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CHAPTER NO.1

INTRODUCTION

To define a Bank is not an easy task as it may appear to a layman. A

bank is an institution which accepts the deposits of public to grant loans, to

Industry and trade. The word Banking has been used to denote a certain kind of

trading in money, the depositing of money and the transmitting of money.

The hindrances of finances are removed by the banking institutions.

Banking is very vital aid to trade. The history of commercial world would have

been different. There had been no such agency as countries like United States of

America, United Kingdom, Japan, Australia, Germany are their(institutions)

Industrial property largely to a well knit system of Banking Finance.

Origin of the word BANK belongs of the word Banchi and Banque aGreek word. Both these words refer to some kind of banking. According to

another view points, Bank originated from the German word, Bank meaning joint

fund casa de san. Giorgio was the first to be established in 1148.

MEANING OF BANKING

Banking therefore is a kind of business. The banker is a dealer in

money; or rather he is a dealer in claims to money. He accepts deposits from the

members of public, agreeing to repay them either on demand or after the expiry of

a fixed period of time. In doing so he gets an immediate claim for money from the

customer in return for a future or subsequent claim on himself for that amount. A


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Banker provides the necessary finance during the interval between the production

of the goods and final disposal.

Banks would not have been as important as they are today if they are

merely purveyors of money, if their function consisted solely in linking lenders

and borrowers. Banks do something more than this. They manufacture money.

Banks stimulate the savings by providing opportunities for the safe-keeping of

surplus money of the public. They aid the process of capital formation and make

capital available for productive purposes. They deal in credit and credit

instruments and oils the wheels of progress.

DEFINITION OF BANKING

On account of multifarious activities of modern banks, it has been

found very difficult to define exactly BANK or BANKING. It is defined as one

who in ordinary course of business honours cheque drawn upon him by persons

and for whom he receives money on current accounts.

Section 5, sub-section (b) of Banking Regulations Act 1949 defines banking as

the accepting for the purpose of lending or investment, of deposits of money from

the public repayable on demand or otherwise, and withdrawable by cheque, draft

or otherwise.

FEATURES OF BANKING

Hence, Bank or Banker is, basically, an institution or organization that

deals with money. It accepts from public, makes the4 funds available to those who


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need them, and helps in remittance of money from one place to another; Banking

is an activity which is undertaken by a bank or banker.

A Bank has following four features,

It deals with money-accept deposits and advances loans.

It deals with credit-ability to create credit.

It is commercial institution-objective to earn profit.

It is a unique financial institution which creates demand deposits which

serve as a medium of exchange.

FUNCTIONS OF BANKING

A commercial bank acts as an intermediary between savers and investors.

It mobilizes the dormant savings of the public in form of deposits and advances.

Normally commercial banks provide loans only on short term basis as most of the

deposits are withdrawable on demand. It performs these two functions.

1) Primary Functions: - Banks play a useful and important role in the economic

life of every nation. They have a control over a large part of supply of money in

circulation and through their influence over the volume of bank money; they can

influence the nature and character of production in any country. Its main primary

functions are as follows;

1. ACCEPTING DEPOSITS: - The primary function of a bank is receipt of

deposits repayable on demand or after a fixed period. Various deposit schemes

of commercial banks are as.

Fixed Deposit Account.

Current Deposit Account. Savings Deposits Account. Recurring Deposit Account. Home Safe Account.


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Flexible Account.

2. ADVANCING OF LOANS: - The second important function of a bank is

advancing loans to those who need money. Bank advances loans after keeping

a certain cash reserve with itself.

Money at Call and Short-Notices. Cash Credits and Overdrafts. Discounting of Bills of Exchange. Personal Loans and Term loans. Credit Cards and Smart Cards.

2) Secondary Functions: - In addition to the main functions, commercial banks

provide a variety of banking services. These are divided as;

1. AGENCY SERVICES: -Banks also provide certain agency services to their

customer.

Remittance of Funds.

Collection and payment of credit instrument.

Execution of standing order.

Purchasing and sale of securities.

Collection of dividend of shares.

Income tax consultancy.

Acting as a trustee and executor.

Acting as representative and correspondent.

Paying utility bills.

2. GENERAL UTILITY SERVICES:-In addition to agency service, the modern

banks provide many general utility services as given below.

Safe deposit. Lock box & night safe service.


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Travellers cheque. Letter of credit. Collection of statistics.

Underwriting securities. Acting as a referee. Foreign exchange business.

MEANING OF FOREIGN TRADE

If a buyer and seller of goods and services are residing in different

countries and exchange of goods and services takes place across the board such

trade is known as foreign trade and international trade and that transaction is said

to be foreign transaction.

In inland trade, buyer and seller will be residing in their country, the trade

transaction will take place in the same country and the movement of goods and

services will also be restricted with in the boundaries of the country. So, the buyer

and seller will be bound only by the mercantile and other laws of that particular

country, whereas, in Foreign Trade generally buyer and seller will be residing in

two different countries.

BENEFITS OF FOREIGN TRADE:-

To keep prices down through IMPORTS.

Give access to the latest technology and ideas.

Imports generates pressure for dynamic changes through:

Competitive pressure from imports.

Pressure of competing for export markets.


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A better allocation of resources.

EXPORTS also provide fuller utilization of capacity, increased,

exploitation of economies of scale and separation of production patterns

from domestic demand.

EXPORT CREDIT- Meaning and Features

Export credit can be defined as, A credit provided by a bank to an exporter in

the form of pre shipment credit or post shipment credit.

