HKB 05TechRiskMgmtpolicyPreshipCreditForeignCurrency
HKB 05TechRiskMgmtpolicyPreshipCreditForeignCurrency
HKB 05TechRiskMgmtpolicyPreshipCreditForeignCurrency
CHAPTER 5
PRE-SHIPMENT CREDIT IN FOREIGN CURRENCY (PCFC)
INDEX
Para No
5
TOPIC
Page No
Introduction
Currency of Credit
Operational Guidelines
Credit Limits
Period of Credit
Rate of Interest
Margin
Amount of Credit
ECGC
10
Documentation
10
Forward Contract
10
10
10
10
10
11
Adjustment of PCFC
11
12
Refinance
12
13
EEFC Accounts
12
14
12
15
Reporting in R-Return
13
16
14
17
Reporting / Disbursal
14
18
Recovery of Interest
17
19
ECGC Premium
17
20
17
21
18
22
Recovery of Commission
18
23
Disbursal of PCFC
18
23
18
23
19
24
20
25
20
26
Transfer to Overdue PC
20
27
20
27
21
28
21
29
21
30
Balancing
21
Annex No
1
Annexure
22
5.
INTRODUCTION
'Pre-shipment' 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 the export of goods
from India or any other evidence of an order for export from India having been placed on the
exporter or some other person, unless lodgment of export orders or letter of credit with the
bank has specifically been waived by RBI.
The exporters have an option :
To avail export finance at pre shipment stage in rupees and then post shipment credit
either in rupees or in foreign currency.
To avail pre-shipment credit in foreign currency and discount the export bills in
foreign currency at post shipment stage.
With a view to making credit available to exporters at internationally competitive rates,
authorised dealers have been permitted to extend Pre-shipment Credit in Foreign Currency
(PCFC) to exporters for domestic and imported inputs of exported goods at LIBOR/EURO
LIBOR/EURIBOR related interest rate.
5.1.
CURRENCY OF CREDIT:
RBI has permitted granting of pre-shipment credit in any of the convertible currencies.
However, for the present PCFC is being granted in US Dollars, GBP & EURO subject to
availability of funds.
PCFC can be extended in one convertible currency in respect of an export order invoiced in
another convertible currency at the risk and cost of cross currency transaction to the
exporter.
For example, an exporter can avail PCFC in US Dollar against an export order
invoiced in Euro. The risk and cost of cross currency transaction will be to the account of the
exporter. PCFC can also be extended for exports to ACU countries.
5.2.
OPERATIONAL GUIDELINES:
'C'
category branches are not allowed to control PCFC facility in their books and have to route
5
their transactions through either a designated 'B' or an 'A' category branch. However, for the
purpose of monitoring advances granted by 'A' / designated 'B' category branches to customers
of 'C' category branches, 'C' category branches should keep a Dummy Ledger a/c. of the
amounts of drawings and adjustments in their books and should report the amount as a foot
note in W-1 statement to Regional Office.
While considering requests for PCFC,
authorized branches
following aspects:i.
ii.
Exporters should have a satisfactory track record in the conduct of export business.
iii.
iv.
Track Record with regard to realisation of export bills on the due dates should be
satisfactory and bills should not have remained overdue, except for genuine
reasons.
v.
PCFC can be granted for deemed exports for supplies to projects, financed by
multilateral / bilateral agencies/funds, subject to usual terms and conditions
governing rupee credit for deemed exports. At the post-shipment stage the credit
is restricted to 30 days or upto the date of payment by the project authorities,
whichever is earlier.
NOTE : Drawal of PCFC is subject to availability of forex funds. Confirmation from Treasury
Branch on giving 2 days prior notice is needed.
5.3.
CREDIT LIMITS :
The Export Limits (PC and FDB) will be sanctioned in both INR and Foreign Currency
(say in USD). While assessment will be done in INR based on working capital cycle
including at pre-shipment and post shipment as per the existing methods, the foreign
currency part of it will be worked out based on latest available FEDAI rate.
