`

SUMMER TRAINING REPORT

ON

“BANKING REGARDING IMPORT”

Project Report

Submitted in partial fulfillment of the requirements for

Master of Business Administration (MBA)

SUBMITTED BY:-
Manish Kumar
MBA 5 Year 5th Sem.
Roll No:- 13001432021

DEENBANDHU CHHOTU RAM UNIVERSITY OF SCIENCE &

TECHNOLOGY, MURTHAL

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ACKNOWLEDGEMENT

Life of human being is full of interaction. No one is self-sufficient by himself

whenever anyone is going something serious and important work a lot of help from
the people concern is needed and one specially obliged toward them. I cannot forget
acknowledging them in few words as without the guidance and coordination of them
in my project report would have not been possible.

A larger number of individual contributed to this project. I am thankful to all of them

for their help and encouragement. My writing in this project has been influenced by a
number of website and textbooks. As far as possible, they have been fully
acknowledged at the appropriate place. I am expressing my gratitude toward all of
them.

First of all, I owe my heartfelt gratitude to Mr. Vinod Duhoon, Group Vice President
– Finance of Danblock Brakes India Pvt. Ltd. for giving me opportunity to work on
this project.

I would like to extend my heartfelt thanks to Ms. Manu Sharma for her guidance,
inspiration and constructive suggestion which help in this project.

I must also thank the management of Danblock Brakes India Pvt. Ltd. to provide
excellent opportunity and environment to be able to pull my project through.
Cooperation of staff is also great fully acknowledge.

Student Name: Manish Kumar Signature ……………………..

Date ………………………..

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CERTIFICATE OF ORIGINALITY

I, Manish Kumar Roll No 13001432021 of batch 2013-2018, a full time bonafide

student of Third year of Master of Business Administration (MBA-5 Year)
Programme of DEENBANDHU CHHOTU RAM UNIVERSITY OF SCIENCE &
TECHNOLOGY, MURTHAL.

I hereby certify that I have undergone summer training at Danblock brakes India Pvt.
Ltd. from 26.06.2015 to 08.08.2015 and the project report titled “Banking Regarding
Import” submitted in partial fulfillment of the requirements of the MBA Programme
is an original work of mine under the guidance of the industry mentor Ms. Manu
Sharma, and is not based on or reproduced from any existing work of any other
person.

Further, the project report is not based on or reproduced from any earlier work
undertaken at any other time or for any other purpose, and has not been submitted
anywhere else at any time.

(Student's Signature)

Student Name: Manish Kumar

Date:

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PREFACE

For management careers, it is very important to develop managerial skills. In order to

achieve positive and concrete results, along with theoretical concepts, the exposure of
real life situation existing in a corporate world is very much needed. To fulfill this
need, this type of practical training is required.

I underwent summer training in DANBLOCK BRAKES INDIA PVT. LTD.

Located in Sonepat. It was my fortune to get training in a very healthy company. I got
great opportunity to view the overall working of the organization. In the forthcoming
pages, I have attempted to present a report covering different aspects of my training.

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DECLARATION

I undersigned hereby declare that the summer training project report submitted
to my college DEENBANDHU CHHOTU RAM UNIVERSITY OF
SCIENCE & TECHNOLOGY, MURTHAL. In partial fulfillment for the
degree of master of business administration on “Danblock Brakes India Pvt.
Ltd.” is a result of my own work under continuous guidance of Ms. Manu
Sharma. I have not submitted this training report to any other university for the
award of degree.

MANISH KUMAR

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CERTIFICATE OF COMPLETION

This is Certify that Mr. MANISH KUMAR MBA (5 Year - 5th Semester) has
successfully completed his project titled “Banking Regarding Import” under the
guidance of Ms. Manu Sharma. This is in the partial fulfillment of his MBA
curriculum (2013-18)

Dated:

Ms. Manu Sharma

(Project guide)

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DANBLOCK BRAKES INDIA PRIVATE LIMITED

INTRODUCTION:-

Danblock Brakes India private limited is a part of mat holdings, Inc. of USA, which
is diversified group established in 1984, now having over 30 manufacturing and
warehousing plants throughout Asia , Europe and the USA.

In India, the group has been expanding its activities on an exponential scale in the
form of 100% E.O.Us, manufacturing automotive brake pads at Sonepat, Haryana.

Danblock Company of this group in India which was incorporated on 30thJuly, 2007
has been set up with an investment of about 100 crores. It has modern state-of-the-art
manufacturing plant to produce 40 million disc pads every year.

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MAT Holdings

INTRODUCTION:-

Danblock Brakes India Pvt. Ltd. is a part of MAT holding Inc., USA, established in
1984. Global headquarter in LONG GROVE, IL USA

It is a global manufacturing and strategic supplier to home improvement centers, mass

merchants, hardware and farm cooperatives and original equipment service providers.
Their global presence includes manufacturing facilities on three continents and 1.2
million square feet of strategic US warehouse-manufacturing space making MAT a
logical services and order fulfillment leader.

MAT CAPITAL: MAT capital (MCAP) is a private investment affiliate of MAT

holdings which identifies and invests in middle market companies that provide an
opportunity to leverage Mat holdings financial and capabilities in partnership with
management to increase shareholder value over time.

MCAP views its role an investment situation to be that of a trusted partner and seeks
to bring more than just capital to a portfolio company. In concert with management
and other equity owners, MCAP can ,where appropriate , provide resources and
experience in the following areas; logistics and distribution, engineering services,
domestic & low cost country manufacturing, financial markets , acquisition
integration, information technology(including SAP), strategic planning ,bi lingual
sourcing, sales and marketing & brand management.

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DANBLOCK BRAKES INDIA PRIVATE LIMITED

Year of Establishment : 2007

Nature of Business : Manufacturer

Major Markets : USA

MISSION

Great companies are built on trust and on highest possible ethical standards that
include accuracy, honesty, cooperation, tolerance and acceptance of obligation as well
as individual rights.

VISION

 Learn manufacturing concepts.

 Quality parameter on CTQ (critical to quality)
 To reach six sigma and manufacturing lead time.

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PRODUCTS

 BRAKE PADS:-
Safety is the basic requirement of our brake pads. We are
manufacturer of high quality brake pads for cars and
commercial vehicles. The quality is based on long term
investments in scientific research, product development and on
the use of state-of-the-art manufacturing equipment.

 BIKE DISK PADS

 BIKE DRUM BREAKE
 DISK BRAKE PADS
 DISC BARKES
 PADS CIVAIR
 CORRUGATED
 CORRUGATED WOODEN DISC
 MOTOR VEHICLES PAD
 VEHICLES BOXES

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Quality policy:-

Quality is the pre –requisite for all the actions and the customer satisfaction
the foundation.

Customer focus:
Quality is measured as our ability to provide customers with product and
services exceeding their expectation.
Continual sustainable improvement shall beef up operation to meet these
needs.

Process Approach:-
Identification, documenting, visualizing and continuously improving our
process shall the method to achieve quality excellence. Customers’ needs shall
be transformed into action and monitoring of measurable objectives,
upgrading process continuously and ensuring they are relevant and efficient,
pro-action shall be emphasis.

Quality Objectives:-
DANBLOCK BRAKES INDIA PVT LTD. is committed to live up to the
requirements and expectation of customers. Its objective is to inculcate a positive
employee attitude.
Support by ISO/TS16949-2009 to achieve the following

 Provide on time quality product and services by striving to exceed our

customer expectation.
 Foster an atmosphere of continual improvement (KAIZEN) and problem
prevention.
 Enable our suppliers with emphasis for continual improvement in product
quality, service and support.
 Provide an environment that support team work.
 Trust understanding and communication to be the bonding in the human fabric
of the organization.

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 Improve production output through machine utilization and improve work

methods.
 Adherence to applicable statutory and regularly quality requirement.

BOARD OF DIRECTORS:-
 Shanti Swarup Rewri
 Vinod Duhoon
 Yogesh Chandra Kaushik

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DANBLOCK BRAKING ORGANIZATION CHART:-

BOARD OF
DIRECTORS

MANAGING
DIRECTOR

TOOL PLANT PROCESSIN

SCM & PRODUCTION ROOM
ENGINEE STORIES FINANCE HR Q7R G IT
RING
DEV RELIABILITY

Sr. G.M
(VINOD
PPC PURCHASE LOGISTICS DUHOON)

FIXED
ACCOUN TAXATIO SECRET
BANKING ASSEST COSTING
TS N ARIAL
S

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BANKING REGARDING IMPORT:-

DANBLOCK BRAKES INDIA PVT. LTD. mainly deals with the following banks.

BANKS

HDFC KOTAK BOA YES BANK

According to my observation about Banking, In DANBLOCK BRAKES INDIA PVT

LTD.

