EXTERNAL COMMERCIAL BORROWINGS &

TRADE CREDITS

FEMA guidelines provide Indian

companies to access funds from abroad
by following methods: External Commercial Borrowings (ECB): It refers to commercial loans in the form
of bank loans, buyers credit, suppliers
credit,
securitized instruments (e.g. floating rate
notes and fixed rate bonds, nonconvertible, optionally convertible or
partially convertible preference shares)
availed of from non-resident lenders

 ECB can be accessed under two routes, viz.: :A) Automatic Route Access of funds under Automatic Route does not
require RBI/GOI approval.
Corporate including hotel, hospital, software sectors
(registered under the Companies Act 1956) and
Infrastructure Finance Companies (IFCs) except
financial intermediaries such as banks, FIs, HFCs, and
NBFCs are eligible to raise ECB.
Units in SEZs are allowed to raise ECB for their
captive requirements.
NGOs engaged in micro finance activities are eligible
to avail of ECB (subject to certain conditions).
Trusts and Non-Profit making organizations are not
eligible to raise ECB.

 ECB can be raised by borrowers from internationally

recognized sources such as
(i)international banks, (ii) international capital
markets, (iii) multilateral financial institutions (such
as IFC, ADB, CDC, etc.)/ Regional Financial
Institutions and
Government owned Development Financial
Institutions, (iv) Export Credit Agencies, (v)
Suppliers of Equipments, (vi) Foreign Collaborators
and (vii) Foreign Equity Holders (other than
erstwhile OverseasCorporateBodies)
Overseas organizations and individuals may
provide ECB to NGOs engaged in micro finance
activities subject to complying with some
safeguards

End use

ECBs can be raised for investment (import of

capital goods as classified by DGFT in Foreign
Trade Policy (FTP)) in new projects,
modernization/expansion of existing units in
industrial and service sectors including
infrastructure sector.
Overseas direct investment in Joint Ventures
(JV)/Wholly Owned Subsidiaries (WOS) subject to
the existing guidelines on Indian Direct
Investment in JV/ WOS abroad.
First stage acquisition of shares in the
disinvestment process and also in the mandatory
second stage offer to the public under the
Governments disinvestment programme of PSU
shares.

 NBFCs categorized as Infrastructure

Financing Companies (IFC) are permitted to
avail ECBs including outstanding in existing
ECBs upto 50% of their owned funds
under;-- Automatic Route for on lending to
infrastructure sector and
beyond 50% of owned funds under
Approval Route for lending to self-help
groups or for
micro-credit or for bonafide micro finance
activity including capacity building by NGOs
engaged in micro finance activities, etc.

Restrictions

Utilization for on-lending or investment in capital

market or acquiring a company (or apart thereof)
in India by a corporate, investment in real estate
sector, for working capital ,general corporate
purpose and repayment of existing Rupee loans.
Issuance of guarantee, standby letter of credit,
letter of undertaking or letter of comfort by banks,
FIs and NBFCs from India relating to ECB.
The borrower has the option to offer security
against the ECB.
Creation of charge over immoveable assets and
financial securities, such as shares, in favour of
the overseas lender is subject to FEMA regulations
and ECB guidelines.

TRADE CREDITS FOR IMPORTS INTO INDIA

Trade Credits (TC) such as suppliers credit or buyers
credit refer to
credits extended for imports directly by the overseas
supplier, bank and financial institution for maturity of
less than three years.
Suppliers credit refers to
credit extended by the overseas supplier for imports
into India whereas the
buyers credit refers to loans for payment of imports
into India arranged by the importer from a bank or
financial institution outside India formaturity of less
than 3 years.
Suppliers credit and buyers credit for 3 years and
above come under the category of ECB and governed
by ECB guidelines.

 Banks are permitted to issue

LC/Letter of Undertaking (LOU)/Letter

of Comfort
(LOC)/ in favor the overseas
supplier, bank and financial
institution upto
USD 20 Mn. per import of goods
other than capital goods and for
capital goods upto 3 years subject
to prudential norms.

