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A

PROJECT REPORT ON

Export and Import Finance


In Vijaya Bank
Submitted in partial fulfilment of requirements for the award of the
degree in

Master of Business Administration


Of Bangalore University By

SHANAVAS.P.P
REG NO: 04ACCM6071
Under the guidance of

Mr. ANIRBAN GHATAK


Faculty, Al Ameen Institute of Management

Al -Ameen Institute of Management Studies


Hosur Road, Bangalore - 560027
2005-2006

TABLE OF CONTENTS

Executive summary

Industry profile

Company profile

14

Mckinsey 7s Model

24

Design of the study

30

Research Methodology

31

7.

Types of Documentary Credit

33

Letter of Credit

40

Export Finance

43

10

Import finance

66

11

General Remittances

84

12

Analysis and interpretation

89

13

Suggestions

96

14

Conclusion

98

15

Bibliography

99

1. Executive summary
This is the point of time where no country can claim to be completely independent
.Everyone is efficient enough to produce something, but not everything. Every country is
dependent on others for something or other. So it is obvious that movement of goods and
services has to take place across the borders. This movement has been given a widely
accepted name called international trade
LPG (liberalization, privatization and globalization) has played a pivotal role in the
economic development. It has paved way for crossing economic boundaries and carrying
out trade between different countries for India.
Economic development can be achieved by countries by implementing the policy of
Give and Take based on famous theories like comparative advantages ,yes we are
talking about the crucial log in the wheel of growth of country The Foreign Trade .
Todays business mantra is Export or Perish. There are many organizations and
government departments that promote export trade in India, one of the main being
Ministry of Commerce and Industry, which negotiates trade agreements, formulates
export and import policies etc. the Export Import Bank of India (EXIM) is the
institution for project finance by providing direct finance and coordinating the working of
the institutions engaged in financing the export /import of goods and services.

The RBI is the APEX bank which is authorized, to extend and regulate export credit
transaction including foreign exchange affairs .The policies and procedures are regulated
for every five years through the EXIM policy.
The policies laid down by the EXIM policy should be strictly followed and executed by
bankers to provide the assistance required to the exporters. All banks have to follow the
same procedures and the bankers need to be exporter friendly.
Bankers are been given assistance in the form of pre-shipment and post-shipment finance.
Through this interim report truly proposes have given a comprehensive yet brief
testimony on the intricacies of export financing and related banking procedures in India

with Vijaya Bank, which is kind enough in allowing us to do this project at the bank,
acting as a beacon in the area of banking procedures.

2. INDUSTRY PROFILE
International trade consists of transactions that are carried out across national borders to
satisfy the objectives of individuals, organization and nations with the policy of
liberalization and industrialization being followed across the globe nation have moved
towards specializing in the production of few goods. Most of the nations specialize in
producing particular goods or providing particular productivity because all of us can

competitive advantage. Our modern economy allows as exchanging the goods and
services, we wish to consume. Nations give up self sufficiency and accepts
interdependence in order to obtain the benefits of trade and specialization. These benefits
form the basis of the theory of international trade.
FOREIGN TRADE
Foreign exchange as defined in the foreign exchange regulation act 1973 foreign currency
and includes
1. All deposits credits, balance payable in any foreign currency and drafts, travelers
cheques letters of credit and bill of exchange, expressed or drawn in Indian currency
2. Any instruments payable at the option of drawee or holder there of or a party there to,
either in Indian currency or in foreign currency or partly in other.
FOREIGN EXCHANGE CONTROL ADMINISTRATION
Reserve bank of India acts as the custodian of foreign exchange on the behalf of the
government of India. It is empowered to issue notification relating to foreign exchange
dealings to ensure its proper utilization. Priory, FERA (foreign exchange regulation Act)
and now improved FEMA (foreign exchange management act) are statutory guidelines to
be followed in matter of foreign exchange.

FOREIGN EXCHNGE RATE


In the international trade scene, there are different currencies prevalent like us dollar,
euro, Indian rupees, Great Britain pounds, Swedish kroner etc. each as different inherent
values. When an international trade takes place between two countries having two
different currency of different values, to close the transaction, the two currencies have to
equated the level at which a currency becomes equal to the other is called there foreign
exchange rate.
FOREIGN EXCHANGE RATE ARE OFTEN EXPRESSED IN TWO WAYS

Direct rate
E$1= rs50 (there the home currency is equated to a unit of foreign currency)
Indirect rate
E Rs 1=$0.02(here foreign currency equivalent to one unit of home currency is used).
EXPORT & IMPORT-EXPORT FINANCING
Financial assistance is extended by the banks to the exporters at pre-shipment and postshipment stages. Financial assistance extended to the exporter prior to shipment of goods
from India falls within the scope of pre-shipment finance while that extended after
shipment of the goods falls under post-shipment finance. While the pre-shipment finance
is provided for working capital for the purchase of raw material, processing, packaging,
transportation, warehousing etc. of the goods meant for export, post-shipment finance is
generally provided in order to bridge the gap between shipment of goods and realization
For raising funds in India, investors can raise a substantial portion of the project cost in
India through debt and equity instruments. Applications for long term loans can be made
to State Financial Corporations when the project is small generally less than Rs 50
million or to national-level financial institutions, such as IDBI and IFCI, when the project
is large. Institutions expect concrete project and market reports, with reasonably fir costs
and implementation plans. Other long term financing options include leasing, hire
purchase, deferred payment guarantee etc. Capital markets are increasingly the preferred
route for raising finances in India, through equity shares, debentures and hybrids.
Investors with both small as well as large fund requirements can mobilize funds from the
market. Private placement with institutional investors is also possible. Indian companies
also have the option of raising funds from international capital markets. Short term
finances for wording capital requirements are available from commercial banks and
through instruments such as fixed deposits, and commercial paper.
The economic needs of the country, effective use of foreign exchange and industrial as
well as consumer requirements are basic factors which influence Indias import policy.
On the import side the policy has three objectives:
1. To make necessary imported goods more easily available, including essential capital

Goods for modernizing and upgrading technology;


2. To simplify and streamline procedures for import licensing,
3. To promote efficient import substation and self-reliance

EXPORT & IMPORT IMPORT TO INDIA IMPORT POLICY

IMPORT POLICY
There are only 4 prohibited goods: tallow fat, animal rennet, wild animals and
unprocessed ivory. there is a restricted list but most of the restrictions are on grounds are
reserved for production by small and tiny enterprises ,which are home based or village
based and which require low skills and employ a large number of people . But the policy
of restricting import of consumer goods is changing.
The Indian governments clearly laid down policy are to achieve, through a series of
progressive steps the average tariff levels prevalent in the ASEAN region. The basic
customs tariff rate now ranges from 0 to 40% plus additional duty of 2% the average rate
is about 30%.
Imports are allowed free of duty for export production under a duty exemption scheme.
Input output norms have been specified for more than 4200 items. These norms specify
the amount of duty-free import of inputs of allowed for specified products to be exported.
There are no quantitative restrictions on imports of capital goods and intermediates
.Import of second hand capital goods is permitted provided they have a minimum
residual life of 5 years. There is an Export Promotion Capital Goods (EPCG) Scheme
under which exporters are allowed to import capital goods (including computer systems)
at concessionary customs duty, subject to fulfillment of specified export obligations.
Service industries enjoy the facility of zero import duty under the EPCG scheme
.Likewise, hospitals, air cargo, hotels and other tourism related industries. Software units
can use data communication network to export their products.

EXPORT & IMPORT EXIM POLICY-HIGHLIGHTS OF EXIM POLICY


The new 5 year Exports and Imports policy aims at giving a major thrust to acceleration
of Indias exports through restructuring and revamping of various export promotion
schemes and wide ranging measures for specification of procedures with a view to
making them more transparent and easy to administer.

Gems & Jeweler Scheme to promote export of gold jewellery,it is proposed to increase
the Double weightage will be given to agro exports in calculating the eligibility of Export
,houses ,trading houses,etc .An additional 1% Special Import License on the total value
of exports will be given for export of fruits ,vegetables and floriculture and horticulture
products .
EOU/EPZ units will be permitted to sell to sell 50%of their output in the DTA on
payment of duty without insistence on value addition.
Special Incentives for Export of SSI product/products from North Eastern states /New
Markets. An additional Special Import License of 1% on total value of exports has been
given to EH/TH etc where such exports of products from north eastern States Constitute
10% or more of the total exports made. Double weightage on such exports has been given
for recognition as EH/TH/STH/SSTH. Additional SIL has also been given for exploration
of new markets. SIL on export of SSI products has been increased from 1% to 2%.
In case of small scale exporters holding ISO 9000 series or IS/ISO 9000 series quality
certification ,the FOB value of export will now be Rs. 1 crores and above during the
preceding three licensing years instead of the limit of Rs.5crore and Rs.2crore
respectively prescribed for others .
Export/Trading/star Trading /Super Star Trading Houses
Earlier eligibility criterion for recognition of Export House /Trading /Star Trading
House/Super Star Trading House based on the average annual export performance of the
preceding 3 licensing years was Rs 10crores, 50 crores, 250 crores and 750 crores

respectively. Keeping in mind the export target growth to be reached by the turn of the
country total exports this has now been revised to Rs 20 crores, 100 crores, 500 crores
and 1500 crores respectively.
Incentives to improve quality of export products the SIL entitlement of exporters holding
IS/ISO 9000 series has been increased from 2% of FOB to 5%. Number of nominated
agencies permitted to stock gold. At present only HHEC, SBI, MMTC and STC are doing
this. This improvement will make available adequate quantity of gold to exporters on
replenishment basis or on outright purchase.
Moreover, the EOU/EPZ units are being permitted to sell 10% of their output in the DTA
against SIL on payment of duty.
Duty Exemption Scheme significant changes have been made to reduce the multiplicity
of schemes, improve their attractiveness and to make them simple and easy administers.
The quantity based advance license has been continued.
It has restructured various export promotion schemes and has replaced Value Based
Advance License and Passbook scheme by a new scheme called duty entitlement
passbook scheme. Under this scheme, an exporter, on the basis of notified entitlement
rates, will be granted duty credits which will allow them to import inputs duty free. He
can make use of this to import any free importable item. The credit can be transferred to
another person but the transfer will be valid within the same port.
Under the Advance Licensing Scheme, the procedure has been further simplified .the
Export obligation period of 12 months has now been extended to 18 months. Further
extension for 6 months will be granted on payment of 1% of the value of unfulfilled
exports. This will reduce considerable paper work and harassment to the exporter.

3. COMPANY PROFILE
VIJAYA BANK PROFILE
Vijaya band was found on 23- Oct 1931 by late Sri A.B Shetty and other enterprising
farmers in Mangalore, Karnataka. The objective of the founders was essentially to
promote banking habit, thrift, and entrepreneurship among the farming community of
Dakshina Kannada district in Karnataka. The bank scheduled bank in 1958.
Vijaya Bank steadily grew into a large all India bank with nine smaller banks merging
with it during the 1963-68. The credit for this merger as well as growth goes to late Sri.
Sunder Ram Shetty, who was the then chief executive of the bank. The bank was
nationalized on 15 April 1980. It underwent tremendous changes in the post liberalize
radical changes in the organizational structure policies and programs as well as in the
mind set of its employees. After nationalization, banking operation was gradually
decentralized. The bank shifted its zonal offices to the respective territories and gave
greater thrust on computerization and diversification. It was necessitated in order to
increase its reach to the people as well as implementing various government schemes.
With liberalization era set in, in the banking sector witnessed deregulation. This opened
up new opportunities for Vijay bank for diversification and growth. Introduction of
prudential norms in income recognition provision and capital adequacy, transparency in
financial reporting etc. have rendered bank more accountable for performance. The bank
which had to book losses in 1992-93 and 95-96 on account of stringent income,
recognition norms, turn the table immediately in 1996-97 and has stated improving its
performance on the profitability front. It witnessed a net profit of 70.73 crore in the year
ending March 2001 the bank also successfully mobilized equity amounting to rupees 100
Crore through an initial public offering issue in 200. As a result of share holding of
government has come down from 1005 to 72.16%.

The bank has built a network has built a network of 843 branches that span all 28 states
and 4 union territories in the country. The bank expertise extends to the prime area of
capital market, corporate banking and industrial finance small scale industries and hi-tech
agriculture, a part from personal banking, funds transfer, overseas banking and asset
recovery management.
Vijaya bank has the highest number of branches that offer specialized banking for
industrial finance, small scale industries, agricultural(hi-tech) finance, capital market,
commercial and personal banking, assets recovery management overseas banking,
corporate banking, and funds transfer. In line with prevailing trends the bank has been
giving greater thrust towards technological gradation of its operation. As on March 2003,
356 branches have been computerized covering 78.26% of the banks total business.
Besides this the bank has also installed many items at few of its branches. Realizing
customers constantly evolving &diverse needs the bank has diversified too. Entering
several new areas such as credit card, merchant banking, higher purchase, leasing and
electronic remittance services.
Vijaya bank among the few banks in the country to take a principle membership of visa
international and master card international. The driving force behind Vijaya banks every
achievement has been its, 11,723 strong dedicated work force each branch provides
effective and significantly contributes to the growth of the individual and the nation.
MANAGEMENT
Today, leaving up to the ideal of the founding visionaries is the management at the
Vijaya bank; the management includes dedicated professionals who bring with them a
considerable amount of expertise and experience in banking industry. Currently the
banks board of directors consists of 7 directors. The bank has a three-tier organization
structure head office, regional office and its branches. The head office of its host various
functional departments that are instrumental in policy formulation and monitoring of
performance of the regions today there are four general mangers at the head office in
charge of different functional areas.
EXPORT AND IMPORT OPERATIONS

Vijaya bank has been handling foreign exchange business since 1971. As usual in any
business their foreign exchange business has been subject to cyclical phases on the
periods of growth and stagnation. Still they have been able to put up a satisfactory show
and contributed to the overall growth. Vijaya bank has over 36 branches that provide
specialized foreign exchange services. Vijaya bank has performed creditably, during the
year 2002-03 the year has been the profitable year for the bank since its inception in
1931.

