L.B. Singhal
Director General

SUB :   AVAILABILITY OF FOREIGN CURRENCY EXPORT CREDIT TO EOUs/ SEZ UNITS ON PRIORITY

EPCES had met Shri Vinod Rai, Additional Secretary (Banking), Ministry of Finance and explained him the problem of non-availability of Pre-shipment Credit in Foreign Currency (PCFC) to EOUs and SEZ Sector. We had requested him that PCFC should be provided to EOUs and SEZ Units on priority, in view of the fact that this Sector earns foreign exchange of over Rs. 40,000 crore.

Shri Vinod Rai, Additional Secretary (Banking), Ministry of Finance had written a letter to the following:-

• Shri A. K. Purwar, Chairman & Managing Director, State Bank of India
• Shri S. S. Kohli, Chairman & Managing Director, Punjab National Bank.
• Shri M. Venugopalan, Chairman & Managing Director, Bank of India
• Shri R. V.Shastri, Chairman & Managing Director, Canara Bank
• Shri P. S. Shenoy, Chairman & Managing Director, Bank of Baroda
• Shri S. C. Gupta, Chairman & Managing Director, Overseas Bank

Shri Vinod Rai, Additional Secretary (Banking), Ministry of Finance had emphasized to these banks that EOUs/SEZ Units should be provided PCFC on priority basis.  Extracts of this letter is enclosed as Annexure ‘A’.

I have received a letter No. 15/1/2003-IF.I dated 11-3-04 from Ministry of Finance informing about the report received from these banks.  Extracts of this letter is enclosed as Annexure ‘B’.  Alongwith this letter, Ministry of Finance has forwarded copy of the letters received from the following:-

• Shri A. K. Purwar, Chairman & Managing Director, State Bank of India
• Shri S. S. Kohli, Chairman & Managing Director, Punjab National Bank.
• Shri M. Venugopalan, Chairman & Managing Director, Bank of India
• Shri R. V.Shastri, Chairman & Managing Director, Canara Bank
• Shri A. S. Khurana, General Manager (IO&T), Bank of Baroda
• Shri S. C. Gupta, Chairman & Managing Director, Overseas Bank
• Extracts of these letters are annexed at Annexure ‘C’.

As seen from these letters, Chairman & Managing Directors of above stated banks have informed that they have issued instructions to their operating units to ensure that the applications of EOUs and SEZ Units, for Export Credit in Foreign Currency, are given priority status.

I hope that this will help EOUs and SEZ Units in getting PCFC from above stated banks considerably.

I would like to have feedback of your experience with these banks now, on the availability of PCFC. In case you are having problem with these banks in getting PCFC, I request you to meet the concerned authorities of these banks with this information and if you still have the problem, please send me the details so that we can inform Ministry of Finance accordingly. In sending this information, please give complete details of the bank branch, date of your applying for PCFC, amount applied, amount sanctioned and any other information which you think is appropriate.

ANNEXURE ‘A’

EXTRACTS OF LETTER FROM SHRI VINOD RAI, ADDITIONAL SECRETARY (FINANCIAL SECTOR), MINISTRY OF FINANCE, ADDRESSED TO CHAIRMEN & MANAGING DIRECTORS OF SBI, PNB, BANK OF INDIA, CANARA BANK, BANK OF BARODA AND OVERSEAS BANK

DO NO. AS(FS)/Misc./2003                                                   17^th December, 2003

Dear

            EOU and SEZ units operating within the country have represented that despite their having earned a very substantial amount of foreign exchange, these units are not getting pre-shipment credit in foreign exchange from various Banks. This difficulty of such units appears to be a major detriment in their capacity to be able to compete in the foreign market, especially so when the dollar premium has declined considerably. In this context, low cost finance in the form of pre-shipment credit becomes very critical for such units.

