TYPES OF L/C s

ON 11/09/12
 Dear MIBIans

Lets discuss
about the
types of L/C s
 Whats all about LC/ yea????
A Letter of Credit, simply defined, is a written
instrument issued by a bank at the request of its
customer, the Importer (Buyer), whereby the
bank promises to pay the Exporter (Beneficiary)
for goods or services, provided that the Exporter
presents all documents called for, exactly as
stipulated in the Letter of Credit, and meet all
other terms and conditions set out in the Letter
of Credit. A Letter of Credit is also commonly
referred to as a Documentary Credit.
 Types of L/C
 REVOCABLE L/C :-
Revocable LC can be amended or cancelled by the
issuing bank at any moment and without prior
notice to the beneficiary. This type of credit does
not doesn't constitute a legally binding
undertaking between the banks or bank
concerned and the beneficiary such as credit may
be modified or cancelled at any moment without
prior notice to the beneficiary. This type is of
limited utility and is not much use
 IRREVOCABLE L/C
• An irrevocable LC constitutes a definite undertaking of
the issuing bank for the payment of the bills drawn
under the credit, provided the beneficiary presents the
stipulated documents to the credit nominated bank or
to the issuing bank and complies with all the condition s
of the credit.
• Thus the beneficiary receives a firm undertaking of the
issuing bank, giving him the security he desires.
• This type of credit can neither be modified nor
cancelled without the prior approval of the
beneficiary concerned and it is therefore, widely
accepted.
 Confirmed L/C
• UCP basically recognize only the revo/irrevo LCs which
can be wither confirmed or unconfirmed. These rules
also make specific reference to transferable credits. But
all other credits are prevalent only by implication.
• Only IRREVO L/C are confirmed for obvious reasons, such
confirmation constitutes definite undertaking from the
confirming bank to pay against the presentation of the
proper documents such credit is called confirmed credit.
• Such an undertaking can neither be amended nor
cancelled without the agreement of the issuing bank.
 With recourse or without recourse L/C
• With:- L/C if the buyer fails to pay the bank after
the specified period, the bank can have recourse
on the exporter. There is no such provisions in
without RC.
• Its in favor of the exporter to obtain a confirmed
irrevocable without RC credit because in this case
the Indian Bank added obligation to pay. If the
confirming i.e Indian Bank accepts the documents
as being complete and correct and any rejection
by opening bank will be a matter of discussion
between the two.
 Acceptance of credit
• An acceptance credit stipulates that the
beneficiary must draw a BOE for
particular tenor e. g 60, 90, 120 days
sight and that the drafts will be
accepted by one of the parties i.e 1.
The applicant 2. the advising Bank, 3.
the negotiating bank. It unsecured and
depends on the capability of the parties
who can fund at the maturity of the bill.
 Transferable L/C
Here the beneficiary is entitled to
request the paying, accepting,
negotiating, banks to pay, accept, and
negotiate bills tendered by one or more
parties. For partial transfer to second
beneficiary or more than one second
beneficiaries, it is essential that credit
must permit partial shipment.
 Back to Back L/C
• When the exporter uses his L/C as a cover
for opening a credit in favor of the local
suppliers, the L/C is called back to back
credit. As the credits are intended to cover
some goods it should ne ensured that the
terms of identical except that price is lower
and validity earlier. This type of credit is
preferred over transferable credits to keep
the identity of ultimate buyer secret.
 RED CLAUSE or Anticipatory L/C
---Provides advance payment or at least part
payment to the beneficiary against his
undertaking the effect the shipment and submits
the bill and /or documents in terms of credit
within the validity. The advance payment made
at the pre-shipment stage will be liquidated from
the proceeds of the bills negotiated.
GREEN CLAUSE is an extension of the red clause in
that it envisages the grant of storage facilities at
the port in the name of the bank in addition to
the pre-shipment payment to the beneficiary.
 Revolving L/C
In a revolving LC, the amount of
drawing is reinstated and made
available to the beneficiary again
after a period of time on the advise
of payment by the applicant or
merely the fact that shipment has
been made.
 Deferred L/C
HERE, the exporter supplies plant and
machineries, capital goods etc., ( where
the price is to be paid to him in
installments spread over a period ranging
usually from 1-7 years even more) to an
importer and no draft is drawn and
payment by the opening bank is
determined in accordance with the terms
laid down in the credit.
 Transit L/C
It is issued in one of the
foreign country with the
beneficiary in another but
it is advised through and
usually confirmed by the
one BANK( The BOSS)
 Credit available by Installments
These credits specify shipments and/or
drawings by installments stipulating
specific period for each installment of
shipment and or/ drawings. In case, any
installment of shipment is missed,
credit will not be available for that and
the subsequent installments except
when credit permits such lapse.
 Restricted and unrestricted credits
Credits which do not specify any
particular bank who is authorized
to negotiate etc. are ‘ unrestricted ‘
or open or general credits. If a
specified bank is designated to pay
accept or negotiate, the credit is
termed as’ restricted’ or special.
 Letter of Credit Checklist.
 Are all required documents included?
 Will the documents be presented within the expiration
date of the letter of credit?
 Are the documents on their face consistent with each
other?
 Has shipment been made prior to the last shipping date?
 Are the documents “stale”? Typically, unless otherwise
specified, documents presented 21 days or more after the
date of transport are considered stale.
 Are the required number of copies of each document
being submitted?
 On documents where signatures are required, are the
appropriate signatures present?
 Is the transport document consigned to the correct party?
 Is the notify party on the transport document correct?
 Is the merchandise description correct?
 Are the number of units, the unit price and the total price all
consistent?
 If an insurance document is required, is the type and amount of
coverage correct?
 Was it in effect prior to shipment?
 If partial shipment has been made, is it permitted under the terms
of the letter of credit?
 If transhipment is necessary, does the letter of credit permit this?
 Review the draft. Does it quote the bank’s letter of credit
reference? Is it drawn on the correct party? If necessary,
 has it been properly signed and endorsed? Is the amount and
currency correct? Is the tenor as specified?
 UCP 500 and UCP 600

