1. TYPES OF L/C s
ON 11/09/12

2. Dear MIBIans
Lets discuss
about the
types of L/C s

3. Whats all about LC/ yea????
A Letter of Credit, simply defined, is a written
instrument issued by a bank at the request of its
customer, the Importer (Buyer), whereby the
bank promises to pay the Exporter (Beneficiary)
for goods or services, provided that the Exporter
presents all documents called for, exactly as
stipulated in the Letter of Credit, and meet all
other terms and conditions set out in the Letter
of Credit. A Letter of Credit is also commonly
referred to as a Documentary Credit.

4. Types of L/C
 REVOCABLE L/C :-
Revocable LC can be amended or cancelled by the
issuing bank at any moment and without prior
notice to the beneficiary. This type of credit does
not doesn't constitute a legally binding
undertaking between the banks or bank
concerned and the beneficiary such as credit may
be modified or cancelled at any moment without
prior notice to the beneficiary. This type is of
limited utility and is not much use

5. IRREVOCABLE L/C
• An irrevocable LC constitutes a definite undertaking of
the issuing bank for the payment of the bills drawn
under the credit, provided the beneficiary presents the
stipulated documents to the credit nominated bank or
to the issuing bank and complies with all the condition s
of the credit.
• Thus the beneficiary receives a firm undertaking of the
issuing bank, giving him the security he desires.
• This type of credit can neither be modified nor
cancelled without the prior approval of the
beneficiary concerned and it is therefore, widely
accepted.

6. Confirmed L/C
• UCP basically recognize only the revo/irrevo LCs which
can be wither confirmed or unconfirmed. These rules
also make specific reference to transferable credits. But
all other credits are prevalent only by implication.
• Only IRREVO L/C are confirmed for obvious reasons, such
confirmation constitutes definite undertaking from the
confirming bank to pay against the presentation of the
proper documents such credit is called confirmed credit.
• Such an undertaking can neither be amended nor
cancelled without the agreement of the issuing bank.

7. With recourse or without recourse L/C
• With:- L/C if the buyer fails to pay the bank after
the specified period, the bank can have recourse
on the exporter. There is no such provisions in
without RC.
• Its in favor of the exporter to obtain a confirmed
irrevocable without RC credit because in this case
the Indian Bank added obligation to pay. If the
confirming i.e Indian Bank accepts the documents
as being complete and correct and any rejection
by opening bank will be a matter of discussion
between the two.

8. Acceptance of credit
• An acceptance credit stipulates that the
beneficiary must draw a BOE for
particular tenor e. g 60, 90, 120 days
sight and that the drafts will be
accepted by one of the parties i.e 1.
The applicant 2. the advising Bank, 3.
the negotiating bank. It unsecured and
depends on the capability of the parties
who can fund at the maturity of the bill.

9. Transferable L/C
Here the beneficiary is entitled to
request the paying, accepting,
negotiating, banks to pay, accept, and
negotiate bills tendered by one or more
parties. For partial transfer to second
beneficiary or more than one second
beneficiaries, it is essential that credit
must permit partial shipment.

10. Back to Back L/C
• When the exporter uses his L/C as a cover
for opening a credit in favor of the local
suppliers, the L/C is called back to back
credit. As the credits are intended to cover
some goods it should ne ensured that the
terms of identical except that price is lower
and validity earlier. This type of credit is
preferred over transferable credits to keep
the identity of ultimate buyer secret.

11. RED CLAUSE or Anticipatory L/C
---Provides advance payment or at least part
payment to the beneficiary against his
undertaking the effect the shipment and submits
the bill and /or documents in terms of credit
within the validity. The advance payment made
at the pre-shipment stage will be liquidated from
the proceeds of the bills negotiated.
GREEN CLAUSE is an extension of the red clause in
that it envisages the grant of storage facilities at
the port in the name of the bank in addition to
the pre-shipment payment to the beneficiary.

12. Revolving L/C
In a revolving LC, the amount of
drawing is reinstated and made
available to the beneficiary again
after a period of time on the advise
of payment by the applicant or
merely the fact that shipment has
been made.

13. Deferred L/C
HERE, the exporter supplies plant and
machineries, capital goods etc., ( where
the price is to be paid to him in
installments spread over a period ranging
usually from 1-7 years even more) to an
importer and no draft is drawn and
payment by the opening bank is
determined in accordance with the terms
laid down in the credit.