            I am writing to you to intercede on behalf of these units and to request that their difficulty appears to be very genuine and they certainly deserve to be provided pre-shipment credit in foreign exchange on a priority basis. For banks like yours having a sufficient amount of deposits in foreign currency, this should not be very difficult.

            I shall be grateful if you could kindly give instructions to your constituent units to ensure that maximum possible assistance would be made available on priority basis to EOU/SEZ Units.

                                                                                                            Yours sincerely,

                                                                                                                        Sd/-
(VINOD RAI)

Shri A. K. Purwar, Chairman & Managing Director, State Bank of India
Shri S. S. Kohli, Chairman & Managing Director, Punjab National Bank.
Shri M. Venugopalan, Chairman & Managing Director, Bank of India
Shri R. V.Shastri, Chairman & Managing Director, Canara Bank
Shri P. S. Shenoy, Chairman & Managing Director, Bank of Baroda
Shri S. C. Gupta, Chairman & Managing Director, Overseas Bank

ANNEXURE ‘B’

EXTRACTS OF LETTER NO. 15/1/2003-IF.I DATED 11-3-04, RECEIVED FROM MINISTRY OF FINANCE

“To,
Shri L. B. Singhal,
Director General,
Export Promotion Council for EOus & SEZ Units,
Ministry of Commerce & Industry,
705, Bhikaji Kama Bhavan,
Bhikaji Cama Place,
New Delhi

Sir,

I am directed to refer to your letter No. EPC/SEZ/AM04/F-8 dated 17-12-2003 on the above subject and to say that the matter has been examined in consultation with relevant banks and the copies of their reports received are enclosed herewith for your information”

ANNEXURE ‘C’

EXTRACTS OF LETTERS ADDRESSED BY CHAIRMEN & MANAGING DIRECTORS OF SBI, PNB, BANK OF INDIA, CANARA BANK, BANK OF BARODA AND OVERSEAS BANK TO ADDITIONAL SECRETARY, MINISTRY OF FINANCE

“R.V. Shastri                                                                            Date : 30^th December 2003
Chairman & Managing Director
CANARA BANK

Dear Shri Rai,

May I refer to your letter DO No. AS(FS)/Misc/2003 dated 17.12.2003.

I share your concern with regard to the genuine need for prioritizing the flow of Foreign Currency Export Credit to EOU and SEZ Units in our country. We have already issued instructions to this effect to all our operating units to ensure that the applications of EOU/SEZ units for export credit in Foreign Currency are given priority status.

It has been our endeavour to ensure that our export clients do not lose their competitive edge due to lack of Foreign Currency loan funds from the Bank.”

“S.C.GUPTA
Chairman & Managing Director
INDIAN OVERSEAS BANK

Ref : FED/204/EXPORT FINANCE/476/03-04                      Date : December 30, 2003

Dear Shri Vinod Rai,

EXPORT FINANCE

            I acknowledge receipt of your letter DO No. AS(FS)/Misc/2003 dated 17.12.2003. regarding extending export finance in foreign currency to EOUs and Units in SEZ and hasten to add that our Bank has never failed in its responsibility in extending the required finance to Exporters be it in the form of rupee credit or in the form of foreign currency denominated loans.

            However of late, due to historic low in US dollar LIBOR rates, there is an increased demand for credit facilities denominated in foreign currency not only from exporters but also from all other borrowers as a result of which, often our resources do not match the demand. Due to the mismatch of supply and demand there is some time lag before the requirements of the borrowers are met.

            In the circumstances, we suggest that Reserve Bank may be requested to extend refinance facility in foreign currency against our export credit, which will increase the supply to meet the exporters need of foreign currency loans.

            I once again assure you that our bank will be meeting the need of the exporter customers in EOU and SEZ to the best of our abilities”

“M. Venugopalan                                                      CMD : 230
Chairman & Managing Director                              31^st December, 2003

BANK OF INDIA
Dear Shri Rai,

Re : Foreign Currency Credit to EOU/SEZ Exporters

We request reference to your letter DO No. AS(FS)/Misc/2003 dated 17.12.2003.

