m

# MANIPAL
Expnndmo Horizons of Le;irnmg
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Importance of Trade Finance

notes
Meaning of Trade

Trade refers to the exchange of goods, services, and other resources

It is a basic economic concept involving buying and selling

Trade can take place within an economy/country or between two different

economies/countries

Trade is necessitated by uneven distribution of resources & skills to produce

^
varied items and a need to provide different types of services

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Classification of
_
Trade
J
Domestic Trade Trade
Exchange of goods,
Services & Other
Resources

Domestic Trade
Exchange of goods and services ^
International Trade
within the political boundaries Exchange of goods and services
of a country across international borders

Export Import
Product or services Product or services
Whole Sale trade Retail Trade sold to the global bought from the globa
market /other market /other
countries countries

# # MANIPAL
I -
t p i i o i II | <MJ H f j i L I I I I K 4
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Factors affecting International Trade

ialization
-
pient in
frdvanceortatioH Mu Itinational
g| obalization Industrie transp Corporations

Outsourcing of
servicss

Principles of both domesticic and international trade are more or less same. However International
General
trade due to
trade some times tends to be costlier than domestic
Levy of duties and tariffs
• Time costs due to border delays b # # MANI PAL
• Cost arising due to differences in policies
and procedures F Hrihmnv nl I
Eco System of International Trade 7TT
Exporter Includes suppliers, Transport operators, Workers, Bankers. Insurers etc

Importer * Includes customers, Transport operators, Workers, Bankers. Insurers etc

D6FT • Issues IEC, regulates movement of goods, formulates FTP, administers Incentives

FEDAI • Self regulating body, represents banks with GOI, RBI, announces Forex Rates ate

* Custodian of FOREX, administers FEMA, lays down rules for release of FOREX,
RBI manages EDPMS & IDPMS

* Strengthens Commercial ties, dispute resolution, publishes various documents like

ICC UCP600, URR 725 URC-522 etc. 6.3 million members
•Financiers for both exporters & Importers, agents for collection of bills, provides
Authorized Dealer remittance facilities
•Provides Credit risk Insurance, Guarantees to banks Strives to strengthen export
ECGC promotion drive

dffgaa MANIPAL
I » I 1 1 I N l- i III111 ill I 4 NIIM
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 Trade Finance & its importance r

Trade services bridge the For Banks trade finance is

Trade finance There are two parties in a
encompasses both trade transaction, a seller
domestic and international who sells the goods and
trade services and buyer of the
same
conflicting interests of a good source of
both seller and buyer and
- Lending
reduces the risk for both
-Fee income
- Exchange margin
Banks provide Finance,
handle documents, and - Float funds
provide a reliable - Cross selling
payment mechanism

MAIN!IPAL
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Trade Finance & its importance continued
Trade Finance protects importers & exporters against various risks in the international trade / ike
non payment, currency risk , political risk etc
j

Trade finance ensures trust and reliability among the parties to the trade

Improves cash flow to exporter through availability of varrous types of finance both pre and post
shipment at very affordable cost

Importer gets extended credit from the seller, besides buyer 's and seller 's credit

Trade finance is a good source of business for banks, Jt provides lending opportunities and offers
scope for variety of fee based income
Role of a Bank in Trade Finance
"77
11CICI Bank
l
As Financiers As Agents
L

-Pre Shipment & Post Shipment

-

Finance to Exporter
Handling of document by both
- Buyers credit to importer
seller ' s and buyer 's bank
-Financing the sale by importer 's
bank

Payment assurance through Non

Fund facilities and Routing of funds
1 ollecting
- LC on behalf of importer and overed by export bills as well as
- 8G for advance payment on dvance payments
behalf of exporter

b W MAN J PAL
IX*.
Expanding Herurans aI Learning
 rnrf
MANIPAL
t U n M i n m n I finmingj
*
Learning Objectives

At the end of this topic, you will be able to:

• Explain the concept of export and import

• Understand the role of service providers
and facilitators in foreign trade

• Understand the need for regulation of

export import trade
• Identify the regulators of foreign exchange
transactions
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 &ICICI MANIPAL
l- injLufcin1my Houftni v rH Ln nvfik'igj

The stages in the Ecosystem

Ravi had started a Floriculture business a week back. It was on the outskirts of the
city, well connected to the Farmers market and the city and business picked up right
from the day one, since there were no other competitors nearby.

His mother was very happy to see her son getting an opening to settle in life.
She casually asked him who all helped him in setting up the business, though on a
small scale initially.
Ravi thought for a while and told her there were several people who helped him, and
he began to list a few of them :
Can you help Ravi in listing out ? L>
 &ICICI MANIPA L
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f h.pwiri fi ( ily Usrimm of (L
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The stages in the Ecosystem
- First his mother herself, who always wanted him to start a business and gave him the
idea and encouragement and continues to guide and assist.
- His uncle, living in the nearby village in identifying the right type of business
- His Aunt, who contributed a small amount to supplement his Capital
- The landlord of the shop, who let out the shop to Ravi
- The local panchayat Office who gave him licence and permission to put up the shop
- The carpenter who planned and put up shelves and minor furniture at the shop
- The local electrician who fixed suitable lighting for the shop
- The florist at the other end of the city, who guided him on purchasing, processing and
marketing
- The farmers who agreed to have arrangement to supply the flowers regularly
- The local Goods vehicle owner who agreed to transport i n \g p p l r r v i
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- Manu, IniUmiiii nf I Rfirmiku
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 MANIPAL
tapundtag Hari/ on nt I r- nm^ ng
*

Constituents of Imports and Exports

The business of imports and exports is
simple enough, similar to any business. Currant ecosystem
• The exporter or Seller sells his goods /
services to the Buyer
• The importer or Buyer pays for the
goods / services received
• The Transporters who help movement
of goods
• The Banking channel which facilitates
remittances
• The regulators who stipulate the Do's
^ and Don'ts I pupil? M«tny nnrirmn IPI I MIIHIIPPU
 MANIPA
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The stages in the Ecosystem

The Ecosystem of Exports and Imports

The entire mechanism involved in making the activity
possible
Stage 1: The buyer and seller entering into a sale/purchase
agreement on mutually agreed conditions
Stage 2: The buyer placing an order with the seller.
Stage 3: The seller agrees to sell on certain conditions of
movement of goods/ documents & payments
Stage 4: The role of the intermediaries viz., Banks in
handling the documents and remittances
 W
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MANI
I jjaitdittu Hvimi of

Ecosystem of Exporters

Export involves movement of goods and services from our Country to

outside
Inflow of foreign exchange into our country.
An exporter could be a Trader, Manufacturer, or a service provider.
A trader has to procure goods from his suppliers before exporting them.
A manufacturer, on the other hand has a much larger process.
A service provider is one who neither produces the goods nor trades in
the goods. He provides services like processing jobs, back end
operations, services, BPO/ KPO etc.,
 '# MANIPAL
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Support system for Exporters

Supplier of Transport Financial Regulatory Government

Material Operators institutions Bodies ^ Agencies
f
f
V

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 • * ICICI MANIPAL
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Ecosystem of Importers

Import Involves outflow of foreign exchange from our country

* Inflow of goods and services into our country.
* Importer could be a trader, manufacturer or a service provider
* He could be purchasing finished goods for sale in India

* Importer could be importing Raw Materials or Semi-finished goods for

manufacturing in India, importing Machinery or Capital goods
* Importer could be a Corporate seeking services like consultancy etc from
abroad

L
 * ICICI MANIPAL
9
{- panriHIQ Monjnr
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Support system for importers

Customers

Transport Operators

Financial Institutions ( Bank & INS)

Skilled & Unskilled workers

Marketing & Advertising Agencies

Regulators

Government Agencies 'AL

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 * ^ tCtCt MAN fPAL
m
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Role of Banks in the Ecosystem

it
* Consultants .
* Intermediaries leu it comes to trade services,
* Risk Mitigators jk trust tlie experts.
* Finance providers 1
aduti: Bciitete 1

* Remittance facility, enabling transfer of Rentes FKMne

I

funds
* Convert Foreign Exchange
* Banks in India have a dominant role in
ensuring compliance of RBI guidelines
relating to export and import trade.
l> / tc1 IVIA NIRA l_
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.
F p.~i r l Tirt iffeQ rtf|Art'll « inYy

Authorised Dealers ( ADs) & Types
* currencies of other countries are like
any other commodity in India and are
referred to as foreign exchange .
* Conversion of foreign exchange to
INRs involves buying or selling of
foreign exchange at a price.
* Authorised dealers are select Financial
Institutions permitted by RBI to handle
foreign exchange trade in India.
L,
MANIPAL
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am
Broadly, there are 3 types of Authorised
Dealers based on the types of transactions
they are permitted to handle
ADI category- All types of Transactions
AD2 category - are broadly two types :
• FFMC
• RMC
AD 3 category: They are select financial and
other institutions authorised to handle
transactions incidental to the foreign
exchange activities undertaken by them.
 "/C/C/ MANIPAL -
t -npAnd^ ng H-ftriFtlEML fll i cAliTil liy

AD Branch categories

A category branch is the branch attached to the

treasury of a bank who maintains the accounts of the
bank with banks in foreign countries.
B category branch are specialised branches equipped
to handle foreign exchange transactions.
C category branch does not handle foreign exchange
transactions. They route their transactions through a
B category branch

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Regulatory Bodies- Functions: DGFT

DIRECTOR GENERAL OF FOREIGN TRADE (DGFT)

•Industry
Operates under the Ministry of Commerce and
Directorate
. General of Foreign
•Formulates the FOREIGN TRADE POLICY .
Trade
•physical
down policies and regulations relating
Lays
movement of goods /
into of India
out
to

•Issues Importer Exporter Code ( IEC) . b

# MANIPAL
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 IVIANIPAL
hr>a'KAr>g Hartfww < ji LHmina

Regulatory Bodies- Functions: FEDAI

•Guidelines and Rules for Forex Business

•Training of Bank personnel in areas of Foreign

Exchange

•
•
Advising / assisting member Banks in settling issues
Represent member Banks on Govt. / RBI / The Fixed
Income Money Market and Derivatives Association
4 ilr>
FEDAI

of India ( FIMMDA )/Forex Association of India &

various market participants

• Announcement of daily and periodic rates to

member Banks
L,
# MAINJIRAI_
• Accreditation of Forex Brokers tNfjtiiidmu Horizons of
 MANIPAL
-
I piinriitig Hotuanri >n( L naBfisny

Regulatory Bodies- Functions: RBI

• Authority to issue various types of
Forex license to Authorised Dealers
• Lays down rules for release of
exchange towards international trade
transaction and monitors end use
through the Authorized Dealers
• Issues guidelines in respect of Reserve Bank of India monitors all Import and
Export transactions through an online software to
Imports, Exports, Remittances,
be used by all AOs
Rupee/FC loans, ECB's, FDI's, Foreign
Export Data Processing and Monitoring System:
Collaborations, and the related EPPMS
matters
Import Data Processing and Monitoring System:
£ Administers the FEMA 1999 IDPMS
 # ^ICfC# MANIPAL i A «Tin
*
I ipAnding HcKimrtn ni Loiimi g
^

h egulatory Bodies- Functions: International Chamber of Commerce

• Founded in 1919 with international secretariat at

Paris
• The objective is to strengthen commercial ties
among nations not only for good business but for
good living standards and for peace.
• The international secretariat develops and
carries out the ICC work programme and remains
in close contact with the extensive ICC network
of members and regional offices in 130
countries. There are about 6.5 million companies
in the ICC network.
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 f ^IC/C# MANIPAL
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Check your understanding

1 Importers are Foreign Exchange Earners for the country- T/F?

2 The stage 1in the Ecosystem is when Buyer places an order for
purchase from the seller T/F ?
3 The exporter can be a Trader, Manufacturer or
4 Importer imports good for sale in India

5 DGFT works under Ministry of Finance - T/F

6 The full form of ECGC is
7 AD2 branches are of 2 types &

8 'C Category' branches Route

through
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Summary

a In this session , we 3
• Discussed the constituents of Import & Export business
• Described the Ecosystem of Foreign Exchange business
• Understood the Ecosystem of Exporters & Importers and their
support system
• Defined the Authorised Dealers and categories of Branches
dealing in Foreign Exchange
• Discussed the Role & broad functions of Regulators in
L,
export import trade

(2 Identified the regulators of foreign exchange transactions

and their broad functions
IPAL
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Trade Products and Services H* ICICI MANIPAU I VI V
itpniot itlartiiiH ¥

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Providing Complete Banking Solutions

/O# MAN IPAL

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 MAN f PAL
f u|innv1ing Hcwunut nl I. turning

Learning Objectives

At the end of this topic, you will

be

Familiar with all Trade products

and services offered by ICICI
Bank
 ^
9 idd MANIPAL
t-uptlhAng Hen/ un nr I ojkrnkng
*
The Opportunity!
An exporter whom you have met during a call states the
following during the discussions

* He maintains a Current account with X bank mainly to

use their remittance facilities What is the
* His credit requirements are taken care of by Y bank solution
you would
which is partially digital
offer ? ?
* His trade requirements are taken care by Z bank
which offers him very competitive pricing

His problem is co-ordinating with 3 banks for different

requirements and maintaining an exclusive staff to do
.
the running around At the end of the day, the work is AL
not done to the satisfaction of the Business owner
.
 W* ICICI MANIPAL
- l: n|>nnHMg Hnrijnin t» r u *Milnrj

Types of Customers

Normally we find the customers who could be a combination of one or more of the following:

Exclusive Exporters

Exclusive Importers

Export & Importers ]

F Exports & Domestic sales

Imports & Domestic purchases

F «|J i i n i r i i i i g
'
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 Introduction: Products & Services required by Trade Customers

/ India's forex reserves has reached the high of $ 582billion in March 2021 and has
been stiff going stronger.
The foreign exchange turnover data as on 29 th Jan. 2021 as released by RBI shows
Merchant forex transactions is of more than $10,000 million in Indian banks, which
shows the potential and the depth of the market
ICICI bank provides Global Trade services, through a wide range of products and
services designed to meet all the requirements of exporters and importers.
The products range cover all the needs of imports services, exports services,
Guarantees both domestic and foreign, Inland trade services and Remittances ( both
\ inward and outward).
MANIPAL
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Products & Services required by Trade Customers: Why ICICI Bank ?

• The bank has a correspondent network of over 381 foreign banks across 57 countries
• Foreign currency Nostro accounts in more than 30 currencies which ensures that all the
international trade requirements are met with.
• Customers benefit from the streamlined processes based on a sound technological backbone.
• Fast, Convenient, Safe and Paperless ways.
• The bank provides multiple variants of current accounts
• Cash management services including a full range of receivable and payable services,
The bank also offers Trade services to meet their financing requirements, with online platforms
and structured solutions,
• The ICICI Bank edge is that all its' products are competitively priced and have a quick turnaround
v time. >

g MAfsIlRAL
OTHT:
! H | JAIDVIJIFFMTORTRUIUI nf L f H i r n r i P i u
Products & Services required by Trade Customers
Current Account
Overdraft and Cash Credit
Letter of Credit both Opening and Negotiation
dank Guarantee
Pre-Shipment & Post Shipment Credit facility
Bill Collection
Remittance
Insurance Coverage
Forward Contracts
Cash Management Services
Travel Card
Advisory Services

ICICI bank has solutions to meet every need # rvi /\ MiFy\ i _

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Trade Services

few.

Free Inward & Export & i

Advisory outward Import Bill & Bank FX Online Gold
Services Remittance Collection md on call r Loans
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Offering for Every Trade Need

Customer Need Out Offering

Inflow of foreign currency

I Invntfd Remittance
I
Outflow of foreign currency Outward R mlrtar%c
* * I
A current account for trad transactions
*
me A
J
Need to know b*» t foreign exchange rate
* FXOnllne/OnCeN
I
fjKd bank written ffviontcc to pay Letter of Credit

Need guarantee against specific performance

Bank Guarantee

Need convenient mediums to transact Alternate channels

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M ji < II sir icrn n at I f f ® n ¥* Qi
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 Key Products TSU

Letters of credit Bills Remittances

Bank
Guarantee
Pre l,
Shipment Credit

Issuance Collection Inward Issuance Export packing

Credit
Advising Advance Outward Advising
Payments Discounting
Confirmation Negotiation &
# Direct Purchase
Payments

MANIPA
ExpniiLlina Horirtiw t>r Laanting
 taa MANIPAL
EnfM^ftg HciPiUihi nP tnvning

Basket of offerings from ICICI Bank

^Our Bank can offer complete solution for the customer needs, with the added benefit of user friendly Apps,
transparency and pre- defined TAT

L Under Transaction banking, ICICI Bank offers the following services

General Banking
> ICICI Bank meets all the general banking needs, from Roaming Current
account to Escrow services to Fixed deposits

Globa! Trade Services

> As more and more Indian businesses are going global, the need for banking
services at the global level is also increasing.

Cash Management
Services
> ICICI Bank ' s Cash Management Services ( CMS) are designed to enable
seamless flow of payments and collections

Corporate Internet
banking
> ICICI Bank ' s Corporate Internet Banking ( CIBJ is a one stop shop for all your
online banking needs. K
 vricta MANIPAL
m pr War A
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General Banking- TRCA

Trade Roaming Current Account:

A tailor made account for the exporters &
importers, which offers unique proposition
in the Market:

> Discounted Pricing for trade transactions

> Fx oniine & oncalJ offerings
> Zero Balance Accounts, the commitment
is for the Quarterly Thru Put
> Dedicated key account manager for Gold
and Platinum variants
> Free Doorstep Banking
-
jfi
i v i i si i i

H i M i.P i i t i n n f I F n i- r P M P t y
 f
^
/C/C/ MANIPA L
FPI «IHIIEIY Hnfiinm nf
I i< ny

General Banking- TRCA

Collections:
> Receive payments, at par from all ICICI Bank
locations
> Faster clearing of cheques
> Free between RBI Location
> Upcountry cheque collection
> Deposit Cash through any branch
> FT from any Bank to ICICI Bank ( Metros) ANIPAL
V! /non UP i ^ nnunu
 MANIPAL
EapHtPKlItHB rai irarninG

Trade Service Offerings

* Free Advisory Services

* Inward & Outward Inward Remittances (IRM )
Remittances
* For various trade
* Export & Import Bill
transactions, like import Outward Remittances ( ORM):
Collection
and export, the funds are For various trade
* LC / Bank Guarantees *

Fx - Online & On call transferred from one transactions other than

*
Bullion Consignment Based country to another country import the funds are
*
Deals * The incoming funds for transferred from one
* Gold Forward trade transactions are country to another country
* Gold Loan handled at GTSU

Foreign Inward and outward remittances are •jarJPTF

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- i.iiSMtlMtiy
UUU
n- l i iinimMiyi

subject to regulations under FEMA

Trade Services

The bank also provides online and digital services, through Trade
Online and FX -Online, by which the customer can access and transact
while roaming, on the move and from his place of comfort. It also
includes e-LC, e-BG, e - DOCS, e-SOFTEX, i DOCS, i-FIRS, i-BoE and e-WAY
BILL.

i-

/ fMANIPAL
Lapwijhi * IcM* f* f« y
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 MANIPAL
E- hpvMirfiriy MGrfijAnn «1 Lc -iniing

FX Online: Trading @ Convenience

FX - On- Call : Transaction Services

Call Center GTSU

R #|p bddkrd
and deal
Deal processed
number
V accordingly
Initintly
conveyed

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 ^ /C/CIMANI PAL
•. . .
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Section 50 J

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Section50 J
 ICICI MANIPAL1
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Trade Products and Services

Documents in Trade

t “# MANIPAL
^ •pMtiiltnu Murt/ ann nf I swinuiy

Section50 J

rSJ^
Section50 J
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^ Rinku [
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 &ICICI MANIPA L J j V
EnfuiprUnHEJ Nnri/nni n L r nniangj
*

Learning Objectives

At the end of this topic, you will be

able

To know the various documents

in Trade
To understand the importance of
each document

t r M |. i k i i f c M i r i i j r n n i ~ i i n T a UFalhmj
 W ^/C/C/ MAN
.
IPAL
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Introduction to Trade Documents

Mr. Anil, MD of Hide Designs, manufacturers of leather goods visits your branch
and seeks your advice on export business. He is particularly concerned that he
does not know the overseas buyer and wants to protect his interest. He is keen to
know how to ensure the payment and how would just the documents take care of
the Trade without looking at the goods

h
You explain to him that in export business, documents play vital role because he
may have to fully rely on the same to mitigate his risks. Also, the requirements of
the Regulators require specific documents.

W MANIPAL
J JE M . J5

Hon/eiw or I cun ninQ

 Documents in Trade Finance

fiICICI Bank .
Regulatory Documents
Financial Document*
Payment Instruction's EDF/ Shipping Bill

Commercial Oocumants FEMA Declaration

-
Contract Agrr- tf innlit

Dispatch of Cargo

Payments

Seller

Insurance Documents Transport Documents

Proof of Dispatch

Shipper

The information flow in trade finance happens # MANIPAL

through documents E- * FJIIIIIIMIU
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* **.
liiliiliiiy
 Documents in Trade
Broadly documents in trade can be classified into FIVE categories

Commercial Documents Financial Documents

Establish The terms of
Contract between buyer
and seller
Insurance Documents
Enable settlement of
Mitigate risk
funds

Regulatory Documents
Transport Documents
Comply with
Enable movement of
requirement of
goods
regulators
*
Various Types of Trade Documents
^
/c/c# MANIPAL
.
k |!
_ 114 I 1 nyi Hfin / nn ^ o* L r- nrnmg

Each type of document has an important role to play in Trade

Some establish the contract

Some help in payment settlement K

Some documents mitigate the transit risk of goods

Some documents ensure movement of goods
Some are required as per Regulators stipulation
 mr ICICI MANIPAL
-
t - 4 pJinf ling Hciruoni ei u . imihy

Commercial Documents
Purpose
These documents mainly deal with the terms and conditions agreed upon by the
buyer and seller. To protect the interest of all parties, all terms agreed upon
should be dearly put in writing and the terms should be understood by all the
parties in the same sense .

• Seller should specify Payment Terms

* Document to give clear description of Quantity of Goods, Value

& Delivery Terms IPAL
 4# # 4T
MANIPAL
« iPffi V ¥ m 4 & a n & f m m
t upaoding Hcifiran e f Lidtrniog
* *

List of Commercial Documents

• Purchase Order. Buyer's request for purchase of specified goods

• Pro-forma Invoice: A form of a quotation by the seller to a potential buyer
• Commercial Invoice: Seller's Bill of Merchandise
• Certificate of Analysis; Indicates the inner composition, quality and intricate
nature of the goods broadly described in the invoice
• Weight Certificate : Certifying weight of goods
• Inspection Certificate: Document certifying inspection of the goods {prior to
shipment) issued by agency specified by importer
• Packing List: Shows the nature and number of goods etc. put in each packet /
container
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MANIPAL
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 &taaMANIPAL
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Financial documents

# # MANIPAL
H f t r i/O i l f t O l I i i i i r i H i 'i y
Financial Documents...continued
Bill of Exchange

A "Bill of Exchange 1' is an

Instrument in writing,
-containing an unconditional order,
- signed by the makerfseller),
•directing a certain person to pay

- a certain sum of money only

-to, or to the order of a certain
person
-or to the bearer of the instrument.

MANIPAL WTSt
Hori/ ona nr I
 MANIPAL
HfltIJrtilh 4)1 luffrning

Financial Documents: Example

DEMAND BILL QF EXCHANGE

- Rs. 1 ,20.300.00 DATED

20/07/05

On demand , pay to State Bank Of India,

New Delhi, A Sum Of Rs. One Lakh Twenty Thousand
Three Hundred Only
for value received.

TO :
For Bansal Traders
WS Raman Enterprises
2056 , M .G. Road. Sd/- ( Alok Bansal)
Bangalore Partner
I Drawee } Buyer f Dnw*r } Stflr
t v 1/ % i M i l
pm
Insurance Documents

Any trade involves risk of the goods being damaged

/ INSURANCE CERTIFICATE
lost etc *, even if all the parties take necessary care to
protect them. Adequate and right kind of insurance for
Also known as Insurance Policy, il certifies Lhai gowk transported
the goods under trade therefore is essential, have been insured under an open policy and is not actionable w ith
• To provide coverage for loss/ damage of goods little details about the risk covered,
or other risks
* To cover the Bank's exposure Ji is necessary that the date on which the insurance becomes
• Covering the Shipment Period effective is same or earlier than the date of issuance of ihe
transport documents.
* Covering full value

Also, if submitted under a LC, the insured amoum must be in the

Insurance documents mainly comprise of U same currency as the credit and usually for (he bill amouni plus 10
• Insurance Policy per cent.
• Cover Note
• Insurance Certificate w
 MANIPAL
^ponding Nonmni at Liwnirifl
Transport Documents
These documents carry title to goods. The transport agency act as Agents in taking possession
of
the goods from the Seller and releasing the same to the buyer as per specific
instructions of the
Seller.

* A means for collecting goods at destination

* Ensures safe delivery of goods

• Ensures that contract terms and conditions match with the details in
L
Shipping Documents

• Allows only authorized persons to collect goods V\ L_

 MANIPAL
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List of Transport Documents

n »
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STRAIGHT Bill Of LADWG NRRARi t 56 T3
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Airway Bills Wvpplr , kv *
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10 Bales Cardboard
Road, Rail or inland Waterway Transport
* Courier and Post Receipts
+

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Regulatory Documents

Purpose
These documents are the requirements of the regulators who monitor and
oversee the Trade transactions. They help the regulators to ensure that regulations
and compliance are in place right from the time of parties entering into contract to
settlement.
• Provide authorization to the party to trade in the specified goods- ]
Licenses
• Ensures accountability of goods exported / imported from the
country through legitimate transactions- Movement of goods

• Ensure accountability of Foreign Exchange given / received for

Imports / Exports- Movement of Funds NIPAL .
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 ^9 *iaa MANIPAL
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List of Regulatory Documents

* EDF-Export declaration Form / Softex Form: Is a declaration by exporter ensuring that
money earned through exports is coming into the country

* EDI Form - Electronic Data interchange- Used where custom's operations are
computerised*

* Bill of Entry: Proof of goods imported in India to ensure that if forex is remitted, the goods
have come to India in lieu of that
* A2 Form: All the payments made out of the country for purpose
other than imparts
should be supported by A 2 Form
* Export/Import License: Certification by export licensing authority allowing the export of
goods L

* Certificate of Origin: Shows the country of origin of the goods

MAINIIPAL
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Check your understanding
^
- ICICI MANIPAL
-
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Question:

List out the various Trade documents required for International Trade

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MANIPAL
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 *^/C/C# MAN f PAL f - I UII iciiri
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Summary

Here is a recap of what you learnt:

We discussed the various documents in Trade

We also understood the importance of each document viz.,
Commercial documents
Transport Documents
Financial Documents
Insurance Documents L-
Regulatory Documents
MAN IPAL
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 ICICI MANIPAL

Trade Products and Services

Inward/Outward Remittance

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MTT
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MANIPAL
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 MANIPAL
E painelnng HriBi /ipim, mP Learning

Learning Objectives

At the end of this topic, you will be

able to

• Understand Inward and Outward

remittance services.
• Explain Nostro and Vostro
accounts.

t.Mpanning n<»r «. / « >rnr or .

i.n inung
 WriCICIXsA ANIRAL
• ^
I -
n iinriing Hnn.’nni of L » unniFuy

Inward and Outward Remittances

Can you identify the difference
between the following 2
transactions?

.
1 M/s Dhirajmal Enterprises
receives USD 25,000 in the
firm's name from a buyer
abroad
2. Mr. Dhirajmal Shah sent GBP
5000 to his son who is in UK
and taking care of the family
business there
 MANIPAL
. .
>- -a 11 , ! Minify HMIVAII -I Al k i' i r n n Q

Nature of Forex Transactions

INWARD & OUTWARD

REMITTANCES

NON-TRADE TRANSACTIONS
TRADE TRANSACTIONS
( RETAIL)

M MANIPAL
F RiajuMiCiKiy Hli+ r |ijrrtn ib lit I a \ a itnij
 Inward and outward Remittance 7TT
Remittance
(Both Trade and Non trade)

Inward Remittance Outward Remittance

rd rd- Import Payments( Direct, collection & LC)

- Export proceeds ( Direct, Collection & LC) - Advance Payments for Imports

- Advance payment from Importers abroad -Medical Expenses

- Remittances from NRI for Family maintenance - Education Expenses
- Gifts & Donations - Investments
- Remittances for Investments in India - Leisure travel
- Repatriation of Balances in NR Accounts
WA

# IV1/\wiqryN11PAL
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 ,4- *
MANIPAL
-
i ppwrHlUin ilu i / orn a l I ii- nmarifj

Inward Remittances IRM

The funds which flow into the country are Inward
remittances E Sciarv
** ^nr tor
* The funds are remitted either to fulfil an obligation or t
create an obligation

For Trade transactions like exports, funds are received by

4
*
the exporter inward remittances- Fulfilling an obligation 1 Request for
Anojnt Credited to Hmftirrci
customer AC
purpose of ramrttirce
Exporters could also receive funds towards Advance

V
*
amount for exports - Creating an obligation
DOB
**
-
FI(“ itrig

* Inward remittance can also be a retail transaction where a V

bnk
3m»
resident Indian could get Gift, Donation, Investments or
NR 1 Remittances Inslf-jctiaii a
'

Trindrimoufti
Inward Remittance- Process
ICICI Bank's wire transfer instructions is one of the easiest methods of receiving money
to your current/business account in India.
Select the currency in which the
remittance is intended to be received
^ /C/CI MANIPAL
fejip-nririing Horixnni. -ni ijparmng
\
Fill in the 15 digit current account
number and brief details of Advise your overseas partner to send
remittance and forward the wire instructions to their Bank with " OUR'
in their charges column when they
transfer instructions to your overseas
business partner in getting the send the wire transfer.
remittance
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F laniirln iy Hnfiimil .
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 MANIPAL

J P MORGAN CHASE BANK,

To: Bank Name
SYDNEY

Field 56 Swift Code : CHASAU2 XXXX

( Intermediary bank )

For credit to: Account Number : 10039347

ICICI BANK SWIFT CODE : ICICINBBCTS

Field 57 Beneficiary Bank : ICICI Bank Ltd., Mumbai ( India )

Additional details required for crediting a Current Account:

Ultimate beneficiary: Account Number * ( Beneficiary ' s 12-digit A/c No .

with ICICI Bank )

( Account
Field 59 Account Name
holder's name )

: ( Please
Field 70 Brief Purpose provide purpose of remittance
in brief )

Field 71A OUR : Preferred as "OUR :

 MANIPAL
ta|MM !ng Hwimrtfi Of |.fr »mijiiu
^

Outward Remittances ORM

The funds which flow out of the country are

Outward Remittances Money2World
The funds are remitted to meet the Trade Send Money online from any bank in
transactions tike Imports India to any bank around the globe
-
Funds are remitted for various non import
transactions also, like bank charges, Royalty Q One time registration
payment, Marketing expenses etc., Any bank to any bank transfers m
Funds are also remitted for other retail
purposes like gift, maintenance, investment 0 Completely online IT"
IflE
.
etc.
Form A 2 has to accompany any such outward
[ Moncy2 World \
^
remittance request
# MAM IPAL-
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 * ^
#C#C/ MANIPAL
k-BiMvidi ng Harirnn* of Ltiqmmu

Outward Remittance- For other than Imports

Regulations: FEMA
RBI guidelines regarding "outward remittances for transactions other than imports" are covered under RBI
master direction No: RBI/ FED / 2015 -16/4 FED Master Direction No. 8/ 2015 - 16 January 1, 2016 ( Updated as on
November 6, 2018 }
As per RBI regulations Resident Individuals can avail of foreign exchange facility for specified purposes within
the limit of USD 2, 50,000 per financial year ( LRS }. Any additional remittance in excess of the said limit for the
specified purposes shall require prior approval of the Reserve Bank of India .
master direction contains lists of ( a ) prohibited transactions, (b) transactions requiring prior
approval of
The
Central Govt and (c ) transactions permitted within the limit of USD 2,50,000 pa

/
Form A 2 - FEMA Declaration is a mandatory document for all such
remittances

# MANIPAL
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 ICICI MANIPAL »r Fm r M m m* i m m
I H|Hsnriini|
{ Hfirifpwii
' nr! 1itamijjy
1

USP of ICICI Bank Remittances products

Benefit from ICICI Bank's massive network stretched across nations to

facilitate quick remittances in multiple currencies:

Being pioneers in tech-products, ICICI Bank leverages digital mode to the

maximum . While the Exporters and Importers get various credit facilities
from various sources, the simple and easy process available on the digital
platform of the Bank makes it most convenient for the customers.
Remit money through Wire Transfer and Foreign Currency Demand Draft
Remittance facility available through the online channel .
- Facility also available to Non-ICICI Bank account hold

^^ MANIPAL
f H j n i i n c l i i i'iU H m l / L'i d i i i f H I n n r n i i > u
 MANIPAL
P S tm •
-
1 n ^n»ny
* M 1I' umiikg

NOSTRO & VOSTRO ACCOUNTS

The critical success factor in ICICI Bank's remittance facilities iis the vast network
of Nostro & Vostro Accounts we have

The term NOSTRO has emerged from Italian word

which means OUR , So, it is OUR account with a
Foreign Bank
Wostro mA L r
The term VOSTRO means YOUR. So it is an
account held by a foreign bank in a domestic bank
in domestic currency Our money Your Their
money money
When a domestic bank uses a NOSTRO account of
a third party bank to settle Forex transactions, with us
such accounts are called LORO
 ICICI MANIPAL
Trade products and Services

Life Cycle of Exporters and Importers

Section50 J

i
am [ Surabhi [ Rinku [
SJ
L. A
Section50 J
 fr #c#c# MAN fPAL
-
I fMPfcfi»n u (Infilflnl
* * Imirnmu
p

Learning Objectives

At the end of this topic, you will be able to:

• Explain the life cycle of the

Jm porter/Exporter
* Know the needs of an Exporter and an
Importer
Describe the roles of regulators in
various
dealing with exports and imports and
Bank's role between the exporter and the
importer
 f
^
/C/C/ MANIPAL
* m m •im r
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F tf r I*
* -
I l l i n i u m Hnrifoni ol l # i j i|
|- Miy

The Life Cycle

* Apply for IE Code
* Purchase /Sale Agreement
* Importer approaches his bank for an LC
* Importer 's bank issues LC and sends it to Advising bank
* Advising bank ( can also be the exporter's bank) advised the LC to exporter
* Exporter ships the goods
* Submits the documents to his bank
* Exporter 's bank sends the documents to the issuing bank
* Issuing bank scrutinizes the documents and hands it over to the importer
* Importer either pays or accepts to pay for the goods
* Takes the delivery of goods from the transporter
* There is also a channel without issuance of LC- which can be on collection
 C7 ICICI MANIPAL
IjrJipJiri rlittgi Hnn iFon fi of|94pmn0

The Life Cycle- Exporter

Discussion:

Your Current account customer who is a

manufacturer of ready-made garments approaches
you with a SWIFT copy of a document stating that
he got this document by courier from an XYZ bank in
the City. What would be your reaction/advise to
him? ( You are free to state your assumptions on the
transaction)
 Setter ' s Bank ( Advising / Negotiating Bank ]
Buyer 's Bank ( Issuing Bank )
LC Process Flow

Documents
*
*
Sale Contract
Seller

Shipper
 Buyer 's Bank ( Issuing Bank ) Seiler 's Bank ( Advising / Negotiating Bank )
LC Process Flow
S, Issuing Bank pays to Advising Bank

2 Issuing Bank issues LC to Advising Bank

k

*
*
6 * Negotiating bank gives Proof of Shipping to
Issuing Bank

1. Buyer asks his .

7 Bank collects 5 « Seller submits 3. Advising bank
Bank to Issue LC money from Buyer & Proof of Shipping to notifies the Seller
against Sale gives him Proof of Negotiating Bank about the LC
Contract Shipping

Documents

*
Sale Contract
Seller

Buyer
4 Seller send the
.
9 Buyer gives the
Shipping of Goods
<

goods through the

Shipment
(Export) Shipper & collects
Documents to Goods Delivered Proof of Shipping
Shipper & collects
( Import )
the Goods

b
Shipper
 ^ /C/C/IJilMJlfll
-.
MANfPAL
t ’n irMiirig r*r I •rjunmy
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Exporters

Receives the Letter Approaches his Ships the goods

of Credit from his lending bank for Manufactures and the submits the
bank ( Advising Pre - shipment keeps the goods shipping bill and
bank or finance { If ready other documents
Negotiating bank } required } to his banker

Either the
The negotiating
documents are
bank forwards the
documents to the
Issuing bank
<=> negotiated or
sent on
collection
 f? ICICI MANIPAL
Hpandmg HipM /ores -.
n i l i i m m -y

The Life Cycle- Importer

Discussion ;

Your Cash credit customer visited the branch and during the
discussions, he narrates that the major source of raw material for his
manufacturing unit has depleted and also the cost has risen due to
conditions prevailing in that North eastern state. He is planning to
look at alternative sources for the raw material. How would you help
him { You are free to state your assumptions on the transaction )
 ICICI MANIPAL
( -
ruling Hofi / nitfr nt Laurung

Importer's Life Cycle

importer
The exporter
approaches his LC is Transmitted
Importer 's bank ( receives the LC
banker with the to Advising bank
Issuing bank ) and prepares
Purchase or Exporter 's bank
Issues the LC and ships the
agreement & abroad
goods
Prnfnrma Imunire*

Importer The documents are

accepts/ pays for received by
the documents Importer's bank
and gets the good and hands over the
released documents to the
importer
 frtaa MANIPAL
i jimiiinig HQtnoFif & umhg

Banks involved in Import/Export transactions

LC issuing Bank Importer 's Bank

\r

Advising Bank An intermediary, normally in the exporter 's country

\ / .
Another intermediary in exporter 's country if the exporter insists on a
Confirming Bank
confirmation

Negotiating Bank Exporter 's bank

/ ;
Reimbursing
Bank
Nominated in the LC for payment
^ Negotiating bank
 '
f /CIC1 MANI PAL
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'

Role of Banks in Collection mode

The other popular mode of remittance for imports/exports is the Collection mode

This mode of transmitting documents and payment is more often followed when

* The Importer / Exporter are very well known to each other

* They have done transactions earlier with mutual comfort
* They would want to save on all the charges related LC issuance, advising, confirming and
negotiation charges of various banks
* If the importer is a larger entity and commands good reputation in the market
fcr
 9
* ICICI MANIPAL
fH ;pornrtir|iQ Mgri /ons fll|f u m i n g
.