Banking deals with the following matters

Banking

Indian
Import Client Export
Vendor PCFC loan
Payments Services Realization
Payments

PCFC Loan PCFC PCFC

Avail Rollover Repayment

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BASIC CONCEPTS ABOUT BANKING:-

IBAN-INTERNATIONAL BANK ACCOUNT NUMBER:-

 It is an international standard for identifying Bank Accounts across national borders

with a minimal risk of propagating Transcription Errors. It was originally adopted by
the European Committee for Banking Standards (ECBS),

 The IBAN was originally developed to facilitate payments within the European
Union but the format has now been adopted by many Middle Eastern countries as well
as most European countries

Country IBAN formatting example

Greece GR16 0110 1250 0000 0001 2300 695

United Kingdom GB29 NWBK 6016 1331 9268 19

Saudi Arabia SA03 8000 0000 6080 1016 7519

Switzerland CH93 0076 2011 6238 5295 7

Israel IL62 0108 0000 0009 9999 999

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BACKGROUND:-

Before IBAN, users, especially individuals and small businesses (SMEs), used to be
confused by the differing national standards for bank account identification such as bank,
branch, routing codes and simple errors of transcription were not detectable and it was not
possible for a sending bank to validate the routing information prior to submitting the
payment.

FEATURES:-

 One of the design aims of the IBAN was to enable as much validation as possible to
be done at the point of data entry. In particular, the computer program that accepts an
IBAN will be able to validate:

 the country code

 the number of characters in the IBAN correspond to the number specified for the
country code

 the IBAN format specified for the country code

 The account number, bank code and country code combination is compatible with the
check digits.

EXCHANGE EARNER FOREIGN CURRENY (EEFC):-

 It is an account maintained in foreign currency with an Authorized Dealer i.e. a bank

dealing in foreign exchange. It is a facility provided to the foreign exchange earners,
including exporters, to credit 50 per cent of their foreign exchange earnings to the
account, so that the account holders do not have to convert foreign exchange into
Rupees and vice versa, thereby minimizing the transaction costs.

 All categories of foreign exchange earners, such as individuals, companies, etc. who
are resident in India, may open EEFC accounts.

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SWIFT CODE:-

 ISO 9362 (also known as SWIFT-BIC, BIC code, SWIFT ID or SWIFT code) is a
standard format of Business Identifier Codes approved by the International
Organization for Standardization (ISO). It is a unique identification code for both
financial and non-financial institutions.

STRUCTURE:-

 The latest edition is ISO 9362:2009 (dated 2009-10-01). The SWIFT code is 8 or 11
characters, made up of:

 4 letters: Institution Code or bank code.

 2 letters: ISO 3166-1 alpha-2 country code

 2 letters or digits: location code

SORT CODE:-

 In the United Kingdom the initial digits of bank sort codes are allocated to settlement
members of the Cheques and Credit Clearing Company and the Belfast Bankers'
Clearing Committee. These numbers are six digits long, formatted into three pairs
which are separated by hyphens.

The Sort code, which is a six –digit number, is usually formatted as three pairs of
numbers

For example 12-34-56

ABA CODE:-

ABA code is known as American Bankers Association Code. ABA code is also
known as RTN.

A routing transit number (RTN) is nine digit bank code, used in United States

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It appears on the bottom of negotiable instrument such as cheques identifying the

financial institution on which it was drawn. This code was designed to facilitate the
sorting, bundling, and shipment of paper checks back to the drawer’s (check writer’s)
account.

DIFFERENCE BETWEEN ABA CODE AND SWIFT CODE:-

Basics ABA code Swift code

ABA # is USA banking number SWIFT Code is banking numbers

Nature used to ID checking accounts for used to ID checking account for
process of checks & direct process of checks & Direct
deposits deposits in the countries other
than USA.
ABA number is a nine digit bank The SWIFT code is 8 or 11
Digits code. characters codes.
ABA code is also used by SWIFT codes are used when
Use Federal Reserve Banks to transferring money between
process Fed wire funds banks, particularly for
transfers and by the Automated international wire transfers , and
Clearing House to process direct also for the exchange of other
deposits and other automated messages between banks
transfers.
The Routing number is derived SWIFT code is originated from
Origination from the bank’s transit number the BIC(Bankers Identifiers
originated by the American Code) code
bankers association.
ABA CODE is known as RTN SWIFT Code is also known as
Synonyms (Routing Transaction Number) SWIFT-BIC ,BIC code, SWIFT
Code ID or SWIFT code
It appears on the bottom of The SWIFT code is 8 or 11
Function negotiable instruments such as characters ,made up of :
cheques identifying the financial 4 characters - bank code

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institution on which it was drawn 2 characters - country code

2 characters - location code
3 characters - branch code

DIFFERENCE BETWEEN SWIFT CODE AND IBAN CODE:-

Basics SWIFT Code IBAN code

Definition SWIFT stands for the IBAN Code stands for

society of Worldwide International Bank Account
Interbank Financial Numbers
Telecommunication
IBAN is used by customers
SWIFT code is for
to send money abroad.
Use identification of a bank or
business.

CORRESPONDING BANK (Intermediately Bank):-

When the beneficiary bank does not have the account in that currency in which the
remitter is remitting the payment then the beneficiary bank takes the help of some
corresponding bank or intermediately bank which have that specific currency account.
The whole payment is remitted to the intermediately bank and ultimate benefits is taken by
the beneficiary bank and beneficiary party.

MICR (MAGNETIC INK CHARACTER RECOGNITION):-

MICR –Magnetic ink character recognition is a technology to processing Cheques. In

cheques whit area in bottom is called MICR band/line, which have the following detail:-

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1. Cheques Serial No. ( 6 digits)

2. Sort field or city /bank/branch code number consisting of nine digits followed by a
delimiter. The first three digits represent the city, next three indicates the bank and
last three digits signify the branch .the nine digit sort code is unique for any bank
branch in the country

3. Account number field consisting of six digits followed by a delimiter is an optional

field .in the case of government cheques issued by RBI alone ,the account number is
of seven digit occurring in the account number field and three in the transaction code
field

4. Transaction code is field comprising of two digits in all instruments excepts

government cheques drawn on RBI which have a 3 digit

RTGS:-

The acronym ‘RTGS’ stands for Real Time Gross Settlement , which can be defined as
continuous (real- time) settlement of funds transfer individually on an order by order by
basis ( without netting). ‘Real time’ means the processing of instructions at the time they
are received rather than at some later time. Gross settlement of funds transfer instruction
occurs individually (on an instruction by instruction basis). Considering that the funds
settlement takes place in the books of the Reserve Banks of India, the payments are final
and irrevocable.

Note:- Minimum limit for RTGS is Rs. 2,00,000 and transaction less than amount
Rs. are processed through NEFT

 LIBOR – London Interbank Offer Rate:-

An interest rate at which banks can borrow funds in marketable size, from other banks
in the London interbank market, The LIBOR is fixed on a daily basis by the British
bankers’ association. The LIBOR is derived from a filtered average of the world’s most

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creditworthy bank’s interbank deposits rates for larger loans with maturities between
overnight and one full year.

LIBOR Can be defined in 2 ways

The rate at which funds are offered to a first class bank in London for a specific
maturity period.
The rate at which a first class bank in London offers funds to another first class bank in
London.

LIBOR rate attempts to measure the cost to a bank of raising new funds from the
market in order to re-lend

Mumbai Interbank Offered Rate (MIBOR):-

MIBOR – Mumbai Inter-Bank Offer Rate

MIBID – Mumbai Inter-Bank Bid Rate

The Interest rate at which banks can borrow funds, in marketable size, from other banks
in the Indian interbank market. The Mumbai Interbank Offered Rate (MIBOR) is
calculated everyday by the National Stock Exchange of India (NSEIL) as a weighted
average of lending rates of a group of banks, on funds lent to first- class borrowers.

The MIBOR was launched on June 15, 1998 by the committee for the Development
of the Debt market, as an overnight rate. The NSEIL launched the 14-day MIBOR on
November 10 ,1998 ,and the one month and three month MIBORs on December 1,
1998 .since the launch , MIBOR rates have been used as benchmark rates for the
majority of money market deals made in India .

 NOSTRO Account

MEANING:-

Nostro accounts are usually in the currency of the foreign country. This allows for easy
cash management because currency doesn’t need to be converted.

Nostro is derived from the Latin term “ours”.

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DEFINITION:-

A Nostro Account is an account denominated in foreign currency established through

your local bank at a bank in respective country of the currency desired; the term nostro
and Vostro are derived from Latin terms meaning “ours” and “yours” respectively. for
example , if u you live in the united states and ask your local bank to set up a euro
account for you, they will most likely open a nostro account with a correspondent agent
bank in European union that they have a banking relationship with for that specific
purpose . The euro bank will set up the account, but it is not a typical checking account
.these accounts are treated differently on the books of the bank .transactions to and from
these accounts may only be wire transfer to ensure identity credentials are monitored
and that special handling is used. Generally, companies will use these types of accounts
when they often either buy or sell in another country but do not have a physical that
would afford them usage of a typical checking account arrangement.

WORKING OF NOSTRO ACCOUNT:-

Nostro accounts are mostly commonly used for currency settlement, where a bank or
other financial institution needs to hold balances in a currency other than its home
accounting unit.

