PACKING CREDIT EXPORT
This article discusses the packing credit export, its aspects, and Latest CAIIB exam study material Nov 2022.
CAIIB exam is held by IIBF twice every year. CAIIB exam Nov 2022 is approaching soon, and those who wish to appear in this CAIIB exam Nov 2022 should start preparing for it as soon as possible. We bring you fantastic CAIIB exam study material in Nov 2022 to help you out with your preparation for the CAIIB exam in Nov 2022. This CAIIB exam study material Nov 2022 has been discussed later in this article. First, we would like to talk about one of the most important topics for the CAIIB exam Nov 2022, which is Packing- Credit- Export.
WHAT DOES PACKING-CREDIT-EXPORT MEAN?
Financial institutions provide exporters a variety of export finance options, such as packing credit or pre-shipment credit, to help them make the necessary preparations for manufacturing the products for their export orders. After the buyer makes the entire payment, which will take between 150 and 180 days, they can borrow the money to cover their capital needs and pay it back with interest.
When a packaging credit is received, all of the manufacturing-related expenses—such as working capital, raw materials, labour and equipment costs, shipping, etc. are covered.
WHAT MAKES PACKING CREDIT CRUCIAL?
It is only natural that governments everywhere do everything in their power to assist, encourage, and empower their exporters because a nation’s economy grows with its exports. No international trade agreement should ever fail to owe to a lack of funding on any side, according to the Reserve Bank of India (RBI).
Exporters can meet their working capital needs by using Packing Credit. They are now prepared to handle the largest export requests.
THE REQUIREMENTS FOR RECEIVING AN EXPORT PACKING CREDIT
An exporter may apply for a packaging credit loan from any scheduled bank in the nation if they have a confirmed export order from a buyer or an irrevocable Letter of Credit (LC). The bank may grant Packing Credit based on communications one may have had with the buyer if the exporter lacks a receipt for the order. However, it must include crucial elements like the item’s description, amount, the buyer’s name and other information, etc. Additionally, after the exporter obtains the LC or export order at a later time, he must submit it to the bank.
FEATURES OF PACKING CREDIT
Self-liquidating loans are a sort of credit in which money is borrowed to buy or produce items, which are then sold to pay back the debt. These loans are trustworthy in nature. Packing credit benefits from the self-liquidating feature because the payback is assured based on an export order that has been verified.
- Lower Interest Rate
Compared to other forms of credit, such as overdrafts, banks charge a lower rate of interest for loans through the packing credit programme. This enables an exporter to conduct business without being concerned about outrageous interest rates and prevents them from getting snatched up by loan sharks.
- Friendly Terms of Credit for Exporters
Banks only require repayment once the buyer makes the supplier’s final payment under the flexible conditions of packing credit loans. This is because of its ability to self-liquidate, which eliminates the risk.
- Excellent Method for Funding Working Capital Needs
The costs associated with manufacturers, such as salaries, the price of raw materials, transportation, and equipment, are covered by packing credits. Packing credit is very useful if the exporter has outsourced all or a portion of the items that need to be sent. Even if it slightly exceeds the budget, it is an excellent way to cover the operating costs.
TYPES OF PACKING CREDIT
- Loan with Extended Packing Credit
Customers with a solid credit history can apply for Extended Packing Credit loans from banks. The repayment time is longer than the typical 180 days.
- Shipping Loans with Security
When the finished product has been made and is prepared for shipment, exporters may apply for this loan.
- Loans against consecutive letters of credit
In exchange for a back-to-back LC, banks offer an exporter this form of packing credit.
- Red-Green Clause Letter of Credit
A sort of packaging credit known as a “Red Clause LC” is offered by banks when a supplier neglects to set aside enough money for producing the items for the export order.
- Threats to Export Incentives
Both pre-shipment and post-shipment export incentives are offered. An exporter receives a credit from the bank against future incentives they may be qualified to receive. The exporter pays the lending bank the repayment after receiving the incentives.
- Developments Opposing Duty Drawback
Just like the duty drawback programme run by the US government, by offering duty disadvantages on the raw materials used to produce the finished product for export, the Indian government encourages exports. Banks offer packaging credit against such returns for a 90-day period.
CREDIT PACKING EXAMPLE
Consider that you are an Indian clothing manufacturer, and you receive a request to export 25,000 pairs of socks to a business in Germany. Now that you need to manufacture the complete order, you don’t have the money—you need about Rs 50 lakhs. As a result, you apply for a Packing Credit facility with a bank rather than choosing any other kind of loan.
Once you’ve taken care of the money, you start making the socks in accordance with the order and send them to your German buyer. The purchaser accepts delivery of the order and pays in full in euros. When you receive the payment, convert it to Indian rupees (INR) and return the amount to the bank, plus interest. A credit for export packing is what this is (EPC). In EPC, the exporter receives a loan from the bank in the local currency.
However, if an exporter asks for a PCFC, the bank lends them the money in a foreign currency (one the buyer is likely to pay in), and they must reimburse the bank in that same foreign currency. Therefore, using the current exchange rates, the bank would lend you Euros worth the same amount rather than Rs 50 lakhs. You will still have INR debited to your bank account for all intents and purposes. However, you must reimburse the bank in euros if the buyer pays in that currency.
CAIIB STUDY MATERIAL NOV 2022
Our experts have compiled this amazing CAIIB study material Nov 2022 which offers various services like:
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- All the video lessons are updated according to the latest CAIIB syllabus Nov 2022
- Case studies are also available in our CAIIB study material for Nov 2022.
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