Various Methods of Payment in International Trade

RBI Rules for Export Payment

• As per Indian Trade and Exchange management rules invoicing for export can be made
in Rupee provided payment is realised by receiving in freely convertible currency. In
this process shifting of currency risk from seller to the buyer is achieved.
• Counter trade or Barter requires RBI permission except for Gems and Jewellery sector.
• Payment for export by all types of exporter is to be realised within 9 months in a
approved manner. Export outstanding beyond 9 months are being reported by AD
banks to RBI on half yearly basis through XOS statement.
• Exporter may be put by RBI under “Caution Listed Exporter's List” and may be barred
from making further shipments. Later on the case may be handed over to ED by RBI.
• Exporters are under obligation to submit export documents to AD banks maximum
within 21 days from the date of shipment. Exporters are answerable for frequent &
inordinate delay in submission of documents to AD banks.
• Payment of export can be accepted in Rupee from NRI buyer by debiting his Rupee
account maintained in India.
• Export of goods on lease or hire purchase basis require RBI permission.
• Exports on elongated payment terms require RBI permission.
 Methods of payment in International trade
• Payment in international trade is always made on the basis of
documents only (despite method of payment) and not on the basis
of goods or shipments.
• As such all the parties in international trade only deal in
documents and not in goods or shipment.
• Buyer is interested in receiving the goods before payment and seller
is interested to receive payment before shipment. However, ideal
situation prevails only in theory. Methods of payment change
according to the buyer’s need, monopoly of the seller, PEST
environment in the buyer’s country, Market conditions etc.
 Advance Payment-as a method of payment in International Trade
• In this method of payment seller imposes advance payment on buyer
due to following situations:
• Monopoly of the seller
• When political, Economical, Social and Technological environment in
the buyer’s country is not stable.
• When trade volume is very small.
• In this method of payment seller is having all types of advantages.
Seller enjoys working capital provided by the buyer and can make
shipment as per his sweet will.
• However, buyer blocks his working capital before receipt of goods and
may loose market opportunity due to late shipment by the seller.
• May not receive goods as per specification.
• This method of payment requires highest degree of trust between
buyer and seller.
 RBI Rules for making Advance Payment for Import
• Advance payment for import of tangible goods up to USD-200,000/- or its
equivalent per shipment.
• Advance payment for import of intangible services up to USD-500,000/-
• Advance payment for import of Aircrafts/Helicopters and other Aviation
Related Purchases up to USD-50 million or its equivalent.
• Advance payment for import by Gems & Jewellery sector without any limit
provided the overseas mining company should have the recommendation of
GJEPC.
• The importer should be a recognised processor of rough diamonds and should
have a good track record.
• AD Category banks should, undertake the transaction based on their
commercial judgment and after being satisfied about the bonafides of the
transaction.
 RBI Rules for making Advance Payment for Import
• Advance payments should be made strictly as per the terms of the sale
contract & should be made directly to the account of the company concerned
i.e. to the ultimate beneficiary and not through numbered accounts or
otherwise and AD banks should ensure that they have created the Outward
Remittance Message (ORM) for all such outward remittances in IDPMS.
• Remittance is not permitted for import of conflict diamonds (Kimberly
Certification).
• KYC and KYCC should be done by the AD banks.
• AD banks should follow-up submission of the Bill of Entry / documents
evidencing import of rough diamonds. Advance payment beyond these general
limits require bank guarantee from the seller’s bank assuring timely shipment
or refund of advance payment with interest.
• However, AD banks have discretionary powers to make advance payment up to
USD-100 million without bank guarantee provided they are satisfied with the
track record of importer, KYC & KYCC.
 RBI Rules for receiving Advance Payment for Export
• Exporters from India are permitted to receive advance payment for export
without any limit.
• However, exporters receiving advance payment for export are under obligation
to make shipment within a year since export transaction is a Current account
transaction and needs to be settled within a year.
• If exporter is not able to make shipment within a year, then he must refund
the complete amount of advance payment with interest (Interest at LIBOR +
1% is to be paid) within a year.
• Refund of advance payment beyond 1 year requires RBI permission.
• RBI is closely monitoring all advance payments minutely through EDPMS.
 Documentary Collections
• In this method of payment there is limited faith between buyer & seller. Goods
are shipped by seller on the basis of confirmed order by the buyer and trade
documents are routed through banks.
• In this method of payment role of the bank is of a collecting agent and do not
have payment obligation or responsibility to get the payment from the buyer.
• As such credit risk or default risk is borne by the seller.
