17.

Export Finance
Export Credit is broadly classified into two categories, depending on at which
stage of export activity finance is required, viz. :

1. Pre-shipment Credit

2. Post-shipment Credit

Financial assistance extended to the exporters prior to shipment of goods fall

within the scope of pre shipment finance and assistance extended after the
shipment of goods falls within the scope of post-shipment of finance.

Export Finance (both at pre shipment and post shipment stages ) in India is
governed by FEMA, directives issued by RBI from time to time, regulations of
Directorate General of Foreign Trade (DGFT), FEDAI rules and guidelines issued by
ECGC Ltd.

Pre Shipment Credit

Working capital finance extended by Bank to exporter for purchase, processing,

manufacturing or packing of goods prior to shipment on the basis of LC opened
in favour or exporter or some other person by an overseas buyer or on the basis
of a confirmed and irrevocable order or any other evidence of an order for export
placed on the exporter /some other person, unless lodgement of Export order/LC
has been waived.

Pre-shipment credit is governed by the regulations stipulated by the Reserve Bank

of India and is extended at concessional interest rates as per Reserve Bank of India
directives.

Pre-shipment credit may be extended either in Indian Rupees or in designated

currencies (presently USD, GBP and EURO) at the option of the exporter.

PCs may be extended for domestic as well as for imported inputs.

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The period of a PC will generally begin with the procurement of raw materials for
execution of a particular LC / Order and the credit gets liquidated once the goods
are shipped and shipping documents are presented to the Bank. The liability under
the PC shall stand converted as Post-Shipment liability upon negotiation /
purchase / discount of the export bill.

PCs are generally granted to Exporters who have export orders or a Letter of Credit
established by the overseas buyer in their favour. However, Packing Credit can also
be granted to suppliers or supporting manufacturers who do not have export
order/ LC in their own name and are exporting through merchant exporters or Star
Exporters who are the Export Order Holders ( EOH ) subject to observance of
requirements stipulated by the Reserve Bank of India in this regard.

Goods and services going into SEZ from Domestic Tariff Area (DTA) shall be
treated as exports. Supply of goods and services from domestic tariff area to
special economic zone would therefore be eligible for export credit facilities.

RBI has permitted banks to release / grant PCs to exporters having good track
record, on the basis of ―Letters of Indication‖ or in anticipation of Export orders
without insisting for lodgement of Export LC / confirmed order or contract at the
time of release of PC depending upon their judgement regarding the need under
Running Account Facility (RAF).

Packing Credit is normally extended as fund-based advance secured by way of

hypothecation or pledge of goods. However, non-fund based facility can also be
extended by way of opening inland LCs or back to back LCs in favour of the sub
suppliers for supply of goods to be exported or by way of opening import LCs for
import of raw materials, accessories etc., for manufacture of goods meant to be
exported.

General guidelines applicable to Working Capital facilities viz., assessment,

preparation of Credit Report etc., are to be followed in addition to the following :

a) Applicant should not have been be placed in the Exporters Caution List issued
by Reserve Bank of India/ defaulters list by the Bank.

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b) All exporters / Importers (unless specifically exempted by the Govt.) should
possess Importer- Exporter Code number ( IECN.) allotted by Directorate General
of Foreign Trade (DGFT) unless specifically exempted.

c) Exporter should not placed under Specific Approval List ( SAL ) by ECGC.

The maximum period for which PC can be granted at concessional rate of interest
as per Reserve Bank of India directives is 180 days. This period can be extended
further by additional 90 days i.e. up to an aggregate period of 270 days at a higher
concessional rate of interest as per Reserve Bank of India directive.

Running Account Facility

In the cases of exports, the exporters have to procure raw material, manufacture
the export product and keep the same ready for shipment, in anticipation of
export orders from the overseas buyers. This is in view of, seasonal availability of
raw materials or when the time taken for manufacture and shipment of goods is
more than the delivery schedule as per export contracts. Having regard to the
difficulties of the exporters in availing of adequate pre-shipment credit in such
cases, RBI has authorized the banks to extend packing credit running account for
commodity exports subject to the following conditions:

a) The facility can be considered only for existing established exporters having
good track record and classified under Standard Asset (S1 / S2 parties)

b) An undertaking has to be obtained from the Exporters to produce the Export

LC / Order within a reasonable time.

c) In respect of export of commodities subject to Selective Credit Control

directives, exporters should give an undertaking to produce the Export LC / Order
within a period of 30 days from the date of grant of PC.

d) Commodity to be exported should be of uniform grade and not made to specific

order.

e) The liability may also be liquidated with proceeds of export documents against
which no PC has been availed by the exporter.

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Liquidation of outstanding in running account:

In the case of ‘Running Account’, each export bill will be individually marked by
the bank to monitor the period of advance. When the bank receives the export bill
for negotiation or collection, the export proceeds will be marked against the
earliest outstanding in the account on ‘First-in-First-Out’ (FIFO) basis.

Running account facility should not be granted to sub-suppliers.

Clean Packing Credits (CPCs) are granted where the exporter is unable to procure
the material immediately on making payment or within a short transit period as
he has to procure the goods from the outstation market. The CPCs are to be
granted only in those cases where advance payments are to be made by the buyer
to the seller in terms of the contractual arrangement and there is a time gap
between the date of payment of advance and the date of delivery of the material.

As and when stock is received against the CPC, the CPC is to be re-designated as
PCs.

Deemed Exports

Deemed Exports are supplies made by units in Domestic Tariff Area (DTA) to a unit
in EOU / EPZ / SEZ / STP / EHTP / BTP AND against orders for supplies in respect
of projects aided / financed by bilateral or multilateral agencies / funds involving
World Bank, IBRD, IDA. Which are eligible for grant of normal export benefits by
Government of India.

The supplies made to projects in India as per FTP are also eligible for concessional
finance facility at both the pre-supply as well as post-supply stages.

Supplies made to other Multilateral agencies or others though may enjoy the
status of Deemed Exports for other purposes, are not eligible for Packing Credit
at concessive rates.

PCs to projects financed by Multilateral or Bilateral agencies / funds can be

considered only to eligible suppliers on lines similar to physical exports subject to
certain additional terms and conditions which are as under:

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a) The advance should be provided only on the basis of an order placed for supplies
under the Multilateral / Bilateral agencies treated as under Deemed Exports.

b) In cases where the Multilateral / bilateral agencies do not directly place the
order on the supplier but only through a Central Agency of the Government of
India like the Central Water and Power Commission etc., the PCs can be provided
on the basis of an authenticated copy of the contract between the project
authorities and the supplier together with a certificate issued by the Central
Agency to the party to the effect that they have been awarded a particular tender
under international competitive bidding for supplies to such aided project in India.

c) The supplies made by the Indian suppliers under bilateral / multilateral Fund are
used by the agencies only for its aid projects / programmes in India and are eligible
for the grant of normal export benefits by the Government of India.

d) As goods under the order are supplied to projects within India, the PCs granted
to Manufacturers / suppliers of goods to projects financed by bilateral or
multilateral agencies / funds have to be liquidated out of payments received from
the project authorities.

e) Post-supply credit under Deemed Exports can be extended at concessional rate

of interest for a maximum period of 30 days or upto the date of payment by the
Project Authority whichever is earlier.

f) The liability under such PCs can also be adjusted from free foreign exchange
representing payments for the supplies of goods made under such bilateral/
multilateral agency/fund.

g) The advance should normally be liquidated from free forex representing

payment for supplier of goods to these agencies; it can also be repaid / prepaid
out of balance in EEFC / rupee resources to the extent supplies have actually been
made.

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h) Maximum period permitted for post-supply credit is 30 days ( advance becomes
overdue after 30 days; overdues, if liquidated within 180 days from notional due
date, ECNOS for extended period, if not paid within 210 days, ECNOS – post
shipment from date of advance.

i) Eligible for refinance.

Duty Draw Back

The scheme of Duty Draw Back (DDB) allows the refund of Excise/Customs Duty
paid on indigenous/ imported raw materials, components etc., used in exported
products. means refund of duty chargeable on any imported materials or refund
of excise duty in case of indigenous raw materials used in the manufacture of
goods to be exported from India.

The Draw Back schedule contains the items eligible for Draw Back as well as the
Draw Back rates. The rates of Draw Back are classified as under :

a) All Industry Rates (AI)

b) Brand Rates/Special Brand Rates/

All Industry Rates are applicable in general to all exporters of the specified items
and these rates are published by the Government of India every year.

Where the duty expenses are higher than the All India Rate as published by the
Government of India, the exporter may opt for brand/special brand rate fixation
of which is done on a specific request to Draw Back Section, Department of
Revenue, Ministry of Finance, after effecting the shipment.

The Government Department concerned will process the claim and issue a letter
of authority confirming the rate of eligibility of the claim.

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For availing the Duty Draw back facility, the exporter has to file the shipping bill
along with the customs documents at the time of shipment. In the shipping bill,
the exporter has to make the prescribed declaration and statements regarding the
Duty Draw Back claimed. The Draw Back shipping bill is itself treated as an
application for claiming Duty Draw Back.

The Duty Draw Back entitlement as claimed by the exporters are certified by the
Customs Authorities and settlements will be made in due course.

Advances against Duty Draw Back Entitlements can be considered at

a) pre-shipment stage,

b) post-shipment stage.

Advances can be considered against Duty Draw Back Entitlements at the pre
shipment stage under the following circumstances :

Where the cost of product to be exported exceeds the FOB value of the goods and
where the borrower needs an advance to bridge the gap between the actual cost
and the export price. This is subject to the product in question being eligible for
the Duty Draw Back Entitlement.

The least of the limits indicated below are to be considered :

a) 50% over and above the FOB value of the shipment subject to a maximum of
100% of the domestic cost of the export product or ;

b) 75% over and above the FOB value of the shipment provided that the value of
the import content in the export product is not less than 40% of the FOB value of
the shipment and the rate of import duty paid on the import content of the export
product is not less than 100% or ; c) Upto an amount established to the satisfaction
of the bank on the domestic cost of the export product.

Margin should not normally exceed 10% of the eligible advance amount.

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Special Conditions related to Advances against DDB

a) The advance should be on the basis of an irrevocable LC opened by a Bank of

standing abroad or on a firm export order.

b) As the shipment would not have taken place at the time of granting the PC, the
question of obtaining provisional customs certified shipping bill of the Duty Draw
Back claims will not arise. Hence, exporters should submit an application in the
prescribed form seeking advance from the branch.

c) All advances to be considered against Duty Draw Back entitlements d) Advance

should be covered under the Export Production Finance Guarantee (EPFG) of ECGC.

e) The period of advance should not exceed 90 days and limitation if any placed
under EPFG.

f) The borrower should file with the appropriate disbursement authority – Customs
authority, a copy of the application submitted by him to the Bank for
disbursement of advance at the pre-shipment stage against Duty Draw Back
entitlements and execute in favour of the Bank an irrevocable Letter of Authority
empowering the Bank to receive amounts directly from the disbursement
authority.

Accounting procedure

1. Advance should be accounted under Packing Credit‖ only till the entire liability
is cleared. Each advance should be maintained as a separate account to be wiped
off by credits received from Customs authorities.

DDB Finance at Post-shipment Stage

a) Provisional certificate of Duty Draw Back entitlements of the Customs

Authorities as certified on the copy of the Shipping Bill or on the basis of
endorsements by the Customs authorities of the appropriate All Industry Rate
claimed by the exporter in the shipping Bill pending sanction of the branch/special
brand rate by the Government of India.

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b) Extent of finance

i) Upto 50% of the FOB value of the shipment, or;

ii) Upto 75% of the FOB value of the shipment, provided that the value of the
import content in the export product is not less than 40% of the FOB value of the
shipment and the rate of import duty paid on the import content of the export
product is not less than 100% or ;

iii) Upto the amount provisionally certified by the Customs authorities on the copy
of the shipping bill or upto the All Industry Rate claim amount endorsed by the
Customs authorities on the copy of the shipping bill pending sanction of brand
rate/special brand rate by the Government of India.

iv) Up to the value of drawback shown in the EDI shipping bill cum GR.

Margin should not exceed 10% of the amount worked out as above.

Period of advance should be restricted to 90 days.

Pre-disbursal Conditions (DDB)

a) Advance should be covered by the Export Finance Guarantee (EFG) of ECGC.

b) The amount of advance should be subject to further limitations if any stipulated

under the EFG of ECGC.

c) Where the liability outstanding under pre-shipment credit towards entitlement

is more than the DDB entitlement (as certified by Customs), the balance portion
should be recovered from domestic resources

DDB Settlement by Customs

The payment of the final amount of Duty Draw Back will be made directly by the
Customs authorities to the Bank by means of a cheque drawn on Reserve Bank of
India, furnishing therewith the details such as name of The exporter, Bank Code
No., GR Form No., date and amount of Duty Draw Back sanctioned provisionally,
as also the amount finally sanctioned.

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If, for any reason the Duty Draw Back amount is partially settled by the Customs,
or not settled at all, even though provisionally certified by them earlier in the
shipping bill, the advance granted against such entitlements or the extent of
advance not cleared out of the settled amount is not to be treated as an Export
Advance and the advance to be got recovered. In such cases, domestic commercial
rate of interest as applicable to Inland Finance is to be charged

Diamond Exports

The Export trade of Diamonds depends almost entirely on the imported roughs.

Banker has to rely on the integrity of the borrower rather than security, as the
roughs are sent to various places for cutting and polishing, though Packing Credit
is granted against the hypothecation of stocks. Valuation of security requires
special skill. The market is highly volatile and requires close study of trends and
prospects, which is very difficult.

The Diamond trade/industry is highly localised i.e. in and around Bombay and
Surat.

Exports of diamonds from India should be accompanied by Kimberly process

certificate to the effect that no conflict rough diamonds have been used in the
process.

Gem and Jewellery export promotion council would be validating/ verifying the
Kimberly process certificates Diamond exporters can be broadly classified into 2
categories:

a) Sight holders

b) Non-sight holders

Sight holders normally get their requirements of roughs from DTC, London. In case
the diamond allocation from DTC London falls short, they purchase the balance
requirement from ―Antwerp.

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Non sight holders can be of two categories:

(i) Exporters who purchase rough diamonds locally from ―Hindustan Diamond
Co. Ltd. (HDCL) or MMTC and also from other DTC sight holders and from
Antwerp.

(ii) Exporters who purchase finished goods locally for exporting.

Of the total exports, 60% is accounted for by sight holders and the balance by
non-sight holders. As such our emphasis should be for financing sight holders
only, though finance to non sight holders can be considered selectively depending
upon their past records and merits.

Conflict Diamonds

As conflict diamonds play a large role in funding the rebels, UN has prohibited
direct/ indict import of all types of rough diamonds from Sierra Leone and Liberia
and banned trading in conflict diamonds. Our country has adopted UN mandated
Kimberley Process certification Scheme to ensure that no rough diamonds mined
and illegally traded enter the Country. Imports of diamonds into India should
therefore be accompanied by Kimberly Process Certificate (KPC) and exports of
diamonds from India should be accompanied by KPC to the effect that no conflict
or rough diamonds have been used in the process. KPCs would be
verified/validated by the Gem and Jewellery export promotion council.

