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DISSERTATION REPORT

SUBMITTED FOR THE PARTIAL FULFILMENT OF THE


DEGREE OF
MASTER OF FOREIGN TRADE

ROLE OF EXIM BANK IN


EXPORT
FINANCING IN
INDIA

Under The Guidance of:

Submitted By:

Prof. PRIYANKA GEETE


DEEPAK

BRIJESH KUMAR
Master

of

Foreign

Trade
(4th Semester)
Roll No.-10

BANARAS HINDU UNIVERSITY


CONTENTS
PREFACE
CERTIFICATE
DECLARATION
ACKNOWLEDGEMENT
INTRODUCTION
SIGNIFICANCE OF STUDY
NEED FOR STUDY
GENESIS OF EXIM BANK
INTRODUTION OF EXIM BANK

ORGANISATION OF EXIM BANK


OBJECTIVES OF EXIM BANK
EVOLVING VISION
EXPORT-IMPORT BANK OF INDIA
ROLE, FUNCTIONS AND FACILITIES
POLICIES OF EXIM BANK
EXIM BANK FINANCING PROGRAMMES
POLICIES OF EXIM BANK
LOANS TO FOREIGN GOVERMENTS, COMPANIES
AND FINANCIAL INSTITUTIONS
LOANS TO FOREIGN GOVERMENTS, COMPANIES
AND FINANCIAL INSTITUTIONS
LOANS TO COMMERCIAL BANKS IN INDIA

MAJOR PROGRAMMES OF EXIM BANKEXPORT PRE SHIPMENT FINANCE

TYPES OF PRE SHIPMENT FINANCE


PACKING CREDIT FACILITY CAN BE PROVIDED TO
AN EXPORTER ON PRODUCTION OF THE
FOLLOWING EVIDENCES TO THE BANK
ELIGIBILITY
QUANTUM OF FINANCE
DIFFERENT STAGES OF PRE SHIPMENT FINANCE
APPRAISAL AND SANCTION OF LIMITS

DISBURSEMENT OF PACKING CREDIT ADVANCE

CRYSTALLIZATION OF OVERDUE EXPORT BILLS


FOLLOW UP OF PACKING CREDIT ADVANCE
LIQUIDATION OF PACKING CREDIT ADVANCE
OVERDUE PACKING
PACKING CREDIT TO SUB SUPPLIER
RUNNING ACCOUNT FACILITY
EXPORT POST SHIPMENT FINANCE
BASIC FEATURES OF POST SHIPMENT FINANCE
FINANCING FOR VARIOUS TYPES OF EXPORT
BUYER'S CREDIT
SUPPLIER'S CREDIT
TYPES OF POST SHIPMENT FINANCE

EXPORT BILLS NEGOTIATED (BILL UNDER L/C)


ADVANCE AGAINST EXPORT BILLS SENT ON
COLLECTION BASIS
ADVANCE AGAINST EXPORT ON CONSIGNMENTS
BASIS
ADVANCE AGAINST UNDRAWN BALANCE
ADVANCE AGAINST CLAIMS OF DUTY DRAWBACK
CRYSTALLIZATION OF OVERDUE EXPORT BILLS
POST SHIPMENT CREDIT IN FOREIGN CURRENCY

EXPORT CREDIT

PAYMENT METHODS IN EXPORT AND IMPORT

TRADE
CLEAN PAYMENTS
PAYMENT COLLECTION OF BILLS
LETTER OF CREDIT L/C
CONCLUSION
REFRENCE

Preface
I feel greatly enthusiastic in presenting this dissertation
report. I have tried to present the various aspects of a
ROLE OF EXIM BANK IN EXPORT FINANCING IN INDIA.
It was a pleasure to work on this report.

I have tried to create an understanding on FOREX market


and the various sectors of Indias exports.

All my efforts would succeed if my report satisfies the


reader, as I have tried to do the same.

BRIJESH KUMAR DEEPAK


MFT IVth Semester
Roll no-10

CERTIFICATE

This is to certify that MR.BRIJESH KUMAR DEEPAK has


completed the dissertation work in partial fulfillment of 2
years, full time master of foreign trade (MFT) course, under
my supervision and guidance for the session 2014-2016.
His dissertation work ROLE OF EXIM BANK IN EXPORT
FINANCING IN INDIA embodies the result of his
investigation. During this period, he has found sincere and
dedicated to his work. I wish for his success and bright
future.

SUPERVISOR
Prof. PRIYANKA GEETE

Faculty of Commerce
BHU, VARANASI

DECLARATION
I hereby declare that this dissertation report is duly correct
and transparent in all respect. This report is based on facts
and no part has been submitted for any degree or diploma
of any institute previously.

BRIJESH KUMAR DEEPAK

(MASTER OF FOREIGN TRADE)


FACULTY OF COMMERCE
BHU

Acknowledgement

It gives me immense pleasure to express my sincerest


thanks to Prof. Priyanka Geete Mam under whose guidance
I was able to learn and excel my skills.
I would also take the pleasure to thank Prof. Asharam
Tripathi (Head & Dean, Faculty of Commerce) and all the
other teaching and non-teaching staff for giving me an
opportunity to do the dissertation report and learn many
things which I could not have learnt otherwise.
Finally, I would like to express my greatest thanks and
regards to my family and friends because without their
support and encouragement everything would have been
impossible.

