XYZ is a pharmaceutical company located in Hyderabad with a turnover of Rs. 100 Crs.

Recently it secured an order from Switzerland for supply of Products worth 2 Mil $.
The company enjoys OD and CC Limits from the Bankers and enjoys good Credit Rating.
Immediately after getting the Order the Managing Director calls for a meeting of his team
members.
1.Sales Manager:
Terms of the Purchase Order- Value- Delivery Period
Payment terms: LC with 6 months Payment at sight
2. Production Team In charge: He explains the following cost components to execute the
order
a. Raw Materials: Rs. 6 Crs LC Limits for 2 Crs
b. Labour Rs. 1.5 Crs
c. Overheads: Rs. 1.5 Crs
3. Finance Manager/CA: The Company enjoys the CC Limits and OD Limits from the
Banks. CC Limits costs around 13- 14% p.a and is costly and they will not be able to earn
good profit on it.
Requirement of Rs. 7 Crs Fund Based Limits and Rs. 2 Crs Non fund Based Limits
4. Role of Banker: Explains about the new product Export Packing Credit- details of the
product- low interest rate etc
What is the eligibility to obtain Packing Credit
Types of Packing Credit- Preshipment and Postshipment
Fund Based and Non Fund Based
Secured/Unsecured
How the Credit limit is fixed for each exporter
Margin Money required
What is the total volume of the Credit given by the banks in India
What is each Banks Share
Interest Rate
Payment terms- Period of Packing credit 180 days
Banks normally approve additional period of loan subject to production revalidated
export order or letter of credit by the exporter.
If any balance remains in the packing credit account, after shipment of goods and
negotiation of bill, such excess balance will be transferred or converted to another
loan account and the advance will be treated as post-shipment finance.
This is short-term working capital advance.

The packing credit is a separate finance given to exporters not connected with any
limit of other loans given by bank
Running account of Packing Credit
In a Packing credit under Red Clause LC method, credit is given at the risk and
responsibility of the foreign bank establishing the letter of credit. Packing credit
advance may remain unsecured in character till the exporter is in a position to offer
security, in the form of hypothecation of the goods purchased.

5. Legal Dept of the Bank: Application, Documentation Requirements like Deed of
Hypothecation etc
6. Opening of Separate Loan Account for EPC
7. In order to obtain packing credit facility, the exporter has to approach their bank with
export order. Bank official visits the exporters factory and get convinced on the stock of
goods and assess the value with export order.
8. Issue of Drawdown Notice, monitoring of Account, Submission of Stock statements etc
9. Obtaining Forward contract for Exchange Rate fluctuation hedging
10. Obtain ECGC Cover
11. Closure Proceeds- Credit of the amount
12. RBI Guidelines: As per Reserve Bank by the instruction of Government, no exporter
shall suffer for want of fund for exports.

i) Clean packing credit: This is an advance available to an exporter only on production of a
firm export order or a letter of credit without exercising any charge or control over raw
material or finished goods. Each proposal is weighted according toparticular requirements of
trade and credit worthiness of the exporter. A suitable margin has to be maintained. Also,
Export Credit Guarantee Corporation (E.C.G.C. ) cover should be obtained by the bank.

ii) Packing credit against hypothecation of goods: Export finance is made available on
certain terms and conditions where the exporter has pledgeable interest and the goods are
hypothecated to the bank as security with stipulated margin. At the time of utilising the
advance, the exporter is required to submit, along with the firm export order or letter of credit,
relative stock statements and there after continue submitting them every fortnight and/or
whenever there is any movement in stocks.

iii) Packing credit against pledge of goods: Export finance is made available on certain
terms and conditions where the exportable finished goods are pledged to the banks with
approved clearing agents who would ship the same from time to time as required by the
exporter. Possession of goods so pledged lies with the bank and is kept under its lock and key.

iv) E.C.G.C. guarantee: Any loan given to an exporter for the manufacture, processing,
purchasing or packing of goods meant for export against a firm order qualifies for packing.
Credit guarantee is issued by the Export Credit Guarantee Corporation (E.C.G.C.).

v) Forward exchange contract: Another requirement of packing credit facility is that if the
export bill is to be drawn in a foreign currency, the exporter should enter into a forward
exchange contract with the bank, thereby avoiding risk involved in a possible change in the
exchange rate.



Documents required:

- In case of partnership firms, banks usually require the following documents:
Joint and several demand pro note signed on behalf of the firm as also by partners
individually;
Letter of continuity, signed on behalf of the firm and partners individually;
Letter of pledge to secure demand cash credit against stock, in case of pledge or
agreement of hypothecation to secure demand cash credit, in case of hypothecation.
Letter of authority to operate the account;
Declaration of Partnership, in case of sole traders, sole proprietorship declaration;
Agreement to utilise the monies drawn in terms of contract;
Letter of hypothecation for bills.

- Following documents are required by banks, in case of limited companies:
Demand pro-note;
Letter of continuity;
Agreement of hypothecation of letter of pledge, signed on behalf of the company;
General guarantee of the directors' resolution;
Agreement to utilise the monies drawn in terms of contract should bear the company's
seal;
Letter of hypothecation for bills.