Banks should obtain prescribed undertaking from clients who have been extended
credit for doing any business relating to diamonds.

Diamond Dollar Account

Under the scheme of Government of India, firms and Companies dealing in

purchase/sale of rough or cut and polished diamonds/diamond studded Jewellery,
with track record of at least 3 years in import or export of diamonds and having
an average annual turn over of Rs 5 crores or above during preceding three
licensing years (licensing year is from April to March) are permitted to transact
their business through Diamond Dollar accounts with their banks.

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Antwerp is a port city in Belgium. Antwerp is known as the diamond capital of the
world.

PCs to Export Order Holder

PCs can be shared between an Export House / Trading House / Star Trading House
/Super Star Trading House or Manufacturer Exporter, referred to as Export Order
Holder (EOH) and his sub-supplier of raw-materials / components / manufactured
goods.

The guidelines for granting PCs in such cases are as under :

a) Inland LCs (IELC) can be opened in favour of the sub-supplier(s) only on the
basis of the Export Orders / Export LCs received by the EOH. Inland LCs to be
opened in favour of the sub-supplier(s) should specify the goods to be supplied
by them.

b) The validity of the Inland LC should be within the overall validity of the Export
LC / Order.

c) In cases where there are more than one sub-supplier, Inland LCs can be opened
in favour of all the sub-suppliers in which case the aggregate value of all Inland
LCs opened in favour sub-suppliers should be within the aggregate value of the
Export Orders / LCs received / eligible P C amount.

d) The latest date for supply of goods under Inland LC should provide sufficient
time for the EOH to receive the components from each sub-supplier / s under the
ILC(s), assemble, pack and effect shipment within the validity of the Export Order
/Export Letter of Credit.

e) Payment under the IELC should be to the debit of the Packing Credit Account of
the EOH . The period of the PC will have to be reckoned from the drawal of PC by
any one of the sub-suppliers and hence EOH may avail PC at concessional interest
rate only for the balance period subject to maximum period as per sanction terms
whichever is lower.

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f) In cases where EOH desires to execute a portion of the export order/LC, branches
may grant PCs to EOH after excluding the portion of IELC opened favouring sub-
supplier(s).

g) The Inland Export LCs opened under the scheme should invariably provide for
sight payment and contain a clause that the supply of goods under the LC is for
execution of the export order held by the LC opener (EOH).

Packing Credit to Sub-Suppliers

Scheme covers LC / Export Order received in favour of Star Export Houses or

Manufacturer Exporter only.

EOH opens ILC specifying goods to be supplied by sub-supplier; sub suppliers

banker will grant EPC as working capital to enable sub-supplier to manufacture
components; and the advance is to be liquidated from amount received from ILC
opening bank.

The scheme covers only first stage of production cycle and will not cover suppliers
of raw materials / components to such immediate suppliers of components to
EOH.

If EOH is mere Trading House, facility will be available to the manufacturer, to

whom the order has been passed on by the EOH.

EOU / EPZ / SEZ units supplying goods to another such unit for export will be
eligible for Rupee Packing Credit but the supplier unit will not be eligible for post
shipment credit as the scheme does not cover sale of goods on credit terms.

Sale on credit terms by sub-supplier to EOH/ manufacturer is not covered under

the scheme.

PCs will be eligible for concessional rate of interest.

PCs will be eligible to be covered under the WTPCG of ECGC.

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The PCs (IELC) will have to be liquidated only out of payments received under IELC.
Once the sub-supplier supplies the goods to the EOH as per the IELC terms, his
obligation of performance under the scheme will be treated as complied with and
penal provisions for delay in export or non-export by the EOH will not be
applicable to the sub-supplier.

The Sub-supplier will not be eligible for pre-shipment advance in Foreign currency
(PCFC).

Pre shipment credit to Construction Contractors

Pre-shipment credit (Packing Credit) for construction contractors is a short-term

working capital facility provided by banks to finance the preliminary expenses of
executing overseas construction or turnkey projects. It helps contractors mobilize
resources like technical staff and materials before receiving payments from the
overseas client.

Key Guidelines & Features

Purpose: Covers initial mobilization and working capital expenses (e.g.,

transporting technical staff, purchasing consumable materials abroad).

Eligibility: Granted on the basis of a firm construction contract secured from

abroad in a separate bank account.

Loan Tenure: Advances must be adjusted/repaid within 365 days from the date of
the advance.

Repayment: Adjustments are made through the negotiation of export/contract

bills or by receiving foreign remittances directly related to the executed contract.

Interest Rates: If the credit is not settled within the stipulated time frame, the
concessive export credit rates cease, and banks will apply standard working capital
or commercial interest rates.

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Regulatory Framework

In jurisdictions like India, this facility is governed by the Reserve Bank of India
(RBI). It ensures that domestic construction firms and service exporters have
adequate liquidity to meet foreign project demands without draining their own
day-to-day cash reserves.

Export credit to Processors/ exporters-Agri Export Zones

Export credit for agriculture provides crucial working capital to processors and
exporters. Banks offer concessional pre-shipment (packing credit) and post-
shipment financing. These loans cover the entire supply chain, including the
procurement of seeds and fertilizers, to ensure seamless international trade.

Financing Mechanisms for Exporters & Processors

Under RBI guidelines, banks offer specialized credit facilities designed to integrate
production and processing:

Input Credit: Banks can grant lines of credit to processors and exporters to cover
the costs of supplying agricultural inputs directly to farmers. The exporter supplies
these in bulk as part of a pre-determined contract farming arrangement.

Pre-Shipment Credit (Packing Credit): Loans provided for financing the purchase,
processing, manufacturing, or packing of agricultural goods prior to shipment.

Post-Shipment Credit: Provides finance from the date of shipment of goods to the
date of realization of export proceeds.

Core Requirements for Bank Financing

To qualify for and maintain agri-export credit, processors and exporters must
meet specific regulatory criteria:

Contractual Tie-ups: Exporters must provide proof of established arrangements

with farmers (for crop procurement) and overseas buyers (for export).

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Project Feasibility: Banks will appraise your project to ensure the supply-chain tie-
up is viable and operations are likely to take off smoothly.

End-Use Monitoring: You must track the distribution of inputs to farmers, and the
bank will verify that the final products are actually exported to liquidate the pre-
shipment credit.

Export Focus Only: Credit is strictly for working capital (e.g., fertilizers, pesticides,
harvesting, packing). You cannot use this export credit for fixed capital
investments like land acquisition or heavy equipment.

Operational & Interest Rate Considerations

Credit Periods: Packing credit is typically sanctioned for up to 180 days. With
approval from your bank, this can be extended depending on the crop's lifecycle.

Interest Rates: Rupee export credit is provided at concessional rates linked to

domestic benchmarks (such as the Repo Rate). Alternatively, Exporters can opt for
Pre-Shipment Credit in Foreign Currency (PCFC), which is linked to international
benchmarks (like SOFR or Euribor).

Financing Route Through Exports

As per the current Foreign Trade Policy a Star Export House (SEH) which shows an
annual growth of more than 25% in its turnover is entitled to additional incentive
of 10% of incremental growth in the export turnover.

This additional incentive is given by way of exemption of import duties on goods

to be imported by Star Export House. This facility is given to SEHs only and not to
general exporters.

Consequent to the addition of this clause in Foreign Trade policy, general

exporters opt to route their exports through SEHs because the SEH passes on a
portion of the incentive it receives, to the manufacturer/shipper. Such transactions
which are routed though the SEH‘s are called Route Through Exports.

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The method of operation is as follows:

The SEH is referred to as exporter and the supporting manufacturer as

manufacturer/shipper. Export order or LC is procured in the name of SEH, where
the LC is in favour of shipper/manufacturer it is transferred to SEH.

SEH places purchase order with shipper/manufacturer on back to back basis; no

back to back LC or inland LC in favour of manufacturer/shipper is opened by SEH.

SEH draws bill of exchange on overseas buyer or his banker as per LC terms.

SEH will give disclaimer in favour of supporting manufacturers making them

eligible for export incentives available under the Foreign Trade Policy. The
disclaimer is given because the special benefit of 10% of incremental export
turnover is specifically reserved for SEH and cannot be transferred to
shipper/manufacturer either in full or in part.

The fundamental requirement of route though exports is that the shipping bill
bears the name of the both the SEH and manufacturer/shipper.

The SEH will authorize the negotiating bank to transfer the proceeds of the
discount bill to the account of the manufacturer/shipper.

No recourse can be had to the export house for any default on the payment of the
export bill by the drawer.

The shipper/manufacturer who happens to be banks constituent, will undertake

to accept any liability arising out of the non payment of the export bill by the
drawee.

The Bank realization certificate for the realization of export proceeds is to be made
out in the name of SEH only.

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Sharing PCs

When a Merchant Exporter / STAR Export House receives a confirmed export order
or LC and he needs to procure the goods, or get the same processed/manufactured
by another supplier or manufacturer (who is normally referred to as supporting
manufacturer), he can share the PC with such supporting manufacturer.

Guidelines in this regard are:

a) Sharing of PCs is available only for goods exported and not for semi-finished
goods / components used for manufacture of goods to be exported.

b) Sharing of finance should not lead to double financing of the export order / LC.

c) As far as possible, merchant exporter must open a back to back LC / domestic

LC in favour of supporting manufacturer.

d) Wherever opening of back to back LC / domestic LC is not possible or

convenient, the merchant exporter / SEH must give a letter stating the particulars
of export order / LC and the portion of the order to be executed by the
manufacturer exporter.

e) Under an export order / LC, the manufacturer exporter can avail PC for
procuring raw materials / accessories / components for manufacturing the goods
meant for Export. On receipt of the goods meant for exports the Merchant
Exporter / SEH can also avail PC for packing the goods and / or for transporting
the goods to the port of shipment / airport. The aggregate period for which PC
can be given to both Manufacturer & Merchant Exporter / SEH at concessional
rates should not exceed 180 / 270 days.

Export/Trading/Star Trading/Super Star Trading Houses have been accorded

special status. When exporters achieve the specified level of exports over a period,
they may be recognized as EH/TH/STH/SSTH. Exports made both in free foreign
exchange and in Indian rupees shall be taken into account for recognition.

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The objective of this scheme is to recognize them as the respective houses” with a
view to building marketing infrastructure and expertise required for export
promotion. The exporters, registered with FlEO or EPC are, eligible for this
purpose. The export performance criteria may be based on either f.o.b. value of
exports or net foreign exchange earnings.

The Criteria to decide EH, Trading House, STH or SSTH is as under:

Category of HousesAverage FOB value of exports during the preceding 3 licensing

years, in rupeesFOB value of eligible export during preceding licensing year in
rupees

Export House Rs. 15 croresRs. 22 crores

Trading House Rs. 75 croresRs. 112 crores

Star Trading House Rs. 375 crores Rs. 560 crores

Super Star Trading House Rs. 1125 crores Rs. 1680 crores

Deemed exports are not counted for this purpose.

Export House is mostly home-based organization, located in the manufacturer’s

country, which is involved in the export of products that the manufacturer has
produced. These export houses carry out most of the export-related activities
overseas, via their own agents and distributors who are in place in the country
where the product is being exported.

Trading House is a business that specializes in facilitating transactions between a

home country and foreign countries. A trading house is an exporter, importer and
also a trader that purchases and sells products for other businesses.

Export House and Export Broker

Export house is a company which deal directly in export of products manufactured

by others where as Export Broker act as facilitator or introductory party but deal
is done between manufacturer and buyer.

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Export Order Holder

Export House; Trading House; STH; SSTH; Manufacturer Exporter are known as
Export Order Holder (EOH)

PC for Exports on Consignment Sale basis.

Exports on Consignment Sale basis essentially mean where the goods are
consigned to an agent/consignee for eventual sale and remittance of sale
proceeds. The goods sent thus are either auctioned or sold straight away as in the
case of cut flowers etc.

Liquidation of PC (Consignment Exports)

a) The goods are consigned to the agents/consignees who sell the same in an
auction/off the shelf. As such, there does not exist any letter of credit / firm order
for consignment exports. Hence, the value of the export proceeds will not be
known at the time of effecting the shipment.

However, for the purpose of Customs clearance and completion of GR formalities

a provisional Invoice is to be drawn on the agent and the same can be accepted as
the value of the goods exported.

a) Upon shipment of the goods & submission of the export documents the PC
amount may be liquidated as follows :

1. The bills may be purchased/discounted with suitable margin, or

2. The entire liability in the PC may be transferred to a special account Post-

shipment Rupee advance, or

3. By granting Rupee advance with suitable margin.

c) The advance is to be liquidated in due course by the remittance received from

abroad in payment of the consignment sold duly ensuring that the remittance
received is towards the export of the commodities financed under the PCs.

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d) The remittance received from abroad will be accompanied by Accounts sale by
the agent/consignee giving details of sale of goods sent on consignment basis viz.,
the price at which goods are sold on various dates, warehousing & transport cost,
his commission and handling charges etc. The net sale proceeds may differ from
the provisional Invoice amount on the above account. The GR/PP form may be
release to RBI duly enclosing this statement of account.

e) In case of short realisation with regard to Post-shipment advance the amount

short realised should be recovered immediately and interest should be charged on
the short realised amount at domestic rate from the date of granting Post-
shipment till recovery.

PC for Imports against Entitlements under Advance Licences

In the normal course, PCs are granted against Export Orders/LCs or under the
Running Account Facility taking into account past performance.

An Advance Licence is issued as a duty exemption scheme. A Duty Remission

Scheme enables post export replenishment/ remission of duty on inputs used in
the export product.

In the case of imports of raw-materials under advance licences for manufacture of

export items, branches may disburse PCs without insisting upon an export order/
LC since the imported materials will ultimately be utilised only for exports, subject
to the following conditions:

a) Bank has to satisfy itself that the imported raw materials will be utilised for the
items to be exported.

b) Firm export order/LC should be submitted by the exporter within 60 days from
the date of disbursal of PC, failing which, normal rate of interest will be charged.

c) The Advance Licence is issued favouring the exporter. In other words, any
transferee of Advance Licence is not eligible for this facility. The above facility is
to be considered only on a case to case basis, and as special case only to parties

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whose track record has been good and where the Bank is satisfied that the facility
is not likely to be misused.

PCs for Export of Goods meant for Exhibition and Sale

Firms/Companies and other organizations participating in Trade Fair/Exhibition

abroad are permitted to take/export goods for exhibition and sale outside India
without the prior approval of RBI. Unsold exhibit items may be sold outside the
exhibition/trade fair in the same country or in another third country. Such sales at
discounted value are also permissible. Exporters can Gift unsold goods up to the
value of USD 5,000 per exporter, per exhibition/trade fair. Branches can approve
GR forms for export items for display or display cum sale subject to the following

a) The exporter shall produce relative Bill of Entry within one month of re-import
of goods in to India.

b) The sale proceeds of the items sold are repatriated to India in accordance with
FEMA regulations.

c) The Exporter shall report to the branch the method of disposal of all items
exported, as well as the repatriation of proceeds to India.

Banks can extend Credit facilities for goods meant for exhibition and sale abroad,
at the first instance as a normal domestic credit. After the sale is completed and
the proceeds repatriated, they can allow the benefit of concessional rate of interest
for the stipulated/eligible period by way of refund.

