Banking Formalities

BANKING FORMALITIES SUCH AS NEGOTIATION OF DOCUMENTS Negotiation essence the standard procedures that marge performs which includes checking of the accounts and giving value to the marketer. The issuing bank may manage the LC religious serviceable by negotiation with a propose bank or it may allow the LC to be freely talk overd with any bank. In the first case, the beneficiary, that is the seller, has to present the documents only to that bank, which is the nominated bank.Nevertheless, the nominated bank is non bound to negotiate if it has not undertaken a go to pieces presentment obligation to the seller. The nominated bank may simply refuse to negotiate the documents drawn under the LC. This is because, by having been nominated by the issuing bank, it does not constitute and undertaking to negotiate. If, however, the nominated bank has added its confirmation to the LC at the request of the issuing bank, thereby undertaking a sepa roam brookment obligation to the sell er, then it has to honour its undertaking and pay for the documents drawn under the LC if they be in order (Article 9b).LC which does not nominate any bank is normally available for negotiation with any bank in the country of the seller which is willing to negotiate the documents. For the information of all traders, there are 4 types of negotiation practiced by banks around the world. They are 1. Negotiation without recourse 2. Negotiation with recourse 3. Negotiation against indemnity 4. Negotiation under reserve allow me explain Negotiation without recourse first and the rest at a later posting.A seller may present his documents drawn under LC straight to both a) The issuing Bank (bank that issues the LC) or b) The confirming bank (bank that adds its confirmation at the request of the issuing bank) or c) To his own bank If the seller chooses to present the documents directly either to the ISSUING BANK or to the CONFIRMING BANK, these banks make payment WITHOUT RECOURSE to him. Meaning, the payment that has been paid to the seller shall not in any port become claimable by these banks in the event the documents are found not in order after making such payment.These banks cannot have recourse to the seller because by issuing or confirming the LC, they have taken upon themselves the risk that the party from whom reimbursement is to be obtained may become insolvent. I hope this would give traders a general idea of how the LC operates and the implications to buyer and seller. BANKING FORMALITIES OBTAINING PACKING CREDIT AND POST SHIPMENT FINANCE Packing recognise Overview Packing realisation is a lend/ cash credit facility visageed to an exporter in the Pre-Shipment stage.This loan facilitates the exporter to purchase raw materials at competitive rates and manufacture or produce goods agree to the requirement of the buyer and organize to have it packed for onward export.. The lending institutions seek a Letter of Credit opened in favour of the exporter from the oversea buyer on with the irrevocable (cannot be canceled once drawn) Purchase Order favouring the exporter. Packing Credit facility will cover all the working ceiling needs of the exporter including raw materials, wages, packing costs and all pre-shipment costs.Packing credit is available for generally a period of 90 days and the exporter has to pay lower rate of interest compared to traditional Overdraft or Cash Credit facility. Exporters use this facility so they can bid the most competitive price for export olibanum gaining more business opportunities for export. Packing Credit Documents The borrower and/or the guarantors have to provide the following documents to the banks or the lending institutions while submitting Packing credit Application. Certain documents may be demanded by the bank or the lending institutions in post sanction phase or on periodical basis. Address Proof in vogue(p) Electricity/Telephone Bill or Receipt of Maintenance Charges or Valid Passp ort or Voters Identity Card or Purchase/Lease Deed/ Leave & License Agreement of Residence or Office Premises. * Identity Proof Valid Passport, PAN Card, Voters Card, any other photo identification issued by Government Agencies. * Business Proof VAT/CST Registration No. or MIDC Agreement or SSI permanent Registration Certificate or Warehouse Receipts or Shop & Establishment Act Certificate or Copy of Lease Agreement along with the latest Rent paid Receipt. * Business Profile on Companys Letterhead. Partnership deed in case of partnership firms. * Certificate of incorporation, watch of Commencement of Business and Memorandum of Title Deeds, Form 32 in for Addition or Deletion of Directors in case of companies. * Last lead historic period Trading, Profit & Loss A/c. and Balance Sheets (duly signed by a Chartered Accountant wherever applicable). * Last one years Bank line of reasoning of the Firm. * If existing loan, then sanctioning letter and repayment schedule of the same. * Firm/Companys PAN Cards. * Individual Income Tax Returns of the Individual/Partners/Directors for last three years. Last one years Bank statement of Individuals, Partners, Directors . * SEBI formalities in case of listed companies. * Share Holding pattern of Directors duly certified by a Chartered Accountant. * List of the Existing Directors of the familiarity from the Registrar of the Companies. Packing Credit Process 1. Personal interview /discussions is held with the customers by the banks officials. 2. Banks Field investigation team visits the business straddle/work place of the applicant. (All the documents submitted are verified by the bank with the originals so as to ensure the authenticity of the same. 3. Bank verifies the hint record of the applicant with the common information sharing bureau (CIBIL). 4. In case of fresh projects the bank analyses the back ground of the applicant/firm/company and the Technical feasibility/financial viability of the project based on vari ous parameters and to a fault the existing market conditions. 5. Depending on the size of the project the file is target up for sanction to the appropriate level of authority. SANCTION AND DISBURSEMENT 1. On approval/sanction, the sanction letter ,is issued specifying the terms and conditions for the disbursement of the loan.The acceptance to the terms of sanction is taken From the Applicant. 2. The processing charges as contract by the bank have to be paid to proceed further with the disbursement procedure. 3. The credentials procedure takes place viz. Legal opinion of various property documents and also the valuation reports. (Original Documents to title of the immovable assets are to be submitted) 4. All the necessary documents as specified by the legal dept. , according to the terms of sanction of the loan of the bank are executed.Disbursement of the loan takes place after the Legal Dept. Certifies the Correctness of execution document Post shipment finance Pre-shipment is a lso referred as packing credit. It is working capital finance provided by commercial banks to the exporter prior to shipment of goods. The finance required to meet various expenses before shipment of goods is called pre-shipment finance or packing credit DEFINITION Financial assistance extended to the exporter from the date of admit of the export order till the date of shipment is known as pre-shipment credit.Such finance is extended to an exporter for the purpose of procuring raw materials, processing, packing, transporting, warehousing of goods meant for exports. IMPORTANCE OF FINANCE AT PRE-SHIPMENT STAGE * To purchase raw material, and other inputs to manufacture goods. * To assemble the goods in the case of merchant exporters. * To store the goods in suitable warehouses till the goods are shipped. * To pay for packing, marking and labelling of goods. * To pay for pre-shipment inspection charges. * To import or purchase from the domestic market heavy machinery and other capital goods to produce export goods. To pay for consultancy services. * To pay for export documentation expenses. FORMS OR METHODS OF PRE-SHIPMENT FINANCE 1. Cash Packing Credit Loan In this type of credit, the bank normally selects packing credit emolument initially on unsecured basis. Subsequently, the bank may ask for hostage. 2. Advance Against Hypothecation Packing credit is given to process the goods for export. The advance is given against security and the security stiff in the possession of the exporter. The exporter is required to execute the hypothecation deed in favour of the bank. . Advance Against Pledge The bank provides packing credit against security. The security remains in the possession of the bank. On collection of export proceeds, the bank makes necessary entries in the packing credit account of the exporter. 4. Advance Against Red L/C The Red L/C received from the importer authorizes the local bank to grant advances to exporter to meet working capital requiremen ts relating to processing of goods for exports. The issuing bank stands as a guarantor for packing credit. 5. Advance Against post-To-Back L/CThe merchant exporter who is in possession of the original L/C may request his bankers to issue Back-To-Back L/C against the security of original L/C in favour of the sub-supplier. The sub-supplier thus gets the Back-To-Bank L/C on the basis of which he can obtain packing credit. 