Export Finance – Key points

- Applicable to all Schedule Commercial Banks.

- The scheme was introduced in 1967 intending to make short term working capital finance available
to all exporters at internationally competitive interest rates.
- Export credit available both in INR and F.C.
Export Finance – adherence to the credit/compliance discipline at the Macro level
- Credit aspects – Appraisal of the Client i.r.o. line of business, track record and credit worthiness.,
Product profile, Country profile, Commodity profile, status report on the Overseas buyer, etc.

- FEMA – Exporter should be a regular customer, bonafide exporter, with a good track record & a
good standing in the market. Exporter should not be under the RBI caution list., Compliance to the
master directions on Export Finance.

- Foreign Trade Policy 2015-2020 now extended due to the covid pandemic - IEC certificate allotted
by the DGFT, Goods must be freely exportable, license in case of restricted goods, Country to which
goods are exported should not be under the Primary sanctions of UN/OFAC and not under list of
trade barrier countries.

- ECGC – Party should not be under the SAL of ECGC., Country of import should not be under the
RCC., limit proposed under Export Finance should be within the discretionary limit prescribed by
ECGC., notification to ECGC within 30 days from the date of sanction.

- Banks should meet the genuine credit requirements of the Exporter promptly and in full to ensure
smooth flow of credit to Export sector.
- Flexible approach with regard to DER, margin, security norms without compromising on the viability
of the proposal and integrity of Exporter.
- Quantum of finance to be commensurate with the expected Export turnover and exporter’s capability
to execute the orders within the stipulated time.

- Fast track clearance of proposals - Fresh facility – within 45 days., Renewals – within 30 days and
ad-hoc limits within 15 days from the date of receipt of request.

- Delay in affording credit – payment of compensation to Exporters without waiting for a demand from
the Exporter and the internal audit team should comment on such delays & regularizations thereon.
- Customer Education to create awareness & adequate training to Staff on Exports in Critical
Branches.

1
Pre-shipment Finance – basic concepts

(a) Any loan or advance granted or any other credit provided by a Bank to an Exporter
(b) For financing (i) purchase of raw materials (ii) processing of goods, (iii) manufacturing
of goods., (iv) packing of goods (v) working capital expenses towards rendering of services.
(c) On the basis of an Irrevocable LC opened in favor of the Exporter or in favor of some other
person or a Confirmed Irrevocable Order for Export of goods or services.
(d) Any other evidence of an order for Export from India having been placed on the ex porter or some
other person unless lodging of export orders of LCs with the Bank has been waived.

- Period of Advance

(a) Period depends on the circumstances of each case i.e. time required for procuring,
manufacturing or processing and shipping the goods/rendering of services.
(b) Banks to decide the period for which a PC may be given, having regard to the relevant factors
and operating cycle of the Commodity/Service being rendered.
(c) If the PC is not adjusted by submission of export documents within 360 days from the date of
advance, the advance ceases to qualify for prescribed rate of interest for export credit ab initio

- Extension of PC

- Banks may extend the PC subject to the reasons put forth by the Exporter are beyond the Exporter’s
control and such reasons are acceptable to the Bank.
- Doc. evidence acceptable to the Bank to be submitted.
- Exporter undertakes to submit the Extended Valid Order/LC within the stipulated by the Bank as
decided by the sanctioning authorities.
- Notification to ECGC on such extensions to be submitted.
- If extension is beyond 360 days from the date of original advance, prior approval of ECGC to be
obtained.
- Confirmation from the Overseas buyer extending the date of shipment and agreeing to make the
payment on the revised due date to be obtained and kept on record.
.
- Disbursement

(a) Each PC sanctioned should be maintained as a separate account for the purpose of monitoring
the period of sanction and end use of funds.
(b) Banks may release the PC in one lumpsum or in stages as per the requirement for executing the
orders of the LC.
(c) Banks may also maintain different accounts at various stages of processing, manufacturing, etc.,
depending on the type of goods/services to be exported.

2
 (d) In above cases, Banks to ensure that the outstanding balances in these accounts are adjusted
by transfer from one account to the other and finally by export documents on
purchase/discount/negotiation.
(e) Banks to keep a close watch on end use of funds since credit at lower rates of interest is used
for genuine requirement of exports.

- Liquidation

(a) PC is liquidated out of the proceeds of bills drawn for the exported commodities on its Purchase,
discount or negotiation.
(b) Subject to mutual understanding between the Exporter and the Bank, PC may also be liquidated
(i) Out of EEFC Balances.,
(ii) From rupee resources of the exporter to the extent exports have actually taken place.