PC for Consultancy Services

In case of Consultancy Services, exports do not involve goods. In such cases, pre-
shipment finance at concessional rate of interest can be extended to exporters for
meeting the expenses in connection with the technical and other staff employed
for the project and purchase of any materials required for the purpose as well as
export of computer software both standard and custom built software programs.

While granting the PC facilities advance payments received if any, must be taken
into account.

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PC for Software Exports

Packing Credit requirement can arise to meet the cash flow gaps of the exporter
undertaking programming services or manpower exports or development of
solutions to specific problems of the customers.

As per RBI guidelines the following are eligible for export credit a) IT Service – any
service which results from the use of any IT software over a system of IT products
for realizing value addition.

b) Manpower exports - deputation of professionals for delivering programming

services at customers location.

c) Project services – customized software development providing solution to

specific problems of customer which would be utilized by corporate main frame
and mini computer users

Liquidation of PC

PCs to be eligible for concessional rate of interest must be repaid from funds
received by the Exporter from either or combination of the following sources:

a) Proceeds of Export Bills Negotiated, Purchased or discounted in the case of

export bills presented by the exporter borrower (i.e., where relative GR/SDF form
is signed by the borrower or a shipper and or counter-signed by the borrower);

b) Proceeds of export bills negotiated by other banks under LCs restricted for
negotiation to them;

c) Proceeds of Advance payment received by the exporter through the permitted

method after the PC is released.

d) In the case of supplies made under an Inland Export LC opened by a EOH in

favour of the sub-supplier, by proceeds received from Issuing Bank of the IELC
being the payments received under the IELC.

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e) In the case of exports made through the STAR Export House, from the Inland
Bill proceeds received from the bankers of the STAR Export House supported by a
certificate.

f) Proceeds of advances granted against undrawn balances representing export

earnings under the relevant contract/LC.

g) By sale proceeds of residual/by-product oil in the case of PC granted to

exporters of HPS groundnut and de-oiled and defatted cakes, in excess of the FOB
value of the export order.

h) Proceeds of payments received in the form of Duty Draw Back where PC has
been granted against such entitlements due to the exporter.

i) In the case of PC against goods sent abroad for exhibition and sale, the PC would
have to be initially treated as an inland transaction. Only in case of goods sold and
remittances of such sale proceeds are received, the same should be treated as
export credit and interest rates as applicable to PC will have to be charged.

j) By granting Rupee Advance.

Under normal circumstances, liquidation of PCs shall be as follows:

(i) The PCs have to liquidated out of export bill proceeds of the relative export
order / LC

(ii) Under the Running Account Facility, PCs are to be liquidated out of export bill
proceeds relating to any other export order covering the same commodity or any
other commodity exported by the exporter applying First in First out principle.

Where exporter is enjoying running account facility no export bill should be sent
on collection basis.

If the PC is cleared by any source other than those indicated above, such PCs will
not be eligible for concessional interest.

PCs should not remain outstanding once the relative goods are shipped and export
documents are tendered by the exporter to the bank.

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If the PC is allowed to remain outstanding even after submission of relative export
documents, by sending the export documents on collection basis at the request of
the exporter, the PC will lose the cover under WTPCG of ECGC.

Where banks are not able to negotiate the discrepant export documents, branches
should grant Rupee advance against the export documents and get the PC liability
cleared.

Flexibility in Liquidation of PC

PCs should be liquidated from the proceeds of export bills by converting pre-
shipment to post-shipment credit. However, subject to mutual agreement
between the exporters and the banks the repayment or pre-payment of pre
shipment credit (whether in rupee or FC) from out of balances in EEFC or from
rupee resources may be permitted to the extent exports have actually taken place
as evidenced by relative GR form.

As per RBI guidelines, following relaxations may be permitted to exporters with

good track record –

a) liquidation with export documents relating to any other order covering same or
any other commodity exported by the exporter, after ensuring that such
substitution of contract is commercially necessary and unavoidable.

b) Liquidation with proceeds of export documents against which no PC has been

granted, after ensuring that exporter has not availed PC from another bank.

c) Such relaxations are not to be extended to transactions of sister/associate /

allied / group concerns.

d) PC availed by deemed exporters can also be repaid / prepaid out of balances in

EEFC or from rupee resources of the exporters to the extent of exports have
actually been made. .

e) Banks should ensure that the goods have been actually shipped by the exporter
and current FEMA guidelines with regards to repatriation of export proceeds
within stipulated period are strictly adhered to by the exporter.

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In order to provide further flexibility to exporters, Banks may, at their discretion
allow exporters to convert their rupee pre shipment credit into PCFC subject to
respective Bank’s norms.

The extent of export should be established by GR form or any other documents

considered essential by the AD as proof of shipment. If the shipping documents
have been sent by the exporter directly to the overseas buyer, copies of the same
and the GR form should be sufficient.

Exporters are eligible to prepay / repay their PC any time after the exports have
actually taken place.

Substitution of Contract

In cases where the exporter is not able to export against the original contract, he
may be permitted to clear the PC from the export bill proceeds pertaining to any
other export order covering the same or any other commodity exported by the
exporter without prior approval of RBI subject to the following conditions:

a) While allowing substitution, branches have to ensure that it is commercially

necessary and unavoidable. Branches may also satisfy themselves about the
genuineness of the reasons as to why the exporter could not ship the goods for
which the PC was disbursed.

b) The existing PC may be marked off with export proceeds of documents after
ensuring that no PC has been drawn by the exporter against the relative order
either with our bank or any other bank.

c) Substitution facility can be extended only to exporters of proven track record

and classified under S1 / S2 in order to ensure that the finance is utilised only for
the purpose of exports.

PC - Interest related Points

The charging of concessional rate of interest on PCs basically depends on

following factors:

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(a) Originally permitted period of finance as per sanction terms

(b) Extension Period approved by appropriate authority

(c) Subject to maximum period of 270 days.

Concessional interest can be charged only if the export takes place ultimately but
within a reasonable period of availing the PC. This reasonable period is defined as
360 days from the date of grant of PC. In case disbursal against an Export
order/Export LC are made in two or three instalments, the 360 days period will
have to be reckoned from the date of disbursal of the first instalment.

In case of clean PCs, the period will have to be reckoned from the date of grant of
clean PC.

The concessional rates of interest are determined by RBI from time to time and
Rate of interest applicable to Export Credit Not Otherwise Specified is determined
by respective Banks.

No additional interest should be charged on ad-hoc PC limits.

Overdue PCs are those remaining outstanding beyond the period stipulated (i.e.,
where export does not take place within the period originally permitted as per
sanction terms or within the extended period approved For the overdue period
interest should be charged at the Rate specified for Export Credit Not Otherwise
Specified even if such overdue period falls within 180 days.

The interest accrued on PCs should be necessarily debited to an operative account

of the exporter and should not be debited to the PC account as ECGC cover is not
available to interest components.

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Export Credit Not Otherwise Specified (ECNOS)

In international trade and export finance (particularly in India), ECNOS is a

category of export credit. When an exporter's loan period extends beyond the
standard concessional time frames (such as beyond 90 or 270 days) and does not
fall under specific interest rate subventions, it is categorized as ECNOS. Banks
generally set interest rates for ECNOS based on their prevailing Base Rate or BPLR
guidelines.

Pre Shipment Credit in Foreign Currency (PCFC)

The objective is to make available credit at internationally competitive rates linked

to LIBOR / EURIBOR / EURO LIBOR for domestic/ imported in puts. Under the
scheme, following options are available to exporter a) Avail PC in Rupees and post
shipment finance in Rupees or FC

b) Avail PC in FC and post shipment finance in FC

c) Avail PC in rupees and convert into PCFC at the discretion of bank.

Cross currency PCFC permissible. To enable the exporters to have operational

flexibility, it will be in order for banks to extend PCFC in one convertible currency
in respect of an export order invoiced in another convertible currency. For
example, an exporter can avail of PCFC in US Dollar against an export order
invoiced in Euro. The risk and cost of cross currency transaction will be that of the
exporter.

No separate limits required but to be carved out of normal PC limits sanctioned.

Rate of Interest should not to exceed 350 Basis points (3.5%) over applicable
LIBOR.

PCFC is available for standard period of 1 / 2 / 3 / 6 / 12 months. For nonstandard

periods, the ROI to be applied is the rate for the next / upper standard period .

Interest should be collected at monthly rests against sale of FC / out of balances

in EEFC or out of proceeds of export bill discounted.

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If no export takes place within 360 days PCFC to be adjusted at TT selling rate.

For domestic output the PCFC should be converted into Rupees at Spot TT buying
rate.

Liquidation of PCFC shall be by adjustment of export bill proceeds / repayment or

prepayment out of balances in EEFC / rupee resources to the extent exports have
actually taken place.

PCFC would be only for exportable portion of produce.

Running PCFC account may be permitted to exporters with good track record
subject to certain conditions:

PCFC to supplier to be liquidated by receipt of forex from receiver unit for which
receiver may avail of PCFC; hence no post-shipment credit is to be extended to the
supplier.

Under Deemed Exports PCFC may be granted only for supplies to projects financed
by multilateral / bilateral agencies / funds which is to be liquidated by FCL / BRD
at post supply stage for a maximum 30 days or up to date of payment by project
authorities whichever is earlier. Such advance may be prepaid or repaid from EEFC
or rupee resources to the extent supplies have actually been made.

Gold Card Scheme for Exporters

To simplify access to bank credit for exporters, the Reserve Bank of India has a
scheme that provides preference in providing packing credit in foreign currency
and term loan in foreign currency to deserving exporters.

Criteria for Issuing Gold Card - Exporters with a minimum track record of three
years, that is continuously standard with no irregularities or adverse features will
be treated as a good track record. Exporters black listed by the ECGC or included
in the RBI defaulters list or making losses for the past three years will not be
eligible for the gold card scheme.

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Benefits of Gold Card Scheme - Gold card holders would be given preference by
the banks for granting of packing credit in foreign currency. Taking into account
the anticipated export turnover of the exporter, the bank can provide need-based
business loan limits with a liberal approach.

The in-principle limit will be sanctioned for a period of three years with a provision
for automatic renewal subject to fulfilment of loan terms and conditions.

Further, banks will also consider giving term loan in foreign currency for deserving
businesses out of the FCNR funds.

Interest concession can also be given by the banks with a soft bias toward gold
card holders, through a transparent mechanism.

Processing charges on the loan granted to gold card holders should be lower than
those provided to other exporters. Service charge at a flat rate of 0.1% can be
charged on inter-bank foreign currency borrowing for lending to exporters.

Standby limit of not less than 20% of the assessed limit may be additionally made
available to the gold card holder to facilitate urgent credit needs for executing
sudden order.

All new proposals submitted by gold card holders need to be processed with 25
days for fresh proposals and 15 days for renewals and 7 days for ad-hoc limits.

Post Shipment Finance to Exporters

While handling Export Bills and/or granting post-shipment finance, the Foreign
Exchange Regulations of RBI, Interest Rate directives of RBI, EXIM Policy
guidelines of Govt. of India, FEDAI Rules and Rules of International Chamber of
Commerce are to be adhered to.

All Export Bills should necessarily be accompanied by relevant Export Declaration

Form viz., Shipping Bill/EDF/ SOFTEX Form.

OPL on the drawees of Export Bills can be called for through the service providers.

OPL should not be older than one year.

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Sight Export Bills are payable on "Demand" or "at sight". These are normally
accompanied by a Bill of Exchange/Draft drawn payable at sight or on demand.

The bills could be either covered under an Export Letter of Credit or against firm
contract/order.

Usance Export Bill is one which is not payable on demand but is expressed to be
payable after a specified period (usance) mentioned in the bill. These are normally
accompanied by a Usance Draft/Bill of Exchange such as payable ".... days after
sight" or ".... days after the date of shipment", etc. Usance Export Bills could be
either covered under an Export Letter of Credit or against firm contract/order.

In case of Usance Export Bills, the terms of delivery of documents would normally
be "D/A" (Delivery against Acceptance of the Draft).

There may also be instances of Usance Export Bills with "D/P" terms (Delivery
against Payment) where the collecting bank is instructed to deliver the shipping
documents to the drawee on the due date only against payment. In such cases, the
collecting bank presents the usance draft for acceptance, and delivers the relative
documents including B/L only upon payment by the drawee on the due date.

Export Bills are usually accompanied by a Bill of Exchange (Draft) drawn payable
either at sight or usance, as the case may be, Invoice, shipping document like Bill
of Lading/Airway Bill/Multimodal Transport Document/ Railway or Lorry Receipt,
etc., Insurance Policy or Certificate, Packing List, Certificate of Origin, and any
other document/s stipulated (if covered under LC) or as required by the buyer.

When intimation of non-acceptance of a usance bill or non-payment of a sight bill

is received from the collecting bank, through FD/FEX Cell, the exporter should be
immediately informed and his instructions to be sought. The date of
nonacceptance/non-payment advice received from the collecting bank and sent
to the exporter should be recorded.

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Post Shipment export credit either in foreign currency or in rupees can be
liquidated out of the proceeds of any other export bill sent on collection basis or
from the balance available in the EEFC account of the exporter.

Delinking/Crystallisation of Overdue Export Bills

Sight bills remaining unpaid beyond 15 days from the expiry of normal transit
period and usance bills remaining unpaid beyond a period of 15 days from the due
date should be delinked, in order to crystallize the liability of the exporter into
Rupees. TT Selling Rate ruling on the date of delinking should be taken into
consideration for arriving at rupee liability.

It is mandatory on the part of banks to delink unrealized Export Bills on the

ostensible date of delinking.

For delinking, if the TT Selling Rate as on the delinking date is higher than the
original Bill Buying Rate, the differential amount will be credited to Bank’s P&L
account by debiting party’s account.

In case if TT selling rate is lesser than the original bill buying rate, the bill
purchased liability will get reduced to the extent of differential amount by
debiting Bank’s P&L account for the same.

Dishonour of Export Bill

In the event of dishonor of a Bill, the advance given to exporter is to be recovered

as soon as the non-payment advice is received.

Wherever ECGC cover is available, steps may be taken to file our claim in the event
of dis-honour of bill.

Once the export documents are handled by Bank (whether Bank has advanced the
bills or not), Banks are accountable to RBI till the proceeds are realized and the
shipping bill/EDF/SOFTEX form is released.

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Reduction in Value

If, after a bill has been negotiated or sent for collection, the amount thereof is
desired to be reduced for any reason, bank may approve such reduction, upto 25%
of invoice value in case of normal exporters and without such limit in case of
exporters with satisfactory track record, if satisfied about genuineness of the
request and subject to the eligibility conditions.

Export Claims

Bank may remit export claims on application, provided the relative export
proceeds have already been realized and repatriated to India and the exporter is
not on the caution list of Reserve Bank of India and proportionate export
incentive, if any, received by the exporter is surrendered.

Agency Commission on Exports

Authorized dealers may allow payment of commission, either by remittance or by

deduction from invoice value, on application submitted by the exporter. The
remittance on agency commission may be allowed subject to the conditions.

