Operational Aspect of Running Account Export Credit Facilities

As we know, Pre-Shipment Credit to exporters is normally provided on lodgment of L/Cs or firm export orders. In some cases it has been observed that the availability of raw materials is seasonal. While in some other cases, it is noted that the time taken for manufacture and shipment of goods is more than the delivery schedule as per export contracts. In such types of cases, the exporters have to procure raw material, manufacture the export product and keep the same ready for shipment, in anticipation of receipt of letters of credit / firm export orders from the overseas buyers. Therefore obviously availment of PC by lodgment of L/Cs or firm export orders is not possible. To overcome this situation, RBI allows banks to extend Pre-shipment Credit ‘Running Account’ facility without insisting on prior lodgement of letters of credit / firm export orders.

 

Now, operationally, the Borrower, availing PC liquidates the same by availing Post Shipment Credit (PSC), and the PSC is liquidated by the proceeds of export bills received from abroad in respect of goods exported / services rendered. This chain on PC to PSC keeps rolling on. Operationally, the banker has to ensure that under Running PC, LC/firm orders should be produced within a reasonable period of time as may be decided by the bank. The bank also has to mark off individual export bills, as and when they are received for negotiation / collection, against the earliest outstanding Pre-Shipment Credit on 'First In First Out' (FIFO) basis. While marking off the Pre-Shipment Credit in the manner indicated above, banks should ensure that export credit available in respect of individual Pre-Shipment Credit does not go beyond the period of sanction or 360 days from the date of advance, whichever is earlier and for Post-Shipment the period prescribed for realisation of export proceeds is 365 days from the date of shipment. While the PC can also be marked-off with proceeds of export documents against which no packing credit has been drawn by the exporter, the Post-Shipment can also be repaid / prepaid out of balances in EEFC A/c or also from proceeds of any other unfinanced (collection) bills.