14. Transit L/C
It is issued in one of the
foreign country with the
beneficiary in another but
it is advised through and
usually confirmed by the
one BANK( The BOSS)

15. Credit available by Installments
These credits specify shipments and/or
drawings by installments stipulating
specific period for each installment of
shipment and or/ drawings. In case, any
installment of shipment is missed,
credit will not be available for that and
the subsequent installments except
when credit permits such lapse.

16. Restricted and unrestricted credits
Credits which do not specify any
particular bank who is authorized
to negotiate etc. are ‘ unrestricted ‘
or open or general credits. If a
specified bank is designated to pay
accept or negotiate, the credit is
termed as’ restricted’ or special.

17. Letter of Credit Checklist.
Are all required documents included?
Will the documents be presented within the expiration
date of the letter of credit?
Are the documents on their face consistent with each
other?
 Has shipment been made prior to the last shipping date?
Are the documents “stale”? Typically, unless otherwise
specified, documents presented 21 days or more after the
date of transport are considered stale.
Are the required number of copies of each document
being submitted?
 On documents where signatures are required, are the
appropriate signatures present?

18.  Is the transport document consigned to the correct party?
 Is the notify party on the transport document correct?
 Is the merchandise description correct?
 Are the number of units, the unit price and the total price all
consistent?
 If an insurance document is required, is the type and amount of
coverage correct?
 Was it in effect prior to shipment?
 If partial shipment has been made, is it permitted under the terms
of the letter of credit?
 If transhipment is necessary, does the letter of credit permit this?
 Review the draft. Does it quote the bank’s letter of credit
reference? Is it drawn on the correct party? If necessary,
 has it been properly signed and endorsed? Is the amount and
currency correct? Is the tenor as specified?

19. UCP 500 and UCP 600
UNIFORM
CUSTOMS AND
PRACTICE

20. •Any basic idea
about UCP
/ICC???

21. Article .1 Application of UCP
The Uniform Customs and Practice for
Documentary Credits, 2007 Revision, ICC
Publication no. 600 (“UCP”) are rules that apply
to any documentary credit (“credit”) (including,
to the extent to which they may be applicable,
any standby letter of credit) when the text of
the credit expressly indicates that it is subject to
these rules. They are binding on all parties
thereto unless expressly modified or excluded
by the credit.

22. Article 2 Definitions
Advising bank means the bank that advises the credit at
the request of the issuing bank.
Applicant means the party on whose request the credit
is issued.
Banking day means a day on which a bank is regularly
open at the place at which an act subject to these
rules is to be performed.
Beneficiary means the party in whose favour a credit is
issued.
Complying presentation means a presentation that is in
accordance with the terms and conditions of the
credit, the applicable provisions of these rules and
international standard banking practice.

23. Confirmation means a definite undertaking of the confirming bank,
in addition to that of the issuing bank, to honour or negotiate a
complying presentation.
Confirming bank means the bank that adds its confirmation to a
credit upon the issuing bank’s authorization or request.
Credit means any arrangement, however named or described, that
is irrevocable and thereby constitutes a definite undertaking of
the issuing bank to honour a complying presentation.
Honour means:
a. to pay at sight if the credit is available by sight payment.
b. to incur a deferred payment undertaking and pay at maturity if
the credit is available by deferred payment.
c. to accept a bill of exchange (“draft”) drawn by the beneficiary
and pay at maturity if the credit is available by acceptance.

24. • Issuing bank means the bank that issues a credit at the
request of an applicant or on its own behalf.
• Negotiation means the purchase by the nominated
bank of drafts (drawn on a bank other than the
nominated bank) and/or documents under a complying
presentation, by advancing or agreeing to advance
funds to the beneficiary on or before the banking day
on which reimbursement is due to the nominated bank.
• Nominated bank means the bank with which the credit
is available or any bank in the case of a credit available
with any bank.
• Presentation means either the delivery of documents
under a credit to the issuing bank or nominated bank or
the documents so delivered.

25. Article 3 Interpretations
Presenter means a beneficiary, bank or other party that makes a presentation.
Where applicable, words in the singular include the plural and in the
plural include the singular.
A credit is irrevocable even if there is no indication to that effect.
A document may be signed by handwriting, facsimile signature,
perforated signature, stamp, symbol or any other mechanical or
electronic method of authentication.
A requirement for a document to be legalized, visaed, certified or
similar will be satisfied by any signature, mark, stamp or label on the
document which appears to satisfy that requirement.
Branches of a bank in different countries are considered to be separate
banks.
Terms such as "first class", "well known", "qualified", "independent", "official",
"competent" or "local" used to describe the issuer of a document allow any issuer
except the beneficiary to issue that document.

