FEDERATION OF INDIAN EXPORT ORGANISATIONS SOUTHERN REGION, CHENNAI
“Export or perish” Our imports are more than exports. Hence there is a necessity to encourage exports. Govt. and RBI extend various concessions to boost exports.
ECGC guarantee for export credits No margin requirements for advance against export receivables. 8. 4.
. Issue of Gold Card to exporters with good track record. 7.
9. Minimum of 12% of net credit should go to exports. Flexible approach to export lending and norms of lending.EXPORT FINANCE
Some of the concessions include:
1. 6. Refinance to Banks on eligible portion of export credit outstanding.
Cheap credit to exporters.
10. Time norms for disposal of application for export credit. Rejection with the concurrence of next higher authority Bifurcation of WC limits into loan and cc component after excluding export limits.
Financial assistance extended after the shipment of exports falls within the scope of post shipment finance.EXPORT FINANCE
Export credit can be broadly classified into Pre-shipment finance and post shipment finance.
. processing or packing of goods meant for exports. Pre-shipment finance refers to finance extended to purchase.
PACKING CREDIT .Borrower should be credit worthy.Commodity should have a good market .Up-to date knowledge of export policy .No FEMA violation .Terms of contract .Export is not to a listed country . . .As loan or cash credit against pledge or hypothecation.Commodity should not be in the negative list.OPL on the buyer . .Verification of Exporter-Importer Code No. issued by DGFT.Party should not be in the RBI Caution list or ECGC Special Approval List.Verify order/LC .
Working capital may be defined as funds required to carry the required level of Current assets to enable the industry to carry on its operations at the expected levels uninterruptedly
Gross working capital – represented by
Inventory Receivables Cash Other current assets
Working capital gap – represented by
Current assets less other current liabilities
Bank borrowings excluded
also called the liquid surplus
NWC – comes from long term sources
Promoters’ margin / Others
Existing NWC – an important indicator of the strength of liquidity
Net working capital – represented by
Current Assets less Current liabilities NWC .
Current assets Current liabilities Cash. Bank Balances and other resources that are reasonably expected to be realized or consumed within one year of the date of the Balance sheet
Goods in process
ASSESSMENT OF LIMITS Appraised in the same manner as local cash credits. 2. However certain relaxations can be considered in the inventory holdings depending upon the nature of contract and margin requirements. MPBF 3. Guiding principle is “need based” finance. Limit is to be determined based on past performance and future projections. 1. Cash Budget method
. Turnover method.
Creditors to TCA (%) Other CL to TCA (%)
Parameters in Working Capital credit assessment Total CA Other CL Working Capital Gap NWC (actual / projected) Assessed Bank Finance NWC to TCA (%) Bank finance to TCA (%) S.
Rehabilitation cases. tiny and other SSI industries to a minimum extent of 20% of Projected/Accepted Turnover to continue Guidelines with regard to specific activities / industries / situations to continue (Sugar / tea industries.) Banks may consider Cash Flow approach of financing in order to close the gap between the sanctioned limits and the utilization levels
. Export Financing etc.EXPORT FINANCE
The guidelines set by Nayak Committee for computation of WC finance quantum for village.
. subject to export production finance guarantee of ECGC).EXPORT FINANCE
Quantum of finance: FOB value of goods minus profit and credit margin Cost of production less margin (can be more if the domestic cost is more than the FOB value and the difference is accounted as incentives like duty drawback etc. In the case of exports on CIF value basis PC can be granted towards insurance and freight also.
Margin: depending upon the trade (10% to 25%)
Period of finance: to coincide with the date for shipment and normally upto 180 days.
A higher margin of say 25% should be stipulated. CPC should be converted as PC or Bills.EXPORT FINANCE
Clean Packing Credit Granted to credit worthy parties where advance payment is required to be made to the supplier. Period of CPC is determined based on the facts of each case (but not later than the period of contract/LC. collected each time and remitted along with PC to the supplier.
. Quantum determined based on the likely purchase pattern of the exporter with their suppliers.
