EXIM FINANCING

A P R E S E N TAT I O N BY G R O U P 4

EXIM BANK

EX-IM BANK• EXIM Bank fills export financing gaps through its loan, guarantee, and

insurance programs when the private sector is unable or unwilling to do so.

• At the same time, private sector lenders are EXIM Bank's partners.

• In FY 2014, 98 percent of EXIM Bank transactions involved commercial financial institutions.

EXPORT-IMPORT BANK OF INDIAExim Bank of India has been both a catalyst and a key player in the promotion of cross border trade and investment.

FLAG SHIP PROGRAMS

1. Overseas Investment Finance

2. Project Finance

3. Line of Credit

4. Corporate Banking

5. Buyer's Credit Under NEIA

HISTORY OF EXPORT IMPORT BANK OF INDIA

PAYMENT METHOD IN EX-IM TRADE• Clean PaymentIn 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.

• Collection of BillsIn 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.

• Letters of Credit L/c

DOCUMENTS IN INTERNATIONAL TRADE• Air Way bill• Bill of Lading• Certificate of Origin• Combined Transport Document• Draft (or Bill of Exchange)• Insurance Policy (or Certificate)• Packing List/Specification• Inspection Certificate

PRE SHIPMENT FINANCE

PRE-SHIPMENT FINANCE• Any advance or loans or any credit extended to exporters by bank for the purpose

of manufacturing, procuring, processing or packaging of goods before shipment can be called as Pre-Shipment finance.

• Exporter’s Pre-Shipment Financing Requirements:• Marking, Transactions, Warehousing.• Purpose: Also known as Packing credit meant to fulfil working capital

requirements of exporters.– Short-term finance– Advance against export incentives.

FEATURES• The loan is advanced only on receipt of an export order.• The exporter should deliver either a L/C or a confirmed export

order.• Advances must be repaid from the proceeds of the relative export

bill.• Packing credits are eligible for interest subsidy.• Available against incentives.• Concessional rates of interest.• Sub-supplier must submit documents from Export house or

Merchant exporter.

FORM OF FINANCE

A. Fund based– Dependent upon the stage of execution of order.– Release loan from time to time.

B. Non Fund Based– In the form of letter of credit– Issue of various types of guarantee.

REQUIREMENT FOR GETTING PACKING CREDIT

This facility is provided to an exporter who satisfies the following criteria• A ten digit importer-exporter code number allotted by DGFT.• Exporter should not be in the caution list of RBI.• If the goods to be exported are not under OGL (Open General

Licence), the exporter should have the required license /quota permit to export the goods.

• Documentary evidence needed.

DIFFERENT STAGES OF PRE-SHIPMENT FINANCE

• Appraisal and Sanction of Limits.• Disbursement of Packing Credit Advance.• Follow up of Packing Credit Advance.• Liquidation of Packing Credit Advance.• Overdue packing.

ELIGIBILITY• Issued to that exporter who has the export order in his own name.• Irrevocable letter of credit.• Export/Trading/Star Trading/Super Star Trading House or Exporter.• Exporter of services: services covered under the General Agreement on Trade in services.• 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.

Quantum of Finance• Nature of order• Nature of commodity• Capability of exporter to bring in the requisite contribution• Nature of importer• Importers country profile

MARGIN REQUIREMENTSNo fixed norms.No intention to finance the profit component in the export contract.Export credit insurance whole turnover packing credit (ECIB-WTPC).• Protects banks against losses due to exporter’s default.• Nominal guarantee fee, borne by the exporters.

Period/interest rateInitially for 180 days.90 days extension in circumstances beyond exporter’s control.Revalidated export order or L/C.Concessional rate of interest as per RBI.Upto 180 days- at the rate of 10%, from 180 to 270 days- at the rate of 13%, From 270 days to 360 days- subject to the bank.Less than the prime lending rate of the bank.

PRE-SHIPMENT CREDIT IN FOREIGN CURRENCY

• Making the credit available to the exporters at internationally competitive price.

