Role of Banks in Import Finance
The importers import different agricultural products which form more than 50% of the total expenditure and are imported from countries like South Africa and Belgium. Banks provide financial credit for these companies in order to execute the purchase of raw materials.
The seller of goods in a foreign country who exports to the Indian company has to ensure that he gets payment from the Indian importer. The seller’s bank would deliver the documents such as Invoice, Bill of Exchange, Bill of Lading, Marine Policy etc. to the Indian importer against acceptance (D/A) if the seller has confidence in the importer’s financial standing and integrity or against payment (D/P). To finance the credit needs of the Indian importer, banks provide the following:
- Irrevocable Import Letter of Credit
The Bank in India would establish through its foreign branch or through a correspondent bank an irrevocable letter of credit favoring the seller who is the beneficiary of the credit. The beneficiary ships the goods and presents the required documents to his banker and the payment is received by him only if the terms of credit are fulfilled. The seller’s bank would get all the reimbursements for the payments made to the seller from the bank in India which has established the credit. The transaction is completed when the importing Indian company makes the payment for the purchases to its bank.
- Loan against goods
The importer of agricultural goods would need finance to meet the bill obligations. If the bank agrees to grant the credit facility, the amount of the bill (fewer margin) is debited to his Loan against Goods (LG) Account. The goods would be cleared by the bank and kept in its possession in the form of a pledge or the facility can be extended on the basis of hypothecation.
Tags: Credit, Export, finance, Financing, goods, Import, import finance, loan, ROle
By: Management Duniya
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