Impoet Export Finance

7/31/2019 Impoet Export Finance

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CHAPTER 1

INTRODUCTION

The statutory basis for control of imports into India is found

in the Foreign Trade (Development and Regulation) Act, 1992 which

empowers the Central Government to prohibit or otherwise control

imports. Deriving power under this Act, Central Government has notified

the Export and Import Policy, 1992-97.

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. You then evaluate the credit worthiness of the customers. For

each of the approved customers, the importer will supply us with copiesof purchase orders that are to be filled. We will then arrange a letter of

credit to be issued to the suppliers bank with the supplier as the

beneficiary.

Financing can be arranged to cover 100% of the

transaction. This provides the importer with sufficient financial strengthto sell larger orders than they would be able to on their own financial


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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 fore export finance.


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1.1 WHAT IS IMPORT AND EXPORT?

Import is when you buy something from another country

and get it shipped to you.

Export is when you sell something to another country and

it 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.

Exporter's Bank:

The exporter's 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 withinstructions on collecting payment.


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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.

Remit the proceeds of the bill according to the Remitting Bank'sschedule 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'sschedule states Protest)

Requests further instruction from the remitting bank, if there is aproblem that is not covered by the instructions in the schedule.

Once payment is received from the importer, the collecting bankremits the proceeds promptly to the remitting bank less its charges.


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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/ orrestrict export in quantity, value etc. by subjecting them are licensing

procedure.

Export from the country is generally free. The export goods may be

classified under any of the following categories:-

a) Freeitems exportable without restrictions.b) Restrictedexportable under a license or permissionc) State Trading export can be done through specified Trading

enterprise.

d) Prohibitedcan not be exported.


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Finance for exports is available from commercial banks under two

categories-

(1) Pre-shipment finance (or packing credit)(2) Post shipment finance.

2.1 Financing of Export and Imports 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 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. This has happened mainly after the

liberalization and globalization of our economy post 1991.


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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 hoveraround 8% to 8.50% compared to non export rates of 12-15%)

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 ExportZones etc.

5. Establishing of EXPORT IMPORT BANK OF INDIA bank topromote exports.

6.

Establishing Export Credit Guarantee Corporation- EXPORTCREDIT AND GURANTEE CORPORATION to provide a

protective shelter to exports against inherent international trade

risks.


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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 Banks2. Export Import Bank of India (EXIM Bank)3. Reserve Bank of India (RBI)4. Export Credit Guarantee Corporation of India Ltd (ECGC)

3.1 RESERVE BANK OF INDIA (RBI) :

The Reserve Bank of India is the apex financial

institution of the countrys financial system entrusted with the task of

control, supervision, promotion, development and planning. Reserve

Bank of India is the queen bee of the Indian financial system which

influences the commercial banks management in more than one way.

The RESERVE BANK OF INDIA influences the management of

commercial banks through its various policies, directions and regulations.

Its role in bank management is quite unique. In fact, the RESERVE

BANK OF INDIA performs the four basic functions of management, viz.,

planning, organizing, directing and controlling in laying a strong

foundation for the functioning of commercial banks.


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Objectives of the Reserve Bank of India:

The Preamble to the Reserve Bank of India Act, 1934

spells out the objectives of the Reserve Bank as: to regulate the issue of

Bank notes and the keeping of reserves with a view to securing monetary

stability in India and generally to operate the currency and credit system

of the country to its advantage.

Prior to the establishment of the Reserve Bank, the

Indian financial system was totally inadequate on account of the inherent

weakness of the dual control of currency by the Central Government and

of credit by the Imperial Bank of India.

The Hilton-Young Commission, therefore,

recommended that the dichotomy of functions and division of

responsibility for control of currency and credit and the divergent policies

in this respect must be ended by setting-up of a central bankcalled the

Reserve Bank of India which would regulate the financial policy and

develop banking facilities throughout the country. Hence, the Bank was

established with this primary object in view.

Functions of the Reserve Bank of India:

The Reserve Bank of India performs all the typical

functions of a good Central Bank. In addition, it carries out a variety of

developmental and promotional functions attuned to the course of

economic planning in the country:


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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.

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 thecount of financing terms offered by him.