Role of Regulators in Imports/Exports

The Regulators involved in the Imports/ Exports are generally

-
1. DGFT Issues the IE Codes for importers/exporters, Issues license for
restricted commodities
2. RBI- Sets the guidelines for movement of goods as well as remittances
3. FEDAI- Gives the general guidelines for transactions, trains the
personnel handling impex
4. ICC- Frames uniform rules which is accepted globally by all banks on LC
transactions, Collections, Reimbursements etc., ( UCPDC, URC, INCO
TERMS )
 f */C/C# MANIPAL
-
F R 11 ^ hi Hr u'iai i JIT I i i r i i m y

Summary

Here is a recap of what you learnt:

* We explained the life cycle of the Importer /Exporter

* Needs of an Exporter and an Importer
* Described the roles of various regulators in dealing
with exports and imports and Bank's role between
the exporter and the importer
 '# • # IVIAMIR/XL
m
Expanding Horizons of Learning

Regulators of Trade
Module 2

Section 50 J

rSJ
Surabhi [ Rinku [
L
^ ^ Section 50 J
Learning Objectives

• . .
Identify the various Agencies as also the Govt Depts involved in the
Regulatory aspects of trade finance.

• Understand the basic functions of these Regulatory bodies

 ftiGid MANIPAL
Three Dimensions of Trade ai I vncsi

t
Country is
Movement •The movement of goods both into and out of rce and Industry,
of regulated by DGFT, under Ministry of Comme
Goods Government of India .
w
A

Movement •Movem ent of docum ents are through Banks , acting as an

of intermediary, following the various regulations of FEDAI and UCP
Documents in this regard.
w
i
funds into the country as well from the
•The moveme nt of
regulated
Movement
country, in settlement of international transactions is
of Funds
by Foreign Exchange Management Act (FEMA )
5
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7TT Academy of BFSI
Regulatory Bodies

Regulatory
Bodies

* >

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-
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FEDAI
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viLbi iri orotm ud laduiln

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Pirttf 4 r*tc *f Fareltn 1M>
1. Director General of Foreign trade( DGFT)
The DGFT Operates under the Ministry of Commerce and Industry.

Headed by Director General of Foreign Trade.

Control Dhysical movement of goods from and into India by formulating suitable policies
^
and regulations

Responsible for formulating Foreign Trade Policy ( FTP)

Issues Importer Exporter Code ( IEC) to importers and exporters

Documents and maintains ITC- HS ( Indian Trade Classification

based on Harmonized System
of Coding) codes allotted by World customs council based in Brussels
Director General of Foreign Trade ( DGFT) ..continued
It Is a Platform for updating e- BRC( Efectronic Bank Realization Certificate ) Issued by Banks
to the customers

Informs about Goods which can or cannot be exported freely & issues license for restrictei
items

Promotes Trade as a facilitator

Issues Notifications, Public notices, Circulars, etc

DGFT introduces different schemes from time to time regarding trade benefits throughout
the countr

DGFT also provides Negative and non - negative lists.

 k
ooveTimen: aims to increase Ind as Describes the rr ^ket anc product
exports to a pproxtmetely USD 9CIC bil ion strategy envisaged
by 2015 23 and to raise Incia s share in
world export from 2 percent t
percent. I
FTP

The v sion is tc rr 3 <e I ^ dia a significant

Envisages measures required not just for
export p 'omo:ion but a s*o for the
enhancement of the ent re trade
ecosystem .
part cipant in wor d craac by the year
2020 and to enafc e the country tc 3isu ne
position of leadership in the
^
international t ^aee discourse
An association of banks Set up in the year 1958, it
dealing in Foreign is incorporated under it is a self-regulatory
Exchange in India Section 25 of The body.
Companies Act, 1956.

Its members are Public

n
Sector Banks, Private
Banks dealing in FOREX
Sector Banks, Foreign
are typically called
Banks, Co-operative
Authorised Dealers( AD)
Banks, and Financial
institutions etc.
Objectives of FEDAI * •»

Frames rules governing Liaison with the Reserve

Bank of India ( RBI) for Promoting better
the conduct of inter - customer service among
bank foreign exchange reforms and
development of the Foreign exchange
business among banks dealers in India
forex market

Establishing and Since April 2014, the

maintaining efficient FEDAI is the nodal
market practices in India agency selected by the
in the field of Foreign RBI to administer foreign
Exchange exchange benchmarks.
Functions of FEDAI i t «

Providing guidelines and

rules for forex business

Representing member banks Training of bank personnel in

in Government or RBI and the areas of foreign
other bodies exchange business

Announcement of daily and

Accreditation of forex
periodical '" Exchange Rates"
brokers
\ to member banks 9 I
Advising or assisting member k
banks in settling issues in
their dealings
Importance of FEDAI i ••
FEDAI plays a catalytic role for smooth
functioning of the markets through
closer co-ordination with the RBI,
other organizations like FIMMDA (The
Fixed Income Money Market and
Derivatives Association of India ), the
Forex Association of India and various
market participants.
FEDAI also maximizes the benefits
derived from synergies of member
banks through innovation in areas like
new customized products, bench
marking against international
standards on accounting, market
practices, risk management systems,
etc.
*
3. Reserve Bank of India

RBI HQ IN MUMBAI
• Lays down rules for release of exchange towards international
trade transaction and monitors end use through the Authorized
Dealers

* Issues guidelines in respect of Imports, Exports, Remittances,

Rupee/ FC loans, ECB's, FDI's, Foreign Collaborations, and the
related matters

• Administers the FEMA 1999

L>
 4 . International Chamber of Commerce

The international
The objective is to secretariat develops
strengthen and carries out the ICC
commercial ties work programme and
Founded inl 919 with There are about 6.5
among nations not remains In close
international million companies in the
only for good business contact with the
secretariat at Paris ICC network.
but for good living extensive ICC network
standards and for of members and
peace. regional offices in 130 W
countries.
k
4. International Chamber of Commerce.... continued

Some of the standardised procedures developed by ICC

and followed by member countries in international trade .
Uniform
customs and
International Uniform Rules
Uniform Rules Standard for
practice for Uniform Rules for demand
for Bank to Bank Banking JNCOTERMS
Documentary for Collection Guarantees
Reimbursement Practices
2020
credits. ( URC 522 )
( URR 725 ) ( URDG )
(I5BP )
( UCP 600)
*
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FEMA GUIDELINES ON IMPORT

AND EXPORTS

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Learning Objectives ^
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After the connpletion of this unit , you will be able to:

To understand the FEMA general guidelines relating
to exports of goods and realization of sale
proceeds! foreign exchange )
To Understand the FEMA general guidelines relating
to Imports of goods and payments ( foreign
exchange ) *
To understand the guide lines on advance payments-
under export and import
 &tCiCt MANlPAL
Introduction - ^ hiluiPInm
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Major share of India ' s FOREX reserve is generated though Export proceeds
An exporter from India , sends goods / services from India and gets proceeds realized -

whether from abroad in Foreign currency or from local source in Rupees.

However, for India as a country, for any export , realizing the proceeds through inflow of
Foreign exchange into India becomes important.
p
Hence , RBI, the regulator for Foreign exchange monitors every export transaction to ensure
the proceeds from abroad flows into India .

RBI issues directions under Foreign exchange management (Current account transactions) Rules 2000,
notified by Government of India, to authorized dealers. These directions lay down the modalities as to
how the foreign exchange business has to be conducted by the Authorized Persons with their customers/
constituents. The Regulations amended from time to time incorporate the changes in the regulatory
framework.
Both exporters and importers receive and make payment of foreign exchange only through Banks
(authorized dealers).

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RBI is empowered to administer FEMA regulations. On behalf of RBI authorized

persons are carrying out foreign exchange transactions in India.

1.1 Who are Authorized Persons ?

Authorized Dealers /Money Changers / off-shore Banking Units / Any other Person for
the time being authorized under sub sec 1 of sec 10 to deal in Foreign Exchange or
Foreign Securities.

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RBI - FEMA(current account Transactions) Rules 2000 - #5ttact M AN iPAL
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2.1 Regulations on Imports:

* IEC code and PAN number mandatory for importer and exporter.
* Understand the General guidelines relating to Imports
* Recognize the Time limit for import settlements
* Comprehend the guidelines on Interest payment on Import Bills
* Analyze the different ways of Receipt of Import documents

2- 2 General Gurdefmes :
* KYC norms.
* If the goods, under negative list, license from DGFT ( Exchange control purpose copy ) required.
* Normal banking procedures, UCPDC ( in case of letters of credit), to be followed

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2.3 Time limit for Import settlement

* Normally, not later than 6 months from date of shipment
* Delay due to disputes, financial difficulties etc., { inclusive of interest for the delayed period, Usance
period interest ) - up to a period up to 3 years from the date of shipment.
* Import of Books - No time limit ( provided payment of interest if any, does not exceed the rate
prescribed for trade credit)
2.4 Receipt of Import Documents.
* Importers bank receives the document on behalf of the importer from supplier’s bank
2.5 Exceptions! Direct receipt of documents by the importer instead through banks)
* Where Bill value does not exceed USD 300,000 .
* Bill received by wholly owned Indian subsidiary of foreign company from their principals.
* Bill received by status holder exporters /100% EOU/unitt in SEZ/Public sector undertakings .
* Bill received by all limited companies (private/public/deemed).

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2.6 Advance remittance for Import of goods

No ceiling on the amount of remittance of Advance. Payment for imports subject
to:
• If the amount of remittance exceeds USD 200,000/- or its equivalent, LC/GTE
from an International bank outside India is to be obtained.
• If the importer (other than PSU/Gov.Dept, UT) is unable to obtain LC/GTE,
A.D.bank at their own discretion allow advance payment up to USD 5 million or
its equivalent. However individual bank boards to formulate their own policies.
.
• A PSU or Govt Dept/GOI State Govt UT which is not in a position to obtain
LC /GTE should obtain waiver from Ministry of Finance if the amount exceeds
USD 100,000/- or its equivalent.

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2.7 Advance remittance for Import of Services:

• No ceiling on the amount of Advance remittance.
• If amount exceeds USD 500 , 000/- or its equivalent LC/GTE from an International bank outside India is to be
obtained.
A PSU or Govt Dept/GOI,State Govt UT should obtain waiver for LC /GTE from Ministry of Finance if the amount
exceeds USD 100, 000/ - or its equivalent.
• A.D. should follow up for compliance
2.8 Evidence of Import
• Importers have to file with customs authorities “ Bill of Entry “in electronic form giving full details of import including
the bank details.
• Customs will verify the same along with the physical goods, determine the duty if any payable and allow the
goods to be released to the importers duly certifying the bill of entry.
• This document is the evidence of import of goods into India.
• The details of BE will be uploaded in the IDPMS package.

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RBI - FEMA (current account Transactions ) Rules 2000 & ctct MANIPAL
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2.9 Non-physical Imports

* Where imports are made in non-physical form, i,e. software or data through internet / dot.com
(

channels and drawings and designs through e-mail / fax , a certificate from a Chartered Accountant
that the software / data / drawing/ design has been received by the importer, may be obtained.
2.10 Follow-up for Import Evidence
* AD banks have to follow up with the importer for submission of BE within 3 months from the date
of remittance.
* Wherever the same is not submitted within the stipulated time , ADs have to follow up the same
with the importer until the submission of the same irrespective of the amount of the remittance.
* Details of the importers, who have not submitted evidence of import -BE- within six months from
the date of remittance, generated by the AD from the IDPMS package and follow it up.
Physical submission of BEF statements has dispensed v ith effect from January 2018.
*
^

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2.11 Acknowledgement - Evidence of Import

• AD Category - I bank shall in all cases issue an acknowledgement slip to the importer containing the
following particulars:
• importer's full name and address with code number
• number and date of BoE and the amount of import

Introduction on Import Data processing and Monitoring system( IDPMS )

Operational from October 10 , 2016. Following are to be reported in IDPMS
* Outward remittances ( ORM) for imports
* Historical ORM where proof of documents pending
* Settlement of ORM with BOE
*Manual BOE reporting
* Extension and Write off
Why IDPMS?
* Copies of same BOE are used for multiple remittances
* Huge advance remittances both inward and outward without evidence
* No coordinated monitoring mechanism

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lDPMS- Process Flow

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Step 1 Step 2 Step 3
Customer Cofnmufitothm
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Import Write off

ORM Closure
System 3 RBI IDPMS Reports
rs AD Transfer
* B « ll of entry at mvo ce level Outstanding bill of Entry
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• BOE extensfon / wntlen of #
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One time all outward remittance to be repotted for the extent BOE outstanding as on October ID,2016
RBI - Regulations on Exports —
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Basic Principle
- Goods must go out of India
• Foreign exchange must come into India .

4.1 Time norms for processing export credit proposals.

* Timely and adequate credit.
* Compensation for delayed credit of export proceeds .
* Sanction of fresh / enhanced credit limits - 45 days (25 *)
* Renewal of limits - 30 days(15* )
* Sanction of Ad-hoc limits - 15 days(7 * )
* Rejection of Export proposals - to be informed to Bank s chief Executive .
’
-
* Outstanding Export credit 12% of ANBC
* Gold card scheme for Exporter
(Note: Time lines in Bracket with * is days for Gold Card Holders)
4.2 Export Declaration Form- Physical exports EOF and ?3oft- ware exports -SOFT X.
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4.3 Introduction on Export Data Processing Monitoring system { EDPMS )

* Operational from March 01, 2014. Realization of all export transaction
for shipping documents after February 28
2014 should be reported in EDPMS , Following modules are introduced
* Lodgment of bills
* Realization of bills
* Benefits are
* Effective compliance
* Easier tracking of export transactions
* An alternative to filing paper based returns
4.4 Process enhancements
- With effect from June 15, 2016, following processes are simplified and filing returns are routed in a single platform
of EDPMS for easy monitoring
o Handling of shipping bills for caution listed exporters
o Delayed utilization of advances received for exports &
o Exports outstanding with EDPMS b
* Automation of Caution/De-caution listing of exporters
4
P0103 quarterly reporting was stopped
4
XOS half yearly reporting was stopped

*
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4.5 Process involved at AD Banks

* Mapped Shipping Bill from RBI to EDIS ( Export Data Interface System)
• Other Bank FIRC from RBI to EDIS
- Lodgment reporting (AD Acknowledgment )

4.6 Inward remittance reporting

* Advance against exports (P0103 )
* Partial realization
* Complete realization (Closure of bills)

4.7 AD Transfer
* Exporter files EDF (Export declaration form) and Shipping Bill ( SB ) online with the customs.
Customs based on the same will verify the merchandise, value, quantity etc and determine whether
the goods permitted to export as per FTP. Post this they will assign their reference number on the
Shipping Bill Exporter will then resubmit the Shipping Bill with the goods to the customs.

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4.7 AD Transfer...Continued
* Custom official may conduct physical verification of goods depending upon their choice and clear
the goods for export if found to be eligible as per rules and regulations.
* Then Customs will allow the goods to be loaded on the carrier, which is known as " let out for export "
and the same updated in SB along with their authorization,
- After this, the data shared with RBI's cloud based package -EDPMS- that will enable RBI to know the
details of goods exported from India.
* Exporter will submit all commercial documents within 21 days of shipment to an AD along with SDF
and a copy of SB/SB reference number
* On confirming the SB from EDPMS, AD will lodge the document and update the data in EDPMS.
* RBI will access the data and get a confirmation of submission of documents by the exporters to an AD
as per FEMA regulations.
* When the bill is realized, AD will update the same in the EDPMS package, the whole fife cycle of an
export bill is completed, and RBI will have the confirmation through the same database.

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RBI Regulations on Exports ^ /C/C/ MANIPAL
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Realization and Repatriation of Export Proceeds - Time Limits

• Units in SEZ’s - within 9 months from the date of shipment

• Status Holder Exporters - within 9 months from the date of shipment
• 100%EOU 's / EHTP / STP / BTP - within 9 months from the date of
shipment
• Exports to Warehouse outside India - within 15 months from the date of
shipment or the date of realization whichever is earlier
• All other Cases - within 9 Months from the date of shipment

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Foreign currency Bank Draft, Pay International Out of NRE /FCNR
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Export Claim
AD Bank authorized to remit provided
• Export Bill is realized and repatriated to India .
- Exporter not in RBI ' s caution list.
• Exporter to surrender proportionate incentive received if any.

Export realization - Write off by A D- 1 Bank

• Outstanding for one year or more .

• Aggregate write off for the Exporter permitted by the Bank during a Financial Year not
export realizations through the same Bank during the previous financial year.
to exceed 10% of the

• Efforts made by the Exporter satisfactory evidence availed any

- .

• Exporter has surrendered proportionate export incentives tf .

• Case is not subject matter of any pending civil or criminal suit.

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Change of Buyer or Consignee

* Prior approval of RBI, not required .
- Reduction of invoice value if any, not to exceed 25%
Realization of Export proceeds not to exceed 12 months from date of Export

Advance payment towards Exports

Shipment of goods to be made within one year
Interest if any not to exceed LIBOR + 100 bps
Documents to be routed through the same Bank which received the advance payment remittance
If Export does not take place in 1 year — RBI Permission required
Export agreement provides shipment over 12 month period - RBI permission required
Refund of advance remittance - first out of EEFC A/c, rest from market

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Change of Buyer or Consignee

* Prior approval of RBI, not required.
Reduction of invoice value if any, not to exceed 25%
* Realization of Export proceeds not to exceed 12 months from date of Export

Advance payment towards Exports

• Shipment of goods to be made within one year
• Interest if any not to exceed LIBOR + 100 bps

* Documents to be routed through the same Bank which received the advance payment remittance
* If Export does not take place in 1 year - RBI Permission required
* Export agreement provides shipment over 12 month period - RBI permission required
• Refund of advance remittance - first out of EEFC A/c, rest from market

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 7TT

DGFT-FEDAI-ICC

I
*
Learning Objectives
At the end of this module, you will be able to know
• Role of DGFT in promoting Foreign trade
• Important features of Foreign Trade Policy
• List the various initiatives taken by the Govt, for ensuring Export Growth
• Understand the Genera) provisions relating to Imports / Export
• Comprehend the Principles of Restriction
• Recognize FEDAI Rules governing Business Hours.
• Identify the Exchange Rates applicable to Export Bills ,
• Learn how to recover dishonored Export Bill .
• Analyze Normal Transit Period,
• Role of ECGC in foreign trade
 >
Foreign Trade Policy: 2015 - 2020 - Legal Frame Work

Effective Date 1st April 2015

Valid till 31st March 2020(Extended to 30.09.2021)

Authorization is issued prior to issue of Valid

the policy
Export/import done as per previous Permitted
policy but currently under restriction
 %
71
2015-2020 * Role of DGFT
Foreign Trade Policy;
^
• Trade facilitation is a priority of the Government for cutting down the transaction cost and time,
thereby rendering Indian exports more competitive

- DGFT has a commitment to function as a facilitator of exports and imports

* Niryat Bandhu - Hand Holding Scheme for new export / import entrepreneurs for mentoring new
and potential exporter on the intricacies of foreign trade through counselling, training and
outreach programmes.

* Further, in order to ensure optimum utilization of resources, efforts would be made to associate
all the stake holders, including Customs, ECGC, Banks and concerned Ministries,

• Special Focus initiative - to increase percentage share in Global Trade and expanding
employment

*
 >
Foreign Trade Policy: 2015- 2020- General Provosions

Exports and Imports shall be A

Goods
'FREE1 except when Regulated
by way of &
Services
1. 'prohibition', l
2. 'restriction'
3. or 'exclusive trading
Negative List Non-
through State Trading negative List
Enterprises ( STEs )' as laid
down in Indian Trade
Classification
Traded
Prohibited
Restricted Canalized without
Restriction
 Foreign Trade Policy; ?0 \ !i- 7070 - General Provaslons
> ITT

Exports and Imports shall be Goods

' FREE * except when Regulated
&
by way of
t Services
1, 'prohibition', I
2 , 'restriction'
3 , or 'exclusive trading Non-
through State Trading Negative List
negative Ust
Enterprises ( STEsf as laid 1
down In Indian Trade f
Classification m

Traded
Prohibited Restricted Canalized without
Restriction
*
Foreign Trade Policy: 2015 -2020- Harmonized System ( ITC HS) Codes
For Exports and Imports
^
ITC ( HS ) code means Indian Trade Clarification based on Harmonized System of coding adopted in
India for import-export operations

ITC (HS ) is a compilation of codes for alf merchandise / goods for export / import.

ITC ( HS ) is aligned at 6 digit level with international Harmonized System of goods nomenclature,
maintained by World Customs Organization, Brussels

However, India maintains national Harmonized System of goods at S digit level

The first two digits (HS-2 ) identify the chapter the goods are classified in,
e .g. 09 = Coffee, Tea , and Spices The next two digits (HS-4 ) identify
,

groupings within that chapter, e .g. 09.02 = Tea . The next two digits (H5-
6 ) are even more specific, e.g. 09,02.10 Green tea (not fermented ) . .
 Foreign Trade Policy: 201B - 2020 - Principle of Restriction
>

Protection of Protection of
Protection of patents, trademarks national treasures
Protection of public of artistic, historic
human, animal or and copyrights and
morals *
plant life or health. the prevention of or archaeological
deceptive practices, value

Protection of trade
Prevention of traffic
Conservation of of fissionable
in arms,
exhaustible natural material or material ammunition and
resources, from which tYiey are implements of war
derived; and
Foreign Trade Policy: 2015- 2020“ Regulations Relating to Imports
^
General:
• Import Export Code number ( IEC) is required , IEC is now PAN Number of
importer /exporter which is a 10 digit alpha numeric

• In case of import of Restricted Goods mentioned under Schedule 1 of ITC ( HS )

classification, prior authorization required

• Terms and conditions of License / certificate permission / Authorization/ Actual

user
condition APPLY and need to complied with if import requires Authorization
 >
Foreign Trade Policy: 2015-2020~ Regulations Relating to Imports

Item under import Import Allowed or not

I
Second Hand Capital Goods Yes. { except computers, Laptops, Photocopier machines, Air conditioners,
Diesel Generating sets which requires License )
Import of samples Rs .l00,000Aallowed without duty & Rs, 300,000/ in case of gems and
jewellery Sector
Import of Gift yes ,if freely importable item, or else, requires import authorization

Passenger Baggage As per Baggage Rules

Import on Export basis without Authorization , or LUT / BG
Re import of goods repaired abroad needs no authorization
Ur
1

Import of goods used in - projects abroad
Sale on High Seas
Import under lease financing
Clearance of goods by customs
Execution of BG/ LUT
needs no authorization, subject to 1 year 's use .
As per Foreign Trade Policy
needs no permission of RA
Authorization issued subsequently
Duty Free imports
 Foreign Trade Policy: 20152020 -^ Regulations Relating to Exports
Items under Export Export allowed or not

Export of Gifts Up to value not exceeding Rs.500,000/- ( other than restricted goods)

Third party Exports Allowed

Export of Imported goods
Export of replacement goods
Export of repaired goods
Allowed if other than restricted.
Restricted goods imported under customs bond also allowed
Allowed if they are other than restricted items
Exported goods if found defective allowed for Import for repair and
re- export without authorization

Denomination of Export Contracts - All Export contracts and Invoices shall be denominated in freely
^
convertible currencies or in Indian Rupees. However export proceeds should be realized in freely convertible
currency except for Export to Jran
 Foreign Trade Policy: 2015 -2020- Status Holder Exporters- Norms
>

Status holders are business leaders who have excelled in Status Holder Limits
i international trade and have successfully contributed to Export House Export Performance in
'
country's foreign trade Category USD million

One Star
Two star
1 Applicant shall be categorized depending on his total FOB,
i
j (FOR - for deemed exports) export performance during Three Star 100
current plus previous three financial years ( taken together ) Four Star 500

Five star

For granting status, export performance is necessary in at least

two out of four years Performance measured
* on FOB / FOR
/ value
Foreign Trade Policy: 201 2020“ Status Flolder Exporters-Privileges
^ -

^
exemption from compulsory
Authorization and Customs negotiation of documents
Fixation of Input -Output through banks *
Clearances for both imports
norms on priority within 60
and exports on self - days Remittance / Receipts,
declaration basis however, would be received
through banking channels;

100% retention of foreign Exemption from furnishing of

exchange in EEFC account. ESG in Schemes under FTP
k
 >
Foreign Trade Policy: 2015-2020“ Status Holder Exporters- Privileges

Two star and above Preferential

SHs are permitted to
establish Export treatment and priority
Warehouses, as per in handling of their
guidelines. consignments

Manufacturer exporters who are also Status Holders

shall be eligible to self-certify their goods as originating
from India as per para 2.108 (d) of Hand Book of
Procedures.

Status holders shall be entitled to export freely exportable items on free of cost basis for export
promotion subject to an annual limit of Rs.100 lakhs or 29 of average annual export realization during
^
preceding three licencing years whichever is lower.
Foreign Trade Policy: 2015- 2020
^ EOUs-EHTPs +STPs+BrPs

BENEFITS

Import of all type of goods ( other than prohibited goods) without payment of duty

Exempt from J .T. for units in FTZ as per Sec . lOA

Exempt from industrial licensing

Export proceeds realization within 9 months

100% retention within EEFC account

100% FDI in certain Sectors

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Exit Policy with approval of DC

Foreign Trade Policy: 2015- 2020 -» EOUs-EI IIPs+ STPs+BTPs

Units undertaking to Export their entire production of goods and services

{except permissible sales in DTA) may be set up under

• Export Oriented Unit (EOU) Scheme

•Electronic Hardware Technology Park ( EHTP) Scheme
•Software Technology Park (STP) Scheme
•Bio technology Park (BTP) Scheme

(Letter of permission (LOP) or Letter of Intent (LOI) issued by

the DC / Designated Officer, has initial validity of 3 yean)
FEDAI - Subject wise classification of rules
^
Rule No Description

1 Hours of Transactions

2 Export Transactions

3 Jmport Transactions

4 Clean Instruments
5 Foreign Exchange Contracts

6 Early Delivery, Extension and Cancellation of Foreign Exchange Contracts

 >
FEDAI - Rule -1Hours of Business

• The normal market hours for FCY/INR transactions in interbank forex market as well as client transactions
in India would be from 09.00 a . m. to 05.00 p.m. 1ST on all working days

k. • A . D. may undertake customer ( persons resident in India and persons resident outside India ) and inter
^r
-

1.2 . A bank transactions on all working days beyond normal market hours

may also
k, • Transactions with persons resident outside India, through their foreign branches and subsidiaries
be undertaken on all working days beyond normal market hours
k. A

1.2 . B
r
, except in case of individual
• However, value cash transactions may be undertaken only upto 05.00p.mJ5T
M person { including joint account or proprietary firm)

X kA

1.2.D
LF
Transactions including value cash transactions for individual persons
firm ) can be undertaken even on Saturdays , Sundays and holidays
including joint account or proprietary
as per bank's internal policy.

rl
 r
>
FEDAI - Rule-1 Hours of Business....Continued
1.1 ,bank must ensure
•Any transaction undertaken beyond the market hours prescribed under Rule
that
executed from EOO to 09.00 a . m .
•1) NOOP limit is maintained all the times ( including transactions
1ST ( market opening time ) next working day
* 2 } Spot day roll over for FCY/INR transactio
ns will take place at 12 ,00 midnight 1ST.

• For the purpose of foreign exchange business .Saturday will not

be treated as working day

Note:
but which has not yet been
1) An open Position is a trade that has been established ,
dosed out with an opposite trade
2) NOOP: Net Overnight open Position
or more currencies that a
The overnight limit is the maximum net position in one
trader is allowed to carry over from one trading day to the next
F E D A I R u l e -1 Hours of Business....Continued

• " Known Holiday " is one which is known at least 3 working days before the
date.
• A holiday that is not a " known holiday " is defined as a " suddenly declared
holiday"

• Note : Suppose 1, 2,3 and 4 are all working days.

• If day 4 Is declared as holiday on or after day 1, it will be a suddenly declared
holiday.
• If day 4 is declared as holiday prior to day 1, it will be a known holiday

• Updated as per FEDAI AR circular No 01.BC 2020 dt 23 January 2020 .

 FEDAI - Rule-2 Export Transactions
>
Application of Various Exchange Rates
Export Biffs Purchased, Discounted Negotiated Current Bill buying Rate or the contracted rate, interest
for NTP + Usance to be recovered simultaneously

Crystallization and recovery .

at TT selling rate, recover up to date Interest at
appropriate rate

Realization of Bill after Crystallization Apply T.T. buying Rate

Dishonour of Bills Recover Bill amount + foreign currency charges at TT

selling rate

Refund of Negotiation proceeds of unpaid Bill Recover from the customer at TT selling rate. Also
recover up to date interest
FEDAI-> Rule-2 Export Transactions Continued

Normal Transit Period

1 Bills with Fixed Due date
NA since due date is known already
2 Bills Drawn on DP/ at sight basis and not under LC
(a ) Bills in Foreign Currency
25 days
{b} Bills in Rupees
20 days
3 Bills Drawn in rupees, under LC and Reimbursement provided
(a ) At center of negotiation
3 days
( b) in India at a center different from center of Negotiation
7 days
(c) by banks outside India 20 days
(d) Bills drawn in Rupees, under LC and Exports to Russia where re - 20 days
imbursement is provided by RBI
T .T. Reimbursement under L / C where LC provides for reimbursement claim
• By Electronic means ( cab I e/Te lex /swift ) NTP is 5 days.
After certain number of days from the date of negotiation - add these
^
number of days to 5 days (5 days+ this additional period)
 >
F E DAI - Rule- 2 Export Transactions Early Realization, Refund of excess interest & 7TT
recovery of Swap charges

Wnat happened on 1st November

* rv
>
• Forward Purchase Contract With Supreme Exports - @ Rs 75.20
• Credited the account of M/ Supreme Exports with $100000x Rs75,20= Rs 7520000/-
• Collected Interest for 90 days at 12.25% since the bill was due on 30th January
( 7520000 X90 X12.25%)/365 = 227145
I. BR
* Booked a Forward Sale Contract at 75.70 to cover the purchase

f,
 >
FEDA 1 - Rule - 2 Export Transactions Early Realisation, Refund of excess interest &
recovery of Swap charges

What happened on 31st December

• M/S Supreme made Early Delivery of $ 100000/- 30 days before due date .
• Prevailing Interbank rates on that day are
• Spot: 75 00/75.10
,

30th January 75 , 40/75 ,50

I Bank takes delivery of $100000.00 @ 75 , 20
2 . Sells spot at 75 and collects Rs 7500000 from the market
3.The difference between 1 & 2 is called Outlav/inflow
4 .Here the difference between 7520000- 7500000- 20000 is called out lay
5 ,Out lay means Customer got more fund and bank received less fund
6. Bank will recover interest @ 12.25% on this Out lay ( 20000 x 12.25 % X 60) /365=40
 >
FEDAI - Rule 2 Export Transactions Early Realization, Refund of excess interest &
recovery of Swap charges

Swap gain/Loss-
* The difference between spot sale and forward buy in case of export or
* spot buy and forward sale for import.

* Recovered or passed on to the customer. Here

* Spot sale rate = Rs75.00
* Forward buy rate - Rs75.50
* The difference between ( d ) & ( e ) per dollar is O. SOpaise, It is a loss to be recovered from the customer
= . 50xl00000=Rs 50000
Excess Interest
* Further we have to return the excess interest collected from the party on 1st Nov, for 90 days,
I-.IL
* Actual days of loan 1st Nov to 31st of December=60 days .
* Bank has to return 30 days interest excess collected for Rs7520000= Rs75715
 >
FEDAI - Rule -3- lmport Transactions

Exchange rate applicable on retirement of Import Bills Bills selling or forward contract rate

Rate applicable on Crystallization of Import Bills Bills selling or forward contract rate
Applicable Stamp duty Rates fixed by the Government

Application of Interest for Bills under LC 1) Commercial rate as applicable to domestic advances
from the date of debit to our NOSTRO account till
retirement or crystallization.
2 ) From the date of crystallization add penal interest

Interest bearing import bills Rates as fixed by RBI

on Import Bills.
Note : Interest payable on margin held, if any, shall not be set off against interest recoverable
is
FFDAI - Kule-3-lmport Transactions -) Crystallization of Import Bills
>

on the FIFTH working day following the date of receipt of

Demand Bills
documents at the LC opening branch ( ICICI Bank Guidelines)

• On due date
Usance Bills

r ,
Note : 1, Demand Bills can be crystallized before 5 working day at the specific request
h

of the importer b
2. If crystallization ( at forward contract rates) results in early / late delivery,
swap cost /interest to be recovered
 *
9 /CIC/ MANIPAL
Aoad •m v P i t Balking » Inauranoa

<?' >) ECGC

ECGC Ltd .
A Government of India Enterprise

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^
itr Academy of BFSI

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ECGC LTD j ra .
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MANIPAL
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ECGC Ltd
* Established in 1957 as Export Risk insurance Corporation (ERIC).The name was changed to
Export Credit Guarantee Corporation of India Ltd in 1983 and subsequently renamed as ECGC
Ltd in August 2014.
* A Govt * of India Enterprise - Under the Ministry of Commerce and Industry.
* To strengthen the Export promotion drive by covering CREDIT RISK INSURANCE for exports
and related services.
* Fifth largest credit Insurer in the world.
Functions of ECGC:
* Provides Credit risk insurance to exporters to cover losses in export of goods & services
* Provides guarantees to banks / Financial Institutions for lending to exporters
- Provides overseas investment insurance to Indian Companies investing in joint ventures abroad

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ECGC LTD ^ /0/0/ MANIPAL
|i i f | | ifillLLL LL
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Need for Export Insurance

Exports are exposed to risk even at the Best of times. Some of the risks are
* Economic difficulties or balance of Payment position of the importing
country resulting in restriction on payments
* Outbreak of war or civil war which results in blocking or delay in payment.
* Importing country 's restriction on transfer of payment
* Commercial risks - buyer bankrupt or losing ability to pay
ECGC comes in handy under such circumstances by providing various payment
risk protection plans

How does ECGC help Exporters?

* Insurance protection to Exporters against payment risks.
* Guidance in Export related activities .
* Information on different Countries - with its own Credit Ratings. fVlf )nr aw
* Facilitate Export finance from Banks / Financial institutions.
* Information on credit worthiness of overseas buyers.
i
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* manipalglobal
ft v A nm
ECGC LTD &iClCt M ANIPAL
1 B i l l

Products and services offered by ECGC:

ECGC offers several Insurance covers to exporters both in the short and Medium & Long term
a. ECIE-ST Export Credit Insurance for exporter- Short term ( Ex: Small exporter Policy ( SEC ), Export Turnover policy (ETP)
b, ECIE-MLT: Export Credit Insurance for Exporters - Medium & Long term (Ex : Construction works policy (CWP ), Export
Turnover policy (ETP)
Guarantees to the Bank
a . Protect the banks from losses on account of their lending to exporters.
- -
b. To encourage banks to give adequate credit and other facilities for exports, both pre shipment and post shipment stages
c. Higher percentage of loss at lesser premium rate if opted to cover all their pre-shipment as well as their post-shipment
advances on a whole turnover basis. The coverage and premium will vary for each product.
d. Rate will depend upon the country in which the letter of credit is opened and length of the period to be covered

Special Schemes like Factoring, Buyers credit Cover

Provides guidance in export-related activities .
Makes available information on different countries with it’s own credit ratings
ir
mportance of ECGC:
ECGC is essentially an export promotion organization.
It protects exporters from payment risks, both political and commercial.
It enables them to expand their overseas business without fear of loss.