VIJAYA BANK FOREX BRANCHES & FOREX OPERATION


Forex branches
Vijaya bank has been handling foreign exchange business since 1971. As is usual in any
business their foreign exchange business has been subject to cyclical phases of the
periods of growth and stagnation. Still they have been able to put up a satisfactory show
and contributed to the overall growth. Vijaya bank has over 36 branches that provide
specialized foreign exchange services.
There is only one branch in Bangalore providing services to customers who have good
share of import or export activity in their business.

AUTHORIZED DEALERS (ADS)


Authorized dealers are banks and financial institution authorized by RBI to deal in
foreign exchange. Certain financial institutions like EXIM bank have given restricted
authorized to deal in specific foreign exchange transactions. At tourist destination some
agencies are authorized to sell and foreign currency rotes & traveller cheques. They are
called money changers. Some MCs are allowed to only en cash foreign currency notes
and traveller cheques. They are referred to as restricted MCs the branches of the bank for
the purposes of foreign exchange business are classified as follows.
CATEGORY A

A branch, which maintains exchange position and accounts in foreign currencies abroad
for the purpose, on behalf of itself and other branches, us an A category branch. In
Vijaya bank, there is only one A category branch, the foreign and treasury management
division (f & tmd) at Mumbai. F & tmd maintains exchange position in various
currencies, provides exchange rates for merchant transactions, handles dealing operations
and carries out reconciliation foreign accounts, investments as well as borrowings in
domestic/international markets.
CATEGORY B
Branches / offices, which are authorized to all types of foreign exchange business but
without maintaining exchange position / foreign currency accounts abroad in their own
name, are classified as B category branch. The exchange position arising out of the
foreign exchange transactions handled by these branches are to be reported to and
covered through and A category branch. Such branches/offices are also referred to as
foreign exchange designated branches.
CATEGORY C
All branches which are neither classified as A nor B category branches/office should
put through its foreign exchange transaction on behalf of its customers, through a B
category branch/office to which it is attached to based on the nature/ volume of their
business, a limited authority to entertain specified types of foreign exchange business
may be granted to C category branches on request and merits and based on the
recommendations of the concerned RO. Even such transactions are to be routed through a
B category branch for further processing.
AGENCY ARRANGEMENTS:
The need to establish an agency relationship with banks in other countries arises due to
the fact that banks do not have its own branches in all the countries. There fore to
facilities smooth flow of international transactions with various countries, arrangements
are made with banks in various part of the world to handle business originated from
Indian banks and to be concluded in another country or business routed from other

countries to India. These arrangements between banks are known as agency


arrangements & the bank with an arrangement is concluded is called our correspondent
An agency arrangements proposition with another bank can originated, on a/c of the
following reasons.
1. The needs of the customers of our bank.
2. A Request from a foreign bank, based on the needs of its customers.
3. Inter-bank transactions in the international market
4. Investment
5. Borrowing
Agency arrangements between banks may be of two types i.e. Either with a/c relationship
between the banks or without an a/c relationship, An a/c relationship with a foreign bank
may involve maintenance of Nostro a/c by banks with that bank (correspondent) or their
Vostro a/c with Indian banks the present regulations allows Ads to freely open and
maintain a/cs in any permitted currency with their correspondents situated abroad. The
correspondent bank and the Indian bank provide test keys to each other by which they
can verify the authenticity of the transaction.
There are basically three types of accounts with reference to international trade.
1. Nostro a/c: An a/c maintained by an Indian band with a correspondent bank in
foreign currency is referred as Nostro a/c.
2. Vostro a/c: When a correspondent bank maintains an a/c with an Indian bank in
rupees is referred as Vostro a/c.
3. Loro a/c: In some cases the bank advises the correspondent bank to debit/credit
the a/c of a third band, maintained with them. The a/c of the third bank in the
books of the correspondent bank will be referred as Loro a/c.
EXPORT DEPARTMENT
There are separate departments for export & import in the overseas branch (Bangalore).
There are two officers under the export division. One officer is in charge of the packing

Credit loans while the other deals with post shipments finance. The Officer who deals
the processing of pacing Credit Loan has to ensure that they have a sanction limit. But
first of all an exporter must comply with certain rules.
1. Exporter should give a current account with the bank. The current account should be
at least three months old for the officer to start the process.
2

The exporter has to obtain an IE code number. The IE code us import code number

which the importer/exporter can obtain from the DGFT office (i.e. in Bangalore at
Koramangala.) The exporter and importer now have a common code; thats why it is
called as IE code The forms has to be filled up and given along with the banker,
certificate which states that the prospective exporter is a customer of the bank.
3. GR forms should be complete by the exporter in duplicate and both the copies
submitted to the customs at the port of shipment along with the shipping bill. Customs
will give their running serial number on both the copies after admitting the corresponding
shipping bill. The Customs serial number will gave ten numerals denoting the code
number of the port of shipment, the calendar year and six digit funning serial numbers.
Customs will certify the value declared by the exporter on both the copies of the GR form
at the space earmarked and will also record the assessed value. They will then return the
duplicate copy of the form to the exporter and retain the original for transmission to
Reserve Bank. Exporters should submit the duplicate copy of the GR form again to
customs along with the cargo to be shipped.
4. Within twenty-one days from the date of export, exporter should lodge the duplicate
copy together with relative shipping documents and an extra copy or the invoice with the
authorized dealer named into the GR form. After the documents have been negotiated/
sent for collection, the authorized dealer should report the transaction to Reserve Bank in
statement ENC under cover of appropriate R-supplementary Return. The duplicate copy
of the form together with a copy of the form together with a copy of invoice will be
retained by the authorized dealer till full export proceeds have been realized and
thereafter submitted to Reserve bank duly certified under cover of appropriate Rsupplementary Return.

A purchase or sale order is the basis for a bank to give pre-shipment finance. As
mentioned earlier, the exporter should have a current account with the bank for a period
not less than six months. The officer ensures that they have sanction limit. That is the
officer decides on the sanction limit as to how much credit can be granted. The bank also
decides to what extent an applicant can avail pre-shipment finance by considering;
1. Reputation of applicant with the bank.
2. The companys turnover- usually the balance sheet of the past 3 years is analyzed.
3. The companys projected business for the next few years.
4. The ability to give security.
5. The commodity that the applicant wishes to export.
The packing credit given is also covered by some collateral security. Usually when an
applicant brings an export order with a request for a certain sum of money, the bank
credits up to 75% of the total order. It is also done when the party is one who does
business very frequently. The order is then dept with the Bank. This is done with the
intention that the exporter does not take the order to other bank deeps the order or he
endorses the order in case the exporter takes the LC to other banks. LC or letters of
credit is that which is established in favor of Indian residents by person resident outside
India for purchase of goods and services. Such letters of credit may be received for the
following purposes:
I. For physical export of goods and services from India to foreign country.
II. For education of projects outside India by Indian exporters by supply of goods
and services from India or partly form India and partly form outside India.
(Third countries)
III. Towards deemed exports where there is no physical movement of goods form
outside Indian but the suppliers are being made to a project financed in
foreign exchange by multilateral agencies.
IV. For sale of goods by Indian exporters with total procurement and supply from
outside India

IMPORT DEPARTMENT
In the import department there are also two officers who handle all the imports &
outwards Remittances. As all the foreign currency outward remittances should be
through ads. The ads are requiring taking care of the following points while remitting the
foreign currency.

Evidence of import should be furnished by the importer.

When the exchange control copy is in the name of a person other than the person
having import license in his name. It is to be ensured by the ADs that a letter of
authority has been obtained from the person holding import license.

Applications by persons, for making payments towards imports into India must be
made on AI form

Import licenses should be surrendered to the ADs when fully utilized.

ADs should ensure that in the event of non-import of goods, the amount of
advance is repatriated to India or is utilized for any other purposes for which
release or exchange is permissible under the Act.

When payment is made for replacement of importer then it is to be ensured that


there is no doubt payment of the same import.

In the case of bills involving large values, ADs should satisfy that the importer is
known to be trading in the items mentioned in the shipping documents or that the
items are required for his actual use.

Authorized dealers should exercise due care while handling import documents on
collection basis on behalf of importer customers with reference to their line of

business. Financial standing frequency of import, etc, to establish the genuiness of


the import. In the case of bill involving large values, authorized dealers should, at
the time of acceptance of the documents/ making payment, call for detailed
certificate- cum- report from their bankers in support of the genuiness of imports.
Future
Over the years they won trust and goodwill from people all round the country and its
customers abroad. They have also proved to be a service oriented and customer friendly
bank. Bank says we will continuously strive and constantly innovate to provide the
customers with more convenient and effective services in the coming years
Mission
Vijaya bank mission is to emerge as a prime national bank backed up by modern
technology, meeting customers aspiration with professional banking services and
sustained growth contributing to national development.

4. McKinsey 7s Model

Mckinsey and co.s 7s model provides a useful framework for analyzing the strategic
attributes of an organization. The Mckinsey consulting firm identified strategy as only
just one of seven elements exhibited by the best managed company. Strategy, structure
and system can be considered the hardware of success while style, staff, skills and
shared values can be seen as the software.
Companies, in which these soft elements are present, are usually more successful at the
implementation of strategy.

1. Strategy: To denote the overcall plan for the organizations success in the present
times, form a competitive stand .Plan of action to address growth of the firm.
2. Structure: The organization chart that shows the department, positions,
relationship etc.in line with the major strategic thrust.

3. Systems: Processes that channel the core activities namely, information flow,
control activities, human resources, etc.
4. Style: Leadership & Management issues that are key motivators for responsible
teams.
5. Staff: Human resources and the organizational climate.
6. Shared value: The organizational culture as evident form the believes and values.
7. Skills: The nature of specialization across the broad spectrum of business
functions the competencies available, etc.

7s model of Vijaya Bank


Strategy
Vision 2006
Vision march 2003 to march 2006 is highlighted in the table below
BUSINESS PLAN
Particulars

March March March

Number of branches
Aggregate deposits
Gross credit
Net NPAs as % to net credit
Net profits
Number of branches to be

2003
843
17500
8500
4.2%
200
575

2004
925
22000
11500
2.8%
275
902

2005
1000
28000
15000
1.6%
400
1000

Computerized
Average business/employee

1.97

2.52

3.2

Major strategies are:

To expand the network through India so that the company can maintain the
number one position in the company.

To have increased client base by conducting more and more awareness campaigns

To provide diversified services to the clients

Increase the number of branches in the country as well as out side India

Increase the number of computerized branches.

Increase average business per employee.

Adopt new technology & increase the no. of the ATMs.

STRUCTURE

Board of Directors

Committee of Directors

Managing Director

Executive Vice President

Senior Vice President

Vice President (fin)

Officers

Junior Officers

Secretarial Assistants

Senior Vice President

STYLE
Having a participative kind of leadership style the top management of Vijaya Bank
encourages the initiatives from the employees and tries to implement them.
Interaction sessions are conducted at regular intervals. Company has free upward
communication channel.
SKILLS:
Vijaya bank have continued phase of emphasis on enhancing the skills and
capabilities of employees and on importing training for meeting customer
requirements. The processes for enhancing the skills were further redefined to suit the
specific needs of the organization and also to contribute to the employees all round
development and growth. As Vijaya Bank is one of the oldest banks, the managers are
experienced enough with skills and talents to provide better services to customers in a
short period of time. The managers are efficient enough to get through queries cited
by customers.
STAFF:
Recruiting policy of the bank is done through written test, oral interviews, training
process, and walk-in interviews. Vijaya prefers Right person at right time in right
place. Before introducing new technology, the training is given to the employees to
make them feel ease about the new technique and new procedure.
SYSTEM:
It follows decentralized system of management where in managers in different fields
are responsible for the performance of the required duties and responsibility.

SHARED VALUE:
As Vijaya bank is one of the few banks that is going for the following values:

Customer satisfaction

Quick and better services

Adding quality to life

Core transparency

Honest in work

Loyal to the customers.

5. Research design

Export and import plays pivotal role in the economic development of the country. In the
liberalized economic scenario the need to earn foreign exchange is regarded as the
Panacea of the ill-health of the Indian economic
In India finance is being provided to exporters at reshipment and post-shipment of
goods .hence the banks have a greater role in export financing. The government of India
has recognized the need for the assistance and hence in 1968 itself they introduced a
scheme for bank finance for export sector known as export credit interest subsidy
scheme to enable banks to follow uniform procedures .the government of India has been
further strengthened export financing by implementing policies through EXIM bank, as
per the guidelines issued by the RBI.
This is a study which aims at probing into the procedures that banks have to follow in
order to deploy export finance efficiently .Commodity wise data on exports clearly brings
out the role of external demand in shaping Indias export performance .But still if the
domestic policies are favorable then the exporters can avail better facilities.
It could be worth while to take a hard look into the system and procedures and have a
better understanding of the governments and other organizations policies on export .The
EXIM policy that is formulated for every five years is done to favor exports and imports
and bring in more foreign currency. Foreign exchange dealers association of India also
helps in formulating policies and regulating them.

6. Proposed Methodology

Practice makes a man perfect


And
A paper cow never eats grass

As these maxims prove theory is worthless unless we dont know its practical
implications. So by stressing on the personal interaction with the Vijaya bank officers and
by giving a helping hand to the officers in completing their day to day work, we intend to
gain real time practical experience of transactions. However nobody can completely
discard the theoretical knowledge for which we are referring bank manuals, general
books and bottomless valley of knowledge, the internet.

Sources of information
Primary sources of information
The data was collected through
1. personal interview with concerned officers
2. involvement in day to day operation
Secondary sources of information
1.

Internet

2.

Books and publish materials.

3. Annual reports ,magazines and manuals

Plan of analysis
The collected information was tabulated and analyzed in detail. Graphs and Diagrams
have also been used. An in-depth study was done with regard to the procedures which are
followed by banks.