• credit is provided in foreign currency in order to facilitate the purchase of raw material after fulfilling the basic export orders.

• The rate of interest on PCFC is linked to London Interbank Offered Rate (LIBOR).

•  the final cost of exporter must not exceed 0.75% over 6 month LIBOR, excluding the tax. .

• Banks are also permitted to utilize the foreign currency balances available under Escrow account and Exporters Foreign Currency accounts.

RUNNING ACCOUNT FACILITY• Bank has right to grant preshipment advance for export

to the exporter of any origin. • Banks also extent these facilities depending upon the

good track record of the exporter.• In return the exporter needs to produce the letter of

credit / firms export order within a given period of time.

PACKING CREDIT FACILITIES TO DEEMED EXPORTS .

• "Deemed Exports" refers to those transactions in which the goods supplied do not leave the country and the payment for such supplies is received either in Indian rupees or in free foreign exchange.

• Deemed exports made to multilateral funds aided projects and programmes, 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.• Pre Shipment finance can be provided by the bank to allow the

exporter to mobilize resources like technical personnel and training them.

Advance against cheques/drafts received as advance payment

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.

POST SHIPMENT FINANCE

What is Post-Shipment Finance???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.

Granted  from the date of extending the credit after shipment of the goods

                    to 

    the realization date of the exporter proceeds.

Bridges the financial gap between the time of shipment of goods and the actual payment received by the importer.

Exporters don’t wait for the importer to deposit the funds.

Basic features of post shipment finance:• Purpose of Finance:Meant to finance export sales receivable after the date of shipment of goods to the date of realization of exports proceeds.

• Basis of Finance:It is provided against evidence of shipment of goods or supplies made to the importer or seller or any other designated agency.

• Quantum of Finance:Post shipment finance can be extended up to 100% of the invoice value of goods.

• Period of Finance:Post shipment finance can be off short terms or long term, depending on the payment terms offered by the exporter to the overseas importer.

Financing For Various Types of Export

Post shipment finance can be provided for three types of export Physical exports:Finance is provided to the actual exporter or to the exporter in whose name the trade documents are transferred.

Deemed export: Finance is provided to the supplier of the goods which are supplied to the designated agencies.

Capital goods and project exports:Finance is sometimes extended in the name of overseas buyer. The disbursal of money is directly made to the domestic exporter.

Types of Post Shipment FinanceThe post shipment finance can be classified as :

1. Export Bills purchased/discounted.

2. Export Bills negotiated

3. Advance against export bills sent on collection basis.

4. Advance against export on consignment basis

5. Advance against undrawn balance on exports

6. Advance against claims of Duty Drawback.

1. Export Bills Purchased/ Discounted(DP & DA Bills) DP - Documents against Payment DA - Documents against Acceptance

• This is generally 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.

Steps involved in the working of DA/DP Bills

Step 1 - The seller and buyer enter into a contract and agree that payment be made on the basis of a documentary collection

Step 2 - The seller ships the goods and tenders the documents to its bank (remitting bank) together with a corresponding collection order

Step 3 - The remitting bank sends the documents along with its collection instructions to ICICI Bank (collecting bank)

Step 4 - ICICI Bank notifies the buyer of arrival of documents, for his payment/acceptance

Step 5 - The buyer pays the amount due or accepts the draft and in turn receives the documents

Step 6 - ICICI Bank remits the amount to the remitting bank

Step 7 - The remitting bank credits the amount to the seller’s account

Documents against Payment Bills(DP) BillsFor  Documents against Payment (DP), the  collecting  bank  releases the import documents to the buyer once he has paid.

• Exporter ships goods to foreign buyer.

• Exporter’s bank  sends documents  including bill of exchange and bill of lading to its Correspondent Bank in the buyer’s country.

• Correspondent  Bank  presents  documents  to  buyer  and  on payment of the bill of exchange, delivers the documents to him so that the can take possession of the goods.

