TYPES OF L/C s

ON 11/09/12

Dear MIBIans

Lets discuss about the types of L/C s

Whats all about LC/ yea????A Letter of Credit, simply defined, is a written

instrument issued by a bank at the request of its customer, the Importer (Buyer), whereby the bank promises to pay the Exporter (Beneficiary) for goods or services, provided that the Exporter presents all documents called for, exactly as stipulated in the Letter of Credit, and meet all other terms and conditions set out in the Letter of Credit. A Letter of Credit is also commonly referred to as a Documentary Credit.

Types of L/C REVOCABLE L/C :-Revocable LC can be amended or cancelled by the

issuing bank at any moment and without prior notice to the beneficiary. This type of credit does not doesn't constitute a legally binding undertaking between the banks or bank concerned and the beneficiary such as credit may be modified or cancelled at any moment without prior notice to the beneficiary. This type is of limited utility and is not much use

IRREVOCABLE L/C • An irrevocable LC constitutes a definite undertaking of

the issuing bank for the payment of the bills drawn under the credit, provided the beneficiary presents the stipulated documents to the credit nominated bank or to the issuing bank and complies with all the condition s of the credit.

• Thus the beneficiary receives a firm undertaking of the issuing bank, giving him the security he desires.

• This type of credit can neither be modified nor cancelled without the prior approval of the beneficiary concerned and it is therefore, widely accepted.

Confirmed L/C • UCP basically recognize only the revo/irrevo LCs which

can be wither confirmed or unconfirmed. These rules also make specific reference to transferable credits. But all other credits are prevalent only by implication.

• Only IRREVO L/C are confirmed for obvious reasons, such confirmation constitutes definite undertaking from the confirming bank to pay against the presentation of the proper documents such credit is called confirmed credit.

• Such an undertaking can neither be amended nor cancelled without the agreement of the issuing bank.

With recourse or without recourse L/C • With:- L/C if the buyer fails to pay the bank after

the specified period, the bank can have recourse on the exporter. There is no such provisions in without RC.

• Its in favor of the exporter to obtain a confirmed irrevocable without RC credit because in this case the Indian Bank added obligation to pay. If the confirming i.e Indian Bank accepts the documents as being complete and correct and any rejection by opening bank will be a matter of discussion between the two.

Acceptance of credit • An acceptance credit stipulates that the

beneficiary must draw a BOE for particular tenor e. g 60, 90, 120 days sight and that the drafts will be accepted by one of the parties i.e 1. The applicant 2. the advising Bank, 3. the negotiating bank. It unsecured and depends on the capability of the parties who can fund at the maturity of the bill.

Transferable L/C Here the beneficiary is entitled to

request the paying, accepting, negotiating, banks to pay, accept, and negotiate bills tendered by one or more parties. For partial transfer to second beneficiary or more than one second beneficiaries, it is essential that credit must permit partial shipment.

Back to Back L/C • When the exporter uses his L/C as a cover

for opening a credit in favor of the local suppliers, the L/C is called back to back credit. As the credits are intended to cover some goods it should ne ensured that the terms of identical except that price is lower and validity earlier. This type of credit is preferred over transferable credits to keep the identity of ultimate buyer secret.

RED CLAUSE or Anticipatory L/C ---Provides advance payment or at least part

payment to the beneficiary against his undertaking the effect the shipment and submits the bill and /or documents in terms of credit within the validity. The advance payment made at the pre-shipment stage will be liquidated from the proceeds of the bills negotiated.

GREEN CLAUSE is an extension of the red clause in that it envisages the grant of storage facilities at the port in the name of the bank in addition to the pre-shipment payment to the beneficiary.

Revolving L/C In a revolving LC, the amount of

drawing is reinstated and made available to the beneficiary again after a period of time on the advise of payment by the applicant or merely the fact that shipment has been made.

Deferred L/C HERE, the exporter supplies plant and

machineries, capital goods etc., ( where the price is to be paid to him in installments spread over a period ranging usually from 1-7 years even more) to an importer and no draft is drawn and payment by the opening bank is determined in accordance with the terms laid down in the credit.

