1. Meaning of post shipment finance:
Post-shipment Export credit facility in banks means finance made by the bank after the shipment of goods or service. Any loan or advance granted or any other credit viz., Export Bills purchased/ discounted/ negotiated, advances against bills for collection, advances against duty drawback receivable from Government etc., is treated as post-shipment export credit. As these credits are provided to an exporter ‘after shipment’ of goods or rendering of services, such facility is called ‘Post-shipment export Credit’.The resultant proceeds of post shipment finance shall be used for liquidating the related outstanding in packing credit account. In the event that the exporter has not availed packing credit but he approaches for post shipment credit, bank can consider that request. In such cases banker shall ensure that against the bills submitted by the exporter that some other bank has not granted packing credit. If another bank has purchased the bills related to packing credit granted by one bank, the proceeds of such purchase shall be remitted to the bank which has granted the packing credit. Whenever Packing Credit is outstanding, the related export bill should not be sent on collection.
Who is eligible for Post-shipment export credit facility in banks?
The general requirement for export finance is that the exporter should be
- The customer of the bank where he wants to avail facilities.
- He must hold Import Export Code No.(I.E. Code No.) issued by Direct General of Foreign Trade (DGFT).
- Holds Registration cum membership certificate from eExport Promotion Council
- Should not be in the caution list of RBI.
- He is not in the specific approval list of ECGC.
- Exporters of services also qualify for working capital export finance (pre and post shipment) for consumables, wages, supplies etc.) The exporter shall register with the Electronic and software Export Promotion Council or Services Export Promotion Council or with Federation of Indian Export Organizations, as applicable to their unit
Report of default: The bank has to report the default from any exporter within 30 days of recall of advance or within 4 months from the date of due date or extended due date whichever is earlier. No further payment of premium is necessary.Claim should be submitted to ECGC within 6 months of reporting default.
Various types of Post shipment Finance:
Purchase of export bills: The exporter submits bill or drafts drawn under confirmed orders (without LC) to his bank for post-shipment finance. If the L/C is not available as security, the bank is totally dependent upon the credit worthiness of the exporter. Therefore the purchase facility is available only to those exporters whose track record has been good.
Discount of Export Bills: Bills Discount refer to post-shipment finance made against Usance bills. If the L/C is not available as security, the bank is totally dependent upon the credit worthiness of the exporter. Commercial risks can be covered for usance bills, under the standard policy of ECGC. The risk is covered by ECGC only if the credit limit was already approved by them on each buyer to whom shipments are made on credit terms.
Negotiation of Export bills: Negotiation refers to LC bills. Negotiation means the giving value for draft/s and/or document/s by the bank authorized to negotiate. Mere examination of the documents without giving of value does not constitute a negotiation. When the exporter submits bill or draft drawn under LC to bank, the bank verifies all necessary documents, submitted by the exporter, matching in terms of conditions stated in the L/C. if all documents are in order, the bank negotiates the bill and advance (post shipment finance) is granted to the exporter. The negotiating bank presents the bills negotiated by it to the Paying Bank. The bank which makes the payment under credit is called paying bank.
Undrawn Balances on Export Bills:
In the export trade of certain commodities where exporters are required to draw the bills on the overseas buyer at a reduced value, say around 2 to 10 percent margin, on FOB value of the contract. The balance (residuary), which is payable by the overseas buyer after satisfying himself about the quality/ quantity of goods is called as ‘undrawn balance’.
Advance against Undrawn Balances on Export Bills:
Banks may consider granting advances against undrawn balances, mainly on the track record of the buyer, as much as the receivable under undrawn balance is contingent in nature.
In the cases of turnkey projects/construction contracts, a small percentage of the progressive payments are retained as retention money. The retention money is payable after expiry of the stipulated period from the date of the completion of the contract, after get hold of certificate(s) from the specified authority.