J* manipalglobal
Aradpmv nf RFsl
 &ICICI MANIPAL
Academy For Banking B Insurance
Expanding Horizons of Learning

Exchange Rate Mechanism

,manipalglobal
4
TTT Academy of BFSI
Learning Objectives &ICICI MANIPAL
A o a d a m V F o r B a n k i n g B /n au r a
Expanding Horizons of Learning

After the completion of this unit, you will be able to:

➢ Meaning of Foreign Exchange, Authorized
Dealers and Rates of Exchange
➢ Understand the meaning of Merchant Rates and
Interbank rates
➢ Various types of Exchange rates
➢ Forward Contracts

* manipalglobal
Academy of BFSI
Introduction
^ICICf M AN I PAL
Expanding Horizons of Learning

❑ Foreign Exchange means exchange of currency of one

country into the currency of another country.
❑ Any economic transaction that takes place between
residents of two countries involves exchange of one
currency into another.
❑ Banks will act as an intermediary to facilitate these
transactions.
❑ To undertake these transactions, Banks are required to be
authorized by RBI, who is the controlling and monitoring
authority for all foreign exchange transactions in India.
❑ Banks authorized to deal in foreign exchange by RBI are
known as Authorized Dealers (ADs).

manipalglobal
^ Academy of BFSI
Category of Authorized Dealers
AD Category I
• Scheduled Commercial • Full Fledged Money
Banks to undertake all
types of foreign exchange
transactions like import,
export, inward & outward
remittances, FDI/FII
transactions etc.,
AD Category II
• Select financial and other
Changers( FFMCs), RRB
NBFCs and Travel Agents
etc., who are permitted to
handle all travel related
transactions (both
purchase and sale) and
certain transactions (higher
education, medical
treatment etc.) covered
under Liberalized
Remittance Scheme (LRS)
of RBI.
^ ICICf M AN I PAL
Expanding Horizons of Learning
AD Category III
institutions (as Authorised
Dealers Category-III) to
carry out specific foreign
exchange transactions
incidental to their business
/ activities.
manipalglobal
^ Academy of BFSI
TTT
Rate of Exchange &ICICI MANIPAL
Expanding Horizons of Learning

✓ Exchange rate is the rate at which one currency is converted into

another
✓ There are two methods of quoting the exchange rates:
➢ Direct Quote
➢ Indirect Quote
✓ In Direct quote home currency is variable and the unit of Foreign
currency is fixed EX: 1USD= Rs 74.85
✓ In Indirect quote, Foreign Currency is variable and the unit of
home currency is Fixed. EX: Rs 100= USD1.3325
✓ India is in Direct quote regime since 1992-93
✓ Banks follow the principle of “Buy Low, Sell High” with a view to
earn profit

manipalglobal
Academy of BFSI
Type of quotes &ICICI MANIPAL
Expanding Horizons of Learning

Direct Quotes Indirect Quotes

USD 1 Rs. 74.83 INR 100 USD 1.33
GPP 1 Rs. 97.72 INR 100 GBP 1.02
EURO 1 Rs. 87.98 INR 100 EURO 1.13
YEN 100 Rs. 70.10 INR 100 YEN 142.65

manipalglobal
^ Academy of BFSI
TTT
What do you mean buying / Selling
^ ICICf M AN I PAL
Expanding Horizons of Learning

• Buying Transaction – means Bank is purchasing the Foreign exchange. The Bank
acquires Foreign Exchange (Foreign Currency) and parts with Indian money
(domestic Currency)
• Selling Transaction – means Bank is Selling the Foreign exchange. The Bank
acquires Indian money (domestic Currency) and parts with Foreign Exchange
(Foreign Currency)
• For purchase transactions bank offers buying Rates
• For sale Transactions bank offers selling rates
• Buying and selling rates are from the Bank’s perception only. (Whether Bank is
buying or bank is selling)

manipalglobal
^ Academy of BFSI
Quoting of Rates
^ICICf M AN I PAL
Expanding Horizons of Learning

❑ Foreign exchange rates are quoted with both options of buying

& selling
❑ It is a two way quote. Left hand side represents buying rate and
right hand side the selling rate of the bank. (First Rate is the
burying followed by selling Rate)
❑ Ex: If a bank is quoting USD rate as INR 75.10/ 75.15, then it is to
be understood that the bank is ready to buy @ USD at Rs. 75.10
from other banks and is ready to sell USD @75.15 (These rates
may also be quoted as 75.10/15)
❑ When banks quote rates, the buying rate and selling rate are
from the perspective of the bank only and never from
customers angle.

manipalglobal
^ Academy of BFSI
Inter Bank Rates
^ICICf M AN I PAL
Expanding Horizons of Learning

❑ Inter Bank rates are rates quoted between banks for purchase
or sale of currencies
❑ IB (Inter Bank) rate acts as the basis for quoting all foreign
exchange rates and US Dollar is the intervening (universally
accepted) currency.
❑ Commercial banks are the major players in the Interbank
Market
❑ Dealers in front office are provided with online trading
platforms, live streaming of rates (Reuters, Bloomberg etc.)
which serves as source for Inter Bank (IB) rates, which depends
on market force - ‘demand & supply’.

manipalglobal
^ Academy of BFSI
Merchant Rates / Rates for Customers
^ICICf M AN I PAL
Expanding Horizons of Learning

❑ The rate quoted to a Merchant/customer is called Merchant rate

❑ Merchant rates are one way since banks will either buy or sell FOREX
from merchant transactions / Customer Transactions
❑ All Foreign Exchange transactions have to be either purchase or sale
transactions
❑ Since exchange rates are volatile in nature, banks do not expose
themselves to exchange risk whenever bank does a purchase or sale
transaction with customers, it will cover itself in the Inter-Bank
market by entering into a corresponding sale or purchase transaction
❑ Banks maintain a margin over Interbank rate while quoting the
merchant rates

manipalglobal
^ Academy of BFSI
Identifying Transactions &ICICI MANIPAL
Expanding Horizons of Learning

Sl Identify the following Transactions Buying or

No. Selling?
1 Rajesh brings a Currency Note of USD 10 and wants INR
2 Sunil Mehta is going abroad and wants USD Currency Note
3 A Foreign National submits FCTC of CAD 100 and wants INR
4 An NRI customer wants Foreign Currency Travelers Cheque
5 Ms. Shajia brings a DD of STG 1,000 towards her award money drawn by
Standard chartered Bank, London and payable by our Bank. She wanted its
payment in her INR Savings account.
6 A student wants a DD in STG for sending to an university in London

You have 3 minutes

time to Answer manipalglobal
^ Academy of BFSI
TTT
Identifying Transactions &ICICI MANIPAL
Expanding Horizons of Learning

Sl Identify the following Transactions Buying or

No. Selling?
1 Rajesh brings a Currency Note of USD 10 and wants INR Buying
2 Sunil Mehta is going abroad and wants USD Currency Note Selling
3 A Foreign National submits FCTC of CAD 100 and wants INR Buying
4 An NRI customer wants Foreign Currency Travelers Cheque Selling
5 Ms. Shajia brings a DD of STG 1,000 towards her award money drawn by Buying
Standard chartered Bank, London and payable by our Bank. She wanted its
payment in her INR Savings account.
6 A student wants a DD in STG for sending to an university in London Selling

manipalglobal
^ Academy of BFSI
TTT
Identifying Transactions &ICICI MANIPAL
Expanding Horizons of Learning

Sl Identify the following Transactions Buying or

No Selling?
7 Megha brings a cheque of USD 150 received as her birthday gift. It is
drawn on Federal Savings Bank, New York. She wanted it to be Credited to
her Rupee savings Account
8 Our import customer wanted to send advance money of AUD 25,000 to
the exporter in Australia through SWIFT
9 Excel Impex Ltd has brought documents for negotiation which are payable
at sight by the LC opening bank, Bank of America, Chicago
10 Bank received documents as per our LC and has to pay the USD 65,500 to
the beneficiary’s Bank through SWIFT
11 Cotswell Garments Ltd have brought documents for negotiation which are
payable by the Opening Bank, Deutsche Bank, Paris
You have 3 minutes
time to Answer manipalglobal
^ Academy of BFSI
TTT
Identifying Transactions &ICICI MANIPAL
Expanding Horizons of Learning

Sl Identify the following Transactions Buying or

No Selling?
7 Megha brings a cheque of USD 150 received as her birthday gift. It is Buying
drawn on Federal Savings Bank, New York. She wanted it to be Credited to
her Rupee savings Account
8 Our import customer wanted to send advance money of AUD 25,000 to Selling
the exporter in Australia through SWIFT
9 Excel Impex Ltd has brought documents for negotiation which are payable Buying
at sight by the LC opening bank, Bank of America, Chicago
10 Bank received documents as per our LC and has to pay the USD 65,500 to Selling
the beneficiary’s Bank through SWIFT
11 Cotswell Garments Ltd have brought documents for negotiation which are Buying
payable by the Opening Bank, Deutsche Bank, Paris

manipalglobal
^ Academy of BFSI
TTT
Types of Rates &ICICI MANIPAL
A o a d a m y F o r B a n k i n g & I n au r
Expanding Horizons of Learning

❑ All purchase and Sale Transactions are not

alike and attract different rates
❑ Ex: the process of issue of a Foreign DD is
simple, bank gets funds immediately and bank
also gets float funds till the DD is paid. Hence
rates are lower/favorable. The rate applied is
TT Selling rate
❑ Where as in case of an Import Bill, scrutiny of
documents increases the workload of the
bank. Further the bank will realize funds after
a reasonable time. Hence, the rates are
higher/adverse. The rate applied is Bills Selling
Rate
manipalglobal
^ Academy of BFSI
TTT
Type of Rates &ICICI MANIPAL
HKP KQQRIQgQUQZQQQXQBQSEQ
^ Expanding Horizons of Learning

Types of Rates

Buying Rates Selling Rates

TT Bills TC Currency TT Bills TC Currency

Buying Buying Buying Buying Selling Selling Selling Selling
\ V

manipalglobal
^ Academy of BFSI
TTT
Computation of Rates
^ ICICf M AN I PAL
Expanding Horizons of Learning

❑ Base rates are derived from Interbank rates

❑ Exchange Margin, is the mark up over and above the base rate
loaded before quoting rates to merchants
❑ Spread is the difference between the buying and selling rates
❑ While Buying the Banker wants to buy at the lowest price, so he
deducts the exchange margin
❑ While Selling the Banker wants to Sell at the highest price, so he
adds the exchange margin
❑ These exchange margins differ for each type of transaction
depending up on the process time of realization and the risk
associated with the time

manipalglobal
^ Academy of BFSI
TT Rates for Spot Transactions MANIPAL jpfcjri
Expanding Horizons of Learning

Buying Selling
Rate Application Rate Application
TT Buying a) For all those transactions, TT selling a)All outward remittances like
rate where banks Nostro is already Rate higher education, medical
credited. treatment etc. covered under
LRS.
b) Purchase of foreign bank b)NRI repatriation from INR to
draft, banker’s cheque drawn on FC
self
c) Cancellation of earlier Sale c)Cancellation of earlier
transaction etc purchase transaction etc

manipalglobal
^ Academy of BFSI
TTT
Bills & Cheques Transactions Rates MANIPAL jpfcjri
Expanding Horizons of Learning

Buying Selling
Rate Application Rate Application
Bills Buying Export bills purchase or Bills Selling Import Bill retirement
discount (sight or usance 0r (payment) or already covered
already covered rate) rate
Cheque Buying Clean Instruments like NIL NIL
Buying Rate Foreign Currency cheques

manipalglobal
^ Academy of BFSI
TTT
Travelers Cheque & Currency Notes MANIPAL
Expanding Horizons of Learning

Buying Selling
Rate Application Rate Application
TC Buying Purchase of Travellers cheques TC selling Sale/issue of travellers cheques
Rate surrendered by travellers, NRI Rate to tourists going abroad
etc.
Currency Purchase of Foreign Currency Currency Sale of Foreign Currency for
Buying Rate tendered by NRIs tourists etc Selling Rate tourists going abroad
Note: Banks are free to fix margin on interbank rates while quoting the above rates

manipalglobal
^ Academy of BFSI
Delivery under Foreign Exchange &ICICI MANIPAL
Expanding Horizons of Learning

Delivery of Foreign
Exchange

CASH TOM
Spot Forward
(Ready) (Tomorrow)

Delivery on the
Delivery on the Delivery
second
Delivery on the next working subsequent to
working day
Same Day (T) day after the SPOT Rate (T3
after the deal
deal (T+1) & beyond)
(T+2)

manipalglobal
^ Academy of BFSI
TTT
Forward Rates
^
❑ At times, our customers will have future receipts or future obligations in forex
ICICf M AN I PAL
Expanding Horizons of Learning

transaction, may be on account of export, import

❑ For example, an exporter of the bank dealing in USD, is finalizing an order today based
on today’s USD rate. But USD will be credited to his account only after shipment of the
goods or may be still later.
❑ In this case, if the rate comes down, then the exporter will suffer loss.
❑ For this purpose, the dealers are permitted to quote the rate for the future due date. If
the rate quoted by the dealer is beyond spot (T+2), then such rates are known as
“Forward” rates.
❑ If the future rate is more than today’s rate, then we say that the currency is in
“premium” and if its less, then we call it as “discount”.
❑ The difference between Spot (T+2) rate and future rate is known as “Forward Margin”.

manipalglobal
^ Academy of BFSI
Forward Rates &ICICI MANIPAL
Expanding Horizons of Learning

❑ In the live streaming (Reuters/Bloomberg), this forward margin for both buying &
selling is available, as shown below;
Currency IB Rates Forward Margin Final Rate
USD 75.10/75.15 1 Month 30/35 75.40 / 75.50
2 Months 60/70 75.70 / 75.85
3 Months 90/105 76.00 / 76.20

❑ If the forward margin is in ascending order (30/35, as above, => right hand side
value more than left hand side), then the currency is in Premium.
❑ While quoting forward rates, Dealer will be adding the premium (for the
corresponding period) to the IB rate after collecting Bank’s margin.

manipalglobal
Academy of BFSI
Forward Rates &ICICI MANIPAL
Expanding Horizons of Learning

❑ In the live streaming (Reuters/Bloomberg), this forward margin for both buying &
selling is available, as shown below;

Currency IB Rates Forward Margin Final Rate

CAD 50.10 / 50.15 1 Month 40/30 49.70 / 49.85
2 Months 80/60 49.30 / 49.55
3 Months 90/70 49.20 / 49.45

❑ If the same is in descending order (say, 1M - 40/30, 2M - 80/60, 3M – 90/70),

then it is in Discount
❑ While quoting forward rates, Dealer will be deducting the discount (for the
corresponding period) from the IB rate after collecting Bank’s margin

manipalglobal
Academy of BFSI
Forward Contract &ICICI MANIPAL
A o a d a m V F o r B a n k i n g B /n au r a
Expanding Horizons of Learning

❑ Forward Contract is an arrangement whereby an agreed amount of Foreign

currency is bought or sold
• on a specific date in future,
• at a pre-determined exchange rate,
• decided at the time the contract is made
❑ Any arrangement where the delivery of foreign exchange is more than T+2
days is a forward contract
❑ Forward exchange rates are available for varies maturities, for few days to
years, but generally one year
❑ The contract may be between Bank and a customer or Bank to bank in Inter-
bank market.
❑ The customer is aware of the rate at which he sells or buys the foreign
exchange in advance
❑ The exporter or importer through forward rate booking covers himself
against exchange rate risk from their transaction
manipalglobal
^ Academy of BFSI
Forward Contract contd….. &ICICI MANIPAL
A o a d a m V F o r B a n k i n g B /n au r a
Expanding Horizons of Learning

❑ Under Forward Contract, the customer has the right to

acquire or sell foreign currency on a future date at a pre-
determined rate
❑ He also has an obligation to meet the commitment.
❑ The Forward Contract is priced either at a premium or
discount over the spot rate.
❑ The settlement is by actual delivery.
❑ Money does not change hands when contract is entered
into but it is settled only on the maturity date.
❑ Both the parties are obliged to fulfil their obligations under
the contract.

manipalglobal
^ Academy of BFSI
Forward Contract contd….. &ICICI MANIPAL
A o a d a m V F o r B a n k i n g B /n au r a
Expanding Horizons of Learning

❑ The Foreign Exchange Rate is highly volatile and every

moment the rate will change. Authorized Dealers are not
supposed to expose the bank to exchange rate risk.
Whenever they enters a forward purchase contract with
the customer, they cover themselves by entering a
corresponding forward sale contract, in Inter -Bank
market. The difference between the buying and selling
forward rate is the profit margin for the Bank.

manipalglobal
^ Academy of BFSI
RBI guidelines on Forward Contracts
^ ICICf M AN I PAL
Expanding Horizons of Learning

RBI- General principles to be observed for forward foreign exchange contracts:

a) The maturity of the hedge should not exceed the maturity of the underlying
transaction.
b) Where the exact amount of the underlying transaction is not ascertainable, the
contract may be booked on the basis of reasonable estimates
c) Balances in the Exchange Earner's Foreign Currency (EEFC) accounts sold forward by
the account holders shall remain earmarked for delivery and such contracts shall not
be cancelled. They are, however, eligible for rollover, on maturity.

Note: FEDAI Rule Number 5 and 6 deal with the Forward Exchange Contracts

manipalglobal
^ Academy of BFSI
Let us compute TT Rates
^ICICf M AN I PAL
Expanding Horizons of Learning

Now compute TT buying and TT Selling Rates

from the Inter-Bank Spot Rates

manipalglobal
^ Academy of BFSI
Computation of the Exchange Rate
^ ICICf M AN I PAL

Inter Bank rate 74.4500/ 74.5000 (EM for buying 0.10% Selling 0,15%)
Expanding Horizons of Learning

Computation of TT Buying rate

Base for calculating TT Buying rate
Less Margin
TT Buying rate
Rounded to Lower 0.0025 (FEDAI Rules)
Computation of TT Selling Rate
Base for Calculating TT Selling rate
Add Margin
TT selling Rate
Rounded to Higher 0.0025 (FEDAI Rules)

manipalglobal
^ Academy of BFSI
TTT
Computation of the Exchange Rate
^ ICICf M AN I PAL

Inter Bank rate 74.4500/ 74.5000 (EM for buying 0.10% Selling 0,15%)
Expanding Horizons of Learning

Computation of TT Buying rate

Base for calculating TT Buying rate 74.4500
Less Margin @ 0.10% =(74.4500X0.10%)
TT Buying rate
Rounded to Lower 0.0025
Computation of TT Selling Rate
Base for Calculating TT Selling rate 74.5000
Add Margin @ 0.15% =(74.5000X0,15%)
TT selling Rate
Rounded to Higher 0.0025

manipalglobal
^ Academy of BFSI
TTT
Computation of the Exchange Rate
^ ICICf M AN I PAL

Inter Bank rate 74.4500/ 74.5000 (EM for buying 0.10% Selling 0,15%)
Expanding Horizons of Learning

Computation of TT Buying rate

Base for calculating TT Buying rate 74.4500
Less Margin @ 0.10% =(74.4500X0.10%) 00.0744
TT Buying rate
Rounded to Lower 0.0025
Computation of TT Selling Rate
Base for Calculating TT Selling rate 74.5000
Add Margin @ 0.15% =(74.5000X0,15%) 00.1118
TT selling Rate
Rounded to Higher 0.0025

manipalglobal
^ Academy of BFSI
TTT
Computation of the Exchange Rate
^ ICICf M AN I PAL

Inter Bank rate 74.4500/ 74.5000 (EM for buying 0.10% Selling 0,15%)
Expanding Horizons of Learning

Computation of TT Buying rate

Base for calculating TT Buying rate 74.4500
Less Margin @ 0.10% =(74.4500X0.10%) 00.0744
TT Buying rate 74.3756
Rounded to Lower 0.0025
Computation of TT Selling Rate
Base for Calculating TT Selling rate 74.5000
Add Margin @ 0.15% =(74.5000X0,15%) 00.1118
TT selling Rate 74.6118
Rounded to Higher 0.0025

manipalglobal
^ Academy of BFSI
TTT
Computation of the Exchange Rate
^ ICICf M AN I PAL

Inter Bank rate 74.4500/ 74.5000 (EM for buying 0.10% Selling 0,15%)
Expanding Horizons of Learning

Computation of TT Buying rate

Base for calculating TT Buying rate 74.4500
Less Margin @ 0.10% =(74.4500X0.10%) 00.0744
TT Buying rate 74.3756
Rounded to Lower 0.0025 74.3750
Computation of TT Selling Rate
Base for Calculating TT Selling rate 74.5000
Add Margin @ 0.15% =(74.5000X0,15%) 00.1118
TT selling Rate 74.6118
Rounded to Higher 0.0025 74.6125

manipalglobal
^ Academy of BFSI
TTT
Let us compute Forward Buying Rates
^ICICf M AN I PAL
Expanding Horizons of Learning

Now compute Forward Buying Rate

used in buying of Export bills

manipalglobal
^ Academy of BFSI
Computation of the Exchange Rate MANIPAL
Expanding Horizons of Learning

Inter Bank rate 74.4500/5000, Premium for three months 60/70,

Exchange Margin 0.15% for buying and 0.20% for selling
Computation of forward Bill Buying Rate for 3 months (Buy Low)
Basis for rate
Add Premium for three months
Total
LESS Exchange Margin
Bills Buying rate

manipalglobal
^ Academy of BFSI
Computation of the Exchange Rate MANIPAL
Expanding Horizons of Learning

Inter Bank rate 74.4500/5000, Premium for three months 60/70,

Exchange Margin 0.15% for buying and 0.20% for selling
Computation of forward Bill Buying Rate for 3 months (Buy Low)
Basis for rate 74.4500
Add Premium for three months
Total
LESS Exchange Margin
Bills Buying rate

manipalglobal
^ Academy of BFSI
Computation of the Exchange Rate MANIPAL
Expanding Horizons of Learning

Inter Bank rate 74.4500/5000, Premium for three months 60/70,

Exchange Margin 0.15% for buying and 0.20% for selling
Computation of forward Bill Buying Rate for 3 months (Buy Low)
Basis for rate 74.4500
Add Premium for three months 00.6000
Total
LESS Exchange Margin
Bills Buying rate

manipalglobal
^ Academy of BFSI
Computation of the Exchange Rate MANIPAL
Expanding Horizons of Learning

Inter Bank rate 74.4500/5000, Premium for three months 60/70,

Exchange Margin 0.15% for buying and 0.20% for selling
Computation of forward Bill Buying Rate for 3 months (Buy Low)
Basis for rate 74.4500
Add Premium for three months 00.6000
Total 75.0500
LESS Exchange Margin
Bills Buying rate

manipalglobal
^ Academy of BFSI
Computation of the Exchange Rate MANIPAL
Expanding Horizons of Learning

Inter Bank rate 74.4500/5000, Premium for three months 60/70,

Exchange Margin 0.15% for buying and 0.20% for selling
Computation of forward Bill Buying Rate for 3 months (Buy Low)
Basis for rate 74.4500
Add Premium for three months 00.6000
Total 75.0500
LESS Exchange Margin (0.15%)
Bills Buying rate

manipalglobal
^ Academy of BFSI
Computation of the Exchange Rate MANIPAL
Expanding Horizons of Learning

Inter Bank rate 74.4500/5000, Premium for three months 60/70,

Exchange Margin 0.15% for buying and 0.20% for selling
Computation of forward Bill Buying Rate for 3 months (Buy Low)
Basis for rate 74.4500
Add Premium for three months 00.6000
Total 75.0500
LESS Exchange Margin (0.15%) 00.1126
Bills Buying rate

manipalglobal
^ Academy of BFSI
Computation of the Exchange Rate MANIPAL
Expanding Horizons of Learning

Inter Bank rate 74.4500/5000, Premium for three months 60/70,

Exchange Margin 0.15% for buying and 0.20% for selling
Computation of forward Bill Buying Rate for 3 months (Buy Low)
Basis for rate 74.4500
Add Premium for three months 00.6000
Total 75.0500
LESS Exchange Margin (0.15%) 00.1126
Bills Buying rate 74.9374

manipalglobal
^ Academy of BFSI
Computation of the Exchange Rate MANIPAL
Expanding Horizons of Learning

Inter Bank rate 74.4500/5000, Premium for three months 60/70,

Exchange Margin 0.15% for buying and 0.20% for selling
Computation of forward Bill Buying Rate for 3 months (Buy Low)
Basis for rate 74.4500
Add Premium for three months 00.6000
Total 75.0500
LESS Exchange Margin (0.15%) 00.1126
Bills Buying rate 74.9374
Rounded off to Lower of 0.0025 74.9350

manipalglobal
^ Academy of BFSI
Let us compute Forward Buying Rates
^ICICf M AN I PAL
Expanding Horizons of Learning

Now compute Forward Selling Rate

used in buying of Import bills

manipalglobal
^ Academy of BFSI
Computation of the Exchange Rate MANIPAL
Expanding Horizons of Learning

Inter Bank rate 74.4500/5000, Premium for three months 60/70,

Exchange Margin 0.15% for buying and 0.20% for selling
Computation of forward Bill Selling 3 months forward Rate (Sell High)
Basis for Rate
Add forward premium
Total
Add Exchange Margin @
Bills Selling Rate
Rounded off to Higher of 0.0025

manipalglobal
^ Academy of BFSI
Computation of the Exchange Rate MANIPAL
Expanding Horizons of Learning

Inter Bank rate 74.4500/5000, Premium for three months 60/70,

Exchange Margin 0.15% for buying and 0.20% for selling
Computation of forward Bill Selling 3 months forward Rate (Sell High)
Basis for Rate 74.5000
Add forward premium
Total
Add Exchange Margin @
Bills Selling Rate
Rounded off to Higher of 0.0025

manipalglobal
^ Academy of BFSI
Computation of the Exchange Rate MANIPAL
Expanding Horizons of Learning

Inter Bank rate 74.4500/5000, Premium for three months 60/70,

Exchange Margin 0.15% for buying and 0.20% for selling
Computation of forward Bill Selling 3 months forward Rate (Sell High)
Basis for Rate 74.5000
Add forward premium 00.7000
Total
Add Exchange Margin @
Bills Selling Rate
Rounded off to Higher of 0.0025

manipalglobal
^ Academy of BFSI
Computation of the Exchange Rate MANIPAL
Expanding Horizons of Learning

Inter Bank rate 74.4500/5000, Premium for three months 60/70,

Exchange Margin 0.15% for buying and 0.20% for selling
Computation of forward Bill Selling 3 months forward Rate (Sell High)
Basis for Rate 74.5000
Add forward premium 00.7000
Total 75.2000
Add Exchange Margin @
Bills Selling Rate
Rounded off to Higher of 0.0025

manipalglobal
^ Academy of BFSI
Computation of the Exchange Rate MANIPAL
Expanding Horizons of Learning

Inter Bank rate 74.4500/5000, Premium for three months 60/70,

Exchange Margin 0.15% for buying and 0.20% for selling
Computation of forward Bill Selling 3 months forward Rate (Sell High)
Basis for Rate 74.5000
Add forward premium 00.7000
Total 75.2000
Add Exchange Margin @0.20% 00.1504
Bills Selling Rate
Rounded off to Higher of 0.0025

manipalglobal
^ Academy of BFSI
Computation of the Exchange Rate MANIPAL
Expanding Horizons of Learning

Inter Bank rate 74.4500/5000, Premium for three months 60/70,

Exchange Margin 0.15% for buying and 0.20% for selling
Computation of forward Bill Selling 3 months forward Rate (Sell High)
Basis for Rate 74.5000
Add forward premium 00.7000
Total 75.2000
Add Exchange Margin @0.20% 00.1504
Bills Selling Rate 75.3504
Rounded off to Higher of 0.0025

manipalglobal
^ Academy of BFSI
Computation of the Exchange Rate MANIPAL
Expanding Horizons of Learning

Inter Bank rate 74.4500/5000, Premium for three months 60/70,

Exchange Margin 0.15% for buying and 0.20% for selling
Computation of forward Bill Selling 3 months forward Rate (Sell High)
Basis for Rate 74.5000
Add forward premium 00.7000
Total 75.2000
Add Exchange Margin @0.20% 00.1504
Bills Selling Rate 75.3504
Rounded off to Higher of 0.0025 75.3525

manipalglobal
^ Academy of BFSI
Exchange Rate numerical
^ ICICf M AN I PAL
Expanding Horizons of Learning

• Mr. Thapa is one of your NRE customer. He informed that he has remitted USD.20000 for credit of
his account. On verification of the Nostro Account you notice a credit on 3/06/2020 and you received
a swift MT 100 to pay. The branch makes the payment on 4/06/2020.
• The exchange rate in the interbank market on 04/06/2020 is as under:
• Spot 1USD = 75.1450/75.3675
• The Bank charges a margin of 0.08% for TT Buying and 0.15% for bill Buying.
Answer the following questions
1. What exchange rate is applicable in this case and which date rate is applicable?
2. Which margin you will take into account in this case?
3. What exchange rate you will quote after rounding off to the nearest .0025?
4. What is the rupee equivalent of 20000 USD?

manipalglobal
^ Academy of BFSI
Exchange Rate numericals &ICICI MANIPAL
Expanding Horizons of Learning

Inter Bank rate 75.1450/75.3675

Computation of TT Buying rate
TT Buying rate on 04.06.2020
Less Margin @ 0.08% =(__________X0.08%)
TT Buying rate
Rounded off as Per FEDAI Rules (0.0025)
Rupee Value is (20,000 * _________)

manipalglobal
^ Academy of BFSI
TTT
Exchange Rate numericals &ICICI MANIPAL
Expanding Horizons of Learning

Inter Bank rate 75.1450/75.3675

Computation of TT Buying rate
TT Buying rate on 04.06.2020 (Buy Low) 75.1450
Less Margin @ 0.08% =(__________X0.08%)
TT Buying rate
Rounded off as Per FEDAI Rules (0.0025)
Rupee Value is (20,000 * _________)

manipalglobal
^ Academy of BFSI
TTT
Exchange Rate numericals &ICICI MANIPAL
Expanding Horizons of Learning

Inter Bank rate 75.1450/75.3675

Computation of TT Buying rate
TT Buying rate on 04.06.2020 (Buy Low) 75.1450
Less Margin @ 0.08% =( 75.1450 X0.08%) 00.0601
TT Buying rate
Rounded off as Per FEDAI Rules (0.0025)
Rupee Value is (20,000 * _________)

manipalglobal
^ Academy of BFSI
TTT
Exchange Rate numericals &ICICI MANIPAL
Expanding Horizons of Learning

Inter Bank rate 75.1450/75.3675

Computation of TT Buying rate
TT Buying rate on 04.06.2020 (Buy Low) 75.1450
Less Margin @ 0.08% =( 75.1450 X0.08%) 00.0601
TT Buying rate 75.0849
Rounded off as Per FEDAI Rules (0.0025)
Rupee Value is (20,000 * _________)

manipalglobal
^ Academy of BFSI
TTT
Exchange Rate numericals &ICICI MANIPAL
Expanding Horizons of Learning

Inter Bank rate 75.1450/75.3675

Computation of TT Buying rate
TT Buying rate on 04.06.2020 (Buy Low) 75.1450
Less Margin @ 0.08% =( 75.1450 X0.08%) 00.0601
TT Buying rate 75.0849
Rounded off as Per FEDAI Rules (0.0025) 75.0825
Rupee Value is (20,000 * _________)

manipalglobal
^ Academy of BFSI
TTT
Exchange Rate numericals &ICICI MANIPAL
Expanding Horizons of Learning

Inter Bank rate 75.1450/75.3675

Computation of TT Buying rate
TT Buying rate on 04.06.2020 (Buy Low) 75.1450
Less Margin @ 0.08% =( 75.1450 X0.08%) 00.0601
TT Buying rate 75.0849
Rounded off as Per FEDAI Rules (0.0025) 75.0825
Rupee Value is (20,000 *75.0825)

manipalglobal
^ Academy of BFSI
TTT
Exchange Rate numericals &ICICI MANIPAL
Expanding Horizons of Learning

Inter Bank rate 75.1450/75.3675

Computation of TT Buying rate
TT Buying rate on 04.06.2020 (Buy Low) 75.1450
Less Margin @ 0.08% =( 75.1450 X0.08%) 00.0601
TT Buying rate 75.0849
Rounded off as Per FEDAI Rules (0.0025) 75.0825
Rupee Value is (20,000 *75.0825) Rs. 15,01,650

manipalglobal
^ Academy of BFSI
TTT
Exchange rate Numerical
^ ICICf M AN I PAL
Expanding Horizons of Learning

• On 30-05-2021, Mr. Roy, your Non-resident Account holder wants to remit USD.40000 by debit to his
NRE Account to the Credit of his overseas account in USA. The Bank charges an exchange margin
of 0.08% for TT Buying, 0.125% for Bill buying, 0.15% for TT selling and 0.20% for Bill selling. They
also charge and outward remittance charges of Rs.1000.
• On 30/05/2020, the ongoing spot rate in the interbank market for 1 USD = INR 76.3450 / 3600.
Answer the following questions
1. What exchange rate is applicable in this case?
2. What is the base rate selected for computing the merchant rate?
3. What is the Margin to be loaded for the transaction?
4. What is the rate offered after rounding off?
5. What is the Total amount you will debit to the customer’s account including charges?

manipalglobal
^ Academy of BFSI
Exchange Rate numericals &ICICI MANIPAL
Expanding Horizons of Learning

On 30-05-2020 Inter Bank rate 76.3450 / 76.3600

Computation of TT Selling rate
TT Selling rate on 30-05-2020 (Sell High)
Add - Margin @ 0.15% =(__________X0.15%)
TT Selling rate
Rounded off as per FEDAI Rule (0.0025)
Rupee Value is (40,000 * __________)

manipalglobal
^ Academy of BFSI
TTT
Exchange Rate numericals &ICICI MANIPAL
Expanding Horizons of Learning

On 30-05-2020 Inter Bank rate 76.3450 / 76.3600

Computation of TT Selling rate
TT Selling rate on 30-05-2020 (Sell High) 76.3600
Add - Margin @ 0.15% =(__________X0.15%)
TT Selling rate
Rounded off as per FEDAI Rule (0.0025)
Rupee Value is (40,000 * __________)

manipalglobal
^ Academy of BFSI
TTT
Exchange Rate numericals &ICICI MANIPAL
Expanding Horizons of Learning

On 30-05-2020 Inter Bank rate 76.3450 / 76.3600

Computation of TT Selling rate
TT Selling rate on 30-05-2020 (Sell High) 76.3600
Add - Margin @ 0.15% = (76.3600 X0.15%)
TT Selling rate
Rounded off as per FEDAI Rule (0.0025)
Rupee Value is (40,000 * __________)

manipalglobal
^ Academy of BFSI
TTT
Exchange Rate numericals &ICICI MANIPAL
Expanding Horizons of Learning

On 30-05-2020 Inter Bank rate 76.3450 / 76.3600

Computation of TT Selling rate
TT Selling rate on 30-05-2020 (Sell High) 76.3600
Add - Margin @ 0.15% = (76.3600 X0.15%) 00.1145
TT Selling rate
Rounded off as per FEDAI Rule (0.0025)
Rupee Value is (40,000 * __________)

manipalglobal
^ Academy of BFSI
TTT
Exchange Rate numericals &ICICI MANIPAL
Expanding Horizons of Learning

On 30-05-2020 Inter Bank rate 76.3450 / 76.3600

Computation of TT Selling rate
TT Selling rate on 30-05-2020 (Sell High) 76.3600
Add - Margin @ 0.15% = (76.3600 X0.15%) 00.1145
TT Selling rate 76.4745
Rounded off as per FEDAI Rule (0.0025)
Rupee Value is (40,000 * __________)

manipalglobal
^ Academy of BFSI
TTT
Exchange Rate numericals &ICICI MANIPAL
Expanding Horizons of Learning

On 30-05-2020 Inter Bank rate 76.3450 / 76.3600

Computation of TT Selling rate
TT Selling rate on 30-05-2020 (Sell High) 76.3600
Add - Margin @ 0.15% = (76.3600 X0.15%) 00.1145
TT Selling rate 76.4745
Rounded off as per FEDAI Rule (0.0025) 76.4750
Rupee Value is (40,000 * __________)

manipalglobal
^ Academy of BFSI
TTT
Exchange Rate numericals &ICICI MANIPAL
Expanding Horizons of Learning

On 30-05-2020 Inter Bank rate 76.3450 / 76.3600

Computation of TT Selling rate
TT Selling rate on 30-05-2020 (Sell High) 76.3600
Add - Margin @ 0.15% = (76.3600 X0.15%) 00.1145
TT Selling rate 76.4745
Rounded off as per FEDAI Rule (0.0025) 76.4750
Rupee Value is (40,000 * 76.4750)

manipalglobal
^ Academy of BFSI
TTT
Exchange Rate numericals &ICICI MANIPAL
Expanding Horizons of Learning

On 30-05-2020 Inter Bank rate 76.3450 / 76.3600

Computation of TT Selling rate
TT Selling rate on 30-05-2020 (Sell High) 76.3600
Add - Margin @ 0.15% = (76.3600 X0.15%) 00.1145
TT Selling rate 76.4745
Rounded off as per FEDAI Rule (0.0025) 76.4750
Rupee Value is (40,000 * 76.4750) Rs. 30,59,000 + 1000 flat Charges

manipalglobal
^ Academy of BFSI
TTT
Illustration No. 3
^ ICICf M AN I PAL
Expanding Horizons of Learning

On 20 March 2021, M/s Rahul Exports submits export bill documents for USD 25000.
On verification it is noticed that the bill has been drawn on sight basis on the drawee
in USA. They requested you to purchase the bill and credit the proceeds to their
Current account with you.
• On 20th March 2020, Exchange rate quoted in the Inter-bank market in Mumbai
was 1USD = Rs. 75.3800 / 75.3950
• The NTP = 25 days,
• The bank`s exchange margin is 0.15 % and Interest at 13% pa.
1) What exchange rate is applicable here?
2) What is the notional Due date of the bill?
3) What exchange rate quoted after margin? (rounded off to the nearest .0025)
4) What will be the rupee equivalent of USD.25000 to be credited to Customer’s
Account after accounting for interest?

manipalglobal
^ Academy of BFSI
Computation of the Exchange Rate MANIPAL
Expanding Horizons of Learning

Inter Bank rate 75.3800 / 75.3950, Exchange Margin 0.15% for buying
Computation of forward Bill Buying Rate (Buy Low)
Basis for rate
LESS Exchange Margin (0.15%)
Bills Buying rate
Rounded off as per FEDAI Rule
Bill amount USD 25,000 *
Interest amount

manipalglobal
^ Academy of BFSI
TTT
Computation of the Exchange Rate MANIPAL
Expanding Horizons of Learning

Inter Bank rate 75.3800 / 75.3950, Exchange Margin 0.15% for buying
Computation of forward Bill Buying Rate (Buy Low)
Basis for rate 75.3800
LESS Exchange Margin (0.15%)
Bills Buying rate
Rounded off as per FEDAI Rule
Bill amount USD 25,000 *
Interest amount

manipalglobal
^ Academy of BFSI
TTT
Computation of the Exchange Rate MANIPAL
Expanding Horizons of Learning

Inter Bank rate 75.3800 / 75.3950, Exchange Margin 0.15% for buying
Computation of forward Bill Buying Rate (Buy Low)
Basis for rate 75.3800
LESS Exchange Margin (0.15%) 00.1131
Bills Buying rate
Rounded off as per FEDAI Rule
Bill amount USD 25,000 *
Interest amount

manipalglobal
^ Academy of BFSI
TTT
Computation of the Exchange Rate MANIPAL
Expanding Horizons of Learning

Inter Bank rate 75.3800 / 75.3950, Exchange Margin 0.15% for buying
Computation of forward Bill Buying Rate (Buy Low)
Basis for rate 75.3800
LESS Exchange Margin (0.15%) 00.1131
Bills Buying rate 75.2669
Rounded off as per FEDAI Rule
Bill amount USD 25,000 *
Interest amount

manipalglobal
^ Academy of BFSI
TTT
Computation of the Exchange Rate MANIPAL
Expanding Horizons of Learning

Inter Bank rate 75.3800 / 75.3950, Exchange Margin 0.15% for buying
Computation of forward Bill Buying Rate (Buy Low)
Basis for rate 75.3800
LESS Exchange Margin (0.15%) 00.1131
Bills Buying rate 75.2669
Rounded off as per FEDAI Rule 75.2650
Bill amount USD 25,000 * 75.2650
Interest amount

manipalglobal
^ Academy of BFSI
TTT
Computation of the Exchange Rate MANIPAL
Expanding Horizons of Learning

Inter Bank rate 75.3800 / 75.3950, Exchange Margin 0.15% for buying
Computation of forward Bill Buying Rate (Buy Low)
Basis for rate 75.3800
LESS Exchange Margin (0.15%) 00.1131
Bills Buying rate 75.2669
Rounded off as per FEDAI Rule 75.2650
Bill amount USD 25,000 * 75.2650 Rs. 18,81,625
Interest amount

manipalglobal
^ Academy of BFSI
TTT
Computation of the Exchange Rate MANIPAL
Expanding Horizons of Learning

Inter Bank rate 75.3800 / 75.3950, Exchange Margin 0.15% for buying
Computation of forward Bill Buying Rate (Buy Low)
Basis for rate 75.3800
LESS Exchange Margin (0.15%) 00.1131
Bills Buying rate 75.2669
Rounded off as per FEDAI Rule 75.2650
Bill amount USD 25,000 * 75.2650 Rs. 18,81,625
Interest amount 18,81,625 * 25*13
365 * 100

manipalglobal
^ Academy of BFSI
TTT
Computation of the Exchange Rate MANIPAL
Expanding Horizons of Learning

Inter Bank rate 75.3800 / 75.3950, Exchange Margin 0.15% for buying
Computation of forward Bill Buying Rate (Buy Low)
Basis for rate 75.3800
LESS Exchange Margin (0.15%) 00.1131
Bills Buying rate 75.2669
Rounded off as per FEDAI Rule 75.2650
Bill amount USD 25,000 * 75.2650 Rs. 18,81,625
Interest amount 18,81,625 * 25*13 Rs. 16,754
365 * 100

manipalglobal
^ Academy of BFSI
TTT
Exchange Rate numericals &ICICI MANIPAL
Expanding Horizons of Learning

• On 15th Jan 2018, presents an export bill documents for USD 10,505 and requests you to discount the bill. Usance
period of the bill is 75 days from the date of acceptance. They requested you to credit their Current Account with
you. On 15th January 2018, the inter bank quotation is as under
Spot – Jan 66.1800 / 66.2950
Feb 65.8800 / 66.0050
Mar 65.4400 / 65.6250
April 64.8800 / 65.1000
May 64.3100 / 64.5500

The NTP = 25 days and the bank`s exch. margin is 0.15%.

