be given preference in,the matter of sanction of
PCFC.
6. Gold Card holders are entitled for concessional interest on post shipment credit up to
365 days.
Trade and Exchange Control Regulations for Imports
1. Importer can import goods either on the basis of OGL or on the strength of specific
import licence issued by DGFT.While issuing letter of credit or retiring import bills, the
AD is required tomake relative endorsement in the exchange control copy of import
licence.When fully utilized, it is to be retained by the AD for verification by the
auditor/inspector.
2. Payment for imports should bemade within 6months from date of shipment.
3. Advance payment against imports is allowed up to any amount. However, where the
amount of advance, remittance for services exceedsUS $ 500,000 or its equivalent, or
for goods exceeds USD50,00,000, the same can be allowed against guarantee of an
international bank of repute or guarantee of a bank in India against counter guarantee of
an international bank.However, in respect of Public Sector Company or aDepartment/
Undertaking of theGovernment of India/ StateGovernments, approval fromtheMinistry of
Finance,Government of India is required for advance remittance for import of goods or
services without bank guarantee for an amount exceeding USD100,000.
4. Bill of Entry is documentary evidence of physical arrival of goods into India. For
advance remittance exceeding US $ 1,00,000, it should be submitted within 6 months of
remittance. In case importer does not furnish the same within 3 months from the date of
remittance, the Authorised Dealer should rigorously follow-up for the next 3months. AD
is required to submit to RBI, statement on form BEF on half- yearly basis (within 15
days from the close of the half-year) as at the end of June & December of every year, in
respect of importers who have defaulted in submission of Bill of entry within 6 months
from the date of remittance.
5. Delinking or Crystallisation of Export and Import bills: Crystallisationmeans converting
a foreign currency liability to rupee liability. In the case of overdue export bills it will be
done as per bank discretion and exchange rate will be TT selling rate. In the case of
import bills conversion will be at Bills selling rate. In demand bills it will be on 10th day
and in case of usance bills it will be done on due date.
6. Banks are permitted to make remittances for imports, where the import bills I
documents have been received directly by the importer from the overseas supplier and
the value of import bill does not exceed USD 300,000.
7. Banks are allowed to issue guarantees in favour of a non-resident service provider,
on behalf of a resident customer who is a service importer, for an amount up to USD
500,000 or its equivalent. In the case of a Public Sector Company or a Department/
Undertaking of theGovernment of India/ StateGovernments, approval from the Ministry
of Finance, Government of India for issue of guarantee for an amount exceeding USD
100,000 or its equivalent would be required.
8. For release of forex for imports, application should be made on Form Al if the amount
of
remittance exceeds USD 500. For release of forex for purpose other than import,
application should be made on Form A2 if the amount of remittance is more than USD
5000.
Risk in Foreign Exchange
1. Risk in foreign exchange arises when a bank has open position in forex i.e either it is
overbought or oversold. A bank is said to be overbought when purchase is more than
sale and it is oversold when sale is more than purchase.
2. When a bank is overbought and it wants to square its position it will gain if rate of
forex goes up and will lose if rate of forex goes down.
3. When a bank is oversold and it wants to square its position, it will gain if rate of forex
goes down and will lose if rate of forex goes up.
4. The Daylight open position will be generallymore than the overnight open position.
Important points on Diamond Dollar Account (DDA)
a. Exporters-importers dealing in rough and polished diamonds or diamond-studded
jewellery can open up to 5 DDAs
b. Exporter should have a track record, of at least, three years and average export
turnover of Rs 3.00 crores, can open Diamond dollar account with an AD, for
transacting business in foreign exchange.
Who can open (Exchange Earners Foreign Currency Account) EEFC accounts
with an authorised dealer in India ?
a. Any person resident in India, who is an earner of foreign currency
b. Including Special Economic Zones, Software Technology Parks, Export
Processing Zones and status account holders
How much of the foreign exchange can be credited to EEFC account?
a. Can currently credit up to 100% of the inward payments received in foreign
currency to this account.
