The Hindu : Tamil Nadu News : RBI’s decision to relax norms cheers exporters

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Tuesday, Nov 04, 2008
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Tamil Nadu

Tamil Nadu

RBI’s decision to relax norms cheers exporters

R. Vimal Kumar

Tirupur: Reserve Bank of India’s decision to relax the prudential norms for off-balance sheet exposure of banks pertaining to losses incurred from ‘exotic forex derivative products’ has brought cheers to the textile exporters here.

(Forex derivative is a financial contract bought by firms or individual to hedge against the risk of losing money because of appreciation in rupee).

Circular

The circular issued by the RBI on October 13 stated that any receivable representing positive mark-to-market (M-to-M) value of a derivative contract, if overdue for a period of 90 days or more, would be treated as non-performing asset (NPA) besides making all other funded facilities granted to the client too as NPA. This directive invited wrath from the garment exporters who reportedly suffered huge losses after buying various forex derivative products offered by financial institutions.

“Exporters from Tirupur knitwear cluster alone experienced a cumulative loss of Rs. 300 crore or more,” Raja Shanmugam, president of Forex Derivative Consumers’ Forum, Tirupur, a group formed by aggrieved exporters who claimed to have been ‘lured’ into forex derivative contracts by banks.

Following a representation from the Forum, the RBI had now reviewed their earlier decision.

Accordingly, all foreign exchange derivative contracts other than the forward contract and plain vanilla swaps that were entered into during April 2007 to June 2008 would be parked into a separate account maintained in the names of the clients.

Not NPA

This amount, even if overdue for 90 days or more, would not be treated as NPA.

However, the RBI had clarified that classification of all other assets of the exporters would continue to be governed by the extant Income Recognition and Asset Classification (IRAC) norms.

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