As per RBI observation with regard to issuance of Guarantees for

export advance received or to be received. It is advised that while extending

guarantees against export advance, it should be ensured that there is no violation

of FEMA regulations and the export advances received by the exporters are in

compliance with the regulations/directories issued under the FEMA.

FEMA stands for, Foreign Exchange and Management Act, 1999. Thus in

short, Export credit means any credit provided to an exporter in the form of Pre-

shipment (packing) credit or post-shipment credit.

FEATURES OF EXPORT CREDIT

1) Payment should be made with in a period of six months from the date of

shipment.

2) Special forms are given to individual persons/companies and firms theseforms are as follows.

3) Exchange control copy of bill of entry for home or warehouse is the

evidence of Import.


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4) Documents evidencing Imports are to be kept by AD up to one year for

verification of its internal audit.

5) Sectoral individual packing credit guarantee (SIPCG) has been issued for a

period of fourteen months and will be operative from 1st may to 30th June

every year.

6) The maximum limit from guarantee is rs.150 crores.

7) All pre-shipment advances will get the cover under this guarantee except the

following.

Advance guarantee for export made on deferred terms of payment.

Advance guarantee by OBU of the bank located at SEZ area.


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CHAPTER NO.2

OBJECTIVES AND SCOPE OF THE STUDY

OBJECTIVES:-

To know the meaning of Foreign Trade and Export Financing.


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CHAPTER NO.3

TYPES OF EXPORT CREDIT

(A) PRE-SHIPMENT CREDIT

3.1 RUPEE PRE-SHIPMENT EXPORT CREDIT OR PACKING CREDIT-

Meaning and other facilities

3.1 MEANING: - It is also known as packing credit. Packing Credit means any

loans/advance/credit provided to an exporter for financing the purchase,

processing, manufacturing or packing of goods prior to shipment on the basis of

letter of credit or a confined order in his favor of some other persons, unless

lodgment of these with the banks has been waived.

3.1.1 PERIOD OF ADVANCE: -The period may depend upon relevant factors so

that it is sufficient to enable the exporter to ship the goods. Normally a Packing

Credit is allowed up to 180 days at a concessive rate of interest, extension up to

EXPORT

CREDIT

PRE-SHIPMENT

CREDIT

POST-SHIPMENT

CREDIT


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360 days may be considered by ZM {Zonal Manager}. Authority permitting

extension must ensure that it is for the reasons beyond control of the exporter and

need for longer duration is justified because of seasonality of the commodity,

manufacturing cycle, time normally taken for shipment etc. In all cases when pre-

shipment credit s not adjusted by the submission of export documents in 360 days

from the days of advance, the advance will cease to qualify for concessive rate of

interest to the exporters ab-initio. RBI shall provide pre finance only for a period

up to one 180 days.

3.1.2TYPES OF PACKING CREDIT: -There are mainly five types of packing

credit. All these five types are discussed below,

Clean Packing Credit: - This is an advance made available to an exporter

only on the production of a firm export order or a letter of credit without

exercising any charge or control over raw material or finished goods. It is a

clean type of export advance. Each proposal is weighted according to

particular requirements of trade and creditworthiness of the exporter. Asuitable margin has been maintained. Also the Export Credit Guarantee

Corporation (ECGC) cover should be obtained by the bank.

Packing Credit Against Hypothecation of Goods: - Export finance is

made under certain terms and conditions where the exporter has pledge able

interest and the goods are hypothecated to the bank as security with

stipulated margin. At the time of utilizing the advance, the exporter is

required to submit, along with the firm export order or letter of credit,

relative stock statements and thereafter continue submitting them every

fortnight and/or whenever there is any movement in stock.


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Packing Credit Against Pledge Of Goods: -Export finances is made

available at certain terms and conditions where the exportable finished

goods are pledged to the banks with approved clearing agents who will see

the ship the same from time to time as required by the exporter. The

possession of the goods so pledged lies with the bank and is kept under its

lock and key.

E.C.G.C. Guarantee: -Any loan given to an exporter for the manufacture,

processing , purchasing, or packing of goods meant for export against a firm

order qualities for the packing. Credit guarantee issued by Export Credit

Guarantee Corporation (ECGC).

Forward Exchange Contract: - Another requirement of packing credit

facility is that if the export bill is to be drawn in a foreign currency, the

exporter should enter into a forward exchange contracts with the bank,

thereby avoiding risk involved in a possible change in the rate of Exchange.

3.1.3 DISBURSEMENT OF PACKING CREDIT: - Ordinarily, each packing

credit be maintained as a separate account and be disbursed in stages as per the

requirements of letter of credit/order. Branches should keep a close watch on the

end use of fund and ensure that credit at the lower rate of interest is used for

genuine requirements of export and Packing Credit is finally adjusted by the

proceeds of relative export documents on purchase/discount etc.

3.1.4 APPRAISAL OF PACKING CREDIT: - While granting advance,

incumbents to satisfy themselves that:


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I. For executing export order, if any material/part is requires to be imported,

and if any license is required for such import, the borrower must have

requisite license.

II. If export order provide for opening of letter of credit (LC), the LC is opened

and in case of delay, reasons thereof are satisfactory.

III. Progress made by exporter for fulfillment of contract be watched and it be

ensured that credit is being utilized for the purpose it is provided for.

IV. When export is made on the basis of the export order, it be ensured that

contracts cover all essential particulars such as quality, quantity of the

goods to be exported, prices at which the goods are to be supplied and the

date of shipment etc.

