What is Post-shipment credit?
What is Post-shipment credit?
Post-shipment credit means any loan or advance granted or any other credit provided by a bank to an exporter of goods from the date of extending credit after shipment of goods to the date of realization of export proceeds. It includes any loan or advance granted to an exporter, in consideration of any duty drawback allowed by the government from time to time.
Thus, the post-shipment advance can mainly take the form of:
- Export bills purchased, discounted, or negotiated
- Advances against bills for collection
- Advances against duty drawback receivable from government
Post-shipment finance can be categorized as:
- Advances against undrawn balances on export bills
- Advances against retention money
- Exports on consignment basis
- Exports of goods for exhibition and sale
- Post-shipment credit on deferred payment terms
Post-shipment credit is to be liquidated by the proceeds of export bills received from abroad in respect of goods exported.
Period of post-shipment credit: In the case of demand bills, the period of advance is the normal transit period (NTP) as specified by the FEDAI. Normal transit period means the average period normally involved from the date of negotiation, purchase, or discount till the receipt of bill proceeds in the Nostro account of the bank concerned, as prescribed by the FEDAI from time to time..
It is not to be confused with the time taken for the arrival of goods at overseas destination.
The demand bill is not paid before the expiry of the normal transit period whereas the usance bill is paid after the due date and is also termed as an overdue bill. In case of usance bills, credit can be granted for a maximum duration of 365 days from date of shipment inclusive of NTP and grace period, if any.
However, banks closely monitor the need for extending post-shipment credit up to the permissible period of 365 days and they also influence the exporters to realize the export proceeds within a shorter period.
Post-shipment credit in foreign currency: The exporters also have options to avail post-shipment export credit either in foreign currency or domestic currency. However, the post-shipment credit has also to be in foreign currency if the pre-shipment credit has already been availed in foreign currency so as to liquidate the pre-shipment credit.
Normally, the scheme covers bills with usance period up to 180 days from the date of shipment. However, RBI approval needs to be obtained for longer periods. Similar to the PCFC scheme, post-shipment credit can also be obtained in any convertible currency. However, most Indian banks provide credit in US dollars.
Under the rediscounting of Export Bills Abroad Scheme (EBR), banks are allowed to rediscount export bills abroad at rates linked to international interest rates at post-shipment stage.
Banks may also arrange a Banker’s Acceptance Factor (BAF) for rediscounting the export bills without any margin and duly covered by collateralized documents. Banks may also have their own BAF limits fixed with an overseas bank, a rediscounting agency or factoring agency on ‘without recourse’ basis.
Exporters also have the option to arrange for themselves a line of credit on their own with an overseas bank or any other agency, including a factoring agency for rediscounting their export bills directly.
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