Objective of the study


1. To learn about export and import finance and banking procedures in India with
stress on Vijaya bank
2. To analyze and interpret the performance of Vijaya Bank in providing export
finance.
3. To study the structure that is prevailing and how the banks efficiently utilize it
to provide assistance to exporters with special reference to Vijaya Bank

7. Types of documentary credits

Dealt with below are various types of credits in operation and the points of different
between those credits. All credits can be classified into two categories: recovers credits
and irrevocable credits.
1. Revocable Credits
Revocable credits are one which can be cancelled or amended without notice
before the party has incurred any liability under the credit .Of course the issuing
bank is under obligation to reimburse the advising bank for any liability incurred

by it got notice of amendment of cancellation such credits are not very popular for
the exporter always faces the risk of the letter of credit getting amended or
cancelled and his knowledge and not being able to have any recourse. Such
credits are normally resorted to between a parent company and its subsidiary for
in such situation there is hardly any risk of cancellation or amendment and in such
a case mostly letters of credits are issued in terms of foreign exchange regulation
in some country .Also they are used in that trade where there is no dearth of ready
buyers. The seller therefore is sure of being able to dispose off their product
without any loss even if the original buyer declines to accept goods on arrival .
99.9% letters are irrevocable .But revocable letters are issued are very cheap
because only handling charges have to be paid.
2. Irrevocable credits
An irrevocable credit on the other hand is the undertaking of the issuing bank
,unconditional one ,which one having been issued ,can neither be amended or nor
canceled without the consent of all parties to the credit .Irrevocable letters of
credit are ,therefore a lot safer for the beneficiary because he has an undertaking
of the bank which is not going to get amended or cancelled without his knowledge
.Irrevocable credits constitute the undertaking of the issuing bank to make
payment on submission of confirming documents . the uniform Customary
Practices(UCP) 500, as made an improvement over the previous UCP 400 in that
it has provided that unless otherwise specifically stipulated a credit will deemed to
be irrevocable on even is nothing is mentioned in the letter of credit as to whether
it is removable or irrevocable .
3. Unconfirmed Credits
The letter of credit may be confirmed or unconfirmed. If the credit is unconfirmed
the advising bank is under no obligation to pay, accept or negotiate under the
credit unless it is so willing. Unconfirmed credit dose not have the advantage of
getting in addition to the undertaking of the issuing bank, of another bank in its
own country which could reduce the risk element in the whole transaction. Parties
having good amount of faith in each other may feel that incurring additional cost
by way of confirmation charges is not necessary and may ,therefore ,not want to
spend money on confirmation.

4. Confirmed letter of credit


Confirmed letters of credits are those where a bank in the exporters country has
added its confirmation by way of an additional undertaking to make payment
etc .the advising bank may be requested to add its confirmation either at the time
of issuing or later on at the time of amending the credit. The advising bank before
agreeing to do so will consider various risks involved and take its own considered
decision including the ability of the issuing bank to honor its obligations. If it
feels satisfied it agrees to add its confirmation. If for some reason the advising
bank requested to add its confirmation decide not to do so it must advice the
issuing bank forthwith of its decision not to add its confirmation so that the
issuing bank can make arrangement with some other bank to getting it confirmed.
A bank which has confirmed the original letter of credit is under no obligation to
confirm amendments to a confirmed letter of credit which increases is liability or
extends the validity of letter of credit for the banks perception of country risk and
viability of credit may change. Under a credit whether confirmed or unconfirmed
the banks guarantee is available only if documents presented are in order and not
otherwise.
5. Revolving Credit
These credits are used between parties who have regular dealings and would like
to save the bother of issuing documentary credits again and again for on going
deals. While this is the advantage for such credits, it is countered by the
disadvantage of entering into long term commitment to a particular supplier
denying the benefit of utilizing other competitive opportunities and at the same
typing up customers banking facilities for long periods. Again the issuing bank
would be undertaking maximum liability which may be in multiple of its face
value. Such credit may either revolve in relation to amount or time a stated
amount is available during a given period if the letter of credit revolves by time.
The full amount is available next time after amount is available up to a fixed
amount for any one drawing .such credits could revolve automatically or
otherwise. In the case of automatically revolving credit the amount drawn become
immediately available again, where as in the case non-automatic each installment
can only be re-instated by way of an amendment to the credit. This later option
gives greater control over the credit operation.

6. Standby letter of credit


A stand by letter of credit is used as substitute for bank guarantee though it is
issued in the format of a documentary credit. It is aimed at providing it is issued
in the format of a documentary credit. It is aimed at providing financial security to
the seller in case the buyer fails to perform his part. Thus this credit is used in the
situation of nonperformance where as normal credits are used in the performance
situation. Such credit is payable on first demand and the only document to be
submitted in such credits is a simple declaration of non performance accompanied
by a statement of claim .It is commonly used to support open account trading
where the seller may expect some security for getting his payment . In countries
like USA this credits are preferred as compared to bank guarantees. Therefore,
there is massive increase in its usage in places of guarantees.
7. Transferable letter of credit
Such credits are used in case where the seller is acting as an agent in an export
order and dose not want the buyer to know the actual supplier name for business
reasons so that the buyer may not approach that supplier for future dealing. Such
credits permits partial or company transfer of rights and obligation under the
credits to another beneficiary. To be transferable credit must specifically
transferable , unless the credit provides otherwise it may be transferred only once
however ,if part shipments are allowed portions of credit may be transferred to
more than one second beneficiary. Such credits are transferred with the same
terms and conditions as the original credit except that the amount, unit price,
expiry date, latest date for presentation of documents and period of shipment may
be reduced or curtailed. A transferable letter of credit may be one for full
disclosure or of non-disclosure.
8. Assignment of credit
If a credit is not designable as transferable, but the seller still wants to give
proceeds of the letter of credit he can still do so by assigning.
9. Red clause L.C

This type of anticipatory credit which generally authorizes the advising bank to
grant credit to the beneficiary of the credit upon his request and against the
security of the L.C for purchase/procurement of materials etc in connection with
goods to be exported. The term red clause has historical implication since in olden
times such clause used to be indicated in red color type set.
Banks have to reckon the correspondent bank risk and track record of the
beneficiary before granting advance against L.C the condition under which the
issuing bank would honor the default need to be studied carefully.
10. Green clause L.C
This is also a version of red clause L.C the purpose for which the advance can be
extended is more exhaustive such as warehousing and insurance charges etc. The
clause is generally is green type set and hence the name...
Both the above types of L.C were popular when International Trade was
at its infant stages and the finance was hard to come by for exporters. The credits
are not common now as sound and liberal borrowing facilities are available to
exporters globally. They have good academic value.
11. Back-to-back letter of credit
An exporter may not always need a loan or advance to execute an export
order. Sometimes ,the beneficiary of an irrevocable export credit in flavor of his
supplier calling for identical documents evidencing shipment /supply of goods to
enable him to execute the export order . This form of inland credit, backed by a
foreign letter of credit is called a back to-back letter of credit.

Modes of payment Under L.C


There are four types of letters of credit. These are available by

Sight payment

Deferred payment

Acceptance

Negotiation

Exporters need to know various types of credits and must incorporate the specific type of
credit that he wishes to meet his purpose. What type of credit one should choose will be
determined by the following factors?
1. One whom the drafts, if any are to be drawn and
2. The method of reimbursement available under the credit
A. Sight payment
A sight credit allows the nominated bank to debit the account of the issuing bank on
presentation of confirming documents. A draft payable at sight may be called for
drawn on the nominated bank. In the case of a confirmed credit, the nominated
bank is nearly always the confirming bank. In case of unconfirmed credit the
exporter will receive payment only if the nominated bank in a position to pay. The
sight credit may be one where payment at sight may be at the counters of the
nominated bank, or at the counters of the issuing bank.
B.

Deferred payment credit


In this type of a credit the nominated bank can debit the issuing banks account at

a future date against presentation of confirming documents. No draft is required in


deferred payment credit. The date is always defined in the letter of credit which is
usually certain number of days from the date of presentation of documents. In
case the letter of credit is confirmed the undertaking to pay is that of the
confirming bank. Payment will then be made on due date by the nominated bank,

if any, or by the confirming bank. If however the credit is unconfirmed the


undertaking to effect payment on the due date is that of the issuing bank.
C.

Acceptance credit

This type of credit requires drafts to be drawn on a nominated /accepting bank.


This are accepted at a future date as per terms to the letter of credit. If such a
credit is a confirmed credit ,the undertaking of the undertaking bank is to provide
for either acceptance of the drafts drawn on the confirming bank and paying it on
the due date, or effecting payment of drafts drawn on a nominated bank should
that bank fail to honor the drafts .in the case of confirm credit ,however neither
the advising bank nor the nominated bank is obliged to undertake to accept the
drafts .these will be accepted only if the bank concerned is satisfied after the
assessment of the risks at the time of presentation of documents.
D. Negotiation credit
Under this credit the issuing bank must reimburse the bank which negotiates i.e.
gives value for drafts and /or documents drawn under the letter of credit. It may
be freely negotiable with any bank that is willing to do so or it may be a restricted
credit where negotiation is restricted to a bank nominated by the issuing bank.
Under such credits confirming bank undertakes to negotatiate confirming
documents upon presentation and without recourse to the exporter or the bona fide
holders if the credit is confirmed one. In the case of confirmed credit the
negotiating bank will negotiate only if it is prepared to accept the payment risk. If
it does so, it may do son with recourse to drawer.

8. LETTER OF CREDIT
The documents that are required for producing a letter are as follows:
1) Transport documents

a) Marine/ocean B/L
b) Non negotiable sea bill
c) Chartered party bill of lading
d) Multimodal transport document
e) Air transport document
f) Road, rail or inland waterway transport documents
g) Courier and post receipts
h) Trans port documents issued by freight forwarders
2) Other documents usually for LC
a). Insurance document
b) Bill of exchange
c) Invoice
d) Packing list
e) Certification of origin.
3) Usual conditions explained in UCP itself
a) Hour of presentation]
b) Expiry dates
c) Transferability of LC
d) Partial shipments
e) Allowances in credit amount quantity and unit price
f) Insurance cover
g) Transport documents
h) Liabilities of parties concerned.

Functions of Parties:
Applicant
1) To ensure that adequate limit is sanctioned for import business, by his bank
2) To conclude order with sellers.

3) To request his bank to issue LC: application form to be properly filled by him (not
bankers)
4) To honor the commitment under the LC on receipt of credit complied documents
5) To Indicate who should bear various LC charges
6) To avoid asking for excessive documents
Issuing bank
1) To enter into correspondent arrangements with overseas bank for issue, advising,
reimbursement, payment etc.
2) To issue without delay LC and provide proper payment instructions
3) To avoid excessive documentary requirement/onerous clauses.
4) To pay without recourse when credit compiled documents are received
5) To hold the documents at the disposal of negotiating bank in case of rejection
6) To ensure it doesnt hold them for ever.
Advising bank
1) to verify authenticity of LC received from issuing bank
2) To advice LC without delay
3) To inform issuing bank immediately in case it is unable to establish authenticity
Confirming bank
1) To ensure that there exist proper arrangements/lines of credit etc. For adding
conformation.
2) To add confirmation if requested by the issuing bank or to immediately advises
issuing bank if it is not willing to add confirmation.
Negotiating bank
1) To undertake negotiation, at its option
2) To negotiate with recourse an unconfirmed LC and without recourse a confirmed
credit (fully credit compiled)
3) To ensure the correspondent bank wise limit is in place for negotiation.

Reimbursing bank
1. To provide reimbursement in accordance with LC terms.
2. Not to be held responsible in case it cannot provide reimbursement due to
insufficient funds in issuing banks a/c.
3. not to insist on certificate of compliance from negotiating bank

Beneficiary
1) To ensure Credit is correctly issued as per order
2) To take up the matter for amendment etc. immediately in case of inconsistencies
3) Produce credit complied documents.

9. EXPORT FINANCE

Export or perish is buzz word in modern word. Hence in modern world, export
assumes a great significance in a countrys economy irrespective of whether it is a
developed economy or not. It is due to this that all countries give various types of
encouragement for promoting its export trade.
In India export trade is given due importance by the govt., RBI and various other
agencies like EXIM bank of India, export credit guaranteed corporation ltd (E CGC) etc.,
have been bringing out various scheme from time to time for promotion of countrys
export trade& export capabilities.
Export finance is one of the schemes provided by commercial bank towards promoting
export. Export finance could take the form of a short term, working capital finance
allowed to an exporter may avail financial assistance from any bank provided following
two conditions are satisfied.

Funds should be available o the exporter at the required tie. To ensure availability of
funds to eligible borrowers, RBI has prescribed time schedule to commercial banks for
speedy sanctioning of export credit limits. Further banks are advised that 12% of their
total credit should be under export finance.
Cost of the funds should be affordable: in order compete in the international market our
exporter may require credit facility at the cheapest rate.
The banks extend financial assistance to the exporters at pre-shipment and post shipment
stages. Financial assistance extended to the exporter prior to shipment of goods from
India falls within with in the scope of pre-shipment finance while that extend after the
shipment of the goods falls under the post shipment finance. While the preshipment
finance is provided as working capital for purchasing of raw materials, processing,
Packing transporting, warehousing etc, of goods the goods meant for export, post
shipment is normally provided to bridge gap between shipment of goods and realization
of proceeds. In India investors can raise a substantial portion of the project cost through
debt and equity instruments applications for long-tern loans can be made to state financial
corporations when the project is small. Generally less than Rs 50 million-or to national
level financial institutions, such as IDBI and ICFI, when the project is large institutions,
expect concrete project and market reports, with reasonably firm costs and implemented
plans.

Other long term financing options include leasing; hire purchasing deferred payment
guarantee etc. capital markets are increasing the preferred route for raising finance in
India trough equity share, debentures and hybrids. Investors can freely access the capital
market and in most cases freely price the issue. Investors with both small as well as large
fund requirements can mobilize funds from the market. Private placements with
institutional investors are also possible. Indian companies also have the option of raising
funds from international capital markets. Short-term finance for working capital
requirements is available from commercial banks and through instruments such as fixed
deposits, inter-corporate deposits and commercial paper.