26. Unless required to be used in a document, words such as
"prompt", "immediately" or "as soon as possible" will be
disregarded.
The expression "on or about" or similar will be interpreted
as a stipulation that an event is to occur during a period
of five calendar days before until five calendar days after
the specified date, both start and end dates included.
The words "to", "until", "till", “from” and “between” when
used to determine a period of shipment include the date
or dates mentioned, and the words “before” and "after"
exclude the date mentioned.

27. The words “from” and "after" when used to
determine a maturity date exclude the date
mentioned.
The terms "first half" and "second half" of a
month shall be construed respectively as the
1st to the 15th and the 16th to the last day of
the month, all dates inclusive.
The terms "beginning", "middle" and "end" of a
month shall be construed respectively as the
1st to the 10th, the 11th to the 20th and the
21st to the last day of the month, all dates
inclusive.

28. •X Next

29. Export Financing
Exporters naturally want to get paid as quickly as
possible, while importers usually prefer to
delay payment until they have received the
goods. Because of the intense competition for
export markets, being able to offer attractive
payment terms customary in the trade is often
necessary to make a sale. Exporters should be
aware of the many financing options open to
them so that they choose the most acceptable
one to both the buyer and the seller.

30. Export credit can be broadly classified into
• Pre-shipment finance and
• post shipment finance.
• Preshipment
finance refers to finance extended to
purchase, processing or packing of goods
meant for exports
• Financial
assistance extended after the shipment of
exports falls within the scope of post
shipment finance

31. PACKING CREDIT
• As loan or cash credit against pledge or hypothecation.
• Verification of Exporter-Importer Code No. issued by
DGFT.
• Party should not be in the RBI Caution
list or ECGC Special Approval List.
• Export is not to a listed country
• Verify order/LC
• Up-to date knowledge of export policy
• Commodity should not be in the negative list.
• Commodity should have a good market
• Terms of contract
• No FEMA violation
• Borrower should be credit worthy.

32. • Working capital may be defined as funds required
to carry the required level of Current
assets to enable the industry to carry
on its operations at the expected levels
uninterruptedly..
• The guidelines set by Nayak Committee for
computation of WC finance quantum for
village, tiny and other SSI industries
to a minimum extent of 20% of Projected/ Accepted
Turnover to continue Guidelines
with regard to specific activities / industries / situations
to continue (Sugar / tea
industries, Rehabilitation cases, Export Financing etc.)
Banks may consider Cash Flow approach of financing
in order to close the gap between
the sanctioned limits and the utilization levels …

33. Quantum of finance:
• FOB value of goods minus profit and credit
margin
Cost of production less margin (can be
more if the domestic cost is more
than the FOB value and the difference
is accounted as incentives like duty draw-back
etc. subject to export production finance
guarantee of ECGC).
• In the case of exports on CIF value basis PC
can be granted towards insurance and freight also
• Period of finance: to coincide
with the date for shipment and normally up
to 180 days

34. Clean Packing Credit
• Granted to credit worthy parties where advance
payment is required to be made to the supplier.
• Quantum determined based on the likely purchase
pattern of the exporter with their suppliers.
• Period of CPC is determined based on the
facts of each case (but not later
than the period of contract /LC.
• A higher margin of say 25% should be stipulated,
collected each time and remitted along with PC to
the supplier.
• CPC should be converted as PC or Bills

35. EXPORT FINANCE
• PRE SHIPMENT finance : Deals with the
finance schemes available before the
shipment has been made.
• POST SHIPMENT finance : on the
contrary deals with credit available after
the goods have shipped.
Both stages are crucial for the exporter

36. Pre-shipment finance
• PSF.. Offer liquidity to the
exporter to produce raw
materials, carry out
processing, packing,
transporting and warehousing
of the goods to be exported.

