LOANS TO IMPORTERS AND EXPORTERS. OBJECTIVES To study and understand in detail about the loan facilities provided to the importers and exporters by the banks. To identify the role of Banks in encouraging Exports by providing finance. To know the Interest rates charged by the banks for various facilities. To study the fee based services provided by banks that are included in trade finance. To see the growth of trade finance in the economy. SCOPE This project concentrates on the following areas: Exports Finance types, objectives . Imports Finance types. Factoring and forfeiting concepts in foreign markets. 1
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
LOANS TO IMPORTERS AND EXPORTERS.
OBJECTIVES
To study and understand in detail about the loan facilities provided to
the importers and exporters by the banks.
To identify the role of Banks in encouraging Exports by providing
finance.
To know the Interest rates charged by the banks for various facilities.
To study the fee based services provided by banks that are included in
trade finance.
To see the growth of trade finance in the economy.
SCOPE
This project concentrates on the following areas:
Exports Finance types, objectives .
Imports Finance types.
Factoring and forfeiting concepts in foreign markets.
Role and objectives and services of EXIM bank.
Role of Export credit guarantee corporation of India.
Nature of financing by banks and various interest rates charged by
different banks in Mumbai.
Contribution of various banks in trade finance.
1
LOANS TO IMPORTERS AND EXPORTERS.
LIMITATIONS.
The banks were reluctant to provide with information about the rates of
interest. Lack of information on the part of employees. These was found
in both private and nationalized banks.
METHODOLOGY
Methodology is the means, techniques and frames of references
by which researches approach and carry out enquiry on a particular topic.
Following methodology was adopted:
2
Primary Data
visit to banksApproaching bankersFilling up of questionnaire
Secondary
Data
InternetBooksBanks websites
LOANS TO IMPORTERS AND EXPORTERS.
NO. CHAPTER NAME PAGE
NO
1 INTRODUCTION 6-7
2 EXPORT 8-22
3 IMPORTS 23-30
4FACTORING AND FORFEITING
31
5 EXIM BANK 32-36
6ECGC
37-44
7DIFFERENT INTEREST RATES OFFERED BY BANKS
45-47
8NATURE OF FINANCING BY BANKS
48-50
9 RELATIONSHIP BETWEEN NUMBER OF
TRANSACTIONS AND INTEREST CHARGES
51
10 CONTRIBUTION BY VARIOUS BANKS IN TRADE FINANCE
52
11.CONCLUSION
53-54
12 ANNEXURES 55-56
3
LOANS TO IMPORTERS AND EXPORTERS.
INTRODUCTION
Imports and Exports have been an integral part of our economy since a
very long time. Trade financing is a way to import and export goods and
finance their business. Trade finance is a specific topic within the
financial service industry. Today trade finance is a massive billion of
dollars of business. Since world trade is increasing the good and
commodities are bought and sold, and banks and financial institutions
should lend money to finance the purchase of these goods and
commodities.
Trade finance refers to a wide range of tools that determine how cash,
credit, investments and other assets can be used for trade. Banks also play
a central role in facilitating trade, both through the provision of finance
and bonding facilities and through the establishment and management of
payment mechanisms such as telegraphic transfers and documentary
letters of credit (L/Cs). Amongst the intermediated trade finance
products, the most commonly used for financing transactions is L/Cs,
whereby the importer and exporter essentially entrust the exchange
process (i.e., payment against agreed delivery) to their respective banks in
order to mitigate counterparty risk. Typical trade-related financial
services include letters of credit, import bills for collection, import
financing, shipping guarantees, letter of credit confirmation, checking and
negotiation of documents, pre-shipment export financing, invoice
financing, and receivables purchase. Trade finance instruments can be
structured to include export credit guarantees or insurance. Trade finance
differs from other forms of credit (e.g., investment and working capital)
in several ways.
4
LOANS TO IMPORTERS AND EXPORTERS.