REGULATIONS RELATING TO EXPORT FINANCE:


a) Reserve bank guidelines
_ Exchange control regulations
_ ICED guidelines
_ DOBD guidelines
b) Trade control regulations(Exim policy 2002-07)
c) International chambers of commerce(ICC)
d) Export credit guarantee corporation
e) Fedai guidelines

OPERATIONAL FEAURES OF EXPORT FINANCE:


General guidelines for sanctioning export finance by commercial bank.
Following factors will be taken into consideration by the while sanctioning credit
limits loan exporter.
1. Banks should meet the genuine credit requirements of the export sector promptly
and in full. They should review their international arrangements and take such
action as is necessary, including delegating enough powers to branch mangers,
regional mangers to dispose of export credit proposals promptly and ensure
smooth flow of credit to export sector. Queries should be raise in piece meal or
information sought at various stages, leading to delays in extending credit.
2. Banks may adopt a flexible attitude with regard to debt- equity ratio, margin&
security norms but there could be no compromise in respect of viability of the
proposals and the integrity of the borrower.
3. Exporters should be able to satisfy their banker about their capacity to execute
orders within the stipulated time & have proper expertise to manage the export
business.
4. The quantum of finance sought for should commensurate with the expected
export turnover and the cost of inputs required.

5. if the exporters will be covered under letters of credits banks would need to be
satisfied about the standing of the conditions specified in the credit
6. Where exporters are not covered by letters of credit and will be on the basis of
firm contracts, banks may insist for obtaining a satisfactory status report on the
buyers capacity.
7.

Bank may also look into regulations, the political and financial conditions of
buyers country.

8. While sanctioning fresh facility, it should be noted that sanctioning authority


should sanction the facility, if found feasibly, with in 45 days from the date of
receipt of the 15 days form the date of receipt of the application. To ensure that
the exporter should not miss report of worthwhile order due to non availability of
bank finance the next higher authority to the sanctioning authority should do
reject of export proposals. Banks internal audit and inspections teams are
required to comment specifically n timely sanction of export credit limits.
9. Exporters credit requirements at pre and post shipment stages are to be considered
in total.
DIFFERENT STAGES IN EXPORT FINANCE
Appraisal and sanction of export finance credit limits
Pre-shipment finance generally known as pacing credit essentially asking capital advance
made available for the specific purpose of procuring processing manufacturing of goods.
All costs prior to shipment would be eligible for being finance under pacing credit.
Advance should be liquidated from the export proceeds (exempted category separately
discussed.)
While considering credit facilities for export activities in addition to the normal routine
appraisal, bank should specifically look into the aspect of the product profile, country
profile, and commodity profile. More over, the bank should also look into the status
report on the buyer, the services of ECGC or any of international consultants like dun and
Brad Street can be engaged.

At the time of appraising an export credit proposal a commercial banker is obliged to


comply with the following regulation:
1.

exchange control regulations FEMA

2.

a) Exporter should be regular customer bonafide exporter and have good standing

in the market.
b) Exporter should not be under the caution list of RBI
3. EXIM policy (2002-03)
DGFT
1. The common classification to be used by DGFT and customs will eliminate the
classification disputes and hence transaction cost and time. Similarly ministry of
environment and forests is in the process of finalization of guidelines to regulate
the import of hazardous waste.
2. Further simplification of all schemes.
3. Reduction if the maximum fee limit for electronic application under various
schemes from Rs 15 lac to Rs 100 lac,
4. Same day licensing introduced in all regional offices.
BANKS
1. Direct negotiation of export document to be permitted. This will keep the
exporters to save bank charges.
2. 100% retention in EEFC a/cts. The repatriation period for realization of export
proceeds extended from 180 days to 360 days. The facility is already available to
units in SEZ and exporters exporting to Latin America countries.
3. These facilities are being made available to status holders only for the present.
Procedure for granting packing credit loans:

1. Packing credit loans are to be considered only to such customers who have been
sanctioned necessary limit for the purpose at the branch concerned PCLs can be
granted by non-designated branches also but in such cases, negotiation of relative
bills should be done only at any one of the designated branches.
2. Before granting the PCL, branch should ensure that the exporter has obtained the
exporters code number allotter by the Reserve Bank of India and the specific
approval list of ECGCT Ltd.
3. Each loan granted should be treated as a separate loan and should be opened on
separate folios in the packing credit register by giving distinct serial numbers,
4. The original export order/LC against which the loan has been granted should be
impressed with a rubber stamp.
5. Sometimes, branch may receive requests form customers to handover the
contract/LC thus held, for production to various authorities like customs etc., for
various reasons. Such requests may be entertained against written requests of the
customers and subject to a certified true copy being substituted and the retained at
the branch.
6. Branches should be extremely cautious while granting packing credit loans
against contract covering shipment to countries having serous economic/ political
problems.
7. in respect of items, the export of which has been chanalized through an agency or
the government, care should be taken to ensure that the LC/contract deposited
complied with the requirements of the concerned agency an d necessary approval/
authority/ sub-order form the same should also be ascertained and complied with.
8. PCLs against restricting negotiations of bills to other banks should be normally
discouraged, although these need not be totally rejected.
After proper sanctioning of credit limits the disbursing branch should ensure:

The exporter in terms of sanction must have executed proper documents that are to
be obtained form the borrowers while extended credit facilities. In addition to the
normal documents that will be executed in case of commercial domestic credits in
case of export finance, Export credit agreement covering Pacing Credit Advance and
Foreign Bills Advance will be obtained by the bank depending upon the mode of
charge offered by the exporter and the terms of the sanction.
Exporter should submit following documents at the time of availing packing Credit
Advance and Foreign Bills Advance will be obtained by the bank depending upon the
mode of charge offered by the exporter and the terms of the sanction.

EXPORTER SHOULD SUBMIT FOLLOWING DOCUMENTSW AT THE TIME


OF AVAILING PACIKING CREDIT.
1. Formal application for releasing packing credit with the undertaking to the effect that
the exporter would ship the goods within the stipulated due date and submit the relevant
shipping documents to the bank within the prescribed time limit.
2. Firm order or litter of credit or original cable\telex\fax messages exchanged between
the exporter and the buyer:
3. License issued by DGFT if the merchandise to be exported falls under the restricted or
canalized category under Exim policy or if the items fall under any quota system, proper
quota allotment
-before disbursing packing credit the bank will scrutinize the application and the detail
submitted by the exporter. Following particulars should be recorded in the Pacing Credit
Register by the Bank: name of the buyer, Commodity to be exported, quantity, value
(either of FOB or CIB basis), last date of shipment/ negotiation, and any other terms to be
complied with.
-quantum of finance will be fixed on the FOB value of the contract / LC or on the
domestic value of the goods whichever is lower: Normally insurance and Freight charges
need not be finance at the initial stages of disbursement. If the exporter wants to avail
considered at the later stage of preshipment operation when the consignment is ready for

shipment. If the contract or the LC is on the CIF basis, the FOB value will be arrived at
by deducting 15% (representing freight and insurance charges) from the CIF value if the
dispatch is through sea and around 25% if the dispatch is by air. After arriving at the
FOB value the usual margin i.e., profit margin stipulated in the sanction terms to be
deducted.
There may be cases where:
1) Packing credit advance may be required to the extent of domestic market
value of the goods even though such value is higher than the FOB value of
the export order/LC value. In this case, the advance will be covered by
receivable from Govt, of India. Advance allowed against duty receivable/
incentives at pre-shipment stage should be covered under ECGC, s Export
production Finance Guarantee.
2) Packing Credit advance can be more than the LC or contract value where
the exporter many be getting some by-product such as oil and oil cakes.
The exporter will dispose off the by product in the local market. In the
case, the entire advance will be treated as export finance and concession
rate of interest will be applicable to this excess portion up to 30 days from
the date of advance.
-Disbursements are made only in stage and preferably not in cash. Payments will be made
to the supplier directly by drafts/ bankers cheques.
-The period for which a packing credit advance extended by a bank depends upon the
circumstance of the individual case, such as the time required for procuring,
manufacturing or processing (where n necessary ) and shipping the
Relative goods. It is primarily for the bank to decide the period for which the packing
credit advance may be given having regard to the various relevant circumstances, but it
should be sufficiently to enable the exporter to ship the goods. Normally this period
should not exceed 180 days.
-For reasons beyond the control of the exporter, if the shipment could not be made within
180 days from the date of advance, further extension of 90 days can be granted by the
banks themselves without referring to RBI.

Extension of any packing credit beyond 360 days required ECGCs prior approval. If a
packing credit advance if sanctioned for a specific period says 45 days and the exporter
could not ship the goods within these 45 days, exporter must seek extension of such
packing credit from the Authorized Dealer. If the exporter has not yet official requested
for extending the packing credit and relative export documents are submitted after 45
days, the period beyond 45 days till the date of submission of exports documents will be
treated as overdue period and losses concession rate of interest for such period which was
not officially extended.
FOLLOW UP OF PACKING CREDIT ADVANCES:
a) Submission of stock statement. Exporter should submit stock statement
reporting the stocks, which are under pledge or hypothecation to the bank
for securing the Packing Credit Advance. Frequency of submission of
stock statement must be decided by the Authorized Dealer at the time of
sanctioning the packing Credit and should be adhered to, by the exporter.
b) Physical inspection of stocks: The authorized Dealer must duly inspect
stocks pledged/ hypothecated by the exporter at regular interval.
c) Payment of ECGC payment of monthly premium: payment of monthly
premium at 7 paisa per Rs. 100 on the monthly average debit products
should be remitted to ECGC to the debit of exporter account.
Liquidation of packing credit advances:
Packing credit advance will always be liquidated with the export proceeds of relevant
shipment. At the stage the pre-shipment liability of the exporter will be converted into
post shipment liability of the exporter will be converted into post shipment liability. For
any reasons, if an export does not take place at all, the entire advance will be recovered at
appropriate interest applicable to Export credit not otherwise specified plus 2%from the
original date of advance. With the recent liberalization and deregulation of interest rates,
banks will have operational flexibility for liquidation packing credit advances as per
RBIs guidelines issued with effect form 14.12.1994.

Overdue packing credits and ECGC procedures:


If the borrower fails to pay the amount on due date/ extended due date and bank
considers it as overdue and overdue report of advance should be made to concerned
Regional/ Branch office of ECGC in prescribed form within 30 days. If the overdue
position persists, banks should take necessary steps to realize dues as per its usual
recovery procedure and report the default to ECGC. This default report should be sent to
concerned Regional /Branch office of ECGC in prescribed form within one month form
date of recalling the advance or within 4 months form due date/ extended due date of the
loan amount whichever is earlier. Payment of ECGC premium may be discounted after
the month in which the default is reported ECGC. If the exporter is reported insolvent
premium need not paid after the month is which insolvency of the exporter is reported to
ECGC.
Special cases:
a. Packing credit to sub-supplier: Packing credit may be shared between an
export order holder (EOH) and the manufacturer of the foods on the basis
of a disclaimer issued by the EOH to the effect that he had no availed/ is
not availing any credit facility against the portion of the order transferred
in the countersigned by the banker of EOH. Banks may accordingly
apportion between the EOH and sub-supplier, the permissible period of
packing Credit at concessional interest. Pacing credit may be extended to
the sub-supplier on the basis of an export order or letter of credit in the
name of EOH. The banker to EOH may open inland LC specifying the
goods to be supplied by the sub-supplier to EOH as a part of the export
transaction. On supply of the good, the LC opening bank will pay to the
sub- suppliers banker against the inland documents received on the basis
of inland LC opened. Such payments will thereafter become the EPC of
EOH. The total period of packing credit availed commencing form the
manufacture to whom the order has been passed on by the trading house.
b) Running account facility: with effect from 14th march, 1992 banks have
been authorized to grant Pre-shipment advances for exports of nay commodity
without insisting on prior lodgement of letter of credit/firm export orders
under Running Account facility subject to the following conditions:

The banks may extend the running Account facility only to those exporters
whose track record is good. In case where preshipment credit Running
Account facility has been extended, letters of credit/ firm orders should be
produced within a reasonable period of time. In the case of commodities
covered under Selective Credit Control, banks should insist for production of
Letters of credit/ firm order within a period of one month from the date of
sanction.
C) it facilities to deemed exporters: Deemed exports involving supplies made
to IRD/IDA/ADB or any multilateral funds aided projects and programs,
under orders secured through global tenders for which payment will be
made in free foreign exchange are eligible at concessional rate of interest
facility both at pre and post supply stages packing credit can be extended
to eligible deed exporters on lines similar to physical exports with
necessary precautions.
d) Preshipment Credit in foreign currency (PCFC): This facility will be
additional window available to the exporters along with the existing
currencies and Scheme will available in all convertible envisages Ads
extending PCFC to cover both the domestic as well as importer inputs,
which will be used for the exports. The facility will generally be available
for a period of 180 days on the basis of firm export order irrevocable LC
the source of funds to Ads will be onshore foreign exchange funds
available with them by way of balances in Exchange Earners foreign
Currency Accounts, Residents Foreign Currency Accounts (PCFC and
foreign Currency (Non resident)
A/c (Banks) scheme.
INTEREST RATES ON PRE-SHIPMENT CREDIT
1. Rupee Credit
Packing Credit

Not exceeding

a) Up to 180 days

Plr-3.5=11.0-3.5=7.5%

b) Beyond 180 days up to

Plt-1.0=11.0-3.5=10.5%

270 days with of R.O

Against incentive receivable from govt. Subject

Not exceeding

to the availability of ECGC cover up to 90 days.


Advances as per both above for the period

Plr-3.5=11.0-3.5=7.5%
Not exceeding

beyond due date, if not liquidated on due date.

