Dr. Dhawan urges setting up
Hedging Corporation
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Dr. R.K. Dhawan, Chairman, FIEO(NR) (2nd from right) addressing the meet. On the dais, from left, are Mr. Ajay Sahai, Director General, FIEO; Mr. Ravi Kishore, Risk Management Expert, Strategic Risk Consultants Pvt.Ltd.; Mr. Nirmal Chand, General Manager(DBS), RBI; and Mr. Rohit Pandya, Regional Manager, ECGC. |
FIEO organized an Interactive Meeting of exporters with bankers and financial experts on 8 October at New Delhi to discuss problems related to export credit and to find out options available to exporters for securing their receivables.
Welcoming the participants, FIEO’s Northern Region Chairman Dr. R K Dhawan suggested that the Government should consider setting up a hedging corporation in the face of appreciating rupee. He also pushed for reverting to dual exchange rate mechanism, something akin to what prevailed in 1991 as Liberalized Exchange Rate Management System (LERMS).
FIEO Director General Mr. Ajay Sahai informed that the Federation officials had called on the RBI Governor at Mumbai recently to convey him the concerns of exporters in view of appreciating rupee and requested him to rationalize export credit to provide some relief to exporters. Subsequently, he said, the RBI expanded the list of beneficiaries of subvention of 2% credit and also announced interest on deposits upto one million dollars in EEFC accounts.
RBI General Manager Mr. Nirmal Chand, while making a presentation on export credit, highlighted the benefits of Gold Card Scheme and said that the Central Bank had already issued necessary guidelines to implement the scheme at micro level. Any difficulty faced by the exporters in availing the scheme, he said, should be brought to the notice of the RBI.
Deputy General Manager of ECGC Mr. Rohit Pandya analyzed the features of both standard and specific policies of ECGC and reiterated that exporters must take ECGC cover to secure themselves against any possible defaults of the buyers. He informed that ECGC had also begun providing factoring services to the exporters to mitigate their payment risks and to enhance their cash flow.
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From right are, Mr. Tilakraj Manaktala, Cosmique Global; Mr. Bholanath Baaranwal, Managing Director, Bholanath International; and Mr. Vasudev Pahwa, Proprietor, Surya International. |
An Expert on Risk Management, Mr. Ravi Kishore made a presentation on the options available before exporters to secure their receivables in the fluctuating currency market.
Observations made by Participants
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At present, the negotiable set of shipping documents are routed through shipping agent, exporter, exporter’s bank, negotiating bank and buyer’s bank. Often, goods reach before the original documents reach buyer’s bank, especially when the exporter is situated in rural areas of our country and when the shipments are made to South East Asian countries. In such cases, goods start incurring demurrage and the buyer suffers due to non-availability of goods. Therefore, shipping agents should send the original (negotiable) shipping document to the buyer’s bank immediately upon shipment of the goods. As on now, they send confirmation in writing of this compliance, which will form the part of term of L/C for negotiation purpose.
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Banks levy high service charges. As per RBI guidelines, Banks may consider waiver of service charges for Gold Card Holders, particularly in respect of processing charges in the case of renewal of limits where there is no change in the sanctioned limits.
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Bank obtains a high percentage of collateral securities by way of equitable mortgages on properties and/or cash deposits. Sometimes, the value of such securities is almost 50% of the fund based limits sanction. The exposure norms have been notified by the RBI vide Circular No. DBOD No. Dir BC 25/13.03.00/2005-06 dated August 3, 2005. The RBI may issue guidelines for collaterals for exposure norms for the export sector to bring in transparency.
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Some of the Banks are charging Processing Charges at the rate of 0.167% per month in addition to the RBI prescribed rates of interest at LIBOR+1%. Processing Charges on PCFC may be waived as these make foreign currency loans less attractive, and moreover, the exporters lose their competitive edge.
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RBI, through suitable guidelines, should direct Exim Bank to reduce interest rates on export credit.
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Certificates issued by CAs in the prescribed format for making remittances to overseas parties/non-residents are also pre-requisites in respect of normal trade/import payments as per RBI’s Circular No.RBI/2007-2008/100 A.P. (DIR Series) Circular No. 03 dated July 19, 2007 and CBDT’s Circular No. 10/2002 dated October 9, 2002 (F.No.500/152/96-FTD). These Certificates are required in cases of service related payments where TDS deductions are to be made. For trade related payments, since there is no such deduction, such a requirement will only add to the paperwork and thus transaction cost. Trade related payments are to be made to Non-Resident Associates in the course of business and as such these transactions are reflected in the tax returns which are subject to scrutiny/examination at the time of assessment.
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As per RBI instructions (DBOD. Dir.(Exp). BC.No.22/04.02.01/2007-08 dated July 13, 2007), a subvention of 2 percent was provided to 11 export sectors and SME exporters, but the banks are passing just 0.50 % of the subvention benefit to borrowers.
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P. D. Patodia takes over as Chairman, CITI |
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