Method of Settlement of International Trade
The international trade involves buying and selling of various commodities and settlement takes place in different currencies. But the trade terms of settlement generally takes place in the following ways : ¨Advance payment : ¨Documentary bill collection (D/P, D/A terms) : ¨Documentary Letter of credit : ¨Export consignment : ¨Open Account :
Exports from India
Importer-exporter code number (IEC) :
To obtain from DGFT and to quote in all declarations.
Manner of receipt of export proceeds :
The amount of proceeds can be received through AD banks
a) By draft or personal cheque
b) F/c notes or TC from buyer on his visit
c) To the debit of FCNR/NRE a/c of the buyer
d) Any other accepted banking channel
Realization and repatriation of export proceeds :
a) 9 months from the date of shipment except
b) 15 months from the date of shipment, if export to warehouse outside India
Advance payment against export :
The shipment of goods to be made within one year and rate of interest does not exceed LIBOR + 100 BPS. For long term export,it may go upto 10 years and interest at LIBOR + 200 bps. ¨
Operational Guidelines for Banks
Submission of shipping documents :
21 days from the date of shipment, however bank may handle delayed submission of documents, if satisfied with the reason for delay. ¨
Reduction in invoice value :
a) Reduction not to exceed 25% of invoice value
b) Exporter is not on RBI caution list
c) It not relate to export subject to floor price
d) Exporter to surrender proportionate export incentive availed of, if any.
e) Exporters in the export business for more than 3 years, reduction can be without any % ceiling subject to export outstanding do not exceed 5% of the average annual export realization during the preceding 3 financial years.
Extension of Time :
i) Banks are permitted to extend period of realization up to 6 months irrespective of invoice value and such export transactions are not under investigation.
ii) While considering extension beyond one year, the total outstanding of exporter does not exceed USD 1 million or 10% of the average export realization during the preceding 3 financial years, which ever is higher. ¨
Write off of Export bills :
The limit prescribed for “write off” of unrealized export bills are as under :
i) Self write off by an exporter – 5% *
Ii) Self “write off” by status holder exporter – 10% *
Iii) “Write” off by banks – 10% *
* Limits are of the total export proceeds realized during the previous calendar year and the relevant amount remained outstanding for more than one year.
Reporting to RBI :
Banks furnish a statement in Form XOS to the RBI (end of June & December) giving details of all export bills outstanding beyond 6 months from the date of export within 15 days from the close of relative half year.
EDPMS (Export Data Processing & Monitoring System):
Introduced by RBI, it is a system where all the export transactions are captured and followed up till their realization.
BRC (Bank Realization Certificate) :
Issuance of physical copy of BRC has been dispensed w.e.f. 16.08.12 and now banks transmits BRC data electronically to DGFT server for issuance of e-BRC.
Forms to be used for declaration of export :
EDF – Declaration of export, where custom office is not computerized
SDF – Declaration of export, where custom office is computerized
SOFTEX –Declaration for software export to customs ¨ ¨
Exemptions from Declaration
¨ ¨Export of goods and services may be made without furnishing the declaration in following cases :
a) Trade samples and publicity material free of payment.
b )Personal effects of travelers.
c) Ships’ stores, trans-shipment cargo and goods supplied under govt. orders.
d) By way of gift of goods, if they are not more than Rs.5 lac in value.
e) Goods imported free of cost on re-export basis.
f) Aircraft/spares for overhauling/ repairs abroad subject to re-import with 6 months from the date of their export.
Grant of EDF Waiver
¨ADs may consider the request for EDF waiver from exporters for export of goods free of cost for export promotion : ¨Up to 2% of the average annual exports of the applicant during the preceding three financial years subject to the ceiling of 5 lacs. ¨For status holder exporters, it is Rs.10 lacs or 2% of the average annual export realization during the preceding three licensing year, which ever is lower. ¨Export of goods not involving any foreign exchange transaction requires the waiver of EDF procedure from the RBI.
Short Shipment & shut out Shipment
Short Shipment : ¨When part of shipment covered by an EDF already filed with customs is short shipped, the customer must give notice of short shipment to customs.