Once foreign currency part is worked out as above, PCFC/FDBD outstanding will be
controlled in foreign currency.
5.4.
PERIOD OF CREDIT:
PCFC, as in the case of Rupee pre-shipment credit is initially available for a specified period
decided by sanctioning authority after taking into account relevant factors with a maximum
6
period of 180 days and branches should monitor the end use of credit as in the case of Rupee
credit.
It must also be ensured that advances granted under the PCFC Scheme are not
diverted for domestic purposes.
5.5.
RATE OF INTEREST:
Interest rate on PCFC is based on ongoing LIBOR/ EURO LIBOR / EURIBOR for appropriate
period at the time of the advance plus sanctioned spread. LIBOR / EURO LIBOR / EURIBOR
rates are normally available for standard period of 1, 2, 3, 6 and 12 months. 'B' category
branches have to disburse PCFC at the rate obtained from Treasury Branch, Mumbai
The rate of interest may change in tune with the movement of LIBOR, The rate may therefore
differ for each drawal. Interest is to be charged on PCFC availed of at the rate agreed at the
time of disbursal.
originally fixed at the time of drawal. Banks may avail lines of credit from other banks
abroad, for funding PCFC. In such cases withholding tax payable by the borrowing banks is to
be passed on to the borrower.
Note: The applicable benefit to the customers will accrue only after the realization of export
bills or where the resultant exports bills are rediscounted without recourse basis.
EXAMPLE:
Value of the contract is for USD 1 mio valid 30.1.2015
1st Disbursal : USD200,000 on 03.10.2014 Rate of interest will be 4 months LIBOR+Spread
2nd Disbursal : USD500,000 on 02.11.2014 Rate of interest will be 3 months LIBOR+Spread
3rd Disbursal : USD300,000 on 22.11.2014 Rate of interest will be 3 months LIBOR+Spread
Interest should be calculated on foreign currency balances at monthly intervals at discounted
rate.
5.6.
Extensions up to 180 days can be granted by the Head of the branch on the written request of
the exporter subject to underlying LC/order being valid. If Bank incurs extra cost in funding
the extension, the same should be recovered from the exporter. However, no gains are to be
passed on. All extensions are to be reported to Dealing Room who will inform the branch
regarding recovery of extra funding cost.
Any extension beyond 180 days and up to 270 days may be granted at the option of the branch
after obtaining approval of Regional Office, subject to the export contract/LC being valid for
the extended period. Extension beyond 270 days up to a maximum period of 360 days may be
granted only under exceptional circumstances and after the necessary approval of Regional
Office subject to export contract/LC being valid for shipment. The rate of interest on PCFC
for the period/s beyond 180 days should be the rate for initial period of 180 days prevailing
at the time of extension plus 2%. If no export takes place within 360 days, the PCFC should
be adjusted at the T.T. selling rate. In case of cancellation of export order, PCFC should be
liquidated by selling equivalent amount of foreign exchange at T.T. selling rate prevailing on
the date of liquidation and interest recovered on the rupee equivalent of the principal
amount at the rate for Packing Credit adjusted not in an approved manner plus 0.125%
commission.
Branches should ensure that the reason for adjustment of PCFC with Rupee funds is genuine.
Against such export orders, Rupee Packing Credit is not to be granted again.
5.7.
MARGIN:
5.8.
AMOUNT OF CREDIT:
For operational convenience, amounts advanced under PCFC are restricted to a specified
minimum, presently US$ 10,000/-.
5.9.
E.C.G.C.:
PCFC will be covered under WTPCG of ECGC. Prior approval of ECGC is necessary for grant of
PCFC advance for exports to countries, which are in the restricted cover list of ECGC. Since
ECGC cover is available only in Rupees, ECGC premium should be paid at prevailing rate on
the average daily products worked out on the Rupee equivalent (controlled at FEDAI rates) of
outstanding in PCFC ledger on the same lines as in the case of Rupee PC advance. Separate
declarations
have
to
be
submitted
for
PCFC
and
Rupee
PC.
