Pre-shipment and Post-shipment Export Finance
One export order, two loans. Here is how packing credit and post-shipment credit work, and the time limits examiners test.
Export finance follows the export order. Before the goods leave India, the exporter needs money to buy, make and pack them: that is pre-shipment credit, or packing credit. After shipment, the exporter waits for the overseas buyer to pay: the bank bridges that wait with post-shipment credit. The two are linked, because the packing credit is meant to be repaid from the export bill.
The CCP paper tests the time limits hardest: how long each stage can run, what happens when it overruns, and how foreign currency bills are handled when the buyer does not pay.
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Key Terms (RBI Definitions)
- Pre-shipment / packing credit
- Any loan or advance to an exporter to finance purchase, processing, manufacturing or packing of goods before shipment, against an LC or a confirmed export order (unless the bank has waived lodgement of the order).
- Post-shipment credit
- Any loan or advance to an exporter from shipment until the export proceeds are realised, including advances against duty drawback.
- PCFC
- Packing credit in foreign currency: pre-shipment credit given in foreign currency instead of rupees.
- Normal transit period (NTP)
- The average time from negotiation or purchase of a bill until its proceeds reach the bank's nostro account, as set by FEDAI. It is not the time the goods take to reach the buyer.
- Crystallisation
- Converting an unpaid foreign currency export bill into a rupee liability of the exporter.
Time Limits at a Glance
Rupee packing credit
Limit
Adjust by export documents within 360 days of the advance
What happens if it overruns
Loses the concessional rate from day one (ab initio); treated as export credit not otherwise specified (ECNOS)
PCFC
Limit
Maximum 360 days
What happens if it overruns
If no export within 360 days, adjusted at the TT selling rate for the currency
Post-shipment, demand bills
Limit
The FEDAI normal transit period
What happens if it overruns
Bill becomes overdue
Post-shipment, usance bills
Limit
Up to 365 days from shipment, including NTP and any grace period
What happens if it overruns
Bill becomes overdue
RBI refinance to banks
Limit
Up to 180 days at each stage
What happens if it overruns
Not available beyond that
| Facility | Limit | What happens if it overruns |
|---|---|---|
| Rupee packing credit | Adjust by export documents within 360 days of the advance | Loses the concessional rate from day one (ab initio); treated as export credit not otherwise specified (ECNOS) |
| PCFC | Maximum 360 days | If no export within 360 days, adjusted at the TT selling rate for the currency |
| Post-shipment, demand bills | The FEDAI normal transit period | Bill becomes overdue |
| Post-shipment, usance bills | Up to 365 days from shipment, including NTP and any grace period | Bill becomes overdue |
| RBI refinance to banks | Up to 180 days at each stage | Not available beyond that |
One Export Order, Start to Finish
An exporter wins a confirmed order with an FOB value of ₹50 lakh. Figures are illustrative.
- 1
Packing credit is sanctioned
Banks lend on the FOB value less margin. Karur Vysya Bank's handbook, for example, keeps a 25% margin on packing credit: ₹50 lakh less 25% gives ₹37.5 lakh.
- 2
Goods are made and shipped
The exporter uses the packing credit to buy raw material and produce. The bank monitors end use and stock statements.
- 3
Bill is negotiated or purchased
After shipment, the exporter submits the export bill. The bank pays out the bill amount as post-shipment credit (KVB keeps nil margin here).
- 4
Packing credit is liquidated
The post-shipment advance is used to close the packing credit of ₹37.5 lakh. With a running account, bills are marked off against the oldest packing credit first (FIFO).
- 5
Buyer pays
Export proceeds arrive and close the post-shipment advance. If they do not arrive by the due date, the bill is crystallised.
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Running Account Packing Credit
- check_circleNormally, packing credit needs an LC or firm order first. A running account lets the bank release credit before the order, where raw material is seasonal or production takes longer than the delivery schedule.
- check_circleBanks give it only to exporters with a good track record, and to EOUs and units in SEZs, EPZs and free trade zones.
- check_circleThe LC or firm order must follow within a reasonable time fixed by the bank.
- check_circleExport bills are marked off against the earliest outstanding packing credit, on a first in, first out (FIFO) basis.
- check_circleIt is not given to sub-suppliers.
Crystallisation of Unpaid Bills
Under FEDAI's rules, each bank sets and publishes its own policy for crystallising a foreign currency export bill that is not paid on its due date. On crystallisation the bank converts the bill at its TT selling rate, and the exporter then owes the rupee amount plus interest for the overdue period. If the bill is paid later, the bank converts the proceeds at its TT buying rate (or a contracted rate).
ECGC Cover
- check_circleECGC (Export Credit Guarantee Corporation of India) protects banks under Export Credit Insurance for Banks (ECIB) whole-turnover covers: WT-PC for packing credit and WT-PS for post-shipment credit. KVB's handbook makes both mandatory for its exporters.
- check_circleRBI notes that the whole-turnover post-shipment cover protects banks against non-payment of post-shipment credit by exporters, and that cover is no excuse to slacken recovery of overdue bills.
- check_circleExporters insure themselves separately. Under ECGC's Standard Policy, ECGC pays 90% of the loss and covers credit periods up to 180 days.
Gold Card Scheme
- check_circleFor creditworthy exporters with a good track record, including small and medium exporters, under criteria each bank sets.
- check_circleFaster, simpler processing and better terms than other exporters, with lower charges.
- check_circleThe concessional post-shipment rate that normally runs up to 90 days can be extended up to 365 days.
- check_circlePreference for PCFC, and possible waiver of collateral and of ECGC guarantee requirements based on track record.
- check_circleOutside the gold card, RBI asks banks to sanction fresh export limits within 45 days, renewals within 30 days and ad hoc limits within 15 days.
FAQs
What is the maximum period of packing credit?expand_more
It must be adjusted by export documents within 360 days of the advance. If not, the exporter loses the concessional interest rate from the first day of the advance. Banks usually sanction for the production cycle, often up to 180 days.
What is the maximum period of post-shipment credit?expand_more
For demand bills, the FEDAI normal transit period. For usance bills, up to 365 days from shipment, including the normal transit period and any grace period.
What is PCFC?expand_more
Packing credit in foreign currency. It is available for a maximum of 360 days. If no export takes place within 360 days, the PCFC is adjusted at the TT selling rate for the currency.
What does crystallisation of an export bill mean?expand_more
Converting an unpaid foreign currency export bill into a rupee liability at the bank's TT selling rate, as per the bank's own crystallisation policy.
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