V. In case where packing credit is given, the bill should also be negotiated

from the same branch.

3.1.5 LIQUIDATION OF PACKING CREDIT: - The packing credit must be

liquidated out of the proceeds of bill drawn for the exported commodities on is

purchased, discount etc. thereby converting the pre shipment into post shipmentcredit. If not so liquidated, the interest rate for pre-shipment is charged from the

date of advance.

3.1.6 RUNNING ACCOUNT FACILITY:- Having regard to difficulties being

faced by the exporter in availing of adequate pre shipment credit on cases when

they have to keep the goods ready in anticipating of receipt of letter of

credit/export order from overseas buyer ZM has been authorized to permit

running account facility with out insisting on prior lodgment of letters of

credit/firm export orders, depending upon their judgment regarding need of this

facility and subject to the conditions that (a) Running Account facility may be

allowed to exporters having credit risk rating of BB. Moreover this facility can be


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allowed to export oriented units (EOUs), units in free trade zone (FTZs), special

economic zones (SEZs). (b) A letter of commitment for lodgment of LCs/ firm

order within the time frame of 30 days be obtained from exporters. (c) Individual

bill be marked against the earlier outstanding Packing credit on FIFO basis. (d) If

PC exceeds the export value, the excess should be adjusted either in cash or by the

sale of non-exportable products. (e) The export credit finance from RBI would be

available for a period not exceeding 180 days.

Running Account facility does not carry any relaxation in regard to

stipulation of period for concessive rate of interest.

In case exporters have not complied with term and conditions, the advance

will attract commercial lending rate ab-initio.

Running Account facility should not be granted to sub-suppliers.

Running Account facility would be available to exporters only if they are

complying with the terms and conditions laid down in the letter and spirit.

3.1.7 CONVERSIONS OF DRAWLS UNDER RUPEE PRE-SHIPMENT

CREDIT INTO PCFC: -With a view to provide more flexibility to the exporters,

conversion of their Drawls under rupee pre-shipment credit into PCFC may be

permitted on selective basis, with the prior approval of authorities.

3.2 GUARANTEES FOR EXPORT ADVANCE

Keeping in view the RBI observations with regard to issuance of

guarantees for the export advance received/to be received, it is advised that while

extending guarantees against export advance, it should be insured that there is no

violation of FEMA (Foreign Exchange and Management Act, 1999) regulations

and export advances received by the exporters are in compliance with the

regulations/directions issued under the Foreign Exchange and Management Act,


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1999. Besides, it is important to carry out due diligence and verify the track of

records of such exporters to access their ability to execute such export orders.

3.3 PRE-SHIPMENT CREDIT TO SPECIFIC SECTORS/SEGMENTS

There is a provision for the benefit of rupee Pre-Shipment credit to

specific sectors and segments of suppliers. And these suppliers or segments are

discussed as below.

3.3.1 PACKING CREDIT TO MANUFACTURER SUPPLIERS FOR EXPORT

THROUGH OTHER EXPORT HOUSES/AGENCIES:- Advances to manufacturer

suppliers for export through other export houses/agencies are eligible for refinance

provided following conditions are complied with,

A letter setting out the details of the export order and the portion which is to

be executed by the supplier and certifying that the export house will not ask

for the PC against that portion, be obtained.

The concessionary rates of interest on the pre-shipment credit will be

available up to stipulated periods in respect of export houses and the

supplier put together.The export house should open inland LC in favor of supplier by giving

relative particulars of the export LCs or orders, and the outstanding in the

PC account be extinguished by negotiation of bills under inland LC. If the

export house is unable to open inland LC, it should draw bills on supplier.

3.3.2 RUPEE EXPORT CRDIT TO SUB SUPPILER:- The packing credit can be

shared between an export order have(EOH) and sub- supplier of raw material,

components etc subject to following :-

PC facility is available on the basis of an export order of LC in name of EOH

as per instruction.

The scheme will cover the LC or export order in favor of export

houses/trading houses/star trading houses or manufacturing exporters only


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and would be made available on the basis of good tract record of the

exporter.

3.3.3 RUPEE PRE-SHIPMENT CREDIT TO CONSTRUCTION CONTRACT:

-Construction contractors may require initial working capital for transporting the

technical staff, purchase of consumable articles for the purpose etc. the amount

can be provided by way of PC and it is to be adjusted with in 180 days of the date

of advance by negotiation of bills or by remittance from abroad.

3.3.4 EXPORT CREDIT FOR CONSULTANCY SERVICES: - Suitable Packing

Credit facility against Consultancy Agreement be given for meeting the expenses

of the staff employed and purchase of any material required for the purpose. While

deciding the amount, advance payment received to be taken into account.

3.3.5 PER-SHIPMENT TO FLORICULTURE, GRAPES AND OTHER CARGO

BASED PRODUCTS: - Pre-shipment credit is allowed to be extended for the

purchase of cut flowers and all post harvest expenses incurred for makingshipment provided the branches are in a position to clearly identify such activities

as related to the export and satisfy themselves of the export potentials thereof.

3.3.5 SPECIAL ECONOMIC ZONES: -The Reserve Bank of India (RBI) has

advised that the supply of goods and services to SEZ i.e. Special Economic Zone

area would be eligible for export credit facility.

3.4 EXPORT INCENTIVE

Pre-shipment credit may be made against cash incentive keeping a margin

of 10% as the incentives are not subject to any fluctuation. Export credits are not

to be included in inventory statements of Packing Credit account for the purpose


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of calculating DP. In order to meet the requirements, sanctioning authority may

consider setting up of separate limits against export incentives receivables.

