7/27/2019 IM Marketing
http://slidepdf.com/reader/full/im-marketing 1/25
SURVEY REPORT
ON
ICICI BANK
FOR
INTERNATIONAL MARKETING
BY
NAME ROLL NO
VIKAS DUSA 14
NAGESHRI KARHADE 29
PRATIMA PATIL 98
SUPRIYA PAWAR 100DEEPIKA SHETTY 110
SUBMITTED
TO
PROF. HEMA DEOGHARKAR
7/27/2019 IM Marketing
http://slidepdf.com/reader/full/im-marketing 2/25
ICICI BANK SURVEY
ICICI Bank provides vital services to help focus on business and compete in global
markets. Trade services strengthen business relationships by ensuring reliability
and speed in business documentation and payments. Global Trade offersoutstanding opportunities to sell & source products in a complex & fast changing
landscape. Whether you are an exporter or an importer, ICICI Bank has the right
expertise and services to help improve earnings & develop opportunities in the
Global market place. ICICI specialise in forex services & currency risk hedging,
documentary collection & credit, bank guarantee, export & import finance to
provide personalised services through our dedicated & experienced Relationship
Managers
1. What are the steps for getting foreign project finance?
Pre Shipment Finance is issued by a financial institution when the seller wants the
payment of the goods before shipment. The main objectives behind preshipment
finance or pre export finance are to enable exporter to
Procure raw materials.
Carry out manufacturing process.
Provide a secure warehouse for goods and raw materials.
Process and pack the goods.
Ship the goods to the buyers.
Meet other financial cost of the business.
Types of Pre Shipment Finance
1. Packing Credit
2. Advance against Cheques/Draft etc. representing Advance Payments.
Packing Credit - is 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
favor or in favor of some other person, by an overseas buyer or a confirmed and
irrevocable order for the export of goods from the producing country or any other
7/27/2019 IM Marketing
http://slidepdf.com/reader/full/im-marketing 3/25
evidence of an order for export from that country having been placed on the
exporter or some other person, unless lodgment of export orders or letter of
credit with the bank has been waived.
Packing Credit is extended in the following forms:
Packing Credit in Indian Rupee
Packing Credit in Foreign Currency (PCFC)
Requirements for Getting Packing Credit
This facility is provided to an exporter who satisfies the following criteria
A ten digit Importer - Exporter Code (IE Code ) number allotted by DGFT.
Exporter should not be in the caution list of RBI. If the goods to be exported are
not under OGL (Open General License), the exporter should have the required
license /quota permit to export the goods.
Packing credit facility can be provided to an exporter on production of the
following evidences to the bank:
Formal application for releasing the packing credit with undertaking to the effectthat the exporter would be ship the goods within stipulated due time and submit
the relevant shipping documents to the banks within prescribed time limit.
Firm order or irrevocable L/C or original cable / fax / telex message exchange
between the exporter and the buyer.
License issued by DGFT if the goods to be exported fall under the restricted or
canalized category. If the item falls under quota system, proper quota allotment
proof needs to be submitted.
The confirmed order received from the overseas buyer should reveal theinformation about the full name and address of the overseas buyer, description
quantity and value of goods (FOB or CIF), destination port and the last date of
payment.
7/27/2019 IM Marketing
http://slidepdf.com/reader/full/im-marketing 4/25
Different Stages of Packing Credit
I. Appraisal and Sanction of Limits - Before making any an allowance for Credit
facilities, banks need to check the different aspects like product profile, political
and economic details about country. Apart from these things, the bank also looks
in to the status report of the prospective buyer, with whom the exporterproposes to do the business.
The Bank extended the packing credit facilities after ensuring the following :-
The exporter is a regular customer, a bona fide exporter and has a goods standing
in the market.
Whether the exporter has the necessary license and quota permit (as mentioned
earlier) or not.
Whether the country with which the exporter wants to deal is under the list of
Restricted Cover Countries (RCC) or not.
II. Disbursement of Packing Credit Advance - Once the proper sanctioning of the
documents is done, bank ensures whether exporter has executed the list of
documents mentioned earlier or not. Disbursement is normally allowed when all
the documents are properly executed.
Sometimes an exporter is not able to produce the export order at time of availing
packing credit. So, in these cases, the bank provides a special packing credit
facility and is known as Running Account Packing.
Before disbursing the bank specifically check for the following particulars in thesubmitted documents"
Name of buyer
Commodity to be exported
Quantity
Value (either CIF or FOB)
Last date of shipment / negotiation.
Any other terms to be complied with
The quantum of finance is fixed depending on the FOB value of contract /LC or the
domestic values of goods, whichever is found to be lower. Normally insurance and
freight charged are considered at a later stage, when the goods are ready to be
shipped.
