Friday, September 5, 2025

Export Finance in India — A Complete Guidance Note for Packing Credit & Beyond

Introduction

Exporters today face dual pressure — competing globally while complying with a tightening regulatory environment under FEMA and RBI’s Master Directions on Export of Goods & Services. Access to pre-shipment and post-shipment credit (popularly called Packing Credit) is critical, but mishandling it may attract RBI red flags, bank restrictions, or compliance defaults.

This note brings together all dimensions — eligibility, utilisation, repayment timelines, interest rates, RBI restrictions, MSME protection, and alternative financing modes — with a compliance manual & checklist so exporters can achieve both ease of doing business and regulatory discipline.

Pre-Shipment Finance (Packing Credit / PCFC)

  • Eligibility: Available to exporters with a valid IEC, confirmed export order/LC, and satisfactory track record.

  • Usage: Exclusively for procuring raw material, processing, packing, and shipment.

  • Period: Up to 180 days, extendable to 360 days with bank approval (RBI Master Direction No. 16/2015-16, updated 2023).

  • Currency Options:

    • Packing Credit in INR – Linked to MCLR/Base Rate.

    • Packing Credit in Foreign Currency (PCFC) – Linked to international benchmarks (LIBOR/SOFR/EURIBOR), often cheaper.

RBI Restriction

  • Funds must not be diverted for domestic sales.

  • If shipment doesn’t take place, PC must be adjusted from rupee resources at commercial rate, not concessional.

  • Each PC must be liquidated from proceeds of that shipment only.

Post-Shipment Finance

  • Forms: Export bills purchased/discounted, advance against bills, advance against duty drawback.

  • Period:

    • Demand bills: Up to 21 days.

    • Usance bills: Up to 6 months (can extend to 12 months for capital goods).

  • Interest Concessions: Export credit in INR eligible for interest subvention (2–3%) for MSMEs.

RBI Restriction

  • Delay in realisation beyond prescribed timelines (9 months, extendable to 15 months for status holders) must be reported.

  • Non-realisation = account turns irregular → risk of caution listing by RBI.

Compliance Flowchart (Exporter’s Roadmap)

Order/LC → Apply for Packing Credit → Utilisation → Shipment → Export Bill Lodgement → Realisation → Adjustment of PC → Closure & Reporting

Interest Rate Comparison (Ease of Doing Business)

Financing ModeCurrencyTypical Rate (2024–25)Ease Factor
Packing Credit (INR)INR7%–9% (with subvention 5%–7%)Widely available
PCFCUSD/EUR/JPY4%–6%Cheaper, but forex risk if delayed
Post-Shipment (Bills Discounted)INR/FCY6%–8%Liquidity after shipment
Factoring/ForfaitingMulti-currency6%–9%Off-balance sheet, fast
Buyer’s Credit / Supplier’s CreditFCYLinked to LIBOR/SOFRFor large value orders

Red-Flag Indicators (What RBI/Bank Monitors)

  • PC outstanding beyond 360 days.

  • Shipment not made despite availing PC.

  • Bills returned unpaid / frequent write-offs.

  • Routing export proceeds through multiple banks (not permitted unless prior approval).

  • MSME payments delayed despite export proceeds received.

Compliance Checklist for Exporters

✅ Obtain sanctioned export credit limit with clear terms (bank-wise).
✅ Use same bank for all PC transactions unless RBI nod obtained.
✅ Match each PC disbursal with underlying order/LC.
✅ File Shipping Bill, EDF Form, GR declaration correctly.
✅ Ensure realisation within 9 months (extendable with AD Bank/RBI).
✅ Avail MSME interest subvention if eligible.
✅ Immediately adjust PC if export is cancelled/delayed.
✅ Maintain reconciliation: PC availed vs shipments made vs realisation.
✅ Respond to EDPMS queries to avoid caution-listing.

Alternatives & MSME Safeguards

  • Export Factoring – Quick liquidity, reduces buyer risk.

  • Forfaiting – Suitable for deferred payment exports.

  • External Commercial Borrowings (ECB) – Low-cost long-term option, but regulated.

  • Bill Discounting Platforms (TReDS) – Ensures MSME exporters get paid faster.

 MSME Protection: RBI mandates buyer’s payment to MSME within 45 days; exporters can leverage this for domestic chain liquidity.

Ease of Doing Business Angle

  • PCFC has made borrowing cheaper vs INR.

  • Digitisation of EDPMS and online bill lodgement has reduced manual compliance.

  • But, strict monitoring by RBI means non-compliance can result in:

    • Caution listing

    • Denial of export credit refinance

    • Blocking of future packing credit

Final Word

Export credit is a double-edged sword — it can make Indian exporters globally competitive, but mishandling it can shut down their access overnight. By disciplining utilisation, sticking to RBI timelines, and exploring alternative financing models, exporters can ensure both cost-effective borrowing and full compliance.

Quick Compliance Manual 

Pre-Shipment (PC/PCFC)

  • Max 180 days (extendable 360).

  • Use only for export purposes.

  • Adjust against actual export proceeds.

Post-Shipment

  • Demand bills – 21 days; Usance bills – 6 months.

  • Realisation – 9 months (extendable).

Do’s

  • Single bank handling.

  • Avail subvention if MSME.

  • File shipping/GR/EDF properly.

Don’ts

  • Don’t divert funds domestically.

  • Don’t rollover PC without justification.

  • Don’t delay MSME payments.


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