Shut our Shipment : ¨Where the shipment has been entirely shut out and there is delay in making arrangement to reship, the exporter will give notice in duplicate to the customs along with unused duplicate copy of EDF and the shipping bill.
Export Credit- Pre-shipment
Pre-shipment/Packing credit :
Any advance provided by the bank to the exporter for financing the purchase, processing, manufacturing or packing of goods prior to shipment on the basis of export order from an overseas buyer.
Period of advance :
i) On the basis of time required for purchase, processing, manufacturing or packing of goods.
Ii) If it is not adjusted with in 360 days from the date of advance, advance will cease to qualify for the concessive rate of interest to the exporter ab initio.
Disbursement of Packing Credit :
Ordinarily bank maintain separate account for the purpose of monitoring and end use of funds.
Liquidation of Packing credit :
By submission of export documents on its purchase/ discount or negotiation under LC.
It can also be repaid out of balances held in EEFC account as also from rupee resources of the exporter to the extent exports have actually taken place.
Export Credit – Post-shipment
Post-shipment export credit :
Any advance granted to an exporter after shipment of goods/rendering services to the date of realization of export proceeds.
Period of credit :
i) In case of demand bills, the period of advance will be Notional Transit Period (NTP)
Ii) In case of usance bills, the period of advance will be up to due date of bill, maximum up to 270 days from the date of shipment .
Types of Post Shipment Credit :
Export bills purchased/discounted/negotiated
Advance against bills for collection
Advance against duty drawback receivable from government
Liquidation of Post-shipment credit :
i) It is to be liquidated by proceeds of export bills received.
Ii) It can be repaid out of balances held in EEFC account or from proceeds of other unfinanced (collection) bills
Other guidelines- Post -shipment
¨Normal transit period (NTP) : ¨Overdue Bill : ¨Advance against undrawn balances on export bills : ¨Advance against retention money : ¨Export on consignment basis : ¨Export of goods for exhibition and sale : ¨Export credit on deferred payment terms : ¨Deemed Export : ¨Interest on rupee post-shipment credit : ¨Advance against duty drawback entitlement : ¨ ¨ ¨
Pre-shipment Credit in Foreign Currency
Make credit available to exporters at internationally competitive rates.
¨Choice of currency :
PCFC is available to exporter in any convertible currency I.e. USD, GBP, EURO, JPY etc.
¨Source of funds for banks :
i) The foreign currency balances in EEFC/FCNR/RFC accounts
Ii) Foreign currency borrowings (Line of credit)
It relates to 6 month LIBOR + spread
¨Period of Credit :
It is available for a maximum period of 360 days.
¨Liquidation of PCFC :
By submission of their export documents on purchase/ discounting or can be repaid out of balances held in EEFC accounts.
Post-shipment Credit in Foreign Currency
Make credit available to exporters at internationally competitive rates. ¨Choice of currency :
It is available to exporter in any convertible currency I.e. USD, GBP, EURO, JPY etc. ¨Source of funds for banks :
i) The foreign currency balances in EEFC/FCNR/RFC accounts
Ii) Banks can also rediscount export bills abroad at rates linked LIBOR at post shipment stage under Bankers’ Acceptance Facility
It relates to 6 month LIBOR + spread ¨Period of Credit :
It is available mainly for a maximum period of 180 days, however, it may be provided beyond 180 days.
¨Liquidation of Post-shipment advance :
It is to be liquidated by proceeds of export bills received.
Gold Card Scheme for Exporters
¨Eligibility criteria :
Exporters with good track record.
Exporters’ accounts have been classified standard for a period of 3 years.
¨Credit limits :
A stand by limit of 20% of assessed limit.
¨Time frame for disposal of application for export credit :
Fresh proposal 25 days
Renewal proposal 15 days
Ad-hoc proposal 7 days
¨Other facilities :
ECGC guarantees may be exempted at the discretion of bank.
Charges/ interest may be lower at the discretion of the bank.
Preference in granting PC in foreign currency.