CHAPTER 6

THE EXPORT-IMPORT BANK OF INDIA (EXIM BANK)

6.1 OBJECTIVES:

"The Export-Import Bank of India is the principal financial institution in India for co-ordinating the working of institutions engaged in financing export and import trade. Exim Bank, which is a wholly owned financial institution of the Government of India, was established on January 1,1982, by an Act of Pari lament (28 of 1981), for the purpose of financing, facilitating and promoting foreign trade of our country. The Act also empowers the Exim Bank to finance export of consultancy and related services, assist Indian joint ventures in third countries, conduct export market studies, finance export-oriented industries and provideinternational merchant banking services.Promotion of nan-traditional exports through finance is the principal objective of the Bank."

6.2 BUSINESS OF THE EXIM BANK:

Chapter IV of the Exim Bank Act Provides s"The Exim Bank may grant, in or outside India, loans and advances, by itself or in participation with any bank or financial institution,whether in or outside India, for the purposes of export or import, and shall also function as the principal financial institution for co-ordinating the working of institutions engaged in financing of the export and import in such manner as it may deem appropriate".

The Chapter provides furthers"The Exim Bank may also carry on and transact all or any ofthe following kinds of businesses,namelys(a) granting loans and advances to a scheduled bank or any

other bank or financial institution notified in the Official Gazette, by the Central Government, in this behalf, by way of refinance of loans and advances granted by it for purposes of export or impartj

(b) underwriting the issue of stocks, shares, bonds or debentures of any company engaged in export or import;

.*£ I a . »

(c) issuing bid bonds or guarantees in or outside India by itself or in participation with any government, bank or financial institution in or outside India?

(d) accepting, collecting, discounting, re-discounting, purchasing, selling or negotiating in or outside India, bills of exchange or promissory notes arising out of transactions relating to export or import and granting of loans and advances in or outside India, against such bills or promissory notes?

(e) granting, opening, issuing,confirming or endorsing letters of credit and negotiating or collecting bills and other documents drawn thereunder?

(f) undertaking any transaction involving a combination of government tc^ government and commercial credit for purposes of export or import?

(g) granting lines of credit to the government of any foreign state or any financial institution or person outside India, for purposes of export or import?

<h> granting loans and advances outside India, for any Indian joint venture?

Ci) granting loans and advances to any person in India in connection with his equity contribution in any joint venture, in any country,outside India?

(j) financing export or import of machinery and equipment on lease basis?

(k) subscribing to, or investing in, or purchasing of stocks, shares, bonds or debentures of any development bank or Export-Import Bank of any country outside India ?

(l) buying or sel1ing of, or entering into such other dealings in foreign exchange, as may be necessary for the discharge of its functions?

Cm) opening of any account in any bank in or outside India or making of any agency arrangement with, or acting as an agent or correspondent of any bank or other institution in or outside India?

Cn) transferring, for consideration, any instrumentrelating to loans and advances granted by it?

Co) issuing participation certificates?(p) subscribing to, or investing in, or purchasing of

stacks, shares, bonds or debentures to the extent necessary for the enforcement of a lien, pledge or other contractual right?

5213s(q) undertaking and -financing of research surveys, techno-

economic or any other study in connection with the promotion and development of international trade?

(r) providing technical, administrative and financial assistance of any kind for export or import;

(s) planning, promoting, developing and financing export- oriented concerns;

cv

(t) forming or conducting subsidiaries for carrying out its functions ?

(u) acting as agent of the Central Bovernment, any State Bovernment, the Reserve Bank , the Bevelopment Bank or any other person as the Central Bovernment may authorise ?

<v) collecting, compiling and disseminating market and credit information in respect of international trade?

(w) doing any other kind of business which the Central Bovernment may Authorise? and

(x) generally doing such other acts and things as may be incidental to, or consequential upon, the exercise of its powers or the discharge of its duties under this Act or any other law for the time-being in force, including sale and transfer of any of its assets.

6.3 OPERATIONS OF THE EXIM BANK:Exim Bank extends finance to exporters of capital and manufactured goods, exporters of software and consultancy services, and to overseas joint ventures and turn- key/construction projects abroad. Eligible goods and services can attract deferred payment facility at post-shipment stage. Project exporters can also avail of guarantee support and multi-currency financing facility. Term Loans are also extended to projects located, within India, in export zones. Exim Bank financing can, if required, supplement working capita"! finance extended by commercial banks, at pre-shipmentstage.

: 2 1 4 :

The present focus of the Exim Bank is on medium term and long term credits. Whenever a buyer of goods or services, exported from India, is allowed to defer payment, an export credit arises. Deferred export credit is available for the sale of machinery, manufactured goods and related services. Such credit may be in the form of "Supplier's Credit" or"Buyer's Credit". Supplier's Credit arises when an Indian exporter extends credit to the overseas buyer and finances himself through the Exim Bank. Deferred export credit takes the form of Buyer's credit, when the Exim Bank extends credit directly to the buyer.

