Export finance


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Export finance

  2. 2. EXPORT FINANCE “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.
  3. 3. EXPORT FINANCE Some of the concessions include:1. Cheap credit to exporters.2. Minimum of 12% of net credit should go to exports.3. Refinance to Banks on eligible portion of export credit outstanding.4. ECGC guarantee for export credits5. No margin requirements for advance against export receivables.6. Flexible approach to export lending and norms of lending.7. Time norms for disposal of application for export credit.8. Rejection with the concurrence of next higher authority9. Bifurcation of WC limits into loan and cc component after excluding export limits.10. Issue of Gold Card to exporters with good track record.
  4. 4. EXPORT FINANCEExport credit can be broadly classified into Pre-shipment finance and post shipment finance.Pre-shipment finance refers to finance extended topurchase, processing or packing of goods meant forexports.Financial assistance extended after the shipment ofexports falls within the scope of post shipmentfinance.
  5. 5. EXPORT FINANCEPACKING CREDIT.As loan or cash credit against pledge or hypothecation..Verification of Exporter-Importer Code No. issued by DGFT..Party should not be in the RBI Caution list or ECGC Special ApprovalList..Export is not to a listed country.Verify order/LC.OPL on the buyer.Up-to date knowledge of export policy.Commodity should not be in the negative list..Commodity should have a good market.Terms of contract.No FEMA violation.Borrower should be credit worthy.
  6. 6. EXPORT FINANCEWorking capital may be defined as fundsrequired to carry the required level ofCurrent assets to enable the industry tocarry on its operations at the expectedlevels uninterruptedly
  7. 7. EXPORT FINANCEGross working capital – represented by Current Assets Inventory Receivables Cash Other current assetsWorking capital gap – represented by Current assets less other current liabilities Bank borrowings excluded
  8. 8. EXPORT FINANCENet working capital – represented by Current Assets less Current liabilities NWC - also called the liquid surplusNWC – comes from long term sources Promoters’ margin / OthersExisting NWC – an important indicator of thestrength of liquidity
  9. 9. EXPORT FINANCECurrent assetsCurrent liabilitiesCash, Bank Balances and other resources that arereasonably expected to be realized or consumedwithin one year of the date of the Balance sheet
  10. 10. Operating Cycle Cash Raw MaterialReceivables Goods in process Finished goods
  11. 11. EXPORT FINANCEASSESSMENT OF LIMITS Appraised in the same manner as local cash credits. However certain relaxations can be considered in the inventory holdings depending upon the nature of contract and margin requirements.Guiding principle is “need based” finance.Limit is to be determined based on past performance and future projections.1. Turnover method.2. MPBF3. Cash Budget method
  12. 12. EXPORT FINANCEParameters in Working Capital credit assessmentTotal CAOther CLWorking Capital GapNWC (actual / projected)Assessed Bank FinanceNWC to TCA (%)Bank finance to TCA (%)S. Creditors to TCA (%)Other CL to TCA (%)
  13. 13. EXPORT FINANCEThe guidelines set by Nayak Committee for computationof WC finance quantum for village, tiny and other SSIindustries to a minimum extent of 20% ofProjected/Accepted Turnover to continueGuidelines with regard to specific activities / industries /situations to continue (Sugar / tea industries,Rehabilitation cases, Export Financing etc.)Banks may consider Cash Flow approach of financing inorder to close the gap between the sanctioned limits andthe utilization levels
  14. 14. EXPORT FINANCEQuantum of finance:FOB value of goods minus profit and credit margin Cost of production less margin (can bemore if the domestic cost is more than the FOB valueand the difference is accounted as incentives likeduty draw-back etc. subject to export productionfinance guarantee of ECGC).In the case of exports on CIF value basis PC can begranted towards insurance and freight also.
  15. 15. EXPORT FINANCEMargin:depending upon the trade (10% to 25%)Period of finance:to coincide with the date for shipment andnormally upto 180 days.
  16. 16. EXPORT FINANCEClean Packing CreditGranted to credit worthy parties where advance payment isrequired to be made to the supplier.Quantum determined based on the likely purchase pattern ofthe exporter with their suppliers.Period of CPC is determined based on the facts of each case(but not later than the period of contract/LC.A higher margin of say 25% should be stipulated, collectedeach time and remitted along with PC to the supplier.CPC should be converted as PC or Bills.