Change of Buyer/Consignee

After the goods have been shipped, without the prior approval of RBI they can be
transferred to a buyer other than the original buyer in the event of default by the
latter, provided the reduction in value, if any, involved does not exceed 25% and
the realization of export proceeds is not delayed beyond the period of 9 months
from the date of export or time prescribed by RBI from time to time. Where the
reduction in value exceeds 25%, all other relevant conditions.

Export on Consignment basis

Exporting on a consignment basis means shipping goods to a foreign distributor,

agent, or your own subsidiary without receiving immediate payment. The
consignee holds and sells the inventory, paying you only after the end-customer
buys the goods. The exporter retains ownership of the items until they are sold.

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How the Process Works

Selection: Partner with a reputable overseas distributor or set up your own foreign
warehouse.

Shipment: Goods are shipped with a Delivery Challan rather than a commercial
invoice, as ownership hasn't changed.

Sale & Remittance: The agent sells the goods, deducts their handling/storage fees,
and remits the net proceeds back to you.

Return of Goods: Any unsold inventory after an agreed-upon time frame can be
returned to you.

Key Legal & Regulatory Guidelines (India)

Because funds are not realized immediately, specific rules apply for Indian
exporters:

Time Limits: Foreign Exchange Management Act (FEMA) guidelines dictate that
sale proceeds must be fully realized and repatriated to India within the stipulated
period (typically 9 months).

RBI Permissions: Exporters must comply with Reserve Bank of India (RBI)
guidelines. For setting up warehouses abroad, you may need specific permissions
regarding your export turnover and outstanding dues.

GST: Sending goods abroad on consignment (e.g., for exhibitions) is not

considered a taxable supply under GST, provided the goods are sold or brought
back into India within 6 months.

Associated Risks & Mitigations

While consignment exporting allows for quicker delivery times and can result in
higher prices, it carries significant financial risks.

Financial Risk: You bear the risk of non-payment and potential loss or damage to
goods.

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Mitigation: Protect your business against commercial and political risks by
securing an export credit insurance policy, such as the ECGC Consignment Exports
Policy.

Miscellaneous

Where, Usance Bills discounted are realized before the due date, collect early
realization swap cost, if any and refund surplus interest collected to the customer.

Take into consideration the Normal Transit Period (NTP) for calculation of interest
on post-shipment finance while negotiating/purchasing/ discounting Export Bills.

Obtain specific instructions for delivery of documents against payment in local

currency, while handling documents payable at Restricted Cover Countries (Listed
Countries) for collection.

Where goods are exported from Inland container Depots or where transportation
of goods is by two or more modes, insist on submission of Multimodal Transport
Document in the prescribed format issued by a Regd. Multimodal Transport
Operator.

Ensure that appropriate authorization/risk letter has been obtained from export
clients for dispatching the documents by courier service.

Where goods are exported to Listed Countries, advise the exporters that
repatriation of full proceeds of export bill is their responsibility though the Rupee
advance has been granted by our bank against said bills.

Ensure that Rupee Advance is granted whenever packing credit is outstanding/LCs

are restricted to other banks or when the documents submitted under LCs are
discrepant in nature or where bills are submitted in non-position currencies of our
Bank.

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Rupee Export Credit Interest Rate Subvention

The Rupee Export Credit Interest Subvention is a government-backed scheme

launched under the Export Promotion Mission (Niryat Protsahan) to reduce the
cost of working-capital finance for MSME exporters. It provides an interest
subvention of 2.75% per annum on both pre-shipment and post-shipment rupee
export credit.

Key Features & Mechanics

Interest Relief: Eligible exporters receive a direct 2.75% discount on the interest
charged by lending institutions.

Annual Cap: The maximum subvention benefit is capped at ₹50 lakh per financial
year per Importer Exporter Code (IEC).

Disbursement: The subvention is passed on upfront to the exporter by the

commercial lending institution, which then claims reimbursement from the RBI.

Eligibility Criteria

To qualify for the subvention, exporters must meet the following conditions:

Business Type: Must be a registered Micro, Small, or Medium Enterprise (MSME)

with a valid and active IEC.

Product Coverage: Applies only to products included in the notified positive list of
six-digit Harmonised System (HSN) tariff lines, covering approximately 75% of
India's tariff lines.

Exclusions: Restricted/prohibited items, waste/scrap, Production Linked Incentive

(PLI) beneficiaries, and goods excluded under the RoDTEP and RoSCTL schemes
are ineligible.

Credit Guidelines: The credit must be sanctioned and disbursed strictly in

accordance with the RBI's Directions on export credit.

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18. Export Credit Insurance
Export Credit Insurance in India, primarily provided by the government-owned
ECGC Limited (formerly Export Credit Guarantee Corporation of India), protects
exporters against the risk of non-payment by foreign buyers due to commercial
or political reasons.

ECGC is essentially an export promotion organization, seeking to improve the

competitiveness of the Indian exporters by providing them with credit insurance
covers.

Based on T C Kapur Committee recommendations Government of India

established Export Risk Insurance Corporation (ERIC) on 30th July 1957, a Pvt Ltd
Company wholly owned by Govt of India. After introduction of insurance covers
to banks during the period 1962-64, ERIC’s name was changed to Export Credit &
Guarantee Corporation Ltd in 1964. The above name was changed to Export Credit
Guarantee Corporation of India Ltd. in the year 1983. Subsequently in August
2014, it was renamed as ECGC Ltd.

Over the years it has designed different export credit risk insurance products to
suit the requirements of Indian exporters and commercial banks extending export
credit.

Key Aspects of Export Credit Insurance in India:

Provider: ECGC Limited, established in 1957, functions under the Ministry of

Commerce and Industry.

Risks Covered: Commercial risks (buyer insolvency, protracted default) and

political risks (war, transfer restrictions, revolution).

Types of Policies:

Shipment Comprehensive Risks Policy (Standard Policy): Suitable for short-term

credit (up to 180 days).

Specific Policies: Tailored for specific contracts or buyers.

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Export Credit Insurance for Banks (ECIB): Protects banks providing pre- and post-
shipment financing.

Benefits: Helps secure bank financing, protects against buyer insolvency, and
provides information on foreign buyers.

What is NOT Covered: Exchange loss due to currency fluctuations, disputes

regarding quality, or exporter negligence.

The Insurance Cover offered directly to Exporters by ECGC Ltd is known as “Policy”
and the Insurance Cover offered to Banks is known as “Guarantee”.

ECGC does not charge the same premium to all banks for guarantee covers. The
premium rate varies based on factors like the credit rating of the exporter's clients,
the classification of the buyer's country, the specific type of risks covered, and
other terms and conditions stipulated by ECGC for each specific policy or approval.

ECGC’s Short-term Whole Turnover Packing Credit Guarantee Scheme - Export

Credit Insurance for Banks Packing Credit (ECIB-WTPC)

Eligibility: A bank or a financial institution dealing in foreign exchange is eligible

to obtain this Whole-turnover Cover for all its accounts.

Period of Cover : 12 months

Eligible Advances: All packing credit advances as per RBI guidelines

Protection offered : Against losses that may be incurred in extending packing

credit advances due to protracted default or insolvency of the exporter-client.

Percentage of Cover: For banks taking the cover for the first time it is 75% up to
certain Limit and 65% beyond the said Limit. (For others varies from 55% to 75%
depending on claim premium ratio of the bank). For Small Scale Exporters (SSE)/
Small Scale Industrial Units (SSI), it is 90%.

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ECGC’s Individual Post-Shipment (ECIB – INPS) Guarantee available for Banks

Eligibility: Any bank or financial institution who is an authorized dealer in foreign

exchange that provides post-shipment finance to the exporter by way of purchase,
negotiation or discount of export bills after the shipment has been affected
pertaining to a particular project.

Risks Covered: Protracted default or insolvency of the exporter-client.

Period of Cover: 12 months

Percentage of Cover: 60%

ECGC’s Export Finance (EF) Policy

Eligibility: Any bank authorized to deal in foreign exchange can obtain the Export.
Finance Cover in respect of its exporter-client who has been classified as a standard
asset and whose Credit Rating is acceptable to ECGC.

Period of Cover: 12 months

Eligible Advances : Advances against incentives such as cash assistance, duty

drawback, etc., receivable at post-shipment stage.

Protection offered: Against losses that may be incurred in extending post-

shipment advances against incentives due to protracted default or insolvency of
the exporter client.

Percentage of Cover: 75%

Whole Turnover Post-Shipment Guarantee Scheme

The Whole Turnover Post-Shipment Guarantee Scheme (ECIB-WTPS), offered by

the ECGC (Export Credit Guarantee Corporation of India), protects banks and
financial institutions against non-payment of post-shipment credit by exporters.
It covers losses arising from the exporter's insolvency or protracted default,
encouraging banks to freely extend export credit.

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Eligibility: Any commercial bank or financial institution dealing in foreign
exchange is eligible to obtain this blanket, Whole-turnover cover.

Eligible Advances: Covers all post-shipment advances granted by banks to

exporters (e.g., negotiating/discounting export documents or advances on
collection bills).

Protection Level: Provides a high guarantee cover ranging between 50% and 90%
(up to 90% specifically to benefit small-scale exporters).

Period of Cover: Issued as an annual policy spanning 12 months.

Operation of ECIB – WTPS - Requirements

Automatic Coverage: The scheme automatically covers all accounts and advances
disbursed by the bank to exporters, making it unnecessary to apply for individual
limits for standard assets.

Discretionary Limit: Banks can sanction limits up to ₹100 lacs for new exporter
clients without needing specific, prior approval from ECGC.

Monthly Declarations: Participating banks must submit a monthly declaration of

all advances handled and pay the required nominal premium.

Benefits for Exporters and Banks

Competitive Financing: With the risk largely offset by the ECGC, banks are
generally willing to extend post-shipment credit to exporters at concessional
rates.

Risk Mitigation: Banks can confidently expand their export portfolios and support
small enterprises, knowing their overall risk is buffered against bad debts

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19. Priority Sector Lending
Priority Sector means those sectors which the Government of India and Reserve
Bank of India consider as important for the development of the basic needs of the
country and are to be given priority over other sectors. The banks are mandated
to encourage the growth of such sectors with adequate and timely credit.

The RBI mandates priority sector lending (PSL) targets for banks to ensure that
certain sectors, crucial for economic development and inclusive growth, receive
adequate credit. This aims to address credit shortages, promote regional balance,
and support marginalized sections of society.

The Categories under Priority Sector are (1) Agriculture (2) Micro, Small and
Medium Enterprises (3) Export Credit (4) Education (5) Housing (6) Social
Infrastructure (7) Renewable Energy (8) Others.

Allied activities i.e. activities allied to agriculture shall include dairy, fisheries,
animal husbandry, poultry, bee-keeping, sericulture and similar activities.

Non-Corporate Farmers (NCF) shall include individual farmers including Small and
Marginal Farmers (SMFs), proprietorship firms of farmers directly engaged in
agriculture and allied activities, and Self-Help Groups (SHGs) or Joint Liability
Groups (JLGs) i.e., group of individual farmers, provided banks maintain
disaggregated data of such loans.

“On-lending” means loans sanctioned by banks to eligible intermediaries for

onward lending. Such loans, extended for creation of priority sector assets and
which remain deployed in such assets, will be eligible for classification under PSL.

"Will loans originally classified under PSL remain PSL if classification norms
change later?" All loans categorised as Priority Sector Lending (PSL) under the
erstwhile Master Directions on PSL shall continue to be eligible for such
categorisation under these Directions till maturity.

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Contingent liabilities/off-balance sheet items do not form part of priority sector
achievement. Off-balance sheet interbank exposures are excluded for computing
CEOBSE for the priority sector targets.

The targets and sub-targets set under priority sector lending, to be computed on
the basis of the ANBC/CEOBSE as applicable as on the corresponding date of the
preceding year, are as below (Targets are as percentage of ANBC or CEOBSE,
whichever is higher)

Target for Lending to Total Priority Sector is 40% of ANBC or CEOBSE, whichever
is higher

Target for Lending to Agriculture is 18% of ANBC or CEOBSE, whichever is higher.

Within target of 18% to Total Agriculture , 14 % is prescribed for NCFs, out of

which 10 % is prescribed for SMFs.

No specific target for Industry or MSME. However, target is fixed for lending to
Micro Enterprises.

Enterprise with Investment upto Rs 2.50 crores and turnover upto Rs 10 Crores is
classified as Micro Enterprise. (Union Budget 2025). Target for Lending to Micro
Enterprises is 7.5 % of ANBC or CEOBSE, whichever is higher

Target for Lending to Weaker Sections - 12 % of ANBC or CEOBSE, whichever is

higher

Weightages are included in deciding achievement of PSL Achievement to address

regional disparities in the flow of priority sector credit at the district level, it was
decided to rank districts on the basis of per capita credit flow to priority sector
and build an incentive framework for districts with comparatively lower flow of
credit and a dis-incentive framework for districts with comparatively higher flow
of priority sector credit.

Credit Starved District - RBI identifies districts with per capita priority sector
lending below a certain threshold (currently ₹9,000 for 2024-25)

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Weightage given to Credit Starved Districts - With effect from FY 2024-25, a
higher weight (125%) shall be assigned to the incremental priority sector credit in
the identified districts where the credit flow is comparatively lower (per capita PSL
less than ₹9,000),

Weightage given to Districts where per capita PSL is more than Rs 9000 but less
than Rs 42000 - 100%

Weightage given to Districts where per capita PSL is more than Rs 42000 is 90%

Weaker Sections for PSL include Small and Marginal Farmers; Beneficiaries under
Government Sponsored Schemes ; SC/ST; DRI borrowers; SHG/JLGs; Members of
SHGs/JLGs, satisfying criteria Prescribed; Individual women up to ₹2 lakh per
borrower ; Distressed farmers indebted to non-institutional lenders ; Distressed
persons other than farmers, with loan amount not exceeding ₹1 lakh per borrower
to prepay their debt to non-institutional lenders; Persons with disabilities;
Transgenders ; Minority communities ; Overdraft availed by PMJDY account
holders and Artisans, village and cottage industries where individual credit limits
do not exceed ₹2 lakh.

Farmers with a landholding of more than 1 hectare and up to 2 hectares are

classified as Small Farmers.

Farmers with landholding of up to 1 hectare are classified as Marginal Farmers.

Minority Communities for PSL - Muslims, Christians, Sikhs, Buddhists and

Zoroastrians (Parsis) and Jains.

Incremental Export Credit (other than that classified under agriculture and
(MSME) shall be eligible for classification as priority sector lending over
corresponding date of the preceding year, up to 2 % of ANBC or CEOBSE whichever
is higher, subject to a sanctioned limit of up to ₹ 50 crore per borrower.

Education Loans to individuals including vocational courses, not exceeding ₹25

lakh will be considered as eligible for priority sector classification.

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Norms related to classification of Farm credit (under PSL) against NWR to NCF

Loans against pledge/hypothecation of warehouse receipts for a period not

exceeding 12 months subject to a limit up to ₹90 lakh against Negotiable
Warehouse Receipt (NWRs)/Electronic Negotiable Warehouse Receipt (eNWRs)
and up to ₹60 lakh against warehouse receipts other than NWRs/eNWRs can be
treated under PSL.