2. To Develop alternate financing solutions for an Indian Exporter inhis effort to be internationally competitive.

3. To provide information on export opportunities in new traditionalexports including currency adviser to Indian manufacturers so that

new export opportunities are pursued.

4. To provide selective production, marketing, finance for makingIndian manufactured products internationally competitive.

5. To respond to export problems of Indian Exporters and pursuepolicy resolutions.

The Bank is continuously building capabilities to anticipate and

respond to development export opportunities information technology and

translate national foreign trade policies into action plan.


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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-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 proposals up to US$ 100 million in

value.


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3.3. 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 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.


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Major Functions of Export Credit and Gurantee

Corporation:

1. To provide a range of credit risk insurance covers to exportersagainst a loss in export of goods and services.

2. To offer guarantees to banks and financial institutions to enableexporters obtain better facilities from them.

Export Credit and Gurantee Corporation also helps

Exporters by:

Providing insurance protection to exporters against paymentrisks

Providing guidance in export related activities

Providing information on creditworthiness of overseasbuyers

Providing information on about 180 countries with its owncredit ratings


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Marketing it easy to obtain export finance from banks/financing institutions

Assisting exporters in recovering bad debts

Policies and Schemes of Export Credit and Gurantee

Corporation:

1. Standard Policy2. Specific Policy3. Financial Guarantees4. Other

MAIN ACTIVITIES OF EXPORT CREDIT AND GURANTEE

CORPORATION:

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.


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3.4. COMMERCIAL BANK:

Role of Commercial Banks in Export Finance:

The major part of export finance is provided by commercial

banks. They also provide other facilities and services to the exporters.

The function of commercial banks can be grouped under two heads.

(A)Fund Based Assistance

(B)Non-Fund Based AssistanceThe assistance provided and commercial banks in respect of

export finance can be charted as follows:

COMMERCIAL BANKS

FUND BASED ASSISTANCE NON FUND BASED ASSISTANCE

(A) Fund Based Facilities:

The commercial banks provide fund based activities at

(i) Pre-shipment Stage, and

(ii) Post-Shipment Stage.


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(B) Non-Fund Based Assistance:

1. Bank Guarantees:

a) Guarantee for foreign currency loans sanctioned by afinancial institution abroad to Indian exporters who raise

funds to finance their projects abroad.

b) Performance guarantee which is generally required in exportof capital goods and also in case of turnkey and construction

projects.

c) Banks issue a guarantee for payment of retention money bythe overseas party who would release the retention money to

the Indian party only after receiving guarantee from bank.

d)The banks also issue advance payment guarantee to theoverseas buyer who normally makes certain advance

payment to the Indian exporter against a bank guarantee.

e) Banks issue bid bonds so as to enable exporters to participatein various global tenders.

Other Services:

a) They collect export proceeds from the importer and credit thesame to exporters account.


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CHAPTER 4

EXPORT

4.1 TYPES OF EXPORT CREDIT

1. PRE SHIPMENT FINANCE:

Packing Credit.

Advance against cheque /Draft etc. representing Advance

Payments.

Pre shipment finance is extended in the following forms:

Packing Credit in Indian Rupee

Packing Credit in Foreign Currency (PCFC)

ELIGIBILITY:

Pre shipment credit is only issued to that exporter who has the

export order in his own name. However, as an exception, financial

institution can also grant credit to a third party manufacturer or supplier

of goods who does not have export orders in their own name. In this case

some of the responsibilities of meeting the export requirements have been

out sourced to them by the main exporter. In other cases where the export


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order is divided between two more than two exporters, pre shipment

credit can be shared between them.

PACKING CREDIT.

Packing Credit Facilities to Deemed Exports:

Deemed exports made to multilateral funds aided projects and

programme, under orders secured through global tenders for which

payments will be made in free foreign exchange, are eligible forconcessional rate of interest facility both at pre and post supply stages.

Packing Credit facilities for Consulting Services:

In case of consultancy services, exports do not involve physical

movement of goods out of Indian Customs Territory. In such cases, Pre-

shipment finance can be provided by the bank to allow the exporter to

mobilize resources like technical personnel and training them.