Plr+2.0=11.0+2.0=13.0%

4. Foreign currency
a) For the agreed period Up to 180 days

Not exceeding 0.75

b) For agreed period beyond 180 days Up

% over LIBOR?EURIBOR/EUROLIBOR
Rate for initial period of 180 days

to 360 days

prevailing at the time of extension Plus


2.0%

For Advances crystallized

Interest as applicable to packing credit


(rupee from the date of advance

3) Interest rate for other types of credit not stated above


Deferred credit ( for the period beyond 180

Plr+1.5=11.0+1.5=12.5%

days)
Export credit not otherwise specified
a) pre-shipment credit
b) post-shipment credit
All types of export credit liquidated from

Plr+2.0=11.0+2.0=13.0%
Plr+2.0=11.0+2.0=13.0%

local resources from the date of advance till


the date of closure
a) pre-shipment credit

Plr+4.0=11.0=4.5+2.0=17.5%

b) post-shipment credit

Plr+4.0=11.0+4.0=15.5%

POST-SHIPMENT FINANCE

Post shipment finance is essentially an advance against receivable, which will


be in the form of shipping documents. The responsibility of an AD will be
felt more in case of post-shipment advances because Reserve Bank will be
monitoring the realization of full proceeds of individual shipments through
AD. Some if the major exchange control regulations concerning export
finance at the post shipment stage are as follows:
a) Export should have IEC No. and each shipment should accompany the
prescribed declaration (GR/SDG/PP/SOFTEX) form in which the value
export will be declared and duty certified by the customs authority.
b) Shipping documents along with relative GR form must be submitted to
and AD within 21 days forms the date of shipment. If there is any genuine
delay beyond the control of the exporter. AD has been delegated with
powers to condone the delay and accept the shipping documents even after
21days from date of shipment,
c) The payment should be received in an approved manner within the
prescribed time limit but within a maximum period of 6 months from the
date of shipment. For realization of export proceeds, countries all over the
world have been divided into two groups i.e., Asian clearing Union ACU)
and non- ACU countered, Exports to the group of ACU countries
( Myanmar, Bangladesh, Pakistan Iran and Sri Lanka ) should be realized
in ACU Dollars. Other then ACU counties realization of export proceeds
can be in any freely convertible currencies.
Different types of Post-shipment advances:
1) Export bills purchased/ Discounted
2) Export bills negotiated
3) Advance against export bills sent on collection basis.
4) Advance against exports on consignment basis.
5) Advance against undrawn balances.
6) Advance against duty drawback.]

!)EXPORT BILLS PURCHASED / DISCOUNTED-DA& DP BILLS: (OTHER


THAN L/C BILLS)
The export bills, representing genuine international trade transaction strictly drawn in
terms of the sale contract/ live firm contract/order may be discounted or purchased by
the banks. Proper limit should be sanctioned to the exporters for purchase export bills
facility. Since the export is not covered under Letter of Credit, risk of non-payment
may arise. The risk is more pronounced in case of document under acceptance. In
order to safeguard the interest of the bank and also the exporter, ECGC offers
coverage of credit normally covering the advance under whole Turnover Post
shipment guarantee scheme. In addition to this guarantee; exporter should be advised
to go for a separate buyer wise policy also. By having this additional policy, wider
coverage will be available to the exporter in case of any risk
2) EXPORT BILLS NEGOTIATED: (Bills Drawn under Letter of Credit)
When export documents drawn under LC, are presented the bank for negotiation they
should be scrutinized carefully with the terms and conditions of LC. The operation of
Letter of Credit is governed by Uniform Customs& practices for documentary Credits
(1993 Revision) of the international Chamber of commerce,
Brochure No. 500.
All documents tendered should be strictly in accordance with the L/C terms. It is to
be noted that the L/C issuing bank undertakes to honor its commitment only in the
beneficiary submits the stipulated documents conforming to L/C terms. Even in the
slightest deviation from the terms and conditions specified in the LC can give an
excuse to the issuing bank for refusing the payment to the negotiation bank which
might have already been make to the beneficiary- i.e., the exporter, by the negotiating
bank some of the discrepancies commonly observed are list below:
a. Late negotiation- submission of documents after the expiry of the
L/C
b.

Late shipment of goods.

c. Late presentation of documents even when the L/C is current


documents not submitted within the limitation period of specified

in the L/C or within 21 days form date of shipment. (Art 43 of


UCPDC)
d. Drawing in excess of L/C
e. Shipments made form and shipped to ports other than those
stipulate in L/C.
f. Partial shipments/transshipments effected, not authorized by the
L/C.
g. Bill of lading AEB not properly signed not properly dated and not
properly stamped. Alteration if any, not properly authenticated.
h. Presentation of insufficient and/or incomplete set of B/L.
i. Presentation of clause Bill of Lading /Received for shipment bill of
lading /short Form Bill of Lading/charter party Bill of Lading
when not permitted in the L/C.
j. Presentation of Bill of Lading in which o Board endorsement not
dated.
k. Variation in the weight in invoice and weight list ad other
documents.
l. Presentation of documents, like invoice, packing list, weight list,
insurance certificate/policy, certificate if origin, inspection
certificate, Bill of Lading/AWB that, are inconsistent with each
other.
m. Inadequate of insurance policy/certificate.
n. Presentation of insurance documents unsigned, undated,
unstamped and drawn in a different currency other than the
currency of the LC.
o. Description of goods including charges in the invoice presented
not authorized by LC.
p. Incomplete or incorrect Draft/Bills of Exchange.
q. Insufficient number of copies of various documents as called for in
the LC.
r. Non-submission of certain documents as called for in the LC.

The above discrepancies, which are commonly found, should be


considered as deviation form the terms and condition of the LC and the

opening/issuing bank may refuse documents even if the discrepancies


are not materially significant.
3)

Advance against export bills sent on collection basis:

At times, the exporter might have fully utilized his bills limit and in certain cases the bills
drawn under LC may have some discrepancies. In such cases the bills will be sent on
collection bases. In some cases, the exporter himself may request for sending the bills on
collection bases anticipating the strengthening of the foreign currency. Banks may allow
advance against these collection bills to and exporter. Concessive rate of interest can be
change for this advance into the tansies period in the case of DP bill transit period +
Usance period+ grace period (if any) in the case of usance bills. Beyond this period, the
interest rate will be subject to the various rates prescribed by RBI depending upon the
usance of the bill.
4) Advance against goods sent on consignment basis:

Goods exported on consignment basis at the risk of the exporter for sale abroad.
Eventual remittance of sale proceeds will be made by agent /consignee. The overseas
branch/correspondent of the bank will be instructed to deliver the documents against
Trust Receipt. Advance granted against the export bill covering goods sent on
consignment basis would be liquidated from remittance of the sale proceeds within six
months form the date of shipment, conforming to the Exchange Control Regulations. In
the case of exports through approved Indian owned warehouses abroad, the time limit for
realization would be 15 months.
5) Advance against Un-drawn balances:
In certain, line of export trade, it is the practice of the exporter to leave a part of the
mount as un-drawn balance. Adjustment will be making by the buyer for difference in
Weight, quality etc. Ascertained after arrival and inspection or analysis of the goods
authorized dealers can handle such bills provided the undrawn balance is in conformity

with the normally level if balance left un-drawn in the particular line of export trade to a
maximum of 10% of the full export trade.
The exporter should give an undertaking at that he would surrender account for the
balance of the proceeds within the period prescribed for realization. A proper follow-up
should be made for the realization of the undrawn balance. The authorized dealer ill
retain the duplicate copy of the GR form till such time the full export process are
realized.
Advance against un-drawn balance can be made at a concessive rate of interest for a
maximum period of 90 days. Proper margin should be maintained for the advance, as
there is possibility of some deduction out of the un-drawn balance for quality claim
reduction in weight etc.
6) Advance against Receivable from Government such as Duty Drawback:
When the domestic cost of production certain goods are higher in relation to international
price, the exporter may get support form the government so that he may compete
effectively in the overseas market. The government of India and other agencies provides
export incentives under the Export promotion Scheme. This can only be in the form of
refund of excise and customs duty known as Duty Drawback.
Bands will grant advance to exporters against their entitlements under above category at
lower rate of interest for a maximum period of 90 days. These advances being in the
nature unsecured advance cannot be granted in isolation ad could be grant only if all
other types of the export fianc are extended to the exporter by the same bank

After the shipment, the exporter will lodge their claim supported with relevant paper and
documents to customs Authorities. The customs will process the claim and disburse the
eligible amount.

These advances would be liquidated out of the settlement of claims lodged by the
exporters. It should be ensured that the bank is authorized to receive the claim amount
directly form the concerned government authorities.
Period of Finance:
Export bills can be drawn either on DP basis or on DA basis depending upon the contract
between the exporter and the overseas buyer. Concessional rate of interest on this
advance will depend upon the nature of bill.
If the bill is drawn on DP basis, concessional rate of interest will be for a period unto
normal transit period (NTP)
DA bills (Usance bills) can be drawn as follows:
i)

90 days form the date of shipment/date of draft

ii)

90 days from date of acceptance

In case of usance bills drawn from the date of shipment bill of lading/ bill of lading/bill of
exchange/draft, the due date can be decide by the exporters bank si9nce the details on
shipment date or bill of exchange date will be readily available and the bank has to arrive
at the due date.
In case of usance bills where due date has to be arrived at form date of acceptance, in
addition to the usance, normal transit period will be added and Notional due date
In both cases concessional rate of interest will be available to the exporter unto the Due
date and the Notional due date. In any case the concessional rate of interest cannot
exceed 180 days from date of shipment.
MAXIMUM ELIGIBLE FINANCE
In case of post shipment advances, normally no margin is maintained for bills drawn
under LCs. Only in case of export bills purchased against contract/ firm orders,

depending upon the additional security available, some banks prescribe certain amount of
margin.

EFFECTIVE DATE OF PAYMENT OF AN EXPORT BILL


In case of foreign currency bills date of credit in the banks nostro account and in case of
Rupee bills the date of debit in the Vostro account will be taken as the effective date of
realization of an export bill.
Extension of time limit:
If the export bill is not realized within 180 days form the date of shipment the exporter
should apply for extension to Reserve Bank in the prescribed format ETX through the

Interest rate on post-shipment finance:

1) Rupee Credit
Against D.P. bills
1.for transit period(NTTP)

PLR-3.5=11.0-3.5=7.5%

2. Beyond transit period.


Against unsance bills- up to notional due

PLR+2.0=11.0+2.0=13.0%

date comprising of NTP , usance Period as


applicable actual due date, whichever is
earlier
A. For first 90 days.

PLR-3.5=11.0-3.5=7.5%

B. For period beyond 90 days but up to PLR-1.0=11.0-1.0=10.0%


six months from the date of

shipment.
C. For period beyond six months from

PLR-2.0=11.0+2.0=13.0%

the date of shipment.


Other post-shipment advances against
incentives receivables from government
and covered by ECGC guarantees/
undrawn balances/ retention ,money (for
supply portion only ) payable within one
year from the dates of shipment/ duty draw
back receivable(finance otherwise than
duty draw back credit scheme-1976)
a).For First 90 days

PLR-3.5=11.0-3.5=7.5%

b). Beyond 90 days

PLR+2.0=11.0+2.0=13%

2) Foreign currency credit

Against DP bills/ usance bills


a. On demands bills for transit

Not exceeding 0.75% over

period(as specified by FEDAI


b) Usance bills (for total period comprising

LIBOR/EURIBOR/EURILIBOR

usance period of export bills). Up to six

Not exceeding 0.75% over

months from the date of shipment.


C.) Export bills (deamend or usance)

LIBOR/EURIBOR/EUROILIBOR

Realized after due date but up to date of

Rate as per both above plus 2.0%

crystallization
d) for bills crystallized (as per FEEAL

Interest to be charged from the date of the

rules)

advance as applicable to post- shipment


rupee credit

Crystallization of overdue export bills:


Exporters are liable for the repatriation of proceeds of the export bills
negotiated/purchased/ discounted or sent for collection by the Authorized Dealers.

Authorized Dealers should take into account the exchange risk inherent in an unpaid
export bill negotiated/purchased discounted and transfer the exchange risk to the
exporter bill crystallizing the foreign currency liability into rupee liability, on the 30th
day after notional due date in case of unpaid unsance bills. In case the 30th day happens
to be a holiday or Saturday, the export bill shall be crystallized on the next working
day.
Where the actual due date is advised by the foreign correspondent after the notional
due date has been arrived at, it will be in order for banks to crystallize the bill on the
30th day after the actual due date in the vent of non payment.
However, the bill may be crystallized by the Authorized Dealers before the said
period of 30th day with specific understanding and written request form the customer.
For crystallization into Rupee liability the Authorized Dealer shall apply the ready TT
selling rate of exchange ruling on the date of crystallization or the original bill
buying rate which ever is higher.
After receipt of advice or realization, the Authorized Dealers will adjust the Rupee
liability on the bill crystallized as above by applying the TT buying rate of exchange or
the contracted rate in case a forward contract had been booked by the customer after
crystallization. Any difference shall be recovered from /paid to the customer.
Payment of ECGC premium:
Under ECGCs whole Turnover Post shipment Guarantee bank can cover both their
contract bills and LC bills, some banks have covered only their contract bills.
Premium will depend upon the type of coverage. The bank absorbs cost of premium
themselves and not be the exporter in view of the fact that the post-shipment
guarantee is mainly intended to benefit the banks against the exporters failure.
Payment of compensation to exporters in respect of delayed credit of export proceeds:
Bands are required to pay interest to the exporter as indicated in FEDAI circular
No.2/92 date 13th April 192 without waiting for a demand from the exporter, in

respect of delay in affording credit in case where credit advice have been received
containing all required information.
New scheme of export financing
Rediscounting of Export Bills abroad (EBRD):
This facility will be an additional window available to exporter along with the
existing rupee financing schemes to an exporter at post-shipment stage; this facility
will be available in all convertible currencies. The scheme will cover export bills
unto 180 days from the date of shipment (inclusive of normal transit period and grace
period).
The scheme envisages ads rediscounting the export bills in overseas markets by
making arrangements with an overseas agency/bank by way of a line of credit or
bankers acceptance facility or any other similar facility at rates liked to London Inter
Bank Offered Fate for six months. Prior permission of the Reserve Bank will not be
require for arranging the rediscounting facility abroad as long as the spread for
rediscounting with recourse basis ad 1.5% in the case of without recourse facility,
Spread, however, should be exclusive of any withholding tax. In all other cases, the
Reserve Banks permission will be needed.
In other words banks are allowed a spread not exceeding one percent over the
rediscount rate. The effective cot(excluding withholding taw) to the exporters will
therefore, not exceed 2 percent and 2.5 percent over six months LIBOR (for Indian
Banks not having overseas the spread will 21/2% & 3% respectively) in respect of
with recourse facility respectively.
In case of rediscounting of export bills pm without recourse basis the credit limits of
exporters will be restored immediately. Ads have also bee permitted to utilize the on
shore foreign exchange fund available with them by way of balance in Exchange Earner
Foreign Currency accounts (EEFC)
Resident Foreign Currency Account and Foreign Currency (non-resident) account
(banks) scheme.
Exporters can also directly arrange for rediscounting facilities abroad without prior
permission form the Reserve Bank provided the spread stipulation mentioned in the

above paragraph are adhered to. The exporters will however, be required to arrange the
facility through a designated branch of an authorized dealer.
Option of the exporters
Now exporters have got the following options:
A). to avail of pre-shipment Credit and post-shipment in rupees.
b) To avail pre-shipment in Rupees and post- shipment in the form of rediscounting
of export bills in foreign currency.
c). To avail pre-shipment in foreign currency(PCFC ) and avail post as export bills
rediscounting scheme in foreign currency (EBR)
Exporter will try to avail facility in a denominated foreign currency depending upon
the premium/discount factor of the currency in which he has to exposure.

