Ans. Packing Credit
The basic purpose of packing credit is to enable the eligible exporters to procure, process, manufacture or store the goods meant for export. Packing credit refers to any loan to an exporter for financing the purchase, processing, manufacturing or packing of goods as defined by the Reserve Bank of India. It is a short-term credit against exportable goods.
Packing credit is normally granted on secured basis. Sometimes clear advance may also be , granted. Many advances are clean at their initial stage when goods are not yet acquired. Once the goods are acquired and are in the custody of the exporter banks usually convert the clean advance into hypothecation1 pledge, Let us first discuss the detail procedure of packing credit.
Eligibility: Packing credit is available to all exporters whether merchant exporter, Export/ Trading Star Trading/ Super Star Trashing Houses and manufacturer exporter. Manufacturers of goods supplying to Export Trading ST/ SST Houses and Merchant exporters are eligible for packing credit. The foreign buyer through the medium of a reputed bank gives the credit to eligible exporters for specified purposes against irrevocable letter of credit. It is also available against a confirmed or firm export order/contract placed by the buyer for export of goods from India.
Running Account Facility: The RBI has permitted banks to grant packing credit advances even without acknowledgement of L/C or firm order1 contract under the scheme of Running Account Facility subject to the following conditions :
i) The facility may be extended, provided the need for Running Account facility has w been established by the exporters to the satisfaction of the bank.
ii) The banks may extend this facility only to those exporters whose tl.ack record has been good.
iii) L/C or firm order is produced within a reasonable period of time. For Commodities under selective credit control, banks should insist on production of L/Cs or firm orders within one month from the date of sanction.
iv) The concessive credit available in respect of individual pre-shipment credit should not go beyond 18O days.
Packing credit may also be &en under the Red Clause letter of credit. In this method, credit is given at the instance and responsibility of the foreign bank establishing the L/C. Here, the packing credit advance is made against a simple receipt and is unsecured.
Amount : 'The loan amount is decided on the basis of export order and the credit rating of i the exporter by the bank. Generally the amount of packing credit will riot exceed FOB value of the export goods or their domestic value whichever is less. It can be to the extent of domestic value of the goods even though such value is higher than their FOB value provided the goods are entitled to duty draw back and also covered by the Export Production Finance, Guarantee of the ECGC.
Period : 'The packing credit can be granted for a maximum period of 180 days from the date of disbursement. The banks are authorized by RBI to extend this period. This period can be extended for a further period of 90 days, in case of non-shipment of goods within 180 days. The extension can be done provided the banks are satisfied that the reasons for extension are due to circumstances beyond the control of the exporters. Pre-shipment credit may be given for a longer period up to a maximum of 270 days, if the banks are satisfied about the need for - longer duration of credit.
Rate of Interest : The interest payable on pre-shipment finance is usually lower than the normal rate, provided the credit is extinguished by lodging the export bills on remittance from abroad. If the exporter fails to do so they would not be able to avail concessional rate of interest.
In order to avail the packing credit; exporters are expected to make a formal application to the bank giving details of credit requirements along with the required documents.
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