A cross-section of exporters has sought relief on levy of cancellation charges by banks on currency forward contracts entered by them in view of the COVID-19 pandemic.
A currency forward contract is an agreement between two parties to exchange a certain quantum of a currency for another currency at a fixed exchange rate on a fixed future date. This is used by exporters and importers in order to hedge their foreign currency payments from exchange rate fluctuations.
“During Covid-19 lockdown exporters in India were not able to honour the contract. Being a natural disaster, the entire business across the world had come to a halt from last week of March 2020 onwards,” R.Viswanathan, partner, Sirius Business Solutions, which is into electronic goods exports, said.
He said that his company had entered a forward currency contract with a large private sector bank and was completely dependent on airlines for shipment of goods. The services were affected owing to lockdown.
“Buyers had cancelled the orders and for some payments were not received for the sales which happened prior to the lockdown. Exporters who had signed the forward contract are in huge loss because banks are debiting the cancellation charges for non-performance of the contract within the stipulated period. With rupee appreciating against the dollar, the cancellation charges are huge, which is affecting the working capital of every exporter,” Mr. Viswanathan said.
He has already made a representation to Prime Minister Narendra Modi on the issue and is planning to register a compliant with the Banking Ombudsman.
Panaruna Aqeel, chairman, Council for Leather Exports, pointed out that the non-performance of the contract was not intentional and it was due to factors beyond control.
“Banks should understand and be considerate about the hit taken by the exporters due to the pandemic and should not levy the charges,” he said.