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Export Credit
Indias position in world trade:
The year 2009 witnessed one of the severe global recessions in the post war
period. Countries across the world have been affected in varying degrees and all
major economic indicators of industrial production, trade, capital flows,
unemployment, per capita investment and consumption have taken a hit. The
global trade has declined by 9% in volume terms. Though India has not been
affected to the same extent as other economies of the world, yet our exports
have suffered a decline due to contraction in demand in the traditional market of
our exports. Now, there is some turn around and emergence of green shoots.
The Current Foreign Trade Policy 2009-14 estimates to double the exports of
goods and services by 2014. The long term policy objective is to double Indias
share in global trade by 2020. In order to meet these objectives, the
Government would follow a mix of policy measures including fiscal incentives,
institutional changes, procedural rationalization, and enhanced market access
across the world and diversification of export markets. Improvement in
infrastructure related to exports; bringing down transportation costs and
providing full refund of all indirect taxes and levies would be the three pillars
which will support the achievement of the Trade Policy target.

SBIs Loan Policy on Export Credit states that:


Export sector has been recognized as a thrust area considering its importance
and contribution of this sector to the economy. Therefore this sector is being
presently extended finance at concessional rates, with flexibility in financing
norms.
Export Credit- (pre shipment/ post shipment) is largely regulated through
directives/ guidelines issued by RBI, DGFT & FEDAI and followed by the Bank
presently being extended finance at concessional rates with flexibility in financing
norms.

Banks growth in Export Credit:


The Banks export credit growth is not keeping pace with countrys exports
growth. Therefore, there is a lot of potential which the Bank has to tap.
SBIs relative figures for Export Credit dispensed with stood at Rs 25964 crores in
Sep09. Market share of our Bank vis-a vis ASCB has come down from 21.53%
in 2005-06 to 19.67% in 2007-08 and dipped further to 19.08% in June 2009.
This shows that though rate of growth of exports from India may be hindered,

Back to Basics: Export Credit


other banks are performing better than State Bank of India even in the tight
market condition.
Against the backdrop of export performance of the country, the export credit
growth for the State Bank of India during the year 2008-09 has been only 0.76
percent over the previous year. At the year end, the ratio of export credit to net
bank credit has fallen to all time low of 5.78, when Reserve Bank of India
stipulates that it should be at least 12. The ratio went down further recording as
low as 4.73 as at the end of July 2009 and picked up marginally to 5.33 as at the
end of September 2009. Though many reasons may be attributed for the decline,
much worrying fact is that we are also losing our market share to other banks as
far as export credit is concerned.

Advantages to the Bank in extending Export Credit:


For the Bank, Export credit has the advantages of:
Self liquidation
Export finance can be liquidated by discounting/ purchasing the shipment
documents by the exporter related to the export credit.
Profit through Foreign Exchange
While converting export proceeds into rupees, the profit margin is built into
the exchange rate.
Income from the other related business
Besides interest income on negotiation of export bills and commission on
export bills, advising of Letters of Credit, income can be derived from related
business like issue of Letters of Credit for import of raw material, machines
etc. which add value to the export product and issue of bank guarantees, .
Asset Liability Management
Increase of components like bill financing, export negotiations, demand loans
etc in the Banks asset portfolio improves the Banks ability to manage Asset
Liability mismatches more efficiently.
Refinance from RBI.
As an incentive, RBI refinances the Bank with whatever the Bank has
financed to the exporter.
ECGC cover
ECGC covers the risk of exporters and financing bankers. It gives policies to the
exporters and ECIB (Export Credit Insurance for Banks).

Characteristics of Export Credit:


The characteristics of Export Finance are:
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1. Self Liquidation
Domestic credit is not self liquidating but export finance can be liquidated by
discounting/ purchasing the shipment documents by the exporter related to
the export credit.
2. Export order/Letters of Credit:
LC is more common in export finance than domestic credit.
3. Monitoring of end use.
Export credit is given at a concessional rate. The bank has to ensure the
usage of the credit for the purpose it is extended.
4. Country Risk.
Countries are placed in/ removed from the caution list by the Bank from time
to time due to changing risk perceptions.
5. Correspondent Bank Risk.
SBI deals with its own branch abroad or through a correspondent bank.
6. Importing country Regulations
The exporter needs to be clear that the product he exports is allowed to be
imported in the respective country.
7. Adherence to time and quality:
Time and quality is to be maintained, failing which the entire consignment
can be rejected or the order may be cancelled. Export Inspection Council of
India certifies the goods/services fit for export.
8. Opinion Reports on Buyers:
Opinion Report on the buyers should be obtained to ensure the safety of
export proceeds realization.
9. Coverage of political and commercial risks.
The political and commercial risks in exporting can be covered by ECGC.

Export related Facilities available for exporters:


In export Finance various facilities given to exporters which are as follows:
Pre Shipment Finance in Rupees.
Post Shipment Financve in Rupees.
Pre Shipment Finance in Foreign Currency (PCFC).
Export Bills Rediscounting (EBR).
SBI Exporters Gold Card Scheme.
Execution of Bid Bonds.
Advance Payment Bank Guarantees.
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Performance Guarantees.
Establishment of Letters of Credit
Arranging Lines of credit in foreign countries.
Export Credit to AEZ units.
Trade Information Services.
Forex Advisory Services.

Institutional Framework for Delivering Export Finance:


The export activity of the country is regulated, monitored, promoted and
financed by various institutional arrangements having distinct functions to
perform.
Government of India (Ministry of Finance)
The Customs on behalf of the Government of India (Ministry of Finance)
clears the export consignments.
Reserve Bank of India (RBI)
FEMA authorizes RBI to frame rules for the conduct of Foreign Exchange
business. RBIs directions to Authorised Dealers on the conduct of export
activity are contained in the AP (DIR) series circulars issued from time to time
and consolidated in Master Circulars as on 1st July every year.
Directorate General of Foreign Trade (DGFT) under Ministry of
Commerce.
DGFT frames the Foreign Trade Policy giving roadmap for development of
Indias foreign trade business. The latest Foreign Trade Policy is from 200914 issued on 27th August 2009. The ITC (HS) classification of the Foreign
Trade Policy gives the classification of commodities which can be traded.

Foreign Exchange Dealers Association of India.


FEDAI is an association of all Authorised Dealers such as Public Sector
Undertaking (PSU Banks), foreign Banks, private sector banks, cooperative
banks, and financial institutions. It lays down the ground rules, based on
RBIs directions for the day to day conduct of foreign exchange activity by
Ads. It acts as a facilitator between member banks and RBI, Export
Organizations/ Chambers of Commerce and other bodies and also among the
members.