5.10. DOCUMENTATION :
Branches must obtain a request letter from the customer in the prescribed format (Annexure
5(1)). Security documents taken for Rupee Packing Credit should be obtained for PCFC also.
However, D.P.Note should be obtained in FC.
the same for both the export order holder and the manufacturer or, the banks concerned
agree to such
holder
and manufacturer.
agreement
between
the
order
order
holder
and
the
manufacturer.
5.10.4 PCFC FOR SUPPLIES FROM ONE EOU / EPZ / SEZ UNIT TO ANOTHER
EOU/EPZ/SEZ UNIT :
(i)
PCFC may be made available to both the supplier EOU/EPZ/SEZ unit and the receiver
EOU/EPZ/SEZ unit.
(ii)
PCFC will be availed by supplier EOU /EPZ / SEZ for supplies made to buyer
EOU/EPZ/SEZ
(iii)
After supply to buyer EOU/EPZ/SEZ unit, the buyer exporters will avail PCFC from his
Bank.
(iv)
The PCFC availed by buyer EOU/EPZ/SEZ unit will be disbursed by his Banker by
transferring the foreign currency funds to supplier EOU/EPZ/SEZ units Banker for
liquidating PCFC taken by supplier unit.
(v)
Buyer unit will avail post-shipment finance after effecting export and liquidate the
PCFC availed by him.
Note : No post-shipment facility should be granted to supplier unit for adjustment of PCFC.
PCFC should be kept open till the receipt of forex funds from buyer unit)
10
(vi)
In all such cases, it has to be ensured by banks that there is no double financing for
the same transaction. Needless to add, the PCFC to receiver EOU/EPZ/SEZ unit will be
liquidated by discounting of export bills.
out
of
proceeds
of
export
documents
on
submission
for
submits an export bill for adjustment of PCFC, then the difference between 3 months funding
cost (e.g. LIBOR + 2% + 0.75%) charged to the customer and the interest at which foreign
currency funds delivered early by the exporter can be deployed for the balance period i.e. 2
months (e.g.2 months LIBOR + 2%) should be charged to the customer (2.75% - 2% = 0.75%)
subject to a minimum of 2%. The minimum penalty of 2% is to be levied even if there is no
extra cost to the Bank.
5.12. REFINANCE:
Advances granted by way of PCFC are not eligible for refinance from RBI.
(c) Banks may avail of lines of credit from other banks in India if they are not in a position
to raise loans from abroad on their own, provided the bank does not have a branch
abroad. The spread between the borrowing and lending bank is left to the discretion
of the banks concerned.
(d) In case, the exporters have arranged for the suppliers credit for procuring imported
inputs, the PCFC facility may be extended by the banks only for the purpose of
financing domestic inputs for exports.
Recovery of interest,
Remittances made out of PCFC funds for retiring import bills should be reported
against item I.A. (i) and I.A. (ii) 'Sales to Public' against import into India, supported by
Form A-1.
Funds received under lines of credit for providing PCFC should be reported under
II (B)-(ii)
When PCFC granted to the exporter out of funds availed under line of credit, it should be
reported
Branch)
-
13
Liquidation of foreign line of credit and payment of interest should be reported in 'R'
Return as sales in item I A (ii) as non import supported by form A2 (to be reported by
Treasury Branch).
5.17. REPORTING/DISBURSAL
On being satisfied of compliance with all requirements, the designated 'B' category branches
or the packing credit section in 'A' category branches should contact Treasury Branch,
Mumbai, and obtain exchange rates for Rupee conversion and interest rate for PCFC advance,
to be followed by formal confirmation to Treasury Branch, Mumbai, in the following format.
14
SIGNATURE
Distinctive reference numbers should be given for each disbursement and entries made in the
Contract Register and the Ledger.
On receipt of request for PCFC, pass the following entries (at control rate both in FC and
Rupees)
DR. PCFC a/c.
CR. Foreign Currency Settlement a/c.
