Chapter IV-EXIM Bank

4.1 HISTORICAL BACKGROUND

The setting up of an institution to tackle the problem of increasing foreign

exchange earnings as well as accelerating the rate of growth of exports was first
recommended by the Joshie Committee Report on Export Credit and Finance in 1967 .
At the time of publication of the Joshie Committee Report a multitude of agencies,
including Reserve Bank of India (RBI), the Industrial Development Bank of India
(IDBI) and commercial banks were providing export credit either directly or through
re-finance, the Joshie Committee noted the absence of a specialised institution to which
exporters coulxl turn for assistance whenever they had to transact large business
specially on a long/medium term basis, against tough competition and at a workable
rate of interest. A similar recommendation was made by a delegation of Ijidian
businessmen sponsored by the Federation of the Indian Chambers of Commerce
(FICCI) in Malaysia. The delegation also felt that there was an immediate need for
setting up an institution, giving it appropriate investment support for the setting up of
joint-ventures. In another study conducted by the National Council for Applied
Economic Research (NCAER) released in 1967 entitled "EXPORT STRATEGY IN
INDIA" again a strong appeal was made for setting up of a specialised institution, to
provide comprehensive export credit and guarantees including risk insurance, to which
the entire exporting community might turn for financing medium and long term needs.
It further expressed the view that mere enlargement of the functions of IDBI would not
serve the purpose.

Mr Manubhai Shah in his book titled - 'New Role for RBI' also endorsed this
view point. The Indian Institute of Foreign Trade ^IIFT) in its study, entitled 'Export
Bank for India' released m November, 1972 observed that Indian exporters particular-
ly those exporting under deferred payment terms, faced problems which included a
multiplicity of agencies, concerned with sanctioning of credit limits, their inability to
offer competitive credit terms, absence of non-recourse financing and above all want
of sophisticted financial services. All the above were available to their counter-parts in
developed countries. To deal with these inadequacies and to provide developmental
finance for the export sector, the IIFT suggested the establishment of a seperate
institution and provided a blue print of its activities and organisational set-up.

125
 The extent to which medium and long term credit was advanced by IDBI and
short-term credit by commercial banks can be seen by figures given b«fi^ of the
previous two years before setting up of EXIM bank. It is obvious from (Table 4.1) that
export credit finances about 28 percent of our total exports and there is a need to
increasing it substantially. In 1982-83 it had been estimated that the export target of Rs
8,500 crores would require about Rs 2500 - Rs 2600 crores of credit. The EXIM Bank
with its capital base of Rs 75 crores would be able to mobilise resources in order to
make available about Rs 375 crores worth of export credit, as also to ensure a larger
deployment of credit by the commercial banks.
Therefore, setting up such an institution, namely. The Export-Import Bank of
India (EXIM India) meant that it had certain preconceived tasks at its inception. These
tasks included,/fryi:/>' that it would have to go all out to provide financial support to the
country's Export-Import Trade and secondly to create and offer a number of financial
services. Therefore, it was felt that to help achieve EXIM-India its main objective,
which was to get a break-through in exports the EXIM bank would have to combine in
itself, the functions of a) a Commercial Bank, b) a developmental bank and c) a
merchant bank. That meant that it would work strictly on the basis of commercial lines,
adopt a developmental atitude and have the merchant bank likeflexibilityin its operatioa
It was proposed that initially EXIM-bank would have an authorised capital of
Rs.200 crores which in stages would be increased to Rs.500 crores. The initial paid-up
capital of Rs.50 crores would be held by the Government of India (GOI). Besides the
GOI would be authorised to borrow from RBI as well as float bonds etc. to raise funds
if needed. EXIM bank would also get a further loan of Rs.20 crores from the Government
of India at low rate of interest which would not attract corporate tax. If deemed necessary
it could raise funds in foreign currencies in the internationalfinancialmarkets.
Finally, on 1st Jan. 1982 the EXPORT- IMPORT BANK OF INDIA was
established by an Act of Parliament. The EXIM Bank Act came into being with
expectation of co-ordinating the export-finance functions 4n the coimtry. Its area of
business is given in its charter which states - The EXIM-INDIA is the principal financial
institution of India for co-ordinating the working of institutions engaged in financing
export and import trade. It has been establishedfor the purpose offinancing,facilitating
and promoting foreign trade of India . Therefore, EXIM Banks' area of business would
include the following; apart from normalfinancingof export transactions . (a) Finance
for import of machinery and equipment on lease basis,

12(>
 Table 4.1 showing Outstanding Export CredU (1979 - 1981)
(Value in Rs. Crores)
r^xport Credit 1979-«<) OulMiinding \Wl)-H\
Commercial Uanks 1622 \125
IDIil 128 189
1750 1914
(27.1%) (2H.09()

(Figures in brackets represent percentage to exporu).

Source - liconomic Trends - 16ih Oct. 1982.
 - Promotion and development of export-oriented concerns, (b) Technical,
administrative and financial assistance for exports and imports, (c) Research surveys
and studies in connection with the promotion and development of international trade.
Thus EXIM Bank's role is not confined to merely activities of a banking nature, but it
would also have a developmental and promotional slant.
Since its start of operations in March 1982, EXIM bank has consistently earned
profit at an incremental rate. The profits of the bank after adjustment for depreciation,
possible loan losses and other normal provisions for 1982 came to Rs. 6.3 million (Table
4.2). In 1985 they stood at Rs. 154 million climbing further to Rs.l99 million in the year
ended 31st December, 1987. By the year ending 31st March, 1989 profits had further
increased to Rs.284 million and on 31st March 1990 profits were Rs. 272 million EXIM
Bank started its operations in March 1982, the accounting year 1982 refers to March-
December '82.1983 -1987 are on the basis of calender year, that is 1st January to 31&t
December The year 1988-89 pertains to the period January 1988 to March 1989 due to
change in accounting year. Hence for the year 1988-89 figures are available from 1st
Jan. '88 to 31st March, 1989. 1989-90 is April 1989 to March "90. Out of the profits it
paid Rs.lO millions to Govt, of India as dividend in 1982. This amount increased to
Rs.60 milions in 1987 and for the year ending 31st March, 1990 dividend payable would
be Rs. 80 milions. Hence dividend payable is consistently increasing. This is seen in
Table 4.2

