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| PCFC provides an additional window for pre-shipment credit to exporters at internationally competitive interest rates.
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| It is applicable to both domestic and imported inputs for export goods, in any convertible currency, for a maximum of 180 days.
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| Pre-shipment credit is provided as a loan or advance by a bank to an exporter for financing the purchase, processing, manufacturing or packing of goods prior to shipment.
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| The RBI has already deregulated post-shipment credit beyond 90 days till 180 days, with effect from May 1, 2003.
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| The RBI is understood to be examining a proposal from exporters who were facing difficulty in availing concessional foreign currency packing credit.
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| This is because with demand for dollar loans surpassing supply, banks could manage a better margin by lending it to corporates, out of the purview of export credit.
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| Banking sources said by removing the cap on PCFC, which is acting as a major disincentive for banks, there will be some pressure on outflow of dollars in addition to meeting the genuine dollar demand of exporters.
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| According to banking sources, while the RBI wants to deregulate interest rates and leave it to the discretion of banks, there is a concern that small exporters might be hit if rates turn too high. Hence, there is also a possibility of putting a cap as well.
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| Exporters do not want rates to be deregulated as post deregulation, they will no longer remain concessional.
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| At present, the spread charged by banks for pre-shipment credit in foreign currency is related to the international reference rate such as London inter-bank offered rate (Libor)Euro Libor/Euribor (6 months).
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| The lending rate to the exporters should not exceed 75 basis point over Libor/Euro Libor/Euribor, excluding withholding tax.
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| Most of the dollar loans taken by corporates through the external commercial borrowing route or out of FCNRB deposits are used for refinancing high-cost old debt and not for fresh investments, they added.
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| In fact, excess dollar inflows are increasingly becoming a problem to manage as with each dollar sucked out of the market, additional rupee funds is being added to the liquidity-flush system.
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In addition to PCFC, under the existing norm, banks may arrange for
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