EEFC accounts are:
a. In the nature of current account, and are non-interest bearing.
b. Balances in EEFC accounts can be used for any current account transactions,
including repayment of packing credit advances, whether availed in Rupee or
foreign currency.
The finance to exporters, both Pre-Shipment and Post –shipment, by Banks in
India is:
a. to make exporters compete with their competitors from other countries, as also to
boost the exports from the country and can be in Indian Rupees
b. to make exporters compete with their competitors from other countries, as also to
boost the exports from the country and can be in foreign currency
Finance allowed to an exporter, to fund the expenses needed for procurement of raw
material, manufacturing, packing, local transportation, labour charge and all expenses
upto the stage of packing and shipment, is called Pre-Shipment Finance/Loan or
Packing Credit Loan (PCL)
Finance against export bills, when the shipment is already made, is called Post-
shipment Credit or Post-Shipment Export finance (PSEF)
Pre-shipment finance can be of two types: Packing Credit (PCL) and Advance against
Govt, receivables, i.e. Duty Drawback, etc.
Post-shipment finance can be of various types, as under:
a. Export bills purchased/discounted/negotiated (FBP/FUBD/FBN)
b. Advance against bills sent on collection, exports on consignment basis, undrawn
balances or duty Drawback
Before sanctioning Packing Credit Loan to a customer, following precautions need to be
taken, besides normal KYC norms:
a. He should have Export/Import Code number (IEC) and his name should not
appear under the caution list of RBI.
b. He should not be under the Specific Approval list of ECGC.
c. He has the capacity to execute the order within stipulated time and has a
genuine and valid export order or Letter of Credit for export of goods.
Before sanctioning Packing Credit Loan to a customer, following precautions need to
be taken, besides normal KYC norms:
a. No PCL has been availed by him against the same order/LC from any other
bank.
b. Bank should call for Credit Report/Status reports on the foreign buyers, their Bank
and their country .
c. The exporter should submit an undertaking to submit stock statements for the goods
on which PCL has been allowed.
While sanctioning Packing Credit Loan to a customer, following precautions need to be
taken, besides normal KYC norms:
a. The total period sanctioned should be as per the manufacturing cycle or the
process cycle of the goods being manufactured.
b. Normally the total period of PCL should not exceed 180 days.
The following is correct with regards to rate of interest on preshipment finance:
a. Normally the total period of PCL should not exceed 180 days. Banks can grant
extensions beyond 180 days up to 360 days, based on their assessment and
need of the customer. Any extension beyond 360 days, would cease to qualify for
concessional rate of interest to the exporter, ab initio.
Following is correct with regards to calculation of Pre-shipment Finance:
a. If the contract or the LC is on CIF basis, the FOB value will be arrived at by
deducting 13% to 14% (representing freight and insurance) from the CIF value, if
the dispatch is through sea and around 25% if the dispatch is by air.
b. After arriving at the FOB value, the usual margin, i.e., profit margin stipulated in
the terms of sanctions to be deducted
Following is correct with regards to calculation of Pre-shipment Finance:
a. Quantum of finance will be fixed on the FOB value of the contract/ LC or the
domestic value of the goods whichever is less after deducting the profit margin
b. Advance for the freight and insurance charges are not to be disbursed at the
initial stage itself
Following is correct with regards to calculation of Pre-shipment Finance:
a. Banks may adopt a flexible attitude with regard to debt-equity ratio, margin and
security Norms
b. There could be no compromise in respect to viability of the proposal and the
integrity of the borrower
Following precautions are to be taken by the bank after sanctioning the pre-shipment
finance:
a. Bank should inform ECGC the details of limit sanctioned in the prescribed format
within 30 days from the date of sanction. (Wherever advances are covered under
Whole Turnover Policies of ECGC.)
b. The advance should be liquidated on submission of relative export bills, by way
of allowing post shipment finance against those bills or with any other export
proceeds against which no packing credit has been availed by the exporter .
c. The end use of the funds disbursed should be tracked by the banks
In case after allowing PCL, exports do not take place: the advance is treated as local
advance, and interest at domestic penal rates is to be charged, ab initio.