Facilitating Institutions:
EXIM BANK
EXIM Bank promotes and facilitates foreign trade for India. It coordinates
work of various agencies engaged in financing exports and imports. It
provides finance to foreign governments, financial institutions and companies.

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Back to Basics: Export Credit

Export Credit and Guarantee Corporation (ECGC).

General Insurance Corporation (GIC).


GIC provide the transit insurance cover to exporters. It is commonly known
as marine insurance cover.
International Chamber of Commerce (ICC).
ICC framed URC for handling Bills under Collection. i.e. other than those
under Letters of Credit. It also framed Uniform Customs and Practices on
Documentary Credit that are guidelines to settle payments through the
Documentary Credit. URR i.e Uniform Rules for Bank to Bank
Reimbursements in Letter of Credit transactions is also an ICC publication to
facilitate Reimbursements. Uniform Rules for Demand Guarantees i.e. URDG
is another publication from ICC.
Export Promotion Council (EPC)
Ministry of Commerce set up Export Promotion Councils to promote exports
of different commodities. EPC helps to interface with the ministry on matters
affecting their members and also represent their viewpoints to help formulate
policies and the countrys response at international trade forums.
Dun & Bradstreet
Dun & Bradstreet is an international agency with whom SBI has a strategic
alliance to provide its branches with opinion reports on request on foreign
buyers. The obtention of such reports is preferred if the bills are not drawn
under Letters of Credit. Such reports are also required to be taken for all high
value LCs.
Federation of Indian Export Organisation (FIEO).
FIEO is the leading exporters umbrella group in the country representing
their interests. It is also the apex body for all Export Promotion Councils. It
also provides trade information services to exporters and helps the member
exporters in expanding export volumes.
Confederation of Indian Industries (CII).
Confederation of Indian Industry (CII) is the apex body for Indian industry
supporting Indian business.
Federation of Indian Chamber of Commerce and Industry
(FICCI).
FICCI is a national organization that represents and aggregates multiple
chambers of commerce.

Export Credit- Pre Shipment credit


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Export Finance as administered by the Bank is by and large based on the RBI
directives/ guidelines. Exporters obtain financial assistance from the bank at:
Pre Shipment Stage
Post Shipment Stage
 Pre Shipment finance is extended as working capital for purchase
of raw materials, processing, packing, transportation, warehousing
etc
 Post Shipment finance is extended after shipment to bridge the
time lag between the shipment of goods and realization of
proceeds.
Pre Shipment finance may be extended to exporters in Rupees as well as in
Foreign Currency. The finance extended in rupees at Pre Shipment stage is called
Export Packing Credit and the finance in Foreign Currency extended at Pre
Shipment stage is called PCFC- Pre Shipment Credit in Foreign Currency.
Types of Pre Shipment Credit:
Packing Credit
Advance against Duty Drawback Entitlements
Pre Shipment Credit in Foreign Currency (PCFC)

Packing Credit-Categories of exporters


The categories of exporters who are generally eligible for export finance are as
follows:
Manufacturer Exporter
Manufacturer Exporter is an exporter who actually manufactures the goods
and exports in his own name.
Merchant Exporter
Merchant Exporter is a trader (intermediary) who does not manufacture the
goods himself but buys the same from another supplier (domestic or foreign)
who is the actual manufacturer and exports the same in his name. The
exporter in such cases is called the Export Order Holder (EOH).
Export House
Export House is a manufacturer exporter or a merchant exporter with
minimum export turnover prescribed under the prevailing trade policy.
Packing Credit can also be extended for:
Export Consultancy Services and Computer Software
Finance against goods for Exhibitions and Sale Abroad
Packing Credit To Sub Suppliers
Assessment of EPC- Basic considerations
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Export Packing Credit is basically working capital finance. To appraise/ assess
a packing credit proposal, the points to be kept in view are:

Integrity and Credit worthiness of the borrower.


Export Performance for the last 2 to 3 years (where applicable)
Period for packing credit which is based on the trade/ manufacturing cycle
should normally not exceed 180 days (At present concessional credit is
available for 270 days).
Percentage of margin to be decided keeping in view the RBI guidelines for
liberal finance to export sector and also the various incentives received by
the export sector.

The concept of need based finance is the guiding principle to decide the
quantum of finance to be granted to the exporter. The period of packing
credit depends upon the manufacturing cycle or specific requirements of the
export, normally not exceeding 180 days (270 days at present).The
percentage of margin is dependent on the nature of order, commodity and
capability of exporter.
The basic considerations in the assessment of EPC are:
Undertaking
The exporter should provide an undertaking that advance would be
utilized for the specific purpose of procuring/ manufacturing/ shipping
etc, the goods are meant for export only as stated in the relative
confirmed export order/ LC.
Confirmed export order
The exporter should provide confirmed export order/ LC in original.
Preliminary examination of contract
If the customer wants to avail packing credit advance against preliminary
information of contract whereby at a later stage the contract or LC, as
the case may be will be received by him, an undertaking to the effect
that the same will be produced to the bank within a reasonable time (say
within a month) for verification and endorsement.
If the need is of a recurring nature, we may extend running account
facility to those exporters with good track record.
Packing credit for a sub supplier
If the customer asking or packing credit is a sub supplier and wants to
supply the goods to the Export House or Merchant exporter, an
undertaking from Export House/ Merchant Exporter stating that they