EXAMPLE:-

For Example: First National Bank of A dose some transactions ( loans, foreign
exchange, etc. ) in USD, but banks in A will only handle payment in AUD. So FNB of
A open a USD account at foreign bank credit mutual de b, and instructs all counter-
parties to settle transactions in USD at “account no. 123456 in name of FNBA, at CMB,
X Branch ‘. FNBA maintains its own record of that account, for reconciliation; this is
its nostro account. CMB’s record of the same account is the Vostro account.

Now, FNBA sells AUDI 1,000,000 to C (a counterparty who has an AUD account with
FNBA, and a USD account with CMB) for a net consideration of USD 2,000,000.
FNBA will make the following entries in its own accounting system:

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( Internal) FX AUD 1,000,000 DR AUD Account in name of 1,000,000

trading account C CR
USD Nostro at CMB ( 2,000,000 (internal) FX USD trading 2,000,000
FNBA’s nostro) DR account CR

Over at CMB, they record the following transaction:

USD Account in name 2,000,000 USD account in name of 2,000,000
of C DR FNBA( CMB’s Vostro) CR

[This is somewhat simplified; in reality c may not have an account with FNBA‘s
corresponding bank, and will make settlement by cheques or some form of EFT. In this
case CMB will make entries on several other accounts , such a Teller’s receiving
account, or a clearing account with the third bank that cheques was written on .

 VOSTRO Account:-

A Vostro bank account is an account that one party is holding for another party. In a
Vostro account, the administrators are not actually the owners of the money .they must
keep this account solvent on behalf of its owner. Vostro account administrators, often
banks, frequently pay interest to other parties for the use of their money

Vostro account are just a way of taking about who owns the capital invested in them .to
a customer who puts money into a bank account the standpoint of the “nostro” account,
meaning that belongs to that person .from the standpoint of the bank, it is a “Vostro’
account, meaning that is in not the bank’s own money, but the customer’s and the bank
bears a responsibility for good accounting of the customer’s money.

“Vostro” in Latin or “vuestra” in Spanish means “yours”

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A Vostro account can be useful in the Forex, or Foreign exchange, industries, where
money needs to “go to market” in foreign markets and be traded into foreign currency,
or alternately, kept as a foreign currency to that destination market.

Parties holding Vostro accounts are acting on behalf of their customers to get returns.
This also happens in a wide variety of stock trading or stock options trading situations,
where a broker is the party that holds the Vostro account for clients.

Working:-

International accounting procedures between local banks and overseas banks often
involves the use of nostro and Vostro account. A nostro (means “our “in Latin) account
in an account maintained by an overseas bank with a local bank that allows the overseas
bank to purchase local currency. The system of nostro and Vostro accounts facilitates
foreign exchange dealing and settlements and allows the settlement of currency
transactions between the country’s (local) bank and foreign banks.

Example: when x (buyers) a trader in base country wants to purchase $5000 worth of
goods by paying cash. Mr. x deposits the cash in his local bank in the country’s
currency for the corresponding amount ($5000) then swift message is sent to the
corresponding bank in the foreign country where the local bank holds a NOSTRO
account requesting the bank to make the payment to Y (seller) in his local currency i.e.
US Dollars . Thus facilitating the trade between X & y. If Y wanted to buy something
from X then the foreign bank would complete the deal using their VOSTRO account in
X‘s country.

Difference between Nostro and Vostro account:-

Both Nostro and Vostro account are normally used in the context of foreign exchange
transactions done by the banks or during currency settlement. Let’s look at what they
both mean.

Basis Nostro account Vostro account

Latin meaning “our account with you” “your account with us”

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Meaning Nostro accounts a foreign Vostro account is a local

currency current account currency account maintained by a
maintained with another bank. local bank for a foreign
The account is used to receive and (correspondent) bank. For the
pay currency assets and liabilities foreign bank it is a nostro
denominated in the currency in the accounts.
currency of the country in which
the bank is resident.

LORO Account:-

LORO means “their account with them”

The term is used for an account of other bank. For e.g. SBI referring to the account of
Indian bank with bank of America in New York.

 Buyer credit:-

Buyer Credit: overview:-

Buyer’s credit is a credit facility provided by an institution to the overseas buyer

(importer) to purchase goods or machinery from Indian exporter. Buyers credit facility
is extend for a specific period of time.

Buyer credit facility ensures safety and security of the payment to be received by the
Indian exporter and the buyer or importer can have an agreement with the Indian bank
or lending institution to settle the credit within a stipulated period of time at mutually
agreed rate of interest and other terms.

Buyer Credit: Documents:-

 The borrower and /or the guarantors have to provide the following documents to the
banks or the lending institutions while submitting buyer credit application. Certain

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documents may be demanded by the bank or the lending institutions in post sanction
phase or on periodical basis.
 Address proof : latest electricity /telephone bill or receipt of maintenance charges or
valid passport or voter’s identity card or
o Purchase/lease deed/leave & license agreement of residence or office premises.
 Identity proof: valid passport, PAN card, voter’s card, any other photo identification
issued by government Agencies.
 Business proof: VAT/CST Registration no, or MIDC agreement or SSI permanent
registration certificate or warehouse receipts or shop & establishment act certificate or
copy of lease agreement along with the latest rent paid receipt
 Business profile on company’s letterhead
 Partnership deed in case of partnership firms.
 Certificate of incorporation, date of commencement of business and memorandum of
title deeds, form 32 in for addition or deletion of directors in case of companies.
 Last three years trading, profit loss a/c .and balance sheet (duly signed by a chartered
accountant wherever applicable).
 Last one years’ bank statement of the firm.
 If existing loan ,then sanctioning letter and repayment schedule of the same
 Firm/ company’s pan cards.
 Individual income tax returns of the individual/partners/directors for last three years.
 Last one years’ bank statement of individuals, partners, directors
 SEBI formalities in case of listed companies.
 Share holding pattern of directors duly certified by a chartered accountant
 List of the existing directors of the company from registrar of the companies

Buyer credit:- process

The following are the sequence of steps taken by banks on receipt of completed
application forms.

1. Applications form is accepted and acknowledged.

2. Personal interview / discussions is held with the customers by the banks officials.
3. Banks field investigation team visits the business place/ work place of the applicant.
(All the documents submitted are verified by the bank with the originals so as to ensure
the authenticity of the same.)

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4. Bank verifies the track record of the applicant within the common information
sharing bureau (CIBIL).
5. In case of fresh projects the bank analyses the back ground of the
applicant/firm/company and the technical feasibility/ financial viability of the project
based on various parameters and also the existing market conditions
6. Depending on the size of the project the file is put up for sanction to the appropriate
level of authority.

SANCTION AND DISBURSEMENT:-

1. On approval/ sanction, the sanction letter, is issued specifying the terms and
conditions for the disbursement of the loan. The acceptance to the term of sanction is
taken from the applicant.
2. The processing charges as specified by the bank have to be paid to proceed further
with disbursement procedure.
3. The documentation procedure takes place viz. legal opinion of various property
documents and also the valuation reports(original, documents to title of the immovable
assets to be submitted)
4. All the necessary documents as specified by the legal dept., according to the terms
of sanction of the loan of the bank are executed.

Disbursement of the loan takes place after the legal dept. certifies the corrections of
execution documents.

Benefits of buyers’ credit:-

The benefits of buyers’ credit for the importer are as follows:

 The exporters gets paid on due date; whereas importer gets extended date for making
an import payment as per the cash flow
 The importer can deal with exporter on sight basis, negotiable a better discount and
use the buyers’ credit route to avail financing.
 The funding currency can be in any FCY (USD, GBP, EURO, JPY etc.) depending on
the choice of the customer.
 The importer can use this financing for any form of trade viz. open account,
collection, or LCs

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 The currency of imports can be different from the funding currency , which enables
importers to take a favorable of a particular currency

 FIRC:-
1. Introduction:-

Foreign inward Remittance certificate (FIRC) is a document that provides proof of

inward remittance to India. It is treated as documentary evidence by most of the
statuary authorities for confirming the validity of the foreign money received by the
beneficiary.

2. Meaning:-

FIRC (foreign Inward remittance certificate) refers to a document which acts as a

testimonial for all the inward remittances entering to India. Most of the statutory
authorities use this document as a proof that an individual has received a payment in
foreign currency from outside the country. When an individual receives some amount
to money from a foreign country then it is credited to his account through an
authorized dealer, which are normally banks authorized to do so by the reserve bank
of India. If the beneficiary does not have a bank account in an authorized bank then he
cannot get his money transferred in to his bank account.

FIRC is considered a very important document as it serves a lot of purposes. If shares

are issued on the name of a person or company which exists outside a country then
FIRC acts as the proof of money received in lieu of share application. In those cases
where a resident Indian salary sells or transfers his shares to some nonresident Indian
or foreign identity then FIRC testifies that the resident seller has got the sharp
purchase consideration. FIRC is a very crucial document which submitted to DGFC in
case of EPCG and advance license.