7/27/2019 IM Marketing
http://slidepdf.com/reader/full/im-marketing 5/25
In this case disbursals are made only in stages and if possible not in cash. The
payments are made directly to the supplier by drafts/bankers/cheques.
The bank decides the duration of packing credit depending upon the time
required by the exporter for processing of goods.
The maximum duration of packing credit period is 180 days; however bank mayprovide a further 90 days extension on its own discretion, without referring to
RBI.
III. Follow up of Packing Credit Advance - Exporter needs to submit stock
statement giving all the necessary information about the stocks. It is then used by
the banks as a guarantee for securing the packing credit in advance. Bank also
decides the rate of submission of these stocks.
IV. Liquidation of Packing Credit Advance - Packing Credit Advance needs be
liquidated out of as the export proceeds of the relevant shipment, thereby
converting pre- shipment credit into post shipment credit. In case if the exportdoes not take place then the entire advance can also be recovered at a certain
interest rate. RBI has allowed some flexibility in to this regulation under which
substitution of commodity or buyer can be allowed by a bank without any
reference to RBI. Hence in effect the packing credit advance may be repaid by
proceeds from export of the same or another commodity to the same or another
buyer. However, bank need to ensure that the substitution is commercially
necessary and unavoidable.
V. Overdue Packing - Bank considers a packing credit as an overdue, if the
borrower fails to liquidate the packing credit on the due date. And, if thecondition persists then the bank takes the necessary step to recover its dues as
per normal recovery procedure.
Packing Credit in Foreign Currency (PCFC)
Authorized dealers are permitted to extend Pre-shipment Credit in Foreign
Currency (PCFC) with an objective of making the credit available to the exporters
at internationally competitive price. This is considered as an added advantage
under which credit is provided in foreign currency in order to facilitate the
purchase of raw material after fulfilling the basic export orders. The rate of interest on PCFC is linked to London Inter-bank Offered Rate (LIBOR). The
exporter has freedom to avail PCFC in convertible currencies like USD, Pound,
Sterling, Euro, Yen etc. However, the risk associated with the cross currency
truncation is that of the exporter.
7/27/2019 IM Marketing
http://slidepdf.com/reader/full/im-marketing 6/25
The sources of funds for the banks for extending PCFC facility include the Foreign
Currency balances available with the Bank in Exchange, Earner Foreign Currency
Account (EEFC), Resident Foreign Currency Accounts RFC(D) and Foreign
Currency(Non Resident) Accounts.
Advance against Cheque/Drafts received as advance payment - Where exportersreceive direct payments from abroad by means of cheques/drafts etc. the bank
may grant export credit at concessional rate to the exporters of goods track
record, till the time of realization of the proceeds of the cheques or draft etc. The
Banks however, must satisfy themselves that the proceeds are against an export
order.
Post Shipment Finance is a kind of loan provided by a financial institution to an
exporter or seller against a shipment that has already been made. This type of
export finance is granted from the date of extending the credit after shipment of the goods to the realization date of the exporter proceeds. Exporters don’t wait
for the importer to deposit the funds.
Basic Features
The features of post-shipment finance are:
Post-shipment finance is meant to finance export sales receivable after the date
of shipment of goods to the date of realization of exports proceeds. In cases of
deemed exports, it is extended to finance receivable against supplies made to
designated agencies.A post-shipment finance is provided against evidence of shipment of goods or
supplies made to the importer or seller or any other designated agency.
Post -shipment finance can be secured or unsecured. Since the finance is
extended against evidence of export shipment and bank obtains the documents
of title of goods, the finance is normally self liquidating.
As a quantum of finance, post-shipment finance can be extended up to 100% of
the invoice value of goods. In special cases, where the domestic value of the
goods increases the value of the exporter order, finance for a price difference can
also be extended and the price difference is covered by the government.Post-shipment finance can be of short terms or long term, depending on the
payment terms offered by the exporter to the overseas importer. In case of cash
exports, the maximum period allowed for realization of exports proceeds is six
months from the date of shipment. Concessive rate of interest is available for a
highest period of 180 days, opening from the date of surrender of documents.
7/27/2019 IM Marketing
http://slidepdf.com/reader/full/im-marketing 7/25
Usually, the documents need to be submitted within 21days from the date of
shipment.
Financing For Various Types of Export Buyer's Credit
Post-shipment finance can be provided for three types of export:
Physical exports: Finance is provided to the actual exporter or to the exporter in
whose name the trade documents are transferred.
Deemed export: Finance is provided to the supplier of the goods which are
supplied to the designated agencies.
