EXPORT FINANCE. FEDERATION OF INDIAN EXPORT ORGANISATIONS SOUTHERN REGION, CHENNAI. EXPORT FINANCE. “Export or perish” Our imports are more than exports. Hence there is a necessity to encourage exports. Govt. and RBI extend various concessions to boost exports. EXPORT FINANCE.
FEDERATION OF INDIAN EXPORT ORGANISATIONS
SOUTHERN REGION, CHENNAI
“Export or perish”
Our imports are more than exports.
Hence there is a necessity to encourage exports.
Govt. and RBI extend various concessions to boost exports.
Some of the concessions include:
Cheap credit to exporters.
Minimum of 12% of net credit should go to exports.
Refinance to Banks on eligible portion of export credit outstanding.
ECGC guarantee for export credits
No margin requirements for advance against export receivables.
Flexible approach to export lending and norms of lending.
Time norms for disposal of application for export credit.
Rejection with the concurrence of next higher authority
Bifurcation of WC limits into loan and cc component after excluding export limits.
Issue of Gold Card to exporters with good track record.
Export credit can be broadly classified into
Pre-shipment finance and
post shipment finance.
Pre-shipment finance refers to finance extended to purchase, processing or packing of goods meant for exports.
Financial assistance extended after the shipment of exports falls within the scope of post shipment finance.
.As loan or cash credit against pledge or hypothecation.
.Verification of Exporter-Importer Code No. issued by DGFT.
.Party should not be in the RBI Caution list or ECGC Special Approval List.
.Export is not to a listed country
.OPL on the buyer
.Up-to date knowledge of export policy
.Commodity should not be in the negative list.
.Commodity should have a good market
.Terms of contract
.No FEMA violation
.Borrower should be credit worthy.
Working capital may be defined as funds required to carry the required level of Current assets to enable the industry to carry on its operations at the expected levels uninterruptedly
Gross working capital – represented by
Other current assets
Working capital gap – represented by
Current assets less other current liabilities
Bank borrowings excluded
Net working capital – represented by
Current Assets less Current liabilities
NWC - also called the liquid surplus
NWC – comes from long term sources
Promoters’ margin / Others
Existing NWC – an important indicator of the strength of liquidity
Cash, Bank Balances and other resources that are reasonably expected to be realized or consumed within one year of the date of the Balance sheet
Goods in process
ASSESSMENT OF LIMITS
Appraised in the same manner as local cash credits.
However certain relaxations can be considered in the inventory holdings depending upon the nature of contract and margin requirements.
Guiding principle is “need based” finance.
Limit is to be determined based on past performance and future projections.
Cash Budget method
Parameters in Working Capital credit assessment
Working Capital Gap
NWC (actual / projected)
Assessed Bank Finance
NWC to TCA (%)
Bank finance to TCA (%)
S. Creditors to TCA (%)
Other CL to TCA (%)
The guidelines set by Nayak Committee for computation of WC finance quantum for village, tiny and other SSI industries to a minimum extent of 20% of Projected/Accepted Turnover to continue
Guidelines with regard to specific activities / industries / situations to continue (Sugar / tea industries, Rehabilitation cases, Export Financing etc.)
Banks may consider Cash Flow approach of financing in order to close the gap between the sanctioned limits and the utilization levels
Quantum of finance:
FOB value of goods minus profit and credit margin Cost of production less margin (can be more if the domestic cost is more than the FOB value and the difference is accounted as incentives like duty draw-back etc. subject to export production finance guarantee of ECGC).
In the case of exports on CIF value basis PC can be granted towards insurance and freight also.
depending upon the trade (10% to 25%)
Period of finance:
to coincide with the date for shipment and normally upto 180 days.
Clean Packing Credit
Granted to credit worthy parties where advance payment is required to be made to the supplier.
Quantum determined based on the likely purchase pattern of the exporter with their suppliers.
Period of CPC is determined based on the facts of each case (but not later than the period of contract/LC.
