Sunday, July 19, 2015

RUPEE / FOREIGN CURRENCY EXPORT CREDIT & CUSTOMER SERVICE TO EXPORTERS


PART - A
RUPEE  EXPORT CREDIT

PRE-SHIPMENT RUPEE EXPORT CREDIT

Rupee Pre-shipment Credit/Packing Credit

Definition
'Pre-shipment / Packing Credit' means credit facility 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
(i)            The period for which a packing credit advance may be given by a bank will depend upon the circumstances of the individual case.
(ii)           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 prescribed rate of interest for export credit ab initio.
Disbursement of Packing Credit
(i)    Ordinarily, each packing credit sanctioned should be maintained as separate account for the purpose of monitoring the period of sanction and end-use of funds.
(ii)   Banks may release the packing credit in one lump sum or in stages as per the requirement for executing the orders / LC.

(iii)   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, discount, etc.
(iv) Banks should 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
(i)            General
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 exports have actually taken place.
(ii) Packing credit in excess of export value
a)    Where by-product can be exported
Where the exporter is unable to tender export bills of equivalent value for liquidating the packing credit due to the shortfall on account of wastage involved in the processing of agro products like raw cashew nuts, etc., banks may allow exporters, inter alia, to extinguish the excess packing credit by export bills drawn in respect of by-product like cashew shell oil, etc.
b)    Where partial domestic sale is involved
However, in respect of export of agro-based products like tobacco, pepper, cardamom, cashew nuts etc., the exporter has necessarily to purchase a somewhat larger quantity of the raw agricultural produce and grade it into exportable and non-exportable varieties and only the former is exported. The non-exportable balance is necessarily sold domestically. For the packing credit covering such non-exportable portion, banks are required to charge the rate of interest applicable to the domestic advance from the date of advance of packing credit..
c)    Export of deoiled /defatted cakes
Banks are permitted to grant packing credit advance to exporters of HPS groundnut and deoiled / defatted cakes to the extent of the value of raw materials required even though the value thereof exceeds the value of the export order. The advance in excess of the export order is required to be adjusted either in cash or by sale of residual by-product oil within a period not exceeding 30 days from the date of advance.
(iii) Banks have, however, operational flexibility to extend the following relaxations to their exporter clients who have a good track record:
a)    Repayment / liquidation of packing credit with proceeds of export documents will continue; however, this could be with export documents relating to any other order covering the same or any other commodity exported by the exporter where it is commercially necessary and unavoidable. As far as possible, the substitution of contract should be allowed if the exporter maintains account with the same bank or it has the approval of the members of the consortium, if any.
b)    The existing packing credit may also be marked-off with proceeds of export documents against which no packing credit has been drawn by the exporter. Banks may extend such facility after ensuring that the exporter has not availed of packing credit from another bank against the documents submitted.  If any packing credit has been availed of from another bank, the bank to which the documents are submitted has to ensure that the proceeds are used to liquidate the packing credit obtained from the first bank.
c)    These relaxations should not be extended to transactions of sister / associate / group concerns.

'Running Account' Facility 
(i) Banks have been authorised to extend Pre-shipment Credit ‘Running Account’ facility in respect of any commodity, without insisting on prior lodgement of letters of credit / firm export orders, depending on the bank’s judgement 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 on 'First In First Out' (FIFO) basis and ensure that the 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.
(ii)    If it is noticed that the exporter is found to be abusing the facility, the facility should be withdrawn forthwith.
(iii)  In cases where exporters have not complied with the terms and conditions, the advance will  not be treated as export credit ab initio.
(iv)  Running account facility should not be granted to sub-suppliers.

Export Credit against proceeds of cheques, drafts, etc. representing advance payment for exports

(i)            Banks may grant export credit to exporters of good track record till the realisation 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 and is an approved method of realisation of export proceeds.
(ii)           If, pending compliance with the above conditions, an exporter has been granted accommodation at normal commercial interest rate, banks may give effect to prescribed rate for export credit rate retrospectively once the aforesaid conditions have been complied with and refund the difference to the exporter.

Rupee Pre-shipment Credit to specific sectors/segments
Rupee Export Packing Credit to manufacturer suppliers for exports routed through STC/MMTC/Other Export Houses, Agencies etc.
(i)            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.

Rupee Export Packing Credit to Sub-Suppliers
Packing credit can be shared between an Export Order Holder (EOH) and sub-supplier of raw materials, components etc. subject to the following:
(a)      Running Account facility is not contemplated under the scheme. The scheme will cover the LC or export order received in favour of Export Houses/Trading Houses/Star Trading Houses etc. or manufacturer exporters only with good track record.
(b)      Bankers to an EOH will open an inland LC specifying the goods to be supplied by the sub-supplier to the EOH against the export order or LC received by him as a part of the export transaction. On the basis of such a LC, the sub-supplier's banker will grant EPC as working capital to enable the sub-supplier to manufacture the components required for the goods to be exported. On supplying the goods, the LC opening bank will pay to the sub-supplier's banker against the inland documents received on the basis of inland LC. Such payments will thereafter become the EPC of the EOH.
(c)      It is upto the EOH to open any number of LCs for the various components required with the approval of his banker/leader of consortium of banks within the overall value limit of the order or LC received by him. Taking into account the operational convenience, it is for the LC opening bank to fix the minimum amount for opening such LCs. Normally, the total period will be computed from the date of first drawal of packing credit by any one of the sub-suppliers to the date of submission of export documents by EOH.
(d)      The EOH will be responsible for exporting the goods as per export order or overseas LC and any delay in the process will subject him to the penal provisions issued from time to time. Once the sub-supplier makes available the goods as per inland LC terms to the EOH, his obligation of performance under the scheme will be treated as complied with and the penal provisions will not be applicable to him for delay by EOH, if any.
(e)    The scheme is an additional window besides the existing system of sharing of packing credit between EOH and manufacturer in respect of exported goods. The scheme will cover only the first stage of production cycle. The scheme will not be extended to cover suppliers of raw materials/components etc. to such immediate suppliers.
(f)      EOUs/EPZ/SEZ units supplying goods to another EOU/EPZ/SEZ unit for export are eligible for rupee pre-shipment export credit under this scheme. However, the supplier EOU/EPZ/SEZ unit will not be eligible for any post-shipment facility.
(g)    Credit extended under the system will be treated as export credit from the date of advance to the sub-supplier to the date of liquidation by EOH under the inland export LC system and upto the date of liquidation of packing credit by shipment of goods by EOH. It has to be ensured that no double financing of the same leg of the transaction is involved.
(h)    Banks may approach the ECGC for availing suitable cover in respect of such advances.
(i)     The scheme does not envisage extending credit by a sub-supplier to the       EOH/manufacturer and thus, the payment to sub-suppliers has to be made against submission of documents by LC opening bank treating the payment as EPC of the EOH.

