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BHAVAN’S COLLEGE,

ANDHERI
(2009-10)

ROLE OF FINANCIAL
INSTITUTION
IN EXPORT

NAME DIVISION ROLL NO.

AGARWAL CHIRAG 2 123

DHANANI AMIN A. 2 162

DUKALE ROHINI 2 167

JAIN MUKESH 2 202


TABLE OF CONTENTS
• LETTERHEAD OF THE COMPANY

• INTRODUCTION

• INSTITUTION PROFILE

o ABOUT THE ORGANIZATION

o HISTORICAL PERSPECTIVE

o VISION, MISSION AND COREVALUES

o QUICK FACTS

• FACILITIES GIVEN TO EXPORT FIRM – TYPES OF


LOAN GIVEN

o PRE SHIPMENT CREDIT

o POST SHIPMENT CREDIT

o OVERDRAFT AGAINST DUTY DRAWBACK

o CASH INCENTIVES

o LETTER OF CREDIT

o GUARANTEES

o MARINE CARGO INSURANCE POLICY

o FORWARD COVER
• PROCEDURE FOR LOANS AND FORMALITIES

• DOCUMENTS REQUIRED

• REGARDING CREDIT FACILITY

o LIMIT OF CREDIT FACILITY

o INTEREST RATE

o DURATION OF CREDIT

• COMPETITORS

• CONCLUSION
INTRODUCTION
Exports play a pivotal role in the economic growth of the country in general
and augmenting its foreign exchange resources in particular. Exports are,
therefore, given utmost priority in foreign trade policy of the country. As a
part of exports promotion measures, the Government has taken several
steps to simplify the procedures and reduce the bureaucratic control in the
matters related to exports. Exports are major source of foreign exchange
business for banks. Officials of the Bank dealing with exports should
acquaint themselves with the regulatory framework, major guidelines and
procedures related to exports and other major developments in the area.
DCB Financial is the holding company for the Delaware County Bank and
Trust Company. The bank mainly targets customers around Lewis, Ohio. It
offers a range of traditional financial products including checking accounts,
money market accounts, and individual retirement accounts. It primarily
invests in U.S. treasury securities. The bank also offers trust and other
wealth management services, cash management, bond registrar, and paying
agent services.
INSTITUTION PROFILE
ABOUT THE ORGANISATION
Development Credit Bank (DCB) is one of the emerging Private Sector
bank in India and provides to its customers, access to over 18,000 ATMs
(in shared networks) and 80 State of the art branches and extension
counters spread over 10 states and 2 union territories. The bank has recently
launched several value added initiatives and intends to be known as one of
the countries preferred and profitable retail bank. Development Credit Bank
aims to provide a comprehensive suite of best in class products for specific
market segments in chosen locations. Development Credit Bank has
initiated a liability and select asset product led strategy through a mix of
owned and outsourced products and multi channel capability. The wheels
of change that started turning the year before have started to turn more
rapidly as time goes by. If the Oversubscribed IPO and the stunning new
33,000 square feet corporate office are any indication, Development Credit
Bank is already making its presence felt and everyone feels the difference.
DCB is just a mini financial market it offers different range of products to
its customers. Basic products like the savings account and currents accounts
and also innovative products like DCB trio and easy business schemes are
unique products which are the leading the success. The product offering is
complete with Demat account, LIC, mutual funds, and Bonds. The banks
has given its employees 100% work satisfaction by introducing
performance based incentives and rewards for the already existing human
force . It has the choice of many young aspiring banking professionals. The
bank has enough liquidity to maintain the flow of funds. Overall this a bank
for both customers and employees.
HISTORICAL PERSPECTIVE
Development Credit Bank is a 79 year old bank which has established itself
on the platform of trust, oneness and tradition. Development Credit Bank
was formed by the merger of MCB and ICB in 1981 as Development Co-Op
Bank. It was converted into a Limited Company in 1995 and is ever since
known as Development Credit Bank. The Chief Promoter of DCB is Aga
khan Fund for Economic Development (AKFED). During India’s economic
liberalization, the bank was converted into standard commercial bank. This
was the only cooperative bank which crossed over such challenge. It is one
of the emerging private sector banks which have over 30000 ATM centers
and over 80 branches in 10 states and union territories. The bank has
dedicated staff of over 1800 and may expand in future. Recently the bank
has developed value added services and aims to be one of the profitable and
the country’s most preferred bank. It initiated the best –in class products for
specific market in specific locations. Under the efficient management of
highly qualified directors, and the leadership of dynamic senior management
and dedicated staff, it substantially expanded its network by 2008. Since its
establishment 77 years ago the bank has provided various low cost products
for customer deposits and meeting the needs of small scale business people
in selected regions. The bank has also equipped the new versions of finacle
from the software gains like the Infosys and Oracle which provide high
standard service to its customers.