Transit L/C

It is issued in one of the foreign country with the beneficiary in another but it is advised through and usually confirmed by the one BANK( The BOSS)

Credit available by Installments These credits specify shipments and/or

drawings by installments stipulating specific period for each installment of shipment and or/ drawings. In case, any installment of shipment is missed, credit will not be available for that and the subsequent installments except when credit permits such lapse.

Restricted and unrestricted credits Credits which do not specify any

particular bank who is authorized to negotiate etc. are ‘ unrestricted ‘ or open or general credits. If a specified bank is designated to pay accept or negotiate, the credit is termed as’ restricted’ or special.

Letter of Credit Checklist.Are all required documents included?Will the documents be presented within the expiration

date of the letter of credit?Are the documents on their face consistent with each

other? Has shipment been made prior to the last shipping date?Are the documents “stale”? Typically, unless otherwise

specified, documents presented 21 days or more after the date of transport are considered stale.

Are the required number of copies of each document being submitted?

On documents where signatures are required, are the appropriate signatures present?

Is the transport document consigned to the correct party? Is the notify party on the transport document correct? Is the merchandise description correct? Are the number of units, the unit price and the total price all

consistent? If an insurance document is required, is the type and amount of

coverage correct? Was it in effect prior to shipment? If partial shipment has been made, is it permitted under the terms

of the letter of credit? If transhipment is necessary, does the letter of credit permit this? Review the draft. Does it quote the bank’s letter of credit

reference? Is it drawn on the correct party? If necessary, has it been properly signed and endorsed? Is the amount and

currency correct? Is the tenor as specified?

UCP 500 and UCP 600

UNIFORM CUSTOMS AND PRACTICE

•Any basic idea about UCP /ICC???

Article .1 Application of UCP The Uniform Customs and Practice for

Documentary Credits, 2007 Revision, ICC Publication no. 600 (“UCP”) are rules that apply to any documentary credit (“credit”) (including, to the extent to which they may be applicable, any standby letter of credit) when the text of the credit expressly indicates that it is subject to these rules. They are binding on all parties thereto unless expressly modified or excluded by the credit.

Article 2 Definitions Advising bank means the bank that advises the credit at

the request of the issuing bank. Applicant means the party on whose request the credit

is issued. Banking day means a day on which a bank is regularly

open at the place at which an act subject to these rules is to be performed.

Beneficiary means the party in whose favour a credit is issued.

Complying presentation means a presentation that is in accordance with the terms and conditions of the credit, the applicable provisions of these rules and international standard banking practice.

Confirmation means a definite undertaking of the confirming bank, in addition to that of the issuing bank, to honour or negotiate a complying presentation.

Confirming bank means the bank that adds its confirmation to a credit upon the issuing bank’s authorization or request.

Credit means any arrangement, however named or described, that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honour a complying presentation.

Honour means: a. to pay at sight if the credit is available by sight payment. b. to incur a deferred payment undertaking and pay at maturity if

the credit is available by deferred payment. c. to accept a bill of exchange (“draft”) drawn by the beneficiary

and pay at maturity if the credit is available by acceptance.

• Issuing bank means the bank that issues a credit at the request of an applicant or on its own behalf.

• Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) and/or documents under a complying presentation, by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank.

• Nominated bank means the bank with which the credit is available or any bank in the case of a credit available with any bank.

• Presentation means either the delivery of documents under a credit to the issuing bank or nominated bank or the documents so delivered.

Article 3 Interpretations Presenter means a beneficiary, bank or other party that makes a presentation.

Where applicable, words in the singular include the plural and in the plural include the singular.

A credit is irrevocable even if there is no indication to that effect. A document may be signed by handwriting, facsimile signature,

perforated signature, stamp, symbol or any other mechanical or electronic method of authentication.

A requirement for a document to be legalized, visaed, certified or similar will be satisfied by any signature, mark, stamp or label on the document which appears to satisfy that requirement.

Branches of a bank in different countries are considered to be separate banks.

Terms such as "first class", "well known", "qualified", "independent", "official", "competent" or "local" used to describe the issuer of a document allow any issuer except the beneficiary to issue that document.

