Import Finance

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INTRODUCTION IMPORT FINANCE

Banks authorized to deal in foreign exchange play an important role for issue of letters of credit finance / payment for imports issue of guarantees etc. in matters relating to the finance for import banks are governed by the instructions issued by their head offices . with regard to remittance of foreign exchange they are regulated by RBI regulation under FEMA as amended from time and the rules framed by the foreign exchange dealer association of India {FEDAI rules} There are three methods of arranging finance for import.

* ARRANGING FINANCE THROUGH BANK FINANCE
* ARRANGING FINANCE FROM EXIM BANK
* ARRANGING FINANCE THROUGH TRADE CREDIT FROM ABROAD

* BANK FINANCE

Banks normally do not extend any fund based finance to meet import needs of their customers, barring few exceptions. Letter of credit is a non fund credit facility offered by banks to their constituents of integrity and proven track record in meeting their commitments promptly, without need for any post import finance. Banks establish LCs only on account of their customers, who hold a valid importer – exporter code number from the regional licensing authorities and produce underlying sales contract between the Indian importer and the oversees sellers , accompanied by valid import license in the name of the importers , wherever necessary . Banks take into accounts the norms for holding imported inventory , make an appraisal of the request for opening an LC like any other fund based working capital facility , prescribe suitable margin/ securities and then decide to establish the LC .

* ARRANGING FINANCE FROM EXIM BANK –
an importer in india may arrange finance by way of borrowings in Indian rupees or foreign exchange through the exim bank in the following two ways:

A) Bulk import finance program-short term working capital FINANCE IS PROVIDED under this scheme to manufacturing companies for import of consumables inputs with the minimum order size of rs.1 crore.interest chargeable for such loans is-

-for rupee loan:1% below the interest rate on cash credit facility charged by the commercial banker subject to a minimum interest rate fixed by EXIM bank.

-for foreign currency loan: Depending on cost of fund to EXIM bank with a minimum of 0.75% over LIBOR.

The loan is to be repaid within 1 year.

B) Import finance: Term loan for import of capital goods/plant & machinery or technology/know-how by Indian manufacturing companies is provided under this scheme. The interest rate may be based on prevailing market rate or may be linked to the bank’s minimum lending rate in case of rupee term loan or floating or fixed rates based on the bank’s cost of funds in case of foreign currency term loans. EXIM bank shall charge a service fee of 1% of loan amount payable upfront. Repayment period of the loan shall be upto 7 years, determine on the basis of projected cash flow with suitable moratorium. The bank shall secure the loan through an appropriate charge on the assets acquired out of the loan and one or more additional charge as specified by the bank.

* ARRANGING FINANCE THROUGH TRADE CREDIT FROM ABROAD
an importer in India may arrange finance by way of trade credits in foreign exchange from abroad.such trade credits may be classified as under:

A) Suppliers credit: Borrowings by an importer in India from overseas supplier of goods. This can be further classified into 2 categories: a) Supplier credits for a period not exceeding 6 months. an importer in India can avail of foreign currency credit, provided the following conditions are satisfied: * The credit facility is being availed of only for import of goods. * The credit facility is extended by the overseas supplier. * The credit facility is for a period not exceeding 6 months. * The import is in compliance with the export import policy of the government of india in force. Liability of the borrower should file...
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