INTRODUCTION TO CROSS BORDER BANKING

Transcription

1 Chapter No. 6 Page No. 124 INTRODUCTION TO CROSS BORDER BANKING THE GROWTH OF INTERNATIONAL TRADE IN COMMODITIES, SERVICES AND RESOURCES NECESSITATES A MECHANISM FOR PAYMENT / TRANSMISSION OF VALUE OF COMMODITIES, SERVICES OTHER RESOURCES FROM ONE COUNTRY TO THE OTHER COUNTRY AND ALSO FOR CONVERSION OF CURRENCY OF ONE COUNTRY INTO THAT OF ANOTHER COUNTRY CAN BE BEST EFFECTED THROUGH BANKS. SUCH TRANSACTIONS OF BANKS ARE KNOWN AS CROSS BORDER BANKING FUNCTIONS.

2 Chapter No. 6 Page No. 124 CROSS BORDER TRADE FINANCE IT REFERS TO THE FINANCING OF FOREIGN TRADE AND INCLUDES EXPORT FINANCE AND IMPORT FINANCE. THE INTERNATIONAL TRADE IS BASED ON THE PRINCIPLE OF COMPARATIVE ADVANTAGE WHICH ARISE OUT OF DIFFERENCES IN RESOURCES, COSTS, DEMAND AND SUPPLY TECHNOLOGY BETWEEN THE COUNTRIES. THE COMPARATIVE ADVANTAGE REFERS TO THE RELATIVE EFFICIENCY OF PRODUCING GOODS AND SERVICES. COUNTRIES ENGAGE IN EXPORT AND IMPORT OF GOODS AND SERVICES DUE TO DIFFERENCES IN RELATIVE EFFICIENCIES OF PRODUCTION.

3 Chapter No. 6 Page No. 124 EXPORT FINANCE EXPORTER NEED FINANCIAL ASSISTANCE FOR THE EXECUTION OF AN EXPORT ORDER FROM THE DATE OF RECEIPT OF AN EXPORT ORDER TILL THE DATE OF REALIZATION OF EXPORT PROCEEDS AT ANY STAGE. EXPORT FINANCE IS A SHORT- TERM CAPITAL FINANCE ALLOWED TO AN EXPORTER. EXPORT FINANCE CAN BE CLASSIFIED INTO TWO CATEGORIES, DEPENDING UPON AT WHAT STAGE OF EXPORT ACTIVITY THE FINANCE IS EXTENDED. PRE-SHIPMENT FINANCE AND POST SHIPMENT FINANCE.

4 Chapter No. 6 Page No. 125 PRE-SHIPMENT FINANCE PRE-SHIPMENT FINANCE IS FINANCIAL ASSISTANCE EXTENDED TO THE EXPORTERS, PRIOR TO SHIPMENT OF EXPORTS. PRE-SHIPMENT FINANCE CAN BE CLASSIFIED AS : PACKING CREDIT (DOMESTIC CURRENCY). ADVANCES AGAINST CHEQUES / DEMAND DRAFTS RECEIVED AS ADVANCE PAYMENT. PRE-SHIPMENT CREDIT IN FOREIGN CURRENCY (PCFC)

5 Chapter No. 6 Page No. 125 PRE-SHIPMENT CREDIT / PACKING CREDIT PACKING CREDIT MEANS: 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. 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 EXPORT OF GOODS.

6 Chapter No. 6 Page No. 125 PERSONS ELIGIBLE FOR PACKING CREDIT AN EXPORTER WHO HAS AN IMPORT-EXPORT CODE NUMBER (IEC). HE SHOULD NOT BE IN THE CAUTION LIST OF ECGC. SHOULD HAVE A LETTER OF CREDIT OPENED IN HIS FAVOUR OR A CONFIRMED AND IRREVOCABLE ORDER FOR EXPORT OF GOODS. PACKING CREDIT LOAN CAN ALSO BE ALLOWED TO THE SUPPORTING MANUFACTURER SUPPLIER OF THE GOODS WHO DO NOT HAVE EXPORT ORDERS OR L / C IN THEIR NAME.

7 Chapter No. 6 Page No. 126 BASIS FOR ALLOWING PACKING CREDIT NAME OF THE OVERSEAS BUYER. PARTICULARS OF GOODS TO BE EXPORTED. QUANTITY AND UNIT PRICE OF GOODS TO BE EXPORTED. DATE OF SHIPMENT AND TERMS OF SALES AND PAYMENTS.

