Bank Guarantee

This is kind of non-fund based , financial facility called Packing Credit Limit. It is a facility sanctioned to an exporter in both Pre-Shipment and Post-shipment stage. This facility is availed by exporter to purchase raw materials and manufacture or produce goods according to the requirement of the buyer and get it packed for onward export. Packing Credit limit covers all the working capital needs of the exporter including raw materials, wages, packing costs and all pre-shipment costs. Packing Credit limit is available generally for a period of 90 days and the exporter has to pay a lower rate of interest compared to Overdraft or Cash Credit facility.



Pre-shipment Credit to an exporter by way of packing credit to enable him to finance purchase/import of raw materials, processing and packing of the goods meant for exports. Post-shipment Credit
Post-shipment Credit is offered to an exporter to finance export sales receivables after the date of shipment of goods till the date of realization of export proceeds.
Any exporter can avail pre-shipment credit in the form PCFC -packing credit in foreign currency or EPC – export packing credit in INR. Like the name suggests, this facility is given only to procure raw material, do processing & packaging till the final shipment happens. Exporter will present confirm order or contract to bank for availing PCFC/EPC. Bank has to ensure that credit is used only for export purpose and not diverted to other business activities. Once goods are boarded, pre-shipment credit has to be settled through post-shipment credit or through proceeds of earlier export.

Pre-shipment Credit in Foreign Currency (PCFC)

Let’s understand,when an advance or a loan is granted, or another form of credit, is provided by a bank to an exporter for the purpose of financing the purchase, processing, manufacturing or packaging of goods before a shipment is called a pre-shipment credit. With the aim to provide the access of credit to exporters at internationally competitive rates, dealers who are authorised have a permit to offer Pre-shipment Credit in Foreign Currency to exporters for domestic and imported inputs of exported goods. This article talks about the process and details concerning Pre-Shipment Credit in Foreign Currency (PCFC).


In the businesses of Export & Import, a bank may offer an advance on the amount required called as a pre-shipment credit. This credit is being provided to an exporter based on the Letter of Credit that is issued in the exporter’s name or a person related to the business of the exporter. The Letter is required to be released by an overseas buyer or an irrevocable or confirmed order for the export of goods from India. Any form of evidence of an order for the shipping from the

country stating that an order has been placed from the exporter or specific person is accepted as a Letter of Credit by a bank.

Exporters in India have two primary options:

  • To avail pre-shipment credit in the form of foreign currency and cut down on the export bills in foreign currency at the post-shipment stage.
  • To avail finance for export at a pre-shipment stage in Indian Rupees. Post-shipment credit may be availed in Indian Rupee or a preferred foreign currency.

Authorised dealers have the permission to extend Pre-shipment Credit in Foreign Currency (PCFC) to exporters dealing with domestic and imported inputs of exported goods. To make this line of credit valid to exporters at internationally competitive rates, the pre-shipment credit is offered at LIBOR/ EURO or LIBOR/ EURIBOR related interest rates.

Credit Currency

The Reserve Bank of India has granted the permission to offer pre-shipment credit in any one of the convertible currencies. However, at present, the Pre-shipment Credit in Foreign Currency is given in US Dollars, EURO and GBP subject to availability of funds. Pre-shipment may be extended in a convertible currency regardless of which currency the export order is invoiced. Although, this may come off as a risk and cost of cross currency transaction to the exporter.

For example, an exporter may choose to avail PCFC in Euro against an export order that is invoiced initially in US Dollars. The cost of cross currency transaction and the related risks will be at the expense of the exporter. Pre-shipment in Foreign Currency is also extended to exporters in the Asian Clearing Union countries.

Operational Guidelines

Pre-shipment credit in foreign currency (PCFC) is accessible to exporters at the ‘A’ category branches and designated ‘B’ category branches of a bank for operational convenience. The ‘C’ category branches of all banks are not permitted to control the PCFC facility in their books and have to mandatorily route all their PCFC transactions either through a designated ‘B’ or an ‘A’ category branch. However, all ‘C’ category branches are required to keep a dummy ledger account of the amounts that are drawn and adjusted in their books and report the same as a footnote in the W-1 statement to the Regional Officer.

The following aspects are kept in view when an authorised branch of a bank considered the request for a PCFC.