Trade finance is much different than commercial lending, mortgage
lending or insurance. A product is sold and shipped overseas; therefore, it
takes longer to get paid. Extra time and energy is required to make sure
that buyers are reliable and creditworthy. Also, foreign buyers - just like
domestic buyers - prefer to delay payment until they receive and resell the
goods. Due diligence and careful financial management can mean the
difference between profit and loss on each transaction.
All sellers want to get paid as quickly as possible, while buyers usually
prefer to delay payment, at least until they have received and resold the
goods. This is true in domestic as well as international markets.
Increasing globalization has created intense competition for export
markets. Importers and exporters are looking for any competitive
advantage that would help them to increase their sales. Flexible payment
terms have become a fundamental part of any sales package.
Trade finance is the lifeline of trade because more than 90% of trade
transactions involve some form of credit, insurance or guarantee. Import
export trade assumes huge importance in the context of overall
performance of the world economy. An upward trend of import export is
indicative of smooth functioning of the world economy; whereas a
downward trend results from economic instability.
5
LOANS TO IMPORTERS AND EXPORTERS.
1. EXPORTS
Export is one of the most lucrative business activities in India. Exporting
is a major component of international trade. Exports entail transfer of
goods and services from a home country to the foreign consumers. Export
in simple words means selling goods abroad. International market being a
very wide market, huge quantity of goods can be sold in the form of
exports. Export refers to outflow of goods and services and inflow of
foreign exchange. Export occupies a very prominent place in the list of
priorities of the economic set up of developing countries because they
contribute largely to foreign exchange pool.
Exports play a crucial role in the economy of the country. In order to
maintain healthy balance of trade and foreign exchange reserve it is
necessary to have a sustained and high rate of growth of exports.
Exports are a vehicle of growth and development. They help not only in
procuring the latest machinery, equipment and technology but also the
goods and services, which are not available indigenously. Exports leads
to national self-reliance and reduces dependence on external assistance
which howsoever liberal, may not be available without strings.
Exports play a very vital role for Indian macroeconomic settings as they
influence the underlying conditions in the domestic economy and also
help in keeping the balance of payments under control.
It is seen that there exists a close relationship between export earnings
and domestic investment. Higher rates of economic growth tend to be
associated with higher rates of exports growth. Conversely, most
countries with low rates of export growth also tend to have, in general,
low rates of economic growth.
6
LOANS TO IMPORTERS AND EXPORTERS.
Though India’s export compared to other countries is very small, but one
of the most important aspects of our export is the strong linkages it is
forgoing with the world economy which is a great boon for a developing
nation like India.
1.1 EXPORT FINANCE
Credit and finance is the life and blood of any business whether domestic
or international. It is more important in the case of export transactions
due to the prevalence of novel non-price competitive techniques
encountered by exporters in various nations to enlarge their share of
world markets.
Export finance is a part of global finance given to the corporate. Export
financing enables businesses to bring their products all over the world.
India has to compete effectively with other countries in the export
markets in order to penetrate into new markets and widen its hold on the
existing markets. Since many countries have been pursuing policies
geared to the promotion of exports through adequate export credits at low
rates of interest, India has also pursued the same policy in regard to
export finance.
In all major industrialized countries, banks and other financial institutions
are deeply involved in financing of exports on special terms. Some of
them are granting mixed credits that combine export credit with foreign
aid to developing countries. In all such cases, the governments and
central banks of those countries are directly involved in subsidizing
exports.
Exporters naturally want to get paid as quickly as possible, while
importers usually prefer to delay payment until they have received or
resold the goods. Because of the intense competition for export markets,
7
LOANS TO IMPORTERS AND EXPORTERS.
being able to offer attractive payment terms customary in the trade is
often necessary to make a sale. Exporters should be aware of the many
financing options open to them so that they choose the most acceptable
one to both the buyer and the seller. In many cases, government
assistance in export financing for small and medium-sized businesses can
increase a firm's options. The following factors are important to consider
in making decisions about financing:
The need for financing to make the sale: - In some cases, favorable
payment terms make a product more competitive. If the competition
offers better terms and has a similar product, a sale can be lost. In other
cases, the buyer may have preference for buying from a particular
exporter, but might buy your product because of shorter or more secure
credit terms.