• After shipment, seller submits set of original documents to his bank with all
instructions regarding presentation of the documents to the buyer, delivery of
documents of title, receiving payment and interest etc.
• Seller’s bank forwards documents to buyer’s bank or any other bank for
presentation to buyer.
• There are two types of sale transactions i.e. Cash Sale and Credit Sale.
• The documents generated under Cash sale are referred as “Documents against
Payment (DP sale)”. It is also referred as Sight Draft or CAD-Cash Against
Delivery.
 Documentary Collections
• The documents generated under Credit sale are referred as “Documents against
Acceptance or DA documents or Usance Documents”.
• Acceptance is defined as legal promise of payment and Usance is defined as credit
period extended by seller to the buyer.
• All documentary collections all over the world are governed by “Uniform Rules for
Collection (URC)”
• Publication No.522 dtd 1/1/1998 of International Chamber of Commerce, having
its head quarter at Paris.
• ICC is the micro level regulator of international trade and works in close
association with UNO, WTO & WBO.
• ICC has brought all trading community members on a common platform by
publishing more than 50 publication which are uniform or standardised rules for
different aspects of trade transactions.
• A well documented crystal clear sale contract avoiding ambiguity incorporating
provisions for breach of contract, provision for arbitration and jurisdiction is very
essential. Sale contract shows need of both the parties.
 Open Account Basis or Consignment Basis
• In this method of payment buyer and seller enter in to an
agreement that whenever goods will be sold by the buyer, buyer
will make payment to the seller.
• As such it is also referred as distress sale by the seller & it also
requires trust between buyer and seller.
• In this method of payment buyer is having all types of advantages
and seller is having all types of disadvantages.
 Documentary Letter of Credit
• It is the most popular method of payment in international trade which give
equal amount of protection to buyer as well seller.
• It also acts as a tool of non-fund based working capital finance or indirect tool
of Import finance.
• It is the substitution of a Buyer’s credit for a Bank’s credit.
• All documentary letters of credit all over the world are governed by “Uniform
Customs and Practices for Documentary Credits (UCPDC) publication No.600
dated 1st July 2007 of International Chamber of Commerce having its head
quarter at Paris.
• The International Standard Banking Practice (ISBP 745) is another publication
of the ICC. It offers crucial guidance on the documents presented against
letters of credit. Take note that ISBP does not change UCP 600 rules when it
comes to letters of credit. However, it is a valuable guide to Uniform Customs
and Practice (UCP).
 Documentary Letter of Credit
• Definition: It is a written unconditional payment undertaking given by buyer’s bank
on behalf and at the request of the buyer, in favour of seller:
(a) To make payment of DP or at sight bill upon presentation within 5 working day
following the day of receipt of the documents.
(b) To accept DA or Usance documents, to confirm due date and to make payment on
due date.
(c) To make an arrangement by nominating a bank in the seller’s country for the
purpose of negotiation of the document. (This particular bank is referred as
‘Nominated Bank” or “Negotiating Bank” which is a foreign correspondent of the LC
issuing bank in the seller’s country. Negotiation is defined as defined as the
purchase by the nominated bank of drafts (drawn on 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.)
Provided seller submits set of original documents either to the Nominated bank or LC
opening bank strictly as per terms & conditions of the credit within time frame. The
time frame for submission of shipping documents is maximum 21 days from the date of
shipment. Documents submitted after 21 days are referred as “Stale document”
internationally.
 Mechanism of Documentary Letter of Credit.
1) Buyer and seller enter in to a contractual relationship by way of a sale contract. Sale contract is
necessary for LC opening bank for opening the LC because LC is a replica or mirror image of a sale
contract. However, as per UCPDC LC opening bank should avoid giving reference to the sale
contract in the LC. If given it will be disregarded while scrutiny of the documents.
2) Buyer approaches his bank with a request (on stamped legal LC application form) to establish LC
on his behalf & in favour of the overseas seller.
3) Bank scrutinise LC application form through the following angles:
(a) Trade Management Angle: It mandates requirement of IEC code and
decides importability of the commodity for which LC is to be established.
For restricted item licence or authorisation from DGFT is required.
(b) Exchange Management Angle:-Buyer or applicant of LC and LC opening
bank ensure that there is no violation of FEMA rules & regulations.
(c) International Chamber of Commerce (ICC) Rules:- LC opening bank ensures that
LC is established and documents demanded under LC are crystal clear and there is
no scope for ambiguity.
(d) FEDAI (Foreign Exchange Dealer’s Association of India) guidelines on crystalisation of
Import Bills under LC
(e ) Bank’s Internal Guidelines: In which bank sanction LC facility on the basis of financial

& Non-financial assessment considering 6 C of the borrower.

