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CHAPTER 1

INTRODUCTION

The statutory basis for control of imports into India is found in the Foreign Trade (Development and Regulation) Act, 1992 which empowers the Central Government to prohibit or otherwise control imports. Deriving power under this Act, Central Government has notified the Export and Import Policy, 1992-97.

Import and export financing provides importers who have orders from customers in the United States, or foreign customers backed by a letter of credit, with the necessary financial backing to provide their overseas supplier with a letter of credit to guarantee payment of goods.

The whole process works because the importer will supply you with basic information on the import company and their customers. You then evaluate the credit worthiness of the customers. For each of the approved customers, the importer will supply us with copies of purchase orders that are to be filled. We will then arrange a letter of credit to be issued to the suppliers bank with the supplier as the beneficiary.

Financing can be arranged to cover 100% of the transaction. This provides the importer with sufficient financial strength to sell larger orders than they would be able to on their own financial
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strength. Depending on the strength of the buyer, this may be done on open account with the domestic buyer, allowing the buyer to increase their purchasing power.

Export finance is a short term working capital finance allowed to an exporter. An exporter may avail financial assistance from any bank, which is taking care of the following factors:

Funds should be available to the exporter at the required time to ensure availability of funds to eligible borrowers. Reserve Bank has prescribed time schedule to Commercial banks for speedy sanctioning of export credit limits. Further, banks are advised that 12% of their total credit should be fore export finance.

OBJECTIVES OF THE STUDY:

1. To understand all the dimensions of import & export finance. 2. To document the various source of import & export finance in India. 3. To examine the documents used in the import & export finance. 4. To learn about the strategies & techniques used by banks to finance the importer & exporter. 5. To find various types of import export finance.

1.1 WHAT IS IMPORT AND EXPORT?

Import is when you buy something from another country and get it shipped to you. Export is when you sell something to another country and it 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.

Exporter's Bank:

The exporter's 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.
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Pay the exporter when it receives payments from the collecting bank.

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.

The Role of the Collecting Bank:


Act as the remitting bank's agent. Present the bill to the buyer for payment or acceptance. Release the documents to the buyer when the exporter's instructions have been followed. Remit the proceeds of the bill according to the Remitting Bank's schedule instructions. If the bill is unpaid / unaccepted, the collecting bank : May arrange storage and insurance for the goods as per remitting bank instructions on the schedule. Protests on behalf of the remitting bank (if the Remitting Bank's schedule states Protest) Requests further instruction from the remitting bank, if there is a problem that is not covered by the instructions in the schedule. Once payment is received from the importer, the collecting bank remits the proceeds promptly to the remitting bank less its charges.

CHAPTER 2

EXPORT / IMPORT FINANCE IN INDIA


The statutory basis for regulation of exports from India is the Foreign Trade (Development and Regulation) Act 1992. The Government is empowered to ban the export of certain goods from India and/ or restrict export in quantity, value etc. by subjecting them are licensing procedure.

Export from the country is generally free. The export goods may be classified under any of the following categories:a) Free items exportable without restrictions. b) Restricted exportable under a license or permission c) State Trading export can be done through specified Trading enterprise. d) Prohibited can not be exported.

Finance for exports is available from commercial banks under two categories(1) (2) Pre-shipment finance (or packing credit) Post shipment finance.

2.1 Financing of Export and Imports of Goods and Services:

Exports are a subject of significance to every economy whether developing or developed because they represent the biggest source of earning foreign exchange. The need is all the more acute for a developing economy, which mostly experiences deficit on its current account as well as capital account.

Increasing exports enable the economy to earn foreign exchange, enhance foreign exchange reserves, improve balance of trade, balance of payments, correct deficits in Balance Of Payments (BOP), and improve exchange value of its currency.

The share of Indias exports in world trade is below 1% and along with the persistent deficits in its BOD necessitates the need for a major thrust on exports. However, over the years the exports have grown well and more so the compositions of exports (goods & services exported) have undergone a charge. This has happened mainly after the liberalization and globalization of our economy post 1991.

The Government has treated on this objective by announcing the following incentives to an exporter:

1. Cheaper rates of interest on Bank finance (export rates today hover around 8% to 8.50% compared to non export rates of 12-15%) 2. Duty concessions on imports for exports. 3. Cash Incentives for exports viz. Tax breaks for export units, duty drawback schemes. 4. Providing Infrastructure facilities viz. Free trade Zones Export Zones etc. 5. Establishing of EXPORT IMPORT BANK OF INDIA bank to promote exports.
6. Establishing Export Credit Guarantee Corporation- EXPORT

CREDIT AND GURANTEE CORPORATION to provide a protective shelter to exports against inherent international trade risks.

CHAPTER 3

ROLE OF BANKS IN EXPORT AND IMPORT FINANCE

Along with public sector banks, the foreign banks also provide financial assistance to Indian exporters. They offer financial facilities to exporters and thereby contribute for export promotion. In addition, the exchange banks also provide banking and financial facilities to importers from their respective countries.

It is a fact that foreign exchange banks are in a better position to offer finance to exporters due to their world wide banking contacts, huge financial resources and expert staff.

Foreign banks are banks incorporated in foreign countries (UK, USA, France, Japan, etc) but are functioning in India through their branches or branch offices opened at important commercial centers such as Mumbai, Chennai, Calcutta, and Delhi and so on.

Foreign banks operate under the supervision of the RESERVE BANK OF INDIA and have to function as per the provision made in the Banking Regulation Act, 1949.