Answer the following questions
1. Is the Currency at Premium or Discount?
2. What is the exchange rate applied called? What exchange rate you will quote?
3. When will be the notional Due date of the bill?
4. What will be the rupee equivalent credited to Current Account?
5. Assuming an interest rate of 10% p.a. for this bill discounting facility, calculate the interest to be recovered.

manipalglobal
^ Academy of BFSI
TTT
Due Date and Rate Selection
^ICICf M AN I PAL
Expanding Horizons of Learning

✓ Total time involved = NTP 25 Days + Usance period of 75 Days = 100 Days
✓ Negotiation on 15th January. Compute 100 days from January 15th.
✓ Jan 17 Days + Feb 28 Days + Mar 31 Days + April 24 Days = 100 Days
✓ Due Date is 25th April 2021
✓ Forward Rate for the month of April is 64.8800 / 65.1000
✓ As it is a buying transaction buy low being the maxim, We pick 64.8800

manipalglobal
^ Academy of BFSI
 &ICICI MANIPAL
Expanding Horizons of Learning

Particulars Criteria Rs.

Forward Rate For the month of April
Exchange Margin (+) Selling/(-) Buying 0.15%
Transaction Rate Rate after Exchange Margin
Final Rate Rounded off – FEDAI
(Buy Low Sell High)
Rupee Factor Final Rate * Forex amount (10505)
Rs. 6,80,540 is payable on due date. For immediate credit we
charge interest at 10% for 100 days
Interest Amount 680540*100/36500

manipalglobal
^ Academy of BFSI
TTT
 &ICICI MANIPAL
Expanding Horizons of Learning

Particulars Criteria Rs.

Forward Rate For the month of April 64.8800
Exchange Margin (+) Selling/(-) Buying 0.15%
Transaction Rate Rate after Exchange Margin
Final Rate Rounded off – FEDAI
(Buy Low Sell High)
Rupee Factor Final Rate * Forex amount (10505)
Rs. 6,80,540 is payable on due date. For immediate credit we
charge interest at 10% for 100 days
Interest Amount 680540*100/36500

manipalglobal
^ Academy of BFSI
TTT
 &ICICI MANIPAL
Expanding Horizons of Learning

Particulars Criteria Rs.

Forward Rate For the month of April 64.8800
Exchange Margin (+) Selling/(-) Buying 0.15% 0.0973
Transaction Rate Rate after Exchange Margin
Final Rate Rounded off – FEDAI
(Buy Low Sell High)
Rupee Factor Final Rate * Forex amount (10505)
Rs. 6,80,540 is payable on due date. For immediate credit we
charge interest at 10% for 100 days
Interest Amount 680540*100/36500

manipalglobal
^ Academy of BFSI
TTT
 &ICICI MANIPAL
Expanding Horizons of Learning

Particulars Criteria Rs.

Forward Rate For the month of April 64.8800
Exchange Margin (+) Selling/(-) Buying 0.15% 0.0973
Transaction Rate Rate after Exchange Margin 64.7827
Final Rate Rounded off – FEDAI
(Buy Low Sell High)
Rupee Factor Final Rate * Forex amount (10505)
Rs. 6,80,540 is payable on due date. For immediate credit we
charge interest at 10% for 100 days
Interest Amount 680540*100/36500

manipalglobal
^ Academy of BFSI
TTT
 &ICICI MANIPAL
Expanding Horizons of Learning

Particulars Criteria Rs.

Forward Rate For the month of April 64.8800
Exchange Margin (+) Selling/(-) Buying 0.15% 0.0973
Transaction Rate Rate after Exchange Margin 64.7827
Final Rate Rounded off – FEDAI 64.7825
(Buy Low Sell High)
Rupee Factor Final Rate * Forex amount (10505)
Rs. 6,80,540 is payable on due date. For immediate credit we
charge interest at 10% for 100 days
Interest Amount 680540*100/36500

manipalglobal
^ Academy of BFSI
TTT
 &ICICI MANIPAL
Expanding Horizons of Learning

Particulars Criteria Rs.

Forward Rate For the month of April 64.8800
Exchange Margin (+) Selling/(-) Buying 0.15% 0.0973
Transaction Rate Rate after Exchange Margin 64.7827
Final Rate Rounded off – FEDAI 64.7825
(Buy Low Sell High)
Rupee Factor Final Rate * Forex amount (10505) 6,80,540
Rs. 6,80,540 is payable on due date. For immediate credit we
charge interest at 10% for 100 days
Interest Amount 680540*100/36500

manipalglobal
^ Academy of BFSI
TTT
 &ICICI MANIPAL
Expanding Horizons of Learning

Particulars Criteria Rs.

Forward Rate For the month of April 64.8800
Exchange Margin (+) Selling/(-) Buying 0.15% 0.0973
Transaction Rate Rate after Exchange Margin 64.7827
Final Rate Rounded off – FEDAI 64.7825
(Buy Low Sell High)
Rupee Factor Final Rate * Forex amount (10505) 6,80,540
Rs. 6,80,540 is payable on due date. For immediate credit we
charge interest at 10% for 100 days
Interest Amount 680540*100/36500 18,645

manipalglobal
^ Academy of BFSI
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 ^ICICf M AN I PAL
Expanding Horizons of Learning

Thank you!!

manipalglobal
^ Academy of BFSI
 wfICICI MANIPAL

FEMA GUIDELINES ON IMPORT

AND EXPORTS
After the completion of this unit , you will be able to:
To understand the FEMA general guidefines relating
to exports of goods and realization of sale
proceeds( foreign exchange )
To Understand the FEMA general guidelines relating
to Imports of goods and payments ( foreign
exchange )
To understand the guide fines on advance payments-
*
under export and import
Li m

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Major share of India 's FOREX reserve is generated though Export proceeds
An exporter from India , sends goods 1 services from India and gels proceeds realized
-
*
whether from abroad in Foreign currency or from local source in Rupees
• However, for India as a country, for any export realizing the proceeds through inflow of
,

Foreign exchange into India becomes important,

- Hence, RBI , the regulator for Foreign exchange monitors every export transaction to ensure
the proceeds from abroad flows into India.

RBI issues directions under Foreign exchange management ( Current account transactionsi Rules 2000,
.
notified by Government of India , to authorized dealers These directions lay down the modalities as to
how the foreign exchange business has to be conducted by the Authorized Persons with their customers^
constituents. The Regulations amended from, time to time incorporate the changes in the regulatory
framework.
Both exporters and importers receive and make payment of foreign exchange only through Banks
(authorized dealers).

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RBI is empowered to administer FEMA regulations, On behalf of RBI authorized
persons are carrying out foreign exchange transactions in India .

1.1 Who are Authorized Persons ?

Authorized Dealers /Money Changers / off-shore Banking Units / Any other Person for
the time being authorized under sub sec 1 of sec 10 to deal in Foreign Exchange or
Foreign Securities.

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2.1 Regulations on Imports:

* IEC code and PAN number mandatory for importer and exporter ,
Understand the General guidelines relating to Imports
* Recognize the Time limit for import settlements
Comprehend the guidelines on Interest payment on Import B ^ fls
Analyze the different ways of Receipt of Import documents

2.2 Ganeral Guideline:

* KYC norms.
* ff the goods under negative listh license from DGFT { Exchange control purpose copy ) required.
,

* Normal banking procedures , UCPOC (in case of letters of credit ). to be followed

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2.3 Time limit for Import settlement
Normally, not later than 6 months from date of shipment
* Delay due to disputes, financial difficulties etc., {inclusive of interest for the delayed period, Usance
period interest ) - up to a period up to 3 years from the dale of shipment .
• Import of Books - No time limit (provided payment of interest if any, does not exceed the rate
prescribed for trade credit )
2.4 Receipt of Import Documents.
Importers bank receives the document on behalf of the Importer from supplier 's bank

* Where Bill value does not exceed USD 300 , 000.

.
2.5 Exceptionsf Direct receipt of documents by the importer instead through
banks)

• Bill received by wholly owned Indian subsidiary of foreign company from their principals.
* Bill received by status holder exporters /100% EOU/units in SEZ/Public sector undertakings
* Bill received by all limited companies (private/public/deemed).
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2.6 Advance remittance for Import of goods

No ceiling on the amount of remittance of Advance. Payment for imports subject
to:
If the amount of remittance exceeds USD 200,000/- or its equivalent, LC/GTE
from an International bank outside India is to be obtained,
• If the importer (other than PSU/Gov.Dept, UT) is unable to obtain LC/GTE,
A.D.bank at their own discretion allow advance payment up to USD 5 million or
its equivalent. However individual bank boards to formulate their own policies .
* A PSU or Govt Dept/GOI, State Govt UT which is not in a position to obtain
LC/GTE should obtain waiver from Ministry of Finance if the amount exceeds
USD 100,000/- or its equivalent. u

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2.7 Advance remittance for Import of Services:

- No ceiling on the amount of Advance remittance .
- If amount exceeds USD 500.000/ - or its equivalent LC / GTE from an
International bank outside India is to be
obtained.
* A PSU or Govt Dept/GOI , Slate Govt UT should obtain waiver for LOGIE from Ministry
of Finance if the amount
exceeds USD 100 , 000/- or Its equivalent .
* A D. should follow up for compliance *
2.8 Evidence of Import
* Importers have to file with customs authorities "Bill of Entry "in electronic form giving toil
details of import including
the bank details .
- Customs will verify the same along with the physical goods, determine the duty if any payable and allow the
goods to be released to the importers duly certifying the bill of entry.
I* This document is the evidence of import of goods into India,
I* The details of BE will be uploaded in the IDPMS package .
 RBI - FEMA (current account Transactions) Rules 2000 V fANf Al_

2.9 Non- physical Imports

* Where imports are made In non-physical form, l,e.t software or data through internet / dot.com
channels and drawings and designs through e-mail / fax * a certificate from a Chartered Accountant
that the software / data t drawing / design has been received by the importer, may be obtained,
2.10 Follow -up for Import Evidence
* AD banks have to follow up with the importer for submission of BE within 3 months from the date
of remittance.
* Wherever the same JS not submitted within the stipulated lime* ADs have to follow up Ihe same
with the importer until the submission of the same irrespective of the amount of the remittance .
* Details of the importers, who have not submitted evidence of import within six months from
the date of remittance, generated by the AD from the JDPMS package and follow it up
* Physical submission of BEF statements has dispensed with effect from January 2018 *

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 RBI - FEMA(current account Transactions) Rules 2000
2.11 Acknowledgement
* AD Category
— Evidence of Import
- l bank shall in cases
all issue an acknowledgemem a p to the importer containing the
following particulars:
• importer's full name and address with code number
• number and date of BoE and the amount ol import *

Introduction on Import Data processing and Monitoring system! IDPMS)

Operational from October 10, 2016 Following are to be reported in IDPMS
* Outward remittances (ORM) for Imports
* Historical ORM where proof of documents pending
* Settlement of ORM with BOE
* Manual BOE reporting
* Extension and Write off
Why IDPMS ?
Copies of same BOE am used for multiple remittances
Huge advance remittances both inward and outward without evidence
* No coordinated monitoring mechanism

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I DP MS PROCESS FLOW

IDPMS Process Flow -

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RBI - Regulations on Exports

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Basic Principle
* Goods must go out of India

- Foreign exchange must come into India ,

4 1 Time norm for processing export ciodil proposals.

*
Timely and adequate credit,
* Compensation for delayed credit of export proceeds,
- Sanction of Fresh / enhanced credit limits - 45 days (25' }
* Renewal of limits - 30 days( 15* )
- Sanction of Ad- hoc limits - 15 daysf 7‘)
* Rejection of Export proposals - lo be informed to Bank s chief Executive.
* Outstanding Export credit - 12% of ANBC
* Gold card scheme for Exporter
(Note: Time lines in Bracket with ' is days for Gold Card Holders )
4.2 Export Declaration Form’ Physical exports EDF and Soft - v are exports -SGFTEX .
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4.3 Introduction on Export Data Processing Monitoring system ( EDPMS )

* Operational from March 011 2014 . Realization of all export transaction for shipping documents after February 2fl.
2014 should be reported in EDPMS. Following modules are introduced
- Lodgment of bills
* Realization of bills
- Benefits are
* Effective compliance
* Easier tracking of export transactions
* An alternative to filing paper based returns
4.4 Process enhancements
* With effect from June 15, 2016 , following processes are simplified and filing returns are routed in a single platform
of EDPMS for easy monitoring
o Handling of shipping bills for caution listed exporters
o Delayed utilization of advances received for exports &
o Exports outstanding with EDPMS
Automation of CauWori De-caution Irsting of exporters
*
*
^
P0103 quarterly reporting was stopped *
* XOS half yearly reporting was stopped
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RBI Regulations on Exports
4 5 Process involved at AD Banks
,

* Mapped SB from RBI to EDfS (Export Data Interface System)

Other Bank FIRC from RBI to EDIS
• Lodgment reporting (AD Acknowledgment)

4 * 6 Inward remittance reporting

* Advance against exports ( P 0103 )
* Partial realization
* Complete realization (Closure of bills)

4.7 AD Transfer
* Exporter files EDF ( Export declaration form) and Shipping Sill ( SB ) online with the customs.
Customs based on the same will verify the merchandise value, quantify etc and determine whether
:

the goods permitted to export as per FTP Post this they will assign their reference number on the
SB. Exporter will then resubmit the SB with the goods to the customs.
RBI Regulation on Exports t^/CIC/ MANIRAi

4.7 AD Transfer ..^ Continued

* Custom official may conduct physical verification of goods depending upon their choice and dear
the goods for export if found to be eligible as per rules and regulations,
• Then Customs will allow the goods to be loaded on the carrier, which is known as "let oyt for export "
and the same updated in SB along with their authorization.
* After this, the data shared with RBI's cloud based package -EDPMS * that will enable RBI to know the
.
details of goods exported from India
• Exporter will submit all commercial documents within 21 days of shipment to an AD along with SOF
and a copy of SB/SB reference number,
• On confirming the SB from EDPMS, AD will lodge the document and update the data in EDPMS.
RBI will access the data and get a confirmation of submission of documents by the exporters to an AD
as per FEMA regulations.
* When the bill is realized, AD will update the same in the EDPMS package, the whole life cycle of an
export bill is completed, and RBI will have the confirmation through the same database,
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EDPMS Process Flow

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EDPMS-Process Flow
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RBI Regulations on Exports ^ ICICI
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Realization and Repatriation of Export Proceeds - Time Limits

• Units in SEZ ’s - within 9 months from the date of shipment

• Status Holder Exporters - within 9 months from the date of shipment
• 100%EOU's / EHTP I STP / BTP - within 9 months from the date of
shipment
• Exports to Warehouse outside India - within 15 months from the date of
shipment or the date of realization whichever is earlier
• All other Cases - within 9 Months from the date of shipment
Manner of Receipts & Payments

Bank of America
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* * USS 45,000,000.00=

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Foreign currency Bank Draft, Pay International Out of NRE / FCNR

notes / FCTC's order or Credit cards of accounts of the
tendered by personal the Buyer buyer
buyer during cheques
personal visits
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Unpaid Export Bill. Reduction in Invoice Value ttaCt MAIMlPAi

Unpaid Export Bills
Steps available to an exporter, if the Export bill remains unpaid due to quality disputes etc.,
Reduction in Invoice Value
* Export claims
- Change of Buyer

Reduction in Invoice Value: On account of prepayment of Usance Bills

* To the extent of interest on the unexpired usance period.
* Interest rate as per contract or Prime rate / LIBOR

Reduction in Invoice Value: Other Cases

Reduction not to exceed 25% of invoice value.
Commodity not subject to floor price restrictions.
Exporter not in RBI's caution list
Exporter has surrendered proportionate export incentives.
(For Exporters in Export business for more than 3 years, If exports outstanding is not more than 5% of the
average realization of preceding 3 financial years, reduction can be allowed without percentage ceiling)
Export Claim & Write of by AD bank &tCKZJ MANlPAt

Export Claim
AD Bank authorized to remit provided
Export Bill is realized end repatriated to India .
• Exporter not in RBI's caution list.
* Exporter to surrender proportionate incentive received if any.

Export realization - Write off by AD- 1 Bank

• Outstanding for one year or more.
• export
Aggregate write off for the Exporter permitted by the Bank during a Financial Year not to exceed 10%
of the
realizations through the same Bank during the previous financial year.
• Efforts made by the Exporter - satisfactory evidence.
• Exporter has surrendered proportionate expon incentives availed if any.
• Case is not subject matter of any pending civil or criminal suit.
Change of Buyer or Consignee & Advance payment towards Exports MAMtPAL

Change of Buyer or Consignee

* Prior approval of RBI, not required,
Reduction of invoice value if any, not to exceed 25%
- Realization of Export proceeds not to exceed 12 months from date of Export

Advance payment towards Exports

* Shipment of goods to be made within one year

* Interest if any not to exceed LIBOR + 100 bps

Documents to be routed through the same Bank which received the advance payment remittance
- RBI Permission required
If Export does not take place in 1 year

* Export agreement provides shipment over 12 month period - RBI permission required
* Refund of advance remittance - first o of EEFC A/c, rest from market
*
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Expan jmg Horizons of Learning

Balance of Payment, Current & Capital

Account Transactions

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Learning Objectives &iCtaMANIPA I
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After the completion of this unit, you will be able to:

• Balance of Payments
• Meaning of Current and Capital Account
• LRS Scheme and FEMA guidelines on capital
and current account transactions

* manipalglobal
Academy crBFSI
Introduction: Balance of Payments &tact MANlPAt

Balance of payments ( BOP) is an accounting system that

systematically records all economic transactions between
the residents and government of a particular country with the
residents and governments of the rest of the world during a
given period Current Capital
These transactions are made by individuals, firms and Account Account
government bodies. The balance of payments includes all
external visible and non-visible transactions of a country. Balance
of
Example Payment
• Proceeds of Export Bill
• Remittance by an NRI
• Payment of an Import Bill
• Foreign Direct Investment

* manipalglobal
TlT Academy of 8F5I
Components of BOP &iCMCt MAN) PAI

4
Current Account is the record of inflow and outflow of
CD money to and from the country during a given period, due

E Current Account 1
to the trading of commodity, service, income and
unilateral transfers

Q _ Capital account records all such transactions between

h

residents of a country and the rest of the world, which

Capital Account relate to purchase and sale of foreign assets and liabilities
O during a year
1

u Official Reserve
Account Official! Reserve Account represents only Purchase and
Sale of Central bank only.

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Current Account &tact MANIPAI

Current Account is the record of If the account shows a negative

inflow and outflow of money to and
from the country during a given
period, due to the trading of
commodify, service, income and
unilateral transfers. The account is an
indicator of the status of the economy
balance, then it means that the
imports are greater than exports or
consumption exceeds savings.
Similarly, if there is a positive balance,
then it means exports/income are
more than imports.

Current Account transactions

undertaken by a resident do not alter
his / her assets or liabilities, including
contingent liabilities, outside India

* manipalgloba!
HI Academy of SFSI
Components of Current Account IV! AN (PAL

The Balance of Trade

* Goods/merchandise imported and exported! to and from the country.
( Visible Trade)
\

* Services received from other countries and rendered to other nations.

Trading of Services Tourism, transportation, engineering, and business services, such as law,
( Invisible Trade) management consulting, and accounting, fees from patents and
copyrights on new technology, software, books, and movies
\

* invisible income from foreign investment less payments on foreign

investments. These include investment incomes made up of interest and
Net investment income dividend payments and earnings of domestic owned firms operating
abroad
s
Net cash Unilateral transfers are payments that do not correspond to the purchase of
transfers/Unilateral any good, service or asset. These usually take the form of international aid,
transfers gifts, or workers remittances from abroad towards maintenance of family.

* manipalglobal
ITI Academy of BFSI
Components of Capital Account fttaa MANIPAl

The capital account records all

Capital Account
such transactions between
residents of a country and the
rest of the world, which relate to
Foreign Direct
purchase and sale of foreign Investment (FDI): Portfolio
assets and liabilities during a Investment and Investment:
year. [control in a company Investment in stocks, Others:
biased in another ponds, debts and Bank deposits, short
tompany. Usually to [other financial assets terms loans, real
In short, it is a record of inflows
take benefit of [with a view to earn estate etc
higher returns, higher returns and
and outflows of capital, which cheap labor, tax diversification
brings a change in a country's benefits etc
foreign assets and liabilities. It
consists of Foreign Direct
Remittance under Capital account may result in increase in the
Investment , Portfolio Investment,
value of the asset at later date. Investment in real estate/ shares etc
and Government loans etc. I
manipalglobal
Academy of BFSI
Liberalized Remittance Scheme: &ICICi MANIPAL

Liberalized Remittances scheme is all about remitting money from our country to other
country in foreign currency.
Under the Liberalized Remittance Scheme, all resident individuals, including minors ,
are allowed to freely remit up to USD 2 , 50,000 per financial year (April - March) for any
permissible current or capital account transaction or a combination of both .
There are no restrictions on the frequency of remittances under LRS. However the total
remittance should not exceed US$250000/- in a financial year .
Remittances can be effected in any marketable currency.
Remittance under this scheme can be consolidated in respect of family members,
subject to individual family members complying with the terms and conditions.
Only husband/ wife and their children are considered as part of the family, and not
parents
However, clubbing of family members is not permitted for capital account transactions £
mom
such as opening a bank account/investment/purchase of property, if they are not the ,
co-owners/co-partners of the investment/ property /over seas bank account .
In case of remitter is a minor, the minor s natural guardian must countersign the LRS
declaration form.
The Scheme is not available to corporates, partnership firms, HUF, Trusts etc.

* manipalglobal
III Academy of 8 FSI
Liberalized Remittance Scheme..continued m
_
j ;„ i . j
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MANIPAL
4I

What can Resident Individuals do under Under LRS Scheme?

* Can make remittance up to USD 2 ,50,000 per financial year for any permissible Current account or
Capital transactions, or combination of both,
* Are free to acquire and hold immovable property, shares, or any other assets outside India without
prior approval of Reserve Bank of India (RBI).
* can open , maintain , and hold Foreign Currency accounts with a bank outside India for making
remittances under this scheme
* This account can be used for putting through all transactions connected with the remittances
eligible under this scheme

* Can set up joint ventures (JVs ) or wholly -owned subsidiaries ( WOS) outside India for bonafide
business activities within the limit, subject to the terms and conditions stipulated in FEMA
notification.

* manipalglobai
ITT Academy of BF St
Liberalized Remittance Scheme..continued MANIPAt

What can Resident Individuals do under Under LRS Scheme?

* Can make remittance up to USD 2 ,50 000 per financial year for any permissible Current account or
:

Capital transactions , or combination of both .

* Are free to acquire and hold immovable property, shares, or any other assets outside India without
prior approval of Reserve Bank of India (RBI ).
* can open, maintain , and hold Foreign Currency accounts with a bank outside India for making
remittances under this scheme
* This account can be used for putting through all transactions connected with the remittances
eligible under this scheme

* Can set up joint ventures ( JVs) or wholly - owned subsidiaries ( WOS ) outside India for bonafide
business activities within the limit, subject to the terms and conditions stipulated in FEMA
notification.

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LRS APPROVED PURPOSES: CURRENT ACCOUNT TXNS &ICICt MANIPAl

Private visits
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Medical
/
Emigration
treatment
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Permissible
Fat ilkii« for
students Current
pursuing Account Business Trip
studies
abroad
I Transactions j
\ abroad /
/

Going abroad Gift/

on Donation
employment
/
Maintenance v
of dose
relative
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HI Academy
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 &tact MANIPAL
LRS : PERMITTED CAPITAL ACCOUNT TXNS

Purchase of
property
Open a
Loans to NRls Foreign
who are currency
account with a

Setting up Acquire and

Wholly Owned hold shares or
Subsidiaries debt
and Joint instruments
Ventures

Venture Acquistion of
Capital Funds, ESOPs
Promissory
Notes Investments in
Mutual Fund
Units, unrated
debt securities

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Liberalized Remittance Scheme..continued CiCt MANIPAL

What can Resident Individuals do under Under LRS Scheme ?

• Can make remittance up to USD 2 ,50,000 per financial year for any permissible Current account or
Capital transactions , or combination of both.
• Are free to acquire and hold immovable property, shares, or any other assets outside India without
prior approval of Reserve Bank of India (RBI ).
• can open, maintain, and hold Foreign Currency accounts with a bank outside India for making
remittances under this scheme
• This account can be used for putting through all transactions connected with the remittances
eligible under this scheme
• Can set up joint ventures ( JVs ) or wholly -owned subsidiaries ( WOS ) outside India for bonafide
business activities within the limit, subject to the terms and conditions stipulated in FEMA
notification.

J* manipalglobal
Academvaf BFSI
 &ICICI MANIPAL
Liberalized Remittance Scheme: purposes allowed

• Private visits to any country (except Nepal and Bhutan )

• Gift or dondiion
• Going abroad for employment
• Emigration
• Maintenance of close relatives abroad
• Travel for business, or attending a conference or specialised training or for
• Meeting expenses for meeting medical treatment or check-up abroad, or for
accompanying as attendant to a patient going abroad for medical treatment/ check-up
• Studies abroad
n of
• Any other current account transaction which is not covered under the definitio
current account in FEMA 1999.

* manipalglobal
/ c a ~ IrT Academy of BFSI
LRS; Requirements from Resident individuals seeking to make the remittance &tcta MANIPAL
abroad

* A2 form duly filled up by the remitter, giving correct reason.

* In case of minor sending money, the natural guardian has to sign the A2 form on behalf of the minor
* PAN number (Permanent Account number ) is a mandatory for completing the transaction.
* Under the capital account transactions the remitter should have maintained bank account for a minimum period
of one year, prior to the remittances date
* Will have to designate a branch of an AD through which all the remittances under the scheme wiil be made
* Should furnish to the bank:
o An applicatiomtetter -cum-dedaration in the preserved format regarding the purpose of remittance
o A declaration that the funds belong to the remitter and will not be used for restricted or prohibited purposes
* Once the ceiling limit under this scheme for remittance is over , even tf the proceeds of the investments have been
brought back into the country, no further remittance will be permitted under this scheme.
* The investor should exercise proper due diligence while taking investment decisions.

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LRS: Requirements for Authorized Dealers &ldCi MANII’AL

* The bank should ensure Know Your Customer (KYC) compliance and Anti Money Laundering ( AML) guidelines
that are in force while allowing the remittance,
* AD shall prescribe the requirements or documents to be obtained to ensure compliance with the Provisions of
Sub sec. 5 of Section 10 of FEMA 1999
* The applicant should have maintained an account with the bank for a minimum period of one year before the date
of remittance. In case the the applicant is a new customer, then the AD can obtain:
o The bank statement where the applicant maintained account earlier and which it can verify in case the
account is a new account or
o Copies of the latest Income Tax (IT) assessment order or return filed by the applicant
* If the applicant is a new customer of the bank , the AD should carry out due diligence in the opening, operation,
and maintenance of the account .
* The AD should ensure that the payment is received by either of the following means:
o A cheque drawn on the applicant s bank , by debit to his account , by demand draft , or by pay order

o The payment should be received out of the funds belonging to the applicant.

manipalglobal
Til Academy of BFSI
 &ICICI MANIPA t .

Compliance with FEMA guidelines

AD (Authorized Dealer will be guided by the nature of transaction as declared by the remitter in Form A 2 and wifi
thereafter certify that the remittance is in conformity with the instructions issued by the Reserve Bank in this regard
from time to time. However, the ultimate responsibility is of the remitter to ensure compliance to the extant FEMA
rules /regulations
Remittance restricted to certain countries
Remittances directly or indirectly to countries identified by the Financial Action Task Force ( FATF) as non-
cooperative countries and territories", from time to time; and remittances directly or indirectly to those individuals and
entities identified as posing significant risk of committing acts of terrorism as advised separately by the Reserve
Bank to the banks are not permissible

J* manipalglobal
Academv of 8 FSI
Classify the following transactions under Balance of Payment accounting system
^ /CW/ MANIPAI

i .
Mr Kumar a NRI buys 1000 shares of ICICI Bank Ltd through ICICI securities to the debit of his
NRE account with ICICI bank
.
2 .Mr Kumar -NRI - receives a dividend income of Rs 400,000/ - on his various investments in

shares during 2016- 2017 and the same is being repatriated by him to USA.
.
iMr Kumar - NRI - who is having business interest in India, imports equipment worth Rs 25 lacs
for his company in India from Germany.
an NRI ) exports goods worth USD 250,000/-
* Mr. Kumar's company in India ( Mr. Kumar is
during 2016-17
s.Mr. Smith, a German national is appointed as G.M. of the company in India owned by NRI . His

salary is paid in EURO.

6 Mr. Smith ,a German national, buys furniture for his flat in India and pays for the
same from his
debit card linked to his account in Frankfurt.

manipaiglobal
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 ft ICICI
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M ANll=*AL

iMr. Rakesh Sharma - senior citizen- receives Rs 1,000,000/- from his son Mr Sunil Sharma, a
NRLMr. Rakesh Sharma utilizes this as advance payment for buying a flat in his name Bangalore
iMr. Sunil Sharma remits Rs 25 lacs to his NRE account for buying a flat in India
3 M / S Prime Jewellers import gold worth USD 300,000 / - during March 2017 for manufacturing

jewellery.
* M/ S Prime Jewellers import gold worth USD 300,000/- during March 2017 and export jewellery
worth USD 350,000/- during January 2017.
s RBI imports gold worth USD 3.5 million during the financial year 2016- 2017.
e RBI buys US Treasury bonds for USD 2,50 billion during March 2017.
7 First Solution Technologies imports software worth USD 150,000/- for completing their overseas
project

manipalglobal
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 1VIANIFWI

Thank you

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 Section50 J

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^ Section 50 J
 TTT
Learning Objectives

At the end of this module, you will be able to know

Role of DGFT in promoting Foreign trade
Important features of Foreign Trade Policy
List the various initiatives taken by the Govt , for ensuring Export Growth
Understand the General provisions relating to Imports / Export
Comprehend the Principles of Restriction
Recognize FEDAI Rules governing Business Hours,
Identify the Exchange Rates applicable to Export Bills.
Learn how to recover dishonored Export Bill.
Analyze Normal Transit Period,
Role of ECGC in foreign trade
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Foreign Trade Policy: 2015-2020-> Legal Frame Work

Effective Date 1st April 2015

Valid till 31st March 2020(Extended to 30.09.2021)

Authorization is issued prior to issue of Valid

the policy

Export/import done as per previous Permitted

policy but currently under restriction

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 *
Foreign Trade Policy: 2015- 202G- Role of DGFT

Trade facilitation is a priority of the Government for cutting down the transaction cost and
time, thereby rendering Indian exports more competitive

DGFT has a commitment to function as a facilitator of exports and imports

Niryat fiandhu - Hand Holding Scheme for new export / import entrepreneurs for mentoring
new and potential exporter on the intricacies of foreign trade through counselling, training and
outreach programmes.

Further, in order to ensure optimum utilization of resources, efforts would be made to

associate all the stake holders, including Customs, ECGC, Banks and concerned Ministries.

Special Focus initiative - to increase percentage share in Global Trade and expanding
employment
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 Foreign Trade Policy: 2015- 2020 -
^ General Provosions

Exports and Imports shall be Goods i

'FREE' except when Regulated &
by way of
Services
1. 'prohibition',
2, 'restriction'
3. or 'exclusive trading
Non -
through State Trading Negative List
I negative List
Enterprises ( STEs)' as laid
down in Indian Trade I 1
Classification
Traded
Prohibited Restricted Canalized without
Restriction
i
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Foreign Trade Policy: 2015-2020-> Harmonized System ( ITC-HS) Codes
For Exports and Imports

ITC ( HS) code means Indian Trade Classification based on Harmonized System of coding adopted in
India for import-export operations

ITC (HS) is a compilation of codes for all merchandise / goods for export / import *

ITC ( HS ) is aligned at 6 digit level with international Harmonized System of goods nomenclature,
maintained by World Customs Organization, Brussels

However, India maintains national Harmonized System of goods at 8 digit level

The first two digits ( HS- 2 ) identify the chapter the goods are classified in,
e.g. 09 Coffee, Tea, and Spices. The next two digits ( HS-4) identify
groupings within that chapter, e.g. 09.02 = Tea. The next two digits [ HS
6) are even more specific, e .g. 09.02 10 Green tea ( not fermented) *.
*

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 Foreign Trade Policy: 2015-2020-) Principle of Restriction

Protection of Protection of
Protection of public
Protection of patents, trademarks national treasures
human, animal or and copyrights and of artistic, historic
morals.
plant life or health. the prevention of or archaeological
deceptive practices. value

Protection of trade
Conservation of of fissionable Prevention of traffic
exhaustible natural material or material in arms,
resources. from which they are ammunition and
derived; and implements of war

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 Regulations Relating to Imports
^
Foreign Trade Policy: 2015- 2020

General:
Import Export Code number ( IEC) is required. IEC is now PAN Number of
importer / exporter which is a 10 digit alpha numeric

In case of import of Restricted Goods mentioned under Schedule 1 of ITC ( HS )

classification, prior authorization required

Terms and conditions of License / certificate permission / Authorization/ Actual

user condition APPLY and need to complied with if import requires Authorization

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Foreign Trade Policy: 2015 - 2020- Regulations Relating to Imports

Item under import Import Allowed or not

Second Hand Capital Goods .

