Exporters urge RBI to help boost trade settlement in rupee – Banking & Finance News #IndiaFinance

Exporters have asked the Reserve Bank of India (RBI) to give adequate publicity to trade settlement in rupee and the currencies of key trading partners (other than the US dollar).

The RBI should provide information on which banks facilitate the local currency trade as better awareness will lead to better use of this service, President of Federation of Indian Export  Organisations (FIEO) S C Ralhan told RBI governor Sanjay Malhotra at a meeting last week in Mumbai.

The system of trade with some countries in rupees instead of dollars saves foreign exchange and simplifies trade, he said.

In December 2023, the Foreign Exchange Management (Manner of Receipt and Payment) Regulations were revised to enable cross border transactions in all foreign currencies – including  currencies of trading partner countries – and the rupee.

After the Reserve Bank of India (RBI) allowed in invoicing and payment of international trade transactions in rupees and other local currencies, 123 correspondent banks from 30 trading partners have opened special accounts in India to facilitate trade .

The RBI has permitted opening of total 56 Special Rupee Vostro Accounts (SVRO) with 26 banks authorised to deal in foreign exchange transactions. The central bank has also entered into Local Currency Settlement System (LCSS) arrangements with select trade partner countries – UAE, Indonesia and Maldives – for encouraging settlement of cross-border trade in Indian rupee and the local bank of the partner country.

At the meeting Ralhan also raised the issue of slowing credit support to exporters. He pointed out that net outstanding credit to exporters has contracted while exports have gone up. “If credit doesn’t flow quickly and adequately, we’ll lose out on big global opportunities,” FIEO president added.

The support of the RBI was also sought for immediate roll out of the Interest Equalisation Scheme (IES) or interest subsidy schemeto reduce the high cost of credit that Indian exporters face,

“The credit cost has become more important as the payment period has been extended by buyers facing liquidity challenges.  Many countries help their exporters with cheaper loans or subsidies. In India, without schemes like our exporters are struggling to match prices with global competitors” he said.

“Even when banks approve loans for exporters, only about 35-40% of it is actually used.  Often it’s because the process to access these funds is complicated, slow, or unclear. We need to fix this so exporters can actually use the money that’s been approved for them,” Ralhan said.