CAIIB-BFM-MODULE-A-Facilities for Exporters and Importers-Cont'd... Facilities for Exporters and Importers
Post Shipment Finance Post shipment finance is made available to exporters on the following conditions: IEC accompanied by prescribed declaration on GR/PP/Softex/SDF form must be submitted. Documents must be submitted by exporter within 21 days of shipment. Payment must be made in approved manner within 6 months. Normal Transit Period is 25 days. The margin is NIL normally. But in any case, it should not exceed 10% if LC is there otherwise it can be up to 25%.
Types of Post Shipment Finance: Export Bills Purchased for sights bills and Discounting for Usance bills. Export bills negotiation.
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 Forfeiting 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.
Pre-shipment & Post-shipment Finance
Q. 1. Received order of USD 50000(CIF) to Australia on 1.1.2015 when USD/INR Bill Buying Rate is 43.50. How much preshipment finance will be released considering profit margin of 10% and Insurance and freight cost@ 12%. Solution FOB Value = CIF – Insurance and Freight – Profit (Calculation at Bill Buying Rate on 1.1.2015) = 50000X43.5 = 2175000 – 216000(12%) – 191400(10% of 1914000) = 1722600 Pre-shipment Finance = FOB value -25%(Margin) = 1722600-430650=1291950.
Q. 2. 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 43.85 ?
Solution 45000X43.85 = 1973250
Q. 3. Period for which concessional Rate of Interest is charged on DP bills from date of purchase. Ans - 25 days
Q. 4. If the above said bill remains overdue for 2 months, what will be date of crystallization? Due Date of Bill will be 31.3.11 + 25 days = 25.4.2011 The bill will be crystallized on 24.5.2011 i.e. on 30th day from due date.
Q. 5. 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