K.R. Srivats

New Delhi, Oct. 7

THE Commerce Ministry is to take up with the Reserve Bank of India (RBI) the issue of allowing offshore banking units (OBUs) to extend credit to the export-oriented units (EOUs) on the same terms and conditions as applicable to units in the Special Economic Zones (SEZs).

This has been a long-standing demand of the exporting community, especially the Export Promotion Council for EOUs and SEZs (EPCES).

With the EPCES raising this issue before the Commerce Ministry once again, Mr G.K. Pillai, Additional Secretary in the Commerce Ministry, has promised the Council members that a meeting with the RBI would be convened to discuss the issue.

The OBUs are exempt from cash reserve ratio (CRR) and Statutory Liquidity Ratio (SLR) requirements. According to RBI guidelines, 75 per cent of the available funds with an OBU should be used to finance SEZ units and the remaining to be utilised towards the domestic tariff area (DTA) units. Further, the terms and conditions for granting credit to the SEZ units and the DTA units also vary.

"The main issue is that EOUs are currently counted as part of the DTA and therefore they are covered under the 25 per cent norm. Our submission is that EOUs should be clubbed along with the SEZ units and be eligible for the 75 per cent portion", Mr L.B. Singhal, Director-General of EPCES, told Business Line.

Mr Singhal also felt that more OBUs would come up in various SEZs if they were to be allowed to provide credit to EOUs on the same terms and conditions as permitted for SEZ units. "Any entity looks at the commercial viability of the OBU before setting one in a particular zone or area," he said.

While exports by EOUs for the year 2004-05 stood at Rs 33,753 crore, exports from SEZs in the same year stood at Rs 18,655 crore.

Interestingly, a provision allowing OBUs to extend credit to EOUs on the same terms as provided to SEZ units had formed part of the foreign trade policy of August 2004.

According to Mr Singhal, this provision was deleted at the time of the Annual Supplement to the FTP (2005) as the RBI had not issued the necessary notification to implement the earlier stated policy provision. Hence, EPCES has once again approached the Commerce Ministry on this issue.

(This article was published in the Business Line print edition dated October 8, 2005)
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