BRIJESH KUMAR DEEPAK


MFT IVth Semester
Roll no-10

INTRODUCTION
Export-Import Bank of India is the premier export finance
institution of the country, set up in 1982 under the ExportImport Bank of India Act 1981. Government of India
launched the institution with a mandate, not just to
enhance exports from India, but to integrate the countrys
foreign trade and investment with the overall economic
growth. Since its inception, EXIM Bank of India has been
both a catalyst and a key player in the promotion of cross
border trade and investment. Export finance and credit are
the most important non pricing techniques like quality,
packaging and delivery to export more. Competition both for
consumer and capital goods is getting intensified in world
markets. There is now a buyers market allover where the
buyer dictates intensified terms not only in regard to price
but also quality, packaging, delivery schedule and above all
on appropriate credit terms. Credit is also partly asked for
by overseas buyer on account of difficult money market
position and also foreign exchange problems faced in many
countries, particularly the developing world. The buyers
(importers) choice of supplier (exporter) is influenced by the
credit offered by the latter. Export credit has become an
important tool of export promotion in countries like India.

Even the developed countries like United States, Germany


and Japan are developing comprehensive systems and
institutions for providing finance to their exporters.

SIGNIFICANCE OF STUDY
EXIM bank plays a dominant role in international Trade .
My topic or dissertation states the various functions of
EXIM along with its current role in Indian economy in this
project highlight what EXIM bank does , its current
financial position and its impact on foreign trade . There are
various policies too that implement of the India trade s the
foreign trade through India. EXIM bank regulates the
policies and tariffs of the Indian trade and thus helps n the
efficient flow of exchange between different countries of the
world.

NEED FOR THE STUDY


To know the perception and consumption of exporters
towards EXIM bank finance and services.
To analyze the role of EXIM in providing guarantee to
exporters.

To study the different types of credit facilities


provided to exporters by bank.

Genesis of EXIM Bank


SET UP BY AN ACT OF PARLIAMENT IN SEPTEMBER
1981
WHOLLY OWNED BY GOVERNMENT OF INDIA
COMMENCED OPERATIONS IN MARCH 1982
APEX FINANCIAL INSTITUTION

INTRODUCTION OF EXIM BANK


Export-Import Bank of India is the premier export finance
institution in India, established in 1982 under the ExportImport Bank of India Act 1981. Since its inception, Exim
Bank of India has been both a catalyst and a key player in
the promotion of cross border trade and investment.
Commencing operations as a purveyor of export credit, like
other Export Credit Agencies in the world, Exim Bank of
India has, over the period, evolved into an institution that
plays a major role in partnering Indian industries,
particularly the Small and Medium Enterprises, in
their globalisation efforts, through a wide range of products
and services offered at all stages of the business cycle,
starting from import of technology and export product

development to export production, export marketing, preshipment and post-shipment and overseas investment.

Organisation of EXIM Bank


Exim Bank is managed by a Board of Directors, which has
representatives from the Government, Reserve Bank of
India, Export Credit Guarantee Corporation of India,
a financial institution, public sector banks, and the
business community.
The Bank's functions are segmented into several operating
groups including:
Corporate Banking Group which handles a variety of
financing
programmes
for Export
Oriented
Units (EOUs), Importers, and overseas investment by
Indian companies.
Project Finance / Trade Finance Group handles the
entire range of export credit services such as supplier's
credit, pre-shipment Agriculture Business Group, to
spearhead the initiative to promote and support
Agricultural exports. The Group handles projects and
export transactions in the agricultural sector for
financing.

Small and Medium Enterprise: The group handles credit


proposals from SMEs under various lending programmes
of the Bank.
Export Services Group offers variety of advisory and
value-added information services aimed at investment
promotion.
Export Marketing Services Bank offers assistance to
Indian
companies,
to
enable
them
establish
their products in overseas markets. The idea behind this
service is to promote Indian export. Export Marketing
Services covers wide range of export oriented companies
and organizations. EMS group also covers Project exports
and Export of Services.
Besides these, the Support Services groups, which
include: Research & Planning, Treasury and Accounts,
Loan Administration, Internal Audit, Management
Information Services, Information Technology, Legal,
Human
Resources
Management
and
Corporate
Communications.

Objectives of EXIM Bank

for providing financial assistance to exporters and


importers, and for functioning as the principal financial
institution for coordinating the working of institutions
engaged in financing export and import of goods and
services with a view to promoting the countrys
international trade
shall act on business principles with due regard to
public interest

EVOLVING VISION

Export-Import Bank of India


Role, Functions and Facilities
Export-Import Bank of India (Exim Bank) was set up by
an Act of the Parliament THE EXPORT-IMPORT BANK
OF INDIA ACT, 1981 for providing financial assistance
to exporters and importers, and for functioning as the
principal financial institution for co-ordinating the
working of institutions engaged in financing export and
import of goods and services with a view to promoting
the countrys international trade and for matters
connected therewith or incidental thereto.
Exim Bank has two broad business streams: one, the
traditional export finance typical of export credit
agencies around the world and two, financing of export
oriented units (export capability creation), which are
non-traditional

for

export

credit

agencies.