When services are exported then no service tax is levied according to the rules of
export of services. In such cases, FIRC act as an important proof of export of service
and remittances which are received in lieu of them. There are various details which
are included in FIRC. FIRC carries the beneficiary’s name, mode of payment i.e.
whether the money has been deposited to the account of beneficiary or cash has been

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given to him, address and name of remitter, cheques/DD/TT no., exact amount of
foreign currency, amount of money when changed into the currency of the country of
beneficiary, name of the person is whose favor the amount has been sent, purpose for
the receipt of remittance and rate of exchange which is prevalent.

After knowing all this, you have got the knowledge that how important is the
document of FIRC. The person who is about to receive a remittance from outside
India, should mention the purpose of remittance honestly. This is because at the time
of receipt of the money, the bank asks for the proof of the purpose mentioned by you
for getting remittance from outside India.

3. Purpose:-

When a beneficiary receives fund from outside India that will be credited to his
account through an authorized dealer only (normally a bank).(authorized dealer
means an authorized person by the reserve bank of India to deal in foreign exchange
or in foreign securities under the foreign management act ). If the bank, in which the
beneficiary is having his account, is not an authorized dealer, then the money will
come to beneficiary’s account through an authorized dealer.

Based on the information provided by the beneficiary upon receipt of money the
banker will issue FIRC stating the purpose of receipt i.e. towards equity investment,
advance against export of service/ goods, capital expenditure etc.

4. Relevance:-

A few cases where FIRC assumes importance

 In case of issue of shares to a foreign entity/person, FIRC is a proof for receipt of

share application money.
 Similarly it is also proof that share purchase consideration has been received by a
resident seller, in case of transfer of shares by a resident Indian to anon resident-
buyer.
 In case of export of services there is no service tax to be paid, subject to export of
rules. Here again FIRC becomes a documentary proof for exports made and
remittances received thereof in freely convertible foreign exchange.

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 In case of advance license, EPCG etc., FIRC is one of the important documents to
be submitted to DGFT as proof of export made.

5. Contents and issue procedure:-

FIRC normally contains the following details:

 Name of the beneficiary

 Whether the amount is paid by cash or by crediting the beneficiary’s a/c
 Name and address of the remitter
 Name and address of the remitting bank
 DD/TT No / Cheques No.
 Foreign currency amount
 Equivalent rupee amount ( in figures as well as words)
 In favors of whom the amount has come
 Exchange rate applied
 Purpose of remittance as stated by beneficiary.

It is signed by the authorized signatory of the AD bank and countersigned by one

more person. As a procedure, this certificate will come to the address of the account
holder, normally with in a period of 15 days from the date of credit of funds to
beneficiary’s account. FIRC must be kept in safe custody since duplicate will not be
issued, if original is lost.

Generally there is confusion about which bank should issue FIRC in case the inward
remittance has come into the beneficiary’s account through more than one bank. In
our practical experience as per clarifications received from 1-2 banks, the first bank
that receives the inward remittance in convertible foreign exchange must be issue the
FIRC since it will have the details of the overseas remitting bank.

6. Conclusion:-

As explained above, FIRC assumes great importance in respect of remittances

received from outside India. Therefore, it is critical that beneficiaries follow up with
the banks and obtain the FIRC immediately after credit of inward remittance.

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Particular attention needs to be paid to ‘purpose of remittance’ because any wrong

mention of this has serious implications in terms of remittance, usage and accounting
of the same.

 BRC-bank Realization Certificate:-

Bank Certificate of export & realization is most often sought by companies who have
exported their goods under DEPB scheme (duty Entitlement pass book schemes). By
this policy, as a process of boost foreign currency & exports in country, government
provides you DEPB license of value ( approx. 7-10% depending on the commodity
you have exported and the rate fixed by government on the same), the license can be
used against your import duties or the best can be transferred to someone else in
market and thus making a gain . Now, coming on your main point, government
provides certificate only when the export proceeds are realized and bank certify the
same that the foreign currency were been received, realization rate is the rate at which
currency were converted into INR.

Contents:-

Once the export proceeds are realized, the exporter has to prepare bank certificate of
export and realization as per Form no. 1 in appendix 25 of handbook of procedures
1997-2002, for the purpose of claiming import licenses .to prepare this certificate, the
date of realization is most essential. As the exporter have to apply for the import
replenishment license within six months following the month / quarter of the
realization month. The exporter should incorporate the following details in the bank
certificates:

1. The importer / exporter code number,

2. The licensing authority to whom the bank certificate is to be submitted,
3. The name and address of the shipper,
4. The name and address of the bankers through whom the documents have been
routed,
5. Whether the documents were sent for collection , negotiation or purchase,
6. The number and date of invoice,
7. Number and date of the export promotion copy of the shipping bill,
8. Description of the goods exported,

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9. The number and date of airway bill/ post parcel receipt,

10. Destination of the goods,
11. The Bill amount in foreign currency,
12. Freight amount paid, which is mentioned on the airway bill/ post parcel receipt
/mate receipt,
13. Insurance amount as per insurance company’s bill/ receipt,
14. Commission/ discount paid or payable,
15. Whether the export is in freely convertible currency or in Indian rupees,
16. FOB value of actual realization in free foreign exchange and in Indian rupees,
17. Date of realization of export bills,
18. GR/PP form no. & date
19. No & date and category of applicable license.

This bank realization certificate should be signed by the authorized signatory of the
firm / company with full name in capital letters and officials and residential addresses.
The place and date of bank certificate should be mentioned. Official seal and stamp
should be affixed.

 Term loan:-

Definition or Explanation:-

Term loans are the basic vanilla commercial loan. They typically carry fixed interest
rates; monthly or quarterly repayment schedules and includes a set maturity date.
Bankers tend to classify term loans into two categories:

Intermediate-term loans:-

Usually running less than three years, these loans are generally repaid in monthly
installments (sometimes with balloon payments) from a business’s cash flow.
According to the American bankers association, repayment is often tied directly to
the useful life of the asset being financed.

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Long-term loans:-

These loans are commonly sets for more than three years .most are between three
and 10 years, and some run for as long as 20 years. Long term loans are
collateralized by a business’s assets and typically require quarterly or monthly
payments derived from profits or cash flow. these loans usually carry wording that
limits the amount of additional financial commitments the business may take on (
including other debts but also dividends or principals’ salaries)’and they sometimes
requires that a certain amount of profit be set-aside to repay the loan.

Appropriate for:-

Established small business that can leverage sound financial statements and
substantial down payment to minimize monthly payments and total loan costs.
Repayment is typically linked in some way to the item financed. Term loans
require collateral and a relatively rigorous approval process but can help reduce
risk by minimizing costs. Before deciding to finance equipment, borrows should be
sure they can they make full use of ownership-related benefits, such as
depreciation, and should compare the cost with that leasing.

Supply:-

Abundant but highly differentiated. The degree of financial strength required to

receive loan approval can vary tremendously from bank to bank, depending on the
level of risk the bank is willing to take on.

Best Use:-

Construction; major capital improvements; large capital investments, such as

machinery; working capital; purchase of existing businesses.

Cost:-

Inexpensive if the borrower can pass the financial litmus tests. Rates vary, making
it worthwhile to shop, but generally run around 2.5 points over prime for loans of
less than seven years and 3.0 points over prime for longer loans .fees totaling up to

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1 percent are common (though this varies greatly , too), with higher fees on
construction loans.

Ease of Acquisition:-

Challenging but sometimes a moderate challenge when smaller amounts are

involved. However, for loans more than $100,000 (sometimes up to $200,000) you
need a complete set of financial statements and must undergo a complete financial
analysis by the lending institution.

Range of funds Typically Available:-

$ 25,000 and greater.

First steps:-

What do banks looks for when making decisions about term loans? Well, the “five
C’s continue to be of utmost importance.

 Character:-
How have you managed other loans (business and personal)? What is your
business experience? “If a corporate executive wants to open a restaurant, then
he’d better have restaurant experience, “says Rob Fazzini, senior vice
president at Busey bank in Illinois.
 Credit capacity:-
The bank will conduct a full credit analysis, including a detailed review of
financial statement and personal finances to assess your ability to repay.
 Collateral:-
This is the primary source of repayment. Expect the bank to want this source
to be larger than the amount you’re borrowing.
 Capital:-
What assets do you own that can be quickly turned into cash if necessary?
The bank wants to know what you own outside of the business-bonds, stocks,
apartment building-that might be an alternate repayment source. If there is a
loss, your assets are tapped first, not the bank’s .or, as one astute businessman

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puts it, ‘banks like to lend to people who already have money. “You will most
likely have to add a personal graduate to all of that, too.
 Comfort/confidence with the business plan:-
How accurate are the revenue and expense projections? Expect the bank to
make a detailed judgment. What is the condition of the economy and the
industry?

Use the following guidelines when selecting a business bank:

 Ask friends where they bank and if they are satisfied.

