TYPES OF

L/C s
ON
11/09/12

Dear MIBIans

Lets discuss
about the
types of L/C s

Whats all about LC/ yea????

A Letter of Credit, simply defined, is a
written instrument issued by a bank at
the request of its customer, the Importer
(Buyer), whereby the bank promises to
pay the Exporter (Beneficiary) for goods
or services, provided that the Exporter
presents all documents called for, exactly
as stipulated in the Letter of Credit, and
meet all other terms and conditions set
out in the Letter of Credit. A Letter of
Credit is also commonly referred to
as a Documentary Credit.

Types of L/C
REVOCABLE L/C :Revocable LC can be amended or cancelled
by the issuing bank at any moment and
without prior notice to the beneficiary.
This type of credit does not doesn't
constitute a legally binding undertaking
between the banks or bank concerned
and the beneficiary such as credit may be
modified or cancelled at any moment
without prior notice to the beneficiary.
This type is of limited utility and is not
much use

IRREVOCABLE
L/C
irrevocable LC constitutes a definite

An
undertaking of the issuing bank for the payment
of the bills drawn under the credit, provided the
beneficiary presents the stipulated documents to
the credit nominated bank or to the issuing bank
and complies with all the condition s of the credit.
Thus the beneficiary receives a firm undertaking
of the issuing bank, giving him the security he
desires.

This type of credit can neither be modified

nor cancelled without the prior approval of
the beneficiary concerned and it is
therefore, widely accepted.

Confirmed L/C

UCP basically recognize only the revo/irrevo LCs

which can be wither confirmed or unconfirmed.
These rules also make specific reference to
transferable credits. But all other credits are
prevalent only by implication.
Only IRREVO L/C are confirmed for obvious
reasons, such confirmation constitutes definite
undertaking from the confirming bank to pay
against the presentation of the proper
documents such credit is called confirmed credit.
Such an undertaking can neither be amended
nor cancelled without the agreement of the
issuing bank.

With recourse or without

With:- L/C if the buyer fails
to pay the
bank
recourse
L/C

after the specified period, the bank can

have recourse on the exporter. There is no
such provisions in without RC.
Its in favor of the exporter to obtain a
confirmed irrevocable without RC credit
because in this case the Indian Bank added
obligation to pay. If the confirming i.e
Indian Bank accepts the documents as
being complete and correct and any
rejection by opening bank will be a matter
of discussion between the two.

Acceptance of credit

An acceptance credit stipulates

that the beneficiary must draw a
BOE for particular tenor e. g 60, 90,
120 days sight and that the drafts
will be accepted by one of the
parties i.e 1. The applicant 2. the
advising Bank, 3. the negotiating
bank. It unsecured and depends on
the capability of the parties who
can fund at the maturity of the bill.

Transferable L/C

Here the beneficiary is entitled to

request the paying, accepting,
negotiating, banks to pay, accept,
and negotiate bills tendered by
one or more parties. For partial
transfer to second beneficiary or
more
than
one
second
beneficiaries, it is essential that
credit
must
permit
partial
shipment.

Back to Back L/C

When the exporter uses his L/C as a

cover for opening a credit in favor of
the local suppliers, the L/C is called
back to back credit. As the credits
are intended to cover some goods it
should ne ensured that the terms of
identical except that price is lower
and validity earlier. This type of
credit is preferred over transferable
credits to keep the identity of
ultimate buyer secret.

RED CLAUSE or
advanceAnticipatory
payment or at least
part
L/C
to the beneficiary against his

---Provides
payment
undertaking the effect the shipment
and
submits the bill and /or documents in terms of
credit within the validity. The advance payment
made at the pre-shipment stage will be
liquidated from the proceeds of the bills
negotiated.
GREEN CLAUSE
is an extension of the red
clause in that it envisages the grant of storage
facilities at the port in the name of the bank in
addition to the pre-shipment payment to the
beneficiary.

Revolving L/C
In a revolving LC, the amount
of drawing is reinstated and
made
available
to
the
beneficiary again after a
period of time on the advise
of payment by the applicant
or merely the fact that
shipment has been made.

Deferred L/C

HERE, the exporter supplies plant

and machineries, capital goods
etc., ( where the price is to be paid
to him in installments spread over
a period ranging usually from 1-7
years even more) to an importer
and no draft is drawn and
payment by the opening bank is
determined in accordance with the
terms laid down in the credit.