 Mechanism of Documentary Letter of Credit.
4) If satisfied, bank agrees to open LC on behalf of buyer in favour of overseas
seller. LC opening bank prepares text of LC by incorporating all the terms &
conditions of the sale contract but converting all terms & conditions in to
documents.
5) LC opening bank transmits text of LC through a communication technology
known as SWIFT (Society for Worldwide Interbank Financial
Telecommunications) to its foreign correspondent in the seller’s country with a
request to advise the LC to seller or beneficiary. This particular bank is known
as “Advising Bank”. The duty of the Advising Bank is to verify & Certify
genuineness or Authenticity of the LC to the seller or beneficiary.
6) Beneficiary after receiving the LC must check it with original sale contract, if
any deviation then must seek amendment from the buyer. If found correct must
make all sorts of efforts for timely shipment. Timely shipment is the essence of
LC.
7) In the process of shipment, some documents are prepared by the seller
himself & some documents are provided by other agencies. However, all the
documents must be consistent with each other. Description of the merchandise
must be strictly as per LC or sale contract.
 Mechanism of Documentary Letter of Credit.
8) Seller or beneficiary has option to submit documents either to the Nominated
Bank or to LC Opening bank. However, prime responsibility under LC is always
of LC opening bank. If submitted to Nominated bank, then Nominated bank
checks documents strictly as per terms & conditions of the LC on behalf of LC
opening bank and if found correct then pays to seller & beneficiary and
forwards set of original documents to LC opening bank and claims
reimbursement from LC opening bank.
9) LC opening bank after receipt of documents must check documents strictly
as per terms & conditions of the LC, if found correct then and then should debit
the account of the buyer or importer.
10) LC opening bank hands over set of original documents to the buyer or
importer for custom clearance.
11) After custom clearance buyer or Importer is under obligation to submit
“Proof of Shipment” i.e. Custom Certified Exchange Control copy of Bill of Entry
to AD bank within 90 days from the date of payment. Once Bill of Entry is
submitted to AD bank LC transaction is complete.
 Types of LCs
• Revocable v/s Irrevocable:- Revocable LC can be cancelled or amended by LC
opening bank without giving notice to the beneficiary. Revocable LC is not in
practice in international trade & is not identified by ICC. Irrevocable LC
cannot be cancelled or amended by LC opening bank without consent of all
the concerned parties in the LC Transaction.
• Confirmed LC v/s Unconfirmed LC: In case of confirmed LC seller or
beneficiary has assurance of payment from LC opening bank as well as
confirming bank. Confirming bank is the correspondent of LC opening bank
and gives assurance of payment on behalf of LC opening bank to seller or
beneficiary. However, in case of unconfirmed LC seller or beneficiary has
assurance of payment only from LC opening bank.
• Open LC v/s Restricted LC:- When a particular bank is nominated for
negotiation of documents under LC then LC is restricted or available for
negotiation only at the counter of Nominated bank. As such LC automatically
becomes restricted on nomination of the particular bank. However, when LC is
available for negotiation at the counter of any bank in the seller’s country then
such LC is referred as Open LC.
 Types of LCs
• Payment or Sight LC v/s Usance LC:- Sale transactions are of two types. Cash
sale & Credit sale. LC for cash transaction is referred as payment or sight LC
and beneficiary is entitled for payment within 5 working day following the day
of receipt of documents. While in case of Credit sale transaction LC is referred
as Usance LC and beneficiary is entitled for payment only on due date or
maturity date i.e. after expiry of Usance period.
• Transferable LC v/s Back to Back LC:-These types of LC are demanded by
Merchant exporters. In case of transferable LC Primary beneficiary has right to
transfer LC either in part or in full to the secondary beneficiary. However,
secondary beneficiary do not have right to transfer LC further. In case of
Transferable LC transferee has risk of loosing identity of the buyer. As such to
protect identity of the buyer Back to Back LC is issued by the exporter in
favour of supplier in domestic currency on the strength of the original LC