Advance against Retention Money: Exporters are normally advised to provide appropriate guarantees, instead of retention money and banks do not grant advance against retention money relating to services portion of the contract. However Banks consider, granting of advances against retention money relating to the supplies portion of the contract taking into account, among others, the size of the retention money accumulated, its impact on the liquid funds position of the exporter and the past performance regarding the timely receipt of retention money etc.
Duty Draw Back (DBK): Duty Draw Back means refund claim of an importer on customs duties paid by him, for import of raw materials, components, parts and packing materials used in the export production. It also includes a refund of central excise duties paid on indigenous materials.
Advances against Duty Drawback Entitlements: Banks may grant post-shipment advances to exporters against their duty drawback entitlements from Customs department, on the basis of export promotion copy of the shipping bill containing the EGM Number issued by the Customs Department, or provisional certificate issued by Customs Authorities, pending final sanction and payment.
The financing bank wherever necessary, should make its lien noted with the designated bank and arrangements may be made with the designated bank to transfer funds to the financing bank as and when duty drawback is credited by the Customs.
Deemed Exports: The supplies made to IBRD/IDA/ADB aided projects are termed as Deemed Exports. Specified sales viz., sales to foreign tourists during their stay in India is also considered termed as deemed export. Advance against deemed export are eligible for bank finance, for a maximum period of 30 days.
Export of Goods for Exhibition and Sale: As per RBI guidelines, banks may give finance to exporters against goods sent for exhibition and sale abroad in the normal course in the first instance. After the sale is completed, allow the benefit of the agreed rate of interest on such advances, both at the pre-shipment stage and at the post-shipment stage, up to the predetermined periods, by way of a rebate. Such advances should be given in separate accounts.
How to Liquidate Post-shipment Credit: Post-shipment credit is to be liquidated by the proceeds of export bills received from abroad in respect of goods exported / services rendered. Further, subject to mutual agreement between the exporter and the banker, it can also be repaid / prepaid out of balances in EEFC A/C or from proceeds of any other unfinanced (collection) bills. Such adjusted export bills should however continue to be followed up for realization of the export proceeds and will continue to be reported to RBI in the XOS statement.
Normal Transit period: Normal transit period means the average period normally involved from the date of negotiation/purchase/discount till the receipt of bill proceeds in the Nostro account of the bank concerned. Foreign Exchange Dealers Association of India (FEDAI) prescribes the NTP from time to time.
The present NTP details are as under.
Foreign Currency bill : 25 days
Reimbursement by TT/SWIFT: 5 days (if notice period is prescribed, it should be added)
For Rupee bills:
Reimbursement at the centre of negotiation ………………… : 3days.
Bills under LC with reimbursement at other centers ……………..: 7days
Reimbursement outside India and bills not under collection ….. : 20 days
Export to Russia under LC for which Reimbursement is by RBI. : 20 days.
An export bill is called overdue bill in the following cases.
(i) In the case of a demand bill, the bill which is not paid before the expiry of the normal transit period, plus grace period and
(ii) In the case of a usance bill, the bill which is not paid on the due date.
Crystallization: Crystallization is the process of passing on the exchange risk of overdue bills to the exporter. Generally 30th day after the notional due dates the bill purchased will be swapped at T.T.Selling rate. (FEDAI has removed 30 days period prescribed earlier) Thus the bill acquires the status of collection bill. Swap gain if any will be passed on to the exporter. Additional 15 days can be granted at the discretion of Bank. The bill limit will be blocked to the extent of crystallized amount.
XOS is a half yearly statement submitted by AD as at the end of June and December giving details of all outstanding beyond six months from the date of export. This is prepared in triplicate and submitted within 15 days from the close of the relative half year.
The period prescribed by FEDAI for realization of export proceeds is Normal Transit Period (NTP) for demand bills and a maximum period of 365 days from the date of shipment in case of Usance Bills inclusive of Normal Transit Period (NTP).
Report of default: The bank has to report the default from any exporter within 30 days of recall of advance or within 4 months from the date of due date or extended due date whichever is earlier. No further payment of premium is necessary.
Claim should be submitted to ECGC within 6 months of reporting default.