Table 4.2 showing Earnings of EXIM Bank (1982 - 1 9 9 ' )

(Value in Rs. million)
Earnings 1982 1983 1984 1985 1986 1987 1988-«9 1989-90
Net Profit 63 88 120 154 170 199 284 272
Dividend 10 20 30 40 50 60 70 80

Source: EXIM Bank Annual Report 1989-90.

128
 To give the Indian exporters greater benefit and timely and relevant information
from abroad EXIM Bank presently has three overseas representative offices abroad.
The first one is in Washington DC, USA, another one in Abijdan Africa, and the third
which was set up in 1986 in Singapore. These offices have been set-up to establish better
r£lationship between multilateral agencies, international banks, financial agencies and
representatives of foreign governmerrts and also to import information about EXIM
Banks availability of financing facilities. The choice of Washington DC, was mainly
because the EXPORT & IMPORT BANK OF WASHINGTON has its head office
there EXIM - Bank of Washington which was established in 1936. The role played by
EXIM Bank of USA and the framework of its working is the basis of EXIM Bank of
India's operations. Since this would facilitate liason with the World Bank, International
Financial Corporation and other financial institutions thus it was deemed necessary to
establish an office in USA. TTie choice of Abidjan as representative office is mainly due
to the situation of the African Development Bank (ADB). The ADB is expected to
channelise more than $ 5 billion into development projects and through EXIM Bank
of India's Abidjan office Indian exporters can be made aware as to the prospective
projects they can bid for. India can do better in Africa because our systems are better
geared to the African environment than systems provided by European or even
Japanese suppliers. It is seen to be an advantage to have a 'man on-the-spot' who can
closely liase with loan officers to get information on impending projects. Otherwise,
one has access only to published information, for example, invitations to tenders, bids
etc. at which stage it is too late to gear the exporter to respond. The Bank has also
chosen to ally itself to financial institutions in its bid to expand exports so that it can
cover risk. Given the payment troubles which both the Indian Government and private
exporters have experienced in Africa, pushing for exports that are already budgeted by
international financial institutions almost guarantees payment. The ADB, receives its
funds from member countries' Governments (India is also a member of ADB) and from
other financial institutions like the World Bank and the IDA. (International Develop-
ment Agency). Another objective of the Washington DC office is to support this focus
on Africa.Reports suggest that the World Bank will be pumping more than $ 1 billion
into Africa alone and in the years coming a large number of projects will be set-up.
Thus, the Washington DC office will give Indian industry a chance to compete for
business. To facilitate the Indian exporter, the representative offices will first assess
data from the World Bank and the ADB, analyse and evaluate it to isolate projects that
can be handled by Indian industries and provides the necessary feedback to EXIM Bank

12*)
of India's headquarters in Bombay. EXIM Bank has set-up a special group in Bombay
to base with potential Indian bidders for such projects, to be designated as multilateral
project group.

4.2 EXPORT FINANCE AND RE-FINANCE SCHEMES

Finance for exports is needed'dlfive stages. Firstly^an exporter may need finance
to develop an exportable product. Secondly, finance is needed to upgrade export
production through acquisition of new equipments, on going technology. Thirdly
pre-shipment finance is needed to acquire inputs that get converted into an export
product. Fourthly, finance may be needed for systematic marketing activities, and
finally buyers abroad may need credit terms to stimulate purchase. EXIM Bank is
presently givingfinanceat all the five stages. In case offinancingof manufactured exports
EXIM Bank serves as a single source of export finance.
EXIM Bank also plays a major role as an advisor. Many times it has been seen
that exports prove not only uneconomical and non-viable due to lack of export advice
on terms of payment, availability of raw material, fluctuations in rates of exchange etc.
All these services are provided by EXIM Bank through its international merchant
banking division. The present focus of EXIM Bank is on Export Finance. The bank
finances export oflndian machinery, manufactured goods, consultancy and technology
on deferred payment terms. EXIM Bank'sfinanceis also available at export production
stages. EXIM India undertakes co-financing with global and regional development
agencies and also assists Indian exporters in their efforts to participate in these overseas
projects. It also extendsfinancialassistance for Indian exports through direct financial
assistance, overseas investment finance, financial assistance to export - oriented units,
finance for computer software export, term finance for export production, pre-ship-
ment credit, buyers credit, lines of credit, re-lending facility, export bill re-discounting
and re-finance to commercial banks. The^XIM Bank also extends non-funded facility
to Indian exporters in the form of guarantees. Diversification in lending programmes
now covers various stages of exports, that is, from enlargement in export - production
capability to post-shipment and developmenti)f export markets. The focus of the bank
is primarily on non-traditional manufacturedgoods, project exports and export oftechnical
scr\'iccs.