Norms related to classification of Farm credit to Corporates under PSL

Farm Loans up to an aggregate limit of ₹4 crore per borrowing entity will be

eligible in case of Corporate entities are eligible for classification under PSL.

Norms related to classification of Farm credit against Warehouse Receipts to

Corporates under PSL

Farm Loans to Corporates up to ₹4 crore against pledge/hypothecation of

warehouse receipts for a period not exceeding 12 months against NWRs/eNWRs
and up to ₹2.5 crore against warehouse receipts other than NWRs/eNWRs are
eligible for classification under PSL.

Norms for classification of Credit to FPO/FPC

The following are eligible for classification under PSL.

(a) Loans up to ₹10 crore per borrowing entity to FPOs/FPCs undertaking farming
with assured marketing of their produce at a pre-determined price.

(d) Loans up to ₹10 crore for purchase of the produce of members directly
engaged in agriculture and allied activities.

FPO and FPC

FPO stands for Farmer Producer Organisation, while FPC stands for Farmer
Producer Company.

FPOs are a broader term encompassing various forms of collective farming,

including cooperatives and trusts.

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FPCs are a specific type of FPO, registered as companies under the Companies Act,
2013.

FPC is a type of FPO, but with a specific legal structure.

Norms for classification of credit to Agriculture Infrastructure under PSL

Loans for agriculture infrastructure will be subject to an aggregate sanctioned

limit of ₹100 crore per borrower from the banking system can be classified under
PSL.

Norms for classification of credit to Ancillary Services under PSL

a) Loans up to ₹50 crore to Start-ups that are engaged in agriculture and allied
services.

b) Loans for Food and Agro-processing up to an aggregate sanctioned limit of

₹100 crore per borrower from the banking system (eligible activities specified).

c) Outstanding deposits under RIDF and other eligible funds with NABARD on
account of priority sector shortfall.

Farm Credit to NBFC for on-lending for classification under PSL

Bank credit to registered NBFCs (other than MFIs) towards on-lending for ‘term
lending’ component under agriculture will be eligible for PSL classification up to
₹10 lakh per borrower are eligible for classification under PSL.

Credit to NBFC for on-lending for MSME classification under PSL

Loans to registered NBFCs (other than MFIs) for on-lending to MSME up to Rs.20
lakh per borrower as per conditions specified.

Allied Activities without land holdings

Loans up to ₹2.5 lakh to individuals solely engaged in allied activities without any
accompanying land holding criteria can be treated as PSL.

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Startup in MSE

Loans up to ₹50 crore to Start-ups, that conform to the definition of MSME, shall
be eligible to be classified under PSL

Housing loan in Centres with population of 50 lakh and above can be considered
under PSL, if both of the following complied with.

Maximum cost of dwelling unit Rs 63 lacs and Maximum Loan Rs 50 lac

Housing loan in Centres with population of 10 lakh and above but below 50 lacs
can be considered under PSL, if both of the following complied with.

Maximum cost of dwelling unit Rs 57 lacs maximum Loan Rs 45 lacs

Housing loan in Centres with population below 10 lakh can be considered under
PSL, if both of the following complied with.

Maximum cost of dwelling unit Rs 44 lacs and Maximum Loan Rs 35 lacs.

Housing loan for repairs in Centres with population of 50 lakh and above can be
considered under PSL, if both of the following complied with.

Maximum cost of dwelling unit Rs 63 lacs and Maximum Loan Rs 15 lacs.

Housing loan for repairs in Centres with population of 10 lakh and above but
below 50 lacs. can be considered under PSL, if both of the following complied with.

Maximum cost of dwelling unit Rs 57 lacs and Maximum Loan Rs 12 lacs.

Housing loan for repairs in Centres with population below 10 lakh can be
considered under PSL, if both of the following complied with.

Maximum cost of dwelling unit Rs 44 lacs and Maximum Loan Rs 10 lacs.

Loan to Govt Agency as PSL for construction of houses for slum dwellers can be
considered under PSL, if …..Bank loans to any governmental agency for
construction of dwelling units or for slum clearance and rehabilitation of slum
dwellers subject to dwelling units with carpet area of not more than 60 sq. m.

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Criteria to classify loan for setting up social infrastructure like schools etc as PSL

Loans up to a limit of ₹8 crore per borrower for setting up schools, drinking water
facilities and sanitation facilities including construction/refurbishment of
household toilets and water improvements at household level, etc.

Criteria to classify loan to other than individuals for renewable energy as PSL

Bank loans up to a limit of ₹35 crore to borrowers for renewable energy based
power generators and for renewable energy based public utilities, viz., street
lighting systems, remote village electrification etc., will be eligible for priority
sector classification.

Criteria to classify loan to individual households for renewable energy as PSL

For individual households, the loan limit will be ₹10 lakh per borrower.

Criteria to classify loan for building health care facilities in Tier II to Tier VI centres
as PSL

Loans up to a limit of ₹12 crore per borrower for building health care facilities in
Tier II to Tier VI centres.

Purpose of classification of centres into different tiers

In the vast expanse of India, cities emerge as vibrant hubs of commerce, culture,
and opportunity. To comprehend and navigate this diverse urban landscape, the
Indian government has classified cities into four distinct tiers: Tier I, II, III, and IV.
These classifications serve as valuable indicators, shedding light on factors such as
population size, infrastructure development, economic growth, and quality of life.

Tier I Cities: Thriving Urban Centres

Tier I cities in India represent the epitome of urban development, offering a wealth
of opportunities and amenities. Here are some notable Tier I cities in India,
including Bengaluru, Delhi, Chennai, Hyderabad, Mumbai, Pune, Kolkata, and
Ahmedabad. These cities serve as major economic, commercial, and cultural hubs,
drawing both national and international attention

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Tier II Cities: Emerging Urban Centres

Tier II cities in India are witnessing rapid growth and urbanisation, presenting
promising opportunities for development. These Tier II cities are experiencing
significant economic and infrastructural advancements, attracting investments
and fostering business growth.

Tier III Cities: Growing Urban Centres

Tier III cities in India are emerging as significant centres of growth and
development. These cities are witnessing rapid urbanisation and are experiencing
advancements in infrastructure, industry, and services.

Tier IV Cities: Developing Urban Centres

Tier IV cities in India encompass smaller urban centres and towns that are
gradually experiencing growth and development. These cities may have more
limited amenities compared to higher-tier counterparts, but they offer unique
opportunities and contribute to the regional economy

Inter Bank Participation Certificates (IBPCs)

An IBPC is a financial instrument where one bank (the issuer) "borrows" money
from another bank (the lender) for a short period, promising to return the
principal with a specified interest rate.

IBPCs are used by banks to manage liquidity and meet regulatory requirements,
particularly for meeting priority sector lending targets.

IBPCs bought by banks, on a risk sharing basis, are eligible for classification under
the respective priority sector categories, provided the underlying assets are
eligible to be classified under the respective categories.

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Priority Sector Lending Certificates (PSLCs)

Priority Sector Lending Certificates (PSLCs) are tradable instruments issued by

banks that exceed their priority sector lending targets, allowing banks with
shortfalls to meet their obligations by purchasing them.

The provides a trading platform (e-Kuber) for banks to trade PSLCs.

In the context of Priority Sector Lending (PSL), "social credits" essentially refer to
the Priority Sector Lending Certificates (PSLCs). These are financial instruments
that allow banks to fulfil their PSL obligations by buying and selling credits with
other banks. PSLCs are essentially "social credits" that banks can use to meet their
mandated priority sector lending targets, which are set by the RBI.

Mechanism of PSLCs

Banks that lend more to priority sectors than required can issue PSLCs, which can
then be traded on a platform like RBI's e-Kuber. Banks that fall short of their
targets can purchase these certificates to fulfil their obligations.

Objective of PSLCs

The goal of PSLCs is to promote market efficiency in priority sector lending,

incentivize banks to lend to priority sectors, and help banks that struggle to meet
their targets.

Benefits of PSLC Scheme to Banks

For banks with surplus lending: They can earn additional income by selling PSLCs.

For banks with shortfalls: They can meet their PSL targets without having to
increase their lending to priority sectors.

Benefits of PSLC Scheme to Economy

For the economy: PSLCs can help direct credit to priority sectors, which can lead
to increased employment, infrastructure development, and overall economic
growth.

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Life span of a PSLC

PSLCs are short-term accounting instruments that expire at the end of the financial
year in which they were issued.

Classification of Loans given to MFIs for On-lending

Loans disbursed by banks to MFIs are eligible for categorisation as priority sector
advances under respective categories viz., Agriculture, MSME, Social Infrastructure
and Others, provided the MFIs adhere to the conditions prescribed.

Classification of Loans given to NBFCs for On-Lending

Bank credit to registered NBFCs (other than MFIs) for on-lending will be eligible
for classification as priority sector lending under the respective categories subject
to the following conditions:

(a) Agriculture: Up to ₹10 lakh per borrower in respect of ‘term lending’

component under Agriculture

(b) Micro & Small enterprises: Up to ₹20 lakh per borrower provided banks
maintain disaggregated data of such loans in the portfolio.

Classification of Loans given to HFCs for On-Lending

Bank credit to Housing Finance Companies (HFCs), approved by NHB for on-
lending for the purpose of purchase/ construction/reconstruction of individual
dwelling units or for slum clearance and rehabilitation of slum dwellers, will be
eligible for classification as priority sector lending, subject to an aggregate loan
limit of ₹20 lakh per borrower under ‘Housing’ category.

Cap on On-lending to NBFCs

Bank credit to NBFCs (including HFCs) for on-lending will be eligible for PSL
classification up to an overall limit of 5% of individual bank’s total priority sector
lending of the previous financial year.

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Remedy available for Banks in case of shortfall of PSL (compared to target)

All banks reporting shortfall in priority sector lending vis-à-vis the prescribed
target/sub-targets shall be allocated amounts for contribution to the Rural
Infrastructure Development Fund (RIDF) and other funds with NABARD /NHB/
SIDBI/MUDRA Ltd., as decided by the RBI.

Computation of PSL target achievement

While computing priority sector target achievement, shortfall/excess lending for

each quarter will be monitored separately. A simple average of all quarters will be
arrived at and considered for computation of overall shortfall/excess at the end of
the year. The same method will be followed for calculating the achievement of
priority sector sub-targets.

Rate of Interest payable on RIDF balances

The interest rates payable to banks for their contribution to RIDF is based on the
extent of shortfall in Achievement of PSL targets.

Rate of Interest on RIDF if shortfall in PSL achievement is less than 5 percentage

points (PP) - Bank Rate minus 2

Rate of Interest on RIDF if shortfall in PSL achievement is less than 10 percentage

points (PP) but above 5 PP - Bank Rate minus 3

Rate of Interest on RIDF if shortfall in PSL achievement is 10 percentage points

(PP) and above - Bank Rate minus 4

Rate on RIDF, in case achievement of overall Priority credit , but shortfall in any
sub-category

In case of no shortfall in overall PSL target but shortfall in any sub-target, interest
rate of Bank Rate minus 2 percentage points will apply.

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Response of RBI , in case of mis-classification noticed in PSL

The mis-classifications in PSL, if any, identified by the RBI (DoS) will be adjusted
from the PSL achievement of the relevant year, to which the amount of
misclassification pertains, and shortfall will be allocated to various funds in the
subsequent years

Non-financial penalties levied by RBI in case of Non Achievement of PSL Targets

Non-achievement of priority sector targets and sub-targets will be taken into

account while granting regulatory clearances/approvals for various purposes.

Common guidelines for Priority Sector Loans

(a) No loan related and ad hoc service charges/ inspection charges shall be levied
on priority sector loans up to ₹50,000. In the case of eligible priority sector loans
to SHGs/JLGs, this limit will be applicable per member and not to the group as a
whole.

(b) Record shall be maintained by the bank of the date of receipt of application,
sanction, disbursement, rejection with reasons thereof, etc.

(c) Banks shall provide acknowledgement of receipt of applications for priority

sector loans. This acknowledgement is known as Token of Service.

(d) Each priority sector loan shall be classified only in any one of the eight
identified categories.

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20. Government Sponsored Schemes
Difference between a Govt Scheme and Govt Sponsored Scheme

Government schemes are 100% funded by the Government and implemented by

the Government machinery.

In Government Sponsored Scheme (GSS) a certain percentage of the funding is

borne by the States and the implementation is by the State Governments or Banks.

PMEGP

PMEGP (Prime Minister’s Employment Generation Programme Government of

India introduced a new credit linked subsidy programme called Prime Minister’s
Employment Generation Programme (PMEGP) on 04-04-2008 by merging the two
schemes namely Prime Minister’s Rojgar Yojana (PMRY) and Rural Employment
Generation Programme (REGP), for generation of employment opportunities
through establishment of micro enterprises in rural as well as urban areas.

PMEGP is a Central Sector Scheme administered by the Ministry of Micro, Small

and Medium Enterprises (MoMSME).

Implementing Agencies:

National Level: Khadi & Village Industry Commission (KVIC).

State Level: In Rural Areas: Through State Directorates of KVIC , State Khadi &
Village Industries Boards(KVIB) and District Industries Center (DICs).

In Urban Areas: State District Industries Center (DICs) only.

Scheme is operational both in Rural and Urban Areas.

Rural & Urban Areas : Any area with population not exceeding exceeds 20000

persons is called as Rural area. Other Areas are classified as Urban Areas.

Quantum: Maximum Project cost Rs.25 lakhs for manufacturing sector and Rs.10
lakhs for service activities.

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a) Self Help Group is eligible for getting financial assistance under PMEGP.

b) Without Capital Expenditure, Loan is not eligible.

c) Finance under PMEGP is only for new projects.

d) Business/ Trading activities in the form of sales outlets may be permitted in

North-East Regions (NER), Left Wing Extremist (LWE) affected Districts and
Andaman & Nicobar Islands.

e) Retail outlets backed by Manufacturing (including Processing) / Service

facilities may be permitted (across the country).

f) Individuals, SHGs, Societies, Trusts are eligible. Only one person from family
eligible. (Family includes, self and spouse)

Loan Amount : Up-to 90% of project cost including subsidy (95% in case of special
category borrowers) without any Income Criteria.

Identification by task force consisting of KVIC/KVIB representative, DIC and banks

representatives.

Eligibility:

a) Above 18 years of age.

b) For setting project above Rs.10 lakhs in manufacturing sector and above Rs.5

lakhs in business/service sector, beneficiary should pass at least 8th standard.

c) Persons who have undergone at least 2 weeks Entrepreneurship Development

training can submit applications directly to Banks.

d) EDP training of 2 to 3 weeks compulsory before disbursement of loan.

e) Exempted for those who undergone training earlier.

f) The minimum limit of 12 months allowed for completion of EDP training after
release of first disbursement has been withdrawn by KVIC.

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Since Online EDP training has been introduced from October, 2019 through
Samadhan portal and PMEGP beneficiaries can opt for either pre-sanction EDP or
post-sanction EDP training either through online or offline mode, it is once again
reiterated that Pre-sanction EDP training completed by the PMEGP beneficiaries
through online EDP portal (Samadhan portal) is valid and should be considered at
par with post-sanction EDP training by Branches/Offices, as the content of syllabus
is one and the same.