- Liquidation of PC in respect of other cases

(a) Shortfall on account of wastage involved in the processing of certain products viz., raw
coconut, raw cashew nuts, sugar, plywood, etc. – Banks may allow exporters to extinguish the
excess PC by export bills drawn in respect of by-products like coconut powder, cashew kernels,
molasses, wood pulp, etc.
(b) Where domestic sale is involved to the extent sold domestically e.g. tobacco, pepper, cardamom,
cashew, etc. the non-exportable product can be sold domestically and to the extent of domestic
sales, PC to liquidated at the applicable domestic rate of interest.
(c) Export of de-oiled / de-fatted cakes – where the advance is in excess of the export order is
requested to be adjusted either in cash or by sale of residual by product within a period not
exceeding 30 days from the date of advance e.g. groundnuts and de-oiled / de-fatted cakes.

- Relaxations to Exporters with good track record may be allowed under the following
circumstances :-

(a) Liquidation of PC with export documents relating to any other order covering the same
commodity or any other commodity exported by the Exporter.
(b) Banks to ensure that it is commercially necessary, unavoidable and the reasons put forth by the
Exporter is valid
(c) Exporter maintaining account with the same Bank or has the approval from the members of the
Consortium, as the case may be.
(d) Existing PC may also be marked off with proceeds of export documents against which no PC
has been drawn
(e) PC with another Bank and documents submission to a different Bank
(i) After ensuing that no PC is availed against this.,
(ii) If availed, proceeds to be transferred to the working capital Banker.
(f) Should not be extended to sister/associate/group concerns.

3
- Running Account facility - Need for running account facility

(a) LCs/Export orders may not be available at the time of exploring export finance.,
(b) Availability of raw material is seasonal and Exporters may like to take advantage of the
seasonality of such raw materials.
(c) Time taken for manufacture & shipment of goods is more than the delivery schedule as per
export contracts.
(d) Many-a-times, manufacturing takes place in anticipation of receipt of LCs/Orders and without
insisting for LCs/Orders is normal under such circumstances.

- Running Account facility – Procedures

(a) Only for those exporters whose track record is satisfactory.

(b) Also to EOUs, Units in FTZs, EPZs, SEZs.,
(c) LCs/Export Orders to be submitted within a reasonable period of time (to be decided by the
Banks.,
(d) FIFO basis of knocking subject to the export credit in respect of individual PCs does not go
beyond the period of sanction.
(e) PCs can also be marked with proceeds of export documents against which no PC is drawn by
the Exporter.
(f) Running account facility shall not be granted to sub-suppliers.

- Export Credit against proceeds of Cheques/Drafts representing advance payment for

Exports.

(i) Generally does not arise since remittances come through wire transfer.
(ii) Cheques not to be entertained (due to Legal Laws in the buyer’s country).
(iii) Only for exporters of good track record.
(iv) After satisfying that it is against an Export Order.
(v) Compliance with trade practices.
(vi) Interest rates at concessional rates is applicable for such advances.

PCs to Specific Sectors/Segments

- Exports routed through Canalizing agencies

- Banks may extend PC to manufacturer suppliers who do not have export orders/ export LCs in
their favor and goods exported through STC/MMTC/EH and the following needs to be adhered : -
(a) Letter from the STC/MMTC/EH providing details of the EO/LC and the portion of the amount which
is being executed by the Manufacturer supplier.,
(b) Declaration from STC/MMTC/EH that they have not availed any PC to the extent manufactured by
the Manufacturer Supplier.,

4
(c) Undertaking from the Manufacturer Supplier that if any advance is received, the same will be
credited to the PC account.,
(d) Quarterly Certificate from STC/MMTC/EH that goods supplied under this arrangement has been
exported.

