Pre-Shipment Finance (Packing Credit)
Working capital to make the export, repaid from the export itself.
Pre-shipment finance, usually called packing credit, is working capital a bank lends an exporter to buy, process, manufacture or pack goods before they are shipped. For service exporters it covers the working capital expenses of rendering the service. It is repaid not from the exporter's pocket but from the export itself.
The rules come from RBI's export credit framework, set out for years in the Master Circular on Rupee / Foreign Currency Export Credit and Customer Service to Exporters, and consolidated in November 2025 into RBI's Master Directions for commercial banks. The CCFE courseware teaches the Master Circular version, and that is what this page follows.
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The Definition, Unpacked
RBI defines packing credit as a loan, advance or other credit to an exporter for financing goods prior to shipment, granted on the basis of one of the following:
- A letter of credit
- Opened by the overseas buyer in favour of the exporter, or of some other person.
- A confirmed and irrevocable export order
- A firm order from the overseas buyer for goods or services from India.
- Other evidence of an export order
- Any evidence that an order has been placed on the exporter or another person.
- Waiver
- Banks may waive lodgement of the order or LC, which is how the running account facility works.
How a Packing Credit Advance Runs
- 1
Sanction against an order or LC
The bank sanctions a limit and the exporter lodges the export order or LC. The period of each advance is for the bank to decide, based on the time needed to procure, manufacture and ship.
- 2
Disbursement
Released in one lump sum or in stages as the order needs. Each packing credit is ordinarily kept as a separate account so the bank can monitor the period and end use. Banks may run stage-wise accounts (hypothecation, then pledge) and transfer balances as goods move.
- 3
End-use monitoring
The bank checks that funds go into the export order and tracks the exporter's progress against the shipment schedule.
- 4
Shipment
The exporter ships and submits export documents to the bank.
- 5
Liquidation
The advance is liquidated from the proceeds of the export bill on its purchase, discount or negotiation, converting pre-shipment credit into post-shipment credit. By agreement it can also be repaid from the exporter's EEFC balance or rupee resources, to the extent exports have actually taken place.
The 360-Day Rule
Under the Master Circular, if a pre-shipment advance is not adjusted by submission of export documents within 360 days from the date of advance, it ceases to qualify as export credit for interest purposes from the start (ab initio). A temporary relief window let banks allow up to 450 days for pre-shipment and post-shipment credit: first for credit disbursed up to 31 March 2026, then extended by RBI's Trade Relief Measures Directions, 2026 to credit disbursed up to 30 June 2026. Check RBI's site for any later extension before relying on it.
Export finance questions with explanations. No signup.
Variants the Exam Expects You to Know
- Running account packing credit
- Packing credit without prior lodgement of an LC or firm order, for exporters with a good track record and for EOU, EPZ and SEZ units. Orders must follow within a reasonable period the bank sets. Bills are marked off against the earliest outstanding advance on first-in, first-out basis, and no advance may run beyond the sanctioned period or 360 days, whichever is earlier. Not available to sub-suppliers.
- Sharing with manufacturer suppliers
- Where goods are exported through an export house or trading house, the manufacturer without an order in its own name can get packing credit against the export order holder's order.
- Sub-supplier packing credit
- The export order holder's bank opens an inland LC in favour of a sub-supplier, whose bank grants packing credit against it. Covers only the first stage of production, and the supplying EOU or SEZ unit gets no post-shipment facility.
- Service exports
- Pre- and post-shipment credit for consumables, wages, supplies and similar working capital, where there is a genuine gap between providing the service and receiving payment.
- Agro products and by-products
- Where processing wastage leaves the exporter short of export bills, excess packing credit may be extinguished by export bills for by-products such as cashew shell oil. The non-exportable portion sold domestically carries the domestic interest rate from the date of advance.
Flexibility for Good-Track-Record Exporters
- check_circleSubstitution of contract: liquidating packing credit with documents of another order, same or different commodity, where commercially necessary and unavoidable.
- check_circleMarking off packing credit with documents against which no packing credit was drawn, after checking no other bank financed them.
- check_circleThese relaxations are not for transactions of sister, associate or group concerns.
How CCFE Tests This
Pre-shipment questions are short and number-heavy. The traps:
- check_circleConfusing liquidation with repayment: liquidation is from export proceeds; repayment from EEFC or rupee funds is allowed only to the extent exports have happened.
- check_circleThe 360-day consequence: it is loss of export credit treatment ab initio, not a penalty from day 361.
- check_circleRunning account eligibility: good track record exporters and EOU, EPZ, SEZ units, never sub-suppliers.
- check_circleFIFO: marking off is against the earliest outstanding advance, not the one the exporter chooses.
- check_circleWho sets the period of each advance: the bank, not RBI.
FAQs
What is packing credit?expand_more
A loan or advance to an exporter for buying, processing, manufacturing or packing goods before shipment, granted against an LC, a confirmed export order or other evidence of an export order. It is liquidated from the export bill proceeds.
What is the maximum period of packing credit?expand_more
The bank decides the period of each advance. If it is not adjusted by export documents within 360 days from the date of advance, it loses export credit treatment ab initio. A temporary RBI relief allowed up to 450 days for credit disbursed up to 30 June 2026.
What is a running account packing credit facility?expand_more
Packing credit released without prior lodgement of an LC or firm order, for exporters with a good track record and EOU, EPZ and SEZ units. Orders must be produced later and bills are marked off on first-in, first-out basis.
How is packing credit liquidated?expand_more
From the proceeds of export bills purchased, discounted or negotiated, which turns it into post-shipment credit. By agreement it can be repaid from EEFC balances or rupee resources to the extent exports have taken place.
Next steps
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