Capital goods and project exports: Finance is sometimes extended in the name of
overseas buyer. The disbursal of money is directly made to the domestic exporter.
Types of Post Shipment Finance:-The post shipment finance can be classified as :
Export Bills purchased/discounted.
Export Bills negotiated
Advance against export bills sent on collection basis.
Advance against export on consignment basis
Advance against undrawn balance on exports
Advance against claims of Duty Drawback.
Export Bills Purchased/ Discounted. (DP & DA Bills) - Export bills (Non L/C
Bills) is used in terms of sale contract/ order may be discounted or purchased by
the banks. It is used in indisputable international trade transactions and the
proper limit has to be sanctioned to the exporter for purchase of export bill
facility.
Export Bills Negotiated (Bill under L/C) - The risk of payment is less under the LC,
as the issuing bank makes sure the payment. The risk is further reduced, if a bank
guarantees the payments by confirming the LC. Because of the inborn securityavailable in this method, banks often become ready to extend the finance against
bills under LC.
However, this arises two major risk factors for the banks:
7/27/2019 IM Marketing
http://slidepdf.com/reader/full/im-marketing 8/25
The risk of nonperformance by the exporter, when he is unable to meet his terms
and conditions. In this case, the issuing banks do not honor the letter of credit.
The bank also faces the documentary risk where the issuing bank refuses to
honour its commitment. So, it is important for the for the negotiating bank, and
the lending bank to properly check all the necessary documents beforesubmission.
Advance against Export Bills Sent on Collection Basis - Bills can only be sent on
collection basis, if the bills drawn under LC have some discrepancies. Sometimes
exporter requests the bill to be sent on the collection basis, anticipating the
strengthening of foreign currency. Banks may allow advance against these
collection bills to an exporter with a concessional rates of interest depending
upon the transit period in case of DP Bills and transit period plus usance period in
case of usance bill.The transit period is from the date of acceptance of the export documents at the
banks branch for collection and not from the date of advance.
Advance against Export on Consignments Basis - Bank may choose to finance
when the goods are exported on consignment basis at the risk of the exporter for
sale and eventual payment of sale proceeds to him by the consignee.
However, in this case bank instructs the overseas bank to deliver the document
only against trust receipt /undertaking to deliver the sale proceeds by specified
date, which should be within the prescribed date even if according to the practice
in certain trades a bill for part of the estimated value is drawn in advance againstthe exports.
Advance against Undrawn Balance - It is a very common practice in export to
leave small part undrawn for payment after adjustment due to difference in rates,
weight, quality etc. Banks do finance against the undrawn balance, if undrawn
balance is in conformity with the normal level of balance left undrawn in the
particular line of export, subject to a maximum of 10 percent of the export value.
An undertaking is also obtained from the exporter that he will, within stipulated
time from due date of payment or the date of shipment of the goods, whichever
is earlier surrender balance proceeds of the shipment.Advance Against Claims of Duty Drawback - Duty Drawback is a type of discount
given to the exporter in his own country. This discount is given only, if the in-
house cost of production is higher in relation to international price. This type of
financial support helps the exporter to fight successfully in the international
markets.
7/27/2019 IM Marketing
http://slidepdf.com/reader/full/im-marketing 9/25
In such a situation, banks grants advances to exporters at lower rate of interest
for a maximum period of 90 days. These are granted only if other types of export
finance are also extended to the exporter by the same bank.
After the shipment, the exporters lodge their claims, supported by the relevant
documents to the relevant government authorities. These claims are processedand eligible amount is disbursed after making sure that the bank is authorized to
receive the claim amount directly from the concerned government authorities.
2. Finance in Rs or $
Export Finance
Avail ICICI Banks Export Finance services to facilitate cash flow in your business.
Our Export Finance is available in Indian rupees and foreign currency, tailor-madeto support your export requirements. ICICI Banks Export Finance services include
both pre-shipment and post-shipment credit.
Obtain pre-shipment finance in the form of Export Packing Credit to finance
purchase or import of raw materials and processing and packing of goods for
export. Our pre-shipment credit is based on actual trading cycles.
Post-shipment credit finances export sales receivables after you have shipped the
goods until the export proceeds are realized. ICICI Bank offers post-shipmentcredit in the form of Export Bill Negotiation.
The ICICI Bank Edge
Competitive rate of interest
Negotiation, payment or acceptance of export documents under letter of credit
Document scrutiny services to ensure compliance with LC terms and conditions
Arranging forfeiting of your export bills drawn under LC at very competitive rates,
without recourse to you
7/27/2019 IM Marketing
http://slidepdf.com/reader/full/im-marketing 10/25
3. What do you mean by fund based and non fund based finance?
Fund-based working capital products include cash credit, overdraft, bill
discounting, short-term loans, and export financing (pre-shipment as well as post-
shipment). Non fund based facilities include letters of credit and bank guarantees.