Unless required to be used in a document, words such as "prompt", "immediately" or "as soon as possible" will be disregarded.

The expression "on or about" or similar will be interpreted as a stipulation that an event is to occur during a period of five calendar days before until five calendar days after the specified date, both start and end dates included.

The words "to", "until", "till", “from” and “between” when used to determine a period of shipment include the date or dates mentioned, and the words “before” and "after" exclude the date mentioned.

The words “from” and "after" when used to determine a maturity date exclude the date mentioned.

The terms "first half" and "second half" of a month shall be construed respectively as the 1st to the 15th and the 16th to the last day of the month, all dates inclusive.

The terms "beginning", "middle" and "end" of a month shall be construed respectively as the 1st to the 10th, the 11th to the 20th and the 21st to the last day of the month, all dates inclusive.

•X Next

Export Financing Exporters naturally want to get paid as quickly as

possible, while importers usually prefer to delay payment until they have received the goods. Because of the intense competition for export markets, being able to offer attractive payment terms customary in the trade is often necessary to make a sale. Exporters should be aware of the many financing options open to them so that they choose the most acceptable one to both the buyer and the seller.

Export credit can be broadly classified into

• Pre-shipment finance and • post shipment finance. • Preshipment finance refers to finance extended to

purchase, processing or packing of goods meant for exports

• Financial assistance extended after the shipment of exports falls within the scope of post shipment finance

PACKING CREDIT• As loan or cash credit against pledge or hypothecation.• Verification of Exporter-Importer Code No. issued by

DGFT.• Party should not be in the RBI Caution

list or ECGC Special Approval List.• Export is not to a listed country• Verify order/LC• Up-to date knowledge of export policy• Commodity should not be in the negative list.• Commodity should have a good market• Terms of contract• No FEMA violation• Borrower should be credit worthy.

• Working capital may be defined as funds required to carry the required level of Current assets to enable the industry to carry on its operations at the expected levels uninterruptedly..

• The guidelines set by Nayak Committee for computation of WC finance quantum for village, tiny and other SSI industries to a minimum extent of 20% of Projected/ Accepted Turnover to continue Guidelines with regard to specific activities / industries / situations to continue (Sugar / tea industries, Rehabilitation cases, Export Financing etc.) Banks may consider Cash Flow approach of financing in order to close the gap between the sanctioned limits and the utilization levels …

Quantum of finance:• FOB value of goods minus profit and credit

margin Cost of production less margin (can be more if the domestic cost is more than the FOB value and the difference is accounted as incentives like duty draw-back etc. subject to export production finance guarantee of ECGC).

• In the case of exports on CIF value basis PC can be granted towards insurance and freight also

• Period of finance: to coincide with the date for shipment and normally up to 180 days

Clean Packing Credit• Granted to credit worthy parties where advance

payment is required to be made to the supplier. • Quantum determined based on the likely purchase

pattern of the exporter with their suppliers. • Period of CPC is determined based on the

facts of each case (but not later than the period of contract /LC.

• A higher margin of say 25% should be stipulated, collected each time and remitted along with PC to the supplier.

• CPC should be converted as PC or Bills

EXPORT FINANCE

• PRE SHIPMENT finance : Deals with the finance schemes available before the shipment has been made.

• POST SHIPMENT finance : on the contrary deals with credit available after the goods have shipped.

Both stages are crucial for the exporter

Pre-shipment finance

• PSF.. Offer liquidity to the exporter to produce raw materials, carry out processing, packing, transporting and warehousing of the goods to be exported.

• Pre-Export Finance: provision of funds to cover the period between signing of purchase orders and payment (short-term, working capital)

• –Pre-export finance typically covers:• Cost of inland transport to port• Purchase of raw materials for processing

• Cost of processing• Storage costs

Illustrative procedure (commodities)

• Exporter provides title to or pledges products to bank• –Products that have yet to be produced• –Products that have been produced (warehouse

receipt)• Bank provides credit facility• Payment• –Trader takes delivery• –Bank receives payment directly from buyer• »Escrow account• »Evidence account

Methods of Pre-Export Finance• Open Account: –Exporter ships goods without any guarantee of

payment, thereby financing importer–Risk of transaction dependent on relationship/importer integrity.• Documentary letter of credit (see UCC Art. 5 and UCP 500): Letter

from bank, addressed to exporter, in which bank promises to pay or accept drafts if exporter conforms 100% to conditions within the letter.

