Liberal foreign currency a/c rule to help exporters

NEW DELHI: Exporters can now take advantage of the burgeoning forex reserves as RBI on Tuesday liberalised the exchange earners’ foreign currency (EEFC) account.

The steps are supposed to discourage excessive inflow of forex into the economy. In combination with the leeway given to rupee investment abroad, the measures are also expected to stem domestic inflationary build-up.

Exporters can now deploy their surplus cash in short-term bank deposits or AAA-rated papers abroad. Further, RBI has raised the cap for banks to borrow funds from their overseas branches to fund export credit up to 50% of their tier-1 capital or $10m.

RBI has said that all categories of foreign exchange earners may henceforth retain up to 100% of their foreign exchange earnings in their EEFC accounts as against 75% earlier.

But, exporters feel that they might not prefer to park their funds in the EEFC account when the rupee is gaining against the dollar. But, they welcomed the liberalisation of the EEFC account, since it will help them save on commissions that they had to pay banks.

“In a scenario when the rupee does not fluctuate, and if exporters have import requirements, parking funds in the EEFC account is a good option. With rupee gaining strength, it is not advisable for us to park it in EEFC,” an exporter at the Federation of Indian Exporters Organisation (FIEO).

An EEFC account is expressed in foreign currency and maintained with an authorised dealer, a bank dealing in foreign exchange, in India to credit prescribed percentage of earnings in convertible foreign currency.

On allowing investment of surplus cash abroad, exporters said, “Most exporters are of the SME category. They do not have the kind of expertise needed to invest in sophisticated instruments like an AAA-rated short-term paper abroad.

Further, authorised dealer banks can now borrow funds from their overseas branches and correspondent banks including borrowings for financing export credit, ECBs and overdrafts up to a limit of 50% of their unimpaired tier-I capital or $10m. This limit is up from the overall cap at 25% of tier-1 capital. Hitherto, financing of export credit was not a part of this 25% cap.

Harwant Singh, general manager, international operations and Punjab National Bank, said, “Doubling the limit on bank borrowings from overseas operations up from 25% to 50% of tier-1 capital is itself liberalisation. Banks will now have a larger kitty to fund export credit.” For PNB, the export finance portfolio is at Rs 5,500 crore, divided equally between domestic and foreign currency.

In what could also give greater flexibility to exporters, RBI has allowed large turnkey, project exporters or service exporters with satisfactory track record to operate just one foreign currency account, with inter-project transferability of related machinery in any country.