FACTORING- A contract by which the factor is to provide at least two of the services, (finance, the maintenance of accounts, the collection of receivables and protection against credit risks) and the supplier is to assigned to the factor on a continuing basis by way of sale or security, receivables arising from the sale of goods or supply of services.
In simple words, factoring turns your receivable into cash today, instead of waiting to be paid at a future date.
Reserve Bank of India (RBI)- The RBI with its head quarters in Mumbai and several regional offices is the central banks of our country to authorize extend and regulate export credit and transaction including foreign exchange affairs. RBI does not directly provide export finance to the exporters, but it adopts policies and initiates measures to encourage commercial banks and other financial institutions to provide liberal export finance .
Two Departments- i) Industrial and Credit Department
ECGC- EXPORT CREDIT GUARANTEE CORPORATION OF INDIA LTD.
ECGC is a company wholly owned by the GOI. It functions under the administrative control of the Ministry of Commerce and is managed by a Board of Directors representing government, Banking, Insurance, Trade and Industry .
OBJECTIVES OF ECGC:
To protect the exporters against credit risks, i.e. non-repayment by buyers
To protect the banks against losses due to non-repayment of loans by exporters.
PRE-SHIPMENT FINANCE- Pre-shipment is also referred as “packing credit”. It is working capital finance provided by commercial banks to the exporter prior to shipment of goods. The finance required to meet various expenses before shipment of goods is called pre-shipment finance or packing credit.
DEFERRED CREDIT- Consumer goods are normally sold on short term credit, normally for a period up to 180 days. However, there are cases, especially, in the case of export of capital goods and technological services; the credit period may extend beyond 180 days. Such exports were longer credit terms (beyond 180 days) is allowed by the exporter is called as “deferred credit” or “deferred payment terms”.
REDISCOUNTING OF EXPORT BILLS ABROAD (EBRD) SCHEME- This facility will be an additional window available to exporter along with the exiting rupee financing schemes to an exporter at post shipment stage. This facility will be available in all convertible currencies. This scheme will cover export bills upto 180 days from the date of shipment (inclusive of normal transit period and grace period) .
Post shipment finance is provided to meet working capital requirements after the actual shipment of goods. It bridges the financial gap between the date of shipment and actual receipt of payment from overseas buyer thereof. Whereas the finance provided after shipment of goods is called post-shipment finance.
To enable Indian project exporters to meet Rupee expenditure incurred/required to be incurred for execution of overseas project export contracts such as for acquisition/purchase/acquisition of materials and equipment, acquisition of personnel, payments to be made in India to staff, sub-contractors, consultants and to meet project related overheads in Indian Rupees.
To compare export finance execution between public and private banks in respect to SME exporters in Ludhiana zone on the basis of various parameters ie maximum disbursement made to product or industry,centralized and decentralized system of loan scantioning,in terms of Base and bench prime lending rate,subvention rates,Turn around time,Bill realization charges.
The above Fig represent that Number of years of Balance Sheets Required and Income Tax Return Required to Furnish to the bank for Export Finance. These include all the public banks require for three years.
Opinion of banks to fund SME exporters aggresively in coming two years.
30% of Banks said that they will go for Bi-cycle these include
60% will go for Textile out of which 40% will go for yarn and 20% will go for Hosiery these include corporation Bank,SIDBI,Syndicate Bank,Vijaya Bank.
And 20% comprise of Canara and Bank of India.
Whlie Central Bank of India will go for Hand Tool .
Comparison in terms of Rate of Interest SNO Name of Bank BPLR BASE RATE 1 SBI 11.75% 7% 2 PNB 11% 8% 3 BANK OF INDIA 12% 8% 4 CENTRAL BANK OF INDIA 12% 8% 5 CORPORATION BANK OF INDIA 12% 7.75% 6 SIDBI 11% 7.5% 7 INDIAN BANK 12.50% 8% 8 SYNDICATE BANK 12% 8.25% 9 VIJAYA BANK 12.15% 8.25% 10 CANARA BANK 12% 8%
Shows that only 1 bank that is federal bank requires the income tax return for 1 year to be submitted by the SME exporters, rest all the private banks considered by us require income tax returns for 3 years
The above figure shows a very scattered response of the banks when they were asked about the industry that they feel will be booming in the next 2 years.
10% of the private banks, i.e. axis bank said that bi-cycle industry will be aggressively funded in the next two years.
Comparison in Terms of Interest Rates in Private Banks SNO Name of Bank BPLR Base Rate 1 Standard Charted Bank 16% 7.25% 2 City Bank 15% 7.5% 3 Axis Bank 14.75% 7.50% 4 South Indian Bank 16.% 8.10% 5 ICICI Bank 15.75% 7.5% 6 Catholic Serian Bank 14.75% 8% 7 Fedral Bank 15.25% 7.75% 8 HDFC Bnak 15.75% 7.5% 9 Indusind Bank 16.75% 7% 10 Yes Bank 16.50% 7%
Export Finance is a very important branch to study & understand the overall gamut of the international finance market.
Availability of favorable Export finance schemes directly impacts the local trade, encourages exporters, enlarges markets abroad, improves quality of domestic goods and overall helps the nation boost its exchange earnings.