Non Fund Based
Letter of Credit
With ICICI Banks Letter of Credit, you can be assured of timely and correct
payments from your buyers. Now, interact with ease even with companies with
whom you have had limited experience or are unsure of their credit history.
ICICI Bank offers inland and foreign LCs of two types Sight LC and Usance LC. Sight
LC commands immediate payment on presentation of the necessary documents.
In case of a Usance LC, payment is set for a specified future date only after
acceptance of presented documents.
The ICICI Bank Edge
Sanctioned and issued quickly
Competitively priced
Usance period of up to 180 days Assessment based on a parameterized model.
ICICI Bank LCs can also be availed against 100% cash margin in the form of Fixed
Deposits
ICICI Bank LCs are available against 25%-35% cash margin and 100% collateral
security in the form of residential property or liquid securities. ICICI Bank holds
first charge on current assets.
Bank GuaranteeICICI Banks Bank Guarantees are available to you against minimal requirements
and in the shortest possible time. ICICI Banks Bank Guarantees are also available
in foreign currency for approved purposes as defined under FEMA.
7/27/2019 IM Marketing
http://slidepdf.com/reader/full/im-marketing 11/25
The ICICI Bank Edge
Maximum tenor of guarantee 18 months
Valid for a maximum of 10 years
Competitively priced
ICICI Bank also issues Bank Guarantees against 25% cash margin and 100%
collateral security in the form of residential property or liquid securities. Bank
guarantees in foreign currency are available against credit limits or 100% cash
margin.
Fund based
Exports Pre-shipment Finance We provide pre-shipment finance in the form of Export Packing Credit (EPC) to
help you to meet your working capital needs while manufacturing your goods for
export. We provide Export Packing Credit both in rupee as well as foreign
currency at competitive rates.
Export Letter of Credit Advising
Exporters can insist that their export Letters of Credit are advised through ICICI
Bank to ensure timely delivery.
Export Letter of Credit Confirmation
Benefit from the credit strength of ICICI Bank for confirmation of export Letters of
Credit received from other foreign banks. With ICICI Bank's confirmation services,
you can eliminate the foreign bank and country risks from your export collections.
Once we add our confirmation to the Letter of Credit, you are assured of
payment, subject to non-discrepant documents, irrespective of non-payment by
LC opening bank.
Purchase /Discounting of Export Bills
Do not worry when your exports are not covered under Letter of credit. Against
sanctioned credit limits, we can pay you the discounted value of your invoice,
immediately on shipment. The proceeds will be credited to your account if the
export documents are presented before cut off time at your ICICI Bank branch.
7/27/2019 IM Marketing
http://slidepdf.com/reader/full/im-marketing 12/25
We offer this at competitive rates both in rupee as well as foreign currency and
with world-class service standards.
Negotiation of Export Bills under Letter of Credit
Against sanctioned credit limits, we negotiate your export bills drawn underLetter of Credit, if the documents are found to be strictly in terms with the Letter
of Credit conditions. We offer this at competitive rates both in rupee as well as
foreign currency and with world-class service standards.
Forfaiting:
Forfaiting means discounting of receivables, under a Letter of Credit or Co-
accepted Bills of Exchange, 'without recourse' on a fixed rate basis. Generally,
Forfaiting is often applied where the exporter is selling goods on credit terms and
the export receivables are guaranteed by the importer's bank. This service
enables you to fund your working capital requirements and allows you to secure
deals that might otherwise not have been possible.
Export Bill Collection
Concentrating your Documentary Collection activities with ICICI Bank, you can
eliminate many of your exporting hassles. Not only will your international banking
become much more uniform, you can experience fewer delays in receiving
payment, effortlessly access collection information details, gain increased controlover export receivables and have an efficient cash flow management.
Advances against exports on Consignment basis
ICICI Bank can provide financing for export on consignment basis, wherein goods
are exported at the risk of the exporter for sale and eventual payment of sale
proceeds to him by the consignee.
Factoring
It is a service that covers the financing and collection of account receivables in
domestic and international trade. It is an ongoing arrangement between the
client and Factor (ICICI Bank), where client assigns the receivables to the Factor.
By obtaining payment of the invoices immediately from the factor, the company's
cash flow is improved. At the same time due to the involvement of Factor, your
credit risk on the buyer is also minimized.
7/27/2019 IM Marketing
http://slidepdf.com/reader/full/im-marketing 13/25
4. Importance of bank guarantee
What is Bank Guarantee?
