EXTERNAL COMMERCIAL BORROWINGS & TRADE CREDITS• FEMA guidelines provide Indian companies to

access funds from abroad by following methods:-• External Commercial Borrowings (ECB):- • It refers to commercial loans in the form of bank

loans, buyers’ credit, suppliers’ credit,• securitized instruments (e.g. floating rate notes and

fixed rate bonds, non-convertible, optionally convertible or partially convertible preference shares) availed of from non-resident lenders

• with a minimum average maturity of 3 years.

• ECB can be accessed under two routes, viz.:-• :A) Automatic Route-• • Access of funds under Automatic Route does not require RBI/GOI

approval.• Corporate including hotel, hospital, software sectors (registered

under the Companies Act 1956) and• Infrastructure Finance Companies (IFCs) except financial

intermediaries such as banks, FIs, HFCs, and NBFCs are eligible to raise ECB.

• Units in SEZs are allowed to raise ECB for their captive requirements.

• NGOs engaged in micro finance activities are eligible to avail of ECB (subject to certain conditions).

• Trusts and Non-Profit making organizations are not eligible to raise ECB.

• ECB can be raised by borrowers from internationally recognized sources such as

• (i)international banks, (ii) international capital markets, (iii) multilateral financial institutions (such as IFC, ADB, CDC, etc.)/ Regional Financial Institutions and

• Government owned Development Financial Institutions, (iv) Export Credit Agencies, (v) Suppliers of Equipments, (vi) Foreign Collaborators and (vii) Foreign Equity Holders (other than erstwhile OverseasCorporateBodies)

• Overseas organizations and individuals may provide ECB to NGOs engaged in micro finance activities subject to complying with some safeguards

End use• • ECBs can be raised for investment (import of capital

goods as classified by DGFT in Foreign Trade Policy (FTP)) in new projects, modernization/expansion of existing units in industrial and service sectors including infrastructure sector.

• Overseas direct investment in Joint Ventures (JV)/Wholly Owned Subsidiaries (WOS) subject to the existing guidelines on Indian Direct Investment in JV/ WOS abroad.

• First stage acquisition of shares in the disinvestment process and also in the mandatory second stage offer to the public under the Government’s disinvestment programme of PSU shares.

• • NBFCs categorized as Infrastructure Financing Companies (IFC) are permitted to avail ECBs including outstanding in existing ECBs upto 50% of their owned funds under;---

• Automatic Route for on lending to infrastructure sector and

• beyond 50% of owned funds under Approval Route for lending to self-help groups or for

• micro-credit or for bonafide micro finance activity including capacity building by NGOs engaged in micro finance activities, etc.

Restrictions

• Utilization for on-lending or investment in capital market or acquiring a company (or apart thereof) in India by a corporate, investment in real estate sector, for working capital ,general corporate purpose and repayment of existing Rupee loans.• Issuance of guarantee, standby letter of credit, letter of undertaking or letter of comfort by banks, FIs and NBFCs from India relating to ECB.• The borrower has the option to offer security against the ECB. •Creation of charge over immoveable assets and financial securities, such as shares, in favour of the overseas lender is subject to FEMA regulations and ECB guidelines.

TRADE CREDITS FOR IMPORTS INTO INDIA• Trade Credits’ (TC) such as suppliers’ credit or buyers’ credit

refer to• credits extended for imports directly by the overseas supplier,

bank and financial institution for maturity of less than three years.

• Suppliers’ credit refers to• credit extended by the overseas supplier for imports into India whereas the• buyers’ credit refers to loans for payment of imports into India arranged by the importer from a bank or financial institution outside India formaturity of less than 3 years. • Suppliers’ credit and buyers’ credit for 3 years and above

come under the category of ECB and governed by ECB guidelines.

• Banks are permitted to issue LC/Letter of Undertaking (LOU)/Letter of Comfort• (LOC)/ in favor the overseas supplier, bank

and financial institution upto • USD 20 Mn. per import of goods other than

capital goods and for • capital goods upto 3 years subject to

prudential norms.

