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E) Period of Credit and Rate of Interest

The document discusses the Reserve Bank of India's (RBI) role in export finance in India. It outlines several key functions of the RBI: (1) Administering interest rates on export financing to make credit available at reasonable rates, (2) Administering exchange rates and bank charges for export credit, (3) Establishing a working group of bankers to simplify credit delivery procedures and address exporter concerns, (4) Inviting exporter suggestions to improve the credit system, and (5) Providing refinancing facilities to commercial banks to enable more lending to exporters. The overall aim is to facilitate exports and maintain a favorable balance of trade through RBI regulations on financial flows.

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59 views15 pages

E) Period of Credit and Rate of Interest

The document discusses the Reserve Bank of India's (RBI) role in export finance in India. It outlines several key functions of the RBI: (1) Administering interest rates on export financing to make credit available at reasonable rates, (2) Administering exchange rates and bank charges for export credit, (3) Establishing a working group of bankers to simplify credit delivery procedures and address exporter concerns, (4) Inviting exporter suggestions to improve the credit system, and (5) Providing refinancing facilities to commercial banks to enable more lending to exporters. The overall aim is to facilitate exports and maintain a favorable balance of trade through RBI regulations on financial flows.

Uploaded by

SK Munaf
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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e)Period of Credit and Rate of

interest
The maximum duration of packing credit period is
180 days, however banks may provide a further 90
days extension as its own discretion, without
referring to RBI.
In order to boost the exports from India, the RBI
has instructed the banks to grant pre-shipment
advance at a concessional rate of interest.

As per the guidelines issued by the Reserve Bank of India


(RBI) on 29 th April 2009 to all scheduled commercial
banks, interest rates effective from 1st May 2009 to 31st
October 2009 will not be exceeding Benchmark Prime
Lending Rate(BPLR) minus 2.5 percentage points per
annum for the following categories of pre-shipment
finance:

Pre-shipment credit up to 270 days.


Pre-shipment credit against incentives receivable
from the Government covered by the ECGC
guarantee up to 90 days.

f) Disbursement of Packing Credit


Advance
After proper sanctioning of credit limits, the
disbursing branch should ensure:
To inform ECGC the details of limit sanctioned in
the prescribed format within 30 days from the
date of sanction.
a)To complete proper documentation and
compliance of the terms of sanction i.e.
creation of mortgage etc.
b)There should be an export order or a letter of
credit produced by the exporter on the basis of
which disbursements are normally allowed

In both the cases following particulars


are to be verified:
Name of the Buyer.
Commodity to be exported.
Quantity.
Value.
Date of Shipment / Negotiation.
Any other terms to be complied with.

g)Maintenance of Accounts, Monitoring


and Repayment
The banks are required to maintain a separate
account in respect of each packing credit. However,
running accounts are permitted in case of exporters
situated in FTZs, EPZs and the 100% EOUs.
Packing credit should be used strictly for the
purposes for which it is granted. Hence, the lending
bank monitors the use of finance by the exporter.
Any default on the part of exporter is charged at
higher rate of interest.

In case the export does not take place for certain


reasons then the exporter is required to refund the
entire amount at higher rate of interest. RBI has
allowed some flexibility in this regard, 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 or another buyer.
However bank need to ensure that the substitution
is commercially necessary and unavoidable.

Role of RBI in Export


Finance
RBI is the central banking institution of India. Its
main function is to authorize, extend and regulate
export credit and transactions including foreign
exchange affairs.
Although it does not provide direct financial
assistance to the exporters, it plays an important
role in administering the pre-shipment and the
post-shipment finance and other financial
assistance available to the Indian exporters and
importers.

Role of RBI in Export


Finance
It has the following two departments for
administering various policies relating to export
finance, credit and foreign currency:
a) Industrial and credit export Department.
b) Exchange Control Department

RBI has the following functions in providing export


credit at concessional rates to Indian exporters:
a) Administration of Interest Rates: Credit being one of
the major inputs for ensuring growth of exports, the
RBI administers interest rates on export finance to
make available export credit on reasonable terms to
exporters.
b) Administration of Rates of Exchange, Interest and
Discount: RBI also administers the rate of exchange,
interest, discount, commission and other bank
charges for the purpose of export credit.

C) Working group of Bankers: RBI has set up a


Working Group of Bankers in order to create an
export friendly environment and to simplify
procedures for delivery of credit to exporters.
This group of officials interact with exporters as well
as local banks by visiting their branches.

On the basis of such interaction, the Working Group


has suggested many changes, such as
To reduce repetitive documentation requirement
and paper work;
To improve the quality of service;
To reduce the cost of non-refund based services to
exporters;
To make available export credit on-line.

d) Improvement in Credit Delivery System: In order


to bring about continuous improvement in the credit
delivery system, the RBI invites direct suggestions
from the exporters.
In order to enable exporters from non-metropolitan
centres to drop in their suggestions, the RBI accepts
suggestions by post or through e-mail at
[email protected].

e)Liberal Refinance Facility: The short term and


medium term credits extended by commercial banks
and financial institutions to the exporters can be
refinanced by the RBI at concessional rate of interest
provided the borrowing institutions do not charge
exporters more than 1.5% over the refinance date.

f)General Refinance Facility: On 26th April 1997, the


RBI introduced the General Refinance Facility under
which all the scheduled commercial banks are
provided General refinance Equivalent to 1% of each
banks fortnightly average outstanding deposits.
This enabled the commercial banks to extend more
credit to the exporters.

A very simple example. As an individual, you monitor


your familys financial status time to time - income of
your family, assets, liabilities etc. You can have a
peaceful daily life, if your receipts are more than your
expenditure. If receipts are more than expenditure, you
have a favourable financial status.
The same measuring rode is applied to find the
financial status of a country. If the balance of receipts
are more than balance of payment, the said country is
in favourable balance of trade. In other words, if export
is more than import, the country is in a favourable
balance of trade.
There are many indicators in regulating the financial
movements of a country which RBI involves. The above
example is one of the last bottom based functions of
RBI in terms of international trade.

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