Pre-shipment Credit/Packing Credit/Rupee

credit
/FOREIGN EXPORT CREDIT
Pre-shipment/Packing Credit is the

working capital finance granted to an

exporter for purchase, processing,
manufacturing or packing of goods
prior to shipment/
It is working capital expenses
granted towards rendering of services
against LCs or confirmed/irrevocable
order or any other evidence of an
order for export.

 The period of Packing Credit is to be decided

by the Banks based on relevant factors.
However, if the finance is not adjusted by
submission of export documents within 360
days from the date of advance, it ceases to
qualify for concessional rate of interest
abinitio.
Refinance from RBI is available for a period of
180 days.
Banks should also keep a close watch on the
end-use of the funds, besides monitoring the
progress of execution of the orders.

 Liquidation of the export credit facility may

be out of the proceeds of the bills drawn
thereby converting the pre-shipment into
post-shipment credit.
It can also be liquidated out of the balances
in the Exchange Earners Foreign Currency A/c
(EEFC A/c)
As also from rupee resources of the exporter
to the extent exports have actually taken
place.
If not so liquidated/ repaid, banks are free to
decide the rate of interest from the date of
advance

Running Account Facility

Pre-shipment export credit facility in

respect of any commodity without
insisting lodgement of LC or export
orders which should be produced within
a reasonable period of time to be
decided by the banks.
This facility is being extended only to
those exporters whose track record has
been good as also to EOUs/ Units in Free
Trade Zones / EPZs and SEZs.
Running account facility should not be
granted to sub-suppliers.

POST SHIPMENT RUPEE

EXPORT CREDIT

'Post-shipment Credit' is the working

capital facility granted or any other credit
provided by a bank to an exporter of goods
/ services from the date of extending credit
after shipment of goods / rendering of
services to the date of realization of export
proceeds.
As per the extant instructions, the period
prescribed for realization of export
proceeds is 12 months from the date of
shipment.

 Post-shipment advance are made

available in the form of (i)Export bills purchased
/discounted/ negotiated.
(ii) Advances against bills sent for
collection.
(iii) Advances against duty
drawback receivable from
Government.

 Post-shipment credit is to be
liquidated by the proceeds of export
bills received from abroad in respect
of goods exported / services
rendered
It can also be repaid / prepaid out
of balances in Exchange Earners
Foreign Currency Account (EEFC
A/C) as also from proceeds of any
other unfinanced (collection) bills.

Pre-shipment Credit in Foreign

Currency (PCFC)

PCFC facility is granted to exporters in

Foreign Currency for domestic and
imported inputs of exported goods at
LIBOR/EURO LIBOR/EURIBOR related rates.
This is an additional window for providing
pre-shipment credit to Indian exporters at
internationally competitive rates and
applicable to only cash exports
The facility may be extended in one of the
convertible currencies viz. US Dollars,
Pound Sterling, Japanese Yen, Euro, etc.

 The spread for pre-shipment credit in foreign

currency will be related to the international
reference rate such as LIBOR/EURO
LIBOR/EURIBOR (6 months).
Crystallization of Export bills
Export bills are expected to be realized within 12
months from the date of export. In genuine
cases, it can be extended.
In case of non-realisation by due date, the
outstanding may be converted to rupee terms to
avoid the exchange rate fluctuations.

Export Documents
Performa Invoice; Document that states a commitment
from the seller
to sell goods to the buyer
at specified prices and terms Quoted in
an invoice format Usually issued by the
exporting company
Same information as the formal
quotation

Points to be included in the Performa invoice

Description of items;
Type of currency
Terms of payment
Costs associated with freight and
insurance
Buyers & sellers name & address
Prices of items: per unit and extended
totals
Weights and dimensions of quoted products
Estimated shipping date

Commercial Invoice
Document required by customs to determine true value
of the imported goods, for assessment of duties and
taxes.
Used as a customs declaration by the exporter
Primarily used to calculate tariffs
Commercial Invoice Document Includes:
PACKAGES / QUANTITY
NET WEIGHT/GROSS WEIGHT
DESCRIPTION OF MERCHANDISE
UNIT PRICE/TOTAL VALUE
PACKAGE MARKS
MISC. CHARGES
CERTIFICATIONS etc.

