Exporters hit by revaluation of foreign currency loans
Updated: Jul 15, 2013 04:23:43pm
New Delhi, Jul 15 (KNN) The decline of the rupee has hit various sectors of the economy, especially exporters whose foreign currency loans are being subjected to revaluation by commercial banks.
“The volatility in the exchange rate has added to the woes of exporters. Banks are asking exporters, who have availed pre shipment credit and post shipment credit in foreign currency, to either reduce the exposure, due to depreciation of currency, by remitting funds or appropriate the export proceeds to that extent,” said President, FIEO Rafeeque Ahmed.
The move will deprive exporters of funds, according to him, adding to their liquidity problems.
He attributes the problem to the practice followed by banks which during disbursal of export credit in foreign currency; normally apply a notional exchange rate that is fixed on the last day of every month, in an effort to ensure better control.
Further, under the system of revaluation of foreign currency every month to ascertain the INR liability of individual customers, the notional rate is again applied. In the event that notional rate is higher, banks contend that the exporter has breached the INR liability (available drawing power as on the date of loan minus re-valued INR liability as on last day of the month).
Significantly, banks insist that customers either reduce the exposure by remitting funds or appropriate the export proceeds to that extent.
Ahmed is of the opinion that the procedure needs to be looked into by RBI as the exchange rate fixed by the bank at the time of granting the loan should continue till the currency of the loan irrespective of the currency movement at the time of repayment of the loan.
Advising the exporter to repay before the maturity of the loan towards the exchange difference on account of foreign currency appreciation is neither justified nor reasonable, the FIEO Chief said.
In realistic terms, if a bank has granted loan in foreign currency, the exporter is obligated to repay the same in foreign currency as per the extant provisions of RBI guidelines.
Hence the question of exchange fluctuation should not arise at all. (KNN)
“The volatility in the exchange rate has added to the woes of exporters. Banks are asking exporters, who have availed pre shipment credit and post shipment credit in foreign currency, to either reduce the exposure, due to depreciation of currency, by remitting funds or appropriate the export proceeds to that extent,” said President, FIEO Rafeeque Ahmed.
The move will deprive exporters of funds, according to him, adding to their liquidity problems.
He attributes the problem to the practice followed by banks which during disbursal of export credit in foreign currency; normally apply a notional exchange rate that is fixed on the last day of every month, in an effort to ensure better control.
Further, under the system of revaluation of foreign currency every month to ascertain the INR liability of individual customers, the notional rate is again applied. In the event that notional rate is higher, banks contend that the exporter has breached the INR liability (available drawing power as on the date of loan minus re-valued INR liability as on last day of the month).
Significantly, banks insist that customers either reduce the exposure by remitting funds or appropriate the export proceeds to that extent.
Ahmed is of the opinion that the procedure needs to be looked into by RBI as the exchange rate fixed by the bank at the time of granting the loan should continue till the currency of the loan irrespective of the currency movement at the time of repayment of the loan.
Advising the exporter to repay before the maturity of the loan towards the exchange difference on account of foreign currency appreciation is neither justified nor reasonable, the FIEO Chief said.
In realistic terms, if a bank has granted loan in foreign currency, the exporter is obligated to repay the same in foreign currency as per the extant provisions of RBI guidelines.
Hence the question of exchange fluctuation should not arise at all. (KNN)
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