Pre-shipment Credit/Packing Credit/Rupee credit/FOREIGN EXPORT CREDIT

• ‘Pre-shipment/Packing Credit is the working capital finance granted to an exporter for purchase, processing, manufacturing or packing of goods prior to shipment/•It is working capital expenses granted towards rendering of services against LCs or confirmed/irrevocable order or any other evidence of an order for export.

• The period of Packing Credit is to be decided by the Banks based on relevant factors.

• However, if the finance is not adjusted by submission of export documents within 360 days from the date of advance, it ceases to qualify for concessional rate of interest abinitio.

• Refinance from RBI is available for a period of 180 days.

• Banks should also keep a close watch on the end-use of the funds, besides monitoring the progress of execution of the orders.

• Liquidation of the export credit facility may be out of the proceeds of the bills drawn thereby converting the pre-shipment into post-shipment credit.

• It can also be liquidated out of the balances in the Exchange Earners Foreign Currency A/c (EEFC A/c)

• As also from rupee resources of the exporter to the extent exports have actually taken place.

• If not so liquidated/ repaid, banks are free to decide the rate of interest from the date of advance

Running Account’ Facility

• Pre-shipment export credit facility in respect of any commodity without insisting lodgement of LC or export orders which should be produced within a reasonable period of time to be decided by the banks.

• This facility is being extended only to those exporters whose track record has been good as also to EOUs/ Units in Free Trade Zones / EPZs and SEZs.

• Running account facility should not be granted to sub-suppliers.

POST SHIPMENT RUPEE EXPORT CREDIT• 'Post-shipment Credit' is the working capital facility granted or any other credit provided by a bank to an exporter of goods / services from the date of extending credit after shipment of goods / rendering of services to the date of realization of export proceeds. As per the extant instructions, the period prescribed for realization of export proceeds is 12 months from the date of shipment.

• Post-shipment advance are made available in the form of -• (i)Export bills purchased /discounted/

negotiated.• (ii) Advances against bills sent for

collection.• (iii) Advances against duty drawback

receivable from Government.

• Post-shipment credit is to be liquidated by the proceeds of export bills received from abroad in respect of goods exported / services rendered

• It can also be repaid / prepaid out of balances in Exchange Earners Foreign Currency Account (EEFC A/C) as also from proceeds of any other unfinanced (collection) bills.

Pre-shipment Credit in Foreign Currency (PCFC)

• PCFC facility is granted to exporters in Foreign Currency for domestic and imported inputs of exported goods at LIBOR/EURO LIBOR/EURIBOR related rates.

• This is an additional window for providing pre-shipment credit to Indian exporters at internationally competitive rates and applicable to only cash exports

• The facility may be extended in one of the convertible currencies viz. US Dollars, Pound Sterling, Japanese Yen, Euro, etc.

• The spread for pre-shipment credit in foreign currency will be related to the international

• reference rate such as LIBOR/EURO LIBOR/EURIBOR (6 months).

• Crystallization of Export bills• Export bills are expected to be realized within 12 months

from the date of export. In genuine cases, it can be extended.

• In case of non-realisation by due date, the outstanding may be converted to rupee terms to avoid the exchange rate fluctuations.

Export Documents

• Performa Invoice;-• Document that states a commitment from the

seller• to sell goods to the buyer• at specified prices and terms Quoted in an

invoice format Usually issued by the exporting company• Same information as the formal quotation

Points to be included in the Performa invoice

• Description of items;• Type of currency• Terms of payment• Costs associated with freight and insurance • Buyers & sellers name & address• Prices of items: per unit and extended totals• Weights and dimensions of quoted products• Estimated shipping date

Commercial Invoice• Document required by customs to determine true value of the

imported goods, for assessment of duties and taxes.• Used as a customs declaration by the exporter• Primarily used to calculate tariffs • Commercial Invoice Document Includes: • PACKAGES / QUANTITY • NET WEIGHT/GROSS WEIGHT • DESCRIPTION OF MERCHANDISE • UNIT PRICE/TOTAL VALUE • PACKAGE MARKS • MISC. CHARGES • CERTIFICATIONS etc.