Transit L/C

It is issued in one of the

foreign country with the
beneficiary in another
but it is advised through
and usually confirmed by
the one BANK( The BOSS)

Credit available by
Installments
These credits specify shipments
and/or drawings by installments
stipulating specific period for each
installment of shipment and or/
drawings. In case, any installment
of shipment is missed, credit will
not be available for that and the
subsequent installments except
when credit permits such lapse.

Restricted and unrestricted

credits

Credits which do not specify any

particular
bank
who
is
authorized to negotiate etc.
are unrestricted or open or
general credits. If a specified
bank is designated to pay
accept or negotiate, the credit
is termed as restricted or
special.

Letter of Credit Checklist.

Are all required documents included?
Will the documents be presented within the expiration
date of the letter of credit?
Are the documents on their face consistent with each
other?
Has shipment been made prior to the last shipping
date?
Are the documents stale? Typically, unless
otherwise specified, documents presented 21 days or
more after the date of transport are considered stale.
Are the required number of copies of each document
being submitted?
On documents where signatures are required, are the
appropriate signatures present?

 Is the transport document consigned to the correct party?

Is the notify party on the transport document correct?
Is the merchandise description correct?
Are the number of units, the unit price and the total price
all consistent?
If an insurance document is required, is the type and
amount of coverage correct?
Was it in effect prior to shipment?
If partial shipment has been made, is it permitted under
the terms of the letter of credit?
If transhipment is necessary, does the letter of credit
permit this?
Review the draft. Does it quote the banks letter of credit
reference? Is it drawn on the correct party? If necessary,
has it been properly signed and endorsed? Is the amount
and currency correct? Is the tenor as specified?

UCP 500 and UCP 600

UNIFORM
CUSTOMS
AND
PRACTICE

Any basic
idea about
UCP /ICC???

Article .1 Application of UCP

The Uniform Customs and Practice for
Documentary Credits, 2007 Revision,
ICC Publication no. 600 (UCP) are rules
that apply to any documentary credit
(credit) (including, to the extent to
which they may be applicable, any
standby letter of credit) when the text of
the credit expressly indicates that it is
subject to these rules. They are binding
on all parties thereto unless expressly
modified or excluded by the credit.

Article 2 Definitions

Advising bank means the bank that advises

the credit at the request of the issuing bank.
Applicant means the party on whose request
the credit is issued.
Banking day means a day on which a bank is
regularly open at the place at which an act
subject to these rules is to be performed.
Beneficiary means the party in whose favour a
credit is issued.
Complying presentation means a presentation
that is in accordance with the terms and
conditions of the credit, the applicable
provisions of these rules and international
standard banking practice.

Confirmation means a definite undertaking of the

confirming bank, in addition to that of the issuing bank,
to honour or negotiate a complying presentation.
Confirming bank means the bank that adds its
confirmation to a credit upon the issuing banks
authorization or request.
Credit means any arrangement, however named or
described, that is irrevocable and thereby constitutes a
definite undertaking of the issuing bank to honour a
complying presentation.
Honour means:
a. to pay at sight if the credit is available by sight
payment.
b. to incur a deferred payment undertaking and pay at
maturity if the credit is available by deferred payment.
c. to accept a bill of exchange (draft) drawn by the
beneficiary and pay at maturity if the credit is available
by acceptance.

 Issuing bank means the bank that issues a credit

at the request of an applicant or on its own
behalf.
Negotiation means
the purchase by the
nominated bank of drafts (drawn on a bank other
than the nominated bank) and/or documents
under a complying presentation, by advancing or
agreeing to advance funds to the beneficiary on
or
before
the
banking
day
on
which
reimbursement is due to the nominated bank.
Nominated bank means the bank with which the
credit is available or any bank in the case of a
credit available with any bank.
Presentation means either the delivery of
documents under a credit to the issuing bank or
nominated bank or the documents so delivered.

Article
3
Interpretations
Presenter means a beneficiary, bank or other party that makes a
presentation.

Where applicable, words in the singular include the plural and in

the plural include the singular.
A credit is irrevocable even if there is no indication to that effect.
A document may be signed by handwriting, facsimile signature,
perforated signature, stamp, symbol or any other mechanical
or electronic method of authentication.
A requirement for a document to be legalized, visaed, certified or
similar will be satisfied by any signature, mark, stamp or label
on the document which appears to satisfy that requirement.
Branches of a bank in different countries are considered to be
separate banks.
Terms such as "first class", "well known", "qualified", "independent", "official",
"competent" or "local" used to describe the issuer of a document allow any
issuer except the beneficiary to issue that document.