- Sub-suppliers (Packing Credit between Export Order House (EOH) and sub-suppliers)

(i) Running account not contemplated for PC to sub-suppliers

(ii) Extended to Exporters with good track record.
(iii) Covers LCs/Export Orders received in favor of Export Order House/Trading House/Star
Trading House/ Manufacturer Exporters.
(iv) Banker to the EOH will open an Inland LC in favor of the sub-supplier specifying the
goods to be supplied to the EOH against the Export Order or LC received by EOH.
(v) On the basis of the Inland LC or the Export Order received from the bankers of EOH,
Sub-supplier’s banker will grant EPC i.e. Extended Packing Credit as working capital to
enable Sub-supplier to manufacture the components.
(vi) On supplying goods by the Sub-supplier to the EOH, the LC opening bank will pay to
the Sub-supplier against inland documents received, to the debit of the EPC account of
the EOH.
(vii) EOH can grant any number of PCs for the various components/types of raw materials
required either against LCs or Orders.
(viii) The LC opening Bank will fix an overall PC limit for the EOH within which the domestic
LCs will be opened in favor of the Sub-suppliers.
(ix) The total period of the PC availed by a Sub-supplier, individually or severally and the
EOH should be within the normal cycle of production. The total period is computed from
the date of the first drawl of PC by any one of the Sub-suppliers to the date of submission
of the Export documents by the EOH.
(x) Since the Sub-supplier makes available the goods to the EOH as per the Inland LC
terms, his obligation under the PC scheme will be treated as complied with.
(xi) The EOH will be responsible for exporting the goods as per Export Order/LC and any
delay will attract penal provisions for the EOH.
(xii) The scheme will cover only the first stage of production cycle and will not be extended
to cover suppliers of raw materials to such immediate Sub-supplier.
(xiii) EOUs/EPZs/SEZ Units supplying goods to another EOU/EPZ/SEZ Units for Export
houses are also eligible for rupee PC. However, the supplier EOU/EPZ/SEZ will not be
eligible for any post shipment finance as the scheme does not cover sale of goods on
credit terms (Sub-supplier cannot give credit to EOH).
(xiv) No change in the quantum of advance or period and ECGC covers are available for
such advances.

5
- Rupee PC to Construction Contractors

(i) To meet the initial preliminary expenditure involved for execution of contracts abroad
(ii) To be disbursed through separate accounts.
(iii) Undertaking from the Project Exporter that finance is required for incurring preliminary
expenditure i.e. transporting of technical staff to the overseas locations, purchase of
consumables, etc.
(iv) To be adjusted within 360 days from the date of advance by negotiation of bills relating to
the contract or by inward remittances as per the PEM regulations.

- Export credit to Floriculture, Grapes and other Agro-Based products

(i) Purchase of seeds, fertilizers, pesticides and other inputs including cut flowers for growing
flowers, grapes, etc.
(ii) All post-harvest expenses incurred for making shipment
(iii) Bank to clearly identify export related and non-export related activities.
(iv) Only those activities not covered under direct/indirect finance schemes of NABARD are
eligible
(v) Finance not extended for investments such as import of foreign technology, equipment, land
development, etc.

- Export Credit to Processors/Exporters under Agri Export Zones

(i) Agri Export Oriented Units are set up in AEZs to promote production and processing of
agricultural products for further exports.
(ii) Such Units enter into Contract farming with the farmers and supply quality seeds, pesticides,
micro-nutrients to group of farmers who supply inputs to such APZs/AEZs.
(iii) Banks provide packing credit to AEZs, for supply of these materials.
(iv) Banks to ensure that these APZs/AEZs have made adequate arrangements for Exports to the
Overseas buyers.

- Export Credit for export of services

(i) Ensure that the proposal is genuine.
(ii) Services covered under Appendix 10 of HBP Vol. 1 of the Foreign Trade Policy (161 tradable
services).
(iii) Exporters registered with the Electronics & Software Export Promotion Council (in respect
of Software services) or with the respective Services Export Promotion Council (in respect
of 14 sectors identified under the Foreign Trade Policy) or with FIEO.
(iv) There is an export contract for export of services and there is time lag between outlay of
working capital expenses and actual receipt of payment for services.
(v) Valid working capital gap i.e. service provided first and payment received later.
(vi) No double financing or excess financing.
(vii) Export credit should not exceed foreign exchange earnings.
(viii) Inward remittance received in the foreign exchange.

6
 POST SHIPMENT FINANCE
Post shipment Finance – Key points

- Applicable to all Schedule Commercial Banks.

- The scheme was introduced in 1967 intending to make short term working capital finance available
to all exporters at internationally competitive interest rates.
- Export credit available both in INR and F.C.

- Post-shipment Finance

(i) Any loan or advance granted or any other credit provided by a Bank to an Exporter of
goods/services from India.,
(ii) from the date of extending credit after shipment of goods or rendering of services to the date of
realization of export proceeds.
(iii) on the basis of an Irrevocable LC opened in favor of the Exporter or in favor of some other person
or a Confirmed Irrevocable Order for Export of goods or services.
(iv) any other evidence of an order for Export from India having been placed on the exporter or some
other person unless lodging of export orders of LCs with the Bank has been waived.