Since

inception, Exim Bank has been the principal financial


institution in the country for financing project exports
and

exports

on

Memorandum
INSTRUCTIONS

deferred
PEM
ON

credit

terms.

As

(MEMORANDUM
PROJECT

EXPORTS

per
OF
AND

SERVICE EXPORTS) of Reserve Bank of India, the


following constitute project exports:

Supply of goods / equipment on deferred payment


terms
Civil construction contracts
Industrial turnkey projects
Consultancy / services contracts

Exim Bank extends funded and non-funded


facilities for overseas turnkey projects, civil
construction
contracts,
technical
and
consultancy service contracts as well as
supplies.
Turnkey Projects are those which involve supply of
equipment along with related services, like design,
detailed engineering, civil construction, erection and
commissioning of plants and power transmission &
distribution
Construction Projects involve civil works, steel
structural works, as well as associated supply of
construction material and equipment for various
infrastructure projects.
Technical and Consultancy Service contracts, involving
provision of know-how, skills, personnel and training
are categorised as consultancy projects. Typical
examples
of
services
contracts
are:
project
implementation services, management contracts,
supervision of erection of plants, CAD/ CAM solutions
in software exports, finance and accounting systems.
Supplies: Supply contracts involve primarily export of
capital goods and industrial manufactures. Typical
examples of supply contracts are: supply of stainless

steel
slabs
equipments,
compressors.

and
diesel

ferro-chrome
generators,

manufacturing
pumps
and

Exim Bank, under powers delegated vide the PEM,


provides post-award clearance for project export
contracts valued upto USD 100 million. Project export
contracts valued above USD 100 million need to be
provided post-award clearance by the inter-institutional
Working Group. The Working Group is a single-window
clearance mechanism, comprising Exim Bank as the
convenor and nodal agency, RBI Foreign Exchange
Department and Export Credit Guarantee Corporation
of India Ltd. [ECGC]. In the case of very large value
projects, officials of Ministry of Finance, Ministry of
Commerce and Industry and Ministry of External
Affairs, Government of India, are invited to participate
in the Working Group Meetings. In order to obtain
immediate clarifications for speedy clearance of
proposals by the Working Group, the exporters
concerned and their bankers are also associated with
the meetings. With the same objective, participation of
the main sub-suppliers, sub-contractors or other
associates and their bankers in such meetings is also
encouraged, particularly in respect of proposals for
high value contracts. Exim Bank also plays the role of
a financier and provides funded and non-funded
support for project export contracts of Indian Entities.
In addition to project exports, Exim Bank also extends
fund-based and non-fund-based facilities to deemed

export contracts as defined in Foreign Trade Policy of


GOI, e.g.,
- secured under funding from Multilateral Funding
Agencies like the World Bank, Asian Development
Bank, etc.;
- contracts secured under International Competitive
Bidding;
- contracts under which payments are received in
foreign currency.

Exim Bank offers the following Export


Credit facilities, which can be availed of
by Indian companies, commercial banks
and overseas entities.
For Indian Companies executing contracts overseas
Pre-shipment credit
Exim Bank's Pre-shipment Credit facility, in Indian Rupees
and foreign currency, provides access to finance at the
manufacturing stage - enabling exporters to purchase raw
materials and other inputs.
Pre-shipment credits are usually extended by exporters
commercial banks for period upto 180 days. Exim Bank
extends pre-shipment / post-shipment credit either directly
or in participation with commercial banks. In order to offer

one-stop banking products to export clients, the Bank has


also been offering short-term pre / post shipment credit
either directly or through exporters bankers. Exim Bank
may consider extending pre-shipment credit and postshipment credit for periods exceeding 180 days, on case-tocase basis and subject to the merits of the case.
Supplier's Credit
This facility enables Indian exporters to extend term credit
to importers (overseas) of eligible goods at the postshipment stage.
Post-shipment Suppliers Credit can be extended to Indian
exporters upto the extent of the deferred credit portion of
the export contract, either in Rupees or in Foreign currency.
The period of deferred credit and moratorium will generally
depend on the nature of goods [List A and List B of
Memorandum PEM] or nature of projects, as per guidelines
contained in the Memorandum PEM of RBI.
For Project Exporters
Export
Project
Cash-Flow
Programme [EPCDF]

