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Financial assistance to
the exporters are generally provided by Commercial Banks, before
shipment as well as after shipment of the said goods. The assistance
provided before shipment of goods is known as per-shipment finance and
that provided after the shipment of goods is known as post-shipment
finance.Pre-shipment finance is given for working capital for purchase
of raw-material, processing, packing, transportation, ware-housing etc.
of the goods meant for export. Post-shipment finance is provided for
bridging the gap between the shipment of goods and realization of export
proceeds. The later is done by the Banks by purchasing or negotiating
the export documents or by extending advance against export bills
accepted on collection basis. While doing so, the Banks adjust the
pre-shipment advance, if any, already granted to the exporter.
Pre-Shipment
Finance
An application for
pre-shipment advance should be made by you to your banker along with the
following documents:
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Confirmed export
order/contract or L/C etc. in original. Where it is not available,
an undertaking to the effect that the same will be produced to the
bank within a reasonable time for verification and endorsement
should be given.
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An undertaking that the
advance will be utilised for the specific purpose of
procuring/manufacturing/shipping etc., of the goods meant for export
only, as stated in the relative confirmed export order or the L/C.
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If you are a
sub-supplier and want to supply the goods to the Export/Trading/Star
Trading House or Merchant Exporter, an undertaking from the Merchant
Exporter or Export/Trading/Star Trading House stating that they have
not/will ð 7 3 not avail themselves of packing credit facility
against the same transaction for the same purpose till the original
packing credit is liquidated.
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Copies of Income
Tax/Wealth Tax assessment Order for the last 2-3 years in the case
of sole proprietary and partnership firm.
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Copy of Exporter's Code
Number (CNX).
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Copy of a valid RCMC
(Registration-cum-Membership Certificate) held by you and/or the
Export/Trading/StarTrading House Certificate.
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Appropriate
policy/guarantee of the ECGC.
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Any other document
required by the Bank. For encouraging exports, R.B.I. has instructed
the banks to grant preshipment advance at a concessional rate of
interest. The present rate of interest is 10% p.a. for preshipment
advance upto an initial period of 180 days. Preshipment advance for
a further period of 90 days is given at the concessional rate of 13%
p.a. Banks are free to determine the interest rate for advances
beyond 270 days and upto 360 days.
Following special schemes are also
available in respect of pre-shipment finance:
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Exim Bank's scheme for
grant of foreign currency pre-shipment credit to exporters for
financing cost of imported inputs for manufacture of export
products.
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Scheme of export
packing credit to sub-suppliers from export order.
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Packing credit for
deemed exports.
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Pre-shipment Credit in
Foreign Currency (PCFC). For further details refer to Nabhi's
"How to Borrow from Financial and Banking Institutions".
Post
Shipment Finance
Post-shipment finance is
the finance provided against shipping documents. It is also provided
against duty drawback claims. It is provided in the following forms:
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Purchase of
Export Documents drawn under Export Order:
Purchase or discount facilities in respect of
export bills drawn under confirmed export order are generally
granted to the customers who are enjoying Bill Purchase/Discounting
limits from the Bank. As in case of purchase or discounting of
export documents drawn under export order, the security offered
under L/C by way of substitution of credit-worthiness of the buyer
by the issuing bank is not available, the bank financing is totally
dependent upon the credit worthiness of the buyer, i.e. the
importer, as well as that of the exporter or the beneficiary. The
documents dawn on DP basis are parted with through foreign
correspondent only when payment is received while in case of DA
bills documents (including that of title to the goods) are passed on
to the overseas importer against the acceptance of the draft to make
payment on maturity. DA bills are thus unsecured. The bank financing
against export bills is open to the risk of non-payment. Banks, in
order to enhance security, generally opt for ECGC policies and
guarantees which are issued in favor of the exporter/banks to
protect their interest on percentage basis in case of non-payment or
delayed payment which is not on account of mischief, mistake or
negligence on the part of exporter. Within the total limit of policy
issued to the customer, drawee-wise limits are generally fixed for
individual customers. At the time of purchasing the bill bank has to
ascertain that this drawee limit is not exceeded so as to make the
bank ineligible for claim in case of non-payment.
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Advances against
Export Bills Sent on Collection: It
may sometimes be possible to avail advance against export bills sent
on collection. In such cases the export bills are sent by the bank
on collection basis as against their purchase/discounting by the
bank. Advance against such bills is granted by way of a 'separate
loan' usually termed as 'post-shipment loan'. This facility is, in
fact, another form of post- shipment advance and is sanctioned by
the bank on the same terms and conditions as applicable to the
facility of Negotiation/Purchase/Discount of export bills. A margin
of 10 to 25% is, however, stipulated in such cases. The rates of
interest etc., chargeable on this facility are also governed by the
same rules. This type of facility is, however, not very popular and
most of the advances against export bills are made by the bank by
way of negotiation/purchase/discount.
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Advance against
Goods Sent on Consignment Basis:
When the goods are exported on consignment basis at the risk of the
exporter for sale and eventual remittance of sale proceeds to him by
the agent/consignee, bank may finance against such transaction
subject to the customer enjoying specific limit to that effect.
However, the bank should ensure while forwarding shipping documents
to its overseas branch/correspondent to instruct the latter 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.
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Advance against
Undrawn Balance: In certain
lines of export it is the trade practice that bills are not to be
drawn for the full invoice value of the goods but to leave small
part undrawn for payment after adjustment due to difference in
rates, weight, quality etc. to be ascertained after approval and
inspection of the goods. 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% of the value of export and an undertaking is 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. Against the specific
prior approval from Reserve Bank of India the percentage of undrawn
balance can be enhanced by the exporter and the finance can be made
available accordingly at higher rate. Since the actual amount to be
realised out of the undrawn balance, may be less than the undrawn
balance, it is necessary to keep a margin on such advance.
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Advance against
Retention Money: Banks also
grant advances against retention money, which is payable within one
year from the date of shipment, at a concessional rate of interest
up to 90 days. If such advances extend beyond one year, they are
treated as deferred payment advances which are also eligible for
concessional rate of interest.
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Advances against
Claims of Duty Drawback:
Duty Drawback is permitted against exports of different categories
of goods under the 'Customs and Central Excise Duty Drawback Rules,
1995'. Drawback in relation to goods manufactured in India and
exported means a rebate of duties chargeable on any imported
materials or excisable materials used in manufacture of such goods
in India or rebate on excise duty chargeable under Central Excises
Act, 1944 on certain specified goods. The Duty Drawback Scheme is
administered by Directorate of Duty Drawback in the Ministry of
Finance. The claims of duty drawback are settled by Custom House at
the rates determined and notified by the Directorate. As per the
present procedure, no separate claim of duty drawback is to be filed
by the exporter. A copy of the shipping bill presented by the
exporter at the time of making shipment of goods serves the purpose
of claim of duty drawback as well. This claim is provisionally
accepted by the customs at the time of shipment and the shipping
bill is duly verified. The claim is settled by customs office later.
As a further incentive to exporters, Customs Houses at Delhi, Mumbai,
Calcutta, Chennai, Chandigarh, Hyderabad have evolved a simplified
procedure under which claims of duty drawback are settled
immediately after shipment and no funds of exporter are blocked.
However, where settlement is not possible under the simplified
procedure exporters may obtain advances against claims of duty
drawback as provisionally certified by customs.
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Negotiation of
Export documents Drawn under L/C:
This aspect has been discussed in the chapter on Special Care for
negotiation of Export Documents under Letter of Credit.
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