6.4 EXIM BANK'S PROGRAMMES OF FINANCING:The Exim Eiank operates three broad programmes of financing, vis., loans, re-discounting and guarantees. Through a variety of financing packages, the Bank promotes Indian exports. Thirteen lending programmes, operated by the Bank, serve as vehicles for delivery of finance to five user groups, in support of Indian exports. Indian exporters, overseas buyers, Government and financial institutions overseas, international banks, and commercial banks in India are major user groups. Appendix XII lists out Exim Bank's financing programmes, users, uses and rate of interest in respect of each of the programmes.(A) LOANS TO INDIAN COMPANIES(1) DIRECT FINANCIAL ASSISTANCE TO EXPORTERS:

Funds are provided, on deferred payment terms, to Indian exporters of eligible goods and services, which enables the exporter to extend deferred credit to overseas buyer.

Commercial banks participate in this programme directly

or under the Risk Syndication facility.

Goads eligible for financing are listed in Appendix V,

illustratively. Goods in Group A, comprising of capital

and producer goods, are eligible for term credit even

beyond two years; Group B goods, comprising of consumer

durables and industrial manufactures normally exported on

cash basis, are eligible for credit upto a maximum period

of two years.

(2) CONSULTANCY AND TECHNOLOGY SERVICES:Indian companies can avail themselves of Exim Bantus

financial facility, against deferred credit extended to

ourseas buyers of Indian consultancy, technology and

other services. This would help in enlarging the market

for Indian consultancy exports.

Indian . consultants, having corporate status or

otherwise,who have secured a contract for export of

services, wherein deferred payment terms need to be

offered to the client, can utilise the facility.

Technology and consultancy services include 5

(a) providing personnel (including skilled or unskilled

workmen and persons for rendering technical or other

services) ;

(b) transfer of technology, know-how expertise or other

sk i 1 1 s ;

(c) furnishing any information, blue-prints, plans or

! 2 1 5 !

advice s

<d> any other activity considered acceptable by the EximBank «

The credit may be extended to the Indian company either by the Exim Bank in participation with commercial banks or directly by commercial banks, who could seek refinance •from the Exim Bank. The Indian company would, in turn, offer deferred payment terms to the client.

(3) PRE-SHIPMENT CREDITSCi) The programme is available for companies executing

export contracts involving cycle time (productionperiod), exceeding six months. The facility alsoenables provision of rupee mobilisation expenses forconstruction/turn-key project exporters.

<ii) In barter trade, there might be no need forfinancing,but there could, yet, be financing needs ifthe manufacturing cycle was beyond six months. Such atransaction having received the necessary regulatoryapprovals, the pre-shipment financing requiringcredit beyond six months, could be eligible for

1financing from Exim Bank.

(iii) Counter purchase, compensations and buy-backtransactions could require financing where, again, ifdomestic regulatory approvals were forthcoming, EximBank could offer a package of relevant financing to

1the parties.

Banerji,Kalyans Chairman, Exim Bank of India, at the Seminar on "The Changing face of export f inanee-Counter Trade" 26.05.1987

s217 s

(4) FACILITIES FOR EXPORT ORIENTED UNITS!The Bank provides term 1oans/deferred payment guarantee •for project cost -financing of units registered as 100 per cent export-oriented units and units in free trade zones;

the finance is provided at concessive rates, with a view to enhance their competitiveness in overseas markets.The export oriented units seeking financial assistance will need to establish technical, economic and financial viability of their projects. Special emphasis will be laid on marketability of their products in foreign countries, while determining project viability.The Bank's assistance will be available for acquisition of land, building, plant and machinery and other miscellaneous fixed assets alongwith related services, margin money for working capital and preliminary and pre­operative expenses? also for setting up new projects or for expansion/diversification of existing projects.

(5) FACILITIES FOR DEEMED EXPORTS:"Deemed Exports" are eligible, for support under the Bank's various financing programmes. Exim Bank's export financing facilities include post-shipment deferred credit, bridge financing in foreign currency for project exports, term loans for units in Free-Trade Zones, and 100 per cent Export-Oriented Units, rupee loans for- working capital, issue of guarantees."Deemed Exports" occur in case of specified transactions within India, which result in foreign exchange earnings

s2 1 8 sor -foreign exchange savings. Ministry of Commerce, Sovernment of India, determines the eligibility of transactions, which should be treated as deemed exports. These are published, from time to time, in the Import and Export Pol icy Book (Volume I). An illustrative list of deemed exports is given in Appendix XIII.Deemed exports involving supply of Indian capital goods and other eligible goods can avail of Exim Bank's deferred credit facility.Exim Bank can extend credit either through the supplier or directly to the buyer in India. Intermediating banks/ institutions can also avail of refinance facility from Exim Bank, covering the full value of the term credit. Working capital requirements are ordinarily met by commercial banks. Exim Bank may, in certain circumstances, participate' with commercial banks in extending rupee loans, for bridging cash-flow deficits of projects/supply contracts, especially those involving long cycle time from start upto completion.Other facilities available from Exim Bank, which can also be considered for deemed export, include issue of guarantees, and bridge financing in foreign currency. These facilities are normally availed by project exporters.