Deficit

Financing

Indian project exporters (including those under Deemed


Exports category) incur expenditure in rupee or foreign
currency while executing contracts i.e. costs of
mobilisation/acquisition of materials, personnel and
equipment etc. Exim Bank's facility helps them meet these
expenses for -

a Project Export Contracts;


b contracts in India categorized as Deemed Exports in
the Foreign Trade Policy of India.
Capital Equipment Finance Programme (CEFP)
Capital Equipment Finance Programme [CEFP] has been
conceived to cater to capital expenditure for procurement of
capital equipment to be utilized across multiple contracts.
CEFP provides direct access to Exim Banks finance for
eligible Indian companies for procurement of indigenous
and imported capital equipment for executing overseas
projects / deemed export projects.
For Exporters of Consultancy and Technological
Services
Exim Bank offers a special credit facility to Indian exporters
of consultancy and technology services, so that they can, in
turn, extend term credit to overseas importers.
Guarantee Facilities
Indian companies can avail of guarantee facilities of
different types to furnish requisite guarantees to facilitate
execution of export contracts (including deemed export
contracts) and import transactions.
Advance Payment Guarantee (APG): Issued to project
exporters to secure a project mobilization advance as a
percentage (10-20%) of the contract value, which is

generally recovered on a pro-rata basis from the progress


payment during project execution.
Performance Guarantee (PG): PG for up to 5-10% of
contract value is issued valid until completion of
maintenance period and/or grant of Final Acceptance
Certificate (FAC) by the overseas employer/client.
Retention Money Guarantee (RMG): This enables the
exporter to obtain the release of retained payments from the
client prior to issuance of Project Acceptance Certificate
(PAC)/ Final Acceptance Certificate (FAC).
Other Guarantees: e.g. in lieu of customs duty or security
deposit for expatriate labour, equipment etc.
.

POLICIES OF EXIM BANK


EXIM BANK FINANCING PROGRAMMES
Exim Bank is fully owned by the Government of India and is
managed by the Board of Directors with repatriation from
Government, financial institutions, banks and business
community. The Export- Import Bank of India (Exim Bank)
provides financial assistance to promote Indian exports
through direct financial assistance, overseas investment
finance, term finance for export production and export
development, pre-shipping credit, buyer's credit, lines of

credit,

relending

facility,

export

bills

rediscounting,

refinance to commercial banks. The Exim Bank also


extends non-founded facility to Indian exporters in the form
of guarantees. The diversified lending programme of the
Exim Bank now covers various stages of exports, i.e., from
the

development

of

export

makers

to

expansion

of

production capacity for exports, production capacity for


exports,

production

financing.

The

Exim

for

exports

Bank's

and

focus

postis

on

shipment
export

of

manufactured goods, project exports, exports, of technology


services and exports of computers software.

POLICIES OF EXIM BANK


LOANS TO INDIAN COMPANIES DEFERRED PAYMENT
EXPORTS:
Term finance is provided to Indian exporters of eligible
goods and services which enable them to offer deferred
credit to overseas buyers. Deferred credit can also cover
Indian

consultancy,

technology

and

other

services.

Commercial banks participate in this programme directly or


under risk syndication arrangements.
PRESHIPMENT CREDIT:

Finance is available form Exim Bank for companies


executing export contracts involving cycle time exceeding six
months. The facility also enables provision of rupee
mobilization expenses for construction/turnkey project
exporters.
TERM LOANS FOR EXPORT PRODCUTION:
Exim

Bank

provides

term

loans/deferred

payment

guarantees to 100% export. Oriented units, units in free


trade

zones

and

computer

software

exporters.

In

collaboration with International Finance Corporation. Exim


Bank

provides

loans

to

enable

small

and

medium

enterprises upgrade export production capability. Facilities


for deeded exports; Deemed exports are eligible for funded
and non- funded facilities from Exim Bank.
OVERSEAS INVESTMENT FINANCE:
Indian companies establishing joint ventures overseas are
provided finance towards their equity contribution in the
joint venture.
FINANCE FOR EXPORT MARKETING:
This programme, which is a component of a World Bank
loan, helps exporters implement their export market
development plans.

LOANS TO FOREIGN GOVERMENTS, COMPANIES AND


FINANCIAL INSTITUTIONS
OVERSEAS BUYER'S CREDIT:
Credit is directly offered to foreign entities for import of
eligible goods and related services, on deferred payment.
LINES OF CREDIT:
Besides foreign governments, finance is available to foreign
financial institutions and government agencies to on-lend in
the respective country for import of goods and services from
India.
RELENDING FACILITY TO BANKS OVERSEAS:
Relending facility is extended to banks overseas to enable
them to provide term finance to their clients world-wide for
imports from India.

LOANS TO COMMERCIAL BANKS IN INDIA


EXPORT BILLS REDISCOUNTING:
Commercial Banks in India who are authorized to deal in
foreign exchange can rediscount their short term export
bills with Exim Banks, for an unexpired usance period of
not more than 90 days.
REFINANCE OF EXPORT CREDIT:

Authorized dealers in foreign exchange can obtain from


Exim Bank 100% refinance of de3ferred payment loans
extended for export of eligible Indian goods.
GUARANTEEING OF OBLIGATIONS:
Exim Bank participates with commercial banks in India in
the issue of guarantees required by Indian companies for
the

export

contracts

and

for

execution

of

construction and turnkey projects.