These banks provide financial support to international trade as per the policies of the government. In addition, they also conduct other banking

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functions and offer banking and financial services to their customers (exporters)

Foreign banks operating in India include Lloyds Bank, Standard Chartered Bank, Citi Bank, Grind lays Bank, and so on. These banks have their offices at important commercial centers in India.

Foreign banks offer various financial services to exporters from their home country. For example, they issue letter of credit to their clients and also provide financial facilities. They collect payment for goods imported and arrange to make payment to Indian exporters by completing the necessary formalities and procedures.

The documentary bills of exchange may be sent to these banks and collect payment for the goods.

Along with such services, the foreign banks (also called foreign exchange banks) also provide many facilities to Indian Exporters who open the account in such banks.

For example, they arrange to make payment for the goods imported. They also provide discounting facility to Indian exporters and also offer various types of guarantees. Exports proceeds are also collected on behalf of Indian exporters as a result; immediate cash is available to exports.

In addition, the foreign banks provide pre-shipment and postshipment finance to exporters. Similarly, they help Indian exporters in the remittance of money from India to other countries for different purposes
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subject to rules and procedures prescribed by the RESERVE BANK OF INDIA. The following are the institutions that are directly or indirectly concerned with import and export financing:

1. Commercial Banks 2. Export Import Bank of India (EXIM Bank) 3. Reserve Bank of India (RBI) 4. Export Credit Guarantee Corporation of India Ltd (ECGC)

3.1 RESERVE BANK OF INDIA (RBI) :

The Reserve Bank of India is the apex financial institution of the countrys financial system entrusted with the task of control, supervision, promotion, development and planning. Reserve Bank of India is the queen bee of the Indian financial system which influences the commercial banks management in more than one way. The RESERVE BANK OF INDIA influences the management of commercial banks through its various policies, directions and regulations. Its role in bank management is quite unique. In fact, the RESERVE BANK OF INDIA performs the four basic functions of management, viz., planning, organizing, directing and controlling in laying a strong foundation for the functioning of commercial banks.

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Objectives of the Reserve Bank of India:

The Preamble to the Reserve Bank of India Act, 1934 spells out the objectives of the Reserve Bank as: to regulate the issue of Bank notes and the keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage.

Prior to the establishment of the Reserve Bank, the Indian financial system was totally inadequate on account of the inherent weakness of the dual control of currency by the Central Government and of credit by the Imperial Bank of India.

The

Hilton-Young

Commission,

therefore,

recommended that the dichotomy of functions and division of responsibility for control of currency and credit and the divergent policies in this respect must be ended by setting-up of a central bank called the Reserve Bank of India which would regulate the financial policy and develop banking facilities throughout the country. Hence, the Bank was established with this primary object in view.

Functions of the Reserve Bank of India:

The Reserve Bank of India performs all the typical functions of a good Central Bank. In addition, it carries out a variety of developmental and promotional functions attuned to the course of economic planning in the country:
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1. Issuing currency notes, to act as a currency authority. 2. Serving as banker to the Government. 3. Acting as bankers bank and supervisor. 4. Monetary regulation and management. 5. Exchange management and control. 6. Collection of data and their publication. 7. Miscellan export oriented units developmental and promotional functions and activities. 8. Agricultural Finance. a) Industrial Finance b) Export Finance. c) Institutional promotion

3.2. EXPORT IMPORT BANK OF INDIA (EXIM) Role of Export Import Bank of India:

The Export-Import Bank of India is a public sector financial insinuation crested by an Act of Parliament, the Export-import Bank of India Act. 1981. The Bank came in existence in January 1982 and commenced operations from March 1, 1982. EXPORT IMPORT BANK OF INDIA is the principal financial institution for co-coordinating the working of institutions engaged in financing export and Import trade of India. The Business of EXPORT IMPORT BANK OF INDIA is to finance, facilitate and promote foreign trade of India.

The process of industrial development in India resulted in diversification an expansion of the expert sector in the seventies
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Development of capabilities for export of capital goods. Engineering goods, manufactured products, projects and services as also setting up of joint industrial ventures abroad are an important outcome of this process.

Operations of Export Import Bank of India:

EXPORT IMPORT BANK OF INDIA Bank's operational philosophy comprises five major components.

1. To make the Indian exporter internationally competitive on the count of financing terms offered by him.

2. To Develop alternate financing solutions for an Indian Exporter in his effort to be internationally competitive.

3. To provide information on export opportunities in new traditional exports including currency adviser to Indian manufacturers so that new export opportunities are pursued.

4. To provide selective production, marketing, finance for making Indian manufactured products internationally competitive.

5. To respond to export problems of Indian Exporters and pursue policy resolutions.

The Bank is continuously building capabilities to anticipate and respond to development export opportunities information technology and translate national foreign trade policies into action plan.
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FINANCE & SERVICES:

EXPORT IMPORT BANK OF INDIA plays fourpronged role with regard to India's foreign trade: those of a cocoordinator, a source of finance, consultant and promoter. EXPORT IMPORT BANK OF INDIA is the Coordinator of the Working Group Mechanism for clearance of Project and Services Exports and Deferred Payment Exports (for amounts above a certain value currently US$ 100 million).The Working Group comprises EXPORT IMPORT BANK OF INDIA, Government of India representatives (Ministries of Finance, Commerce, External Affairs), Reserve Bank of India, Export Credit Guarantee Corporation of India Ltd. and commercial banks who are authorized foreign exchange dealers. This inters- institutional Working Group accords clearance to contracts (at the post-award stage) sponsored by commercial bank or EXPORT IMPORT BANK OF INDIA, and operates as a one-window mechanism for clearance of term export proposals. On its own, EXPORT IMPORT BANK OF INDIA can now accord clearance to project export proposals up to US$ 100 million in value.