• The  correspondent  bank  sends  the  money  received  from  the buyer  to  the  exporter’s  bank  which  is  ultimately  credited  to exporter’s account.

Documents against Acceptance(DA) Bills For Documents Against Acceptance (DA), the collecting Bank releases the import documents to the buyer on acceptance of the bills of exchange/draft.

• The  correspondent  bank  will  submit  the  bill  of  exchange  to  be signed  by  the  buyer  to  indicate  his  acceptance  of  the  payment obligation.

• After  the  buyer  accepts  the  bill,  he  will  get  possession  of  the documents.

• On the due date of payment, the bank will again present the bill to the buyer who then makes the payment.

• The money received is remitted through the usual banking channels to be credited to the exporter’s account.

• DP bills are drawn on “sight” i.e. no credit is involved.• DA bills involve credit for a fixed period.

2. Export Bills Negotiated (Bill under L/C)• The risk of payment is less under the LC, as the issuing bank makes sure the payment.

•  However, the two major risk factors for the banks are:

1. The risk of nonperformance by the exporter, when he is unable to meet his terms and conditions. In this case, the issuing banks do not honor the letter of credit.

2. The bank also faces the documentary risk where the issuing bank refuses to honour its commitment. So, it is important for the for the negotiating bank, and the lending bank to properly check all the necessary documents before submission.

3. Advance Against Export Bills Sent on Collection Basis• Bills can only be sent on collection basis, if the bills drawn under LC have some discrepancies. 

• Banks may allow advance against these collection bills to an exporter with a concessional rates of interest depending upon the transit period in case of DP Bills and transit period plus usance period in case of usance bill.

• 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.

4. 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.

5. 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. 

6. 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 inhouse cost of production is higher in relation to international price.

•  This type of 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.

• After the shipment, the exporters lodge their claims, supported by the relevant documents to the relevant government authorities. These claims are processed and eligible amount is disbursed after making sure that the bank is authorized to receive the claim amount directly from the concerned government authorities.

7. Advances against Retention Money• In the case of turnkey projects/construction contracts, progressive

payments are made by the overseas employer in respect of services segment of the contract, retaining a small percentage of the progressive payments as retention money which is payable after expiry of the stipulated period from the date of the completion of the contract, subject to obtention of certificate(s) from the specified authority.

• Retention money may also be sometimes stipulated against the supplies portion in the case of turn-key projects. It may like-wise arise in the case of sub-contracts.

•  The payment of retention money is contingent in nature as it is a defect liability.

FORFEITING

Receivable

ServicesForfeitin

gFactorin

g

FORFEITING• Services provided to an exporter or seller in

International Market• Main Objective to provide smooth cash flow to sellers.• Originated from an old French word “forfeit”, meaning

to surrender ones right on something to someone else.• Long term receivable services i.e. over 90 days up to 5

years.

WHAT IS FORFEITING ?• Purchase of an exporter’s receivables at a discount

price by paying cash• There are two parties to it:

ForfeiterExporter

• Forfeiter frees the exporter from credit and risk of default on part of importer

HOW FORFEITING WORKS ?

Exporter-Importer Negotiation

Forfeiter approached by Exporter to ascertain terms of forfeiting

Forfeiter collects the required documents and estimates risk

Discount Rate is quoted

Forfeiter discounts the bill and presents the same to importer

Documents presented to Forfeiter for discounting

Export takes place against documents guarantee

Contract Price is quoted to buyer

DOCUMENTS REQUIRED• In case of Indian exporters availing forfeiting facility, the forfeiting

transaction is to be reflected in the following documents: Invoice Shipping Bill and GR Form

COSTS INVOLVEDForfeiting typically involves the following cost elements:Commitment FeeDiscount Fee

WHAT ARE THE BENEFITS TO AN EXPORTER ?

