Pressure is mounting on the Export Credit Guarantee Corporation (ECGC) to drop a rider that is coming in the way of the smooth flow of foreign currency-based bank credit for export shipments to Iran.
ECGC has stipulated that it would not cover any loss incurred by an exporter in situations when there is no sufficient rupee balance in the Vostro account (in UCO Bank) or for some reason the exporter does not receive payment. A Vostro account is the local currency account maintained by a local bank for a foreign (correspondent) bank. For the foreign bank, it is a Nostro account.
In the wake of this condition, banks are hesitant to handle the letter-of-credit (LC) documents opened by Iran for export shipments from India.
Under the new payment mechanism put in place recently post-US sanctions, merchandise exports from India are allowed only against LCs opened by Iranian importers.
Banks contend that it is very difficult for them to check if rupee balance exists in the Vostro account (in UCO Bank) at the time of presentation of documents.
“This is one unresolved issue. The matter has been taken up with ECGC through Indian Banks’ Association and FEDAI,” said V. Kannan, Executive Director, Oriental Bank of Commerce.
It is not only banks who have approached ECGC, export promotion agencies, such as the Federation of Indian Export Organisations (FIEO), have also written to the national credit insurer.
The FIEO President, Rafeeque Ahmed, said exporters were facing problems getting export credit on Iran shipments on account of this condition. In spite of having huge orders in hand from Iran, they are unable to execute them as they are not getting adequate export credit from banks, he said in a letter to ECGC’s Chairman and Managing Director, N. Shankar.
“The condition (put by ECGC) should be waived in the larger interest of the exporting community,” the FIEO has suggested.
The impact of the ECGC rider is seen across the board, especially in sectors such as engineering goods and soyameal, sources in the FIEO said
However, Rajesh Agarwal, spokesperson for the Soyabean Oil Processors’ Association, said a slowdown in exports to Iran could be attributed to the sluggish demand and not related to credit issues alone.