Pylwin, ABN Amro Bank to settle derivatives row

Pylwin Exports, based in Tirupur, the textile town in Tamil Nadu, and ABN Amro Bank have agreed to an out-of-court settlement to sort out their differences over losses incurred by the former due to forex derivatives contracts.

Sources close to the development said this is one of the few cases of an out-of-court settlement over the dispute, where many companies and exporters have taken a clutch of banks to court regarding losses incurred due to speculative exposures created by forex derivatives contracts.

A source instrumental in the settlement between Pylwin Exports and ABM Amro Bank said the loss incurred by the client was around Rs 8 crore and the bank had agreed to absorb 45 per cent of the loss, with Pylwin Exports bearing the remaining loss.

Exporters in Tirupur now estimate that the loss on account of speculative exposure to forex derivatives contracts could be in the region of Rs 400 crore. Many exporters are not willing to pay banks, claiming that they were misled into buying these contracts as profitable and safe means to make windfall gains. Banks, on the other hand, contend that exporters who pocketed profits during good times have resorted to litigations to escape payment of dues to banks.

State Bank of India and ICICI Bank have offered to convert losses into long-term loans, making repayment a shade easier for exporters.

Raja M Shanmugam, an exporter who heads a forum to address the exporters’ woes said, “We are helpless. Banks have started to debit our accounts with the losses as the contracts mature. This is affecting our routine operations. The only other route they are offering is to convert these losses into long-term loans.”

Raja and members of the exporters’ forum had recently approached RBI Governor Y V Reddy, seeking the apex bank’s immediate intervention. An internal study has been initiated by exporters to make a strong case against the banks and favouring the exporters. “We plan to approach the prime minister and the finance minister with this,” Raja said.

He also said in the next two to three weeks, exporters from Tirupur and other parts of the country, who have suffered similar losses plan to meet in Delhi to form a national-level forum to address the issues arising out of forex derivatives contracts.

Tamil Nadu state Congress leadership’s support has been sought by exporters to bring the issue to the attention of the ruling UPA government.