(6)OVERSEAS INVESTMENT FINANOINSsThe Exim Bank provides finance to Indian promoters of overseas joint ventures for their equity investment by way of capitalisation of proceeds of exports in the form

s219sof plant and machinery, technical know-how, etc., or capitalisation of earnings such as royalty, management fees. The Bank also provides finance for equitycontribution in cash, if the government approval provides for such cash remittances.Any Indian promoter making equity investment in an existing company or a new project overseas, with the requisite approval for such investment, from the Bovernment of India as also from the Government and other concerned authorities in the host country, is eligible for finance. Indian promoters will need to establish viability of their overseas joint ventures in terms of, inter-alia, profitability and capacity to generateadequate earnings, i.e. dividends, royalty, fees. The Bank also lays special emphasis on the financial standing, track record, past experience of Indianpromoters as also their managerial and technicalcompetence.The finance, subject to a maximum of 80 per cent of the Indian promoter's equity contribution, is available to Indian promoters by way of s- Rupee term loans for financing equity contribution in

any of the approved forms;- Foreign currency 1oans/guarantees, where the equity

contribution is allowed by the Govt.of India, out of foreign currency loan to be raised by the Indianpromoter.

s 220 s

(7) FACILITIES FOR COMPUTER SOFTWARE EXPORTSsThe recently announced Govt. of India Policy on Computer Software Exports and Development envisages an integrated approach to software exports and software development in the country- The Policy provides for various facilities and incentives to promote a quantum jump in software export levels.Under the new policy, Exim Bank has been designated as an agency for facilitating speedy clearances and meeting foreign exchange requirements towards imports for computer software export, where export obligation of 350 per cent of foreign exchange used is undertaken. The Bank will undertake financial and technical analysis of software export proposals and monitor the progress of soft ware ex port s .Exim Bank offers the following facilities^(1) arrange clearance for imports and finance, under one window, for software exporters opting for 350 per cent export obligation, against foreign exchange provided by Exim Bank for import of computer system.(2) an integrated package covering foreign currency and rupee term finance for acquisition of imported and indigenous computer/computer based systems for export purposes.Foreign currency term loans.for financing import of computer systems and equipment. <The Scheme has since been cleared by the RBI, in February,1988)

: 2 2 1 :

Rupee Term loans -for s(i) acquisition of indigenous computers/computer basedsystems and other assets for export purposes5(ii) for financing import of computer systems cleared by the Department of Electronics(DOE), Govt. of India.

(8) FACILITIES FOR EXPORT MARKETING:The Government of India has designated the Exim Bank as the agency to manage the Export Marketing Fund (EMF). TheEMF is a component of the World Bank loan to India of US

250 million for an Industrial Export (engineering products) Project. The EMF currently amounts to US $ 10 million, and will be utilised to finance a range of strategic export marketing activities, to accelerate export growth of target products with industrial ised markets in view.

Finance is now available in foreign currency upto 50 per cent of the cost of the following activities:- market research,- minor product adoption,- justified overseas travel by Indian Company executives,- product inspection services,- training related to export marketing, planning and set up of overseas operations,

- promotional activities in target markets, and- travel to India by potential buyers.

Such finance would be in the form of grant. Residual costof export marketing i.e.balance 50 per cent would be expected to be borne by Indian company that seeks finance for export marketing. Recipients of EMF grants can apply for a foreign exchange Blanket Permit for expenditure approved under EMF programme.A series of measures introduced, in recent times by the Sovt. of India, in the area of industrial and trade policy reforms are aimed at developing a more efficient and competitive industrial structure in India, over the coming years, which would create scope for Indian companies to invest in balancing, modernisation, expansion and construction of new production facilities in the engineering sub-sector. The World Bank loan of US % 250 million will help finance a part of the foreign exchange requirements of eligible Indian enterprises,in the private sector and joint sector, undertaking such investments, which should allow them to compete internat ional 1 y .The World Bank Loan of US$ 250 million to India forIndustrial Export (Engineering Products) Project has four components :(i) US$ 160 million % ICICI will make term loans to

firms manufacturing engineering products;(ii) US$ 10 million : ICICI will make grants for

development expenditures for improving productivity of eligible firms;

s 223;

(iii) US* 10 millions Exim Bank will make grants to

eligible firms for export marketing activity? and

(iv) US* 70 million: Commercial banks will make term

loans to ancillary units in engineering industry.

Through the implementation of the four components described

above < Indian manufacturers should be able to reduce

costs, upgrade quality of their output to internationally

accepted standards and get internationally competitive.

EMF grant can cover all engineering manufacturers. Focus

will be on an identified range of product groups.

Identification of these product groups has been based on

a study of trends in market demand and imports by

developed countries, comparative cost advantage for

production of items in India and economic benefit to the

country. The thrust product group are s

~ auto ancillaries, spares? bicycles, parts? commercial vehicles, scooters? diesel engines, pumps, compressors? electric motors, starters? hand tools? machine tools, accessories? castings, forgings? chemical, process plants? industrial valves? computer software.

A CLARIFICATION: The Exim Bank will henceforth issue a letter, in duplicate, to exporters for grant of assistance from the Fund, to enable RBI to attach a copy of the letter to the blanket exchange permit. This will help simplify the procedure for availing the assistance, and will obviate the need for the exporter to produce a letter from the Exim Bank every time he withdraws the exchange.

