Exim Bank concentrates on medium and long-term financing, leaving the short-term financing to be handled by commercial banks. The activities of the Bank extend to different fields of lending, offering advisory services and promotional activities. It is the principal financial institution for coordinating the working of institutions engaged in financing export and import.
The extended activities of the Exim Bank to different fields of lending, offering advisory services and promotional activities are:
Lending to Foreign Government, Companies, Etc.
1. Buyers’ Credit. Credit is extended by Exim Bank to buyers abroad to enable them to import engineering goods and projects from India on deferred credit terms. Similar to direct lending to exporters, the facility is to be secured by a letter of credit or bank guarantee or guarantee from government or promissory note from government. An undertaking letter from the central bank of the country regarding prompt release of exchange towards receivables may also be required.
See: What are the Role of Export-Import Bank of India (Part 1)
Exim Bank will directly enter into an agreement with the overseas borrower outlining the terms and conditions of the credit covering the export contract.
2. Line of Credit. Exim Bank extends lines of credit to overseas governments or agencies nominated by them, to enable buyers in these countries to import capital/engineering goods from India on deferred credit terms. This facility enables Indian exporters to offer deferred credit to customers in these countries, as per terms and conditions already negotiated between Exim Bank and the overseas government. The exporter can obtain payment from Exim Bank against negotiation of shipping documents, without recourse to the exporters.
3. Re-lending Facility. Credit made available to banks overseas for their lending to importers of capital goods from India. Overseas banks thus would inter-mediate between foreign buyer and Exim Bank, who intermediates with the sup-plier. The borrowing bank may be a commercial bank, a central bank, an investment bank or merchant bank of a country with a good credit standing. The loan made by these banks to the importers should be for import of capital gogds/equipments and/or services from India. The credit limit for each bank would normally be US $ 5-10 million and may be raised to US $ 15 million in selected cases.
Loans to Commercial Banks in India
1. Refinance of Export Credit. Under this programme, commercial banks in India, who are authorised dealers in foreign exchange, can obtain from Exim Bank 100 per cent refinance term loans extended for export of eligible Indian goods. Such credit enables Indian exporters to offer credit terms to foreign importers. An export contract up to Rs. 3 crores can alone be brought under this programme. For contracts above Rs. 3 crores, commercial banks can obtain financing participation under Exim Bank’s other programmes, including Risk Syndication facility.
2. Export Bill Rediscounting Facility. Commercial banks (authorised dealers) can rediscount their short-term usance export bills portfolio with Exim Bank. Exim Bank provides funds under this programme for a period to run before realisation. The bill eligible for rediscount should not have a usance exceeding 180 days and at the time of rediscountshould have an unexpired usance of 90 days. On rediscount the commercial bank is paid 100% of the bill value (less rediscounting charges).
3. Syndication of Export Credit Risks. Under this commercial banks can support export proposals without blocking their funds for long terms. They can participate in the syndication arrangement.
At the Working Group meeting which accords clearance to the export proposal, the participation arrangement for the funding of export credit is also determined. Exim Bank and other banks participating in the funding of the loan would syndicate the respective credit risks to other eligible commercial banks, who would then assume part of the total risk.
Risk will be assumed by risk-participating banks as a percentage of the credit extended for a particular contract expressed in Indian rupees, irrespective of the currency of the contract. The risk is assumed pro rata on outstanding amounts by way of principal, interest and other moneys which become due and payable by the borrower.
4. Bulk Import Finance. Bulk imports of consumable inputs and channelised items, imports made on short-term credit/cash basis and imports of plant/machinery for domestic production are financed by commercial banks and term lending institutions. Under this scheme, promissory notes drawn in favour of commercial banks by their importer-customers are discounted, Exim Bank will issue letter of commitment for finance on request from commercial banks indicating their requirement. The quantum of finance depends on the condition that import order should not be less than Rs. 1 crore.
5. Guarantee facility for banks. Under this scheme Exim Bank extends guarantee to commercial banks against the post-shipment supplier’s credit—from one year to three years—and the amount of cover is equivalent to the amount covered by the exporter under ECGC. The guarantee commission payable by the bank as per the FEDAI rule is 1.8% on an annualised basis.
Banks can avail refinance facility from Exim Bank at 1% less than the RBI facility. In case of defaults, the guarantee will be converted to a refinance facility and the interest rate charged will be 2% below the rate charged by the banks to their customers, subject to a minimum of 13% p.a. Since Exim Bank will pay under the guarantee within 30 days, it will protect the loan asset from being classified as non-performing asset by the bank. Also, if the claim is rejected by ECGC, the amount will be written off by Exim Bank and the commercial bank will not be liable to repay.
Non-Lending Services
1. Guaranteeing of Obligations. Exim Bank issues guarantees on behalf of exporters of construction and turnkey projects. Guarantees issued by Exim Bark include: (i) bid bond guarantee; (ii) advance payment guarantee; (iii) performance guarantee; (iv) retention money guarantee; (v) guarantee for borrowings abroad; and (vi) other guarantees, i.e., in lieu of customs duty. Exim Bank participates with commercial banks in India in the issue of guarantees.
2. Advisory Services. Through its International Merchant Banking Division, Exim Bank offers the following advisory services:
(i) working closely with Indian companies in designing financing packages for joint ventures in third countries;
(ii) advise Indian companies, executing contracts abroad, on sources of favourable financing overseas;
(iii) provide access to euro financing sources and global credit sources to Indian companies engaged in exports;
(iv) advise on exchange control practices globally;
(v) advise and design financial packages for export-oriented industries in India.
These services are being added to, in order that tailor-made financing packages for high value export contracts are available.
3. Promotional Activities. Under the Export-Import Bank of India Act, 1981, the promotional activities expected of Exim Bank are:
(i) undertaking and financing of research, surveys, techno-economic or another study in connection with the promotion and development of international trade;
(ii) providing technical, administrative and financial assistance of any kind for export and import;
(iii) planning, promoting, developing and financing export-oriented concerns; and
(iv) collecting, compiling and disseminating market and credit information in respect of international trade.