Rupee Pre-shipment Credit to Construction Contractors
(i)            The packing credit advances to the construction contractors to meet their initial working capital requirements for execution of contracts abroad may be made on the basis of a firm contract secured from abroad. This is done through a separate account, on an undertaking obtained from them that the finance is required for incurring preliminary expenses e.g., for transporting the necessary technical staff and purchase of consumable articles for the purpose of executing the contract abroad, etc.
(ii)       The advances should be adjusted within 365 days from the date of advance by negotiation of bills relating to the contract or by remittances received from abroad in this connection. Banks may charge normal rate of interest on the balance amount if any.
(iii)       The exporters undertaking project export contracts including export of services may comply with the guidelines/instructions issued by Reserve Bank of India.

Export of Services
Pre-shipment and post-shipment finance may be provided to exporters of all the 161 tradable services covered under the General Agreement on Trade in Services (GATS) where payment for such services is received in free foreign exchange. The financing bank should take into account the track record of the exporter/overseas counter party and ensure that there is no double financing and the export credit is liquidated with remittances from abroad. The statement of export receivables from such service providers may be tallied with the statement of payables received from the overseas party.
Exporters of services qualify for working capital export credit for consumables, wages, supplies etc.
Banks may ensure that –
·         The proposal is a genuine case of export of services.
·         The item of service export is covered under Appendix 10 of HBPv1.
·         The exporter is registered with the Electronic and software EPC or Services EPC or with Federation of Indian Export Organisations, as applicable.
·         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.

Pre-shipment Credit to Floriculture, Grapes and Other Agro-based Products
      i.        In the case of floriculture, pre-shipment credit is allowed to be extended by banks for purchase of cut-flowers etc. and all post-harvest expenses incurred for making shipment.
     ii.        Banks are allowed to extend credit in respect of export-related activities of all agro-based products including purchase of fertilizers, pesticides and other inputs for growing of flowers, grapes etc., provided banks are in a position to clearly identify such activities as export-related and satisfy themselves of the export potential thereof, and that the activities are not covered by direct/indirect finance schemes of NABARD or any other agency.
    iii.        Export credit should not be extended for investments, such as, import of foreign technology, equipment, land development etc. or any other item which cannot be regarded as working capital.

Export Credit to Processors/Exporters - Agri-Export Zones
      i.        Banks may treat the inputs supplied to farmers by exporters as raw material for export and consider sanctioning the lines of credit/export credit to processors/exporters to cover the cost of such inputs required by farmers to cultivate such crops to promote export of agri products.
     ii.        Banks have to ensure that the exporters have made the required arrangements with the farmers and overseas buyers in respect of crops to be purchased and products to be exported respectively.
    iii.        They are also to monitor the end-use of funds.
   iv.        They have to further ensure that the final products are exported by the processors/exporters as per the terms and conditions of the sanction in order to liquidate the pre-shipment credit as per extant instructions.


POST-SHIPMENT RUPEE EXPORT CREDIT
Definition
'Post-shipment Credit' means any loan or advance granted to an exporter from the date of extending credit after shipment of goods / rendering of services till the date of realisation of export proceeds.

Period of Realisation of Export Proceeds
The period of realization of export proceeds is determined by FED, banks are advised to adhere to the direction issued under FEMA.

Types of Post-shipment Credits
Post-shipment advance can mainly take the form of:
(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. Further, 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 bills.
The overdue post shipment rupee export credit may be also be adjusted from their rupee resources. However, the corresponding GR form will remain outstanding and the amount will be shown outstanding in XOS statement. The exporter’s liability for realisation would continue till the export bill is realised.

Rupee Post-shipment Export Credit

Period
i.        In the case of demand bills, the period of advance shall be the Normal Transit Period (NTP) as specified by FEDAI.
ii.        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. 
iii.        '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.
iv.        An overdue bill
a.    in the case of a demand bill, is a bill which is not paid before the expiry of the normal transit period, plus grace period and
b.    in the case of a usance bill, is a bill which is not paid on the due date.

Advances against Undrawn Balances on Export Bills
In respect of export of certain commodities where exporters are required to draw the bills on the overseas buyer upto 90 to 98 percent of the FOB value of the contract, the residuary amount being 'undrawn balance' is payable by the overseas buyer after satisfying himself about the quality/ quantity of goods.
Payment of undrawn balance is contingent in nature. Banks may consider granting advances against undrawn balances based on their commercial judgement and the track record of the buyer.

