Financial assistance to the exporters is generally provided by the Commercial Banks before shipment as well as after shipment of the goods. The assistance provided before shipment of goods is known as pre-shipment finance and that provided after the shipment of goods is known as post-shipment finance. Pre-shipment finance is given for working capital for purchase of raw material, processing, packing, transportation, warehousing etc. of the goods meant for export. Port-shipment finance is provided for bridging the gap between the shipment of goods and realisation of export proceeds. The later is done by the Banks by purchasing or negotiating the export documents or by extending advance against export bills accepted on collection basis. While doing so, the Banks adjust the pre-shipment advance, if any, already granted to the exporter.
1. PRESHIPMENT FINANCE
An application for pre-shipment advance should be made by you to your banker alongwith the following documents:
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 utilised 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 L/C.
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/Star House starting 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 proprietory and partnership firm.
5. Copy of Exporter’s Code Number (CNX).
6. Copy of a valid RCMC (Registration-cum-Membership Certificate) held by your and/ or the Export/Trading/Star Trading House Certificate.
7. Appropriate policy/guarantee of ECGC.
8. Any other document required by the Bank.
For encouraging exports, R.B.I. has instructed the banks to grant preshipment advance at a concessional rate of interest. The present rate of interest is 10% p.a. for preshipment advance upto an initial period of 180 days. Preshipment advance for a further period of 90 days is given at the concessional rate of 13% p.a. Banks are free to determine the interest rate for advances beyond 270 days and upto 360 days.
Following special schemes are also available in respect of preshipment finance:
1. Exim Bank’s Scheme for grant of foreign currency preshipment credit to exporters for financing cost of imported inputs for manufacture of export products.
2. Scheme of export packing credit to sub-suppliers from export order.
3. Packing credit for deemed exports.
4. Preshipment Credit in Foreign Currency (PCFC).
II. POST SHIPPMENT FINANCE IN INDIA
Post-shipment finance is the finance provided against shipping documents. It is also provided against duty drawback claims. It is provided in the following forms:
(a) Purchase of Export Document 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 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. The documents drawn on DP basis are parted with through foreign correspondent only when payment is received while in case of DA bills documents (including that of title to the goods) are passed on to the overseas importer against the acceptance of the draft to make payment on maturity. DA bills are thus unsecured. The bank financing against export bills is open to the risk of non-payment. Banks, in order to enhance security, generally opt for ECGC policies and guarantees which are issued in favour of the exporter/banks to protect their interest on percentage basis in case of non-payment or delayed payment which is not on account of mischief, mistake or negligence on the part of exporter. Within the total limit of policy issued to the customer, drawee-wise limits are generally fixed for individual customers. At the time of purchasing the bill bank has to ascertain that this drawee limit is not exceeded so as to make the bank ineligible for claim in case of non-payment.
(b) Advances against Export 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 load’. 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 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 advance against export bills are made by the bank by way of negotiation/purchase/discount.
(c) Advance against Goods Sent on Consignment Basis
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 documents 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.
(d) Advance against Undrawn Balance
In certain lines of export it is the trade practice that bills are not to be drawn for the full invoice value of the goods but to leave small part undrawn for payment after adjustment due to difference in rates, weight, quality etc, to be ascertained after approval and inspection of the goods. Banks do finance against the undrawn balance if undrawn is in conformity with the normal level of balance left undrawn in the particular line of export subject to a maximum of 10% of the value of export and an undertaking is obtained from the exporter that he will, within 6 months from due date of payment or the date of shipment. Against the specific prior approval from Reserve Bank of India
(e) Advance against Retention Money
Banks also grant advances against retention money, which is payable within one year from the date of shipment, at a concessional rate of interest upto 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.
(f) Advance against claims of Duty Drawback
Duty drawback is permitted against exports of different categories of goods under the ‘Customs and Central Excise Duty Drawback Rules, 1995’. Drawback in relation to goods manufactured in India and exported means a rebate of duties chargeable on any imported materials or excisable material used in the manufacture of such goods in India
As per the present procedure, no separate claim of duty drawback is to be filed by the exporter. A copy of the shipping bill presented by the exporter at the time of making shipment of goods serves the purpose of claim of duty drawback as well. This claim is provisionally accepted by the customs at the time of shipment and the shipping bill is duly verified. The claim is settled by customs office later.
As a further incentive to exporters, Customs House at Delhi, Mumbai, Calcutta, Chennai, Chandigarh, Hyderabad have evolved a simplified procedure under which claims of duty drawback are settled immediately after shipment and no funds of exporter are blocked. However, where settlement is not possible under the simplified procedure exporters may obtain advances against claims of duty drawback as provisionally certified by customs.
Rates of Interest
The rate interest depends on the nature of Bills, i.e. whether it is a demand bill or unsance bill. Like preshipment, post-shipment finance is also available at concessional rate of interest. Present rates of interest are as under:
1. Demand Bills for transit period (as specified by FEDAI) Not exceeding10% p.a.
2. Usance Bills (for total period comprising usance period
as specified by FEDI and grace period, wherever applicable :
(a) Upto 90 days 10% p.a.
(b) Beyond 90 days and upto six months from the date 12% p.a.
of shipment
(c) Beyond six months from the date of Shipment 20%
(Minimum)
3. Against incentives (duty drawback etc.) receivable from Not exceeding
Government covered by ECGC guarantees (upto 90 days) 10% p.a.
