PRE SHIPMENT CREDIT

Contents

IntroductionClassificationPacking Credit

Eligibility Security Quantum of Finance Period/Interest Rate Running Account

Advances against incentives receivable from Government

Pre-Shipment credit in Foreign Currency(PCFC)ExamplesReferences

Introduction

Needed for:- Purchase of raw materials Components, processing cost Transportation Packing, packaging Warehousing

Providing credit facilities to the importer‘Buyer prefers that party who provides

finance for his purchase’

Classification

1. Packing Credit2. Advances against incentives receivable from

Government3. Pre-Shipment credit in Foreign

Currency(PCFC)

1.1 Eligibility

Confirmed Export Order or Irrevocable letter of credit.

Export/Trading/Star Trading/Super Star Trading House or exporter.

Exporter of services exporters of all the 161 tradable services covered under the General Agreement

on Trade in Services (GATS)Supplier/supporting manufacture of exporter

Letter from export house indicating details Supplier and exporter will share the finance.

1.2 Form of Finance

Fund Based Dependent upon the stage of execution of order Release loan from time to time

Non Fund Based In the form of letter of credit Issue of various types of guarantee

1.3 Security

Clean Raw material not acquired

Secured Goods possessed, title acquired Goods pledged or hypothecated to bank Credit becomes secured

1.4 Quantum of Finance

RBI guideline No export order should suffer from want of

finance

Should be adequate Domestic cost of production or FOB value of

export order, whichever is lower

1.5 Margin Requirement

No fixed normsEnsure business sense and consciousness to

the exporterNo intention to finance the profit component

in the export contractExport Credit Insurance Whole Turnover

Packing Credit (ECIB-WTPC) Protects banks against losses due to

exporter’s default nominal guarantee fee, borne by the

exporters.

1.6 Period /Interest Rate

Initially for 180 daysAccording to production cycle90 days extension in

‘circumstances beyond exporters control’ Revalidated export order or L/C.

Concessional rate of interest as per RBI Less than the prime lending rate of the bank

No other service charges other than stipulated by “Foreign Exchange Dealers Association of India”

If found abusing the facility, commercial lending rate ab initio.

Premium paid to ECGC to be borne by exporter.

1.7 Sanction of Packing Credit Limit

Based on the assessment of the bank in respect of credit needs.

Separate packing credit loan account is opened for every export order.

Bank takes undertaking that:- Negotiation will be through the bank Account will be closed through these proceeds Receivables/duty drawback into that account

1.8 Closure of Packing Credit Loan

Closed with realization of sale proceedsBalance not allowed to continue

Transferred to another account Advances treated as post shipment finance As per compliance to ECGC .

1.9 Running Account Facility

RBI permits even without export order/letter of credit subject to:- Satisfaction of the bank Unblemished track record L/C order to be submitted within reasonable

period. Not more than 180 days. EOUs, EPZs and SEZs.

1.10 Packing Credit under Red Clause L/C

Credit at risk and responsibility of the Foreign Bank establishing the L/C.

Remains unsecured till hypothecation

2. Advances against Incentives

Generally sanctioned at post shipment stages.Under exceptional circumstances

Cost of production > FOB value of goodsSubject to the conditions

Covered under “Export Production Finance Guarantee of ECGC”

Advances repaid from proceeds of shipment and receipt of incentives

Premium paid to ECGC, borne by exporter

3. Pre Shipment Credit in Foreign Currency(PCFC)

To import the raw material to execute the export contract

Available in all foreign currencies US Dollars, Pound Sterling, Japanese Yen, Euro, etc.

No sanction without confirmed export order or irrevocable L/C.

Self liquidating in nature

3.1 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)- Foreign currency (Non-Resident/Exporters)Accounts - Escrow Accounts

Foreign Currency line of credit lines of credit with overseas banks (or other domestic banks) without the

prior approval of the RBI, provided the rate of interest on the line of credit does not exceed 1

percent above LIBOR/EURO LIBOR/EURIBOR.

http://www.investopedia.com/terms/l/libor.asp http://www.diffen.com/difference/EURIBOR_vs_LIBOR

Examples

http://www.federalbank.co.in/export-pre-shipment-credit

https://www.sbi.co.in/ibg/wholesale/project.htm

http://www.icicibank.com/business-banking/tradeservice/export-finance.html

References

http://www.iibf.org.in/documents/export-credit.pdf

http://www.Investopedia.comhttp://www.eximbankindia.in/?q=corporate-

bankinghttp://rbidocs.rbi.org.in/rdocs/notification/

PDFs/24738.pdf

Questions??

THANK YOU