UNIFORM
CUSTOMS AND
PRACTICE
•Any basic idea
about UCP
/ICC???
 Article .1 Application of UCP
The Uniform Customs and Practice for
Documentary Credits, 2007 Revision, ICC
Publication no. 600 (“UCP”) are rules that apply
to any documentary credit (“credit”) (including,
to the extent to which they may be applicable,
any standby letter of credit) when the text of
the credit expressly indicates that it is subject to
these rules. They are binding on all parties
thereto unless expressly modified or excluded
by the credit.
 Article 2 Definitions
Advising bank means the bank that advises the credit at
the request of the issuing bank.
Applicant means the party on whose request the credit
is issued.
Banking day means a day on which a bank is regularly
open at the place at which an act subject to these
rules is to be performed.
Beneficiary means the party in whose favour a credit is
issued.
Complying presentation means a presentation that is in
accordance with the terms and conditions of the
credit, the applicable provisions of these rules and
international standard banking practice.
Confirmation means a definite undertaking of the confirming bank,
in addition to that of the issuing bank, to honour or negotiate a
complying presentation.
Confirming bank means the bank that adds its confirmation to a
credit upon the issuing bank’s authorization or request.
Credit means any arrangement, however named or described, that
is irrevocable and thereby constitutes a definite undertaking of
the issuing bank to honour a complying presentation.
Honour means:
a. to pay at sight if the credit is available by sight payment.
b. to incur a deferred payment undertaking and pay at maturity if
the credit is available by deferred payment.
c. to accept a bill of exchange (“draft”) drawn by the beneficiary
and pay at maturity if the credit is available by acceptance.
• Issuing bank means the bank that issues a credit at the
request of an applicant or on its own behalf.
• Negotiation means the purchase by the nominated
bank of drafts (drawn on a bank other than the
nominated bank) and/or documents under a complying
presentation, by advancing or agreeing to advance
funds to the beneficiary on or before the banking day
on which reimbursement is due to the nominated bank.
• Nominated bank means the bank with which the credit
is available or any bank in the case of a credit available
with any bank.
• Presentation means either the delivery of documents
under a credit to the issuing bank or nominated bank or
the documents so delivered.
 Article 3 Interpretations
Presenter means a beneficiary, bank or other party that makes a presentation.
Where applicable, words in the singular include the plural and in the
plural include the singular.
A credit is irrevocable even if there is no indication to that effect.
A document may be signed by handwriting, facsimile signature,
perforated signature, stamp, symbol or any other mechanical or
electronic method of authentication.
A requirement for a document to be legalized, visaed, certified or
similar will be satisfied by any signature, mark, stamp or label on the
document which appears to satisfy that requirement.
Branches of a bank in different countries are considered to be separate
banks.
Terms such as "first class", "well known", "qualified", "independent", "official",
"competent" or "local" used to describe the issuer of a document allow any issuer
except the beneficiary to issue that document.
Unless required to be used in a document, words such as
"prompt", "immediately" or "as soon as possible" will be
disregarded.
The expression "on or about" or similar will be interpreted
as a stipulation that an event is to occur during a period
of five calendar days before until five calendar days after
the specified date, both start and end dates included.
The words "to", "until", "till", “from” and “between” when
used to determine a period of shipment include the date
or dates mentioned, and the words “before” and "after"
exclude the date mentioned.
The words “from” and "after" when used to
determine a maturity date exclude the date
mentioned.
The terms "first half" and "second half" of a
month shall be construed respectively as the
1st to the 15th and the 16th to the last day of
the month, all dates inclusive.
The terms "beginning", "middle" and "end" of a
month shall be construed respectively as the
1st to the 10th, the 11th to the 20th and the
21st to the last day of the month, all dates
inclusive.
•X Next
 Export Financing
Exporters naturally want to get paid as quickly as
possible, while importers usually prefer to
delay payment until they have received the
goods. Because of the intense competition for
export markets, being able to offer attractive
payment terms customary in the trade is often
necessary to make a sale. Exporters should be
aware of the many financing options open to
them so that they choose the most acceptable
one to both the buyer and the seller.
Export credit can be broadly classified into

