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Updated August 2026

Trade Finance - Complete Import Export Credit Suite

Letters of Credit, Bank Guarantees, Packing Credit, Post-Shipment Finance, Foreign Bill Discounting, Buyer\'s Credit. Preferential PSU + Exim Bank rates. Full cross-border transaction support with FEMA compliance.

6.50%+Packing Credit
180 DaysPre-Shipment
All ProductsUnder One Roof
FEMACompliant
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What is Trade Finance

Trade Finance Explained

Trade Finance is a broad category of banking products that support import and export transactions. It includes Letters of Credit (LC), Bank Guarantees (BG), Packing Credit (pre-shipment finance for exporters), Post-Shipment Credit, Foreign Bill Discounting, Buyer\'s Credit, Supplier\'s Credit, and Export Factoring. Together, these products reduce the risk of cross-border trade, enable exporters to access working capital before shipment, and help importers defer payment.

India\'s Trade Finance ecosystem is deep and mature, backed by RBI\'s Master Directions on Imports and Exports, FEMA 1999, and specialised institutions like Export-Import Bank (Exim Bank) and Export Credit Guarantee Corporation (ECGC). Exporters get preferential rates on Packing Credit (typically 6.50% - 9% versus 10.75% + for standard business loans) under RBI Export Credit Refinance schemes. Importers can access foreign-currency-denominated Buyer\'s Credit at rates below Indian rupee rates.

Trade Finance is essential for any business in cross-border commerce - manufactured exports (textiles, engineering, pharmaceuticals, gems and jewellery), agri exports, IT services, imports of raw materials, capital goods, technology. It is also used by contractors bidding for large domestic or international projects who need Bank Guarantees. If your business is in any way involved in import, export, or high-value contracting, Trade Finance products are essential to compete effectively.

Trade Finance Products

7 Core Trade Finance Products

Letter of Credit (LC)

Bank commitment to pay seller on document compliance. Sight or Usance. UCP 600 rules.

Bank Guarantee (BG)

Bank promise to pay if applicant fails. Performance, Financial, Bid Bond varieties.

Packing Credit

Pre-shipment finance for exporters. RBI preferential rates 6.50%+. Up to 180 days.

Post-Shipment Credit

Working capital after shipment, against export bills. Similar preferential rates.

Foreign Bill Discounting

Discount export bills for immediate rupee liquidity. Preferential Exim rates.

Buyer\'s / Supplier\'s Credit

Foreign-currency import finance at SOFR-linked rates. Defer payment 1-3 years.

Key Features

Why Choose Bank Trade Finance

Preferential Rates

Packing Credit 6.50%+ under RBI Export Refinance. Much cheaper than standard WC.

Risk Mitigation

LC/BG shift counterparty risk to banks. Enables trade with unknown foreign buyers.

Multi-Currency

Rupee-denominated + Foreign currency options. Hedging built into product structure.

Aligned to Trade Cycle

Pre-shipment through Post-Shipment - full cycle coverage from order to payment.

Off-Balance-Sheet

LC/BG are contingent liabilities, not on-balance-sheet debt. Doesn\'t hurt debt ratios.

ECGC Backing

Export Credit Guarantee Corporation covers exporter risk in difficult markets.

Exim Bank Support

India\'s specialised export bank supports large trade finance transactions.

FEMA-Compliant

Products designed for FEMA + RBI Master Directions compliance. No regulatory risk.

Eligibility

Trade Finance Eligibility

Business Vintage

2-3 years for basic LC/BG. 3+ years for larger facilities. Startups: BG with cash margin possible.

IEC Registration

Import Export Code from DGFT is mandatory for any import/export transaction.

Annual Turnover

Rs 1 crore+ for basic. Rs 5 crore+ for larger LC / BG / Packing Credit facilities.

CIBIL Score

700+ preferred for larger trade finance limits. Cash-margin LC/BG can accept 650+.

Trade Track Record

Past import/export experience preferred. First-time exporters need collateral or ECGC cover.

GST + Udyam

Both mandatory. Udyam MSME status unlocks preferential PSU rates + priority-sector benefits.