100 per cent financing

Improved cash flowReduced

administration costAdvance tax refund

Risk reductionIncreased trade

opportunity

FACTORING

WHAT IS FACTORING ?• Defined as the conversion of credit sales into cash• A financial institution buys the accounts receivable of a company and pays upto 80% of account immediately.

• The remaining 20 % is paid once the customer pays the debt.

PROCESS INVOLVED IN FACTORING• Client concludes a credit sale with a customer.

• Client sells the customer’s account to the Factor and notifies the customer.

• Factor makes part payment (advance) against account purchased, after adjusting for commission and interest on the advance.

• Factor maintains the customer’s account and follows up for payment.

• Customer remits the amount due to the Factor.

• Factor makes the final payment to the Client when the account is collected or on the guaranteed payment date.

CHARACTERISTICS OF FACTORING• Normal period of factoring is 90 -150 days and rarely

exceeds more than 150 days• Costly• Not possible in case of bad debts• Credit rating is not mandatory• Method of offbalance sheet financing• Cost of factoring is always equal to finance cost plus

operating cost

DIFFERENT TYPES OF FACTORING

Factoring

Disclosed

Recourse Factoring

Non-Recourse Factoring

Undisclosed

RECOURSE FACTORING• Client collects money from the customer; incase customer

doesn’t pay the amount , client is responsible to pay the amount to the factor

• Offered at a low rate of interest

NON-RECOURSE FACTORING• Factor undertakes to collect the debts from customer• Balance amount is paid at the end of credit period or when the customer

pays the factor, whichever comes first• It eliminates the need for credit and collection departments in the

organization

SERVICES OFFERED BY A FACTOR

• Follow-up and collection of Receivables from Clients.

• Purchase of Receivables with or without recourse.

•  Help in getting information and credit line on  customers   (credit protection) 

• Sorting out disputes, if any, due to his relationship with Buyer & Seller.

RUPEE EXPORT CREDIT INTEREST RATES SUBVENTION

WHY?• To promote exports and assist the exporters.

Advantages:• Incentive to Export• Protection against depreciation of rupee

TIMELINEScheme 1 : April 1 2007 to Sep. 30 2008Scheme 2 : Dec. 1 2008 to Sep. 30 2009Scheme 3 : April 1 2010 to Mar 31 2011Scheme 4 : October 2011Scheme 5 : June 2012Scheme 6: January 2013

• 2% interest rate subvention per annum on rupee export credit availed of by exporters in nine specified categories of exports.

• textiles (including handlooms), readymade garments, leather products, handicrafts, engineering products, processed agricultural products, marine products, sports goods and toys and to all exporters from the SME sector defined as micro enterprises, small enterprises and medium enterprises for a period from April 1, 2007 to September 30, 2008.

• jute and carpets, processed cashew, coffee and tea, solvent extracted de-oiled cake, plastics and linoleum added later.

• Later 4% subvention provided to leather and leather manufactures, marine products, all categories of textiles under the existing scheme including Ready Made Garments and carpets but excluding man-made fibre and handicrafts in preshipment credit for 180 days while Post shipment credit of 90 days was provided.

• The Interest rate post subvention is not <7% (provided to priority sector)

SCHEME 1

• Services Covered 231

• Benefit Provided (3% w.e.f from Aug 1, 2013)

• The Subvention provided would be reimbursed by RBI to concerned banks on a quarterly basis subject to submission of claims.

CURRENT SCENARIO

EXTERNAL COMMERCIAL BORROWING

WHAT IS ECBExternal Commercial Borrowing refer to commercial loans availed from non-resident lenders.• Banks• Securitized Instruments• `Supplier’s Credit• Buyer’s Credit• Loan from foreign collaborator• financial entities, pension funds, insurance funds, sovereign wealth funds

WAYS OF RAISING

Automatic Route

Approval Route

AUTOMATIC ROUTE

Automatic Route•Where no Approval from RBI

is required

ELIGIBLE BORROWERSAutomatic Route

Corporate other than

hotel , hospital and software up to USD 750

million

Corporate in service sector

viz. Hotel, Hospital, and software up to USD 200

million

Units in Special

Economic Zone (SEZ)