• Pre-shipment finance and

• post shipment finance.
• Preshipment
finance refers to finance extended to
purchase, processing or packing of goods
meant for exports
• Financial
assistance extended after the shipment of
exports falls within the scope of post
shipment finance
 PACKING CREDIT
• As loan or cash credit against pledge or hypothecation.
• Verification of Exporter-Importer Code No. issued by
DGFT.
• Party should not be in the RBI Caution
list or ECGC Special Approval List.
• Export is not to a listed country
• Verify order/LC
• Up-to date knowledge of export policy
• Commodity should not be in the negative list.
• Commodity should have a good market
• Terms of contract
• No FEMA violation
• Borrower should be credit worthy.
• Working capital may be defined as funds required
to carry the required level of Current
assets to enable the industry to carry
on its operations at the expected levels
uninterruptedly..
• The guidelines set by Nayak Committee for
computation of WC finance quantum for
village, tiny and other SSI industries
to a minimum extent of 20% of Projected/ Accepted
Turnover to continue Guidelines
with regard to specific activities / industries / situations
to continue (Sugar / tea
industries, Rehabilitation cases, Export Financing etc.)
Banks may consider Cash Flow approach of financing
in order to close the gap between
the sanctioned limits and the utilization levels …
 Quantum  of finance:
• FOB value   of goods minus profit and credit    
margin                      
Cost of production less margin (can be  
more if the domestic cost is more  
than the FOB value and the difference  
is accounted as incentives like duty draw-back  
etc. subject to export production finance  
guarantee of ECGC).
• In the   case of exports on CIF value basis   PC      
can be granted towards insurance and  freight also
• Period  of finance: to coincide  
with the date for shipment and normally  up 
to 180 days
 Clean  Packing Credit
• Granted   to credit worthy parties where advance  
payment is required to be made to  the supplier. 
• Quantum   determined based on the likely purchase  
pattern of the exporter with their suppliers. 
• Period   of CPC is determined based on the  
facts of each case (but not later  
than the period of contract /LC.
• A higher   margin of say 25% should be stipulated,      
collected each time and remitted along   with PC to  
the supplier.  
• CPC should  be converted as PC or Bills
 EXPORT FINANCE 