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have not/ will not avail of packing credit for the same purpose till the
original packing credit is liquidated.
Security documents.
Examples of security documents are DP Note, Packing Credit agreement,
letter of guarantee where there is a guarantor or any other specified
documents as stated in the sanction advice of the Bank for the purpose.
Quantum
 The eligible loan amount is determined against the LC/firm
order, after the application from the borrower is checked for
its completeness and is signed by the authorized signatory of
the firm/ company. At the time of processing such proposals
certain documents need to be taken from the applicant.
 Branches can make advances to the exporters (suppliers) who
do not have letters of credit or firm orders in their own name
and are routing their exports through the Export Houses or
agencies like State Trading Corporations/Mineral and Metals
Trading Corporation, if the branches can obtain:
A letter from the Export House stating the details of the
export order and the portion thereof to be executed by the
supplier,
Inland letter of credit in favour of the supplier to be got
opened by the Export House giving relevant particulars of
the export letters of credit/ orders and the outstanding of
the packing credit account to be extinguished by
negotiation of bills under such Inland Letters of Credit.
Bills drawn on the Export House by the supplier for goods
supplied for export and adjust packing credit advances
from the proceeds of such bills.
A certificate from the Export House stating the goods have
in fact been exported to be taken at the end of every
quarter, in case bills are not accompanied by bills of lading
or other export documents. This certificate should have
particulars of bill date, bill amount and name of the bank
through which bills have been negotiated.
An undertaking from the supplier that the advance
payment, if any, received from the Export House against
the export order would be credited to the packing credit
account.
A letter of disclaimer from Star Export House.
Disbursement
The Branches should ensure the following things while making disbursements:
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Disbursements are made in a phased manner
Advances should not be disbursed in lump sum amounts instead they should
be disbursed in parts taking into account purpose and needs of the exporter,
shipment schedules, production cycles and other aspects. Also, the progress
made by exporters in timely execution of export orders has to be monitored.
Directly through pay orders/ drafts to suppliers
To ensure the end use of funds, loan amount should be disbursed directly
through issue of pay orders/ drafts to the suppliers by taking necessary
authorization letter from the borrower. There are certain exceptions like few
agricultural or marine products that demand cash payments. In such cases,
the sanction accorded by the Sanctioning Authority should provide for it.
To Borrowers account
Where direct disbursals are not possible, the proceeds are credited to
borrowers account and disbursals are supervised wherefrom. If loan
proceeds are credited to the current account or cash credit account, cash
withdrawals for small payments/ labour payments may be allowed.
Security
As a general rule, export packing credit advances should be secured by pledge or
hypothecation of stocks. It may not be feasible for manufacturer- exporters
having extensive domestic operations and export business to segregate stocks
meant for export and pledge/ hypothecate them separately to the Bank. In such
cases, it is adequate if it is ensured that the aggregate outstandings in domestic
cash credit account(s) and export packing credit account are fully covered by the
advance value of the stocks pledged/ hypothecated to the Bank.
Collateral Security:
Branches may obtain collateral security by means of a third party guarantee/
equitable mortgage of immovable property. Branches should assess export
credits on the condition that it is need based and not directly linked to the
availability of collateral security.
Export Credit Insurance for Banks (ECIB) and Policies of ECGC:
Bank has opted out of the Whole turnover Packing Credit Guarantee of ECGC
with effect from 1/7/2003 which earlier covered all packing credit advances. The
Bank should now obtain individual Packing Credit Insurance for Banks (ECIB-PC)
on a case to case basis if the obtention of such a cover is part of the terms of
sanction of the packing credit.
ECGC premium should be paid at the prescribed periodicity. Wherever applicable,
it should be checked whether notification to ECGC/ ECGC approval is on record in

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cases of exports to restricted countries, reporting of defaults and nursing of
accounts.
Monitor and Control
Branches should monitor and control packing credit loans to ensure proper end
use of the amounts as they are granted at concessional rates of interest and are
specific purpose oriented advances.
The Borrowers should strictly comply with rules regarding submission of stock
statements and insurance.
When disbursement is to be made in stages (depending on the needs of the
exporter), the schedule of disbursement may be called for before granting the
advance.
Due date diary should be maintained showing the due dates of repayments and
it should be ensured that documents are received well in time or proper
extension applications are obtained from the exporter wherever necessary.
Where stipulated, separate periodic stock statements for export stocks should be
obtained and stocks inspected.
If export takes place and the Bill is purchased/ discounted/ negotiated etc, such
export proceeds or any advance payment received covering the relative export
order should be adjusted through the packing credit account and the relative
packing credit account should be closed. In this regard, if the exporter makes a
request to adjust the proceeds otherwise, it should not be granted.
For a proper control over the pre shipment credit granted to exporters, branches
need to:
Maintain separate account in respect of each packing credit granted to an
exporter except for those with Running Account facility.
Liquidate the pre shipment credit from the proceeds of the relative export
bill when purchased/ discounted/ negotiated.
If the export bill against which the advance is obtained is cancelled, then the
exporter will be unable to tender export documents for adjustment/ liquidation of
the advance by the relative export proceeds. As a result, the outstanding
advance is adjusted against the export bill drawn on some other importer either
in the same country or in any other country, provided the relative export bill is in
respect of the same goods for which the pre shipment credit was originally
granted.
Liquidation of Pre Shipment advances:
The Bank decides the period of packing credit advance depending upon the time
required to procure, manufacture or process (where necessary) ship the relative
goods.
With the introduction of Base Rate from 1st July 2010, the interest rate applicable
to all market segments for Pre Shipment credit upto 270 days is 1.5% above
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Base Rate and to specified categories of borrowers is 0.25% below Base Rate for
270 days.
In case the shipment takes place after 360 days from the date of advance the
advance ceases to qualify for concessive rate of interest ab initio. Interest
applicable to Export Credit Not Otherwise specified is applicable and in case the
exports do not materialize at all penal interest rate is applicable from the date of
advance.
Extension of Time Limit for liquidation of Pre Shipment Credit:
Extensions in the period for liquidation are to be allowed only in genuine cases
and for valid reasons.
In case of extensions in the time limit for liquidation of pre shipment credit,
branches should:
Monitor the progress made by exporters in timely fulfillment of export
orders so that the period of credit does not exceed the actual requirement
of the borrower and
The pre shipment credit does not remain locked up for unnecessary long
period.
Running Account Facility
In a running account basis, the first debit in the account is adjusted/ repaid
against the first credit to the account. This is irrespective of the fact, that the
packing credit loan pertaining to the first debit may not relate to the export order
under which the export bill is submitted for negotiation/ purchase/ discount.
Branches may extend pre shipment credit on Running Account basis subject to
the following conditions.
Need for such a facility
The need for such a facility has to be ascertained.
Satisfactory track record.
This facility is available only to Exporters with Good Track Record as defined
by RBI. An exporter with good track record is one whose overdue export bills
are not more than 5% of the average annual export realizations of the
preceding three calendar years. Status can be certified by the Chartered
accountant and needs to be obtained every year.
Letter of Credit/ Confirmed order.
The exporter should submit relative Letter of Credit/ Confirmed Order in a
reasonable time after availing pre shipment finance also submit them
whenever called for by the branch.

Marked off export bills.