• Three parties: • –Issuer: the issuing bank• –Account party (importer)• –Beneficiary (exporter) • •Three agreements• –Trade contract between importer and exporter• –Documentary credit between bank and exporter• –Reimbursement agreement between bank and importer

Documentary Letter of creditRevocable/Irrevocable• –A revocable letter of credit can be cancelled or amended by the issuing

bank; the bank does not need the exporter/beneficiary’s consent.Confirmed/Unconfirmed• –Issuing bank forwards letter of credit to exporter’s bank• –Exporter’s bank promises to pay exporter (confirms l/c)• –In an unconfirmed transaction, the advising bank acts as the issuing

bank’s agent and bears no obligation to exporterBack-to-back• –Typically used by brokers, the letter of credit allows the beneficiary to

assign its rights in one letter of credit to the issuer of a second letter of credit

• –Both letters of credit must require identical documentsTransferable• –The original beneficiary can transfer the letter of credit to third parties

Documentary Letter of credit• Revolving• –Typically used in construction contracts• –Allows beneficiary to draw on the letter of credit, up to a certain

amount, usually without presentation of documents• –The account party replenishes the account“Red clause” letter of credit• –Exporter can use to obtain pre-shipment finance by providing either (i)

a statement of purpose or (ii) an undertaking to provide specified documents.

• –Issuing bank provides exporter with a percentage of the L/C amount• –Advising bank guarantees reimbursement“Green clause” letter of credit• –Similar to “red clause” letters of credit, but pre-shipment finance is

contingent upon the production of warehouse receipts…

Letter of credit SettlementSight payment (sight draft)• –Exporter presents documents and receives paymentDeferred payment (dated draft)• –Exporter presents documents and receives payment at some

specified future timeAcceptance (time draft)• –Exporter (i) presents documents and (ii) draws a usance draft• –Bank accepts bill of exchange for payment on a future date Negotiation• –Exporter may choose a bank and negotiate the payment of a

sight or usance draft• –Bank will either:• »Advance payment with recourse to the exporter• »Advance payment less a fee (discount)• »Pay exporter when issuing bank provides payment

Post shipment Finance

• Provides credit facility from the date shipment of the goods to the time export payment is realized ( expenses between period of shipment dispatch and payment realisation…

Export Finance –Post-Export

Post-Export Finance (medium/long-term)• –Post-Export finance typically covers:• •Account receivables• •Equipment• •Other fixed assets–Methods of Post-Export Finance• •Revolving line of credit• •Term loan • •Finance accounts receivable

Methods of Post-Export FinanceFinance account receivables–Typically used in two instances• •Undercapitalized company with permanent financing

need• •Temporary insufficient cashflow–Banks provide loan secured by:• •Assignment of receivables• •Assignment of commodity inventory–Loan• •Made on a revolving basis against a pool of receivables–Borrower• •Responsible for collecting from customers• •Responsible for 100% loan repayment despite inability to

collect from customers

Export Finance –Forms of RiskCommercial risk•The risk that either party will not fulfill its

obligationsTransportation risk•The risk that goods become damaged or destroyed

during transportExchange risk• •The risk that currency fluctuations will affect the

value of the transactionPolitical risk• •The risk that government policy changes, wars,

embargoes, etc., will prevent the conclusion or affect the value of the transaction

Indian Case study ; RBI sources !• PRE-SHIPMENT EXPORT CREDIT, Definition:…any loan or advance granted or any other credit provided by a

bank to an exporter for financing the purchase, processing, manufacturing or packing of goods prior to shipment / working capital expenses towards rendering of services on the basis of letter of credit opened in his favour or in favour of some other person, by an overseas buyer or a confirmed and irrevocable order for the export of goods / services from India or any other evidence of an order for export from India having been placed on the exporter or some other person, unless lodgement of export orders or letter of credit with the bank has been waived.

