Export Success Unlocked: Unveiling the Vital Role of Banks in Global Trade
Exports play a significant role in the economic growth of a country. It helps in creating job opportunities, increasing foreign exchange reserves, and improve the country’s balance of payments. In India, banks play a vital role in promoting exports by providing financial assistance to exporters. This blog will discuss the role of banks in exports from India.
Export finance is the financial assistance provided to exporters to promote their exports. Banks in India offer various export finance schemes to exporters, such as pre-shipment finance, post-shipment finance, packing credit, and export bill finance. These schemes provide financial assistance to exporters to meet their working capital requirements and manage cash flow.
Letter of Credit
A Letter of Credit (LC) is a financial instrument used in international trade. It is issued by a bank on behalf of a buyer, and it assures the seller that payment will be made once the agreed-upon conditions are met. LC is a vital tool for exporters as it reduces the risk of non-payment by the buyer.
Export Credit Guarantee Corporation
Export Credit Guarantee Corporation (ECGC) is a government-owned corporation that provides export credit insurance to exporters. It helps in reducing the risk of non-payment by foreign buyers due to commercial or political reasons. ECGC offers various insurance products, such as export credit insurance, export credit guarantee, and export finance guarantee.
Trade credit is a credit facility extended by one trader to another. It is an essential source of finance for small and medium-sized exporters. Banks in India provide trade credit facilities to exporters to help them manage their cash flow and working capital requirements.
Export-Import Bank of India
Export-Import Bank of India (EXIM Bank) is a government-owned financial institution that provides financial assistance to exporters and importers. It offers various export finance schemes, such as export bills re-discounting facility, export finance, and overseas investment finance. EXIM Bank also provides advisory and consultancy services to Indian companies for their internationalization strategies.
Foreign Currency Loans
Banks in India provide foreign currency loans to exporters to help them manage their foreign currency exposure. These loans are available in different currencies, such as the US dollar, Euro, Pound Sterling, and Japanese Yen. The interest rates on these loans are linked to LIBOR (London Interbank Offered Rate) or other benchmark rates.
Export Promotion Councils
Export Promotion Councils (EPCs) are industry-specific organizations that promote exports from India. They provide various services to exporters, such as market research, trade fairs and exhibitions, and buyer-seller meets. Banks in India collaborate with EPCs to provide financial assistance to exporters.
Export factoring is a financial service that helps exporters in managing their receivables. It involves the purchase of an exporter’s receivables by a factor (a financial institution). The element provides finance to the exporter against these receivables and manages the collection of payments from the buyers.
Export refinance is a facility provided by the Reserve Bank of India (RBI) to banks to meet the short-term working capital requirements of exporters. Banks can avail of this facility by submitting their export bills to the RBI. The RBI provides funds to the banks against these bills at a concessional interest rate.
Online Export Finance Portal
The government of India has launched an online export finance portal to provide a single-window platform for exporters to avail of various export finance schemes. The portal offers services such as online submission of applications, tracking of applications, and online
In conclusion, the role of banks in promoting exports from India is significant. Banks offer various export finance schemes to meet the working capital requirements of exporters, such as pre-shipment finance, post-shipment finance, packing credit, and export bill finance. Banks also provide essential financial instruments like letters of credit and foreign currency loans, which help reduce the risk of non-payment by buyers and manage foreign currency exposure. The government-owned institutions like ECGC and EXIM Bank also provide export credit insurance, advisory and consultancy services, and financial assistance to exporters and importers. Overall, these efforts by banks and other institutions play a crucial role in promoting exports, creating job opportunities, increasing foreign exchange reserves, and improving the country’s balance of payments.