Yes ( except computers, Laptops, Photocopier machines, Air conditioners,
Diesel Generating sets which requires License)
Import of samples Rs. 100,000/ -al lowed without duty St Rs. 300,000/ in case of gems and
jewellery Sector
Import of Gift yes ,if freely importable item, or else, requires import authorization

Passenger Baggage As per Baggage Rules

Import on Export basis without Authorization, or LUT / BG
Re import of goods repaired abroad needs no authorization
import of goods used in - projects abroad needs no authorization, subject to 1 year's use.
Sale on High Seas As per Foreign Trade Policy

Import under lease financing needs no permission of RA

Clearance of goods by customs Authorization issued subsequently
Execution of BG/LUT Duty Free imports
Foreign Trade Policy: 2015- 2020 ~> Regulations Relating to Exports

Items under Export Export allowed or not

Export of Gifts Up to value not exceeding Rs.500,000/- ( other than restricted goods)

Third party Exports Allowed

Export of Imported goods Allowed if other than restricted.
Restricted goods imported under customs bond also allowed

Export of replacement goods Allowed if they are other than restricted items
Export of repaired goods Exported goods if found defective allowed for import for repair and
re -export without authorization

Denomination of Export Contracts -> All Export contracts and Invoices shall be denominated in freely
convertible currencies or in Indian Rupees. However export proceeds should be realized in freely convertible
currency except for Export to Iran

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Foreign Trade Policy: 2015- 2020-> Status Holder Exporters-Norms

1 Status holders are business leaders who have excelled in Status Holder Limits
|i international trade and have successfully contributed to Export House Export Performance in
/
i
country's foreign trade Category USD million
One Star 3
Two star 25
1 Applicant shall be categorized depending on his total FOB,
( FOR for deemed exports) export performance during Three Star 100
i
current plus previous three financial years (taken together ) Four Star 500

Five star

For granting status, export performance is necessary in at least

two out of four years Performance measured
on FOB/ FOR
value

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Foreign Trade Policy: 2015- 2020-> Status Holder Exporters- Privileges

exemption from compulsory

Authorization and Customs
Clearances for both imports
and exports on self -
declaration basts
negotiation of documents
Fixation of Input - Output through banks.
norms on priority within 60
days Remittance / Receipts,
however, would be received
through banking channels;

100% retention of foreign Exemption from furnishing of

exchange in EEFC account . 8G in Schemes under FTP.

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I oreign Ifdde Policy: 701') 70? t ) -> Stalus Holder txporters Privileges
Two ttir and above Preferential
SHi are permitted to
establish Export treatment and priority
Warehouses, as per in handling of their
guidelines consignments

Manufacturer exporters who are also Status Holders

shall be eligible to self -certify their goods as originating
from India as per para 2.108 ( d) of Hand Book of
Procedures.

Status holders shall be entitled to export freely exportable items on free of cost basis for export
promotion subject to an annual limit of Rs . 100 lakhs or 2\ of average annual export realization during
preceding three licencing years whichever Is tower.
 »
Foreign Trade Policy: 2015- 2020- EOUs-EHTPs+STPs+BTPs

BEMEFITS

Import of all type of goods ( other than prohibited goods ) without payment of duty

Exempt from IX for units in FTZ as per Sec . lOA

Exempt from industrial licensing

Export proceeds realization within 9 months

100% retention within EEFC account

100% FDI in certain Sectors

Exit Policy with approval of DC

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Foreign Trade Policy: 2015- 2020 *
> EOUs- EHTPs+ STPs+BTPs r

Units undertaking to Export their entire production of goods and services

( except permissible sales in DTA ) may be set up under

Export Oriented Unit ( EOU ) Scheme

Electronic Hardware Technology Park (EHTP) Scheme
Software Technology Park (STP) Scheme
Bio technology Park ( BTP ) Scheme

( Letter of permission ( LOP ) or Letter of Intent ( LOI) issued by

the DC / Designated Officer, has initial validity of 3 years )
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FOREIGN EXCHANGE DEALERS ASSOCIATION OF

INDIA

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FEDAI -> Rule-1 Hours of Business

* The normal market hours for FCY/1NR transactions in interbank

forex market as well as client transactions

V
^ k A

1.2 . A
in fndia would be from 09.00 a . m , to 05.00 p.m. 1ST on all working days

* A . D, may undertake customer ( persons resident in India and persons resident outside
bank transactions on all working days beyond normal market hours
India ) and Inter -

r
• Transactions with persons resident outside India, through their foreign branches and subsidiaries may also
be undertaken on all working days beyond normal market hours

• However, value cash transactions may be undertaken only upto 05.00p.m . 1ST, except in case of individual
person ( including joint account or proprietary firm)

t j
* Transactions including value cash transactions for individual persons including joint account or proprietary
1.2 .D firm) can be undertaken even on Saturdays , Sundays and holidays as per bank's internal policy.

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FEDAI - Rule - 1 Hours of Business Continued

•Any transaction undertaken beyond the market hours prescribed under Rule 1.1 ,bank must ensure
that
•1) NOOP limit is maintained all the times ( including transactions executed from EOD to 09,00 a.m.
1ST (market opening time) next working day
•2) Spot day roll over for FCY/INR transactions will take place at 12.00 midnight 1ST.

•For the purpose of foreign exchange business fSaturday will not be treated as working day

Note:
yet been
1) An open Position is a trade that has been established t but which has not
closed out with an opposite trade
2 ) NOOP: Net Overnight open Positron
that a
The overnight limit is the maximum net position in one or more currencies
trader is allowed to carry over from one trading day to the next
FEDAI-> Rule-1Hours of Business....Continued

" Known Holiday " is one which is known at least 3 working days before the
A
A date.
Li • A holiday that is not a " known holiday " is defined as a " suddenly declared
holiday"

• Note : Suppose 1,2,3 and 4 are all working days.

1.4 • If day 4 is declared as holiday on or after day 1, it will be a suddenly declared
holiday.
• If day 4 is declared as holiday prior to day 1, it will be a known holiday
V • Updated as per FEDAI AR circular No 01.BC 2020 dt 23 January 2020.
/

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 FEDAI- Rule- 2 Export Transactions
^
Application of Various Exchange Rates

Export Bills Purchased, Discounted Negotiated Current Bill buying Rate or the contracted rate, Interest
for NTP + Usance to be recovered simultaneously

Crystallization and recovery ..

at TT selling rate, recover up to date interest at
appropriate rate

Realization of Bill after Crystallization Apply T.T. buying Rate

Dishonour of Bills Recover Bill amount + foreign currency charges at TT

selling rate

Refund of Negotiation proceeds of unpaid Bill Recover from the customer at TT selling rate. Also
recover up to date interest

# MANIPAL
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FEDAI- Rule- 2 Export Transactions Continued
Normal Transit Period
1 Bills with Fixed Due date NA since due date is known already

2 Bills Drawn on DP/at sight basis and not under LC

(a ) Bills in Foreign Currency 25 days

(b) Bills in Rupees 20 days

3 Bills Drawn in rupees, under LC and Reimbursement provided

3 days
W At center of negotiation
( b) in India at a center different from center of Negotiation 7 days

by banks outside India 20 days

( d) -
Bills drawn In Rupees, under LC and Exports to Russia where re 20 days
imbursement is provided by RBI

T.T. Reimbursement under L / C where LC provides for reimbursement claim

* By Electronic means { cable/Telex / swift ) NTP is 5 days,
* After certain number of days from the date of negotiation ^
number of days to 5 days ( 5 days+ this additional period)
add these
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FEDAI -> Rule- 2 Export Transactions Early Realization, Refund of TIT
excess interest & recovery of Swap charges
Concept of Early Realization, Swap, outlay & inflow
Consider the following Example:
On V 1 Nov , you had discounted on account of M/ s. Supreme Exports, one of your Export clients an
Export bill for USD 100,000 at the rate lUSD= Rs.75.20 covering yourselves @ Rs.75.70 ,
You had collected lnterest (® 12.25% for 90 days since the Bill had a fixed due date of payment as 30 Jan ,
However on 31 Dec . you found that the Bill is realized and the rates prevailing in the inter-bank market
are as follows:
USD Spot: 75.00/75.10
January Forward: 75.40/ 75.50
Calculate the charges to be collected / paid to the client, if any, on account of early realization of the
export Bill.

/ # MANIPAL
 >
FEDAI - Rule- 2 Export Transactions Early Realization, Refuna of
excess interest & recovery of Swap charges

Bill discounted on ; 1st November

Bill due date : 30th January
Bill realized on : 31st December

# # MANIPAL
FEDAI-> Rule- 2 Export Transactions Early Realization, Refund of TTT
excess interest & recovery of Swap charges
This is a case of early delivery. The problem has following steps
On 1st November bank has to book a forward Buy contract and credit the account of Supreme
Exports and recover interest for 90 days
Simultaneousfy bank has to book a forward sale contract to cover the above contract
On 3r * Dec , USD100000 reed. In Nostro; Bank sells it immediately at spot rate in market
Bank has to ascertain the outlay and inflow and recover interest on it
Bank has to rebook a one month January forward purchase contract for meeting the January
forward sale commitment
6 Bank has to ascertain the Swap gain or swap loss
Bank has to return excess interest recovered due to early realization ( 90 days - 60 days )
Bank has to recover interest on out lay and swap loss

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 FEDAI-> Rule-2 Export Transactions Early Realization, Refund of
excess interest & recovery of Swap charges
Sr No Date/ Bank's With Customer With Market
Action
A rT November Book Forward Purchase Contract 30* "
Jan @ 75.20 & credit Customer

B Is* November Book forward Jan Sate contract @75.50 to cover ( A }

C Takes Delivery of $100000(375.20

D Sells Spot at 75.00
315 December
E ’ Rebook Jan Forward purchase @75.50 to meet
commitment under ( B)
F 30th Jan Receive Delivery under ( E) and fulfill commitment under ( BJ
G The difference between C & D is outlay /inflow
H The difference between D & E is Swap gain or loss

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FEDAI-> Rule- 2 Export Bills for Collection

• Applicable Rate > T.T. Buying Rate

-

Application of Interest- In case of rupee loans given, Interest

^
be charged as per RBI guidelines.
to

Interest to be paid to Exporter If payment delayed beyond 2 days from receipt of

advice / Nostro statement

^
Rate of compensation- Minimum interest charged by banks on export credit as
per RBI

Forwarding letter of Credit to the beneficiary / benefictary Bank by

VPP is prohibited

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FEDAI- Rule ~3-lmport Transactions
Exchange rate applicable on retirement of Import Sills
Rate applicable on Crystallization of Import Bills
Applicable Stamp duty
Application of Interest for Bills under LC
Note: Interest payable on margin held, if any, shall not be set off against interest recoverable on Import Bills.
7TT
Bills selling or forward contract rate
Bills selling or forward contract rate
Rates fixed by the Government
1) Commercial rate as applicable to domestic advances
from the date of debit to our NOSTRO account till
retirement or crystallization.
2) From the date of crystallization add penal interest
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FEDAI -> Rule-3- lmport Transactions ITT
^ Crystallization of Import Bills

on the FIFTH working day following the date of receipt of

documents at the LC opening branch (ICICI Bank Guidelines )
* emand Bill
r

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On due date
Usance Bills

Note : 1, Demand Bills car be crystallized before 5 :t working day at the specific request
of the importer
2. If crystallization { at forward contract rates ) results In early / late delivery,
swap cost /interest to be recovered

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 FEDAI-> Rule- 4-lmport Transactions - Clean Instruments
^
Outward Remittance To be effected at TT selling rate
Encashment of FCTC/ FC At FCTC/FCN buying rate
Inward Remittance * Up to certain amount as decided by individual banks may be converted immediately into INR if
all the information required for crediting the remittance to beneficiaries account is available.
The limit for ICICI bank is $ 10000,00
* Remittances above this limit to be executed in FC
* Beneficiary to present the instrument for payment within maximum period prescribed under
FEMA .
* Subsequent request for conversion into EEFC Account will be at market rate .
Compensation for Delayed • Authorized Dealers shall pay or send Intimation, as the case may be, to the beneficiary in two
Payments working days from the date of receipt of credit advice / nostro statement
In case of delay, the bank shaii pay the beneficiary interest (S) 2 % over its savings bank
interest rate. The bank shall also pay compensation for adverse movement of exchange rate, if
any, as per its compensation policy.
Release of FCTC/FCN * FCTC/FCN selling rate

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FEDA!-> Rule- 5- Foreign Exchange Contracts

Exchange contracts shall be for definite amount and periods

Period of delivery may be Fixed or option period. Option period not to exceed
one month

Contracts permitting option delivery must mention first & last dates delivery

If the Fixed Due Date or last day of option delivery is a known holiday, the last
date of delivery shall be the preceding working day

In case of suddenly declared holiday, then the date of delivery is next working
day
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FEDA|-> Rule- 5- Foreign Exchange Contracts

"Ready or Cash" merchant contracts are deliverable on the same day

" Value Next Day* contracts shall be deliverable on the working day succeeding
date of contract

A "SPOT"' contract is deliverable on the second succeeding working day

following date of contract

A forward contract is a contract deliverable at a future date

AJ! contracts to delivered at the Bank at the Named place

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FEDAt -> Rule- 5- Foreign Exchange Contracts 7TT

Date of Delivery for an Export bill is the date of NPD & payment of rupees to the
customer

Date of delivery in case of export bill sent for collection is the date of payment of
rupees to the customer after realization

Date of delivery in case of import bills is the date of retirement or crystallization of

liability whichever is earlier

The option of delivery lies with the customer/merchant whether buyer or seller

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FEDAI-> Rule- 6- Earfy delivery, Extension & cancellation of Foreign Exchange
contracts

Bank at its option may accept / give earfy delivery / extend the contract.
^ •

In case of early delivery, recover /pay SWAP difference

In case of Extension of contract, existing contract to be cancelled & rebooked for new
tenor

Difference to be recovered/paid to/ from customer. Request for extension to be done

before maturity date
Cancellation of purchase contract at Spot TT selling rate & sale contract at TT buying rate

If cancelled before maturity at appropriate forward TT rate

If cancellation at customer's request before maturity date , recover / pay exchange difference
# MAINIIRAL
FEDAI -> Rule- 6- Early delivery, Extension & cancellation of Foreign Exchange
contracts

Cancellation of Foreign Exchange Contracts

On due date
LFWD Purchase - TT Selling rate
Before due date
2. FWD Safe - @ TT Buying rate
1. FWD Purchase - (5> FWD Sale rate
- Exchange gain / loss for customer
2 . FWD Sale - @ FWD Purchase rate
- Exchange gain / loss for customer

After due date

1. FWD Purchase - @ TT Selling rate
V
2. FWD Sale - @ TT Buying rate
- Exchange gain for Bank / loss for customer

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ECGC Ltd.
A Government of India Enterprise

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Introduction &tctci MAT J(r lAi

* in this topic we will have a look at few other facilitators of international Trade like ECGC fit
ICC besides understanding SWfFT
* international trade spans the entire world, ft is fraught with many risks, the credit risk
being the major one. How far ECGC provides takes care of such risk is one of the
discussions coming up
* Further It is difficult to visualize an orderly growth of the trade on a scale that is presently
being witnessed without any trader facilitator at a global level. It is here that importance
jfrf ICC comes into picture
* Again, how Banks in different parts of the world , communicate with each other, securely
and speedify ?
* We will have a brief look at the role of ECGC, fCC fit SWIFT in facilitating the a smooth and
voluminous world trade

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ECGC LTD & WANRM.

ECGC Ltd
* Established in 1957 as Export Risk insurance Corporation {ERIC) The name was changed to
Export Credit Guarantee Corporation of India Ltd in 1983 and subsequently renamed as ECGC
Ltd in August 2014.
- A Govt of India Enterprise - Under the Ministry of Commerce and Industry

- To strengthen the Export promotion drive by covering CREDIT RISK INSURANCE for exports
and related services

* Fifth largest credit Insurer in the world

Functions of ECGC:
* Provides Credit nsk insurance to exporters to cover losses in export of goods & services
* Provides guarantees to banks f Financial Institutions for lending to exporters
* Provides overseas investment insurance to Indian Companies investing in joint ventures abroad

E C G C
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ECGC LTD
Need for Export Insurance
Exports are exposed to risk even at trie Best of times Some of the risks are
* Economic difficulties or balance of Payment position
of the importing
country resulting in restriction on payments
* Outbreak of war or civil war which results in blocking or delay in payment
* Importing country s restriction on transfer
’ of payment
- Commercial risks - buyer bankrupt or losing ability to payvarious payment
ECGC comes in handy under such circumstances by providing
risk protection plans

How does ECGC help Exporters?

* Insurance protection to Exporters
against payment risks .
* Guidance in Export related
*
activities
Information on different Countries - with its own Credit
Ratings.
Facilitate Export finance from Banks / Financial institutions
.
9
*
of overseas buyers *6 « m
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* Information on credit worthiness
4 [global
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ECGC LTD ^tOCt VJVNlf ‘At

Products and services ottered by ECGC:

ECGC offers several Insurance covers to exporters both in me short and Medium & Long term
(ETP >
>
a . ECIE- ST Export Credrt insurance lor exporter - Short term (Ex Small exporter Policy { SEC Export Turnover poltoy
), Export
b. ECIE-MLT Export Credit insurance for Exporters - Medium & Long lerm (Ex Construction works policy CWP
|

Turnover potcy {ETP }

Guarantees to the Bank
a Protect the banks from tosses on account of their lending to exporters
b To encourage oanks to grve adequate credit and other facilities for exports bom pre- shipment and post -shipment stages
c . Higher percentage of toss at lesser premium rate if opted to cover all their pre- shipment as well as their past - shipment
advances on a whole turnover oasis The coverage and premium wtt vary for each product
d Rate win depend upon me country sn which the tetter of credit is opened and length ol the period to be covered

- Special Schemes like Factoring Buyers credrt Cover

i
*r
• Provides guidance in export-related activities
* Makes available information on different countries with its own credrt ratings
t \
Importance of ECGC:
*

*
*
ECGC is essentially an export promotion organization
ft protects exporters from pavmeni risks bolh political and commercial
It enables them to expand theif overseas business w rthout ?ear ol loss
J H>AL
fcjBeryotSfSl
 fMANIPAL
ExpwyHmQ hfonzona of Learning

Collection of Bills
Learning Objectives
After the completion of this unit, you will be able to:
Overview of Bill Collection
Process of Bills for collection
DA & DP bills
Parties involved in Bills for collection and their roles
Important provisions of URC -522

# IVIAIMIPAL
- Lumnii'-
aT y
Relationship between Customer and Banker
Customer is the principal
*
Banker is an Agent
Customer decides the Options of Delivering
the documents ( DP / DA)
Banker accepts the responsibility
Banker charges his commission
Customer mentions the mode of payment of
commission with choice of loading on the
buyer or deducting in the Proceeds
Customer instructs the procedure for delay in
payments

MANIPAL
EnpiHidKig I
* - ' - -
d nT L j nr ni y
Bill Collection - Overview
jSh

n
Bill for Collection is one of the methods of trade used in *
international trade . It is also known as documentary collection
It is a better option than dean payment methods as the seller and
buyer are involving their respective Banks as mediators / agents
The system mitigates the risk involved in Open Account for the
seller and in Advance payment for the Buyer to a large extent
The exporter, after Shipment of goods prepares a set of documents
like Bill of Exchange. Invoice, Bill of Lading/Airway Bills /LR /RR,
Order copy, packing list , Insurance etc. and hands over it to his
banker for onward transmission to the Buyers Bank
The Seiler ' s Bank send it to the buyer ' s Bank for handing over the
same to the buyer as per the terms (Payment / Acceptance )
Importer obtains the documents from his Bank on fulfilling the
payment or acceptance as per the instructions

rvl /\ MIPAL
Cxpoficlnig tt^
rupia
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Bli! Collection-Overview... continued
Seiler’s instructions in this regard forms the basis of classifying bills as
DA Bills and DP bills.
. The instructions to deliver documents of title to goods to the buyer
( importer ) can be either against payment ( DP bills ) or against the
acceptance of bills ( DA bills ) to pay on a specified date
j The Buyer ' s bank needs to know when it should release documents to
the buyer and when it shouEd collect moneyfproceeds from the buyer .
5 If the documents specify against payment, they will be released only
when the importer makes payment . ( Documents against Payment)
j If the documents are on Usance and to be released on acceptance :

importer gets the documents once he accepts the documents - payment

will be made on the due date only( Documents against Acceptance )
After receiving export proceeds from the overseas buyer , the exporter
bank credits the amount to exporters account
/ MANIPAL
- - -'
L . . L' L 'IH M -
J I l L' i or Laamirg
Bill Collection-Overview... continued
Banks act as facilitators for their Customers as agents
Role of the banks is to hand over of documents and transfer
of funds as per the Instructions of the seller
J Mo Obligation on the Collecting Bank to verify the
documents or Paying Bank for payment of the Bills
Bills collections are generally less expensive than LCs
This method of settlement is cheaper than documentary
credit (IX ) method

MANIPAL
EnpiHidKig I
* d -nT L 'j n i - n r y
Documents against Payment Bill ( DP Bill)

Ui P, in payment term of imports and exports means Documents against

Payments

In the case of Delivery / documents against Payment ( DP ) bills , the drawee

coMects the 'documents of title to goods ' from the Bank , thereafter he can
1

take delivery of goods

The buyer takes delivery of goods with the original transport document of
4 Litle delivered by his bunk after effecting payment under sale of goods
mentioned in the document

The buyer's bank in turn, sends the said amount to seller 's bank as per
banking procedures and formalities under international trade

/C/ # MANtPAL
-
CxpiHiEMig I l aruoMa ol‘ LuaiMirg
 Documents Against Payment

Contract - Agreement

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Exporter
Seller
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Good* Importer
Buyer

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BANK

Payment

Document
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 Indian Poiymers Limited
No. G42 . 4th Lane, AbhlFWV Chambers, Avenue Roadr BANGALORE - 5 GQ0Q9
BILL OF EXCHANGE
-
Date - 01 04* 2021
LLl CC
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cc Amount USD 16SrBGO/ -
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One Demand pay to ICICI Bank Limited or Order US $ lG 5 rBGQ / - ( Amount US Dollars
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£3 One Hundred Sixty Five thousand eight hundred Sixty only )

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To
for Indian Polym ers L imited
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ALEX Trading !ncr
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Documents against Payment Bill ( DP Bill)
1 .
DP tn payment term of imports ant : exports means Documents against
Payments

In the case of DA Biff, the drawee collects the documents of title to goods'
from the Bank by accepting to pay on the due date, and takes delivery of the
goods by presenting the documents to the shipper

A
The buyer takes delivery of goods with the original transport document of
title delivered by his bank and start generating the funds by selling the goods
4 or manufacturing and sale thereby

t On Due date, the buyer pays the Bill to his Banker. The buyer 's bank in turn,

-
sends the said amount to seller's bank as per banking procedures and
formalities under international trade
/ V rs/lAMIPAL
-
r.xpisnidmui I !:> i irr - i J -
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 Documents Against Acceptance

I Contract - Agreement

ENporter Importer
Seller ye
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Bank
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Payment

Documents
What is acceptance ?
v x Acceptance is the act of drawee ( Buyer / importer) signing on GGE, below the words
" Accepted for Payment as a tokEn ot unconditionally accepting tbE drawer 's ( sellers) bill
i

.
^
of exchange without altering the original terms of the bill.

\
/
/
; i By signing under the word "accepted '" on the face of the biH the drawee commits an
} unconditional obligation to pay it to the seller on or before the maturity date of the bill.
f
/
1
_
/
. Though typically, the drawee puts his signature below the word "accepted" a simple
i 1
signature of the drawee either on the face or back of the bill of exchange instrument is
- also deemed as acceptance of bill.

:
i ' The drawee takes the delivery of goods consigned to him from the transporter,, once the
I
documents of title to goods released to him .
# [VIAINI I FfAL
-
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srii &fia af mii!
 ... . ,
i :
Indian Polymers Limited
1

No. 642, 4^ Lane, Abhinav Chambers, Avenue Road, BANGALORE - 5 G0009

. R«f
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111 BILL OF EXCHANGE
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XE Bill No . 536
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Date - 01 04 2021
Place -Bangalore, India
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Invoice No, 248
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< Amount USD l65 rBGO/ -

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09 Three months from the Date of this Bill pay to ICICI Bank Limited or Order. US $
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165,860/ ( Amount US Dollars One Hundred Sixty Five thousand eight hundred Sixty
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For Indian Poiym ers L imited
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y r 6 :!l Floor, Down Town Street,
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BOB New York USA - 1

Accepted /or Payment on £)ue Date “«

For ALEX Trading INC STAMP

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DUTY
Mpnopmjj DJfiecfor
Role of the Buyer ( Importer )

Buyer/importer is the drawee of the bill

On presentation Pays the OP bill and take delivery of documents

Accepts the DA bill, and take delivery of documents

Takes Delivery of the Goods from the Transporter

Makes payment on due date for DA.

# IVI /MNIIPAL
-
E >.|ividng Ifarutfii aT Luamir j
Role of the Remitting Bank ( Seller' s Bank )

To act as am agent of exporter for collection of bill

Checks the documents about consistency with each other

Sends the documents to a collecting bank in the buyer's country with instructions on
collection of payment (DA/DP) as advised by exporter

G ives instructions to the Collecting Bank on Charges / interest

Monitors and follow up bill for payment

Pays the exporter after receipt of proceeds from the collecting bank

W (VIAl\l | PAL
-
C.uiLMidiiiij ItarUDna aT L
- - -
J FI 111 -;.i
Role of the Collecting Bank — Buyer 's Bank

Collecting: bank is the hank In the buyer Vim porters country acting as collecting bank / pmsenting bank

it h usually a branch or correspondent bank of the remitting bank but any other berk can also be used on the
req uest of ex porter.

J The collecting bank act as the remitting bank ’ s agent and dearly follows the instructions on the remitting bank's
covering schedule-
l
Present the bill to the buyer for payment ( DP) or acceptance ( DA ) .
I
J
Release the documents to the buyer on payment or acceptance.

Follow up for payment on due date in case of QA bill

Collect charges from the buyer or deduct from proceeds, as per instructions-

rvlAMIPAL
Eyp &fidpig IforuMi
of l. -
uiamu j
Role of Presenting Bank - (other than the collecting Bank )
Presenting Bank acts as agent of the collecting Bank
Presenting Bank comes in to picture when the collecting Bank
does not have a branch at the importer' s place
Collecting Bank normally will be a correspondent Bank of the
Remitting Bank
Presenting Bank will be normally the importer's Bank
Presenting Bank will play the role of the Collecting Bank as an
agent of the Collecting Bank

Presenting
Importer's Bank - Agent of the Collecting Bank Bank

# MANI IPAL Ww

- -
L~ . uiz M-
niJKiij af Luvmii ' -y
arldEHia
Indicative list of Documents handled under collection
Seller' s Letter with Instructions and contents of documents
/ Bill of Exchange ( Containing amount due and instructions on
mode and time of payment, interest rate or amount, If any ]
/
1
Invoice ( of the Goods and amount )
Packing List of the Goods and Packages wise
4
Transport Document [Bill of Lading /Airway Bill / RR / LR )
^ Quality Certificate { Optional }
/ Certificate of Origin ( Optional)
Insurance Document ( Optional }

# IVI /MNIIPAL•Ji

ItaruMi al l.
Eyp &ficjpig uiamu -
j
Merits and Demerits of Collections
Merits / Advantages
s This is a more secure method than any other collection process.
Reduces the risk for both importer and exporter
J This is a usualEy quicker collection process than any other method
hence reduces defay in receipt of payment by the exporter
f Documents of Title of the goods can be controlled by the bank.
•

Ensures importer pays or promises to pay the exporter before

taking the possession of documents
J This is the comparatively less expensive mode of settlement

Demerits / Disadvantages
The payment is not guaranteed by the bank
Additional costs may be incurred

# MANIPAL
Enpvi
^ing -
-al l.u amir -y
What are the Uniform Rules across the Globe
ICC Uniform Rui« to*
International Chamber of Commerce published uniform Presumptions for COLLECTIONS
Collection - URC 522
The parties are free to mention their terms and conditions
B "
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c

wmm-
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-a•*

In the absence of expressed terms and conditions, the uniform UPC

presumptions are applicable
The Banks handling the documents should mention the applicability of
the Uniform Presumptions in their documents / instruction letters
" Exceptwherever said otherwise , this collection is subject to
ICC
fe inn

the Standard Presumptions of Uniform Rules for Collections of A i

"
~~
ICC - 522 »
Once it is mentioned by the Remitting Bank, these rules become
applicable to all the Banks concerned in handling the documents

# IVI /MNIIPAL
E >.|ividng Ifarutfii aT Luiai
'iir-y
Uniform Rules for Collection - URC 522
Collection of documents are subjected to the Un ifornr> Rules for Collections pu b li shed by -
* .r . ,- . Dyki ,
Mr Hr:
*T-r
! IONS
the International Chamber of Commerce (ICC ) . rjOLLb- L'

I
/ The ICG 's Uniform Rules for Collections are a practical sel of roles to aid bankers , v
buyers, and sellers involved in the collection of bills .
jK

URC

S Present version adopted by ECC publication No . 522 in June 1995. Came into effect from
1 Jan, 1996. There are 26 Articles covering various aspects.
s Worldwide standards for collection of documentary collections. ICC
S It is not a but a set of Rules universally accepted by the Globe .
s The URC 522 lists the rights and responsibilities of the seller, the remitting bank , buyer
and tbe collecting bank
J The Remitting Bank Must give precise and complete instruction .
/ Banks wi-ll not examine documents in order to obtain instruction

# IVI /MNIIPAL
E >.|ividng Ifarutfii aT Luamir u -
What URC contains
Genera! Provisions & definitions - Article 1 to 3 UCC Uniform fiufos for
COLLECTIONS
Form & Structure of collections - Article 4 IL

—
Form of presentation Article 5 to 8
W
Liabilities & Responsibilities - Article 9 to 15 URC

-
Payment Article 19 to 19
Interest, Charges and Expenses - Article 20 to 21 - -
l“ rW.iw4 T3 lO

Other Provisions - Article 22 to 26

ICCan- VtlArirtTKMAL
ri a -

rvl /\ IMf R/\ [_

CTtpoficInig tt rupia
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Lc % mlr 'j
Article 4 - Collection Instrument should contain ...
1) Details of the Bank from whom the collection to be received.
2) Terms of Delivery ( Payment / Acceptance ) .
3) Details of the Principal like namer address, etc,
4) Charges to be collected ( may be waived / may not be waived)
5) Details of the drawee [ ike name, address, etc
6) Collection of Interest ( may be waived / may not be waived).
7) Amount and currency to be collected.
s ) Basis of calculation of interest ( 360 / 365 days to a year)
9) List of Documents enclosed and numerical count.
10) Method of Payment and form of payment advise
11) Terms and conditions of Payment / Acceptance.
12) Instructions if unpaid / unaccepted / requirements not complied.
# fVTAMtRAL
VfiH
li . . um'iL-i -
- i j I * -L,i if- -31 Lciamlr i
' nil
^
Few important presumptions
Should rot contain Bilt of Exchange ( BOE ) payable at a future date
with instruction to release documents against payment .
if it contains BOE payable at a future date, and is silent regarding
release of commercial documents, the commercial documents will
be released to the drawee only against payment
In that event the collecting Bank is not responsible for
consequences arising out of delay in releasing the documents
j Collecting Bank is not responsible for delay on account of
incorrect or incomplete address of the drawee

W (VIAl\l | PAL
-
C.uiLMidiiiij ItarUDna of L
- -
J FI -.
111 ;i
Article 10 Good Vs Documents.

Banks will deal with documents and no obligation to deal

with Goods
Goods should not be dispatched directly to the address of
the collecting or presenting Bank or to the order of a Bank
without prior arrangement.
If so dispatched without prior arrangement, the Bank shall
have no obligation to take delivery of the goods which
remain at the risk and responsibility of the party
dispatching the goods.

# [VIAINIiPAL
: ' --
M *I I.
I £ J IH
' aamii g
Article 20 - interest amount
Interest to be collected, will be waived if refused by the
drawee .
If there is specific instruction not to waive interest,
documents shall not be delivered if interest is not paid by
the drawee.
Collection Instruction to specify the Rate of Interest,
Period, and the basis of calculation

# [VIAINIIPAL
M I.aamii'g
 -
Article 21 Charges and Expenses

If collection charges and other expenses are on account of

the drawee, presenting Bank will waive these charges /
expenses if refused by the drawee.
Charges and Expenses so waived will be on account of the
party from whom the collection is received and will be
deducted from the proceeds
If collection instruction specifically states that Charges /
Expenses are not to be waived , presenting Bank will not
deliver documents if charges / expenses are not paid by
the drawee

/ MANIPAL
-
CxpiHiEMig I l aruoMa ol‘ Luai'i i r g
In the event of Bill remains unpaid

The collecting in such events may arrange storage and

insurance for the goods as per remitting bank instructions
on the schedule.
Protests on behalf of the remitting bank (if the Remitting
Bank's schedule states Protest)
Requests further instruction from the remitting bank, if
there is a problem that is not covered by the instructions in
the schedule.
Once payment is received from the importer, the collecting
bank remits the proceeds promptly to the remitting bank
less its charges

rvl/MMIPAL r j

. i &fiEjpig
E ?| ItaruMi - l.
al -
uiamu j
 H i
?
**

Direct Document to Importer through

open Account ?
Documents through Banker under LjRC
Documents through Banker under LC

# MANtPAL
Cxpviid ig I
" " - ar
LM iri nj
What is the advantage of Letter of Credit ?

Pimporter/
oods
\
Buyer / Exporter / u
(
i
j Applicant) Seller )
Application no
Aa
Agreement
for L £ yi

D
<
Bank 3 Bank
Letter of
\ credit
\ Terms &
Condition 5

Docs
Correspondent
Issuing Bank Bank
Bank Guarantee Vs, Letter of Credit
Bank Guarantee Letter of Credit

] The issuing Bank undertakes The issuing Bank undertakes

To compensate u To Reward
the beneficiary J The beneficiary
: For the non performance For the performance
Of the applicant L Of the beneficiary

# MANIPAL
Cxpviid ig I
" " -LM iri NJ af
Letters of Credit
Letters of credit (LCs) ere one of the most secure instruments available to
international traders.
An LC is a commitment by a bank on behalf of the buyer that payment will be
made to the exporter, provided that the terms and conditions stated in the LC
have been complied in submission of documents in the manner and time.
The buyer establishes credit and pays his or her bank to render this service.
An LC is useful when reliable credit information about a foreign buyer is
difficult to obtain, but the exporter is satisfied with the creditworthiness of the
buyer’s foreign bank.
An LC also protects the buyer since no payment obligation arises until the
goods have been shipped as promised.

# IVI AN fFV\ l_
'

I I LM -
ir *: « ia Lunmir
^j
tfwt ail *

rvlAMI R/\ [_
C 7LM &!iclnig
^ - Lc*mlr -
rupia al j
&ICICI MANIPAL
Academy For Banking B Insurance
Expanding Horizons of Learning

Letter of Credit

,manipalglobal
4
TTT Academy of BFSI
Learning Objectives &ICICI MANIPAL
A o a d a m V F o r B a n k i n g B /n au r a
Expanding Horizons of Learning

❑ To understand the meaning and operation of letter of

credit
❑ Benefits of Letter of Credit
❑ To know the Parties to the letter of credit
❑ To Understand the Role of UCP 600 in Letter of credit

* manipalglobal
Academy of BFSI
Letter of Credit Introduction &ICICI MANIPAL
Expanding Horizons of Learning

M/s Krishna Enterprises, who deals in spice exports is a worried man.

His exports to the Middle East was done about 3 weeks back and it
was sent to one of the leading Chain of Department stores in Dubai.
The grade and package was customised to the requirement of the
buyer.

After the exports were completed, the buyer has now complained that
the goods supplied are not as per specification and hence they would
be returning the entire consignment, which is worth about AED
2,50,000

manipalglobal
^ Academy of BFSI
TTT
Need for an LC &ICICI MANIPAL
A o a d a m y F o r B a n k i n g & I n au r
Expanding Horizons of Learning

Trade transactions take place across the globe.

The seller expects that the payment for the goods supplied is to be made
immediately on delivery of the goods.

It may not be possible for the buyer to pay immediately. Also, the trade
practices in the market may force the seller to extend credit.

Under the said circumstances, the seller looks for some assurance or
promise by an institution for payment in case of default by the buyer.

The buyer looks for an acceptable channel for the movement of

documents of title to goods and someone to assure the seller of payment.