37. • Pre-Export Finance: provision of funds to
cover the period between signing of purchase
orders and payment (short-term, working
capital)
• –Pre-export finance typically covers:
• Cost of inland transport to port
• Purchase of raw materials for processing
• Cost of processing
• Storage costs

38. Illustrative procedure (commodities)
• Exporter provides title to or pledges products to bank
• –Products that have yet to be produced
• –Products that have been produced (warehouse
receipt)
• Bank provides credit facility
• Payment
• –Trader takes delivery
• –Bank receives payment directly from buyer
• »Escrow account
• »Evidence account

39. Methods of Pre-Export Finance
• Open Account: –Exporter ships goods without any guarantee of
payment, thereby financing importer
–Risk of transaction dependent on relationship/importer integrity.
• Documentary letter of credit (see UCC Art. 5 and UCP 500): Letter
from bank, addressed to exporter, in which bank promises to pay or accept
drafts if exporter conforms 100% to conditions within the letter.
• Three parties:
• –Issuer: the issuing bank
• –Account party (importer)
• –Beneficiary (exporter)
• •Three agreements
• –Trade contract between importer and exporter
• –Documentary credit between bank and exporter
• –Reimbursement agreement between bank and importer

40. Documentary Letter of credit
Revocable/Irrevocable
• –A revocable letter of credit can be cancelled or amended by the issuing
bank; the bank does not need the exporter/beneficiary’s consent.
Confirmed/Unconfirmed
• –Issuing bank forwards letter of credit to exporter’s bank
• –Exporter’s bank promises to pay exporter (confirms l/c)
• –In an unconfirmed transaction, the advising bank acts as the issuing
bank’s agent and bears no obligation to exporter
Back-to-back
• –Typically used by brokers, the letter of credit allows the beneficiary to
assign its rights in one letter of credit to the issuer of a second letter of
credit
• –Both letters of credit must require identical documents
Transferable
• –The original beneficiary can transfer the letter of credit to third parties

41. Documentary Letter of credit
• Revolving
• –Typically used in construction contracts
• –Allows beneficiary to draw on the letter of credit, up to a certain
amount, usually without presentation of documents
• –The account party replenishes the account
“Red clause” letter of credit
• –Exporter can use to obtain pre-shipment finance by providing either (i)
a statement of purpose or (ii) an undertaking to provide specified
documents.
• –Issuing bank provides exporter with a percentage of the L/C amount
• –Advising bank guarantees reimbursement
“Green clause” letter of credit
• –Similar to “red clause” letters of credit, but pre-shipment finance is
contingent upon the production of warehouse receipts…

42. Letter of credit Settlement
Sight payment (sight draft)
• –Exporter presents documents and receives payment
Deferred payment (dated draft)
• –Exporter presents documents and receives payment at some
specified future time
Acceptance (time draft)
• –Exporter (i) presents documents and (ii) draws a usance draft
• –Bank accepts bill of exchange for payment on a future date
Negotiation
• –Exporter may choose a bank and negotiate the payment of a
sight or usance draft
• –Bank will either:
• »Advance payment with recourse to the exporter
• »Advance payment less a fee (discount)
• »Pay exporter when issuing bank provides payment

43. Post shipment Finance
• Provides credit facility from the date
shipment of the goods to the time
export payment is realized
( expenses between period of
shipment dispatch and payment
realisation…

44. Export Finance –Post-Export
Post-Export Finance (medium/long-term)
• –Post-Export finance typically covers:
• •Account receivables
• •Equipment
• •Other fixed assets
–Methods of Post-Export Finance
• •Revolving line of credit
• •Term loan
• •Finance accounts receivable

45. Methods of Post-Export Finance
Finance account receivables
–Typically used in two instances
• •Undercapitalized company with permanent financing
need
• •Temporary insufficient cashflow
–Banks provide loan secured by:
• •Assignment of receivables
• •Assignment of commodity inventory
–Loan
• •Made on a revolving basis against a pool of receivables
–Borrower
• •Responsible for collecting from customers
• •Responsible for 100% loan repayment despite inability to
collect from customers

46. Export Finance –Forms of Risk
Commercial risk
•The risk that either party will not fulfill its
obligations
Transportation risk
•The risk that goods become damaged or destroyed
during transport
Exchange risk
• •The risk that currency fluctuations will affect the
value of the transaction
Political risk
• •The risk that government policy changes, wars,
embargoes, etc., will prevent the conclusion or
affect the value of the transaction

47. Indian Case study ; RBI sources !
• PRE-SHIPMENT EXPORT CREDIT, Definition:
…any loan or advance granted or any other credit provided by a
bank to an exporter for financing the purchase, processing,
manufacturing or packing of goods prior to shipment / working
capital expenses towards rendering of services on the basis of
letter of credit opened in his favour or in favour of some other
person, by an overseas buyer or a confirmed and irrevocable
order for the export of goods / services from India or any other
evidence of an order for export from India having been placed on
the exporter or some other person, unless lodgement of export
orders or letter of credit with the bank has been waived.

