PROJECT ON EXPORT IMPORT BANK OF INDIA (EXIM BANK)
BACHELOR OF COMMERCE-
BANKING & INSURANCE
SEMESTER V
2008-2009
SUBMITTED BY
SHILPA SONAWANE
ROLL NO: 55
PROJECT ON
EXPORT IMPORT BANK OF INDIA (EXIM BANK)
BACHELOR OF COMMERCE – BANKING & INSURANCE SEMESTER V
SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF THE DEGREE OF BACHELOR OF COMMERCE – BANKING & INSURANCE.
BY SHILPA SONAWANE ROLL NO: 55
CERTIFICATE
DECLARATION 1I
Miss.Sneha Sundrani, student of B.Com – Banking & Insurance Semester V (2008-2009), hereby declare that I have completed the Project on Customer Relationship Management in Banks (Private and Public Sector) in the academic year 2008. The information submitted is true and original to the best of my
knowledge.
Sign ature of Student
………………… SHILPA SONAWANE Roll No-55
ACKNOWLEDGEMEN T Any accomplishment requires the effort of many people and this work is no different. This project would just not have been complete without the valuable contributions from various people whom I have interacted with in the course of its completion. I would first and foremost thank the Mumbai University for designing such a specialized course. I am especially thankful to my project guide Ms. Sapna Malya and our course co-coordinator Mrs. Heena Thakkar for her encouragement, guidance and constant motivation which served as a driving force in the successful completion of this project. I also thank our reverend principal Dr. Mrs. Indu Shahani for giving me an opportunity to present a creative work in the form of project.
I would like to thank all the five bank managers who provided me the primary information. I also take this opportunity to express my sincere gratitude to the library staff that has provided me right information and study material at the right time.
Lastly I would like to thank my colleagues, my parents, my sister and all those people who have lent me a helping hand in finishing this project, whose names are too numerous to be mentioned here. It is said that “Gratitude is the hearts
memory”; well, the memory of all help and assistance acquired during the course of this project will remain in my heart as gratitude forever………………….
ORIGIN AND HISTORY The Export-Import Bank Act, 1981: An act to establish a corporation to be known as the Export-Import Bank of India for providing financial assistance to exporters and importers, and for functioning as the principal financial institution for co-ordinating the working of financial institutions engaged in financing the export and import of goods and services with a view to promoting the country’s international trade and for matters connected therewith and incidental to.
History: This Act extends to the whole of India. With effect from the date i.e. September 1981, as the Central Government by notification, appointed, a corporation Known as the Export Import Bank of India was established for the purposes of this Act. The Export Import Bank of India, commonly known as the EXIM Bank, commenced operations in March 1982. It was set up so as to take over the operations relating to
export finance which the IDBI (Industrial Development Bank of India) had been handling since the year 1970. Exim Bank acts as the apex financial institution relating to financing for foreign trade. It provides financial assistance by way of direct loans and advances for the purpose of export or import,
rediscounting of usance export bills for banks and finance for international trade activities.
MISSION Exim Banks mission is to facilitate globalization of Indian Business.
Exim Banks mission statement: “To develop commercially viable relationships with externally oriented companies by supporting their internationalization efforts, through a diverse range of products and services.”
Objective The objective of the bank is-
“… for providing financial assistance to exporters and importers, and for functioning as the principal financial institution for coordinating the working of institutions engaged in financing export and import of goods and services with a view to promoting the country’s international trade…”
“… shall act on business principles with due regard to public interest” as Stated
In the Export-Import Bank Act,1981.
OBJECTIVES 1· To translate national foreign trade policies into concrete action points. 2· To provide alternate financing solutions to the Indian exporter,
aiding him in his efforts to be internationally competitive. 3· To develop mutually beneficial relationships with the international
financial community. 4· To initiate and participate in debates on issues central to India’s
international trade. 5· To forge close working relationships with other export development
and financing agencies, multilateral funding agencies and national trade and investment promotion agencies. 6· To anticipate and absorb new developments in banking, export
financing and information technology. 7· To be responsive to export problems of Indian exporters and
pursue policy resolutions.
