What are the Roles of Export Import Bank of India (Part 1)

The Export Import Bank of India (Exim Bank) is a public sector financial institution established on January 1, 1982. It was established by an Act of Parliament, for the purpose of financing, facilitating, promoting foreign trade of India. It is the principal financial institution for coordinating the working of institutions engaged in financing export and import.

The Exim Bank Act also empowers the Bank to finance export of consultancy and related services, assist Indian joint ventures in third countries, conduct export market studies, finance export-oriented industries and provide international merchant banking services. Exim Bank concentrates on medium and long-term financing, leaving the short-term financing to be handled by commercial banks. The activities of the Bank extend to different fields of lending, offering advisory services and promotional activities are:

Lending to Indian Exporters

1. Supplier’s Credit

Funds are provided, on deferred payment terms to Indian exporters of plant, equipment and related services, which enable them to extend deferred credit to the overseas buyer. This programme covers project ex-ports, which could be turnkey project or construction project.

The credit is provided by Exim Bank in participation with commercial banks. Where individual contract value is not more than Rs. 3 crores, banks may provide the credit and avail 100% refinance from Exim Bank.

The exporter is expected to obtain an advance and down payment of at least 15% of the contract value. Down payment and payment of deferred instalments should be secured by a letter of credit and/or a guarantee from a bank in the coun-try of import or any third country as may he acceptable to Exim Bank.

2. Consultancy and Technology Services Finance Programme

Indian consultants, executing overseas contracts involving consultancy and technology services, where deferred payment terms need to be offered to the client, can utilize the facility. The credit will be extended by Exim Bank in participation with commercial banks.

The exporter is normally expected to obtain an advance/down payment of 25% of contract value and remaining portion would be covered by credit under the programme. The currency of the credit would normally be. Indian rupees. Loans in other currencies can also be considered, if required.

The loan is to be secured by guarantee of foreign government or a guarantee/ irrevocable letter of credit of a bank acceptable to Exim Bank. The exporter would also be required to obtain ECGC insurable cover.

3. Overseas Investment Financing Programme

Exim Bank provides financing, where an Indian company establishes a joint venture overseas and requires funds towards equity participation. The joint venture should have been ap-proved by the Government of India as well as the concerned authorities irn the host country. Rupee funds are provided by Exim Bank in the form of long-term credit—normally not exceeding ten years.

The equity shares issued to the Indian promoter are required to be pledged with Exim Bank together with mandate/assignment in its favour in respect of receivables arising from know-how/management fees, roy-alties, dividends, etc., on the investments. The Bank may also stipulate as collateral security charges on the assets of the promoters in India and personal guarantees. The Indian promoters are required to obtain the ECGC’s Overseas Investment Policy and assign it in favour of the Exim Bank/participating bank.

4. Pre-shipment Credit

Credit is available to eligible exporters to buy raw materials and inputs required to produce capital equipment that has to be exported. Exim Bank participates in the credit, if the requirement is for periods in excess of 180 days. Pre-shipment credit up to 180 days is available from commercial banks and, therefore, Exim Bank does not entertain proposals not exceeding this period.

5. Export-oriented Units

Units registered as 100% export-oriented units, units set up/to be set up in Free Trade Zones and Domestic Tariff Area (DTA), units exporting minimum 25% of their annual sales are eligible for financial assistance from Exim Bank for acquisition of land, building, plant and machinery and other miscellaneous fixed assets along with margin money for working capital and preliminary/pre-operative costs.

Exim Bank’s assistance may be in the form of direct lending or refinance. Direct lending may be by way of rupee term loans. Refinance is extended to Commercial banks in cases involving project cost of Rs. 3 crores and below. Where project cost exceeds Rs. 3 crores, Exim Bank provides finance in participation with All India Financial Institutions/Commercial Banks.

6. Computer Software Exports

Under the Government of India policy on Computer Software Exports and Development, Exim Bank has been designated as an agency for facilitating speedy clearance and meeting foreign exchange requirements towards imports for computer software export where export obligation of 350% of foreign exchange is undertaken.

Exim Bank offers an integrated package covering foreign currency and rupee term finance for acquisition of imported and indigenous computer/computer-based systems for export purposes. Foreign currency loans are made available for financing d import of computer systems an indigenous equipment and rupee term loans for acquiring indigenous computer/computer-based systems and other assets for export purposes.

Exim Bank undertakes financial and technical analysis of software export proposals and monitors the progress of software exports. It arranges for clearance of imports and finance under one window. The capital requirements will be met by commercial banks.

7. Export Marketing Fund

Export Marketing Fund is a component of World Bank Loan to India for industrial exports. Government of India has designated Exim Bank as the agency to manage the fund. Private sector companies and joint sector companies, who have the overall resources, capability, potential, top management commitment and an export strategy to penetrate and retain presence particularly in developed country markets and engaged in manufactured export or export of computer software are eligible for assistance.

See: What are the Role of Export Import Bank of India (Part 2)

The company level activities eligible for assistance include desk research, overseas field market research, minor product adaptation, overseas travel, product inspection services, training, establishing overseas operations, travel to India by overseas, buyers front-end promotional expenditure, research and development, equipment for plant modernisation/capacity expansion, tooling, jigs and fixures, and testing/quality control equipment.

Finance is available in foreign currency up to 50% of the cost of eligible activities by grant finance. Term loan in rupees, subject to a maximum of equivalent of US S 1 million, is available for finance activities not covered by grant finance. (Grant finance is available for front-end activities which form part of a systematic market entry plan.)

8. Export Product Development

The scheme enables Indian firms to under-take product development, research and development for exports.

9. Project Preparatory Services Overseas

The scheme is to provide loan/ grant finance for using Indian consultancy inputs at preparatory stages in projects overseas. The programme is designed to support studies covering the following stages: pre-investment, project formulation and project implementation. Typical sectors for which assistance can be considered include agriculture/agro-industry/ energy industry/water supply and sewerage/education/health. Maximum loan is Rs. 20 lakhs and grant Rs. 10 lakhs.

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