- Period of Advance

(i) Period depends on the circumstances of each case i.e. time required for realization of the
proceeds from the Overseas buyer
(ii) Demand bills – up to Normal transit period (25 days from the date of shipment)
(iii) Usance bills – up to 270 days from the date of shipment with a maximum of 360 days subject to
the realization period as per the contract terms.
(iv) In respect of exports which have taken place on or before 31 st July 2020, the period for realization
is up to a maximum of 15 months or as per the actual contract terms whichever is earlier.
Note: Overdue Bill – not paid before the expiry of the NTP or not paid on the due date including
grace period in respect of Usance bills.

- Disbursement

(i) On submission of Export documents after shipment of goods/transmission of Software /

rendering of service.
(ii) In the form of Export bills Purchased (P) or Negotiated (N) or Discounted (D)

- Liquidation
(i) By way of proceeds of Export bills realized from abroad
(ii) Repaid out of the EEFC balances subject to mutual agreement between the Exporter and the
Bank.
(iii) Realization from Export bills on collection bills against which no finance is availed
(iv) Rupee resources to reduce cost to exporters i.e. interest cost on Overdue Export bills.

7
- Concept of Crystallization

(i) AD Bank to formulate their own policy for crystallization of foreign currency liability into rupee
liability in case of non-payment of export bills on the due dates.
(ii) As per Board approved policy of the Bank, contents of which, is to be made available to the
Exporters.
(iii) TT selling rate and rupee along with interest and charges, if any to be transferred to the
Crystallized rupee liability.
(iv) Interest at appropriate rate up to the date of Crystallization and at a different rate as applicable,
till the recovery of the rupee liability.
(v) Realization after crystallization – TT byg rate to be applied for conversion of inward remittance
into rupee.
(vi) Exchange difference arising out of crystallization to be recovered from or passed on to the
Exporter as the case may be.
(vii) Dishonor v/s Crystallization.

- ECNOS – Export credit not otherwise specified

- The concept was introduced to provide discretion to the AD Banks to decide on the rate of interest if
Exports do not happen within the period stipulated as per the regulatory guidelines but happens later.
- If Exports do not take place within 360 days from the date of advance, Banks are to charge ECNOS
from the first day of advance till the date of Exports and submission of documents to the Bank.

- Rate of Interest – Pre-shipment

(i) Interest rate on PC up to 270 days as decided by the Bank and benchmarked with the MCLR
for the entire period of export credit reckoned from the date of advance.
(ii) If the PC is not liquidated from proceeds of export bills on Purchase/Discount or Negotiation
within 360 days from the date of advance, the advance ceases to qualify for concessional
rate of interest.
(iii) In case where the PC is not extended beyond the original period of sanction and exports
take place after the expiry of the sanctioned period but within 360 days from the date of
advance, exporter would be eligible for concessional rate of interest only up to the
sanctioned period.
(iv) For the balance period, interest rate prescribed for ECNOS at the pre-shipment stage will
apply.
(v) In case exports do not take place within 360 days from the date of PC, such credits will be
termed as ECNOS and Banks may charge interest rate prescribed for ECONS – Pre
shipment from the very first date of advance.
(vi) In case exports do not materialize at all, Banks should charge domestic lending rate plus
penal rate of interest, if any, as per the Bank’s Board approved policy.

8
- Rate of Interest – Post-shipment
(a) Demand Bills – In case PSC against demand bills (sight documents), if the bills are realized
before the expiry of the NTP, interest at concessional rate shall be charged from the date of
advance till the date of realization (credit to Nostro account)
(b) Usance Bills – In case of PSC against usance bills, interest at concessional rate shall be charged
only up to the Notional Due Date (in respect of Usance from sight date) and up to the actual due
date (in respect of Usance from shipment date) or the date of credit to the Nostro whichever is
earlier. The excess of interest collected to be refunded to the exporter.
(c) Overdue Export bills – For period beyond the due date i.e. for the Overdue period, prescribed
rate of interest up to 180 days and ECNOS – Post shipment for beyond 180 days and up to the
date of realization.
(d) Bills not realized at all - Banks should charge domestic lending rate plus penal rate of interest, if
any, as per the Bank’s Board approved policy.
(e) In case where the export bills get realized subsequently, excess interest representing the
difference between the domestic lending rate and concessional rate to be refunded to the
Exporter.