 Forge a relationship with a bank long before you will need a loan. You’ll find
out how they treat you. Get to know some folks at the bank on a first-name
basis. Start building a relationship. Believe it or not, banks want to talk to you
even if they cannot lend you money.
 Scan your newspaper for evidence of who is making the kinds of loans you are
seeking. Not all banks can be the best at everything. Some are better at
business loans; some are better with consumer deals.
 Visit two or four banks find you fit. Be upfront; tell them you are considering
a loan and that you are talking with other banks. Then listen to their pitch.
 Think about working through the SBA or other economic-development groups
to secure better terms. They are not only for businesses that cannot get funding
any other way.

ECB Loan:-

External commercial borrowing (ECB) refers to commercial loans availed

by the companies from non-resident lenders in the form of bank loans, buyer’s credit,
supplier’s credit, securitized instruments (e.g. floating rate notes and fixed rate
bonds). A company is allowed to raise ECB from internationally recognized source
such as banks, export credit agencies, suppliers of equipment, foreign collaborators,
foreign equity-holders, international capital markets etc. However, offers from
unrecognized sources are not entertained.

External commercial borrowing (ECBs) include bank loans, suppliers and buyers
credits, fixed and floating rate bonds(without convertibility) and borrowing from

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private sector windows of multilateral financial institutions such as international

finance corporation.

In, India, External commercial borrowing are being permitted by the government for
providing an additional source of funds to Indian corporate and PSUs for financing
expansion of existing capacity and as well as for fresh investment, to augment the
resources available domestically .ECBs can be used for any purpose 9 rupee- related
expenditure as well as imports) excepts for investment in stock market and
speculation in real estate.

Includes:-

Commercial bank loans, buyer’s credit, suppliers’ credit, securitized instrument such
as floating rate notes, fixed rate bonds etc., credit from official export credit agencies,
commercial borrowings from the private sector window of multilateral financial
institutions such as IFC,ADB,AFIC,CDC etc. and investment by foreign institutional
investors(FIIs) in dedicated debt funds.

The government has been streamlining and liberalizing the ECB procedures in order
to enable the Indian corporate to have greater access in the financial markets, The RBI
has been empowered to regulate the ECBs. ECB provide additional sources of funds
for the corporate and allows them to supplement the domestic available resources and
take advantage of the lower interest rates prevailing in the international financial
markets.

Purpose:-

ECBs are being permitted by the government as an additional source of financing for
expanding the existing capacity as well as for fresh investments. The policy in the
infrastructure and core sectors such as power, telecom, railways, roads urban
infrastructure etc. Another priority being addressed in the need of the capital for small
and medium scale enterprises.

MODES OF RAISING ECBs:-

ECB constitutes the foreign currency loans raised by residents from recognized
lender. The ambit of ECB is wide. It recognizes simple form of credit as suppliers’

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credit as well as sophisticated financial product as securitization instruments.

basically ECB suggests any kinds of funding other than equity ( considered foreign
direct investment) be it bonds , credit notes , assets backed securities , mortgage
backed securities or anything of that nature, satisfying the norms of the ECB
regulations .the different borrowing and loans that comes under the ECB roof are :

Commercial Bank Loans:-

These loans constitute the term loans taken by companies from banks outside India

Buyer’s credit:-

Buyers credits is the credit availed by the importers of goods/ services from overseas
lenders such as banks and financial institutions for payment of their imports on the
due date. This lending is usually based on the letter of credit (a bank guarantee) issued
by the importer ‘s bank, i.e. the importer’s bank acts as a broker between the importer
and the overseas lender for arranging buyers credit by issuing its letter of comfort for
a fee .

 Supplier’s credit : Securitized instruments such as floating rate Notes(FRNs) ,

fixed rate bonds(FRBs), syndicated loans etc. credit from official export credit
agencies
 Commercial borrowings from the private sector window of multilateral
financial institutions such as international finance corporate (Washington),
ADB, AFIC, and CDC.
 loan from foreign collaborator/ equity holder, etc and corporate/ institutions
with a good credit rating from internationally recognized with a good credit
rating from internationally recognized credit rating agency
 Lines of credit from foreign banks and financial institutions
 Financial leases
 Import loans
 Investments by foreign institutional investors (FIIs) in dedicated debt funds
 External assistance, NRI deposits, short-term credit and rupee debt
 Foreign currency convertible bonds

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 Non-convertible or optionally convertible or partially convertible debentures

What is not included under ECBs;-

 Investment made towards core capital of an organization viz.
 Investment in equity shares
 Convertible preference shares
 Convertible debentures
 Instruments which are fully and mandatorily convertible into equity within a
specified time are to be reckoned as part of equity under the FDI policy
 Equity capital
 Retained earnings of FDI companies
 Other direct capital ( inter- corporate debt transactions between related
entities)

Advantages of ECBs:-

 Benefits to the borrower:-

Foreign currency funds: companies need funds in foreign currencies for many
purposes such as, paying to suppliers in other countries etc that may not be available
in India.

Cheaper Funds: the cost of funds borrowed from external sources at the times works
out to be a cheaper as compared to the cost of rupee funds.

Diversification of investor’s base: Another advantage is the addition of more investors

thus diversifying the investor base.

Satisfying Large requirements: the international market is a better option I case of

large requirements, as the availability of the funds is huge when compared to
domestic market.

Corporate can raise ECBs from internationally recognized sources such as banks,
export credit agencies, suppliers of equipment, foreign collaborators, foreign equity
holders, international capital markets etc.

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 Benefits to the economy:-

As can be seen from the policies formed to regulate the ECB, these borrowing have
some apparent benefits for the economy. The government through these policies is
trying to nourish 2 sectors:

 Infrastructure
 SME

The policies do not require any approval for investment under a limit in these 2
sectors. Thus it is easy to acquire foreign loans for such enterprises. Apart from that,
the low cost of funds in the global market provides the small and medium enterprises
funds at low costs thus bringing in more money in these sectors.

 Benefits to the investors:-

ECB is for specific period, which can be as short as three year

Fixed return, usually the rates of interest are fixed

The interest and the borrowed amount are reparable

No owners risk as in case of equity investment

Also, we can see that India’s debt management policy has significantly
improved over the years. This is reflected in various external debt indicators. The debt
service ratio, which is the ratio of external debt to the GDP of the country and in an
indicator of an economy’s debt servicing capability, has improved, dropping to 17.4
per cent in March 2005 as compared to 38.7 percent in end-march, 1992. It is
noteworthy to mention that debt owed to the international monetary fund (IMF) was
fully extinguished by 2000-01.

IMPORT:-

The term import is derived from the conceptual meaning as to bring in the goods and
services into the port of a country. The buyer of such goods and services is referred to
an "importer" who is based in the country of import whereas the overseas based seller
is referred to as an "exporter".

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 Thus an import is any good (e.g. a commodity) or service brought in from one
country to another country in a legitimate fashion, typically for use in trade. It is a
good that is brought in from another country for sale.
 "Imports" consist of transactions in goods and services (sales, barter, gifts or
grants) from non-residents residents to residents
 An import of a good occurs when there is a change of ownership from a non-
resident to a resident; this does not necessarily imply that the good in question
physically crosses the frontier.
 Imports of services consist of all services rendered by non-residents to residents

TYPES OF IMPORT:-

Direct import:-
Direct import refers to a type of business importation involving a major retailer (e.g.
wall mart) and an overseas manufacturer. A retailer typically purchases product
designed by local companies that can be manufactured overseas. In a direct – import
program, the retailer by passes the local supplier and buys the final product directly
from the manufacturer, possibly saving in added costs. This types of business is fairly
recent and follows the trends of global economy

Import

Import of physical Import of services Deemed import

goods

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IMPORTER:-

There are two parties that are involved in the importing business transactions.

1. Exporters:-
Company who sells the goods or supplies the services to another party is known as
exporters
2. Importer:-
Company who purchases the product from the other party or exporter is known as
importer. Companies import goods and services to supply to the domestic market at a
cheaper price and better quality than competing goods manufactured in the domestic
market. Companies import product that are not available in the local market.

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Import Procedure:-

Flow chart of import procedure:-

Importer Exporter State of

Export

The Ministry of The ministry of

Economy, Trade and Environment
Industry

Importer Exporter and

others

The Ministry of The Ministry of the

Economy, Trade and Environment
Industry

Importer

Custom House

Importer

Carrier

Disposer Exporter State of

Export

The Ministry of Economy, Trade The Ministry of the

and Industry Environment

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SHIPPING TERMS:-

FOB:-

FOB Stands for FREE ON BOARD

A trade term requiring the seller to deliver goods on board a vessel designation
by the buyer. The seller fulfills its obligations to deliver when the goods have
passed over the ship’s rail. When used in trade terms the word “free means the
seller has an obligation to deliver goods to a named place for transfer to a carrier.
There are mainly two terms used in FREE ON BOARD.

FOB

FOB Shipping Point FOB Destination Point

1. FOB shipping point:-

FOB SHIPPING POINT implies term of sales under which title of goods passes to
the buyer at the point of shipment .FOB Shipping Point is sometimes called FOB
origin.

