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Pre-shipment finance is credit granted to the Exporters by a financial institution. Pre-shipment finance is part of working capital finance. The main objective is to enable the exporter to: a)Procure raw material. b)Carry out manufacturing process. c)Provide a secured warehouse for goods & raw material. d)Process and pack the goods. e)Meet other financial costs, if any, of the business.
QUANTUM OF FINANCE
There is no fixed formula to determine the quantum of finance that is granted to an exporter against a specific order/LC. The only guiding principle is the concept of need-based finance. Banks determine the percentage of margin, depending upon factors such as: a)The nature of order. b)The nature of commodity. c)The capability of exporter to bring in the requisite contribution in the shape of margin.
DISBURSEMENT OF PCL
After sanctioning the limits, Banks disburse the loan. Before disbursement, Banks checks the following particulars: 1) Name of the buyer. 2) Commodity to be exported, Quantity, Value (either CIF or FOB) 3) Last date of shipment / Negotiation. 4) Any other terms to be complied with
LIQUIDATION OF PCL
PCL is to be liquidated from the export proceeds. At this stage PCL will be converted into post-shipment advance. PCL can also be liquidated with the proceeds from payment received from the Govt. of India. This payment includes the duty draw back etc. For any reasons, if export does not take place at all, the entire advance is recovered at commercial rate of interest plus penal rate as decided by the Bank. EXCEPTIONS RBI has allowed some flexibilities into these regulations.
LIQUIDATION OF PCL
Substitution of commodity/buyer can be allowed by the Bank, without reference to Govt. of India i.e. the export of same or some other commodity to the same or other buyer. PCL can also be adjusted from EEFC funds of the exporter. Concessional rate of interest will be protected only up to the extent the export have actually taken place. OVERDUE PCL If borrower fails to liquidate the PCL on due date, the Bank consider it an overdue. If overdue persist, Bank takes steps to realize it.