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Facilities for Exporters and Importers - Cont'd...
Discrepancies of Documents
Late Shipment, LC expired, Late presentation of shipping documents, Bill of Lading not signed properly, Incomplete Bill of Lading, Clause Bill of Lading , Short Bill of Lading or Inadequate Insurance.
Advance against Un-drawn Balance
Undrawn balance is the amount less received from Importers. Bank can finance up to 10% undrawn amount.
Advance against Duty Drawback
Duty drawback is the support by Government by way of refund of Excise/Custom duty in case the domestic cost of the product is higher than the Price charged from the importer. This is done to boost exports despite international competition. Bank can make loan to exporter against Duty Drawback.
Crystallization of Overdue Bills
Consequent upon non-realization, Conversion of Foreign Exchange liability into Rupees is called crystallization. It is done on 30th day after notional due date at prevailing TT selling rate or Original Bill Buying Rate (Whichever is higher).
DA Bills
Notional due date is calculated in DA Bill by adding normal period of transit say 25 days in the
Usance period. 30th day is taken from notional due date.
DP Bills
30th day after Normal Transit Period. If 30th day happens to be holiday or Saturday, liability will be crystallized on the following working day.
Policy has been liberalized and crystallization period will be decided.
Export of services
Credit can be provided to exporters of all 161 tradable services covered under GATS (General Agreement on Trade in services) where payment for such services is received in Forex. The provisions applicable to export of goods apply to export of services.
Gold Card Scheme
All exporters in Small and Medium Sector with good track record are eligible to avail Gold Card Scheme. The conditions are :
Account should be classified as Standard assets for the last 3 years.
Limit is sanctioned for 3 years and thereafter automatic renewal.
There is provision of 20% Standby limit.
Packing Credit is allowed in Foreign currency.
Concessional rate is allowed for 90 days initially which can be extended for 360 days.
Bank may waive collateral and provide exemption from ECGC Guarantee schemes.
Factoring and Forfaiting
Factoring is financing and collection of Export Receivables. The client sells Receivables at discount to Factor in order to raise finance for Working Capital. It may be with or without recourse. Factor finances about 80% and balance of 20% is paid after collection from the borrower. Bill should carry LR/RR. Maximum Debt period permitted is 150 days inclusive of grace period of 60 days. Debts are assigned in favour of Factor. There are 2 factors in International Factoring. One is Export Factor and the other is Import Factor. Importer pays to Import factor who remits the same to Export Factor.
Forfaiting is Finance of Export Receivables to exporter by the Forfaitor. It is also called discounting of Trade Receivables such as drafts drawn under LC, B/E or PN. It is always No Recourse asis (i.e. without recourse to exporter). Forfaitor after sending documents to Exporters’ Bank , makes 100% payment to exporter after deducting applicable discount.
Period for which concessional Rate of Interest is charged on DP bills from date of purchase.
Ans - 25 days
What will be amount of Post-shipment Finance under Foreign Bill Purchased for USD 45000 when Bill Buying rate on 31.3.2015 (date of submission of Export documents) is 63.50
Solution
45000X63. 05 = 2857500 Ans.
If the above said bill remains overdue for 2 months, what will be date of crystallization?
Due Date of Bill will be 31.3.15 + 25 days = 25.4.2015
The bill will be crystallized on 24.5.2015 i.e. on 30th day from due date.
On 8th Sep, an exporter tenders a demand bill for USD 100000 drawn on New York. The USD/INR quote is as under:
Spot---------USD 1 =34.3000/3500
Spot Sep-------------------6000/7000
Spot Oct--------------------8000/9000
Spot Nov------------------10000/11000
Transit Period is 20 days and Exchange margin 0.15%
Calculate Rupee payable to the customer. Customer wants to retain 15% in Dollars
Solution
Since, the currency is at premium, the transit period will be rounded off to the lower month (i.e. NIL). And the rate to the customer will be based on Spot Rate. If interest rate is 13%, how much interest will be recovered from the exporter.
Spot Buying rate = 34.3000
Less Exchange Margin = 0.0515
34.2485 or 34.25 per dollar.
Amount in Indian Rupee = 85000(85% of 100000) x 34.25 = 2911250/-
Interest will be charged on 2911250/- @ 13% for 20 days = 20738/-.
Q. 6. On 26th Aug, an exporter tenders for purchase a bill payable 60 days from sight and drawn on New York for USD 25650. The dollar rupee rate is as under:
Spot----------------------1USD = 34.6525/6850
Spot Sep--------------------------------1500/1400
Spot Oct---------------------------------2800/2700
Spot Nov--------------------------------4200/4100
Spot Dec--------------------------------5600/5500
Exchange Margin is 0.15%, Transit Period is 20 days. Rate of Interest is 13%.
What will be the exchange rate payable to the customer and Rupee amount payable?