Can Packing Credit be sanctioned to sub-suppliers?
a. Packing credits can be allowed to sub-suppliers also at the first level(supplier to
Export order holder) under the Rupee credit scheme.
b. Packing credit can be granted on the basis of the inland LC opened by a bank at
the request of the Export Order holder
Banks have been authorized to grant pre-shipment advances on RUNNING ACCOUNT
basis, provided:
a. there need for 'Running Account' facility and exporters’ track record is good
b. letters of credit/firm orders should be produced within a reasonable period of
time (generally one month)
In case of PCL allowed for purchase of seeds, for export of de-oiled cake, the proceeds
from local sale of oil can be used to liquidate PCL, within a period of 30 days from the
date of advance.
What is true regarding post-shipment finance? Post-shipment finance is an advance
against export documents. It involves handling of export documents, sending it to the
foreign bank/buyer and collecting proceeds thereof
In case of rupee finance, the bill is to be purchased/discounted/negotiated at
appropriate bill
______ rate of the bank, keeping in view the tenor or notional due date of the bill.
Buying
The rate of interest should be within the broad guidelines fixed by RBI and: FEDAI
Which of the following is true? Sight Documents are purchased, Usance documents are
discounted and documents under LC are negotiated
To cover the risks for the documents which are not sent under LC, banks should advise
the customers :
a. for coverage of credit risks through the guarantees/ policies for post-shipment
advances, offered by ECGC
a. exporter should be advised to go for a separate buyer-wise policy to get wider
coverage will be available to the exporter in case of any default
b. to make vigorous follow-up for due dates, and payments for bills
Banks generally cover their post shipment advance under _____policy of ECGC:
a. Whole Turnover Post-Shipment Guarantee Scheme
"Deemed Exports" refers to those transactions in which the goods supplied do not
leave the country and the payment for such supplies is received either in Indian rupees
or in free foreign exchange.
The following categories of supply of goods by the main/ sub-contractors shall be
regarded as "Deemed Exports" under this Policy, provided the goods are manufactured
in India:
(a) Supply of goods against Advance Licence/Advance Licence for annual
requirement/DFRC under the Duty Exemption /Remission Scheme;
(b) Supply of goods to Export Oriented Units (EOUs) or Software Technology Parks
(STPs) or Electronic Hardware Technology Parks (EHTPs) or Bio Technology
Parks (BTP);
(c) Supply of capital goods to holders of licences under the Export Promotion
Capital Goods (EPCG) scheme;
(d) Supply of goods to projects financed by multilateral or bilateral agencies/funds
as notified by the Department of Economic Affairs, Ministry of Finance under
International Competitive Bidding in accordance with the procedures of those
agencies/ funds, where the legal agreements provide for tender evaluation
without including the customs duty;
(e) Supply of capital goods, including in unassembled/ disassembled condition as
well as plants, machinery, accessories, tools, dies and such goods which are
used for installation purposes till the stage of commercial production and spares
to the extent of 10% of the FOR value to fertiliser plants.
(f) Supply of goods to any project or purpose in respect of which the Ministry of
Finance, by a notification, permits the import of such goods at zero customs duty
.
(g) Supply of goods to the power projects and refineries not covered in (f) above.
(h) Supply of marine freight containers by 100% EOU (Domestic freight containers–
manufacturers) provided the said containers are exported out of India within 6
months or such further period as permitted by the Customs; and
(i) Supply to projects funded by UN agencies.
(j) Supply of goods to nuclear power projects through competitive bidding as
opposed to International Competitive Bidding.