Advance against Cheque/Drafts received as advance

payment:

Where exporters receive direct payments from abroad by means of

cheques/drafts etc. the bank may grant export credit at concessional rate

to the exporters of goods track record, till the time of realization of the

proceeds of the cheques or draft etc. The Banks however, must satisfy

themselves that the proceeds are against an export order.


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2. POST SHIPMENT FINANCES:

Post Shipment Finance is a kind of loan provided by a financial

institution to an exporter or seller against a shipment that has already

been made.

This type of export finance is granted from the date of extending the

credit after shipment of the goods to the realization date of the exporter

proceeds. Exporters dont wait for the importer to deposit the funds.

Types:

Export bills purchased /negotiated/discounted. Advances against bills sent on collection basis. Advances against exports on consignment basis. Advances against UN drawn balances. Advances against duty drawback.

1. Export bills purchased /negotiated/discounted:

Export bills (Non L/C Bills) is used in terms of sale contract/ order

may be discounted or purchased by the banks. It is used in indisputable

international trade transactions and the proper limit has to be sanctioned

to the exporter for purchase of export bill facility.

2. Advances against bills sent on collection basis:

Bills can only be sent on collection basis, if the bills drawn under LC

have some discrepancies. Sometimes exporter requests the bill to be sent

on the collection basis anticipating the strengthening of foreign currency.

The transit period is from the date of acceptance of the export documents

at the banks branch for collection and not from the date of advance.


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3. Advance Against Export on Consignments Basis:

Bank may choose to finance when the goods are exported on

consignment basis at the risk of the exporter for sale and eventual

payment of sale proceeds to him by the consignee. However, in this case

bank instructs the overseas bank 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. In case of export through approved Indian

owned warehouses abroad the times limit for realization is 15 months.

4. Advance against Undrawn Balance:

It is a very common practice in export to leave small part undrawn

for payment after adjustment due to difference in rates, weight, qualityetc. Banks do finance against the undrawn balance, if undrawn balance is

in conformity with the normal level of balance left undrawn in the

particular line of export, subject to a maximum of 10 percent of the

export value. An undertaking is also obtained from the exporter that he

will, within 6 months from due date of payment or the date of shipment

of the goods, whichever is earlier surrender balance proceeds of the

shipment.

5. Advance Against Claims of Duty Drawback:

Duty Drawback is a type of discount given to the exporter in his

own country. This discount is given only, if the in house cost of

production is higher in relation to international price. This type of


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financial support helps the exporter to fight successfully in the

international markets. In such a situation, banks grants advances to

exporters at lower rate of interest for a maximum period of 90 days.

These are granted only if other types of export finance are also extended

to the exporter by the same bank.


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CHAPTER 5

IMPORT

All imports permitted by trade policy qualify as current

account transactions for which the importer can buy currency from anauthorized dealer.

Earlier, credit on imports was restricted to a period of 6

months, unless otherwise approved by the Reserve Bank. This since been

extended to 3 years for both suppliers and buyer credits, provided.

The amount does not exceed US$ 100 per importtransaction, and

The interest does not exceed LIBOR + 0.5% for credit unto 1year, and LIBOR + 1.25% for periods beyond 1 year.


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5.1 CREDIT ON IMPORTS

The economics of importing on credit as

compared to sight payment would depend upon the:

1. Rupee and FX interest rates. Foreign currency interest rates willGenerally be linked to London Inter Bank Offer Rate in the

currency in question.

2. Exchange rate movement or the cost of handing in the forwardMarket.

3. Difference in commission charged by banks on sight and nuisanceletters of credit and the stamp duty on nuisance bills, whereapplicable.

Again, the interest paid may attract deduction of tax at

source, since it is being paid to non-residents. For calculation the amount,

the interest may need to be grossed. The impact of the TDS would be

lower, if the credit is taken from a resident of a country with whom India

has signed a Double Taxation Avoidance Treaty. Some corporate include

the interest element in the price of the goods to avoid this problem. This

would be economical only if the import duty is lower than the TDS on the

gross interest.


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collect the documents on time but also to collect the goods from the

customs.

3. Overdraft facility:

When the importer falls short of payment, he can take

possession of the documents against overdraft facility

4. Better terms of trade:The opening bank provides credit facility to the importer.

This helps the importer to obtain better terms of trade from the foreign

supplier.