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3.3. EXPORT CREDIT AND GUARANTEE CORPORATION (ECGC)

Payments for export are open to risks even at the best of times. The risks have assumed large proportions due to political and economic charges in the world. A civil war in a country may block or delay the payment for exports. Economic difficulties or BOP position may also force a country to restrict payments outflow to the exporters.

It is also possible that the buyer may turn insolvent or may refuse to make the payment. In light of the above, the export business though may appear lucrative is fraught with risks, With a view to protect a shelter to the exporters against the export risks, EXPORT CREDIT AND GURANTEE CORPORATION was established in 1957 by the Government of India under the administrative control of ministry of commerce.

It is managed by Board of Directors comprising of representatives of the Governments, Reserve Bank of India, Banks, and Insurance and exporting community. EXPORT CREDIT AND

GURANTEE CORPORATION is the fifth largest credit insurer of the world presently covers 17.31% of Indias total exports with a paid up capital of Rs 1.50 bn.

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Major Functions of Export Credit and Gurantee Corporation:

1. To provide a range of credit risk insurance covers to exporters against a loss in export of goods and services.

2. To offer guarantees to banks and financial institutions to enable exporters obtain better facilities from them.

Export Credit and Gurantee Corporation also helps Exporters by:


Providing insurance protection to exporters against payment risks

Providing guidance in export related activities

Providing information on creditworthiness of overseas buyers

Providing information on about 180 countries with its own credit ratings

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Marketing it easy to obtain export finance from banks/ financing institutions

Assisting exporters in recovering bad debts

Policies and Schemes of Export Credit and Gurantee Corporation:

1. Standard Policy 2. Specific Policy 3. Financial Guarantees 4. Other

MAIN ACTIVITIES OF EXPORT CREDIT AND GURANTEE CORPORATION:

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.

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The covers offered by Export Credit and Gurantee 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.

The Guarantees offered by Export Credit and Gurantee Corporation to the Banks are:

i. ii. iii. iv. v. vi.

Packing Credit Guarantee Export Production Finance Guarantee Post-shipment Export Credit Guarantee Export Finance Guarantee Export Performance Guarantee Export Finance Guarantee.

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3.4. COMMERCIAL BANK: Role of Commercial Banks in Export Finance:

The major part of export finance is provided by commercial banks. They also provide other facilities and services to the exporters. The function of commercial banks can be grouped under two heads. (A)Fund Based Assistance (B)Non-Fund Based Assistance The assistance provided and commercial banks in respect of export finance can be charted as follows:

COMMERCIAL BANKS

FUND BASED ASSISTANCE

NON FUND BASED ASSISTANCE

(A) Fund Based Facilities:


The commercial banks provide fund based activities at (i) Pre-shipment Stage, and (ii) Post-Shipment Stage.

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(B) Non-Fund Based Assistance: 1. Bank Guarantees:


a) Guarantee for foreign currency loans sanctioned by a financial institution abroad to Indian exporters who raise funds to finance their projects abroad.

b) Performance guarantee which is generally required in export of capital goods and also in case of turnkey and construction projects.

c) Banks issue a guarantee for payment of retention money by the overseas party who would release the retention money to the Indian party only after receiving guarantee from bank.

d) The banks also issue advance payment guarantee to the overseas buyer who normally makes certain advance payment to the Indian exporter against a bank guarantee.

e) Banks issue bid bonds so as to enable exporters to participate in various global tenders.

Other Services:

a) They collect export proceeds from the importer and credit the same to exporters account.

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b) The banks assist the exporter in the collection of useful information on the credit worthiness of the foreign agents. foreign buyer through their

c) The banks issue bank drafts in case of payment of freight charges and such other charges.

d) The banks send the duplicate copy of GR form to the RESERVE BANK OF INDIA after realization of export proceeds.

e) The banks issue bank certificates in respect of export sales value, which are useful for claiming incentives.

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CHAPTER 4

EXPORT
4.1 TYPES OF EXPORT CREDIT

1. PRE SHIPMENT FINANCE: Packing Credit.


Advance against cheque /Draft etc. representing Advance Payments.

Pre shipment finance is extended in the following forms:

Packing Credit in Indian Rupee Packing Credit in Foreign Currency (PCFC)

ELIGIBILITY:
Pre shipment credit is only issued to that exporter who has the export order in his own name. However, as an exception, financial institution can also grant credit to a third party manufacturer or supplier of goods who does not have export orders in their own name. In this case some of the responsibilities of meeting the export requirements have been out sourced to them by the main exporter. In other cases where the export

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order is divided between two more than two exporters, pre shipment credit can be shared between them.

PACKING CREDIT.

Packing Credit Facilities to Deemed Exports:


Deemed exports made to multilateral funds aided projects and programme, under orders secured through global tenders for which payments will be made in free foreign exchange, are eligible for concessional rate of interest facility both at pre and post supply stages.

Packing Credit facilities for Consulting Services:


In case of consultancy services, exports do not involve physical movement of goods out of Indian Customs Territory. In such cases, Preshipment finance can be provided by the bank to allow the exporter to mobilize resources like technical personnel and training them.