- Other Forms of Export Credit

- Advance against Collection Bills

- Advance against Duty drawback Scheme.
- Duty drawback scheme allows exporters to get a refund on Customs duty paid on imported goods
where those goods are to be treated, processed or incorporated in other goods for exports or are
exported.
- Elements necessary for drawback
(a) The goods on which drawback is claimed must have been previously imported.
(b) Import duty must have been paid on these goods which were imported.
(c) The goods should be entered for export within 2 years from the payment of duty on their
importation. The period can be extended to 3 years by the Commissioner of Customs on
sufficient cause being shown.
(d) The market price of such goods must not be less than the amount of drawback claimed.

- Post shipment finance against duty drawback

(i) Banks may grant post-shipment finance against duty drawback entitlements covered by the
ECGC.
(ii) Such DDs to be provisionally certified by the Customs
(iii) Advances can also be made available against the EP Copy of the shipping bill issued by the
Customs department and containing the EGM no., etc.,
(iv) Financing Bank may request the Designated Bank to note lien 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 in the Designated Bank’s account.
(v) Period of Post shipment finance - days

9
- Advance against Undrawn Balances

(i) Undrawn balances represent payables by the Overseas buyer after satisfying certain parameters
relating to quality, quantity, etc., and is contingent in nature.
(ii) Based on the commercial judgement, track record of the Exporter and documentary evidence
submitted, Banks may sanction post shipment finance against undrawn balances.
(iii) Period of Post shipment finance - days

- Advance against Retention Money

(i) Retention Money represent a small percentage of the progressive payments, payable by the
Overseas buyer, after a stipulated period from the date of completion of the contract and
generally arises in respect of turnkey projects, construction contracts, etc.
(ii) Banks may grant post shipment finance against retention money subject to the following:
(a) Exporters to may arrange for suitable guarantees or LCs for the portion of retention
money.,
(b) Past performance of the Exporter regarding timely receipt of retention money in the
earlier cases, if any.
(c) Period of Post shipment finance - days
(d) Concessional rate of interest up to 90 days and for a period beyond 90 days @ ECNOS.

- Export of goods on Consignment basis

(i) Consignment exports refer to goods are shipped by the Indian exporters and stocks held
overseas by the Overseas agents or by the Branches/Subsidiaries of the Exporters ready
for sale to the overseas buyers as and when orders are received.
(ii) To enable Indian Exporters achieving greater penetration of Overseas Export markets,
Exporters may open Warehouses abroad to store the goods for which AD Banks have been
delegated with the powers to accord approvals. The realization period in such cases have
also been extended up to 15 months as compared to Exports other than on Consignment
basis.
(iii) Freight and Marine Insurance in respect of Consignment Exports to be arranged in India.
(iv) When goods have been exported on consignment basis, the AD Bank forwarding the
shipping documents to the Overseas Branch/Correspondent Bank should instruct the Bank
to deliver the documents against trust receipt or an undertaking to deliver sale proceeds
within the prescribed period of realization, generally up to 360 days from the date of shipment
of goods.
(v) The agent/consignee may deduct expenses in connection to the Consignment sales viz.,
towards storage & sale of goods like landing charges, warehouse rent, handling charges,
etc., and remit the net amount to the AD Bank in India for credit to the Exporter’s account.
(vi) The Account Sales received from the agent/consignee should be verified and deductions to
be supported by documentary evidences.

10
 (vii) AD Bank may allow exporters to abandon the goods which remain unsold at the expiry of
the period of Sale contract and same to be shown in the Account Sales and necessary
documentary evidences to be submitted along with the Account Sales in such cases.
(viii) ECGC has a cover exclusively to protect shipments made by Exporters on Consignment
basis to their Branch offices/Subsidiaries in the form of Consignment Exports – Stock
Holding Agents Policy where goods consigned to Agents abroad) and Consignment Exports
– Global Entity Policy where goods are consigned to their Branches/Subsidiaries.
(ix) Lends scope for lot of misuse and hence AD Banks to exercise utmost caution and ensure
the track record of the Exporter.
(x) Banks may grant post shipment finance as soon as export takes place and to be liquidated
immediately and as soon as the proceeds received. Should be at par with Exports on outright
sale on cash basis.
(xi) Period of Post shipment finance – maximum 360 days