(B) POST-SHIPMENT EXPORT CREDIT

3.1 DEFINITION: - Any credit facility provided by a bank to any exporter of

goods from India from the date of extending credit after shipment of goods to the

date of realization of the export proceeds. The credit is to be liquidated by the

proceeds of the export bill received from abroad in respect of goods exported. The

finance can be in the form of: -

Export bill purchased/discounted/negotiated.

Advance against bills for collection.

Advance against duty drawback receivable from government.

3.2 RUPEE POST-SHIPMENT CREDIT: - Rupee Post-shipment credit is

allowed to the exporters after they have dispatched the goods for export. Thus it

provides credit for post-shipment lots of goods:

3.2.1 PERIOD: - In case of demand bills, the period shall be normal transit

period(NPT) as specified by FEDAI. NPT as specified by FEDAI for all bills in

foreign currency in 25 days and for bills is rupees NPT is

3 days, where reimbursement is provided at the center of negotiation.

7 days, where reimbursement is provided in India but not at the center of

negotiation.

20 days, where reimbursement is provided outside India for all bills

excluding LC.

20 days, for export to Russia against letter of credit.


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120days, from the date of shipment in case export to IRAQ.

1. In case of usance bills, credit can be granted for a maximum of 180 days from

the date of shipment.

2. NPT is the average period taken from the date of negotiation till receipt of bills

proceeds in the nostro account of banks concerned.

3. An over due bill shall be

a) A demand bill not paid before the expiry of the NPT.

b) A usance bill, which is not paid on the due date.

3.2.2 ADVAVANCE AGAINST RETENTION MONEY:-In case of trun-key

projects/construction contracts, progressive payments are made and some

payments are with help and these are payments after expiry of stipulated period

from the date of the completion of projects, subject to obtention of certificate from

specified authority.

3.2.3 ADVANCE AGIANST UN DRAWE BALANCES ON EOPORT BILL:-

Drawing of bills up to 90-98 percentage of the FOB value of the contract and

keeping of balance money for satisfaction of quantity/ quality of the goods sosupplied by the supplier represent Undrawn balances. The payment of these is of

contingent nature and can be adjusted by the buyer against claims etc. Such

advances are eligible for concessional rate of interest for a period up to 20 days

only and can be extended to180 days after the expiry of NPT in case of usance

bills. For a period beyond 90 rate of interest, specified for the category ECNOS at

post shipment stage may be charged.

3.2.4 EXPORT OF GOODS FOR EXHIBITION AND SALES: - Bank may

provide finance to the exporter in the normal course in the first instance and after

sale is complete, allow the benefit of concessive rate of interest on such Advances,

both at per and post shipment stage.


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3.2.5 EXPORT OF HAND KNIT WOOLENS CARPETS: - Incumbents should

exercise caution while extending credit facility to hand-knit woolen carpet

exporters on DA basis. Each case, however, should be considered on its own

merits.

3.2.6 PRE-SHIPMENT CREDIT ON DEFERREDTERMS: -This advance can

be granted for a period extending one year, in respect of export of capital and

goods as specified by Reserve Bank of India from time to time.

3.3 GUARANTEE FOR ADVANCE: - Since the cover for Post-shipment

advance under WTPSG has been terminated on 30th April 2006. For any default

under WTPSG the report of default has to be filled with ECGC on or before 30th

April 2006.

(C) INTEREST RATES ON ADVANCES-RUPEE EXPORT CREDIT: - RBI

circular dated 13.07.2007 has informed that the government has decided toprovide interest subvention of 2% per annum to all scheduled commercial banks in

respect of rupee export credit to the specified categories of exporters as mentioned

below: -

Textiles; Ready made garments; Leather products; Handicrafts; Engineering;

Agricultural products; Marine products; Toys; Sports goods.

RBI has advised that the banks will now charge interest not exceeding the BPLR

minus 4.5% on the out standing amount for the period till 30th April 2008 to

above mentioned sectors.

Pre- shipment credit upto 180 days.

Post-shipment credit upto 90 days.


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1. ADDITIONAL SUBVENTION: - It has been decided to extend additional

subvention of 2 percent (in addition to 2 per cent already offered earlier) in respect

to Pre-shipment and Post-shipment credit to the following sectors and these are as;

Leather & Leather manufacturers, Marine products and all categories of Textiles.

2. INSTRUCTIONS TO BANKS: - Banks will therefore now charge interest rates

not exceeding BPLR minus 6.5 % on pre-shipment credit upto 180 days and on

post-shipment for 90 days on the outstanding amount in respect of above

mentioned sectors.

4. TERMS OF CREDIT: - The term of the credit is 180 days for pre-shipment

credit and 90 days for post-shipment except the carpet sector for which the

term would be 270 days for pre-shipment and 90 days (like other sectors) for

post-shipment credit.

(D) DEEMED EXPORT- Concessive Rupee Export Credit: -

Banks may extend rupee pre-shipment and post supply export creditconcessional rate of interest to parties against orders for supplies in respect of

projects aided/financed by bilateral or multilateral agencies/funds as notified

from time to time.

Advance provided should be adjusted from free foreign exchange

representing payments for supply of goods to these agencies.

Banks may extend rupee pre-shipment & post-shipment credit for a

maximum period of 30 days or actual date of payment by the receiver of

goods, whichever is earlier; to other categories of supply of goods specified

as deemed exports under the same chapter of EximPolicy from time to

tome.