Advance against Cheque/Drafts received as payment:

advance

Where exporters receive direct payments from abroad by means of cheques/drafts etc. the bank may grant export credit at concessional rate to the exporters of goods track record, till the time of realization of the proceeds of the cheques or draft etc. The Banks however, must satisfy themselves that the proceeds are against an export order.

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2. POST SHIPMENT FINANCES:


Post Shipment Finance is a kind of loan provided by a financial institution to an exporter or seller against a shipment that has already been made. This type of export finance is granted from the date of extending the credit after shipment of the goods to the realization date of the exporter proceeds. Exporters dont wait for the importer to deposit the funds.

Types:
Export bills purchased /negotiated/discounted. Advances against bills sent on collection basis. Advances against exports on consignment basis. Advances against UN drawn balances. Advances against duty drawback.

1. Export bills purchased /negotiated/discounted:


Export bills (Non L/C Bills) is used in terms of sale contract/ order may be discounted or purchased by the banks. It is used in indisputable international trade transactions and the proper limit has to be sanctioned to the exporter for purchase of export bill facility.

2. Advances against bills sent on collection basis:


Bills can only be sent on collection basis, if the bills drawn under LC have some discrepancies. Sometimes exporter requests the bill to be sent on the collection basis anticipating the strengthening of foreign currency. The transit period is from the date of acceptance of the export documents at the banks branch for collection and not from the date of advance.
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3. Advance Against Export on Consignments Basis:


Bank may choose to finance when the goods are exported on consignment basis at the risk of the exporter for sale and eventual payment of sale proceeds to him by the consignee. However, in this case bank instructs the overseas bank to deliver the document only against trust receipt /undertaking to deliver the sale proceeds by specified date, which should be within the prescribed date even if according to the practice in certain trades a bill for part of the estimated value is drawn in advance against the exports. In case of export through approved Indian owned warehouses abroad the times limit for realization is 15 months.

4. Advance against Undrawn Balance:


It is a very common practice in export to leave small part undrawn for payment after adjustment due to difference in rates, weight, quality etc. Banks do finance against the undrawn balance, if undrawn balance is in conformity with the normal level of balance left undrawn in the particular line of export, subject to a maximum of 10 percent of the export value. An undertaking is also obtained from the exporter that he will, within 6 months from due date of payment or the date of shipment of the goods, whichever is earlier surrender balance proceeds of the shipment.

5. Advance Against Claims of Duty Drawback:


Duty Drawback is a type of discount given to the exporter in his own country. This discount is given only, if the in house cost of production is higher in relation to international price. This type of
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financial support helps the exporter to fight successfully in the international markets. In such a situation, banks grants advances to exporters at lower rate of interest for a maximum period of 90 days. These are granted only if other types of export finance are also extended to the exporter by the same bank.

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CHAPTER 5

IMPORT
All imports permitted by trade policy qualify as current account transactions for which the importer can buy currency from an authorized dealer.

Earlier, credit on imports was restricted to a period of 6 months, unless otherwise approved by the Reserve Bank. This since been extended to 3 years for both suppliers and buyer credits, provided.

The amount does not exceed US$ 100 per import transaction, and The interest does not exceed LIBOR + 0.5% for credit unto 1 year, and LIBOR + 1.25% for periods beyond 1 year.

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5.1 CREDIT ON IMPORTS

The economics of importing on credit as compared to sight payment would depend upon the:

1. Rupee and FX interest rates. Foreign currency interest rates will Generally be linked to London Inter Bank Offer Rate in the currency in question. 2. Exchange rate movement or the cost of handing in the forward Market. 3. Difference in commission charged by banks on sight and nuisance letters of credit and the stamp duty on nuisance bills, where applicable.

Again, the interest paid may attract deduction of tax at source, since it is being paid to non-residents. For calculation the amount, the interest may need to be grossed. The impact of the TDS would be lower, if the credit is taken from a resident of a country with whom India has signed a Double Taxation Avoidance Treaty. Some corporate include the interest element in the price of the goods to avoid this problem. This would be economical only if the import duty is lower than the TDS on the gross interest.

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5.2 LETTER OF CREDIT

L/C is a binding document that a buyer can request from his bank in order to guarantee that the payment for goods will be transferred to the seller. Basically, a letter of credit gives the seller reassurance that he will receive the payment for the goods. In order for the payment to occur, the seller has to present the bank with the necessary shipping documents confirming the shipment of goods within a given time frame. It is often used in international trade to eliminate risks such as unfamiliarity with the foreign country, customs, or political instability.

Advantages of Letter of Credit Importers:

1. Certain of shipment of goods:

The exporter cannot get any benefit under the letter of credit without shipping the goods and submitting documents to the bank. Therefore, the importer is certain to get the supply.

2. Delivery on time:
As the exporter submits documents in time for negotiation, it reaches the opening bank in time. This enables the importer not only to

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collect the documents on time but also to collect the goods from the customs.

3. Overdraft facility:
When the importer falls short of payment, he can take possession of the documents against overdraft facility

4. Better terms of trade:


The opening bank provides credit facility to the importer. This helps the importer to obtain better terms of trade from the foreign supplier.

5. Funds are not blocked:


There is no need for the importer to block his funds by making advance payment to the exporter.

6. Long business associations:


Letter of credit protects the interest of both the exporter and the importer. Nothing is left to the imagination of both the parties because the letter of credit mentions all the terms and conditions of the business. It helps the exporter and importer to have prolonged business associations.