8 Chapter No. 6 Page No. 126 SANCTION OF EXPORT CREDIT LIMIT THE BANK SHOULD LOOK INTO THE ASPECTS OF PRODUCT PROFILE, COUNTRY PROFILE AND COMMODITY PROFILE. EXPORTER IS A REGULAR CUSTOMER, BONAFIDE EXPORTER AND HAS A GOOD STANDING IN THE MARKET. EXPORTER IS NOT IN THE CAUTION LIST. EXPORTER HAS AN IEC CODE ALLOTTED BY DGFT. GOODS SHOULD NOT BE CLASSIFIED AS BANNED / CANALIZED/ RESTRICTED AND HAS A VALID LICENCE FOR THE SAME IF REQUIRED. EXPORTER SHOULD NOT BE UNDER ECGC s SPECIFIC APPROVAL LIST. (SIL)

9 Chapter No. 6 Page No. 127 PERIOD OF FINANCE PACKING CREDIT FINANCE BEING A NEED BASED AND SHORT TERM FINANCE. 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 AND SHIPPING RELATIVE GOODS. IT IS PRIMARILY FOR THE BANKS TO DECIDE THE PERIOD TO ENABLE THE EXPORTER TO SHIP THE GOODS. IF PRE-SHIPMENT ADVANCES ARE NOT ADJUSTED BY SUBMISSION OF EXPORT DOCUMENTS WITHIN 180 DAYS FROM THE DATE OF ADVANCE, THEN THE BANK WILL CHARGE AT CONCESSIONAL RATE OF INTEREST.

10 Chapter No. 6 Page No. 128 MAINTENANCE OF ACCOUNTS SEPARATE LOAN ACCOUNTS FOR EACH PACKING CREDIT LOAN AGAINST PARTICULAR EXPORT ORDER. BANKS MAY RELEASE THE PACKING CREDIT IN ONE LUMP SUM OR IN STAGES AS PER REQUIREMENTS. BANKS MAY MAINTAIN DIFFERENT ACCOUNTS AT VARIOUS STAGES OF PROCESSING, MANUFACTURING etc. DEPENDING UPON THE TYPES OF GOODS TO BE EXPORTED. OUTSTANDING BALANCE IN ACCOUNTS ARE ADJUSTED BY TRANSFER FROM ONE ACCOUNT TO THE OTHER AND FINALLY BY PROCEEDS A OF RELATIVE EXPORT DOCUMENTS.

11 Chapter No. 6 Page No. 128 DISBURSAL OF LOAN ACCOUNTS PROPER END USE OF FUNDS SHOULD ALWAYS BE ENSURED. PCL SHOULD NOT BE DISBURSED IN LUMP SUM AMOUNT. PCL SHOULD BE DISBURSED IN PHASED MANNER TAKING INTO ACCOUNT THE PRODUCTION CYCLE, REQUIREMENT OF FUNDS AND SHIPMENT SCHEDULE. PCL SHOULD BE DISBURSED BY MAKING DIRECT PAYMENT TO THE SUPPLIERS. IF IT IS NOT POSSIBLE TO MAKE PAYMENT DIRECT TO THE SUPPLIERS, THEN THE LOAN CAN BE CREDITED TO THE EXPORTER S CURRENT ACCOUNT AND DRAWING FROM THERE SHOULD BE SUPERVISED.

12 Chapter No. 6 Page No. 129 LIQUIDATION OF PACKING CREDIT ADVANCE ALL PACKING CREDIT LOANS MUST BE ADJUSTED BY PROCEEDS OF EXPORT BILLS PURCHASED /NEGOTIATED OR PSEF / RUPEE ADVANCE ALLOWED. THE LOANS CAN ALSO BE ADJUSTED BY THE PROCEEDS OF CASH INCENTIVE / DUTY DRAW BACK CLAIMS OR ANY OTHER ENTITLEMENT IN CONNECTION WITH THE EXPORTS RECEIVED FROM THE GOVT. LOANS CAN NOT BE ADJUSTED BY EXPORT PROCEEDS DUE TO EXPORTER S FAILURE TO SHIP THE GOODS. IN NO CASE THE PCL SHOULD REMAIN OUTSTANDING IF THE RELATIVE SHIPMENT HAS TAKEN PLACE AND THE DOCUMENTS HAVE BEEN SUBMITTED TO THE BANK.

13 Chapter No. 6 Page No. 130 PRE-SHIPMENT CREDIT IN FOREIGN CURRENCY BANKS CAN EXTEND PRE-SHIPMENT CREDIT IN FOREIGN CURRENCY (PCFC) TO EXPORTERS FOR DOMESTIC AND IMPORTED INPUTS OF EXPORTED GOODS AT LIBOR/EURO LIBOR/EURIBOR RELATED RATES OF INTEREST. IT IS AN ADDITIONAL WINDOW FOR PROVIDING PRE- SHIPMENT CREDIT TO INDIAN EXPORTERS AT INTERNATIONALLY COMPETITIVE RATES OF INTEREST. BANKS ARE COVERING ALL PRE-SHIPMENT ADVANCES GRANTED BY THEM UNDER WHOLE TURNOVER PACKING CREDIT GUARANTEE POLICY FROM EXPORT CREDIT GUARANTEE CORPORATION LTD.