Period of AdvanceThe period for which a packing credit advance may be

given by a bank will depend upon the circumstances of the individual case, such as the time required for procuring, manufacturing or processing (where necessary) and shipping the relative goods / rendering of services.

It is primarily for the banks to decide the period for which a packing credit advance may be given, having regard to the various relevant factors so that the period is sufficient to enable the exporter to ship the goods / render the services

• If pre-shipment advances are not adjusted by submission of export documents within 360 days from the date of advance, the advances will cease to qualify for concessive rate of interest to the exporter ab initio.

• RBI would provide refinance only for a period not exceeding 180 days.

Disbursement of Packing CreditBanks may also maintain different accounts

at various stages of processing, manufacturing, etc. depending on the types of goods / services to be exported, e.g. hypothecation, pledge, etc., accounts and may ensure that the outstanding balance in accounts are adjusted by transfer from one account to the other and finally by proceeds of relative export documents on purchase, discount, etc.

Banks should continue to keep a close watch on the end-use of the funds and ensure that credit at lower rates of interest is used for genuine requirements of exports. Banks should also monitor the progress made by the exporters in timely fulfillment of export orders.

Liquidation of Packing CreditThe packing credit / pre-shipment credit granted

to an exporter may be liquidated out of proceeds of bills drawn for the exported commodities on its purchase, discount etc., thereby converting pre-shipment credit into post-shipment credit. Further, subject to mutual agreement between the exporter and the banker it can also be repaid / prepaid out of balances in Exchange Earners Foreign Currency A/c ( EEFC A/c ) as also from rupee resources of the exporter to the extent exports have actually taken place.

Running Account' FacilityIn many cases, the exporters have to procure raw

material, manufacture the export product and keep the same ready for shipment, in anticipation of receipt of letters of credit / firm export orders from the overseas buyers. Having regard to difficulties being faced by the exporters in availing of adequate pre-shipment credit in such cases, banks have been authorized to extend Pre-shipment Credit ‘Running Account’ facility in respect of any commodity, without insisting on prior lodgment of letters of credit / firm export orders, depending on the bank’s judgment regarding the need to extend such a facility and subject to the following conditions:

a) Banks may extend the ‘Running Account’ facility only to those exporters whose track record has been good as also to Export Oriented Units (EOUs) / Units in Free Trade Zones / Export Processing Zones (EPZs) and Special Economic Zones (SEZs)

(b) In all cases where Pre-shipment Credit ‘Running Account’ facility has been extended, letters of credit / firm orders should be produced within a reasonable period of time to be decided by the banks.

(c) Banks should mark off individual export bills, as and when they are received for negotiation / collection, against the earliest outstanding pre-shipment credit on 'First In First Out' (FIFO) basis. Needless to add that, while marking off the preshipment credit in the manner indicated above, banks should ensure that concessive credit available in respect of individual pre-shipment credit does not go beyond the period of sanction or 360 days from the date of advance, whichever is earlier.

(d) Packing credit can also be marked-off with proceeds of export documents against which no packing credit has been drawn by the exporter.

Export Credit against Proceeds of Cheques, Drafts, etc. Representing AdvancePayment for Exports

Where exporters receive direct remittances from abroad by means of cheques, drafts, etc. in payment for exports, banks may grant export credit at concessive interest rate to exporters of good track record till the realization of proceeds of the cheque, draft etc. received from abroad, after satisfying themselves that it is against an export order, is as per trade practices in respect of the goods in question and is an approved method of realization of export proceeds as per extant rules.

Rupee Export Packing Credit to Manufacturer Suppliers for Exports Routed through STC/MMTC/Other Export Houses,

Agencies, etc.

Banks may grant export packing credit to manufacturer suppliers who do not have export orders/letters of credit in their own name, and goods are exported through the State Trading Corporation/Minerals and Metal Trading Corporation or other export houses, agencies, etc.

Requirements (a) Banks should obtain from the export house a letter

setting out the details of the export order and the portion thereof to be executed by the supplier and also certifying that the export house has not obtained and will not ask for packing credit in respect of such portion of the order as is to be executed by the supplier.

