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EXPORT FINANCING. -VIKRAM S. TYAGI. EXPORT FINANCING. 1-Assessing Financial Needs (Cash Flow) 2 - Type of Financial needs: -Short Term or working capital -Medium and long term 3-Financing by Internal Resources : Reducing Current Assets Reducing Fixed assets

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    2. EXPORT FINANCING 1-Assessing Financial Needs (Cash Flow) 2- Type of Financial needs: -Short Term or working capital -Medium and long term 3-Financing by Internal Resources: • Reducing Current Assets • Reducing Fixed assets • Increasing Current Liabilities • Optimizing Equity Structure-Slow down/reduce distribution of profits. • Changing ratio between Liabilities and equity

    3. ..Export Financing 4-Financing by External Resources: Special features of export credit: - RBI guide lines for over riding priority -Export Credit is refinanced by RBI at lower rates to lending banks -Commercial Banks are required to finance at least 12 percent of their net credit to exporters


    5. Working Capital Finance by Banks • Foreign Exchange Dealers Association (FEDAI)- Rules and schedule of charges • Rupee Pre-shipmentFinance (Packing Credit) -Definition and purpose Packing Credit / Pre-Shipment loan -Period of credit (180-360 days) -Basis for disbursement (Secured/unsecured) -Liquidation of credit -Relaxations by Banks -Running account facility

    6. …Working Capital Finance by Banks • Credit to Specific sectors/segments -Export through STS/MMTC/Export houses etc -Credit to sub-suppliers -Construction contractor -Consultancy services -Export of floriculture and other Agro based products -Agri-Export processing zone Processors -Export of wheat and wheat products • Advance against Incentives • Import Letter of Credits

    7. Post Shipment Finance • Definition and purpose • Export Bills Finance -L/C Bills negotiated -Export Bills Purchased/discounted -Advance against collection bills -Advance against un-drawn balances • Advance against Incentives (duty drawbacks)

    8. Export Finance- Additional Facilities • No Margins required -max permissible bank finance higher for exporters • Lower rate of interest on pre-shipmentcredit-up to 180 days from the date of advance- PLR Minus 2.5 percent -Beyond 180 days up to 270 days- PLR Minus 0.5 per cent On post-shipment credit : -On demand bills for transit period- PLR Minus 2.5 per cent -Usance bills (period of credit plus transit time plus grace period PLR Minus 2.5 per cent---up to 90 days -Beyond 90 days up to six months from date of shipment –PLR Minus 0.5 per cent Concessive Rates for Deemed Exports Special Credit Package for High Value Exports

    9. Pre-shipment Export Credit in Foreign Currency • Export credits can be given by Banks in designated foreign currencies also like Dollars,Euros,Pounds and Yen • Interest rates are linked to LIBOR/EURO LIBOR/EURIBOR and pegged at 0.75 % p above these benchmark rates-beyond the time line for inward remittance it would be 2 % above LIBOR

    10. Post shipment Export Credit in Foreign Currency • Rediscounting Export Bills Abroad (EBR) • Maximum Interest rate • Up to 180 days- LIBOR+0.75% • 180 to 360 days – LIBOR+2.0% An Example of benifits: • LIBOR Rates in Jan 2007 (12 Months) URO-About 4%; USD 5.5%; Indian Bank PLR 11%

    11. Other Option Of International trade finance • “ Forfaiting” Finance and also known as Factoring-in short selling receivables or sundry debtors -Several advantages including increasing liquidity, Minimizing risk of deferred payments, 100 per cent finance without margin, avoiding currency and interest rate risks etc • Counter Trade Arrangements ( Escrow Accounts)

    12. EXIM Bank Finance • The Export-Import Bank of India (Exim Bank)- Act of Parliament 1981 • Fully Owned by Government of India- Managed by Board of Directors ( Govt., RBI, ECGC, Banks, Business community)

    13. Operations of Exim Bank • Export Credits -Regular credits to exporters including investments in JVS and wholly owned subsidiaries on INDIAN COMPANIES ABROAD -Loans to foreign Governments and financial Institutions -Loans to Commercial banks In India -Guaranteeing of Obligations - Project Financing -Trade Financing • Export Capability creation • Export Product development • Export Marketing finance • Export oriented units • Euopean Community community investment partners • Export facilitation programms- Ports/Soft ware development

    14. …Operations of Exim Bank • Export services • Additional finance for range information and advisory services • Supporting Groups • Accounts/MIS/EDP services • Planning & research • Legal • Coordination • HRD • Establishment • Capital Goods Import Finance • Equity investment in JV’s abroad

    15. ECGS Credit Limits

    16. Reading References • Export Manual and Documentation by Nabh’s Chapter-24 • Manual on Export Documentation by Commercial Law Publishers- Chapter-25