VISION, MISSION AND CORE VALUES


The bank’s main vision is to provide golden standards of customer service
in banking sector. The key differentiator of DCB with other banks is that it
has initiated quality programs targeting the customer delight. This was
possible by giving intensive training to its staff and has become the
lifeblood of DCB. DCB is just a mini financial market it offers different
range of products to its customers.

Vision

• To be the gold standards in customer service in Indian Banking.

Mission

• To be the preferred Financial Service Provider Amongst the Banks


Peers with a Passion for Excellence in Service.

Core ValuesTypes of policies

• Integrity

• Transparency

• Customer- centricity & confidentiality


• Team Work and Respect for Others

• Creative and Simple

QUICK FACTS

• Emerging Private Sector bank with a a Balance Sheet size of


approximately Rs. 4,000 crores as per latest financial report.

• Network of 72 state-of-the-art branches, with access to more than


18,000 ATMs spread across the states of Maharashtra, Gujarat,
Andhra Pradesh, Karnataka, New Delhi, Goa, Tamil Naidu, Haryana,
West Bengal, Union Territories of Daman & Diu and Dadra & Nagar
Haveli,

• Dedicated staff of over 1800,

• The recently launched Initial Public Offering enjoyed a phenomenal


success, being oversubscribed 35 times.
FACILITIES GIVEN TO EXPORT
FIRM – TYPES OF LOAN GIVEN
PRE-SHIPMENT CREDIT
Exports play a pivotal role in the economic growth of the country in general
and augmenting its foreign exchange resources in particular. Exports are,
therefore, given utmost priority in foreign trade policy of the country. As a
part of exports promotion measures, the Government has taken several steps
to simplify the procedures and reduce the bureaucratic control in the matters
related to exports. Exports are major source of foreign exchange business for
banks. Officials of the Bank dealing with exports should acquaint
themselves with the regulatory framework, major guidelines and procedures
related to exports and other major developments in the area.

Exportable Goods
Export-Import policy regulates the physical aspect export of commodities.
Thus the Exim policy may prohibit export of certain commodities, stipulate
that export of certain other commodities would be subject to license or
prescribe minimum export prices for some commodities. Export of certain
items might be subject to restrictions placed in other statutes also. Exporters
have to ensure that the goods covered under exports are freely exportable or
those under allocable quotas or those covered by specific export licenses and
the stipulated conditions are fulfilled and/or supporting licenses are
obtained.
Types of Export Facilities
Export finance is mainly a short term working capital finance extended to an
exporter for execution of an export order from the date of receipt of such
order till the date of realization of the export proceeds.
Export finance is broadly classified in two categories:
I) Pre-shipment Facilities Financial assistance and other facilities from
receipt of export order till the shipment of goods.
II) Post-shipment Facilities Financial assistance and other facilities after
shipment of goods till the receipt of the proceeds.
Pre-shipment facilities/finance can be granted by extending one of the
following facilities:
I) Packing credit in rupees.
II) Packing credit in foreign currency (PCFC).
III) Advance against incentives receivable from Government like duty
drawback.
IV) Advance against cheques / drafts representing Advance Payment.
Application of RBI, FEDAI and the Banks Guidelines
Export finance and other facilities, both pre-shipment and post-shipment, are
governed by the directives of the Reserve Bank of India, FEDAI Rules and
the Banks internal guidelines.
Time Frame for Considering Credit Requests
Export finance proposals should be expeditiously disposed of, so that, timely
and adequate credit is made available to exporters. The time frame
prescribed for disposal of the applications for credit limits for export sector
is given below:
I) Sanction of fresh/enhanced credit limits Maximum 45 days
II) Renewal of existing limits Maximum 30 days
III) Sanction of ad-hoc limits Maximum 15 days
Overall Approach to Lending
A flexible approach should be adopted to export finance and norms of
lending. At the same time, it should be ensured that exporters do not misuse
this concessive and liberal finance. The finance should be strictly purpose-
oriented and need- based.
While considering export finance facilities, a holistic view of export activity
transaction should be taken and adequate facilities as required, both at pre
and post shipment stages, should be sanctioned. Preferably, all requisite
facilities should be considered at the same time, as a package deal. The past
performance of exporters and future potential should be kept in view while
assessing the credit proposals. In the case of new exporters, their experience
in domestic market in dealing with the relative commodities and other
background factors must be taken into consideration. A close watch should
be kept on the end-use of finance and timely fulfillment of export orders.
Flexibility of Credit Norms
In the proposals for export facilities, while computing the overall working
capital gap/ maximum permissible bank finance, export receivables can be
excluded out of such computation process and export sales finance limits
can be assessed and sanctioned separately, over and above the permissible
bank finance.
Whenever exporters are unable to bring in additional contribution (margin)
in respect of additional credit facilities required for specific export
transactions, such additional contribution required from exporters can be
waived.
POST-SHIPMENT CREDIT
In exports, post-shipment finance is extended to the actual bonafide
exporter who has exported the goods or to an exporter in whose name the
export documents are transferred. In case of deemed exports, finance is
extended to the suppliers of goods who supply goods to the designated
agencies.