10. IMPORT FINANCE


Goods or services obtained or consumption or industrial use by Indian from another
country is defined as imports or import trade. Import trade is regulated by the Directorate
General of foreign Trade (DGFT) and its regional offices, functioning under the Ministry
of commerce and industries, Department of Commerce, Government of India. Policies
and procedure required to be followed for imports into India are announced by the DGFT
from time to time. While the exchange contr9ol is regulated by Reserve Bank of India
through Commercial Banks authorized to deal in foreign exchange (Known as Ads).
Authorized dealers may, therefore, sell foreign exchange (Known as Ads). Authorized
dealers may, therefore, sell foreign exchange or transfer rupees to non-resident account
towards payment for imports into India, from any foreign country, in conformity with the
Export-Import Policy in vogue and the Rules framed by the Government of India and the
Directions issued by Reserve Bank from time to time the Act.

For Exchange Control purposes, rupee accounts maintained in India by citizens of India,
Nepal$ Bhutan residents in Nepal& Bhutan as well as Indian Nepalese and Bhutanese
firms companies or other organizations, including banks functioning in these countries,
are regarded as resident accounts and rupee transfers to such accounts, for imports into
India (or for any other purpose), may be made freely, without reference to the Reserve
Bank. In terms of Rule 3 of the Government of Indian sale of Foreign exchange for
current account transactions with persons resident in Nepal and /or Bhutan, or against
import into these countries made by residents in India, is prohibited.

Import Licenses:Import of the goods into India, is subject to licenses issued by the import trade authorities
as per the import policy in force. The import policy is announced by the central
government and is subject to the frequent modifications depending upon the country from
time to time.

Goods, which are subject to import control, require a specific import license before they
are brought into India. The import of goods under a license would be subject to
compliance with its specific conditions, import license are issued in duplicate, first copy
for customs purposes and the other for Exchange control purposes.
The licenses usually have a validity period of 12 months from date of the issue. However
a license to import capital goods shall ordinarily be issued for a period of validity of 24
months, and then the last day of the months considered to be the expiry date. The
validity of a license (whether a particular license is valid or not) is reckoned with
reference to the shipment date.
a) Specific import Licenses:
Specific Import Licenses are issued by the import trade control authorities. This is issued
for items, which are not freely importable and have restrictions.
b) Open General License:
An open general licenses a general authority permitting all persons/firms/ companies
to import specified goods without any formal specific import license.

Importer exporter code no. (IEC):Every individual/firm/company importing goods into or exporting goods from India is
required to obtain an IEC number allotted by DGFT. This IEC once allotted is valid for
whole life of the importer or exporter and requires no renewal.
EXCHANGE CONTROL REGULATIONS
The following are few points which should be kept in mind by Ads while dealing import
transactions.

1) Evidence of import should be furnished by the importer.


2) When the Exchange control copy is in the name of a person other than the person
having import license in his name. It is to be ensuring by the Ads that a letter of
authority has been obtained from the person holding import license.
3) Applications by persons, for making payments towards imports into India must by
made on AI form,
4) Import licenses should be surrendered to the Ads when fully utilized.
5) Ads should ensure that in the event of non-import of goods, the amount of
advance is repatriated to India or is utilized for any other purposes for which
release exchange is permissible under the Act.
6) When payment is made for replacement of import then it is to be ensured that
there is no double payment for the same import.
7) In the case of bills involving large values, Ads should satisfy that the importer is
known to be trading in the items mentioned in the shipping documents or that the
items are required for his actual use.

MODE OF REMITTANCES FOR IMPORTS BY OVERSEAS BRANCH:The import departments of overseas branch make payment in the following forms:
a) Advance Remittance
b) Direct Remittance
c) Import against letter of Credit

Advance Remittance:Payment is given on advance to the import against the confirmed order for import
Advance payment for goods before receipt of the relative documents evidencing
shipment is permitted under Exchange control Regulations.
1. a) For Capital goods: Up to 15% of the value.
b) Import of other goods: Without limit.
2. Such business is usually undertaken only for customers having Banking relation
for a reasonably long period of with an excellent track record.
3. The customers track record in submitting Bills of Entry for imports in the post
should also be a Satisfactory. The branch follows up the Bills of Entry to ensure
that the overseas beneficiary fulfils his obligation under the contract agreement
with the remitter in India.
4. Documentary evidence is produced to the AD to show the overseas buyer is
insisting in advance payment and for the cost of goods.
5. Importer is holding the EC copy of valid import license for import of goods
included in the negative list of import of the EXIM Policy in force.
6. The remittance is made direct to the supplier.

7. Guarantee from an international bank of repute situated outside India is obtained


for advance remittance exceeding UD 25000 or its equivalent.
8. Physical Import into India is made within (12 months in case of capital goods)
from the date of remittance and the importer and the importer gives an
undertaking to finish documentary evidence of import within 15 days from the
closer of the relevant period. Ads, if satisfied with the request may allow
extension of time for submitting the evidence of import not exceeding one month
(three months in case of capital goods).
9. For import of capital goods, certified copy of the contract or any other evidence
regarding terms of payment is necessary.
10. Authorized dealers should ensure that in the event on non-import of goods the
amount of advance has repatriated to India or is utilized for any other purposes for
which release of exchange is permissible under the Act.
11. In case of all imports, Except import through , where value of foreign exchange
remitted/paid for import into India exceeds US $5000 or its equivalent, it is
obligatory on the part of authorized dealer through whom the relative remittance
was made to ensure that the importer submits the Exchange Control copy of the
Bill of Entry for home consumption, or in case of 100% Export units the
exchange control copy of the Bill or Entry for warehousing, or Customs
Assessment Certificate or postal appraisal forma as declared by the importer to
the customer authorities, where import has been into India.
Where imports are made in non-physical form, i.e., software or data through
internet/data on Channels and drawing and designs through e-mail/fax certificate
from a Chartered accountant that the software/data/drawing/design has been received
by the importer may be obtained.
Note: - Authorized dealers should advise importers to keep Custom authorities
informed of the imports made by them under this clause.

12. The importer, a copy of the bill of Entry, in the prescribed form issued by in
respect of remittance for imports through courier services, authorized dealers
should ensure submission of the Exchange control copy of the BILL OF Entry in
case of imports valued at rupees one lac or more. Where the value of import is
less than Rs one lac, authorized dealers may obtain from the customs in the name
of registered couriers, duly certified by the courier company indicating there on
the particulars of the consignment for which the copy has been issued.
DIRECT REMITTANCES:Bank handles payment in respect o0f bills received by the importer from the supplier. In
this method of remittance, the bank takes utmost care to avoid fraudulence. Proper
screening of import bills are made in order to avoid fake import bills, which if undetected
would lead to outflow of foreign exchange without any physical import taking place.
Bonafide of importer customer and his financial status/ standing established. Bank, if not
fully satisfied about importer standing, credit report on the supplier is called for from
overseas bank or reputed credit agencies, specific comment as to whether the supplier is
ordinarily engaged on manufacturing trading in the commodity sought to the bank a copy
of the invoice, the packing list the certificate of origin bill of lading and the bill of entry
and routes his payment to the supplier the bank.
Import against letter if Credit (L/C):A letter of Credit may be defined as a documents issued by a bank conveying its
commitment to pay or place specified amount of the beneficiarys (the sellers) disposal
on behalf of the opener(the buyer) under precisely defined conditions. Usually being the
dispatch of state merchandise from a stated place to another stated place and drawing
Bills up to a stated amounted and surrendering them together with a stated set of shipping
other documents, on or before stipulated date in order to obtain payment.
In the international trade the letter of credit has evolved into a vital credit mechanism to
ensure smooth flow of trade between nations. L/C is a non-fund based business for the
Bank.
Opening on an L/C

Guidelines for opening an L/C:


1. L/C is opened only on behalf of bank own customers who are known to be
participating in the trade.
2. Whether the physical import of goods/services for which L/C is being opened is
allowed onto India.
3. If such goods/ services are allowed to be imported whether Trade Policy /
Exchange control permit the payment for such goods services.
4. L/C should be opened only in favor of overseas supplier, manufacturer or shipper
of goods and not in favor of applicant himself for his nominee.
5. L/C is usually opened on the basis of underlying sale contract. In the absence of a
sale contract.

Purchase order placed by importer and confirmation there of by the

overseas supplier.

Performa invoice of overseas supplier duly accepted/ countersigned by the

importer.

Indent or offer from overseas supplier or his authorized agent.

6. If bank has sanctioned L/C facilities, security or margin or guarantee as stipulated


is obtained. L/C can be opened with the margin or guarantee offered by a third
party also. The basic precaution to be observed is that the importer has necessary
financial ability to the bills received under L/C as also customs duties etc.
7. Period of validity of L/C for shipment must be within the validity date for item
freely importable or in the relative license as the case may be in the case of import
under license, time limit for settlement of payment should not exceed from the
date of shipment in case of cash import.
8. The charge for opening an L/C is Rs. 1500. In addition to this the bank charges
commitments and usance charges. The L/C is then sent to the exporter bank
through SWIFT OR TELEX. All the routing is done through correspondent
banks. In case of SWIFT the bank has testing arrangement. For opening an L/C a
request letter is required from the exporter to the importer, which is to be
provided to the ban. Every amendment will have the same implication, as the

opening of an L/C including availability of L/C limit must be observed while


amending the L/C also.
Payment against L/C:Payment under document of credit is made only if the documents received, conforms to
terms laid down in the document hence they play a very vital role. After the bank
received the documents they are carefully examined and to must be determined on the
basis of the documents alone whether or not they appear on their face, to be on
compliance with the terms and conditions of the L/C. The scrutiny of the document is to
be done on 7 day and in case of any discrepancy observed, such should be reported to the
exporters bank within 7 days period after consulting the importer.
In case of sight bill it is immediately lodged after scrutiny and the party is intimated and
giver 10 days time for making payment. In case of usance bill, the bank lodges the
documents and intimates the party. The party is require accepting the document or
rejecting it within 48 hours and agrees to make payment on the due date.
In case the party fails to make the payment within stipulated time, the bank crystallizes
the bill. The rationale for this procedure is that the banks Nostroa/c would have been
debited when the bill under their L/C would have been negotiated. Further, a sight bill
has to be paid on demand and therefore, the importer is obliged to return the documents

Without delay: this procedure also helps avoid banks exposure to the risks of adverse
exchange rate fluctuations. In case of Usance bill, crystallization entries will be passed
on the bill. After crystallization, vigorous efforts must be made to have the bills remitted
Imports under Penalty
Authorized dealers may make remittances against goods imported without authority, but
later allowed to be cleared by the
Customs Authorities against payment of penalty, to the extent of c.i.f, value of the goods
indicated on the relative Exchange Control copy of the Customs Bill of Entry evidencing
imports of goods to India.

Lodging of collection bills:Depending on the country of shipment of the goods being imported, different method
payment towards import into India have been prescribed under the exchange the
Exchange Control Regulations. These have a direct relationship to the country of
shipment of goods irrespective of from where the goods are once procured. In other
words, payments for imports are to be made in a currency appropriate to the country of
origin of goods according to the current exchange control regulations. The following
should be strictly adhered to while opening import letters of credit or effecting remittance
against import bills on collection basis or when making advances payment for imports.

1. All countries other than those listed

Payment in rupees to the account of a

under (II)
II. member countries of Asian Clearing

resident of any country in this group


Payment in any permitted currency.

Union (except Nepal)

a) Payment for all eligible current

Bangladesh, Myanmar, Pakistan SriLanka,

transaction by credit to the ACU

Islamic Republic of Iran

Dollar a/c in India of bank or the


Participating country in which the other
party to the transaction is resident or by
debit to the ACU Dollar a/c of the
authorized maintained with the
correspondent bank on the respective
ACU country.
b) Payment in any permitted currency
in other cases.