The length of time the product is being financed: - This determines
how long the exporter will have to wait before payment is received and
influences the choice of how the transaction is financed.
The cost of different methods of financing: - Interest rates and fees
vary. Where an exporter can expect to assume some or all of the
financing costs, their effect on price and profit should be well understood
before a pro forma invoice is submitted to the buyer.
The risks associated with financing the transaction: - The riskier the
transaction, the harder and more costly it will be to finance. The political
and economic stability of the buyer's country can also be an issue. To
provide financing for either accounts receivable or the production or
purchase of the product for sale, the lender may require the most secure
methods of payment, a letter of credit (possibly confirmed), or export
credit insurance or guarantee.
8
LOANS TO IMPORTERS AND EXPORTERS.
The need for pre-shipment finance and for post-shipment working
capital: -Production for an unusually large order, or for a surge of orders,
may present unexpected and severe strains on the exporter's working
capital. Even during normal periods, inadequate working capital may
curb an exporter's growth. However, assistance is available through
public and private sector resources.
OBJECTIVES OF EXPORT FINANCE
To cover commercial & Non-commercial or political risks
attendant on granting credit to a foreign buyer.
To cover natural risks like an earthquake, floods etc.
An exporter may avail financial assistance from any bank, which
considers the ensuing factors:
Availability of the funds at the required time to the exporter.
Affordability of the cost of funds
APPRAISAL
Appraisal means an approval of an export credit proposal of an exporter.
While appraising an export credit proposal as a commercial banker,
obligation to the following institutions or regulations needs to be adhered
to.
Obligations to the RBI under the Exchange Control Regulations are:
Appraise to be the bank’s customer.
Appraise should have the EXIM code number allotted by the
Director General of Foreign Trade.
Party’s name should not appear under the caution list of the RBI.
Obligations to the Trade Control Authority under the EXIM policy are:
Appraise should have IEC number allotted by the DGFT.
9
LOANS TO IMPORTERS AND EXPORTERS.
Goods must be freely exportable i.e. not falling under the negative
list. If it falls under the negative list, then a valid license should be
there which allows the goods to be exported.
Country with whom the Appraise wants to trade should not be
under trade barrier.
Obligations to ECGC are:
Verification that Appraise is not under the Specific Approval list
(SAL).
Sanction of Packing Credit Advances.
GUIDELINES FOR BANKS DEALING IN EXPORT FINANCE:
When a commercial bank deals in export finance it is bound by the
ensuing guidelines: -
Exchange control regulations.
Trade control regulations.
Reserve Bank’s directives issued through IECD.
Export Credit Guarantee Corporation guidelines.
Guidelines of Foreign Exchange Dealers Association of India.
1.2 PRE-SHIPMENT FINANCE
'Pre-shipment/Packing Credit' means any loan or advance granted or any
other credit provided by a bank to an exporter for financing the purchase,
processing, manufacturing or packing of goods prior to shipment
/working capital expenses towards rendering of services on the basis of
letter of credit opened in his favour or in favour of some other person, by
an overseas buyer or a confirmed and irrevocable order for the export of
goods/services from India or any other evidence of an order for export
10
LOANS TO IMPORTERS AND EXPORTERS.
from India having been placed on the exporter or some other person,
unless lodgment of export orders or letter of credit with the bank has been
waived.
IMPORTANCE OF FINANCE AT PRE-SHIPMENT STAGE:
To purchase raw material, and other inputs to manufacture goods.
To assemble the goods in the case of merchant exporters.
To store the goods in suitable warehouses till the goods are
shipped.
To pay for packing, marking and labeling of goods.
To pay for pre-shipment inspection charges.
To import or purchase from the domestic market heavy
machinery and other capital goods to produce export goods.
To pay for consultancy services.
To pay for export documentation expenses.
FORMS OR METHODS OF PRE-SHIPMENT FINANCE/PACKING
CREDIT
Packing Credit is extended in the following forms:
1. Packing Credit in Indian Rupee
2. Packing Credit in Foreign Currency (PCFC)
1. Packing credit in Indian rupee
This is taken in Indian Rupees and is given to the exporter in the form of
the Rupee Loan and the interest is charged at the rate as per RBI
directives. When any export proceeds are realized, the packing credit is
automatically adjusted. If it becomes overdue the rate of interest will be
charged at the rate determined by the individual bank.