Export Credit
Export credit is allowed in two stages namely pre shipment or packing credit and post
shipment. Salient
features of packing credit are as under:
1. For packing credit eligibility conditions are (a) Exporter should have Import Export
Code Number
(b)Exporter should not be on the caution list of RBI
(c) Exporter should not be on the specific approval list of ECGC
(d) He should have confirmed order of LC. However, if running packing credit facility has
been allowed confirmed order can be submitted later on.
2. Amount of PCL: on the basis of FOB value
3. Period of PCL: As per need of exporter. If pre-shipment advances are not adjusted by
submission of export documents within 360 days fromthe date of advance, the
advances will cease to qualify for prescribed rate of interest for export credit to the
exporter ab initio.
Adjustment of PCL: Normally through proceeds of export bills or export incentives or
debit to EEFC account.
Post shipment credit
1. As per Exchange Control Regulations, bills should be submitted for negotiation within
21 days of shipment.
2. Export proceeds should in general be realized within 12months fromdate of shipment.
(Earlier it was 6 months and for status holder exporters, 100%EOU, units in EHTP/STP,
the period was 12months fromthe date of shipment). In case of export for warehousing
the period of realization is 15months. In case of exports by units in Special Economic
Zone there is nomaximumperiod prescribed by RBI.
3. Authorised Dealer can grant extension up to 6months if invoice amount is up to USD
1 million.
4. If any export is not realized within 180 days of date of shipment, in all cases, a report
should be sent to RBI on XOS statement which is a half yearly statement submitted as
at the end of June & Dec of each year. This is to be submitted by 15th of July / January.
5. Normal Transit Period is the period between negotiation of bills and credit to Nostra
account. It is fixed by FEDAI and presently it is 25 days irrespective of the country.
Interest Rate on Export Credit
1. Export credit in rupees: Interest rates applicable for all tenors of rupee export credit
advances sanctioned on or after July 01, 2010 will be at or above Base Rate. Interest
Rates under the BPLR system effective upto June 30, 2010 will be 'not exceeding BPLR
minus 2.5 percentage points per annum' for the following categories of Export Credit:
Pre-shipment Credit (fromthe date of advance) : (a) Up to 270 days (b)Against
incentives receivable from Government covered by ECGC Guarantee up to 90 days. If
pre-shipment advances are not liquidated from proceeds of bills on purchase, discount,
etc. on submission of export documents within 360 days from the date of advance, the
advances will cease to qualify for prescribed rate of interest for export credit ab initio.
Post-shipment Credit (from the date of advance):
(a) On demand bills for transit period (as specified by FEDAI);
(b) Usance bills (for total period comprising usance period of export bills, transit period
as specified by FEDAI, and grace period, wherever applicable): i) Up to 180 days; ii) Up
to 365 days for exporters under the Gold Card Scheme.
(c) Against incentives receivable from Govt. (covered by ECGC Guarantee) up to 90
days
(d) Against undrawn balances (up to 90 days);
(e) Against retention money (for supplies portion only) payable within one year from the
date of shipment (up to 90 days)
(f) In respect of overdue export bills also interest rate should be charged at not
more than BPLR minus 2.5%up to 180 days from date of advance.
2. Export Credit in Foreign Currency:
Pre-shipment Credit in foreign currency (from the date of advance):
(i) up to 180 days not more than LIBOR/ EURO LIBOR/ EURIBOR plus 200 basis
points.
(ii) Beyond 180 days and up to 360 days: Rate for initial period of 180 days
prevailing at the time of extension plus 200 basis points.
(iii) Beyond 360 days as per bank discretion
Post shipment in foreign currency:
(a) On. demand bills for transit period: Not exceeding 200 basis points over
LIBOR/EURO LIBOR/EURIBOR.
(b) Against usance bills for total period comprising usance period of export bills, transit
period and grace period up to 6 months from the date of shipment: Not exceeding 200
basis points over LIBOR/EURO LIBOR/EURIBOR
(c) Export Bills (Demand or Usance) realized after due date but up to
date of crystallization: 200 basis points over the rate charged up to due date.
