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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
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Export-Import Finance By Bank 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
Recent Development in Export Finance Import Finance By Bank Methods of Import Finance Types of Letter of Credit. Payment Method in Export & Import Trade
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Export-Import Finance By Bank 13. 14. 15. Document used in Foreign Trade Foreign Trade Policy Limitations & Conclusion 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.
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. Visit: After that I visit the public sector bank in Mulund & Export Import Bank of India Head Office in Mumbai and collect primary data. Presentation: Then I have combined the data& made the project.
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 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. For each of the approved customers, the importer will supply us with copies of purchase orders that are to be filled. Financing can be arranged to cover 100% of the transaction. This provides the importer with sufficient financial strength to sell larger orders
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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.
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CHAPTER 5
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.
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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 careful scrutiny of them such as the following1. Drafts are drawn on the issuing bank. 2. Buyers name and sellers name are correctly entered and proper endorsements are made. 3. The date is within the time limit of the credit. 4. The amount is within the credit limit granted. 5. Exporter has an export license it is necessary and the value of shipments falls within the limit set by the license. 6. The tenor of bill is correct. 7. Credit number is given. 8. Stamps as required by low are attached on usance bills 9. All required documents are submitted. Insurance policy but not certificate of Insurance is acceptable. 10.Bill of lading in full set must be submitted and fully examined as to the negotiability, correctness and accuracy to the satisfaction of the conditions of credit in respect of the all documents submitted.
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CHAPTER 6
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
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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:
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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 non-shipment 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.
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 against export bills sent on collection basis/export on consignment basis/against undrawn balance on exports/receivables from Government of India/relation money relating to exports/approved deemed exports.
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
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Export-Import Finance By Bank 8)Post-shipment Export Credit Guarantee and Export Finance Guarantee:
Post-shipment finance given to exporters by banks though purchase, negotiation or discount of export bills or advances against such bills qualifies for this guarantee. Exporters are expected to hold appropriate shipment or contracts policy of ECGC to cover the overseas credit risks. Export Finance Guarantee cover post-shipment advances granted by banks to exporters against export incentives receivables in the form of duty drawback, etc.
Post-shipment
Export
Credit
denominated
in
Foreign Currency
A scheme of Post-shipment Export credit denominated in Foreign Currency (PSCFC) was introduced with effect from January 1, 1992, with a view to enabling exporter to avail of post-shipment credit denominated in foreign currency and to pay interest at rates applicable to the foreign currency
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CHAPTER 9
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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:
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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.
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
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CHAPTER 11
42
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
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.
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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.
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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
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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.
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
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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 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. 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
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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.
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:
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Export-Import Finance By Bank 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 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.
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CHAPTER 15
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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. .
CONCLUSION
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ANNEXURE
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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
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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 No
9. Do you avail export bills rediscounting facility& refinance of export credit from RBI and EXIM Bank? Yes 10. well? Yes 11. No No
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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
WEBLOGRAPHY www.rbiorg.com
WWW.Google.com WWW.Yahoo.com WWW.eximbankindia.com WWW.economictimes.com WWW.foreignexchange.com
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