(B)LOANS TO FOREISN GOVERNMENTS, COMPANIES AND FINANCIALINSTITUTIONS:<9> OVERSEAS BUYER'S CREDIT:

As an alternative to supplier's credit availed by the

exporters, credit is extended by the Exim Bank to buyers

abroad, with a view to enable the latter to import eligible

Indian goods and related services like the engineering goods

and projects from India, on deferred credit terms, with

repayment terms spread over a period of years.

s 2 2 4 s

( 1 0 ) LINES OF CREDIT TO FOREIBN G O V E R N M E N T S *

The 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 payment terms. This facility enables Indian exporters to offer deferred credit terms to customers in these countries, as per terms and conditions already negotiated between the Exim Bank and the overseas government. The exporters can obtain payment from Exim Bank against negotiation of shipping documents, without recourse to the exporters.The facility is available to sovereign governments or agencies nominated by them. Such governments/agencies are deemed to be the borrowers, with the Exim Bank as the lender. Terms and conditions of different lines of credit are subject to variations, and particulars can be obtained for each line of credit from the Exim Bank. It would also need to be ascertained, from time to time, that the lines of credit have come into effect and are available for ut i 1 i sat i on .The buyer is required to obtain allocation of funds, under the credit line, from the borrower. The exporter then enters into contracts with the buyer, for the eligible items, covered under line of credit. The contracts would need to conform to the basic terms and conditions of the respective credit lines, particulars of which are available separate!y from the Exim Bank.

•225 s

(11) RELENDINS FACILITY TO BANKS OVERSEAS:Banks overseas who operate offices world wide, can market

Indian capital goods/equipments and/or services to be

exported from India, in countries where they have

presence. This they can do by putting forward to importers

the availability of term finance linked to Indian capital

goods. This programme is designed and offered to reinforce

'the Exim Bank's own efforts to market its services

directly to buyers of Indian capital goods. Use of the

medium of overseas banks, with a worldwide network of

branches, can enlarge the market for Indian capital goods.

Overseas Banks can enter into Credit Line Agreement with

the Exim Bank. Overseas Banks, therefore, intermediate

between the foreign buyers and the Exim Bank, and the

latter intermediates with the suppliers.

The borrowing bank may be a commercial bank, a Central

Bank, an investment/merchant bank of a country, with a

good credit standing. In regard to commercial banks,

leading banks in the U.S.A., and in Europe are also

offered participation in the programme. The borrowing bank

can make sub-loans, within its discretion, in developing

countries with which India has trade relations.

Loans under this credit 1ine to the borrowing bank are

denominated in U.S. Bol1ars and repayment should also be

in the same currency. Minimum contract value that can be

considered is US t- 100000/-.

The facility is at present available through the following

banks s

•226 s

-Bank of Baroda; Citi Bank.; Hongkong and Shanghai Banking

Corporation; Banque Indosuez; Standard Chartered Bank;

Bankers Trust Company; Chase Manhattan (Asia) Ltd and Bank

af America

<C) LOANS TO COMMERCIAL BANKS IN INDIAs(12) (i) EXPORT BILLS RE-DISCOUNTINS PROSRAMME:Commercial banks in India, who are authorised dealers in

foreign exchange, can re-discount their short-term usance

export bills, with usance not exceeding 180 days, and

arising out of bonafide post-shipment export transactions,

with Exim Bank, for unexpired usance period not exceeding

90 days.

Re-discount of bills is made by the Exim Bank with recourse

to discounting bank. Discounting banks have to undertake

that in case the re-discounted bills remain unpaid , on due

dates, they would, nevertheless, make recommend to Exim

Bank, on due dates. Discounting Banks are required to

furnish, from time to time, a statement showing particulars

of bills re-discounted by them with Exim Bank.The re­

discounted bills are retained by discounting banks, or by

their correspondents, in trust

for Exim Bank. Re-discounted bills should be excluded by

discounting banks from their portfolio and only net

figures are to be shown by them in their books.

Discounting banks are required to give an undertaking to

Exim Bank that the proceeds of re-discounted bills would

be utilised by them for financing further exports from

India

The exchange risk arising out of realisation of re­discounted bills is to be borne by discounting banks. They are also not eligible for interest subsidy, under the Export Credit Interest Subsidy Scheme- in respect of the re- discounted bills.

12 <ii) EXPORT BILLS RE-DISCOUNTINB PROGRAMME- SMALL SCALE INDUSTRY(SSI) EXPORTS:During the year 1985, the Exim Bank implemented the above lending programme to finance exports from Small Scale Industries. This programme is in the form of Bills Re- Discounting discussed in details in the preceding paragraph, with one exception.

The discounting banks are required to give an undertaking to the Exim Bank that the re-discounting is sought for SSI exports and the proceeds of re-discounted bills would be utilised by them for financing further exports of SSI from India and that these bills of SSI Sector are not included in the Export Bills Re-discounting Programme of Exim Bank.

(13)REFINANCE OF EXPORT CREDIT:(I) Exim Bank's deferred credit facilities enable exporters of eligible goods and services, to offer deferred payment terms for their exports. Credit can be extended direct, or by refinance to commercial banks in India. Deferred payment exports arise when export proceeds are to be received beyond six months from the date of shipment.

(ii) Exim Bank offers 100 per cent refinance facility, which enables a bank to extend deferred credit to an Indian -exporter, against supplier's credit offered by the exporter to overseas buyer. Refinance can also be provided to cover retention money receivable after the six months period.