Interest Subvention on export credit in rupees:
TheGovernmentof India has decided to extend Interest Subvention of 2% from
April1,2010 upto March31,2011 on pre and post shipment rupeeexport credit, for
certain employment oriented export sectors as under: (i)Handloom (ii)Handicrafts
(iii)Carpets (iv)Small & Medium Enterprises, (v)Leather and Leather Manufactures (vi)
Jute Manufacturing including Floor covering (vii)EngineeringGoods (viii)Textiles.
The items marked bold added vide circulardated 9thAug 10.However, the total
subvention
Will be subject to the condition that the interest rate, after subvention will not fall
below7%which is the rate applicable to the agriculture sector under priority sector
lending. The interest subvention will be available even in cases where Base Rate
system has been introduced and banks can grant export credit below Base Rate after
considering subvention provided it is not less than 7%p.a.
Export Refinance
1. Who will provide? Export Refinance is provided by RBI.
2. Maximum period of refinance is 180 days.
3. Extent of Refinance: 15%(w.e.f. 27.10.2009) of eligible export finance outstanding on
the reporting Friday of the preceding fortnight. Outstanding Export Credit for the
purpose of working out refinance limits
will be aggregate outstanding export credit
minus export bills rediscounted with other banks/Exim Bank/Financial Institutions,
export credit against which refinance has been obtained from NABARD/Exim Bank, pre-
shipment credit in foreign currency (PCFC), export bills discounted/rediscounted under
the scheme of 'Rediscounting of Export Bills Abroad', overdue rupee export credit and
other export credit not eligible for refinance.
4. Interest rate is Repo Rate. 5. Packing Credit in Foreign Currency is not eligible for
export refinance.
Export Declaration Forms for goods and services
Every exporter of goods or software in physical form or through any other form, either
directly or indirectly, to any place outside India, other than Nepal and Bhutan, shall
furnish to the specified authority, a declaration in one of the forms set out below
containing the full export value of the goods or software.
a) FormGR: To be completed in duplicate for export otherwise than by Post including
export of software in physical form i.e.magnetic tapes/discs and papermedia.
b) Form SDF: To be completed in duplicate and appended to the shipping bill, for
exports declared to Customs Offices notified by the Central Government which have
introduced Electronic Data Interchange (EDI) system for processing shipping bills
notified by the Central Government.
c) Form PP: To be completed in duplicate for export by Post.
d) Form SOFTEX: To be completed in triplicate for declaration of export of software
otherwise than in physical form, i.e. magnetic tapes/discs, and paper media. Declaration
forms are submitted in two copies except Softex forms which are submitted in three
copies. As per
current guidelines no declaration ismandatory for exports with value up to $ 25,000 or
its equivalent. Duplicate copy of the declaration form which is submitted to the AD is-
now required to be retained by the AD for the purpose of audit and not to be forwarded
to RBI.
Gold Card Scheme for Exporters
1. Exporters with good track record eligible for the Card. Their account should have
been Standard for 3 years continuously with no irregularity.
2. Gold Card Scheme is not applicable to those exporters who are blacklisted by ECGC
or included in RBI's defaulter's list/ caution list ormaking losses for the past three years
or having overdue export bills in excess of 10 per cent of the 'previous year's turnover'.
However, RBI has advised (Oct 09) that in view of difficulties faced by exporters on
account of weakening of external demand and in realizing the dues within the stipulated
time, the requirement of
overdue export bills not exceeding 10%of the previous year's export turnover, has been
dispensed with for one year i.e. from April 1, 2009 toMarch 31, 2010.
3. Limits to Card holder exporters to be sanctioned for 3 years with provision for
automatic renewal subject to fulfilment of terms and conditions. For disposal of fresh
applications the period is 25 days, 15 days for renewal of limits and 7 days for sanction
of ad-hoc limits.