Documents

Documents Required

One-Time Facility Setup
PAN + Aadhaar of proprietor/directors. Business PAN. IEC Certificate from DGFT. GST Certificate. Udyam Registration. 2-3 years audited financials + ITR. 24 months bank statements. Constitution documents. Board resolution for trade finance facility. Detailed project report + trade projections.
For LC / BG Issuance
Underlying commercial contract with buyer. Proforma invoice. Purchase order copy. Bank\'s LC/BG application form. Margin money (if applicable - typically 10%-25% cash margin). Insurance documents.
For Packing Credit / Post-Shipment
Confirmed export order or Foreign LC. Proforma invoice + commercial invoice. Packing Credit application. Undertaking to export within tenure. Post-shipment: Bill of Lading, Airway Bill, Certificate of Origin, insurance docs, FEMA GR/SDF forms.
For Buyer\'s Credit / Supplier\'s Credit
Foreign LC or contract with supplier. Import license (for restricted items). Bank\'s Buyer\'s Credit application. Foreign bank\'s Credit Line commitment. FEMA compliance documents. RBI approval (for larger tenures / amounts).
Top Lenders

Best Banks for Trade Finance

State Bank of India
India\'s largest trade finance bank. Best for Packing Credit + LC issuance. Strong forex desk. Preferential rates under RBI Export Refinance.
Rate6.50% - 12.00%
MaxRs 500 Cr
Bank of Baroda
Strong export credit product suite. Excellent for manufacturers and mid-market exporters. Good LC handling.
Rate7.00% - 12.50%
MaxRs 200 Cr
Exim Bank of India
Specialised export bank. Large trade finance transactions, Buyer\'s Credit to overseas buyers of Indian goods, project export finance.
Rate6.50% - 10.00%
MaxNo cap
HDFC Bank
Fastest private-bank LC/BG issuance. Digital trade portal. Best for MSME exporters wanting speed.
Rate8.00% - 13.00%
MaxRs 100 Cr
ICICI Bank
Strong trade finance platform. Excellent forex desk. Good for mid-cap exporters and importers.
Rate8.00% - 13.00%
MaxRs 100 Cr
Standard Chartered / HSBC
Foreign banks with deep cross-border expertise. Best for complex multi-currency structured trade finance.
RateSOFR + 2%-4%
MaxRs 200 Cr+
Interest & Fee Rates

Trade Finance Rates (August 2026)

ProductRate / FeeTenureBest For
Packing Credit (Rupee)6.50% - 9.00% p.a.Up to 180 daysExporters with orders/LC
Packing Credit Foreign CurrencySOFR + 2%-4%Up to 180 daysLarge exporters
Post-Shipment Credit7.00% - 10.00% p.a.Up to 180 daysExporters awaiting payment
Foreign Bill Discounting7.00% - 10.00% p.a.30-180 daysExporters with foreign LC
LC Issuance Fee0.50% - 2.00% per quarterUntil LC expiresImporters
Bank Guarantee Fee0.75% - 2.50% p.a.BG tenureContractors, bidders
Buyer\'s CreditSOFR + 1.5%-3.5%1-3 yearsCapex importers
Application Process

How Trade Finance Facility Works

1

Facility Setup

One-time overall trade finance limit sanction.

2

IEC + Compliance

IEC registration, FEMA docs, bank forex desk setup.

3

Per-Transaction Request

Submit LC/BG/Packing Credit application per deal.

4

Bank Verification

Bank verifies underlying trade + counterparty.

5

Product Issued

LC/BG issued or Packing Credit disbursed.

6

Trade Executes

Shipment happens. Post-shipment credit if needed.

Pros & Cons

Is Trade Finance Right for You?

Advantages

  • Preferential export rates (Packing Credit 6.50%+)
  • Full trade cycle covered (pre + post shipment)
  • Enables cross-border trade with risk mitigation
  • Multi-currency (rupee + forex) flexibility
  • Off-balance-sheet LC/BG structures
  • ECGC insurance protection available
  • Exim Bank support for large deals
  • Tax-deductible interest and fees

Trade-offs

  • Complex documentation (FEMA, UCP 600, RBI)
  • IEC + compliance framework mandatory
  • Longer facility setup (30-60 days)
  • Cash margins on LC/BG (10%-25%)
  • Foreign currency products have forex risk
  • Startups struggle without collateral
  • Not offered by NBFCs (only banks + Exim)
Comparison