Margin: General Category minimum 10% of project cost and Special category
beneficiary: 5% of project cost.

Project cost: Cost of land should not be included in the Project cost.

Project cost will include Capital Expenditure and one cycle of Working Capital.

Projects without Capital Expenditure are not eligible for financing under the
Scheme.

Projects costing more than ₹ 5 Lakh, which do not require working capital, need
clearance from the next higher authority.

Subsidy: General Category: Urban 15%, Rural 25%. Special category beneficiary (i.e
SC/ST/OBC/ Minorities /Women, Ex SM, OPH, NER, Hill & Border areas)

Urban:25%, Rural 35% of project cost.

The proportionate margin money to be refunded to KVIC for non-adherence of

scheme guidelines are as under:

If Bank finance working capital expenditure is in the form of cash credit, the
working capital component should be utilized in such a way that at one point of
time within three years of lock in period of margin money, the cash credit
availment touches 100% of the limit of the sanctioned cash credit and never falls
below 75% of the said limit.

If it does not touch 100% limit, proportionate amount of the margin money
subsidy is to be recovered and refunded to KVIC at the end of the third year.

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In case the account becomes NPA before the three year lock-in period, due to
reasons, beyond the control of the beneficiary, the Margin Money (subsidy) will
be returned to KVIC along with interest.

Repayment : 3 to 7 years, with repayment holiday up to 6 months.

Targets: 50% should be Rural Area Projects.

Social Target :SC-15%, ST-7.5 %,Women-30 % ,Minority -5 %

Village Industry: Fixed Capital Investment per Artisan/worker not to exceed Rs.1
lakh in plain areas and Rs.1.5 lakhs in Hill Areas.

Collateral Security :No collateral security/Third Party Guarantee for loans upto
Rs.10 lakhs to MSEs including units financed under the Prime Minister
Employment Generation Programme (PMEGP) of KVIC. However, such loans shall
invariably be covered under appropriate credit guarantee scheme, as per extant
guidelines, to safeguard the interest of the Bank. CGMSE coverage to be ensured
wherever applicable. Moreover, the PMEGP beneficiaries can also avail loans up to
Rs. 25 lakhs without furnishing collateral securities. However, such loans shall be
invariably covered under the credit guarantee scheme of CGTMSE.

Disposal of loan application

Disposal of loan applications under PMEGP scheme to be ensured within the

stipulated time frames of 30 days in respect of loan quantum above Rs. 5 lakhs
and within 15 days for loan quantum up to Rs. 5 lakhs.

Decision for rejection of credit proposals under the scheme shall be taken by
appropriate Authorities taking into account the guidelines as under:

a) Applications for credit facilities from SC / ST customers shall not be rejected at

branch level and such rejections shall be by the next higher authority.

b) Whenever applications for loans under govt. sponsored schemes are rejected
by the Branch Manager for valid reasons, the same has to be recorded in a register
maintained to this effect.

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c) Rejection of credit proposals from MSMEs is subject to concurrence of the next
higher authority.

d) Turn Around Time (TAT) within 30 days for loan quantum above Rs. 5 lakhs and
within 15 days for loan quantum uptoRs.5 Lacs .

e) Online applications will be mandatory and no manual applications will be

allowed.

f) There will be two separate online application forms for individuals and
institutional applicants available on the portal.

g) Sanction will be issued based on the online sanction letter and copies of the
sanction order will be sent to the applicant (by e-mail/hard copy) as well as to
KVIC/ KVIB/ DIC within 30 days from the receipt of District Level Task Force
committee (DLTFC) recommended application from the District Agencies.

h) The applicant will deposit his own contribution and copy of EDP training
certificate to the financing bank within 10 working days of receiving the
communication of sanction of loan.

Negative List of activities (Not to be financed under PMEGP):

Business activities like opening of grocery and stationery shops etc., involving no
manufacturing process and value addition; Farm related activities like Goatery,
Piggery, Poultry etc., Business connected with meat, intoxicated items, animal
husbandry; Manufacturing of polythene carry bags of less than 5 micron thickness
and manufacturing of carry bags/ containers of recycled plastic are not permitted.

Urban / Rural transport activities except: (a) Auto Rickshaw, Tourist boat and
house boat in A & N Islands. (b) The House boat, Shikara and tourist boat in J &
K. (c) Cycle rickshaw.

Any industry / business connected with cultivation of crops/plantation like Tea,

Coffee, Rubber etc., Sericulture (Cocoon rearing), Horticulture, and Floriculture.

Value addition under these will be allowed under PMEGP.

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Ministry of MSME has since discontinued the system of claiming PMEGP margin
money subsidy through nodal branches (Corporation Bank)/KVIC portal) and has
introduced an online system for quick disposal of the margin money subsidy
claims. The online system has come into effect from 01.07.2016.

The online claim form will be automatically checked for the fulfilment of two
conditions:

The date of release of first instalment is prior to the date of filing of Margin Money
subsidy claim and The amount of first instalment released is more than the Margin
Money subsidy amount claimed.

On receipt of Margin Money (subsidy) in favour of the loanee on the same day,
branch should keep it in Zero Interest Term Deposit for a period of three years
(Lock-in period) in the name of the beneficiary/Institution, duly noting Bank’s lien
on the deposit to the loan account in the CBS system.

PMEGP Second Loan

Objectives:-

To fulfill the need of additional financial assistance for upgrading and expansion
to the successful / well-performing units.

To cater to the need of the entrepreneurs for bringing new

technology/automation so as to modernize the existing unit.

To enhance the productivity of the existing units with the inclusion of additional
dose of funding.

To enhance the capacity of the existing unit with the additional financial assistance
assuring additional wage employment.

Quantum and Nature of financial assistance: 2nd Loan for up-gradation of existing
PMEGP/MUDRA units:

Categories of Beneficiaries Beneficiary Contribution Rate of Subsidy (Project

Cost)

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All categories 10% (of proposed expansion /up-gradation cost) 15% (20% in
NER and Hill States)

The maximum cost of the project/unit admissible under manufacturing sector for
up-gradation is Rs.1.00 Crore, and the maximum subsidy would be Rs.15 lakhs
(Rs.20 lakhs for NER and Hill States).

b) The maximum cost of the project/unit admissible under Service/Trading sector

for up-gradation is Rs.25 lakhs, and the maximum subsidy would be Rs. 3.75 lakhs
(Rs. 5 lakhs for NER and Hill States).

c) For all categories), rate of subsidy (of project cost) is 15% (20% in NER and Hill
States).

Beneficiary’s contribution will be 10% for all categories.

d) The balance amount of the total project cost will be provided by bank as term
loan. The applicant can utilize the loan amount for investment on fixed assets i.e.
for construction of building/purchase of required new machineries/Installation of
machinery etc.

e) Under the term loan component (construction of building/industrial shed,

machinery & equipment etc.), the construction of own building may be included
and ceiling of construction should not usually exceed 25% of the total sanctioned
project cost.

f) The capital expenditure component including cost of construction should be

upto 60% of the total project cost. The working capital cost would be upto
40%.However, the financing bank can decide the criteria at the time of sanction of
loan based on the nature of the project.

Eligibility conditions for the beneficiaries:

All existing units financed under PMEGP/MUDRA Scheme whose margin money
claim has been adjusted and the first loan availed should have been repaid in
stipulated time are eligible to avail the benefits.

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a) The unit should have been making profit for the last three years.

b) Beneficiary may apply to the same financing bank, which provided first loan, or
to any other bank, which is willing to extend credit facility for second loan.

c) Registration of Udyog Aadhaar Memorandum (UAM) is mandatory.

d) The 2nd loan should lead to additional employment generation

Submission of ITR for last 1 year instead of 3 years, since the proof of making
profit by an enterprise for last three years could be worked out from the “annual
accounts certificate” issued by the Chartered Accountant for the last 3 years.

REGP units may also be considered for availing the facility of 2nd loans besides
PMEGP / MUDRA units.

Differential Rate of Interest Scheme

The DRI scheme was introduced by public sector banks in 1972 as per the
recommendation of the Hazari Committee (1971). Under this Scheme banks
provide loans to the weaker sections of both rural and urban areas, both directly
and indirectly through RRBs.

Maximum Quantum: Rs.15,000/- (For physically handicapped additional loan of

Rs.5000/- for artificial limbs/Braille typewriter.

Repayment Period:5-7 years fixed based on the income generation of the

borrower on installment or EMI basis.

Housing Loans under DIR Rs.20,000/- for SC/STs and Rs.15,000/- for others For EL,
as per Model IBA Educational Loan Scheme guidelines.

Eligibility:

Annual family income Rs.18,000/- in Rural and Rs.24,000/- in Urban and Semi
Urban areas Individual whose land holding does not exceed 1 acre of irrigated and
2.5 acres of unirrigated land. No Ceiling for SC/ST engaged in Agriculture and
Allied activities.

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Target:

1% of previous years Total Bank Credit.

2/3rd of DIR loans in Rural & Semi Urban.

Minimum 40 % to SC/ST beneficiaries.

DRI Scheme is operated through the following institutions:

Orphanage and Women’s home

Institutions for physically handicapped.

State Corporations for SC/ST.

State Minority Finance/Development Corporation.

Finance under DRI scheme for Solar Home Lighting System

Objective:

To be classified under Priority sector advances.

To Purchase / installation of brand new Solar Home Lighting System.

Eligibility Family Income:

Annual Family income of the borrower from all sources should not exceed
Rs.18000/- in rural areas and Rs.24000/- in Semi urban / Urban areas.

Eligibility Land holding SC/ST Borrowers: There is no ceiling on land holding but
the borrowers should satisfy the income criteria.

Eligibility Land Holding - Other than SC/ST Borrowers: The borrower need not own
any land or the size of the land holding should not exceed one acre in case of
irrigated land and 2.5 acres in the case of un-irrigated land.

Quantum of Loan - The loan up to a maximum of Rs. 15000/- per unit.

Disbursement to be made directly to suppliers against authorization from the

borrower.
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Post installation inspection to be conducted and report to be held on record.

No Margin to be insisted.

The assets purchased out of the bank loan are to be hypothecated to the Bank.

No co-obligation to be insisted.

Simple interest at 4 % p.a.

The loan is to be recovered within 60 months with a minimum repayment period

of 36 months.

Self Employment Scheme for Rehabilitation of Manual Scavengers (SRMS)

The Objective of the SRMS Scheme aims at assisting the manual scavengers,
identified during various surveys, for their rehabilitation in alternative
occupations.

Manual Scavengers and their dependents, irrespective of their income, will be

eligible for assistance. National Safai Karmacharis Finance & Development
Corporation (NSKFDC) is the nodal agency.

Quantum - Loans up to a maximum project cost of Rs. 15 lakhs will be admissible

to identify manual scavengers and their dependents under the scheme. However,
for projects of Self Help Groups/ groups, the maximum project cost shall be
limited to Rs. 50 lakh. For sanitation related projects, apart from manual
scavengers, sanitation workers and their dependents would also be eligible for
assistance under the Scheme

The beneficiaries have option to select any viable income generating self
employment project.

a) Term Loan- Up to a maximum project cost of Rs.15.00 lakhs for sanitation

related b) projects and up to Rs.10.00 lakhs for other activities.

Micro Financing - Up to a maximum project cost of Rs.25,000/- per scavenger.

Micro financing will be done through SHGs & NGOs.

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Where the rate of interest chargeable by the banks on loans is higher than the
rates prescribed, interest subsidy to the extent of the difference will be given to
the banks by the respective State Channelising Agencies (SCAs)/ or NSKFDC.

a) For projects up to Rs.1,00,000/- @ 5% p.a

b) @ 4% per annum for women beneficiaries

c) For projects above Rs.1,00,000/- @ 6% p.a.

Interest Subsidy: As the applicable rate of interest is higher than the rate of interest
chargeable under the scheme, Interest subsidy to the extent of the difference in
rate of interest will be reimbursed to the bank by the Government / other agencies
identified by Government.

Cash Assistance: The identified manual scavengers, one from each family, would
be eligible for One Time Cash Assistance (OTCA) of Rs. 40,000/- or any such
amount as OTCA as revised from time to time Security: Only hypothecation of
assets created out of loans / subsidy in favour of the bank.

Repayment:

The period of repayment of loan, including moratorium period will be five years
for projects upto Rs. 5,00,000 and 7 years for projects above Rs. 5,00,000 with a
moratorium period to start the repayment of loan will be upto 6 months.

Projects up to Rs.5 Lakhs - 5 years after moratorium period

Projects above Rs.5 Lakhs - 7 years after moratorium period

The moratorium period/ repayment holiday allowed is up to 2 years.

Since the subsidy is back ended, instalments to be fixed on the total loan quantum.

Training : Maximum training period increased up to 24 months, depending upon

trade and maximum stipend upto Rs.3000/- p.m. is provided.

The loans are to be disbursed only after receipt of upfront subsidy.

Disbursement process should commence immediately upon receipt of subsidy.

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NRLM

Deendayal Antyodaya Yojana (DAY)-National Rural Livelihood Mission NRLM –

Aajeevika

DAY-NRLM earlier known as SGSY.

National Rural Livelihood Mission launched by the Ministry of Rural Development,

Government of India by restructuring Swarna Jayanthi Gram Swarozgar Yojana
(SGSY) w.e.f. 01.04.2013.

NRLM is the flagship programme of Government of India to promote poverty

reduction through building strong institutions for the poor, particularly women.

Objective: To bring assisted poor families above the poverty line over a period of
time.

NRLM supports around capacity building of SHGs (especially WSHGs).

The homogeneous group which comprises only women as group members in rural
areas only is eligible for coverage under NRLM scheme.

SHG can avail either TL or CC or both based on need.

SHGs should practice Panchasutra principles without fail, i.e., Regular Meetings,
Regular Savings, Regular inter-loaning, Timely repayment and maintenance of
proper up-to-date Books of Accounts.

Loan amount should be released in multiple doses and repayment linked to release
of such doses.

SHGs can avail either Term Loan or Cash Credit Limit or both based on need.

Non-wilful defaulter is also eligible for availing loan.

Loan coverage should be: 50 % of beneficiaries from SC/ST, 15% to minorities and
3% to persons with disabilities.

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Women SHGs under DAY-NRLM consists of 10-20 persons. In case of special SHGs,
ie., groups in difficult areas, groups with disabled persons, and groups formed in
remote tribal areas, this number may be a minimum of 5 persons.

DAY-NRLM promotes affinity based women self-help groups. Only for groups to
be formed with Persons with disabilities, and other special categories like elders,
transgenders, DAY-NRLM will have both men & women in the Self-Help Groups.

Financial Assistance to the SHGs:

Revolving Fund under NRLM – Min Rs.10,000; Max Rs.15000 for a minimum period
of 3/6 months and follow the norms of good SHGs, ie., they follow “Panchasutra”.

Capital subsidy discontinued: No Capital Subsidy will be sanctioned to any SHG

from the date of implementation of NRLM.

Community Investment support Fund (CIF):

CIF would be provided by MoRD to the SHGs promoted under DAY – NRLM in all
blocks (intensive and non-intensive) and would be routed through the Village
level/ Cluster level Federations

The CIF would be used, by the Federations, to advance loans to the SHGs and/or
to undertake the common/collective socio-economic activities.