Advances against Retention Money
(i)            In the case of turnkey projects, progressive payments are made by the overseas employer in respect of services segment of the contract, retaining a small percentage as retention money which is payable after expiry of the stipulated period from the date of the completion of the contract, subject to obtaining certificate(s) from the specified authority.
(ii)           Retention money may also be sometimes stipulated against the supplies portion in the case of turn-key projects. It may like-wise arise in the case of sub-contracts.
(iii)          The following guidelines should be followed in regard to grant of advances against retention money:
a.    No advances may be granted against retention money relating to services portion of the contract.
b.    Exporters may be advised to arrange, as far as possible, provision of suitable guarantees, instead of retention money.
c.    Banks may consider granting of advances against retention money relating to the supplies portion of the contract.
d.    The payment of retention money may be secured by LC or Bank Guarantee where possible.
e.    Where the retention money is payable within a period of one year from the date of shipment, banks should charge prescribed rate of interest upto a maximum period of 90 days and thereafter at ECNOS.
f.     Where the retention money is payable after a period of one year from the date of shipment, it will be treated as post-shipment credit given on deferred payment terms exceeding one year, and the bank is free to decide the rate of interest.


Export on Consignment Basis
(i) General
a.    In case of exports on consignment basis, even if extension in the period beyond 365 days is granted by the Foreign Exchange Department (FED) for repatriation of export proceeds, banks will charge appropriate prescribed rate of interest only up to the notional due date, subject to a maximum of 365 days.

(ii)   Export of precious and semi-precious stones
Banks may adjust packing credit advances in the case of consignment exports, as soon as export takes place, by transfer of the outstanding balance to a special (post-shipment) account which in turn, should be adjusted as soon as the relative proceeds are received from abroad but not later than 365 days from the date of export or such extended period as may be permitted by Foreign Exchange Department, Reserve Bank of India.

Export of Goods for Exhibition and Sale
Banks may provide finance to exporters against goods sent for exhibition and sale abroad in the normal course in the first instance, and after the sale is completed, allow the benefit of the prescribed rate of interest on such advances, both at the pre-shipment stage and at the post-shipment stage, upto the stipulated periods, by way of a rebate. Such advances should be given in separate accounts.

Post-shipment Advances against Duty Drawback Entitlements
Banks may grant post-shipment advances to exporters against their duty drawback entitlements and covered by ECGC guarantee 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 (ECGC) Ltd provides protection to banks against non-payment of post-shipment credit by exporters. Banks may consider opting for the Whole Turnover Post-shipment Policy.

As the post-shipment guarantee is mainly intended to benefit the banks, the cost of premium may be absorbed by the banks and not passed on to the exporters.

                 Where the risks are covered by the ECGC Ltd, banks should not slacken their                efforts towards realisation of their dues against long outstanding export bills.

Export Credit - DTA to SEZ Units
Goods and services going in to Special Economic Zone area (SEZ) from Domestic Tariff Area (DTA) shall be treated as exports and hence would be eligible for export credit facilities.

DEEMED EXPORTS - RUPEE EXPORT CREDIT
Banks are permitted to extend rupee pre-shipment and post-shipment rupee export credit to parties against orders for supplies in respect of projects aided/financed by bilateral or multilateral agencies/funds (including World Bank, IBRD, IDA).
           
Packing Credit provided should be adjusted from free foreign exchange representing payment for the goods or out of balances in Exchange Earners Foreign Currency account (EEFC A/c), as also from the rupee resources of the exporter.

Banks may also extend rupee
(i)  pre-shipment credit, and
(ii) post-supply credit (for a maximum period of 30 days or upto the actual date of payment by the receiver of goods, whichever is earlier),
For supply of goods specified as 'Deemed Exports'.

The post-supply advances would be treated as overdue after the period of 30 days. In cases where such overdue credits are liquidated within a period of 180 days from the notional due date, the banks will charge interest for the period beyond 30 days at 'ECNOS' at post-shipment stage. If the bills are not paid within the aforesaid period of 210 days, banks will charge interest at the same rate but for the entire period starting from the date of advance. 

INTEREST ON RUPEE EXPORT CREDIT
Interest Rate on Rupee Export Credit
Interest on Pre-shipment Credit
      i.        Interest rates applicable for all tenors of rupee export credit advances sanctioned on or after July 01, 2010 are at or above Base Rate.  
     ii.        If pre-shipment advances are not liquidated from proceeds of bills on purchase, discount, etc. on submission of export documents within 360 days from the date of advance, the advances will not be treated as export credit ab-initio.
    iii.        If exports do not materialise at all, banks should charge domestic lending rate plus penal rate of interest, if any, to be decided by the banks.

Interest on Post-shipment Credit
Early payment of export bills
      i.        In the case of advances against demand bills, if the bills are realised before the expiry of the normal transit period (NTP), interest at the prescribed rate shall be charged from the date of advance till the date of realisation of such bills (the date on which the proceeds get credited to the banks' Nostro accounts).
     ii.        In the case of advance/credit against usance export bills, interest at prescribed rate may be charged only upto the notional/actual due date or the date on which export proceeds get credited to the bank’s Nostro account abroad, whichever is earlier. In cases where the correct due date can be established before/immediately after availment of credit, prescribed interest can be applied only upto the actual due date, provided the actual due date falls before the notional due date.
    iii.        Where interest has been collected at the time of negotiation/purchase/discount of bills and the dues were realized before the due/notional date, the excess interest collected for such period should be refunded to the borrowers.

Interest on Post-shipment Credit Adjusted from Rupee Resources
a.    There may be instances where the payment is made by the buyer but could not be remitted due to political issues. Banks may lodge its claim with ECGC for transfer delays. In such cases, banks may charge interest as applicable to 'ECNOS'-post-shipment even if the post-shipment advance is outstanding beyond six months from the date of shipment. Such interest would be applicable on the full amount of advance.

b.    Where interest has been charged at 'ECNOS' and export proceeds are subsequently realised, the bank may refund the excess amount representing difference between the interest already charged and interest that is chargeable.
 