• PRE  SHIPMENT  finance  :  Deals  with  the 

finance  schemes  available  before  the 
shipment has been made.
• POST  SHIPMENT  finance  :  on  the 
contrary deals with credit available after 
the goods have shipped.
Both stages are crucial for the exporter    
 Pre-shipment finance 

• PSF..  Offer  liquidity  to  the 

exporter  to  produce  raw 
materials,  carry  out 
processing,  packing, 
transporting  and  warehousing 
of the goods to be exported. 
• Pre-Export Finance: provision of funds to 
cover the period between signing of purchase 
orders and payment (short-term, working 
capital)
• –Pre-export finance typically covers:
• Cost of inland transport to port
• Purchase of raw materials for processing
• Cost of processing
• Storage costs
 Illustrative procedure (commodities)

• Exporter provides title to or pledges products to bank
• –Products that have yet to be produced
• –Products  that  have  been  produced  (warehouse 
receipt)
• Bank provides credit facility
• Payment
• –Trader takes delivery
• –Bank receives payment directly from buyer
• »Escrow account
• »Evidence account
 Methods of Pre-Export Finance
• Open  Account:  –Exporter  ships  goods  without  any  guarantee  of 
payment, thereby financing importer
–Risk of transaction dependent on relationship/importer integrity.
• Documentary letter of credit (see UCC Art. 5 and UCP 500): Letter 
from bank, addressed to exporter, in which bank promises to pay or accept 
drafts if exporter conforms 100% to conditions within the letter.

• Three parties:
• –Issuer: the issuing bank
• –Account party (importer)
• –Beneficiary (exporter) 
• •Three agreements
• –Trade contract between importer and exporter
• –Documentary credit between bank and exporter
• –Reimbursement agreement between bank and importer
 Documentary Letter of credit
Revocable/Irrevocable
• –A revocable letter of credit can be cancelled or amended by the issuing 
bank; the bank does not need the exporter/beneficiary’s consent.
Confirmed/Unconfirmed
• –Issuing bank forwards letter of credit to exporter’s bank
• –Exporter’s bank promises to pay exporter (confirms l/c)
• –In  an  unconfirmed  transaction,  the  advising  bank  acts  as  the  issuing 
bank’s agent and bears no obligation to exporter
Back-to-back
• –Typically used by brokers, the letter of credit allows the beneficiary to 
assign its rights in one letter of credit to the issuer of a second letter of 
credit
• –Both letters of credit must require identical documents
Transferable
• –The original beneficiary can transfer the letter of credit to third parties
 Documentary Letter of credit
• Revolving
• –Typically used in construction contracts
• –Allows  beneficiary  to  draw  on  the  letter  of  credit,  up  to  a  certain 
amount, usually without presentation of documents
• –The account party replenishes the account
“Red clause” letter of credit
• –Exporter can use to obtain pre-shipment finance by providing either (i) 
a  statement  of  purpose  or  (ii)  an  undertaking  to  provide  specified 
documents.
• –Issuing bank provides exporter with a percentage of the L/C amount
• –Advising bank guarantees reimbursement
“Green clause” letter of credit
• –Similar  to  “red  clause”  letters  of  credit,  but  pre-shipment  finance  is 
contingent upon the production of warehouse receipts…
 Letter of credit Settlement
Sight payment (sight draft)
• –Exporter presents documents and receives payment
Deferred payment (dated draft)
• –Exporter presents documents and receives payment at some 
specified future time
Acceptance (time draft)
• –Exporter (i) presents documents and (ii) draws a usance draft
• –Bank accepts bill of exchange for payment on a future date 
Negotiation
• –Exporter may choose a bank and negotiate the payment of a 
sight or usance draft
• –Bank will either:
• »Advance payment with recourse to the exporter
• »Advance payment less a fee (discount)
• »Pay exporter when issuing bank provides payment
 Post shipment Finance 
• Provides credit facility from the date 
shipment  of  the  goods  to  the  time 
export  payment  is  realized 
(  expenses  between  period  of 
shipment  dispatch  and  payment 
realisation… 
 Export Finance –Post-Export