Introduction of Interest subvention:

NRLM has a provision for interest subvention, to cover the difference between the
Lending Rate of the banks and 7%, on all credit from the banks availed by women
SHGs, for a maximum of Rs.3 lacs per SHG. This will be available in two ways:

a) In 250 identified districts, Branches will lend to the women SHGs @7% up to an
aggregated loan amount of Rs.3,00,000/-. The Branches would be sub-vented to
the extent of difference between the Weighted Average Interest Charged and 7%,
subject to the maximum limit of 5.5%. An additional interest subvention of 3% is
also available on prompt repayment by the SHGs, reducing the effective rate of
interest to 4%.

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b) In the remaining districts, the Branches may lend at their respective lending
rates applicable to SHGs. In these districts, all women SHGs under DAY– NRLM
would be eligible for interest subvention on prompt repayment.

The difference between the lending rates and 7% for loans up to Rs.3,00,000/-
subject to a maximum limit of 5.5%, would be sub-vented directly in the loan
accounts of the SHGs by the SRLMs. This part of the scheme would be
operationalized by the SRLMs.

c) ROI charged on SHG loans above Rs. 3.00 lakhs is as advised from time to time.

JLGs are not eligible for subsidy under NRLM scheme.

Interest Subvention Scheme is not applicable for the outstanding loans under
SGSY, where capital subsidy is already released.

Lending Norms to individual SHG members and SHGs:

Eligibility criteria for the SHGs to avail loans:

SHG should be in active existence at least since the last 6 months as per the books
of account of SHGs and not from the date of opening of S/B account and be
practicing ‘Panchasutras’.

Qualified as per grading norms fixed by NABARD

At the time of credit linkage, KYC verification of all members of the SHG is
mandatory

The existing defunct SHGs are also eligible for credit if they are revived and
continue to be active for a minimum period of 3 months.

All banks should use the Common Loan Application Forms recommended by
Indian Bank’s Association (IBA) for extending credit facility to SHGs.

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Loan amount: Emphasis is laid on the multiple doses of assistance under
DAYNRLM. This would mean assisting an SHG over a period of time, through
repeat doses of credit, to enable them to access higher amounts of credit for
taking up sustainable livelihoods and improve on the quality of life.

SHGs can avail either Term Loan (TL) or a Cash Credit Limit (CCL) loan or both
based on the need. In case of need, additional loan can be sanctioned even though
the previous loan is outstanding. The amount of credit under different facilities is
as follows:

Cash Credit Limit ( CCL): In case of CCL, to sanction a minimum loan of Rs.6 lakhs
to each eligible SHGs for a period of 3 years with a yearly drawing power (DP). The
drawing power may be enhanced annually based on the repayment performance
of the SHG. The drawing power may be calculated as follows:

DP for First Year: 6 times of the existing corpus or Minimum of Rs.1 lakh,
whichever is higher.

DP for Second Year: 8 times of the corpus at the time of review/enhancement or

Minimum of Rs.2 lakhs, whichever is higher.

DP for Third Year: Minimum of Rs.6 lakhs based on the Micro credit plan prepared
by SHG and appraised by the Federations / Support agency and the previous credit
History.

DP for Fourth Year onwards: Above Rs.6 lakhs based on the Micro credit plan
prepared by SHG and appraised by the Federations / Support agency and the
previous credit History.

Sanction of cash credit limit for the tenability of 3 years and renewal thereafter
will help to avoid repeated documentation which involves lot of activity for the
Group as well as for the Branches.

Term Loan:

First Dose: 6 times of the existing corpus or Minimum of Rs.1 lakh, whichever is
higher.

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Second Dose: 8 times of the existing corpus or Minimum of Rs.2 lakh, whichever
is higher.

Third Dose: Minimum of Rs.6 lakhs based on the Micro credit plan prepared by the
SHGs and appraised by the Federations / support agency and the previous credit
History

Fourth Dose: Above Rs.6 lakhs based on the Micro credit plan prepared by the
SHGs and appraised by the Federations/ Support agency and the previous credit
History

Banks should take necessary measures to ensure that eligible SHGs are provided
with repeat loans.

Corpus is inclusive of revolving funds, if any, received by that SHG, its own savings,
interest earning by SHG from on-lending to its members, income from other
sources, and funds from other sources in case of promotion by other
institutes/NGOs.

Purpose of Loan and repayment:

The loan amount should be distributed among members based on the Micro
Credit Plan prepared by the SHGs.

The loans may be used by members for meeting social needs, high cost debt
swapping, construction of toilets and taking up sustainable livelihoods by the
individual members within the SHGs or to finance any viable common activity
started by the SHGs.

Coverage: At least 50% of loans above Rs.2 lakhs and 75% of loans above Rs.4
lakhs and at least 85% of loans above Rs.6 lakhs be used primarily for income
generating productive purposes. Micro Credit Plan (MCP) prepared by SHGs would
form the basis for determining the purpose and usage of loans.

Repayment schedule for Term Loans could be as follows:

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The first dose of loan shall be repaid in 24 - 36 months in monthly/ quarterly
instalments.

The second dose of loan shall be repaid in 36 - 48 months in monthly/quarterly

instalments.

The third dose of loan shall be repaid in 48 - 60 months based on the cash flow in
monthly/ quarterly instalments.

The loan from fourth dose onwards has to be repaid between 60 – 84 months based
on the cash flow in monthly/ quarterly instalments.

Prompt Payment means:

For Cash Credit Limit: Outstanding balance shall not have remained in excess of
the limit/drawing power continuously for more than 30 days along with regular
credits and debits in the account.

Customer induced credit should be sufficient to cover the interest debited during
the month.

For the Term loans: Interest payments / instalments of principal are paid within 30
days of the due date during the tenure of the loan, would be considered as an
account having prompt payment

Security and Margin:

No collateral and no margin will be charged up to Rs.20.00 lakhs limit to the SHGs.
No lien should be marked against savings bank account of SHGs and no deposits
should be insisted upon while sanctioning loans.

Dealing with Defaulters:

The wilful defaulters should not be financed under DAY-NRLM. In case wilful
defaulters are members of a group, they might be allowed to benefit from the
thrift and credit activities of the group including the corpus built up with the
assistance of Revolving Fund.

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At the stage of accessing bank loan by SHG for financing economic activities by its
members, the wilful defaulters should not have the benefit of such bank loan until
the outstanding loans are repaid.

Wilful defaulters of the group should not get benefits under the DAY-NRLM
Scheme and the group may be financed excluding such defaulters while
documenting the loan. However, Branches should not deny loan to entire SHG on
the pretext that spouse or other family members of individual members of SHG
being a defaulter with the bank.

Further, non-wilful defaulters should not be debarred from receiving the loan. In
case default is due to genuine reasons, Branches may follow the norms suggested
for restructuring the account with revised repayment schedule.

Asset classification : All facilities will be governed by Asset Classification norms

issued by Reserve Bank of India from time to time.

Know Your Customer (KYC) verification of only the office bearers shall suffice for
opening of savings bank account.

Opening of SB accounts of all the members is not mandatory for credit linkage to
SHGs.

BCs can also open SB accounts of SHGs after verification / approval from base
branches; subject to adherence to extant BC guidelines of the Bank.

Should not insist on Permanent Account Number (PAN) of SHGs at the time of
opening of account or transactions and may accept declaration in Form No 60 as
may be required.

Supervision and monitoring of the Scheme

DAY-NRLM cells at Regional / Zonal office has to be set up. These cells should
periodically monitor and review the flow of credit to the SHGs, ensure the
implementation of the guidelines to the scheme, collect data from the branches
and make available consolidated data to the Head office and the DAY-NRLM units
the districts / blocks.

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Reporting to RBI: Banks may give a state-wise consolidated report on the progress
made on DAY-NRLM to RBI / NABARD at Quarterly intervals. The data may be
submitted within a month from the end of the concerned quarter.

Financial Literacy:

Financial Literacy is one of the important strategies to spread awareness on

financial behaviour and keep households informed about various financial
products and services.

DAY-NRLM has trained and deployed a large number of cadre called ‘Financial
Literacy Community Resource Persons (FL-CRPs)’ to carry out financial literacy
camps at village level.

Funding Pattern: DAY-NRLM is a Centrally Sponsored Scheme and the financing

of the programme would be shared between the Centre and the States in the ratio
of 60:40 (90:10 in case of North Eastern States including Sikkim; completely from
the Centre in case of UTs)

Important Points related to Various Schemes

PMMSY and what is it’s objective

PMMSY stands for Pradhan Mantri Matsya Sampada Yojana , It’s aim is to double
the income of fish farmers and fishers in the country. It focuses on sustainable
development of India's fisheries sector and is a part of the Atmanirbhar Bharat
scheme.

PMFME

PMFME stands for Pradhan Mantri Formalisation of Micro Food Processing

Enterprises Scheme. It envisages financial support of Rs. 40,000 for working
capital and purchase of small tools for each member of the Self Help Group (SHG)
engaged in food processing activities.

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PM KISAN

PM-KISAN stands for Pradhan Mantri Kisan Samman Nidhi. It is an initiative by

the government of India that give farmers up to ₹6,000 per year as minimum
income support. PM Kisan is a Central Sector scheme with 100% funding from
Government of India. The fund will be directly transferred to the bank accounts of
the beneficiaries.

PMMY

PMMY stands for Prime Minister’s Mudra Yojna. It enables a small borrower to
borrow from all Public Sector Banks such as PSU Banks loans upto Rs 10 lakhs for
non-farm income generating activities.

There are 3 types of loans that are provided under PMMY. They are …

Shishu : covering loans upto 50,000/-

Kishor : covering loans above 50,000/- and upto 5 lakh

Tarun : covering loans above 5 lakh and upto 10 lakh

Target under PMMY for Shishu category of loans?

It would be ensured that at least 60% of the credit flows to Shishu Category Units
and the balance to Kishor and Tarun Categories.

There is no subsidy for the loan given under PMMY. However, if the loan proposal
is linked some Government scheme, wherein the Government is providing capital
subsidy, it will be eligible under PMMY also.

For Loans under PMMY, No processing fee to be levied and No collateral to be

insisted.

For loans under PMMY, Repayment period is extended up to 5 years

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The criteria to treat a Unit as a Start Up

An entity shall be considered as a Startup;

1. Up-to a period of ten years from the date of incorporation/registration, if it is

incorporated as a Private Limited Company or Registered as a Partnership Firm or
a Limited Liability Partnership in India.

2. Turnover of the entity for any of the financial years since incorporation/
registration has not exceeded Rs. 100 crore.

3. Entity is working towards innovation, development or improvement of products

or processes or services, or if it is a scalable business model with a high potential
of employment generation or wealth creation. Provided that an entity formed by
splitting up or reconstruction of an existing business shall not be considered a
‘Startup’.

Stand-up India Scheme

The objective of the Stand-Up India scheme is to facilitate bank loans between Rs
10 lakh and Rs 1 Crore to at least one Scheduled Caste (SC) or Scheduled Tribe (ST)
borrower and at least one woman borrower per bank branch for setting up a
greenfield enterprise.

Only for New Units. Stand-Up Scheme is for setting up a new enterprise in
manufacturing, trading or services sector by SC/ST/Women entrepreneur.

Target Group under Stand-Up India Scheme - SC/ST and/or Women entrepreneurs
setting up new enterprises are eligible for availing loans under Stand-Up India
Scheme. Typically projects in the manufacturing, trading and service sector would
be eligible for coverage under the scheme.

Security requirement under the Stand-Up India Scheme - In addition to

mortgage/hypothecation of Primary Asset acquired out of loan, the loan may also
be secured by collateral security or guarantee of Credit Guarantee Scheme for
Stand-Up India Loans (CGSSI) as decided by the banks.

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The repayment period of the composite loan under Stand-Up India Scheme is to
be fixed depending upon nature of activity and useful life of assets purchased with
bank loan but not to exceed 7 years with a maximum moratorium period of 18
months.

The difference between Stand-Up India Scheme and Start Up India Scheme

Stand-Up India Scheme is intended to support SC/ST/Women entrepreneurs to set

up a green field projects through bank branches in India while Start Up India
Scheme aims to boost innovative and technology led enterprises for new/existing
enterprises.

Trainee Borrower and Ready Borrower

Both these terms are used in the context of Stand-Up India Loan Product of SIDBI.
The Applicants for the loan furnish details in the Portal created for the purpose.
The approach of this Stand-Up India Portal, for handholding is based on obtaining
answers to a set of relevant questions at the initial stage. Based on the response,
the applicants (prospective borrowers) are categorised as Ready Borrower or
Trainee Borrower.

The Applicant who needs handholding support he is known as Trainee Borrower

and the one who does not require handholding support is known as Ready
Borrower.

PM SVANidhi (CGS-PMS)

PM SVANidhi stands for Prime Minister Street Vendor‘s AtmaNirbhar Nidhi. It is

a Scheme of Ministry of Housing & Urban Affairs (MoHUA) for sanction of working
capital loan upto Rs. 10,000 to street vendors through the Lending Institutions.

CGS – PMS is a Credit Guarantee Scheme for PM SVANidhi is the graded guarantee
scheme under which the credit product / loan would be guaranteed by CGTMSE.

The CGS-PMS is a portfolio guarantee provided by CGTMSE to Member Lending

Institutions (MLIs) for facilitating sanction of Working Capital (WC) loan of upto
Rs.10,000/- to individual street vendors.

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The objective of the PM SVANidhi Scheme is to provide portfolio-based guarantee
coverage to the Member Lending Institutions (MLIs) of CGTMSE to facilitate
sanction of working capital loan up to Rs.10,000/-

Under PM SVANidhi Scheme, beneficiary is eligible for Initial working capital loan
up-to Rs.10,000/- (Rupees Ten Thousands only).

Under PM SVANidhi Scheme, beneficiary is eligible subsequent loan on timely or

early repayment of initial loan, with an enhanced limit of a maximum of 200% of
the earlier loan, subject to a ceiling of Rs 20,000/- (Rs Twenty Thousands only).

Under PM SVANidhi Scheme tenure of the loan will be maximum of 1 year.

CGTMSE will not charge any guarantee fee under the Scheme.

PM Vishwakarma Scheme

To provide financial assistance to eligible artisans and craftsperson.

Scheme Effective up to: Initially implemented for five years up to 2027-28, if not
withdrawn /amended by a further notification.

The beneficiary should have undergone Skill Verification and successfully

completed 5 days Basic Skill training to be eligible to avail first tranche of credit
support of up to Rs 1 lakh.

Applications to be routed through online Vishwakarma portal.

Type & Quantum of Loan: WCDL. In 2 tranches: First Tranche- up to Rs. 1.0 lakh,
Second Tranche- up to Rs. 2.0 lakhs.

Margin: NIL.

Disbursement: Single disbursement in the A/c of borrower with our Bank or

directly to Vendor.

GST/Non-GST bills to be obtained along with undertaking for end utilization.

Repayment: 1st Tranche in 18 Months, 2nd Tranche in 30 Months, No Moratorium.