PART-B
EXPORT CREDIT IN FOREIGN CURRENCY

Pre-shipment Credit in Foreign Currency (PCFC)
General
Authorised dealers have been permitted to extend pre-shipment Credit in Foreign Currency (PCFC) to exporters at LIBOR/EURO LIBOR/EURIBOR related rates of interest as detailed below:

Scheme
i.        It will be applicable only to cash exports.  The instructions with regard to Rupee Export Credit will apply to export credit in Foreign Currency also, unless otherwise specified.
ii.        The exporter will have the following options to avail export finance:
a.    to avail pre-shipment credit in rupees and then the post-shipment credit either in rupees or discounting/ rediscounting of export bills under EBR Scheme.
b.    to avail pre-shipment credit in foreign currency and discount/ rediscounting the export bills in foreign currency under EBR Scheme.
c.    to avail pre-shipment credit in rupees and then convert drawals into PCFC.
iii.        Choice of currency
a.    The facility may be extended in any of the convertible currencies viz. US Dollars, Pound Sterling, Japanese Yen, Euro, etc.
b.    Banks may extend PCFC in one currency in respect of an export order invoiced in another convertible currency. However the risk and cost of cross currency transaction will be that of the exporter.
c.    Banks are permitted to extend PCFC for exports to ACU countries.
d.    The benefit to the exporters will accrue only after the realisation of the export bills or when the resultant export bills are rediscounted on ‘without recourse’ basis.

Source of funds for banks
      i.        The foreign currency balances available with the bank in EEFC Accounts, RFC (D) and FCNR Accounts could be utilised for financing the pre-shipment credit in foreign currency.
     ii.        Bank may also use the foreign currency available under Escrow Accounts and Exporters Foreign Currency Accounts. However it is to be ensured that the requirements of the account holders are met and the limit prescribed for maintaining maximum balance in the account under broad based facility is not exceeded.
    iii.        Foreign currency borrowings
a.    Banks may negotiate lines of credit with overseas banks for granting PCFC without the prior approval of the RBI..
b.    If the Bank doesn’t have a branch abroad, it may avail lines of credit from other banks in India. The spread is left to the discretion of the banks concerned.
c.   Banks should draw on the line of credit only to the extent of loans granted under the PCFC. However, where the overseas bank stipulates a minimum amount, the unutilized portion or the portion pre payment by the exporter may be managed by the bank within its foreign exchange position and Aggregate Gap Limit (AGL).
   iv.        In case the exporters have arranged for the suppliers’ credit, the PCFC facility may be extended by the banks only for the purpose of financing domestic inputs for exports.
    v.        Banks are also permitted to use foreign currency funds borrowed and generated through buy-sell swaps in the domestic forex market for granting PCFC subject to adherence to Aggregate Gap Limit (AGL) prescribed by RBI (FED).

Spread
  1. Banks are free to determine the interest rates on export credit in foreign currency.
     ii.        LIBOR / EURO LIBOR / EURIBOR rates are normally available for standard period of 1, 2, 3, 6 and 12 months. Banks may quote rates on the basis of standard period if PCFC is required for less than 6 months. However, while quoting rates for non-standard period, banks should ensure that the rate quoted is below the next upper standard period rate.
    iii.        Banks may collect interest on PCFC at monthly intervals against sale of foreign currency or balances in EEFC accounts or out of discounted value of the export bills if PCFC is liquidated.
Period of credit
                      i.        The PCFC will be available for a maximum period of 360 days. Any extension of the credit will be subject to the same terms and conditions as applicable for extension of rupee packing credit.
                     ii.        If no export takes place within 360 days, the PCFC will be adjusted at T.T. selling rate. In such cases, banks can arrange to remit foreign exchange to repay the loan or line of credit raised abroad without prior permission of RBI.
                    iii.        For extension of PCFC within 180 days, banks are free to determine the interest rates on export credit in foreign currency.

Export Credit in Foreign Currency to Protect Exporters from Rupee Fluctuations
1. Banks extend export credit in Indian Rupees as well as in foreign currency, as per their own internal lending policies within the overall regulatory framework of Reserve Bank.
2 While the overall export credit limits are fixed in Indian Rupees, the foreign currency component of export credit fluctuates based on the prevailing exchange rates.
3. It is observed that whenever there is a  depreciation of Indian Rupee :
i. the unavailed foreign currency component of export credit gets reduced;
ii. The value of the availed component of foreign currency increases, resulting in the exporter being asked to reduce their exposure by part payment thereby depriving exporter of funds.
4. Banks are advised that they may compute the overall export credit limits of the borrowers on an on-going basis, and re-allocate limit towards export credit in foreign currency, as per the bank's own policy.
5.  Alternatively, banks may denominate foreign currency (FC) component of export credit in foreign currency only. This will insulate the from Rupee fluctuations. However, for translation of FC assets in the banks' book, the on-going exchange / FEDAI rates may be used.
Disbursement of PCFC
                      i.                       In case any part of PCFC is used to finance domestic inputs, banks may apply appropriate spot rate for the transaction.
                     ii.             It is left to the banks to stipulate the minimum lots of transactions. However, while fixing the minimum lot, banks may take into account the needs of their small customers also.
                    iii.        Banks should take steps to streamline their procedures so that no separate sanction is needed for PCFC once the packing credit limit has been authorised.