4. A stand by limit of not less than 20% of the limits sanctioned should be ma
de
available for executing sudden orders.
5. Gold Card holder exporters will be given preference in,the matter of sanction of
PCFC.
6. Gold Card holders are entitled for concessional interest on post shipment credit up to
365 days.
Trade and Exchange Control Regulations for Imports
1. Importer can import goods either on the basis of OGL or on the strength of specific
import licence issued by DGFT.While issuing letter of credit or retiring import bills, the
AD is required tomake relative endorsement in the exchange control copy of import
licence.When fully utilized, it is to be retained by the AD for verification by the
auditor/inspector.
2. Payment for imports should bemade within 6months from date of shipment.
3. Advance payment against imports is allowed up to any amount. However, where the
amount of advance, remittance for services exceedsUS $ 500,000 or its equivalent, or
for goods exceeds USD50,00,000, the same can be allowed against guarantee of an
international bank of repute or guarantee of a bank in India against counter guarantee of
an international bank.However, in respect of Public Sector Company or aDepartment/
Undertaking of theGovernment of India/ StateGovernments, approval fromtheMinistry of
Finance,Government of India is required for advance remittance for import of goods or
services without bank guarantee for an amount exceeding USD100,000.
4. Bill of Entry is documentary evidence of physical arrival of goods into India. For
advance remittance exceeding US $ 1,00,000, it should be submitted within 6 months of
remittance. In case importer does not furnish the same within 3 months from the date of
remittance, the Authorised Dealer should rigorously follow-up for the next 3months. AD
is required to submit to RBI, statement on form BEF on half- yearly basis (within 15
days from the close of the half-year) as at the end of June & December of every year, in
respect of importers who have defaulted in submission of Bill of entry within 6 months
from the date of remittance.
5. Delinking or Crystallisation of Export and Import bills: Crystallisationmeans converting
a foreign currency liability to rupee liability. In the case of overdue export bills it will be
done as per bank discretion and exchange rate will be TT selling rate. In the case of
import bills conversion will be at Bills selling rate. In demand bills it will be on 10th day
and in case of usance bills it will be done on due date.
6. Banks are permitted to make remittances for imports, where the import bills I
documents have been received directly by the importer from the overseas supplier and
the value of import bill does not exceed USD 300,000.
7. Banks are allowed to issue guarantees in favour of a non-resident service provider,
on behalf of a resident customer who is a service importer, for an amount up to USD
500,000 or its equivalent. In the case of a Public Sector Company or a Department/
Undertaking of theGovernment of India/ StateGovernments, approval from the Ministry
of Finance, Government of India for issue of guarantee for an amount exceeding USD
100,000 or its equivalent would be required.
8. For release of forex for imports, application should be made on Form Al if the amount
of
remittance exceeds USD 500. For release of forex for purpose other than import,
application should be made on Form A2 if the amount of remittance is more than USD
5000.
Risk in Foreign Exchange
1. Risk in foreign exchange arises when a bank has open position in forex i.e either it is
overbought or oversold. A bank is said to be overbought when purchase is more than
sale and it is oversold when sale is more than purchase.
2. When a bank is overbought and it wants to square its position it will gain if rate of
forex goes up and will lose if rate of forex goes down.
3. When a bank is oversold and it wants to square its position, it will gain if rate of forex
goes down and will lose if rate of forex goes up.
4. The Daylight open position will be generallymore than the overnight open position.
Important points on Diamond Dollar Account (DDA)
a. Exporters-importers dealing in rough and polished diamonds or diamond-studded
jewellery can open up to 5 DDAs
b. Exporter should have a track record, of at least, three years and average export
turnover of Rs 3.00 crores, can open Diamond dollar account with an AD, for
transacting business in foreign exchange.
Who can open (Exchange Earners Foreign Currency Account) EEFC accounts
with an authorised dealer in India ?
a. Any person resident in India, who is an earner of foreign currency
b. Including Special Economic Zones, Software Technology Parks, Export
Processing Zones and status account holders
How much of the foreign exchange can be credited to EEFC account?
a. Can currently credit up to 100% of the inward payments received in foreign
currency to this account.
