Trade Finance Services

1. Inland/Foreign Letter of Credit:
A Letter of Credit is essentially a financial contract between a Bank, a Bank's customer (applicant) and a beneficiary. Generally issued by a buyer’s (applicant) bank, the Letter of Credit guarantees that the beneficiary will be paid once the conditions of the Letter of Credit have been met.

2. Inland/Foreign Bank Guarantee:
A Bank Guarantee is an instrument of indemnity issued by a Bank which guarantees the liabilities of the applicant under a commercial/financial obligation to the beneficiary

3. Standby Letter of Credit:
A Standby Letter of Credit (SBLC) is a guarantee of payment by a Bank on behalf of their client. It can also be issued as a security for the credit facilities to be extended by other Banks

4. Flow/Collection

• Advance payment against Import/Export
  Advance Payment is a payment made by an importer to the exporter before shipment. The payment may be made/received either as soon as the order is confirmed or any time before shipment.
• Export/Import Bills on Collection
  • Export Bill Collection:
    In simple terms, export bill collection means sending of export bills to the overseas buyers through his Bank to collect payment under export bills. After completion of necessary export procedures and formalities, the exporter prepares necessary documents to send to his overseas buyer to take delivery of cargo. These document may include commercial invoice, packing list, certificate of origin, bill of lading or airway bill, bill of exchange, quality certificate, and other documents specifically mentioned by the buyer at the time of placing a purchase order.
    Export Bill for Collection can be sent as Documents against Acceptance (DA) where the buyer’s Bank releases the documents to the buyer on acceptance of the bills of exchange/draft or as Documents against Payment (DP), where the buyer’s Bank releases import documents to the buyer against receipt of payment from the buyer.
  • Import Bill Collection:
    Import Bill Collection is a mode of payment for international trade where the seller forwards financial and/or commercial documents to the buyer. Import Bill for Collection can be Documents Against Acceptance (DA) where the Bank releases the import documents to the buyer (importer) on acceptance of the bills of exchange/draft or as Documents against Payment (DP), where Bank release the import documents to the buyer against receipt of payment from the buyer.
• Direct Import/Export Bills Handling/ Open Account Payments
  In case of an Open Account, an importer takes the delivery of good and ensures the supplier to make the payment at some specific date in the future. Importer is also not required to issue any negotiable instrument evidencing his legal commitment to pay at the agreed time.
• A2 Payments:
  Payments made abroad by Indian entities for import of non-physical goods (services like fees, commission, royalties etc.

1. Import Finance

• Buyer’s Credit:
  Buyer Credit is credit available to an importer from overseas lenders such as Banks and other Financial Institutions for import of goods. The overseas Banks usually lends to the importer (buyer) based on Bank Guarantee/Standby Letter of Credit issued by the importer's bank.
  Buyer's Credit helps local importers gain access to cheaper foreign currency funds that may be closer to International (ARR) rates as against local sources of funding which may be costlier.
• Supplier’s Credit:
  Supplier’s Credit is a structure of financing imports into India. In this structure, overseas suppliers or Financial Institutions outside India provide financing to importer on International (ARR) rates under UPAS (Usance payable at Sight) Letter of Credit.
  Both Buyer’s Credit and Supplier’s Credit jointly called as Trade Credits. Trade Credit can be provided to Indian importers for a maximum period of 1 year for import of non-capital goods and for a maximum period of 3 Years for import of Capital Goods.

2. Export Finance

• Pre-shipment Credit – INR/FCY:
  Pre-shipment Credit also known as ‘Packing credit’ is a loan/ advance granted to an exporter for financing the purchase of raw materials, processing, manufacturing and packing of goods prior to shipment. Pre-Shipment is sanctioned/granted on the basis of the Letter of Credit or a confirmed and irrevocable order for the export of goods/services from India or any other evidence of an order for export from India. Pre-Shipment credit can be availed in INR or FCY
• Post-shipment Credit – INR/FCY:
  'Post-shipment Credit' means any loan or advance granted or any other credit provided by a Bank to an exporter of goods / services from India from the date of extending credit after shipment of goods / rendering of services to the date of realisation of export proceeds as per the period of realization prescribed by Reserve Bank of India (RBI). Post-Shipment credit can be availed in INR or FCY

3. Sale/Purchase Invoice/Bill Discounting/ LC Bill Discounting:
Invoice/Bill Discounting is a source of working capital finance. Under this type of lending, Bank takes the invoice/bill drawn by the borrower on his (borrower's) customer (Buyer) and pays him immediately after deducting some amount as discount/commission. The facility provided to seller is called a Sales Bill Discounting, if provided to a purchaser, it is called Purchase Bill Discounting. If the transaction is backed up by a Letter of Credit, then the same is termed as LC Bill Discounting.

4. Domestic Factoring:
Factoring is a financial transaction and a type of debtor finance in which a business sells its debtors/accounts receivable (i.e., invoices) to a third party (called a factor) at a discount. Factoring is also a source of working capital finance for the seller. These facilities are governed as per Factoring Regulation Act 2011.

5. SBLC Backed Funding:
SBLC backed funding is a funding mechanism mostly used in parent/subsidiary or buyer/seller relationship where the financials/collaterals of the borrower are not comfortable/enough for Banks to extend finance. The parent/ buyer supports subsidiary/seller to secure finance by getting an SBLC issued from their banker in favour of funding banks to cover the liability of subsidiary/seller.

1. Overseas Direct Investment:
Overseas Direct Investment, means investments done outside India by an Indian entity in their foreign entity (JV or WOS) with aim to diversify the business abroad, avail the opportunity thrown by the overseas market, to make full utilization of full capacity, branding, and many more reasons.

2. Foreign Direct Investment:
Foreign Direct Investment (FDI) is an investment made by a firm or individual outside India into business interests located in India. Generally, FDI takes place when an investor (located outside India) establishes Indian business operations or acquires Indian business assets, including establishing ownership or controlling interest in a company in India.

3. Branch Office/Liaison office-related transaction:
Payments on behalf of Indian entities to their Branch/Liaison Offices abroad for permitted purposes.

4. Project Export related transactions:
Export of engineering goods on deferred payment terms and execution of turnkey projects and civil construction contracts abroad are collectively referred to as ‘Project Exports’. Project export contracts are generally of high value and exporters undertaking them are required to offer competitive credit terms to be able to secure orders from foreign buyers in the face of stiff international competition. Indian exporters offering deferred payment terms to overseas buyers in respect of export of goods and those who have been awarded turnkey, civil construction contracts by overseas parties have to secure prior approval at the post-award stage from Authorised Dealer / Exim Bank for credit terms to be offered, third-country imports, etc.

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