Liquidation of PCFC Account
    i.    General
PCFC can be liquidated out of proceeds of export documents under EBR scheme or by grant of foreign currency loans (DP Bills). It can also be liquidated out of balances in EEFC A/c or from rupee resources of the exporter to the extent exports have actually taken place subject to the consent of both the bank and the exporter.
    ii.    Packing credit in excess of F.O.B. value
Where packing credit required is in excess of FOB value, PCFC would be available only for exportable portion of the produce.

     iii.   Substitution of order/commodityLiquidation of PCFC could be done with export documents relating to any other export order or amount of balance in the EEFC Account subject to it being commercially necessary and unavoidable. As far as possible, the substitution of contract should be allowed if the exporter maintains account with the same bank or it has the approval of the members of the consortium, if any.

Cancellation/non-execution of export order
 i.          If export order for which the PCFC was availed is cancelled, or if the exporter is unable to execute the export order for any reason, the exporter may repay the loan, by purchasing foreign exchange from domestic market through the bank.  In such cases, interest will be payable on the rupee equivalent at the rate applicable to ECNOS at pre-shipment stage plus a penal rate of interest from the date of advance.
     ii.     Banks may also remit the amount towards liquidation of the line of credit availed from overseas banks to finance the PCFC.
    iii.     Banks may extend PCFC to such exporters subsequently, after ensuring that the earlier cancellation of PCFC was due to genuine reasons.

Running Account Facility for all commodities
      i.        Banks are permitted to extend the ‘Running Account’ facility under the PCFC Scheme to exporters for all commodities, on the lines of the facility available under rupee credit, subject to the following conditions:
a.    The Bank should be satisfied that the exporter genuinely needs the Running Account Facility.
b.    Banks may extend the facility only to those exporters whose track record has been good.
c.    Where the exporter has availed pre-shipment ‘Running Account’ facility, he should submit the LCs or firm orders within a reasonable period of time.
d.    The PCFC will be marked-off on the ‘First-in-First-Out’ basis.
e.    PCFC can also be marked-off with proceeds of export documents against which no PCFC has been drawn by the exporter.
     ii.        Banks should closely monitor the production of firm order or LC and also the end-use of funds. In case The PCFC is not utilised for export purposes, the penal provisions should be made applicable and the ‘Running Account’ facility should be withdrawn.
    iii.        Banks are required to take any prepayment by the exporter under PCFC scheme within their foreign exchange position and Aggregate Gap Limit (AGL). Banks may charge the exporters the funding cost, if any, involved in absorbing mismatches in respect of the prepayment beyond one month period.

Forward Contracts
      i.        Banks are also permitted to allow an exporter to book forward contract on the basis of confirmed export order prior to availing of PCFC and cancel the contract at prevailing market rates on availing of PCFC.
     ii.        Banks are permitted to allow customers to seek cover in any permitted currency of their choice, subject to ensuring that the customer is exposed to exchange risk in the underlying transaction.
    iii.        While allowing forward contracts, banks may ensure compliance of the basic Foreign Exchange Management requirement that the customer is exposed to an exchange risk at different stages of the export finance.

Sharing of EPC under PCFC
      i.        The rupee export packing credit is allowed to be shared between an export order holder and the manufacturer of the goods to be exported. Similarly, banks may extend PCFC also to the manufacturer on the basis of the disclaimer from the export order holder through his bank.
     ii.        PCFC granted to the manufacturer can be repaid by transfer of foreign currency from the export order holder by availing of PCFC or by discounting of bills. Banks should ensure that no double financing is involved in the transaction and the total period of packing credit is limited to the actual cycle of production of the exported goods.
    iii.        The facility may be extended where the banker or the leader of consortium of banks is the same for both the export order holder and the manufacturer. Where the bankers are different, the facility may be granted when the concerned banks agree to such an arrangement. The sharing of export benefits will be left to the mutual agreement between the export order holder and the manufacturer.

Supplies from One EOU/EPZ/SEZ Unit to another EOU/EPZ/SEZ Unit                              
      i.        PCFC may be made available to both, the supplier EOU/EPZ/ SEZ unit and the receiver EOU/EPZ/ SEZ unit.
     ii.        The PCFC for supplier EOU/EPZ/SEZ unit will be for supply of raw materials/components of goods which will be further processed and finally exported by   receiver EOU/ EPZ / SEZ unit.
    iii.        The  PCFC extended to the supplier EOU/EPZ/SEZ unit will have to be liquidated by receipt of foreign exchange from the receiver EOU/EPZ/SEZ unit, for which, the receiver EOU/EPZ/SEZ unit may avail of PCFC.
   iv.        The stipulation regarding liquidation of PCFC by payment in foreign exchange will be met by transfer of foreign exchange from the banker of the receiver EOU/EPZ/SEZ unit and not by negotiation of export documents.
    v.        It has to be ensured that there is no double financing for the same transaction. Needless to add, the PCFC to receiver EOU/EPZ/SEZ unit will be liquidated by discounting of export bills.

Deemed Exports 
PCFC may be allowed for ‘deemed exports’ only for supplies to projects financed by multilateral/bilateral agencies/funds. PCFC released for ‘deemed exports’ should be liquidated by grant of foreign currency loan at post-supply stage. Such loans are allowed for a maximum period of 30 days or upto the date of payment by the project authorities, whichever is earlier. PCFC may also be repaid/ prepaid out of balances in EEFC A/c as also from rupee resources of the exporter to the extent supplies have actually been made.

Other aspects
      i.        The applicable benefits to the exporters will accrue only after realisation of the export bills except when bills are discounted/ rediscounted 'without recourse'.
     ii.        Surplus of export proceeds available after adjusting relative export finance and credit to EEFC account should not be allowed for setting off of import bills.
    iii.        ECGC cover will be available in rupees only, whereas PCFC is in foreign currency.
   iv.        For the purpose of reckoning banks' performance in extending export credit, the rupee equivalent of the PCFC may be taken into account.