5. Funds are not blocked:

There is no need for the importer to block his funds by

making advance payment to the exporter.

6. Long business associations:

Letter of credit protects the interest of both the exporter and

the importer. Nothing is left to the imagination of both the parties because

the letter of credit mentions all the terms and conditions of the business. It

helps the exporter and importer to have prolonged business associations.


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5. No liability:

In case of confirmed letter of credit and without recourse clause, the

liability of the exporter comes to an end as soon as he hands over the

relevant documents to the bank.

6. Certainty of payment:

The importer cannot refuse to take possession of the goods and to

clear the payment when the terms of payment are the letter of credit.

This problem of no possession of goods and non-payment may arise incase of D/P and D/A.


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5.3 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.

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.

The irrevocable credit is a definite undertaking of the issuing bank

and cannot be amend or cancelled without the agreement of the

confirming bank and the beneficiary.

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. The transferable credit can be

transferred once only.


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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. GREEN clause credit in addition to permitting pre shipment

advance also entails storing of goods in the name of the bank.

4. Bank to Bank Credit:

When the exporter used his export letter of credit as a cover for issuinga 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.

The maximum value up to which the credit can be revolved and the

expiry date of the letter of credit is generally specified in the revolving

credit. The re-instatement clause should be always incorporated in

revolving letter of credit.

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 and the balance is payable in agreed installments as agreed in the

text of the letter of credit.


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CHAPTER 6

PAYMENT METHODS 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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Documents Against Acceptance:

In this case documents are released to the importer only against

acceptance of a draft.

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, the importer (applicant), promising to effectpayment in favor of the exporter (beneficiary) up to a stated sum of

money, within a prescribed time limit and against stipulated documents. It

is published by the International Chamber of Commerce under the

provision of Uniform Custom and Practices brochure number 500.


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CHAPTER 7

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. Regulatory and Operational.

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.


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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 Consular Invoice Customs Invoice Certificate of Origin Inspection Certificate Packing List

1. Commercial Invoice:

It is the sellers bill for the merchandise. It contains adescription of the goods, the price per unit at a particular location and

total value of the goods, packing specifications, terms of sale, teams of

payment, identification markers of the packages, bill of lading number,

etc. There is no standards form for commercial invoice.

Each exporter designs his own format of commercial invoice.Usually, a commercial invoice is required to be duly signed by the seller

and is submitted in a set of at least three copies. Its main purpose is to

check whether the appropriate goods have been shipped and also the unit

price, total value, marking on the package, etc.


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2. Bill of Landing/Airway Bill:

This document is an evidence of shipment the goods. It is a

receipt duly signed and issued by a shipping company acknowledging

that the goods mentioned in the document have been shipped or received

for shipment and an undertaking to deliver the goods at the agreed

destination. Bill of Lending is the most important document in foreign

trade. A Bill of Lending serves the following proposes.

a) It is a document of title to goods: - The Bill of Landing is a

document giving ownership rights to the goods and the

possession of a Bill of Landing entitle the holder to the and

is transferable by endorsement. Transfer of the Bill of

Landing after appropriate endorsement is tantamount to the

transfer of goods.

b)It is a receipt from the shipping company:- It constitutes

evidence that the goods have been received by the shipping

company. As a receipt it is only an evidence of the number

and sizes of packages involved and does not guarantee the

contents of the packages.

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.


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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. The insurance company will then issue an insurance

certificate to cover Individual shipments made under the open policy.

For the financing bank, a marine insurance policy is a very

important document accompanying the shipping documents as it provides

additional cover for the advance it has made to the importer.

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 thebearer/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


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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.

The drawing of a bill of Exchange is not always necessary. In

certain countries bill of exchange is not recognized as a legal document,

while it is discouraged in a few other countries due to incidence of a

heavy stamp duty. In India also bill of exchange for document drawn on

DA basis for tenure over 90 days attracts Stamp Duty.

5. Consular Invoice:

A consular 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 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 customsinvoice. 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.


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7. Certificate of Origin:

In many countries, permission to import is refused unless a

certificate of origin is produced 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:

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 identify of the shipment. It should give the description of the

goods, number and marks on the packages, quantity per package, net

weight and gross weight, measurement, etc.