received in foreign currency. The beneficiary of Back to Back LC draws
documents on primary beneficiary/exporter and primary beneficiary
substitutes all documents in his own name to protect identity of the buyer
from the supplier.
 Types of LCs
• Red Clause LC v/s Green Clause LC:-These types of LCs are in practice in
third world countries. They are also referred as “Anticipatory Letter of Credit”.
LC is a contract of performance. Red clause & Green Clause are exception to
this principle. Due to urgent need of the buyer there is a provision in Red
Clause LC to extend pre-shipment advance to the seller or exporter and this
particular clause is printed in red ink, that is why it is popularly known as
Red Clause LC. Green Clause LC is extended version of Red Clause LC in
which warehousing facility for storage of goods at ports is arranged by LC
opening bank.
 Standby Letter of Credit
• What is a standby letter of credit (SBLC)
• In short (and very simply put) ; a bank guarantee in LC format
• SBLC covers the beneficiary (/seller) and offers financial compensation in case of the
applicant (/buyer) defaulting on its named obligation (financial or otherwise) i.e. it
guarantees financial compensation in case of a claim in conformity with the
instrument and the underlying rules
• So contrary to a “normal” LC you would only draw under the SBLC in case something
goes wrong.
• This LC is relatively straight forward but requires quite a bit of trust on the side of the
applicant.
• The instrument is abstracts from its underlying obligation.
• Make sure the SBLC text is clear and does not contain any clauses which make a
successful claim dependent on the applicant cooperating
• Advantage to a normal LC:- Only need to present documents when there is a default
by the buyer.
• Less documents needed, less chances for discrepancies
• It is cheaper when compared to a documentary LC
 Export Finance
• Growth of International trade and to be specific the growth of export is one of the
crucial factor for any country’s economy. There is a saying “Export or Perish”.
• In order to give competitive edge to our exporters, government and regulators have
instructed commercial banks to extend export finance liberally and at affordable
rate of interest.
• Export finance is short term working capital finance which is also treated as
preferred sector finance. Export finance is a need based, timely, affordable & as
per target set by the regulators.
• While giving export finance bankers should consider the following
Guidelines/Regulations governing Export Finance
a) RBI Guidelines which consists:- Exchange Control Regulations
b) Trade control - EXIM Policy
c) ICC Guidelines
d) ECGC Guidelines
e) FEDAI Guidelines
• Banks are supposed to render effective customer service wherein banks must
provide timely and adequate export finance to the exporters.
 EXPORT FINANCE –RBI Guidelines
• It is a short term working capital finance.
• Banks should provide timely and adequate credit to exporters
• Banker should render essential customer services/guidance in regard to
procedural formalities and export opportunities to their exporter clients.
• Credit allocation:- 12% of NBC as per DBOD guidelines, shortfall in achieving
this target viewed seriously.
• Banks should open Export Counsel Offices to guide small exporters and those
taking up non-traditional exports
• RBI constituted a working group in order to address various issues relating to
customer service to exporters.
• Export finance should be made available to exporters in a timely manner in
order to make timely shipments.
 EXPORT FINANCE –RBI Guidelines
• All rejections of export credit proposals should be brought to the notice of the
Chief Executive of the bank explaining the reasons for rejection.
• The internal audit and inspection teams of the banks should comment
specifically on the timely sanction of export credit limits within the time schedule
prescribed by RBI.
• Banks should nominate compliance officer in their foreign
departments/specialised branches to ensure prompt and timely disposal of
cases pertaining to exporters.
• Banks should adopt any of the methods, viz. Projected Balance Sheet method,
Turnover method or Cash Budget method, for assessment of working capital
requirements of exporter-customers, whichever is most suitable and appropriate
to the business operations.
• In the case of consortium finance, once the consortium has approved the
assessment, member banks should simultaneously initiate their respective
sanction processes.
 Advantages for Bank

