The Reserve Bank of India (RBI) has allowed authorised dealers to extend pre-shipment credit in foreign currency (PCFC) to exporters for domestic and imported inputs of exported goods at libor, euro libor or euribor-related rates of interest.
The scheme is an additional window for providing pre-shipment credit to exporters at internationally competitive rates of interest. It will be applicable to only cash exports, an RBI notification, dated September 6, said.
The facility may be extended in one of the convertible currencies that is US dollars, pound sterling, yen, and euro among others.
To enable exporters to have operational flexibility, it will be in order for banks to extend PCFC in one convertible currency in respect of an export order invoiced in another convertible currency. For example, an exporter can avail of PCFC in US dollar against an export order invoiced in euro. The risk and cost of cross currency transaction will be that of the exporter.
The foreign currency balances available with the bank in exchange earners foreign currency (EEFC) accounts, resident foreign currency accounts (RFC) and foreign currency (non-resident) accounts (banks) scheme could be utilised for financing the pre-shipment credit in foreign currency.
Banks are also permitted to utilise the foreign currency balances available under escrow accounts and exporters foreign currency accounts for the purpose, subject to ensuring that the requirements of funds by the account holders for permissible transactions are met and the limit prescribed for maintaining maximum balance in the account under broad based facility is not exceeded.
In addition, banks may arrange for lines of credit from abroad. Banks may negotiate lines of credit with overseas banks for granting PCFC to exporters without the prior approval of the RBI, provided the rate of interest on the line of credit does not exceed 0.75 percent over six months libor, euro libor or euribor.
Banks may avail of lines of credit from other banks in India if they are not in a position to raise loans from abroad on their own, subject to the condition that ultimate cost to the exporter should not exceed 0.75 percent above Libor, provided the bank does not have a branch abroad. The spread between the borrowing and lending bank is left to the discretion of the banks concerned.
The PCFC will be available as in the case of rupee credit initially for a maximum 180 days, any extension of credit will be subject to the same terms and conditions as applicable for extension of rupee packing credit and it will also have additional interest cost of 2 per cent above the rate for the initial period of 180 days prevailing at the time of extension.
For extension of PCFC within 180 days, banks are permitted to extend on a fixed roll-over basis of the principal amount at the applicable libor rate for extended period plus permitted margin (0.75 per cent over Libor).