MAJOR PROGRAMMES OF EXIM


BANK
EXPORT PRE SHIPMENT FINANCE

overseas

Pre Shipment Finance is issued by a financial institution


when the seller wants the payment of the goods before
shipment. The main objectives behind pre-shipment finance
or pre export finance are to enable exporter to:
Procure raw materials.
Carry out manufacturing process.
Provide a secure warehouse for goods and raw
materials.
Process and pack the goods.
Ship the goods to the buyers.
Meet other financial cost of the business.
TYPES OF PRE SHIPMENT FINANCE
Packing Credit
Advance against Cheques/Draft etc.

representing

Advance Payments. Pre shipment finance is extended


in the following forms :

Packing Credit in Indian

Rupee Packing Credit in Foreign Currency (PCFC)


REQUIRMENT FOR GETTING PACKING CREDIT This
facility is provided to an exporter who satisfies the
following criteria
A ten digit importer exporter code number allotted by
DGFT.
Exporter should not be in the caution list of RBI.
If the goods to be

exported are not under OGL (Open General License),


the exporter should have the required license /quota
permit to export the goods.
Packing credit facility can be provided to an exporter on
production of the following evidences to the bank:
1. Formal application for release the packing credit with
undertaking to the effect that the exporter would be ship
the goods within stipulated due date and submit the
relevant shipping documents to the banks within prescribed
time limit.

2. Firm order or irrevocable L/C or original cable / fax /


telex message exchange between the exporter and the buyer.

3. Licence issued by DGFT if the goods to be exported fall


under the restricted or canalized category. If the item falls
under quota system, proper quota allotment proof needs to
be submitted.

The confirmed order received from the overseas buyer


should reveal the information about the full name and
address of the overseas buyer, description quantity and

value of goods (FOB or CIF), destination port and the last


date of payment.
ELIGIBILITY
Pre shipment credit is only issued to that exporter who has
the export order in his own name. However, as an exception,
financial institution can also grant credit to a third party
manufacturer or supplier of goods who does not have export
orders in their own name. In this case some of the
responsibilities of meeting the export requirements have
been out sourced to them by the main exporter. In other
cases where the export order is divided between two more
than two exporters, pre shipment credit can be shared
between them.

QUANTUM OF FINANCE
The Quantum of Finance is granted to an exporter against
the LC or an expected order. The only guideline principle is
the concept of Need Based Finance. Banks determine the
percentage of margin, depending on factors such as:
The nature of Order.
The nature of the commodity.

The capability of exporter to bring in the requisite


contribution.

DIFFERENT STAGES OF PRE SHIPMENT FINANCE


APPRAISAL AND SANCTION OF LIMITS
Before making any an allowance for Credit facilities banks
need to check the different aspects like product profile,
political and economic details about country. Apart from
these things, the bank also looks in to the status report of
the prospective buyer, with whom the exporter proposes to
do the business. To check all these information, banks can
seek the help of institution like ECGC or International
consulting agencies like Dun and Brad street etc. The Bank
extended the packing credit facilities after ensuring the
following
The exporter is a regular customer, a bona fide
exporter and has a goods standing in the market.
Whether the exporter has the necessary license
and quota permit (as mentioned earlier) or not.
Whether the country with which the exporter
wants to deal is under the list of Restricted Cover
Countries (RCC) or not.

DISBURSEMENT OF PACKING CREDIT ADVANCE


Once the proper sanctioning of the documents is done,
bank ensures whether exporter has executed the list of
documents mentioned earlier or not. Disbursement is
normally allowed when all the documents are properly
executed. Sometimes an exporter is not able to produce the
export order at time of availing packing credit. So, in these
cases, the bank provides a special packing credit facility
and is known as Running Account Packing.
Before disbursing the bank specifically check for the
following particulars in the submitted documents"
Commodity to be exported
Quantity
Value (either CIF or FOB)
Last date of shipment / negotiation.
Any other terms to be complied with
The quantum of finance is fixed depending on the FOB
value of contract /LC or the domestic values of goods,
whichever is found to be lower. Normally insurance and
freight charged are considered at a later stage, when the
goods are ready to be shipped. In this case disbursals are
made only in stages and if possible not in cash.
payments

are

made

directly

to

the

supplier

The
by

drafts/bankers/cheques. The bank decides the duration of


packing credit depending upon the time required by the
exporter for processing of goods. The maximum duration of
packing credit period is 180 days, however bank may
provide a further 90 days extension on its own discretion,
without referring to RBI.
FOLLOW UP OF PACKING CREDIT ADVANCE
Exporter needs to submit stock statement giving all the
necessary information about the stocks. It is then used by
the banks as a guarantee for securing the packing credit in
advance. Bank also decides the rate of submission of these
stocks. Apart from this, authorized dealers (banks) also
physically inspect the stock at regular intervals.

LIQUIDATION OF PACKING CREDIT ADVANCE


Packing Credit Advance needs be liquidated out of as the
export

proceeds

of

the

relevant

shipment,

thereby

converting pre-shipment credit into post-shipment credit.


