What is Export?

As per Foreign Trade & Development Regulation Act 1992 (FT&DR) 92, Export is defined as taking out goods outside India in physical, non-physical or in the form of service in return of Foreign Exchange.

What is Export Finance?

The finance extended by the bank to the manufacturer or trader to execute their respective export order is termed as Export Finance. The Export Finance is always short term finance.

RBI Guidelines relating to Export Finance:

  • Export credit proposal should be sanctioned within 45 days of receipt of application.
  • Renewal of export facility should be done in 30 days
  • Adhoc (for particular purpose as necessary) facility be given in 15 days
  • Banks are advised to achieve an export target of 12% of their total credit portfolio.
  • Export credit ought to be provided at a concessional rate of interest.
  • As per RBI guidelines only for FOB value, an exporter can get up to 100% of finance for the export order.

Concessional Rate:

It depends on upon the base rate. Every 3 months banks revised their base rate as per the deposit and credit status of the bank. The committee which decides it is called ALCO (Asset & Liability Committee)

Base Rate:

It is the minimum rate set by the Reserve Bank of India below which banks are not allowed to lend to its customers. Base rate + up to 4% can be charged by the banks.

There are two stages of Export Finance:

  • Pre-shipment Finance
  • Post-shipment Finance

1) Pre-shipment Finance:

Pre-shipment is also known as ‘Packing credit’ is a loan/ advance granted to an exporter for financing the purchase, processing, manufacturing or packing of goods prior to shipment. It is a short term finance.

2) Post-shipment Finance:

Post-shipment finance refers to an advance or a loan extended to the exporter, against the export receivables, after the goods have been shipped to the importer.