Currency of the account USD./all ELBs and other branches as per annexure ID7/84 are permitted to grant PCFC.EXPORT FINANCE
Packing Credit in Foreign Currency PCFC be granted against any confirmed order/irrevocable LC Export order/LC should be denominated in convertible currency Proceeds should be realizable in convertible currency Exports in ACU currency also eligible. All designated branches for exports/Obs/FEX Cells/IF Brs.
.(can be granted in a currency other than the currency of export after obtaining a risk letter). EURO. GBP.
From advance remittance if can be linked or from EEFC funds/rupee resource provided export to that extend has been made.EXPORT FINANCE
Funds clearance to be obtained from ID Minimum USD or GBP or EUR 10.in multiples of 1000 Each disbursement should be treated as a separate loan Running account facility can be permitted to exporters with good track record. PCFC to be liquidated upon discounting the relative export bill under BRD scheme.000/.
Rate of interest : CROI Upto 180 days respective LIBOR/EURO LIBOR of the currency plus 75 basis points Plus upfront fees stipulated. Reporting to FD.
. Exchange Rate Applicable spot buying rate irrespective of the period of PCFC.EXPORT FINANCE
Period – available for the specific period as per sanction not exceeding 180 days. Liability as applicable to PC. Beyond 180 days rate for the initial period of 180 days prevailing at the time of extension plus 2%.
ECGC buyer’s credit limit not available. Date of shipment not followed and necessary extension not obtained if overdue. 2. drawing power not ensured. End use not verified. Cost of production not calculated correctly. Order not studied thoroughly. Order/LC has expired or going to expire shortly. 7 After determining the quantum of advance. 9.
. 5. Advance payment if any received not deducted. 4.EXPORT FINANCE
Common discrepancies observed while granting PC 1. 6. OPL on the buyer not available. 3. 8.
POST SHIPMENT FINANCE DEFINITION Loan or advance granted to an exporter from the time of shipment of goods to the time of realization including against the security of duty draw back or any receivable from the govt.
.In the case of deemed exports to the supplier of goods to the designated agencies as per EXIM policy
.To the actual exporter or to an exporter in whose name the documents are transferred .
Purpose: to finance the export receivable .EXPORT FINANCE
.Contingency Marine Insurance To be obtained in the case of FOB/CFR contracts
.Quantum: Up to 100% of the invoice value .Margin: Normally no margin stipulated. However the SA can stipulate margin .
Mode of finance FDB FBE Negotiation under PBLC/NPBLC AGAINST EXPORT RECEIVABLE BRD
If forward contract is booked covering exports-no BRD …. Denominated and realizable in any convertible currency .
. Shipment to ACU countries only if realizable in USD .contd. grace period etc. Whether drawn under LC or confirmed orders ..) .EXPORT FINANCE
Rediscounting of Export Bills Scheme BRD . Sight bills as well as usance bills not exceeding 180 days (inclusive of normal transit period.
(BRD Contd.) .75% Upto delinking date 2% over the above If realized after delinking: as applicable to Rupee PSF.Within the sanctioned limit for Post shipment finance .Funds clearance to be obtained from ID .ROI: NTP/Usance upto 6 months LIBOR +0. (plus upfront fees as advised by ID)
.Reporting for the portion in excess of PCFC and EEFC .
. Some intricacies in the IPSG cover of ECGC 4. LC available at the counters of the opening bank. Why ECGC guarantee when the exporter holds a Policy from ECGC? 2.EXPORT FINANCE
Frequently asked questions 1. What is buyer’s limit under the ECGC policy? 3.
Points of caution in Working Capital Credit proposals
Levels of the Current Assets are often projected at higher levels to arrive at higher credit limits Sundry Creditors projected at lower levels Projections made at the time of last sanction and actuals thereagainst are not done / not properly commented upon. if done. consolidation of the group accounts on a common date is not insisted upon. In case of Associate concerns engaged in the same activity or otherwise. would facilitate analysis of the inter-unit transactions / holdings. This.