Types of Facilities
Post-shipment finance can be any of the following types.
I) Purchase/discount of export documents under confirmed orders/ export
contracts etc.
II) Negotiation/payment/acceptance of export documents under letters of
credit.
III) Rupee Advance against export bills sent on collection basis.
IV) Advance against exports on consignment basis.
V) Advance against undrawn balance on exports.
VI) Advance against receivables from Government of India.
VII) Advance against retention money relating to exports.
VIII) Export bills rediscounted in foreign currency.

Quantum of Finance
Post-shipment advance can be extended upto 100% of the value of goods
exported as evidenced by the relative bill of exchange (draft/invoice).
Suitable margin can also be stipulated in appropriate cases.
Period of Finance
The period of finance depends upon whether the bill (accompanied by
shipping documents) is drawn on sight D/P basis or on usance basis.
Export bills on usance basis can be drawn for a period upto 1 year from
the date of shipment. However the concessional rate will be applicable
upto 180 days. In the case of gold card holders the finance at concessional
rate can be upto 365 days from the date of export.
Rates of Interest
Interest on post-shipment export credit should be recovered up-front upto
the due date of the bill the rates stipulated by Reserve Bank of India/our
bank from time to time. In case of overdue bills, the difference should be
recovered at the appropriate rate at the time of realization.

Rates of Exchange
The rupee equivalent of a bill expressed in foreign currency should be
calculated at the Bill buying rate ruling on the day of purchase or the
contracted rate, if under a forward contract. Appropriate rates of exchange
should be obtained from the Treasury.

Whole Turnover Post-shipment Guarantee (WTPSG) of ECGC


Eligibility
All post-shipment advances including advances against export bills
purchased/negotiated under letters of credit and advances against export
bills for collection are eligible for cover under the Whole Turnover Post-
Shipment Guarantee (WTPSG) of ECGC.
Export Credit Refinance
Post-shipment credit granted at concessional rate is eligible for refinance
from Reserve Bank of India. Proper reporting should be made by T.F.
Unit, NPC to enable the Bank to avail such refinance.
OVERDRAFT AGAINST DUTY DRAWBACKS

Government of India, Ministry of Finance (Department of Revenue,


Directorate of Draw Back) is operating a Duty Draw Back Scheme. The
basic objective of the scheme is to allow refund of excise and customs
(import) duties paid on indigenous/imported raw materials, components etc.
used in the export products.

Advances to exporters can be considered on their Duty Draw Back (DDB)


entitlements against export promotion copy of the shipping bill containing
the EGM Number issued by the Customs Department. Approval of
sanctioning authority i.e, business/ credit at coprporate office should be
obtained before considering such advances. Normally such Duty Draw Back
loans are granted at post-shipment stage for a period not exceeding 90 days
at lower interest rate as specified in interest rate directive. However, in cases
where the domestic prices of goods exceed the value of export orders, Duty
Draw Back advances can be granted at pre-shipment stage for the difference
representing the Duty Draw Back entitlement, subject to the condition that
the loan is covered specifically by Export Production Finance Guarantee of
ECGC.
CASH INCENTIVES
ADVANCE AGAINST INCENTIVES RECEIVABLE FROM
GOVERNMENT OF INDIA
Normally advances against Government receivables are considered at post
shipment stage. However, in exceptional cases, when the value of material
to be procured for export is more than the f.o.b. value of the contract and
taking into account the availability of receivables from Government of
India, advances can be considered for more than f.o.b. value for a
maximum period of 90 days.