Diamond Dollar Account (DDA) Scheme
Firms / Companies dealing in rough or cut and polished diamonds as well as diamond studded jewellery, with good track record of at least two years with an annual average turnover of Rs. 3 crore or above during the preceding three licensing years are permitted to carry out their business through designated Diamond Dollar Accounts (DDAs).
Banks may liquidate the PCFC granted to a DDA holder by dollar proceeds from sale of his products to another DDA holder.


Post-shipment Export Credit in Foreign Currency
Rediscounting of Export Bills Abroad Scheme (EBR)

General
Banks may utilise the foreign exchange resources available with them in EEFC, RFC, and FCNR accounts 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.

Scheme
      i.        It will be comparatively easier to have a facility against bills portfolio than to have rediscounting facility abroad on bill by bill basis. There will, however, be no bar if rediscounting facility on bill to bill basis is arranged by a bank in case of any particular exporter, especially for large value transactions.
     ii.        Banks may arrange a "Bankers Acceptance Facility" (BAF) for rediscounting the export bills without any margin and duly covered by collateralised documents.
    iii.        Each bank can have its own BAF limit(s) fixed with an overseas bank or a rediscounting agency or an arrangement with any other agency such as factoring agency on ‘without recourse’ basis only.
   iv.        The exporters, on their own, can arrange for a line of credit with an overseas bank or any other agency for discounting their export bills directly subject to the following conditions:
(a) Direct discounting of export bills with overseas bank will be done only through the branch of an authorized dealer designated for this purpose.
(b) Discounting of export bills will be routed through authorized dealer from whom the packing credit facility has been availed of. In case, these are routed through any other bank, that banks will first arrange to adjust the amount outstanding under packing credit out of the proceeds.
    v.        The limits granted to banks by overseas banks/discounting agencies under BAF will not be reckoned for the purpose of borrowing limits fixed by RBI (FED) for them.

Eligibility criteria
      i.        The Scheme will cover mainly export bills with usance period upto 180 days from the date of shipment. There is, however, no bar to include demand bills, if overseas institution has no objection to it.   
     ii.        In case borrower is eligible to draw usance bills for periods exceeding 180 days, Post-shipment Credit under the EBR may be provided beyond 180 days.
    iii.        The facility under the Scheme of Rediscounting may be offered in any convertible currency.
   iv.        Banks are permitted to extend the EBR facility for exports to ACU countries.
    v.        The BAF Scheme may be centralised at a branch designated by the bank. There will, however, be no bar for other branches of the bank to operate the scheme.

Source of On-shore funds
(i)    In the case of demand bills, these may have to be routed through the existing post-shipment credit facility or by way of foreign exchange loans to the exporters out of the foreign currency balances available with banks in the Schemes ibid.          
(ii)   As different banks may be having BAF for varying amounts, it will be possible for a bank which has balance available in its limit to offer rediscounting facility to another bank which may have exhausted its limit or could not arrange for such a facility.
(iii) Banks may avail of lines of credit from other banks in India if they are not in a position to raise loans from abroad on their own or they do not have branches abroad
(iv) Banks are also permitted to use foreign currency funds borrowed and foreign currency funds generated through buy - sell swaps in the domestic forex market for granting facility of rediscounting of Export Bills Abroad (EBR) subject to adherence to Aggregate Gap Limit (AGL) approved by RBI (FED).

Facility of Rediscounting 'with recourse' and 'without recourse'
‘Without recourse’ should always be the preferred mode of rediscount. However, since it is difficult to get ‘without recourse’ facility from abroad under BAF or any other facility, bills may be rediscounted ‘with recourse’.

Accounting aspects
      i.        The rupee equivalent of the discounted value of the export bills will be payable to the exporter which can be utilised to liquidate the outstanding export packing credit.
     ii.        As the discounting of bills/ loans (DP bills) will be in actual foreign exchange, banks may apply appropriate spot rate for the transactions.
    iii.        The rupee equivalents of discounted amounts/ loan may be held in the bank’s books distinct from the existing post-shipment credit accounts.
   iv.        In case of overdue bills, banks may charge interest from the due date to the date of crystallization as per the  interest rate policy of the bank..
    v.        Interest rate as per RBI interest rate directive for post-shipment credit in rupees will be applicable from the date of crystallisation.
   vi.        In the event of export bill not being paid, bank will remit the amount, to the overseas bank/agency which had discounted the bill, without the prior approval of the RBI.

Restoration of limits and availability of export benefits such as EEFC Account  
In case of ‘with recourse’ facility, restoration of exporter’s limits and availability of export benefits will be effected only on realisation of export proceeds. However, if the bills are rediscounted on ‘without recourse’ basis, such benefits may be given effect immediately on rediscounting.

ECGC cover
In the case of export bills rediscounted ‘with recourse’, coverage provided by ECGC Ltd will continue till the relative bill is retired/paid. Where the bills are rediscounted ‘without recourse’, the liability of ECGC ceases as soon as the relative bills are rediscounted.   
   
Export credit performance
(i)            Only the bills rediscounted abroad ‘with recourse’ basis and outstanding will be taken into account for the purpose of export credit performance. The bills rediscounted abroad ‘without recourse’ will not count for the export credit performance.
(ii)           Bills rediscounted ‘with recourse’ in the domestic market could get  reflected only in the case of the first bank discounting the bills.

INTEREST ON EXPORT CREDIT IN FOREIGN CURRENCY
Interest rate structure on Export Credit in Foreign Currency
In respect of export credit at internationally competitive rates under the schemes of 'Pre-shipment Credit in Foreign Currency' (PCFC) and 'Rediscounting of Export Bills Abroad' (EBR), banks are free to determine the interest rates on export credit in foreign currency.