Since its inception in March 1982, EXIM Bank of India is continuously increas-
ing its share in turnkey, construction and consultation projects. The bids for interna-
13()
tional projects are approved by the working group consisting of EXIM Bank, Reserve
Bank of India, Export Credit and Guarantee Corporation of India Limited, Central
Government and exporter's commercial bankers. It is an inter - Institutional
mechanism that functions under the auspices of Exim Bank, and considers for approval
export bids where value of a bid is beyond Rs 50 million. Bids valued between Rs 20
million and Rs 50 million are cleared by EXIM Bank. Commercial banks are authorised
to clear bids upto Rs 20 million. However all projects for consultancy and technology
services regardless of value are considered by the working group.
During 1984-232 export bids valued at Rs. 44.9 billion were approved by the
working group (Table 4.3). EXIM Bank made commitment in principle for export bids
and for enlarged scope of work on on-going projects, amounting to Rs 4270 million of
funded assistance and Rs 4430 million of non funded assistance. During 1984 EXIM
Bank approved of 42 new export bids value of Rs 1653 million. Out of which Rs 326
million were accounted for by construction project, Rs 1000 million by turnkey projects,
and Rs 327 million by consultancy projects. During 1985 216 export bids valued at Rs
40.4 billion for supply, construction, turnkey and construction projects were approved
by the working group. In comparison to 1984 the export bids increased by 6 percent but
their total value declined by 3 percent commitments in principle for export bids and
for enlarged scope of work on on-going projects amounted to Rs 5770 million of funded
assistance and Rs 3630 million of non-funded assistance. In comparison to 1984 funded
assistance increased by 10 percent and non-funded assistance for commitment in
principle declined by 16 percent. During 1985 Rs 520 million of funded assistance was
accounted for by construction projects, Rs 1960 million by turnkey projects, Rs 2770
million by supply contracts and Rs 520 million by consultancy projects. In comparison
with 1984 commitments in principle for construction projects and supply contracts have
increased by 27 percent and 35 percent respectively, while they have decreased by 29
percent for turnkey projects. In case of non-funded assistance, the commitment in
principle was Rs 1660 million for construction projects, Rs 1180 million for turnkey
projects, Rs. 210 million for supply contract and Rs 580 million for consultancy projects
the value of non-funded assistance committed for turnkey projects and supply contracts
has increased by 51 percent and 75 percent respectively, while that for construction
projects has decreased by 49 percent. (Table 4.3)

During 1986, 151 export bids valued at Rs 154#00 million were approved.
Conunitments-in-principle for export bid and enlarged scope of work on ongoing
projects amounting to Rs 3490 million of funded assistance and Rs 1790 million of
131
non-funded assistance, Rs 120 million were accounted for by construction projects, Rs
810 million by turnkey projects, Rs 2160 million by supply contracts and Rs 400 million
by consultancy projects. In case of non-funded assistance Rs 840 million was accounted
by construction, turnkey and consultancy projects were approved by the working group
Compared to 1986 value of bids approved recorded an increase of 430 percent Com-
mitments Ln principles for export bids and for enlarged scope of work on on-going
projects, amounting to Rs 8.3 billion of funded assistance and Rs 10.5 billion of
non-funded assistance. Out of funded assistance-4ls 5.6 billion was accounted by
turnkey projects Rs 2.3 billionby bids for projects exports, 273.2 million by construction
projects and Rs 147.5 million by consultancy projects out of non-funded assistance Rs
7.7 billion was for construction projects, Rs 2.6 billion for turnkey projects Rs 236.5
million for consultancy projects and Rs 5.9 million for supply contracts. During 1988-89
Rs 53870 million value of bids were approved commitment in principle for export bid
and enlarged scope of construction of work on ongoing projects amounting to Rs 8280
million for funded and 10470 of non-funded assistance were approved by the working
group.
During 1989-90, 157 export bid valued at Rs 36 billion were approved by the
working group. Funded assistance of Rs 3.9 billion and non-funded assistance of Rs 3.6
billion was made, Commitments-in-principle of funded assistance included Rs 2.1
billion accounted for by supply contracts, Rs 1.8 billion by turnkey projects, non-funded
asistance was acounted for by Rs 2.0 billion for turnkey projects, Rs 1.1 billion for
construction projects, Rs 460 million for supply contracts and Rs 28 million for
consultancy projects.
EXIM Bank has also introduced a risk syndication facility, aimed at attracting
greater participation in export credit from commercial banks in India which are
authorised to dealin Foreign Exchange. Funds for an export proposal are provided and
the credit risk syndicated to a commercial bank or banks. The banks earn commission
at the rate of 5 percent per annum for assuming credit risk from EXIM Bank. This
facility has enhanced the availability of timely export credit to exporters of capital,
manufactured^turnkey projects and consultancy services.

132
Table 4.3 showing value of Construction, Turnkey and Consultancy Exports
financed by EXIM Bank 1984 - 1989-90
(Value in Rs. million)
1984 1985 1986 1987 1988-89 1989-90
No. of export bids approved 232 216 151 196 8 157
Value 44900 44400 15400 81600 53870 36000
Commitments in principle Funded 4270 5770 3490 8300 8280 3900
Non-Funded out of funded 4430 3630 1790 10500 10470 3600
Construction Projects 326 520 120 2732 —
Turnicey Projects 1000 1960 810 5600 1800
Supply contracts — 2770 2160 1475 2100
Consultancy projects 327 520 400 — —
Product out of Non-funded 2300
Construction — 1660 840 7700 1100
Turnkey projects — 1180 450 2600 — 2000
Supply contracts — 210 290 5.9 460
Consultancy — 580 210 236.5 28

Source: EXIM Bank Annual Reports 1985,1987,1989-90.

