Business Daily from THE HINDU group of publications
Sunday, Jul 06, 2008
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Business Daily from THE HINDU group of publications Sunday, Jul 06, 2008 ePaper | Mobile/PDA Version | Audio |
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Forex Industry & Economy - Knitwear & Hosiery Money & Banking - Derivatives Markets RBI to call meet on derivative issue of Tirupur exporters R.Y. Narayanan
Coimbatore, July 5 The Governor of the Reserve Bank of India has assured a meet of the banks involved in derivatives contracts with garment exporters of Tirupur and representatives of the exporters in Chennai. The meet is to discuss the derivative contracts issue which the industry fears would derail its future if it is not settled amicably. The garment export industry wants a ‘no loss, no gain’ settlement with the bankers and wants the RBI to constitute a high-power committee to investigate the entire class of derivative contracts entered into by bankers with the exporters in the country. Speaking to Business Line, Mr Raja M. Shanmugham, President, Forex Derivative Consumers’ Forum, Tirupur, said a delegation consisting of himself, Mr ‘Armstrong’ Palanisamy, MrVidyaprakash and Mr Anandan (auditor) led by the Coimbatore Lok Sabha MP, Mr K. Subbarayan, met the RBI Governor, Dr Y.V. Reddy, in Mumbai on Friday to apprise him of the grave problems faced by the garment exporters from Tirupur. The delegation wanted Dr Reddy to establish a high-power committee to “investigate the entire class of derivative contracts” that were entered into by banks with Indian exporters in complete violation of the RBI circulars.” They wanted the RBI to instruct the bankers to arrive at an “amicable compromise solution so as to save the industry”. He said the forum wanted the banks to be told not to debit the ‘resultant loss’ in the regular account of the customer pending the outcome of the investigation by the committee and that the banks should not classify the account as NPA due to non-payment of the derivative losses debited to the exporters’ accounts. The forum also wanted the RBI to keep in abeyance its draft guidelines on off-balance sheet items under which banks were required to classify derivative receivables as NPAs if they were not recovered within 90 days. This was because if one account was classified as NPA, all other accounts of that exporter would become NPAs. Mr Shanmugham said while the exporters were familiar with hedging against fluctuations in foreign currency value and took protective steps, they had not understood the real implications of the derivative contracts and were lured into signing them by the bankers. He put the number of companies that entered into derivative contracts around 40-50 in Tirupur alone and the notional loss could be around Rs 400 crore. He identified ICICI Bank, ABN Amro Bank, Axis Bank, HDFC Bank and SBI as the banks that had major exposure to derivative contracts. He said since most of the Tirupur garment exporters were first generation industrialists, they had no professional managers to advise them on the flip side of such contracts. He feared that if the derivative contracts were enforced and if the exporters were made to bear the loss, their entire working capital would be eroded creating a serious economic crisis in Tirupur. Will the RBI probe and unravel the derivatives scam? Forex derivatives and ‘Armstrong’ Palanisamys More Stories on : Forex | Knitwear & Hosiery | Derivatives Markets | RBI & Other Central Banks
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