NGOs engaged in

micro finance activities

(Relationship of at least 3 years with scheduled bank and

granted ‘fit and proper’

status AD Bank) Financial Intermediaries such as Banks, Financial

Institutions, Housing Finance Companies, NBFCs, Trusts, Individuals and Non Profit making organizations are not eligible to raise ECB

LIMITSCorporate in service sector other than hotel , hospital

and service up to USD 750 millionCorporate in service sector

like Hotel, Hospital, and software up to USD 200

millionNGO engaged in micro finance activity and Micro

Finance Institutions can raise ECB up to USD 10 million or

its equivalentECB up to USD 20 million can

have call/ put option

PERMITTED USAGE• Import of capital goods• Executing new projects• Modernization/ expansion• Infrastructure sector• Payment of spectrum Allocation• First and second stage acquisition of shares from divestitutre of government

• Overseas JV / Wholly owned Subsidiary• Interest payment during Construction of projects

APPROVAL ROUTE

Approval Route•Where Approval from

RBI is required

ELIGIBLE BORROWERS• lending by EXIM Bank for specific purposes• ECB with minimum average maturity of 5 years by NBFC• Corporate which have violated the extant ECB policy and are under investigation by the

RBI and/or ED• Banks and financial institutions which had participated in the textile or steel sector

restructuring• SEZ developers for providing infrastructure facilities within SEZ• Infrastructure Finance Companies availing ECB for on-lending to the infrastructure sector• Corporate in service sector other than hotel , hospital and service above USD 750 million• Corporate in service sector like Hotel, Hospital, and software up to above 200 million• Foreign Currency Convertible Bonds (FCCBs) by Housing Finance Companies• Multi state Cooperative societies engaged in manufacturing activities• ECB from indirect equity holder provided the indirect equity holding by the lender in the

Indian Company is at least 51%.• ECB from a group company provided both the borrower and the foreign lender are

subsidiaries of the same parent• Case falling outside the purview of the automatic route limits and maturity period

CONVERSION OF ECB INTO EQUITY

Conversion of ECB

into equity is

permitted subject to

The activity of the company is covered under the Automatic

Route for Foreign Direct Investment

Government (FIPB) approval

for foreign equity

participation has been

obtained by the company

The foreign equity holding

after such conversion of

debt into equity is within

the sectoral cap Pricing of

shares is as per the pricing guidelines

issued under FEMA, 1999 in

the case of listed/ unlisted

companies.

The conversion of ECB has to be reported in 7 days from the close of month to RBI and DSIM by filling Form FC GPR and Form ECB2 respectively.

Two types of conversation:

Full Conversation of Outstanding ECB into

equity

Clear indication on the top of the form

ECB 2 of words “ECB wholly converted to

equity”

Partial Conversation of Outstanding ECB

into equity

Clear indication on the top of the form

ECB 2 of words “ECB partially converted

to equity”

MATURITY PERIODLimits Minimum

Maturity period

Up to USD 50 million or its equivalent

3 years

Above USD 50 million or its equivalent

5 years

COST OF BORROWINGAverage

Maturity Period

All-in-cost Ceiling over 6 month

LIBOR

3 years and up to 5 years

350 basis points

More than five years

500 basis points

DEEMED EXPORT

WHAT IS DEEMED EXPORT?Transaction in which goods supplied do not leave the country.

Reliance Industries

HP

Sells petroleum Gas

Deemed Exporter

Supply of goods to Export Oriented Units (EOUs) or Software Technology Parks (STPs) or Electronic Hardware Technology Parks (EHTPs) or Bio Technology Parks (BTP);Supply of capital goods to holders of licences under the Export Promotion Capital Goods (EPCG) scheme;Supply of goods to nuclear power projects through competitive bidding as opposed to International Competitive Bidding.Supply to projects funded by UN agencies.