The honest guide to packing credit that nobody in banking will tell you.
Let me paint you a picture.
An exporter from Bahadurgarh of auto components, been in the business for 14 years, walks into my office one afternoon holding a confirmed purchase order worth USD 4,80,000. His buyer is in Germany. Delivery in 60 days. His face should be glowing. Instead, he looks like he hasn’t slept in three days.
“Sangeeta mam, the order is confirmed. But my raw material suppliers want advance payment. My workers need salaries. My packaging vendor won’t move without 50% upfront. I have the order but I don’t have the money to execute it.”
Now, this is not a rare story. This is the story of Indian export manufacturing. And the solution, the one that’s been sitting in the banking system for decades, the one that most exporters either don’t know about or don’t know how to access properly is called Pre-Shipment Finance, more commonly known as Packing Credit. Let me break this down for you, not the way a banking textbook would, but the way I would explain it to a founder sitting across from me.
What Packing Credit Actually Is (And Why The Name Makes Sense)
Packing Credit is a working capital loan that a bank gives you specifically to help you fulfill an export order from the moment you receive the order until the moment the goods are shipped out of India. The name “packing credit” is literal. It covers the phase when you’re packing your product, preparing it, manufacturing it, sourcing raw materials, and loading it. Everything before the ship leaves the port.
Think of it as a bridge. On one side, you have a confirmed export order or a Letter of Credit (LC) from your foreign buyer. On the other side, you have the payment that will come once you ship. In between is a gap sometimes 30 days, sometimes 90 days where you need real money to do real work. Packing credit is that bridge.
The bank is essentially saying: “We believe your buyer is real, your order is real, and you’re going to get paid. So we’ll lend you the working capital now, and when you ship and collect your export proceeds, you’ll pay us back.”
The Two Flavours: Rupee vs. Foreign Currency
This is where most exporters get confused, and where the bank’s decision actually has a significant cost impact for you.
Rupee Packing Credit (Pre-Shipment Credit in INR) is your standard working capital loan disbursed in Indian Rupees. The interest rates here are governed by RBI guidelines, and banks typically offer these at priority sector lending rates which are quite competitive often in the range of 7–9% depending on your relationship, credit profile, and the bank.
Foreign Currency Pre-Shipment Credit (PCFC) is disbursed in foreign currency USD, EUR, GBP. This is where it gets interesting. PCFC rates are linked to LIBOR/SOFR benchmarks (now transitioning to SOFR post-LIBOR phase-out) plus the bank’s spread. In practice, PCFC rates can come out significantly cheaper than rupee loans sometimes 3–5% versus 8–9%.
Here’s the real question though: should you take PCFC?
If your export receivables are in foreign currency (which they usually are), PCFC can be a natural hedge. You borrow in USD, you receive payment in USD, you repay in USD. No currency conversion risk in the middle. For exporters doing regular volumes with predictable timelines, PCFC is almost always the smarter, cheaper option. And this is a critical “but” if your export gets delayed, if your buyer creates issues, if the shipment doesn’t happen in time, you now have a foreign currency loan sitting on your books and you’ll need to convert rupees to repay. That creates exchange rate exposure. I’ve seen exporters get into serious trouble because they took PCFC without fully understanding this risk.
What Documents Does the Bank Actually Need?
Let me be direct about what a bank credit officer is looking for when you apply for packing credit. I was that officer for 11 years. Here’s the actual checklist that matters:
The Export Order or Letter of Credit— This is the foundation. It must clearly show the buyer’s name, the goods, the quantity, the value, the shipment terms, and the due date. A vague or conditional order will not fly. Banks want clean, confirmed, irrevocable LCs or firm purchase orders from established buyers.
Your Export History— Banks love patterns. If you’ve been exporting for three years, shipped on time, and collected payments cleanly, that story tells itself. First-time exporters can still get packing credit, but expect more scrutiny and possibly lower drawing power.
AD Code Registration and IEC— Your Importer-Exporter Code (IEC) from DGFT and your Authorized Dealer Code registration with the bank are non-negotiable. Without these, the bank can’t even process an export transaction.
ECGC Cover (Export Credit Guarantee Corporation)— Many banks will insist on ECGC coverage, especially for new exporters or buyers in higher-risk markets. ECGC essentially insures the bank (and indirectly you) against the risk of the foreign buyer defaulting. The premium is small relative to the protection it provides, and having ECGC cover often makes the bank significantly more comfortable extending credit.
Financial Statements & GST Returns— Your Profit & Loss, Balance Sheet, and GST returns for the last 2-3 years. The bank is checking whether your business is genuine, whether you have the manufacturing capacity you claim, and whether you have a track record of paying back loans.