PART -C
CUSTOMER SERVICE AND SIMPLIFICATION OF PROCEDURES
Customer Service
General
      i.        Banks may provide timely and adequate credit and also render essential customer services/guidance in regard to procedural formalities and export opportunities to their exporter clients.
     ii.        Banks should open Export Counsel Offices to guide exporters particularly the small ones and those taking up non-traditional exports.
Gold Card Scheme for exporters
Gold Card Scheme was drawn up in consultation with select banks and exporters. The Gold Card holder would enjoy simpler and more efficient credit delivery mechanism in recognition of his good track record. The salient features of the Scheme are:
      i.        All creditworthy exporters, including those in small and medium sectors, with good track record would be eligible for issue of Gold Card.
     ii.        Gold Card under the Scheme may be issued to all eligible exporters including those in the small and medium sectors.
    iii.        The scheme will not be applicable for exporters blacklisted by ECGC or having overdue bills in excess of 10% of the previous year’s turnover.
   iv.        Gold Card holder exporters, depending on their track record and credit worthiness, will be granted better terms of credit including rates of interest.
    v.        Applications for credit will be processed faster and the norms will be simpler as compared to other exporters.
   vi.        Banks would clearly specify the benefits they would be offering to Gold Card holders.
  vii.        The charges schedule and fee-structure will be relatively lower than those provided to other exporters.
 viii.        The sanction and renewal of the limits will be based on a simplified procedure. The banks may determine need-based finance with a liberal approach.
   ix.        'In-principle' limits will be sanctioned for a period of 3 years with a provision for automatic renewal subject to fulfillment of the terms and conditions of sanction.
    x.        A stand-by limit of not less than 20 per cent of the assessed limit may be additionally made available to facilitate urgent credit needs for executing sudden orders. In the case of exporters of seasonal commodities, the peak and off-peak levels may be appropriately specified.
   xi.        In case of unanticipated export orders, norms for inventory may be relaxed, taking into account the size and nature of the export order.
  xii.        Requests from card holders would be processed in 25 days / 15 days and 7 days for fresh applications / renewal of limits and ad hoc limits, respectively.
 xiii.        Gold Card holders would be given preference in the matter of granting of packing credit in foreign currency.
 xiv.        Banks would consider waiver of collaterals and exemption from ECGC guarantee schemes on the basis of card holder's creditworthiness and track record.
  xv.        The facility of further value addition to their cards through supplementary services like ATM, Internet banking, International debit / credit cards may be decided by the issuing banks.
 xvi.        The applicable rate of interest will not be more than the general rate for export credit in the respective bank. Banks will endeavour to provide the best rates possible to Gold Card holders on the basis of their rating and past performance.
xvii.        Gold Card holders, will be considered for issuance of foreign currency credit cards for meeting urgent payment obligations, etc.
xviii.        Banks may ensure that the PCFC requirements of the Gold Card holders are met by giving them priority with regard to granting loans out of their FCNR (B) funds, etc.
 xix.        Banks will consider granting term loans in foreign currency in deserving cases out of their FCNR (B), RFC, etc. funds.
Delay in crediting the proceeds of export bills drawn in foreign currency
The interest on post-shipment credit will cease from the date the proceeds are credited to the 'Nostro' account of the Bank. But the credit limits of the exporters remain frozen till the credit is appropriated in the account. It is therefore important that the credit is passed on to the account as early as possible.

Payment of compensation to exporters for delayed credit of export bills
      i.        In respect of the delay in affording credit, the compensation stipulated by FEDAI should be paid to the exporter client, without waiting for a demand from the exporter.
     ii.        Banks should devise a system to monitor timely credit of the export proceeds and payment of compensation as per FEDAI rules.
    iii.        The internal audit and inspection teams of the banks should specifically comment on these aspects in the reports.



Sanction of export credit proposals

Time limit for sanction
The sanction of fresh/enhanced export credit limits should be made within 45 days from the date of receipt of credit limit application. In case of renewal of limits and sanction of ad hoc credit facilities, the time taken by banks should not exceed 30 days and 15 days respectively.
Ad hoc limit
At times, exporters require ad hoc limits to take care of large unforeseen export orders. Banks should respond to such situations promptly. Banks should also adopt a flexible approach in respect of exporters, who for genuine reasons are unable to bring in corresponding additional contribution in respect of higher credit limits. No additional interest is to be charged in respect of ad hoc limits granted by way of pre-shipment/post-shipment export credit.
In cases where the export credit limits are utilised fully, banks may adopt a flexible approach in negotiating the bills drawn against LCs. Similarly branches may also be authorized to disburse a certain percentage of the enhanced/ad hoc limits, pending sanction by the higher authorities/board/committee in case of urgency.
Other requirements
      i.        All rejections of export credit proposals should be brought to the notice of the Chief Executive of the bank explaining the reasons for rejection.
     ii.        The internal audit and inspection teams of the banks should comment specifically on the timely sanction.
    iii.        The export credit limits should be excluded for bifurcation of the working capital limit into loan and cash credit components.
   iv.        Banks should nominate compliance officers in their foreign departments/specialized branches to ensure prompt and timely disposal of cases pertaining to exporters.
    v.        It is necessary to submit a review note at quarterly intervals to the Board on the position of sanction of credit limits to exporters. The note may cover among other things, number of applications (with quantum of credit) sanctioned within the prescribed time-frame, number of cases sanctioned with delay and pending sanction explaining reasons therefor. 