• Self Liquidating
• Exchange – Profit
• Income from other related business viz. Imports,
Remittances
• Refinance from RBI
• ECGC Cover :
• a) Policy for Exporters
• b) Guarantee to Banks
 Stages in Export Finance

• Pre-shipment Finance: Financial assistance

extended from the date of receipt of export order till
the date of shipment given for the purpose of
procuring raw material, processing, packing,
transporting, warehousing of goods meant for
export.
• Post-shipment finance:- Credit facility extends
from the date of shipment till the date of realization
of proceeds is known as post-shipment finance.
 Types of Pre-shipment Finance

1. Packing Credit
2. Advances against cheques/drafts received as
advance payment.
3. Advances against Duty Draw Back Scheme.
 Types of Post-shipment finance.

• Post-shipment finance is basically bill finance.

1. Export bills purchased/negotiated/discounted.
2. Advances against bills sent for collection basis.
3. Advances against exports on consignment basis.
4. Advances against undrawn balances.
5. Advances against Duty Drawback.
 General Guidelines for export finance
• Genuine credit requirements must be met promptly & in full.
• Queries should not be raised in piecemeal or information sought at various stages,
leading to delay in extending credit.
• Flexible attitude to debt-equity ratio.
• However, no compromise in respect of viability & integrity of the borrower.
• Exporters must satisfy the banker about their capacity to execute the orders within
the stipulated time.
• Quantum of finance should commensurate with the expected turnover & cost of input.
• Export under LC- LC should be opened by bank of international repute and terms &
conditions should be acceptable.
• Exports under order basis- satisfactory status report of the buyer.
• Banks should do PEST analysis of country of importer.
• Feasible Fresh facility to be sanctioned within 45 days from the date of receipt of
application.
• Renewal of limits within 30 days
• Ad-hoc limits within 15 days
• Exporter’s credit requirements at pre & post shipment stages are to be considered in
total.
 Appraisal & sanction of Export Finance

• All costs prior to shipment would be eligible for packing credit.

• In addition to normal routine appraisal, banks should look into the aspect of
product profile, country profile & commodity profile.
• Status report of buyer to be obtained from ECGC or Dun & Bradstreet.
• While appraising export credit proposals banks should comply with the
following regulations:
• Exchange Control Regulations-FEMA
a) Exporter should be regular, bonafide & having good standing in the market.
b) Exporter should not be under the caution list of RBI.
 Appraisal & sanction of Export Finance
a) IEC Code allotted by DGFT.
b) Exportability of goods
c) Goods must be freely exportable.
d) Should not be classified as banned/canalised/restricted.
e) If restricted- valid license for export
f) Country of export should not be under the list of trade barriers- for e.g. Iraq
g) It is a Concessional Working Capital Finance
h) Ensure that exporter is not under ECGC’s SAL;Caution list,
i) Banker must understand export incentives available to exporter.
j) Bank must assess capacity of exporter to execute export order,quality,
k) Banks must assess country risk
l) Interchangeability between pre-post shipment can be considered.
 Appraisal & sanction of Export Finance

• ECGC Guidelines:
• Most of the banks have opted WTPCG & WTPSG.
• It is obligatory for banks to verify whether:
• Party is under ECGC’s Specific Approval List (SAL)
• Country of export should not be under RCC (Restricted Cover Countries)
• Proposed limit should be within discretionary limits prescribed by ECGC per
borrower for the bank.
• If proposed limit exceeds the discretionary limit fixed by ECGC, exporter’s
account must be classified as “Standard Asset”.
• Branch may disburse the sanctioned limit but must inform ECGC within 30 days
from the date of sanction.
• Sanctioned limits within discretionary limits fixed by ECGC must be reported to
ECGC within 30 days from the date of sanction.
 Precautions to be taken for Disbursement of PCL
• Branches should ensure:
1. Execution of proper documentation.
2. Exporter should submit following documents at the time of availment:
a) Formal application for releasing PCL with an undertaking to effect the
shipment within the stipulated due date & to submit shipping documents to
the bank within prescribed time limit.
b) Firm order or LC or original cable/telex/fax message exchanged between the
exporter & buyer.
c) License issued by DGFT if the goods are classified as restricted/canalised
category.
d) For procurement of seasonal goods exporter may not be in a position to
submit export order. In such cases special Packing credit facility known as
“Running account facility” will be considered by the banks.
 Precautions to be taken for Disbursement of PCL
• Scrutinize the application & details submitted by exporter.
• Record particulars in PCL Register for e.g. Name of the buyer, commodity to
be exported, quantity, value (FOB or CIF Basis), Last date for shipment
/negotiation, any other terms to be complied with.
• Fix the quantum & period of finance on the basis of the above details.
• Normally quantum of finance should be fixed on the FOB value of the
contract/ LC or domestic value of the goods whichever is lower.
• Insurance & freight charges should not be financed at initial stage.
• PCL can be more than the contract or LC value where bye-products are
generated. Bye-products may be disposed by exporter in local market. In this
case, the entire advance will be treated as export finance at concessional
interest rate. However for the domestic sales this excess portion will be
applicable only up to 30 days from the date of advance.
• Disbursements are to be made in stages & preferably not in cash.
• Payments should be made directly to supplier by draft or banker’s cheques.
 Precautions to be taken for Disbursement of PCL

