Exporters Face Banking Issues Amid West Asia Crisis

New Delhi, Mar 10 (PTI) Exporters on Tuesday flagged issues such as possible delays in payments due to the ongoing West Asia crisis during a meeting with the Department of Financial Services, which assured them to look into the matters, according to FIEO.

Delays in shipments due to rerouting of vessels, particularly because of disruptions in the Red Sea region and avoidance of the Suez Canal are likely to create several banking and trade finance challenges for Indian exporters.

As export finance and payments are closely linked to shipment timelines and documentation, extended voyage durations can significantly affect liquidity, compliance, and financing costs for exporters, Federation of Indian Export Organisations (FIEO) Director General Ajay Sahai said.

During the meeting with the department, he said, issues which were flagged included risk of expiry, or discrepancy under letter of credit; pressure on exporters' working capital cycles; risk of penal interests and loss of interest subvention; and issues relating to transit period for usance bills.

He said exporters need enhancement in the quantum of finance, and extension of the financial cycle to cover the effect of the war situation; waiver of penalties and deadlines for submission and realisation of payment, and protect penalty-free interest and interest equalisation scheme to cover the extended realisation period.

Exporters are hit badly by the war, but exporters of perishables and fashion items (if they miss the season) are likely to be affected the most with the loss of cargo values and need financial support, including working capital term loans, to mitigate and recover from the impact of immediate cash flow constraints, he said.

"The Indian Banking Association (IBA) has assured us help. They were very sympathetic. They will look into our issues," Sahai said.

He said that the disruption of traditional shipping routes and extended voyage durations has implications not only for logistics but also for export financing, banking procedures, and cost of credit. In the current circumstances, temporary regulatory and banking flexibility would be essential to ensure that exporters, especially MSMEs, are not financially penalised for delays beyond their control.


Where shipment routes change, or vessels are diverted to alternate ports, exporters may need amendments in shipping documents and related banking instruments such as LCs, he said.

These amendments, Sahai said, require approval of the issuing bank and the importer, and may involve additional charges and procedural delays. While exporters will take up with the buyer but we require proactive support of banks.

On the penal interest issue, he said if export bills are not realised within the stipulated due date, banks may treat them as overdue and apply penal interest rates, which are generally 3-4 per cent higher than the normal export credit rate.

At the same time, exporters may lose the benefit under the Interest Equalisation Scheme, which provides a 2.75 per cent interest subvention for eligible exporters.

"The combined impact could raise the effective cost of export credit by about 5.75 per cent to 6.75 per cent, imposing a significant financial burden on exporters already affected by logistics disruptions. This may directly affect the liquidity of the exporters," he added.

Further, the director general said longer transit periods delay the realisation of export proceeds.

Exporters who rely on Export Credit of banks may face extended credit cycles because payment is linked to document acceptance or cargo arrival.

"As a result, working capital remains locked for a longer duration, increasing the need for added finance and financing costs. Impact on the working capital cycle may severely affect the overall business of the exporters," he said, adding, "We need banks' support with enhanced and extended credit or working capital loans to provide time to make up for the losses."