There is no particular form prescribed for this

purpose. The exporter concerned may design his own packing list.


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Strategies proposed to achieve these objectives include the

following:

1. Unshackling of controls and creating an atmosphere of trust and

transparency in dealing with business.

2. Simplifying procedures and bringing down transaction costs.

3. Neutralizing incidence of all levies and duties on imports used in

export

Products.

4. Facilitating development of India as a global hub for manufacturing,

trading and services.

5. Identifying and nurturing special focus areas which would generate

additional employment opportunities, particularly in semi-urban and rural

areas.

6. facilitating technological and infrastructural up gradation of all the

sectors of the Indian economy, especially through import of capital goods

and equipment.

7. Avoiding inverted duty structures and ensuring that domestic sectors

are not disadvantaged in trade agreements.


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8. upgrading the infrastructural network related to the entire Foreign

Trade chain, to international standards.

9. Revitalizing the Board of Trade by redefining its role, and inducting

into it experts on trade policy.

10. Activating Indian Embassies abroad as key players in the export

strategy.


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8.2 MAIN FEATURES OF FOREIGN TRADE POLICY,

2009-14:

The main features of FOREIGN TRADE POLICY, 2009-014, are as

follows:

1. Doubling share of global merchandise trade:

FOREIGN TRADE POLICY (2009-14) envisaged

adoubling of India's share in world exports from 0.75 per cent to 1.5 per

cent by 2014.

2. Five thrust sectors:

Sectors with significant export prospects coupled with

potential for employment generation in semi-urban and rural areas were

identified as thrust sectors. FOREIGN TRADE POLICY announced

specific strategies (termed 'Special Focus Initiatives') for five such

sectors: Agriculture, Handicrafts, Handlooms, Gems and Jeweler, and

Leather and Footwear sector.

Main strategies announced for the five sectors outlined in the FOREIGN

TRADE POLICY are as follows:

(i) In agriculture, a new scheme called Vishesh Krishi Upaj Yojana

was introduced to boost exports of fruits, vegetables, flowers, minor

forest produce and their value added products. Export of these products


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would qualify for duty free credit entitlement equivalent to 5 per cent of

the value of exports. In addition, the policy made capital goods imported

for agriculture under the Export Promotion Capital Goods (EPCG)

scheme duty free.

(ii) The package for gems and jeweler sector includes:

(a) Duty free import of consumables for metals other than gold and

platinum up to 2 per cent of the value of exports; (ii) duty free re-import

entitlement for rejected jeweler up to 2 per cent of the value of exports;

(iii) duty free import of commercial samples of jeweler increased to Rs. 1

lakh; and (iv) allowing import of gold of 18 carat and above under the

replenishment scheme.

(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 footwearsector 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.


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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 programme.

(iii) Individual service providers who earn foreign exchange of at least

Rs. 5 lakh, and other service providers who earn foreign exchange of atleast Rs. 10 lakh would be eligible for a duty credit entitlement of 10 per

cent of total foreign exchange earned by them.

(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.


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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 crore)

(ii) Two Star (export of Rs. 100 crore)

(iii) Three Star (export of Rs. 500 crore)

(iv) Four Star (export of Rs. 1,500 crore); and

(v) Five Star (export of Rs. 5,000 crore).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 the benefit 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 (like exemption from furnishing Bank

Guarantee).

5. "Target Plus' Scheme:

Exporters who exceed the annual export target wereto be

rewarded under the Target plus Scheme. This reward was in terms of

entitlement to duty-free credit based on incremental export earnings. Withthe target for 2004-05 being fixed at 16 per cent, the lower limit for


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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.

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 crore 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 their

infrastructural 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 retain100 per cent of export earnings in EEFC accounts; (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.