The buyer also desires to get the goods as per the specifications and terms
of contract.

LC facilitates meeting these requirements of both buyer and seller. Thus, it

promotes domestic and international trade.

manipalglobal
^ Academy of BFSI
Letter of Credit: Meaning of an LC &ICICI MANIPAL
Expanding Horizons of Learning

An undertaking issued by a bank

At the request and on behalf of the
buyer (Customer)
To pay the seller for the goods and
services supplied or rendered

Provided that the terms and

conditions stipulated in the Letter of
Credit are fulfilled as per Article 2 of
Uniform Customs and Practices for
Documentary Credits (UCPDC)

* manipalglobal
Academy of BFSI
 Uniform Customs and Practice for Documentary Credits (UCP) – 600

1. Contract
Seller Buyer
5. Shipment / Dispatch 12. Takes Delivery of
/v Goods Goods /V

2. Documentary Credit Appl

6.Documents
4. Advise Documentary

11. Settlement
10. Documents
7. Payment
Credit

v
V

8.Documents
Tt
D 9. Reimburse
Advising/ 3. Documentary Credit issuing Bank
Confirming Bank

6
Salient Features of LC
^ ICICf M AN I PAL
Expanding Horizons of Learning

Letter of credit is a non Fund Facility, an instrument of settling payments

Based on a sale contract/agreement between buyer & seller

Sophisticated and popular Instrument/method of payment used

worldwide

An undertaking by the bank on behalf of the buyer to make payment to

the seller

Payment upon compliance of T & C and submission of documents

mentioned in LC

Provides complete Financial Security to the Seller

manipalglobal
^ Academy of BFSI
TTT
 Uniform Customs and Practice for Documentary Credits (UCP) -
600

UCP 600 - ARTICLE 2 Applicant On whose request CREDIT is issued

Definitions

Nominated Bank Issuing Bank

With which CREDIT is available Issues a CREDIT

Documentary Credit-
UCP 600

Confirming Bank Advising Bank

Adds its confirmation to the CREDIT at Advises the CREDIT at

issuing Banks request issuing Banks request

Beneficiary
In whose favour CREDIT is issued
8
Parties to an LC &ICICI MANIPAL
HKP KQQRIQgQUQZQQQXQBQSEQ
^ Expanding Horizons of Learning

Reimbursement Applicant
Bank (Buyer)

/ \
Negotiating Bank Opening Bank
LETTER OF CREDIT

1
Beneficiary
(Seller)

L Advising Bank
Confirming Bank

manipalglobal
^ Academy of BFSI
TTT
 ft ICICI MANIPAL
Expanding Horizons of Learning

Party Description
Applicant Buyer who applies to issuing bank to open LC
Beneficiary Seller on whose name LC is opened
Issuing Bank Applicants bank that opens LC
Beneficiaries Bank Seller’s Bank
Advising Bank Bank in the seller’s country that advises authenticity of credit by the issuing
bank
Confirming Bank A Bank, other than the LC issuing bank that undertakes to honor or negotiate,
a complying presentation of documents by the beneficiary of the LC without
recourse to the beneficiary.

Negotiating Bank Beneficiary’s bank or bank nominated by the issuing a bank to pay/negotiate
complying presentation.

Reimbursing Bank Bank that reimburses the negotiating bank

manipalglobal
*
TTT Academy of BFSI
Letter of Credit: Advantages to Buyer
To Seller
1) Secured payments in case of credit
compliant documents
2) Opening Bank can not refuse
payment if credit terms are complied
3)Exporter can determine the date of
receipt of payment
4)Facilitates Pre & post shipment
finance.
5) Payment responsibility is on the
bank rather than buyer
^ ICICf M AN I PAL
Expanding Horizons of Learning
Advantages of LC
To Buyer
To Bank
1) Ensure that buyer receives goods
within delivery time 1)No immediate outlay of funds
2)Buyer assured of goods are shipped 2) Earns Fee Based Income
before payment 3) Relatively less cost of
administration 4)of non–fund-based
3)No need to part with funds
immediately business, as 5)compared to fund-
based business
4)Assures timelines to plan the
business process 6) Better utilization of the existing
resources for other fund-based credit
5) Provides clarity on terms and opportunities available in the market
conditions
manipalglobal
^
TTT Academy of BFSI
Letter of Credit & UCP
^ ICICf M AN I PAL
Expanding Horizons of Learning

• Uniform interpretation of the terms used in the credit(LC) was not possible for the parties concerned with the
transactions due to differences in the usages and terminologies in the different countries.
• The uniform Customs and Practice for Documentary Credits was evolved by the international Chamber of
Commerce(ICC) to address this issue
• The rules of Letter of Credit are issued and defined by ICC through their Uniform Customs & Practice for
Documentary Credits (UCP 600), used by Banks, Traders, ship owners and Insurers worldwide.
• The UCP is not a piece of law and does not bind the parties unless they subject themselves to it.
• In almost all the countries where the UCP has been adopted, including India, it is the practice to make it an
integral part of the transaction by including the following clause in the letter of credit.
• “Except so far as expressly stated, this credit is subject to the ‘Uniform Customs and Practice for
Documentary Credit’, 2007 Revision, International Chamber and Commerce Publication No.600.
• The UCP has attained universal acceptance to such an extent that in the case of dispute law courts refer to it for
interpretation of related terms

manipalglobal
^ Academy of BFSI
Learning Confirmation
^ICICf M AN I PAL
Expanding Horizons of Learning

State all the parties in a Letter of Credit and briefly

explain their role

manipalglobal
^ Academy of BFSI
Summary
^ ICICf M AN I PAL
Expanding Horizons of Learning

In this session we discussed,

• The meaning and operation of letter of credit
• The Parties to the letter of credit
• Understood the Role of UCP 600 in Letter of
credit

manipalglobal
^ Academy of BFSI
Questions &ICICI MANIPAL
A o a d a m V F o r B a n k i n g B /n au r a
Expanding Horizons of Learning

manipalglobal
IT Academy of BFSI
 ^ICICf M AN I PAL
Expanding Horizons of Learning

Thank you

manipalglobal
^ Academy of BFSI
 &ICICI MANIPAL
Academy For Banking B Insurance
Expanding Horizons of Learning

Types of Letter of Credit

,manipalglobal
4
TTT Academy of BFSI
Learning Objectives &ICICI MANIPAL
A o a d a m V F o r B a n k i n g B /n au r a
Expanding Horizons of Learning

❑ Types of letter of credit based on payment terms

❑ Classification based on nature of credit
❑ Special types of LC
❑ Amendments and cancellations
❑ Pricing
❑ RBI & Internal Guidelines

* manipalglobal
Academy of BFSI
 &ICICI MANIPAL
HKP KQQRIQgQUQZQQQXQBQSEQ
^ Expanding Horizons of Learning

M/s Modern Outlook Industries approaches ICICI Bank for opening of

an Import LC for import of zippers, labels etc., for about USD
1,00,000. During enquiries you ask him for an sale agreement,
proforma invoice for the import. At the same time you also enquire
for what kind of security would they be willing to offer for the import
LC. They show an Export order of high end jackets worth about USD
5,00,000. What would transaction indicate? Would you be willing to
establish the import LC?

manipalglobal
^ Academy of BFSI
TTT
 &ICICI MANIPAL
Classification of Letter of Credit m y F o r B a n k i n g

Expanding Horizons of Learning

& /n a u r

Classification of Letter of Credits

Based on Payment Based on Nature of

Special Types of LC
Terms Credit

Standby LC
Revocable LC Revolving LC
Sight LC
Irrevocable LC Transferable LC
Deferred Payment LC
Confirmed LC Back to Back LC
Usance LC
Unconfirmed LC Red Clause LC
Green Clause LC

manipalglobal
^ Academy of BFSI
TTT
Letter of Credit→ Classification Based on Payment Terms
^ ICICf M AN I PAL
Expanding Horizons of Learning

Sight Credit Credit: Under sight LC, the issuing bank undertakes to pay the
amount mentioned in the documents, on presentation thereof provided the
documents are strictly in compliance with the terms of the LC.
Usance or Acceptance LC: In case of usance LC, the seller agrees to extend
credit to the buyer and accepts payment after expiry of a certain period mentioned
in the documents submitted under the LC.
Deferred Payment LC: Is a Usance credit where, payment will be made by
designated bank, on respective due dates determined in accordance with
stipulations of the credit.

Underlying rule for all LC payments: The documents are strictly in compliance with
the terms of the LC

manipalglobal
^ Academy of BFSI
TTT
Letter of Credit→ Classification Based on Nature of Credit
^ ICICf M AN I PAL
Expanding Horizons of Learning

Revocable and Irrevocable Letter of Credit: Generally, a letter of credit is deemed to

be irrevocable and cannot be amended or cancelled without an express agreement of all
the parties concerned, i.e., the applicant, the issuing bank, the confirming bank, if any,
and the beneficiary.

On the other hand, a revocable credit issued by a bank may be amended or cancelled by
the issuing bank at any point of time, without giving any notice to the beneficiary.

Confirmed and Unconfirmed LC: A confirmed letter of credit is a letter of credit in which
the seller or exporter has payment guarantee from a second bank or a confirming bank
i.e. in case the first bank fails to pay then the payment will be done by the second bank

Unconfirmed Letter of Credit: A letter of credit which has not been guaranteed or
confirmed by any bank other than the bank that opened it. .

manipalglobal
^ Academy of BFSI
 Special Types of Letter of Credit
^ ICICf M AN I PAL
Expanding Horizons of Learning

Stand By LC: A standby letter of credit (SLOC) is a legal document that guarantees a bank's commitment of payment to a seller in
the event that the buyer–or the bank's client–defaults on the agreement.

Revolving LC: A revolving letter of credit is a single letter of credit that covers multiple transactions over a long period of time. It is
very specific in a way that it is used for regular shipments of the same commodity between the same buyer (importer) and the
seller (exporter).

Transferable LC: A Transferable Letter of Credit (LC) is a documentary credit under which the Beneficiary (first Beneficiary) may
request the bank specifically authorised in the credit to transfer the credit, available in whole or part, to one or secondary
Beneficiary (ies)

Back to Back LC: It is a letter of credit opened on the basis of an already existing non-transferable LC. The existing LC is the
security for the Back to Back LC. These are used in transactions involving an intermediary. Usually a trader receives a letter of
credit from a buyer and then opens another letter of credit in favor of the supplier. The first letter of credit serves as collateral for
the second credit. . Back-to-back letters of credits are used primarily in international transactions.
Red Clause LC: A Red Clause Letter of Credit is a specific type of letter of credit in which a buyer extends an unsecured loan to a
seller. Red Clause Letters of Credit permit documentary credit beneficiaries to receive funds for any merchandise outlined in
the letter of credit
Green Clause LC: This is a normal documentary letter of credit, which provides a secured form of credit in that exporters can draw
an agreed percentage of the value of the goods to be shipped against presentation of warehouse receipts as collateral.

manipalglobal
^ Academy of BFSI
Examples of types of Letter of Credit &ICICI MANIPAL
HKP KQQRIQgQUQZQQQXQBQSEQ
^ Expanding Horizons of Learning

r - SBLC: U.S banks generally do not issue bank guarantees but issue other types of promissory notes
that are intended to fulfill the same function. Instead of bank guarantees, U.S banks issue standby
letters of credit (SLOC), which are heavily used in international trade
- For example, if a crude oil ships oil to a foreign buyer with an expectation that the buyer will pay
within 30 days from the date of shipment, and the payment is not made by the required date, the
crude oil seller can collect the payment for goods delivered from the buyer's bank.

- REVOLVING LC: ( Example)

- Mr. Chetak from Rajastan is a manufacturer of ball pens and is a regular supplier to Mr. Wilson who
is based in the UK. They decide to have a transaction with a revolving letter of credit. On January 1,
2018, Mr. Will obtains a revolving letter of credit of USD 30,000.00 to be drawn each month by USD
5,000.00 for the next 6 months in the name of Mr. Chetak

v. - Revolving LCs could be based on Value or Based on Time

j
manipalglobal
^ Academy of BFSI
TTT
Examples of types of Letter of Credit
^ ICICf M AN I PAL
Expanding Horizons of Learning

Transferable LC- Example : M/s Deewan Traders gets an LC for USD 1,00,000 for supply of 5000 pairs of
Shoes @ USD 20. M/s Deewan Traders is an intermediary. He requests his bank to transfer this LC in
favour of Innocent Traders for a value of USD 75,000 for 5000 pairs of shoes @USD 15 per pair. Innocent
traders supplies the goods and presents their set of document with the Bill of exchange. Now Deewan
Traders will replace the documents and BOE with their own documents for USD 1,00,000 and presents for
payment after supplying the goods.

Back to Back LC Example:

Company ‘Abharana’ is a jewelry wholesaler. One of its buyers, a small department store, gives a letter of
credit to Abharana to assure them that it can pay for a large jewelry order it is placing.
In order to fill the large order, ‘Abharana’ must purchase a large amount of raw materials from one of its
suppliers. The supplier asks for a letter of credit from Abharana's bank. Thanks to the letter of credit from
the department store, Abharana knows it will get paid, and it is able to provide the letter of credit to the
supplier. This is a simple case of Back to Back LC.

manipalglobal
^ Academy of BFSI
TTT
Examples of types of Letter of Credit
Example of a Red Clause,
^ ICICf M AN I PAL
Expanding Horizons of Learning

In an LC, if we see this particular clause which extends an advance payment to the supplier even
before the goods are shipped… In the earlier days this clause was written in red ink to highlight.
However, after the SWIFT mode of LC transmission, it goes as an instruction to paying/negotiating
bank
78: Instruction to Paying/Accepting/Negotiating Bank
•30 PCT OF L/C AMOUNT SHALL BE PAID IN ADVANCE UPON RECEIVING ADVANCE PAYMENT
GUARANTEE,
•70 PCT OF L/C AMOUNT SHALL BE PAID UPON RECEIPT OF CREDIT CONFORM DOCS.
•PLS ADVISE US THE REMITTANCE OF THE DOCS. BY MT 754 MSG. QUOTING OUR REF.

•Example of Green Clause:

•It provides credit facility to the exporter not only for the purchase of raw materials, processing, and
packaging goods etc. but also pre-shipment warehousing at the port of origin and insurance expenses.
Normally credit is sanctioned when the purchased goods are stored in bonded warehouses. This type
LC usually used in the transactions relating to commodity market like wheat, rice, gold etc. IT is a
further extension of Red clause LC

manipalglobal
^ Academy of BFSI
TTT
More about Revolving Letter of Credit ^ ICICf M AN I PAL
Expanding Horizons of Learning

• It is a single Letter of Credit That covers Multiple Transactions over a long period of time
• Normally used for shipment of same commodity between the same importer and exporter
• It is issued only once for a certain period of time OR for certain number of transactions
• Avoids the need to have multiple transactions
Classified into RLC based on Time and Based on Value

(A) RLC Based on Time : Look at the following Example

Mr. IMPEX traders India is a Ready-made Garment Manufactures. They Export garments regularly to
M/S Macy’s USA. M/S impex obtains a revolving letter of credit of USD 120000/- which is to be utilized
every month to the extent of USD 10000 for the next 12 months. Every month M/S Impex can utilize
the LC facility to the extent of USD 10000 and export goods

Cumulative RLC: In this type of LC, unused LC of the previous month can be utilized in the coming
Months
Ex: If M/S Impex Export goods worth USD 8000 in January 2020 against LC entitlement of USD
10000/-, the unutilized LC balance of USD 2000 can be carried over to the next month and M/S IMPEX
can utilize a total of LC limit of USD 2000+USD 10000 during February

Non-Cumulative RLC: unutilized portion of a month cannot be carried forward to next month.
manipalglobal
^ Academy of BFSI
More about Revolving Letter of Credit
(B) Revolving Letter of Credit Based on Value
^ ICICf M AN I PAL
Expanding Horizons of Learning

Arrangement is similar to RLC based on time. In the example given earlier

• if the value of MFD goods in a particular month falls below USD 10000, then
shipment cannot happen since entire LC has to be utilized
• If value of MFD goods is more than USD10000/- then exports upto USD
10000 only can be made
• Excess Goods MFD in an earlier month can be carried over to next month
and exported within USD 10000/-

In both the cases LC expires at the end of the period

manipalglobal
^ Academy of BFSI
Letter of Credit: Amendments and Cancellations &ICICB MANIPAL
Expanding Horizons of Learning

➢ During the course of business, buyer and seller may agree to

change terms and conditions of contract
➢ If these changes are related to LC already opened, then changes
need to be made to LC.
➢ This process is called Amendment under LC
➢ Process similar to LC Issue. However, amendment has to be linked
to original LC
➢ In case of Irrevocable Credits, any amendment to LC requires
concurrence of the Beneficiary (Seller) & Confirming bank
➢ In case the LC is unutilised beyond the expiry date, the LC
becomes unavailable for payment
➢ Seller/ Buyer may also initiate cancellation, provided the other party
gives its consent
manipalglobal
Academy of BFSI
Pricing of a Letter of Credit &ICICI MANIPAL
Expanding Horizons of Learning

Commitment charges
Usance Charges
Collected from the date of
Collected for the credit
issue to expiry of LC and
period taken during
collected while opening
opening of the LC
of LC

Bill Retirement Charges Swift Charges

Collected on realisation of AS per Laws Governing
the bills under LC Letter of Credit

Ex: for Commitment Charges: Date of issuance: 01.01.2021, Date of Expiry: 30.03.2021- Hence the validity of LC is
31+28+30=89 days

Ex: for Usance Charges: If the payment is on Usance of 60 days, Usance charges are collected for 60 days
manipalglobal
^ Academy of BFSI
TTT
Issuance of Guidelines Governing Letter of Credit &ICICI MANIPAL
HKP KQQRIQgQUQZQQQXQBQSEQ
^ Expanding Horizons of Learning

FEDAI

1)Master Circular on 1) Apex forum of banks 1)Sector exposures

Imports, Exports, etc.. authorized to deal in 2)Inter bank limits
2)Circular on Import of foreign exchange
3)Customer limits
Aircraft 2) Issues guidelines
with the concurrence 4)Opening Charges
3) Circular on Import of
Gold of RBI for smooth 5)Confirmation Charges
conduct of foreign
exchange transactions 6)Discrepancy Charges

manipalglobal
IT Academy of BFSI
Regulatory Bodies Governing Letter of Credit

-Uniform Customs and Practices for Documentary Credits (UCPDC) 500 / 600
^ ICICf MANIPAL
Expanding Horizons of Learning

-Uniform Rules for Collection 522, 1995 (URC 522)

IGC -Uniform Rules for Bank to Bank Reimbursement 725 (URR 725)

WA
-International Standard Banking Practices (ISBP)
INCO Terms 2010

i
*
v

EXIM Policy implemented by Directorate General of Foreign Trade

Ministry of Commerce
and Industr> r

Govt of India

< Foreign Exchange Management Act implemented by RBI

i Ministry RBI Guidelines
of Department of Revenue - Customs & Excise

^ Finance Investment
Guidelines for Imports, Exports, Remittances, Foreign Currency Loans, Foreign Direct
v

manipalglobal
^ Academy of BFSI
TTT
Documents Required under Letter of Credit &ICICI MANIPAL
A o a d a m V F o r B a n k i n g B /n au r a
Expanding Horizons of Learning

Financial Documents • Bill Of Exchange

• LC Application(Duly stamped),Commercial Invoice, Proforma

Commercial Documents Invoice, Certificate of analysis, weight Certificate, Packing list etc
I

• Bill of Lading, Airway Bill, LR/RR/AWB/Courier & Post receipts

Transport Documents

Insurance Documents • Insurance Policy, cover note and Insurance Certificate

• Certificate of origin, Import/Export License, A2 form,

Regulatory Documents EDF/SOFTEX etc

manipalglobal
^ Academy of BFSI
TTT
 &ICICI MANIPAL
Learning Confirmation HKP KQQRIQgQUQZQQQXQBQSEQ
^ Expanding Horizons of Learning

➢ Mention the broad classification of Letters of

Credit

➢ Who are the regulators for LC transactions

➢ Which are the 5 main type of documents

required in LCs

manipalglobal
^ Academy of BFSI
TTT
Summary
^ICICf M AN I PAL
Expanding Horizons of Learning

In this session, we discussed

• The different types of Letter of credit & Documents

under Letter of Credit
• The role of various regulators influencing the Letter of
credit

manipalglobal
^ Academy of BFSI
Questions &ICICI MANIPAL
A o a d a m V F o r B a n k i n g B /n au r a
Expanding Horizons of Learning

manipalglobal
IT Academy of BFSI
 ^ICICf M AN I PAL
Expanding Horizons of Learning

Thank you

manipalglobal
^ Academy of BFSI
&ICICI MANIPAL
Academy For Banking B Insurance
Expanding Horizons of Learning

INCOTERMS

,manipalglobal
4
TTT Academy of BFSI
Learning Objectives &ICICI MANIPAL
A o a d a m V F o r B a n k i n g B /n au r a
Expanding Horizons of Learning

After the completion of this unit, you will be able to:

➢ To understand the need for contract terms
➢ To choose the appropriate INCOTERM depending on
mode of transport
➢ To understand the rights and obligations of parties
under INCOTERMS

* manipalglobal
Academy of BFSI
INCOTERMS: INTRODUCTION
^ ICICf M AN I PAL
Expanding Horizons of Learning

Mr. Mukesh representing Global Impex, one of your

valued Current account and Trade customers visited
your branch with a couple of documents. Apparently
he had joined the company recently. He was
apparently confused as some of the terms used in the
documents were not clear. They were FOB,DIF, CFR
etc., You will have to explain what these mean..

manipalglobal
^ Academy of BFSI
TTT
Why Incoterms? MANIPAL
Expanding Horizons of Learning

A trade contract is an agreement between the

parties, containing terms and conditions,
which impose rights and obligations on buyer
and seller.
The parties to a contract may not be aware of
different trading practices in their respective
countries.
This leads to a different interpretation of the
trade practices/rules regulations giving rise to
misunderstanding, dispute and litigation
resulting in wastage of time and money on
both sides.
It could also lead to trade disruptions between
countries and straining the relationships
Solution
The INCOTERMS (International
Commercial Terms) evolved
and published first in 1936 by
International Chamber of
Commerce brought uniformity
in interpretation.
Revised further in
1953,1967,1980,1990,2000,201
0and presently 2020 launched
in September,2019, came into
force on 1 January,2020.

manipalglobal
Academy of BFSI
What are Incoterms? MANIPAL
Expanding Horizons of Learning

The Incoterms or International Commercial Terms are a series of pre-defined

commercial terms published by the International Chamber of Commerce (ICC)
relating to international commercial law

fee* E They are widely used in International commercial transaction or procurement

processes.

* The Incoterms rules are intended primarily to clearly communicate the tasks,
costs, and risks associated with the global or international transportation and
delivery of goods.

manipalglobal
^ Academy of BFSI
TTT
What the Incoterms rules do?
^ ICICf M AN I PAL
Expanding Horizons of Learning

• Not a substitute for a Contract of Sale

The Incoterms rules explain a set of eleven of the most
• Not for any particular type of goods-
commonly used three-letter trade terms, e.g., CIF, DAP, etc.,
applicable to all goods
reflecting business-to-business practice in contracts for the sale
• Does not deal with the transfer of
and purchase of goods.
property/ title/ownership of the goods
The Incoterms rules describe,
sold
Defines Obligations: Who does what as between seller and
buyer, e.g., who organizes carriage or insurance of the goods or
who obtains shipping documents and export or import licenses; CFR CIF
EXW FCA FAS FOB Dtf DPU DOP
Transfer of Risk: Where and when the seller “delivers” the CRT CIP

goods; in other words, where risk transfers from seller to buyer

••
t A
Cost sharing: Which party is responsible for which cost, for
fn porter
example, transport, packaging, loading or unloading costs, and Til*

*rr*T
checking or security-related costs.

manipalglobal
^ Academy of BFSI
TTT
INCOTERMS..EXPLAINED MANIPAL
Expanding Horizons of Learning

INCOTERMS

A
Exporter’s ‘D’
Responsibility > DAP / DPU / DDP
terms
F

‘C’
> CFR /CIF/ CPT /CIP
terms
INCOTERMS
‘F’ EXW
FOB
DAP
> FCA / FAS / FOB DDP

terms CFR / CIF

‘E’
DAP

> Exw
terms
Seller ’ s Obligation C myseatime.com

INCOTERMS

manipalglobal
7
^ Academy of BFSI
TTT
INCOTERMS EXPLAINED
^ ICICf M AN I PAL
Expanding Horizons of Learning

EXW: Ex Works– (named place). Here the seller delivers the goods at his premise (or other named point) to
the buyer and is not responsible for the vehicle, loading, or for clearing the goods for export. His
responsibility ends by manufacturing or otherwise making available the goods at his premises. The buyer has
to arrange to bear all responsibility from here. Seller’s (exporter’s) place is the named place

FCA: Free Carrier – (named carrier at named place). The seller’s obligation is complete when he hands over
the goods cleared for export to the carrier named by the buyer at the named place. If the buyer indicates no
precise point, the seller may choose within the range stipulated, where the carrier shall take control of the
goods. Here carrier means any party, including a forwarder, who performs or procures transport by rail, road,
sea, air, inland waterway, or multiple modes. The goods are to be cleared for exports by the seller. Seller is
responsible for loading if the terms states “FCA at the seller’s facility”.

FAS: Free alongside Ship – (named port of shipment). The seller places goods alongside the vessel at the
named port of shipment, cleared for export. The buyer bears all costs and risks of loss or damage to the
goods from that point on. Free alongside ship does not include charges for loading the goods on board the
vessel. It also does not include ocean freight charges and marine insurance cost. The goods are to be cleared
for exports by the seller.
manipalglobal
^ Academy of BFSI
Incoterms explained
^ ICICf M AN I PAL

FOB: Free on Board – (named port of shipment). This is one of the commonest Incoterms
Expanding Horizons of Learning

used. Generally the exporter knows that under this term, freight will be paid at the destination
by the Importer and also the transit insurance premium. Seller delivers goods at the named
port of shipment, cleared for export. FOB price includes ex-works price, packing charges,
transportation charges up to the place of shipment, wharfage and portage, customs dues,
export duties and cost of checking of quality measure, weight or quantity, if any. The buyer
bears all costs and risks of loss or damage to the goods from that point on. Transfer of risk
takes place once goods have passed the ship’s rail at the named port of shipment.

CFR: Cost and Freight – (named port of destination). This is the first of the C terms i.e. with
the lowest responsibility for seller under C terms. The seller clears goods for export, delivers
goods to the named port of destination, and pays for it. Risk of loss or damage, as well as any
additional costs due to events occurring after the time the goods have been delivered on
board the vessel, is transferred from the seller to the buyer when the goods pass the ship’s rail
at the port of shipment.
manipalglobal
^ Academy of BFSI
INCOTERMS EXPLAINED
^ ICICf M AN I PAL
Expanding Horizons of Learning

CIF: Cost, Insurance, and Freight – (named port of destination). The seller has the same obligations as in CFR above and
additionally he must procure marine insurance against the buyer’s risk of loss or damage to the goods during the carriage.
Thus, the seller takes the marine insurance and pays the insurance premium. If the contract does not specify anything further,
the seller’s obligation under this term is met with only minimum coverage of insurance taken (110%).

CPT: Carriage paid to – (named place of destination). The seller clears goods for export, delivers goods to the carrier, and pays
the freight for the carriage of the goods to the named destination. Risk of loss or damage to the goods, as well as any
additional costs due to events occurring after the time of goods have been delivered to the carrier is transferred from the
seller to the buyer when the goods have been delivered to the carrier. If subsequent carriers are used for the carriage to the
agreed destination, the risk passes when the goods have been delivered to the first carrier.

CIP: Carriage and Insurance Paid To – (named place of destination). Seller has the same CPT obligations as above. In addition,
he must procure cargo insurance against the buyer’s risk of loss or damage to the goods during the carriage. The seller
contracts for insurance and pays the insurance premium.

• The seller is under the obligation to take out under contract, transport insurance in favour of the buyer with extensive
coverage, which corresponds to Clause A of the Institute Cargo Clauses . Nevertheless, the parties may agree to take out
insurance which offers reduced coverage (Clause C of the Institute Cargo Clauses). This is one of the major changes from
INCOTERMS 2010.
• The seller is required to clear the goods for export. This term may be used for any mode of transport including multimodal
transport.
manipalglobal
^ Academy of BFSI
INCOTERMS EXPLAINED
^ ICICf M AN I PAL
Expanding Horizons of Learning

DAP - Delivered at place (…named place of destination): Under DAP terms, the seller is responsible for arranging
carriage for delivering goods at the named place and assumes all risks till the goods are ready for unloading by
the buyer from the arriving means of transport

DPU- Delivered at Place Unloaded requires the seller to deliver the goods at the disposal of the buyer after
they’ve been UNLOADED from the arriving means of transport.

DPU is the only Incoterms rule that requires the seller to unload goods at the place of destination.
DPU can apply to any—and more than one—mode of transport. The buyer and seller should specify and agree
upon a named place of destination.
DPU requires the seller to clear goods for export, where applicable, without any obligation to clear the goods
for import, pay import duty or carry out import customs formalities.

DDP: Delivered Duty Paid – (named place of destination). The exporter delivers the goods at the named place in
the country of import. The exporter bears the costs and risks, including duties, taxes and other charges to deliver
the goods cleared for import. As earlier said, while the EXW term represents the minimum of obligation for the
seller, DDP represents the maximum obligation
manipalglobal
^ Academy of BFSI
INCOTERMS KEY CHANGES
^ ICICf M AN I PAL
Expanding Horizons of Learning

FCA has been changed to allow the parties to agree for the buyer to direct the carrier to issue the “on
board” bill of lading to the seller.
• In the Incoterms 2020 version, this option is specified, for maritime transport
• Accordingly, the buyer may instruct the carrier (shipping company or its agent contracted by seller)
to issue a bill of lading with the annotation “Aboard” ( “on board”)
• The annotation “Aboard” implies that, the goods have been loaded aboard the ship
• This is the most common shipment document which is used in the letter of credits transactions in
order to substantiate the delivery of the goods and, thereby, payment of the credit to the seller

3.2 DAT is changed to DPU. The reference to terminal has been removed to make it more general.

3.3 Change of insurance coverage in CIP/CIF: CIF keeps the same insurance requirements (i.e Clause C)
but CIP has increased the Insurance required to Clause A (Institute of Cargo Clauses).

manipalglobal
^ Academy of BFSI
 INCOTERMS* 2020 RULES
CHART OF RESPONSIBILITIES AND T R A N S F E R OF RISK
Any Transit Mode Sea /lnland Waterway Transport Any Transport Mode

EXW FCA FAS FOB CFR CIF CPT CIP DAP DPU DDP

Free Free Cost Carriage Delivered Delivered Delivered

Free On Cost & Carriage
Ex Works Carrier Alongside Insurance Insurance at Place at Place Duty Paid
Board Freight Paid To
Ship & Freight Paid To Unloaded
At Named
At Buyer ' s On Buyer ' s Alongside On Board On Board On Board At Named At Named
Transfer of Risk Disposal Transport Ship Vessel Vessel Vessel
At Carrier At Carrier
Place
Place
Place
Unloaded

Charges/Fees

Packaging Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller

Loading Charges Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller

Delivery to Port/
Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller
Place

Export Duty, Taxes

Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller
& Security Clearance

Origin Terminal
Buyer Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller
Charges

Loading on Carriage Buyer Buyer Buyer Seller Seller Seller Seller Seller Seller Seller Seller

Carriage Charges Buyer Buyer Buyer Buyer Seller Seller Seller Seller Seller Seller Seller

Insurance Seller Seller

Destination Terminal
Buyer Buyer Buyer Buyer Buyer Buyer Seller Seller Seller Seller Seller
Charges

Delivery to
Destination Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Seller

Import Duty, Taxes

& Security Clearance Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Seller

SHIPPING SOLUTIONS Export Documentation and Compliance Software COPYRIGHT © 2019, INTERMART " , INC. ALL RIGHTS RESERVED.
INTERMART, SHIPPING SOLUTIONS AND THE SHIPPING SOLUTIONS LOGO ARE
1.888. 890.7447 www. shippingsolutions. com info @ shipsolutions.com REGISTERED TRADEMARKS OF INTERMART, INC. INCOTERMS IS A REGISTERED
This chart is designed to provide a basic level of understanding of Incoterms • 2020 Rules published by the International Chamber of TRADEMARK OF THE INTERNATIONAL CHAMBER OF COMMERCE.
Commerce ( ICC ). For a more detailed explaination, visit the ICC website.
Incoterms: A bird’s Eye View MANIPAL
Expanding Horizons of Learning

INCOTERMS 2020
Point of Delivery and Transfer of Risk

* *

Alongside Loading
\
-
Destination Alongside
T
First Carrier BUYER
Ship
• Port m Port Shiip
t
EXW EX WORKS AGREED PLACE

FCA FREE CARRIER AGREED PLACE

FAS FREE ALONGSIDE SHIP PORT OF LOADING

FOB FREE ON BOARD Q PORT OF LOADING

CFR COST & FREIGHT ! PORT OF DESTINATION

> :
*H
CIF COST , INSURANCE & FREIGHT i PORT OF DESTINATION
CPT COST PAID TO PLACE OF DESTINATION

CIP > CARRIER & INSURANCE PAID TO PLACE OF DESTINATION

DPU
if: DELIVERED AT PLACE UNLOADED O PLACE OF DESTINATION
DAP
DDP
)>
^ DELIVERED AT PLACE

if: DELIVERED DUTY PAID

4) DESTINATION
rrI > DESTINATION

SELLER S OBLIGATION TRANSFER OF RISK BUYER' S OBLIGATION

ill Academy of BhSI

Learning Confirmation
^ICICf M AN I PAL
Expanding Horizons of Learning

1. State the INCOTERMS rules

2. What do INCOTERMS do?

3. List the items which are not covered by INCOTERMS

4. Mention the changes in INCOTERMS 2020

manipalglobal
^ Academy of BFSI
Summary
^ ICICf M AN I PAL
Expanding Horizons of Learning

In this session, we discussed

• Understood the need for contract terms

• The appropriate INCOTERM depending on mode of transport
• Understood the rights and obligations of parties under INCOTERMS

manipalglobal
^ Academy of BFSI
Questions &ICICI MANIPAL
A o a d a m V F o r B a n k i n g B /n au r a
Expanding Horizons of Learning

manipalglobal
IT Academy of BFSI
 ^ICICf M AN I PAL
Expanding Horizons of Learning

Thank you

manipalglobal
^ Academy of BFSI
 &ICICI MANIPAL
Academy For Banking B Insurance
Expanding Horizons of Learning

PROCESSING DOCUMENTARY CREDIT

,manipalglobal
4
TTT Academy of BFSI
Learning Objectives &ICICI MANIPAL
A o a d a m V F o r B a n k i n g B /n au r a
Expanding Horizons of Learning

After the completion of this unit, you will be able to:

• Understand the meaning and operation of letter of
credit
• Know the Parties to the letter of credit
• Understand the Role of UCP 600 in Letter of credit

* manipalglobal
Academy of BFSI
Introduction &ICICI MANIPAL
A o a d a m y F o r B a n k i n g & I n au r
Expanding Horizons of Learning

In earlier modules we have learnt about

• Letter of credit
• Need for letter of credit,
• Parties to a letter of credit
• Benefits of Letter of Credit
• Types of letter credit

We will now understand the process of letter of credit

manipalglobal
^ Academy of BFSI
Letter of Credit Introduction &ICICI MANIPAL
HKP KQQRIQgQUQZQQQXQBQSEQ
^ Expanding Horizons of Learning

Mr. Rishi Patel owns a Plywood manufacturing unit in the outskirts of Bangalore. He
used to procure the timber which is the biggest raw material from Dandeli forests in
Belgaum. Due to lot of unrest created by the environmental activists on deforestation,
the raw material supply has seriously got affected and Mr. Patel’s business as well.
Somewhere he found out that countries like Burma and Indonesia have rich forest
cover and plywood manufacturers elsewhere in the country and importing the timber
from these countries. Since Mr. Patel was not familiar with the transactions, he has
approached you for advise.