Post-Export Finance (medium/long-term)
• –Post-Export finance typically covers:
• •Account receivables
• •Equipment
• •Other fixed assets
–Methods of Post-Export Finance
• •Revolving line of credit
• •Term loan 
• •Finance accounts receivable
 Methods of Post-Export Finance
Finance account receivables
–Typically used in two instances
• •Undercapitalized  company  with  permanent  financing 
need
• •Temporary insufficient cashflow
–Banks provide loan secured by:
• •Assignment of receivables
• •Assignment of commodity inventory
–Loan
• •Made on a revolving basis against a pool of receivables
–Borrower
• •Responsible for collecting from customers
• •Responsible for 100% loan repayment despite inability to 
collect from customers
 Export Finance –Forms of Risk
Commercial risk
•The risk that either party will not fulfill its 
obligations
Transportation risk
•The risk that goods become damaged or destroyed 
during transport
Exchange risk
• •The risk that currency fluctuations will affect the 
value of the transaction
Political risk
• •The risk that government policy changes, wars, 
embargoes, etc., will prevent the conclusion or 
affect the value of the transaction
 Indian Case study ; RBI sources !
• PRE-SHIPMENT EXPORT CREDIT, Definition:
…any  loan  or  advance  granted  or  any  other  credit  provided  by  a 
bank  to  an  exporter  for  financing  the  purchase,  processing, 
manufacturing or packing of goods prior to shipment / working 
capital expenses towards rendering of services on the basis of 
letter of credit opened in his favour or in favour of some other 
person,  by  an  overseas  buyer  or  a  confirmed  and  irrevocable 
order for the export of goods / services from India or any other 
evidence of an order for export from India having been placed on 
the exporter or some other person, unless lodgement of export 
orders or letter of credit with the bank has been waived.
 Period of Advance
The period for which a packing credit advance may be 
given by a bank will depend upon the circumstances 
of the individual case, such as the time required for 
procuring,  manufacturing  or  processing  (where 
necessary)  and  shipping  the  relative  goods  / 
rendering of services.

It  is  primarily  for  the  banks  to  decide  the  period  for  which  a 
packing  credit  advance  may  be  given,  having  regard  to  the 
various  relevant  factors  so  that  the  period  is  sufficient  to 
enable the exporter to ship the goods / render the services
• If pre-shipment advances are not adjusted by 
submission  of  export  documents  within  360 
days from the date of advance, the advances 
will  cease  to  qualify  for  concessive  rate  of 
interest to the exporter ab initio.