- Export of goods for Exhibition & sale

(i) Banks may grant post shipment finance against goods sent for Exhibition and Sale basis
abroad.
(ii) Benefit of concessional rate of interest is passed on after the sale is complete and the foreign
exchange is brought in to the country after completion of the exhibition.
(iii) Period of Post shipment finance – generally 90 days

- Sale by DTA to SEZ Units

(i) Goods and services going from a DTA Unit to an SEZ Unit is considered as Exports.
(ii) Hence supply of goods & services from the DTA Unit to the SEZ Unit would be eligible for
Export Finance.
(iii) AD Banks may grant Post shipment finance to DTA Units for supply of goods to the SEZ
Units.
(iv) Period of Post shipment finance – generally 90 days

- Deemed Exports

(i) Deemed exports refer to supplies of goods manufactured in India, which do not leave India
and the payment is received either in rupees or in free foreign exchange.
(ii) The following categories of supply of goods are notified as Deemed Exports as per the
Foreign Trade Policy :-
(a) Supply of goods by a registered person against Advance Authorization. *1
(b) Supply of capital goods by a registered person against Export Promotion Capital Goods
Authorization. *2
(c) Supply of goods by a registered person to EOU *
(d) Supply of gold by a Bank or PSU against Advance Authorization.

11
 *1 Advance Authorization means an authorization issued by the DGFT for Import or
domestic procurement of inputs on pre-import basis for physical exports.

*2 Export Promotion Capital Goods Authorization means an authorization issued by the

DGFT for import of Capital goods for physical exports.

*3 EOU means an Export Oriented Unit or an Electronics Hardware Technology Park or a

Software Technology Park or a Bio Technology Park who are net Positive Foreign Exchange
Earners.

(iii) Banks extend pre-shipment finance against orders for supplies in respect of Projects aided
& financed by Bilateral / Unilateral Agencies/ Funds (IMF, IBRD, IDA) since these are
deemed Exports.
(iv) PC shall be adjusted from free foreign exchange representing payment for the suppliers of
goods to these agencies. Maximum credit for 30 days or up to the actual date of payment
by these agencies whichever is earlier.
(v) It can also be repaid/prepaid out of the balances in the EEFC accounts and also from the
rupee resources of the Exporter to the extent supplies have actually taken place.
(vi) Post supply advances would be treated as Overdue after the period of 30 days.
(vii) In case where such overdue credits are liquidated within a period of 180 days from the
Notional Due date, Banks may charge for such extended period, interest prescribed at
ECNOS at post shipment stage.
(viii) If the bills are not paid within the aforesaid period of 210 days ( 30 days + 180 days) Banks
should charge from the date of advance, the rate prescribed for ECNOS – post shipment.

- Interest equalization scheme – April 2015

- Effective from 1st April 2015, initially for 5 years now extended up to June 2021.
- The benefit will be available from the date of disbursement up to the date of repayment or up to the
date beyond which the outstanding export credit becomes overdue.
- The scheme is available to all exports under 416 tariff lines (for merchant exporters) and across all
ITC (HS) Codes.
- Banks are required to completely pass on the benefit of interest equalization, as applicable, to eligible
borrowers upfront and submit claims to RBI for reimbursement, duly certified by their External
auditors.
- Ministry of Commerce & Industry will place the funds in advance with RBI for a requirement of one
month and reimbursement would be made on a monthly basis through a revolving system.
- All eligible exports under the scheme would have to meet the criteria of minimum processing for the
goods to be called as “ Originating from India “ and would be governed under the provisions of
Foreign Trade Policy 2015-2020 extended up to 30.09.2021.

12
 - Export Credit Guarantee Corporation of India – ECGC

- Extends credit insurance to all the exporters against credit losses in export of goods and services.
- Insurance cover to Banks under various Guarantee schemes and to individual exporters through
policies.
- WTPCG – covers credit risk arising due to Exports not happening for various reasons and covers
both Commercial risks and Political risks.
- WTPSG – covers non-realization of export proceeds and the resultant failure of the Exporter to repay
the post-shipment advance due to insolvency or protracted default of the Exporter.
- Notification to ECGC in respect of export credit extended by the Banks to the Exporters up to the
extent of discretionary limit fixed by ECGC is required to be filed within 30 days from the date of the
sanction.

- Prior approval of ECGC to extend export credit is required in the following cases :-

(a) Amount of advance in excess of the discretionary limit

(b) Accounts classified as Sub-standard/Doubtful even when within the discretionary limit.
(c) Accounts sliding from Standard to Sub-standard or other inferior status.