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8.Reducing transactional costs and simplifying procedures:

The FOREIGN TRADE POLICYannounced 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 (this will help small

exporters who incur high transactional costs); (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 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 crore in the five thrust-sectors announced (ii)

Funds from Assistance to States for infrastructure Development of

Exports used for development of Agri Export Zones also, (iii)

establishment of common facility centre will be encouraged for use by

house-based service providers; and (,v) Pragati Maidan 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


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FINDINGS

While selling abroad, importers may undergo Credit risk,

Currency risk, Carriage risk and Country risk. These risks can be

insured to a great extent by taking appropriate steps. Credit risk

against the buyer can be covered by insisting upon an irrevocable

letter of credit from the overseas buyer. An appropriate policy from

Export Credit and Guarantee Corporation of India Ltd. can also be

obtained for this purpose. Country risks are also covered by the

ECGC. As regards currency risk, i.e. possible loss due to adverse

fluctuation in exchange rate, importer should obtain forward cover

from his bank authorized to deal in foreign exchange.

Alternatively, he should obtain export order in Indian rupees.

Carriage risk, i.e. possible loss of cargo in transit can be covered by

taking a marine insurance policy from the general insurance

companies.

Indian exporters while selling abroad may face various

commercial and political risks. The commercial risks may arise due

to insolvency of the buyer; failure of the buyer to make the

payment due within the specified period; or buyer's failure to

accept the goods, subject to the given conditions. While, the

political risks may be due to imposition of restrictions by the

Government of the buyer's country or any Government action

which may block or delay the transfer of payment made by the


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buyer; war, civil war, revolution or civil disturbances in the buyer's

country.

Hence, in order to ensure safe and successful overseas

expansion plans it is necessary to provide a comprehensive

insurance cover against all such risks faced by an entrepreneur.

Such an insurance facility seeks to create a favorable climate in

which investors including exporters can get timely and liberal

credit facilities from banks at home. ECGC provides a range ofcredit risk insurance covers to exporters against loss in export of

goods and services as well as offers guarantees to banks and

financial institutions to enable exporters to obtain better facilities

from them.

The findings gathered from the primary data were :

Introduction

The Bharat cooperative bank limited,registered under TheMaharashtra Co-operative Societies Act, 1960 (Registration No.Bom/Bank/138 of 1977 dated 9th June, 1977) popularly known inthe metropolis as Bharat Bank has commenced its Banking

operations with a capital base of Rs.6.32 lacs from its presentregistered office at 64/72, Mody Street, Fort, Mumbai - 400 001since 21.08.1978. The Reserve Bank of India has issued BankingLicense vide License No.ACD.MH 108-P dated 8th June,1978.

Bharat co-operative Bank collects the import bills on behalf

of customers. Importer and exporter should maintain vostro

account with the bank to enable the international trade. The

overseas Bank has to maintain an account with the domestic bank

denominated in domestic currency.


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Bharat co-operative bank holds mortgage over their

customers assets from which they can recover their outstanding

loan.

Bharat co-operative bank avails export bill rediscounting

facilities and refinance of export credit from Reserve Bank of India

(RBI) and Export Import Bank of India (EXIM).

Bharat co-operative bank requires supporting documents

from importer and exporter in international markets. For example,

Commercial Invoice, Bills of Lending/Airway Bill, MarineInsurance Policy and Certificate, Bills of Exchange.


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CONCLUSION

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 RESERVE BANK OF INDIA has

conceived various schemes to stimulate and support exports and

imports. Thus this specialized form of financing of foreign trade is

a crucial contributor to world industrial development of the

country.

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 toestablish credit limits for national and international

customers.


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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 deliverits large purchase orders.

4. For Importers: Import financing / purchase order financinghandles supplier payments for large purchase orders enabling

to take on orders and deliver orders that in the past would

have exceeded its working capital capabilities.


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ANNEXURE - I

QUESTIONNAIRE FOR MANAGER

1. Do you collect import bills on behalf of your customer?

1. Ans: Yes No

2. Should importer & exporter maintain nostro account

with you to enable international trade?

Ans: Yes No

3. Do you discount bill drawn under letter of credit as well

as outside it?

Ans: Yes No

4. Is their scope for default in loan repayment by exporter

& importer?

Ans: Yes No


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5. Do you hold any charge /mortgage /pledge over their

assets through which you can recover your outstanding

loan?

Ans: Yes No

6. Do you avail export bills rediscounting facility &

refinance of export credit from Reserve Bank of India and

Export Import bank of India?

Ans: Yes No

No7. Are you giving bill discounting facility to non bank

customers as well?

Ans: Yes No

8. If yes, what are the general guidelines for the same?

Ans:


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