Fearful bankers give exporters hell

Banks refusing to accept lines of credit given by banks in the US to overseas buyers was the immediate fallout of banking giants like Wachovia failing under the weight of the US credit crisis , reports Rajendra Palande.

Mumbai-based Vijay Silk House, a textile exporter with Rs 100 crore in annual turnover, recently received a jolt when its banker, Canara Bank, declined to give it a foreign currency loan and instead offered a rupee loan.

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For the exporter, it does not make sense to take a rupee loan at an interest rate of 14 to 15 per cent, when dollar loans would come at just 3 to 4 per cent.

Ganesh Kumar Gupta, owner of Vijay Silk House and also the President of Federation of Indian Export Organisations (FIEO), said this was among a series of financial and insurance hurdles that have hit exporters trying to meet their commitments. However, Gupta could not quantify the extent of orders that could not be executed.

Banks refusing to accept lines of credit given by banks in the US to overseas buyers was the immediate fallout of banking giants like Wachovia failing under the weight of the US credit crisis.

Credit insurance companies, including the Export Credit Guarantee Corporation (ECGC), have raised premium rates by 25 to 30 per cent and banks have begun to ask for 100 per cent margin money to issue bank guarantees to overseas buyers against the normal range of 3 to 5 per cent, compounding the problems of the exporters. Bank guarantees are issued in favour of overseas buyers as insurance for timely deliveries.

Credit insurers are also imposing restrictions on the maximum liability and credit limit they would expose themselves to on a single overseas buyer.