A Bank Guarantee is a guarantee issued by a banker that, in case of an occurrence
or non-occurrence of a particular event, the bank guarantees to make good the
loss of money as stipulated in the contract.
Bank analyses the creditworthiness or the business capacity of its clients and then
issues various types of bank guarantees like Financial Guarantees, Performance
Bank Guarantees, Deferred Payment Guarantees. Bank guarantees can be issued
against Cash Margin and Mortgage of Immovable Properties.
5. How is LC used
What is Letter of Credit?
When a buyer want to purchase goods or importer wants to import goods from
an unknown seller or exporter, he can take assistance of banks in such buying or
importing transactions.
On the basis of creditworthiness, a Bank issues a Letter of Credit addressed to the
supplier or exporter who, on the strength of Letter of Credit issued by a reputed
bank, will not hesitate to supply or export goods to such unknown buyer/
importer. After the goods are supplied, A Signed Invoice with a Letter of Credit is
presented to the banker of buyer / importer and the payment is made to the
seller/exporter directly by the bank.
Step-by-step process:
Buyer and seller agree to conduct business. The seller wants a letter of
credit to guarantee payment.
Buyer applies to his bank for a letter of credit in favor of the seller.
Buyer's bank approves the credit risk of the buyer, issues and forwards the
credit to its correspondent bank (advising or confirming). The
7/27/2019 IM Marketing
http://slidepdf.com/reader/full/im-marketing 14/25
correspondent bank is usually located in the same geographical location as
the seller (beneficiary).
Advising bank will authenticate the credit and forward the original credit to
the seller (beneficiary).
Seller (beneficiary) ships the goods, then verifies and develops thedocumentary requirements to support the letter of credit. Documentary
requirements may vary greatly depending on the perceived risk involved in
dealing with a particular company.
Seller presents the required documents to the advising or confirming bank
to be processed for payment.
Advising or confirming bank examines the documents for compliance with
the terms and conditions of the letter of credit.
If the documents are correct, the advising or confirming bank will claim the
funds by:o Debiting the account of the issuing bank.
o Waiting until the issuing bank remits, after receiving the documents.
o Reimburse on another bank as required in the credit.
Advising or confirming bank will forward the documents to the issuing
bank.
Issuing bank will examine the documents for compliance. If they are in
order, the issuing bank will debit the buyer's account.
Issuing bank then forwards the documents to the buyer.
6. What is an EEFC Account and what are its benefits?
Ans. Exchange Earners' Foreign Currency Account (EEFC) is an account maintained
in foreign currency with an Authorised Dealer i.e. a bank dealing in foreign
exchange. It is a facility provided to the foreign exchange earners, including
exporters, to credit 100 per cent of their foreign exchange earnings to the
account, so that the account holders do not have to convert foreign exchange intoRupees and vice versa, thereby minimizing the transaction costs.
7/27/2019 IM Marketing
http://slidepdf.com/reader/full/im-marketing 15/25
EEFC Account
Indian exports have surged over the last decade owing to an unprecedented
boom in sectors like software, biotechnology, gems, jewellery, textiles etc. As a
result of this, the volume of inward remittances has also increased significantly.
To shield the firms engaged in regular export and import from the exchange ratefluctuations RBI has allowed parking of foreign currency by exporters in an
account designated as Exchange Earners Foreign Currency Account (EEFC). EEFC
accounts are Current Accounts held in foreign currency with authorized dealers of
foreign exchange in the country.
Eligibility
A person resident in India may open, hold and maintain theEEFC Account, subject
to terms and conditions as may be specified by RBI from time to time includingthe FEMA Regulations 2000 governing EEFC Account and the Foreign Exchange
Management Act, 1999.
Documentation
All the account opening for EEFC accounts will be done at COPS only. The forms
have to be stored in the branch itself. All the documents would be scanned
through Omnidocs to COPS.
The documents required for opening an EEFC account is the same as that required
for opening an RCA, wherever an existing RCA account reference is given.
Additionally, the proof of status of the client is required.
Common Documents Check list for Account Opening
The documents / information required to be scanned / couriered to COPS are as
below:
Completely filled-in & signed EEFC Account Opening form.
Constitution Document like the board resolution, partnership letter,
propreitorship letter etc authorising the EEFC account opening. The Board
Resolution / Partnership letter / propreitorship letter should mention the
currency in which the account is to be opened.
7/27/2019 IM Marketing
http://slidepdf.com/reader/full/im-marketing 16/25
The proof of status (i.e. whether the unit is located in SEZ, STP or EHTP etc.)
should accompany the AOF and other documents being sent to COPS.