Unless required to be used in a document,

words such as "prompt", "immediately" or "as
soon as possible" will be disregarded.
The expression "on or about" or similar will be
interpreted as a stipulation that an event is to
occur during a period of five calendar days
before until five calendar days after the
specified date, both start and end dates
included.
The words "to", "until", "till", from and
between when used to determine a period
of shipment include the date or dates
mentioned, and the words before and
"after" exclude the date mentioned.

The words from and "after" when used to

determine a maturity date exclude the
date mentioned.
The terms "first half" and "second half" of a
month shall be construed respectively as
the 1st to the 15th and the 16th to the
last day of the month, all dates inclusive.
The terms "beginning", "middle" and "end"
of
a
month
shall
be
construed
respectively as the 1st to the 10th, the
11th to the 20th and the 21st to the last
day of the month, all dates inclusive.

X Next

Export Financing
Exporters naturally want to get paid as
quickly as possible, while importers
usually prefer to delay payment until
they have received the goods. Because
of the intense competition for export
markets, being able to offer attractive
payment terms customary in the trade
is often necessary to make a sale.
Exporters should be aware of the many
financing options open to them so that
they choose the most acceptable one
to both the buyer and the seller.

Export
creditcanbebroadlyclassifiedint
o
Pre-shipment finance and
post shipment finance.
Preshipment
financereferstofinanceextendedto
purchase,processingorpackingofgoods
meantforexports
Financial
assistanceextendedaftertheshipmentof
exportsfallswithinthescopeofpost
shipmentfinance

PACKING CREDIT
Asloan
orcashcreditagainstpledgeorhypothecation.
Verification ofExporter-ImporterCodeNo.
issuedby DGFT.
Party
shouldnotbeintheRBICaution
listorECGCSpecialApprovalList.
Export isnottoalistedcountry
Verify order/LC
Up-to dateknowledgeofexportpolicy
Commodity shouldnotbeinthenegativelist.
Commodity shouldhaveagoodmarket
Terms ofcontract
NoFEMA violation
Borrower shouldbecreditworthy.

 Working capitalmaybedefinedasfundsrequired
tocarrytherequiredlevelofCurrent
assetstoenabletheindustrytocarry
onitsoperationsattheexpectedlevels
uninterruptedly..

The
guidelinessetbyNayakCommitteefor
computationof
WCfinancequantumfor
village,tinyandotherSSIindustries
toaminimumextentof20%ofProjected/
Accepted
Turnovertocontinue
Guidelines
withregardtospecificactivities/industries /situat
ionstocontinue(Sugar/tea
industries,Rehabilitationcases,ExportFinancing
etc.)
Banks
mayconsiderCashFlowapproachoffinancing
inordertoclosethegapbetween
thesanctionedlimitsandtheutilization levels

Quantum offinance:
FOBvalue ofgoodsminusprofitandcredit
margin
Costofproductionlessmargin(canbe
moreifthedomesticcostismore
thantheFOBvalueandthedifference
isaccountedasincentiveslikedutydraw-back
etc.subjecttoexportproductionfinance
guaranteeofECGC).
Inthe caseofexportsonCIFvaluebasis PC
canbegrantedtowardsinsuranceand
freightalso

Period offinance: tocoincide

withthedateforshipmentandnormally
up to180days

Clean PackingCredit
Granted tocreditworthypartieswhereadvance
paymentisrequiredtobemadeto thesupplier.
Quantum
determinedbasedonthelikelypurchase
patternoftheexporterwiththeirsuppliers.
Period
ofCPCisdeterminedbasedonthe
factsofeachcase(butnotlater
thantheperiodofcontract /LC.
Ahigher
marginofsay25%shouldbestipulated,
collectedeachtimeandremittedalong
withPCto thesupplier.
CPCshould beconvertedasPCorBills

EXPORT FINANCE
PRE SHIPMENT finance : Deals with
the finance schemes available before
the shipment has been made.
POST SHIPMENT finance : on the
contrary deals with credit available
after the goods have shipped.
Both stages are crucial for the exporter

Pre-shipment finance

PSF.. Offer liquidity to

the exporter to produce
raw materials, carry out
processing,
packing,
transporting
and
warehousing
of
the
goods to be exported.