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The post supply advances would be overdue after a period of 30 days. In

case where overdue credits are liquidated within a period of 180 days from

notional due date (before 210 days from date of advance), the branches to

charge rate of interest for such extended period.

Further detailed guidelines on deemed exports are being issued by IDB HO

from time to time.


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CHAPTER NO.4

PROCEDURE AND GUIDELINES FOR CLAIMING

SUBSIDY

Export trade is regulated by DGFT & its regional offices, functioning

under the ministry of commerce & industries. So, export transactions are

to be conducted in conformity with the EXIM policy and guidelines

issued by RBI from time to time. Following is the procedure and some

guidelines for claiming export credit.

1. CUT OFF DATE FOR SUBMISSION OF CLAIMS BY THE BANKS:-

The amount of subvention would be reimbursed by the RBI on the basis of

quarterly claims to be submitted as at June 30th, September 30th and December

31st, with in one month from the end of respective quarters. The format for this

purpose is given in annexure 1.

2. TIME LIMIT: - All exporters to realize and repatriate the value of export

proceeds within a period of 6 months. 100% EOUs and units setup undervarious schemes/status holder exporters would be permitted to repatriate the

full value of export proceeds within a period of 12months. There is no time

limit for SEZ units.


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3. DECLARATION OF EXPORTS: - While exporting to any country except

Nepal and Bhutan, amount of full value of exports, be declared. Such

declaration is no required if a) value of exports is not exceeding 25000 US$. b)

Gift of goods not more than rs.5lac. c) Export of goods not involving any

foreign exchange transactions.

4. EXTENSION OF PERIOD: - Banks have now been authorized to extend the

period of realization of exports proceeds beyond 6months from the date of

export upto a period of 6months, at a time, irrespective of the invoice value of

the exports subject to certain specified conditions.

5. MANNER OF PAYMENT: - Payment of exports be received through an

authorized dealer. It can also be received through a bank draft/cheque, foreign

currency notes, and foreign currency traveler cheques, out of the funds in

FCNR/NRE accounts of the buyer or through international credit cards.

Payments of exports by the Gem and Jewellery units in SEZs and EOUs can

also be received in precious metal i.e. Gold/Silver/Platinum if the sale contractprovides for the same.

6. PARTICIPATION IN TRADE FAIRS ABROAD: - Firms/companies

participating in trade fair/exhibitions abroad are permitted to take or export

goods without prior approval of RBI. Exporters are allowed to open foreign

currency accounts abroad to deposits the sales proceeds during their stay

outside India provided these are repatriated into India within a period of

1month from the closure of exhibition or trade fair.

7. DISPOSAL OF COPIES OF EXPORT DECLARATION FORM: - GR

form be completed by the exporter in duplicate and be submitted to customers


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along with shipping bills. Customs will give running serial number of 10 digits

on both the bills and will certify the value declared by the exporter. Customs

shall return the duplicate copy to the exporter and original be retained on

onward submission to RBI. Exporter will give duplicate copy to AD (additional

commissioner) for export negotiation.

8. DOCUMENTS: - The documents are to be submitted by the exporters within

21days from the date of export or from the date of certification from SOFTEX

for software exports. Delayed documents can be accepted by the ADs without

RBI permission, if he is satisfied with the reasons for delay.

9. TRADE DISCOUNT: - Bills falling short by the amount of trade discount can

be accepted provided the amount of discount has been declared by the

exporters on relative form at that time of shipment and accepted by customs.

10. ADVANCE

PAYMENTS: - Exporter may receive advance payments with or withoutinterest. AD, through which advance payment has been received, shall monitor

the shipments. Purchase of foreign exchange from market for refunding

advanced payment is also allowed.

11. PART-

DRAWINGS: - If there is a practice in line of trade to leave small parts of the

invoice Undrawn for payment after adjustment due to difference in weight,

quality etc, Ads may negotiate bill provided Undrawn balance is upto a

maximum of 10% of full export value and the exporter undertakes on form

specified to surrender the balance proceeds of the shipment with in the period

prescribed for realization.


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Irrevocable letter of credit (LC) has been received for full value and

terms for LC provides for the same.

Exporter is a regular customer and AD is satisfied about realization on

the basis of track record.

Documents are not more than 25000 in value and not declared on

GR/SDF/PP softex form.

100% advance remittance has been received. Exporter is a Status Holder

Exporter or the unit is a Special Economic Zones

16. REDUCTIO

N IN VALUE: - On pre-payment, reduction can be permitted upto unexpired

period of usance. Ads can permit reduction in value upto 25% of invoice value

to exporters who are not on caution list of RBI and surrenders proportionate

export incentives availed of. To the exporter for more than three years in

business and having outstanding not exceeding5% of average annual export

realization during three preceeding financial years, there is no such cealing.

17. XOS

STATEMENT: - Ads are to furnish to RBI, on half yearly basis (within 15

days), a consolidated statement in form XOS giving details of all export bills

outstanding beyond 6 months from the date of exports at the end of June and

Dec every year. RBI will be having the power to invoke the penal provisions

in accordance with Foreign Exchange And Management Act, 1999.

18. EXPORT

CLAIMS: - AD may remit the export claims if the remittances have already

been received; exporter is not on the caution list of RBI and exporter surrenders

proportionate export incentive availed of.


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19. CHANGE IN BUYER/CONSIGNEE: - prior approval from RBI is not

required provided reduction in value is not more than 25% of export invoice

value and realization is not delayed beyond 6 months from the date of export.