The Organization: Objective, Vision & Functions
The Exim Bank aims to promote India's international trade. The Logo reflects this.The Logo has a two-way significance. The import arrow is thinner than the export arrow. It also reflects the aim of value addition to exports.
The Organization: Exim Bank is wholly owned by the Government of India. The authorized capital of the Bank is Rs. 2000 Crores, of which and Rs. 1000 Crores respectively, has been fully subscribed by the Central Government. The Bank
raises additional resources through borrowing from the Government of India, from the RBI and from the market through the issue of bonds and debentures. It borrows foreign currency form other countries as well. Exim bank is managed by a Board of Directors, which has representatives from the Government, Reserve Bank of India, Export Credit Guarantee Corporation (ECGC) of India, a financial institution, public sector banks, and the business community.
THE PEOPLE Exim bank is a virtual melting pot of thriving minds from a variety of disciplines. The bank has a total staff of 214 hailing from backgrounds as diverse as banking, engineering, business management, information technology, accountancy, economics and liberal arts. What they all have in common, however, is an underlying passion for professional excellence. The creative synergy produced by a brain trust composed of individuals with vastly different styles of thinking has helped the Bank to constantly innovate, and come up with the original solutions – solutions beyond banking.
CORPORATE PHILOSOPHY Exim banks corporate philosophy is built on two pillars: People orientation and customer focus.
The Banks believes that its people are its key resource. Therefore, the Banks seeks to develop its human resource by motivating them through challenging assignments, upgrading their skills through
training programmes, and recognizing professional excellence.
We follow an office- oriented; non-hierarchical work culture and open office plan facilitating a free flow of interaction between and within groups. As a model corporate citizen, the Bank maintains an equal ratio of men and women (1:1) .the Banks high level of office automation, and a lean and multi-skilled staff enables optimum efficiency and profitability.
Customer-responsiveness is germane to the Banks philosophy. The Bank constantly seeks to innovate and improve its products, processes and delivery mechanisms, and thereby minimize response time and maximize customer equity. Our interactive mode of analysis and decision-making, through multi disciplinary cross-functional groups ensures that the best possible business solution is offered to the customer.
GLOBAL NETWORKING Exim bank is quite unique in its global and national network of institutional and professional linkages .Our five overseas offices-at Dubai, Johannesburg, London, Singapore and Washington D.C.have forged strategic institutional linkages for the bank with:
1·
Multilateral agencies such as World Bank, Asian development
Bank; 2·
Export credit agencies;
3·
Trade and investment promotion agencies abroad; and
4·
Trade and industry association in India.
The banks extensive global network, supported by the Indian missions abroad makes it uniquely capable of offering advisory services to Indian companies looking for marketing opportunities, buyer information, technology suppliers and partners for overseas and domestic joint ventures. Further, our overseas
office enables us to garner economic and commercial intelligence on countries, companies and projects, assess credit risks, review competitive export practices and provide alerts on new export opportunities.
The Nine Domestic Offices of the Bank
Helps to respond to regional development activities in the export sector. They identify special needs of the export business through close interaction with existing and prospective clients and suggest innovative instruments appropriate to the regions potential. They also regularly interact with commercial development /government agencies, and strengthen the banks policy mechanism with their critical inputs on market perceptions and the export environment.
Detailed appraisals, legal documentation, initial processing of loan disbursement requests, and monitoring of loans, including site visits, inspection of assets charged to the bank and overall monitoring of the performance of the companies are also done at domestic offices.
SOURCES OF FUNDS…
As at March 31,2006,the bank had a paid up capital of Rs 9.5 billion, and its net worth was rs27.20 billion. They also raise funds from domestic and international markets.
ORGANISATIONAL SET-UP Exim bank is managed by a Board of Directors, which has high level representatives from the Government, Reserve Bank of India, Export Credit Guarantee Corporation of India, public sector Banks, academia and business community. With its headquarters in Mumbai, the bank has nine regional offices overseas.
The banks functions are segmented into several operating groups including
Corporate banking group which handles a variety of financing programmes for, Export Oriented Units (EOUs), importers, and investment by Indian companies.
Project finance/trade finance group which handles the entire range of export credit services such as suppliers credit, pre-shipment credit, buyers credit, finance for export of projects and consultancy services, guarantees, forfeiting.
