Business

Action in respect of export packing credit facility

What action will you take in respect of the following cases? (i) Your customer wants packing credit from you against letters of credit/ export orders, but is not prepared to lodge them with you for some reasons.

(ii) Your customer is in the process of negotiation with an American firm for supplying engineering goods and simultaneously wants export packing facility from your bank.

(iii) Your customer, who is a manufacturer, wants to export his products through an export house and wants a packing credit.

Ans. (i) While granting packing credit to exporter-customers, the banks are required to verify letters of credit opened by foreign bank in favor of the exporter or the export order and also get these documents lodged with it. This measure is adopted with a view to ensure that the packing credit facility which is granted at a concessional rate of interest is made available only to genuine exporters. Also, this would prevent the exporter from availing packing credit on the same export contract from two different banks.

If the exporter is unable to lodge the letter of credit/ export order with the bank for any genuine reason, the documents may be verified by the bank and returned to the exporter after making a suitable note on them under the stamp and signature of the bank. This would prevent the exporter from availing packing credit from another bank.

(ii) Since packing credit is available only on production of evidence to the effect that the exporter has entered into a firm export commitment, it will not be granted while the customer is still negotiating. The customer would be advised to approach the bank with the firm order after the deal is finalised.

(iii) In the present case the manufacturer supplies the product to the export house in whose name the export order/letter of credit has been drawn. There is no letter of credit or export order in the name of the manufacturer, but he requires packing  credit. The following procedure may be adopted

(a) The export house should issue a letter setting out the details of the export order and the portion thereof to be executed by the manufacturer and also certifying that the export house has not obtained and will not ask for packing credit facility in respect of such portion of the order as is to be executed by the manufacturer.

(b) The export house should open inland letter Of credit in favor of the supplier giving relevant particulars of the export letter of credit/orders and the outstanding in the packing credit account should be extinguished by negotiation of bills under such inland letters of credit.

If it is not convenient for the export house to open  such inland letters of credit it in favor of the manufacturer, the latter should draw bills on the export house  in respect of the goods supplied for export and adjust packing credit advance from proceeds of such bills.   In case the bills drawn under such arrangement are not accompanied by bill of lading or other export documents, the bank should obtain through the manufacturer a certificate from the export house at the end of such quarter that the goods supplied under this arrangement have in fact been exported.

(c)The manufacturer should give an undertaking that the advance payment, if any, received from the export house against the export order would be credited to the packing credit account.

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