48. Period of Advance
The period for which a packing credit advance may be
given by a bank will depend upon the circumstances
of the individual case, such as the time required for
procuring, manufacturing or processing (where
necessary) and shipping the relative goods /
rendering of services.
It is primarily for the banks to decide the period for which a
packing credit advance may be given, having regard to the
various relevant factors so that the period is sufficient to
enable the exporter to ship the goods / render the services

49. • If pre-shipment advances are not adjusted by
submission of export documents within 360
days from the date of advance, the advances
will cease to qualify for concessive rate of
interest to the exporter ab initio.
• RBI would provide refinance only for a
period not exceeding 180 days.

50. Disbursement of Packing Credit
Banks may also maintain different
accounts at various stages of processing,
manufacturing, etc. depending on the
types of goods / services to be exported,
e.g. hypothecation, pledge, etc.,
accounts and may ensure that the
outstanding balance in accounts are
adjusted by transfer from one account to
the other and finally by proceeds of
relative export documents on purchase,

51. Banks should continue to keep a close
watch on the end-use of the funds
and ensure that credit at lower rates
of interest is used for genuine
requirements of exports. Banks
should also monitor the progress
made by the exporters in timely
fulfillment of export orders.

52. Liquidation of Packing Credit
The packing credit / pre-shipment credit granted
to an exporter may be liquidated out of
proceeds of bills drawn for the exported
commodities on its purchase, discount etc.,
thereby converting pre-shipment credit into
post-shipment credit. Further, subject to
mutual agreement between the exporter and
the banker it can also be repaid / prepaid out
of balances in Exchange Earners Foreign
Currency A/c ( EEFC A/c ) as also from rupee
resources of the exporter to the extent

53. Running Account' Facility
In many cases, the exporters have to procure raw
material, manufacture the export product and
keep the same ready for shipment, in anticipation
of receipt of letters of credit / firm export orders
from the overseas buyers. Having regard to
difficulties being faced by the exporters in availing
of adequate pre-shipment credit in such cases,
banks have been authorized to extend Pre-
shipment Credit ‘Running Account’ facility in
respect of any commodity, without insisting on
prior lodgment of letters of credit / firm export
orders, depending on the bank’s judgment
regarding the need to extend such a facility and
subject to the following conditions:

54. a) Banks may extend the ‘Running Account’ facility only to those
exporters whose track record has been good as also to Export
Oriented Units (EOUs) / Units in Free Trade Zones / Export
Processing Zones (EPZs) and Special Economic Zones (SEZs)
(b) In all cases where Pre-shipment Credit ‘Running Account’ facility has
been extended, letters of credit / firm orders should be produced
within a reasonable period of time to be decided by the banks.
(c) Banks should mark off individual export bills, as and when they are
received for negotiation / collection, against the earliest outstanding
pre-shipment credit on 'First In First Out' (FIFO) basis. Needless to
add that, while marking off the preshipment credit in the manner
indicated above, banks should ensure that concessive credit available
in respect of individual pre-shipment credit does not go beyond the
period of sanction or 360 days from the date of advance, whichever
is earlier.
(d) Packing credit can also be marked-off with proceeds of export
documents against which no packing credit has been drawn by the
exporter.

55. Export Credit against Proceeds of Cheques, Drafts, etc.
Representing Advance
Payment for Exports
Where exporters receive direct remittances
from abroad by means of cheques, drafts, etc.
in payment for exports, banks may grant
export credit at concessive interest rate to
exporters of good track record till the
realization of proceeds of the cheque, draft
etc. received from abroad, after satisfying
themselves that it is against an export order,
is as per trade practices in respect of the
goods in question and is an approved method
of realization of export proceeds as per extant

56. Rupee Export Packing Credit to Manufacturer Suppliers for
Exports Routed through STC/MMTC/Other Export Houses,
Agencies, etc.
Banks may grant export packing credit
to manufacturer suppliers who do not
have export orders/letters of credit in
their own name, and goods are
exported through the State Trading
Corporation/Minerals and Metal
Trading Corporation or other export
houses, agencies, etc.

