The packing credit or pre-shipment credit that was spoken earlier was

disbursement of rupee funds that is, advancing money in rupee to the

exporter for the purpose of procuring, processing or manufacturing the
goods for exports. Under this scheme the pre-shipment credit is disbursed in
foreign convertible currency at interest rates linked with LIBOR (London Inter
Bank Offered Rate). This credit is again self-liquidating in nature and is
adjusted by the discounting or purchase or negotiation of the export bills.
The banks change Earners Foreign Currency (EEFC), resident foreign
currency accounts, foreign currency non-resident account bank scheme
accounts and foreign currency available in escrow account. For all practical
purposes this resembles the packing credit advance disbursed in rupees,
except that the interest charged is based on LIBOR and the disbursement is
made in foreign convertible currency. The advantage of this scheme is
lower rate of interest and covering of foreign exchange risk where
goods are imported for the purposes of export.
For instance, if export order is for US$ 20,000 and the import component is
say 60percent, assuming that the exporter avails PCFC of US$ 12,000, the
liability would be adjusted against the submission of the export documents.
Under the PCFC of US$ 12,000 no exchange conversion is involved. The
exporter saves the difference between buying and selling exchange rates. If
PCFC is availed by the exporter against an export order, the bills drawn
under the said export order will be discontinued at LIBOR plus the loading
factor of the bank.
Indian exporters can avail both pre and post shipment finance in
foreign currency. Interest rates under the scheme are linked to
LIBOR and the rates charged by Indian Banks over LIBOR for such
credits would not exceed 1.5%. Export credit in foreign currency is
available in US Dollar, Euro, Pound Sterling and Japanese Yen. Export
credit is available without exchange risk and at internationally competitive
rates. Banks extend credit on "need basis" of exporters and collateral
security is not insisted. Banks also provide lines of credit for longer periods
say three years, to exporters with satisfactory track records without insisting
on the submission of export order/Letter of Credit.

Interest charged at LIBOR + 1.5% (Max.)

A 90 days Dollar Packing Credit can be availed at 3m LIBOR + 1.5%.

6.10% + 1.50% = 7.60%.

PCFC drawls in cross currencies are allowed, subject to the exporter bearing
the risk in currency fluctuations. However, cross currency drawls are
restricted to the US Dollar. For instance, for an export order in a non-
designated currency like the Swiss Franc, PCFC will be given only in USD.