Stock and Debtors Statement— Banks typically ask for a monthly drawing power statement showing your raw materials, work-in-progress, finished goods, and export debtors. Your packing credit limit is calculated against this.
How the Repayment Works And Why Timelines Matter Enormously
This is the part where exporters make the most mistakes.
Packing credit is a self-liquidating loan. That means it’s supposed to be repaid from your export proceeds automatically. Once you ship and present your export documents to the bank, the bank collects your foreign payment and adjusts it against your packing credit outstanding.
RBI has prescribed maximum tenors for packing credit:
For Rupee Packing Credit, the maximum period is 360 days from the date of first disbursement. And this is crucial as most banks will give you this credit in stages, and if you don’t ship within the agreed period (usually 90–180 days for a specific order), you’re required to either regularize the account or convert it to a post-shipment credit. For PCFC, the maximum tenor is typically 180 days from the date of first disbursement, with a possibility of extension up to 360 days in genuine cases.
If your packing credit remains outstanding beyond these periods without liquidation, it becomes irregular, which affects your CIBIL/credit bureau rating and can severely damage your banking relationship. I’ve seen exporters lose their entire credit facility because of one shipment delay that they didn’t proactively communicate to the bank.
The lesson? Communicate early. Always. If you sense a delay is coming buyer is pushing timelines, shipping lines are booked out, raw material shortage tell your relationship manager before the due date, not after. Banks have more flexibility than you think when you’re proactive. They have almost none when you’re reactive.
The Running Account Facility: Why This Is a Game-Changer for Regular Exporters
If you’re exporting regularly say, multiple shipments per month or per quarter constantly applying for fresh packing credit for each order is exhausting and inefficient. The smarter structure is a Packing Credit Running Account (also called a PC/PCFC Revolving Limit). Under this arrangement, you have a sanctioned limit say ₹3 crore and you can draw against it multiple times as long as you’re submitting valid export orders and liquidating the earlier drawdowns through shipments.
This requires a stronger credit profile, a well-established export track record, and typically a clean 2-year history with the bank. But once you have it, it transforms your working capital management completely. You’re not chasing individual sanctions every month. You have a reliable line you can draw on when the order comes.
Common Reasons Banks Reject Packing Credit Applications (From Someone Who’s Seen Both Sides)
Buyer credibility issues— If your buyer is unrated, based in a high-risk country, or has no verifiable business presence, banks will hesitate. They’re not just lending on your order they’re lending on the assumption that someone overseas will pay you. If that assumption is shaky, so is the credit.
Order-to-capacity mismatch— If you’re a manufacturer doing ₹2 crore in annual turnover applying for a ₹5 crore packing credit against one order, the bank will question whether you can operationally execute that order. Your credit ask must be proportionate to your demonstrated capacity.
Overdue on any existing facility— Doesn’t matter if it’s a small term loan or vehicle loan. Any overdues signal poor financial discipline and will kill a packing credit application faster than anything else.
Weak documentation of the order itself— An email from a buyer saying “we want to order 500 units” is not a confirmed export order. A signed purchase order with terms, a proforma invoice accepted by the buyer, or an irrevocable LC these are what count.
What I Tell Every Exporter Who Comes to Me
Packing Credit is one of the most powerful tools available to Indian export manufacturers. The government wants exports to grow. RBI has structured concessional rates specifically for this product. Banks want to lend against real export orders it’s good business for them and backed by an underlying asset (your export receivable).
The problem is almost never the product. The problem is almost always the presentation.
When a bank credit officer reviews your packing credit application, they’re trying to answer three questions: Is this exporter real and capable? Is this export order real and executable? Is the foreign buyer real and likely to pay?
If your documentation answers all three questions clearly and confidently if your story is coherent, your numbers make sense, and your track record is visible packing credit is not hard to get. But if your documents are scattered, your buyer is unverifiable, your financials raise more questions than they answer, and your relationship manager is hearing about you for the first time on the day you need money urgently you’ll struggle every single time.
That gap between exporters who have smooth, consistent access to packing credit and those who are always scrambling? It’s rarely about the bank being difficult.
It’s almost always about fundability.
Sangeeta is an Export Manufacturing Funding Strategist based in Dubai. With 11 years as an SME Credit Officer who analyzed over 1,000 manufacturing businesses, she helps Indian export manufacturers in the ₹5–20 crore range build the financial foundations to access and grow their export credit facilities. Connect with her on LinkedIn or reach out directly for an Export Fundability Assessment.