2.Packing credit in Foreign Currency (P.C.F.C.)
11
LOANS TO IMPORTERS AND EXPORTERS.
In the case of PCFC, the bankers have their own line of credit with
their foreign banks and the interest is charged at ‘LIBOR' rate i.e.
London Inter Bank Offered Rate plus the interest spread that is
mutually agreed upon between the bankers and the exporter subject
to a minimum of 1.0%, till the due date. This is denominated in a
foreign currency. The above mentioned interest is for 90 days,
since the period of liquidation of pre-shipment credit normally
granted by the bankers for diamond Industry is 90 days from the
date of availing the facility. Beyond 90 days, if the PCFC becomes
overdue the interest will be charged based on fresh LIBOR rate
prevalent on the 91st day plus the interest spread and additional
interest at 2% for the overdue period. If the payment is not received
after 30 days from the due date, the Packing credit will be
crystallized. It means that the bankers will convert the balance
PCFC, at the TT selling interbank rate into Indian Rupees and the
interest will be charged on the entire amount at commercial rate of
interest from day one of availing the PCFC. The rate of interest
varies with different banks and is in the range of 15 to 20%.
DISBURSEMENT OF PACKING CREDIT
i. Ordinarily, each packing credit sanctioned should be maintained as
separate account for the purpose of monitoring period of sanction
and end-use of funds.
ii. Banks may release the packing credit in one lump sum or in stages
as per the requirement for executing the orders/LC.
iii. Banks may also maintain different accounts at various stages of
processing, manufacturing, etc. depending on the types of
12
LOANS TO IMPORTERS AND EXPORTERS.
goods/services to be exported, e.g. hypothecation, pledge, etc.,
accounts and may ensure that the outstanding balance in accounts
are adjusted by transfer from one account to the other and finally
by proceeds of relative export documents on purchase, discount,
etc.
iv. Banks should continue to keep a close watch on the end-use of the
funds and ensure that credit at lower rates of interest is used for
genuine requirements of exports. Banks should also monitor the
progress made by the exporters in timely fulfillment of export
orders.
'RUNNING ACCOUNT' FACILITY
i. Pre-shipment credit to exporters is normally provided on lodgment
of L/Cs or firm export orders. It is observed that the availability of
raw materials is seasonal in some cases. In some other cases, the
time taken for manufacture and shipment of goods is more than the
delivery schedule as per export contracts. In many cases, the
exporters have to procure raw material, manufacture the export
product and keep the same ready for shipment, in anticipation of
receipt of letters of credit/firm export orders from the overseas
buyers. Having regard to difficulties being faced by the exporters
in availing of adequate pre-shipment credit in such cases, banks
have been authorized to extend Pre-shipment Credit ‘Running
Account’ facility in respect of any commodity, without insisting on
prior lodgment of letters of credit/firm export orders, depending on
the bank’s judgment regarding the need to extend such a facility
and subject to the following conditions:
a) Banks may extend the ‘Running Account’ facility only to those
exporters whose track record has been good as also Export
13
LOANS TO IMPORTERS AND EXPORTERS.
Oriented Units (EOUs)/Units in Free Trade Zones/ Export
Processing Zones (EPZs) and Special Economic Zones (SEZs).
b) In all cases where Pre-shipment Credit ‘Running Account’ facility
has been extended, letters of credit/firm orders should be produced
within a reasonable period of time to be decided by the banks.
c) Banks should mark off individual export bills, as and when they
are received for negotiation/collection, against the earliest
outstanding pre-shipment credit on 'First In First Out' (FIFO) basis.