2. FOB Destination:-

FOB DESTINATION POINT implies term of sale under which title of goods passes
the buyer at the point of Destination.

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FOB Shipping Point

Title Transfer

SELLER Buyer’s Goods BUYER

FOB Destination
Title Transfer

SELLER Seller’s BUYER

Goods

Illustration of FOB Shipping Point (origin):-

Let’s assumes that manufacturer sells goods to the customer. The shipping terms
FOB shipping point. The transaction listed below took place between manufacturer
and customer.

Manufacturer sold goods costing $15000 to customer at a price of $25000. Customer

incurred on the account $2000 for transportation and insurance of goods .the time of
delivery of goods in 5 days.

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Manufacturer Customer

To record cost of goods sold : To record purchase of goods:

Dr. Cost of goods Sold 15,000 Dr. Inventory 25,000
Cr. Inventory 15,000 Cr. Accounts Payable 25,000

To record sales revenue: To record transportation and insurance cost:

Dr. Inventory 2,000

Dr. Accounts Receivable 25,000 Cr Accounts Payable 2,000
Cr Sales Revenue 25,000

When expenses of carrying goods from factory to port bear by Supplier known as
FREE ON BOARD.

CIF:-

CIF stands for cost Insurance and Freight.

A trade term requiring the seller to arrange for the carriage of goods by sea to a port
of destination, and provide the buyer with the documents necessary to obtain the
goods from the carrier.

Cost, Insurance and freight, named ocean port of destination. This term is used for
ocean shipments that are not containerized.

Contract involving international transport often contain abbreviated trade terms that
describe matters such the time and place of delivery , payment, when the risk of loss
shifts from the seller to the buyer and who pays the cost of freight and insurance . The
most commonly known trade terms are Inco terms, published by the International
Chamber of Commerce (ICC). These are often identical in form to domestic terms
(such as the American Uniform commercial Code), but have different meanings. As

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the result, parties to a contract must expressly indicate the governing law of their
terms.

EXW- EX- WORKS:-

A trade term requiring the seller to deliver goods at his or her own place of business.
All other transportation costs and risks are assumed by the buyer.

Ex- Works, named place where shipment is available to the buyer, not loaded. The
seller will not contract for any transportation.

Contracts involving international transportation often contain abbreviated trade terms

that outline matters such as the time and place of delivery and payment, the time when
the risk of loss shifts from the seller to the buyer, and the party who pays the costs of
freight and insurance.

The most commonly known trade is Inco terms, which are published by the
International Chamber of Commerce. These are often identical in the form to
domestic terms, such as the American Uniform Commercial Code, but have different
meanings. As the result, parties to a contract must expressly indicate the governing
law of their terms.

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Indian Vendor Payment:-

Purchase Order
Purchaser Vendor

Goods

Ageing for payment Funds Available

Due

Matching of ageing & Funds

Planning

Make Payment through Various Modes

Cash Cheques Demand Draft

Enter payment in SAP

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Import payment documentation:-

Import Payment
Documentation

Physical goods other than goods

Direct Import
Payment

Advance
Remittance

Deemed Import
Payment

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Import Payment Flow Chart of Physical good:-

Ageing +Fund Planning

Export Data From SAP through T-Code FBL1N

Import Payment Documentation

Verifification of Documentation

Authorization for Payment

Scanning or FAX Document

Take Rate from Treasury

Communicate Banker About FAX & Rate taken from

treasury Through E-mail

Proceesing of Payment on the basis of document fax &

rate taken

Generation of payment reference through bank

Courier of original documents to bank

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Flow Chart after Import Payment:-

Recive DEBIT Advice From Bank

Enter Payment Through T-CODE F-53

Enter Bank charges and Service Tax

Cover Letter:-
Cover letter is the letter in which company authorized Bank to remit the specified
amount to the specified party through specified account either by current A/C or
EEFC A/C

Cover letter contains the following details

 Quantity imported.
 Amount remitted
 Remitters Name & address
 Beneficiary name & address
 Remitters bank accounts details.

Declaration letter:-

Declaration Letter is the letter in which company declare that

 Company is eligible to import.

 The goods it imports are not prohibited under FEMA.
 Company is following the rules and regulation of FEMA

Declaration letter includes the following details:

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 Importer-exporter code no.

 FEMA Act
 Declaration Made by company
 Bills of entry & date.

FORM A-1:-
FORM A-1 is the application form for making the payment of import of physical
goods.
Application by person, firm and companies for making payment exceeding USD 500
or its equivalent, towards imports into India must be made on appropriate form A-1.

Consumer Invoice:-
A Commercial invoice is prepared by the seller/exporter and addressed to the
buyer/importer, and is one of the first documents prepared when a transaction has
been agreed upon. The invoice identifies the buyer and seller, describes the goods
sold and all terms of sale, including Inco terms, payment terms, relevant bank
information, shipping details etc. an invoice may be itemized to show cost of goods
freight, and insurance, or other special handling. The invoices may be numbered and
have multiple purchase order number.

Pro-forma Invoice:-

A per-forma invoice is an invoice sent to the buyer before the shipment, giving the
buyer a chance to review the sales terms (quantity of goods, value, specification) and
get an import license, if required in their country .it also allows the buyer to work with
their bank to arrange any financial process for payment. For example, to open a
documentary credit (letter of credit), the buyer’s bank will use the Performa invoice as
a source of information .the exporter/seller should not send their customer a pro forma
invoice unless they fully understand what they are offering to buyer. If no changes are
required on the pro forma invoice after buyer reviews it, the exporter can simply
change its date and title and turn it into a commercial invoice

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Packing List:-
A packing order list is prepared by the shipper and is a detailed breakdown of the
items within a shipment. It may also include any “special marks” for identification.
For example, the customer may want ‘ABC XX” in the blue letter on the side of
packaging. For insurance claim and tracking purposes, it helps to describe what is in
each “package”. The packing list should also reference the customer’s purchase order
number and destination. Often, a packing list is taped to palletized cargo or on main
carton / box of a shipment so that the importer’s customs agency or any transportation
handlers destination. The quantity and items listed on the commercial invoice must
the pro- forma invoice. Some companies prepare a packing list that is identical to the
commercial invoice, minus the prices and other monetary details.

Bill of Lading:-

A bill of landing is issued by the carrier to the shipper for receipt of the goods, and is
a contact between the owner of the goods and the carrier to deliver the goods.
Sometimes the B/L acts as title to the goods so an “original’s B/L is issued – usually a
set of three.

Whoever presents one of those original, negotiable B/L can take the possession of the
goods. AB/L can be either negotiable or non-negotiable.

Inland Bill of Lading:-

Issued by the Trucking Company and / or the railroad line for taking the goods from
the exporter’s facility to the port of embarkation or consolidation facility.

Ocean Bill of Lading (OBL):-

The ocean B/L is an invoice, and may be issued as a “clean” bill of lading, measuring
the carrier certifies that the goods have been received without visible damage. An
“On-Board” B/L may be received into the carrier’s port facility, basically conforming
the cargo will be sailing.

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Air Way Bill (AWB):-

The airway bill is a form of bill of lading used for the air transport of goods. ASWs
are non-negotiable, mainly because of the short amount of time that the goods are in
transit. The original AWB is rarely needed by the importer at the other end of
shipment to prove ownership of goods.

Bills of lading contain the following details.

 Place of consignment.
 Cosigner address
 Consignee address
 Port name
 Vehicle name
 Date of shipment.
 Bill of lading number etc.

Bill of Entry:-

A declaration by an importer or exporter of the exact nature, precise quantity and

value of goods that have landed or are being shipped out. Prepared by a qualified
customs clerk or broker, it is examined by customs authorities for its accuracy and
conformity with tariff and regulations.

Bills of entry can normally be field to clear the goods after the import general
manifest (IGM0 is presented to the customs Officers by the steamer Agents / Airlines,
as the case may be. in exceptional cases the customs authorities may note the bill of
entry before the manifest is filed .In addition to the goods entered in the vessel
manifest of enter are also required for the clearance of:

a) Ship’s stores , if in considerable quantities

b) Ship’s ballast such as stone, sand shingle etc.
c) Salvaged goods
d) “Sweeping” of import cargo.

No bill of entry is however required in the following cases

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I. Passengers baggage
II. Favor parcels
III. Mail bags and post parcels
IV. Boxes , kennels of cages containing live animals or birds
V. Un-serviceable stores, e.g. damage woods, empty bottles, drums etc. of
reasonable values
VI. Ship’s stores in small quantities for personal use.
VII. Cargo by sailing vessels from customs ports when landed at open benders
only.

There are generally three kinds of bill of entry

I. Home consumption bills of entry in white color: - This has to be

filed when the importer wants to clear the goods on payment of duty and
remove them to his premises immediately.
II. Into bond Bill of entry in buff color: - It is also known as
warehousing bill of entry. This has to be filed when the importer does not
want to pay duty immediately but prefers to keep the goods in a warehouse
and pay the duty subsequently and clear the goods for home
consumption.(Section 56 and 60 of custom act 1962)
III. Ex- bond bill of entry in green color: - This has to be filed when the
importer wants to clear the warehoused goods for home consumption on
payment of duty (Section 68 of Custom Act 1962).

