Long Term Export Advance

I had mentioned in my earlier articles about the Pre-Shipment and Post Shipment Export Credit Advances available to Corporates (Pre-shipment Credit / Post-Shipment Credit). These are the short term facilities [maximum period of upto 360 days (preshipment) and 365 days (postshipment)] for boosting the exports from the country. The interest rate to be charged in these lines are not controlled/capped by Reserve Bank of India (RBI).

In order to ensure availability of long term finance at internationally competitive pricing to the exporters, RBI in May 2014 has allowed exporters having a minimum of three years satisfactory track record to receive long term export advance upto maximum tenor of 10 years to be utilized for execution of long term supply contract for export of goods subject to certain conditions. The exporter is allowed to provide SBLC/BG from banks in India for guaranteeing the export performance. Some of the key conditions of the guidelines are as following:

1. Firm irrevocable supply orders should be in place.

2. Company should have capacity, systems and process in place

3. Such advances should be adjusted through future exports.

4. Rate of interest payable, if any, should not exceed Libor + 200 bps.

5. Double financing for working capital for execution of export orders should be avoided.

6. SBLC/BG facility will be extended by banks only for guaranteeing export performance.

7. BG/SBLC may be issued for a term not exceeding 2 years at a time and further rollover of not more than 2 years at time may be allowed subject to satisfaction with relative export performance as per the contract.

8. BG/SBLC should cover only the advance on reducing balance basis.

9. BG/SBLC issued from India in favour of overseas buyer should not be discounted by the overseas branch/subsidiary of bank in India.