Normally, such advances should be granted against execution of loan


documents such as promissory note, power of attorney, etc., and
application made to disbursing authorities in prescribed forms
accompanies by original bank certificate of export, export promotion copy
of shipping bill, etc.
Concessional rate of interest which is applicable to packing credit
advances is also applicable to this type of advances and the eligibility for
lower interest rate is restricted to the extent the relative claims are actually
admitted and received from the concerned authorities.
Such advances should be liquidated by negotiations of export bills and out
of proceeds of government receivables.
Domestic rate of interest should be charged from the date of original
advance till the date of its payment on any advance or part of advance not
adjusted from proceeds of incentives or export bills.
Advances against Government receivables at pre-shipment stage should be
covered under Export Production Finance Guarantee of ECGC.
LETTER OF CREDIT
Letter of Credit (L/C) is an arrangement where a bank, acting on the
request of the customer (Importer/Opener/Applicant of letter of credit),
gives an undertaking to a third party (Exporter/Beneficiary of letter of
credit) that on his/her submitting the shipping documents such as drafts,
invoices, insurance policy, bills of lading etc. stated therein, the bank
(branch of the bank which has established/opened letter of credit) or its
correspondents (nominated or confirming bank) would pay him/her the
amount mentioned therein, provide the documents are in conformity with
the terms of the letter of credit.

Parties of Letters of Credit


Letter of Credit has four principal parties, namely:
I) Applicant (Opener)
II) Issuing Bank (Opening Bank)
III) Beneficiary
IV) Advising Bank

Types of Letters of Credit


Letters of credit are classified into various categories depending upon their
nature and functions. Salient features of some of these types are given
below:
I) Revocable Letter of Credit

A revocable Letter of Credit is one which can be cancelled or amended by


the
issuing bank at any time without the consent of or prior notice to the
beneficiary.
II) Irrevocable Letter of Credit
An irrevocable Letter of Credit is a definite undertaking by the issuing bank
and constitutes the commitment of that bank to the beneficiary that the
provisions for payment, acceptance or negotiation contained in the letter of
credit will be fulfilled provided that all the terms and conditions of the
letter of credit are complied with.

III) Confirmed Letter of Credit


Confirmation of a credit constitutes a definite undertaking of the
confirming bank, in addition to that of the issuing bank, to pay, to accept or
to negotiate, without recourse to drawers and/or bona fide holder of the
drafts drawn by the beneficiary.

IV) Revolving Letter of Credit


Revolving Letter of Credit is one where, under the terms and conditions
thereof, the amount of drawing under the credit is reinstated so that the
original amount is, once again, available for use of the beneficiary. For
better control, the overall amount that may be drawn under the credit is
generally specified.

V) Transferable Letter of Credit


Transferable letter of credit is one which can be transferred in whole or in
part by the nominated bank in the letter of credit, on the instruction of the
original beneficiary, in favour of a second beneficiary or several
beneficiaries.

VI) Red Clause Letter of Credit


In case of Red Clause Letter of Credit, the beneficiary can get advance
payment for purchasing raw materials, processing and/or packaging the
goods in anticipation of his/her actual shipment and submission of bills at a
future date.

VII) Green Clause Letter of Credit


Green Clause Letter of Credit not only provides for advances towards
purchase, processing and packing, but also for ware-housing and insurance
charges at port where the goods are stored pending availability of ship
GUARANTEES
Export Credit Guarantee Corporation of India Limited (ECGC) is a
government owned organization set up in 1964 with the objective of
promoting exports by providing a range of credit risk insurance covers to
exporters and by offering guarantees to banks and financial institutions so
as to enable them to extend better credit facilities to their export
customers.
Types of Guarantees

I) Export Production Finance Guarantee

II) Export Finance Guarantee.

III) Export Performance guarantee! Performance advance payment


guarantee.
MARINE CARGO INSURANCE POLICY
The policy covers all types of Cargo in respect of your Imports, Exports and
Inland Transits through, Rail, Road, Sea, Air, Government and Private
Postal Services etc.

The Policy covers

• All Risks (except those specifically excluded in the respective clauses


attached).

• Limited form of cover may also be opted depending on your


requirements.

The Policy does not cover

• Loss or damage caused by

• Willful misconduct

• Improper packing

• Ordinary leakage, wear and tear

• Delay

• Non seaworthiness

• Insolvency of the carriers

• War

• Strikes

• Radioactive contamination
• Nuclear perils

• Policy can be extended to cover War and Strikes perils on payment of


additional premium.

Types of policies

• Specific Policy

• Open Policy

• Open Cover

Basis of Valuation

• Cost of Cargo.

• Freight.

• Insurance.

• Incidentals as may be agreed.

• Duty (at concessional rate of premium).

Benefits

• Worldwide Claims Survey and Settlement Assistance.

• Network of Surveyors all over the country.

• Customized and Innovative covers based on your needs.

• Incentive for Good Claims experience.

