Export Credit In Foreign Currencies And Refinance From RBI

Export Credit In Foreign Currencies

Reserve Bank of India has permitted the authorized dealers in foreign exchange to extend Export Credit, both Pre-Shipment and Post-Shipment, in Foreign Currencies viz U.S Dollars, Pound Sterling, Japanese Yen, Euro, etc.

 

• Pre-Shipment Export Credit In Foreign Currencies

Pre-Shipment Credit in foreign currency is granted to exporters for purchasing domestic and imported inputs for goods to be exported. Rate of interest is related to LIBOR/EURO. It is applicable to only cash exports.

Banks are permitted to extend Pre-Shipment Credit in one convertible currency in respect of an export order while invoice is prepared in another convertible currency. The risk and cost of cross-currency transaction will be borne by the exporter.

Source Of Funds For Banks: Banks may grant Pre-Shipment Credit in foreign currency from the funds raised from the following sources:

• • Foreign Currency Balance available with the banks in different types of accounts, viz. Exchange Earners Foreign Currency Accounts, Resident Foreign Currency Accounts, Foreign Currency [Non-Resident] Accounts, Exporters Foreign Currency Accounts.

• • Foreign Currency Lines Of Credit: Banks may arrange lines of credit with overseas banks for this purpose, provided the rate of interest on such borrowings does not exceed 0.75% over six months LIBOR/EURO. If it exceeds this limit, approval from Reserve Bank of India is required.

Banks may also arrange lines of credit from other banks in India, if they are not able to raise loans abroad.

Pre-Shipment Credit in Foreign Currency is initially granted for a maximum period of 180 days which may be extended further but an additional interest of 2% is charged.

Such credit is required to be liquidated out of the proceeds of export bills, when they are submitted for discounting/re-discounting. Export bills are not to be accepted by banks for collection.

Banks are permitted to extend Running Account facility under PCFC Scheme also, just as is provided in case of Rupee credit. Such facility should be provided to exporters with good track record, who should produce L/C or firm orders within a reasonable period of time.

Reserve Bank of India does not provide any refinance against export credit under PCFC scheme.

 

• Post-Shipment Export Credit In Foreign Currency

Exporters are permitted to avail of Pre-Shipment Credit and Post-Shipment Credit either in rupees or in foreign currency. But if they have taken Pre-Shipment Credit in foreign currency, the Post-Shipment Credit has to be necessarily in foreign currency because foreign currency pre-shipment credit has to be liquidated in foreign currency.

Banks, having discounted the export bills drawn in foreign currencies, are allowed to re-discount such bills abroad at rates linked to international interest rates at post-shipment stage. For this purpose, they may arrange a Bankers Acceptance Facility [BAF] for rediscounting the export bills without any margin and duly covered by collateralized documents.

Each bank can have its own BAF limit fixed with an overseas bank or a re-discounting agency.

The exporters can also arrange themselves a line of credit with an overseas bank or any other agency for discounting their export bills directly. Bills are to be rediscounted through the bank from whom pre-shipment credit facility has been availed of.

The above scheme covers mainly export bills with usance period up to 180 days from the date of shipment including normal transit period and grace period. Demand bills may also be included if overseas institution has no objection. Reserve Bank’s prior approval is required for bills having usance of more than 180 days.

Sources of funds for post-shipment export credit are the same as are in case of pre-shipment export credit in foreign currency. Banks should re-discount export bills with recourse terms. If they can arrange such facility on competitive terms on without recourse basis, they are permitted to do so. Reserve Bank of India does not grant refinance facilities against export bills discounted/rediscounted under the scheme.

 

Refinance From Reserve Bank Of India

In order to promote exports from the country and to increase the competitiveness of Indian exporters, Reserve Bank of India provides refinance to the commercial banks at concessional rates, in respect of the export credit provided by them. Section 17 (3A) of the Reserve Bank of India Act, 1934 empowers the Reserve Bank of India to make advances to any scheduled bank against its promissory notes repayable on demand or on the expiry of fixed periods not exceeding 180 days, provided a declaration in writing is furnished by the scheduled bank that:

• • It holds eligible export bills of a value not less than the amount of such loan and advance, such bills should have usance not exceeding 180 days.