Importer- Exporter Code if applicable.
Nomination form, if the customer has given the consent for the same,
Nomination form is applicable only to Individual and Sole Proprietors Proof of PAN/ Form 60.
NOC from the Lending Bank(s) extending credit facility to the entity / firm, if
applicable.
Exchange Earner's Foreign Currency (EEFC) Account
Attention of Authorised Dealer Category - I (AD Category - I) banks is invited to
A.P. (DIR Series) Circular No.15 dated November 30, 2006 in terms of which all
foreign exchange earners were permitted to retain 100% of their forex earnings in
EEFC account with any AD in India.
2. On a review of the Scheme, it has been decided as under :-
a) 50% of the balances in the EEFC accounts should be converted forthwith into
rupee balances and credited to the rupee accounts as per the directions of the
account holder. This process may be completed within a fortnight from the date
of the circular and compliance reported to the Chief General Manager, ForeignExchange Department, Central Office, Trade Division, Amar Building, Sir P.M.
Road, Fort, Mumbai 400 001
b) In respect of all future forex earnings, an exchange earner is eligible to retain
50% (as against the previous limit of 100%) in non-interest bearing EEFC
accounts. The balance 50% shall be surrendered for conversion to rupee
balances.
c) The facility of EEFC scheme is intended to enable exchange earners to save onconversion/transaction costs while undertaking forex transactions in future. This
facility is not intended to enable exchange earners to maintain assets in foreign
currency, as India is still not fully convertible on Capital Account. Accordingly,
EEFC account holders henceforth will be permitted to access the forex market for
purchasing foreign exchange only after utilising fully the available balances in the
7/27/2019 IM Marketing
http://slidepdf.com/reader/full/im-marketing 17/25
EEFC accounts. ADs may, accordingly, obtain a declaration while selling foreign
exchange to their constituents.
3. It may be noted that the provisions at paragraph 2(b) and 2(c) above will apply,
mutatis mutandis, also to holder of either a Resident Foreign Currency Account(RFC) or a Diamond Dollar Account (DDA).
4. AD Category - I banks may bring the contents of this circular to the notice of
their constituents and customers concerned.
5. The directions contained in this circular have been issued under Sections 10(4)
and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are
without prejudice to permissions / approvals, if any, required under any other
law.
7. What is a foreign exchange contract?
Every foreign exchange transaction involves exchange of two currencies by the
counter parties to the transaction. The date on which the exchange is to take
place is the value date of the transaction. The standard nomenclatures for value
dates are:
Ready or cash – value todayTomorrow "tom" – value tomorrow, or next working day
Spot – value two business days after the trading date
Forwards – any value date beyond spot.
Forward exchange contract
What is it?
A forward exchange contract—also called a forward currency contract—is anagreement between you and your bank in which the bank agrees to buy or sell a
certain amount in a foreign currency at a fixed rate of exchange on, or during a
period up to, a particular date.
7/27/2019 IM Marketing
http://slidepdf.com/reader/full/im-marketing 18/25
As an exporter entering an export contract in a foreign currency, a forward
exchange contract allows you to determine at the time you sign the contract the
exchange rate which will apply to future payments from your buyer.
Elimination of exchange risk due to movement in the exchange rate can beavoided by the following options:
By invoicing in Indian Rupees.
By fixing the Foreign Exchange Contract.
First alternative is possible only when the buyer agrees to it. He may have his own
reasons for not agreeing to invoice in Indian rupees. The second alternative is
commonly resorted to. This alternative involves booking of forward exchangecontract with your bank.
This means that pending submission of documents to the bank for
purchase/negotiation, you have made firm commitment with the bank under
which you agree to sell to the bank foreign exchange at a future date/period and
the bank agrees to purchase at the firm rate the foreign exchange to be tendered
by you on that date / during the agreed period.
Thus you are in a position to know in advance the exchange rate you are going toget on submission of your export documents. Thus, though you have to pay some
charge for booking a forward contract, you are certain about the rupee amount of
the bill on conversion of foreign currency at a future date. For booking a forward
contract, you should approach your bank with whom you are enjoying a credit
limit.
The bank will book a forward contract only against a firm export order showing
description and quantity of the goods to be supplied, aggregate price and
approximate date of shipment. The bank can accept telex, cable order/fax in thisregard, provided you give an undertaking to produce the original one. Where
shipment has already been completed, forward contract will be booked on the
basis of export bill tendered by you. It can also be booked against an irrevocable
Letter of Credit provided L/C is complete in all respects and you give a declaration
to the bank that you have not booked any forward contract against the underlying
sale contract covering shipments under the L/C. You must ensure delivery of the
7/27/2019 IM Marketing
http://slidepdf.com/reader/full/im-marketing 19/25
related documents within the agreed period of the contract. In case you fail to
deliver the documents within the specified period, the forward contract needs to
be cancelled and fresh contract booked for which your bank will levy cancellation
charges as per the FEDAI Rules.
