RBI waves ED threat to keep exporters in line, foil hedging against rupee

The RBI has often impressed it upon banks that the EDPMS needs to be up to date as the data is required to monitor how fast exporters bring back their export proceeds

In a bid to crack down on hedging against the rupee, the Reserve Bank of India (RBI) has warned exporters that they could be reported to the Enforcement Directorate (ED) if they fail to record their export proceeds with the banks. About 90,000 exporters, comprising a sizeable segment of the community, are at risk from this new rule. 

The central bank has got the data to carry out its threat on the basis of a software it had introduced in 2014. The software, known as Export Data Processing and Monitoring System (EDPMS), is used by banks in their business with exporters. The system has greatly helped exporters, allowing them to get out of the maze of paper entries in their dealings with banks. It has also helped India rise on the Ease of Doing Business scale. 

But for exporters, the EDPMS also has a flip side — one which they are waking up to only now. Since the data tracks each consignment booked by them, it also shows up if and when entries remain uncleared.

The RBI has often impressed upon banks that the EDPMS needs to be up to date as the data is required to monitor how fast exporters bring back their export proceeds. However, exporters often drag their feet over this in order to earn some arbitrage in the foreign exchange market. 

CUT THROUGH CLUTTER

• The software, known as Export Data Processing and Monitoring System, is used by banks in their business with exporters
   
• The system has greatly helped exporters, allowing them to get out of the maze of paper entries in their dealings with banks
   
• It has also helped India rise on the Ease of Doing Business scale

In fact, the recent volatility of the Indian rupee — it dipped by 6.2 per cent against the US dollar between June and September 2018 — has encouraged many of them to try hedging against it. Matching the EDPMS data with actual exports would reveal the extent of this play. 

Banks have told the RBI that the database remains incomplete because exporters delay reporting their consignment status. The central bank, on its part, has set periodic deadlines for updating the database, the last of which expired on September 30, 2018. It has now stipulated that the exercise of bringing the EDPMS up to date must be completed by December 31. It has also warned exporters that those who fail to complete their entries will be put on a Caution List.

Once they are on the Caution List, exporters are denied packing credit, which hampers their business. Caution listing also leads to the non-negotiation of ‘non-letter of credit bills’. So even if the goods reach the buyer on time, the banking documents get delayed. 

“This leads to delays and demurrage charges that need to be cleared by the exporters,” explained an industry source. Currently, about 90,000 exporters figure in the Caution List, of whom about 65,000 are active exporters.

But since the delays have persisted, Mint Road has upped the ante. In its latest move, it has instructed banks to inform exporters that “clients with bills greater than 270 days will get reported to the ED and we may not then deal with such clients.” Needless to say, exporters are up in arms over the reference to the ED, a body which prosecutes violation of foreign exchange rules by Indian entities. Many of them, including the Cotton Textiles Export Promotion Council, insist that it is not exporters who are at fault — rather, it is the banks that have been slow to update the exporters’ database.  

Ajay Sahai, director-general of the Federation of Indian Export Organisations, feels that the government should take into account the fact that many firms have to wait for months to realise payments from international clients. At a time when liquidity is low, the norms should be relaxed rather than tightened, he added.

“Also, while around 1-2 per cent of cases may be of exporters with genuine outstanding loans and those who are themselves awaiting payments, there is a significant number of cases where the banks have not updated the system. Of course, there is the third category where the exporter is in default,” Sahai said. 

A senior official from industry body Confederation of Indian Industry pointed out, “At a time when global competition has tightened, exporters are increasingly using longer payment options as a marketing tool to reel in buyers in developing nations.” 

The official also said banks will automatically shy away from providing any extension to even genuine cases once the ED steps in since the responsibility for the bad loan will be on the banks.