New Delhi: Exporters have asked the RBI and finance ministry to resolve their (exporters’) row on derivatives with banks resolved, or else the disputed amount of Rs1,500 crore may turn into non-performing assets in lenders’ accounts closing on 31 March.
Rejecting the banks’ offer for converting the exporters’ losses on complex derivative products into term loans, the Federation of Indian Export Organisations (FIEO) has approached the RBI and the finance ministry for dispute resolution.
ICICI Bank, ABN Amro, Axis Bank, Standard Chartered, State Bank of India are among those which sold currency-related derivatives to about 250 exporters from October 2007 onwards, when the rupee was appreciating fast, FIEO president A Sakthivel said.
While exporters said they bought complex financial products to cover their currency-related risks, they suffered losses when the rupee made a U-turn from early this fiscal. From Rs39 to a dollar, the Indian currency has depreciated to over Rs50 between October 2007 and 20 March 2009.
Almost all of them have refused to pay their loss amounts, stating that banks did not explain to them the complexities of the products. Sakthivel said the agreements signed with banks could not be enforced since they were in violation of RBI rules.
“Banks are also in a dilemma because there are no clear instructions (from the RBI) what they should do ... After a few days it (Rs1,500 crore) would become NPA,“ Sakthivel said. Banks are due to close their annual books this month-end.
Sakthivel said, “Banks want us to convert them (derivative losses) into term loans ... but we will not agree”.
For now, the RBI has asked the banks to show the amount in a separate account.
Asked why agreements signed with banks should not be honoured, the FIEO president said most of the exporters did not understand how the currency movements across the globe could affect the derivative deals.
For instance, the products sold to exporters had a feature whereby the fluctuation between the dollar and Swiss franc would also hit them, he said.
But can ignorance be an excuse for not honouring a contract?
Sakthivel said it can be, because banks did not conform to RBI rules. “One of the exporter’s turnover was Rs5 crore; the derivatives sold (to him) (were of) Rs10 crore,” he said, adding that the RBI guidelines provide checks and balances, which were not included in the contracts.