What are the options for Mr. Patel you would suggest and what is the best one among
the options

manipalglobal
^ Academy of BFSI
TTT
Glossary (Common Terms) of Letter of Credit
^ ICICf M AN I PAL
Expanding Horizons of Learning

• Applicant of an LC – Is the ‘Buyer’ in the transaction

• Beneficiary of an LC- Is the ‘Seller’ in the transaction
• LC Issuing Bank- Applicant’s bank who issues the LC
• Advising Bank- Bank through which the LC is advised to the Beneficiary
• Negotiating Bank- The Bank which negotiates the documents and gives the
funds to the beneficiary
• ( Most of the times Advising and Negotiating Bank may be the same bank in
the Beneficiary’s Country)
• Proforma Invoice- The first document given by the Seller to the Buyer before
entering into an agreement
• Purchase Order- The first document given by the Buyer to the Seller before
the agreement
• Purchase/Sale Agreement- The document which stipulates the terms and
conditions of the transaction, time and place of delivery, sharing of costs,
pricing etc.,

manipalglobal
^ Academy of BFSI
TTT
 Buyer’s Bank (Issuing Bank) Seller’s Bank (Advising / Negotiating Bank)
LC Process Flow
8. Issuing Bank pays to Advising Bank
V
lllllllllllllllll
lllllllllllllllll

2. Issuing Bank issues LC to Advising Bank

6. Negotiating bank gives Proof of Shipping to
Issuing Bank
i
»

1. Buyer asks his 7. Bank collects 5. Seller submits 3. Advising bank

¥

¥
Bank to issue LC money from Buyer & Proof of Shipping to notifies the Seller
against Sale gives him Proof of Negotiating Bank about the LC
Contract Shipping

4
¥

Documents
Sale Contract
Seller
Buyer
4. Seller send the
9. Buyer gives the
Shipment
Shipping of Goods goods through the
(Export) Shipper & collects
Documents to Goods Delivered Proof of Shipping
Shipper & collects (Import)
the Goods
Shipper
6
Process Flow of a Letter of Credit
^ ICICf M AN I PAL
Expanding Horizons of Learning

1. Beneficiary ( Seller) and Applicant ( Buyer) mutually agree on the terms and conditions of LC to avoid
any amendments in future
2. The Beneficiary also sends the Applicant, a copy of their "Letter of Credit Guidelines" to ensure that
the credit shall open properly to avoid any costly amendments later
3. Buyer approaches his bankers for issuance of the LC.
4. Banker checks the eligibility etc of the Applicant and agrees to open LC
5. A Completed Letter of credit application (Stamped) is submitted to the bank by the applicant
6. If necessary, credit opinion on the seller is taken from M/s Dun & Bradstreet.
7. The Issuing Bank issues LC & forwards the same to an advising bank, in the country of the beneficiary.
8. The Beneficiary must carefully review/scrutinize the requirements of the Letter of Credit to ensure
that LC is issued as per the agreed terms.
9. The Beneficiary should make sure to comply with all stipulations, such as shipping terms,
documentary requirements, shipping and/or expiration dates and packing and marking conditions and
the terms are as per the law of the land for compliance

manipalglobal
^ Academy of BFSI
Process flow of Letter of Credit Continued
^ ICICf M AN I PAL
Expanding Horizons of Learning

10. Immediately on receipt of LC, the beneficiary should verify to ensure all the terms are as per contract / agreement.
11. If the Letter of Credit has terms that are not as per the agreement, the beneficiary should request an amendment
to the Letter of Credit.
12. This request is made directly to the applicant, who then instructs the opening bank to amend the Letter of Credit
13. After goods are shipped, the transport document is acquired by the beneficiary is presented to the negotiating bank
along with other documents as stipulated in the LC.
14. The negotiating bank may or may not be the advising bank
15. Scrutiny of documents by negotiating bank
16. If the documents are credit complied, the negotiating bank will pay the beneficiary, or forward the documents to the
opening bank for payment, depending on the terms of the Letter of Credit.

Note :
• Most of the times, there would be only two Banks.
• The buyers’ Bank, called as Issuing or Opening Bank and the Sellers’ Bank called Negotiating Bank.
• Advising Bank and Negotiating Bank would be the same.
• Also, the Issuing Bank and Reimbursing Bank would be the same Bank.
manipalglobal
IT Academy of BFSI
Letter of Credit_ process flow &ICICI MANIPAL
Expanding Horizons of Learning

Buyer arranges for his Bank to open a LC in favour of

Buyer and Seller agree on contract for sale
seller (Beneficiary of the LC)

Buyer's (Issuing) bank sends LC to Advising Bank Advising bank forwards the LC to the Seller

Seller presents the shipping documents to the

Seller prepares the goods and arranges for shipment
Negotiating Bank

Negotiating bank provides credit to beneficiary (Seller)

The Reimbursing Bank / Issuing Bank pays the
and forwards a reimbursement claim to the
Negotiating Bank on due date
Reimbursing Bank or Issuing Bank

On receipt of payment, the Negotiating Bank adjusts Once the Issuing Bank receives the documents it
outstanding export bill releases the documents to the buyer

The issuing bank debits the applicant account and Buyer receives the documents and takes possession of
adjusts the debit entry in the Nostro account the good

manipalglobal
^ Academy of BFSI
TTT
Import and Export LC process overview, check list & precautions ft ICICI MANIPAL
Expanding Horizons of Learning

Import LC
1 LC Application 2 Order Confirmation
3 Negative list - undertaking 4 Status/credit report on seller
5 Sanctioning of Limits 6 Margin
7 Commission/fee 8 Opening of Import LC – Non Funded Credit
9 Correspondent Bank 10 Swift
11 Amendment 12 Reimbursement Instruction
13 Pre shipment Certificate 14 Lloyds Clause
15 Scrutiny of Documents received 16 Discrepancies
17 Settlement 18 Devolvement/crystallization
Export LC
1 Exports are the major focus of India’s Trade 2 Exporters have the obligation to realize the
Policy. proceeds within the prescribed time limit

3 With a LC opened in their favour they feel 22

secured

* manipalglobal
Academy of BFSI
Letter of Credit: Safeguards to be observed
^ ICICf M AN I PAL
Expanding Horizons of Learning

c
General
Advising Bank
-Issuing bank should be of international repute
-Advising bank should preferably be in seller’s place
-Buyers’ country should not have any restrictive
-It should clearly state that the message they are
policies
conveying is an authenticated one.
-Payment should be available in convertible foreign
-In case authenticity is called for exporter should
exchange
follow up and shall proceed only after receiving the
-There should not be any externalization problem
same
-LC should not contain any onerous clauses
-Enquiries should also be made to ensure that the
-It should conform to the terms and conditions
advising bank has actually advised the LC
agreed by the exporter

manipalglobal
^ Academy of BFSI
TTT
Letter of Credit: Safeguards to be observed
^ ICICf M AN I PAL
Expanding Horizons of Learning

c
Verification of Terms & Conditions
Amendment
-Exporter should go through all terms and
-In case of inability to comply with any of the terms
conditions and feel comfortable complying with
mentioned or documents called for, exporter should
them.
take up the matter with the applicant and seek
-The list of documents called for should be carefully
amendment
perused and the exporter should not have any
-Amendment received not at the instance of the
difficulties in producing them
exporter is subject to acceptance by the exporter
-In case of any doubt or lack of clarity necessary
-Amendment cannot partially be accepted/rejected
clarification should be obtained well in advance and
-Amendment should be advised by the same bank
satisfied with
which has advised the LC initially

manipalglobal
^ Academy of BFSI
TTT
Letter of Credit: Safeguards to be observed
c
Restricted /Confirmed LC :
LC should enable the exporter to negotiate
documents through his bankers.
Possibilities of removing restrictions should be
explored
In case of confirmed LC, presentation of documents
should be much before the expiry date ensuring
headroom for making changes required ,if any,
before the expiry date
^ ICICf M AN I PAL
Expanding Horizons of Learning
Discrepancies/paid under reserve:
In case of issuing bank notifying discrepancies and
holding documents at the disposal of the
negotiating bank exporter’s consent is obtained
before allowing the issuing bank to handle the
documents on collection basis.
manipalglobal
^ Academy of BFSI
TTT
Case Study
^ ICICf M AN I PAL
Expanding Horizons of Learning

Case study:

The Senior Manager – Impex of an importer customer SR

Industries Ltd., comes with an email print to you as his RM and
wants your advise on sending the LC to the beneficiary’s bank
directly. However, the beneficiary’s banker has no credit lines or
any earlier transaction with your bank. They are not comfortable
accepting the LC from your bank. What would be the
alternatives you would suggest your customer

manipalglobal
^ Academy of BFSI
TTT
Compliance with Regulators & Applicability of UCP600 &ICICI MANIPAL
Expanding Horizons of Learning

Opening of letter of credit involves compliance with :

• Trade control requirement- IEC code No. and movement of goods into India
• FEMA guidelines- Payment and receipt under Exchange control regulation of

V
•
•
FEMA
Credit Norms of RBI- RBI regulation on Import finance
FEDAI guidelines & Bank’s Internal procedures J I
I
I

fl % \
l! ! l

rApplicability of UCP_600

• The uniform Customs and practice for Documentary credits,2007 Revision no.600(“UCP”)
are rules that apply to any documentary credit(“credit”) when the text of the credit
\
11 ait
II

expressly indicates that it is subject to these rules

i, i
I
i,
I
• They are binding on all parties unless expressly modified or excluded by the credit

• ICICI Bank has incorporated a clause in LC agreement form which reads as “ Except as
otherwise expressly stated IN THIS APPLICATION AND THE FACILITY AGREEMENT the
credit is subject to the Uniform Customs and Practice for Documentary Credits as contained
in the latest International Chamber of Commerce publication.” j
manipalglobal
^ Academy of BFSI
TTT
Activity
^ICICf M AN I PAL
Expanding Horizons of Learning

Arrange the following in chronological order of occurrence of the events

1. Debit the importers’ account

2. Apply for Import license
3. Issue the LC
4. Apply for Importer Exporter Code
5. Release the documents to importer
6. Receive the documents from Negotiating Bank

manipalglobal
^ Academy of BFSI
Learning Confirmation
^ ICICf M AN I PAL
Expanding Horizons of Learning

• List out the Common Terms used in LC

• Name the various Parties to LC
• Explain the roles of various banks involved in the Flow of Letter
of Credit
• What are the Steps involved in issuance of LC

manipalglobal
^ Academy of BFSI
Summary
^ICICf M AN I PAL
Expanding Horizons of Learning

In this session, we

• Understood the meaning

and operation of Letter of credit
• Listed the Parties to the Letter of credit
• Understood the Role of UCP 600 in Letter of
credit

manipalglobal
^ Academy of BFSI
Questions &ICICI MANIPAL
A o a d a m V F o r B a n k i n g B /n au r a
Expanding Horizons of Learning

manipalglobal
IT Academy of BFSI
 ^ICICf M AN I PAL
Expanding Horizons of Learning

Thank you

manipalglobal
^ Academy of BFSI
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HANDLING OF DOCUMENTS
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Section 50 J

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Devanshu [
^ Satyam [ Udit [ *$;
Learning Objectives &ICICI MAMi .

After the completion of this unit, you will be able to:

* Understand the purpose and contents of various documents
in Trade
* Check- list for scrutiny of documents
* Key Points in Scrutiny
* Common Discrepancies in Handling
* Understand the provisions of UCP relating to documents
under Letter of credit

mampaigio
ITT Academy of BFSt
Introduction: &idCM MANIFAL

LC deals with documents and not with goods

Importer specifies Documents to be submitted by seller while opening LC
itself
Seller has to submit the documents once the goods are exported
These documents are thoroughly scrutinized first by Negotiating Bank an
then by issuing bank
Negotiating and the Issuing Bank to release payment only on receipt of th
specified documents from the seller.
LI Seller or Beneficiary, has to check whether the terms and conditions in the L IMPOST

A
j
moy

-
are as per terms of contract or agreed upon and whether they ar INDIA

performable or not.
Lt If found non-performable or if they do not conform to the terms agree
upon, he has to take up with applicant /importer and get it
modified/amended .
U The beneficiary has to further ascertain whether he is able to meet the
requirement of any additional document or conditions specified in the LC
otherwise seek modification /deletion
The very purpose of letter of credit is to bring certainty in shipment and payment.
mantpaigiooa
W Academy 3FSI
 Common Discrepancies-ICC &ICICI MANIPA

International Chamber of Commerce( ICC )has shared most

common ten discrepancies as guidelines which are as
follows

Documents not presented in time (within time allowed or 21

days )
Absence of documents requested in the LC
Description of goods on invoice differs from that on the LC
Claused bill of lading/ transport document
Invoices not certified as requested
<• Insurance not effective from the date of shipment
Documents inconsistent with each other
Sill of exchange not drawn in accordance with the LC
> Late shipment
Top 10 Letter of
No evidence of goods shipped on board.

w manipaigioDa
Academv of BPS1
List of Common Discrepancies: ICiC! BANK FINDNGS ^ /acf r A ANIPAi

1. Late Negotiation - Submission of documents after expiry of L/C,(field 31D)

2. Late shipment of goods,{ field 44C)
3. Late presentation of documents, dven when the L/C is current. Sometimes,
documents are not submitted within limitation period if specified in the L/C or within
21 days from date of shipment.
4. Drawings in excess of UC amount(field 32B, 39B )
5 . Shipments made from or shipped to ports other than those stipulated in the
L/C.( field 44E)
6. Partial shipments / trans shipments effected, not authorized by the L/C.( fie!d 43P &
43T)
7 . Bill of Lading / AWB not property signed, not properly dated or not properly
stamped. Alterations, if any. not properly authenticated ,

8. Presentation of insufficient or incomplete set of B/L ,

9. Presentation of claused Bill of Lading / Received for Shipment Bill of Lading / Short
form Bill of Lading / Charter party Bill of Lading, when not permitted in the UC.
10. Presentation of Bill of Lading in which lOn Board’ notation not dated ,

( Field refers to letter of credit format * MT 700 Swift Message Field Specifications )

manipaigioLIE
ITT Academy of BF SI
List of Common Discrepancies: ICICI BANK FINDNGS. . .Continued MANIFWL

11. Inconsistencies in the weight declared in the invoice , the weight list, and other
documents.
12. Presentation of documents like Invoice, Packing List, Weight List , Insurance
Certificate, Certificate of Origin, Inspection Certificate , Bill of Lading / AWB etc
that are inconsistent with each other.
13. Inadequate insurance cover.
14. Presentation of insurance documents, unsigned, undated or unstamped and
drawn in a currency other than that of the L/C.
15.Insurance document dated after the date of shipment .
16. Description of goods, including charges in the invoice, not authorized by the
L/C.(field 45A )
17. Insufficient number of copies of various documents as calted for in the LVC.
18. Non-submission of certain documents as called for in the UC.( field 46 A )

( Field refers to letter of credit format * MT 700 Swift Message Field Specifications )
 &ICICI MANIPA (
Key points in Scrutiny & Checking

transaction
Scrutiny of documents : Check all the documents whether the Names of parties involved in the
product , amount , currency, locations, terms of payment are consistent

AML related checks : TSU checks Remitter Details, Beneficiary Details & Any other proper
noun involved in the
transaction

Charge Modules (CAL ),

Over dues, CAL & Charges: Collect exchange margin and charges as per Omni flow
TRC or Standard Charges.
 ft ICICI MANIPAL
Academy For Banking 6 Insurance
Expanding Horizons of Learning

Topic:
Pre-shipment Finance to Exporters
 &ICICI MANIPAL
Expanding Horizons of Learning

Learning Objectives

• Understanding Pre-shipment finance Pre-shipment

• Types of Pre-shipment finance, Eligibility Finance
• Method of disbursement, liquidation of Packing Credit
• Pre-shipment finance in Foreign Currency

ELIGIBILITY
Identify the methods of calculating depreciation
 B
MANIPAL &
Expanding Horizons of Learning

Introduction
• RBI first introduced the scheme Export Financing in 1967.
• The scheme is intended to make short-term working capital finance available to
exporters at internationally comparable interest rates.
• Finance to Exporters is a national Priority and wonderful business opportunity for
the Bank.
General Guidelines regarding handling of request for Pre-Shipment Credit:
• Proposals should be expeditiously disposed off
• Adopt a flexible approach to export lending

n
• Sanction adequate facilities required at both pre and post-shipment stages
• Keep in view past performance of exporters and potential while assessing the credit
proposals
• New exporters- their experience in domestic market taken into consideration
 MANIPAL
Expanding Horizons of Learning

Pre-shipment Credit/packing Credit

Pre-shipment finance is credit granted to the exporters by a financial institution

to meet their working capital finance.
The main objective of pre-shipment finance is to enable:
• Procurement of raw materials
• Carry out manufacturing processes
• Provide a secure warehouse for goods and raw materials
• Process and pack the goods
• Ship the goods to the buyers
• Meet other financial costs of the business relevant to the export.
 MANIPAL
Expanding Horizons of Learning

Salient Features of Packing Credit:

EXPORT
E SHI NANCE

• Packing Credit is also known as Export Packing Credit

• Can be advanced in Rupee or Foreign Currency
• Specially designed working capital facility for exporters
• Specific Credit Limits sanctioned to facilitate trade transactions
• Covers working capital required for purchase, processing, manufacturing & packing
of goods
• Available for a period up to 180 days but can be extended upto a maximum period of
360 days with penal interest, subject to the satisfaction of the bank
• Gets converted into Post Shipment Finance on dispatch of Goods
 MANIPAL
Expanding Horizons of Learning

TYPES OF PRE-SHIPMENT FINANCE:

• Packing Credit

• Advance against cheques/drafts etc., representing Advance Payment received

Pre-shipment finance is extended in the

following forms:

• Packing Credit in Indian Rupees • Packing Credit in foreign Currency

 MANIPAL
Expanding Horizons of Learning

Requirements for getting Packing Credit

Packing Credit facility is granted to an exporter who satisfies the following criteria:
• Exporter should have a ten-digit importer-exporter code number allotted by
DGFT. Currently, DGFT is treating PAN number (alpha-numeric) of the applicant
as IE code, and the same is being allotted as IE Code.
• Exporter should not be in the caution list of RBI.
• Exporter should not be in Specific Approval List of ECGC.
• If the goods to be exported are not under freely permissible category as per the
prevailing FTP (Foreign Trade Policy), the exporter should have the required
authorization/quota permit from DGFT to export goods.
 MANIPAL
Expanding Horizons of Learning

Eligibility
• Pre-shipment credit is granted to an exporter who has the export order or LC in his
own name.
• The exporter is the person or company who actually delivers the goods to the
importers/buyers.
• However, as an exception, financial institutions can also grant credit to a third-party
manufacturer or supplier of goods who does not have export orders or LCs in their own
name, but some of the responsibilities of meeting the export requirements have been
outsourced to them, by the main exporter.

• Important: In case where the export order is divided between more than one
exporters, pre-shipment credit may be shared between them.
 MANIPAL
Expanding Horizons of Learning

Quantum of Finance
• No fixed formula. It is purely need based
• Normally up to 90% of FOB value. The quantum of finance is fixed
based on the FOB value of contract/LC or on the domestic value of
goods, whichever is lower.
• Normally insurance and freight charges are considered at a later
stage, when the goods are ready to be shipped.
• In certain cases, loan amount could be in excess of export order
value In cases where by-products are sold in domestic market (raw
cashew nuts / cashew shell)
• Partial domestic sale also permitted (Hand Picked and Selected-HPS
ground nuts)
 MANIPAL
Expanding Horizons of Learning

Explanation to Partial Domestic sale

• In respect of export of agro-based products like tobacco, pepper, cardamom,

cashew nuts etc., the exporter has necessarily to purchase a larger quantity of
the raw agricultural produce and grade it into exportable and non-exportable
varieties and only the former is exported.
• The non-exportable balance is sold domestically.
• For the packing credit covering such non-exportable portion, banks are required
to charge commercial rate of interest
 MANIPAL
Expanding Horizons of Learning

Period of packing credit

• Normally, the packing credit should not exceed 180 days.

• The bank may provide an extension of 90 days and a further
extension of 90 days on its own discretion, without referring to
RBI.
• In any case pre-shipment advance is to be adjusted by
submission of export documents within 360 days from the date
of advance,
• Otherwise the advances will cease to qualify for concessional
rate of interest ab initio (right from beginning) as the advance
will not be treated as export credit
 MANIPAL
Expanding Horizons of Learning

Packing Credit facility can be provided to an exporter on production of the following documents to the bank

• Formal Application for releasing the packing credit.

• Confirmed, irrevocable order or irrevocable LC (Letter of Credit) for the export of
goods/services from India unless lodgment of export orders or letter of credit with the
bank has been waived by the concerned sanctioning authority.
• Authorization/License issued by DGFT if the goods to be exported fall under the
restricted or canalized items.
 MANIPAL
Expanding Horizons of Learning

Disbursement of Packing Credit

• The loan will be disbursed based on individual LC or order.
• Each disbursement on a specific order or LC will be a separate loan (loan will be LC-
wise or order-wise),
• Disbursement will be in lumpsum or in stages depending on the need and individual
cases
• Different PC accounts will be at various stages of processing, manufacturing, as
processing or shipment date for each order is different,
• Banks to ensure end-use of funds so that facility of concessional ROI is not misused

[
 MANIPAL
Expanding Horizons of Learning

Running Account Facility

• Pre-shipment credit to exporters is normally provided on lodgement of LCs or firm export orders.
• In some cases availability of raw materials is seasonal. In some other cases, the time taken for
manufacture and shipment of goods is more than the delivery schedule as per export contracts.
• In many cases, the exporters have to procure raw material, manufacture the export product and
keep the same ready for shipment, in anticipation of receipt of letters of credit / firm export orders
from the overseas buyers.
• In such cases banks have been authorised to extend Pre-shipment Credit ‘Running Account’ facility
in respect of any commodity, without insisting on prior lodgement of letters of credit / firm export
orders, depending on the bank’s judgement regarding the need to extend such a facility.
• In all cases where Pre-shipment Credit ‘Running Account’ facility has been extended, letters of credit
/ firm orders should be produced within a reasonable period of time to be decided by the
banks.(within 30 days in our bank)
 MANIPAL
Expanding Horizons of Learning

Running Account Facility…contd..

• ‘Running Account’ facility is extended only to those exporters whose track record has been good as
also to Export Oriented Units (EOUs)/ Units in Free Trade Zones / Export Processing Zones (EPZs) and
Special Economic Zones (SEZs)
• Banks should mark off individual export bills, as and when they are received for negotiation /
collection, against the earliest outstanding pre-shipment credit on 'First In First Out' (FIFO) basis
• Packing credit can also be marked-off with proceeds of export documents against which no packing
credit has been drawn by the exporter.
• If it is noticed that the exporter is found to be abusing the facility, the facility should be withdrawn
forthwith.
• In cases where exporters have not complied with the terms and conditions, the advance will not be
treated as export credit ab initio.( from the beginning)
• Running account facility should not be granted to sub-suppliers.
 MANIPAL
Expanding Horizons of Learning

Rate of interest On Packing Credit

• Interest rates applicable for all tenors of rupee export credit advances
sanctioned are linked to the prevailing rate. (Base rate, MCLR, Repo. At
present our Bank linked it to Repo rate )
• If pre-shipment advances are not liquidated from proceeds of bills on
purchase, discount, etc. by submitting export documents within 360
days from the date of advance, the advances will not be treated as
export credit ab initio. (from the beginning)
• If exports do not materialise at all, banks should charge on relative
packing credit, domestic lending rate plus penal rate of interest, if any,
to be decided by the banks
A
KSPg
 MANIPAL

Pre-shipment Credit in Foreign Currency (PCFC)

• RBI has permitted authorized dealers to extend Pre-shipment Credit in
Foreign Currency (PCFC) to exporters with a view to provide credit at
internationally competitive rates
• The facility can be used to procure both domestic and imported inputs
for producing the goods to be exported
• PCFC is an additional window available to Indian exporters, along with
the existing INR packing credit
• PCFC can be extended in USD/GBP/EURO or any other convertible
currency
• The rate of interest of PCFC is linked to at LIBOR/EURO LIBOR/EURIBOR
related rates of interest.
• Banks are free to determine the interest rates on export credit in foreign
currency depending on their cost of foreign currency funds/borrowing.
• Banks may utilize their own foreign currency resources (deposits) or
borrow in foreign currency from other banks under a line of credit, for
extending PCFC.
 B
MANIPAL &
Expanding Horizons of Learning

Sources of funds for Banks: The most common sources of foreign currency funds are

• EEFC, RFC and FCNR accounts

• Escrow accounts and other FC accounts of exporters
• Foreign Currency borrowings/line of credit
Spread:

• Lending rates are linked to LIBOR rates.

• Bank lends at LIBOR + Margin ( as decided by the
Spft[ «o f
bank)
• Interest to be recovered on monthly basis
• Additional 2% above the rate after the initial period
of 180 days (prevailing at the time of extension)
 MANIPAL
Expanding Horizons of Learning

PCFC: Period of Credit

• Normally upto 180 days.
• PCFC will be available for a maximum period of 360 days.
• Any extension of the credit is subject to the same terms and conditions as
applicable for extension of rupee packing credit
• If the export does not take place within 360 days, the PCFC will be adjusted at TT
Selling Rate for the currency concerned.
In such cases, banks can arrange to remit foreign exchange to repay the loan or line
of credit raised abroad without prior permission from RBI.
 MANIPAL
Expanding Horizons of Learning

Disbursement of PCFC
• If used for domestic input, apply spot TT buying rate and credit to exporter’s INR account/pay the
supplier.
• If used for imported input, no exchange rate is applicable.
Liquidation of PCFC
• Packing Credit advance will be liquidated with export proceeds of export bills purchased,
discounted or negotiated.
• At this stage, the pre-shipment credit will be converted into post-shipment credit.
• Out of the balances held in EEFC
• Packing Credit advance can also be liquidated out of proceeds of payment receivable from
Government of India. Such payments include the duty drawback, payment from the Market
Development Fund (MDF) of the Central Government or from any other relevant source.
• For any reasons, if the export does not take place at all, the entire advance is recovered at
commercial interest rate plus a penal rate as decided by the bank. In order to help the exporting
community, RBI has allowed some flexibility into these regulations.
 MANIPAL
Expanding Horizons of Learning

Disbursement of PCFC..contd…
• Substitution of commodity and/or substitution of buyer can be allowed by the bank, without
reference to RBI. Hence, in effect the Packing Credit advance may be repaid by proceeds from
exports of the same or another commodity to the same or another buyer. However, banks
should ensure that the substitution is commercially necessary and unavoidable.
• Concessional rate of interest will be provided only up to the extent exports have actually
taken place and if the advance is recovered from local funds commercial ROI is charged to
that extent
Forward Contracts
• Exporters can book a forward contract prior to availment of PCFC
• Such forward contracts can be cancelled and re-booked if desired by the exporters
 MANIPAL
Expanding Horizons of Learning

Financing of Export Services

Pre-shipment and post-shipment finance may be provided to exporters of all the 161
tradable services covered under the General Agreement on Trade in Services (GATS)
where payment for such services is received in free foreign exchange .
Banks must ensure that:
• The proposal is a genuine case of export of services.
• The item of service export is covered under Appendix 10 of HBPv1.
• The exporter is registered with the Electronic and software EPC(Export Promotion
Council) or Services EPC or with Federation of Indian Export Organisations, as
applicable.
• There is an Export Contract for the export of the service.
 MANIPAL
Expanding Horizons of Learning

Financing of Export Services..contd…

• There is a time lag between the outlay of working capital expense and actual receipt
of payment from the service consumer or his principal abroad.
• There is a valid Working Capital gap i.e. service is provided first while the payment is
received some time after an invoice is raised.
• Banks should ensure that there is no double financing/excess financing.
• The export credit granted does not exceed the foreign exchange earned less the
margins if any required, advance payment/credit received.
• Invoices are raised.
• Inward remittance is received in Foreign Exchange.
Company will raise the invoice as per the contract. Where payment is received from
overseas party, the service exporter would utilize the funds to repay the export credit
availed of from the bank.
 MANIPAL
Expanding Horizons of Learning

Thank you!!
 ft ICICI MANIPAL
Acjrftflir For itflAfiff A /fliurtfic#
l k panAng Martiwn of Limnq

Topic:
Post Shipment Finance

SHIPMENT
FINANCE
 &ICICI MANIPAL
r -
pnp fiir ti Horiromi of Learning
' '

Learning Objectives

•Understanding features of post shipment finance

•Types of post shipment
•Operational requirement of post shipment finance
•Period, overdue and liquidation of post shipment finance
•Basics of Consignment Exports
 W r I, CICI MANIPAL
FupnrtrlinQ NnruonM nl II isi ruing

Post Shipment Finance

Post shipment credit means,

• Any loan or advance granted provided by a bank to an exporter after shipment of
goods / rendering of services.
• Period: from the date of extending credit to the date of realization of export
proceeds,
• It also includes any loan or advance granted to an exporter, against duty drawback,
undrawn balance and retention money.

Post shipment
finance

s:
 W* . ICICI MANIPAL
r * pndrl ihq HoNfOnm nl Lrnrrtirlfl

Types of Trade Bills

Suiter
i

_ i
J C Bills _
Non l C Bills

I 1
[ 1nee J 1
SlyIII y Sight Usance

Negotiation Purch Di& count

Post Shipment Finance toy the Bank

W IV1 INI 1PAL
(
*# J
 &ICICI MANIPAL
Expanding Morimn-s n1 Learning)

Important Features of Post Shipment

Special working capital facility for Exporters

Finance in the form of

•Purchase/Discounting/Negotiation of export Bills

m Advance Against Bill Sent on Collection
Keeps the business cycle running till the realization of export proceeds
Available for a period 180 days for each transaction from the date of shipment
Interest charged till the Export Bills are realized
If Pre Shipment credit is taken, after shipment, it should be converted into Post
shipment finance
In case of a running a /c, pre shipment credit is liquidated on a FirsMn-First-Out basis
 WW ,ICICI MANIPAL
Expanding Ho n i o n s nf Learning

TYPES OF POST-SHIPMENT FINANCE:

POST SHIPMENT FINANCE

I i
Advances Advance against
Export bills Advances against duty Undrawn
purchased/d against bills drawback Balance
iscounted/n sent for receivable /Consignment
egotiated collection from Exports/
Government Retention Cash
 Wr I, CICI MANIPAL
Expanding Horizon % nf Learning

Export Bills for Negotiation

• A facility to provide post- shipment finance to exporters through export bills negotiation.

* A facility that helps exporters to obtain funds for use as working capital before the due
date of export bills.
* After shipping goods, Seller presents the Documents, if found fn order by the Negotiating
Bank, it pays the Party With or Without Recourse.

Negotiation of
Types of Bills Negotiated:
•/ Sight .j
ExfM?nw ills

i
si
Usance bills up to 180 days
,4 I i
 ftaaci MANIPAL irnyy

I m ptmrl ii ii
' II 4ORIJOII ?; nl I nnrning

Export Bills for ourchasin

While discounting a bill, the Bank buys the bill before it is due and credits the value of
the bill after a discount charge to the customer’s account

This is an advance against the security of the bill and the discount represents the
interest on the advance from the date of purchase of the bill until it is due for payment

Sight Bills are purchased

Usance Bills are discounted

 &ICICI MANIPAL
Expanding Marinins nf Lamming

Operational Requirements for Post shipment credit

^S Loan application/scrutiny
Verification of relative order LC
S Claiming reimbursement
/ S Disbursement
^ Assessment of credit limits,
S Follow up for
sanction etc.,
V Loan agreement, execution Acknowledgment /Acceptance
S Storage of goods if not lifted
S Application of exchange
rates/re porting ^ Payment on due
SScrutiny of documents date /presentation of draft
S Adjustment of interest
^S Complying with sanction terms S Notice to the exporter for
Permission of sanctioning authority
wherever required expediting payment
S Advise of realisation/ reduction in
S DP/DA /LC ( Negotiation)
S Mailing documents limit
 ft ICICI MANIPAL murr
Fupnrtrling NnruonM nl II isi ruing

Period of Realization of Export bills

Full value of the goods exported should be realized and repatriated to India within 9
months

Where goods are exported to warehouse established outside India, amount to be

realized within 15 months

The above period may be modified / specified by RBI from time to time. *
 &ICICI MANIPAL
F * p nr»rl in q llaMflHl
* nl Lenfilirtg

Liquidation of Post shipment

Post shipment credit can be liquidated in the following manner

^ By proceeds of export bills
S Paid out of balances in EEFC A /C
S Proceeds of any other unfinanced ( collection ) bills.
S Out of rupee proceeds subject to certain conditions
Note:
Export bills will have to followed up for realization and reported.
 ?I, CICI MANIPAL
Expanding Horizons of Learning

Post shipment Export Credit Period & overdue bills

* Demand bills: Normal Transit Period as specified ( NTP) by FEDAL
• Usance bills: for a maximum duration of 365 days from date of
shipment inclusive of NTP and grace period
Note:
> Concessional Rate of interest only for 180 days
> Banks should persuade the exporters for early realization even
though the period is 365 days
Overdue Export Bill:
* Overdue export bill in the case of a demand bill is that which is
not paid on or before the expiry of the normal transit period
• In the case of a usance bill, which is not paid on the due date.
 fr ICICI MANIPAL
r kpnnrling Moranmi
'
nf learning

Advance Against Undrawn balances on export Bills

S In respect of certain commodities, final value decided only after ascertaining the
quality and quantity at importers place.
S Exporters draw the bills for values less than the actual value of the contract ( Usually
90 to 98% of the FOB value of the contract )
S The residual amount represents undrawn balance .
S Payment of undrawn balance is contingent in nature
S Granting advances based upon the track record of the buyer
S Period: Maximum 90 days only
S Period beyond 90 days, the rate applicable ' ECNOS ' [ Export Credits Not Otherwise
Specified] at post-shipment stage to be charged.
/ Remittances from abroad should be received within 180 days.
 W* ICICI MANIPAL
Expanding Hori/ ons nf Learning

Advance against Retention Money

What is Retention Money? Grant of advances against retention
S In the case of turnkey money:
projects/ construction contracts, the J No advances against services portion.

overseas employer makes progressive

payments.
V' Onselective basis, granting of
S These payments are in respect of advances against the supplies portion,
S Concessive rate of interest up 90 days
service segment /supply portion of the
and only to the extent remittance
project.
received from abroad.
S Retention money is a small S Beyond 90 days rate prescribed for
percentage of the progressive the category 'ECNOS'
payments retained by the overseas
employer.
^ Payable after expiry of the stipulated;
period .
 9
* ICICI MANIPAL
fiipnrvrling iHnnions nl I criming

Export on consignment Basis

• Consignment sale where the goods sent to the agent or representative directly. As
and when agent sells the goods, he makes the remittance to the principal who is
the exporter. Until the sale of goods title to goods remains with seller. Scope for a
lot of misuse in the matter of repatriation of export proceeds.
• Concessive rate of interest up to 180 days
• Precious and semi precious stones generally done on consignment basis. Exporters
of precious & semiprecious stones may not be in a position to liquidate Pre
shipment within 360days of date of advance.
• Hence banks convert packing credit to Special Post Shipment Credit
 &ICICI MANIPAL
Expanding Horizons nf Learning

Miscellaneous
Advances against Duty Drawback Entitlements ( Max 90 days ) :
/ Against their duty drawback entitlements/receivables and covered by ECGC is available
to exporters at concessional rates
V Entitlements to be provisionally certified by Customs authorities pending final
sanction and payment .
/ Against export promotion copy of the shipping bill certified by the Customs
Department .
Interest Rate on Rupee Export Credit: Liberalized
Interest rates on Rupee Credit stand liberalized. Banks permitted to charge interest
based on Repo rate plus margin, Basic rules are,
/ On demand bills: Interest is charged for the transit period
S Usance bills: Interest is charged for total period comprising usance period of export
bills, transit period as specified by FEDAI, wherever applicable )
/ In case of early realization excess Interest is refunded
 W *ICICI MANIPAL rmgf

rn|Mirvri in.g Mortmmi -G! Lonrnlng

Crystallization of liability
In simple words, the process of converting foreign currency liability of the exporter
into Indian Rupee liability called 'crystallization of foreign currency export bills' .
The purpose of crystallization is to transfer the exchange risk involved in a belated
receipt of export bill payment to the exporter Date of crystallization depends
upon type of bill ) DA or DP )

Export Bills are expected to be realized within 9 months from the date of export
In genuine cases it can be extended
Overdue bill is generally crystallized on 30th day after notional due date
in case advance is not realized ECGC claim to be lodged
 •*IC/C/ M ANI PA L
Expanding Honrons of Learning

Thank you
 & ICICI MANIPAL
A c d w m p F a r B a n k i n g & ifniuririti #
* [ ipjAfrnfcHgHftr
* of Lvanunq

Topic:
Financing of Imports
 ^
ICICI MANIPAL
Expanding Horizons af Learning

Learning Objectives

* To understand Credit Needs of Importers

* Buyers credit and Sellers Credit
* Guidelines for units in SEZ, FTZ etc

x\ ,

i
i ' SPECIAL
J
ECONOMIC
ZONE
 '
Wr ICICI MANIPAL
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Expanding Nonsrons nf Learning
B t iy
* a r #

Introduction

* In the domestic market, Importers have the option of availing working capital
facilities like CC/OD limits for import of raw materials and term loan for import of
any fixed assets. In addition to this, the importers have access to overseas resources
in the form of Debt Funds, Equity and Deposits.

