Misrepresented

This refers to the news item Canara Bank cites Reserve Bank guidelines to withhold credit Shipment finance on Russian LCs stopped (June 19, 1996). We take strong objection to the contents of the report. It is not factual and seems to be a misrepresentation of facts.

First, the name of the Bank of Foreign Economic Affairs, Moscow (BFEA) has been drawn into the report. An impression is created that LCs under state credits issued by BFEA Moscow are not good for engagement. This is absolutely incorrect. Such LCs provide for reimbursement through Reserve Bank where funds have already been earmarked. Exporters/financing banks are sure to receive payments from RBI, if the documents submitted by them are strictly in conformity with credit terms.

 

We confirm that our bank does extend pre- and post-shipment finances for shipment to the Russian Federation under documentary letters of credit issued by BFEA Moscow under state credits.

Financing exporters on the basis of documentary letters of credit or otherwise is an independent credit function of any lender bank. It is based mainly upon the status of the borrower, policy guidelines for financing formed by the RBI, need base etc. Merely because an exporter has a documentary letter of credit, he does not attain an automatic right for finances from the banks. It is subject to the credit norms and financial discipline as referred above.

Since state credit LCs issued by BFEA provide for reimbursement through the RBI and are registered with it before being passed on the beneficiaries, we have been liberal in extending finances against such letters of credit subject to our normal credit discipline.