• Period of finance will be decided by banks on the basis of manufacturing cycle

& shipping the relative goods. Normally this period should not exceed 18o days.
• In exceptional circumstances further extension of 90 days can be granted with
the permission of appropriate authority provided such extension is genuine &
permitted by amendment of LC or the Contract.
• Extension of PCL beyond 360 days requires prior approval of ECGC.
• Banks must keep close watch on the end use of the funds and asset creation
from the finance extended by the bank.
 Follow up of Packing Credit Advances
• Submission of Monthly Stock Statement.
• Physical inspection of stock.
• Unit visits
• Stock Audit by Concurrent Auditors.
• Insurance of Stock for full value.
• Timely payment of ECGC Premium.
 Liquidation of Packing Credit Advances

• PCL will always be liquidated with export proceeds of the relevant shipment.
• Pre-shipment liability will be converted in to post-shipment liability.
• If export does not take place entire advance to recovered at interest rate
applicable to “Export Credit not otherwise specified (ECNOS)” plus 2% from the
date of advance.
• With recent liberalization & deregulation of interest rates, banks have flexibility
for liquidating PCL advances as under:
• Adjustment of PCL with export documents relating to any other order.
• Substitution of commodity & substitution of buyer can be allowed by AD himself.
• Existing PCL may be liquidated with any other export proceeds against which no
packing credit has been availed.
 Liquidation of Packing Credit Advances
• Even though RBI has permitted relaxation for liquidating PCL, common prudence
is to be observed by Ads as under:
• Substitution is commercially necessary.
• Exporter must deal exclusively with our bank.
• Exporter should be a regular customer & should have sound track record.
• Credit rating should be ‘A’, & it should be a Standard Asset
• Credit limit should have been reviewed annually.
• Customer should submit Monthly stock statement & QIS promptly.
• Overdue export Bill outstanding should not be more than 5% of the total export
proceeds realized in the previous calendar year.
• PCL can also be adjusted from EEFC accounts.
 What is EEFC A/C
• Exchange Earner’s Foreign Currency Account
maintained with AD only.
• A person resident in India may open the account.
• Account maintained as Non-interest bearing
current account.
• 100% of forex earnings can be credited to this
account subject to permissible credits and debits.
• This account facilitates exporters to avoid
exchange difference between buying rate & selling
rate.
• Gives natural hedge.
• What are the permissible credits into this account?
• Inward remittance through normal banking channel.
• But FCL or investment received from abroad can not be credited to this account.
• Payments received in foreign exchange by a 100% EOU, a unit in EPZ, STP, EHTP
on a/c of export of goods and services.
• Payments received in foreign exchange by a unit in DTA for supply of goods to a
unit in SEZ
• Advance remittance received by an exporter towards export of goods or services;
• Payment received for export of goods and services from India, out of funds
representing repayment of State Credit in U.S. dollar held in the account of Bank for
Foreign Economic Affairs, Moscow, with an authorised dealer in India,
• Professional earnings including directors fees, consultancy fees, lecture fees,
honorarium and similar other earnings received by a professional by rendering
services in his individual capacity.
• Interest earned, if any, on the funds held in the account;
• Re-credit of un-utilised foreign currency earlier withdrawn from the account;
• Foreign exchange earnings received through an international credit card
• Permissible debits into EEFC account.
• i) Payment outside India towards a permissible current account
transaction
• ii) Payment in foreign exchange towards cost of goods purchased
from a 100% EOU or a Unit in EPZ, STP, EHTP
• iii) Trade related loans/advances, by an exporter holding such
account to his importer customer outside India, subject to compliance
with the FEMA Regulations.
• iv) Payment in foreign exchange to a person resident in India for
supply of goods/services including payments for airfare and hotel
expenditure.
Pre-Shipment Finance (Packing Credit): Liquidation

• Proceeds of export bills negotiated/ purchased

/discounted
• Proceeds of duty drawback
• Out of EEFC balances
• Rupee resources of exporter
• Not by debit to CC account
• Flexibility Permitted
Pre-Shipment Finance PC in excess of export value

