The Presidents / CEOs,
All Banks

Dear Sirs / Madam,

Export Finance Scheme-Modifications in procedure for refinance

To enhance effectiveness of EFS and its performance oriented availment by genuinely progressive exporters and with a view to avoid structurally inherent adverse monetary policy implications in the existing mechanism, it has been decided with immediate effect to revise the EFS under the following parameters.

a) The limits of banks under EFS scheme for the year 2007-08 shall stand fixed at the level of outstanding / utilized amounts as on 30-06-07. The limit for each bank is being conveyed separately. In case a bank is currently availing EFS for an amount exceeding the outstanding balance as on 30.06.07, the position must be regularized within the conveyed limits by 30.11.2007.

b) Toward the objective of a phased transformation of export financing regime to the commercial banking sector, State Bank shall allow only 70% refinance against such limits for the current fiscal year, based on actual 100% drawdown of export finance by the exporters with their respective banks. The balance of 30% shall be funded by the banks out of their own liquidity / resources to ensure deeper involvement in this vital area of support to exporters and export oriented undertakings.

c) Banks shall continue to avail 70% refinance from SBP-BSC offices as per the existing procedures where the Head Office may assign sub-limits for borrowings from SBP-BSC offices, as being currently done. For operational ease, refinance limit assigned to each SBP-BSC office on the request of banks, will be segregated into two components i.e. 70% eligible for refinance and 30% as not eligible for refinance.

d) While the exporters will continue to get the financing from commercial banks for 100% of the invoice value / contract / Export Letter of Credit / shipping documents under Part-I and or their entitlement to borrow under Part-II, the commercial banks shall be provided refinance to the extent of only 70% of the amount disbursed by the banks to the exporters.

e) Banks will be required to ensure that the total outstanding refinance availed by them from the State Bank as on 30th June 2007 is reduced by 30% latest by 30th June 2008. To make this reduction gradual, the aggregate outstanding refinance as on 30-6-2007 must be reduced by at least 15%, latest by end January 2008.

f) The amount of refinance not provided by the State bank, i.e. component of the export credit provided by the banks under the Scheme from their own sources, would be deducted from the sum total of the demand liabilities determined for the purposes of computation of Cash Reserve Requirement of each bank.

g) Banks are advised in their own interest to ensure utilization of such financing for the intended purposes. Any misuse, acts or omissions and collusion establishing diversion of funds for other purposes shall be stiffly penalized by SBP.

2. Exporters availing financing facilities under Part-II of the scheme shall continue to be required to submit EF-1 statement duly verified by the respective offices of FEOD, SBP-BSC within two months from the completion of the financial year, as at present. However, while applying for roll over of loans under Part II after completion of the initial 180 days or at an earlier date, exporters shall be required to submit a statement showing details of shipments of eligible goods [as per format attached] to the extent of 70% of the refinance already availed against which roll over is being sought. SBP-BSC shall not allow the roll over facility unless
shipments to the extent of 70% of refinance availed are established as above. Banks will be required to forward duly authenticated copy of the said statement of shipments to the concerned Office of the SBP-BSC along-with the loan application for roll over. Compliance to this requirement shall invariably be checked by the verifying teams of the concerned office of the SBP-BSC, which shall not substitute for the normal inspection by Banking Inspection Department of the State Bank.

3. Banks are also advised to ensure that request for financing exports, otherwise eligible under the scheme and as per their lending policies, are not turned down or reduced on the grounds that the banks will not be eligible for refinancing to the extent of 100% of the value of export bill or entitlement of the exporters under Part-II. Banks would also be required to ensure that their total financing for export purposes under the new arrangements does not fall below the ratio of their advances for exports to net advances as on end December 2006. Banks are encouraged that this ratio be improved further to ensure that the growth in financing for export purposes matches with the target set for growth of exports each year. To monitor this banks would be required to submit to this department on monthly basis, borrower wise data as per the format attached herewith.

4. All other instructions on the subject shall remain unchanged. Banks are advised to properly and promptly circulate these instructions to their branches and constituents for meticulous compliance
Please acknowledge receipt.

Encl: As above.