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Executive Summary
After globalization and liberalization there was an enormous growth in foreign trade in Indian economy. Thus to this there was a tremendous growth in export import finance. Initially importer did` t gets any finance facility form financial institute. They only got a letter of credit from the financial Institutions. In India there are 27 nationalized banks which are playing a major role in financing each and every sector. Initially public sector banks were providing few facilities to the exporter and importer but globalization banks and government started providing more facilities to the exporter and importer Export is the major commercial activity which offers many advantages to the economy. In financial system export finance is divided in two parts 1) Pre-shipment 2) Post-shipment finance. In per-shipment export finance exporter gets facility like packaging facility, like packaging facility, Advance against incentives and finance in foreign currency. where as in post-shipment finance exporter get facilities negotiation export bill under letter of credit; purchase/ discounting of foreign bill, advance against bill sent on collection, advance against goods sent on consignment, advance against export incentive, advances against retention money advance against undrawn balance, post shipment in foreign currency etc. Similarly import is also useful for country. The major facility which importer gets from bank is letter of credit than importers also get facilities like financing bills under collection, financing against deferred payment, financing under foreign currency etc.
INDEX
Ch. No 1. 2. Particulars Introduction Export Import Finance in India 1.The Role of the Collecting Bank
2.The Role of Bank in Export Import Finance Page No.
06. 07.
3.
11.
4.
13.
5. 6. 7. 8.
i) ii)
Export Finance By Bank Importance of Export Finance Mode of Bank Finance to Exporter Stages of Export Finance
Pre-shipment Finance Post-shipment Finance
9. 10. 11.
Recent Development in Export Finance Import Finance By Bank Methods of Import Finance Types of Letter of Credit.
2
EXPORT-IMPORT FINANCE BY BANK 12. 13. 14. 15. Payment Method in Export & Import Trade Document used in Foreign Trade Foreign Trade Policy Limitations & Conclusion 47. 49. 53. 59.
DESIGN OF STUDY
SCOPE
Limited only to public sector bank. Limited to financial services which are taken against document. RBI schemes and EXIM facilities are not covered. 3
OBJECTIVE
To study export import service by public sector bank in India Procedure of how bank finance To know which type of document are used and against which exporter and
importer can take loan or finance. To understand all the dimensions of import & export finance. To learn about the strategies & techniques used by banks to finance the
RESEARCH METHODOLOGY
Planning: Firstly I planned to make the project and which topic should cover & design the outline of project. Research work: Then I search books and Website to collect information. The information is collected partly from book and web. 4
CHAPTER 1
INTRODUCTION
The statutory basis for control of imports into India is found in the Foreign Trade Act, 1992 which empowers the Central Government to prohibit or otherwise control imports. Import and export financing provides importers who have orders from customers in the United States, or foreign customers backed 5
CHAPTER 3
CHAPTER 4
EXPORT CREDIT AND GURANTEE CORPORATION provides a wide range of credit risk insurance cover to exporters against loss in export of goods and services. It also offer guarantees to banks and financial institutions to enable the exporters to obtain better facilities from the banks.
The covers offered by Export Credit and Guarantee Corporation to the Exporters are:
i) Standard Policies to exporters to protect them against payment risks involved in exports on short term credit. ii) Specific Policies designed to protect Indian firms against payment risks involved in a.) Exports on deferred payment terms b.) Services rendered to Foreign Parties c.) Construction works and turnkey projects undertaken abroad.
CHAPTER 5
Export is when you sell something to another country and then ship
it. Meaning of Exporter:
The person who sends goods or commodities to a foreign country, in the way of commerce; opposed to importer. Is known as exporter. The seller ships the goods and then hands over the document related to the goods to their banks with the instruction on how and when the buyer would pay.
Exporters Bank
The exporters bank is known as the remitting bank, and they remit the bill for collection with proper instructions. The role of the remitting bank is to: Check that the documents for consistency. Send the documents to a bank in the buyer's country with instructions on collecting payment. Pay the exporter when it receives payments from the collecting bank.
Exports play a very crucial role in a developing economy and they are given a high priority in the foreign trade policy of such an economy. The Indian economy also attaches great importance to export promotion. Finance is the back bone of any trade, whether domestic or international. Export, being a part of international trade is no exception. Hence, any measure, Reserves bank of India has taken steps to ensure free flow of financial assistance to the export sector at lower rates of interest. The negotiating bank or collecting bank will buy or collect the bills after a 15
CHAPTER 6
CHAPTER 7
PRE-SHIPMENT FINANCE
INTRODUCTION Pre-shipment finance is nothing but working capital finance (mainly inventory finance) extended to an exporter in anticipation of his exporting the goods. The basic purpose of extending pre-shipment finance is to enable the eligible exporters to procure raw material/process/manufacture/warehouse/ship the goods meant for export.
