Posts
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
- 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
It was a great article with proper explanation.
ReplyDeleteIt's very informative!
Read more about PCFC