•   RBI  would  provide  refinance  only  for  a 

period not exceeding 180 days.
 Disbursement of Packing Credit
Banks  may  also  maintain  different 
accounts at various stages of processing, 
manufacturing,  etc.  depending  on  the 
types of goods / services to be exported, 
e.g.  hypothecation,  pledge,  etc., 
accounts  and  may  ensure  that  the 
outstanding  balance  in  accounts  are 
adjusted by transfer from one account to 
the  other  and  finally  by  proceeds  of 
relative  export  documents  on  purchase, 
Banks should continue to keep a close 
watch  on  the  end-use  of  the  funds 
and ensure that credit at lower rates 
of  interest  is  used  for  genuine 
requirements  of  exports.  Banks 
should  also  monitor  the  progress 
made  by  the  exporters  in  timely 
fulfillment of export orders.
 Liquidation of Packing Credit
The packing credit / pre-shipment credit granted 
to  an  exporter  may  be  liquidated  out  of 
proceeds  of  bills  drawn  for  the  exported 
commodities  on  its  purchase,  discount  etc., 
thereby  converting  pre-shipment  credit  into 
post-shipment  credit.  Further,  subject  to 
mutual agreement between the exporter and 
the banker it can also be repaid / prepaid out 
of  balances  in  Exchange  Earners  Foreign 
Currency  A/c  (  EEFC  A/c  )  as  also  from  rupee 
resources  of  the  exporter  to  the  extent 
 Running Account' Facility
In  many  cases,  the  exporters  have  to  procure  raw 
material,  manufacture  the  export  product  and 
keep the same ready for shipment, in anticipation 
of  receipt  of  letters  of  credit  /  firm  export  orders 
from  the  overseas  buyers.  Having  regard  to 
difficulties being faced by the exporters in availing 
of  adequate  pre-shipment  credit  in  such  cases, 
banks  have  been  authorized  to  extend  Pre-
shipment  Credit  ‘Running  Account’  facility  in 
respect  of  any  commodity,  without  insisting  on 
prior  lodgment  of  letters  of  credit  /  firm  export 
orders,  depending  on  the  bank’s  judgment 
regarding  the  need  to  extend  such  a  facility  and 
subject to the following conditions:
a)  Banks  may  extend  the  ‘Running  Account’  facility  only  to  those 
exporters  whose  track  record  has  been  good  as  also  to  Export 
Oriented  Units  (EOUs)  /  Units  in  Free  Trade  Zones  /  Export 
Processing Zones (EPZs) and Special Economic Zones (SEZs) 
(b) In all cases where Pre-shipment Credit ‘Running Account’ facility has 
been  extended,  letters  of  credit  /  firm  orders  should  be  produced 
within a reasonable period of time to be decided by the banks.
(c) Banks should mark off individual export bills, as and when they are 
received for negotiation / collection, against the earliest outstanding 
pre-shipment  credit  on  'First  In  First  Out'  (FIFO)  basis.  Needless  to 
add  that,  while  marking  off  the    preshipment  credit  in  the  manner 
indicated above, banks should ensure that concessive credit available 
in respect of individual pre-shipment credit does not go beyond the 
period of sanction or 360 days from the date of advance, whichever 
is earlier.
(d)  Packing  credit  can  also  be  marked-off  with  proceeds  of  export 
documents  against  which  no  packing  credit  has  been  drawn  by  the 
exporter.
Export Credit against Proceeds of Cheques, Drafts, etc. 
Representing Advance
Payment for Exports
Where  exporters  receive  direct  remittances 
from abroad by means of cheques, drafts, etc. 
in  payment  for  exports,  banks  may  grant 
export  credit  at  concessive  interest  rate  to 
exporters  of  good  track  record  till  the 
realization  of  proceeds  of  the  cheque,  draft 
etc.  received  from  abroad,  after  satisfying 
themselves  that  it  is  against  an  export  order, 
is  as  per  trade  practices  in  respect  of  the 
goods in question and is an approved method 
of realization of export proceeds as per extant 
 Rupee Export Packing Credit to Manufacturer Suppliers for 
Exports Routed through STC/MMTC/Other Export Houses, 
Agencies, etc.

