India's minister for state for commerce and industry has urged Romanian importers of Indian goods to make better use of a scheme in which the export-import bank of India (Exim Bank) will confirm export letters of credit (L/Cs) from pre-approved banks in the Former Soviet Union (FSU) and Central and Eastern Europe (CEE) countries.

High-risk export boost

Shri Rajiv Pratap Rudy said during a visit to Romania in November that opportunities exist for trades in software, textiles, food processing, light consumer goods and cold storage units for fruits & vegetables. He suggested that parties to such transactions should consider using the Export Credit Loan Arrangement Technique (ECLAT), a scheme developed by Exim Bank with the European Bank for Reconstruction and Development (EBRD). ECLAT aims to boost Indian exports to a region considered to be high-risk.

ECLAT essentially provides confirmation of L/Cs received by Indian exporters from pre-approved banks in the 27 countries where EBRD operates. EBRD provides a guarantee facility to Exim Bank to cover such L/C confirmation. Exim Bank's L/C confirmation will cover the risk of non-payment by the issuing bank.

Eligible transactions

Transactions must satisfy certain eligibility criteria: the L/C issuing bank must be in EBRD's list of pre-approved banks which can be obtained from Exim Bank's Trade Finance Group; eligible goods means all types of goods and commodities - except for those that appear on an exclusion list also available from Exim Bank's Trade Finance Group - that are exported to any one of EBRD's countries of operations. Related costs of transport and other services may also be eligible.

Exim Bank will advise the fee payable to it for adding confirmation to the L/C along with the approval for L/C confirmation. The fee will be payable before confirmation of L/C.

Subject to change

The countries where EBRD operates - which are subject to change - are Albania, Estonia, Latvia, Slovenia, Armenia, Macedonia, Lithuania, Tajikistan, Azerbaijan, Georgia, Moldova, Turkmenistan, Bosnia & Herzegovina, Czech Republic, Poland, Ukraine, Belarus, Hungary, Romania, Uzbekistan, Bulgaria, Kazakhstan, Russian Federation,Yugoslavia, Croatia, Kyrgyzstan and the Slovak Republic.

How ECLAT works

According to Exim Bank, ECLAT works as follows: an importer of Indian goods in any of the above countries will approach a pre-approved bank for opening an L/C. Either the L/C issuing bank or Indian exporter may request confirmation of the L/C from Exim Bank. For this purpose, application forms are available with Exim Bank.

Exporters are welcome to discuss the transaction before sending a formal request for L/C confirmation to Exim Bank. Exim Bank will convey approval for confirmation of the L/C and the fee payable by the Indian exporter/L/C issuing bank. L/C will be governed by UCP 500.

The L/C issuing bank shall not, without Exim Bank's prior written consent, amend the terms of the L/C. The Indian exporter will ship the goods covered under the contract and shall present the documents for negotiation to his bank. The negotiating/paying bank will ensure that the documents are as per the terms of the L/C and shall make payment under the L/C to the Indian exporter.

The negotiating/paying bank will forward the documents to the L/C issuing bank. The negotiating/paying bank shall keep Exim Bank informed on each disbursement made to the Indian exporter under the L/C, and each claim for payment made to the L/C issuing bank, and the amount received by the negotiating/paying bank from the L/C issuing bank in settlement thereof, until retirement of the L/C.

In the event the L/C issuing bank fails to reimburse the negotiating/paying bank, Exim Bank will pay the negotiating/paying bank as per the terms of approval for L/C confirmation.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DCPRO.