6. Advance Against Exports Through Export Houses Manufacturer, who exports through export houses or other agencies can obtain packing credit, provided such maker submits an undertaking from the export houses that they have not or will not avail of packing credit against the same transaction. . Advance Against Duty Draw Back (DBK) DBK means give back of customs duties paid on the import of raw materials, components, parts and packing materials used in the export production. It also includes a refund of central excise duties paid on indigenous materials. Banks offer pre-shipment as well as post-shipment advance against claims for DBK. 8. Special Pre-Shipment Finance Schemes * Exim-Banks scheme for grant for Foreign Currency Pre-Shipment Credit (FCPC) to exporters. * Packing credit for Deemed exports. SOME SCHEMES IN PRE-SHIPMENT STAGE OF FINANCE . PACKING CREDIT SANCTION OF PACKING CREDIT ADVANCES in that location are certain factors, which should be considered while sanctioning the packing credit advances viz. 1. Banks may relax norms for debt-equity ratio, margins etc but no compromise in watch over of viability of the proposal and integrity of the borrower. 2. Satisfaction about the capacity of the execution of the orders within the stipulated time and the management of the export business. 3. Quantum of finance. 4. Standing of credit opening bank if the exports are covered under letters of credit. 5.Regulations, political and financial conditions of the buyers country. DISBURSEMENT OF PACKING CREDIT After proper sanctioning of credit limi ts, the disbursing growth should ensure To inform ECGC the details of limit sanctioned in the prescribed format within 30 days from the date of sanction. a) To complete proper documentation and compliance of the terms of sanction i. e. creation of mortgage etc. b) There should be an export order or a letter of credit produced by the exporter on the basis of which disbursements are normally allowed.In both the cases following particulars are to be verified 1. Name of the Buyer. 2. Commodity to be exported. 3. Quantity. 4. Value. 5. Date of Shipment / Negotiation. 6. Any other terms to be complied with. 2. FOREIGN CURRENCY PRE-SHIPMENT CREDIT (FCPC) * The FCPC is available to exporting companies as well as commercial banks for lending to the former. * It is an additional windowpane to rupee packing credit scheme available to cover both the domestic i. e. indigenous imported inputs. The exporter has two options to avail him of export finance. To avail him of pre-shipment credit in r upees then the post shipment credit either in rupees or in foreign currency denominated credit or discounting /rediscounting of export bills. * To avail of pre-shipment credit in foreign currency discounting/rediscounting of the export bills in foreign currency. * FCPC will also be available both to the supplier EOU/EPZ unit and the receiving system EOU/EPZ unit. Pre-shipment credit in foreign currency shall also be available on exports to ACU (Asian Clearing Union) countries with effect from 1. 1. 1996.Eligibility PCFC is extended only on the basis of affirm /firms export orders or confirmed L/Cs. The Running account facility will not be available under the scheme. However, the facility of the settlement of packing credit under the first in first out method will be allowed. Order or L/C Banks should not insist on submission of export order or L/C for every disbursement of pre-shipment credit , from exporters with consistently good track record. Instead, a system of periodical submission of a statement of L/Cs or export orders in hand, should be introduced.Sharing of FCPC Banks may extend FCPC to the producer also on the basis of the disclaimer from the export order. Export Finance HSBC is a market leader in Export Finance, recognised through yearly Dealogic surveys. Through a team of professionals in strategic locations globally, Export Finance arranges medium- and long-term financing for HSBC clients in the public and private sector across the formal buying capital goods and services. Finance can cover marine assets, aircraft, power generation equipment, infrastructure development, manufacturing equipment, oilfield services and a host of other goods and services.Export Finance also features regularly in the financing of limited recourse projects, as a project financing tool. Export Finance uses government guarantee programmes, Export Credit Agencies (ECAs), in an exporting country to credit enhance the financing to the buyer, thereby achieving highly competitive pricing for the buyer. It also allows borrowers to access a new pot of risk capital, often with appetite for extended tenors relative to traditional bank financing. Export Finance provides structuring, arranging, documentation and distribution services for clients in relation to just about all ECAs.