The information provided here is part of Online export import business guide course
This article is a continuation of my previous article about Packing Credit to Exporters – A detailed study. If you have not gone through that article, you may kindly click here to read - Packing Credit, how important in Export business?
In previous article, we have discussed about - The purpose of Packing credit in export business, Who is eligible to get Packing Credit in International Business, Purpose of releasing Packing Credit to Exporters, How is Packing Credit finance disbursed by bank, Security under Packing Credit finance to Exporters, Margin requirement in Packing Credit under international business,Interest rate of Packing Credit Loans, Importance of Packing Credit to Exporters.
Now, in this article we will learn How to get Packing Credit Finance sanctioned? How to repay and close Packing Credit Loan availed? Running account of Packing Credit, an easy method for Exporter and Banker, Packing Credit under Red Clause Letter of Credit.
How to get Packing Credit Finance sanctioned?
In order to avail packing credit facility, exporter has to submit formal application along with the necessary documentary proof. Exporter is sanctioned a regular packing credit limit based on the assessment of the bank in respect of the credit needs of the exporter. For every export order a separate packing credit loan account is opened for proper monitoring. At the time of sanction of packing credit loan, bank obtains an undertaking from the exporter that the documents covering shipment of goods, for which packing credit is sanctioned, will be negotiated through that bank and packing credit account will be closed with those proceeds. Further, exporter also undertakes to deposit any receivable from Government such as duty drawback into the account. Disbursal of packing credit loan is made in installments depending on the schedule of production and other requirements.
How to repay and close Packing Credit Loan availed?
Normally, packing credit account gets closed with the realization of sale proceeds of export order. After the shipment of goods, balance in packing credit loan account is not allowed to continue. If the exporter is not able to make shipment of goods for one reason or other, bank charges higher rate of interest on such loan. If any balance remains in the packing credit account, after shipment of goods and negotiation of bill, such excess balance will be transferred or converted to another loan account and the advance will be treated as post-shipment finance. This type of transfer or conversion into a separate loan account is necessary to ensure compliance of ECGC guarantee. I hope, you have already read my other articles about ECGC in this website.
Running account of Packing Credit, an easy method for Exporter and Banker.
As per my experience for the past 25 years in Export Import trade, I personally experience that getting a sanction on running account for Packing Credit Loan is highly useful for an exporter. RBI permits banks to sanction running account facility even in the absence of firm order or letter of credit, subject to the conditions.
Let us discuss about the requirements to get a sanction of running account for Packing Credit loan.
Need for running account facility has to be established by the exporter to the satisfaction of the bank. If regular exports are taken place by an exporter, sanction of running account of Packing Credit is easy for an exporter to convince his banker.
Banks extend this facility only to those exporters whose track record is free from blemishes. In other words, genuine exporters who is in need of finance against confirmed export order only needs to apply for a packing credit finance.
Another requirement by an exporter to obtain sanction for a running bond is that Letter of Credit or confirmed export order is to be submitted to the bank within a reasonable period. However, in respect of commodities covered under selective credit control commodities, banks have to insist on submission of the above documentary proof within one month from the date of sanction.
One of the other conditions by bank to obtain an approval for running account for packing credit loan is that the concessional credit facility, available to the exporter, should not exceed 180 days.
Packing Credit under Red Clause Letter of Credit
In a Packing credit under Red Clause LC method, credit is given at the risk and responsibility of the foreign bank establishing the letter of credit. Packing credit advance may remain unsecured in character till the exporter is in a position to offer security, in the form of hypothecation of the goods purchased.
In these two articles, I have explained about Packing Credit Finance to Exporters in detail. I have tried to enlighten you - The purpose of Packing credit in export business,Who is eligible to get Packing Credit in International Business,Purpose of releasing Packing Credit to Exporters,How is Packing Credit finance disbursed by bank,Security under Packing Credit finance to Exporters,Margin requirement in Packing Credit under international business,Importance of Packing Credit to Exporters,Period of allotment of Packing Credit to Exporters,How is limit of packing credit fixed,How to repay and close packing credit finance and Other mechanism involved in Packing Credit in Export Business.
Have you satisfied with this article about Packing Credit in Export trade? Would you like to add more information about Packing Credit Loan in Exports? Do you wish to share your experience in handling Packing Credit?
Comment below your thoughts about Packing Credit and its mechanism in Export business.
The above information is a part of Guide on howtoexport and import
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