Extensions for multi transit, incidental storage, FOB


FORWARD COVER
Where export order is denominated in US Dollar i.e. PCFC drawal is in
the same currency as that of invoice, forward cover may be provided for the
following:
I ) Forward Contract (i.e. USD/rupee) from the date of order/letter of credit
to the date of drawal of PCFC covering the amount of PCFC disbursed.

II) Forward Contract (i.e. USD/rupee) from date of order/letter of credit to


the date of discounting of bills (EBRD) covering the amount of bill LESS
PCFC disbursed/ drawn, if any.

Where export is denominated in other permitted currencies i.e. PCFC drawal


is in a permitted currency other than the currency of invoice, cross currency
forward cover in USD against invoiced currency (i.e. Stg./DM/J.Yen etc.)
can be obtained from date of order/letter of credit to the date of discounting
of bill, in addition to the forward covers mentioned above. IF PCFC drawal
has been used for payment towards imported inputs in foreign currency,
forward contract booked should be cancelled for any such portion at
prevailing market rates. While extending forward facilities under the
scheme, the compliance with the basic Exchange Control requirements
should be ensured and it should be ascertained that the customer is exposed
to exchange risk in a permitted currency in the underlying transaction at
different stages of the export finance; otherwise no forward contract should
be booked. Forward contract can also be booked to cover drawals under
PCFC scheme for export order holder.
PROCEDURE FOR LOANS AND
FORMALITIES
The following are the procedures and formalities required to get export
related financing:

• Initial Discussion with the bank officials appraising the requirement.

• Discussion with bank officials about the proposal.

• Submission of necessary forms for duly filling up and support


documents justifying the financial requirements.

• Scrutiny of documents at bank level to ensure that all the required


documents are received.

• Appraisal of the requirements through Profit and Loss Accounts and


Balance Sheet Analysis and arriving at MPBF (Maximum Permissible
Bank Finance) for working capital requirements or for term loan at
75-80% of project cost.

• Putting up to higher authorities in the banks for sanction conveying


the sanctions to the customers after getting the approval from higher
authorities.

• Acceptance of sanction letters by the customers and execution of


documents by the customers.

• Release of Credit facilities.


DOCUMENTS REQUIRED
The required document depends on the nature of facility / limits permitted.
Normally pro note, take delivery letter, letter of set off/appropriation are
taken. Where goods are taken as security, letter of hypothecation / pledge is
also taken. Other documents will depend on the constitution of the
borrower. The following documents are generally required.

• Take Delivery Letter

• Importer- Exporter Code number allotted by ITC (DGFT) Authorities,


which establishes that they are registered importers

• Details of industrial license.

• DGTD registration.

• Registration certificate issued by trade bodies.

• R & D recognition certificate.

• Food and Drug Administration Department License etc., as


applicable.
REGARDING CREDIT FACILITY
LIMIT OF CREDIT FACILITY
In the proposals for export facilities, while computing the overall working
capital gap/ maximum permissible bank finance, export receivables can be
excluded out of such computation process and export sales finance limits
can be assessed and sanctioned separately, over and above the permissible
bank finance.
Whenever exporters are unable to bring in additional contribution (margin)
in respect of additional credit facilities required for specific export
transactions, such additional contribution required from exporters can be
waived. The levels of holding of individual items of inventory and
receivables which should be supported by bank finance can be decided by
the Bank after taking into account the production/ processing cycle of the
industry in question as also other relevant factors. Additional credit needs
of exporters arising out of firm orders! confirmed letters of credit (and
which are not taken into account while fixing the regular credit limits)
should be met in full, even if sanction of additional credit limits exceed
maximum permissible bank finance, after obtaining approval at appropriate
level.
INTEREST RATE
Rate of interest on packing credit should be charged as per the directives of
Reserve Bank of India/Internal guidelines, issued from time to time.
The concessional rates of interest would apply only if the actual export
takes place within a reasonable period from the date of availing of finance.
The reasonable period has been fixed as 360 days by Reserve Bank of India
and if export does not take place within 360 days (180+180) from the date
of availing of packing credit, the Bank should charge interest from the very
first day of advance at the normal domestic lending rate. The Bank is also
entitled to charge penal interest of 2% in such cases.
RBI has extended the concession rate of interest for packing credit upto 270
days.
DURATION OF CREDIT
Export finance proposals should be expeditiously disposed of, so that,
timely and adequate credit is made available to exporters. The time frame
prescribed for disposal of the applications for credit limits for export sector
is given below:
i) Sanction of fresh/enhanced credit limits Maximum 45 days
ii) Renewal of existing limits Maximum 30 days
iii) Sanction of ad-hoc limits Maximum 15 days

COMPETITORS
CONCLUSION