FIEO urges banks to ease charges to help exporters

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SME Times News Bureau | 23 Mar, 2010
The Federation of Indian Export Organizations on Monday urged the banks to cut down charges to bring down transaction costs for exporters and help them counter the sluggish global market demand and price sensitive markets.

Banking charges are increasing transaction costs at a time when price has become a critical factor and need to be cut down, FIEO President A Sakthivel said in a meeting with bankers in Mumbai, where he detailed about the present economic conditions of exporters in order to bridge gap between Indian exporters and bankers.

The meeting chaired by Chairman IBA, M V Nair, was attended by senior officers of member banks of IBA including SBI, Indian Bank, PNB, Canara Bank, Bank of Baroda, UCO Bank, IDBI, and Union Bank.

Sakthivel explained that in the existing scenario in order to counter the sluggish global market demand with target markets which have become price sensitive there is a need to cut down costs wherever possible to provide products /services which have a competitive edge to cater to such target markets.

Speaking at the meeting, Nair stated that when the down turn started his key concern was availability of credit and he was happy that the sanctioned limits of the banks had increased in the last few quarters.

President, FIEO said that banking charges are increasing and have resulted in high transaction costs for exporters at a time when price has become a critical factor and need to be cut down. These include:

1. Processing charges for annual renewal of limits
Banks are charging processing charges of Rs. 400 per lac subject to a maximum of Rs. 20 lacs on renewal of limits. If an exporter goes for renewal of a limit of Rs. 50 crore, he has to pay Rs 20 lacs as processing charges. These charges should only be levied on grant of a new limit and not on its renewal.

2. Cross Currency Booking
Banks are presently levying their own mark up on the margins between the spot and forward rate for quoting forward quotation. As a result, a bank earns 4 bips (0.0004) on each transaction of a dollar. It is suggested that 1 bip per transaction may be charged by banks in order to cut down the transaction cost in case of cross currency transactions.

3.Negotiation Charges
Banks are levying 0.15% as the negotiation charges while negotiating the documents which need to be reduced to 0.05%.

4. Booking Charges
Banks are levying Rs.750 as booking charges and Rs.750 as cancellation charges against every booking of FOREX with them. These charges need to be lowered to Rs.250 from Rs.750.

5. Pre-shipment credit in foreign currency
PCFC being levied in contravention of the recent RBI circular DBOD.DIR.(Exp).No. 76/04.02.001/2009-10 dated February 19, 2010 wherein credit in foreign currency is available at LIBOR plus 2%.Some banks are adding other costs such as Rs. 0.25 per US$. IBA may issue directives to member banks to provide PCFC loans to MSME export sector without fail and on priority basis.

6. Penal Rate of Interest
Banks charge interest 3% to 4% p.a for payments received beyond due date. This problem has become more acute because of delay in export realizations from foreign buyers. The penal interest should not exceed 1% over and above the normal rate of interest being extended to MSME export sector.

Some other charges levied by banks, FIEO added, include: Collateral and Guarantees, commitment charges, appraisal fee, Charges on EEFC account, margin rate on enhanced borrowing limits, Higher Spread Rate depending on rating of company, ECGC Premia on Post Shipment Guarantee etc.

Nair, while concluding the discussions, agreed that all the charges levied by the banks will be hosted on the IBA websites for the sake of transparency and competition.