Packing Credit vs Post-Shipment vs Foreign Bill Discounting

FeaturePacking CreditPost-Shipment CreditForeign Bill Discounting
TimingBefore shipmentAfter shipmentAfter shipment + billing
PurposeRaw material, productionBridge till paymentImmediate liquidity
SecurityExport order / LCExport billsAccepted bill + LC
Interest Rate6.50% - 9.00%7.00% - 10.00%7.00% - 10.00%
TenureUp to 180 daysUp to 180 days30-180 days
Advance %Up to 100% of order90% of billUp to 100% of bill
RepaymentFrom export proceedsFrom export proceedsBuyer pays bank
Best ForManufacturers producing to orderAwaiting paymentImmediate need for cash
20 Questions

Trade Finance - Frequently Asked Questions

What is Trade Finance?
Trade Finance is a broad category of banking products that support import and export transactions. It includes Letters of Credit (LC), Bank Guarantees (BG), Packing Credit (pre-shipment finance for exporters), Post-Shipment Credit, Foreign Bill Discounting, Buyer's Credit, Supplier's Credit, and Export Factoring. Trade Finance products reduce the risk of cross-border trade, enable exporters to access working capital before shipment, and help importers defer payment.
What is a Letter of Credit (LC)?
A Letter of Credit is a bank's written commitment to pay the seller (exporter) a specified amount on presentation of specified documents, provided the terms of the LC are met. It shifts credit risk from the buyer to the buyer's bank. LC issuance fee: typically 0.5% - 2% of LC value per quarter. Types: Sight LC (immediate payment), Usance LC (deferred payment), Standby LC, Revolving LC, Back-to-Back LC.
What is a Bank Guarantee (BG)?
A Bank Guarantee is a bank's promise to pay the beneficiary a specified amount if the applicant fails to fulfil contractual obligations. Common types: Performance BG (contractor guarantees project completion), Financial BG (guarantees payment), Bid Bond BG (guarantees seriousness of bid), Advance Payment BG (protects buyer's advance). BG issuance fee: typically 0.75% - 2.5% p.a.
What is Packing Credit for exporters?
Packing Credit is pre-shipment working capital finance for exporters against confirmed export orders or Letters of Credit. It funds the purchase of raw materials, manufacturing, packaging, and processing before shipment. Repaid via export proceeds when the exporter is paid. Preferential rates from PSU banks (6.50% - 9%) under RBI export finance schemes. Tenure: up to 180 days.
What is Post-Shipment Credit?
Post-Shipment Credit is working capital finance provided to exporters after shipment of goods, against export bills / receivables. It bridges the gap between shipment and receipt of export payment. Products: Export Bill Discounting, Export Bill Negotiation, Post-Shipment Loan against Retention Money. Preferential rates similar to Packing Credit for eligible exporters.
What is Buyer's Credit vs Supplier's Credit?
Buyer's Credit: Indian importer takes credit from foreign banks (through Indian bank as guarantor) at cheaper foreign rates (LIBOR + margin) instead of paying supplier immediately. Supplier's Credit: Foreign supplier extends credit directly to Indian importer, often facilitated by Export-Import banks of supplier's country. Both help defer payment. Tenure: typically up to 3 years for capex, 1 year for trade.
What are the interest rates on Trade Finance products?
Packing Credit (Rupee): 6.50% - 9.00% p.a. (RBI-linked preferential). Packing Credit in Foreign Currency (PCFC): SOFR + 2% - 4% (approx 8-11% total). Post-Shipment Credit: similar to Packing Credit. Foreign Bill Discounting: 7% - 10%. Buyer's Credit: SOFR + 1.5% - 3.5% (approx 7.5%-10.5%). LC/BG issuance: not interest but fees (0.5%-2.5% p.a.).
Which businesses need Trade Finance?
Exporters (manufactured goods, textiles, engineering, agri, pharma, gems and jewellery, IT services). Importers (raw materials, machinery, technology, luxury goods, chemicals, electronics). Contractors bidding for domestic or international projects (need BG). Any business dealing in cross-border commerce or high-value domestic contracts benefits from Trade Finance products.
What documents are needed for Trade Finance facility?
One-time setup: PAN, GST, Import Export Code (IEC), audited financials, business registration, board resolution. Per transaction (varies by product): LC application + underlying commercial contract, purchase orders, shipping documents (Bill of Lading), commercial invoice, packing list, certificate of origin, insurance documents, FEMA compliance documents, GR/SDF form for exports.
What is FEMA and how does it affect Trade Finance?