- Obligation of Banks – where export finance is covered under WTPCG/WTPSG

(i) Verify that the Exporter or any of the Proprietor/Partners/Directors/Guarantors or Sister

Concerns are in the Specific Approval List of the ECGC in which case prior approval of ECGC
needs to be obtained.
(ii) Any change in limits – enhancement, cancellation, reduction, etc., in respect of Standard Assets
to be notified within 30 days from the date of sanction.
(iii) Bills drawn on buyers in Restricted Cover Countries
(iv) Restructuring/Nursing/Rehabilitation/Corp. Debt Restructuring
(v) Extension of PC beyond 360 days
(vi) Extension of Post shipment credit beyond 180 days
(vii) One time settlement or any other settlements
(viii) Write-off (other than Prudential write-off)

Export Finance in Foreign Currency

- Objectives & Basic concepts

- With a view to make credit available to Exporters at internationally competitive rates, AD Banks are
permitted to extend Export Finance in Foreign Currency.
- ROI interest linked to LIBOR/EURIBOR
- Applicable only for cash exports.
- Exporter will have the following options:-

13
 (a) To avail PC in INR and PSC either in INR or in FC (EBR Scheme).
(b) To avail PC in FC and PSC in FC (EBR Scheme)
(c) To avail PC in INR and then convert drawls into PCFC at the discretion of the Bank.
- Choice of currency – USD/GBP/EUR/JPY or any other currency at the discretion of the Bank.
- Exporter has the flexibility to avail PC in one convertible currency as against an Export order invoiced
in another currency. However, the risk and cost of cross currency transaction will be that of the
Exporter.
- Exporters are permitted to avail PCFC even for Exports to ACU Countries.

- Source of Funds for Banks

(a) The F.C. balances available with the Banks in EEFC, RFC, FCNRB a/cs., Escrow accounts and
Exporters’ Foreign Currency accounts subject to ensuring that the requirements of funds by the
account holders for permissible transactions are met.
(b) Banks may also arrange for borrowings from abroad and negotiate lines of credit with Overseas
Banks for this purpose without prior approval of the RBI.
(c) Where Exporters have arranged supplier’s credit for procuring imported inputs, PCFC may be
extended by the AD Banks only for the purpose of financing domestic inputs for exports.
(d) Banks are also permitted to use the foreign currency funds generated through Buy-Sell Swaps
in the domestic markets, subject to the adherence of the AGL limits prescribed by RBI.

- Rate of interest

- Banks are free to determine the interest rates on Export finance in foreign currency and may collect
interest on PCFC on monthly intervals either against sale of foreign exchange or out of the balances
in the EEFC accounts or out of the discounted value of the export bills.

- Period of Credit

- PCFC available for a maximum period of 360 days subject to the production cycle, availabil ity of
funds and discretion of the Bank.
- If export does not take place within 360 days from the date of extending the advance, the PCFC will
be adjusted at TT selling rate for the currency concerned and Banks are free to determine the interest
rates on same.
- Computing the overall export credit limits of the borrowers may be on an on-going basis as per the
Bank’s own policy. Alternatively, Banks may denominate the FC component of Export credit in F.C.
itself with a view to ensure that the Exporters are insulated from the rupee fluctuations. In such cases,
the F.C. component of Export credit sanctioned, disbursed and outstanding will be maintained and
monitored in F.C. However, for translation of FC assets in the Banks’ books, the on-going exchange
rates/FEDAI rates may be used.

14
- Disbursement of PCFC

- Where PCFC is utilized to finance domestic inputs, Banks may apply spot rate for the transaction.
- Banks may prescribe minimum lots for each transaction which is left to the operational convenience
of Banks taking into account the availability of the foreign currency funds.

- Forward Contracts

- Banks are permitted to allow an exporter to book forward contract on the basis of confirmed export
order prior to availing PCFC and cancel the contract (for the portion of drawl used to imported inputs)
at prevailing market rates on availing of PCFC.
- AD Banks are permitted to allow Customers to seek cover in any permitted currency of their choice
which is actively traded in the market, subject to ensuring that the Customer is exposed to exchange
risk in a permitted currency in the underlying transaction.
- Export Credit Performance
(a) Only bills re-discounted abroad “ with recourse “ basis and outstanding will be taken into account
for the purpose of export credit performance.
(b) Bills re-discounted abroad “ without recourse “ will not count for Export Credit Performance.
(c) Bills re-discounted “ with recourse “ in the domestic market could get reflected only in the case
of the first bank discounting the bills as that bank alone will have recourse to the Exporter and
the Bank re-discounting will not reckon the amount as export credit.