57. Requirements
(a) Banks should obtain from the export house a letter
setting out the details of the export order and the portion
thereof to be executed by the supplier and also certifying
that the export house has not obtained and will not ask
for packing credit in respect of such portion of the order
as is to be executed by the supplier.
(b) Banks should, after mutual consultations and taking into
account the export requirements of the two parties,
apportion between the two i.e. the Export House and the
Supplier, the period of packing credit for which the
concessionary rate of interest is to be charged. The
concessionary rates of interest on the pre-shipment
credit will be available up to the stipulated periods in
respect of the export house/agency and the supplier put
together.

58. The export house should open inland L/Cs in favour of the supplier
giving relevant particulars of the export L/Cs or orders and the
outstandings in the packing credit account should be extinguished
by negotiation of bills under such inland L/Cs. If it is inconvenient
for the export house to open such inland L/Cs in favour of the
supplier, the latter should draw bills on the export house in
respect of the goods supplied for export and adjust packing credit
advances from the proceeds of such bills. In case the bills drawn
under such arrangement are not accompanied by bills of lading or
other export documents, the bank should obtain through the
supplier a certificate from the export house at the end of every
quarter that the goods supplied under this arrangement have in
fact been exported. The certificate should give particulars of the
relative bills such as date, amount and the name of the bank
through which the bills have been negotiated.

59. Export of Services
In view of the large number of categories of
service exports with varied nature of
business as well as in the environment of
progressive deregulation where the
matters with regard to micromanagement
are left to be decided by the individual
financing banks, the banks may formulate
their own parameters to finance the
service exporters.

60. Exporters of services qualify for working capital export credit
(pre and post shipment) for consumables, wages, supplies etc.
• The proposal is a genuine case of export of services.
• The item of service export is covered under
Appendix – 36 of the Hand Book (Vol.1)
• The exporter is registered with the Export
Promotion Council for services
• There is an Export Contract for the export of the
Service
• There is a time lag between the outlay of working
capital expense and actual receipt of payment from
the service consumer or his principal abroad.
• There is a valid Working Capital gap i.e. service is
provided first while the payment is received some
time after an invoice is raised.

61. • Banks should ensure that there is no double
financing/excess financing.
• The export credit granted does not exceed the
foreign exchange earned less the
• margins if any required, advance
payment/credit received.
• Invoices are raised
• Inward remittance is received in Foreign
Exchange.
• Company will raise the invoice as per the
contract where payment is received from
overseas party, the service exporter would utilize
the funds to repay the export credit availed of
from the bank.

62. India: POST-SHIPMENT EXPORT CREDIT
Post-shipment Credit' means any loan or
advance granted or any other credit provided
by a bank to an exporter of goods / services
from India from the date of extending credit
after shipment of goods / rendering of
services to the date of realization of export
proceeds and includes any loan or advance
granted to an exporter, in consideration of,
or on the security of any duty drawback
allowed by the Government from time to

63. Types of Post-shipment Credits:
(i)Export bills purchased/
discounted/ negotiated.
(ii) Advances against bills for
collection.
(iii) Advances against duty
drawback receivable from
Government

64. Liquidation of Post-shipment Credit:
Post-shipment credit is to be liquidated by the
proceeds of export bills received from abroad in
respect of goods exported / services rendered.
Further, subject to mutual agreement between
the exporter and the banker 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. Such adjusted export bills
should however continue to be followed up for
realization of the export proceeds and will

65. Rupee Post-shipment Export
Credit
• the case of demand bills, the period of advance shall be the
Normal Transit Period (NTP) as specified by FEDAI.
• In case of usance bills, credit can be granted for a maximum
duration of 365 days from date of shipment inclusive of Normal
Transit Period (NTP) and grace period, if any. However, banks
should closely monitor the need for extending post shipment credit
up to the permissible period of 365 days and they should influence
the exporters to realize the export proceeds within a shorter
period.
• Normal transit period' means the average period normally
involved from the date of negotiation / purchase / discount till the
receipt of bill proceeds in the Nostro account of the bank
concerned, as prescribed by FEDAI from time to time. It is not to be
confused with the time taken for the arrival of goods at overseas
destination.