 Pre-Export Finance: provision of funds

to cover the period between signing
of purchase orders and payment
(short-term, working capital)
Pre-export finance typically covers:
Cost of inland transport to port
Purchase of raw materials for processing

Cost of processing
Storage costs

Illustrative procedure
(commodities)
Exporter provides title to or pledges
products to bank
Products that have yet to be produced
Products
that
have
been
produced
(warehouse receipt)
Bank provides credit facility
Payment
Trader takes delivery
Bank receives payment directly from buyer
Escrow account
Evidence account

Methods of Pre-Export
Finance

Open Account: Exporter

ships goods without any

guarantee of payment, thereby financing importer
Risk of transaction dependent on relationship/importer integrity.

Documentary letter of credit (see UCC Art. 5 and UCP

500): Letter from bank, addressed to exporter, in which bank
promises to pay or accept drafts if exporter conforms 100% to
conditions within the letter.

Three parties:
Issuer: the issuing bank
Account party (importer)
Beneficiary (exporter)
Three agreements
Trade contract between importer and exporter
Documentary credit between bank and exporter
Reimbursement agreement between bank and importer

Documentary Letter of credit

Revocable/Irrevocable
A revocable letter of credit can be cancelled or amended
by the issuing bank; the bank does not need the
exporter/beneficiarys consent.
Confirmed/Unconfirmed
Issuing bank forwards letter of credit to exporters bank
Exporters bank promises to pay exporter (confirms l/c)
In an unconfirmed transaction, the advising bank acts as
the issuing banks agent and bears no obligation to
exporter
Back-to-back
Typically used by brokers, the letter of credit allows the
beneficiary to assign its rights in one letter of credit to the
issuer of a second letter of credit
Both letters of credit must require identical documents
Transferable
The original beneficiary can transfer the letter of credit to
third parties

Documentary Letter of credit

Revolving
Typically used in construction contracts
Allows beneficiary to draw on the letter of credit, up to a
certain amount, usually without presentation of
documents
The account party replenishes the account
Red clause letter of credit
Exporter can use to obtain pre-shipment finance by
providing either (i) a statement of purpose or (ii) an
undertaking to provide specified documents.
Issuing bank provides exporter with a percentage of the
L/C amount
Advising bank guarantees reimbursement
Green clause letter of credit
Similar to red clause letters of credit, but pre-shipment
finance is contingent upon the production of warehouse
receipts

Letter of credit Settlement

Sight payment (sight draft)
Exporter presents documents and receives payment
Deferred payment (dated draft)
Exporter presents documents and receives payment at
some specified future time
Acceptance (time draft)
Exporter (i) presents documents and (ii) draws a usance
draft
Bank accepts bill of exchange for payment on a future
date
Negotiation
Exporter may choose a bank and negotiate the payment
of a sight or usance draft
Bank will either:
Advance payment with recourse to the exporter
Advance payment less a fee (discount)
Pay exporter when issuing bank provides payment

Post shipment Finance

Provides credit facility from
the date shipment of the
goods to the time export
payment
is
realized
( expenses between period of
shipment
dispatch
and
payment realisation

Export Finance Post-Export

Post-Export Finance (medium/long-term)
Post-Export finance typically covers:
Account receivables
Equipment
Other fixed assets
Methods of Post-Export Finance
Revolving line of credit
Term loan
Finance accounts receivable

Methods of Post-Export Finance

Finance account receivables
Typically used in two instances
Undercapitalized company with permanent
financing need
Temporary insufficient cashflow
Banks provide loan secured by:
Assignment of receivables
Assignment of commodity inventory
Loan
Made on a revolving basis against a pool of
receivables
Borrower
Responsible for collecting from customers
Responsible for 100% loan repayment despite
inability to collect from customers

Export Finance Forms of Risk

Commercial risk
The risk that either party will not fulfill its
obligations
Transportation risk
The risk that goods become damaged or
destroyed during transport
Exchange risk
The risk that currency fluctuations will
affect the value of the transaction
Political risk
The risk that government policy
changes, wars, embargoes, etc., will
prevent the conclusion or affect the value
of the transaction

Indian Case study ; RBI

sources !
PRE-SHIPMENT EXPORT CREDIT, Definition:
any loan or advance granted or any other credit
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
The period for which a packing credit advance
may be given by a bank will depend upon
the circumstances of the individual case,
such as the time required for procuring,
manufacturing
or
processing
(where
necessary) and shipping the relative goods /
rendering of services.
It is primarily for the banks to decide the period
for which a packing credit advance may be
given, having regard to the various relevant
factors so that the period is sufficient to
enable the exporter to ship the goods / render
the services

 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 concessive rate
of interest to the exporter ab initio.
RBI would provide refinance only for
a period not exceeding 180 days.

