Normally people have questions relating to exports and export finance. They have many questions but they could not ask all the questions at a time. So for those here is the complete details for export business in India.
- How can I get an order from another country?
- Which are the countries with whom doing business is safe and secure?
- What are the types of items which are good moving (produced in India) in foreign markets?
- How would I do sourcing?
- Can I get any help in finance from Government?
Normally this finance are in terms of credit guarantee or credit limits and advance payments.
Here is the details and procedure of export finance.
This article will provide you entire information about export finance.
- Timely finance assistance.
- Interest rates should be cheaper.
Different types of Exports (From the viewpoint of Banker)
1. Cash exports: payment here is received within 6 months from the date of shipment.
2. Project Exports:
- Exports of capital goods on deferred payment (beyond 6 months)
- Civil construction abroad.
- Turnkey projects.
- Service exports / consultancy services abroad.
3. Deemed Exports: A Supplier to advance license holder or SEZ or EOU are known as deemed exporters.
4. Software Exports:
- On-site software development.
- Offshore projects.
- Branded software sales.
- customized projects: foreign company floating tenders and Indian software engg. Develops projects (tailor made / customized projects)
Different types of exporters (From the viewpoint of Banker)
- Manufacturer exporters
- Merchant exporters.
- EOUS / Units operating under EPZs / SEZs
- Status holder exporters.
Export Finance is a short term, working capital finance allowed to an exporter. An exporter may need financial assistance for execution of an export order from the date of receipt of an export order till the date of realization of the export proceeds at any stage.
- Credit facility extended to an exporter from the date of shipment of goods till the realization of the export proceeds is known as post-shipment credit.
- Interest for availing Pre-shipment finance is charged at PLR (Prime Landing Rate) in case of Indian Rupee currency loan.
- Conditions for availing packing credit loan
1. sanctioning of the loan amount depends upon every bank as per their relationship with their clients. Banks can sanction upto 100% of the pre-shipment finance. Generally banks avoid doing that. It sanctions around 80% finance.
2. Maximum Period: Till the date of shipment / date of submission of the documents OR up to a maximum period of 180 days from date of loan whichever is earlier.
3. Extension of 90 days: (180 days + 90 Days = 270 Days): if the exporter can’t ship the goods then, further extension up to 90 days is given at concessional rate of interest.
4. Beyond 270 days: Packing credit can continue but at no concessional rate of interest.
Interest rate slabs
|1 – 180 Days||1st Slab||PLR – 2.5 % (Max)||LIBOR + .75B.P|
|181 – 270 days||2nd Slab||PLR – 0.5 % (Max)||LIBOR + .75bp+ 2%|
|Beyond 270 days||No Extension (in terms of discount percent) is granted|
E.g. if an exporter has availed loan for 240 days then for 1 – 180 days à interest rate = PLR -2.5% & 181 days to 240 days – Interest rate = PLR – 0.5%
Types of Pre-shipment finance:
i. Extended Packing Credit Loan (PCL): it is granted to the clients (exporters) for the advance payment to the suppliers to acquire goods to be exported. Thus, it is specific and simple and is usually extended to only those parties who are rated as first class, for a very short duration. Bank should assess the acquiring period and once the goods are acquired it is converted as the mortgage as PCL hypothecation.
ii. Packing Credit loan (Hypothecation): It is extended where the raw goods, goods which are in progress and ready made for exports. The processing may be undertaken by the exporter only in his/her factories or through sub-contractors unit.
iii. Packing Credit Loan (Pledge): The PCL is granted as loan in the form of pledge in cases where exporters have to collect / raw material, which is seasonal and available sometimes only in a year and the exports take place in installment as the shipping timings and order agreed by the overseas parties.
iv. Secured shipping loan: Once the goods are prepared for shipment, and exporter/supplier has transfered the goods to the C&F agent for dispatchment the advances can be given as secured shipping loan. Here bank ensures that the goods are transfered to approved C & F agents.
DOCUMENTS REQUIRED for the finance: The following documents are required with application for for packing credit loan.
- Confirmed export order, contract order, or L/C etc original. This undertaking is required only where the exporter wants to aquire packing credit in advance against advanced information of contract while at the later stage the contract or L/C may be will be received by him.
- An undertaking that the advances will be used only for the specific purpose of procuring & manufacturing the raw materials and finished goods.
- Audited reports of past 3/5 years.
- Copies of RBI’s Exporter’s code number (CNX)
- Appropriate guarantee of the ECGC.
- Any other document required by the bank.
PCL is generally sanctioned on secured basis. However, clean packing advances may also be sanctioned. In such cases, rules related to submission of stock statements and insurance would have to be complied with.
Loan agreement: Before sanctioning the loan, the banks require the exporter to prepare a formal “loan agreement.” The format of this document defers with banks.
Who is eligible for pre-shipment credit?
An exporter, who holds an export order, or Letter of Credit (LC) on his own name to perform the export contract can avail of pre-shipment credit.
How much financing do banks give to an exporter?
The banks normaly practise is that the exporter can obtain only 90% of the F.O.B value of the order or 75% of the C.I.F value of the order.
A manufacturer who is an exporter and dealing in any of the notified item is able to get the packing credit at concessional R.O.I up to 365 days. RBI has listed 10 products and 43 countries to implement above concern.
- Post-shipment finance is a kind of a loan and advance money sanctioned by a bank to the exporter from India. This facility is provided to an exporter after the date of shipment of goods till the date of realization of payment from overseas party.
- Some key features of post-shipment finance are as follows:
- This finance is extended against evidence of shipping documents.
- This finance provides working capital to the exporter from the date of shipment to the date of realization of export payments.
- Concussive R.O.I is available for the maximum period of 180 days, starting from the date of submission of documents. Normally, the documents are submitted within 21days from the date of shipment.
- 0-90 days – Ist slab – PLR – 2.5% / LIBOR + 0.75 BP
- 91-180 days – IInd slab – PLR – 0.5% / LIBOR +0.75 + 2 BP
The quantum of this finance
Post shipment finance can be extended upto 100% of the invoice value of goods.
EXPORT FINANCING INSTITUTIONS
In India, export finance is undertaken by COMMERCIAL BANKS as well as by FINANCIAL INSTITUTIONS.
Following are the institutions, which are directly or indirectly concerned with export financing:
- Commercial Banks
- Exim Bank of India
If you have any questions or queries, you can ask your questions.