Simplification of procedure for delivery of export credit in foreign currency and in rupees
General
Guidelines  
      i.        Simplification of procedures
a.    Banks should simplify the application form and reduce data requirements from exporters for assessment of their credit needs.
b.    Banks should adopt the most suited method for assessment of working capital.
c.    In the case of consortium finance, once the consortium has approved the assessment, member banks should simultaneously initiate their respective sanction processes.

     ii.        'On line' credit to exporters
a.    Banks normally provide 'Line of Credit' for one year which is reviewed annually. In case of delay in renewal, the sanctioned limits should be allowed to continue uninterrupted and urgent requirements of exporters should be met on ad hoc basis.
b.    In case of exporters with satisfactory track record, banks should consider sanctioning a 'Line of Credit' for a longer period, say, 3 years, with in-built flexibility to step-up/step-down the quantum of limits within the overall outer limits..
c.    In case of export of seasonal commodities, agro-based products,  etc., banks should sanction Peak/Non-peak credit facilities to exporters.
d.    Banks should permit interchangeability of pre-shipment and post- shipment credit limits.
e.    Term Loan requirements for expansion of capacity, modernization of machinery and up gradation of technology should also be met by banks at their normal rate of interest.
f.     Assessment of export credit limits should be 'need based'. Credit should not be denied merely on the grounds of non-availability of collateral security.

    iii.        Waiver of submission of orders or LCs for availing pre-shipment credit.
a.    Banks should not insist on submission of export order or LC for every disbursement of pre-shipment credit, from exporters with consistently good track-record. Instead, a system of periodical submission of a statement of LCs or export orders in hand should be introduced.
b.    This may be incorporated in the sanction proposals as well as in the sanction letters and brought to the notice of ECGC. Further, if such waivers are permitted after sanction of export credit limits, the same may be incorporated in the terms of sanction by way of amendments and communicated to ECGC.
   iv.        Handling of export documents
Banks are required to obtain, among others, original sale contract/confirmed order / proforma invoice countersigned by overseas buyer / indent from authorized agent of overseas buyer for handling the export documents only in case of transactions with Letters of Credit (LC) where the terms of LC require submission of the sale contract / such documents.

    v.        Fast track clearance of export credit
a.    At specialized branches and branches having sizeable export business, a facilitation mechanism for assisting exporter-customers should be put in place for quick initial scrutiny of credit application and for discussions for seeking additional information or clarifications.
b.    Banks should streamline their internal systems and procedures to comply with the stipulated time limits for disposal of export credit proposals and also endeavour to dispose of export credit proposals ahead of the prescribed time schedule. A flow chart indicating chronological movement of credit application from the date of receipt till the date of sanction should also accompany credit proposals.
c.    Banks should delegate higher sanctioning powers to their branches for export credit.
d.    Banks should consider reducing at least some of the intervening layers in the sanctioning process. It would be desirable to ensure that the total number of layers involved in decision-making in regard to export finance does not exceed three.
e.    Banks should introduce a system of 'Joint Appraisal' by officials at branches and administrative offices, to facilitate quicker processing of export credit proposals.
f.     Where feasible, banks should set up a 'Credit Committee' at specialized branches and at administrative offices, for sanctioning working capital facilities to exporters. The 'Credit Committee' should have sufficiently higher sanctioning powers.

   vi.        Publicity and training
a.    Generally, export credit is made available in foreign currency at select branches of banks.  Exporters need to be encouraged to make maximum use of export credit in foreign currency.  Banks should make it easily accessible to all exporters including small exporters and ensure that more number of branches are designated for making available export credit in foreign currency.
b.    Banks may also arrange to publicise the prescribed interest rates available for deemed exports and ensure that operating staff are sensitized in this regard.
c.    Officers at operating level should be provided with adequate training. 

  vii.        Customer Education
a.    Banks should bring out a Hand Book containing salient features of the simplified procedures for the benefit of their exporter-clients.
b.    To facilitate interaction between banks and exporters, banks should periodically organise Exporters' Meet at centres with concentration of exporters.
Monitoring implementation of guidelines
i.        Banks should ensure that exporters’ credit requirements are met promptly. The above referred guidelines must be implemented, both in letter and spirit, so as to bring about a perceptible improvement in credit delivery and related banking services to export sector. Banks should also address the deficiencies, if any, in the mechanism of deployment of staff in their organisations to eliminate the bottlenecks in the flow of credit to the export sector.
ii.        Banks should set up an internal team to visit branches periodically to gauge the extent of implementation of the Guidelines.
Pre-shipment credit to Diamond Exporters - Conflict Diamonds - Implementation of Kimberley Process Certification Scheme (KPCS)
Trading in conflict diamonds has been banned by U. N.  Resolutions as the conflict diamonds play a large role in funding the rebels in the civil war torn areas of Sierra Leone. There is also a Prohibition on the direct / indirect import of all rough diamonds from Sierra Leone and Liberia. India, among other countries, has adopted a UN mandated new Kimberley Process Certification Scheme to ensure that no rough diamonds mined and illegally traded enter the country. Therefore, import of diamonds into India should be accompanied by Kimberley Process Certificate (KPC). Similarly, exports from India should also be accompanied by the KPC to the effect that no conflict/ rough diamonds have been used in the process. The KPCs would be verified/validated in the case of imports/ exports by the Gem and Jewellery Export Promotion Council. In order to ensure the implementation of Kimberley Process Certification Scheme, banks should obtain an undertaking from such of the clients who have been extended credit for doing any business relating to diamonds.
Compliance of Foreign Exchange Management Act, 1999
Bank shall note to adhere to the directions issued under Foreign Exchange Management Act, 1999 as amended from time to time.
Based on RBI master circular dated 1/7/15.Refer www.rbi.org.in for any clarification if needed…. Poppy