In case of import remittances, full details are to be reported to ' A ' category branch.
i) To monitor the end use of funds in PCFC Account, foreign currency amount converted
into rupees for payment to domestic suppliers will be credited to Customers Packing
15
Credit Disbursal account. Report PCFC disbursal account under Current Deposit in the
Statement of Affairs (W-l).
ii) The customer should be instructed to indicate purpose of all drawals including cash
drawals for procurement of raw materials, payment of wages etc. on the reverse of
the cheque at the time of drawal or by a separate letter.
iii) When a request for conversion from foreign currency into Rupees for procurement of
domestic supplies is received, report the amount to Treasury Branch for quotation of
rate and
entries. If forward
5.20. ADJUSTMENT
OF
PCFC
BY
SUBMISSION
OF
EXPORT
BILLS
If the bills are found in order, report to Treasury Branch and confirm the transaction in the
format given below:
Bill No.
PCFC No.
Customer
17
5.24
5.25
a)
b)
c)
5.26
TRANSFER TO OVERDUE PC
Dr Overdue PCFC a/c
Cr PCFC a/c
Dr : FC Settlement a/c
Cr: FDBD/FUDBD a/c
Cr : EEFC a/c (if applicable)
b)
Dr : FC Settlement a/c
Cr : FDBD/FUDBD a/c
Cr : EEFC a/c (if applicable)
b)
Dr : Customer's CD / CC a/c
20
(at TT Selling rate for the overdue interest 2% over the normal rate.
Cr : Income a/c Discount on FDBD/FUDBD (in Rupee only)
5.28
CRYSTALLIZATION OF FDBD/FUDBD
b)
Dr. O. D. FDBD/FUDBD
(in rupee equivalent at TT Selling rate obtained after reporting To Treasury Branch)
Cr: Local Br. / C.O. (Treasury Branch)
c)
5.29
At the time of each half yearly closing B category branches should revalue the foreign
currency assets and liabilities which are controlled by them in their books by applying the
latest FEDAI rates which informed by IBD during half yearly closing. DIT issues detailed
guidelines required to be followed for revaluation of foreign currency liabilities during every
half yearly closing. PCFC gets automatically revalued as and when the revised rates received
from IBD are incorporated in the Finacle by DIT.
5.30
BALANCING
21
Annexure 5(1)
Date:
To,
The Manager
UNION BANK OF INDIA,
______________________Branch
Dear Sir,
REQUEST FOR PACKING CREDIT IN FOREIGN CURRENCY
I/We request you to grant me/us Packing Credit in foreign currency as per details shown
hereunder:
1. Amount of Loan required: US $
2. Against the following confirmed contract/s / Letter/s of Credit, original/s of which
is/are enclosed.
Date
Confirmed
Name &
Date of Expiry
Commodity
Contract/LC
of LC opening
Address of
of
Components/good
No.
Bank/Buyer
Supplier
LC/Shipment
period
22
our CC/CD/ PC disbursal Account with you or issue your pay order/DD in
favour of __________________________ who is supplier of goods, in Rupees or
in________________________ (Name of foreign currency) meant for export to
______________of _____________________(Name of the finished goods)
5. On shipment of goods, I/We shall tender to you duly endorsed in your favour all drafts,
Bills of lading, invoices and other documents required for negotiation/discounting of
foreign bills and/or required under the Letter of Credit /contract and such bills will be
negotiated/discounted by me/us through your bank with full recourse to us whether
drawn under a Letter of Credit or not. The bank shall have authority to purchase the
bill in foreign currency, at the interest rate that may be fixed by the bank and adjust
the proceeds thereof towards out standings under Packing Credit loan in foreign
currency. The balance, if any, may be converted to rupees at the appropriate TT
buying rate.
6. In the event of non-submission of documents by me/us within the period of PCFC loan
(i.e. within the last date for shipment / negotiation of documents under Export
Contract/LC), I/We undertake to seek extension of time not exceeding 180 days by
providing necessary documentary proof to the satisfaction of the Bank, as to the
validity of LC/Contract failing which the bank has the right to adjust the PCFC loan, as
mentioned in para 7 herein below.
