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Bank Pre shipment Finance to exporters

Tuesday, October 25, 2016 Category : Export India

https://www.rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=7377#pres

Packing Credit RBI Circular

https://www.bankingschool.co.in/foreign-exchange/packing-credit-facility-for-
exporters/

http://www.iiem.com/em/export_finance/chapter9.html

Export Finance
CHAPTER IX
EXPORT - PRE-SHIPMENT FINANCE (PACKING CREDIT)

INTRODUCTION

The exporter on receipt of the Letter of Credit / Confirmed Order, approaches the
bank for necessary finance. Normally the export financing is done at two levels viz.
At the time of Pre-shipment and at the time of Post-shipment.

EXPORT FINANCING

Export Packing Credit

Export Bills Purchase / Discount / Negotiation

Packing Credit:

The Packing Credit is granted to procure the raw materials, process them, and pack them to suit the
buyers needs. Sometimes the exporter may need packing credit to buy semi-finished / finished goods
and pack them to requirements and export them. From these we come to a conclusion, Packing Credit
can be granted either to a Manufacturer Exporter / Merchant Exporter.

Who are eligible?

The exporter should be one:-

who is your customer

who holds an Importer Exporter Code Number issued by Joint Director of Foreign Trade /
Director General of Foreign Trade
who has the capacity to perform and fulfil the export commitment, within the time stipulated
who is not in the Caution-listing by Reserve Bank of India
Who is not in the Specific Approval List of Export Credit Guarantee Corporation of India Ltd.

Basis of extending packing credit

Letter of Credit : The LC should be irrevocable and issued by our correspondent bank abroad or a
bank of international repute. Genuineness or authenticity of the LC should have been verified.
Firm Order : The firm order is one which has been issued by the overseas buyer and duly confirmed by
the exporter. Buyer should be preferably one on whom the banks are holding credit report from reputed
credit rating agencies / or their correspondents / E.C.G.C.
Banks will insist for Shippers Comprehensive Policy issued in the name of Exporter by E.C.G.C.,
preferably with a Drawee Limit.
Merchandise : The goods called for export should be under Non-negative list, as per the present
EXIM policy in force. If it is under Negative Restricted category, banks shall call for the
necessary licence issued by D.G.F.T. / J.D.F.T. The F.O.B. price quoted by in the LC Order
should not be less than the Floor Price if any, fixed by the Trade control authorities.
Licence : The licence issued by the authorities concerned shall be valid with regard to
merchandise, value and of course, genuineness.
Country : The political / economic climate in the country of import, should be conducive for
exports from India and the country should not have any Externalisation problems.
Conditions in the LC / Order : They should not contravene any Trade Exchange Control
provisions, in force.

Quantum of Advance :

Normally the quantum of advance is decided upon the FOB value of exports. If the export LC / order is for
CIF / CFR value, banks shall ascertain the insurance premium / freight charges payable from the exporter
/ insurance companies / C & F agents or to be verified from the previous transactions and shall be
deducted from the value of order / LC.

The financing banks will deduct appropriate margin on the quantum of finance.

As per RBI guidelines, banks may also grant up to 100% FOB value of the Order
/ LC. Sometimes, if the Cost of Production is more than the FOB value, bank may also grant for the entire
COP. Though the PC (up to FOB portion) will be allowed the normal repayment period, the portion of PC
beyond FOB value, will be allowed a maximum of 30 days for repayment, to be eligible for concessionary
rate of interest.

Mode of Financing :

Generally the Packing Credit is released by way of Demand Loan. Though the sanction of Export
advances is done like a sanction of Working Capital facility, disbursal does not take place, at one go, but
is made available, as and when the exporter produces the LC / order.

The repayment is fixed as per the terms of sanction, but within 180 / 270 days, as per RBI stipulation and
within the permissible time of LC / order, viz. Last date for shipment.
Nowadays, the party can avail "Running Account Facility" also. Bank shall sanction this facility, to the
exporters who track record is satisfactory and when the requirement for such facility is established by the
exporter. Under this facility, customer need not produce the LC / order, abinitio, but shall be produced to
the bank within a reasonable time, but not exceeding 30 days in case of selective control commodities.

Packing Credit can be shared by the Export order holder with other exporters. Packing credit can be
extended to the sub suppliers also, but only up to the first stage of the production cycle.

Duration :

Though the PC is normally granted for a period of 180 / 270 days, depending upon the operating /
production cycle, Packing credits can be allowed to be extended beyond the specified period also. If PC
is allowed to remain outstanding for 360 days or more, bank shall report to RBI and ECGC. (Under
W.T.P.C.G., packing credit should not be kept outstanding beyond 360 days.)

Due dates and / or extended due dates are to be properly diarised and noted for further follow up like
timely submission of export bills.

Interest :

The banks shall charge Interest as per the guidelines given by Reserve bank Of India from time to time.

Documentation :

As per the documents prescribed by the financing banks

Adjustment :

PC loans are normally adjusted only out of the bills under relative order / LC. If for reasons beyond the
control of exporter, the order is cancelled, substitution of orders is permitted; the substituted may be for
different goods, from different buyer, from different country. A bill given against which no PC has been
availed earlier, can also be utilised to adjust any other outstanding Packing credit.