Features of Post-shipment Finance

Features of Post-shipment Finance

The features post-shipment finance are as under:

(a) Eligibility: Post-shipment finance is available to all types of exporters such as:

• Merchant exporters;

• Manufacturer exporters;

• Export houses;

• Trading houses;

• Manufacturers supplying goods to Export Houses (EH), Trading Houses

(TH) or merchant exporters.

(b) Documentary Evidence: Following documents are required to be submitted by the direct exporter and exporter of capital goods for availing post-shipment finance facility:

• Shipping documents indicating the fact that the goods have been actuary shipped for export purpose.

• Necessary documents substantiating the facility under which the credit has been availed.

Even, indirect exporters who export through export houses/trading houses, STC, etc. are eligible for post-shipment finance on the production of the following documents:

• A letter from the concerned export house/trading house certifying that the goods supplied by the deemed exporter have actually been shipped for export purpose.

• An and from the concerned export house/trading house stating that they do not wish to obtain post-shipment facility against the same for the same transaction for the same purpose till the original post-shipment finance is liquidated.

(c) Purpose: Post-shipment finance (short-term) is extended to the exporters after the shipment of goods for meeting working capital requirement. Post-shipment credit (medium and long-term) is granted to the exporters for exports on deferred payment terms for a period of over one year. Post- shipment finance (short-term) is generally granted for the following purposes:

• To provide working capital so as to fill up the gap between the shipment of goods and the realisation of sales proceeds.

• To pay insurance charges for insuring goods against perils of sea.

• To pay ECGC premium for insuring commercial and political risks.

• To pay commission and brokerage to overseas agents and distributors.

• To undertake export promotion activities and advertising.

• To pay customs duties, port charges and export duty, if any.

• To pay marine freight and other shipping charges.

• To pay for participation in international trade fairs and exhibitions.

• To undertake market survey abroad and send trade delegations.

(d) Amount of Finance: Post-shipment finance can be granted to the extent of 100% of the invoice value of the goods exported.

• Loans up to Rs. 10 crore are sanctioned by the commercial bank, which can be refinanced from the EXIM Bank.

• Loans above Rs. 10 crore but up to Rs. 50 crore are sanctioned by the EXIM bank.

• Loans above Rs. 50 crore need clearance from the working group on export finance, consisting of the representatives of the EXIM Bank, the RBI, the ECGC and the exporter's bankers.

If the contract is very large, representatives from the Ministries of Commerce and Finance are also included in the working group.

(e) Period of Credit and Rate of Interest: Post-shipment finance can be availed for short-term, medium-term or long-term.

• Short-term finance is extended by the commercial banks usually for a period of 90 days.

• Medium-term ban is extended by the commercial banks together with EXIM Bank for a period of 90 days to 5 years.

• Long-term finance is extended by the EXIM Bank for the export of capital goods and turnkey projects for a period of 5 years to 12 years.

The interest payable on post-shipment finance (short-term) is usually lower than the normal rate, provided the credit is liquidated from export proceeds received from abroad within the period specified. For medium-term and long-term loans, the interest rates are applicable as per the directives issued by the RBI from time to time.

As per the guidelines issued by the Reserve Bank of India (RBI) on 29th April 2009 to all scheduled commercial banks, interest rates effective from 1st May 2009 to 31 October 2009 will not be exceeding Benchmark Prime Lending Rate (BPLR) minus 2.5 percentage points per annum for the following categories of post-shipment finance:

• Post ship credit on demand bills for transit period (as specified by Foreign Exchange Dealers Association of India - FEDAI).

• Post-shipment credit on usance bills (for total period comprising usance period of export bills, transit period as specified by FEDAI and grace period, wherever applicable) upto 180 days and upto 365 days for exporters under Gold Card Scheme.

• Against incentives receivable from Government (covered by ECGC guarantee) upto 90 days.

• Against undrawn balances upto 90 days.

• Against retention money (for supplies portion only) payable within one year from the date of shipment upto 90 days.

These are the ceiling rates and therefore, the banks are tree to charge any rate below the ceiling rates. Interest rates for the above mentioned categories of pre-shipment credit beyond the tenor have been deregulated and therefore the banks are free to decide the rate of interest, keeping in view the BPLR and spread guidelines.

(f) Disbursement of post-Shipment Finance: Before the disbursement of loan, the banks scrutinize the application and necessary documents and ensures that: and spread guidelines.

• The documents are in permitted currencies and payments are receivable as per permitted methods of payment.

• The relevant GR/PP form duly certified by the customs authorities is submitted.

• The documents are submitted within the time stipulated or in case of delay suitable explanation is given.

• The period of usance is consistent with the time limit prescribed for realisation of export proceeds.

Before disbursement, the bank requires the exporter to execute a formal loan agreement. Though, the entire amount of post-shipment finance is sanctioned at one time, it is generally released in instalments.

(h) Maintenance of Accounts, Monitoring and Repayment: As per the RBI directives, the banks are required to maintain a separate account in respect of each packing credit. However, running accounts are permitted in case of exporters situated in FTZs, EPZs and the 100% EOUs.

Post-shipment finance should be used strictly for the purposes for which it is granted. Hence, the lending bank monitors the use of finance by the exporter. Any default on the part of exporter is charged with a higher rate of interest.

Post-shipment finance is generally adjusted towards the incentives given by the government or against the export proceeds received by the bank. The use of local funds is not permitted for the repayment of post-shipment finance.

 


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