7. In the event of any shortfall in the amount of documents tendered/money realised or
in the event of cancellation of export order/Letter of Credit or non-submission of
export documents within the prescribed period, I/We shall repay the dues then
outstanding in foreign currency. In the alternative, the bank will be at liberty to allow
me/us to adjust the said outstanding dues in Foreign Currency in equivalent Rupees
converted at your TT selling rate at that time.
8. I/We shall pay to the bank interest on the amount outstanding then due under PCFC
facility at applicable rate plus withholding Tax as applicable at the time of granting
the loan. It is understood that Pre-Shipment Credit in FC is available initially for a
maximum period of 180 days or for the validity period of the contract/LC whichever is
earlier.
9. Without prejudice to the above, any extension of time granted by the bank beyond
180 days will attract 2% over maximum rate of interest leviable for the initial period
23
of PCFC loan or 2% above any other rate as per Bank's Rules or as advised by Reserve
Bank of India from time to time, whichever is higher. In the event of cancellation of
export order/LC, I/We shall pay interest at the rate leviable on PC advance adjusted
in an unapproved manner along with penal rate of interest at 2%, and
0.125%.commission, on the Rupee equivalent of PCFC loan amount calculated at TT
Selling Rate prevailing on the date of liquidation of outstanding dues, from the date of
advance or at any other rate/s as may be prescribed by the bank/Reserve Bank of
India, from time to time.
10. It is understood that each loan granted by you under PCFC facility against a specified
import bill will be a separate loan liable to be adjusted against the proceeds of the
foreign bill in respect of the finished good exported by me/us, manufactured /
processed out of the goods / commodities / components imported under the said
specified import bill.
11. I/We undertake to apply the amount of foreign currency loan advanced by the bank to
me/us exclusively towards purchase of the goods meant for export as per the
confirmed sale contract and/or Letter of Credit opened in my/our favour. On such
purchases, I/We shall hold the said imported goods for and on account of the bank in
trust till the finished goods processed out of the goods imported are shipped.
12. I/We agree and undertake to bear and pay the charges for storing the imported goods
and/or finished goods. In the event of the bank paying the same, the bank shall be
entitled to recover the same from the proceeds of the goods sold and/or exported.
13. I/We further agree and undertake to execute Packing Credit Agreement in the form
prescribed by the bank at present. The reference to the term 'Rupees in the said
agreement and/or 'Rate of Interest' in the said agreement shall always be subject to
the provisions made in this letter of request regarding charging of interest and/or
granting of loan in foreign currency under PCFC facility.
14. I/We further undertake to execute such documents as may be required by the Bank in
the form and the manner prescribed, from time to time and also discharge such
obligation which may arise out of the aforesaid request and consequent to granting of
above loan to me/us.
15. I/We agree that in the event of breach of any of the terms mentioned hereinabove,
and/or contained in the agreement executed by me/us with the bank from time to
time and/or terms and conditions as may be prescribed by the Bank from time to time,
24
the bank shall be entitled to recall the said loan along with interest due and I/We
undertake to adjust the said loan along with interest due in terms mentioned herein
above in foreign currency within 8 days from the receipt of recall notice issued by the
bank.
16. In the event of any dispute regarding interpretation of the terms of this letter and/or
the agreement that will be executed by me/us, the interpretation that may be made
by the bank shall be final and conclusive and binding on me/us.
17. I/We agree and undertake to comply with the provisions of all statutes, rules and
regulations made there under from time to time in respect of import of the
goods/commodities/components and export of the finished goods and further agree
and undertake to indemnify the Bank against any cost, expenses, damages, losses etc.
that may be incurred and/our suffered by the bank due to my/our non-observance of
the provisions of the said statute and regulations.
18. Nothing in this letter of request, shall entitle me/us to claim any right, to get the
aforesaid loan in foreign currency and the bank shall be entitled to grant or refuse the
said loan at its sale discretion.
Yours faithfully,
25