Mercantile Bank always gives priority to its export-oriented customers. Export finance constitutes an important part of an exporterâ€™s requirement of finance. Exporters require finance at two different stages of their export operation. At each phase, exporterâ€™s need different types of finance:
|a. Pre-Shipment Credit / Finance:|
|Export Cash Credit (Hypothecation / Pledge):|
ECC is essentially a short term credit and allowed to supplement requirement of finance of an exporter to meet genuine costs and expenses related to the exportable commodity. It is allowed to execute a specific export order or to execute multiple exports against ECC limit. Maximum ECC limit would be 90% of FOB value of export L/C. For allowing ECC limit, exporters past 3 years export performance to be considered. For the purpose of extending ECC, L/C of those importers will not be accepted, whose record of past payments is not satisfactory i. e. has record of late payment, non payment, payment at discount.
|Export Cash Credit against Trust Receipt:|
In this case, the required credit is sanctioned
against trust receipt; since the exportable goods are remain in the custody of the exporter. The
exporter is to execute a stamped export trust receipt in favor of bank where a declaration is
made that goods purchased with financial help of bank are held in trust for the bank. This type of
credit is required for processing, packing and rendering of goods in exportable condition and
when it seems that the exportable goods can not be taken into banks custody. The first class
party with collateral security is considered for extending this type of credit.
|Advance against Anticipatory Letter of Credit:|
This type of Letter of Credit contains a
clause written or typed in red ink by the issuing / negotiating bank to give advance a portion /
full amount of the credit as described / stipulated in thee credit to the beneficiary of the credit for
procurement of exportable goods. This advance is made at the risk of the L/C issuing bank.
|Back to Back Letter of Credit:|
The export letter of credit backs a second letter of credit
which is used to pay a supplier. When the exporter received a export letter of credit from the
overseas buyer for export of goods, but the concerned exporter are not the actual manufacturer/
producer of the exportable goods. He is required to collect the goods/ raw materials from the
actual producer/ manufacturer. In such a situation the exporter request his bank to open a letter
of credit in favor of the actual producer against the export letter of credit he has obtained. In this
situation bank open a letter of credit in favor of the actual producer of the goods keeping the
export letter of credit as security. Since the letter of credit on the strength of and backed by the
export letter of, the second letter of credit called back to back letter of credit. Bank may provide
pre-shipment credit facilities up to 90% of export order including BTB LC. However banks are
generally not in favor of back-to-back letters of credit as a means o financing export transactions
due to risk they are exposed to.
Packing credit is essentially a short term credit with a fixed repayment date
granted by the bank to an eligible exporter for the purpose of buying, processing, manufacturing,
packing and shipping of the goods meant for export. Such facility is allowed to an exporter just at
a time when he has the foreign buyers order by way of confirmed export letter of credit or a firm
contract against the security or Railway/ Steamer/Truck receipt evidencing transportation of
goods to the port. When the order is executed, the packing credit gets out of the proceeds of the
bill drawn on the foreign buyer. PC is allowed to an exporter having Trade license and valid ERC
limit. It is allowed either on case-to-case basis or under limit.
SOD (Export) is a head of liability, created by the bank in making payment of
import bills (at maturity) drawn against BTB L/C. BTB L/C generally is opened on usance basis
against Master L/C opened on sight basis. The rational behind opening BTB L/C on usance basis
is to be enabled to make payment against BTB L/C on receipt of payment against corresponding
export made against sight L/C. This is possible as the maturity date (usually 90-180 days) of BTB
L/C comes later than that of the sight L/C. Despite the above arrangement, many a times export
proceeds are not received in time or even before the maturity date of the BTB L/C. In such a
situation and in order to meet up the payment obligation, bank has to make payment against
BTB L/C by creating SOD (Export) a liability head under forced situation. The liability is generally
adjusted on receipt of export proceeds. SOD (Export) carries usual interest from the date of
creation of liability to the date of adjustment. When SOD (Export) liability is created bank has to
keep strong watch on repatriation of export proceeds.
|b. Post-Shipment Credit / Finance:|
|Negotiation of Export Documents (FDBP):|
After the shipment of goods banks extend
credit to the exporter receiving proper export documents from them.
|Purchase of Documents against DP or DA Bills:|
At the rate of exchange rate committee
the authorized dealerâ€™s bank purchase/discount DP or DA bills from the exporters.
|Advanced against Documentary Bills Surrendered:|
When the exporters fail to receive the
export documents negotiated by the bank due to discrepancy then they surrender the documents
to the bank for collection basis. In this case, certain percentage of export value is financed to the
exporters by the bank.