Pre-Shipment/Packing Credit(PC)

Pre-Shipment/Packing Credit(PC)

PCFC is a scheme which provides credit to exporter in domestic/foreign currency in order to facilitate the purchase of raw material/components that are required to fulfill the export order. Or, in brief, it is a Working Capital (short-term) finance extended to the exporters, in anticipation of his exporting the goods. The exporter can procure the raw materials/components either from international or from domestic market.
This facility can be availed by exporter in one convertible foreign currency in respect of an export order invoiced in another convertible foreign currency. The risk and cost involved in such cross currency transaction is that of exporter.

Pre-Shipment Credit can be availed in the form of:
a. Packing Credit in Indian Rupees
b. Packing Credit in Foreign Currency
c. Advance against incentives receivable from Government covered by ECGC (Export Credit Guarantee Corporation) Guarantee.
d. Advance against Cheques/Drafts received as Advance Payment.

Bank provides all the forms of PC. It strictly follows the instructions and rules and regulations governing the following:
1. Exchange Control Regulations
2. Trade Control Regulations
3. RBI’s Interest rate directives and other operational guidelines
4. ECGC policies and guarantees
5. Rules of FEDAI(Foreign Exchange Dealers Association of India)

How PC is a “Source of Earning for Bank”
PC is being introduced with the objective of making credit available to exporter at internationally competitive rates.
Bank charges Rs. 20000 per sanction (that is, it charges this amount on every PCFC request by an exporter).
The rate of interest charged for this facility, by Bank, is linked to LIBOR (that is, rate of interest charged to exporter should not exceed 0.75% over 6months on LIBOR, excluding withholding tax.). The interest scheme, followed by Banks, is given as under:

Name of the Item
Rate of Interest
Up to 180 days
not exceeding 0.75% over LIBOR
Beyond 180 days and up to 360
not exceeding 0.75% over LIBOR+2%LIBOR (London International Bank Offer Rate) is presently 5.35%