EXPORT FINANCE

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EXPORT FINANCE

• FEDERATION OF INDIAN EXPORT ORGANISATIONS
• SOUTHERN REGION, CHENNAI

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EXPORT FINANCE

• Export or perish
• Our imports are more than exports.
• Hence there is a necessity to encourage exports.
• Govt. and RBI extend various concessions to boost
  exports.

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EXPORT FINANCE

• Some of the concessions include
• Cheap credit to exporters.
• Minimum of 12 of net credit should go to
  exports.
• Refinance to Banks on eligible portion of export
  credit outstanding.
• ECGC guarantee for export credits
• No margin requirements for advance against export
  receivables.
• Flexible approach to export lending and norms of
  lending.
• Time norms for disposal of application for export
  credit.
• Rejection with the concurrence of next higher
  authority
• Bifurcation of WC limits into loan and cc
  component after excluding export limits.
• Issue of Gold Card to exporters with good track
  record.

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EXPORT FINANCE

• Export credit can be broadly classified into
•     Pre-shipment finance and
•     post shipment finance.
• Pre-shipment finance refers to finance extended
  to purchase, processing or packing of goods meant
  for exports.
• Financial assistance extended after the shipment
  of exports falls within the scope of post
  shipment finance.

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EXPORT 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
• .OPL on the buyer
• .Up-to date knowledge of export policy
• .Commodity should not be in the negative list.
• .Commodity should have a good market
• .Terms of contract
• .No FEMA violation
• .Borrower should be credit worthy.

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EXPORT FINANCE

• 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

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EXPORT FINANCE

• Gross working capital represented by
• Current Assets
• Inventory
• Receivables
• Cash
• Other current assets
• Working capital gap represented by
• Current assets less other current liabilities
• Bank borrowings excluded

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EXPORT FINANCE

• Net working capital represented by
• Current Assets less Current liabilities
• NWC - also called the liquid surplus
• NWC comes from long term sources
• Promoters margin / Others
• Existing NWC an important indicator of the
  strength of liquidity

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EXPORT FINANCE

• Current assets
• Current liabilities
• Cash, Bank Balances and other resources that are
  reasonably expected to be realized or consumed
  within one year of the date of the Balance sheet

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Operating Cycle
Cash
Raw Material
Receivables
Goods in process
Finished goods
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EXPORT FINANCE

• ASSESSMENT OF LIMITS
•  Appraised in the same manner as local cash
  credits.
• However certain relaxations can be considered in
  the inventory holdings depending upon the nature
  of contract and margin requirements.
• Guiding principle is need based finance.
• Limit is to be determined based on past
  performance and future projections.
• Turnover method.
• MPBF
• Cash Budget method

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EXPORT FINANCE

• Parameters in Working Capital credit assessment
• Total CA
• Other CL
• Working Capital Gap
• NWC (actual / projected)
• Assessed Bank Finance
• NWC to TCA ()
• Bank finance to TCA ()
• S. Creditors to TCA ()
• Other CL to TCA ()

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EXPORT FINANCE

• 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

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EXPORT FINANCE

• 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.

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EXPORT FINANCE

• Margin
• depending upon the trade (10 to 25)
•  
• Period of finance
• to coincide with the date for shipment and
  normally upto 180 days.
•  

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EXPORT FINANCE

• 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.

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EXPORT FINANCE

• Packing Credit in Foreign Currency
• PCFC be granted against any confirmed
  order/irrevocable LC
• Export order/LC should be denominated in
  convertible currency
• Proceeds should be realizable in convertible
  currency
• Exports in ACU currency also eligible.
• All designated branches for exports/Obs/FEX
  Cells/IF Brs./all ELBs and other branches as per
  annexure ID7/84 are permitted to grant PCFC.
• Currency of the account USD, GBP, EURO.(can be
  granted in a currency other than the currency of
  export after obtaining a risk letter).