Export Packing List

• A list showing the details of goods contained in each parcel/shipment.

• Detailed view of item-by-item the containers to enable the buyer/receiver of shipment to check the shipment.

• Packing List Includes Name and address-shipper & consignee

• Weight Quantity• Description• Order number • Exporting Carrier

Certificate of Inspection

• If the consignment offered for inspection is found to conform to the standards recognized for the goods, on the basis of the field inspection report, a certificate of inspection will be issued to the exporter.

• The certificate of inspection will be prepared in quadruplicate of which: the first three copies will be made available to exporter

• the original for the customs use, the second copy for the use of foreign buyer and the third copy for exporter’s use fourth copy will be retained in the EIA office for records.

Bill of lading

• A document issued by a carrier or by a shipper's agent that identifies the goods received for shipment, where the goods are to be delivered, and who is entitled to receive the shipment.

• Abbreviated B/L.• Bill of Lading Types• clean bill or clean bill of lading; A bill of lading with no added notations that change or qualify its terms.

• Order bill or order bill of lading;• A bill of lading that is negotiable and that states that the goods can be delivered only when the bill of lading is presented to the carrier.• Title to the bill of lading and to the goods identified in it can be transferred by the shipper, endorsing and giving up possession of the document to another, who is then entitled to receive the goods from the carrier.

• straight bill or straight bill of lading.• A non negotiable bill of lading that merely

specifies the specific place and person the carrier is to deliver the goods to.

• Clean on board bill of lading• A bill of lading stating that the goods have

been taken on board with no onerous clause in it

CERTIFICATE OF ORIGIN (COO)

• It traditionally states from what country the shipped goods originate.

• Why is it required ? • Helps prove that the product is allowed into that

particular country. • To claim preferential tariffs In case of India ( import duty regime) Different Certificate of Origins required by importers to avail different concessions

Bills of Exchange : • A bill of exchange or "draft" is a written order by

the drawer to the drawee to pay money to the payee.

• It is a negotiable financial instrument by the drawer (creditor) to the drawee (debtor) to pay a certain amount of money at a matured date.

• They are used primarily in international trade, and are written orders by one person to his bank to pay the bearer a specific sum on a specific date.

Documents Required : • The documents used for the processing of the Shipping Bill

are:• GR forms (in duplicate) for shipment to all the countries• , Four copies of the packing list mentioning the contents,

quantity, gross and net weight of each package,• Four copies of invoices which contains all relevant

particulars like number of packages, quantity, unit rate, total f.o.b./ c.i.f. value, correct & full description of goods, etc

• Contract, L/C, Purchase Order of the overseas buyer,• AR4 (both original and duplicate) and invoice and

Inspection/ Examination Certificate • After shipment of goods, the customs officer endorses AR-4

form, which is taken as evidence by excise authorities for considering rebate in duty or cancellation of bond.

Exchange Control DeclarationForm

• DeclarationForm Required to declare to the RBI full value of shipment.

• Required to submit an undertaking about the export proceeds.

• Declaration made in the prescribed EXCHANGE CONTROL DECLARATION FORMS, these forms are known as GR/SDF/PP/SOFTEX forms.

AIRWAY BILL • An Airway Bill usually contains the following information:• General description of the nature of the goods. Particular

marks that are necessary for identifying the goods. • The number of packages and the quantity and weight of

the goods. • Place of discharge. • Transit Airports. • A statement that the Warsaw rules will apply to limit the

carriers liability for loss of or damage to the goods.

Precautions for B/L and AWB• The bill of lading should be taken as clean on

board bill of lading and not the claused bill of lading.

• All the copies should be collected and it should be mentioned “issued in ----copies”

• Air way bill should be consigned to the bank if the Bank finance is involved.