Lines of credit group- lines of credit (LOC) is a financing mechanism that provides a safe mode of non –recourse financing option to Indian exporters, especially to SMEs, and serves and an effective market entry tool. Exim banks extends LOCs to sovereign governments, central banks, regional development banks, overseas financial institutions and other entities overseas, to enable buyers in those countries, to import equipment, goods and services from India, on deferred credit terms.
Agri business group, which has been put in place to spearhead the initiative to promote and support Agri – exports. The Group handles projects and export transactions in the agricultural sector for financing.
Small and medium enterprises group has been established to cater to the specific financing requirements of export oriented SMEs.The group handles credit proposals from SMEs under various leading programmes of the bank. Export services group offers a variety of advisory and valueadded information services aimed at trade and investment
promotion. Apart from these, there are Support Services Groups, which include:
Research and Planning, Corporate Finance, Loan recovery, Internal Audit, Management Information Services, Risk Management, Information Technology, Legal, Human Resources Management and Corporate Affairs.
Evolving Vision
Functions: 1) Financing of exports and imports of goods and services, not only
of India but also of third world countries. 2) Financing of exports and imports of machinery and equipment on
lease basis.
Financing of joint ventures in foreign countries. 3) Providing loans to Indian parties to enable them to contribute to
the share capital of joint ventures in foreign countries. 4) Undertake
limited merchant
banking functions
such
as
underwriting of stocks, shares, bonds or debentures of companies engaged in export or import; and 5) Provide technical administrative and financial assistance to
parties in connection with export and import.
THE ROLE… Exim bank plays a four-pronged role with regard to India’s foreign trade: those of a coordinator, a source of finance, consultant and promoter.
COORDINATION ROLE Exim bank is the coordinator of the working group mechanism for clearance of projects and services exports and deferred payment exports (for amounts above a certain value-currently US$ 100 million). The working group comprises Exim bank, Government of India Representatives (Ministries of Finance, Commerce, External Affairs), and Reserve Bank of India; export credit Guarantee Corporation of India limited and commercial banks that are authorized foreign exchange dealers.
This inter-institutional Working Group accords clearance to contracts (at the post award stage) sponsored by commercial banks or Exim Bank, and operates as one- window mechanism for clearance of term export proposals. On its own Exim bank can now accord clearance to project export proposals up to US $100million in value.
EXPORT CREDIT.
Exim bank offers the following export credit facilities, which can be availed of by Indian companies, commercial banks and international entities.
FOR INDIAN COMPANIES EXECUTING CONTACTS OVERSEAS…
• PRESHIPMENT CREDIT. Exim banks pre-shipment credit facility, in Indian rupees and foreign currencies, provides access to finance at a manufacturing stage, enabling exporters to purchase raw materials and other inputs. • SUPPLIERS CREDIT This facility enables Indian exporters to extend term credit to importers (overseas) of the eligible goods at the post shipment stage.
FOR PROJECTS EXPORTERS. Indian project exporters incur Rupee expenditure while executing overseas project export contracts i.e. costs of mobilization/acquisition of materials, personnel and equipment etc. Exim Bank's facility helps them meet these expenses.
For Exporters of Consultancy and Technological Services. Exim Bank offers a special credit facility to Indian exporters of consultancy and technology services, so that they can, in turn, extend term credit to overseas importers.
Guarantee facilities. Indian companies can avail of these to furnish requisite guarantees to facilitate execution and export contracts and import transactions.
Forfeiting. Forfeiting is a financing mechanism that enables a company to convert credit sale to cash sale, on “without recourse” basis. Exim bank acts as facilitator for the Indian exporter, enabling him to access the services of an overseas forfeiting agency.
FINANCE FOR EXPORT ORIENTED UNITS.
TERM FINANCE FOR EXPORTING COMPANIES
Project Finance 1· Equipment Finance 2· Import of Technology & Related Services 3· Domestic Acquisitions of businesses/companies/brands 4· Export Product Development/ Research & Development 5· General corporate finance.