Export Development Fund (jp^uf)

Under its assistance programme for financing export^from the small scale
Industries (SSI), sanctions touched Rs.50crores, which is the maximum limit authorised
by RBI, during the very first year of its introduction. It rose to Rs. 189 crores in 1986.
Sanctions and utilisations in 1987 aggregated Rs.l80 crores representing turnover of
the limit.
The EXIM Bank Act, 1982, provided the setting up of an EDF. Besides the
general fund, the EXIM Bank under EDF extends financial assistance with the prior
approval of the Government to those items in exports which have been accorded
priority in the interest of international trade. The most important fund is the Export
Development Fund. EDF earned a net profit of Rs.22 million in the year ending 31st
March, 1989 as compared to Rs.l3 million earned during the year ending 31st Dec.
1987, and Rs.0.92 million in 1986. The net profits earned in 1982, the year the bank
commenced its operations under EDF amounted to a mere Rs.0.4 million. The
phenomenol growth from Rs.0.4 million to Rs.22 million in just 7 years speaks of its
performance.
Export marketing scheme —(EMS). The EMS-I was launched in 1987 to help
India earn more foreign exchange through exporters . Finance is available in the form
of both grant and loan. The scheme is essentially applicable to manufacturing com-
panies in the private and joint sector who have drawn up the outline of an export plan
covering the various stages in the export marketing cycle. However, the EMS
beneficiaries target markets will have to be only the developed nations like USA, Japan,
Australia or those in the EEC. The EXIM Bank's catalystic role covers advisory and
financial support of various stages of the export marketing cycle (Table 4.4). One
attraction of the scheme is the availability of the RBI's blanket exchange permit to incur
foreign exchange expenditure as approved by the EXIM Bank under the marketing
plan.
The EXIM Bank has been designated by the Government of India as the agency
to manage the Export Marketing Fund (EMF). The EMF is a component of the World
Bank loan to India of US $ 250 million dollars for an industrial export (engineering
products) project. The EMF currently amounts to US $ 10 million dollars and will be
utilised to finance a range of strategic export marketing activities. The objective is to
accelerate export growth of target products with industrialised markets in view.

134
 The EMF scheme which was introduced in 1986 has upto now incurred 50
percent of the total cost on eligible export marketing activities Company level activities
eligible for EMF support include.
Desk Research As a measure to direct subsequent field research in most promix-
ing geographical areas and product market segments.
Overseas field market research to adaptation - identify products and product
need, distribution channels, purchasing policy and factor-s affecting purchase
decision. Desk and field market research would provide inputs required in
formulation of an export marketing strategy.
Minor product adaptation - covering advisory and technical services in product
re-design, advice on packaging and product testing.
Overseas travel - covering travel and subsistence costs for purpose directly
related to the marketing strategy, such as finding and appointing agents, direct
celling and keeping upto date with product development.
Product Inspection Services - to encourage use of seal of approval by recognised
inspection agencies, such approval would help in developing buyers confidence
on product quality and quality assurance.
Training - to encourage a more informed, planned approach to export marketing
covering export marketing methods and procedures, export documefltation,
market research and organising of an export department.
Establishing Overseas Operation - covering planning and start-up phases relating
to cost of travel, advisory and technical sen'ices for warehouse siting, recruit-
ment of local staff and sales force organisation.
Travel to India by overseas buyer on invitation by exporters are covered by
finance from the EXIM Bank.
During 1989-90,under the EMFI EXIM Bank extended sanctions amounted to
Rs 16 million to 36 firms for export marketing programmes. Utilisations under this
programme aggregated Rs 29 million as seen in Table 4.4.
The Wodd Bank US $ 250 million loan to India for Industrial Export (Engineer-
ing Products) project under EMFI has four components. These are described ' trJ.
(Fig. I)^as the four components are part of one piece.

135
I u s $ 160 million HI USSlOmillum
ICICI will make term kwns lo firms manufactur- I.XIM Hank will make grams to eligible Firm* for
ing export markciing activity
f'^nginccring prixlucts
II US $10 million IV US $70 million
ICICI will make grants for development cpendi- (k)mmcrcial banks will make term kwas to ancil-
turcs for improving productivity of eligible firms lary units in engineering industry

Fig. I - showing components of World Bank US $ 250 million loan.

Thus, through EMFI, as described in Fig. 1, Indian manufacturers would be able
to reduce costs, upgrade quality of their output to internationally accepted standards
and get internationally competitive. In fact EMFI was used to finance export marketing
programmes undertaken by engineering exporters seeking increased market share in
developed countries.
In 1989-90 EXIM Bank was designated as agency to manage a second export
development programme under World Bank funding. This programme seeks to
promote export of all manufactures to developed country market by providing loan cum
grant finance in support of strategic export development plans, at firm level. In its first
year loan sanction in respect of 2 proposals amounted to Rs 27 million and approval of
grant finance was extended to 1 company (Table 4.4) The scheme is discussed in detail
in the following paras.
a

Under EMFII EXIM Bank offers advisory and financial support at all stages
of the export marketing cycle. Industrialised countries constitute an opportunity area
for India's export of manufactured goods. These countries hae a large absorption
capacity for imports and offer promise of timely payment Indian companies can thus
target these markets for growth. Upgradation for exports has spin off benefits in the
domestic market place. There is evidence to indicate that Indian products can readily
be adapted to meet international requirements. The process is aided by the growing
consumer segment in India which is becoming a discerning user group. Scope therefore
exists, in select areas to make an export thrust. Exporters have to adopt active marketing
in analysing the market and designing products to meet market needs through the stages
of the export marketing cycle. The export marketing cycle has 6 stages viz; (i) market
Research (ii) Product adaptation and testing (iii) sales promotion (iv) Productivity
improvement (v) Plant modernisation (vi) Capacity upgradation
Under EMF II Finance in the form of a Term Loan is available for modernisa-
tion, capacity upgradation, software expenditure on product development, R & D and
investment in marketing. G/?.4A/rfinance is available upto 50 percent of the outlay on
i-V
Table 4.4 Showing Sanctions & Utilisation of Export Marketing Fund I and II
(Value in Rs. million)
1986 1987 1988-89 1989-90
1. Sanctions 7.8 51.7 4.5 16
2. Ulili.siition.s 0.34 5.7 37 29
Source: l i X l M Bank - Annual Report 1988-89, 1989-90.