66. Post-shipment Advances against Duty
Drawback Entitlements
• Banks may grant post-shipment advances to exporters
against their duty drawback entitlements as provisionally
certified by Customs Authorities pending final sanction
and payment.
• The advance against duty drawback receivables can also
be made available to exporters against export promotion
copy of the shipping bill containing the EGM Number
issued by the Customs Department. Where necessary,
the financing bank may have its lien noted with the
designated bank and arrangements may be made with
the designated bank to transfer funds to the financing
bank as and when duty drawback is credited by the
Customs

67. ECGC Whole Turnover Post-shipment
Guarantee Scheme
The Whole Turnover Post-shipment
Guarantee Scheme of the Export Credit
Guarantee Corporation of India Ltd. (ECGC)
provides protection to banks against non-
payment of post-shipment credit by
exporters. Banks may, in the interest of
export promotion, consider opting for the
Whole Turnover Post-shipment Policy. The
salient features of the scheme may be
obtained from ECGC.

68. DEEMED EXPORTS - CONCESSIVE RUPEE EXPORT
CREDIT
Banks are permitted to extend rupee pre-
shipment and post-supply rupee export credit at
concessional rate of interest to parties against
orders for supplies in respect of projects
aided/financed by bilateral or multilateral
agencies/funds (including World Bank, IBRD,
IDA), as notified from time to time by
Department of Economic Affairs, Ministry of
Finance under the Chapter "Deemed Exports" in
Foreign Trade Policy, which are eligible for grant
of normal export benefits by Government of

69. INTEREST ON EXPORT CREDIT
• A ceiling rate has been prescribed for rupee export credit
linked to Benchmark Prime Lending Rates (BPLRs) of
individual banks available to their domestic borrowers.
Banks have, therefore, freedom to decide the actual
rates to be charged within the specified ceilings. Further,
the ceiling interest rates for different time buckets under
any category of export credit should be on the basis of
the BPLR relevant for the entire tenor of export credit.
• ECNOS: ECNOS means Export Credit Not Otherwise
Specified in the Interest Rate structure for which banks
are free to decide the rate of interest keeping in view the
BPLR and spread guidelines. Banks should not charge
penal interest in respect of ECNOS.

70. Interest Rate Structure
• Pre-shipment Credit (from the date of advance) : (a) Up to 180
days / (b)Against incentives receivable from Government covered
by ECGC Guarantee up to 90 days.
• Post-shipment Credit (from the date of advance) : a) On demand
bills for transit period (as specified by FEDAI) (b) Usance bills (for
total period comprising usance period of export bills, transit
period as specified by FEDAI, and grace period, wherever
applicable)
Up to 90 days
Up to 365 days for exporters under the Gold Card Scheme.
(c) Against incentives receivable from Govt. (covered by ECGC
Guarantee) up to 90 days
(d) Against undrawn balances (up to 90 days)
(e) Against retention money (for supplies portion only) payable

71. EXPORT CREDIT IN FOREIGN CURRENCY
• Pre-shipment Credit in Foreign Currency (PCFC): The
scheme is an additional window for
providing pre-shipment credit to Indian
exporters at internationally competitive
rates of interest. It will be applicable to
only cash exports. The instructions with
regard to Rupee Export Credit apply to
export credit in foreign currency also
mutatis mutandis, unless otherwise
specified.

72. Source of Funds for Banks
• The foreign currency balances available with the bank in
Exchange Earners Foreign Currency (EEFC) Accounts,
Resident Foreign Currency Accounts RFC(D) and Foreign
Currency (Non-Resident) Accounts (Banks) Scheme
could be utilized for financing the pre-shipment credit in
foreign currency.
• Banks are also permitted to utilise the foreign currency
balances available under Escrow Accounts and Exporters
Foreign Currency Accounts for the purpose, subject to
ensuring that the requirements of funds by the account
holders for permissible transactions are met and the
limit prescribed for maintaining maximum balance in
the account under broad based facility is not exceeded.

73. Post-shipment Export Credit in Foreign
Currency
• Banks may utilise the foreign exchange
resources available with them in Exchange
Earners Foreign Currency Accounts (EEFC),
Resident Foreign Currency Accounts (RFC),
Foreign Currency (Non-Resident) Accounts
(Banks) Scheme, to discount usance bills and
retain them in their portfolio without resorting
to rediscounting. Banks are also allowed to
rediscount export bills abroad at rates linked to
international interest rates at post-shipment
stage.