The RBI-appointed working group on export credit and exchange earners foreign currency accounts (EEFC) scheme has recommended that banks should be given the discretion to give export credit based on their knowledge of the customer and other affidavits from exporters instead of insisting on export order or LCs as a precondition to extend credit.

This is one among the many suggestions made by the group to de-bottleneck export credit procedures.

The working group, headed by RBI executive director V Subramanyam, submitted its report on December 31. The RBI is expected to accept most of the recommendations and announce the new rules this week.

At present, it is compulsory for exporters to submit export order to banks as proof of their export commitment in order to avail of working capital finance. This has created considerable procedural delay in exportcredit disbursements. The working group has suggested that insistence on export order as the sole proof of exports should be done with.

Instead, banks should have the freedom to extent export credit if they are convinced about the validity of a export credit demand, which, in any case, need to be supported later with the production of export bill.

The implementation of the suggestion will require some amendments to the foreign exchange control rules of RBI and the rules of Export Credit Guarantee Corporation (ECGC).

Another suggestion relates to offering ad-hoc cash credit limit to exporters to execute an unanticipated and sudden export order. At present, it takes over 15 days for the bank credit to materialise, which is too long a period when the export order is for immediate execution. Towards this, more sanctioning powers should be given to bank branches, the report has suggested.

The working group has also recommended that banks be told to simplify procedures to avail of export credit as manysmall and medium scale exporters finds the procedure cumbersome. The present procedure is so complex that even small exporters had to employ chartered accountants to fill in the formalities, said an exporter.

However, the RBI will not issue a standard format that banks will have to adhere to. The working group has suggested that each bank will need to work out simpler export credit systems by taking advantage of the new breakthroughs in information technology. Other suggestions of the working group include setting up of special branches for exports and computerisation and linking up of all these branches.

The working group was set up towards October-end following the RBI governor's announcement in the mid-term review of monetary and credit policy of 1998-99. The setting up of the working group was seen as part of the central bank's effort to boost the sagging exports.

The working group members interacted with exporters as well as local bank officials by visiting bank branches in some of the majorexporting centres especially where small and medium size exporters are located before writing the report.

The other members of the working group are State Bank of India chief general manager H Lal, Canara Bank general manager AKS Rao, Bank of India general manager RN Buch, ANZ Grindlays director and head of international services Soumen Basu, advisor to Vysya Bank KRV Bhat. RBI general manager MT Pabari acted as the member secretary of the group.

INSIGHT
Relaxation of rules welcome

What the working group has done is to recommend more discretionary authority for the banks. If a bank client has a long working relationship with his bank, the banker should have the freedom to trust him, rather than get bogged down by paperwork. This is especially so because in the case of export credit, the export bill will in any case constitute proof that the export transaction has finally taken place, and will provide an automatic check against misuse. It is well known that inflexible rules are onereason bogging down the export effort, and any relaxation of rules is welcome.