This liquidation can also be done by the payment receivable
from the Government of India and includes the duty
drawback, payment from the Market Development Fund
(MDF) of the Central Government or from any other relevant
source. In case if the export does not take place then the

entire advance can also be recovered at a certain interest


rate. RBI has allowed some flexibility in to this regulation
under which substitution of commodity or buyer can be
allowed by a bank without any reference to RBI. Hence in
effect the packing credit advance may be repaid by proceeds
from export of the same or another commodity to the same
or another buyer. However, bank need to ensure that the
substitution is commercially necessary and unavoidable.

OVERDUE PACKING
Bank considers a packing credit as an overdue, if the
borrower fails to liquidate the packing credit on the due
date. And, if the condition persists then the bank takes the
necessary step to recover its dues as per normal recovery
procedure.

PACKING CREDIT TO SUB SUPPLIER


Packing Credit can only be shared on the basis of
disclaimer between the Export Order Holder (EOH) and the
manufacturer of the goods. This disclaimer is normally
issued by the EOH in order to indicate that he is not

availing any credit facility against the portion of the order


transferred

in

the

name

of

the

manufacturer.

This

disclaimer is also signed by the bankers of EOH after which


they have an option to open an inland L/C specifying the
goods to be supplied to the EOH as a part of the export
transaction. On basis of such an L/C, the sub supplier
bank may grant a packing credit to the sub supplier to
manufacture the components required for exports. On
supply of goods, the L/C opening bank will pay to the sub
supplier's bank against the inland documents received on
the basis of the inland L/C opened by them. The final
responsibility of EOH is to export the goods as per
guidelines. Any delay in export order can bring EOH to
penal provisions that can be issued anytime. The main
objective of this method is to cover only the first stage of
production cycles, and is not to be extended to cover
supplies of raw material etc. Running account facility is not
granted to sub suppliers. In case the EOH is a trading
house, the facility is available commencing from the
manufacturer to whom the order has been passed by the
trading house. Banks however, ensure that there is no
double financing and the total period of packing credit does
not exceed the actual cycle of production of the commodity.
RUNNING ACCOUNT FACILITY

It is a special facility under which a bank has right to grant


pre-shipment advance for export to the exporter of any
origin.

Sometimes

banks

also

extent

these

facilities

depending upon the good track record of the exporter. In


return the exporter needs to produce the letter of credit /
firms export order within a given period of time.
EXPORT POST SHIPMENT FINANCE
Post Shipment Finance is a kind of loan provided by a
financial institution to an exporter or seller against a
shipment that has already been made. This type of export
finance is granted from the date of extending the credit after
shipment of the goods to the realization date of exporter
proceeds. Exporters dont wait for the importer deposit
funds.
BASIC FEATURES OF POST SHIPMENT FINANCE
The features of post-shipment finance are:
Purpose of Finance: Post-shipment finance is meant
to finance export sales receivable after the date of
shipment of goods to the date of realization of
exports proceeds. In cases of deemed exports, it is
extended to finance receivable against supplies made
to designated agencies.

Basis

of

Finance:

Post-shipment

finances

are

provided against evidence of shipment of goods or


supplies made to the importer or seller or any other
designated agency.
Types of Finance: Post-shipment finance can be
secured or unsecured. Since the finance is extended
against evidence of export shipment and bank
obtains the documents of title of goods, the finance
is normally self liquidating. In that case it involves
advance against undrawn balance, and is usually
unsecured in nature. Further, the finance is mostly
a funded advance. In few cases, such as financing of
project exports, the issue of guarantee (retention
money guarantees) is involved and the financing is
not funded in nature.
Quantum of Finance: As a quantum of finance,
post-shipment finance can be extended up to 100%
of the invoice value of goods. In special cases, where
the domestic value of the goods increases the value
of the exporter order, finance for a price difference
can also be extended and the price difference is
covered by the government. This type of finance is
not extended in case of pre-shipment stage. Banks
can also finance undrawn balance. In such cases
banks are free to stipulate margin requirements as
per their usual lending norm.

Period of Finance: Post-shipment finance can be off


short terms or long term, depending on the payment
terms offered by the exporter to the overseas
importer. In case of cash exports, the maximum
period allowed for realization of exports proceeds is
six months from the date of shipment. Usually, the
documents need to be submitted within 21days from
the date of shipment.

FINANCING FOR VARIOUS TYPES OF EXPORT


BUYER'S CREDIT
Post-shipment finance can be provided for three types of
export:
Physical exports:
Finance is provided to the actual exporter or to the
exporter in whose name the trade documents are
transferred.
Deemed export:
Finance is provided to the supplier of the goods
which are supplied to the designated agencies.
Capital goods and project exports:

Finance is sometimes extended in the name of


overseas buyer. The disbursal of money is directly
made to the domestic exporter.

SUPPLIER'S CREDIT
Buyer's Credit is a special type of loan that a bank offers to
the buyers for large scale purchasing under a contract.
Once the bank approved loans to the buyer, the seller
shoulders all or part of the interests incurred.

