Tirupur exporters, who are facing a loss of Rs 300 crore from the foreign exchange derivative products of 2007, are exploring their options having gone through the doorsteps of courts, regulators, political leaders for three years.
In recent days, the banks have come forward for an out-of-court settlement. “They (banks) want exporters observe 20-40 per cent. We want the banks to pay back the exporters on ‘no profit, no loss’ basis,” said Raja M Shanmugham, president, Tirupur Forex Derivatives Consumer Forum (TFDCF). The exporters were also invited by their foreign counterparts to share their experience in forex derivatives.
The exporters, consisting of around 25 small to big companies, lost the amount after being ‘lured' by banks to purchase their derivative products to hedge the risk of currency exchange fluctuations in 2007-08. They have formed Tirupur Forex Derivatives Consumer Forum (TFDCF) to fight against the banks including ICICI Bank, Axis Bank and others.
Shanmugham said it has been almost three years since the foreign exchange (forex) derivative contract scam shook the industry, but they are yet to see a solution.
It all started during the second quarter of 2007, when the Indian rupee began to slide against US dollar and touched Rs 39 from Rs 46, in 15 days. Exporters began to lose profits and headed towards losses. It was at this point that some of the private banks came up with the complex forex derivatives promising gains, explains Shanmugham.
“It was with the encouragement and loans from banks that we came up in life, and they (banks) are like our godfathers. But these days, banks want to make money by cheating us and canvassed strongly for the products,” said Shanmugham.
Comparing derivatives to gambling, Shanmugam said, “Even in gambling the ratio of betting is 1:2. But in Tirupur it was 1:100. Naturally the entire economy is affected.”
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“The exotic derivatives were gross violation of FEMA (Foreign Exchange Management Act) and it’s a case of gross misrepresentation,” said CA and forum member S Dhananjayan.
“My loss is Rs 27 crore. My capital is not enough. So we have joined the forum to get justice. We want a settlement on ‘no loss, no gain’ basis,” said 'Armstrong' Palanisamy, who alleged he was cheated by three different banks.
The banks sold a combination of various derivatives to the same exporter, without verifying if the customer had made prior purchase of a derivative. They also said no NOC needed, no collateral security needed, three year balance sheet that’s all, according to Shanmugam.
“They practically marketed the products door-to-door. They just asked the exporters to sign the stealthily designed contracts,” alleged Shanmugam.