* Debt funds can be broadly classified into following three categories;

> Trade Credit (TC)
> External Commercial Borrowing ( ECB)
> Loans from Development/Multi-lateral Agencies
Of the above lets now understand TRADE CREDIT
 W*ICICI MANIPAL
F H purer! in g Mnri/rena nl II i- imiing

Trade credit

• Trade credit refers to the credit extended by overseas supplier, bank,

financial institutions and other permitted lenders for import of capital/non
capital goods.
Goods to be imported should be permissible under Foreign Trade Policy
( FTP ) .
Depending on the source of finance, such Trade Credits are classified as
CREDIT
Supplier's credit and Buyer 's Credit from recognized lenders
* Suppliers Credit refers to credit extended by overseas suppliers to the Indian
Importers.
Buyer's Credit is arranged by importers from a bank or financial institution
.
outside India for a maturity up to 5 years
 mrtaa MANIPAL
RHPNR»rlinq iHoruranri ni Lcrirmrui

Period of Trade Credit:

Period of trade credit is to reckoned from the date of shipment
It is three years for import of capital goods
For import of Non capital Goods it is one year or operating cycle whichever is less
Three years for non-capital goods in case of shipyards/shipbuilders.
Credits with maturity of 3 years and above is known as external commercial
Borrowing
 &ICICI MANIPAL
Expanding Horizons nf Learning

Important Terminology Used

- -
S All in Cost: It includes rate of interest, other
fees, expenses, charges, guarantee fees
whether paid in foreign currency or INR. Withholding tax payable in INR shall not be a
part of all-in-cost.
^ Approval route: Trade Credit can be raised either under the automatic route or the
approval route. Under the approval route, the prospective importers are required to
send their requests to the Foreign Exchange Department, Central Office, Reserve
Bank of India through their Authorised Dealer ( AD) Banks for examination.
S Automatic route: For the automatic route, the cases are examined by the Authorized
Dealer Category - 1 banks,
S Special Economic Zone & Free Trade Warehousing Zone: They shall have the same
meaning as assigned to them in Special Economic Zones Act 2005 as amended from
time to time.
 &ICICI MANIPAL
Expanding Mori/on
* of Learning

Types of Credit
Supplier's Credit
We are all conversant with credit sales in domestic trade transactions. Similarly, we
.
know about Usance or DA bills In case of international trade transactions, if the seller
(supplier/exporter) is extending credit to the buyer ( importer) in India, for supply of
capital or non-capital goods within the ambit of aforesaid guidelines, then such a
facility is known as 'Supplier's Credit'. That is in simpler terms, Supplier's Credit
means, "Credit extended directly by the overseas supplier to the buyer for imports
into India".

Buyer's Credit
For payment of imports into India, loans arranged by the importer from a bank or a
financial institution or a foreign equity holder outside India is known as Buyer's
Credit, Importers can also raise rupee resources at competitive INR interest rates,
from International Financial Services Centers ( IFSCs) located in India ,
 Wr ICBC# MANIPAL
,

Expand in g Horizons nf Learn ing

Eligibility and route

SEligible Borrowers: Person resident in India acting as an importer.

Route for Trade Credit

The routes for availing the Trade Credit are

SAutomatic Route : wherein the cases are examined and permitted by the
Authorized Dealer Category I banks and

SApproval Route: where the prospective importers are required to send

their request to the Foreign Exchange Department, Central Office of RBI
through their Authorized Dealers for permission.
 wrtaa MANiPAL
F H pnnrl INQ lltari/nm; nf Learning

Amount of TC & Currency

Amount of Trade Credit
Amount under the automatic route:
S For oil/gas refining or marketing, and for airline and shipping companies,
USD 150 Million or its equivalent per import transaction.
S For all other import transactions: USD 50 Million or its equivalent per
import transaction
Currency
Trade credit can be raised in any freely convertible currency or in Indian rupee .
Change of currency of trade credit from one freely convertible foreign currency to
any other freely convertible foreign currency as well as to INR is freely permitted
However, change of currency from INR to any freely convertible foreign currency
is not permitted.
 &ICICI MANIPAL ijsr
r * Q» Learning
pofifi in ti Itariren

Cost
All-in-cost
• The term 'all-in-cost' includes rate of interest, other fees, expenses,
guarantee fees, charges etc., whether paid in foreign currency or INR.
• Reserve Bank of India, from time to time, provides the ceiling for the
cost of raising Trade Credits.
• The bench-mark rate for considering the ceiling is
S 6 Month LIBOR for foreign currency trade credit
/yield on GOI securities of corresponding maturities in case of INR
trade Credit
The prevailing ceiling is 250 basis points over the benchmark rates.
 * * ICICI MANIPAL
Expanding Horizons nf Learning

Guidelines for units in SEZ, FTZ

Trade credit can be raised by a unit or a developer in a special economic zone (S

including free trade warehousing zone ( FTWZ ) for purchase of non-capital or cap
goods within a SEZ or FTWZ or from a different SEZ or FTWZ
*
* An entity in domestic tariff area (DTA) is also allowed to raise TC for purchase of
non-capital or capital goods from a unit or developer in SEZ/FTWZ.

• For TC transactions related to SEZ, date of transfer of ownership of goods will be

treated as TC date. As there will be no bill of entry for sale transactions within
SEZ, the inter unit receipt generated through NSDL will be treated as import
V document ¥
 &ICICI MANIPAL
Expanding Horizons nf Learning

Securitv for Trade Credit

• For the purpose of raising the Trade Credit, Bank Guarantees may be issued by the
Authorized Dealers on behalf of the importer, in favor of overseas lender
• The amount of such BG not to exceed the amount of TC
• Period of BG not beyond the maximum permissible period of TC.
• TC may be secured by overseas guarantee issued by foreign banks
• The importer may also give security of movable assets/immovable assets , personal and
corporate guarantee
 •*IC/C/ M ANI PA L
EM par d in g Horizons of Learning
'

Miscellaneous Provisions
• For the purpose of raising the Trade Credit, Bank Guarantees may be issued by the
Authorized Dealers on behalf of the importer, in favor of overseas lender.
• The amount of such BG not to exceed the amount of TC
• Period of BG not beyond the maximum permissible period of TC.
• For import of capital goods where supplier 's credit is envisaged, the period of LC can
be for a maximum period of 3 years from the date of shipment
• LC period should be co -terminus with the period of credit
• Further, issuance of such LC will be subject to prudential guidelines issued by RBI
from time to time.
• Banks may consider Buyer 's Credit as a sub- limit under non-fund-based credit limits .
• All in cost must be accepted by the customer and it should be within the ceiling fixed
by RBI from time to time
 &ICICI MANIPAL
Tuprartrling Horizons nl I rnrning

Thank you !!
ft ICICI MANIPAL
A a m <f
* my For B -
# ? A / A g & tnMurmncm

Expanding Ho'i/ ons of Leaning

Bank Guarantees

manipalglobal
^
MI Academy of BFSI
Learning Objectives &ICICI MANIPAL

After the completion of this unit, you will be able to:

* Explain the Concept of Bank Guarantee
* Understand the Need for and types of Bank
Guarantees
* Understand Assessment of Bank Guarantee Limit
* Discuss RBI guidelines on issuance of BG
* Explain the risks involved in Bank Guarantee
transactions and operations.

Academy of BFSI
Introduction &tact MANIPAI

Business entities enter into commercial transactions with other businesses.

The relationship between them may be of a buyer-seller, principal-agent or
Contractee-contractor.
While the Letter of Credit acts as a good tool to minimize the risk of non- payment to
the seller, risks of non- performance are a major challenge In the case of principal-
agent or Contractee- contractor relationships.
Instances of non-performance have a commercial impact for the Principal or the
Contractee.
In such situations, one contracting party seeks to mitigate the risk of non - payment
and or non-performance on the part of the other contracting party.
They look for an intermediary ( mostly banks) to protect the interest of both parties
on mutually acceptable terms .
To meet this kind of needs of the customers, banks extend Bank Guarantee facility.

manipalglobal
*
Tit Academy of BFSI
What is a Bank Guarntee? [VIAMIHAL

/ Bank Guarantee
* Bank Guarantee ( BG) is a contract to perform the promise or discharge the liability of a
third person in case of default.
* A Bank Guarantee is a contingent liability in the books of the Bank.
J

Parties to Bank
Guarantee

Issuing Bank (Applicant's Bank ) :

Applicant (The Contractor ):
This is the Principal Debtor, who is
the person /entity at whose
request the guarantee is issued
Beneficiary (The Contractee) :
This is the person/entity who has
This is the person /entity to whom
issued the BG and who undertakes
the BG is issued and who can
to discharge the obligations if the
. .
enforce it if default occurs
applicant defaults
manipalglobal
HI Academy of BFSI
Uses of Bank Guarantee ftidCi MANlHAL
L4«l*l IIH«m * I MW1g

Bank Guarantee

• Participation in tenders. Example: Large government tenders

• Contracts requiring a guarantee for Performance of obligations. Example: Construction
of roads/bridges/metro
• Contracts requiring maintenance of margins. Example: Stock exchange and brokers
• Mobilise advances to commence the contract or project( From Beneficiary)
• Release of full value of the contracted bills on completion of the contract or project .

* manipalglobal
MI Academy of BF5I
Features and requirements for a BG ^ ICICIMANIPAL
Lml |iiHm
*

V —1
»

Purpose and Amount of BG are to be specific

\

1
Definite expiry date
\
J
,r
1
No onerous clauses
\
J
X
/
1
Subject to Stamp duty
\
\
J
r 1
Standard Indemnity clause restricting bank's liability to the BG amount
v j
f
/ 4Margin ranging from 15% to 25% by way of fixed deposit and or cash towards BG
\ j

manipalglobal
TIT Academy of BFSI
Advantages of Bank Guarantee 4$ICICi MANIFAL
LqpUtlat

4
1
Advantages

For the Beneficiary For the Applicant

1) Security of receiving relevant funds if their
business partner ( bank guarantee applicant )
fails to meet it's obligations
2) Closure of Contract under more favorable
conditions
1) Cost Savings ( only the risk margin is
paid, not the price of funds)
2 ) Positive effect on company Cash - flow
3 ) Obtain a deferral on the payment of
financial obligations

*MT manipalglobal
Academy of BF5I
Types of bank Guarantees ^ /C/C/ MANI PAL
H

Performance Financial
Guarantees Guarantees
\
Types of Advance
Bid Bond Payment
Guarantees
Guarantees Guarantees

Foreign / Deferred
Inland Bank Payment
Guarantees Guarantees

* manipalglobal
Til Academy of BFSI
Types of Guarantees ftICICI MANIt V\l
I wulri ilBian fliMnrg

• Performance Guarantee
* Permits the beneficiary to draw on the Guarantee if the applicant fails to perform
according to the terms of the contract
* Banker DOES NOT undertake to perform the customer 's obligations in case of any
failure or default
* Obligations of a highly Technical nature, may not be possible for the banker to fulfil
them
* The purpose of obtaining a PG is to fix the Financial or Monetary Liability upon the
banker in the event of default or failure in Performance of the Obligations undertaken
by applicant
• Advance Payment Guarantee
* Covers the amount of the down -payment of Importer to Exporter
* Provides security to Importer if Exporter does not deliver under the terms of the
contract, the amount of the down-payment would be retrievable

* manipalglobal
Ml Academy of BFSI
Types of Guarantees ftidCi MANIPAL
IIMAUi

•Financial Guarantee
Banker undertakes a Financial Liability
BG remains in Existence for the Definite Period, on the Expiry no claims will be
entertained by the bank
Where under Contract, Cash -Security Deposit / Earnest Money deposited for due
Performance, it is usually stipulated that in lieu of these, customers may furnish
BG of equivalent Amount

• Deferred Payment Guarantee

Covers payment of deferred receivables in pre- determined instalments
Banker guarantees that his customer will make payment of the specified amount,
in certain Instalments and on specified dates
Stipulates liability of Banker does not exceed Total of Principal + Interest

^ manipalglobal
Academy of BF51
Types of Guarantee...(Continued) I
MANIHAL
'" " 'I* I 'W

•Bid Bond Guarantee

Required to bid for a tender to submit along with the tender
Indicates a genuine interest of the customer towards the Tender
Process
On opening of Tender, BBG gets liquidated, if the client is not
awarded! the contract
If the client secures the Tender, furnishes certain obligations to
commence the project.
On defaults, the party that awards the tender can enforce the BBG
•Inland Bank Guarantee
Executed between parties in India
Transaction is domestic
For bonafide trade transactions

manipalglobal
^
TIT Academy of BFSI
Types of Guarantee... (Continued) &tCICl MANlHAL

Foreign Bank Guarantee

• Issued in foreign currency to beneficiaries outside the country for
overseas obligations of the Applicants
• Executed in favour of a party residing outside India
•
•
Issued via SWIFT through Correspondent Banks abroad
A Counter BG is issued by the Applicant 's bank favouring the
correspondent bank who in turn would issue the final BG
• Covers transactions both in India and outside

manipalglobal
Ml Academy of BFSI
RBI Guidelines on issuance of BG ^ICICIMAN[ PAL
Hv*«n # >1

• BG to be issued in serially numbered standard security forms of the Bank

• BG above a cut -off amount to be signed by two officials of the Bank
• BG to be issued in triplicate as follows:
o Original one sent to the beneficiary
o One copy sent to the applicant
o One copy retained with the branch
o Additional copy sent to the controlling office for information and
acknowledgement

manipalglobal
^
TIT Academyof BFSI
Precautions in Bank Guarantee Operations: ffitClCM MANIHAL

While handling BG applications and operations, the credit officer needs to know that :
• BG to be issued on bank's standard security documents
• Foreign guarantees have to be issued through SWIFT
• BG amount to be specific with a specific validity date and no difficult clauses
• Complete the documentation process for the entire BG Limit
• Obtain counter Guarantee from the applicant for the entire BG Limit approved
• Complete the registration of charges with registrar of companies ( in case applicant to the BG is a
company ) for the entire limit approved before issuing BG.
• Mark lien on the margin money deposit ( Margin money in the form of fixed deposit or in other
format say margin account ) before issue of BG.
• Ensure that the BG is not issued for prohibited purposes as per Bank credit policy document
• Keep a tab on the expiry date of BGs and follow up on the return of the original BG by the
beneficiary

manipalglobal
^ Academy of BFSI
TTT
. .
Risks involved in BG Operations: ffitCiCM MANIHAL

Any default by the applicant to the BG would result in a claim by the beneficiary resulting in outflow of
funds of the Bank. Therefore, default risk /credit risk is to be analyzed before setting up any BG limit.
The risk involved in BG operations are listed here under:
• In case of any claim or Invocation, the bank has to make payment of the guaranteed amount to the
beneficiary without any delay or recourse.
• Bank need to deploy its funds in case invocation of the BG and default by the applicant to honour
the BG commitment.
• Bank will become a party for any dispute between applicant and beneficiary of the BG .

As per RBI guidelines, no bank guarantee should normally have a maturity of more than 10 years.
However, in view of the changed economic scenario where banks have to issue BGs for periods longer
than 10 years, banks to take into account the impact of long duration bank guarantees on their Asset
Liability Management.

* manipalglobal
Til Academy of BF51
Precautions for issuing guarantees: 49tctd MANIPAL
H

Banks should adopt the following precautions while issuing guarantees on behalf of their customers.

• Banks to avoid giving unsecured guarantees in large amounts and for medium and long-term
periods. They should avoid undue concentration of such unsecured guarantee commitments to
particular groups of customers and/or trades.

• Unsecured guarantees on account of any individual constituent should be limited to a reasonable

proportion of the bank's total unsecured guarantees. Guarantees on behalf of an individual should
also bear a reasonable proportion to the constituent's equity.
• In exceptional cases, banks may give deferred payment guarantees on an unsecured basis for
modest amounts to first class customers who have entered into deferred payment arrangements
in agreement with Government policies. First class customers generally mean and refer to highly
rated companies.
Guarantees executed on behalf of any individual constituent, or a group of constituents, should be
subject to the prescribed credit exposure norms.

* manipalglobal
Til Academy of BFSI
Precautions for averting frauds ffilClCi MANlHAL
LqpAIIA
|lltiiM ST 1

While issuing guarantees on behalf of customers, the following safeguards should be

observed by banks ;
•At the time of issuing financial guarantees, banks should be satisfied that the
customer would be in a position to reimburse the bank in case the bank is required
to make payment under the guarantee.

# In the case of performance guarantee, banks should exercise due caution and have
sufficient experience with the customer to satisfy themselves that the customer has
the necessary experience, capacity and means to perform the obligations under the
contract and is not likely to commit any default.

•Banks usually issue BGs on behalf of their constituents.

manipalglobal
*
Tit Academy of BFSI
Onerous Clauses In Bank Guarantee bwdrf
MANIPAL
>>Hwa

Auto Renewal
Invocation by Fax
BGs favouring Courts /Tribunals/ Regulatory
Authorities/Arbitral Panel
Waiver of Rights of Guarantor under Indian
Contract Act
Variations in Notwithstanding Clause
Risks Involved in Auto renewal
• Renew a guarantee automatically without having the discretion to reject the
renewal
Obligation remains open indefinitely
Reversal of BG liability in bank books only after receipt of original BG or discharge
letter from beneficiary
Limit get blocked
Commission to be paid till it is reversed at bank
Also called, Evergreen Guarantees
manipalglobal
^
FIT Academy of BFSI
Onerous Clauses ..(Continued) MANIHAL
-
11« «

Risk Involved in FAX invocation

Not a secure mode of transmission
Subject to tampering and unauthorized access
Transmission Errors, ambiguity in instructions or instructions not being
received in whole
Fax Transmission Report can be tampered by beneficiary
Reputation risk if Fax not received but if beneficiary claims later
Interest charges due to delay in action
Risk involved in BGs favouring Courts and others entities
BGs favouring Courts / Tribunal / Regulatory Authorities / Arbitral Panel as beneficiary
Normally without NWC
BGs can be extended till disposal of the case
Risks similar to Continuing guarantee
Typical clauses in Customs reads like:
"If BG not renewed within 30 days prior to expiry date, it becomes payable to beneficiary
automatically / without any demand'"
Capturing this in system to trigger renewal/ payment on that day is difficult at present

manipalglobal
^
Hi Academy of BFSI
Onerous Clauses... (Continued) ft 9dCt MANIPAL
MtiMn tFUMI>ij

Risk involved in waiver of Surety Right

Clause waiving the rights of the guarantor under the Indian Contract Act with ref to section 133 ,
135 and 141
Beneficiary/applicant can:
o vary the terms of underlying contract
o compound the debt of the applicant
o release any security available to beneficiary
o without the consent of the guarantor
Affects the guarantor 's chances of recovery from the applicant in the event of devolvement

Risks Involved in variations in NWC

Why Not Withstanding Clause ?
o Covers the aggregate amount to be paid
o Covers Expiry Date & Claim Expiry Date
o Covers place of presentment of the claim St mode of claim
If the clause is not clear, then the issuer could be exposed for a longer period than the expiry date
Suggest to use Standard Expiry Clause
+ manipalglobal
ffl Academy of BFSI
Risk Mitigants to be followed 4$ICICi MANIFAL
II

Carve out BG limits out of total BG limits for issuing above type of BGs
Percentage of limits to be carved out based on client ratings
Identified in the system as DOWAR guarantees
Take "one time indemnity" from client or "Letter of Undertaking with JGM
approval"

Guarantees are not closed till the time discharge is received from the beneficiaries
o Commission gets charged till closure in the system
o Communicate this to clients in writing in advance

* manipalglobal
MI Academy of BF5I
Other Aspects MANIPAI

Invocation of BG Tenor of BG

1) Normally issued for periods less than

1) Payable on Demand by simple letter
2 ) Reputation Risk for bank if not paid
on demand
10 years. However as per banks
internal policies Guarantees can be
issued for more than 10 years.
2 ) Recently RBI has left it free to banks
to decide

manipalglobal
*
TIT Academy of BFSI
Uniform Rules for Demand Guarantees fttCUZi MANIPAL

> Published by ICC, Paris

> Publication No.758, Revised Edition 2010
> Implementation date 1 July 2010
st

> 35 Articles, similar to UCP style for easy understanding

> Contains format of BG & Counter Guarantee for guidance purpose
> 5 days time given for examination of claim
> Jurisdiction - Issuing bank's location/country
> Application of URDG with Foreign Law is not permitted

manipalglobal
*
TlT Academy of BFSl
Documents Required and Law Governing Bank Guarantee 4$ICICi MANIFAL

Customer Request Letter

*
Soft copy of BG Text
*
Copy of Contract, if any.
*
A Covering Schedule with details regarding Operative Account, Customer - ID, Limit - ID
*
Documents for { if the client has sanctioned limit )
Bank Guarantee
* IE Code for Foreign Bank Guarantee

• RBI / FEMA
• Guidelines/notifications on issuance of guarantees under FEMA by RBI
• Master circular on Guarantees issued by RBI in July 2015.
Laws Governing
• https:// www.rbi,org.in/Scripts/ BS ViewMasCirculardetails.aspx ?id=9879
Bank Guarantee
• Indian Contract Act
| * Uniform Rules on Demand Guarantees ( URDG 758)
\ /

'
FTT
manipalglobal
Academy of BF5I
 Bank Guarantee Processing
.
2 Applies for Guarantee

Seller
Issuing Bank
( Exporter / Applicant )
4. Intimation of Issued
BG { In case of
3. Guarantee is sent to one Correspondent
Domestic BG ) Bank for advice to the Beneficiary ( In case of
1. Contract Negotiations
Foreign Bank Guarantee)

t Buyer
{ Beneficiary)
4. Advice of the Guarantee

Advising Bank
Questions 4$ICICi MANIFAL
LqpUtlat

' manipalglobal
MI Academy of BF5I
 *
9 tOCt MANIPAL

Thank you

'
TTl
manipalglobal
Academy of BFSI
 Topic: Deemed Exports
Deemed Exports, Bill Financing,
Factoring and Forfaiting

= Note; is ss m

Section50 J
^
rss
&
shu [
L J
^ Shreeja [
^ Rinku [
^ Satyam [
^
Deemed Exports & Features

"Deemed Exports" refers to those transactions in which

The goods supplied do not leave the country and
Goods supplied should b¿ consumed in the process of manufacture of goods
for exports
The payment for such supplies is received either in Indian rupees or in free foreign
exchange.
 Deemed Exports & Features.. contd
features
^ Applicable only for supply of goods. Services are outside the purview of Deemed Exports
Goods must be manufactured or produced in India.
^ Goods supplied should be consumed in the process of manufacture of goods for exports
^ The goods are considered to have been exported even if they have not moved out of the country
J Payment for such supplies may be received in foreign exchange or INR
^ Under deemed exports , the goods can be sold to anybody within India provided he holds license for
import of theta goods
^ The seller selling these goods is the "Deemed Exporter' and the buyer is "Deemed Importer "
^ Central Government notifies certain categories of supplies of goods, which would be treated
as deemed exports.

Example:
I
Praveen & Co located in Bengaluru sells goods to M/5 Precision Engineering which is an EOU which in
turn, exports the machinery to a customer in USA
Supply by Praveen and CO to M/s. Precision Engineering is treated as deemed export . Supply by Precision
Engineering to the customer in USA is treated as exports.

:es
 Categories of supply

^ Supply of goods against Advance Licence/Advance Licence for annual requirement/ under
Duty Exemption /Remission Scheme;
Supply of goods to Export Oriented Units ( EOUs ) or Software Techiology Parks ( STPs ) or
Electronic Hardware Technology Parks ( EHTPs ) or 8io Technology Parks ( BTP);
v Supply of capital goods to holders of licences under the Export Promotion CapJtal Goods
( EPCG ) scheme
^ Supply of goods to projects financed by multilateral or bilateral agencies/ funds as
notified by the Department of Economic Affairs, Ministry of Finance as per set terms
* Supply of capital goods, including in unassembled/ disassembled condition as well as
plants, machinery, accessories, tools, dies and such goods which are used for installation
purposes till the stage of commercial production and spares to the extent of 10% of the
FOR value to fertilizer plants.
 *» IM + 4 -«

Categories of supply

'S Supply of goods against Advance Licence/Advance Licence for annual requirement/ under
Duty Exemption /Remission Scheme;
v Supply of goods to Export Oriented Units (EOUs| or Software Technology Parks (
STPs) or
Electronic Hardware Technology Parks ( EHTPs) or Bio Technology Parks ( BTP);
v Supply of capital goods to holders of licences under the Export
Promotion Capital Goods
( EPCG ) scheme
v Supply of goods to projects financed by multilateral or
bilateral agencies/ funds as
notified by the Department of Economic Affairs, Ministry of Finance as per set terms
^ Supply of capital goods, including in unassembled/ disassembled condition as well as
plants, machinery, accessories, tools, dies and such goods which are used for installation
purposes till the stage of commercial production and spares to the extent of 10% of the
FOR value to fertilizer plants.
 Categories of supply ... contd ttl 1

S Supply of goods to any project or purpose in respect of which the Ministry of Finance,
by a notification, permits the import of such goods at zero customs duty
^ Supply of goods to the power projects and refineries not covered in above point .
^ Supply of marine freight containers by 100% EOU (Domestic freight containers -
manufacturers) provided the said containers 3are exported out of India within 6
months or such further period as permitted by the Customs; and
^ Supply to projects funded by UN agencies.
^ Supply of goods to nuclear power projects through competitive bidding as opposed to
.
International Competitive Bidding
 Deemed Exports and Rupee Export Credit
* Banks are permitted to extend rupee pre- shipment and post-shipment rupee export
credit to parties against orders for supplies in respect of projects aided/ financed by
bilateral or multilateral apencies/funds (including World Bank, IBRD, IDA)
* Packing Credit provided should be adjusted from free foreign exchange representing
payment for the suppliers of goods to these agencies.
* It can also be repaid/prepaid out of balances in Exchange Earners Foreign Currency
account ( EEFC A/c ), as also from the rupee resources of the exporter to the extent
supplies have actually been made.
* Banks may also extend rupee pre- shipment credit, and post-supply credit y of
goods specified as ' Deemed Expof under the same Chapter of Foreign Trade Policy
from time to time .
* Such credit can be extended for a maximum period of 30 days or upto the actual date
of payment by the receiver of goods, whichever is earlier
 put >4 >>
**

Deemed Export and PCFC

* PCFC may be allowed for 'deemed exports' only for supplies to projects financed by
multilateral/bilateral agencies /funds.
* PCFC released for 'deemed exports' should be liquidated by grant of foreign currency
loan at post- supply stage, for a maximum period of 30 days or upto the date of
payment by the project authorities, whichever is earlier
* PCFC may also be repaid/ prepaid out of balances in EEFC A/c as also from rupee
resources of the exporter to the extent supplies have actually been made.
 » m

Benefits of Deemed Exports

Deemed exports shall be eligible for any /all of the following benefits in respect of
manufacture and supply of goods qualifying as deemed
^ Advance Licence for intermediate supply/ deemed export/DFRC/ DFRC for
intermediate supplies I
v Deemed Export Drawback
Exemption from terminal excise duty where supplies are made against International
Competitive Bidding. In other cases, refund of terminal excise duty will be given.
 P I* . ..
«« *1 I

Bill Finance
Post shipment credit provided to exporters means any loan or advance granted or any
other credit provided by a bank to an exporter of goods / services from India after
shipment of goods / rendering of services * The post shipment finance can be classified
as :

Export Bills purchased/discounted,

Export Bills negotiated
Advance against export bills sent on collection basis.
Advance against undrawn balance on exports
Advance against export on consignment basis
Advance against claims of Duty Drawback .

Of the above Export Bills purchased end Export Bills Negotiated form the major
chunk of Bill finance
 UIPS

Export Bills Negotiated (Bill under L/C)

• The bills backed by LC are negotiated.
• It is a facility to provide post-shipment finance to exporters through export bills
negotiation
• It helps exporters to obtain funds for use as working capital before the due date
of export bills
• After shipping goods, Seller presents the Documents to the bank nominated
under the LC, The nominated bank scrutinizes the documents to verify whether
the documents comply with the terms and conditions mentioned in the LC. If
the documents comply with the terms of LC, the nominated bank negotiated the
documents and pays the bill amount less upfront interest to the seller With or
Without Recourse
• Types of Bills Negotiated: Sight and usance
Forfaiting

• Forfaiting was first introduced in the country during 1992. Forfaiting is relinquishing
forfaiter at
the igh ( selling the claim) on trade receivables by an exporter to a
discounted price for immediate cash payment.

n
Important Points to be noted are,
J It is a mechanism by which the right for export receivables of an exporter is
purchased by a Forfaiter (Financial Intermediary) *
S Credit sale gets converted to cash sale
S Receivables should be evidenced by Bill of Exchange or Promissory note,
v' Forfaiting is always without recourse. I
/ They carry a maturity of medium to long term .
The exporter gets upto 100 percent financing and also escapes from various
types of risks involved in export business viz. interest rate risk, currency risks,
credit risk and political risk etc. involved in deferred payments.
Process Details
& Exporter initiates negotiations with prospective overseas buyer and finalizes The contract *

Exporter ships the goods

Exporter draws a series of Bills of Exchange (BOB } and sends them along with shipping
documents to his (exporter 's) banker for presentation to the Importer for acceptance through
the latter 's(importer ) bank
*> Bank returns AVALISEIJ { Guaranteed by importer 's Bank ) and accepted BOE's to his client
(exporter )
Exporter endorses AVALISED BOE's with the words 'Without recourse' and forwards them to the
forfaiting agency (FA) through his bank
* * The FA effects payment of discounted value after verifying the AVAL'S signature and other
particulars, to the exporter 's bank
Exporter ' s bank credits Exporter's account
*> On maturity / Due Date of BOE / Promissory notes, the FA presents the instrument to the

AVAL(importer's Bank ) and receives payment

 - *»
i» l

Process Details
Exporter initiates negotiations with prospective overseas buyer and finalizes the contract .
Exporter ships the goods
>
* Exporter draws a series of Bills of Exchange ( BOE ) and sends them along with shipping
documents to his ( exporter 's) banker for presentation to the Importer for acceptance through
the latte r 's( importer ) bank
*> Bank returns AVALISED ( Guaranteed by importer 's Bank ) and accepted BOE's to his client
( exporter)
*> Exporter endorses AVALISED BOE 's with the words 'Without recourse' and forwards them to the
forfaiting agency ( FA ) through his bank
*> The FA effects payment of discounted value after verifying the AVAL'S signature and other
particulars, to the exporter's bank
& Exporter ' s bank credits Exporter's account
v On maturity / Due Date of BOE/ Promissory notes, the FA presents the instrument to the
AVAL( importer's Bank ) and receives payment
 -
Iitunir ij Ho*

Benefits to Exporter & Bank

Benefits to Exporter
^ 100% financing, without
recourse, not occupying
exporter's credit line, Benefits to bank
J Innovative product range to clients
^ Improved liquidity
v Reduced administration cost ^ Fee based income
'S Lower credit administration / credit
^ Advanced tax refund
follow up
^ Risk reduction
S Be more competitive in the k
market
 J R t

Factoring
Factoring is a financial arrangenjent whereby a supplier of goods sells its trade
receivables to the factor at discounted price for immediate cash payment .
Important features are:

^ Factoring is a financing method in which a business owner

sells accounts receivable at discount to a third party
^ Factoring is a continuing arrangement between a financial
institution ( the Factor ) and a business concern ( the dient ),
selling goods or services to trade customers.
^ The Factor purchases the client's book debts ( account
receivables) either with or without recourse to the client.
 el L

What services does the factor perform?

The factor performs at least two of the following functions :

v' Financing for the seller, by way of advance payments
S Maintenance of accounts relating to the accounts receivable
J Collection of account receivables
S Credit protection against default in payment by the buyer
Seller authorizes the buyer to make all payment or receivables b
directly to the factor
 Models of Export Factoring
There are two distinct models of Eiport Factoring

Two-factor system
It is a system involving an export factor in the
country of the seller ( exporter ) and its
Direct Factoring
correspondent factor [import factor) in the
country of the debtor (importer ). The
> Factoring services offered by availing credit
insurance and tie up with global collection
correspondent factor performs the following
agency.
services :
> Credit Guarantee Production - the import > Credit insurance will cpver
insolvency / protracted default by the buyer
factor sets up limits on buyers present in that
and also country risk.
country and the export factor discounts
^ The credit insurer will set up limits on
invoices for its customers based on these
overseas buyers and based on these limits
limits.
> Collection services - instead of the above the
export bills would be discounted .
import factor only undertakes to follow up
with the debtors for payment.
 L

Benefits of factoring

^ Turnover linked finance - growth in business possible

^ Flexible cash flow- provides working capital requirements/
improvement in profitability
S No collateral/security

^ Lesser Administrative work - more time for core business

S Credit protection
^S Credit worthiness of buyers verified in advance
Periodical Statement of Account
Exchange Earners* Foreign Currency Account (EEFC)

Introduced In 1992, Exchange Earners' Foreign Currency Account ( EEFC ) is an account

maintained in foreign currency with an Authorised Dealer Category - I bank i.e. a
bank authorized to deal in foreign exchange. It is a facility provided to the foreign
exchange earners, including exporters, to credit 100 per cent of their foreign
exchange earnings to the account, so that the account holders do not have to convert
foreign exchange into Rupees and vice versa, thereby minimizing the transaction
costs.
EEFC
account
 49ICICI MANIPAL
M § md § my F A i f i /f l g S /
JLJL
fx paining Havomd LPO imig

Risks in International trade

* manipalglobal
TfT Academy of BFSI
Learning Objectives ^ /C/C/ MANIPAL

After the completion of this unit, you will be able

to:
r Understand the meaning of risk
> Types of risks in international trade
> Risk mitigants

_JL manipalglobal
TIT Academy of BFSI
Introduction
^ C/C/ IV1ANtPAL
^«
4 l |

Risk is the probability of loss arising out of existence of uncertainties in a

business ,

This possibility of loss can come from events which can be expected or
from events which cannot be expected

The existence of risk may result in both financial and reputational loss

International trade offers great opportunity to banks to do profitable

business. At the same time the business is prone to lot of risk.

While understanding different type of Risks, banks continue to encourage

International Trade and at the same time guide the exporter and importers
in understanding various risks in the trade and advising various risk
mitigating tools

manipalglobal
*
W Academy of BF5I
Risk in International Trade-continued
^ ICICIMANH
JHBUVW . pj
’ALrnidTI I

— 'J h' -

Major Risks faced in International trade are

(i
Contract Country &
& Credit Political
Risk Risk
W

Carriage &
Currency
Transport
Risk
Risk
W

'
TIT
manipalglobal
Academy of BFSI
Contract Risk and Credit Risk &taa MANIPAL

For a Banker, a credit risk is the risk of default on a debt that may arise from a borrower failing to
make required payments. The risk is that of the fender and includes loss of principal and interest,
disruption to cash in flows, and increased collection of debt costs. The loss may be complete write off
of debt or partial due to the following reasons:
Non payment
Insolvency
U Non Delivery
Non Acceptance
Trade Dispute
Frustration of Contract

Mitigation:
Track record / Market enquiry / KYC / Report of RBI
Regulators on the overseas party.
Foreign Letter of Credit /Guarantee/Confirmation
Co-acceptance
ECGC cover .
Jj* manipalglobai
FIT Academy of BFSI
Country & Political Risk &idCt MANIPAL 1.3". -
* »
*« 1

Buyer makes the payment for the goods in the currency of his country. The seller has to wait for the
externalization of the funds from buyer 's country. This risk arising out of political developments or
policy changes of the country is called as country risk .

Examples:
Mrf MH4
Ini non
^ -
i Mrt ii Jh ilw M4k
* itkiW
Govt. Buyers repudiating contract taWiHiU ) rm+tWL-f
&a
*«r*43in
hlAcra-
lituduLfrri! V
. lui k niub«l
i Tmniilar Ecwemic

A
Q Cancellation of license
f Pot me a I
Risk

USST
> rung* full*
ibrniKiti twnprthr
ifltfKJiml * '

Payment Blocked by Govt .

l
IU jJK/- r ' *
' W# Ri k COUNTRY
poMftcjili lurrnsHl1. *
nlnfcoa nnllona
^aBna RISK
War/ abandonment ' vyUttsn

Imrirvnmi
Sotto-
CuMvril
M4 Sy «li
aalturd

Change in Regulation .
;v
'

t#flal And:
Rink
,

Rpguialcir
walaHity n jionAi wtiHan,
^ * CkinU jt.i MCuduriut
Ejrxiqi -ilawidiuibng ,
Afi^ roririwrUjI rtirfi !
**
__

^ F_ Fhfck

^ vmWTtjcr

JL manipalglobal
III Academy of 3 FSI
Country & Political Risk cont I >

^ tact MANIPAL

Legal Risk: Lack of laws to settle disputes , safe guard

international trade & intellectual property rights etc
Political Instability due to internal & external conflicts resulting in
trade sanctions .
Economic risk when a country is not doing well economically
adversely impacting the paying capacity of the country
Restrictions on repatriation of funds due to foreign exchange
restriction
Mitigation :

Bank Guarantee
ECGC
LC Confirmation

manipalglobal
Til Academy of BFSI
Carriage and Transport risk &taa MANIRAL

Any international trade, the goods travels from one country to other. During transport of goods , the risks involved
such as theft , loss or damage to cargo or personal injury death etc. These are called as transport risks and may
arise due to the following facts:
Appropriate for containerization
Sailing Date
Choice of Transport
Late/delayed /wrong delivery
Risk of Damage to cargo in transportation
Mitigation:
Cargo Insurance
Sellers Interest clause ( FOB )
Seasonal Sales/late delivery /consequential Loss - Insurance
Appropriate selection of carrier and routes

manipalglobal
Ml Academy of BFSI
Currency Risk ^ tact MANIPAL

Foreign trade transactions or transactions involving foreign exchange are exposed to Currency Risk .
Even after the goods reach safely, and remittance made by buyer promptly, seller still would have an
anxiety about the value of foreign exchange received . This risk is called as Currency Risk or
Exchange Risk .
Currency risk arises out of the following
Fluctuation in rates
Foreign exchange risks arise due to volatility in foreign currency
that create uncertainty of future payment value,
Non convertible currency
Mitigation:
Forwards
Options
Futures

manipalglobal
'
TIT of
Academy BFSI
Questions
^
/C/C/ MANIPAL

manipalglobal
m Academy of BF51
 ^
4 /ClCf MANI PAL
rrf «WaJ ‘hHHi

Thank you

L» nianipalglobal
Til Academy of BFSI