WORKING CAPITAL FINANCE FOR EXPORTING COMPANIES. •
Funded 1o Working Capital Term Loans [< 2 years] 2o Long Term Working Capital [up to 5 years] 3o Export Bills Discounting 4o Export Packing Credit 5o Cash Flow financing.
2· Non-funded 1o Letter of credit limits 2o Guarantee limits
Working Capital Finance For Non- Exporting Companies. •
Bulk Import of Raw Material.
Term Finance For Non- Exporting Companies. •
Import of Equipment
Export Finance. Preshipment Credit •
Post Shipment Credit 1· Buyers' Credit 2· Suppliers' Credit [including deferred payment credit] 3· Bills Discounting 4· Export Receivables Financing 5· Warehousing Finance 6· Export Lines of Credit (Non-recourse finance)
Equity Participation In Indian Exporting Companies. To part finance project expenditure (Project, inter alias, includes new project/ expansion/ acquisition of business/company/ brands/research & development).
Overseas Investment Finance
1· Finance for Indian Company's equity participation in the
overseas Joint Venture (JV)/ Wholly Owned Subsidiary (WOS) 2·
Direct Finance (Term & Working Capital) to the overseas JV / WOS
3·
Finance (for equity/debt component) for acquisition of overseas businesses /
companies including leveraged buy-outs including structured financing options.
Direct Equity by Exim Bank in the overseas JV/ WOS of an Indian Company.
Export Import Bank of India - Small & Medium Enterprises & Agricultural finance Definition of SMEs in India and World:
In India the small and medium enterprises are not well defined. The internal group set up by the Reserve Bank of India has recently recommended that the units with investment in plant and machinery in excess of SSI limit and upto Rs. 10 crores may be treated as medium enterprises. The definitions of ‘small’ and ‘medium’ sized enterprises differ from one country to another. SMEs have been defined against various criteria such as the number of workers employed, volume of output
or sales, value of assets employed, and the use of energy. Organization for Economic Cooperation and Development (OECD) defines establishments with upto 19 employees as ‘very small’, between 20 and 99 employees as ‘small, from 100 to 499 employees as medium and over 500 employees as large enterprises. However, many establishments in some developing countries with 100 to 499 employees are regarded as relatively ‘large’ firms. Multilateral Investment Guarantee Agency (MIGA) has recently developed a guarantee programme, called the Small Investment Programme (SIP) that is specifically designed for SMEs. MIGA defines SMEs, for coverage under this programme, as firms with not more than 300 employees, value of assets not exceeding US $ 15 million and annual sales not exceeding US $ 15 million. The European Union defines SMEs that have employees of less than 250, with a turnover not exceeding Euro 50 million. Thus the definition of SME varies from country to country and from region to region. The importance of SME sector is wellrecognized world over owing to its significant contribution in achieving various socio-economic objectives, such as employment generation, contribution to national output and exports, fostering new entrepreneurship and to provide depth to the industrial base of the economy. India has a vibrant SME sector that plays an important role in sustaining economic growth, increasing trade, generating employment and creating new entrepreneurship in India.
Importance of the SME sector: 26 million people and is involved with the production of over 7500 industrial items The SSI sector in India employs around
with the product range varying from very
simple items produced with traditional technology to high tech products. At present, the SSI sector accounts for over 90% of industrial units in the country, 40% of value addition in the manufacturing output and approximately 35% of India’s exports. SSI sector in India has been exhibiting a striking export performance. Barring few years, exports have grown double digit in the last 10 years. Major sectors contributing to SSI exports include readymade garments (27%), engineering goods (14.5%), chemicals & pharmaceuticals, electronics & computers, and processed foods (11% each).
Exim Bank and SMEs: Indian SMEs require business advisory services to enhance their international competitiveness in a highly competitive globalising world. The SMEs find the services of reputed national and international consultants as not cost effective and often, not adequately focused. Recognizing this knowledge gap, Exim Bank of India has been endeavouring to provide a suite of services to its SME clients. These include providing business leads, handholding during the process of winning an export contract and thus assisting the generation of export business on success fee basis,
countries/ sector information dissemination, capacity building in niche areas such as quality, safety, export marketing, etc. and financial advisory services such as loan syndication, etc.
