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Pre Shipment Credit: Types of finance,features,sanction,documents required,period of finance,interest rates, Finance in Foreign currency
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PRE SHIPMENT CREDIT
Contents
IntroductionClassificationPacking Credit
Eligibility Security Quantum of Finance Period/Interest Rate Running Account
Advances against incentives receivable from Government
Pre-Shipment credit in Foreign Currency(PCFC)ExamplesReferences
Introduction
Needed for:- Purchase of raw materials Components, processing cost Transportation Packing, packaging Warehousing
Providing credit facilities to the importer‘Buyer prefers that party who provides
finance for his purchase’
Classification
1. Packing Credit2. Advances against incentives receivable from
Government3. Pre-Shipment credit in Foreign
Currency(PCFC)
1.1 Eligibility
Confirmed Export Order or Irrevocable letter of credit.
Export/Trading/Star Trading/Super Star Trading House or exporter.
Exporter of services exporters of all the 161 tradable services covered under the General Agreement
on Trade in Services (GATS)Supplier/supporting manufacture of exporter
Letter from export house indicating details Supplier and exporter will share the finance.
1.2 Form of Finance
Fund Based Dependent upon the stage of execution of order Release loan from time to time
Non Fund Based In the form of letter of credit Issue of various types of guarantee
1.3 Security
Clean Raw material not acquired
Secured Goods possessed, title acquired Goods pledged or hypothecated to bank Credit becomes secured
1.4 Quantum of Finance
RBI guideline No export order should suffer from want of
finance
Should be adequate Domestic cost of production or FOB value of
export order, whichever is lower
1.5 Margin Requirement
No fixed normsEnsure business sense and consciousness to
the exporterNo intention to finance the profit component
in the export contractExport Credit Insurance Whole Turnover
Packing Credit (ECIB-WTPC) Protects banks against losses due to
exporter’s default nominal guarantee fee, borne by the
exporters.
1.6 Period /Interest Rate
Initially for 180 daysAccording to production cycle90 days extension in
‘circumstances beyond exporters control’ Revalidated export order or L/C.
Concessional rate of interest as per RBI Less than the prime lending rate of the bank
No other service charges other than stipulated by “Foreign Exchange Dealers Association of India”
If found abusing the facility, commercial lending rate ab initio.
Premium paid to ECGC to be borne by exporter.
1.7 Sanction of Packing Credit Limit
Based on the assessment of the bank in respect of credit needs.
Separate packing credit loan account is opened for every export order.
Bank takes undertaking that:- Negotiation will be through the bank Account will be closed through these proceeds Receivables/duty drawback into that account
1.8 Closure of Packing Credit Loan
Closed with realization of sale proceedsBalance not allowed to continue
Transferred to another account Advances treated as post shipment finance As per compliance to ECGC .
1.9 Running Account Facility
RBI permits even without export order/letter of credit subject to:- Satisfaction of the bank Unblemished track record L/C order to be submitted within reasonable
period. Not more than 180 days. EOUs, EPZs and SEZs.
1.10 Packing Credit under Red Clause L/C
Credit at risk and responsibility of the Foreign Bank establishing the L/C.
Remains unsecured till hypothecation
2. Advances against Incentives
Generally sanctioned at post shipment stages.Under exceptional circumstances
Cost of production > FOB value of goodsSubject to the conditions
Covered under “Export Production Finance Guarantee of ECGC”
Advances repaid from proceeds of shipment and receipt of incentives
Premium paid to ECGC, borne by exporter
3. Pre Shipment Credit in Foreign Currency(PCFC)
To import the raw material to execute the export contract
Available in all foreign currencies US Dollars, Pound Sterling, Japanese Yen, Euro, etc.
No sanction without confirmed export order or irrevocable L/C.
Self liquidating in nature
3.1 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)- Foreign currency (Non-Resident/Exporters)Accounts - Escrow Accounts
Foreign Currency line of credit lines of credit with overseas banks (or other domestic banks) without the
prior approval of the RBI, provided the rate of interest on the line of credit does not exceed 1
percent above LIBOR/EURO LIBOR/EURIBOR.
http://www.investopedia.com/terms/l/libor.asp http://www.diffen.com/difference/EURIBOR_vs_LIBOR
Examples
http://www.federalbank.co.in/export-pre-shipment-credit
https://www.sbi.co.in/ibg/wholesale/project.htm
http://www.icicibank.com/business-banking/tradeservice/export-finance.html
References
http://www.iibf.org.in/documents/export-credit.pdf
http://www.Investopedia.comhttp://www.eximbankindia.in/?q=corporate-
bankinghttp://rbidocs.rbi.org.in/rdocs/notification/
PDFs/24738.pdf
Questions??
THANK YOU