Export Credit
Exporters are granted facilities in the form of cash credit and bills only but, being of a special nature, require a separate mention here. These facilities extended to exporters are in the form of ‘pre-shipment credit’ and ‘postshipment credit’. All type of advances sanctioned to finance the production cycle – i.e. from procurement of raw materials to bringing them to the port for despatch fall under ‘pre-shipment credit’ category. It also includes financing of working capital expenses towards rendering of services. The advance is given either on the basis of individual order obtained, or the customer is sanctioned an export packing credit (EPC) limit and the advances are disbursed on production of individual orders; in the latter case, EPC becomes a running account. The exporter usually adjusts the account by drawing bills of exchange on the foreign buyer, which are discounted by the bank under the letter of credit and the proceeds collected from the foreign bank. The post-shipment credit relates to financing of bills raised on the overseas buyer upon shipment of goods/ services. Another feature of export credit is that the advance may be granted in Indian Rupees or a designated foreign currency. In the latter case, the loan is disbursed in a foreign currency but, for the purpose of accounting, converted into rupees. The export credit is granted at concessional rates of interest. The pre-shipment credit has to be liquidated out of the export proceeds only and cannot be adjusted out of rupee funds (except where the raw materials required for processing exceed the FOB value of the contract, in which the excess advance has to be repaid within a maximum of 30 days from the date of advance). The export proceeds have normally to be received within 9 months from the date of shipment. The period can be extended in genuinebcases, with the approval of the bank (within the discretion available to it under
the regulations in force at the relevant time) or of the RBI, as permitted by the Exchange Control Manual and the operating instructions issued by the Reserve Bank from time to time. The bills representing the export proceeds can be handled only by branches permitted to act as authorised foreign exchange dealers as they involve handling transactions in a foreign currency and reporting to Reserve Bank.
Pre-shipment credit granted in a foreign currency is called ‘Packing Credit in Foreign Currency’ (PCFC) advance and has to be repaid out of the export bills discounted under the Export Bills Rediscounting (EBR) scheme or out of export proceeds. Each bank designates a few select branches to handle
PCFC and EBR transactions. The Rupee Export credit is also allowed to be shared between export order holders and manufacturer of the goods to be
exported. Similarly, bank may extend PCFC also to the manufacturer on thenbasis of disclaimer from the export order holder through his bank. PCFC
granted to the manufacturer can be repaid by transfer of foreign currency from the export order holder by availing of PCFC or by discounting of bills. It should be ensured that no double financing is involved in the transaction and total period of packing credit is limited to the actual cycle of production of the exported goods. (Ref. Para 5.12 of the Master Circular No. DBR No.DIR.BC.14/04.02.002/2015-16 dated July 1, 2015, “Rupee/Foreign
Currency Export Credit & Customer Service to Exporter”). PCFC may be made available to both the supplier of EOU/EPZ/SEZ unit and the receiver of EOU / EPZ / SEZ unit and PCFC for supplier EOU / EPZ / SEZ unit will be for supply of raw material/components of goods which will be further processed and finally exported by receiver EOU / EPZ / SEZ unit. The PCFC extended to the supplier EOU/EPZ/SEZ unit will have to be liquidated by receipt of foreign exchange from the receiver EOU/EPZ/SEZ unit, for which purpose, the receiver EOU/EPZ/SEZ unit may avail of PCFC. The stipulation regarding liquidation of PCFC by payment in foreign exchange will be met in such cases not by negotiation of export documents but by transfer of foreign exchange from the banker of the receiver EOU/EPZ/SEZ unit to the banker of supplier EOU/EPZ/SEZ unit. Thus, there will not normally be any post-shipment credit in the transaction from the supplier EOU/EPZ/ SEZ unit’s point of view. In all such cases, it has to be ensured by banks that there is no double financing for the same transaction. Needless to add, the PCFC to receiver EOU/EPZ/SEZ unit will be liquidated by discounting of export bills or by receipt of export proceeds. (Ref Master Circular DBR No.DIR.BC.14/04.02.002/2015-16 dated July 01, 2015, “Rupee/Foreign Currency Export Credit & Customer Service to Exporter”). In this context, attention of the readers is also invited to RBI’s Circular No. DBOD.Dir.BC.NO.57/04.02.001/2013-14 on “Export Credit in Foreign Currency” dated September 25, 2013.