TYPES OF POST SHIPMENT FINANCE


The post shipment finance can be classified as: EXPORT
BILLS PURCHASED/ DISCOUNTED.(DP & DA BILLS)
Export bills (Non L/C Bills) is used in terms of sale
contract/ order may be discounted or purchased by the
banks. It is used in indisputable international trade
transactions and the proper limit has to be sanctioned to
the exporter for purchase of export bill facility.
EXPORT BILLS NEGOTIATED (BILL UNDER L/C)
The risk of payment is less under the LC, as the issuing
bank makes sure the payment. The risk is further reduced,
if a bank guarantees the payments by confirming the LC.

Because of the inborn security available in this method,


banks often become ready to extend the finance against
bills under LC.

However, this arises two major risk factors

for the banks:


1. The risk of nonperformance by the exporter, when he is
unable to meet his terms and conditions. In this case, the
issuing banks do not honor the letter of credit.
2. The bank also faces the documentary risk where the
issuing bank refuses to honour its commitment. So, it is
important for the negotiating bank, and the lending bank to
properly

check

all

the

necessary

documents

before

submission.
ADVANCE AGAINST EXPORT BILLS SENT ON
COLLECTION BASIS
Bills can only be sent on collection basis, if the bills drawn
under LC have some discrepancies. Sometimes exporter
requests the bill to be sent on the collection basis,
anticipating the strengthening of foreign currency. Banks
may allow advance against these collection bills to an
exporter with a concessional rates of interest depending
upon the transit period in case of DP Bills and transit
period plus usance period in case of usance bill. The transit
period is from the date of acceptance of the export

documents at the banks branch for collection and not from


the date of advance.
ADVANCE AGAINST EXPORT ON CONSIGNMENTS
BASIS
Bank may choose to finance when the goods are exported
on consignment basis at the risk of the exporter for sale
and eventual payment of sale proceeds to him by the
consignee. However, in this case bank instructs the
overseas bank to deliver the document only against trust
receipt /undertaking to deliver the sale proceeds by
specified date, which should be within the prescribed date
even if according to the practice in certain trades a bill for
part of the estimated value is drawn in advance against the
exports. In case of export through approved Indian owned
warehouses abroad the times limit for realization is 15
months.
ADVANCE AGAINST UNDRAWN BALANCE
It is a very common practice in export to leave small part
undrawn for payment after adjustment due to difference in
rates, weight, quality etc. Banks do finance against the
undrawn balance, if undrawn balance is in conformity with
the normal level of balance left undrawn in the particular
line of export, subject to a maximum of 10 percent of the

export value. An undertaking is also obtained from the


exporter that he will, within 6 months from due date of
payment or the date of shipment of the goods, whichever is
earlier surrender balance proceeds of the shipment.
ADVANCE AGAINST CLAIMS OF DUTY DRAWBACK
Duty Drawback is a type of discount given to the exporter
in his own country. This discount is given only, if the in
house

cost

of

production

is

higher

in

relation

to

international price. This type of financial support helps the


exporter to fight successfully in the international markets.
In such a situation, banks grants advances to exporters at
lower rate of interest for a maximum period of 90 days.
These are granted only if other types of export finance are
also extended to the exporter by the same bank. After the
shipment, the exporters lodge their claims, supported by
the

relevant

documents

to

the

relevant

government

authorities. These claims are processed and eligible amount


is disbursed after making sure that the bank is authorized
to receive the claim amount directly from the concerned
government authorities.
CRYSTALLIZATION OF OVERDUE EXPORT BILLS
Exporter foreign exchange is converted into Rupee liability,
if the export bill purchase / negotiated /discounted is not

realize on due date. This conversion occurs on the 30th day


after expiry of the NTP in case of unpaid DP bills and on
30th day after national due date in case of DA bills, at
prevailing TT selling rate ruling on the day of crystallization,
or the original bill buying rate, whichever is higher.

POST-SHIPMENT CREDIT IN FOREIGN CURRENCY


The exporters have the option of availing of exports credit at
the post-shipment stage either in rupee or in foreign
currency. The credit is granted under the Rediscounting of
Export Bills Abroad Scheme (EBR) at LIBOR linked interest
rates. The Scheme covers export bills with usance period
upto 180 days from the date of shipment. Discounting of
bills beyond 180 days requires prior approval from RBI. The
exporters have the option to avail of pre-shipment credit
and post-shipment credit either in rupee or in foreign
currency. If pre-shipment credit has been availed of in
foreign currency, the post-shipment credit necessarily to be
under the EBR scheme. This is done because the foreign
currency pre-shipment credit has to be liquidated in foreign
currency. Provision of personnel, furnishing of knowhow,
skills,

operation

and

management contracts.

maintenance

services

and

EXPORT CREDIT
Exim Bank provides pre- shipment and post shipment
credit in Indian rupees and foreign currency. Finance is
extended for short term i.e. upto 6 months as also for
medium/long term i.e. beyond 6 months for eligible
products and projects. Medium/long term export credit is
projects. Medium/long term export credit is extended by
way of supplier's credits i.e. through the Indian exporter
with recourse to the exporter or buyer's credits i.e. directly
to the overseas buyer with no recourse to the Indian
exporter.