In case the documents are delivered before the stipulated period, it will involve
early delivery and bank will levy charges for the early delivery, as per FEDAI Rules.
Where the documents are not delivered at all, contract has to be cancelled either
at your request or by the bank itself under certain circumstances, and this will
entail cancellation charges as per the FEDAI Rules.
It therefore becomes extremely important that the period of delivery of the
export documents is carefully chosen and strictly adhered to, so as to avoid
unnecessary charges on account of early delivery or cancellation of forward
contracts. However, facility for substitution of export order is permitted by RBI on
specific request if the unfulfilled export order and the substituted order is for the
same commodity.
8. Difference between BRC and FIRC
Bank Realization Certificate and Foreign Inward Remittance certificate. FIRC is
issued against any receipt of amount from foreign countries by a bank to their
customers. It can be an advance payment against export proceeds, ocean or
airfreight, or remuneration or wages under consultancy charges or for any other
reasons.
BRC means Bank Realization Certificate issued by bank to their customers against
any specific documents. Normally BRC is issued by a bank to their customer who
has been in to export business on each shipment of export proceeds. Various
export promotion agencies provide incentives, import duty exemptions and other
financial assistance to the exporters. These agencies requires to be submitted
export proof by exporters to claim such benefits. One of the proof of exports
other than export promotion copy of shipping bill (EP copy of shipping bill), MateReceipt issued by the carrier and/or customs authorized ARE-1 (for goods under
central excise only) is Bank Realization Certificate BRC issued by the respective
bank who received foreign amount for exporters.
7/27/2019 IM Marketing
http://slidepdf.com/reader/full/im-marketing 20/25
So once after receiving the amount under each shipment, the exporter
approaches their bank and submits the proof of exports and FIRC details (Foreign
Inward Remittance Certificate) to obtain a BRC under each shipment. This Bank
Realization Certificate BRC is submitted with the various authorities as proof of
shipment or proof of exports along with customs legal document of EP copy of shipping Bill, Mate receipt issued by carrier of goods and central excise document
of ARE – 1 where ever applicable.
Here you need to observe that an FIRC can be obtained whenever you receives
amount from foreign country. It can be an advance amount against exports or
services.
Before introducing EDI system (Electronic Data Interchange), a GR form has to be
filed by exporters along with shipping bill to customs for completion of export
procedures and formalities. The copy of shipping bill is impressed on GR form. GR
form is a document of export to be submitted with RBI to regulate foreign inward
remittance. In order to get BRC, exporter has to submit a copy of GR form to
prove the account under which they had received foreign amount.
At present, there is no FIRC or BRC required for government export promotion
agencies like DGFT or Customs department where in EDI facility available, as the
said foreign receipt is directly linked electronically with customs and DGFT
through the authorized dealer bank of exporters.
So, the exporters need not obtain FIRC (foreign inward remittance certificate) or
BRC (Bank realization certificate) from their bank to claim any export benefits
from DGFT or customs department.
9. What is ECGC?
Export Credit Guarantee Corporation of India Limited, was established in the year
1957 by the Government of India to strengthen the export promotion drive by
covering the risk of exporting on credit.
Being essentially an export promotion organization, it functions under the
administrative control of the Ministry of Commerce & Industry, Department of
Commerce, Government of India. It is managed by a Board of Directors
7/27/2019 IM Marketing
http://slidepdf.com/reader/full/im-marketing 21/25
comprising representatives of the Government, Reserve Bank of India, banking,
insurance and exporting community.
ECGC is the fifth largest credit insurer of the world in terms of coverage of
national exports. The present paid-up capital of the company is Rs.800 crores andauthorized capital Rs.1000 crores.
What does ECGC do?
Provides a range of credit risk insurance covers to exporters against loss in
export of goods and services
Offers guarantees to banks and financial institutions to enable exporters to
obtain better facilities from them
Provides Overseas Investment Insurance to Indian companies investing in
joint ventures abroad in the form of equity or loan
How does ECGC help exporters?