(iii) Commercial banks, who are authorised dealers in foreign exchange in India, can provide in-principle clearance for deferred credit contracts valued upto Rs.2 crores and avail automatic refinance facility from the Exim Bank. Contracts valued above Rs. 2 crores would be financed by the Exim Bank in participation with other banks. Project exports on deferred payment terms can also avail of refinance facility.

(iv) Exim Bank also offers export credit direct to overseas buyer, to enable purchases from India, on deferred payment terms, under the category of "Buyer's Credit

(v) An illustrative list of goods eligible for deferred payment export is given in Appendix V. Group A comprises capital and producer goods § whereas Group B goods comprising consumer durables and industrial manufactures normally exported on cash terms, can also be consideredfor deferred credit.

' s229 :

<vi) The period of credit available is as -follows:CONTRACT VALUE MAXIMUM CREDIT PERIOD

(INCLUDING GRACE PERIOD)Group A Group BGoods Goods

Upto Rs. 10 Lakhs 3 years 1 yearAbove Rs.10 1akhs,upto 50 1akhs 5 years 2 yearsAbove RsiSO 1akhs,upto Rs.l Crore 8 years 2 yearsOver Rs.1 crore 11 years 2 years

Period o-f credit is determined for each proposal ,having regard to the value of contract and the nature of goods covered.(vii) Exim Bank refinance is available in Indian rupees. Credit to buyer can be denominated in currency other than rupee.(viii) An exporter is expected to obtain advance/down payment of at!east 10 per cent of contract value. This should ordinarily cover foreign exchange outgo on account of payment of agency commission freight/insurance payable by exporter, import replenishment/third country imports. Net Foreign exchange outgo, if any, should not normally exceed 10 percent of contract value. The credit would, thus, cover about 90 per cent of contract value.< ix) The Sponsoring Bank (who is an authorised dealer) evaluates the proposal with regard to:(a) capability of the exporter to execute the contract,(b) standing of the buyer,(c) nature of security offered,

s 230 :

(d) country related issues,

(e) conforming with the guidelines of the Exim Bank,

<f> availability of counter-guarantees, and cover against

risk of non-receipt of payment, from the Export Credit

Guarantee Corporation of India Ltd.,etc.

Prior approval of the Exim Bank is not required. However,

Banks are required to consult the Exim Bank, in advance,

in case proposal contains deviations from guidelines.

(x) Project, exports,covering overseas turn-key and

construction projects, can avail deferred payment

facility, mainly for portion of contract relating to goods

and services from India. Authorised dealers can convey in­

principle clearance for such proposals valued upto Rs.2

crores, and avail refinance from Exim Bank for deferred

payment exports.

Project exports, and sometimes supply contracts, required

other facilities such as multi-currency financing,

guarantees, pre-shipment credit, overseas- bank accounts,

site offices overseas, etc.

(xi) Proposals for deferred credit valued more than R s . 2

crores can attract Exim Bank's direct participation and

Risk Syndication facility.

Commercial banks, in participation with Exim Bank, provide*

long term credit, at competitive rates of interest, to

*Exim Bank's interest rate applicable to exporter, is at present 9 percent p.a. for rupee credit. Rate charged by commercial banks, is at present’8.65 percent p.a. Banks can avail interest subsidy to the extent of 1.5 percent for the portion of credit directly extended by them.

s231 sIndian exporters of capital goods, turn-key projects and consultancy services, thereby enabling Indian exporters to compete effectively in the international markets.The -facility for syndication of term export credit risks, lends flexibility to the export credit mechanism by allowing banks to assume risk, without blocking their funds for long terms, at fixed interest rates. Commercial banks can now support export proposals, without impairing their liquidity. Commercial banks seeking enhancement in their credit portfolio can avail of this facility and participate in syndication arrangement.

(14)GUARANTEEINS DF OBLIGATIONS:The guarantee programme is available in the case of construction and turn-key contracts. Construction projects involve civil works, steel structural works, as well as design, equipment supply, erection and commissioning. Typical projects include electrification and utility, power-transmission, pipelines, water resource management systems, airports, roads, bridges, hotels, housing and erection of industrial plants. In a turn-key contract, say for setting up of a textile mill, supply of equipment accounts for major value of the contract. In such contracts, an Indian exporter usually requires the following non-funded facilities, which are offered by the commercial banks in India, and the Exim Bank participateswith them

w n n an j£m\Jj-dL n

(1) Bid Bond s Bid Bond is issued -for a maximum period ofsix months. Issuing Bank refunds 75 per cent commission, in case contract is not secured.

(2) Advance Payment BuaratneesExporters are expected to secure a mobilization of 10-20 per cent of the contract value.

(3) Performance GuaranteesPerformance guarantee for 5-10 per cent of contract value is issued, valid upto one year, after completion of the contract. Format of guarantee should be furnished by exporter, at!east four weeks before actual issue, to facilitate discussions and formal approval.

(4) Guarantee for release of Retention MoneysThis enables the exporter to obtain the release of full payments, before obtaining Final Acceptance Certificate (FAC) from client.

(5) Guarantee for raising Borrowings Overseas;Bridging finance may be needed at the earlier phases of the contract to supplement the mobilisation advance. Upto 10 percent of the contract value may be raised in foreign currency from a foreign bank against this guarantee. Request for overseas borrowings must be supported by currency-wise cash flows, indicating also the outstanding letters of credit and L/C drawal schedule.

