Compliance Management in Corporate Credit Portfolio Plan your strategy- part III
Working Capital Facility – export Finance
Terms of sanction of working capital facility for export is generally advised in the following form for existing borrowers. The expression MCLR represents the benchmark, which may be differently named in different banks.
| Nature of facility | WCFC/ EPC limit enhanced from Rs………. Lakhs to Rs……. Lakhs |
| Limit approved | EPC – ………..Lakhs |
| Purpose | To meet working capital requirement |
| Margin |
10% for EPC Obsolete stocks shall be excluded for the purpose of DP Calculation |
| Tenor of book debts | 90 days maximum |
| Interest |
Pre Shipment Credit: Upto 270 days: MCLR 6 months … + ……% p.a. i.e. ….% p.a. with quarterly / monthly rest. Beyond 270 days and upto 360 days: MCLR 6 months + …. p.a. i.e. …% p.a. with monthly / Quarterly rest. Post Shipment Credit: On demand bills for transit period: Overnight MCLR + ….% i.e. …% p.a. at present. Usance bills upto 180 days: MCLR of 3 months + …% p.a. i.e. …% p.a. at present. Usance bills for 180 days to 365 days: 6 months MCLR+….% p.a. i.e. …% at present. MCLR linked loans and advances shall be reset in accordance with the tenor of MCLR with which the loans is linked. |
| Drawing Power | D.P. will be regulated by monthly stock statements. DP should be arrived at after deducting the unpaid stocks, (incl. Unpaid stocks received under DA LC), debtors more than 90 days & after providing margin as stipulated herein above and as per our bank’s share of advance. Stock under LC will not rank for DP. However Book debts more than 90 days/unpaid stocks will continue to be the part of the primary security. Obsolete stocks shall be excluded for the purpose of DP Calculation |
| Basis of Valuation |
Raw Materials- Lower of Cost or Current market price. Stock- in –Process-Raw Materials at cost PLUS Factory Overheads Stores and Spares / Components-At Cost Finished Goods- Lower of Cost or Current market price. Book Debts (not more than days’ old)- At Invoice price or sales price, whichever is lower.) |
| Periodicity of Stock/Book Debt Statement | Monthly stock/book debt statement submitted within the 10TH day of the month following the month to which such statement relates/or as decided by the bank. The book debt statement shall indicate the debts outstanding up to 90 days and above for different slabs separately. Valuation of stocks, finished goods & Book debts to be certified by appropriate authority like stock auditor C.A etc once in every six months. |
| Storage & Possession | Stored in loose in the company’s factory, building/ compound /shed /plot, stock in transit/depots/ shipment (or other places with prior permission of the Bank). |
| Inspection | The stocks etc at different go downs sites etc are to be inspected by the bank once every quarter/or at such intervals as decided by the bank and the report thereof should be kept on record and the same should be shared with member bank’s in the consortium. |
| Insurance | The entire current assets charged to the bank will be comprehensively insured for the full value against risk of loss due to fire or any other risk pertaining to assets. The policy will be taken in the joint names of the banks and the borrower with standard bank clause, the cost of which to be borne by the company. The Bank, if deemed necessary reserves the right to insure the mortgaged property offered as collateral security to secure the loan and in such cases, the amount of premium will be recoverable from the company |
| Conditions For EPC |
1.Drawing power in the packing credit account will be permitted to the full extent of the export orders/contracts or L/Cs deposited with the bank less stipulated margin subject to the conditions that existing outstanding in the EPC account are fully covered by the value of the stocks already hypothecated to the Bank. 2. The company whenever considered necessary by the Bank will book forward exchange in respect of the export transaction. 3. It is intended to obtain, at bank’s discretion, refinance from RBI and it is a condition of the arrangement that the Bank will be at liberty to assign security to them when required by latter at the cost of the company and also furnish such other information and particulars as they require. The company will have to execute such documents as may be required in this connection. 4. Bank/company will obtain ECGC Cover under WTPCG of ECGC/specific buyer’s policy. Any policy cover from ECGC if required to be taken by the party, such policies will be assigned in bank’s favour by means of special authorization letter duly registered with ECGC. The terms and conditions stipulated by the corporation will be complied with meticulously. 5. The company will book shipping space sufficiently in advance so that the goods are shipped within the validity period of the export order/letter of credit. 6. The company will give to the bank a list of their buyers sufficiently in advance so that the bank may obtain opinion reports on them from their bankers. 7. All other stipulations in regard to export packing credit facilities as may be in force and modified from time to time as per the guidelines of the Bank/RBI will be applicable. 8. The company will deal with the Bank or the other members of the consortium exclusively and will not transact their export business with any other banks. 9. The company will give a suitable undertaking that its names not appear in ECGC SAL. |
Post shipment
| Facility | FBP/FBN under sole banking arrangements |
| Limit approved | Rs…… Lakhs |
| Purpose | To meet working capital requirement |
| Margin | Nil for FBP / FBN |
| Tenors of Books Debts | 90 days maximum |
| Interest | As per extant guidelines of the Bank |
| Inspection | The stocks etc at different go downs sites etc are to be inspected by the Bank’s representatives once every quarter and the report thereof should be kept on record. |
| Insurance | Stocks are to be insured |
| Conditions For FBP/FBD/FBN |
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The nature of sanction of working for export requires compliance for managing finance against current assets as well as compliance with foreign exchange regulations. The sanction could be against LC/ firm order or running account packing credit facility where the LC/ firm order can be furnished subsequent to the disbursement. Before extending export credit the bank has to obtain credit report of the buyer and examine the terms of agreement. There are dedicated agencies like Dan & Bradstreet, Meera Infotech etc who posses global net work to obtain information about the buyer. The terms of LC/ firm order are very crucial , which are to be closely examined before extending the loan. The officials generally develop skill overtime to examine scrutinize the documents before sanction/disbursement. There are organizations like FEDAI etc who are imparting training for the bank officials. Banks are acting as authorized dealer due to which the responsibility to comply with the guidelines of FEMA are to be carefully observed. The regulator is advising from time to time about modifications / improvements in the guidelines , which banks are required to follow.
Head office/ corporate offices maintain record of countries/ banks based and assess the risk levels in accepting LC etc. Export in many countries are restricted because of previous experience of realization of dues/ uncertainty. The risk status of banks in various countries are also maintained and consulted before extending any advance. Regulator disseminates information to the banks from time to time and banks are also taking their individual decision based on their past experience. At the operational level the desk level officials are responsible for examining such guidelines before extending any credit to the exporters. It is necessary to segregate export finance from other credit and all such information should be incorporated before assigning the drawing power.
The control measures for sanction of working capital finance against current assets are to be maintained as is done for domestic advances. Stock statements are to be obtained periodically and work places as well as storage are to be visited by branch functionaries. Before assigning the drawing power usual precautions such as scrutiny of stock statement, visit report , insurance status are to be closely examined. While the relationship manager is responsible for facilitating the business, a separate person should be responsible for assigning the drawing power. Any variation should be questioned, including delay in submission of statements by the borrower. There is a system of delegating powers within branches and payments are referred to higher level officials before permitting the transaction. Since the time available while allowing debit transactions are limited, the person responsible for assigning the drawing power should be vigilant while assigning drawing power. Usually field visit is a casualty, which is a crucial part of the supervision. The branch head should be proactive in assigning the duty of field visit in rotation to all the functionaries and develop a system that the concerned official verifies the statement and visit report. A carefully designed job order protects the bank as well as individual functionaries, since the function and responsibility of each and every functionary are recorded in the job orders.