Needless to add that, while marking off the pre-shipment credit in
the manner indicated above, banks should ensure that concessive
credit available in respect of individual pre-shipment credit does
not go beyond the period of sanction or 360 days from the date of
advance, whichever is earlier.
d) Packing credit can also be marked-off with proceeds of export
documents against which no packing credit has been drawn by the
exporter.
ii. If it is noticed that the exporter is found to be abusing the facility,
the facility should be withdrawn forthwith.
iii. In cases where exporters have not complied with the terms and
conditions, the advance will attract commercial lending rate ab
initio. In such cases, banks will be required to pay higher rate of
interest on the portion of refinance availed of by them from the
RBI in respect of the relative pre-shipment credit. Running account
facility should not be granted to sub-suppliers.
1.3 POST-SHIPMENT FINANCE
'Post-shipment Credit' means any loan or advance granted or any other
credit provided by a bank to an exporter of goods/services from India
14
LOANS TO IMPORTERS AND EXPORTERS.
from the date of extending credit after shipment of goods/rendering of
services to the date of realization of export proceeds and includes any
loan or advance granted to an exporter, in consideration of, or on the
security of any duty drawback allowed by the Government from time to
time.
TYPES OF POST-SHIPMENT CREDITS:
1. Purchase of Export Documents drawn under Export Order:
Purchase or discount facilities in respect of export bills drawn
under confirmed export order are generally granted to the
customers who are enjoying Bill Purchase/Discounting limits from
the Bank. As in case of purchase or discounting of export
documents drawn under export order, the security offered under
L/C by way of substitution of credit-worthiness of the buyer by the
issuing bank is not available, the bank financing is totally
dependent upon the credit worthiness of the buyer, i.e. the
importer, as well as that of the exporter or the beneficiary. The
documents dawn on DP basis are parted with through foreign
correspondent only when payment is received while in case of DA
bills documents (including that of title to the goods) are passed on
to the overseas importer against the acceptance of the draft to make
payment on maturity. DA bills are thus unsecured. The bank
financing against export bills is open to the risk of non-payment.
Banks, in order to enhance security, generally opt for ECGC
policies and guarantees which are issued in favor of the
exporter/banks to protect their interest on percentage basis in case
of non-payment or delayed payment which is not on account of
mischief, mistake or negligence on the part of exporter. Within the
total limit of policy issued to the customer, drawee-wise limits are
15
LOANS TO IMPORTERS AND EXPORTERS.
generally fixed for individual customers. At the time of purchasing
the bill bank has to ascertain that this drawee limit is not exceeded
so as to make the bank ineligible for claim in case of non-payment.
2. Advances against Export Bills Sent on Collection: It may
sometimes be possible to avail advance against export bills sent on
collection. In such cases the export bills are sent by the bank on
collection basis as against their purchase/discounting by the bank.
Advance against such bills is granted by way of a 'separate loan'
usually termed as 'post-shipment loan'. This facility is, in fact,
another form of post- shipment advance and is sanctioned by the
bank on the same terms and conditions as applicable to the facility
of Negotiation/Purchase/Discount of export bills. A margin of 10
to 25% is, however, stipulated in such cases. The rates of interest
etc., chargeable on this facility are also governed by the same rules.
This type of facility is, however, not very popular and most of the
advances against export bills are made by the bank by way of
negotiation/purchase/discount.
3. Advance against Goods Sent on Consignment Basis: When the
goods are exported on consignment basis at the risk of the exporter
for sale and eventual remittance of sale proceeds to him by the
agent/consignee, bank may finance against such transaction subject
to the customer enjoying specific limit to that effect. However, the
bank should ensure while forwarding shipping documents to its
overseas branch/correspondent to instruct the latter 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.
16
LOANS TO IMPORTERS AND EXPORTERS.
4. Advance against Undrawn Balance: In certain lines of export it
is the trade practice that bills are not to be drawn for the full
invoice value of the goods but to leave small part undrawn for
payment after adjustment due to difference in rates, weight, quality
etc. to be ascertained after approval and inspection of the goods.
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% of the
value of export and an undertaking is 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. Against the specific prior approval from
Reserve Bank of India the percentage of undrawn balance can be
enhanced by the exporter and the finance can be made available
accordingly at higher rate. Since the actual amount to be realised
out of the undrawn balance, may be less than the undrawn balance,
it is necessary to keep a margin on such advance.