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The individual export bills should be marked off, whenever they are received
for negotiation and collection, against the earliest outstanding pre shipment
credit on First in First out basis. The concessional credit should not be
0065tended beyond a period of 270 days.
Amount of pre shipment credit exceeds the value of export order.
For instance, to procure the raw materials required to execute the export
order as in the case of HPS ground nuts, de oiled cakes etc. Then the excess
should be adjusted either in cash by sale of non exportable by products
within a period of 30 days from the date of advance.
Reserve Bank Refinance.
Reserve Bank refinance is available for export finance not exceeding 180
days.
Frequent review of drawals.
Branches should constantly review the drawals in the account vis a vis the
export bills tendered for negotiation/ collection to adjust the pre shipment
credit and ensure that the exporter does not misuse the facility by drawing
funds in excess of their genuine requirement for inventory buildup/ other
purposes. The facility should be withdrawn immediately if it is mis- used and
branches should insist on production of firm order/ LC before granting further
pre shipment advances.
Packing Credit for Export Consultancy Services and Computer Software
In case of consultancy services and computer software the pre shipment finance
at concessional rate of interest is extended to exporters to enable them to
undertake preliminary arrangements such as mobilizing technical and other staff,
training staff and for purchase of materials required.
Finance against Goods for Exhibitions and Sale abroad
Branches may provide finance against goods for exhibition and sale abroad in
the normal course at pre shipment stage and after the sale is completed.
Packing Credit to Sub Suppliers
Packing Credit granted to sub suppliers covers the LC or export order received in
favour of Export House/ Trading House/ Star Trading House etc or manufacturer
exporters only.
The facility of concessional finance can be shared with sub supplier or a
supporting manufacturer if a merchant exporter or an export house having
received a confirmed order or LC, needs to procure goods and get the same
processed/ manufactured by another supplier or manufacturer. In such a case,
the manufacturer/ sub supplier normally avails the export packing credit and
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supplies good to the merchant exporter/ export house against payment or
against an inland LC or any other similar arrangements.
A supplier who wants to avail the pre shipment advance against the export
contract or LC received in the name of an Export House or any Merchant
Exporter should submit to the Bank a letter from the Export House/ Merchant
Exporter incorporating details of the goods to be supplied and confirming that he
has not availed any packing credit from any other bank/ source against the same
contract/ LC.
Such advance should be repaid against the proceeds of the bill drawn under
Inland LC (Back to Back) opened by the Export House/ Merchant Exporter in
favour of the sub supplier, in case it is not possible to open Back to Back LC, sub
supplier can draw bills on the Export House/ Merchant Exporter and adjust the
advance from the proceeds of such bills. If the bill is not accompanied by a Bill of
Lading indicating that the export is affected, a certificate should be obtained
from the Export House/ Merchant Exporter stating that the goods have actually
been exported.
The credit extended under the system is treated as export credit from the date
of advance to the sub supplier to the date of liquidation by EOH under the inland
export LC system or to the date of liquidation of packing credit on shipment of
goods by EOH.
After the sub supplier has made available the goods as per terms of inland LC to
the EOH, his obligation of performance under the scheme is treated as complied
with. In such circumstances, penal provisions are not applicable to him for delay
by EOH, if any.
It is the responsibility of the EOH to export the goods as per export order/ LC.
Any delay in the process will subject him to the penal provisions issued from time
to time.
When credit is extended under this system, refinance from RBI to the respective
banks is made available for appropriate periods. It is necessary to ensure that no
double financing of the same transaction is involved.
Advance against Duty Drawback entitlements
Export Credit can be given at pre shipment level for an amount in excess of
export order. The excess that represents duty drawback receivable is eligible for
interest at concessionary rate. If Export Production Finance Guarantee of ECGC
covers the transaction, the amount of drawback can be recovered from
appropriate authorities and liquidated from Duty Drawback received.

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The inland LC in favour of Sub Supplier can be issued for an amount higher than
the relative export order or the LC from abroad as the export documents are in
the name of the exporter who alone is entitled to duty drawback recoverable
from appropriate authorities. This is to ensure that manufacturer gets packing
credit to cover full manufacturing cost.
Overdraft or Cash Credit granted on account of duty drawbacks should be
secured by hypothecation of duty drawback entitlements. Letters of Authority/
Powers of Attorney should be obtained from the borrowers and registered with
the disbursing agencies concerned, if such agencies are prepared to accept the
letters in favour of he bank and agree to pay to the Bank direct claims lodged by
the exporter. A suitable margin may be retained on the duty drawback
receivables financed depending on the credit risks.
Pre Shipment Credit in Foreign Currency (PCFC)
The scheme of Pre Shipment credit in foreign currency enables the exporters to
avail packing credit at international interest rates through Authorised Persons.
The scheme covers the cost of both domestic and imported inputs of exported
goods.
The scheme is operated only at designated branches as advised from time to
time by the IBG, Corporate Centre. Exporter customers of non designated
branches (NDBS) can avail the facility at the nearest designated branch (DB).
Eligibility:
All exporters having firm export orders/ irrevocable Letters of Credit are normally
eligible for PCFC, provided they satisfy other credit norms. Exporters who want
to avail PCFC are obligated o discount the export bills under Export Bill
Rediscounting (EBR) Scheme.
Currency:
PCFC can be availed in:
US Dollar
Pound Sterling
EURO
Japanese Yen
Period:
PCFC is available for a maximum period of 180 days from the date of
disbursement.
Rate of Interest:
As per the current stipulations, the rate of interest applicable wef 19th Feb10 is
200 basis points over six months LIBOR/ EUROLIBOR/EURIBOR as on the date of
disbursement.
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Extension:
Any extension of the PCFC will be subject to the same terms and conditions as
applicable for extension of Rupee Packing Credit. It will entail an interest of 2%
over the original spread above six months LIBOR prevailing at the time of
extension for the extended period.
No export:
If no export takes place even within 360 days, PCFC is adjusted at the ruling TT
selling rate for the currency concerned. Interest right from the date of
disbursement till the date of payment should be recovered at 2% over the
interest rate applicable for the cash credit of the exporter and the interest earlier
recovered at LIBOR related rates should be adjusted there from. Remittance of
foreign exchange for repayment of principal with interest does not require RBI
approval.
PCFC-Type of Account
PCFC is made available by way of cash credit account. ,

PCFC can be carved out of the EPC limits available to them subject to the
outstandings under both the rupee and foreign currency facilities
(converted at the prescribed notional rate) not exceeding the limits
sanctioned.
There is no need for sanction of a separate sub limit for PCFC.
Export Packing Credit (EPC) in Rupees in part and PCFC in part can be
granted against the same order.