4. Against undrawn balance (upto 90 days) -do-
5. Against retention money (for supplies portion only) -do-
payable within one year from the date of shipment(upto 90 days)
6. Defered credit for period beyond 180 days 15.5%
7. Export credit not otherwise specified :
(a) Preshipment 15.5% p.a.
(b) Post-shipment 15.5% p.a.
Normal Transit Period
Foreign Exchange Dealers Association of India
Direct and Indirect Bill
If the currency of the bill is the same as the currency of the country on which it is drawn, it is termed as direct bill, e.g. an export bill in US$ drawn on place in USA. However, if the currency of the bill in which it is drawn is different than the currency of the country on which it is drawn, it is termed as indirect bill, e.g. an export bill in US $ drawn on a place in Japan
National Due Date
To determine the date of an export bill we have to consider the following three components:
(a) Normal transit period as fixed by FEDAI
(ii) Usance period of the bill
(iii) Grace period if applicable in the country on which the bill is drawn. Grace period is applicable only in case of usance bills
The notional due date of an export bill may thus be calculated after adding all the above three components.
The concessional rate of interest is chargeable upto the notional due date subject to a maximum of 90 days.
III. FORFAITING FINANCE BY AUTHORISED DEALERS
Reserve Bank has now permitted the authorised dealers (Banks) to arrange forfaiting of medium term export receivables on the same lines as per the scheme of EXIM Bank and many International forfaiting agencies have now become active in Indian market. Forfaiting may be usefully employed as an additional window of export finance particularly for exports to those countries for which normal export credit is not intended by the commercial banks.
It must be noted that charges of forfaiting are eventually to be passed on to the ultimate buyer and should, therefore, be so declared on relative export declaration forms.
IV. EXTERNAL COMMERCIAL BORRIWINGS
Proposals for raising foreign currency loans/credit viz Buyer’s Credits, Supplier’s Credits or Lines of Credits by firms/ companies/lending institutions banks, etc. for financing cost of import of goods, technology or for any other purposes, other than shot-term loans/credit maturing within one year should first be submitted to Government of India, Ministry of Finance (Department Economic Affairs). ECB Divisions, New Delhi
V. EXIM BANK FINANCE
Besides commercial banks, export finance is also made available by the EXIM Bank. The EXIM Bank provides financial assistance to promote Indian exports through direct financial assistance, overseas investment finance, term finance for export production and export development, pre-shipment credit, buyer’s credit, lines of credit, re-lending facility, export bills re-discounting, refinance to commercial banks, finance for computer software exports, finance for export marketing and bulk import finance to commercial banks. The EXIM Bank also extends non-funded facility to Indian exporters in the form of guarantees. The diversified lending programme of the EXIM Bank now covers various stages of exports, i.e. from the development of export markets to expansion of production capacity for exports, production for exports and post shipment financing. The EXIM Bank’s focus is on export of manufactured goods, project exports, exports of technology, services and export of computer software.
FORFAITING FINANCE FROM EXIM BANK
A new financing option for the Indian exporters is available under the Forfaiting Finance Scheme introduced by the EXIM Bank. Forfaiting is a form of trade finance involving discounting of medium-term export receivables with or without recourse to the exporter. The arrangement envisages discounting by Indian exporters of bill of exchange/promissory notes relating to export transactions which are “avalised” or guaranteed by the buyer’s bankers with overseas forfaiting agencies on “without recourse” basis.
Briefly, the procedure involved in the scheme of forfaiting finance by the EXIM Bank is as follows:
1. Exporter initiated negotiations with the prospective overseas buyer with regard to the basic contract price, period of credit, rate of interest, etc.
2. After successful negotiations, he furnishes the relevant particulars such as name and country of overseas buyer, contract value, nature of goods, tenure of credit, name and country of guaranteeing bankers to the Exim Bank and requests for an indicative discounting quote. Exim Bank obtains the indicative quote of forfaiting discount together with commitment fee and other charges, if any, to be paid by the exporter, from an overseas forfaiting agency.
3. On receipt of the indicative quote from the Exim Bank, the exporter finalises the terms of the contract, loading the discount and other charges in the value and approaches Exim Bank for obtaining a firm quote. Exim Bank arranges to get the same from an appropriate overseas forfaiting agency and furnishes the same to the exporter. At this stage, exporter would be required to confirm acceptance of the arrangement to Exim Bank within a specific period as stipulated by that Bank.
4. The exporter contract should clearly indicate that the overseas buyer shall prepare a series of avalised Promissory Notes in favour of the exporter and hand them over against the shipping documents to his banker. The Promissory Notes will be endorsed with the words without recourse by the exporter and handed over to his banker in India
5. Alternatively, the export contract may provide for exporter to draw a series of Bills of Exchange on the overseas buyer which will be sent with the shipping documents through latter’s banker for acceptance by the overseas buyer. Overseas buyer’s banker will handover the documents against acceptance of Bills of Exchange by the buyer and signature of ‘aval’ or the guaranteeing bank. Avalised and accepted bills of exchange will be returned to the exporter through his banker. Exporter will endorse avalised Bills of Exchange with the words ‘without recourse’ and return them to his banker for onward transmission to the Exim Bank.
6. Exim Bank will forward the bills of Exchange/Promissory Notes after verification to the forfaiting agency for discounting by the latter.
7. Exim Bank will arrange to collect the discounted proceeds of Promissory Notes/Bill of Exchange from the overseas forfaiting agency and effect payment to the nostro account of the exporter’s bank as per the latter’s instruction.
8. The exporter’s bank in turn will pass the proceeds to the exporter.
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