A higher margin of say 25% should be stipulated, collected each time and remitted along with PC to the supplier.
CPC should be converted as PC or Bills.
Packing Credit in Foreign Currency
PCFC be granted against any confirmed order/irrevocable LC
Export order/LC should be denominated in convertible currency
Proceeds should be realizable in convertible currency
Exports in ACU currency also eligible.
All designated branches for exports/Obs/FEX Cells/IF Brs./all ELBs and other branches as per annexure ID7/84 are permitted to grant PCFC.
Currency of the account USD, GBP, EURO.(can be granted in a currency other than the currency of export after obtaining a risk letter).
Funds clearance to be obtained from ID
Minimum USD or GBP or EUR 10,000/- in multiples of 1000
Each disbursement should be treated as a separate loan
Running account facility can be permitted to exporters with good track record.
PCFC to be liquidated upon discounting the relative export bill under BRD scheme.
From advance remittance if can be linked or
from EEFC funds/rupee resource provided export to that extend has been made.
Period – available for the specific period as per sanction not exceeding 180 days.
Rate of interest : CROI
Upto 180 days respective LIBOR/EURO LIBOR of the currency plus 75 basis points Plus upfront fees stipulated.
Beyond 180 days rate for the initial period of 180 days prevailing at the time of extension plus 2%.
Exchange Rate Applicable spot buying rate irrespective of the period of PCFC.
Reporting to FD.
Liability as applicable to PC.
Common discrepancies observed while granting PC
1. Order not studied thoroughly.
2. Order/LC has expired or going to expire shortly.
3. OPL on the buyer not available.
4. ECGC buyer’s credit limit not available.
5. Cost of production not calculated correctly.
6. Advance payment if any received not deducted.
7 After determining the quantum of advance, drawing power
8. End use not verified.
9. Date of shipment not followed and necessary extension not obtained if overdue.
POST SHIPMENT FINANCE
Loan or advance granted to an exporter from the time of shipment of goods to the time of realization including against the security of duty draw back or any receivable from the govt.
.To the actual exporter or to an exporter in whose name the documents are transferred
.In the case of deemed exports to the supplier of goods to the designated agencies as per EXIM policy
.Purpose: to finance the export receivable
.Quantum: Up to 100% of the invoice value
.Margin: Normally no margin stipulated. However the SA can stipulate margin
.Contingency Marine Insurance
To be obtained in the case of FOB/CFR contracts
Mode of finance
Negotiation under PBLC/NPBLC
AGAINST EXPORT RECEIVABLE
Rediscounting of Export Bills Scheme
. Sight bills as well as usance bills not exceeding 180 days (inclusive of normal transit period, grace period etc.)
. Denominated and realizable in any convertible currency
. Whether drawn under LC or confirmed orders
. Shipment to ACU countries only if realizable in USD
. If forward contract is booked covering exports-no BRD
.Within the sanctioned limit for Post shipment finance
.Funds clearance to be obtained from ID
.Reporting for the portion in excess of PCFC and EEFC
.ROI: NTP/Usance upto 6 months LIBOR +0.75%
Upto delinking date 2% over the above
If realized after delinking: as applicable to Rupee PSF.
(plus upfront fees as advised by ID)
Frequently asked questions
1. Why ECGC guarantee when the exporter holds a Policy from ECGC?
2. What is buyer’s limit under the ECGC policy?
3. Some intricacies in the IPSG cover of ECGC
4. LC available at the counters of the opening bank.
Points of caution in Working Capital Credit proposals
Levels of the Current Assets are often projected at higher levels to arrive at higher credit limits
Sundry Creditors projected at lower levels
Projections made at the time of last sanction and actuals thereagainst are not done / not properly commented upon.
In case of Associate concerns engaged in the same activity or otherwise, consolidation of the group accounts on a common date is not insisted upon. This, if done, would facilitate analysis of the inter-unit transactions / holdings.