  17. 17. EXPORT FINANCEPacking Credit in Foreign CurrencyPCFC be granted against any confirmed order/irrevocable LCExport order/LC should be denominated in convertible currencyProceeds should be realizable in convertible currencyExports in ACU currency also eligible.All designated branches for exports/Obs/FEX Cells/IF Brs./allELBs and other branches as per annexure ID7/84 are permitted togrant PCFC.Currency of the account USD, GBP, EURO.(can be granted in acurrency other than the currency of export after obtaining a riskletter).
  18. 18. EXPORT FINANCEFunds clearance to be obtained from IDMinimum USD or GBP or EUR 10,000/- in multiples of1000Each disbursement should be treated as a separate loanRunning account facility can be permitted to exporters withgood track record.PCFC to be liquidated upon discounting the relative exportbill under BRD scheme.From advance remittance if can be linked orfrom EEFC funds/rupee resource provided export to thatextend has been made.
  19. 19. EXPORT FINANCEPeriod – available for the specific period as per sanction notexceeding 180 days.Rate of interest : CROIUpto 180 days respective LIBOR/EURO LIBOR of thecurrency plus 75 basis points Plus upfront fees stipulated.Beyond 180 days rate for the initial period of 180 daysprevailing at the time of extension plus 2%.Exchange Rate Applicable spot buying rate irrespective ofthe period of PCFC.Reporting to FD.Liability as applicable to PC.
  20. 20. EXPORT FINANCECommon discrepancies observed while granting PC1. Order not studied thoroughly.2. Order/LC has expired or going to expire shortly.3. OPL on the buyer not available.4. ECGC buyer’s credit limit not available.5. Cost of production not calculated correctly.6. Advance payment if any received not deducted.7 After determining the quantum of advance, drawing power not ensured.8. End use not verified.9. Date of shipment not followed and necessary extension not obtained if overdue.
  21. 21. EXPORT FINANCEPOST SHIPMENT FINANCE DEFINITION Loan or advance granted to an exporter fromthe time of shipment of goods to the time ofrealization including against the security of dutydraw back or any receivable from the govt.
  22. 22. EXPORT FINANCEELIGIBILITY.To the actual exporter or to an exporter inwhose name the documents are transferred.In the case of deemed exports to the supplierof goods to the designated agencies as perEXIM policy
  23. 23. EXPORT FINANCE.Purpose: to finance the export receivable.Quantum: Up to 100% of the invoice value.Margin: Normally no margin stipulated.However the SA can stipulate margin.Contingency Marine InsuranceTo be obtained in the case of FOB/CFR contracts
  25. 25. EXPORT FINANCERediscounting of Export Bills SchemeBRD. Sight bills as well as usance bills not exceeding 180 days(inclusive of normal transit period, grace period etc.). Denominated and realizable in any convertible currency. Whether drawn under LC or confirmed orders. Shipment to ACU countries only if realizable in USD. If forward contract is booked covering exports-no BRD …..contd.
  26. 26. EXPORT FINANCE(BRD Contd.).Within the sanctioned limit for Post shipment finance.Funds clearance to be obtained from ID.Reporting for the portion in excess of PCFC and EEFC.ROI: NTP/Usance upto 6 months LIBOR +0.75% Upto delinking date 2% over the above If realized after delinking: as applicable to Rupee PSF. (plus upfront fees as advised by ID)
  27. 27. EXPORT FINANCEFrequently asked questions1. Why ECGC guarantee when the exporterholds a Policy from ECGC?2. What is buyer’s limit under the ECGCpolicy?3. Some intricacies in the IPSG cover of ECGC4. LC available at the counters of the openingbank.
  28. 28. EXPORT FINANCEPoints of caution in Working Capital Credit proposalsLevels of the Current Assets are often projected at higherlevels to arrive at higher credit limitsSundry Creditors projected at lower levelsProjections made at the time of last sanction and actualsthereagainst are not done / not properly commented upon.In case of Associate concerns engaged in the same activity orotherwise, consolidation of the group accounts on a commondate is not insisted upon. This, if done, would facilitateanalysis of the inter-unit transactions / holdings.