• Where by-product can be exported

• Where partial domestic sale is involved
• Export of deoiled/defatted cakes/HPS groundnut-
exceptions adjust WITHIN 30 days by sale of
residual products
 RUNNING ACCOUNT
• Commodity wise for each exporter
• Monthly statement of LCs/export orders in hand(within 1 month)
• FIFO: advances need not be adjusted with export bills of same
transaction-subject to not outstanding more than stipulated period
• PC availment not a precondition to liquidate
• Only for exporters with GOOD TRACK RECORD.
• Automatic for EOUs, EPZ & SEZ units
• Not available for sub-suppliers
 Pre-Shipment Finance
(Packing Credit)
• PC against proceeds of cheques, drafts etc.
representing advance payment for exports, direct
remittances-till realisation
• PC to Manufacturer for exports routed through
STC/MMTC/other export houses
• PC to construction contractors(preliminary
expenses
• PC for consultancy services, software
• PC to floriculture,grapes,agro products
 Pre-Shipment Finance
(Packing Credit): AEZs
• EPUs supplying quality inputs to contract farmers eligible
for PC
• Exporters have arrangements with suppliers/farmers
• Monitor end use
• Ensure export of final product to liquidate PC
 Conduct/Supervision of EPC
• DP: lower of stocks or orders in hand
• Disbursements based on firm orders/LCs
• Release funds to suppliers direct or credit account.
• If LC not restricted for negotiation to us, mark grant of EPC against the
LC to alert negotiating banker
• Inspection to ensure end-use.Adverse feature,slippage in schedule
-notify ECGC
• Age wise list of outstanding orders
• EPC liquidation not by creating irregularities as this invalidates ECGC
claim
• Never credit proceeds direct to exporter’s a/c
 Pre-shipment Credit in Foreign Currency (PCFC)
• Additional window besides EPC
• PC at LIBOR(low) linked rates of interest
• Covers domestic & imported inputs of exported goods
• Designated branches or through them
• Carved out of EPC-no need for separate limit
• US$, GBP,EURO & JPY currencies
• Partly in rupee, part PCFC for same export order -within overall limit
• Obligation to discount export bills under EBR (export bills rediscounting abroad
scheme)
• Running account for good track record exporters
• CC account
• 6 months LIBOR/EURILIBOR/EURIBOR plus appropriate spread
• Prompt reporting to IBD vital as funds to be raised through foreign offices for
disbursements made.
• Maturity profile of PCFC ascertain from exporter
 Pre-shipment Credit in Foreign Currency
(PCFC)
• Advance remittance can be used to liquidate
• Export bills where PCFC availed not to be sent on collection basis-
discount under EBR
• ECGC cover available
• Forward contracts can be booked
• Existing EPC o/s of the exporters in rupees cannot be converted into
PCFC
• No refinance available from RBI
• Exempt from CRR/SLR
 POST-SHIPMENT FINANCE
• It is the finance from the date of shipment till the date of payment of export
bill at overseas center. It is a “performance finance”.
• It is a book debt finance. It is Finance against evidence of a shipping
document(i.e. shipment of export goods)
• It is always given by way of :-
• Negotiation/Payment/Acceptance of export(shipping) documents under LCs
• Purchase/Discount of export documents under confirmed orders/export
contracts
• Advances against bills sent on collection
• Advances against exports sent on consignment
• Advances against duty drawback entitlements
• Advances against undrawn balances/retention money
• Rediscounting of Export Bills Abroad(EBR)
 POST-SHIPMENT FINANCE
• Before purchasing bill: track record of exporter, country risk, nature of merchandise, terms of
payment, drawee’s payment history(also D&B report)
• Standing of LC opening bank
• Country caution List
• Limits for negotiation of bills under LC
 POST-SHIPMENT FINANCE
• Pre & Post shipment: Interchangeability(bunched export
orders)
• Examination of Documents under LC
 POST-SHIPMENT FINANCE
• Scrutiny of documents under UCPDC
• Bills not under LC consigned to bank
• Concessionary Interest Period determined by NTP
• For sight bills- NTP or date of realisation (earlier of the
two)
• For usance bills: Notional due date (NTP+usance) any
case <180 days(No NTP if due date is fixed)
• If beyond these: interest as per ECNOS
Overdue Bills: Crystallisation
• Sight bills:30 days from expiry of prescribed transit
period-convert to rupees
• Usance: 30 days after expiry of due date
• Difference on account of exchange fluctuation on due
date & actual date of payment debited/credited to
exporter
Post-shipment: ECGC Cover
• Post-shipment credit not backed by LC, post-shipment
guarantee cover of ECGC is generally obtained against
commercial & political risks
 Importance of GR Form
• The MOST important export document
• GR Forms disposal: prepare in duplicate, submit to Customs,10 digit serial
number, certify declared value and also record assessed value. Duplicate
returned , original sent to RBI
• Exporters should submit duplicate GR again to Customs along with cargo to
be shipped-certified for shipment-this has to be submitted to AD by exporter
for negotiation /collection of export bills
• Where EDI in vogue, GR replaced by SDF
• Presently waived upto $25,000: but liable to realize and repatriate proceeds
 Write-off of Unrealized Export Bills: ADs can permit...