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Advantages of Letter of Credit to the Exporters:

1. Provides packing credit:


Exporters can easily collect pre-shipment finance from the banks against letter of credit. Red clause letter of credit is issued to the exporter to enable him to collect pre-shipment finance from the bank.

2. Clearance of exchange control regulations:


When the opening bank issues the letter of credit it indicates that the importer has fulfilled all provisions of exchange control regulations in his country. Transfer of funds will not create a problem from the exchange control authorities.

3. No blocking of funds:
The exporter gets immediate payment from the bank when he submits full set of negotiable documents to the bank. If the documents are drawn as per the terms of the letter of credit the bank pays the exporter in full. Therefore, the exporter does not have to block his funds

4. No bad debts:
As the payment is guaranteed by the opening bank, the exporter is free from the problem of bad debt. In case the exporter holds a confirmed letter of credit, there is double guarantee by the opening bank & the confirming bank.

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5. No liability:
In case of confirmed letter of credit and without recourse clause, the liability of the exporter comes to an end as soon as he hands over the relevant documents to the bank.

6. Certainty of payment:
The importer cannot refuse to take possession of the goods and to clear the payment when the terms of payment are the letter of credit.

This problem of no possession of goods and non-payment may arise in case of D/P and D/A.

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5.3 TYPES OF LETTER OF CREDIT

A letter of credit may be revocable or irrevocable. If there is no indication of this reference, the credit will be deemed as irrevocable.

A revocable credit may be amended or cancelled at any moment without prior notice to the beneficiary. However, the issuing bank is bound to reimburse for the negotiation made prior to receipt of such notice.

The irrevocable credit is a definite undertaking of the issuing bank and cannot be amend or cancelled without the agreement of the confirming bank and the beneficiary.

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.

2. Transferable Credit:
A letter of credit is transferable only if it is expressly designated by the issuing bank. The beneficiary of such a credit has the right to request the nominated bank to transfer the credit to another party or more than one party if partial shipment is permitted. The transferable credit can be transferred once only.

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3. Red Clause credit:


Red clause credit enables the beneficiary to avail pre-shipment credit from the nominated bank. This credit bears normally a clause in red authorizing the nominated bank to make an advance to the seller prior to shipment. GREEN clause credit in addition to permitting pre shipment advance also entails storing of goods in the name of the bank.

4. Bank to Bank Credit:


When the exporter used his export letter of credit as a cover for issuing a credit in favor of his supplier, the second credit is called back-to-back credit.

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.

The maximum value up to which the credit can be revolved and the expiry date of the letter of credit is generally specified in the revolving credit. The re-instatement clause should be always incorporated in revolving letter of credit.

6. Deferred Payment Credits and Acceptance Credits:


Under deferred payment credit the amount is payable in installments for a stipulated longer period. Usually a part is paid in advance and the balance is payable in agreed installments as agreed in the text of the letter of credit.
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CHAPTER 6

PAYMENT METHODS IN EXPORT & IMPORT TRADE:


There are 3 standard ways of payment methods in the export import trade international trade market: 1. Clean Payment 2. Collection of Bills 3. Letters of Credit

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.

There are basically two types of clean payments:

1. Advance Payment:
In advance payment method the exporter is trusted to ship the goods after receiving payment from the importer.

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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.

Payment Collection of Bills in International Trade:


The Payment Collection of Bills also called Uniform Rules for Collections is published by International Chamber of Commerce (ICC) under the document number 522 (URC522) and is followed by more than 90% of the world's banks.

In this method of payment in international trade the exporter entrusts the handling of commercial and often financial documents to banks and gives the banks necessary instructions concerning the release of these documents to the Importer. It is considered to be one of the cost effective methods of evidencing a transaction for buyers, where documents are manipulated via the banking system.

There are two methods of collections of bill:

Documents Against Payment:


In this case documents are released to the importer only when the payment has been done.

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Documents Against Acceptance:


In this case documents are released to the importer only against acceptance of a draft.

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 (applicant), promising to effect payment in favor of the exporter (beneficiary) up to a stated sum of money, within a prescribed time limit and against stipulated documents. It is published by the International Chamber of Commerce under the provision of Uniform Custom and Practices brochure number 500.

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CHAPTER 7

DOCUMENTS USED IN FOREIGN TRADE


Documents are used to record a written evidence of having carried out a transaction in both local and international trade. This section deals with the documents used in international trade where there is fairly large number of documents required to satisfy the two basic requirements, viz. Regulatory and Operational.

Nostro Account:
The Demand Draft Deposit account belonging to a domestic bank maintained in an overseas bank denominated in foreign currency is nostro account.

Vostro Account:
The Demand Draft Deposit account belonging to a domestic bank maintained in an domestic bank denominated in domestic currency is vostro account.

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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. There is no standards form for commercial invoice.

Each exporter designs his own format of commercial invoice. Usually, a commercial invoice is required to be duly signed by the seller and is submitted in a set of at least three copies. Its main purpose is to check whether the appropriate goods have been shipped and also the unit price, total value, marking on the package, etc.

