Post shipment Credit means any loan or advance granted or any other sort of credit provided by a bank to an exporter of goods/services from India after shipment of goods / rendering of services from the date of extending credit to the date of realization of export proceeds. Since it is granted post shipment of goods/services, it is termed as post-shipment credit as per the period of realization prescribed by the foreign exchange department of Reserve Bank of India.
It also includes any loan or advance granted to an exporter on the security of any duty drawback allowed to the exporter by the Government from time to time. Currently, the period prescribed for realization of export proceeds is 12 months from the date of shipment.
Quantum of finance: It may be extended u to 100% of the invoice value.
Basis of post shipment credit:
Post shipment credit is always extended to the actual exporter against the evidence of shipment of export goods or service made to the buyer located abroad.
Post shipment credit – Types:
Purchase / Discounting of Export bills:
Under this, the exporter submits the export bills to the bank along with the related documents obtained from the shipping agency and customs department such as bill of lading, packing list and invoice. Bank will discount/purchase these bills and may extend the credit to the exporter. Banker relies up on the creditworthiness of the exporter rather than any other security. Once the export bill is realized, credit sanctioned to the exporter would be squared off with export proceeds. If the export proceeds are not realized within the stipulated time, bank will start charging the commercial rate of interest.
Advances against bills for collection:
If the exporter does not want to discount his bills, he may choose to send the send the export bills for collection. Bank will extend the exporter a portion of the export bills as credit to meet his financial requirements at a concessional rate of interests while the same will be squared off when the bill amount is realized.
Advances against duty drawback receivable from Government:
Under this, Banks grant post-shipment advances to exporters against their duty drawback entitlements and covered by ECGC guarantee as provisionally certified by Customs Authorities pending final sanction and payment. It would also be made available to exporters against export promotion copy of the shipping bill containing the EGM Number issued by the Customs Department. Sometimes, arrangements may be made with the designated bank of the exporter to transfer funds to the financing bank as and when duty drawback is credited by the Customs.
Few more important points to note:
On Deferred Payment Term:
Banks may grant post-shipment credit on deferred payment terms for a period exceeding one year, in respect of export of capital and producer goods as specified by RBI from time to time.
Credit against goods sent for exhibition and sale abroad:
Banks may provide finance to exporters against goods sent for exhibition and sale abroad in the normal course in the first instance.
Credit against Undrawn Balances on Export Bills:
In case of export of certain commodities, exporter raises the bill on the buyer at a reduced value such as 90 to 98% of the actual FOB value. And the balance will be called as undrawn balance which is payable by the overseas buyer after satisfying himself about the quality/ quantity of goods. Banks may consider granting advances against undrawn balances at concessional rate of interest based on their commercial judgment and the track record and creditworthiness of the buyer for a period as prescribed by RBI.