Note:-

In respect of importation by defense establishments, Pink Bills of Entry are used for
noting and issuing pass out orders.

The main documents to be filed are the home consumption bill of Entry in the
prescribed form after filling up various columns are as under:

1. Copy of order/ contract.

2. Supplier’s invoice in four copies.
3. Copy of letter of credit.

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4. Import license.
5. Bill of lading ( original and non-negotiable)
6. Packing list (2 copies)
7. Weight specification.
8. Freight insurance memo
9. Manufacturer test certificate.
10. Exchange slop for purpose of exchange rate.
11. Certificate of origin.
12. Delivery order issued by shipping company. Its agent or carriers.
13. If spare parts are being imported invoice should indicate unit price and
extended total of each item.
14. If invoice is for FOB, freight charges and insurance premium amount
certificate should be attached.
15. OGL declaration.
16. No commission letter to be given by importer i.e., Agent’s commission, if any
has not been paid in India.
17. Customs declaration (4 copies)
18. Catalog/ write / up / drawing for machinery items.
19. Importer exporter code number.
20. If second hand machinery is being imported then chartered engineers
certificate is necessary as per the import export policy
21. If steel is being imported then analysis certificate from manufacturers.
22. In the case of chemicals & allied product like synthetic resin wax, literature
showing chemical composition.
23. Textile commissioners’ endorsement in respect of textile items.

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Import Payment Documentation of other than Physical Goods:-

Types of
payment

Services ( ECB
Regarding Loan
Income)
Documentation
Documentation
Covering Form
Covering FORM FORM FORM Debit Letter A-2
Letter A-2 15 CA 15 CB Note

Verification of documents

Authorization for Payment

Scan or FAX Documents

Take RATE from treasury

Communicate Banker Regarding Fax &

RATE taken

Receive Conformation E-mail

Processing Payment on the basis of

Document Fax

Generation of Payment Reference through

bank

Courier of Original document to bank

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Deemed Import

Meaning:-

In general Deemed import is the purchase of goods from the domestic Country not
from the Foreign Vendor. The reason of being treated purchase as deemed import
both purchase and seller must be 100% export oriented unit.

Definition:-

According to FEMA “when both purchaser and seller are 100% export Oriented units
and covered under Export Processing Zones (EPZ’s) and they are eligible to remit the
payment in foreign Exchange as per A.P.(DIR series ) Circular no. 54 dated
25.11.2002. Such types of purchase is treated as deemed import on the part of
purchaser and purchase obtain the procurement certificate from central excise
granting the purchaser the movement of imported goods without payment of duty.”

PCFC- PRESHIPMENT CREDIT IN FOREIGN CURRENCY:-

Pre Shipment Finance is issued by a financial institution when the seller wants the
payment of the goods before shipment. The main objectives behind pre shipment
finance or pre export finance are to enable exporter to:

 Procure raw materials.

 Carry out manufacturing process.
 Provide a secure warehouse for goods and raw materials.
 Process and pack the goods.
 Ship the goods to the buyers.
 Meet other financial cost of the business.

Types of Pre Shipment Finance:-

 Packing Credit
 Advance against Cheques/ Draft etc. representing Advance Payments.

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Pre shipment finance is extended in the following forms:

 Packing Credit in Indian rupee

 Packing Credit in foreign currency (PCFC)

Requirement for Getting Packing Credit:-

This facility is provided to an exporter who satisfies the following criteria

 A ten digit importer exporter code number allotted by DGFT.

 Exporter should not be in caution list of RBI.
 If the goods to be exported are not under OGL (Open General License), the
exporter should have the required license/ quota permit to export the goods.

Packing credit facility can be provided to an exporter on production of the following

evidences to the bank:

1. Formal application for release the packing credit with undertaking to the effect
that the exporter would be ship the goods within stipulated due date and
submit the relevant shipping documents to the banks with in prescribed time
limit.
2. Firm order or irrevocable L/C or original cable /fax/ telex message exchange
between the exporter and the buyer.
3. License issued by DGFT if the goods to be exported fall under the restricted or
canalized category. If the item falls under quota system, proper quota
allotment proof needs to be submitted.

The confirmed order received from the overseas buyer should reveal the information
about the full name and address of the overseas buyer, description quantity and value
of goods (FOB or CIF), destination port and the last date of payment.

Eligibility:-

Pre shipment credit is only issued to that exporter who has the export order in his own
name. However, as an exception, financial institute can also grant credit to a third
party manufacturer or supplier of goods who does not have export orders in their own
name.

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In this case some of the responsibilities of meeting the export requirements have been
out sourced to them by the main exporter. In other cases where the export order is
derived between two more than two exporters, pre shipment credit can be shared
between them.

Quantum of Finance:-

The quantum of finance is granted to an exporter against the LC or an expected order.

The only guideline principle is the concept of needs based finance. Banks determine
the percentage of margin, depending on factors such as:

 The nature of order.

 The nature of the commodity.
 The capability of exporter to bring in the requisite contribution.

Different Stages of Pre Shipment Finance:-

Appraisal and sanction of limits:-

1. Before making any allowance for Credit facilities banks need to check the
different aspect like product profile, political and economic details about country.
A part from these things, the bank also looks in to the status report of the
prospective buyer, with whom the exporter proposes to do the business. To check
all these information, banks can seek the help of institution like ECGC or
international consulting agencies like DUN and Brad street etc.

The Bank extended the packing credit facilities after ensuring the following”

1. The exporter is a regular customer, a bona fide exporter and has a good
standing in the market.
2. Whether the exporter has the necessary license and quota permit (as
mentioned earlier) or not.
3. Whether the country with the exporter wants to deal is under the list of
restricted cover countries (RCC) or not.

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Disbursement of Packing Credit Advance:-

2. Once the proper sanctioning of the documents is done, bank ensures whether
exporter has executed the list of documents mentioned earlier or not. Disbursement is
normally allowed when all the documents are properly executed.
Sometimes an exporter is not able to produce the export order at time of availing
packing credit. So, in these cases, the banks provide a special packing credit facility
and are known as Running Account packing.

Before disbursing the bank specifically check for the following particulars in the
submitted documents”
1. Name of buyer
2. Commodity to be exported
3. Quantity
4. Value (either CIF or FOB)
5. Last date of shipment / negotiation
6. Any other terms to be complied with

The quantum of finance is fixed depending on the FOB value of contract / LC or the
domestic values of goods, whichever is found to be lower. Normally insurance and
freight charged are considered at a later stage, when the goods are ready to be
shipped.

In this case disbursals are made only in stages and if possible not in cash. The
payments are made directly to the supplier by draft / bankers / cheques.

The bank decides the duration of packing credit depending upon the time required by
the exporter for processing of goods.

The maximum duration of packing credit period is 180 days; however bank may
provide a further 90 days extension on its own discretion, without referring to RBI.

Follow up of Packing Credit Advance:-

3. Exporter needs to submit stock statement giving all the necessary the stocks. It is
then used by the banks as a guarantee for securing the packing credit in advance;
Bank also decides the rate of submission of this stock.

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Apart from this, authorized dealers (banks) also physically inspect the stock at regular
intervals.

Liquidation of Packing Credit Advance:-

4. Packing Credit Advance needs be liquidated out of as the export proceeds of

the relevant shipment, thereby converting pre shipment credit into post shipment
credit.

This liquidation can also be done by the payment receivable from the Government of
India and includes the duty drawback, payment from the Market Development Funds
(MDF) of the Central Government or from any other relevant sources.

In case if the export does not take place then the entire advance can also be recovered
at a certain interest rate? RBI has allowed some flexibility into this regulation under
which substitution of commodity or buyer can be allowed by a bank without any
reference to RBI. Hence in effect the packing credit advance may be repaid by
proceeds from export of the same or another commodity to the same buyer. However,
bank need to ensures that the substitution is commercial necessary an unavoidable.

Overdue Packing:-

5. Bank considers a packing credit as an overdue, if the borrower fails to liquidate

the packing credit on the due date. And if the condition persists then the bank takes
the necessary step to recover its dues as per normal recovery procedure.

Special cases:-

Packing Credit to Sub Supplier:-

1. Packing Credit can only be shared on the basis of disclaimer between the Export
Order Holder (EOH) and the manufacturer of goods. This disclaimer is normally

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issued by the EOH in order to indicate that he is not availing any credit facility against
the portion of the order transferred in the name of the manufacturer.

This disclaimer is also signed by the bankers of EOH after which they have an option
to open an inland L/C specifying the goods to be supplied to the EOH as a part of the
Export transaction. On basis of such an L/C, the sub supplier bank may grant a
packing credit to the sub supplier to manufacture the components required for exports.

On supply of goods, the L/C opening bank will pay to the sub supplier’s bank against
the inland documents received on the inland L/C opened by them.

The final responsibility of EOH is to export the goods as per guidelines. Any delay in
export order can bring EOH to penal provision that can be issued anytime.