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2. Bill of Landing/Airway Bill:


This document is an evidence of shipment the goods. It is a receipt duly signed and issued by a shipping company acknowledging that the goods mentioned in the document have been shipped or received for shipment and an undertaking to deliver the goods at the agreed destination. Bill of Lending is the most important document in foreign

trade. A Bill of Lending serves the following proposes.

a) It is a document of title to goods: - The Bill of Landing is a document giving ownership rights to the goods and the possession of a Bill of Landing entitle the holder to the and is transferable by endorsement. Transfer of the Bill of Landing after appropriate endorsement is tantamount to the transfer of goods.

b) It is a receipt from the shipping company: - It constitutes evidence that the goods have been received by the shipping company. As a receipt it is only an evidence of the number and sizes of packages involved and does not guarantee the contents of the packages.

c) It is an evidence of contract for the carriage or transportation of goods: - The freight contract between the shipping company and the exporter is usually mentioned in the Bill of Landing except in the case of a charter ship where the contract of charter incorporates the freight payable by the shipper.

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3 Marine Insurance Policy and Certificate:


In International trade it is customary to insure the goods against the risks of loss or damage. Whether the insurance will be taken by the exporter on his own account or on the account of the overseas buyer depends on the terms of sale.

A marine insurance policy can take either by an open policy or a specific policy. Open policy is taken by exporters who have continuous shipments to make and the insurance policy is issued as an open cover, which can be used for insurance of all consignments to one or more destinations. The insurance company will then issue an insurance certificate to cover Individual shipments made under the open policy.

For the financing bank, a marine insurance policy is a very important document accompanying the shipping documents as it provides additional cover for the advance it has made to the importer.

4. Bill of Exchange:
A bill of exchange is an unconditional order in writing, addressed by the drawer (exporter/shipper) to the drawer (importer/buyer) requiring the drawer to pay on demand a stated sum of money to the bearer/specified person or organization. A bill of exchange is a negotiable instrument and is payable to the bearer or to the person in whose favor it is endorsed.

In International Trade the normal practice is to send documents in two sets as such bill of exchange is also generally drawn in two sets, one
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each to be sent along with each set of document. When drawn in two sets, each one bears an exclusion clause making the other invalid.

The drawing of a bill of Exchange is not always necessary. In certain countries bill of exchange is not recognized as a legal document, while it is discouraged in a few other countries due to incidence of a heavy stamp duty. In India also bill of exchange for document drawn on DA basis for tenure over 90 days attracts Stamp Duty.

5. Consular Invoice: A consular invoice is a special type of invoice required by some countries for their imports. Such invoices are required by the USA, Canada, Philippines and some Middle East countries, etc. a consular invoice is made out on a prescribed format certified by the consulate of the importing country stationed in the exporters country. The main purpose of the consular invoice to the importing country is to have authenticated particulars of the goods that are importing into their country.

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.

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7. Certificate of Origin:
In many countries, permission to import is refused unless a certificate of origin is produced by the buyer. This document may form part of the invoice itself. The essential feature is certification of the country of origin indicating where the goods were originally produced and/or manufactured.

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.

9. Packing List:
The exporter prepares a packing list showing, item by item, the contents of the containers or cases to enable the receiver of the shipment to check the identify of the shipment. It should give the description of the goods, number and marks on the packages, quantity per package, net weight and gross weight, measurement, etc. There is no particular form prescribed for this purpose. The exporter concerned may design his own packing list.

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CHAPTER 8

FOREIGN TRADE POLICY


The new (FOREIGN TRADE POLICY) takes an integrated view of the overall development of India's foreign trade and. goes beyond the traditional focus on pure exports. This would be clear in itself, but a means to economic growth and national development. The primary purpose is not the mere earning of foreign exchange, but the stimulation of greater economic activity."

8.1 OBJECTIVES AND STRATEGY OF FOREIDN TRADE POLICY, 2009-14:

In line with the above focus, the FOREIDN TRADE POLICY lays down two major objectives:

I. To double our percentage share of global merchandise trade within the next five years; and

II. To act as an effective instrument of economic growth by giving a thrust to employment generation.

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Strategies proposed to achieve these objectives include the following:

1. Unshackling of controls and creating an atmosphere of trust and transparency in dealing with business.

2. Simplifying procedures and bringing down transaction costs.

3. Neutralizing incidence of all levies and duties on imports used in export Products.

4. Facilitating development of India as a global hub for manufacturing, trading and services.

5. Identifying and nurturing special focus areas which would generate additional employment opportunities, particularly in semi-urban and rural areas.

6. facilitating technological and infrastructural up gradation of all the sectors of the Indian economy, especially through import of capital goods and equipment.

7. Avoiding inverted duty structures and ensuring that domestic sectors are not disadvantaged in trade agreements.
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8. upgrading the infrastructural network related to the entire Foreign Trade chain, to international standards.

9. Revitalizing the Board of Trade by redefining its role, and inducting into it experts on trade policy.

10. Activating Indian Embassies abroad as key players in the export strategy.

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8.2 MAIN FEATURES OF FOREIGN TRADE POLICY, 2009-14:

The main features of FOREIGN TRADE POLICY, 2009-014, are as follows:

1. Doubling share of global merchandise trade:


FOREIGN TRADE POLICY (2009-14) envisaged a doubling of India's share in world exports from 0.75 per cent to 1.5 per cent by 2014.

2. Five thrust sectors:


Sectors with significant export prospects coupled with potential for employment generation in semi-urban and rural areas were identified as thrust sectors. FOREIGN TRADE POLICY announced specific strategies (termed 'Special Focus Initiatives') for five such sectors: Agriculture, Handicrafts, Handlooms, Gems and Jeweler, and Leather and Footwear sector.