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Rate of Interest: 13%

Interest Subvention: The benefit of entire interest subvention of upto 8% shall be

passed on upfront to the beneficiaries by MoMSME through Bank. However
concessional/effective rate of interest shall not fall below 5.00% p.a.

Security: Primary: Assets created out of Bank Finance.

Collateral: NIL.

Credit Guarantee: To be covered under CGTMSE. No AGF will be charged and

Coverage is under portfolio basis and the portfolio will be created on an annual
basis ending with the financial year.

Proc/Doc/Ins charges: Nil. However, Stamp Duty and CIC charges on actual basis
shall be borne by the borrower (if applicable).

Operational Guidelines:

a) Application to be generated from online portal of PM Vishwakarma.

b) Udyam Assist Portal/ Udyam Registration No. is mandatory.

c) Credit information report to be generated and analyzed at the time of sanction

No prepayment penalty shall be charged after 6 months of loan disbursement.

DAY-NULM

The Deendayal Antyodaya Yojana – National Urban Livelihoods Mission (DAY-

NULM) officially concluded on September 30, 2024. The scheme, which aimed to
reduce poverty in urban areas by providing self-employment and wage
employment opportunities, was replaced by NULM 2.0 in 2024.

NULM 2.0

The guidelines for NULM 2.0 (now referred to as DAY-NULM ) focus on

empowering the urban poor through the creation of urban micro-enterprises,
providing access to skills and markets, and offering assistance like micro-credit,
training, and support for social infrastructure.
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Key aspects include a minimum 30% women's participation in the Self-
Employment Program (SEP), targeted support for Scheduled Castes (SCs),
Scheduled Tribes (STs), and persons with disabilities, and earmarking 15% of
physical and financial targets for minority communities, along with a 3% provision
for the differently-abled.

Micro Finance Vs. Micro Credit

Micro Credit is a component of Micro Finance in that it involves providing credit

to the poor, but Micro Finance also involves additional non-credit financial
services such as savings, insurance, pensions and payment services.

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21. Retail Loans
A retail loan can help you meet your need for funds instantly. The loan amount
can be used for anything and does not have any end usage restriction. Both big
ticket and small ticket purchases can be made using these loans, and they can then
be paid back in EMIs. There are many types of retail loans, and you can choose a
loan suitable to your specific needs.

A retail loan is a loan that is curated to meet the financial needs of individuals
rather than businesses. Both banks and NBFCs provide this loan. If you want to
make some immediate purchases but do not have the required funds for it, then
you can go in for retail loans. The loan terms and conditions depend on the
borrower’s creditworthiness, repayment capabilities, and income. The interest
rates that you will have to pay for these loans depend on the market conditions,
loan amount, tenure, and credit history of the borrower.

Characteristic of Retail Loans

Retail loans (or consumer loans) are credit facilities extended directly to
individuals to finance personal expenses, such as home purchases, vehicles,
education, or medical emergencies. Their fundamental hallmark is high-volume,
small-ticket lending to a large demographic, dispersing financial risk across many
borrowers.

Target Audience: Geared entirely toward individual consumers (both salaried and
self-employed) rather than corporate or business entities.

Small Ticket Size with High Volume: Because loans are dispersed to millions of
individuals, individual exposure is quite small, which helps protect banks and
NBFCs against systemic defaults.

Risk Evaluation: Eligibility is primarily based on the borrower’s individual income,

employment stability, and personal Credit Score rather than complex corporate
balance sheets.

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Security Types: They can be secured (e.g., mortgages and auto loans where the
asset acts as collateral) or unsecured (e.g., personal loans and education loans).

Repayment Structure: Repayments are usually made through Equated Monthly

Installments (EMIs) via auto-debit or digital channels over a predetermined tenure.

Interest Rates: Typically higher than wholesale corporate loans, but generally
lower than credit card revolving debt. Rates can be either fixed or floating.

Purpose of Use: Funds are designated for personal, domestic, or lifestyle purposes,
not for commercial working capital or business expansion.

Advantages of Retail Loans

Retail loans provide individuals and small businesses with quick access to capital,
allowing them to fund personal needs or business growth without exhausting their
savings.

Fulfillment of Immediate Needs: Retail loans provide funds for urgent

requirements like medical emergencies, weddings, or time-sensitive
opportunities.

Enhanced Purchasing Power: They allow consumers to acquire "big-ticket" items—

such as homes or vehicles—that might otherwise take years of saving to afford.

Better Cash Flow Management: By breaking down large expenses into fixed
Equated Monthly Installments (EMIs), borrowers can budget more effectively
without disrupting their daily financial stability.

Protection of Savings: Borrowers can use loan funds for planned or unplanned
needs while keeping their emergency savings intact.

Credit Score Improvement: Consistent, timely repayment of retail loans helps build
a positive credit history, making it easier to secure larger loans with better terms
in the future.

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Flexible Terms: Many lenders, such as those featured on Poonawalla Fincorp, offer
customizable repayment tenures and loan amounts tailored to the borrower's
income.

Competitive Interest Rates: Especially for secured loans like Home Loans or Gold
Loans, interest rates are often lower than credit cards or other unsecured credit
forms.

Simplified Application Process: Modern digital banking often requires minimal

documentation, making retail loans highly accessible through online portals or
mobile apps.

Potential Tax Benefits: Specific retail products, particularly home loans, may offer
tax deductions under local regulations.

Retail Banking Vs Corporate Banking

Retail banking serves individual consumers with personal financial services like
savings accounts and mortgages, while corporate banking caters to businesses,
offering tailored solutions such as commercial loans, treasury management, and
trade finance. Retail focuses on high-volume, small-value transactions, whereas
corporate banking involves large-scale, complex financial operations.

Customer Base:

Retail serves individuals and small businesses. Corporate serves large corporations,
institutions, and government entities.

Products Offered:

Retail: Savings accounts, personal loans, mortgages, credit cards, and debit cards.

Corporate: Working capital loans, trade finance, treasury management, and

corporate credit cards.

Service Delivery: Retail uses widespread branches, ATMs, and consumer digital
apps. Corporate relies on dedicated relationship managers and personalized, high-
touch services.

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Risk Profile:

Retail carries lower credit risk per customer, while corporate banking deals with
larger, higher-risk, or more complex transactions.

Relationship Focus:

Retail interactions are generally transactional, whereas corporate banking focuses

on long-term partnerships and bespoke financial solutions.

Summary Table

Feature Retail Banking Corporate Banking

Primary Target Individual Consumers Businesses/Conglomerates
Transaction Size Small/Moderate Large/High Volume
Main Objective Personal financial Operational and strategic
management funding
Interaction Channel Branches, ATM, App Relationship Managers
Risk Level Lower Higher
Types of retail loans are:

Personal Loans

Personal loans are unsecured loans and are not backed by any collateral. They are
the best loans one can get to fund their immediate financial needs. They don’t
have any end usage restriction and can be used for various purposes like medical
emergencies, home repairs, vacation expenses, etc.

Home Loans

A housing loan has flexible repayment options and reasonable interest rates.
Moreover, you can easily pay back your loan within a period of 20 to 30 years.

Vehicle Loans

Vehicle loans help you fund the purchase of your dream vehicle whether a new
car, used car, or a two wheeler. You will have to pay a certain amount as down
payment, and the remaining amount can be paid in EMIs. The interest rates offered
on vehicle loans vary across lenders. So, you must do a thorough research about
various lenders in the market and then proceed towards taking a loan.
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Education Loans

Expenditures made towards education can be quite expensive. It includes tuition

fees, accommodation, etc. If an education loan is taken , it will be easier for
individuals who want to pursue higher education in India or abroad. This loan can
either be secured or unsecured Compared to other loans like credit card loans,
personal loans, etc. education loans have a lower interest rate. Also, they have
lengthy repayment tenures giving students a lot of time to repay their loans.

Credit Card Loans

When you have an emergency, you can take a loan against your credit card i.e.
against the credit limit that has been assigned to you. After the approval of the
loan application by the bank, the amount gets credited to your bank account. This
loan can be repaid back in monthly instalments, and the components of the EMI
amount are the principal amount as well as the interest charged by the bank. The
interest charged by the bank varies with the terms and conditions of the loan.
Before taking a credit card loan, you should do a thorough research on the interest
rates offered by various banks. Banks charge a high-interest rate on credit card
loans, so it is better to shop around for the most feasible interest rate.

Pensioner Loan Scheme

A pension loan scheme is a specialized personal loan offered to retired individuals

(such as central/state government employees, defense personnel, and PSU
retirees) to meet personal or medical expenses. Loans are usually capped at a
specific multiple of the monthly pension and must be repaid by age 75-78. Pension
loan terms are heavily localized and vary by institution.

Loan Limits: Most public sector banks cap the maximum loan limit based on a
multiplier of your Net Monthly Pension (typically 12 to 20 months' worth).

Interest Rates: Rates generally vary from 10% to 14% per annum depending on
the bank and the pensioner profile.

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Collateral: Often collateral-free ("clean loan") if a family member or the pension
account itself guarantees the EMI deduction

Property Loan

A property loan—often called a Loan Against Property (LAP) or a Mortgage Loan—

is a secured loan where you pledge your residential or commercial property as
collateral to borrow funds. Lenders typically offer up to 70%-80% of the property's
market value, with flexible repayment tenures extending up to 25 or 30 years.

Key Details & Uses

Loan Amount: Can range from small amounts (₹5-₹10 Lakhs) to significant limits
(₹25 Crores or more depending on the property's value).

Interest Rates: Generally more affordable than unsecured personal loans, usually
starting around 9.5% p.a..

Common Uses: These funds are highly versatile and are often used for business
expansion, funding higher education, debt consolidation, or significant medical
and personal expenses.

Eligibility

Employment: Both salaried professionals and self-employed business owners can

apply.

Credit Score: A strong credit score (typically 720 or above) is required for smoother
and more favorable loan approvals.

Property Status: The pledged property must have a clear title and be in marketable
condition.

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Holiday Loan Scheme

A holiday loan scheme is an unsecured personal loan designed to fund vacation

expenses—such as flights, hotels, and tours. In India, you can typically borrow
between ₹50,000 and ₹40 Lakhs with interest rates starting from 10.99% per
annum, featuring quick disbursals and flexible repayment tenures of 12 to 60
months.

Key Features

Collateral-Free: These are unsecured loans, meaning you do not need to pledge
any assets to qualify.

No End-Use Restrictions: You can use the funds freely across your entire itinerary,
including tour packages, visa fees, and shopping.

Flexible Tenures: Repayment terms typically range from 1 to 5 years, allowing you
to space out the cost of your vacation comfortably.

Standard Eligibility Criteria

Age: Generally between 21 and 60 years.

Employment Status: Salaried or self-employed with a stable, verifiable monthly

income.

Credit Profile: A healthy CIBIL score (usually 750 or higher) guarantees better
interest rates and faster processing.

Gold Loan Scheme

A gold loan is a secured financial product where you pledge gold ornaments or
coins as collateral to quickly access funds. It features lower interest rates than
unsecured personal loans, minimal paperwork, and no restrictions on how you use
the money.

Valuation: The loan amount is determined by the purity (typically 18K to 22K) and
net weight of your gold.

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Loan-to-Value (LTV): Financial institutions can provide up to 75% to 85% of the
gold's market value, which is based on a 30-day moving average.

Tenure: Short to medium-term options usually range from 6 months to 4 years.

Repayment Options

Bullet Repayment: Pay the entire principal and accumulated interest in a single
lump sum at the end of the loan tenure.

Interest-Only Payment: Pay only the monthly/quarterly interest throughout the

tenure, and clear the principal amount at the end.

Standard EMI: Pay structured monthly installments consisting of both principal

and interest.

Guidelines on CERSAI registration

CERSAI (Central Registry of Securitisation Asset Reconstruction and Security

Interest) registration is a mandatory process for all banks and financial institutions
to create a centralized record of loans, mortgages, and hypothecations. It is
specifically designed to prevent fraud by ensuring that borrowers do not take
multiple loans against the same asset.

Key Guidelines and Requirements

Mandatory Registration: Under the SARFAESI Act, secured creditors (banks,

NBFCs, and housing finance companies) must register any security interest created
on an asset within 30 days of its creation. Failing to do so impacts the lender’s
priority and prevents them from enforcing the security under SARFAESI rules.

Asset Coverage: CERSAI registers both immovable properties (mortgages) and

movable assets (hypothecated vehicles, inventory, machinery, etc.).

Entity Eligibility: To register, the lending entity must have a valid Permanent
Account Number (PAN), Certificate of Incorporation/Registration, and an
authorized Digital Signature Certificate (DSC) for secure transactions.

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CERSAI 2.0 Platform: All registrations are processed via the upgraded online
system.

Advantages of Retail Loans

The application process is user-friendly and easy.

No Usage Restriction: You can repay the loan in monthly instalments and buy
anything that you wish to with the loan amount. The loan amount can be used for
anything and does not have any end usage restriction.

Retail loans offer finance for various purposes: Retail loans are of various types
like home loans, personal loans, credit card loans, educational loans, vehicle loans,
etc.

Retail loans are easy to obtain: Banks and other financial institutions have a simple
and straightforward application process. Many online lenders also have a quick
disbursal policy, and you will be able to receive the loan amount within 24 hours.
Further, retail loans usually have a lower interest rate compared to other forms of
credit such as credit cards and so on.

Flexibility in Tenure: Retail loans have flexibility in tenure. So you can choose a
duration according to your repayment capacity.

It improves your credit score: Taking a retail loan can be a great way to build your
credit score. Making timely repayments shows that you can handle your finances
with discipline. This will be a good thing for obtaining future credit.

Disadvantages of Taking a Retail Loan

Higher Interest Rates and Additional Fees: The interest rates and additional fees
can spike over a time period, making the loan more expensive. It is essential to
carefully evaluate the terms and conditions of the loan before applying for it.

It could cause a Financial Strain: If you fail to make timely repayments of your
EMIs, then it will cause a financial burden.

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Eligibility Criteria for Retail Loans

Age: For most lenders, borrowers must be 18 years and above

Income: Lenders usually require borrowers to have a minimum level of income.

This varies depending on the loan amount and credit history. Before applying for
the loan, applicants must check the income requirements of the lender.

Credit score: It is essential to have a good credit score for retail loans. A higher
credit score means higher chances of approval.

Employment: To be eligible for retail loans, borrowers must have a steady source
of income. They can be employed, self-employed, or have stable means of income.

Other factors: Other factors influencing the eligibility include the borrower’s
current financial obligations, debt-to-income ratio, and length of time at their
current residence or job. It is recommended to evaluate these factors before you
take a retail loan.

Documents Required For a Retail Loan

Identity Proof

passport/driver’s license/PAN card

Residence Proof

Utility bill/bank statement/official document showing the borrower’s current

address

Income Proof

Salary slips, tax returns, bank statements, or other documents showing the
borrower’s salary

Collateral Documentation

Document proofs have to be submitted for the collateral such as a title or property
ownership certificate

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Example of Retail Loans

Buy Now Pay Later or BNPL is the best example of a retail loan. For BNPL,
consumers can buy an item and pay for it in instalments over a specific period of
time. Payments can happen weekly or monthly. BNPL is an interest-free form of
credit, and may sometimes require an initial amount of deposit.

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