Disbursement of Packing
Credit

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.

Banks should continue to keep a

close watch on the end-use of
the funds and 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

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 preshipment 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.

Running Account' Facility

In many cases, the exporters have to procure

raw material, manufacture the export
product and keep the same ready for
shipment, in anticipation of receipt of
letters of credit / firm export orders from
the overseas buyers. Having regard to
difficulties being faced by the exporters in
availing of adequate pre-shipment credit in
such cases, banks have been authorized to
extend Pre-shipment Credit Running
Account facility in respect of any
commodity, without insisting on prior
lodgment of letters of credit / firm export
orders, depending on the banks judgment
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, as and when
they are received for negotiation / collection, against the
earliest outstanding pre-shipment credit on 'First In First
Out' (FIFO) basis. Needless to add that, while marking off
the preshipment credit in the manner indicated above,
banks should ensure that concessive credit available in
respect of individual pre-shipment 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 Credit against Proceeds of

Cheques, Drafts, etc. Representing
Advance
Payment for Exports
Where exporters receive direct remittances
from abroad by means of cheques, drafts,
etc. in payment for exports, banks may
grant export credit at concessive interest
rate to exporters of good track record till
the realization 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 in
respect of the goods in question and is an
approved method of realization of export
proceeds as per extant rules.

Rupee Export Packing Credit to Manufacturer

Suppliers for Exports Routed through
STC/MMTC/Other Export Houses, Agencies,
etc.

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.

Requirements
(a) Banks should obtain from the export house a letter
setting out the details of the export order and the
portion thereof to be executed by the supplier and
also certifying that the export house has not
obtained and will not ask for packing credit in
respect of such portion of the order as is to be
executed by the supplier.
(b) Banks should, after mutual consultations and
taking into account the export requirements of the
two parties, apportion between the two i.e. the
Export House and the Supplier, the period of packing
credit for which the concessionary rate of interest is
to be charged. The concessionary rates of interest on
the pre-shipment credit will be available up to the
stipulated periods in respect of the export
house/agency and the supplier put together.

The export house should open inland L/Cs in favour of the

supplier giving relevant particulars of the export L/Cs or
orders and the outstandings in the packing credit
account should be extinguished by negotiation of bills
under such inland L/Cs. If it is inconvenient for the export
house to open such inland L/Cs in favour of the supplier,
the latter should draw bills on the export house in
respect of the goods supplied for export and adjust
packing credit advances from the proceeds of such bills.
In case the bills drawn under such arrangement are not
accompanied by bills of lading or other export
documents, the bank should obtain through the supplier
a certificate from the export house at the end of every
quarter that the goods supplied under this arrangement
have in fact been exported. The certificate should give
particulars of the relative bills such as date, amount and
the name of the bank through which the bills have been
negotiated.

Export of Services
In view of the large number of
categories of service exports with
varied nature of business as well as in
the
environment
of
progressive
deregulation where the matters with
regard to micromanagement are left
to be decided by the individual
financing banks, the banks may
formulate their own parameters to
finance the service exporters.

Exporters of services qualify for working capital

export credit (pre and post shipment) for
consumables, wages, supplies etc.

The proposal is a genuine case of export of

services.
The item of service export is covered under
Appendix 36 of the Hand Book (Vol.1)
The exporter is registered with the Export
Promotion Council for services
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.

India: POST-SHIPMENT EXPORT

CREDIT
Post-shipment Credit' means any loan or
advance granted or any other credit
provided by a bank to an exporter of
goods / services from India from the date
of extending credit after shipment of
goods / rendering of services to the date
of realization of export proceeds and
includes any loan or advance granted to
an exporter, in consideration of, or on the
security of any duty drawback allowed by
the Government from time to time.

Types of Post-shipment
Credits:
(i)Export bills purchased/
discounted/ negotiated.
(ii) Advances against bills for
collection.
(iii) Advances against duty
drawback receivable from
Government

Liquidation of Postshipment Credit:

Post-shipment credit is to be liquidated by the

proceeds of export bills received from abroad in
respect of goods exported / services rendered.
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 Account (EEFC A/C)
as also from proceeds of any other unfinanced
(collection) bills. Such adjusted export bills
should however continue to be followed up for
realization of the export proceeds and will
continue to be reported in the XOS statement.