Export Packing List

A list showing the details of goods contained
in each parcel/shipment.
Detailed view of item-by-item the containers
to enable the buyer/receiver of shipment to
check the shipment.
Packing List Includes Name and addressshipper & consignee
Weight Quantity
Description
Order number
Exporting Carrier

Certificate of Inspection
If the consignment offered for inspection is found
to conform to the standards recognized for the
goods, on the basis of the field inspection report, a
certificate of inspection will be issued to the
exporter.
The certificate of inspection will be prepared in
quadruplicate of which: the first three copies will
be made available to exporter
the original for the customs use, the second copy
for the use of foreign buyer and the third copy for
exporters use fourth copy will be retained in the
EIA office for records.

Bill of lading

A document issued by a carrier or by a

shipper's agent that identifies the goods
received for shipment, where the goods
are to be delivered, and who is entitled
to receive the shipment.
Abbreviated B/L.
Bill of Lading Types
clean bill or clean bill of lading;
A bill of lading with no added notations
that change or qualify its terms.

 Order bill or order bill of lading;

A bill of lading that is negotiable and
that states that the goods can be
delivered only when the bill of lading is
presented to the carrier.
Title to the bill of lading and to the
goods identified in it can be transferred
by the shipper, endorsing and giving
up possession of the document to
another, who is then entitled to receive
the goods from the carrier.

 straight bill or straight bill of lading.

A non negotiable bill of lading that
merely specifies the specific place
and person the carrier is to deliver
the goods to.
Clean on board bill of lading
A bill of lading stating that the goods
have been taken on board with no
onerous clause in it

CERTIFICATE OF ORIGIN
(COO)
It traditionally states from what country
the shipped goods originate.
Why is it required ?
Helps prove that the product is allowed
into that particular country.
To claim preferential tariffs In case of India
( import duty regime) Different Certificate
of Origins required by importers to avail
different concessions

Bills of Exchange :
A bill of exchange or "draft" is a written
order by the drawer to the drawee to
pay money to the payee.
It is a negotiable financial instrument
by the drawer (creditor) to the drawee
(debtor) to pay a certain amount of
money at a matured date.
They are used primarily in international
trade, and are written orders by one
person to his bank to pay the bearer a
specific sum on a specific date.

Documents Required :

The documents used for the processing of the Shipping

Bill are:
GR forms (in duplicate) for shipment to all the countries
, Four copies of the packing list mentioning the contents,
quantity, gross and net weight of each package,
Four copies of invoices which contains all relevant
particulars like number of packages, quantity, unit rate,
total f.o.b./ c.i.f. value, correct & full description of goods,
etc
Contract, L/C, Purchase Order of the overseas buyer,
AR4 (both original and duplicate) and invoice and
Inspection/ Examination Certificate
After shipment of goods, the customs officer endorses AR4 form, which is taken as evidence by excise authorities
for considering rebate in duty or cancellation of bond.

Exchange Control
DeclarationForm
DeclarationForm Required to declare
to the RBI full value of shipment.
Required to submit an undertaking
about the export proceeds.
Declaration made in the prescribed
EXCHANGE CONTROL DECLARATION
FORMS, these forms are known as
GR/SDF/PP/SOFTEX forms.

AIRWAY BILL
An Airway Bill usually contains the following
information:
General description of the nature of the goods.
Particular marks that are necessary for identifying the
goods.
The number of packages and the quantity and weight
of the goods.
Place of discharge.
Transit Airports.
A statement that the Warsaw rules will apply to limit
the carriers liability for loss of or damage to the
goods.

Precautions for B/L and AWB

The bill of lading should be taken as

clean on board bill of lading and not
the claused bill of lading.
All the copies should be collected and
it should be mentioned issued in
----copies
Air way bill should be consigned to the
bank if the Bank finance is involved.