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Export Pre shipment credit to Sub-Suppliers
In this article, the terms and conditions to provide export packing credit to sub suppliers are described.
The extract of RBI circular is given below:
Packing credit can be shared between an Export Order Holder and sub-supplier of raw materials, components etc. of the exported goods as in the case of EOH and manufacturer suppliers, subject to the following:
(a) Running Account facility is not contemplated under the scheme. The scheme will cover the LC or export order received in favor of Export Houses/Trading Houses/Star Trading Houses etc. or manufacturer exporters only. The scheme should be made available to the exporters with good track record.
(b) Bankers to an EOH will open an inland LC specifying the goods to be supplied by the sub-supplier to the EOH against the export order or LC received by him as a part of the export transaction. On the basis of such a LC, the sub-supplier's banker will grant EPC as working capital to enable the sub-supplier to manufacture the components required for the goods to be exported. On supplying the goods, the LC opening bank will pay to the sub-supplier's banker against the inland documents received on the basis of inland LC. Such payments will thereafter become the EPC of the EOH.
(c) It is up to the EOH to open any number of LCs for the various components required with the approval of his banker/leader of consortium of banks within the overall value limit of the order or LC received by him. Taking into account the operational convenience, it is for the LC opening bank to fix the minimum amount for opening such LCs. The total period of packing credit availed by the sub-supplier (s), individually or severally and the EOH should be within normal cycle of production required for the exported goods. Normally, the total period will be computed from the date of first withdrawal of packing credit by any one of the sub-suppliers to the date of submission of export documents by EOH.
(d) The EOH will be responsible for exporting the goods as per export order or overseas LC and any delay in the process will subject him to the penal provisions issued from time to time. Once the sub-supplier makes available the goods as per inland LC terms to the EOH, his obligation of performance under the scheme will be treated as complied with and the penal provisions will not be applicable to him for delay by EOH, if any.
(e) The scheme is an additional window besides the existing system of sharing of packing credit between EOH and manufacturer in respect of exported goods as detailed in paragraph 1.2.1 above. The scheme will cover only the first stage of production cycle.For example, a manufacturer exporter will be allowed to open domestic LC in favor of his immediate suppliers of components etc. that are required for manufacture of exportable goods. The scheme will not be extended to cover suppliers of raw materials/components etc. to such immediate suppliers. In case the EOH is merely a trading house, the facility will be available commencing from the manufacturer to whom the order has been passed on by the Trading House.
(f) EOUs/EPZ/SEZ units supplying goods to another EOU/EPZ/SEZ unit for export purposes are also eligible for rupee pre-shipment export credit under this scheme. However, the supplier EOU/EPZ/SEZ unit will not be eligible for any post-shipment facility as the scheme does not cover sale of goods on credit terms.
(g) The scheme does not envisage any change in the total quantum of advance or period. Accordingly, the credit extended under the system will be treated as export credit from the date of advance to the sub-supplier to the date of liquidation by EOH under the inland export LC system and up to the date of liquidation of packing credit by shipment of goods by EOH and will be eligible for refinance from RBI by the respective banks for the appropriate periods. It has to be ensured that no double financing of the same leg of the transaction is involved.
(h) Banks may approach the ECGC for availing suitable cover in respect of such advances.
(i) The scheme does not envisage extending credit by a sub-supplier to the EOH/manufacturer and thus, the payment to sub-suppliers has to be made against submission of documents by LC opening bank treating the payment as EPC of the EOH.
I hope, the terms and conditions to provide export packing credit to sub suppliers mentioned above will help you to know better about financial assistance provided by bank to exporters.
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