(6) Other Guarantees; e.g. in lieu of customs duty.Guarantee commission is charged at the rates stipulated bythe Foreign Exchange Dealers Association of India (FEDAI).

s 233 ■Margin requirement -for issue of guarantee, is generally waived by banks, for Export Performance Guarantees.However, appropriate securities are availed of.

<D) ADVISORY SERVICES:Through its International Merchant Banking Division, the Exim Bank offers following advisory services:<a) work closely with Indian companies in designing and financing packages for joint ventures in third countries(b) advise Indian companies executing contracts abroad, on sources of favourable financing overseas5(c) providing access to Euro-financing sources and global credit sources to Indian Companies engaged in exports;(d) advise on exchange control practices globally; and(e) 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. Exporters are encouraged to avail of Exim Bank's advisory services - with regard to opportunities in new markets and information on various countries. Prior consultation with the Exim Bank would facilitate preparedness at the bid submission stage.

<E5 OTHER SERVICES sThe following other services are also made available to exporters, subject to specific approval of the RBI Exchange Control dept:(a) Foreign exchange remittance to meet initial expenses,(b) Inter project transfer of funds,

g234 s<c) Opening of overseas bank accounts/site/1 iaison

offices, payment o-f agency commission.Construction and civil engineering -firms, who wish to avail of the facilities are expected to haves- proven track record;- clearance from the screening committee of the Engineering Export Promotion Council (EEPC) ;- financial base commensurate with the risks involved.

6.5 PERFORMANCE:*<a) Funded assistance:The Bank offers considerable help to Indian exporters of engineering and capital goods and other related services, by making available timely, competitive finance to meet their pre-shipment and post-shipment credit needs. It provides funded assistance, on competitive terms, to enable them to compete effectively and efficiently in the global market. In the very first year of its operations, the bank started three new schemes of funded assistance, vizexport bills re­discounting, technology and consultancy services- financing and re-lending facility to bankers abroad.To enhance the export competitiveness of small-scale industries, the Bank implemented its programme of financing of SSI exports in 19855 under which, commercial banks in India can discount eligible export bills of smal1-seale industries. The performance of the Bank under the funded assistance programme is given in Table 6.1 An analysis of the sanctions under various schemes shows that about 50 per cent of the

235 s

total assistance was granted under two schemes - export bill

re-discounting and direct -financial assistance. Under the

scheme of small-scale industry export bills re-discounting,

the sanctioned amount jumped from Rs.50 crores in 1985 to

Rs.189 Crores in 1986, an increase of about 200 per cent,2,3

which remained at Rs. 179.47 crores at December,1987.

<b) Non - funded assistance %

Under its non-funded assistance programme, the Bank

provides guarantees to exporters under various schemes. It

participates with commercial banks in the issuance of

guarantees in the nature of bid bonds, advance payment,

performance guarantee, guarantee for retention money,

guarantee for raising money abroad, etc. The guarantee is

given in foreign currencies, on behalf of the Indian

exporter or contractor, in favour of the overseas

importer, employer and/or Bank.

An accosunt of the performance of the bank of non-funded

assistance programme is given in Table 6.2 . In the six

years of its operation, total guarantees sanctioned

aggregated Rs.435.6 Crores and total utilisation thereof

totalled Rs.346.7 Crores.

India being one of the more industrialised Asian nations,

it possesses considerable potential to export manufactured

and capital goods to neighbouring and Arab countries. A

growing demand for foreign exchange to finance development

programmes and meeting other needs of the country renders

urgent the need to mobilise exports of all types of goods,

*2,3 Verma,Harsh H .sFinancial Express 3.6.87 s20.6.88

:236 s TABLE :6.1

FUNDED ASSISTANCE EXTENDED BY EXIM BANK(Rs.Mil1 ion)

1! II

II II

II II

II II

II II

II II

II II

II II

II II

II II

II II

1! II

1982 March Dec .

1983 •Jan- Dec.

1984

II 1!

II li

II li

II <S II

II 00

liII O'

11II

-« II

II li

II II

II il

II in II

II 00

IIII

O' 11

II -<

11II

II

1987 TOTAL

SANCTIONS 2 3 5 9 .8 4 2 8 7 1 .8 3 3 8 6 4 4 1 1 .6 5621 6 9 0 5 4 2 5 3 2 6 .5(2 2 ) (185 (3 0 ) ( 2 7 . 4 1 ) ( 2 2 .8 4 )

UTILISATION 1 7 8 5 .1 4 2 0 5 7 .2 3 5 3 0 .3 3 8 1 2 .9 5241 5 9 8 9 .2 2 2 4 1 5 .2(15 (1 8 ) (8 ) ( 3 7 . 4 5 ) ( 1 4 .2 7 )

OUTSTANDING 2 1 9 8 .9 5 2 9 3 0 .2 4 4 1 4 7 .3 5 5 4 4 .1 6 4 3 8 7 2 3 1 .5 2 8 4 9 0 .1

(Figures in brackets show per cent increase or decrease over the preceding year)

TABLE : 6.2WON FUNDED ASSISTANCE BY EXIM BANK .

(Rs.Mil 1 ion)1982 March/ Dec .