1. It is the policy of our Bank to give preferential treatment to exporters in funding their foreign currency requirements. However, having exhausted the available FCNR deposits for such lending we are having supply constraints. As at the end of November 2003, the foreign currency credit extended to exporters is USD 243 million.
2. We have, however, reiterated to our branches the priority to be accorded to EOU/SEZ Units.

“A. S. Khurana                                                                           BCC:INT:DFB:96/283
General Manager                                                                      12^th February, 2004
(International Operations & Treasury)
BANK OF BARODA

Dear Sir,

Re : Preshipment Finance to EOU and SEZ Units

We refer to your letter DO No. AS(FS)/Misc/2003 dated 17.12.2003, addressed to our Chairman & Managing Director on the above subject.

Immediately on receipt of your above letter we have advised all our Authorized Branches, Off-shore Banking Unit, Mumbai to ensure that requirement of preshipment finance is made available expeditiously and on merits to EOU/SEZ units.

Notwithstanding our above instructions, we may clarify that our Bank has always keen taking full care of units operating in EOU/SEZ as regards their credit needs whether in Foreign Currency or in Indian Rupees.”

“S. S. Kohli                                                                              December 23, 2003
Chairman & Managing Director
PUNJAB NATIONAL BANK

Dear Shri Rai,

Pre-shipment Credit in Foreign Currency

Please refer to your DO letter No. AS(FS)/Misc/2003 dated 17.12.2003 requesting our bank to provide pre-shipment credit in foreign currency to EOU and SEZ units on priority basis.

I share your concern for providing  low cost finance in the form of pre-shipment credit in foreign currency to EOU/SEZ Units so that they are able to compete in the international market. I may inform that Punjab National Bank is committed for promoting exports from the country. Bank has already borrowed USD 104 million through lines of credit availed from foreign correspondent banks for providing export credit in foreign currency. As on date bank has disbursed export credit in foreign currency of over USD 125 million.

With a view to provide foreign currency finance to units in SEZs, Bank opened its Offshore Banking Unit (OBU) at SEEPZ – Mumbai in September 2003. OBU has already mobilized foreign currency deposits of over USD 6.5 million, which are being utilized for providing foreign currency finance to SEZ units. Further, we are in the process of arranging additional lines of credit for meeting requirement of exporters for pre-shipment credit in foreign currency.

In order to provide pre-shipment credit in foreign currency on priority basis to EOU/SEZ Units, I am conveying necessary instructions to field functionaries. Let me assure you that Punjab National Bank will strive for providing maximum possible assistance to these units.”

“A. K. Purwar
Chairman
STATE BANK OF INDIA

                                                                                                              ID/DO-PLG/5421
                                                                                                              December 30, 2003

Dear Shri Rai,

I refer to your DO letter No. AS(FS)/Misc/2003 dated 17.12.2003 and share your concern.

2.The pre-shipment credit portfolio in US Dollars of our Bank has risen by over 389% since March, 2002. The total PCFC outstandings of the Bank, including loans to exporters situated in EOU & SEZ units, which were at Rs. 54.27 crore at the end of March 2002 have reached Rs. 2,222.23 crore as on the 26^th December, 2003. As is evident, our Bank is providing substantial amount of PCFC (i.e. pre-shipment US Dollar loans) to exporters. While the entire disaggregated data in respect of Pre-shipment Credit in Foreign Currency (PCFC) i.e. US Dollar, provided to EOU and SEZ units is not readily available, we have obtained data in respect of PCFC granted to such units from a few of our Circles, on a sample basis, and observe that a large percentage of our PCFC exposure are to EOUs and units located in SEZs.

3.Meanwhile, we assure you that our Bank will continue its support to EOU and SEZ based export units. The Circles have been instructed to process the requests of these units on a priority basis and the requirements of EOUs and units in SEZs will continue to be met, subject to availability of adequate US Dollar resources with us.”