In the past, Exim Bank has implemented a number of innovative programmes focusing primarily on SMEs. The Bank, in the past, has operated an Agency Line of Credit for IFC and an Export Marketing Programme for the World Bank, which are targeted towards SME sector. The Bank proactively assists SME units in establishing their products in international markets. Exim Bank’s Lines of Credit help SMEs to offer competitive credit term to the buyers and to explore newer geographical markets. Recently, the Bank has signed a Memorandum of Cooperation with the International Trade Centre (ITC), Geneva, to implement the Enterprise Management Development Services (EMDS) programme, for
supporting SMEs in their globalisation efforts. This initiative is being launched by ITC for the first time in any country.
AGRI FINANCE
The globalization and post-WTO scenario offers considerable scope for exports of Indian agricultural products. Exim Bank has a dedicated Agri Business Group to cater to the financing needs of export-oriented companies dealing in agricultural products. Financial assistance is provided by way of term loans, pre-shipment/postshipment credit, overseas buyers' credit, bulk import finance, guarantees etc. Term loans with varying maturities are provided for setting up processing facilities, expansion, modernization, purchase of equipment, import of equipment/technology, financing overseas joint ventures and acquisitions etc. The Bank has strong linkages with other stakeholders in Agri sector such as Ministry of Food Processing Industries, GoI, NABARD, APEDA, Small Farmers' Agri-Business Consortium (SFAC), and National Horticultural Board etc. Apart from financing, the Bank also provides a range of advisory services to Agri exporters. Term loans with varying maturities are provided for setting up processing facilities, expansion, modernization, purchase of equipment, import of equipment/technology, financing overseas joint ventures and acquisitions etc. The Bank has strong linkages with other stakeholders in Agri sector such as Ministry of Food Processing Industries, Government of India, NABARD, APEDA, Small Farmers' Agri-Business Consortium (SFAC), and
National Horticultural Board etc. Apart from financing, the Bank also provides a range of advisory services to Agri-exporters. The Bank also publishes a number of Occasional Papers, Working Papers on export potential of various sub-sectors in agriculture and a bi-monthly publication in different languages on global scenario in agri-business and opportunities therein.
Initiatives by Exim Bank for both Small and Medium Enterprises & Agri finance: 1· Exim Bank has signed a Memorandum of Cooperation with DHAN
Foundation, Madurai (a leading NGO covering 3 lakh families in 4 states) for advisory and financial support for export related activities for their grass root enterprises 2· Set up units to produce value-added products from organic
tamarind grown in the area 3· Steps are on to set up an export oriented coco-peat projects 4· To market products made out of palm leaves and handmade
papers in Europe through our overseas offices.
1) To devise marketing strategy for marketing local handicrafts to
foreign tourists through 5 star hotels.
2) Exim Bank has signed Memorandum Of Cooperation with BASIX,
Hyderabad. BASIX promotes development for the rural poor and women, mainly through Micro-credit and Micro Finance. Highlights of MoC:a) joint consultancy studies, b) productivity enhancement, c) market linkages, capacity building, d) entrepreneurship development,
e) commercialization of India's rural sector in overseas market
technical assistance to micro and small-enterprises in the farm and nonfarm sectors in other developing countries,
3) Exim Bank along with BASIX to organise skill upgradation workshop for
handloom weavers in Mahabubnagar Mandal & for tussar silk weavers in Kosgi, Andhra Pradesh
4) BASIX in association with Govt. of Rajasthan and UNDP is engaged in
discussions for developing export clusters in Rajasthan including Stone Carving and Dari Cluster in Lawan, Dausa and Pottery Cluster in Basawa. 1) Exim Bank is engaged in helping the clusters in product development
and establishing export market linkages, organizing workshops and training programs for skill upgradation of rural artisans. 2) Exim Bank’s Dubai ( formerly Budapest ) office helped in
exporting sandstone slabs to Hungary
5) Exim Bank has signed a Memorandum of Cooperation with Uravu (an
NGO involved in employment generation programs in the bamboo sector for tribal & poor families in Waynad, Kerala) to provide larger visibility to bamboo-based handicraft products. Highlights of MoC:1) Facilitate promotion of Uravu's or its associates' products in
overseas market.