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EXPORT FINANCE

• Funds clearance to be obtained from ID
• Minimum USD or GBP or EUR 10,000/- in multiples
  of 1000
• Each disbursement should be treated as a separate
  loan
• Running account facility can be permitted to
  exporters with good track record.
• PCFC to be liquidated upon discounting the
  relative export bill under BRD scheme.
• From advance remittance if can be linked or
• from EEFC funds/rupee resource provided export to
  that extend has been made.

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EXPORT FINANCE

• Period available for the specific period as per
  sanction not exceeding 180 days.
• Rate of interest CROI
• Upto 180 days respective LIBOR/EURO LIBOR of
  the currency plus 75 basis points Plus upfront
  fees stipulated.
• Beyond 180 days rate for the initial period of
  180 days prevailing at the time of extension plus
  2.
• Exchange Rate Applicable spot buying rate
  irrespective of the period of PCFC.
• Reporting to FD.
• Liability as applicable to PC.

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EXPORT FINANCE

• Common discrepancies observed while granting PC
• 1.  Order not studied thoroughly.
• 2. Order/LC has expired or going to expire
  shortly.
• 3. OPL on the buyer not available.
• 4. ECGC buyers credit limit not available.
• 5. Cost of production not calculated correctly.
• 6. Advance payment if any received not deducted.
• 7 After determining the quantum of advance,
  drawing power
• not ensured.
• 8. End use not verified.
• 9. Date of shipment not followed and necessary
  extension not obtained if overdue.

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EXPORT FINANCE

• POST SHIPMENT FINANCE
•  DEFINITION
•  Loan or advance granted to an exporter from the
  time of shipment of goods to the time of
  realization including against the security of
  duty draw back or any receivable from the govt.
•  

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EXPORT FINANCE

• ELIGIBILITY
•  
• .To the actual exporter or to an exporter in
  whose name the documents are transferred
• .In the case of deemed exports to the supplier of
  goods to the designated agencies as per EXIM
  policy

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EXPORT FINANCE

• .Purpose to finance the export receivable
• .Quantum Up to 100 of the invoice value
• .Margin Normally no margin stipulated. However
  the SA can stipulate margin
• .Contingency Marine Insurance
• To be obtained in the case of FOB/CFR contracts
•  

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EXPORT FINANCE

• Mode of finance
•  FDB
• FBE
• Negotiation under PBLC/NPBLC
• AGAINST EXPORT RECEIVABLE
• BRD
•  

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EXPORT FINANCE

• Rediscounting of Export Bills Scheme
• BRD
•  
• . Sight bills as well as usance bills not
  exceeding 180 days (inclusive of normal transit
  period, grace period etc.)
• . Denominated and realizable in any convertible
  currency
• . Whether drawn under LC or confirmed orders
• . Shipment to ACU countries only if realizable in
  USD
• . If forward contract is booked covering
  exports-no BRD
• 
  ..contd.

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EXPORT FINANCE

• (BRD Contd.)
• .Within the sanctioned limit for Post shipment
  finance
• .Funds clearance to be obtained from ID
• .Reporting for the portion in excess of PCFC and
  EEFC
• .ROI NTP/Usance upto 6 months LIBOR 0.75
• Upto delinking date 2 over the above
• If realized after delinking as applicable to
  Rupee PSF.
• (plus upfront fees as advised by ID)

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EXPORT FINANCE

• Frequently asked questions
• 1. Why ECGC guarantee when the exporter holds a
  Policy from ECGC?
• 2. What is buyers limit under the ECGC policy?
• 3. Some intricacies in the IPSG cover of ECGC
• 4. LC available at the counters of the opening
  bank.

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EXPORT FINANCE
Points of caution in Working Capital Credit
proposals

• Levels of the Current Assets are often projected
  at higher levels to arrive at higher credit
  limits
• Sundry Creditors projected at lower levels
• Projections made at the time of last sanction and
  actuals thereagainst are not done / not properly
  commented upon.
• In case of Associate concerns engaged in the same
  activity or otherwise, consolidation of the group
  accounts on a common date is not insisted upon.
  This, if done, would facilitate analysis of the
  inter-unit transactions / holdings.

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EXPORT FINANCE

• THANK YOU