1983•Jan/Dec

1984 i 985 1986 1987 TOTAL

SANCTIONS 1 0 1 8 .8 1 7 3 5 .2 5( - 2 6 )

571 .6 ( - 2 4 )

732(2 8 )

763( 4 . 2 3 )

5 1 6 . 5( - 3 2 . 2 4 )

4 3 5 5 .5

UTILISATIONS 5 6 3 .6 6 7 1 1 .6 0 (2 6 )

W 1 *T 1 T

( - 1 9 )6 8 2 .6

(1 9 )3 9 6( - 4 2 )

5 4 7 .1 3 4 6 7 .1( 3 8 . 1 3 )

OUTST ANDINSS 3 9 8 5 .5 0 4 5 1 4 .5 0 5 1 0 2 .2 4661 . C) 5 2 9 0 4 8 4 4 .1 2 8 3 9 6 .3

(Figures in brackets show per cent increase or decrease over thepreceding year)

(Source: Annual Reports o-f Exim Bank)

TABLE 6 .3SANCTIONS OF ASSISRANCE (FUNDED AND NON-FUNDED)

TO INDUSTRIES BY EXIM BANK (Rs.Mill ion)

INDUSTRY 1982 1983 1984 1985 1986 198?1. Construction goods &

Serv i ces 735.7 880.18 1347.3 1392.3 1272.0 JLC2 jL O DdO a Q2. Textile machinery-

Machine tools276.9 31 .68 30.4 58.7 203.9 77.0

63 .03. Vehicles and Transport

equipmentAuto ancillaries and spares

172.4 249.7 41 .9 117.3 58.2 40 n 2 3.9

4. Power generation and distribution equipment 182.5 211.1 55.1 19.6 38.0 147.2

5. Sugar plants 136. 1 80.0 - - - -6. Diesel engines and pumps - -

\ 73.5 40.0 4.17. Bicycle parts8. Cement Plants 19.7 - 7.6 *7

30.089.060.0 -

9. Water supply,sewage and sanitary equipment - - 11.1 15.2 - -

10.Consultancy services - 39.6 17.0 582.511.Mining machinery - _ 12.9’ - _ -12.Earth moving - machinery - - _ 62.9 - -13.Telecommunication - - - 29.4 - 57.:14.Rail way rolling stocks

Pharmaceuticals- _ - 129.5 167.0 13.<

0 .:15.Jute Machinery Computer sottware

- - - - 9.6 102.:

16.Tea Machinery _ - - - ' 17.0 -17.Others* 105.16 913.85 352.1 BE. ^ 0 0 . W 142.0 rirjri

♦Others include steel and rubber products, electronic components, ceramic plants, steel pipes, misc. industrial machinery exports.(Sources Annual Reports at Exim Bank)

ui o

:238:

s p e c i a l l y m a n u f a c t u r e d g o o d s . To e n h a n c e t h e e x p o r t a b i l i t y of

v a r i o u s i n d u s t r i e s , t h e Bank e x t e n d e d b o t h f u n d e d and n o n - f u n d e d

a s s i s t a n c e t o a number o f i n d u s t r i e s , i n c l u d i n g c o n s t r u c t i o n

go o d s and s e r v i c e s , v e h i c l e s and t r a n s p o r t e q u i p m e n t s , t e x t i l e

m a c h i n e r y , cem en t p l a n t m a c h i n e r y , power g e n e r a t i o n and

d i s t r i b u t i o n e q u i p m e n t (T a b le 6 .3 >

D u r in g t h e y e a r en d ed December 8 7 , 86 c o n t r a c t s w o r th a b o u t

R s , 6 . 6 b i l l i o n w ere s e c u r e d by I n d i a n e x p o r t e r s . T h e s e c o n s i s t e d

of c o n s t r u c t i o n p r o j e c t s v a l u e d a t R s . 1 , 2 b i l l i o n , t u r n - k e y

p r o j e c t s v a l u e d a t R s , 1 . 4 b i l l i o n , p r o d u c t e x p o r t c o n t r a c t s

v a l u e d a t R s , 1 . 7 b i l l i o n and c o n s u l t a n c y c o n t r a c t s v a l u e d a t

R s . 2 , 3 b i l l i o n . Compared t o t h e p r e v i o u s y e a r , t h e v a l u e of

c o n s u l t a n c y p r o j e c t s , p r o d u c t e x p o r t c o n t r a c t s and t u r n - k e y

p r o j e c t s h a v e i n c r e a s e d by 660% , 29% and 2% r e s p e c t i v e l y , w h i l e

t h e r e h a s been a d e c r e a s e o f 67% in t h e c a s e o f c o n s t r u c t i o n

p r o j e c t s .

So f a r t h e Bank h a s shown p r o f i t a b l e o p e r a t i o n s and an e f f i c i e n t

management o f f u n d s and t h e i r a l l o c a t i o n . S i n c e t h e commencement

of o p e r a t i o n s , i t h a s c o n t i n u o u s l y m u l t i p l i e d i t s o p e r a t i o n s ,

l e a d i n g t o i n c r e a s e d o p e r a t i n g p r o f i t s e v e r y y e a r . The p r o f i t s of

t h e Bank, a f t e r a d j u s t m e n t s f o r d e p r e c i a t i o n p o s s i b l e l o a n

l o s s e s and o t h e r normal p r o v i s i o n s f o r 1982 came t o R s . 6 . 3

c r o r e s , t o u c h i n g R s . 1 9 . 9 c r o r e s i n t h e y e a p e n d e d December 1987.