Identification of suitable buyers / partners by Exim Bank for facilitating export business of Uravu and its associates. 2) Exchange of information on international markets for various products, technology, trade, business and investing opportunities to facilitate increased co-operation for commercial exploitation in overseas markets. 3) Conducting joint studies and research in areas of mutual interest
6) Exim Bank has initiated discussion with handloom weavers cooperative
societies in Fulia (West Bengal) for marketing their products overseas 7) National Institute of Fashion Design, Handloom & Handicraft Export
Promotion Council and Directorate of Handloom, Govt. of West Bengal participated in the discussions at Exim’s office in Kolkata 8) One suggestion under discussion is to form a marketing company
with equity participation by the weavers co-op, West Bengal Govt. and Exim Bank which will take up marketing of the products 9) Feasibility report under preparation by Indian Institute of Social
Welfare & Business Management, Kolkata 10)
Exim Bank is also associated with rural knowledge centre of M.S. Swaminathan Research Foundation for providing technology inputs to rural areas.
Recent Developments :
EXIM’s focus on SMEs Special Line of Credit from ADB: The Bank is negotiating a long term Line of Credit of US$ 250 mn. From the Asian Development Bank, without Central Government guarantee, for extending loans to SMEs . The Bank will have an option to draw the funds in different currencies, as per the needs of its customers.
Innovative Programme for SMEs The Bank has entered into a cooperation arrangement with International Trade Centre (ITC), Geneva, for implementing a unique Enterprise Management Development Services (EMDS) program, which is an IT based solution provider to enable small enterprises to prepare business plans with international market in focus. This is a pioneering initiative for supporting SMEs and for providing term loans and export finance facilities to the identified units to help them in their globalisation efforts. The Bank has partnered ITC in implementing this project. The Bank thus supports small enterprises through capacity building and assistance in formulation of viable proposals. It is envisaged that the learning from this programme would be transferred to other developing countries, and thus assist in capacity creation and institution building in the global arena. The Bank has partnered the Commonwealth Secretariat in the Commonwealth
– India Small Business Competitiveness Development Programme. The objective of the programme is to undertake capacity development initiative that promotes economic development (increased employment, investment, trade and economic activity) in Commonwealth member states by providing
competitive strategies and policies on SME development to practitioners and policy makers, and to build and develop institutional capacity.
ADFIAP Development Award The Association of Development Financing Institutions in Asia and the Pacific (ADFIAP) Development Award recognises and honours ADFIAP member institutions, which have assisted projects that have created a development impact in their respective countries. Awardsare given to member institutions, which have implemented or enhanced outstanding and innovative development projects during the year. The Bank has been conferred the 2008 “SME Development Award”. The Award is in recognition of the Bank’s “Enterprises Management Development Services (EMDS)” programme, an IT based solution provider to enable small enterprises to prepare business plans with international market in focus
Debt restructuring scheme for small and medium enterprises Publications 1· Export Performance of Small and Medium Enterprises in India in
research brief.
Occasional Paper: Institutional Support to SMEs A Study of Trade and Investment Potential 1· Occasional Paper: Institutional Support Systems for SMEs in India
and International Experiences
FILM FINANCE
The bank has till date-sanctioned loans more than Rs 33.15 crores for film production .the first three films financed by Exim bank has been commercially successful across India and overseas market.
FILMS FINANCED BY EXIM BANK. 5· Fanaa Aur 1· Honeymoon Travels6· Bunty Babli Pvt. Ltd. 7· Salaam 2· Kabul Express Namaste 3· Dhoom -2 4· Don - The Chase8· Veer Zaara Begins Again
EXPORT CREDITS
Exim bank offers the following Export Credit facilities, which can be availed of by Indian companies, commercial banks and overseas entities.
FOR COMMERCIAL BANKS:
Exim bank offers Rediscounting facility to commercial banks, enabling them to rediscount export bills of their SSI customers, with usance not exceeding 90 days.
We also offer Refinance of Suppliers Credit, enabling commercial banks to offer credit to Indian exporters of eligible goods, who in turn extend them credit over 180 days to importers overseas.