• Despite best efforts-satisfactory documentary evidence
• Outstanding for one year or more
• Amount of write off not to exceed 10% of total export proceeds during previous year
• Case not pending in court
• Exporter has surrendered proportionate export incentives, if availed
• w.e.f. 6/1/04: self write-off, reduction in invoice or extension of time for realisation: to the
extent of 10%
 ECGC of India Ltd
• ‘You focus on exports. We cover the risks.’
• GOI owned company under MOC
• Risks: Commercial & Political
• 4 types of Covers :Standard Policy, Specific Policy, Special
Schemes & Financial Guarantees
 ECGC : What is covered
• COVERED: Buyer’s insolvency, failure to pay within 4
months, failure to accept goods, importing country’s govt
restrictions/externalisation bar, war/civil disturbances,
causes beyond control, insolvency of LC opening bank ,
non-payment on account minor discrepancy in LC
• New product for software exporters
ECGC : What is not covered
• NOT COVERED: quality disputes raised by buyer,causes
inherent in nature of goods,buyer’s failure to obtain
authority to import,loss/damage to goods,exchange
fluctuation,exporter’s failure to fulfil terms of contract
 Gold Card Scheme
• to facilitate easy availability of export credit on best terms RBI announced
scheme on 20 July 2004
• Under the scheme, all creditworthy exporters, including those in SME sector with
good track record, are eligible for the gold card issued by banks as per policy laid
down by board of directors.
• "In-principle limits for a period of 3 years with a provision for stand-by limit of 20
per cent to meet urgent credit needs,”
• Card holders are given preference in granting PCFC.
• Banks may consider waiver of collaterals and exemption from ECGC guarantee
schemes on the basis of cardholder's creditworthiness and track record.
• Account ‘standard’ for last 3 years
• Unit has not incurred losses during past 3 years
• Overdue export bills not in excess of 10% of turnover
• Assessment of Limit : Nayak Committee Method for turnover upto Rs.100 crores
• Additional concession in interest rate up to 25 BPS.
 Advance Payment for Exports
• Exporters receiving advance payment are under obligation:
• To ship the goods within one year from the date of receipt of advance payment;
The ROI for advance payment not to exceed LIBOR + 100 BPS
• The documents covering the shipment are routed through the AD bank
through whom the advance payment is received;
• RBI approval required for shipment of goods beyond the period of one year
from the date of receipt of advance payment.
• Separate register is to be maintained by banks and must monitor shipment
under advance payment.
• A statement is to be sent to RBI of defaulting exporters.
 Follow-up of Overdue Bills
• (i) Overdue export bills outstanding beyond 12 months to be closely monitored by
AD.
• If the exporter fails to repatriate proceeds within 12 months or seek extension of time
beyond 12 months, the matter should be reported to RBI.
• (ii) AD banks to hold duplicate copies of GR / SDF / PP / SOFTEX Forms till the full
proceeds are realised, except in case of undrawn balances.
• Any laxity in the follow up of realisation of export proceeds is viewed seriously by RBI
& attracts penal provision under FEMA, 1999.
• SEZ units are exempted from time frame for realisation of export proceeds.
• AD are required to submit statement of export bills outstanding beyond 6 months
(XOS statement) on half yearly basis to RBI Reserve Bank, on a half-yearly basis, as
at the end of June and December every year within 15 days from the close of the
relative half-year.
• Write off by AD
• AD banks may accede to requests subject to following conditions:
• The amount has remained outstanding for one year or more;
• The aggregate amount of write off does not exceed 10% of the total export during the previous financial year;
• Satisfactory documentary evidence is furnished in support of the exporter having made all efforts to realise the dues;
• The case falls under any of the undernoted categories:
• The overseas buyer declared insolvent and a certificate from the official liquidator indicating that there is no
possibility of recovery of export proceeds produced.
• The overseas buyer is not traceable over a reasonably long period of time.
• The goods exported have been auctioned or destroyed by the Port/Customs/Health authorities in the importing
country.
• The unrealised amount represents the balance due in a case settled through the intervention of the Indian Embassy,
Foreign Chamber of Commerce or similar Organisation.
• The unrealised amount remained outstanding and turned out to be unrealisable despite all efforts  made  by the
exporter.
• The cost of legal action disproportionate
• The case is not the subject matter of any pending civil or criminal suit.
• The exporter has not come to the adverse notice of the Directorate of Enforcement or the Central Bureau of
Investigation or any such other law enforcement agency.
• The exporter has surrendered proportionate export incentives, if any, availed of in respect of the relative shipments.
The AD Category – I banks should obtain documents evidencing surrender of export incentives availed of before
permitting the relevant bills to be written off.
Thanks!