20. SHIPMENT LOST IN TRANSIT: -Where shipment is lost in transit, Ads

may ensure that insurance claim has been filed and duplicate copy of

GR/SDF/PP form should be forwarded to RBI. AD must ensure that amount of

such claims if settled abroad are fully repatriated to India.

21. PAYMENT OF CLAIMS BY ECGC: - AD on the basis of evidence

received from the exporter that ECGC has settled the claim may delete it from

outstanding export bills and from XOS statement.

22. WRITE-OFF OF UNREALISED EXPORT BILLS: - An exporter whose

amount is outstanding from more than one year may approach AD for write-off

and AD may consider his request if aggregate amount of write off does notexceed 10% of total exporter proceeds realized by the bills upto an annual limit

of 5% of their annual (cumulative) realization during three preceding financial

years. Status holder Exporters may write-off export dues to the extent of,

5% of their annual realization during the preceding three financial years or.

10% of the export proceeds due during the financial year, Which ever is

higher.

23. SELF WRITE-OFF OF UNREALISED EXPORT BILLS: - Exporter may

write-off outstanding export dues and also extend the normal period of

realization beyond 180 days on their own provided the aggregate value of such


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write-off and bills extended for realization does not exceed 10% oftheir export

proceed in a financial year.

24. NETTING OF EXPORT RECEIVABLES AGAINST IMPORT

PAYMENTUNITS IN SEZ:- For SEZ units, AD may permit netting off of

export receivables against import payments in respect of Indian entity and

overseas buyer/supplier on the balance sheet date. GR/SDF/PP forms will be

treated as complete but both the transactions be reported separately in R

returns.

25. EXPORTER CAUTION LIST:- Ads should not accept the bill for

negotiation/collection of the exporter on the caution list of RBI, unless the bill

bears formal approval of RBI.


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CHAPTER NO. 5

EXPORT DOCUMENTS AND FORMS

DOCUMENTS

DOCUMENTS REQUIRED FOR PACKING CREDIT; - The following

documents are required for Partnership firms, Sole Traders and Limited

Companies,

a) In Case of Partnership Firms, banks usually require the following

documents.

Joint and several demand promote signed on the behalf of firm as by

as the partners individually.

Letter of continuity (signed on the behalf of firm and partnersindividually.

Letter of pledge to secure demand cash credit against goods (in case

of pledge) or Agreement of hypothecation to secure demand cash

credit (in case of hypothecation).


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b) In Case ofSole Traders, sole proprietorship declaration.

Agreement to utilize the monies drawn in terms of contract.

Letter of Hypothecation for bills.

c) In Case of Limited Companies, Banks usually require the following

documents.

Demand Pro-notes.

Letter of continuity.

Agreement of hypothecation or letter of pledge signed on the behalf

of the company.

General guarantee of the directors of the company in their joint and

several personal capacity.

Certified copy of the board of directiors resolutions.

Agreement to utilize the monies drawn in terms of contract should

bear the seal of the company.

Letter of Hypothecation for bills.

DOCUMENTS TO BE REQUIRED FOR POST-SHIPMENT CREDIT: -For

post-shipment credit following documents are required,

a) Purchase/Discounting of Documentary Export bills: -For

discounting of documentary export bills the exporter is required to furnish

following documents:

Letter of hypothecation covering the goods; and

General guarantee of directors or partners of the firm (as

the case may be specified).


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b) E.C.G.C. Guarantee: -Post-shipment finance, given to an

Exporter through E.C.G.C. guarantee require shipment or contract risk

policy of E.C.G.C.

c) Advance against Export Bill Sent for Collection: - When

finance is provided by the banks to the exporters by way of advance against

export bills forwarded, following documents are required,

Demand Promissory Note

Letter of Continuity

Letter of hypothecation Covering Bills

General Guarantee of directors or partners of the firm .

d) Advance against Duty Drawbacks: - To finance all the export

losses sustained by exporters, banks advance against the duty draw backs,

Demand Promissory Note.

Letter of Continuity.

General Guarantee of directors of the partners of the firm as per case.

Undertakings from the borrowers that they will deposit the cheque

Received from the appropriate authorities with the bank as custody.

FORMS

EXPORT FORMS: - The various export forms available for getting credit are

discussed below:


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1. GR FORM: - The form is used for export of goods and services including

export of software in physical form except export by post. It is prepared in

duplicate and submitted to the custom authorities, which gives its running

serial number (ten digits) and returns the duplicate copy to the exporter for its

inward submission. In case of loss of duplicate copy, another copy attested by

customs can be used.

2. STATUTORY DECLARATION FORM: - SDF (Statutory Declaration Form) is

used in place of GR in those customs offices where electronic data interchange

system has been introduced.

3. POSTAL PARCEL FORM: - PP is used for export by post and these are first

presented to AD (additional commissioner) and AD after countersigning

returns the original to exporter for submission to postal authorities.

4. SOFTWARE EXPORT FORMS: - SOFTEX is prepared in triplicate is used for

export of software other than in physical form. RBI, now, has decided that theduplicate copies of these forms, should not be submitted to RBI, but be retained

with the AD, which, however, should ensure that non-realization, short

realization, if any, are with in the powers delegated to them or has been duly

approved by RBI.


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CHAPTER NO. 5

SECTORAL INDIVIDUAL PACKING CREDIT

GUARANTEE (SIPCG) OF ECGC

ECGC stands for Export Credit Guarantee Corporation Of India Ltd. From 1st

May 2006, in future Pre-shipment credit shall be covered under the Sectoral

Individual Packing Credit Guarantee i.e. SIPCG cover of ECGC. This cover of

the Sectoral Individual Packing Credit Guarantee provided by Export Credit

Guarantee Corporation Of India Ltd is valid after 1st may 2006.