OTHER FACILITIES FOR INDIAN COMPANIES:
Indian companies executing contracts within India, but which are financed by multilateral finance agencies, can avail of credit under our finance for deemed exports facility, aimed at helping them meet cash flow deficits.
FOR OVERSEAS ENTITIES Buyer’s credit: Overseas buyers can avail of Buyers Credit from Exim bank, for import of eligible goods from India on deferred payment terms.
Line Of Credit
Introduction Exim Bank extends Lines of Credit (LOCs) to overseas financial institutions, regional development banks, sovereign governments and other entities overseas, to enable buyers in those countries, to import goods and services from India on
deferred credit terms. The Indian exporters can obtain payment of eligible value from Exim Bank, without recourse to them, against negotiation of shipping documents. LOC is a financing mechanism that provides a safe mode of non-recourse financing option to Indian exporters, especially to SMEs, and serves as an effective market entry tool. Exim Bank extends LOCs, on its own, as well as, at the behest of Government of India. How does it work? 1. Exim Bank signs LOC Agreement with overseas Borrower
Institution (Borrower) and announces the availability of LOC for utilization, when the Agreement becomes effective. 2. Exporter checks with Exim Bank, available amount under the LOC and quantum
of service fee payable to Exim Bank, if any, and negotiates contract with Importer. 3. Importer approaches the Borrower for approval of the contract.
4. Borrower appraises the proposal. If satisfied, approves the contract and
refers to Exim Bank for concurrence for inclusion of contract for being financed under the LOC. 5. Exim Bank accords approval to the contract, if in conformity with the terms of
LOC. Exim Bank conveys contract approval to the exporter and the Borrower. 6. The Importer arranges remittance of advance payment to the Exporter and also
opening of a Letter of Credit, which states that the contract is covered under Exim
Bank's LOC to the Borrower and reimbursement will be by Exim Bank for the Eligible Value of Credit, upon compliance with stipulated conditions therein. 7. Exporter executes the contract/ships the goods/provides services.
8. Exim Bank/commercial bank in India, designated as the Negotiating
Bank negotiates shipping documents and pays the exporter. 9. Exim Bank reimburses the Negotiating Bank, on receipt of valid claim and
service fee, as applicable, by debit to the LOC account of the Borrower. 10. Borrower repays Exim Bank on due dates.
Procedural flow chart
Benefits to the Indian Exporter: Under Exim Bank's LOCs, the Indian exporters can obtain payment of eligible value from Exim Bank, without recourse to them, against negotiation of shipping documents. The Indian exporter does not carry any credit risk either on the importer or the importer's country, whilst the overseas importer enjoys deferred credit facility. Thus, LOC is a safe mode of non-recourse financing option to the Indian exporter and serves as a
market entry tool for India's exports. The Indian exporter can also increase his export volumes by offering deferred credit, where required.
Benefits to Overseas Importer of goods and services: Exim Bank has been using the LOC mechanism for promoting India's exports to the traditional as well as new markets in developing countries, which need deferred credit for buying Indian machinery, goods and services. As the LOC is extended by Exim Bank on internationally competitive terms, the overseas importer of Indian goods is allowed access to the credit facility at competitive interest rates. The overseas importer and the Indian exporter do not have to negotiate credit terms separately as the credit arrangement between Exim Bank and the overseas borrower financial institution is already in place.
Credit period allowed under the LOC Eligible Goods: Capital goods, plant and machinery, industrial manufactures, consumer durables and any other items eligible for being exported under the 'Exim Policy' of the Government of India. Interest rate the overseas importer of Indian goods has to pay The overseas importer of Indian goods has to approach the overseas borrower financial institution/recipient of Exim Bank's LOC, for approval of his proposal for import of Indian goods on deferred credit terms. The interest rate that the importer will need to pay to the recipient of Exim Bank's LOC, will depend on various factors such as the cost of fund, the currency of credit, tenor of credit, security offered by the importer, the risk perception of the importer and the interest rate structure prevalent in the country. It may however be mentioned that Exim Bank's
interest rates on LOCs being competitive, the importer would normally have to pay interest rate lower than what he would otherwise pay to his Bank on similar credits.