Banks  may  grant  export  packing  credit 

to manufacturer suppliers who do not 
have  export  orders/letters  of  credit  in 
their  own  name,  and  goods  are 
exported  through  the  State  Trading 
Corporation/Minerals  and  Metal 
Trading  Corporation  or  other  export 
houses, agencies, etc.
 Requirements 
(a)    Banks  should  obtain  from  the  export  house  a  letter 
setting out the details of the export order and the portion 
thereof to be executed by the supplier and also certifying 
that  the  export  house  has  not  obtained  and  will  not  ask 
for packing credit in respect of such portion of the order 
as is to be executed by the supplier.
(b) Banks should, after mutual consultations and taking into 
account  the  export  requirements  of  the  two  parties, 
apportion between the two i.e. the Export House and the 
Supplier,  the  period  of  packing  credit  for  which  the 
concessionary  rate  of  interest  is  to  be  charged.  The 
concessionary  rates  of  interest  on  the  pre-shipment 
credit  will  be  available  up  to  the  stipulated  periods  in 
respect of the export house/agency and the supplier put 
together.
The  export  house  should open  inland  L/Cs in favour of  the supplier 
giving  relevant  particulars  of  the  export  L/Cs  or  orders  and  the 
outstandings in the packing credit account should be extinguished 
by negotiation of bills under such inland L/Cs. If it is inconvenient 
for  the  export  house  to  open  such  inland  L/Cs  in  favour  of  the 
supplier,  the  latter  should  draw  bills  on  the  export  house  in 
respect of the goods supplied for export and adjust packing credit 
advances from the proceeds of such bills. In case the bills drawn 
under such arrangement are not accompanied by bills of lading or 
other  export  documents,  the  bank  should  obtain  through  the 
supplier  a  certificate  from  the  export  house  at  the  end  of  every 
quarter  that  the  goods  supplied  under  this  arrangement  have  in 
fact  been  exported.  The  certificate  should  give  particulars  of  the 
relative  bills  such  as  date,  amount  and  the  name  of  the  bank 
through which the bills have been negotiated.
Export of Services
In view of the large number of categories of 
service  exports  with  varied  nature  of 
business  as  well  as  in  the  environment  of 
progressive  deregulation  where  the 
matters  with  regard  to  micromanagement 
are  left  to  be  decided  by  the  individual 
financing  banks,  the  banks  may  formulate 
their  own  parameters  to  finance  the 
service exporters.
 Exporters of services qualify for working capital export credit 
(pre and post shipment) for consumables, wages, supplies etc.
• The proposal is a genuine case of export of services.
•   The  item  of  service  export  is  covered  under 
Appendix – 36 of the Hand Book (Vol.1)
• The  exporter  is  registered  with  the  Export 
Promotion Council for services 
•   There  is  an  Export  Contract  for  the  export  of  the 
Service
• There  is  a  time  lag  between  the  outlay  of  working 
capital expense and actual receipt of payment from 
the service consumer or his principal abroad.
•   There  is  a  valid  Working  Capital  gap  i.e.  service  is 
provided  first  while  the  payment  is  received  some 
time after an invoice is raised.
• Banks  should  ensure  that  there  is  no  double 
financing/excess financing.
• The  export  credit  granted  does  not  exceed  the 
foreign exchange earned less the
• margins  if  any  required,  advance 
payment/credit received.
•  Invoices are raised
•   Inward  remittance  is  received  in  Foreign 
Exchange.
• Company  will  raise  the  invoice  as  per  the 
contract  where  payment  is  received  from 
overseas party, the service exporter would utilize 
the  funds  to  repay  the  export  credit  availed  of 
from the bank.
 India: POST-SHIPMENT EXPORT CREDIT
Post-shipment  Credit'  means  any  loan  or 
advance granted or any other credit provided 
by a bank to an exporter of goods / services 
from India from the date of extending credit 
after  shipment  of  goods  /  rendering  of 
services  to  the  date  of  realization  of  export 
proceeds  and  includes  any  loan  or  advance 
granted  to  an  exporter,  in  consideration  of, 
or  on  the  security  of  any  duty  drawback 
allowed  by  the  Government  from  time  to 
 Types of Post-shipment Credits:
(i)Export  bills  purchased/ 
discounted/ negotiated.
(ii)  Advances  against  bills  for 
collection.
(iii)  Advances  against  duty 
drawback  receivable  from 
Government
 Liquidation of Post-shipment Credit:
Post-shipment  credit  is  to  be  liquidated  by  the 
proceeds of export bills received from abroad in 
respect  of  goods  exported  /  services  rendered. 
Further,  subject  to  mutual  agreement  between 
the  exporter  and  the  banker  it  can  also  be 
repaid  /  prepaid  out  of  balances  in  Exchange 
Earners Foreign Currency Account (EEFC A/C) as 
also  from  proceeds  of  any  other  unfinanced 
(collection)  bills.  Such  adjusted  export  bills 
should however continue to be followed up for 
realization  of  the  export  proceeds  and  will 
 Rupee Post-shipment Export
Credit
• the case of demand bills, the period of advance shall be the
Normal Transit Period (NTP) as specified by FEDAI.