Certain

RBI

guidelines

apply

for

such

medium/long term export credit. Exim Bank has been


recently permitted by RBI to cover inter-alia agricultural
commodities and processed foods under the Lines of Credit.
Export contracts under Lines of Credits are financed
without recourse to the exporter i.e. off balance sheet
finance whilst the importer gets credit. Exim Bank extends
loans for executing deemed export contracts. Exim Bank
also issues guarantees overseas on behalf of Indian
exporters.

PAYMENT METHODS IN EXPORT AND IMPORT TRADE

There are 3 standard ways of payment methods in the


export import trade international trade market:
Clean Payment
Collection of Bills
Letters of Credit L/c
CLEAN PAYMENTS
In clean payment method, all shipping documents,
including title documents are handled directly between the
trading partners. The role of banks is limited to clearing
amounts as required. Clean payment method offers a
relatively cheap and uncomplicated method of payment for
both importers and exporters. There are basically two type
of clean payments:
(a) Advance Payment
In advance payment method the exporter is trusted to ship
the goods after receiving payment from the importer.
(b)Open Account
In open account method the importer is trusted to pay the
exporter after receipt of goods. The main drawback of open
account method is that exporter assumes all the risks while
the importer get the advantage over the delay use of
company's cash resources and is also not responsible for
the risk associated with goods.
PAYMENT COLLECTION OF BILLS

The Payment Collection of Bills also called Uniform Rules


for Collections is published by International Chamber of
Commerce

(ICC)

under

the

document

number

522

(URC522) and is followed by more than 90% of the world's


banks. In this method of payment in international trade the
exporter entrusts the handling of commercial and often
financial

documents

to

banks

and

gives

the

banks

necessary instructions concerning the release of these


documents to the Importer. It is considered to be one of the
cost effective methods of evidencing a transaction for
buyers, where documents are manipulated via the banking
system. There are two methods of collections of bill :

(a)Documents Against Payment D/P


In this case documents are released to the importer only
when the payment has been done.
(b)Documents Against Acceptance D/A
In this case documents are released to the importer only
against acceptance of a draft.
LETTER OF CREDIT L/C
Letter of Credit also known as Documentary Credit is a
written undertaking by the importers bank known as the
issuing bank on behalf of its customer, the importer
(applicant), promising to effect payment in favor of the

exporter (beneficiary) up to a stated sum of money, within a


prescribed time limit and against stipulated documents. It
is published by the International Chamber of Commerce
under the provision of Uniform Custom and Practices (UCP)
brochure number 500. Various types of L/Cs are:
(a)Revocable & Irrevocable Letter of Credit (L/c)
A Revocable Letter of Credit can be cancelled without the
consent of the exporter.

An Irrevocable Letter of Credit

cannot be cancelled or amended without the consent of all


parties including the exporter.
(b)Sight & Time Letter of Credit
If payment is to be made at the time of presenting the
document then it is referred as the Sight Letter of Credit. In
this case banks are allowed to take the necessary time
required to check the documents. If payment is to be made
after the lapse of a particular time period as stated in the
draft then it is referred as the Term Letter of Credit.
(c) Confirmed Letter of Credit (L/c)
Under a Confirmed Letter of Credit, a bank, called the
Confirming Bank, adds its commitment to that of the
issuing bank. By adding its commitment, the Confirming
Bank takes the responsibility of claim under the letter of
credit, assuming all terms and conditions of the letter of
credit are met.

CONCLUSION
This study is an attempt to find out the services rendered
by the EXIM bank of India. Developing countries like India
concentrates more on increasing the value and volume of
the export turnover to attain economic developments to
provide employment opportunities to utilize all the available
resources and to finance for exports. But the export sector
involves high amount of risk. The Indian exporters have to

be protected from several types of risks involved in export


business. Here EXIM bank plays vital role. By improving the
performance of export, bank is in better position to extend
its services to all types of exporters effectively.
EXIM banking of course, extends beyond international
banking which in its narrow sense relates to delivery of
trade

products

and

services

to

business

and

trade

Customers. Thus, The EXIM bank of India is regarded as


the drivers behind global trade and corporate globalization.

REFRENCE
1.U.S. Government Accountability Office, U.S. ExportImport Bank: Actions Needed to Promote Competitiveness
and International Cooperation, GAO-12-294, February
2012.

2.Rossella Brevetti, CEE Urges Congress to Pass Ex-Im


Reauthorization This Year, International Trade Daily,
December 13, 2011.
3.U.S. Congress, Senate Committee on Banking, Housing,
and Urban Affairs, Oversight and Reauthorization of the
Export-Import Bank of the United States, Testimony of Fred
P.Hochberg - President and Chairman, Export-Import
4.Bank of the United States, 112th Cong., 1st sess., May
17, 2011.
5.U.S. Congress, House Committee on Financial Services,
Ex-Im Bank Oversight: The Role of Trade Finance in
Doubling Exports over Five Years, Fred P. Hochberg,
President and Chairman of the Export-Import Bank, 111th
Cong., September 29, 2010.
6.Ex-Im Bank, Report to the U.S. Congress on Export Credit
Competition and the ExportImport Bank of the United
States, For the Period January 1, 2010 through December
31, 2010, Washington, DC, June 2011, p. 67.