QUANTUM OF FINANCE
There is no fixed formula for determining the quantum of finance, to be granted to an exporter, against a specific order/letter of credit or an expected order. In respect of established exporters, pre-shipment credit is also allowed on running 20
PERIOD OF FINANCE
Pre-shipment finance, being working capital finance, is basically short term finance. The maximum period for which pre-shipment finance can be extended at concessive rates is to be decided by banks taking into account the production cycle of the commodity and related aspects subject to a maximum period of 180 days. This period can be extended beyond 180 days up to 270 days (i.e. 180 +90 days) by bank themselves without reference to the Reserve Bank of India.
RATE OF INTEREST
For encouraging exports, R.B.I. has instructed the banks to grant pre-shipment advance at a concessional rate of interest.
AMOUNT:
The loan amount is decided on the basis of export order and the credit rating of the exporter by the bank. Generally the amount of packing credit will not exceed FOB value of the export goods or their domestic value whichever is less.
PERIOD
The packing credit can be granted for a maximum period of 180 days from the date of disbursement. The banks are authorized period of 180 days from the date of disbursement. The banks are authorised by RBI to extend this period. This period can be extended for a further period of 90 days, in case of nonshipment of goods within 180 days
RATE OF INTEREST
The interest payable on pre-shipment finance is usually lower than the normal rate, provided the credit is extinguished by lodging the export bills on remittances from abroad. If the exporter fails to do so they would not be able to avail concessional rate of interest. In order to avail the packing credit; exporters are expected to make a formal application to the bank giving details of credit requirements along with the required documents.
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POST-SHIPMENT FINANCE
Post-shipment finance is defined as any loan or advance granted or any other credit provided by an institution to an exporter of goods from India from the date of extending the credit after shipment of the goods to the date of realizations of export proceeds and includes any loan or advance granted to an exporter in consideration of or on the security of any duty draw back or any receivables from Government of India. Post-shipment finance can be classified as a finance granted on negotiation/ acceptance of export documents under letter of credit/ purchase/ discount of export documents under confirmed orders/export contracts, etc. and advances 25
VARIOUS POST-SHIPMENT AVAILABLE TO EXPORTER 1) Negotiation of Export Documents Under Letters of Credit
Where the exports are under letter of credit arrangements, the banks will negotiate the export bills provided it is drawn in conformity with the letter of credit. When documents are presented to the Bank for negotiation under L/C they should be scrutinized carefully taking into account all the terms and conditions of the credit. All the documents tendered should be strictly in accordance with the L/C terms. It is to be noted that the L/C issuing bank undertakes to honour its commitment only if the beneficiary submits the stipulated documents. Even the slightest deviation from those specified in the L/C can give an bank excuse to the issuing bank of refusing the reimbursement of the payment that might have been already made by the negotiating.
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CHAPTER 9
37
CHAPTER 10
Meaning of Importer:
The person who brings or carry in from an outside source, especially to bring in (goods or materials) from a foreign country for trade or sale is known as importer. The buyer / importer are the drawee of the Bill. The role of the importer is to: Pay the bill as mention in the agreement (or promise to pay later). Take the shipping documents (unless it is a clean bill) and clear the goods.
Importer's Bank:
This is a bank in the importer's country: usually a branch or correspondent bank of the remitting bank but any other bank can also be used on the request of exporter The collecting bank act as the remitting bank's agent and clearly follows the instructions on the remitting bank's covering schedule. However the collecting bank does not guarantee payment of the bills except in very unusual circumstance for undoubted customer, which is called availing. Importer's bank is known as the collecting / presenting bank. 38
Imports play an important role in the economy of every country, rich and poor alike. Rich countries need to import capital goods, raw materials and technology to ensure an optimum utilization of their production capacity. They need to import a wide variety of consumer goods to enable their people to enjoy a high standard of living. Poor countries needs to import technology and capital equipment and sometime strategic raw materials to develop industries for accelerating pace of their development, in India In the case of consignment sales, banks enter into transactions as remitting or collecting agents, in the case of documentary credits, they act either as paying agents or as collecting or negotiating agents for the exporter. So far as the importer is concerned, the bank issues the L/C, revocable or irrevocable, confirmed or unconfirmed. The buyer makes a request on an application form for opening of; \c in favour of a foreign party. The buyer is a customer of the bank and if the foreign party is not known to him, the former requests his bank to make enquiries about the partys credit standing abroad, this service is rendered for a nominal charge, the banker has to see before opening the L\C: (i)whether import is covered under the import license, which is current and unexpired; (ii) Whether the import value is within the limits set by the import license. (iii) Whether arrangements are made for warehousing and storing of goods in good condition until sold; (iv) Whether specific mention is made of the documents to be collected from exporter such as invoice, weight certificate, certificate of origin, bill of lading, insurance policy, etc. 39
CHAPTER 11
iii) Import trust receipt facility. Each time a L\C is opened, the importer has to file a formal stamped letter of credit application and agreement in the prescribed form? The application should set forth the precise; terms and conditions under which the importer wishes his bank to establish the credit, and describe the documents covering the goods purchased which the bank is to receive in exchange for payments. L/C is sent by the issuing bank to a bank in the suppliers country with a request to deliver the same to the supplier, called the beneficiary. If the beneficiary is satisfied with terms and conditions mentioned in L/C he ships the goods, obtains the require documents and submits them to bank, usually his own, unless a name has been specified in the credit. Bank scrutinizes the documents 43
1. Confirmed Credit:
When another bank adds its confirmation to the irrevocable letter of the credit it becomes a confirmed credit and it constitutes a definite undertaking of the confirming bank in addition to the issuing bank.