• In case of usance bills, credit can be granted for a maximum
duration of 365 days from date of shipment inclusive of Normal
Transit Period (NTP) and grace period, if any. However, banks
should closely monitor the need for extending post shipment credit
up to the permissible period of 365 days and they should influence
the exporters to realize the export proceeds within a shorter
period.
• Normal transit period' means the average period normally
involved from the date of negotiation / purchase / discount till the
receipt of bill proceeds in the Nostro account of the bank
concerned, as prescribed by FEDAI from time to time. It is not to be
confused with the time taken for the arrival of goods at overseas
destination.
 Post-shipment Advances against Duty
Drawback Entitlements
• Banks may grant post-shipment advances to exporters
against their duty drawback entitlements as provisionally
certified by Customs Authorities pending final sanction
and payment.
• The advance against duty drawback receivables can also
be made available to exporters against export promotion
copy of the shipping bill containing the EGM Number
issued by the Customs Department. Where necessary,
the financing bank may have its lien noted with the
designated bank and arrangements may be made with
the designated bank to transfer funds to the financing
bank as and when duty drawback is credited by the
Customs
 ECGC Whole Turnover Post-shipment
Guarantee Scheme
The Whole Turnover Post-shipment
Guarantee Scheme of the Export Credit
Guarantee Corporation of India Ltd. (ECGC)
provides protection to banks against non-
payment of post-shipment credit by
exporters. Banks may, in the interest of
export promotion, consider opting for the
Whole Turnover Post-shipment Policy. The
salient features of the scheme may be
obtained from ECGC.
DEEMED EXPORTS - CONCESSIVE RUPEE EXPORT
CREDIT
Banks are permitted to extend rupee pre-
shipment and post-supply rupee export credit at
concessional rate of interest to parties against
orders for supplies in respect of projects
aided/financed by bilateral or multilateral
agencies/funds (including World Bank, IBRD,
IDA), as notified from time to time by
Department of Economic Affairs, Ministry of
Finance under the Chapter "Deemed Exports" in
Foreign Trade Policy, which are eligible for grant
of normal export benefits by Government of
 INTEREST ON EXPORT CREDIT
• A ceiling rate has been prescribed for rupee export credit
linked to Benchmark Prime Lending Rates (BPLRs) of
individual banks available to their domestic borrowers.
Banks have, therefore, freedom to decide the actual
rates to be charged within the specified ceilings. Further,
the ceiling interest rates for different time buckets under
any category of export credit should be on the basis of
the BPLR relevant for the entire tenor of export credit.
• ECNOS: ECNOS means Export Credit Not Otherwise
Specified in the Interest Rate structure for which banks
are free to decide the rate of interest keeping in view the
BPLR and spread guidelines. Banks should not charge
penal interest in respect of ECNOS.
 Interest Rate Structure
• Pre-shipment Credit (from the date of advance) : (a) Up to 180
days / (b)Against incentives receivable from Government covered
by ECGC Guarantee up to 90 days.
• Post-shipment Credit (from the date of advance) : a) On demand
bills for transit period (as specified by FEDAI) (b) Usance bills (for
total period comprising usance period of export bills, transit
period as specified by FEDAI, and grace period, wherever
applicable)
Up to 90 days
Up to 365 days for exporters under the Gold Card Scheme.
(c) Against incentives receivable from Govt. (covered by ECGC
Guarantee) up to 90 days
(d) Against undrawn balances (up to 90 days)
(e) Against retention money (for supplies portion only) payable
 EXPORT CREDIT IN FOREIGN CURRENCY
The
• Pre-shipment Credit in Foreign Currency (PCFC):
scheme is an additional window for
providing pre-shipment credit to Indian
exporters at internationally competitive
rates of interest. It will be applicable to
only cash exports. The instructions with
regard to Rupee Export Credit apply to
export credit in foreign currency also
mutatis mutandis, unless otherwise
specified.
 Source of Funds for Banks
• The foreign currency balances available with the bank in
Exchange Earners Foreign Currency (EEFC) Accounts,
Resident Foreign Currency Accounts RFC(D) and Foreign
Currency (Non-Resident) Accounts (Banks) Scheme
could be utilized for financing the pre-shipment credit in
foreign currency.
• Banks are also permitted to utilise the foreign currency
balances available under Escrow Accounts and Exporters
Foreign Currency Accounts for the purpose, subject to
ensuring that the requirements of funds by the account
holders for permissible transactions are met and the
limit prescribed for maintaining maximum balance in
the account under broad based facility is not exceeded.
 Post-shipment Export Credit in Foreign
Currency
• Banks may utilise the foreign exchange
resources available with them in Exchange
Earners Foreign Currency Accounts (EEFC),
Resident Foreign Currency Accounts (RFC),
Foreign Currency (Non-Resident) Accounts
(Banks) Scheme, to discount usance bills and
retain them in their portfolio without resorting
to rediscounting. Banks are also allowed to
rediscount export bills abroad at rates linked to
international interest rates at post-shipment
stage.