5. Advance against Retention Money: Banks also grant advances
against retention money, which is payable within one year from the
date of shipment, at a concessional rate of interest up to 90 days. If
such advances extend beyond one year, they are treated as deferred
payment advances which are also eligible for concessional rate of
interest.
6. Advances against Claims of Duty Drawback: Duty Drawback is
permitted against exports of different categories of goods under the
'Customs and Central Excise Duty Drawback Rules, 1995'.
Drawback in relation to goods manufactured in India and exported
means a rebate of duties chargeable on any imported materials or
excisable materials used in manufacture of such goods in India or
17
LOANS TO IMPORTERS AND EXPORTERS.
rebate on excise duty chargeable under Central Excises Act, 1944
on certain specified goods. The Duty Drawback Scheme is
administered by Directorate of Duty Drawback in the Ministry of
Finance. The claims of duty drawback are settled by Custom House
at the rates determined and notified by the Directorate. As per the
present procedure, no separate claim of duty drawback is to be
filed by the exporter. A copy of the shipping bill presented by the
exporter at the time of making shipment of goods serves the
purpose of claim of duty drawback as well. This claim is
provisionally accepted by the customs at the time of shipment and
the shipping bill is duly verified. The claim is settled by customs
office later. As a further incentive to exporters, Customs Houses at
Delhi, Mumbai, Calcutta, Chennai, Chandigarh, and Hyderabad
have evolved a simplified procedure under which claims of duty
drawback are settled immediately after shipment and no funds of
exporter are blocked.
However, where settlement is not possible under the simplified procedure
exporters may obtain advances against claims of duty drawback as
provisionally certified by customs.
LIQUIDATION OF POST-SHIPMENT CREDIT:
Post-shipment credit is to be liquidated by the proceeds of export bills
received from abroad in respect of goods exported/services
rendered .Further, subject to mutual agreement between the exporter and
the banker 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. Such adjusted export bills should
18
LOANS TO IMPORTERS AND EXPORTERS.
however continue to be followed up for realization of the export proceeds
and will continue to be reported in the XOS statement.
RUPEE POST-SHIPMENT EXPORT CREDIT
PERIOD
i. In the case of demand bills, the period of advance shall be the
Normal Transit Period (NTP) as specified by FEDAI.
ii. In case of usance bills, credit can be granted for a maximum
duration of 180 days from date of shipment inclusive of Normal
Transit Period (NTP) and grace period, if any. However, banks
should closely monitor the need for extending post-shipment credit
upto the permissible period of 180 days and they should influence
the exporters to realise the export proceeds within a shorter period.
iii. 'Normal transit period' means the average period normally involved
from the date of negotiation/purchase/discount till the receipt of
bill proceeds in the Nostro account of the bank concerned, as
prescribed by FEDAI from time to time. It is not to be confused
with the time taken for the arrival of goods at overseas destination.
iv. An overdue bill:
a) In the case of a demand bill, is a bill which is not paid before the
expiry of the normal transit period, and
b) In the case of a usance bill, is a bill which is not paid on the due
date
1.4 GOLD CARD SCHEME FOR EXPORTERS
The applicable rate of interest to be charged under the Gold Card Scheme
will not be more than the general rate for export credit in the respective
bank and within the ceiling prescribed by RBI. In keeping with the spirit
19
LOANS TO IMPORTERS AND EXPORTERS.
of the Scheme banks will endeavour to provide the best rates possible to
Gold Card holders on the basis of their rating and past performance.
In respect of the Gold Card holders, the concessive rate of interest on
post-shipment rupee export credit applicable up to 90 days may be
extended for a maximum period up to 365 days.