  1. Pre-shipment Credit in Foreign Currency must be extended to Standard Accounts.
  2. Exporters requesting for PCFC should have a satisfactory track record when it comes to the conduct of export business.
  3. Situations that require the liquidation of pre-shipment credit in another manner should be exceptional and within valid reasons.
  4. Except for genuine cases, the track record concerned with the realisation of export bills on the due dates should be satisfactory, and the bills must not remain overdue.
  5. PCFC may be granted for deemed exporters for the supply to projects, financed by multilateral/ bilateral agencies/ funds, under the usual terms and conditions that govern the Rupee credit for deemed exports. At a post-shipment stage, the credit is restricted to 30 days or up to the date of payment by the concerned authorities, whichever is earlier.
  6. Details of the contract/ Letter of Credit that are submitted.
  7. Study on the amounts for remittance against import bills and those to be converted into Indian Rupees i.e break up of utilisation.

Documents Required

A bank branch that is to approve a PCFC in the name of a particular exporter must attain necessary documents before doing so. The branch is required to obtain a request letter from the customer of the exporter. This request letter must of the prescribed format as mentioned in Annexure 5(1). The Security documents that are taken for Rupee Packing Credit should be received for approving PCFC too. However, a Demand Promissory Note must be obtained in the required Foreign Currency.

Credit Limits

The Export Limits (PC and FDB) would be sanctioned in both the Indian Currency and the Foreign Currency. The assessment would be completed based on the Indian currency on a working capital cycle that includes pre-shipment and post-shipment as the existing methods. The Foreign currency version of the assessment would be worked out based on the latest available FEDAI rate.
Once the Foreign Currency assessment is completed as mentioned above, the PCFC/ FDBD outstanding would be controlled in the Foreign Currency.

Period of Credit

Pre-shipment Credit in Foreign Currency (PCFC), in the case of Indian Rupee, is available for a specific period initially as decided by the sanctioning authority. This is determined based on various relevant factors. A maximum period of 180 days is permitted, and the branch monitors the end use of the credit in the case of Rupee credit. It should be ensured that advances granted under the PCFC Scheme are diverted for any other domestic purpose.

Rate of Interest

The existing LIBOR/ EURO or LIBOR/ EURIBOR rates would influence the interest rate on PCFC according to the appropriate period at the time of the advance along with the sanctioned spread. These rates are usually accessible for a standard period of 1, 2, 3, 6, and 12 months. The B category branches of banks have to disburse the PCFC at a rate that is obtained for the Treasury Branch in Mumbai.
The rate of interest may vary according to the movement of LIBOR. Therefore, the rate may differ for each withdrawal. Interest would be charged on PCFC availed at the rate fixed at the time of disbursal. For earlier outstanding loans, the interest rate would be the rate that was initially set at the time of withdrawal. A bank may avail a line of credit from another bank that is situated abroad for funding PCFC. In such situations, the withholding tax payable by the bank is to be passed on to the exporter who is availing the credit.
Note: The applicable benefit to the customer will only accrue after the realisation of the export bills or where the resultant export bills are rediscounted without any recourse basis.

Amount of Credit

The amounts of credit that are advanced under Pre-shipment in Foreign Currency are restricted to a particular minimum sum which is currently at US$ 10,000/-.

Expiry of Contracts/ Letters

The amounts of credit that are advanced under Pre-shipment in Foreign Currency are restricted to a particular minimum sum which is currently at US$ 10,000/-.
The Head of a bank’s branch may grant extensions up to 180 days on the written request of the exporter under the condition that the underlying Letter of Credit/ order is valid. If a bank incurs extra costs in funding the extension, the exporter is liable to pay them as well. However, no profits from the transaction would be passed on to the exporter.
After the approval of the Regional Office, an extension beyond 180 days and up to 270 days may be granted by the branch subject to the export contract/ Letter of Credit is still valid for the extended period. An extension above 270 days up to a maximum of 360 days may be granted to an exporter only under particular circumstances and after an approval from the Regional Office. For this, the export contract or the Letter of Credit has to be valid for shipment. The interest rate on PCFC for the period beyond 180 days would be the prevailing interest rate with an additional 2 per cent.
If no export is done within 360 days, the PCFC should be adjusted at the T.T selling rate. When an export order is cancelled, the PCFC should be liquidated by selling equivalent amount of a foreign exchange at T.T selling rate prevailing on the date of liquidation and the interest recovered on the Rupee equivalent of the principal amount at the Packing Credit rate adjusted not in an approved manner with an addition of 0.125 per cent commision.

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