Rupee Post-shipment
Export Credit

the case of demand bills, the period of advance shall be

the Normal Transit Period (NTP) as specified by FEDAI.
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. However, banks should closely monitor the
need for extending post shipment credit up to the
permissible period of 365 days and they should influence the
exporters to realize the export proceeds within a shorter
period.
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 of the bank concerned, as prescribed by
FEDAI from time to time. It is not to be confused with the
time taken for the arrival of goods at overseas
destination.

Post-shipment Advances against

Duty Drawback Entitlements
Banks may grant post-shipment advances to
exporters
against
their
duty
drawback
entitlements 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 Postshipment Guarantee Scheme

The Whole Turnover Post-shipment
Guarantee Scheme of the Export Credit
Guarantee Corporation of India Ltd.
(ECGC) provides protection to banks
against non-payment of post-shipment
credit by exporters. Banks may, in the
interest of export promotion, consider
opting for the Whole Turnover Postshipment Policy. The salient features of
the scheme may be obtained from
ECGC.

DEEMED EXPORTS - CONCESSIVE RUPEE

EXPORT CREDIT

Banks are permitted to extend rupee preshipment and post-supply rupee export
credit at concessional rate of interest to
parties against orders for supplies in respect
of projects aided/financed by bilateral or
multilateral agencies/funds (including World
Bank, IBRD, IDA), as notified from time to
time by Department of Economic Affairs,
Ministry of Finance under the Chapter
"Deemed Exports" in Foreign Trade Policy,
which are eligible for grant of normal export
benefits by Government of India.

INTEREST ON EXPORT CREDIT

A ceiling rate has been prescribed for rupee export
credit linked to Benchmark Prime Lending Rates
(BPLRs) of individual banks available to their
domestic borrowers. Banks have, therefore, freedom
to decide the actual rates to be charged within the
specified ceilings. Further, the ceiling interest rates
for different time buckets under any category of
export credit should be on the basis of the BPLR
relevant for the entire tenor of export credit.
ECNOS: ECNOS means Export Credit Not Otherwise
Specified in the Interest Rate structure for which
banks are free to decide the rate of interest keeping
in view the BPLR and spread guidelines. Banks
should not charge penal interest in respect of
ECNOS.

Interest Rate Structure

Pre-shipment Credit (from the date of advance) : (a) Up to
180 days / (b)Against incentives receivable from
Government covered by ECGC Guarantee up to 90 days.
Post-shipment Credit (from the date of advance) : a)
On demand bills for transit period (as specified by FEDAI)
(b) Usance bills (for total period comprising usance period
of export bills, transit period as specified by FEDAI, and
grace period, wherever applicable)
Up to 90 days
Up to 365 days for exporters under the Gold Card Scheme.
(c) Against incentives receivable from Govt. (covered by
ECGC Guarantee) up to 90 days
(d) Against undrawn balances (up to 90 days)
(e) Against retention money (for supplies portion only)
payable within one year from the date of shipment (up to
90 days)

EXPORT CREDIT IN FOREIGN

CURRENCY

Pre-shipment
(PCFC): The

Credit

in

Foreign

Currency

scheme is an additional
window for providing pre-shipment
credit
to
Indian
exporters
at
internationally competitive rates of
interest. It will be applicable to only cash
exports. The instructions with regard to
Rupee Export Credit apply to export
credit in foreign currency also mutatis
mutandis, unless otherwise specified.

Source of Funds for Banks

The foreign currency balances available with the
bank in Exchange Earners Foreign Currency (EEFC)
Accounts, Resident Foreign Currency Accounts
RFC(D) and Foreign Currency (Non-Resident)
Accounts (Banks) Scheme could be utilized for
financing the pre-shipment credit in foreign
currency.
Banks are also permitted to utilise the foreign
currency balances available under Escrow Accounts
and Exporters Foreign Currency Accounts for the
purpose, subject to ensuring that the requirements
of funds by the account holders for permissible
transactions are met and the limit prescribed for
maintaining maximum balance in the account under
broad based facility is not exceeded.

Post-shipment Export
Foreign Currency

Credit

in

Banks may utilise the foreign exchange

resources available with them in Exchange
Earners Foreign Currency Accounts (EEFC),
Resident Foreign Currency Accounts (RFC),
Foreign Currency (Non-Resident) Accounts
(Banks) Scheme, 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.