PCFC- substitution of Orders and commodities:


Repayment of packing credit may be allowed with export documents relating to
any other order covering the same or any other commodity exported by the
exporter. The relaxation is allowed subject to the conditions viz, it is necessary
and unavoidable, it is not by its sister/ associate/ group concerns, declaration
from the exporter to be obtained that he has not availed PCFC from any bank
against such orders/ documents from whom repayment is being made.
Other Features of PCFC:
Funding:
Global Markets Unit (Kolkata) acts as the nodal centre to raise/ deploy the
offshore and on shore funds to lend under PCFC. It maintains PCFC loan nostro
account to raise funds and route PCFC repayments at the macro level with the
Banks Nassau (USD), Frankfurt (EURO), London (GBP) and Tokyo (Yen).
Accounting:

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Only designated branches have to open a General Ledger account styled Cash
Credit Foreign Currency account to route all transactions under PCFC. The rupee
balances under this head is merged with the Cash Credit balances in the Weekly
Abstract under the head Loans and Cash Credits.
ECGC Cover:
ECGC cover is available is respect of PCFC advances on individual basis as in the
case of Rupee Packing Credit.
Withholding Tax:
As the Bank avails lines of credit from its own foreign offices and also utilizes the
FCNB corpus for funding the PCFC, the exporters need not pay Withholding Tax.
Forward Contracts:
Forward Contract can be booked in respect of future drawals, if they are to be
converted to Indian Rupees for purchase of domestic raw materials. Cross
Currency forward contracts can also be availed in any of the permitted currencies
against the invoiced currency in which PCFC is availed, minimum amount being
USD 250,000.
PCFC Running Account Facility:
Running Account facility is permitted to exporters with good track record (whose
export outstandings are not more than 5% of average of past three years export
proceeds realizations). In cases where Running Account facility has been
extended to exporters:

LC or firm order need not be insisted upon initially for disbursements of


PCFC. As and when the exporter receives LC or Firm order, the particulars
thereof should be noted separately in Registers.
LC or firm order need not be physically deposited with the Bank. However,
statement of holding of the LCs/ firm orders from the borrower covering
the outstandings in PCFC should be obtained at monthly intervals. The
branches need to introduce a suitable system of holding of LCs/ firm
orders and also arrange for physical scrutiny of the LC/ Firm orders,
whenever considered necessary.
Liquidation of PCFC can be done on
a) First in First Out basis. PCFC account is opened in the name of the
exporter. While allowing repayments into the PCFC account, order to
order application of repayments may not be necessary. But order to order
monitoring through Drawing Power register is essential to ensure proper
end use of funds and repayment of particular PCFC within the stipulated
period.
b) The proceeds of bills relating to another contract for which no packing
credit has been availed, can also be used to pay off the PCFC.

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PCFC- Other provisions:


PCFC for Deemed Exports:
PCFC can also be granted for Deemed Exports covering supplies to projects
financed by multilateral/ bilateral agencies/funds. PCFC granted for deemed
exports should be liquidated by EBR within a maximum period of 30 days or upto
the date of payment by project authorities whichever is earlier, subject to
compliance with other conditions relating to deemed exports.
PCFC sharing between EOH and manufacturer supplier:
PCFC can be granted to a manufacturer supplier against the LC or export order
received by the EOH on the basis of the disclaimer from the EOH through his
banker. The manufacturer can be repaid by transfer of foreign currency from the
EOH by availing of PCFC or discounting of bills under EBR. This should be done
in a way that double financing is avoided and the total period of packing credit is
limited to the actual cycle of production of the exported goods.
PCFC sharing between two EOU/ EPZ units
PCFC can also be made available to both the supplier EOU/ EPZ unit for purchase
of raw materials/ components of goods and finally exported by the receiver
EOU/EPZ unit. Supplier EOU/EPZ unit has to be liquidated by receipt of foreign
exchange from the receiver EOU/EPZ unit for which the receiver EOU/EPZ can
avail PCFC.
Liquidation of PCFC by payment in Foreign Exchange
Transfer of foreign Exchange from the banker of the receiver EOU/EPZ unit to
the banker of supplier EOU/EPZ unit meets the stipulation regarding the
liquidation of PCFC by payment in foreign exchange. Thus, there will not
normally be any post shipment credit in the transaction from the supplier
EOU/EPZ units point of view. Double financing has to be avoided in this
transaction. PCFC granted to receiver EOU/EPZ unit will be liquidated by
discounting of export bills.
EPC OUtstandings:
Existing EPC outstandings of the exporters in rupees cannot be converted into
PCFC advances.
Exporter availing Suppliers Credit:
In case the Exporter avails Suppliers Credit in respect of his imports, he will be
eligible for PCFC only for purchase of domestic inputs.
Compliance with normal credit discipline:
PCFC amounts are taken into account for the purpose of compliance with normal
credit discipline like total assessed limits.
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ACU Mechanism:
PCFC can be granted for Exports under ACU mechanism.
Discounted under EBR Scheme:
Before granting PCFC, it should be made clear to the exporters that LCs should
not be restricted to other banks and the bills should be invariably discounted
with the Bank under EBR scheme. Exporters availing PCFC at the Banks
branches should not be allowed to book Forward/ Cross Currency forward
contracts with any other bank in respect of the relative bills.
PCFC and EBR Nostro Loan Accounts
Designated branches should not be sending any messages relating to debits/
credits in the PCFC and EBR Nostro Loan accounts of GMU (K) to the foreign
offices concerned directly. The foreign offices act only on the instructions of GMU
(K) which is the nodal centre and ignore messages relating to PCFC and EBR
transactions from the other domestic offices.
Liquidation of PCFC:
Exporters who availed PCFC have to necessarily avail EBR and cannot avail
Rupee post shipment finance for discounting the relative bills.
Other Aspects of Pre Shipment Credit:
Execution of Bid Bonds/ Tender Guarantees on behalf of exporters and in
favour of overseas buyers in lieu of earnest money for the supply of goods
or services abroad.
Issue of Guarantees in respect of Advance Payments:
Bank Guarantees are issued in favour of overseas buyers in respect of
advance payments to be made by them. Such advance payments are a
common feature in contracts pertaining to export of capital goods or
turnkey projects.
Establishment of Letters of Credit at the request of exporters in favour of
suppliers of raw materials, components and services. Back to Back Letters
of Credit are issued at the request of export houses and merchant
exporters in favour of domestic manufacturing units for the supply of
goods contracted for export.
Arranging Lines of Credit in foreign countries is usually required where the
execution of an export order involves work to be done in buyers country.
The local cost may be financed by arranging a line of credit from a foreign
branch or a correspondent bank against the Banks guarantee wherever
necessary.
Execution of Performance Guarantees at the request of exporter for the
performance of machinery, equipment, etc supplied by them. Performance
Guarantees are generally stipulated in contracts pertaining to the export
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of capital goods or turnkey jobs. Guarantees are also issued in lieu of


retention money.
Export Credit to Exporters of Agricultural Products: To maintain the
desired quality in the commodity to be exported, exporters of Agricultural
products/ Agri Export Oriented Units (processing) may procure and supply
quality inputs to the farmers. Branches may treat such inputs to farmers
as raw material and sanction export credit to cover the cost of such
inputs. Branches may extend the facility in case of Tie up arrangements,
arrangement with overseas buyer or contracts entered with farmers in
respect of crops to be purchased.
Special Financial Package for Large value Exports introduced by RBI.
While extending such credit facilities, branches should be governed by
internal guidelines, RBI (DBOD/IECD/ECD) guidelines, rules of FEDAI,
FEMA and Codes of ICC viz., UCPDC, URC etc.