I t p a i d R s .1 0 m i l l i o n a s d i v i d e n d t o t h e G overnment in 1982,

which r o s e t o R s . 6 0 m i l l i o n f o r 1987 ( C u m u l a t i v e s R s .2 1 0

mil 1 i o n ) .

B e s i d e s t h e G ene ra l F u n d , t h e Bank , u n d e r i t s E x p o r t D eve lopm en t

Fund (EDF) e x t e n d s f i n a n c i a l a s s i s t a n c e , w i t h t h e p r i o r a p p r o v a l

a n Q Q ■B X . W / B

of the Bovt. , to those exports, which are necessary as a matter of priority, in the interest of international trade of the country. It earned a net profit of Rs„133 lakhs on EDF in 1987, starting with a net profit of Rs.4 lakhs in 1932. Compared to Rs.92 lakhs in the previous year (1986),the net profit registered an increase by 41.3 percent in 1987. The phenomenal increase from Rs.4 lakhs to Rs.1.3 crores in a period of just six years speaks of its performance.The net contribution of the Exim Bank, in promotion of Indian exports in difficult to isolate, as the exports of a country are the result of numerous variables. But the expansion in the level of its operations is positively an index of its appreciable ,efforts made in the direction of export promotion.One of the advantages of an institution like this is timely availability of information about the export opportunities abroad.In order to exploit every possible export opportunity and to provide relevant information to Indian exporters, the Bank established its third representative office in Singapore in 1986, while it has two others in Abidjan and Washington D.C. To exploit export opportunities wherever they lie, a group of the Bank works permanently, in co-ordination with domestic and overseas offices, to provide timely information about these.Besides funded and non-funded assistance', the Bank also plays a role of an advisor. Often exports prove uneconomical and unviable for want of expert advice on the terms of payment, availability of raw materials, fluctuations in rates of exchange, etc. The Bank provides such services to Indian exporters, through its international merchant banking division.

s240sIt has also introduced a risk syndication -facility, aimed at attracting greater participation in export credit from commercial banks in India, which are authorised to deal in foreign exchange. Funds for an export proposal are provided and the credit risk syndicated to a commercial bank or banks. The Bank<s) earn commission at the rate of 0.5 per cent per annum, for assuming such credit risk, from the Exim Bank. This facility has enhanced the availability of timely export credit to the exporters of capital, manufactured, turn-key projects and consultancyservices.•Under its assistance programme for financing exports from the small-scale industries, sanctions touched Rs.50 Crores, which is the maximum limit authorised by the Reserve Bank, in the very first year of its introduction, rising to Rs»179»47 Crores in 1987.Under EMF, which is a component of a World Bank loan to India of 250 million, for the promotion of a select group of engineering

export products in developed country markets, started in 1936, upto 50 percent of the total cost incurred on eligible export marketing activities- such as desk research, minor product adaptation, overseas travel, product inspection services, training, establishing overseas operations and travel to India by overseas buyers, are covered by finance from the Exim Bank. The disbursals are in the form of a grant. In the year 1987, which is the first full year of the fund, sanctions under this programme came to Rs.517 lakhs in respect of 55 export marketingprogrammes

1241 s

The second major initiative came in the form of an agency credit

line of the £■ 15 million with International Finance Corporation

(IFC) , Washington. Under this Scheme, financial assistance is

available in the form of foreign -currency loans, from IFC, to

private sector-smal1 and medium units - for investment in plant

and machinery, product and process know-how. The Bank provides

rupee term loans on a machinery basis to assist domestic

enterprises. It is the first-ever agency line of credit from IFC

to an Indian financial institution.

In another initiative, the Bank, in its continual endeavour to

help domestic exporters, started a quarter!y publication entitled

"Export Advantage". The publication aims at providing information

on export opportunities, highlighting international developments

that have a bearing on Indian exports and inviting attention to

successes of exporters.

The Bank is indeed playing a catalyst role in the promotion of

India's international trade by way of providing expert advice,

information dissemination, feasibility studies, etc. Siven the

commendable work done, it is reasonable to expect that the Bank

would continue to add competitive dimension to Indian exports,

enabling domestic exporters an increased access to world markets.

6.6 Exim Bank of India reduced the lending rates on 11.3.SB, for

both buyer's credit and supplier's credit, by one per cent to

7.5 per cent. This is the third reduction in credit rates by

Exim Bank in its operations, during the last six years. In

19B3, the lending rate was reduced from 9.25 percent p.a. to

9.00 percent p.a.It was again brought down to 8.5 percent in

1986.

s243However, in case of buyer's credit, the Bank will charge an annual service charge of 0.5 percent and a commitment fee of 0.5 per cent p.a. Buyer's credits are those given by Exim Bank directly to the foreign buyers 5 in the case of supplier's credit, Indian exporter provides credit facility to the overseas importer.

The new rates are applicable when the Indian exports are denominated in Indian Rupees. Where exports are denominated in convertible foreign currencies, the Bank will consider financing at internationally comparable rates relevant to a specific currency.

000