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Export Finance From Banks: IMI, Kolkata 2018
Export Finance From Banks: IMI, Kolkata 2018
IMI, Kolkata
2018
1
Why Export Finance?
Payment
Purchase Export on Collection of
to
of RM Creditors
Credit Cash from
Receivables
Time
O A B C
2
Balance Sheet: A Recap
Assets = Liabilities + Equity
LTA + CA = [LTL + CL] + Equity
CA = [LTL + Equity – LTA] + [CLOBB + BB]
CA = NWC + CLOBB + BB
NWC
Bank
Borrowings
TCA
CLOBB
3
Banking Arrangements
(a) Sole Banking: WC is availed from a Single Bank
(b) Consortium Banking: A Consortium of Banks [led by a Lead Bank]
provides the Working Capital to the Firm.
The Assessment of Working Capital is done by the Lead Bank and all the
other Member Banks have to accept the Assessment.
Participating Banks are bound by the Inter-se Agreement
(c) Multiple Banking: A group of Banks provides the WC to the firm
Every Member Bank individually assesses the Requirement
No Inter-se Agreement exists
5
MPBF [Method I]
As on As on As on
31.3.2018 (Rs. 31.3.2019 (Rs. 31.3.2020 (Rs.
Crores) Crores) Crores)
Srl No Computation of MPBF [Actual] [Estimated] [Projected]
1 Current Assets 17.88 26.95 27.14
2 Current Liabilities Other Than Bank Borrowings 9.09 13.78 12.78
3 Working Capital Gap ( 1- 2 ) 8.79 13.17 14.36
4 Minimum Stipulated NWC ( 25 % OF 3 ) 2.20 3.29 3.59
5 Actual/Projected NWC 4.65 5.82 7.01
6 Item 3 - Item 4 6.59 9.88 10.77
7 Item 3 - Item 5 4.14 7.35 7.35
8 M.P.B.F( lower of 6 and 7 ) 4.14 7.35 7.35
6
MPBF [Method II]
As on As on As on
31.3.2018 (Rs. 31.3.2019 (Rs. 31.3.2020 (Rs.
Crores) Crores) Crores)
Srl No Computation of MPBF [Actual] [Estimated] [Projected]
1 Current Assets 17.88 26.95 27.14
2 Current Liabilities Other Than Bank Borrowings 9.09 13.78 12.78
3 Working Capital Gap ( 1- 2 ) 8.79 13.17 14.36
4 Minimum Stipulated NWC ( 25 % OF 1 ) 4.47 6.74 6.79
5 Actual/Projected NWC 4.65 5.82 7.01
6 Item 3 - Item 4 4.32 6.43 7.58
7 Item 3 - Item 5 4.14 7.35 7.35
8 M.P.B.F( lower of 6 and 7 ) 4.14 6.43 7.35
7
What Does RBI Say?
• Focus on increasing Exports – Exports EARN FOREX
• Minimum 12% of the Net Bank Credit to be allocated for Financing
Exports
• Concession in Interest Rates: PLR-2.50% upto 180 Days
• > 180 Days: Freedom of Banks to decide the rates
• Timelines for Credit Decision
(a) Fresh Sanction/ Enhancement: Within 45 Days
(b) Renewal: Within 30 Days
(c) Adhoc Facility: Within 15 Days
• Quarterly Reporting to RBI – Form C
8
WC Finance for Export
Pre-Shipment Credit
• Fund Based Credit facility given for executing all activities upto the Shipment
Stage
• This type of facility is also called Export Packing Credit (EPC)
9
Pre-Shipment Credit
• The facility is given to cover the following :
(a) Purchase of Raw Materials
(b) Expenses incurred for converting RM to FG
(c) Warehousing
(d) Packaging
(e) Expenses incurred for putting the consignment on board
• Banks endorses the LC/Order Copy so that the exporter cannot avail further
credit from any other Bank
10
Pre-Shipment Credit…Contd.
• Margin is Calculated on the FOB value of the order
• In case EPC is liquidated from the Domestic Sources, Banks charge a penal
interest
11
Post-Shipment Credit
• Credit is given after the Shipment is completed
• Post-Shipment Credit is disbursed on the basis of the Export Invoice & the
Bill of Lading
• Credit is given on the CIF value of the consignment
• 0% Margin on the Post Shipment Facility
• A part of the post shipment credit is used to liquidate the EPC [entirely]
• In case of Pre-shipment Credit, Bank has recourse to the RM, WIP and FG.
But in case of Post-Shipment Credit, Bank has recourse to only Receivables
• To reduce the risk of delinquency, Bank stipulates the following:
(a) Confirmed LC
(b) Rating of the Overseas Buyer by International Rating Agency [like D&B]
(c) ECGC Coverage to hedge Counter Party Risks
(d) Country Risk Rating [In case, the Sovereign Risk is high, Bank refrains
from providing Export Finance] 12
Post-Shipment Credit…Contd.
• Post Shipment Finance is to be liquidated out of the Export Proceeds
• Export Proceeds are to be realized in all cases within 180 Days [except for
Capital Goods Export]
• If Export Proceeds are not realized within 180 days, RBI has to be intimated
• For an Exporter, writing off Export Receivables requires a series of
formalities. The formalities act as a deterrent for writing-off Export
Receivables
• The safeguards are adopted to counter arbitrage opportunities arising out of
the availability of Export Finance at Concessional Interest Rates
13
Export Credit - Steps
• Application to Banks
(a) Past Financials/ Bank Statements
(b) Business Model/ Statutory Clearances
(c) MOA/ Partnership Deed
(d) CMA Data
• Credit Rating by Banks – Ability & Willingness to Pay, Caution List by RBI,
DGFT, ECGC Approval List
• Sanction of Facility
• Document Execution
14
Export Credit - Formalities
• Security Creation
For WC Finance
(a) Primary Security – Current Assets
(b) Collateral Security – Fixed Assets, Other Collateral Security, Personal
Guarantee, Corporate Guarantee
(c) Charge Registered with ROC – In case of Limited Families
• Disbursement
• Repayment
15