Foreign Exchange Management Act (FEMA) 1999 governs all cross-border transactions from India. Every Trade Finance transaction must comply with FEMA + RBI Master Directions on Exports and Imports. Key compliance: mandatory realization of export proceeds within 9 months, prescribed forms (GR, SDF, Softex), Authorised Dealer Category-I bank routing, prohibition on trade with certain sanctioned countries.
What is the difference between Sight LC and Usance LC?
Sight LC: buyer's bank pays the seller immediately (at sight) when compliant documents are presented. Preferred by exporters. Usance LC: payment at a future date (30/60/90/180 days after shipment). Preferred by buyers as it defers payment. Usance LC allows exporter to discount the LC-backed bill and get immediate funds at preferential rates from their bank.
What is Export Credit Guarantee Corporation (ECGC)?
ECGC is a Government of India company that provides export credit insurance to Indian exporters against losses from non-payment by foreign buyers or political risks in buyer countries. ECGC cover enables exporters to trade in higher-risk markets and helps banks lend more freely against export receivables. Premium: 0.20% - 1.5% of shipment value depending on country risk.
What is Exim Bank and how does it help Trade Finance?
Export-Import Bank of India (Exim Bank) is a specialised bank set up in 1982 to finance and facilitate Indian foreign trade. Products: Buyer's Credit to overseas buyers of Indian goods, Lines of Credit to foreign governments, Overseas Investment Finance for Indian companies acquiring foreign firms, Export Marketing Finance, and refinance to commercial banks for their export lending.
What are the eligibility criteria for Trade Finance?
Business vintage: 2-3 years typically. Turnover: Rs 1 crore+ for basic LC/BG; Rs 5 crore+ for larger facilities. IEC (Import Export Code) mandatory for import/export transactions. GST + Udyam. Clean 24-month banking. CIBIL 700+. Track record of trade transactions preferred. Some products (Packing Credit) require confirmed export order or LC as security.
What is a Standby Letter of Credit?
A Standby LC is a payment guarantee - the issuing bank pays the beneficiary only if the applicant fails to perform. It functions like a Bank Guarantee under international UCP 600 rules. Commonly used in international construction contracts, tender bidding, and lease agreements. Fee: similar to BG (0.75% - 2.5% p.a.). Preferred over BG in cross-border contracts because SBLC is internationally standardized.
What is Trade Credit Insurance?
Trade Credit Insurance protects businesses against non-payment risk from their B2B buyers. In India, ECGC covers export credit risk; private insurers (ICICI Lombard, Bajaj Allianz, TATA AIG) cover domestic trade credit risk. Premium: 0.10% - 0.50% of insured turnover. Trade Credit Insurance enables lenders to offer better rates on invoice financing and Bill Discounting.
Which banks are best for Trade Finance in India?
PSU: SBI, Bank of Baroda, PNB, Canara, Union Bank - traditional strengths in Packing Credit + LC. Private: HDFC, ICICI, Axis, Kotak - faster processing, digital platforms. Foreign: HSBC, Standard Chartered, Citi, DBS, Deutsche - best for complex cross-border transactions. Specialised: Exim Bank for large export credits. NBFCs generally do not offer Trade Finance.
Are Trade Finance charges tax-deductible?
Yes - interest on Packing Credit, Post-Shipment Credit, Foreign Bill Discounting, Buyer's Credit, LC/BG issuance fees are all fully deductible as business expenses under Section 37(1). Additional benefits under Section 10AA for SEZ units and specific export-oriented tax provisions. Consult a CA specialising in export/import business for optimization.
What is the RBI Export Credit Refinance scheme?
Export Credit Refinance is an RBI facility that provides refinance to scheduled commercial banks for their export lending, at a rate typically 25 bps below the Bank Rate. This subsidised refinance enables banks to offer preferential rates on Packing Credit and Post-Shipment Credit to exporters - typically 200-400 bps below regular commercial lending rates.
How can MahadevX help with Trade Finance?
MahadevX helps exporters + importers navigate the Trade Finance ecosystem. We coordinate LC/BG issuance, arrange Packing Credit at preferential PSU rates, structure Buyer's Credit for imports, and connect you with ECGC and Trade Credit Insurance providers. Our specialists have deep expertise in FEMA compliance and cross-border transaction structuring. Free for borrowers.
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