Banking
How does export finance work in India?
Packing credit, post-shipment credit, PCFC, bill discounting, ECGC insurance, interest rates, and how to apply at your AD bank.
By Aaryan Kakani · · 4 min read
What types of export finance exist?
Export finance covers the funding gap between when you spend money to produce/ship goods and when you actually receive payment from the buyer. Indian banks offer two main categories:
Before shipment
Pre-shipment Credit
Also called "Packing Credit". Finance to buy raw materials, manufacture, process, and pack goods for export.
Period: up to 180 days
Basis: confirmed export order or LC
Forms: INR credit or PCFC (foreign currency)
After shipment
Post-shipment Credit
Finance against export documents after shipment. Bridges the gap until buyer pays.
Period: up to 180 days from shipment
Basis: shipping documents (B/L, invoice)
Forms: bill purchase, bill discounting, advance against bills
How does packing credit (pre-shipment credit) work?
Packing credit is a working capital loan advanced by your AD bank against a confirmed export order or LC. You use it to purchase raw materials, pay for manufacturing, and prepare goods for export.
Packing credit. Key parameters
Eligibility
Any exporter with valid IEC and confirmed export order/LC
Amount
Up to the FOB value of the export order (typically 75. 90%)
Period
Up to 180 days (concessional rate); can extend to 360 days at higher rate
Interest rate
Bank-specific, typically 7. 9% p.a. For INR credit (concessional export credit rate)
Security
Hypothecation of raw materials/WIP/finished goods + collateral as per bank norms
Repayment
From export proceeds or by converting to post-shipment credit on shipment
Packing credit flow
- Receive confirmed export order or LC from buyer
- Apply to your AD bank with order copy, cost estimates, and production timeline
- Bank sanctions packing credit (often same day if limits pre-approved)
- Drawdown funds as needed for raw material purchase, manufacturing
- Produce and ship goods
- Submit shipping documents to bank. Packing credit converts to post-shipment credit
- Buyer's payment liquidates the post-shipment credit
How does post-shipment credit work?
Post-shipment credit is advanced by the bank against export shipping documents after goods have been shipped. It bridges the gap between shipment and receipt of payment.
Types of post-shipment credit
Export Bill Purchase / Negotiation (under LC)
Bank purchases the export bill drawn under an LC and credits your account immediately. Bank collects payment from the issuing bank on maturity. Lowest risk for the bank.
Export Bill Discounting (without LC)
Bank discounts the bill at a rate and credits net amount. Bill is sent on collection basis to buyer's bank. Higher risk → slightly higher rate than LC-backed bills.
Advance against Export Bills sent on Collection
Bank advances a percentage (70-90%) of bill value while the bill is being collected from the buyer. Balance credited on realisation.
Advance against Export Receivables
For exporters with regular buyer relationships. Running limit against outstanding export receivables. Common for IT/service exporters.
Post-shipment credit parameters
Period
Up to 180 days from date of shipment (concessional rate)
Interest rate
7. 9% p.a. (concessional); bank-dependent
Amount
Up to 100% of invoice value (for LC-backed); 70. 90% for collection bills
Repayment
From export proceeds when buyer pays
What is PCFC (Pre-shipment Credit in Foreign Currency)?
PCFC is packing credit denominated in foreign currency (usually USD). The bank lends you USD, which you convert to INR at spot rate. Repayment is from USD export proceeds. No currency risk.
PCFC vs INR packing credit
| PCFC (USD) | INR Packing Credit | |
|---|---|---|
| Interest rate | SOFR + 1. 3% (typically 6. 8%) | 7. 9% p.a. |
| Currency risk | Natural hedge (borrow USD, repay USD) | INR depreciation = windfall gain for exporter |
| Best when | INR interest rates are high; you want predictability | You expect INR to depreciate (gain on conversion) |
What is ECGC insurance?
ECGC (Export Credit Guarantee Corporation of India) provides credit risk insurance to exporters and banks. It protects against buyer default, political risks, and payment failures.
ECGC policies for exporters
Standard Policy (Shipments. Comprehensive Risks)
Covers commercial risks (buyer insolvency, protracted default) and political risks (war, import restrictions, payment moratorium). Covers up to 90% of loss. Premium: 0.05%. 0.50% of invoice value.
Small Exporters Policy
Simplified policy for exporters with turnover up to Rs 5 crore. Lower premium, easier claim process. Covers all shipments under a single policy.
Buyer-specific Policy
Cover for a specific buyer/contract. Useful for large one-off orders where you need targeted coverage.
How do I apply for export credit?
Documents for export credit limit
- IEC certificate
- RCMC from relevant Export Promotion Council
- Last 3 years audited financials (balance sheet, P&L)
- Last 3 years IT returns
- Export order copies or LC (for specific drawdown)
- Proforma invoice showing FOB/CIF value
- ECGC policy (if applicable)
- Stock statement and debtor aging (for running limits)
- Collateral documents (property papers, FD receipts, etc.)
Process timeline
Application
Submit to your AD bank's trade finance / forex desk
Assessment
7. 15 days (bank credit appraisal)
Sanction
Running limit sanctioned (valid 1 year, renewable)
Drawdown
Against each export order/LC. Same-day disbursement once limit exists
Sources & citations
- RBI Master Direction. Export Credit in Foreign Currency (PCFC).
- RBI Master Circular on Rupee/Foreign Currency Export Credit. ECGC Ltd. Standard Policy for Shipments (Comprehensive Risks). Indian Banks' Association guidelines on export credit.
Update history
- First published.