Financing of exports by banks: Advances by commercial banks for export financing are in the form of:
a) Pre-shipment finance i .e. before shipment of goods : This usually, takes the form of packing credit facility, which is an advance extended by banks to an exporter for the purpose of buying, manufacturing, processing, packing, shipping goods to overseas buyers. Any exporter, having at hand a firm export order placed with him by his foreign buyer or an irrevocable letter of credit opened in his favour, can approach a bank for availing packing credit. An advance so taken requires to be liquidated within 180 days from the date of its commencement by negotiation of export proceeds in an approved manner. Thus, packing credit is essentially a short term advance. Usually, banks insist on their customers to lodge with them irrevocable letters of credit opened in favour of the customers by overseas buyers. The letter of credit and firm sale contracts not only serve as evidence of a definite arrangement for realisation of the export proceeds but also indicate the amount of finance required by the exporter. Packing credit in case of customers of long standing may also be granted against firm contracts entered into by them with overseas buyers. Following are the types of packing credit available:
i) Clean packing credit: This is an advance available to an exporter only on product ion of a firm export order or a letter of credit without exercising any charge or control over raw material or finished goods. Each proposal is weighted according to particular requirements of trade and credit worthiness of the exporter. A suitable margin has to be maintained. Also, Export Credit Guarantee Corporation (E.C.G.C. ) cover should be obtained by the bank.
ii) Packing credit against hypothecation of goods: Export finance is made available on certain terms and conditions where the exporter has pledgeable interest and the goods are hypothecated to the bank as security with stipulated margin. At the time of utilising the advance, the exporter is required to submit, along with the firm export order or letter of credit, relative stock statements and there after continue submitting them every fortnight and/or whenever there is any movement in stocks.
iii) Packing credit against pledge of goods: Export finance is made available on certain terms and conditions where the exportable finished goods are pledged to the banks with approved clearing agents who would ship the same from time to time as required by the exporter. Possession of goods so pledged lies with the bank and is kept under its lock and key.
iv) E.C.G.C. guarantee: Any loan given to an exporter for the manufacture, processing, purchasing or packing of goods meant for export against a firm order qualifies for packing. Credit guarantee is issued by the Export Credit Guarantee Corporation (E.C.G.C.).
v) Forward exchange contract: Another requirement of packing credit facility is that if the export bill is to be drawn in a foreign currency, the exporter should enter into a forward exchange contract with the bank, thereby avoiding risk involved in a possible change in the exchange rate.
Documents required:
- In case of partnership firms, banks usually require the following documents:
• Joint and several demand pro note signed on behalf of the firm as also by partners individually;
• Letter of continuity, signed on behalf of the firm and partners individually;
• Letter of pledge to secure demand cash credit against stock, in case of pledge or agreement of hypothecation to secure demand cash credit, in case of hypothecation.
• Letter of authority to operate the account;
• Declaration of Partnership, in case of sole traders, sole proprietorship declaration;
• Agreement to utilise the monies drawn in terms of contract;
• Letter of hypothecation for bills.
- Following documents are required by banks, in case of limited companies:
• Demand pro-note;
• Letter of continuity;
• Agreement of hypothecation of letter of pledge, signed on behalf of the company;
• General guarantee of the directors' resolution;
• Agreement to utilise the monies drawn in terms of contract should bear the company's seal;
• Letter of hypothecation for bills.
b) Post shipment finance: It takes the below mentioned forms:
i) Purchase/Discounting of documentary export bills: Finance is provided to exporters by purchasing export bills drawn payable at sight or by discounting usuance export bills covering confirmed sales and backed by documents inclusive of documents of t it le to goods such as bi l l of lading, post parcel receipts or air consignment notes. Documents to be obtained are:
• Letter of hypothecation covering the goods; and
• General guarantee of directors or partners of the firm, as the case may be.
E.C.G.C. Guarantee: Post -shipment finance, given to an exporter by bank through purchase, negotiation or discount of an export bill against an order, qualifies for post -shipment export credit guarantee. I t is necessary, that exporters obtain a shipment or contracts risk policy of E.C.G.C. Banks insist on the exporters to take a contracts shipments (comprehensive risks) policy covering both political and commercial risks. The Corporation, on acceptance of the policy, would f ix credit limits for individual exporters and the Corporation's liability will be limited to the extent of the limit so fixed for the exporter concerned irrespective of the policy amount.
i i ) Advance against export bills sent for collection : Finance is provided by banks to exporters by way of advance against export bills forwarded through them for collect ion, taking into account the party's creditworthiness, nature of goods exported, usuance, standing of drawee, etc. appropriate margin is kept.
Documents to be obtained:
Demand promissory note;
Letter of continuity;
Letter of hypothecation covering bills;
General guarantee of directors or partners of the firm, as the case may be.
iii) Advance against duty draw backs, cash subsidy, etc.: To finance export losses sustained by exporters, bank advance against duty draw-back, cash subsidy, etc. receivable by them against export performance. Such advances are of clean nature, hence, necessary precaution is to be exercised.
Conditions: Bank providing finance in this manner should see that the relative export bills are either negotiated or forwarded for collect ion through it so that , it is in a posit ion to verify the exporter's claims for duty draw-backs, cash subsidy, etc. An advance so availed by an exporter is required to be liquidated within 180 days from the date of shipment of relative goods.
Documents to be obtained are:
• Demand promissory note;
• Letter of continuity;
• General guarantee of directors or partners of the firm, as the case may be.
• Undertaking from the borrowers that they will deposit the cheques/payments received from the appropriate authorities immediately with the bank and will not utilise such amounts in any other way.
c) Other facilities extended to exporters:
i) On behalf of approved exporters, banks establish letters of credit on their overseas or up-country suppliers.
ii) Guarantees for waiver of excise duty, etc. due performance of contracts, bond in lieu of cash security deposit, guarantees for advance payments, etc. are also issued by banks to approved clients.
iii) To approved clients undertaking exports on deferred payment terms, banks also provide finance.
iv) Banks also endeavour to secure for their exporter-customers status reports of their buyers and trade information on various commodities through their correspondents.
v) Economic intelligence on various countries is also provided by banks to their exporter clients.
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