Export Marketing Fund II

(Value In Rs. million)

1989-'X)
1. Loan Sanction 27
2. Grant finance —
Source: EXIM Bank Annual Report 1989-90.
market entry and productivity improvement. Grant finance is expected to complement
the Term loan to enable a company implement a strategic company export expansion
plan. Companies can apply for a foreign exchange Blanket permit for expenditure
approved under the programme. The aim is to provide a total package which will help
a company get on with the business of export.
Grant finance is available to eligible companies who have drawn up the outline
of an export expansion plan related to a specific product or group of products. This
facility is not available for purchase ofequipment and materials. Under Grant Finance
EXIM Bank would provide grant support up to a maximum 50 percent of a company's
expenditure for eligible front-end export development activities. The balance would
be borne by the Indian company. Normally grant support would be extended to one
export expansion plan per company per seperate marketing operation within a
divisionalised company. Typical activities eligible for Grant Finance are:
Desk Field Research to identify market segments and distribution channels in
developed country markets.
Minor product adaptation based on market research findings to meet user
preferences.
Overseas travel cowering travel and subsistence cost for purposes directly related
to the export plan; includes exposure visits to overseas plants.
Product inspection services to encourage the company to get seal of approval by
recognised inspection agencies, where such approval would help in developing
buyer's confidence on product quality and quality assurance.
Training to encourage a more informed planned approach to export marketing
covering export marketing methods and procedures, export documentation,
market research and organising of an export department
Establishing overseas operations covering planning and start-up phases relating
to cost of travel advisory and technical services for warehouse siting, recruitment
of local staff and sales force organisation.
Travel to India by buyers overseas covering travel cost by potential buyers on
visits to India at the invitation of exporters.
Productivity improvement consultancy for reducing costs and improving quality.
to help choose process/product technology which would be nece.ssar)' for a
significant expansion of exports
Ancillary development consultancy to enhance skills of vendor development
departments of individual companies.
i.vs
 supervisor training to develop and implement supervisor training in formal
sessions and on the shop floor to improve the efficiency and effetiveness of
supervisory functions
Design and product adaptation consultancy to help adapt product in response
to identified market opportunities.
Loan finance is available in Indian rupees to enable a company implement a
project based on a strategic export plan. An eligible project would involve expansion
or modernisation of capacity to primarily meet export needs. The maximum size of the
loan for procurement of machinery and equipment would normally be US $ 1000,000
equivalent. In addition, termfinancecan be provided in respect of software expenditure
on product development, product upgradation, research and development and market-
ing investment such a term loan would normally not exceed US $ 1000,000 equivalent.
The loan finance would typically cover investment in (a) machinery and equipment for
plant modernisation capacity enhancement covering imported/indigenous equipment
(b) Tooling, Jigs and fixtures for modernisation productivity improvement (c) Test-
ing/Quality control equipment to achieve consistent quality for exports (d) software
expenditure for non-productive assets such as product upgradation, research and
development and marketing investment. The loan finance is available at a rate of
interest of 14 percent per annum (13.5 percent per annum for SSI units) Repayment
period and grace period vary, depending on project cashflowwill be 20 percent. Finally,
commitment charge on the undisbursed amount of the loan is one per cent per annum.
Agency Credit Line (ACL)

Another major proposal came from the International Finance Corporation

(IFC), Washington DC, in the form of the Agency credit line (ACL)^ of US 15 million
dollars. The IFC, an affiliate of the World Bank is an international financial institution
set-up in 1956 with the objective of promoting growth of productive private investor in
developing member countries. Its capital resources are provided by 127 member
countries, which collectively determine its policies and activities. IFC finance is made
available in the form of equity Investment, loans, and Government guarantees; ACL is
a mechanism which enables IFC to finance Small and Medium Enterprises (SME's) in
different countries through selected financial intermediaries, since financing require-
ments of SME's are not large enough to warrant direct lending by IFC. The objective
of the ACL programme is to create, enhance export capabilities in eligible private
sector, SME's and in due course ensure effeaive outward orientation among them. In
India the EXIM-Bank is the principal institution of India's Export and Import trade
139
and is the principal source of term export finance in the country for both poslshipmcnt
and pre-ship requirements. Under the ACL programme HXIM Bank will ensure
foreign currency term funds in conjuction with its own domestic resources for the
purpose of SME's for investment in plant and machinery, product and process know-
how. In India the IFC is establishing an ACL for the first lime.
Under Agency Credit Line (ACL) enterprises in the private sector with value
of their total netfixedassets excluding land and building not exceeding US $ 10 million
equivalent are given credit. These enterprises would be export oriented and will be
expected to generate exports to the tune of about 10 percent or more or their annual
sales. Also new projects, expansion, modernisation projeas of existing enterprises and
equipment imports are also eligible. Foreign currency finance is available for invest-
ment in imported plant and machinery including initial spare parts and accessories and
import of technical know-how and services. Rupee finance will be available for acquisi-
tion of land, building, indigeneous plant and machinery and other miscellaneous fixed
asests along with related services, margin money for working capital and preliminary
and pre-operative costs. For any project, foreign currency loan under ACL will not
normally exceed US $ 2 million or 25 percent of cost of project excluding land and
building. Minimum loan amount will not normally be less than US $ 250,000. Rupee
finance is available on a matching basis alongwith foreign currency finance. The terms
for assistance are: (a) Foreign Currency Finance In case of foreign currency finance
the rate of interest is as follows

(i) For loans with maturities 1 3/8 percent over 6 month LII30R for upto 5 years US dollars payable half-yearly
(11) For loans with longer 2% over 6 months LIBOR for US maturities Dollar payable half-yearly

A one time service fee of 1 percent flat payable on or before the first disburse-
ment is ie\ied by EXIM Bank. Also a commitment fee of 0.5 per<:ent on the undrawn
loan amount effective 30 days from the date of sanction, payable quarterly is applicable,
(b) Rupee Fincuice In case of rupee finance the rate of interest is as follows:
(i) In case of SME'S who are exporting not less than 25 percent of their annual
sales and are seeking assistance unde r ACL for modernisation or expansion
programmes aimed at export markets, rate of interest aplicable would be 11.2
percent per annum payable half-yearly,
(ii) For other SMES the rate of interest is 12.5 percent per annum.
A commitment fee of 0.5 percent per annum on unutilised loan amount
effective from the date of loan agreement payable quarterly Ls levied by EXIM Bank.

