State bodies not accepting letters of credit issued by private banks, say PSUs

NEW DELHI: Some blue-chip state-run companies have complained to the Centre that government organisations and states are not accepting the letters of credit issued in their favour by private banks, impacting their business in the process.

Asenior government official told ET that the Department of Public Enterprises, the nodal agency for all central public sector enterprises (CPSEs) has written a letter to the finance ministry in this regard.

“We have flagged this issue and the finance ministry is expected to hold consultations with all stakeholders,” said the official from the ministry of heavy industries and public enterprises, requesting not to be identified. Letters of credit enable buyers to take delivery of goods without upfront payment and sellers to receive immediate payment soon after goods are shipped.

“There were guidelines issued by government in 2008 that it is important that department and ministries conduct their business, as far as possible, through public sector banks,” said a senior official with a state-run bank, adding that the government had noted that public sector banks have a special role and importance in the banking industry and in advancing the economic policies . CPSEs, however, say such guidelines infringe on their autonomy.

“If private banks are offering us better term and conditions why should we stick to public sector banks and suffer,” said an executive director with a power sector firm.