​What is Pre - shipment credit/ Packing Credit? When an exporter avail any credit facilities, in the form of loan and or advance from a bank for the purpose of financing the purchase of inputs packing material for manufacturing and packing of the final products to be exported it is called Pre –Shipment Credit. Generally, the bank approves the pre - shipment credit on production of copy of irrevocable letter of credit opened by the overseas buyer in favor of the exporter or copy of valid export order. The exporters can have credit facilities in the following form: to avail export finance at pre shipment stage in rupees and then post shipment credit either in rupees or in foreign currency. to avail pre-shipment credit in foreign currency and discount the export bills in foreign currency at post shipment stage. With a view to provide the PCFC at internationally competitive rate of interest to the exporters to reduce cost of inputs and packing material for purchasing from the domestic as well as international market and make their final product internationally competitive. The authorized dealers have been permitted to finance at LIBOR/EURO LIBOR/EURIBOR.

Currency of Finance –

PCFC can be financed in any freely transferable Currency as per permission of Reserve Bank of India. However, presently the PCFC is granted in US Dollar, EURO, and GBP subject to availability of fund. PCFC can be extended in the currency other than export currency. For example A Ltd has received export order from Manila Philippines in US Dollar however A Ltd has availed PCFC in EURO. In such case any risk between US Dollar and EURO, which is called cross currency risk, and cost will be on the exporter. PCFC can also be extended to Asian Currency Union (ACU) countries.

Credit Limits -

The credit limit of PCFC will be sanctioned in both INR and Foreign Currency on the basis of assessment that will be done in INR based on working capital cycle including at pre shipment and post shipment as per the existing methods however, the foreign currency part of it will be work out on the basis of latest available FEDAI rate.

Period of Credit -

PCFC, as in the case of Rupee-shipment credit is initially available for a specified period as may be decided by sanctioning authorities after taking in to consideration relevant factors with a maximum period of 180 days and branches should monitor the end use of the credit as in case of Rupee credit. Advance granted under the PCFC must be utilised for export purpose only the same should not be diverted for domestic purpose.

Rate of Interest -

The rate of interest on PCFC is based on ongoing LIBOR/EURO LIBOR/EURIBOR for the appropriate period at the time of advance plus sanctioned spread. A category of branches distributes PCFC on ongoing LIBOR/EURO LIBOR/EURIBOR normally available for standard period of 1,2,3,6 or 12 months. While B category branches distributes PCFC at the rate obtained from Treasury Branch Mumbai. The rate of interest is to be charged on PCFC availed of at the rate agreed at the time of disbursal. However, the rate of interest may be changed in tune with the movement in LIBOR/EURO LIBOR/EURIBOR. The rate of interest therefore may differ for each drawal if drawls is in tranches. On any earlier outstanding loans, the rate of interest would be the rate originally fixed at the time of drawls. Bank may avail line of credit from any bank outside India for funding PCFC. In such case withholding tax as may be applicable will be passed on to the borrower.