The main objective of this method is to cover only the first stage of production cycles,
and is not to be extended to cover supplies of raw material etc. Running account
facility is not granted to sub suppliers.

In case the EOH is the trading house, the facility is available commencing from the
manufacturer to whom the order has been passed by the trading house.

Banks however, ensure that there is no double financing and the total period of
packing credit does not exceed the actual cycle of production of the commodity.

Running Account facility:-

2. It is a special facility under which a bank has right to grant pre shipment advance
for export to the exporter of any origin. Sometimes banks also extent these facilities
depending upon the good track of the exporter. In return the exporter needs to produce
the letter of credit/firms export order within a given period of time.

Pre shipment Credit in Foreign Currency (PCFC):-

3. Authorized dealers are permitted to extend Pre shipment credit in foreign currency
(PCFC) with an objective of making the credit available to the exporters at
internationally competitive price. This is considered as an added advantage under
which credit is provided in foreign currency in order to facilitate the purchase of raw
material after fulfilling the basic export orders.

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The rate of interest of PCFC is linked to London interbank Offered rate (LIBOR).
According to guidelines, the final cost of exporter must not exceed 0.75% over 6
month LIBOR, excluding the tax.

The exporter has freedom to avail PCFC in convertible currencies like USD, Pound,
Sterling, and Euro, yen etc. however; the risk associated with the cross currency
truncation is that of the exporter.

The sources of funds for the banks for extending PCFC facility include the Foreign
Currency balances available with the Bank in Exchange, Earner Foreign Currency
Account (EEFC), Resident Foreign Currency Accounts RFC (D) and Foreign
Currency (Non- residents) Accounts.

Banks are also permitted to utilize the foreign currency balances available under
Escrow account and Exporters Foreign Currency Accounts. It ensures that the
requirement of funds by the account holders for permissible transaction is met. But
the limit prescribed for maintaining maximum balance in the account is not exceeded.
In addition, banks may arrange for borrowing from abroad. Banks may negotiate
terms of credit with overseas bank for the purpose of grant of PCFC to exporters,
without the prior approval of RBI; provide the rate of interest on borrowing does not
exceed 0.75% over 6 month LIBOR.

Packing Credit facilities to Deemed Export:-

4. Deemed exports made to multilateral funds aided projects and programmers,

under orders secured through global tenders for which payments will be made in free
foreign exchange, are eligible for concessional rate of interest facility both at pre and
post supply stages.

Packing Credit facilities for Consulting Services:-

5. In case of consulting services, exports do not involve physical movement of goods

out of Indian Customs Territory. In such cases. Pre shipment finance can be provided
by the banks to allow the exporter to mobilize resources like technical personnel and
training them.

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BASIC CONCEPTS OF FOREIGN EXCHANGE:-

INTRODUCTION:-

An Indian resident, who is dealing, day in and day out in various commodities and to
buy and sell them, uses legal currency of India i.e. Indian rupee. But to buy and sell
commodities and services, if he has a currency, which is other than his country’s
currency, what will happen? Say for example, an Indian resident receives US dollar
1,000 from his relative, for using in India, he cannot straightaway use the dollar, but
has to convert in Indian rupees and use it to buy commodities/services.

Definition:-

Foreign exchange can be defined in two ways:

1) The currencies of other countries in the form of currency notes, travelers’ cheques,
drafts, telegraphic transfers, mail transfers etc.
2) The mechanism by which our legal tender is converted into another currency and
vice versa.

Why conversion is necessary?

Conversion of currencies with each other has become a necessity. Because no country
in this universe can claim that they manufacture all the goods and services that their
people require to consume. Even the mighty USA is no exception. They import coffee
from Brazil, India etc. for their consumption. Similarly India imports capital goods,
technology etc. from western countries.

All are aware that there is no universal currency through which such settlements
across the national barriers and borders could be made and settlements take place in
the seller/buyers/any mutually accepted currency. Hence the invention of conversion
mechanism.

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Why Exchange control?

India is having the following inflows and outflows:

INFLOWS OUTFLOWS
1) Inward remittances Outward remittances
2) Remittances to all bank accounts Payments relating imports
3) Foreign Aids/loans / borrowings by Export related payments like commission,
corporate etc. legal fees , etc
4) Export receivables Tour/ travel related expenses
5) Tourists’ income Loan repayments/ servicing of loans

Normally in India, there is a shortfall of inflows than outflows. Our import payments
are very crucial for the country’s economy and equally are our payments towards
repayment of loans and its servicing. When demand outplays supply, it is only
prudent that we manage our foreign exchange reserves judiciously.

TRADE CONTROL:-

It is equally important for any country to effectively monitor the movement of goods.
While the movement of foreign exchange is being controlled through exchange
control manual (1993) and subsequent AD (MA) circulars, goods movement in and
out of the country is being monitored under the provisions of foreign trade
(Development and Regulations) act, 1992. The controlling authority in this case is
Director General of Foreign Trade, New Delhi and their various offices in other
places headed by joint directors of foreign trade. D.G.F.T and J.D.F.T are guided by
the EXIM POLICY (1992-2002), which is being provided by the ministry of
commerce, government of India. Customs are authorities who are ensuring the
movement of goods according to the above- said provisions, besides collection of
revenues by the way of duty on goods imported or exported.

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HOW THE FOREIGN EXCHANGE IS HANDLED?

Reserve Bank of India under the provision of FERA 1973, has delegated the authority
of handling foreign Exchange to State Bank of India (and its subsidiaries), Public
Sectors Banks and Foreign Banks.

They have delegated the authority of handling foreign Exchange and they are
explained through various Chapters of Exchange Control Manual, a book released by
Reserves bank of India, the latest one being 1993 edition. Under ECM, designation
Authorized Dealers (of foreign Exchange) will be dealing in various foreign
Exchange Transactions, to comply with all terms and conditions. Again banks that are
authorized to handle Foreign Exchange, designate certain branches to handle the
Foreign Exchange transactions, depending the necessity and potentiality of branch’s
location and they are called authorized dealing branches.

Besides the above, Reserve Bank of India also authorizes reputed Hotels and other
private establishments to handle Foreign Exchange in a limited way (say they can
issue/ Ancash Foreign Currency Travelers’ Cheques/foreign currency Notes) to cater
to the foreign tourists’ requirements. They are called AUTHORISED Money changers
(AMC).

They are classified as FULL-FLEDGED / RESTRICTED MONEY CHANGERS.

TYPES OF FOREIGN EXCHANGE TRANSACTIONS:-

Authorized Dealer can handle two types of transactions viz. Purchase and Sale of
Foreign Exchange. When customers tender export bills denoted in foreign Currency,
Ads shall purchase the foreign currency bill. Likewise, when customers request for a
remittance in foreign currency toward payment of import bills, then ADs have to sell
foreign Currency to him. From this, we understand that both selling and purchasing
transaction are from the bank’s angle.

Settlement of Foreign Exchange Transaction are made through the following

accounts:-

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1) NOSTRO Account : Our Account with you;

2) VOATRO Account: Your Account with us
3) LORO Account : Their account with them

Exchange Rates:-

The rate, at which a currency is converted into another currency, is called the rate of
exchange. Such rates are arrived from the base rate, which is decided by market forces
and is quoted on a daily basis. Banks quote various rates for different types of
operations like bill buying, Bill selling TT (DD/MT/TT) buying, TT (DD/MT/TT)
selling etc. The rates are loading suitable margins, as per F.E.D.A.I (Foreign
Exchange Dealers Association of India) guidelines.

FOREIGN EXCHANGE MARKET:-

Foreign Exchange Market is an Over the Counter Market. It means that there is no
fixed market players are differently and distantly located. It has no borders and
barriers. All the transactions are put through over telecommunications followed up by
written confirmations. Hence there is the need of high level professionalism for the
market players, which is in place.

Market players are authorized dealers, recognized Foreign Exchange Brokers,

Exporters, Importers, Reserved Bank of India. Sometimes markets Dealers include
foreign banks abroad.

As such, Foreign Exchange market is a three tier market viz.:

a) Merchant market:-
Between Authorized Dealers and the public.
b) Interbank market:-
Between authorized Dealer in India including Reserve Bank.
c) International market:-
Comprising all banks that deal in Foreign Exchange at select international
Foreign Exchange Centre’s like Singapore, Hong Kong, Tokyo, London, New

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York etc. when an Authorized Dealer is unable to cover a deal in the local market,
he will approach the other Bankers in the international market for covering his
deal.

Foreign Exchange is a scarce commodity; hence, it is subject to control.

It commands a price due to the forces of supply and demand.

It has an active market (both domestic and international).

Authorized Dealer maintain stocks foreign Exchange abroad to meet contingencies in

the form of balances in Nostro Accounts with their correspondent Banks.

 F.E.D.A.I (Foreign Exchange Dealer Association of India):-

It is an association of all the AD banks in India to liaise with each other, with RBI and
other agencies. They prescribe the rules and charges for various foreign exchange
transactions, with the concurrence of all the members.

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