14 Chapter No. 6 Page No. 130 DEFERRED PAYMENT EXPORTS o o o CONTRACTS: EXPORTS UNDER DEFERRED PAYMENT ARRANGEMENT MAY BE UNDER SIMPLE CONTRACTS. GOODS SUPPLIED: THE GOODS TRADED IN UNDER DEFERRED PAYMENT ARRANGEMENTS CONSISTS USUALLY OF HIGH PRICED CAPITAL AND ENGINEERING GOODS. TERMS OF PAYMENT: LONG TERM CREDIT TO THE OVERSEAS BUYER IS OFFERED. 2 YEARS FOR CONSUMER DURABLES AND OTHER ENGINEERING GOODS. 11 YEARS FOR CAPITAL AND PRODUCER GOODS. 12 YEARS FOR TURNKEY PROJECTS.

15 Chapter No. 6 Page No. 131 BUYER S CREDIT IN FOREIGN TRADE, THE BUYER S CREDIT REFERS TO A LONG TERM CREDIT GRANTED BY THE EXPORTER S BANKER TO THE OVERSEAS BUYER ON AN UNDERTAKING TO PAY THE VALUE OF EXPORTS BY INSTALLMENTS AT REGULAR INTERVALS OVER A SPECIFIED NUMBER OF YEARS, AND FURNISHING A BANK GUARANTEE.

16 Chapter No. 6 Page No. 134 TURNKEY PROJECTS RBI APPROVAL: ANY OFFER FOR A TURNKEY PROJECT ABROAD, IRRESPECTIVE OF THE VALUE OR NATURE OF THE CONTRACT, MAY BE MADE BY AN INDIAN EXPORTER / CONTRACTOR ONLY WITH THE PRIOR APPROVAL OF THE RESERVE BANK. EXIM BANK S PACKAGE CLEARANCE: THE EXIM BANK IN GRANTING THE APPROVAL CONSIDERS THE : ECONOMIC AND TECHNICAL VIABILITY OF THE OVERSEAS PROJECT. CONT.

17 Chapter No. 6 Page No. 134 TURNKEY PROJECTS APPOINTMENT OF AN OVERSEAS AGENT TO SECURE MARKET INFORMATION, FOLLOW UP THE BID, LIAISON WITH THE FOREIGN BUYER. THE MANNER OF FINANCING THIRD COUNTRY PURCHASES, IF ANY REQUIRED UNDER THE CONTRACT. ACCOUNT ABROAD: ONE OR MORE FOREIGN CURRENCY ACCOUNTS INTHE COUNTRY OF THE PROJECT OR ANY OTHER COUNTRY MAY BE OPENED BY THE EXPORTER WITH THE APPROVAL OF THE RESERVE BANK, TO FACILITATE TO ROUTE THE EXPENDITURE THROUGH THE SAID ACCOUNT. CONT.

18 Chapter No. 6 Page No. 135 TURNKEY PROJECTS SITE OFFICE : A SITE OFFICE MAY BE ESTABLISHED IN THE FOREIGN COUNTRY WHERE THE PROJECT IS BEING EXECUTED. THIRD PARTY PURCHASES: WHERE A PROJECT NECESSITATE IMPORTS FROM A THIRD COUNTRY TO THE FOREIGN COUNTRY IN WHICH THE PROJECT HAS BEEN UNDERTAKEN SUCH IMPORTS SHOULD NORMALLY BE PAID IN CASH. A FOREIGN CURRENCY LOAN OR OVERDRAFT FOR THE PURPOSE OF BRIDGING THE TEMPORARY SHORTFALL IN CASH FLOW IN EXECUTION OF THE EXPORT ORDER MAY BE RAISED.

19 Chapter No. 6 Page No. 135 JOINT VENTURE ABROAD THE RESERVE BANK EXTENDS TO THE FIRMS AND COMPANIES WHICH HAVE OBTAINED THE GOVERNMENT S PERMISSION : ITS APPROVAL TO OPEN OFFICES, APPOINT AGENTS OR POST REPRESENTATIVES ABROAD IN CONNECTION WITH THE JOINT VENTURE OR THE CONSULTANCY SERVICES / TECHNICAL SERVICES. THE PURPOSE IS TO ASSIST THE EXPORTERS TO AUGMENT THEIR EXPORT EARNINGS OR TO PROVIDE AFTER SALES SERVICE AND CONSUMER ADVICE FOR SOPHISTICATED MACHINERY AND ENGINEERING GOODS EXPORTED ABROAD.

20 Chapter No. 6 Page No. 135 BANK CREDIT CREDIT FROM AN ELIGIBLE BANK FOR EXPORTS UNDER A SUPPLY OR TURNKEY CONTRACT UNDER DEFERRED PAYMENT TERMS MAY BE HAD AT THE PRE-SHIPMENT AND / OR POST-SHIPMENT STAGE AT A PREFERENTIAL RATE OF INTEREST.