(b) Banks should, after mutual consultations and taking into account the export requirements of the two parties, apportion between the two i.e. the Export House and the Supplier, the period of packing credit for which the concessionary rate of interest is to be charged. The concessionary rates of interest on the pre-shipment credit will be available up to the stipulated periods in respect of the export house/agency and the supplier put together.

The export house should open inland L/Cs in favour of the supplier giving relevant particulars of the export L/Cs or orders and the outstandings in the packing credit account should be extinguished by negotiation of bills under such inland L/Cs. If it is inconvenient for the export house to open such inland L/Cs in favour of the supplier, the latter should draw bills on the export house in respect of the goods supplied for export and adjust packing credit advances from the proceeds of such bills. In case the bills drawn under such arrangement are not accompanied by bills of lading or other export documents, the bank should obtain through the supplier a certificate from the export house at the end of every quarter that the goods supplied under this arrangement have in fact been exported. The certificate should give particulars of the relative bills such as date, amount and the name of the bank through which the bills have been negotiated.

Export of Services

In view of the large number of categories of service exports with varied nature of business as well as in the environment of progressive deregulation where the matters with regard to micromanagement are left to be decided by the individual financing banks, the banks may formulate their own parameters to finance the service exporters.

Exporters of services qualify for working capital export credit (pre and post shipment) for consumables, wages, supplies etc.• The proposal is a genuine case of export of services.• The item of service export is covered under

Appendix – 36 of the Hand Book (Vol.1)• The exporter is registered with the Export

Promotion Council for services • There is an Export Contract for the export of the

Service• There is a time lag between the outlay of working

capital expense and actual receipt of payment from the service consumer or his principal abroad.

• There is a valid Working Capital gap i.e. service is provided first while the payment is received some time after an invoice is raised.

• Banks should ensure that there is no double financing/excess financing.

• The export credit granted does not exceed the foreign exchange earned less the

• margins if any required, advance payment/credit received.

• Invoices are raised• Inward remittance is received in Foreign

Exchange.• Company will raise the invoice as per the

contract where payment is received from overseas party, the service exporter would utilize the funds to repay the export credit availed of from the bank.

India: POST-SHIPMENT EXPORT CREDIT

Post-shipment Credit' means any loan or advance granted or any other credit provided by a bank to an exporter of goods / services from India from the date of extending credit after shipment of goods / rendering of services to the date of realization of export proceeds and includes any loan or advance granted to an exporter, in consideration of, or on the security of any duty drawback allowed by the Government from time to time.

Types of Post-shipment Credits:(i)Export bills purchased/

discounted/ negotiated.(ii) Advances against bills for

collection.(iii) Advances against duty

drawback receivable from Government

Liquidation of Post-shipment Credit:Post-shipment credit is to be liquidated by the

proceeds of export bills received from abroad in respect of goods exported / services rendered. Further, subject to mutual agreement between the exporter and the banker it can also be repaid / prepaid out of balances in Exchange Earners Foreign Currency Account (EEFC A/C) as also from proceeds of any other unfinanced (collection) bills. Such adjusted export bills should however continue to be followed up for realization of the export proceeds and will continue to be reported in the XOS statement.

Rupee Post-shipment Export Credit

• the case of demand bills, the period of advance shall be the Normal Transit Period (NTP) as specified by FEDAI.

• In case of usance bills, credit can be granted for a maximum duration of 365 days from date of shipment inclusive of Normal Transit Period (NTP) and grace period, if any. However, banks should closely monitor the need for extending post shipment credit up to the permissible period of 365 days and they should influence the exporters to realize the export proceeds within a shorter period.

• Normal transit period' means the average period normally involved from the date of negotiation / purchase / discount till the receipt of bill proceeds in the Nostro account of the bank concerned, as prescribed by FEDAI from time to time. It is not to be confused with the time taken for the arrival of goods at overseas destination.

Post-shipment Advances against Duty Drawback Entitlements• Banks may grant post-shipment advances to exporters

against their duty drawback entitlements as provisionally certified by Customs Authorities pending final sanction and payment.