- Customer service and Simplification of Procedures

- Banks to provide timely and adequate credit to their exporter clients.

- Banks should open Export Counsel Offices to guide customers particularly in Tier – 2 and Tier – 3
Cities.

- Gold Card Scheme for Exporters

(a) All Exporters with good credit worthiness including MSMEs with good track record would be
eligible.
(b) All borrowers classified as “ Standard “ during the preceding 3 years.
(c) Names of the Proprietor/s, Partner/s, Director/s, Promoter/s etc not in the RBI Caution
List/CIBIL/SAL list of ECGC.
(d) No Overdues under Exports in excess of 10% of the Export turnover in the last FY
(e) The Exporter Entity should be in profit for a continuous period of 3 years

15
- Benefits of Gold Card Scheme

- Limits sanctioned for a minimum period of 3 years with automatic renewal subject to satisfactory
track record.
- 20 % of the total limits under ad-hoc in case of urgent requirements.
- Borrowers given priority in respect of PCFC funding.
- Better terms of credit including rate of interest.
- Applications to be processed at norms simpler and under a process faster than for other exporters.
- Requests would be processed within 25 days/15 days/7 days for fresh applications, renewal of limits
and ad hoc limits, respectively.
- The charges, fee structure will be relatively lower than those provided to other Exporters.
- Banks would consider waiver of collaterals relaxations in norms for inventory.
- Exemption from the ECGC Guarantee Schemes on the basis of card holder’s credit worthiness and
track record.

- Kimberley Process Certification Scheme

- Conflict diamonds play a large role in funding the rebels in the Civil war torn areas of Sierra Leone,
Angola, Ivory Coast, Liberia, etc. hence, banned by the UN Resolutions.
- UN mandated new Kimberley Process Certification Scheme to ensure that no rough diamonds mined
and illegally traded enter the country.
- Therefore, Export/Import of rough diamonds should be accompanied by KPC validated by the
GJEPC along with an undertaking from the Exporter or the Importer in India.

- Factoring

- An arrangement for financing a Company’s business against unpaid invoices drawn in favor of the
Overseas buyer in which the factor becomes responsible for all Credit controls.
- A continuing legal relationship between a financial institution (Factor) and a business concern selling
goods (Exporter of goods) or providing services (export of services) to Customers (Overseas buyers)
on open account basis whereby the factor purchases the Exporter’s receivables with or without
recourse to the Exporter and controls credit extended to Customers (Overseas buyers).

- Functions of Export Factor

(a) Assessment of the status of the Exporter

(b) Assessment of the status of the Overseas Buyer through Import Factor
(c) Pre-payment of receivables to the Exporter after proper documentation
(d) Follow up for recovery with the Import Factor’
(e) Sharing commission with the Import Factor

16
 - Functions of the Import Factor

(a) Maintaining the details of Sales to Overseas buyers

(b) Collection of debts from Overseas buyers & remitting the proceeds to the Export Factor
(c) Providing credit protection in cases of financial inability by the Overseas buyer.

- Advantages of Export Factoring

(a) Immediate financing to the Exporter (generally up to 75 %)

(b) No necessity for covering the transaction under LC
(c) Credit processing of the Overseas buyer (an extensive approach)
(d) Asset management by the Factor
(e) Minimize potential losses including exchange fluctuations.
(f) Availing consultancy services relating to Importing countries.
(g) Alternate to Export Credit Insurance, long term bank financing or other high cost debts.
(h) Improves cash flows and effective working capital management.

- Regulatory guidelines relating to Factoring

(a) AD Banks to take their own business decisions to enter into Export Factoring arrangement with
the Import Factors on “ without recourse “ basis.
(b) AD Banks to determine the working capital requirements of their Exporter clients taking into
account the value of export invoices identified for factoring.
(c) The invoices purchased should represent genuine trade transactions.
(d) In case of Export financing is not done by Export Factor, the Export Factor needs to pass on the
full value on realization of the Export proceeds.
(e) AD Bank to have arrangement with the Import Factor for credit evaluation and collection of
payment.
(f) Notation on the Export invoices that importer has to make payment to the Import Factor.
(g) After factoring, the Export Factor (AD Bank) may close the export bills and report in the EDPMS>
(h) KYC and due diligence of the Exporter shall be ensured by the Export Factor.

…END

17