1. PRE-SHIPMENT CREDIT: - All outstanding accounts under pre-

shipment credit as on 30-04-2006 except 124 accounts excluded in

consultation with the zonal managers would get automatically covered

under SIPCG cover of ECGC well before 1st May 2006.


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2. POST SHIPMENT CREDIT: - Since the cover for Post shipment

advances under WTPSG has been terminated on 30th April 2006, no

premium shall be paid under WTPSG for May 2006 and onwards. For any

default under WTPSG the report of default has to be filed with ECGC on or

before 30th April 2006.

3. SALIENT FEATURES OF SIPCG : - The various salient features of new

scheme of SIPCG coverofECGC are as follows:

The guarantee has been issued for a period of 14 months and will beoperative from 1st May to 30th April.

The maximum liability under the guarantee i.e. the maximum amountupto which claim will be paid to the bank during the period of guarantee

is rupees 150 crores.

The percentage of loss payable by the corporation will be 75% for lossesupto rs.1688 lakh and 65% for losses beyond rupees 1688 lakhs.

The pre-shipment advances will be covered under the guarantee exceptthe following,

124 export customs of various zones as per list already sent to

respective zones.

Advances granted for export made on deferred terms of payment, turnkey

projects, construction works and service contracts.

Advances granted by OBU of the banks located in SEZ.

Advances granted to government companies.

Advances guaranteed to exporters against their export entitlements like duty

draw back etc. at pre shipment stage.


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All new accounts financed by the bank stand excluded from the purview of

SIPCG cover.

The premium will be payable on the monthly basis at the rate of 10 paise per

RS100per month on the average daily product. The detailed terms and

conditions of SIPCG are enclosed in ANNEXURE-1of the circular.

4. SPECIALFINANCIAL PACKAGE FOR LARGE VALUE EXPORTS-

RUPEE CREDIT INTEREST RATES:-a special financial package has

been drawn in consultation with GOI for large value exports of selected

products, which are internationally competitive and have high value

addition. The details are annexed with the circular. Manufacturer exports of

products mentioned in the annexure with export contracts of Rs 100 crores

and above in value terms in one year will be eligible for the special

financial package. The package was valid upto 30th September 2004. RBI

said that above facility will be available to exporters including merchant

exporter subject to the same terms and condition specified in our aforesaid

circular.

5. EXPORT CREDIT TO PROCESSORS/EXPORTERS-AGRI

EXPORT ZONES: - GOI has proposed to set up agri export zones and to

promote such units, production and processing have to be integrated. The

producers enter into contract farming with the farmers around the unit and

has to supply quality seeds, pesticides micro nutrients and other material of

group of farmers from whom exporters would be purchasing product for

exports. RBI said that banks treat the inputs supplied to farmers by

exporters as raw material for export and consider sanctioning the lines of

export credit to processors/ exporters to cover the cost of such inputs

required by farmers to cultivate crops, to promote export of agri products.


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Banks should ensure that exporters have made required arrangements with

farmers and overseas buyers. Financing banks should also appraise that tie

up arrangements are feasible and project would take of within reasonable

time. In view of risk involved, CM/RM has powers to consider such export

credit. Besides ensuring feasibility of tie up arrangements banks should

ensure availability of adequate infrastructure; should verify and use of

funds and ensure that final products are exported as per terms and

conditions in order to liquidate the pre-shipment advanced as per extant

guidelines. RBI clarified that such credit facility would also be available to

exports of agri export units located outside Agri Export Zones.

6. CHANGE OF TENOR OF BILL:-change in tenor of bill can be

permitted in respect of original buyer or the alternative buyer, provided the

revised due date of payment does not fall beyond 6 months from the

original due date of payment bill.

7.INTEREST ON POST-SHIPMENT CREDIT ADJUSTED FROMRUPEE SOURCES: - Interest rates on post-shipment advances which are

not adjusted in an approved manner due to non accrual of exchange and

advance have to be adjusted out of rupee rate of interest charged. Provided

ECGC has admitted the transfer delay and paid the amount for transfer

delay. In all other cases, branches may charge commercial rate for post-

shipment. In this case if export proceeds are realized in an approved manner

subsequently, the bank may refund to the borrower the excess interest

charged.

8. SIMPLIFICATION OF PROCEDURES FOR DELIVERY OF

CREDIT TO EXPORTERS: - Firstly, the branches should assist/guide


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the exporter in filling the application form. Secondly, Assesment of credit

needs to be made promptly and need based credit be provided without any

delay. Further additional credit requirements of the exporters be promptly

met. Finally, in case of consortium advances, where consortium has

approved assessment, branches should promptly send proposal for

competent authority.

9. ONLINE CREDIT TO EXPORTERS: - SIPCG cover of ECGC also

provides facility to give online credit to the exporters, now the exporters

can get online credit facility of export financing. But, assessment of credit

limits should be based on the needs of the exporters and not at all linked to

availability of collateral security. All the guidelines and provisions relating

to export financing should have to be followed properly by exporters.

10. EXPEDITIOUS CLEARANCE OF EXPORT CREDIT

PROPOSALS: - SIPCG cover of ECGC provides for expeditious and easy

clearance of export credit proposals, with the help of which the exportersare at ease to get export credit. In this scheme for ordinary exporters,

proposals for sanction of fresh proposals be disposed off in 45 days,

renewal in 30 days and for adhoc limits be disposed off in 15 days and for

exporters having Gold card, within 25,15 & 7 days respectively. But the

proposals which are rejected must be brought into the notice of sanctioning

authority explaining the reasons for such rejections.

