FIEO Asks for Liberalisation of Forex Forward Covers on Export Contracts

Mr Rafeeque Ahmed, President, Federation of Indian Export Organisations (FIEO) in pre credit policy discussion with leading chambers raised issue affecting flow of credit to exports including rising cost of Credit on 3 April.

President said that presently, State Bank of India is offering “Lines of Credit”to suppliers abroad whereby the exporter can purchase the raw material at LIBOR + rates from the buyer and the payment is squared up with the bank once the shipment is made and remittance received by the exporter. This facility is provided within the existing credit limits of the exporter.Since this is a cost effective financing option, Mr Ahmed suggested that all banks may provide Lines of Credit to exporters over and above the existing credit limits.

Secondly, given the requirement of dollar loans by the MSME export sector and limited availability of the same, FIEO Chief asked RBI to set up a corpus of funds commensurate with the requirements of MSME export sector.

FIEO asked that factoring as financing option need to be made more viable in the existing circumstances. When exporters approach factoring agencies to “factor” their export receivables, margins vary from factor to factor and may be as high as 20% depending on the risk perception of buyer / country. RBI may issue directives to banks / independent private factors and a cap be imposed on factoring services.

For facilitating Working out of “Rupee Payment Mechanism” for exports to Iran, Advance Payment should be encouraged. The Advance Payment ensures commitment of the buyer and provides required cushion and guarantee to Indian exporters. If importers in Iran are willing to provide advance payment, the same should be permitted by Banks in India.

President FIEO asked to allows set–off of export receivables against import payables for Iran which is not applicable to ACU mechanism. This would smoothen out payment problems.

FIEO demanded that Cancellation and Rebooking of forward cover should be allowed in case of exports where shipments are delayed on the request of buyer or for genuine reasons and exchange losses are passed on to exporter whereas gains are withheld. Since exporter book the cover against a contract with the buyer, Mr Ahmed asked that exporters should be allowed rolling over of the cover at the initial rate atleast upto 25% of export turnover.