The salient features of the scheme are:
i. All creditworthy exporters, including those in small and medium
sectors with good track record would be eligible for issue of Gold
Card by individual banks as per the criteria to be laid down by the
latter;
ii. Banks would clearly specify the benefits they would be offering to
Gold Card holders
iii. request from card holders would be processed quickly by banks
within 25 days/15 days and 7 days for fresh application/renewal of
limits and ad hoc limits, respectively;
iv. ‘in principle’ limits would be set for a period of 3 years with a
provision for stand by limit of 20% to meet urgent credit needs;
v. card holders would be given preference in the matter of granting of
packing credit in foreign currency;
vi. banks would consider waiver of collaterals and exemption from
ECGC guarantee schemes on the basis of card holder’s
creditworthiness and track records, and
vii. The concessive rate of interest on post-shipment rupee export
credit applicable upto 90 days may be extended for a maximum
period upto 365 days.
20
LOANS TO IMPORTERS AND EXPORTERS.
2. IMPORTS
Each country has different natural resource and different climatic
conditions. Some are rich in minerals while some are rich in forest
resources. A country cannot produce all the commodities required by the
nation. It may have some commodities in excess while some commodities
which are available in limited quantity. Hence countries have to depend
on other countries.
A country exports those commodities which are in excess with the
country and import those which are not available at large within the
country, this interdependency of one country on other result into
international trade. The exchange of goods helps both the countries in
developing their economy.
An import (also termed as international purchasing) activity may be
defined as a process of procuring goods and service from the supplier/s
situated in the foreign countries. This activity involves inflow of goods
and service from the foreign country (exporter country) into the base
country (importing country) & in-tune outflow of foreign currency from
base country to the foreign country towards payments for the goods and
services purchased.
There are basically four main reasons for which a country may decide to
import a certain good or service:
1. It simply does not exist in the country: a mineral which is not in the
country's soil, an agriculture product that can't be produced there, an
innovation that has been introduced in other countries;
2. It does not exist at a specific level of quality; thus, a country imports
better products than domestic production, also as far as advertising or
packaging are concerned;
21
LOANS TO IMPORTERS AND EXPORTERS.
3. It is cheaper abroad, since producers there are more efficient, are faced
by lower costs, better exploit economies of scale and/or accept lower
profits;
4. At the current domestic price, producers do not supply enough good or
service as the demand requires, also because of ex ante coordination
problems; accordingly, consumers buy abroad for insufficient domestic
production.
2.1 IMPORT FINANCE
Banks normally do not extend a fund based finance to meet import needs
of their customers, barring few exceptions. However, they enable
industrial units and others to have access to imported inputs and
machinery by establishing letters of credit in favour of the overseas
suppliers/sellers. Letter of Credit is a non-fund credit facility offered by
banks to their constitutes of integrity and proven track record in meeting
their commitments promptly without need for any post import finance.
2.2 LETTER OF CREDIT:
A Letter of Credit is a signed instrument including an undertaking by the
banker of a buyer to pay the seller a certain sum of money on presentation
of documents evidencing shipment of specified goods and subject to
compliance with the stipulated terms and conditions.
Banks establish LCs only on account of their customers, who hold a valid
Importer-Exporter Code Number from the Regional Licensing
Authorities and produce underlying sales contract between the Indian
importer and the overseas sellers, accompanied by valid import license in
the name of the importers, wherever necessary. Banks take into account
22
LOANS TO IMPORTERS AND EXPORTERS.
the norms for holding imported inventory, make an appraisal of the
request for opening an LC like any other fund based working capital
facility, prescribe suitable margin/securities and then decide to establish
the LC.
Banks have simplified the documentation procedures for LC limits
sanctioned to their customer and usually, every time when an LC is to be
established, and LC application-cum-agreement is obtained from the
importer which will also serve as an advance document for the LC.
Documents that can be presented for payment
To receive payment, an exporter or shipper must present the documents
required by the letter of credit. Typically, the payee presents a document
proving the goods were sent instead of showing the actual goods.
However, the list and form of documents is open to imagination and
negotiation and might contain requirements to present documents issued
by a neutral third party evidencing the quality of the goods shipped, or
their place of origin or place. Typical types of documents in such
contracts might include:
23
LOANS TO IMPORTERS AND EXPORTERS.
Financial Documents
Bill of Exchange, Co-accepted Draft
Commercial Documents
Invoice, Packing list
Shipping Documents
Transport Document, Insurance Certificate, Commercial, Official