EEFC accounts are:
a. In the nature of current account, and are non-interest bearing.
b. Balances in EEFC accounts can be used for any current account transactions,
including repayment of packing credit advances, whether availed in Rupee or
foreign currency.
The finance to exporters, both Pre-Shipment and Post –shipment, by Banks in
India is:
a. to make exporters compete with their competitors from other countries, as also to
boost the exports from the country and can be in Indian Rupees
b. to make exporters compete with their competitors from other countries, as also to
boost the exports from the country and can be in foreign currency
Finance allowed to an exporter, to fund the expenses needed for procurement of raw
material, manufacturing, packing, local transportation, labour charge and all expenses
upto the stage of packing and shipment, is called Pre-Shipment Finance/Loan or
Packing Credit Loan (PCL)
Finance against export bills, when the shipment is already made, is called Post-
shipment Credit or Post-Shipment Export finance (PSEF)
Pre-shipment finance can be of two types: Packing Credit (PCL) and Advance against
Govt, receivables, i.e. Duty Drawback, etc.
Post-shipment finance can be of various types, as under:
a. Export bills purchased/discounted/negotiated (FBP/FUBD/FBN)
b. Advance against bills sent on collection, exports on consignment basis, undrawn
balances or duty Drawback
Before sanctioning Packing Credit Loan to a customer, following precautions need to be
taken, besides normal KYC norms:
a. He should have Export/Import Code number (IEC) and his name should not
appear under the caution list of RBI.
b. He should not be under the Specific Approval list of ECGC.
c. He has the capacity to execute the order within stipulated time and has a
genuine and valid export order or Letter of Credit for export of goods.
Before sanctioning Packing Credit Loan to a customer, following precautions need to
be taken, besides normal KYC norms:
a. No PCL has been availed by him against the same order/LC from any other
bank.
b. Bank should call for Credit Report/Status reports on the foreign buyers, their Bank
and their country .
c. The exporter should submit an undertaking to submit stock statements for the goods
on which PCL has been allowed.
While sanctioning Packing Credit Loan to a customer, following precautions need to be
taken, besides normal KYC norms:
a. The total period sanctioned should be as per the manufacturing cycle or the
process cycle of the goods being manufactured.
b. Normally the total period of PCL should not exceed 180 days.
The following is correct with regards to rate of interest on preshipment finance:
a. Normally the total period of PCL should not exceed 180 days. Banks can grant
extensions beyond 180 days up to 360 days, based on their assessment and
need of the customer. Any extension beyond 360 days, would cease to qualify for
concessional rate of interest to the exporter, ab initio.
Following is correct with regards to calculation of Pre-shipment Finance:
a. If the contract or the LC is on CIF basis, the FOB value will be arrived at by
deducting 13% to 14% (representing freight and insurance) from the CIF value, if
the dispatch is through sea and around 25% if the dispatch is by air.
b. After arriving at the FOB value, the usual margin, i.e., profit margin stipulated in
the terms of sanctions to be deducted
Following is correct with regards to calculation of Pre-shipment Finance:
a. Quantum of finance will be fixed on the FOB value of the contract/ LC or the
domestic value of the goods whichever is less after deducting the profit margin
b. Advance for the freight and insurance charges are not to be disbursed at the
initial stage itself
Following is correct with regards to calculation of Pre-shipment Finance:
a. Banks may adopt a flexible attitude with regard to debt-equity ratio, margin and
security Norms
b. There could be no compromise in respect to viability of the proposal and the
integrity of the borrower
Following precautions are to be taken by the bank after sanctioning the pre-shipment
finance:
a. Bank should inform ECGC the details of limit sanctioned in the prescribed format
within 30 days from the date of sanction. (Wherever advances are covered under
Whole Turnover Policies of ECGC.)
b. The advance should be liquidated on submission of relative export bills, by way
of allowing post shipment finance against those bills or with any other export
proceeds against which no packing credit has been availed by the exporter .
c. The end use of the funds disbursed should be tracked by the banks
In case after allowing PCL, exports do not take place: the advance is treated as local
advance, and interest at domestic penal rates is to be charged, ab initio.