Main strategies announced for the five sectors outlined in the FOREIGN TRADE POLICY are as follows:

(i) In agriculture, a new scheme called Vishesh Krishi Upaj Yojana was introduced to boost exports of fruits, vegetables, flowers, minor forest produce and their value added products. Export of these products
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would qualify for duty free credit entitlement equivalent to 5 per cent of the value of exports. In addition, the policy made capital goods imported for agriculture under the Export Promotion Capital Goods (EPCG) scheme duty free. (ii) The package for gems and jeweler sector includes: (a) Duty free import of consumables for metals other than gold and platinum up to 2 per cent of the value of exports; (ii) duty free re-import entitlement for rejected jeweler up to 2 per cent of the value of exports; (iii) duty free import of commercial samples of jeweler increased to Rs. 1 lakh; and (iv) allowing import of gold of 18 carat and above under the replenishment scheme.

(iii) As far as the handlooms and handicrafts sector is concerned, the FOREIGN TRADE POLICY announced that a new Handicraft Special Economic Zone would be established. In addition, duty sops for trimmings and embellishments imported by handlooms and handicraft producers were increased to 5 per cent of the value of exports.

(iv) In the leather and footwear sector, the duty-free entitlements of import trimmings, embellishments and footwear components were increased to 3 percent. This is expected to help the leather and footwear sector save up to 5 per cent of its import costs. In addition, duty free import of specified items for leather sector was increased to 5 per cent of the value of exports.

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3. 'Served from India' to be Built as a Brand:


Presently services contribute more than 50 per cent of the country's GDP. To provide a thrust to service exports, FOREIDN TRADE POLICY advocated a number of steps. These include:

(i) Served from India brand will be created to catapult India the world over as a major global services hub.

(ii) An exclusive Export Promotion Council for services would be set up in order to map opportunities in key markets, and develop strategic market access programme.

(iii) Individual service providers who earn foreign exchange of at least Rs. 5 lakh, and other service providers who earn foreign exchange of at least Rs. 10 lakh would be eligible for a duty credit entitlement of 10 per cent of total foreign exchange earned by them.

(iv) Stand-alone restaurants would be entitled to duty credit equivalent to 20 per cent of the foreign exchange Earned. In the case of hotels, the entitlement would be 5 per cent.

(v) Healthcare and educational institutions would be entitled to duty credit of 10 per cent of the foreign exchange earned.

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4. New categories of star houses:


The FOREIDN TRADE POLICY announced a new categorization of status holders. Under the new scheme, export houses were divided into five categories depending upon their export performance in three years. The categories were

(i) One Star (export of Rs. 15 crore) (ii) Two Star (export of Rs. 100 crore) (iii) Three Star (export of Rs. 500 crore) (iv) Four Star (export of Rs. 1,500 crore); and (v) Five Star (export of Rs. 5,000 crore).a star export house was entitled to get license, certificate, permissions and customs clearances for both imports and exports on self-declaration basis. The star export house was also granted the benefit of 100 per cent retention of foreign exchange in Export Earners Foreign Currency (EEFC) account. It was also to be eligible for consideration under the Target plus Scheme and enjoy a number of other privileges (like exemption from furnishing Bank Guarantee).

5. "Target Plus' Scheme:


Exporters who exceed the annual export target were to be rewarded under the Target plus Scheme. This reward was in terms of entitlement to duty-free credit based on incremental export earnings. With the target for 2004-05 being fixed at 16 per cent, the lower limit for
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qualifying for these rewards was pegged at 20 per cent. Target plus scheme was abandoned in the second supplement to Foreign Trade Policy announced on April 7, 2006.

6. Setting up of Free Trade and Warehousing Zones (FTWZs):


The FOREIDN TRADE POLICY introduced a new scheme to establish Free Trade and Warehousing Zones to create trade-related infrastructure to facilitate the import and export of goods and services with freedom to carry out trade transactions in free currency. This is aimed at making India into a global trading hub. Each zone would have minimum outlay of Rs. 100 crore and 5, 00,000 square meters builtup area. Foreign direct investment would be permitted up to 100 per cent in the development and establishment of the zones and their infrastructural facilities.

7. Scopes for Export oriented units:


The FOREIGN TRADE POLICY announced a number of benefits for the export- oriented units. These include: (i) Export Oriented Units to be exempted from service- tax in proportion to their exported goods and services; (ii) Export Oriented Units to be permitted to retain 100 per cent of export earnings in EEFC accounts; (iii) Income tax benefits on plant and machinery to be extended to Domestic Tariff Areas that converting Export Oriented Units; and (iv) Import of capital goods to be on self- certification basis for Export Oriented Units.

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8.Reducing transactional costs and simplifying procedures:


The FOREIGN TRADE POLICY announced a number of rationalization measures' to reduce transactional costs and simplify procedures. These include: (i) All exporters with minimum turnover of Rs. 5 crore exempted from furnishing bank guarantee (this will help small exporters who incur high transactional costs); (ii) Import of second-hand capital goods permitted without any age restrictions; (iii) Minimum depreciated value for plant and machinery to be located into India reduced from Rs. 50 crore to Rs. 25 be filed reduced; (vii) Time bound introduction of Electronic Data Interface for export transactions, etc

9. Focus on infrastructure development Some:


special measures announced for infrastructure development in the FOREIGN TRADE POLICY are: (i) The threshold limit of designate Towns of Export Excellence' has been reduced from Rs.1000 crores to Rs. 250 crore in the five thrust-sectors announced (ii) Funds from Assistance to States for infrastructure Development of Exports used for development of Agri Export Zones also, (iii) establishment of common facility centre will be encouraged for use by house-based service providers; and (,v) Pragati Maidan at Delhi will be transformed into a world-class complex.