• • It has granted a pre-shipment loan or advance to an exporter in India to enable him to export from India. The amount of such pre-shipment loan drawn and outstanding at any time should not be less than the advance obtained by the borrowing bank from the Reserve Bank. The period of pre-shipment credit
    should not exceed 180 days, which may be extended, for reasons beyond the
    control of the exporter.

Thus Reserve Bank of India provides refinance both in respect of pre-shipment credit and post-shipment credit. The essential pre-requisite is the submission of a promissory note, supported by a declaration about having granted export credit Section 17(4) enables the Reserve Bank of India to grant advances repayable on demand on the expiry of fixed period not exceeding 90 days against the security of bills arising out of export transaction repayable on demand or on the expiry of fixed periods not exceeding 180 days.

 

• Extent Of Refinance

Reserve Bank of India provides refinance which is linked with the export credit extended by a bank. With effect from May 5, 2001, scheduled commercial banks are provided export credit refinance to the extent of 15% of the outstanding export credit eligible for refinance as at the end of the second preceding fortnight. Thus with the increase in the value of export credit extended by a bank, the refinance facility also correspondingly increases.

 

• Gold Card Scheme For Exporters

Reserve Bank of India has formulated a Gold Card Scheme for creditworthy exporters with good track record for easy availability of export credit on best terms. Salient features of the scheme are as follows:

• • All creditworthy exporters including those in small and medium sectors with good track record would be eligible as per the criteria laid down by the banks.
  • Banks would clearly specify the benefits they would be offering to gold card holders.
  • Request from card holders would be processed quickly within a prescribed time frame.
  • ‘In-Principle’ limits would be set for a period of 3 years with a provision for stand-by limit of 20% to meet urgent credit needs.
  • Card holders would be given preference in the matter of granting packing credit in foreign currency.
  • Banks would consider waiver of collateral and exemption from ECGC guarantee schemes on the basis of card-holders credit-worthiness and track record.

 

• Interest Rates On Export Credit

In order to reduce the cost of export credit to the exporters, so as to increase their competitiveness in the international markets, Reserve Bank of India has prescribed ceiling rates for different categories of export credit. Banks are free to charge any rate below the ceiling rates. Present rates, effective from May 1, 2004, are as follows:

Types Of Advances And Its Rates Of Interests [P.C., PA]

Pre-Shipment Credit

• Up To 180 Days – No Exceeding BPLR Minus 2.5 Percentage Points.
• Beyond 180 Days And Up To 270 Days – Banks Are Free To Determine Rates Of Interest Subject To BPLR And Spread Guidelines.
• Against Incentive Receivable From Govt. Covered By ECGC Guarantee [Up To 90 Days] – Not Exceeding BPLR Minus 2.5 Percentage Points.

Post-Shipment Credit

• On Demand Bills For Transit Period – Not Exceeding BPLR Minus 2.5 Percentage Points.
• Usance Bills [For Total Period] – Not Exceeding BPLR Minus 2.5 Percentage Points.

[I] – Up To 90 Days [May Be Extended Up To 365 Days For Eligible Exporters Under Gold Card Schemes] – Not Exceeding BPLR Minus 2.5 Percentage Points.
[II] – Beyond 90 Days And Up To 6 Months From The Date Of Shipment – Banks Are Free To Determine Interest Rates Subject To BPLR And Spread Guidelines.

• Against Incentives From Govt. – Not Exceeding BPLR Minus 2.5 Percentage.
• Against Undrawn Balance [Up To 90 Days] – Not Exceeding BPLR Minus 2.5 Percentage.
• Against Retention Money Payable Within One Year From The Date Of Shipment – Not Exceeding BPLR Minus 2.5 Percentage.

Deferred Credit

• For Period Beyond 180 Days – Banks Are Free To Determine Rate Of Interest Subject To BPLR And Spread Guidelines.

 

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