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5. Revolving Credit:
In a revolving credit the amount of drawing is reinstated and made available to the beneficiary again after a period of time on notification of payment by the applicant or merely the fact that shipment has been made.
CHAPTER 12
Clean Payments :
In clean payment method, all shipping documents, including title documents are handled directly between the trading partners. The role of banks is limited to clearing amounts as required. Clean payment method offers a relatively cheap and uncomplicated method of payment for both importers and exporters.
2.)Open Account:
In open account method the importer is trusted to pay the exporter after receipt of goods. The main drawback of open account method is that exporter assumes all the risks while the importer get the advantage over the delay use of companys cash resources and is also not responsible for the risk associated with goods.
In this method of payment in international trade the exporter entrusts the handling of commercial and often financial documents to banks and gives the 47
Letter of Credit:
Letter of Credit also known as Documentary Credit is a written undertaking by the importers bank known as the issuing bank on behalf of its customer, the importer, promising to effect payment in favor of the exporter (beneficiary) up to a stated sum of money, within a prescribed time limit. CHAPTER13
Nostro Account:
The Demand Draft Deposit account belonging to a domestic bank maintained in an overseas bank denominated in foreign currency is nostro account. 48
A list of the various document required in cross border trade is given below:
Commercial Invoice Bills of Lading/Airway Bill Marine Insurance Policy and Certificate Bills of Exchange Consular Invoice Customs Invoice Certificate of Origin Inspection Certificate Packing List 1. Commercial Invoice: It is the sellers bill for the merchandise. It contains a description of the goods, the price per unit at a particular location and total value of the goods, packing specifications, terms of sale, teams of payment, identification markers of the packages, bill of lading number, etc.
4. Bill of Exchange:
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6. Customs Invoice:
Certain countries such as Canada and the USA need customs invoice. Canada has prescribed a specific from of customs invoice for allowing entry of merchandise at preferential tariff rates. The USA, in addition to the special customs invoice, requires a particular annex to the invoice, for Cotton Manufacturers. The forms are supplied by the consular office of the respective importers country and are to be duly filled in and signed by the shipper. 51
8. Inspection Certificate:
Inspection certificate by an established inspection Authority is needed under some contracts or by some countries. This certificate is issued by one of the authorized inspection agencies in the exporters country by the agency nominated by the importer.
CHAPTER14
CHAPTER 15
LIMITATIONS
Export Import finance is a vast and big subject and time frame of two months is not sufficient to understand the whole gamut of export & import Credit & finance.
Export credit is regulated and controlled by various regulators and It is not possible to understand all the guidelines comprehensively with the limited amount of access to such information.
Export-Import bank of India do not provide detail information about their activities.
Some bank does not provide information about their activity of export-import. . 58
CONCLUSION
Export Import Finance is a very important study & understands the overall gamut of the international finance market.Credit and finance is the life and blood of any business whether domestic or international. The payment terms however depend upon the availability of finance to exporters in relation to its quantum; cost and the period at pre-shipment and post-shipment stage. The providers of export and import finance also extend advisory and planning assistance to the importers and exporters. The Government of India and RBI has conceived various schemes to stimulate and support exports and imports.. The biggest benefit of import and export financing is that the company will get the working capital needed for growth The financing solutions will enhance a companys cash flow by ensuring that the company and its suppliers are paid in a timely fashion. The funding will help in taking on new opportunities, both locally and internationally. Benefits include: 1. Commercial trade credit verification services and help to establish credit limits for national and international customers.
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ANNEXURE
QUESTIONNAIRE FOR MANAGER
2. What is the rate of Interest charged? i. ii. iii. iv. 5%-10% 10%-15% 15%-20% More than 20%
5. should importer & exporter maintain nostro account with you to enable international trade? Yes No
6. Do you discount bill drawn under letter of credit as well as outside it? Yes No
7. Is their scope for default in loan repayment by exporter & importer? Yes No
8. Do you hold any charge/Mortgage/pledge over their assets through which you can recover your outstanding loan? Yes
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No
EXPORT-IMPORT FINANCE BY BANK 9. Do you avail export bills rediscounting facility& refinance of export credit from RBI and EXIM Bank? Yes 10. well? Yes 11. No No
BIBLOGRAPHY
Export-What, where & How International Finance Export Marketing How to Export How to Import Export-Import Bank of India International banking and Finance Paras Ram. B.P.Varma. Michael Vaz. Nabhis Publication Nabhis Publication Annual Report Vipul Publication
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WEBLOGRAPHY www.rbiorg.com
WWW.Google.com WWW.Yahoo.com WWW.eximbankindia.com WWW.economictimes.com WWW.foreignexchange.com
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