Govt. of India has concluded and may conclude from time to time special trade and
payment agreement with some countries providing of settlement to the countries in a
specified manner. Wherever AD has been about arrangements the method of payment
specified therein will have to be followed in such cases. Payment for goods imported

Nepal/Bhutan with any bank in INDIA. In such cases payment in any foreign currency or
crediting of rupees to non-resident bank a/c of any other country is prohibited.
The Limit for Settlement of Import Payments
Remittances against imports should be completed not later than six months from the date
of shipment. Accordingly, deferred payment arrangements involving payments beyond a
period of six months from the date of shipment are treated as external commercial
borrowings which require prior approval of the Reserve Bank/ Government of India.
There would, however, be no objection to importers withholding amounts not exceeding
15 per cent of the cost of goods towards guarantee of performance, etc. Authorized
dealers may make remittances of amounts so withheld, provided the earlier remittance
had been made through them. No payment of interest is permissible on such withheld
amounts.
Sometimes, settlement of import due may be delayed due to disputes, financial
difficulties, etc., authorized dealers may make remittances in such case even if the period
of six months has expired, providedAuthorized dealer is satisfied about the genuiness of the circumstances leading to the
delay in payment; and no payment of interest is involved for the additional period.;
however, in cases where the overseas supplier insist on payment of interest, it may be
allowed in accordance with the provisions up to a maximum period of 60 days beyond
180 days from the date of shipment provided the import bill is paid within that period.
NOTES:
A) .In case of import bills negotiated under letter of credit and retired by importer
after expiry of six months from the date of shipment of relative goods, settlement
of payment would be deemed to be completed within six months from the date of
shipment if reimbursement was made to the overseas bank within that period,
B) Remittances against import of books may be allowed without restrictions as o
time limit, provided no interest payment is involved nor has the importer forgone
any part of the discount rebate normally allowed to importers towards
compensation for delay in settlement of dues.
Interest on Import Bills.

Authorized dealers may make remittances on account of interest accrued on Usance bills
under normal interest clause or of overdue interest payable on sight bills for a period not
exceeding six months from the date of shipment in respect of imports without prior
approval of Reserve Bank.
Note: Interest under normal interest clause would mean interest at the prime rate (or
its equivalent) of the country in the currency of which the goods are invoiced or LIBOR
of the currency.
In case of pre-payment of usance import bills remittances may be made only after
reducing the proportionate interest for the un-expired portion of usance at the rate,
According to the contract, at which the interest has been claimed for the usance period or
the prime rate or LIBOR of the currency in which the goods have been invoiced,
whichever is applicable. Where interest is not separately claimed, remittances may be
allowed after deducting the proportionate interest for the un-expired portion of Usance at
the prevailing prime rate/ LIBOR of the currency of invoice.

Charges on different import documents (Vijaya Bank):1) collection document or Sight bills (without L/C)
[.25% of the amount payable or rs250/-.,whichever is higher as commission.+.125%
of the amount payable or Rs.250 whichever is higher, per quarter (for collection
document ) if it is paid after the due date+Rs.1000 as telex charge]
2) L/C opening charges
o Usance L/C charge
[.15% of the amount payable or Rs.250, which ever is higher as commitment charges.

Remittances against Replacement Imports


In case import of an item does not require license under the Export- import Policy in
force and there is a need for remittance of foreign exchange for import of replacement

goods for a defective item imported earlier, the remittance should be made after ensuring
that there is no double payment for the same import.
Where goods are shout-supplied, damaged, and short-landed or lost in transit, the
procedure laid down below should be followed for payment against replacement foods:
In cases where no letter of credit has been opened or remittances made, Exchange
Control copy of the import license may be automatically treated as valid for the
replacement consignment provided it is shipped within the validity period of the license.
If the Exchange Control copy has already been utilized to cover the opening of a letter of
credit against the original goods which have been lost, the original endorsement to the
extent of the value of the lost goods may be cancelled by authorized dealers without
reference to the Reserve Bank, provided the insurance claim relating to the lost goods has
been settled in favor of the importer by remittance from abroad through an authorized
dealer, if insurance was covered abroad and by local payment in rupees if insurance was
covered in India. Payment for the replacement goods may then be made against suitable
endorsement on the import license subject to the conditions that the replacement
consignment is shipped within the validity period of the license.
If replacement goods are to be shipped after the expiry of import license, the importer
should be asked to apply to DGRT for replacement or for revalidation of the expired
license.

A Guarantee for Replacement Import


In case replacement goods for a defective import are being sent by the overseas supplier
before the defective goods imported earlier are dispatched out of India, authorized dealers
may issue guarantees at the request of importer clients for the dispatch/ return of
defective goods, according to their commercial judgment.

Follow up by Authorized Dealers


In case an importer does not furnish the document of evidence of import, it is required
within 3 months form the date of remittance involving foreign exchange exceeding

US$5000; the authorized dealer should rigorously follow-up for the next 3 months,
including issue of registered letters to the importer, for submission of an appropriate
document as evidence of import.
Authorized dealers should forward to the Reserve Bank a statement on half yearly basis
as at the end of June & December of every year, in form BEF furnishing details of import
Transactions exceeding US$5000 in respect of which importer have defaulted in
submission of an appropriate document evidencing import within 6 months form the date
of remittance. The said half yearly statement should be submitted to the Regional office
of the Reserve Bank under whose jurisdiction the authorized dealer is functioning, within
15 days from the end of half year to which the statement relates.
Note: - A .In case where at the time advance remittance purpose of remittance was
indicated as import and subsequently the exchange has been used for a purpose for
which sale of exchange is permissible, and a document to the satisfaction of authorized
dealer has been produced, such cases should not be treated as default and hence be
excluded from the BEF statement.
B. Authorized dealers may accept into Bond bill of Entry as a provisional evidence of
import into India. However, they may ensure submission of Exchange Control copy of
the Bill of Entry for Home consumption within a reasonable period of time. Wherever
into Bond Bill of Entry has been submitted such cases need not be report din BEF
statement.

Receipt of import Bills/ Documents


Import bills and documents should be received from the banker of the seller by the
banker of the buyer in India. Authorized dealers should not, therefore, make remittances
where import bills have been received directly by the importers from the overseas seller,
except in the following cases:
Where the value of import bill does not exceed U.S $ 10000.
1. Import bills received by wholly owned Indian subsidiaries of foreign companies
from their principals.

2. import bills received by Super Star Trading Houses, Star Trading Houses, Trading
Houses, Export Houses, 100% Export Oriented Units in Free Trade Zones, Public
Sector Undertaking and Limited Companies.
3. where the value of import bill does not exceeds U.S$ 25,00 in respect of import of
a) Books and magazines
b) Life saving drugs/equipments by hospitals, etc. and
c) Imports by reputed research and other development institutions like Tata Institute
of Fundamental Research, C-DOT, Indian Institute of Technology, Indian
Institute of Science and Universities.
d) Imports bills received by all limited companies viz. Public limited, public limited
and private limited companies.
In all other cases, at the request of importer clients, authorized dealers may receive bills
direct from the overseas seller up to U.S. $ 25000(U.S. Dollars Twenty Five thousand
only). Provided the authorized dealer is fully satisfied about the financial standing/status
and track record of the importer customer. Before extending the facility, authorized
dealer should obtain report on each individual overseas seller from the overseas banker or
reputed credit agency.

POSTAL IMPORTS
Remittances against bills received for collection in respect of imports by post parcel may
be made by authorized dealers, provided the goods imported are such as are normally
dispatched by post parcel. In these cases, the relative parcel receipts must be produced as
evidence of dispatch through the post an undertaking to submit Postal Appraisal Form or
Customs Assessment Certificate as evidence of import within three months from the date
of remittance should be furnished by importers. If the parcel has already been received in
India Postal Appraisal Form or Customs Assessment Certificate should be produced in
support of the remittance application. Where goods to be imported are not of a kind
normally imported by post parcel or where authorized dealer is not satisfied about the
Bonafide of the application, the case should be referred to Reserve Bank for prior
approval with full particulars together with relative parcel receipt/s and Postal Appraisal
Form or Customs Assessment Certificate.

Note: Authorized dealers may make remittances towards import of books by post parcel
by book-sellers/publishers against bills received for collection, irrespective of amounts
involved, without prior approval of the Reserve Bank against endorsement on the import
license wherever applicable in the normal course. They may also make remittances even
if import licenses covering the imports have been issued subsequent to the date of import
subject to endorsement on such licenses.

11. GENERAL REMITTANCES


General Remittances mean the inflow or outflow the foreign currency which are not
made for the purpose of import or export. They are of two types:
1. Outward Remittances
2. inward Remittances
OUTWARD REMITTANCES:
Outward remittances are the out flows of foreign exchange. These are to be effected only
through banking channels i.e. through Ads. Certain powers have been delegated to the

Ads in foreign exchange to affect outward remittances up to specified limits for specified
purposes, under the Regulations governing Current Account transactions without the
prior approval of the RBI. In all cases exchange control forms in form A2, for purposes
other than, fully filled.
Where the application for the outward remittances either as to amount or purpose or both,
falls beyond the limits specified, the appropriate Exchange Control form as mentioned
above duly completed by the applicant in duplicate should be forwarded by the Ads to the
RBI for their prior approval. While forwarding such an applications, the Ads should
ensure the correctness of the particulars furnished therein and that the same is submitted
in its entirety by the applicant duly supported by necessary documentary evidence. On
approval, the RBI will issue and Exchange Permit. The Exchange Perm it will contain
particulars such as the name of the applicant, amount, name of the beneficiary of the
remittance and the banks name through whom the application was made. In case the
remittance is desired to be affected through the Bank, necessary amendment/ alteration in
the permit should be get done from the RBI. Before affecting the remittance. However
remittance can be affected through any other branch of the same a bank.

Whenever the exchange is released against an Exchange Permit the following should be
carefully noted
.Date of issue of the permit.
.Date of Expiry of the permit.
Requests for remittances after expiry of the permit should be done only after its
revalidation by the RBI. Permit is only for one remittance i.e. exchange under a permit
can be drawn only once, unless, otherwise specifically mentioned in the permit and will
lapse even if the exchange actually drawn is less than what is permitted. If there is any
amendment in the permit, it should be duly authenticated by two officials of the RBI.
Whenever the value of the remittance is rs.50000 or more, the amount should not be
accepted in cash. It should be affected by debiting the customers a/c or through crossed
cheques.
There are various forms in which the bank provides remittance;
1. Demand Drafts

2. Telegraphic Transfer
3. mail transfer
4. travelers cheques foreign currency notes

Specific instances when Government of Indias approval is required


. Remittance out of lottery winnings.
. Remittance of income from racing/riding etc. or any other hobby.
Remittance for purchase of lottery tickets, banned/proscribed magazines, football pools,
Sweepstakes, etc.
Payment of commission of export made towards equity investment in Joint
Ventures/Wholly Owned Subsidiaries abroad of Indian companies.
Remittance of dividend by any company to which the requirement of dividend balancing
is applicable.

Payment related to call Back Services of telephones.

Remittance of interest income on funds held in Non-Resident Special Rupee


(Account) scheme.

The instances which requires approval of the Reserve Bank of India

Remittance by artiste e.g. wrestler, dancer, entertainer etc, (This restriction is not
applicable to artistes engaged by tourism related organizations in India like ITDC,
State Tourism Development Corporations etc. During special festivals or those
artistes engaged by hotels in five star categories, provided the expenditure is met
out of EEFC account).

Release of exchange exceeding US$5000 or its equivalent in one calendar year,


for one or more private visits to a by county (except Nepal and Bhutan).

Gift remittance exceeding US$5000 per remitter/donor per annum.

Donation exceeding US$5000 per remitter/donor per annum.

Exchange facilities exceeding US$ for persons going abroad for employment.

Exchange facilities for emigration exceeding US$5000 or amount prescribed by


country of emigration

Remittance for maintenance of close relatives abroad,

Exceeding net salary (after deduction of taxes, contribution to provident fund and
other deductions) of a person who is resident but permanently resident in India
and is a citizen of a foreign state other than Pakistan.

Exceeding US$5000 per year, per recipient, in all other cases.

Explanation : for the purpose of this item ,a person resident in India on account of
his employment of a specified duration (irrespective of length thereof ) or for a
specific job or assignment ;the duration of which does not exceed three years ,is a
resident but not permanently resident.

Release of foreign exchange ,exceeding US$ 25000 to a person ,irrespective of


Period of stay ,for business travel ,or attending a conference or specialized
training or for maintenance expenses of a patient going abroad for medical
treatment of check-up abroad ,or for accompanying as attendant to a patient going
abroad for medical treatment/check-up.

Release of exchange for meeting expenses for medical treatment abroad


exceeding the estimate from the doctor in India or hospital/doctor abroad.

Release of exchange for studies abroad exceeding the estimate from the institution
abroad or US$30000 per academic year, whichever is higher.

Commission to agents abroad for sale of residential flats /commercial plots in


India, exceeding 5% of the inward remittance.

Short term credit to overseas offices of Indian companies.

Remittance for advertisement on foreign television by a person whose export


earrings are less than Rs.10 lacs during each of the preceding two years.

Remittance of royalty and payment of lump-sum fee under the technical


collaboration agreement ,which has not been registered with reserve bank

Remittance exceeding US$ 100000/= per project, for any consultancy service
procured from outside India.

Remittances for use and/or purchase of trade mark/franchise in India

Remittance exceeding US$100000/= by an entity in India by way of


reimbursement of pre-incorporation expenses.

Charges in outward remittances (Vijaya Bank)

Vijaya Bank collects 125% of the amount remitted or Rs.50 which ever is higher, as
commission plus if it is sent by SWIFT then Rs.1000. If a DD is issued then 125% of
the amount remitted or Rs.50 which ever is higher, and if it is less than or equal to
two thousand dollars or its equivalent then Rs.200. But if the remitter is remitting
from exchange earners a/c (in Vijaya Bank it is known as VFEX a/c) then only
commission charged.