10. Other measures:


Of the various other measure announced in the FOREIGN TRADE POLICY. the following deserve specific mention

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(i) Biotechnology Parks to be set up in the country having all the facilities of 100 per cent EXPORT ORIENTED UNITs.

(ii) The Board of Trade to be revamped and given a clear and dynamic role.

(iii) Financial assistance to be provided to export for meeting their costs and legal expenses related to trade matters like anti-dumping action and countervailing duties in other countries.

(iv) Although the DEPB (Duty Entitlement and Pass book Scheme) is as it covers 52 per cent of India's exports and is easy to administer.

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FINDINGS
While selling abroad, importers may undergo Credit risk, Currency risk, Carriage risk and Country risk. These risks can be insured to a great extent by taking appropriate steps. Credit risk against the buyer can be covered by insisting upon an irrevocable letter of credit from the overseas buyer. An appropriate policy from Export Credit and Guarantee Corporation of India Ltd. can also be obtained for this purpose. Country risks are also covered by the ECGC. As regards currency risk, i.e. possible loss due to adverse fluctuation in exchange rate, importer should obtain forward cover from his bank authorized to deal in foreign exchange. Alternatively, he should obtain export order in Indian rupees. Carriage risk, i.e. possible loss of cargo in transit can be covered by taking a marine insurance policy from the general insurance companies.

Indian exporters while selling abroad may face various commercial and political risks. The commercial risks may arise due to insolvency of the buyer; failure of the buyer to make the payment due within the specified period; or buyer's failure to accept the goods, subject to the given conditions. While, the political risks may be due to imposition of restrictions by the Government of the buyer's country or any Government action which may block or delay the transfer of payment made by the

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buyer; war, civil war, revolution or civil disturbances in the buyer's country.

Hence, in order to ensure safe and successful overseas expansion plans it is necessary to provide a comprehensive insurance cover against all such risks faced by an entrepreneur. Such an insurance facility seeks to create a favorable climate in which investors including exporters can get timely and liberal credit facilities from banks at home. ECGC provides a range of credit risk insurance covers to exporters against loss in export of goods and services as well as offers guarantees to banks and financial institutions to enable exporters to obtain better facilities from them.

The findings gathered from the primary data were : Introduction


The Bharat cooperative bank limited, registered under The Maharashtra Co-operative Societies Act, 1960 (Registration No. Bom/Bank/138 of 1977 dated 9th June, 1977) popularly known in the metropolis as Bharat Bank has commenced its Banking operations with a capital base of Rs.6.32 lacs from its present registered office at 64/72, Mody Street, Fort, Mumbai - 400 001 since 21.08.1978. The Reserve Bank of India has issued Banking License vide License No.ACD.MH 108-P dated 8th June,1978.

Bharat co-operative Bank collects the import bills on behalf of customers. Importer and exporter should maintain vostro account with the bank to enable the international trade. The overseas Bank has to maintain an account with the domestic bank denominated in domestic currency.
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Bharat co-operative bank holds mortgage over their customers assets from which they can recover their outstanding loan. Bharat co-operative bank avails export bill rediscounting facilities and refinance of export credit from Reserve Bank of India (RBI) and Export Import Bank of India (EXIM). Bharat co-operative bank requires supporting documents

from importer and exporter in international markets. For example, Commercial Invoice, Bills of Lending/Airway Bill, Marine Insurance Policy and Certificate, Bills of Exchange.

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CONCLUSION
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 RESERVE BANK OF INDIA has conceived various schemes to stimulate and support exports and imports. Thus this specialized form of financing of foreign trade is a crucial contributor to world industrial development of the country. 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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2. Predictable cash flow: Advancing funds against invoices, providing working capital to pay employees and suppliers.

3. Financing to pay suppliers - allowing the company to deliver its large purchase orders.

4. For Importers: Import financing / purchase order financing handles supplier payments for large purchase orders enabling to take on orders and deliver orders that in the past would have exceeded its working capital capabilities.

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ANNEXURE - I

QUESTIONNAIRE FOR MANAGER

1. Do you collect import bills on behalf of your customer? Ans: Yes No

1.

2. Should importer & exporter maintain nostro account with you to enable international trade? Ans: Yes No

3. Do you discount bill drawn under letter of credit as well as outside it? Ans: Yes No

4. Is their scope for default in loan repayment by exporter & importer? Ans: Yes
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No

5. Do you hold any charge /mortgage /pledge over their assets through which you can recover your outstanding loan? Ans: Yes No

6. Do you avail export bills rediscounting facility & refinance of export credit from Reserve Bank of India and Export Import bank of India? Ans: Yes No

No7. Are you giving bill discounting facility to non bank customers as well? Ans: Yes No

8. If yes, what are the general guidelines for the same? Ans:

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ANNEXURE - II

BIBLIOGRAPHY

Books reference: International Financial Management Finance of Foreign Trade and FOREIGN EXCHANGE International Business International Banking Foreign Trade. Import Export Procedure & Document. C.Jeevanandam. Charles WL Hill. Scott B. Macdonald. Jeff Madura.

WEBLIOGRAPHY

WWW.yahoo.co.in WWW.google.co.in WWW.rediff.com WWW.eximbank.org

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