11. SOME NEW SCHEMES FOR EXPORTERS: -As advised by RBI

following new schemes for exporters have been formulated;

Relief concessions for exporters affected by earthquake in Gujarat,


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Extension of credit/noncredit facilities to Indian joint ventures/wholly

owned subsidiaries abroad and extension of buyers credit and acceptance

finance to overseas parties by banks in India,

Advances to exporters of engineering goods against their claims for

reimbursement of difference between domestic and international price of

steel etc, under the international price reimbursement scheme (IPRS).

All the above schemes are available as annexure with the circular and can be

referred in case of need.

CHAPTER NO. 6

EXPORT CREDIT IN FOREING CURRENCY

1. THE SCHEME: - The scheme is an additional window for providing pre-

shipment credit to Indian export at international rate of interest. PCFC

scheme covers only cash export.

2. CURRIENCIES:- The facility can be sanctioned/disbursed in one of the

convertible currieries but for the sake of convenience our Bank is providing

facility in USD,GBP and EUR.

3. SOURES OF FUNDS: - The lend-able fund under the scheme shall be

available from the foreign currency balance held by the bank under FCNR


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(B), EEFC, RFC schemes, lines of credit on banks aboard and also the

foreign currency funds generated through buy-sell swaps in the domestic

forex market for granting PCFC.

4. MINIMUM AMOUNT: - for operational and accounting convenience

each request for PCFC should be rounded of to the nearest hundred.

5. PERIOD OF CREDIT: - The PCFC will be available, as in the of rupee

credit initially for a maximum period of 180 days.

6. DISBURSEMENT OF PCFC: - PCFC will be disbursed to exporters by

applying the TT buying rate of the concerned currency. The power to

permit relaxation in the condition of applying exchange rates for

disbursement of PCFC etc. is vested with GM-IBD.

7. EXTENTION OF PERIOD: - Any extension of credit will be subject to

the same terms and conditions as applicable for extension of rupee packingcredit and it will also have additional interest cost of 2 percent above the

rate for the initial period of 180 days prevailing at the time of extension.

For extension within 180 days, no additional interest will be charged.

8. ELIGIBILITY CRITERIA: - As per the rupee packing credit, No

separate sanction of pre-shipment export credit limits is needed for PCFC.

It shall be allowed within the rupee sanctioned limits of pre-shipment

credit.

9. SPREAD AND INTEREST ON PCFC: - Lending rate should not exceed

Euro +1.00% excluding withholding tax. PCFC can be provided through


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Swaps also, moreover interest on PCFC may be charged at monthly

intervals or for actual number of days whichever is earlier.

10. REFUND OF INTEREST: - Branches may refund the interest in case of

early realization of export bills under PCFC subject to recovery of pre

payment penalty @ 0.5% or difference between 6 months prevailing on the

dates of disbursement and pre payment of loan whichever is higher for

unexpired period on the amount of PCFC disbursed.

CASE STUDY

HISTORY OF BANK: -

Punjab National Bank established in 1985 in Lahore by Lala Rajpat Rai, is

the second largest Public sector commercial bank in India with many branches

and offices throughout the country. The government of India, nationalized the

bank, along with 15 other major commercial banks of India, on July 19, 1969.

It has distinction of being the first Indian bank to have been started solely with

Indian capital.

The Branches of Punjab National Bank were established in 1971

inside the Mewa Mandi, Amritsar. There are several branches of Punjab

National Bank in Amritsar are: -

Hall Bazar


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Regional offices

Putlighar

Lawrence Road

Katra Ahluwalia

Akali Market

SSI Mall

There are several employees in the bank. Like bank manager, head cashier

and the clerical staff. There are also three persons available to manage the

computer systems. For computer employees the government provides some

special allowance for rs.410.

In these branches the computer system was established in 1989 for the

purpose of saving time and reducing the errors. The facility was provided by

the Indian Bank Association. There are many other branches of PNB in

other states of India also.

PNB serves near about 3.5 crore customers and has largest Branch

Network in India. PNB has 4062 branches and near about 447 exention

counters spread all over the world. It has achieved many awards and

distinctions and Ranked 21st amongst top 500 companies by leading

Financial daily, Economic Times.

STUDY OF REAL CASE: -

The real case study is of M/S Sadhu Singh Gurdeep Singh

who deals in Basmati Rice and this Firm also exports Basmati Rice to other

countries also, the firm got its export order financed by Punjab National


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1. BILLS OF EXCHANGE

2. INVOICE NO. STB-43&44

3. PACKING LIST

4. BILL OF LADING

5. INSURANCE CERTIFICATE

6. CERTIFICATE OF ORIGIN OF FIRM

7. CERTIFICATE OF ANALYSIS

TERMS AND CONDIONS: -

PUNJAB NATIONAL BANK had given Assent to collect the bills on

following Terms& Conditions

UNIFORM RULES FOR COLLECTION (revised in)ICC Publication 522

for PUNJAB NATIONAL BANK:

1. Please Deliver the documents against payments.2. Collect all the charges from the drawee.

3. Inform for non-payment/non-advice

4. Upon payments of bill remit proceeds to its International Banking Branch,

New Delhi quoting reference of this under advice to us i.e. to PNB through

FAX/SWIFT.

.