INWARD REMITTANCES:
Inward remittances are the inflow of foreign exchange. The overseas branch provides
these remittances on the following form.
1. Telegraphic Transfer
2. Mail Transfer
3. Demand Drafts.
When an inward Remittance is received, the genuineness/authenticity of the
same should be got confirmed by the branch. This is done by verifying the
signatures appearing on the instrument in the case of a demand draft or mail
transfer along with the security features, comparing the format with the
specimen. Where the draw branch has not been provided with the specimen
signatures of officials of the drawer bank who are authorized to sign DD?
NT/TT etc. or signature book ,the matter should be taken up suitably with the
issuing bank furnishing the full details of the instrument presented for
payment . The payment of such instruments should not be made without the
prior authorization form the issuing bank.
In case of Telegraphic Transfer, before affecting payment, the authenticity is
to be got confirmed by verifying the test code, provided in the messages. For
this purpose the authorized paying branches are to be provided with the Test
Key of the issuing bank, and the payment is to be affected only if the test
code given in the message is found to be correct.

12. ANALYSIS AND INTERPRETATION


BUSINESS
TRANSACTED

1999-00

2000-01

20001-02

2002-03

Marine products
Processed
Food(excluding
Marine products
Ready made
garments &
apparels(cotton)
Handloom textiles
Handicrafts
including art ware
Diamonds
Coffee
Tea
Hides, skins and
leather
manufacturing
Engineering good
(including capital
goods spares)
Mills made cotton
textile
Spices
Tobacco
Gems jewellery
Chemicals & allied
products
Cashew kernels
and shell liquid
Wool, synthetic
garments, carpets
etc
Granites& marbles
Tyres and tubes
Rice
Others
Total

261.68
120.43

333.86
-

252.58
-

198.19
182.39

2003-04
(Up to
march
75.85
85.98

296.48

337.88

286.58

259.93

81.92

51.85
175.44

84.85
135.1

111.61
130.64

58.24
54.41

23.05
25.3

160.98
38.47
64.95
86.08

126.99
30.37
7624
111.77

130.08
27.55
80.54
82.2

106.88
35.41
50.35
51.6

46.25
15.14
26.27
13.82

31.49

29.81

42.87

25.87

13.09

22.28

56.6

99.62

39.58

18.95

21.58
13.65
26.57
51.17

11.23
19.36
45.14
58.06

9.7
9.07
47.92
64.76

10.65
6.21
19.35
26.08

42.16
0.72
8.19
19.01

31.6

12.46

12.57

5.46

5.13

13.3

18.84

23.59

16.07

3.98

245.52
1331.41

33.94
18.05
33.18
209.18
1824.81

23.13
9.8
9.22
233.74
1657.77

218.28
1364.95

228.37
733.18

INFERENCE

Major export items financed by Vijaya bank are marine products, readymade garments &
apparels, diamonds & handicrafts. Total export turnover in the year 1999.00 is 1331.41,
and it increased to 1824.81 in the year 2000-01 at the rate of 37.05%. In the year 2001-02
the total exports turn over decreased from 1824.81 to 1657.77 at the rate of 10%. Major
slump came in the year 2002-03 exports decreased to 1364.95 at the rate of 17%.
TABLES NO.2 TOTAL EXPORTS TURNOVER FROM INDIA
Year
1999-2000
2000-2001
2001-2002
2002-2003
2003-2004

Export turnover(amt. in cores)


36822.4
44560.3
43826.7
52719.4
6345.1

70000
60000
50000
40000
30000
20000
10000
0

1999-00 2000-01 2001-02 2002-03 2003-04


Export turnover (amt. in cores)

INFERENCE
Above graph shows he total exports from India fro the year 1999-2004. In the year 199900 the total exports from India is 36822.4 through the years the exports have increased.
The rate of increase in the year 2001-02 the exports decreased compared to the last year
that is 200-01. The reason is mainly attributed to collapse of world trade centre& slows
down of U.S. economy. Following years saw the growth in exports it touched 63454.1
crores in the year 2003-04.

TABLE NO.3 VIJAYA BANKS SHARE IN TOTAL EXPORTS TURN OVER FROM
INDIA
YEAR
1999-00
2000-01
2001-02
2002-03

Export turnover(amt. in
crores)
36822.4
44560.3
43826.7
52719.4

Vijaya Banks Export


1331.41
1824.81
1657.77
1364.95

INTERENCE
The above table shows the Vijaya banks share in total exports from India. In the year
1999-00 Vijaya banks share in total exports is 3.62%. In the year 2000-01 the share
came to 4.1%. 2001-02 the share came down to 3.785%. 2002-03 the share reduced
further to 2.58%.
TABLE NO.4: IMPORTS-COMMODITY WISE TURN OVER
Sl. Business transacted
Dec 02March 03
No
March 03 -Dec 03
Engineering items and spares (other than capital goods 32.16
1
26.86
2
Pulses
14.63
0.91
3
Diamonds
17.25
26.48
4
Metal & alloyes
6.79
11.1
5
Food products including food grains
6.03
4.8
6
Electronic items
10.64
28.19
7
Capital goods
14.79
3.58
8
Chemical, drug & medicines
7.62
10.27
9
Plastics, hdpe,idpc,pvc,etc.
4.22
3.97
10 Wood& timber
5.41
25.23
11 Other
127.13
249.84
Total
246.67
391.23

Dec03Mar04
84.14
1.65
127.74
24.63
26.5
46.67
33.62
30.18
38.07
9.42
378.67
801.29

INTERENCE
Major items financed by Vijaya bank are engineering items and spares, diamonds,
pulses& capital goods. Total imports turn over the period dec-02 to mar 03 is 246.67 to
391.23 at the rate of 58.6%. For the period dec 03- mar 04 total imports are 801.29 from
391.23 for the period at the rate of 204.8%.
TABLE NO.5 TOTAL IMPORT TUROVER FROM INDIA
Year
Import turnover (amt. in crores)
1999-00
4967o.7
2000-01
50536.5
2001-02
51413.3
2002-03
61412.1
2003-04
77032.3

90000
80000
70000
60000
50000
40000
30000
20000
10000
0
1999-00 2000-01 2001-02 2002-03 2003-04
Import turnover (amt. in crores)
INFERENCE
The above table shows the total imports from India from the year 1999-2000 to the year
2003-04. Total imports increases from 49670.7 crores in the year 1999-00 t 77032.3
crores in the year 2003-04. But the rate of increase is less in the year 2001-2002.

TABLE NO.6: EXPORT CREDIT OURSTANDING FOR THREE FINANCIAL


YEARS FOR VIJAYA BANK
Financial year
2001-2002
2002-2003
2003-2004

Export credit (amt. in crores)


420.50
592.7
852

EXPORT CREDIT OUTSTANDING FOR THREE FINANCIAL


YEAR

900
800
700
600
500
400
300
200
100
0
2001-2002

2002-2003

2003-2004

INTERENCE
The above table and the graph show the export credit of Vijaya Bank for three financial
years. The export credit is increasing at the higher rate compared to the preceding
financial year. In the year 2001-2002 total credit was 420.50 and it increased to 592.7 in
the year 2002-2003 at the rate of 41% again in the year 2003-04 it increases to 852 from
592.7 in the year 2002-03 at the rate of 44% .all the years showed

TABLE NO.7: IMPORT ADVANCES OUTSTANDING


Period
March2003
June 2003
March 2004
June 2004

Import advances (amt.in crores)


5.98
8.05
12.04
6.13

INFERENCE
The above table and graph show the import advances outstanding of Vijaya Bank from
the period march 2003 and March 2004, that is 12.04 crores.
TABLE NO.8 EXPORT CREDIT AS a PERCEN TAGE OF NET CREDIT FOR
FOLLOWING FINANCE YEARS
Financial year
2001-2002

Export credit amt. in Net credit


Crores)
(b)
420.50
6199.66

A as a % of b
6.775

2002-2003
2003-2004

592.7
852

7891.34
11045.31

7.502
7.714

INFERENCE
Above table indicates the % of export credit as a % to net credit in the year 2001-2002.
The % of export credit to net credit is 6.775%; it increased to 7.502% in the year 200203.Export credit as a % to net credit shows increasing trend, in the last two years
compared to its previous years.

TABLE NO.: NATURE OF ADVANCE


ADVANCES

March-03

Dec -03

Mar-03

June-04

Average pre-shipment credit


Average post-shipment credit
Other advances o/s under suit
Filed and decreed a/c
Average total export credit
Net credit
o/s export credit
% of export credit to net credit

292.80
2008.48
13.11

553.68
217.96
6.58

500.35
245.30
4.21

482.25
298.35
4.47

514.39
7891.34
594.32
7.53

778.02
9776.25
768.48
7.86

749.86
11045.31
822.80
7.45

785.07
115191.87
774.92
6.69

INFERENCE
The above table shows the nature of advance given by Vijaya Overseas Bank (preshipment and Post-shipment finance)
TABLE NO.10: FOREIGN EXCHANGE BUSINESS TURNOVER
NO OF YEARS
2001-02
2002-03
2003-04
INFERENCE

TUROVER
4057
4909
7270

Foreign exchange business turn over is 4057 crores in 2001-02 has increased to 4909
cores at the rate of 21%. Again it has increased from 4909 crores in the year 2003-03 to
72720 in the year 2003-04 at the rate of 48%. Foreign exchange business turn over has
shown an increasing trend, but the rate of increasing trend, but the rate of increase of the
2002-03 is less compared to rate at which it is increased in the year 2003-04.
SWOT ANALYSIS
STRENGTH
1. It is one of the oldest bans which engaged in banking services.
2. The hold a large no, of a/c holders
3. The bank has got good reputation.

4. Since, the bank is nationalized government of India and RBIs support is always
there.
5. They have greater mobilization of funds.
II. WEAKNESS
1. All branches are not fully computerized.
2. Lack of training & latest skills.
3. Bank has got very small share in countrys export and import credit.
III. OPPERTUNITIES
1.
2.
3.
4.
5.

To focus more on NRI deposits mobilization,


Opportunity to concentrate on FCNR (b) deposits.
To set up state of the art staff training centre.
To set up more branches.
Can Increase the share of export &imports.

IV. THREATS.
1. Severe competition from MNCS which are engaged in foreign exchange
business.
2. As the bank is government of India undertaking and procedures are keeps
changing.

13. SUGGESTION

1)

From the highlights of the EXIM policy 2002-07 exports are benefited, as this

time the procedures are simplified and a lot of opportunities for agro products, leather
goods, etc have opened up. So the policies and procedures need to be seriously
implemented.
2) Another welcome move is that the bankers have been the opportunity to open their
branches in the SEZs. As a result they can enjoy the benefit of exemption form CRR and
SLR. These overseas business Units will reduce the cost of funds and thereby encourage
lending to units at SEZs at an internationally competitive rate. Thus the bank has to look
for such regions where it can set up its special branches so that it can enhance its export

business and win the goodwill of the exporters. This indeed will see some of our cities
emerging as a nerve center for financial and trading activities in the near future.
3). New export policy has primarily focused on procedural simplification in the various
export promotion schemes and rebating fully the incidence of duties and facilitation of
exports a the port and DGFT offices. However, better coordination, among the all
agencies concerned, would improve the competitiveness of the exporting community.
4) The rate of interest charged by Vijaya Bank is very competitive. The Reserve Bank of
India has announces reduction in interest rates for export credit by 1.0% points across the
board. This reduction will apply to both, pre-shipment and post shipment credits. As per
instructions issued by the Reserve Bank, the maximum rate that the bank should chare to
exporters will be 3.5% points below its prime lending rate for pre-shipment credit up to
180 days and for post-shipment credit up to 90 days .Earlier, the ceiling rate was 2.5
percentage points below the prime lending rate.

STRATEGIES FOR INCREASING EXPORT BUSINESS


1) Identification of large business houses, Star Trading Houses for enhancing the
banks assistance to the export sector. This should be done because; exporters
will approach only banks of their choice. Therefore the bank should aggressively
explore and take the initiative to identify and approach these export houses and
offer them export finance at competitive rates. Contacts should be maintained at
MDs level to make a successful entry.
2) The overseas branch should be well organized with a high level of coordination.
All staff should be fully familiar with the banks policies. Staff with motivation,
dedication and aptitude should be posted to overseas branches.
3) The bank should compare its performance in all areas with the best amongst its
peers and take steps to achieve comparable performance within a specified
timeframe.
4) The computerization & utilizing of IT in the banks operation could be upgraded
for better and more prompt service.

5) The government of India has to enhance infrastructure facilities by allowing


foreign institutional investors/ foreign direct investors to set up their companies in
India and export for the positive growth of the export industry as a whole this
will ultimately benefit the countrys economy by providing employment and
revenue.

14. Conclusion
Foreign trade has assumed greater significance in the present world. On the contrary,
countries may produce more of those commodities in the production of which it has a
greater or comparative advantage and may not produce or may produce smaller quantities
of those in the production of which it is less efficient or have comparative disadvantage,
it exports them and in which it has a comparative disadvantage, it imports then.
When the opening of the Indian economy there has been a substantial rise in the number
of items, which has entered the foreign trade area. It has also witnessed the rise in the
volume of these items being transacted. This has resulted in steep rise in the volume of
these items being transacted. This has resulted in steep rise in the demand for financing
these activities (i.e. export and import).
The procedures for financing export were being studied in the course of my training. A
clear view of different types of finance available for exporters was given to me. It was
understood that various rules and regulations govern the financing of exports. Stringent

and strict rules were followed mainly in order to avoid fraudulences. Exports form one of
the important foreign exchange earners.
The training also gave an insight into the services offered to the NRI by the overseas
branch. It helps me to learn the requirements and procedures followed for opening these
account. The branch has offered ample of chances for studying the various documents
used in international trades.
However, it was observed that foreign exchange transactions are strictly monitored by the
RBIs and other regulated bodies. Foreign trade must take place with in the regulated
framework of these bodies.

15. BIBLIOGRAPHY

MANUAL,EXPORTS ,VIJAYA BANK ,BANGALORE

FINANCE OF FOREIGN TRADE AND FOREIGN EXCHANGE


B.K CHAUDHURI

INDIAN EXIM PORTAL EXPORT PROMATION INSTITUTIONS


AVAILABLE FROM

www.indiantradeportal.com

ANNUAL REPORT OF BANK

www.indiainfoline.com

www.finvarsity.com