• The advance against duty drawback receivables can also be made available to exporters against export promotion copy of the shipping bill containing the EGM Number issued by the Customs Department. Where necessary, the financing bank may have its lien noted with the designated bank and arrangements may be made with the designated bank to transfer funds to the financing bank as and when duty drawback is credited by the Customs

ECGC Whole Turnover Post-shipment Guarantee Scheme

The Whole Turnover Post-shipment Guarantee Scheme of the Export Credit Guarantee Corporation of India Ltd. (ECGC) provides protection to banks against non-payment of post-shipment credit by exporters. Banks may, in the interest of export promotion, consider opting for the Whole Turnover Post-shipment Policy. The salient features of the scheme may be obtained from ECGC.

DEEMED EXPORTS - CONCESSIVE RUPEE EXPORT CREDIT

Banks are permitted to extend rupee pre-shipment and post-supply rupee export credit at concessional rate of interest to parties against orders for supplies in respect of projects aided/financed by bilateral or multilateral agencies/funds (including World Bank, IBRD, IDA), as notified from time to time by Department of Economic Affairs, Ministry of Finance under the Chapter "Deemed Exports" in Foreign Trade Policy, which are eligible for grant of normal export benefits by Government of India.

INTEREST ON EXPORT CREDIT• A ceiling rate has been prescribed for rupee export credit

linked to Benchmark Prime Lending Rates (BPLRs) of individual banks available to their domestic borrowers. Banks have, therefore, freedom to decide the actual rates to be charged within the specified ceilings. Further, the ceiling interest rates for different time buckets under any category of export credit should be on the basis of the BPLR relevant for the entire tenor of export credit.

• ECNOS: ECNOS means Export Credit Not Otherwise Specified in the Interest Rate structure for which banks are free to decide the rate of interest keeping in view the BPLR and spread guidelines. Banks should not charge penal interest in respect of ECNOS.

Interest Rate Structure• Pre-shipment Credit (from the date of advance) : (a) Up to 180 days

/ (b)Against incentives receivable from Government covered by ECGC Guarantee up to 90 days.

• Post-shipment Credit (from the date of advance) : a) On demand bills for transit period (as specified by FEDAI) (b) Usance bills (for total period comprising usance period of export bills, transit period as specified by FEDAI, and grace period, wherever applicable)

Up to 90 days Up to 365 days for exporters under the Gold Card Scheme.(c) Against incentives receivable from Govt. (covered by ECGC

Guarantee) up to 90 days(d) Against undrawn balances (up to 90 days)(e) Against retention money (for supplies portion only) payable within

one year from the date of shipment (up to 90 days)

EXPORT CREDIT IN FOREIGN CURRENCY• Pre-shipment Credit in Foreign Currency (PCFC): The

scheme is an additional window for providing pre-shipment credit to Indian exporters at internationally competitive rates of interest. It will be applicable to only cash exports. The instructions with regard to Rupee Export Credit apply to export credit in foreign currency also mutatis mutandis, unless otherwise specified.

Source of Funds for Banks• The foreign currency balances available with the bank in

Exchange Earners Foreign Currency (EEFC) Accounts, Resident Foreign Currency Accounts RFC(D) and Foreign Currency (Non-Resident) Accounts (Banks) Scheme could be utilized for financing the pre-shipment credit in foreign currency.

• Banks are also permitted to utilise the foreign currency balances available under Escrow Accounts and Exporters Foreign Currency Accounts for the purpose, subject to ensuring that the requirements of funds by the account holders for permissible transactions are met and the limit prescribed for maintaining maximum balance in the account under broad based facility is not exceeded.

Post-shipment Export Credit in Foreign Currency• Banks may utilise the foreign exchange

resources available with them in Exchange Earners Foreign Currency Accounts (EEFC), Resident Foreign Currency Accounts (RFC), Foreign Currency (Non-Resident) Accounts (Banks) Scheme, to discount usance bills and retain them in their portfolio without resorting to rediscounting. Banks are also allowed to rediscount export bills abroad at rates linked to international interest rates at post-shipment stage.