Solution
Notional due Date = 20+60 days from 26th Aug i.e. 14th Nov. Since, the currency is at discount, the period will be rounded off to the same month (higher of Oct or Nov). Obviously, the discount of Nov will be more and it will make the Buy Rate Lower.
Dollar/Rupee market spot Buying Rate = 34.6525
Less Discount for August to November = 0.4200 = 34.2325
Less Exchange Margin @.15% .0513 = 34.1812
Rupee Amount payable to exporter = 25650 X 34.18 = 876717.00
Less Interest for 80 days @ 13% = 24980.00
Less out of pocket expenses = 500.00 = 851237.00
Imports
Imports – Prerequisites
AD1 banks are to ensure that Imports are in accordance with:
Exim Policy
RBI Guidelines
FERA Rules
Goods are as per OGL (Open General list).
Importer is having IEC (Import Export Code) issued by DGFT.
Imports Formalities & Time limit for import payment
The following are essential elements of Imports:
An importer before remitting proceeds exceeding USD 500 must submit application on Form A-1 to the Authorized Dealer.
AD banks can issue LC on the basis of License and Exchange Control Copy.
Remittance against exports should be completed within 6 months from date of shipment.
Any delay beyond 6 months will be treated as Deferred Payment arrangement and the same will be treated as Trade Credit up to the period less than 3 years.
Advance Remittances
AD Banks may remit advance payment of Imports subject to following conditions:
Up to USD 2,00,000 or equivalent after satisfying about nature of transaction, trade and standing of Supplier.
In excess of 2,00,000 USD, an irrevocable Standby LC or Guarantee from a bank of international repute or a guarantee from bank in India, if such guarantee is issued against Counter guarantee of International bank outside India.
The requirement of guarantee may not be insisted upon in case of remittances above USD200000 up to USD 50,00,000 (5 million) subject to suitable policy framed by BOD of bank.
The AD should be satisfied with track record of the exporter.
Approval of RBI is required only if Advance remittance exceeds USD 50,00,000 or equivalent.
Advance remittance will be made direct to Overseas supplier or his bank.
Physical imports must be made within 6 months from date of Remittance. For Capital goods, the period is 3 years.
Evidence of Imports
Importer must submit Evidence of Imports i.e. Exchange control copy of “Bill Of Entry”. The AD will ensure receipt of Bill Of Entry in all cases where Value of Forex exceeds USD 100000, within 3 months from date of remittance. Otherwise, one months’ notice will be served. If there is still default of 21 days after serving notice, Ad will forward Statement to RBI on Half yearly basis on BEF Form.
Import Finance Importer can avail finance from banks/FIs in the shape of :
Letter of Credit
Import Loans against Pledge/Hypothecation of stocks.
Trade Credit – Supplier Credit or Buyer Credit
Trade Credit If the Import proceeds are not remitted, within 6 months, it is treated as Trade Credit up to the period less than 3 years. For period 3 years and above, the credit is called ECB (External Commercial Borrowings).
Suppliers’ Credit
It is credit extended by Overseas suppliers to Importer normally beyond 6 months up to period of 3 years.
Up to 1 year for Current Account Transactions
Up to 3 years for Capital Account Transactions
Monetary Limit is USD 20 million per transaction.
Buyers’ Credit
It is credit arranged by Importer from Banks/Fis outside countries. Banks can approve proposals of Buyers’ Credit with period of Maturity:
Up to 1 year for Current Account Transactions
Up to 3 years for Capital Account Transactions
Monetary Limit is USD 20 million per transaction.
Crystallization of Foreign Currency Liability into INR
In case the importer fails to make payment,
crystallization of Foreign Exchange liability into Indian Rupees is done on 10th day at TT selling
Rate.
In case of Retirement of Import Bill
The crystallization is done at current Bill Selling Rate or Contracted Bill Selling Rate (Whichever
is higher).
DP Bill: On 10th Day from date of receipt of Import Bill.
DA Bill: On Actual Due Date.
All-in Cost Ceiling
The present Ceilings for all-in-cost, including interest for buyers’/suppliers’ credit, as fixed by
RBI is as under:
Up to 365 days –--------------------- LIBOR + 350 bps
Above 1 year up to 3 years --------LIBOR + 350 bps
These ceilings include management fees, arrangement fees etc.
Example On 12th Feb, a customer has received an Import bill for USD 10000/-. He asks you to retire the bill to the debit of the account. Considering Exchange margin 0.15% for TT sales and 0.20% on Bill Selling Rate. What amount will be debited to the account. Spot rate is 34.6500/34.7200
Spot march = 5000/4500
Rate applied will be Bill Selling Rate
Spot Rate = 34.7200
Add Margin for TT selling (0.15%) = 0.0520
TT selling Rate = 34.7720
Add margin for Bill selling@ 0.20% = 0.0695
Bill Selling Rate = 34.8415
Customers’ account will be debited with Rs. 348400/- (10000X 34.84)
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