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EXPORT FINANCE

EXPORT FINANCE. By K. RAJASEKARAN Former AGM: Global Trust Bank Ex-Trainer in SBT (Subsidiary of State Bank of India). SOURCES OF INTERNATIONAL FINANCE. OVERSEAS SOURCES: EXTERNAL COMML. BORROWING (ECB) SUPPLIER’S CREDIT BUYER’S CREDIT DOMESTIC SOURCES: EXPORT PACKING CREDIT P.C.F.C.

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EXPORT FINANCE

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  1. EXPORT FINANCE By K. RAJASEKARAN Former AGM: Global Trust Bank Ex-Trainer in SBT (Subsidiary of State Bank of India)

  2. SOURCES OF INTERNATIONAL FINANCE • OVERSEAS SOURCES: • EXTERNAL COMML. BORROWING (ECB) • SUPPLIER’S CREDIT • BUYER’S CREDIT • DOMESTIC SOURCES: • EXPORT PACKING CREDIT • P.C.F.C. • FOREIGN BILL DISCOUNTING • FACTORING

  3. Preliminary Steps Get IEC No. from DGFT Obtain RCMC No. from Export Promotion Council Register with Sales Tax Office Canvass for Order Enter into Sales Contract Obtain LC from buyer Apply for export finance from bank

  4. EXPORT PACKING CREDIT • IT IS A WORKING CAPITAL LIMIT TO EXPORTERS • * IT IS GRANTED (AGAINST L/C) FOR 180 –270 DAYS (L/C or Firm Order or Contract to be produced) • IT CARRIES CONCESSIONARY INTEREST RATE (Max: 2.5% BELOW Bank’s P.L.R.) * Currently banks will charge interest at or above BASE RATE * Exempted categories will be charged less by further 2% • 90% of FOB VALUE WILL BE GRANTED BY BANK • DUES TO BE REPAID OUT OF EXPORT REALISATION

  5. EXPORT PACKING CREDIT 1. RUNNING A/C FACILITY GIVEN TO ESTD. EXPORTERS 2. SUBSTITUTION OF CONTRACT ALLOWED BY BANK 3. E.C.G.C. POLICY / GUARANTEE STIPULATED BY BANK 4. E.P.C. IS GRANTED TO SUB-SUPPLIER BASED ON L/C FROM EXPORT ORDER HOLDER (EOH) 5. DEEMED EXPORTERS ARE ALSO ELIGIBLE FOR E.P.C. IN RESPECT OF SUPPLIES TO WORLD BANK / ADB /OPEC SUPPORTED PROJECTS 6. EXPORTERS GETTING ADVANCE CHEQUES / DRAFTS CAN GET E.P.C. TILL RECEIPT OF ADVANCE PAYMENT 7. IF EXPORT DOES NOT TAKE PLACE BANK WILL CHARGE NORMAL COMMERCIAL INTEREST RATE

  6. P.C.F.C. (PRESHIPMENT CREDIT IN FOREIGN CURRENCY) • ADVANCE IS DENOMINATED IN FOREIGN CURRENCY LIKE US $ or EURO • INTEREST IS CHARGED AT A MAXIMUM OF 3.5% ABOVE L.I.B.O.R. (This ceiling is now removed) • THE ADVANCE WILL BE LIQUIDATED AFTER REALISATION OF EXPORT BILL • ADVANCE IS USUALLY GIVEN FOR 180 DAYS • OTHER TERMS AND CONDITIONS ARE AS PER EXPORT PACKING CREDIT

  7. POST SHIPMENT LIMIT 1. EXPORT BILLS PURCHASED 2. EXPORT BILLS DISCOUNTED 3. EXPORT BILLS NEGOTIATED 4. ADVANCE AGAINST BILLS SENT ON COLLECTION TERMS AND CONDITIONS: 1. INTEREST CHARGED AT PACKING CREDIT RATE 2. INTEREST COLLECTED FOR NORMAL TRANSIT PERIOD / USANCE PERIOD 3. IF BILL REMAINS UNPAID EVEN AFTER 30 DAYS FROM DUE DATE BANK WILL DO CRYSTALLISATION.

  8. EXPORT FACTORING Factoring is a receivables management and financing service designed to improve the seller's cash flow and to cover risk. This is best suited for financing trade and unlike other financing services, it normally requires no collateral In recourse factoring, in the event of the buyer failing to pay on maturity, the seller has to pay back the advance obtained from the factor. In non-recourse factoring, the factor provides finance with a credit guarantee for buyers and will bear the bad debt risk in case of financial inability of the buyer to pay.

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