Export Finance- Post Shipment Finance


Exporters who sell goods abroad have to wait for a long time before payment is
received from overseas buyers. The period of waiting depends upon the terms of
payment. To tide over this period, exporter needs post shipment finance.
Post Shipment credit is any loan or advance granted or any other credit provided
by the Bank to an exporter of goods from India from the date of extending the
credit after shipment till the date of realization of the export proceeds i.e. till the
banks nostro account is credited abroad.
Eligibility:
Post Shipment finance should always be extended to actual exporter who has
exported the goods, an exporter in whose name the export documents are
transferred and suppliers of goods who supply goods to the designated agencies
in case of deemed exports.
Evidence of Shipment:
Export Finance should always be extended against evidence of shipment of
exports or supplies made. The export has to submit the Export Declaration Forms
as prescribed by RBI.
Basis of Finance:
Post Shipment finance can be given after shipment against export documents
submitted by the exporter against Letter of Credit received by the exporter from
the suppliers bank or against a purchase order received in his favour. The Bank
is said to Negotiate the Bills when extending finance against Letter of Credit and
Purchase in case of advance against order on sight basis and Discount in case of
bills submitted against order on usance basis.

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Quantum of Finance:
Post Shipment finance can be extended upto 100% of the invoice value of
goods. Depending upon the payment terms offered by Indian exporters to
overseas buyers, post shipment finance can be short term or long term finance.
Period of finance
The maximum period usually allowed for realisation of export proceeds is six
months from the date of shipment.
Rate of interest:
With the introduction of Base Rate from 1st July 2010, the interest payable on
post shipment finance upto 180 days is 1.5% above Base Rate. The interest rate
applicable for the specified categories of borrowers is 0.25% below Base Rate for
post shipment credit upto 180 days.
Margin:
In case of post shipment finance, other than bill negotiation/ purchase/ discount,
the margin may be stipulated depending upon the merits of each proposal and
type of security that is: LC, firm order or collateral and ECGC cover.
Limits to be sanctioned:
Separate limits should preferably be sanctioned for bills drawn under letters of
credit and bills drawn without letters of credit. In case of Specified Branches,
limits for negotiation of bills under letters of credit of foreign offices/
correspondents of the Bank can be fixed outside the Assessed Bank Finance and
in such cases, branch managers of the specified branches have unlimited powers
to fix limits for negotiation of bills. In case of non specified branches, Bill limit
would be part of Assessed Bank Finance.
ECGC cover:
ECGC covers political and commercial risks. When required, ECGC post shipment
policy duly assigned to the Bank should be stipulated as a condition of sanction,
especially if the post shipment finance is not backed by an LC. It should also be
stipulated that the exporter should authorise the bank to debit his account with
the amount of premium payable under Export Credit Insurance for Banks-PS
(ECIB-PS) of ECGC.
Interchangeability between pre shipment and post shipment finance
Need base interchangeability between pre shipment and post shipment facilities
may be permitted to take care of bunched export orders or physical exports. The
branches should comply with instruction in regard to the extent to which such
interchangeability is permitted and the authority to permit such
interchangeability.

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Basic Considerations for Post Shipment:
While purchasing the bill drawn by exporters on foreign buyers, the Bank takes
into consideration:
The track record of the exporter
Country risk
Nature of merchandise
Terms of payment
Payment record of the drawee.
Guidelines for Post Shipment
The guidelines to be kept in mind while extending post shipment finance are as
follows:
Foreign Trade Policy requirements.
FEMA provisions
Specific Approval List of ECGC
Our Banks own guidelines from IBG/GMU.
FEDAI Rules
Provisions of ICC viz., UCPDC, URC etc
Classification of Post Shipment Finance:
Post Shipment finance can be classified as:
Negotiation/Payment/Acceptance of export documents under Letters of
Credit
Purchase/ Discount of export documents under confirmed orders/ export
contracts
Advances against bills sent on collection basis.
Advances against exports on consignment basis.
Advances against duty drawback entitlements
Advances against undrawn balances/ retention money
Negotiation/ Payment/ Acceptance of export documents under
Letter of Credit:
The exporters need to submit documents for negotiation strictly in
accordance with the terms and conditions of the LC. It is equally necessary
for the negotiating branch to check this compliance with reference to the
documents submitted vis- a vis the LC. It should b ensured that all
documents are LC compliant.
All letters of credit are subject to guidelines of International Chambers of
commerce in the form of Uniform Customs and Practices of Documentary
Credit (UCPDC). The Latest publication of UCPDC is UCPDC 600 effective from
1st July 2007. The examination of documents submitted against Letters of
Credit must ensure the following:

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Each bank has five banking days for scrutiny of documents as per
UCPDC 600.
The documents have been submitted within the validity of the Letter of
Credit.
All documents called for are submitted and in the requisite number.
Each document is issued as per the stipulation in the LC and their
content satisfies the provisions of UCPDC and the LC.
The description of goods in invoice and documents corresponds to that
in the LC.
Shipment has been made before stipulated date.
Documents are presented within the period permitted from shipment
date as per UCPDC 600/FEMA i.e. 21 days from the date of shipment.
Insurance Policy covers the risk as stipulated in the LC and is for
adequate amount.
The amount of bill is within the LC value.
Full set of clean on board Bill of Lading is submitted and the Bill of
Lading is issued or endorsed in favour of LC opening Bank, or as
stipulated in the LC.
Stamps and alterations if any, on any of the documents are duly
authenticated.
All export bills are exempted from stamp duty.

Purchase/ Discount of Bills:


In case of Non Credit bills, following points need to be considered:
A satisfactory status or opinion report on the importer.
ECGC has fixed the credit limit on the buyer (Buyer wise limit) and the
exposure is within that limit.
The
exporter
should
obtain
the
Contracts/
Shipments
(Comprehensive) Risks Policy of ECGC.
All documents submitted are in accordance with firm order/ sales
contract.
The shipping documents are to be drawn/ endorsed/ consigned to
bank and not allow title to the goods to be passed on to the buyer
directly.
Credit worthiness of the exporter,
Status report on the drawee (importer)
Past experience
ECGC Risk Insurance availability.
Advance against Bills sent on Collection Basis:
Branches may also sometimes grant advances against bills sent on collection
basis. The need to resort to this arrangement normally arises:
When the accommodation available under the Foreign Bills Purchased
Limit is exhausted.
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When some export bills drawn under LC have discrepancies.


Where it is customary practice in the particular line of trade.
In the case of exports to countries where there are problems of
externalization (Countries unwilling or unable to permit remittance in a
convertible currency outside the country.