Offers insurance protection to exporters against payment risks
Provides guidance in export-related activities
Makes available information on different countries with its own
credit ratings
Makes it easy to obtain export finance from banks/financial
institutions
Assists exporters in recovering bad debts
Provides information on credit-worthiness of overseas buyers
Need for export credit insurance
7/27/2019 IM Marketing
http://slidepdf.com/reader/full/im-marketing 22/25
Payments for exports are open to risks even at the best of times. The risks have
assumed large proportions today due to the far-reaching political and economic
changes that are sweeping the world. An outbreak of war or civil war may block
or delay payment for goods exported. A coup or an insurrection may also bring
about the same result. Economic difficulties or balance of payment problems may
lead a country to impose restrictions on either import of certain goods or on
transfer of payments for goods imported. In addition, the exporters have to face
commercial risks of insolvency or protracted default of buyers. The commercial
risks of a foreign buyer going bankrupt or losing his capacity to pay are aggravated
due to the political and economic uncertainties. Export credit insurance is
designed to protect exporters from the consequences of the payment risks, both
political and commercial, and to enable them to expand their overseas business
without fear of loss.
10. RBI guidelines for getting funds from the final customers.
Write off of unrealised Export Bills
(i) In cases where the exporter has not been able to realise the outstanding
export dues despite his best efforts, he may approach the authorised dealer, whohad handled the relevant shipping documents, with appropriate supporting
documentary evidence with a request for write off of the unrealised portion.
Authorised dealers may accede to such requests (the branch concerned should
obtain the approval of its controlling office) subject to the undernoted conditions:
(a) The relevant amount has remained outstanding for 360 days or more.
(b) The aggregate amount of write off allowed by the authorised dealer (at all
branches put together) during a calendar year should not exceed 10% of the total
export proceeds realised by the exporter through the concerned authorised
dealer during the previous calendar year.
7/27/2019 IM Marketing
http://slidepdf.com/reader/full/im-marketing 23/25
(c) Satisfactory documentary evidence has been furnished in support of the
exporter having made all efforts to realise the dues but has been unsuccessful
due to reasons beyond his control.
(d) The case falls under any of the undernoted categories:
(i) The overseas buyer has been declared insolvent and a
certificate from the official liquidator indicating that there is no possibility of
recovery of export proceeds has been produced. (Names, addresses and other
relevant particulars of the overseas buyers who have been declared insolvent may
be intimated to ECGC for updating their files on buyers).
(ii) The overseas buyer has not been traceable over a
reasonably long period of time and suitable supporting documentary evidence to
that effect has been produced. (His name, original address and other relevant
particulars may be reported to ECGC, for updating their files).
(iii) The goods exported have been auctioned or destroyed
by the Port/Customs/Health authorities in the importing country and a certificate
issued by the said authorities or the Indian Mission or Chamber of Commerce in
the country of destination indicating that the goods have been auctioned or
destroyed has been produced.
(iv) The unrealised amount represents the balance due in a
case settled through the intervention of the Indian Embassy, Foreign Chamber of
Commerce or similar Organisation.
(v) The unrealised amount represents the undrawn balance of
an export bill (not exceeding 10 per cent of the invoice value) and has remained
outstanding and turned out to be unrealisable despite all efforts made by the
exporter. The authorised dealer should take into consideration the track record of the exporter, documentary evidence/correspondence showing that there is no
possibility of recovery of the undrawn balance, frequency of similar cases
considered in the past and the antecedents of the overseas buyer, if available,
before allowing the closure.
7/27/2019 IM Marketing
http://slidepdf.com/reader/full/im-marketing 24/25
(vi) The cost of resorting to legal action would be
disproportionate to the unrealised amount of the export bill or where the
exporter even after winning the Court case against the overseas buyer could not
execute the Court decree due to reasons beyond his control and sufficient
documentary evidence is produced to fully satisfy the authorised dealer.
(vii) Bills were drawn for the difference between the letter of
credit value and actual export value or between the provisional and the actual
freight charges but the amount has remained unrealised consequent on
dishonour of the bills by the overseas buyer and documentary evidence is
produced to show that there are no prospects of realisation.
(e) The case is not the subject matter of any civil or criminal suit which is
pending.
(f) The exporter has not come to the adverse notice of the Enforcement
Directorate or the Central Bureau of Investigation or such other law enforcement
agency.
(g) The exporter has surrendered proportionate export incentives, if any,
availed in respect of the relative shipments.
(ii) The documentary evidence received by the authorised dealer should be
kept for a period of two years or till their verification by the Reserve Bank's
Inspectors, whichever is earlier. A half yearly statement, as on June 30 and
December 31, showing particulars of export bills allowed to be written off should
be furnished to Reserve Bank in form EBW. The statement should be submitted
within fifteen days from the close of the relative half year. Where there is nofurther amount to be realised against the GR / PP form covered by the write off,
authorised dealer should submit the duplicate thereof to Reserve Bank along with
'R' return, duly certified.