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 • An irrevocable LC constitutes a definite 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 recourse L/C • With:- L/C if the buyer fails to pay the bank 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 Anticipatory L/C ---Provides advance payment or at least part

payment to the beneficiary against his 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 bank’s 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 bank’s 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 credit can be broadly classified into

• Pre-shipment finance and • post shipment finance. • Preshipment

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

PACKING CREDIT• 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• Verify order/LC• 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..

• 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

• Period  of finance: to coincide  with the date for shipment and normally  up to 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

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 creditRevocable/Irrevocable• –A revocable letter of credit can be cancelled or amended by the issuing 

bank; the bank does not need the exporter/beneficiary’s consent.Confirmed/Unconfirmed• –Issuing bank forwards letter of credit to exporter’s bank• –Exporter’s bank promises to pay exporter (confirms l/c)• –In  an  unconfirmed  transaction,  the  advising  bank  acts  as  the  issuing 

bank’s agent and bears no obligation to exporterBack-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 documentsTransferable• –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 SettlementSight payment (sight draft)• –Exporter presents documents and receives paymentDeferred payment (dated draft)• –Exporter presents documents and receives payment at some 

specified future timeAcceptance (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 FinanceFinance 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 

obligationsTransportation risk•The risk that goods become damaged or destroyed 

during transportExchange risk• •The risk that currency fluctuations will affect the 

value of the transactionPolitical 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 AdvanceThe 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 CreditThe packing credit / pre-shipment credit granted 

to  an  exporter  may  be  liquidated  out  of proceeds  of  bills  drawn  for  the  exported commodities  on  its  purchase,  discount  etc., thereby  converting  pre-shipment  credit  into post-shipment  credit.  Further,  subject  to mutual agreement between the exporter and the banker it can also be repaid / prepaid out of  balances  in  Exchange  Earners  Foreign Currency A/c  (  EEFC A/c  )  as also  from  rupee resources  of  the  exporter  to  the  extent exports have actually taken place.

Running Account' FacilityIn  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  bank’s  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 documents  against  which  no packing  credit  has been drawn  by  the exporter.

Export Credit against Proceeds of Cheques, Drafts, etc. Representing AdvancePayment 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 Post-shipment 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 Post-shipment 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 Post-shipment Policy. The salient features of the scheme may be obtained from ECGC.

DEEMED EXPORTS - CONCESSIVE RUPEE EXPORT CREDIT

Banks are permitted to extend rupee pre-shipment 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 Credit in Foreign Currency (PCFC): The

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 Credit in Foreign Currency• 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.