Charges payable by the Indian exporter to Exim Bank In respect of certain LOCs, the Indian exporter has to pay a service fee to Exim Bank. The exporter should check in advance with Exim Bank the quantum/percentage of service fee payable. In respect of LOCs extended by Exim Bank, at the behest of Government of India, no service fee is normally payable by the exporter to Exim Bank.
Minimum value of contract for being eligible for coverage under the LOC
Most of the LOCs stipulate a minimum contract value as US$ 50000. However, under certain LOCs, the minimum value of contract could be different. Exporters would be well advised to check the particulars of the individual LOC with Exim Bank.
Generally, export of capital goods and plant and machinery is allowed on credit terms of upto 5 years, whereas the export of industrial manufactures, consumer durables, raw materials and commodities is allowed on credit terms of upto 2 years. However, the credit period allowed under each LOC could be different. There are certain short-term LOCs which provide for credit period of 1 year, and there are certain LOCs which permit credit period beyond 5 years. Exporters are advised to check the details with Exim Bank, in advance. In respect of LOCs
extended by Exim Bank, at the behest of Government of India, credit period ranges from 8 years to 20 years depending on the caegories of countries, based on their levels of incomes and external debt.
The stage at which the Indian exporter should contact Exim Bank The Indian exporter should contact Exim Bank before finalizing the price negotiation with his prospective importer, if the transaction is intended to be covered under Exim Bank's LOC. The exporter should ascertain details such as the service fee payable to Exim Bank, the credit period permissible under the LOC, the payment procedure involved and the contact person/department in the overseas borrower institution/recipient of LOC. In respect of certain LOCs especially those extended by Exim Bank, at the behest of Government of India, sectors/projects could be pre-identified.
ECGC cover As the LOC is a non-recourse financing option to the Indian exporter, he does not have to obtain any ECGC cover.
Recent Developments And News Highlights : Exim bank signs agreement with African counterpart New Delhi, March 20,2008: Exim Bank of India has signed an agreement with the African Export-Import Bank or Afreximbank for a Line of Credit to the tune of $30 million to be provided for financing India’s exports to Africa. The agreement was signed at the 4th CII-Exim Bank conclave on India-Africa Project Partnership 2008 in New Delhi on. The agreement was signed by Mr. T C Venkat Subramanian, Chairman and Managing Director of Exim Bank and Jean-Louis Ekra, President of Afreximbank. This agreement will facilitate and boost India’s exports to member states of Afreximbank. The Line of Credit affords a risk free, non-recourse export financing option to Indian exporters. Exim Bank is a non-regional shareholder of Afreximbank which represents 38 member-states across Africa.
Exim Bank Of India And Lao Pdr Ink Credit Agreement
Export-Import Bank of India (Exim Bank) and the Government of Lao People's Democratic Republic have signed a Line of Credit (LOC) Agreement for US$ 33 mn during the State Visit of the President of Lao PDR to India. The LOC Agreement was signed in New Delhi, on Wednesday, August 27, 2008, by Mr. S.R. Rao, Executive Director, on behalf of Exim Bank of India, and H.E. Mr. Somdy Douangdy, Minister of Finance, on behalf of Lao PDR, in the presence of Hon'ble Prime Minister of India, Dr. Manmohan Singh, and the President of Lao PDR, H.E. Mr. Choummaly Sayasone. This Facility, extended at the behest of Government of India, is the first ever Line of Credit by Exim Bank to Lao PDR. The LOC will be utilised to finance the Paksong S/S-Jiangxai 115 kV double circuit Transmission Line project, Nam Song 7.5 MW Hydropower project and equipment for Rural Electrification Phase 2 project in Lao PDR. Under the LOC, Exim Bank will reimburse 100% of contract value the Indian exporter, upfront upon the shipment of goods. Besides promoting India's exports, Exim Bank's LOCs enable demonstration of Indian expertise and project execution capabilities in emerging markets.
With the signing of this LOC Agreement, Exim Bank has now in place 101 Lines of Credit, covering over 90 countries in Africa, Asia, Latin America, Europe and the CIS, with credit commitments amounting to US$ 3.32 bn, available for utilization for financing exports from India. Exim Bank's LOCs afford a risk-free, non-recourse export financing option to Indian exporters.
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