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Unformatted text preview: Post Shipment Finance
Group – 4 Rakesh Singh
Saifuddin Click to edit Master subtitle style Sandeep Manglik
Girija Shankar Mishra 5/30/11
Sibasis Sarangi DEFINITION Loan or advance granted to an exporter from the time of shipment of goods to the time of realization including against the security of duty draw back or any receivable from the govt. ELIGIBILITY To the actual exporter or to an exporter in whose name the documents are transferred. In the case of deemed exports to the supplier of goods to the designated agencies as per EXIM policy 5/30/11 Purpose: to finance the export receivable Quantum: Up to 100% of the invoice value Margin: Normally no margin stipulated. However the SA can stipulate margin Contingency Marine Insurance: To be obtained in the case of FOB/CFR contracts 5/30/11 Basis of post shipment finance Post shipment finance is always extended against the evidence of shipment of export goods or supplies made to the designated agencies (in the case of deemed exports). Purpose of post shipment finance Post shipment finance, being basically on export sales finance, is meant for financial export sales receivables after the date of shipment of goods of the trade of realization of the export proceeds. Quantum of post shipment finance Post shipment finance can be extendedly to 100% of invoice value of goods. Period of post shipment finance Post shipment finance can be a both short term and long term finance depending upon the payment terms. 5/30/11 Key Features Finance is extended to either the exporter (seller's credit) or the overseas buyer of the goods (buyer's credit). Finance is extended against evidence of shipping documents. Concessive rate of interest is available for a maximum period of 180 days, starting from the date of submission of documents. Normally, the documents are to be submitted within 21days from the date of shipment. 5/30/11 Classification Negotiation of export documents under Letter of Credit (LC). Purchase / Discount of export document under confirmed orders / export contracts, etc. Advances against export 5/30/11 Types of Post Shipment Finance 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. 5/30/11 1. Export Bills Purchased/ Discounted.(DP & DA Bills) 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 Export Bills Negotiated (Bill under L/C) The risk of payment is less under the LC, as the issuing bank makes sure the payment. The risk is further reduced, if a bank guarantees the payments by confirming the LC. Because of the inborn security available in this method, banks often become ready to extend the finance against bills under LC. 5/30/11 However, this arises two major risk factors for the banks: i. 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. i. 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. 5/30/11 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. Sometimes exporter requests the bill to be sent on the collection basis, anticipating the strengthening of foreign currency. 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. 5/30/11 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. 5/30/11 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. 5/30/11 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 in-house 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. These are granted only if other types of export finance are also extended to the exporter by the same bank. 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. 5/30/11 Crystallization of Overdue Export Bills Exporter foreign exchange is converted into Rupee liability, if the export bill purchase / negotiated /discounted is not realize on due date. This conversion occurs on the 30th day after expiry of the NTP in case of unpaid DP bills and on 30th day after national due date in case of DA bills, at prevailing TT selling rate ruling on the day of crystallization, or the original bill buying rate, whichever is higher 5/30/11 Applicable Rates
Post-shipment credit Sight Bills - Not more than 10% Upto 90 days - Not more than 10% 91 days upto 6 months - 12% Overdue (applicable only on the overdue portion) - Left to the discretion of the bank, though it is most likely to be the unarranged overdraft rate. Post-Shipment foreign currency loan - Maximum of Libor + 1.5 pct 5/30/11 Supplier's Credit Facility: Suppliers' Credit relates to credit for imports into India extended by the overseas supplier. Under Supplier's credit, the importer opens a LC from a bank in India under usance terms and the supplier gets its LC or bills discounted from a financing bank through which LC advised. Indian importers are free to enjoy a credit period of 180 days on their imports from the date of shipment - Criteria: All Importers but L/C is to be advised through financing Bank - Credit Period: 3 month to 1 yr for non capital goods and upto 3 yrs for capital goods. 5/30/11 Thank You….! 5/30/11 ...
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This note was uploaded on 05/30/2011 for the course ECON 101 taught by Professor Ke during the Spring '11 term at Lethbridge College.
- Spring '11