ABC and Co., approaches the XYZ Bank for pre-shipment and post-shipment loan with estimated sales of Rs. 100 lakh. The bank sanctions a limit of Rs. 50 lakh, with 25 % margin for pre-shipment loan on FOB value and margins on bills of 10 % on foreign demand bills and 20 % on foreign usance bills. The firm gets an order for USD 50,000 (CIF) to Australia. On 1.1.2016 when the USD/INR rate was Rs.66.50 per USD, the firm approached the Bank for releasing pre-shipment loan (PCL), which is released on 31.3.2016, the firm submitted export documents, drawn on sight basis for USD 45,000 as full and final shipment. The bank purchased the documents at Rs.66.75, adjusted the PCL outstanding and credited the balance amount to the firm's account, after recovering interest for Normal Transit Period (NTP).The documents were realized on 30.4.2016 after deduction of foreign bank charges of USD 450. The bank adjusted the outstanding post shipment advance against the bill. Bank charged interest for pre-shipment loan @ 7 % up to 90 days and, @ 8% over 90 days up to 180 days. For Post shipment credit the Bank charged interest @ 7 % for demand bills and @ 7.5 % for usance (D/A) documents up to 90 days and @ 8.50 % thereafter and on all overdues, interest @ 11%.
01. What is the amount that the Bank can allow as PCL to the exporter against the given export order,considering the profit margin of 10% and insurance and freight cost of 10% ? a. 2992500 b. 2693250 c. 2102620 d. 2019938 Ans - d Explanation FOB value = 50000 x 66.50 = 3325000 — 332500 (10% of 3325000 (insurance and freight cost)) = 2992500 — 299250 (10% profit margin) = 2693250 - 673312 (25% margin) = 2019938 So, the Bank can allow Rs. 2019938 as PCL to the exporter against the given export order.
02. What is the amount of post shipment advance that can be allowed by the Bank under foreign bills purchased, for the bill submitted by the exporter? a. 2992500 b. 3003750 c. 3325000 d. 3337500 Ans - b Explanation 45000 x 66.75 = 3003750 So, the Bank can allow Rs. 3003750 as post shipment advance under foreign bills purchased, for the bill submitted by the exporter.
03. What will be the period for which the Bank charges concessional interest on DP bills, from date of purchase of the bill? a. 20 Days b. 25 Days c. 30 Days d. 1 Month Ans - b Explanation : Concessional rate will be charged for normal transit period of 25 days and there after overdue interest will be charged.
04. In the above case, when should the bill be crystallized (latest date), if the bill remains unrealised for over two months, from the date of purchase (ignore holidays)? a. 24.04.2016 b. 25.04.2016 c. 24.05.2016 d. 25.05.2016 Ans - c Explanation : Crystallisation will be done when the bill becomes overdue after 25 days of normal transit period. Date of overdue will be 25.4.2016. If bill remains overdue, it will be crystallised within 30 days i.e. up to 24.5.2016.
05. What rate of interest will be applicable for charging interest on the export bill at the time of realisation, for the days beyond Normal Due Date (NDD)? a. 7.5 % b. 8 % c. 8.5 % d. 11 % Explanation : Rate of interest will be 11% as the overdue interest is stated as 11%
2. A textile exporter, with estimated export sales of Rs. 300 lacs during the last year and projected sales of Rs.500 lacs for the current year, approaches the bank for granting credit facilities. The bank sanctions following facilities in the account: PCL/FBP/FUBD/FBN Rs. 100.00 lacs Sub limits: PCL (25 % margin on fob value) Rs. 50.00 lacs FBP (10 % margin on bill amount) Rs. 50.00 lacs FUBD (15% margin on bill amount) Rs. 50.00 lacs FBN (nil margin) Rs. 100.00 lacs. He gets an order for USD 50,000.00 CF, for exports of textiles- dyed/hand printed, to UK, with shipment to be made by 15.9.2014. On 2.6.2014 he approaches the bank for releasing PCL against this order of USD 50,000.00. The bank releases the PCL as per terms of sanction. On 31.8.2014, the exporter submits export documents for USD 48,000.00, against the order for USD 50,000.00. The documents are drawn on 30 days usance (D/A) as per terms of the order The bank discounts the documents at the days applicable rate, adjusts the PCL outstanding and credits the balance to the exporter's account, after recovering interest up to notional due date. Interest on PCL recovered separately. The documents are realized on 29.10.2014, value date 27.10.2014, after deduction of foreign bank charges of USD 250.00. The bank adjusts the outstanding post shipment advance allowed against the bill on 31.8.2014. Bank charges interest at - PCL- 8.50 % upto 180 days, and post shipment at 8.50 % upto 90 days and 10.50 % thereafter. Overdue interest is charged at 14.50%. The USD/INR rates were as under: — 2.6.2014: Bill Buying 48.20, Bill Selling 48.40. — 31.08.2014: TT buying 47.92, Bill Buying 47.85, TT Selling 48.08, Bill Selling 48.15, Premium for 30 days was quoted as 04/06 paise.
Now Answer the following:
1. What is the amount that the bank allows as PCL to the exporter against the given export order, considering insurance and freight costs of 12%. (i) Rs. 15,90,600 (ii) Rs. 24,10,000 (iii) Rs. 21,20,800 (iv) Rs. 18,15,000
2. What exchange rate will the bank apply for purchase of the export bill for USD 48,000.00 tendered by the exporter: (i) 47.89 (ii) 47.85 (iii) 47.91 (iv) 47.96
3. What is the amount of post shipment advance allowed by the bank under FUBD. for the bill submitted by the exporter: (i) Rs. 19,54,728 (ii) Rs. 19,52,280 (iii) Rs. 19,53,912 (iv) Rs. 22,98,720
4. What will be the notional due date of the bill submitted by the exporter: (i) 30.10.2014 (ii) 30.9.2014 (iii) 25.10.2014 (iv) 27.10.2014
5. Total interest on the export bill discounted, will be charged up to; (i) notional due date 25.10.2014 (ii) value date of credit 27.10.2014 (iii) date of realisation 30.10.2014 (iv) date of credit to nostro account 29.10.2014
Ans. 1: USD 50,000.00 @ 48.20 = Rs. 2410000.00 - less 12% for insurance and freight cost i.e Rs. 289,200 = Rs.21,20,800.00 (for value of the order. Less margin 25% i.e. Rs.530,200.00 balance Rs 15,90,600.00)
Ans. 2: 47.89 - Bill buying rate on 31.8.2008 - 47.85 plus 4 paise premium for 30 days, this being a DA bill.
Ans 3: USD 48,000.00 @ 47.96 =Rs. 23,02,080.00, less 15% margin on DA bill, i.e. Rs. 345312.00 = Rs 19,56,768.00
Ans 4: Bill submitted on 31.8.2014- drawn on 30 days DA plus normal transit period of 25 days -31.8.2014 plus 30 days plus 25 days, i.e. total 55 days from 31.3.2014 i.e. 25.10.2014
Ans 5: Interest is charged up to the date the funds have been credited to the banks nostro account, the effective date of credit is the value date of credit, i.e. 27.10.2014.