14<)
 In case of both Foreign Currency and rupee Finance the period of re-payment
will be determined on the basis of projected cash flows. Maximum period of repayment
will be 11 years including, of a suitable moratariumand will not extend beyond Oct. 17,
1997. The draw down period will be a maximum of 1 year from the date of loan
agreement and the first disbursement would take place within a period of 6 months.
The security for the financial assistance under ACL to be created in favour of IFC and
EXIM Bank will be a first charge on fbced assets in case of a new project or an
expansion/modernisation project and in the case of equipment imports hypothecation
of imported equipment. Additional security will be by way of personal guarantees of
promoters/directors.
As seen from Table 4.5 during 1987 EXIM Bank extended $ 0.88 million and
sanctioned Rs 15 million for production of finished leather and leather footwear
primarily meant for export markets. Utilisations under the programme amounted to
Rs 1.7 million 1987 was thefirstfull year of operation of the ACL lending programme.
During 1988-89 (Jan '88 Mar. 89) sanctions under ACL amounted to Rs 63.2
million with utilisation of Rs 43.1 million.
During April 1989 - Mar. 1990. EXIM Bank sanctioned term finance for US $
1 million and Rs 22 million utilisations under ACL amounted to US S3 million and Rs
44 million.

4.3 EXPORT PROMOTION BY WAY OF NEW SCHEMES

To meet the changing needs arising from policy shifts and dynamism of the
environment the Bank has been continually reviewing its operations and making
additions to its various programmes. EXIM Bank has formulated an export promotion
scheme for developed markets specially for the European Community. The programme
envisages provision of finance for a range of activity including product development,
production marketing as also post shipment. Finance under the scheme may also be
provided for research and development. This was in fact the second loan programme
from the World Bank to promote exports by providing loan-cum-grant finance in
support of strategic export development loans to firms. An estimated Rs. 280 million
is expected to be disbursed under the programme over a period of about four years.
Thus far, an amount of Rs. 27 million has been sanctioned.

141
 Table 4.5 showing Sanctions and Utilisations of Agency Credit Line
Programme
(Value in Rs. million)

Jan - Dec Jan - Mar Apr - Mar

1987 1988-89 • 1989-90
Sanctions 15 63.2 21.7
Uiili.saliQn.s 1.7 43J 44J

Source: liXlM Bank Annual Report 1987, 1989- 90.

 In 1987, it launched a new lending programme to providefinancialsupport for
export of computer software export policy announced in December, 1986, Under the
software Policy, EXIM Bank has been named a source of foreign exchange for software
exporters undertaking 350 percent export obligation .

4.3.1 The Programmefor Computer Software Exports CPCSEj a sectorfinancingpackage

offers foreign currency and rupees term finance to software exporters. EXIM Bank's
PCSE is available for both new and existing software export organisation. It also
undertakes techno-financial scrutiny of proposals and operates a system to monitor the
progress of software export projects financed by the Bank. In case of EXIM monitored
proposals, import of hardware is eligible for a rebate of 50 percent on customs duty. In
order to promote a quantum jump in software export levels, the new software policy,
provides for various facilities and incentives, in line with the specific requirements for
the development and marketing of such exports. A rationalised system of facilities and
incentives for exports has been introduced.

(a) EXIM Bank offers to arrange clearance for imports and finance under one
window for software expoters opting for 350 percent export obligation against
foreign exchange provided by EXIM Bank for import of computer equipment.
(b) EXIM Bank offers an integrated package covering foreign currency and rupee
term finance for acquisition of imported and indigeneous computer/computer
based systems for export purposes.
Foreign currency loans are available for financing import of computer systems
and equipment.
Rupee term loans are available for
1. acquisition of indigeneous computers/computer based systems and other
assets for export purposes
2. for financing import of computer systems cleared by the Department of
Electronics
3. Commercial Banks are also encouraged to provide working capital finance for
software exports projects assisted by the EXIM Bank.
4. Rebate of 50 percent on customs duty payable on import of computer systems
is available to software exporters opting for 350 percent export obligation.
In case the software exporter assisted who has availed of foreign exchange from
EXIM Bank against 350 percent export obligation, does not fulfill the stipulated export

143
obligation as defined in the software Policy twice the amount falh'ng short of the
obligation will be paid to EXIM Bank in Rupees as penalty.
The eligibility criteria under PCSE, is that the Debt - Equity Ratio should not
exceed 2 : 1 . The Promotor's would be expected to make maximum contribution
towards cost of project. The level of contribution is decided with reference to the size
of the project and is normally in the range of 17.5 percent to 22.5 percent in case of
projects sponsored by non-MRTP companies.
For execution of software export contracts to cover operating expenses, software
imports and receivaWes EXIM Bank also asks commercial banks for providing working
capital to software export projects assisted by it by way of term finance. Assistance is
extended by way of direct finance, co-finance or re-finance to commercial banks in
respect of rupee term loans extended by them for the export projects. In case of
re-finance commercial banks will be allowed a spread of 1 percent per annum subject
to the condition that the effective interest rate to the borrower will not exceed the rate
applicable to direct finance provided by EXIM Bank. The Rate of Interest applicable
is as:

Term Loan in Foreign currencies — 1 percent over LIBOR

Term Loan in rupees — 11.2 percent per annum
Term loan in rupees for software export proposals in-
volving no export obligations
(a) with firm markedng arrangments for exports of at — 11.2 percent
least 25 percent of armual sales
(b) where software exports to total sales is less than 25 —14 percent per annum ef-
percent per annum fective subsequent year

[EXIM Bank may, at its discretion recall the entire asistance if software exports
fall below 10 percent of total sales]
Commission on guarantees of 1 percent per annum is charged by EXIM Bank
A committment fee is also levied.
(i) Foreign currency loan

0.5 percent on the undrawn loan amount effective 30 days from the date of
sanction payable quarterly.

144
(11) Rupee Term Loan

0.5 percent on the undrawn loan amount effective from the date of Loan
agreement payable quarterly.
The Term loan is available for a maximum of 5 years, inclusive of moratoruim,
with date of last installment to fall within period of export obligation, where applicable.
In 1987, the first year of PCSE operations an amount of Rs 98.2 million was
sanctioned. EXIM Bank sanctioned to software exporters foreign currrency assistance
of US $ 6.2, million and rupee term assistance of Rs. 17.4 million. During 1988 (Jan)
- 1989 (Mar) Rs 148.9 million were sanctioned for PCSE and utilisations were Rs 98.2
million. During April '89 - March '90. EXIM Bank sanctioned to software exporters,
software currency loans of US $ 6 million and rupee term loans of Rs 42 million.
Utilisations were US $ 2 million and Rs 25 million respectively. This is expected to
catalyse exports valued at Rs 886 million over a period of 4 years.

4.3.2 EXIM Bank's Project Preparatory Studies Overseas The programme addresses a
gap in India's support mechanism for exports. Finance will be provided on loan/grant
basis, to enable Indian consultancy inputs at preparatory stages in projects overseas.
Focus will be on projects which have potential for ultimate financing by multilateral
agencies, and on projects in thrust countries, thrust sectors, which carry opportunities
for Indian exports. The programme will have following objectives:

to create openings for further jconsultancy works, during project finalisation

and implementation stages;
to establish linkages which will develop opportunities for Indian sources of
goods and services required during project execution;
to enable developing countries to apply appropriate technology at the stage
of project design, and minimise possible bias in drawing up of technical
specifications;
to generate opportunities for including Exim finance in support of Indian
export, and develop co-financing opportunities with multilateral agencies;
to project Indian expertise to potential buyers overseas, particularly on Indian
capability in emerging sectors for Indian exports, in order to increase recep-
tiveness for sourcing from India.
The programme can support individual consultants, or Indian consult-
ing/manufacturing/contracting firms. Typical sectors for which assistance can be con-
145
sidered include: agriculture and agro industry; energy including petroleum; transport
and communications; industry; water supply and seweage; education and health. Thrust
countries where the programme will be directed, will be reviewed from time to time,
on the basis of opportunities likely to be generated, capability to arrange required
resources, receptiveness to Indian exports. The programme can support studies covering:
— preinvestment studies
— project formulation
— project implementation
— rehabilitation, expansion, balancing, modernisation
— advisory and support services
The Basis for identifying opportunities will include:
(i) projects which fall within the country's development plans/priorities,
(ii) projects likely to be considered for financing by multilateralfinancingagencies,
(iii) projects in thrust countries, thrust sectors,
(iv) assessment of likely competition,
(v) potential for exports of goods and services from India, in the short term, and
long term.
The Vequest for financial assistance from under PPSO can arise out of the
following:
(i) directly from the potential recipient or institution in recipient country.
(ii) through a multilateral body, or financial institution.
(iii) by EXIM Bank, or other Indian agencies, mainly at sectoral level in thrust
countries*
(iv) from Indian <:onsultant
(v) from Indian exporter, who foresees linkages to subsequent business oppor-
tunities.
The Application of the programme will have scope for variation, to meet user
requirements, having regard to potential for eventual additionality in export, extent of
competition, and terms offered by other countries. Effort will be to (a) apply loan terms
where feasible, (b) minimise foreign exchange outgo and (c) encourage Indian en-
tity/foreign user to assume a stake in the financing. Scope of assistance will broadly be
as follows:

i-k)
(i) Potential Rcipicnt l^wn/(irani Recipient a)uniry would be expected to arrange local country Financing

(ii) Multilateral HtxJy (irani 1 inancmg may need lo aiver total a)M, including foreign exchange portion.

(III) HXIM Hank (irani -do-

(IV) Consultant (irani I'mancingrestricted to.Stl percent grant support

(V) I-jcporter Ixan/Clrant Incaseof grant support, financing rcstnacd to 50 percent grant.
Grant/I-oan blending is al.so envLsaged.