Can Packing Credit be sanctioned to sub-suppliers?
a. Packing credits can be allowed to sub-suppliers also at the first level(supplier to
Export order holder) under the Rupee credit scheme.
b. Packing credit can be granted on the basis of the inland LC opened by a bank at
the request of the Export Order holder
Banks have been authorized to grant pre-shipment advances on RUNNING ACCOUNT
basis, provided:
a. there need for 'Running Account' facility and exporters’ track record is good
b. letters of credit/firm orders should be produced within a reasonable period of
time (generally one month)
In case of PCL allowed for purchase of seeds, for export of de-oiled cake, the proceeds
from local sale of oil can be used to liquidate PCL, within a period of 30 days from the
date of advance.
What is true regarding post-shipment finance? Post-shipment finance is an advance
against export documents. It involves handling of export documents, sending it to the
foreign bank/buyer and collecting proceeds thereof
In case of rupee finance, the bill is to be purchased/discounted/negotiated at
appropriate bill
______ rate of the bank, keeping in view the tenor or notional due date of the bill.
Buying
The rate of interest should be within the broad guidelines fixed by RBI and: FEDAI
Which of the following is true? Sight Documents are purchased, Usance documents are
discounted and documents under LC are negotiated
To cover the risks for the documents which are not sent under LC, banks should advise
the customers :
a. for coverage of credit risks through the guarantees/ policies for post-shipment
advances, offered by ECGC
a. exporter should be advised to go for a separate buyer-wise policy to get wider
coverage will be available to the exporter in case of any default
b. to make vigorous follow-up for due dates, and payments for bills
Banks generally cover their post shipment advance under _____policy of ECGC:
a. Whole Turnover Post-Shipment Guarantee Scheme
"Deemed Exports" refers to those transactions in which the goods supplied do not
leave the country and the payment for such supplies is received either in Indian rupees
or in free foreign exchange.
The following categories of supply of goods by the main/ sub-contractors shall be
regarded as "Deemed Exports" under this Policy, provided the goods are manufactured
in India:
(a) Supply of goods against Advance Licence/Advance Licence for annual
requirement/DFRC under the Duty Exemption /Remission Scheme;
(b) Supply of goods to Export Oriented Units (EOUs) or Software Technology Parks
(STPs) or Electronic Hardware Technology Parks (EHTPs) or Bio Technology
Parks (BTP);
(c) Supply of capital goods to holders of licences under the Export Promotion
Capital Goods (EPCG) scheme;
(d) Supply of goods to projects financed by multilateral or bilateral agencies/funds
as notified by the Department of Economic Affairs, Ministry of Finance under
International Competitive Bidding in accordance with the procedures of those
agencies/ funds, where the legal agreements provide for tender evaluation
without including the customs duty;
(e) Supply of capital goods, including in unassembled/ disassembled condition as
well as plants, machinery, accessories, tools, dies and such goods which are
used for installation purposes till the stage of commercial production and spares
to the extent of 10% of the FOR value to fertiliser plants.
(f) Supply of goods to any project or purpose in respect of which the Ministry of
Finance, by a notification, permits the import of such goods at zero customs duty
.
(g) Supply of goods to the power projects and refineries not covered in (f) above.
(h) Supply of marine freight containers by 100% EOU (Domestic freight containers–
manufacturers) provided the said containers are exported out of India within 6
months or such further period as permitted by the Customs; and
(i) Supply to projects funded by UN agencies.
(j) Supply of goods to nuclear power projects through competitive bidding as
opposed to International Competitive Bidding.
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