The branches may send the bills on collection basis and finance the exporter
after retaining a suitable margin out of the total bill amount and debit such
advances to an account styled Advance against bills sent on collection basis.
(rupee advance). This may be sanctioned as cash credit or overdraft.
The advance should be liquidated out of the export proceeds. The advances
against bills sent on collection basis would attract interest rate as applicable for
post shipment credit i.e. as per the tenure of the bill.
Advance against goods sent on Consignment Basis
The Branches may finance goods exported on consignment basis at the risk of
the exporter for sale and eventual remittance of sale proceeds to him by the
agent/ consignee subject to the customer enjoying specific limit for the purpose.
When goods are exported on consignment basis, branches should:
Instruct the Banks overseas branch/ Correspondent while forwarding
shipping documents to deliver the documents only against Trust Receipt/
Undertaking to deliver the sale proceeds by a specified date within the
time prescribed for realisation of export proceeds.
Retain appropriate margin while granting advance against such exports.
Advance against Duty Drawback Entitlements:
The exporter is entitled to various incentives as per the Foreign Trade Policy of
the country. One such incentive is Duty Drawback Entitlement Scheme.
Under this scheme banks are allowed to grant advances to exporters against
their entitlements of duty drawback on export of goods. The period of such
advances is up to a maximum of 90 days beyond which the Bank may not allow
the advances or may charge interest applicable to export credit. Advance against
duty drawback at post shipment stage should be covered under Export Credit
Insurance for Banks- EF (ECIB-EF).
Other conditions to be fulfilled before granting loans against Duty Drawback
Entitlements are:
Declaration from the exporter to be obtained on the export promotion
copy of the shipping bill containing the EGM number (Export General
Manifest Number issued by Customs Department) mentioning the amount
of duty drawback eligible.

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The amount of claim thus declared should be supported by a certificate


from a Chartered Accountant authenticating the amount of claim on the
basis of Trade Policy/Customs Rules.
A lien for the amount of advance to be noted with the designated banks
branch conducting the account of the Custom department under EDI
(Electronic Data Interface) scheme.
The financing branch should also make necessary arrangement with the
designated banks branch for transfer of funds as and when duty
drawback is credited by the customs through electronic fund transfer
system.
Branches may stipulate a margin between the amount of duty drawback
provisionally certified and the amount of advance to be granted.

Advances against Undrawn Balances/ Retention Money:


In certain lines of exports, it is the practice of exporters not to draw bills for the
full invoice value of the goods. Exporters leave a small part undrawn for payment
after adjustments due to differences in weight, quality etc ascertained after
arrival and inspection. In such cases, branches may allow advance against the
undrawn portion for a maximum of 90 days, provided:

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 export value, and
The exporter provides an undertaking that six months from the date of
shipment of goods he will repatriate balance proceeds of the shipment.

Retention Money:
Similarly under certain contracts, foreign buyers retain a small portion of the bill
amount up to an agreed period to enable themselves to be satisfied about the
quality of the items supplied. Advance against such retention money can be
allowed to the exporters provided the retention money is repatriated to India
within 360 days from the date of export. Such advance carries interest at
concessive rate up to a maximum of 90 days.
As regards post shipment credit not supported by letter of credit, post shipment
ECIB-PS cover is generally obtained against commercial and political risks. These
covers provide credit enhancements to the Bank by ensuring that a good portion
of Banks loss arising from the exporter not discharging his liabilities could be
made good by ECGC.
Export Bill Rediscounting (EBR)
RBI formulated the scheme of Rediscounting of Export Bills Abroad by
Authorised dealers to make available to the exporters post shipment finance at
international rates of interest. Under the scheme, exporters bills are discounted
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at the post shipment stage and simultaneously rediscounted abroad by the bank
to raise foreign currency funds that are applied to liquidate the underlying PCFC
loan. Both sight and usance bills are discounted under the EBR scheme.
The scheme of EBR is operative at only the designated branches only. Exporter
customers of non designated branches can avail the EBR facility at the nearest
designated branch.
EBR- Eligibility:
All exporters are eligible to cover their bills drawn under LCs, non credit
bills under sanctioned limits under the scheme.

Exporters availing PCFC should invariably avail EBR facility to discount the
relative export bills.

Both demand and usance bills are eligible for coverage. EBR facility is
normally available for a maximum period of 180 days. If the bills
discounted are not paid on the 180th day, extension can be permitted only
with approval of RBI.

If an exporter does not avail PCFC or rupee EPC, he can avail EBR facility.

Also exporters availing rupee EPC can avail EBR facility.

EBR- Currency
The scheme is restricted to four major currencies. They are:
US Dollar
Pound Sterling
EURO
Japanese Yen
Cross Currency settlements are also permitted.
For example, exporters having LC or export order in Swiss Francs or Italian Lira
can also avail PCFC and EBR in any of the four designated currencies. For cross
currency disbursements, both PCFC and EBR should be availed in the same
designated currency. The exchange risk in cross currency disbursements is be
borne by the exporters.
Rate of Interest:
The rate of interest applicable as per RBI guidelines is 200 basis pints over six
months LIBOR.
GMU (K) advises the six month LIBOR rate for the designated currencies that is
US Dollar, EURO, Pound Sterling and Japanese Yen.

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Funding:
GMU (K) is designated as the nodal centre to raise offshore funds and use
onshore funds to fund the rediscounting portfolio. It maintains rediscounting line
Nostro accounts to arrange for necessary funds with the Banks:
Nassaus office for US Dollars
Frankfurt office for Euro
London office for Pound Sterling
Tokyo office for Japanese Yen
Forward Contracts:
Forward Contracts can be booked for the surplus portion of EBR bill that is to be
converted in to Indian rupees for credit to exporters account after adjustment of
its foreign currency portion to the PCFC.
Return of Export Bills Unpaid:
The EBR advance that is a foreign currency loan is closed, when the overseas
buyer pays the bill and the export proceeds are realized. But if any export bill
discounted under EBR scheme is returned un-paid, a sale entry is to be put
through at the prevailing TT selling rate.
Withholding Tax:
No withholding Tax is payable if the interest on the foreign currency line is
remitted to the Banks own foreign offices. As lines of credit availed for this
purpose is only from the Banks foreign offices, the exporters may not pay
withholding Tax.
EBR- Direct Discounting:
Exporters can arrange for themselves a line of credit with an overseas bank or
any other agency (including a factoring agency) through a bank in India directly
to discount their export bills subject to the condition that discounting of export
bills is routed through the designated bank/ authorized dealers from whom the
packing credit facility has been availed.
If the bills are routed through any other bank/ authorized dealer, the latter will
arrange to adjust the amount outstanding under packing credit with the
concerned bank out of the proceeds of the rediscounted bills.
Write Of Unrealised Export Bills & Extension of Time Limit to Realise
Export Proceeds
Self Write Off:
An exporter who has not been able to realize the outstanding export dues, may
Self Write off an Export Bill upto the limit specified by RBI i.e. 10% of export bills
due during the current year.
Approaching the AD:
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If the exporter has not been able to realize the outstanding export dues, they
may approach an Authorised Dealer who had handled the relevant shipping
documents with appropriate supporting documentary evidence, with a request
for write off of the unrealized portion. Authorised Dealer may agree to such
request subject to the following conditions:
The export bill has been outstanding for a period of more than one year.
All efforts have been taken to realize the export proceeds and satisfactory
documentary evidence is furnished in support of that.
The aggregate amount of write off allowed by the authorized dealer
during a calendar year does not exceed 10% of the total export proceeds
due during the current year.
SBI Exporters Gold Card Scheme:
SBI Exporters Gold Card Scheme was launched to met working capital needs of
exporters after--:

EXIM Policy 2003-04 proposed to introduce Gold Card Scheme for credit
worthy exporters with good track record.
Reserve Bank of India announced a model scheme on the same lines to
be implemented by the Banks after due customization.

Features of SBI Exporters Gold Card Scheme:


Eligibility:
Accounts classified as Standard Asset for the last three consecutive years.
No irregularities adverse features observed in the conduct of the accounts.
However, occasional over drawings should not be construed as an adverse
feature.
The exporter is not black listed by ECGC and/ or included in RBIs
defaulters/ Caution list.
The unit has not incurred losses during the last three consecutive years.
Overdue Export Bills are not in excess of 10% of the previous years
turnover. (This condition has been waived for a year )
Incase of takeover of the account the extant take over norms should be
complied with, together with the other eligibility norms listed above.
Greenfield Projects i.e. a new project in an existing industry which an
entrepreneur who could be an exporter endeavours to establish from
scratch and run profitably, may also be considered on a case to case
basis.
Existing customers and new connections are eligible for SBI Exporters
Gold card scheme.
Period of the Card:
SBI Exporters Gold Card is issued for a period of 3 years. It is renewed
automatically for another three years when the previous sanctioned limit
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including standby limit steps up subject to the fulfillment of terms and conditions
of sanction and the unit continuing to satisfy the eligibility criterion for the
scheme.
Credit facilities in foreign Currency:
Exporters Gold Card holders will be given priority in sanction of PCFC advances.
Assessment of Credit Limit:
Manufacturing Exporters and Trading Exporters with projected export
turnover upto Rs 100 crore or below:
Simplified Turnover Based
Assessment Method or Nayak committee method
Unit with both export and domestic components: Turnover Based
Assessment method.
Software Exporters: Cash Budget Method prescribed in respect of software
finance, irrespective of quantum of turnover.
Units with projected export turnover above Rs 100 crore: Projected
Balance Sheet Method or Cash Budget Method.
Units with projected export turnover upto Rs 100 crore or below and
projected domestic turnover upto Rs 25 crore or below: Turnover Base
assessment method.
Units with projected export turnover upto Rs 100 crore or below and
projected domestic turnover above Rs 25 crore: Projected Balance Sheet/
Cash Budget method.
Non Fund based facilities required by the exporter will be assessed as per
existing norms.
Standby Limit:
Standby limit of 20% may be sanctioned to all Gold card holders by the
appropriate authority along with sanction of assessed credit limits to meet credit
demands arising out of receipt of sudden orders.
Exporters will be eligible to avail stand by limit for a maximum period of 180
days in one instance.
Step up Facility:
Exporters are eligible for a Step up facility of 10% every year.
Rate of Interest:
Interest Rate on SBI Exporters Gold Card will be 25 bps lower than our normal
export credit for both pre and post shipment finance. With the introduction of
Base Rate from 1st July 2010, the interest rate applicable for Pre Shipment credit
upto 270 days for all market segments will be 1.25% above Base Rate and for
specified categories of borrowers it will be 0.50% below Base Rate. For Post
Shipment credit extended upto 365 days from the date of shipment, interest rate
will be 0.50% below Base Rate for SBI Gold Card Exporters.
Time Norms:
Disposal of Fresh applications
Renewal of limits
Sanction of adhoc limits
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Back to Basics: Export Credit


EXPORT CREDIT COST BENEFIT ANALYSIS - EXERCISE
An exporter would like to avail pre shipment finance for 3 months,
immediately against a particular order. After shipment he intends to draw a
bill for 3 months. Hence he makes a request to book forward contract. He
has approached you on 12.11.2010 for pre shipment finance for purchase of
domestic raw materials. The data on 12.11.2010 is as under:

Pre Shipment Credit: Interest Rate:


a) Normal Exporters; Base Rate + 1.5%
b) Gold Card Exporters: Base Rate + 1.25%
c) Specified sector Base Rate-.25%
d) Gold Card Exporters: Base Rate- .50%

=
=
=
=

7.60 + 1.5 = 9.10 %


7.60 + 1.25 = 8.85 %
7.60 0.25 = 7.35 %
7.60 - 0.50 = 7.10 %

Post Shipment Credit: Interest Rate:


a)
b)
c)
d)

Base Rate + 1.5%


Gold Card Exporters: Base Rate + 1.25%
Specified Sector Base Rate-.25%
Gold Card Exporters: Base Rate- .50%

6 months USD LIBOR

0.44 % p.a.

1 M USD forward premium


3 M USD forward premium
6 M USD forward premium
12 M USD forward premium

:
:
:
:

7.88
7.10
6.65
5.65

%
%
%
%

p.a.
p.a.
p.a.
p.a.

a) EPC+ FBP
b) PCFC+EBR
c) EPC+EBR
S.No.
All market
segments

EPC + FBP
9.10 + 9.10= 9.10
9.10-6.65=2.45

PCFC + EBR
2.44 + 2.44=
2.44

Gold Card to
all market
segments
Specified
category
exporters
Gold card to
specified
category

8.85 + 8.85=
8.85- 6.65=2.20

2.44 + 2.44=
2.44

7.35 + 7.35=
7.35-6.65=0.7

2.44 + 2.44=
2.44

7.10+ 7.10=
7.10-6.65=0.45

2.44 +2.44=
2.44

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EPC + EBR
9.10-7.10= 2.00
2.00+ 2.44=
4.44/2=2.22
8.85-7.10=1.75
1.75+2.44=
4.19/2=2.095
7.35-7.10=0.25
0.25+2.44=
2.69/2=1.345
7.10-7.10=0
0+2.44=
2.44/2=1.22

State Bank Academy, Gurgaon

preffered
EPC +
EBR
EPC +
EBR
EPC +
FBP
EPC+
FBP