The amount will vary between 50 percent to 100 percent of total, depending on
extent to be borne by overseas client, Indian consultant/exporter. It will normally be in
Indian rupees. Other currencies can be considered, if required. The interest rate (for
loan component) is 1 percent to 6 percent per annum and Repayment: (for loan
component) is Guarantee/promissory note of foreign government, or other acceptable
security. The agreement with client/exporter, which will set forth terms of reference,
payment schedule, payment procedure, normally to Indian consultant, on reimburse-
ment basis. Advance payment can be considered, on merits. Disbursement will normal-
ly follow Statement of Expenditure procedure, pending final settlement.
Programme for Market Entry Support - Product Liabiltty Insurance

High costs of Product Liability Insurance (PLI) inhibits attempts by Indian firms
to enter industrialised markets. Till credibility builds up in a market place, entry costs
can be high, relative to margin on sales. EXIM Bank's market entry support programme
is designed to encourage Indian firms build up exports to industrialized markets. The
programme provides market entry support to firms endeavouring to penetrate the
OECD member country markets. Support will be in the form of sharing the initial costs
of Product Liability Insurance (PLI), during export start-up period.
Registered Indian exporters endeavouring to export to OECD countries are
eligible for support under the programme. The PLI policy taken from General In-
surance Corporation of India or its subsidiary companies or from a reputed overseas
insurance company are eligible, provided cover taken from overseas insurance com-
pany is consequent to requirement being stipulated by overseas buyer/distributor in the
target market. PLI policies issued on or after March 16, 1990 will qualify for support.
EXIM Bank's support will be linked to projected exports to the OECD country markets.

147
 The extent of support is as follows:

Percentage of premium ct»t to Fjcport Base*
less than 2 percent
2 percent upto 6 percent
beyond 6 percent
• where I-jcport JJasc is defined as:
Extent of support as percent to Export Base target
nil
75 percent of incremenlal premium beyond 2 percent
50 percent on total premium subject to ceiling of 10 percent of
Fxpcm Base

— where USA/Canada is amongst target markets, the Export Base is the

projected export covered under the policy in respect of USA/Canada.
- in other cases (i.e. USA/Canada is not a target market covered in the policy),
Export Base is projected export to other OECD countries covered under the
policy
EXIM Bank's support to a firm will be for a maximum of 3 years from the date
of commencement of the first year of assistance and the maximum cumulative drawals
by a firm in respect of a product covered under PLI should not exceed Rs. 25 lakhs.

CONCLUSION

This chapter has looked into the role of the EXIM bank in India. It has discussed
the historical background of the bank, the various Export Finance schemes promoted
by the bank and to further Indian exports to developed countries through these
schemes. The setting up was first recommended in the Joshie Committee Report in
1967, and after that many committees recommended the setting up of an EXIM Bank,
but it was only in 1982 that by an Act of Parliament the Bank was set up with its
headquarters in Bombay. The tasks before it included to provide financial support to
the country's export-import trade and to create a number of financial ser\'ices.
Since its inception in 1982, profits of EXIM Bank have increased from Rs.63
million in 1982 to Rs. 272 million in the year ending March 90 EXIM Bank has three
overseas offices, namely in Washington USA, Abidijan Africa and in Singapore. EXIM
Bank provides finance at both pre-shipment and post shipment stages. And in case of
manufactured goods it serves as the single source of finance. It provides for a risk-syn-
dication facility to facilitate credit from commercial banks. It also has a Export Bill
Re-discounting scheme for short-term usance. EXIM Bank has with it Export Develop-
ment Fund and Export Marketing Fund which are a component of World Bank Funding
148
to promote exports from the International Finance Agency, Washington. liXIM Banic
has the Agency Credit Line for finance of small and medium enterprises. By way of
New Schemes EXIM Bank has utilised World Bank Funds for specific countries and
commodities. It has a Computer Software Export programme and three major
programes to provide finance for export promotion.
The EXIM Bank is striving ahead in fulfilling the role which had been envisaged
for it and for which it had been established. EXIM Bank during 1989-90 launched three
new schemes aimed at providing finance for export promotion. Firstly financing was
done for consultancy studies undertaken by Indian con.sultants enlisted by the Africa
Project Development facility out of the Bank's Export Promotion Re.serve. This facility
has been set up by IFC, Washington DC, jointly with United Nations Development
Fund (UNDP) and AdB. It seeks to promote private sector investment in Africa.
Secondly EXIM Bank also undertook to finance feasibility studies in developing
countries under the Project Preparatory studies Overseas Programme Finally, a third
programme which was financed related to providing finance towards market entry cost
incurred by Indian firms exporting to developed countries. Continuing in its trend of
giving latest information to exporters the EXIM Bank has started a quarterly publica-
tion "EXPORT ADVANTAGE" FROM 1987 onwards. The database for the informa-
tion programme has been computerised. The publication aims at (a) providing
information on export opportunities, (b) highlighting international developments that
have a bearing on Indian exports and (c) invite attention to successes of exporters.
The Bank's role as a catalyst in promotion of India's International Trade by
providing both financial and non-financial support to exporters cannot be undermined
in any way. It interfaces with business and industry, commercial banks' other financial
institutions, JExport Credit and Guarantee Corporation (ECGC), various Export
Promotion Councils and national trade organisers, ministries of Government of India
and the RBI.

14')
 CHAPTER IV REFERENCES

1. Mehrotra K.N. - Export - Import Bank - The Emerging Contours. IIFT. Foreign
Trade Review January - March 1981.
2. NCAER - Export strategy for India. NACER publication 1967.
3. IIFT - Export Bank for India, study conducted by IIFT -1972.
4. EXIM Bank of India - Objectives, operations. Organisation, EXIM Bank Bom-
bay -1987.
5. EXIM Bank and Export Promotion - Economic Trends 16th October 1982.
6. EXIM Bank - The thrust Overseas - Business India 6 - 9th May 1987.
7. EXIM Bank Amiual Report -1987.
8. Finance for Export Development - EXIM Bank (EMF) (1989-90).
9. EXIM Bank and International Finance Corporation, Washington DC - Agency
Credit Line for small and medium enterprises.
10. Progranmie for Computer Software EXIM Bank^New Scheme 1987.
11. EXIM Bank - EXIM Bank's Project Preparatory studies Overseas (PPSO)
programme -1989-90.
12. Programme for t'larket Entry Support — Product Liability Insurance (PLI)
(1989-90).