The Soybean Processors Association (SOPA) has urged the government to ask banks to honour letters of credit issued by another bank to ease liquidity in the processing system.
In a letter to the finance minister, SOPA said the growing liquidity crunch may affect soya traders, resulting in an unexpected hike in the prices of soybean and soyoil.
The finance minister had recently instructed banks to ensure the credit supply to traders slows down, especially to the middle and tiny units. The request came after soya traders started feeling the pinch of lower credit flow into the system following the government warning.
“On Tuesday, one bank is discounting the LoC issued by another bank as the latter does not want to take additi-onal uninvited risk from the former and therefore, the industry is suffering a lot,” said Rajesh Agarwal, co-ordinator of SOPA.
Stressing a lack of faith in the banking system, Agarwal said farmers or tra-ders in remote villages do not get funds from the vicinity despite goods deposited on collateral or any other form of deposits to the bank.
“The whole system may have worse impact when market system improves,” Agarwal warned.
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Meanwhile, preliminary data released by the Director General of Foreign Trade recently suggest that Indian exports have shrunk 15 per cent in October ‘08, the first time exports have shrunk since 2003. Against such a depressing scenario, the export of soybean meal during October ‘08 was 92,424 tonnes as against 170,452 tonnes during the same period last year, indicating a decline of 45.78 per cent over the last year.
The exports during April ‘08 to October ‘08 was 1,756,479 tonnes as compared to 933,800 tonnes registering a 88 per cent growth over the same period last year.
Highlighting the importance of soybean sector in India, the association said the soybean meal exports had for the first time during oil year 2007-08 (i.e. October - September), crossed 5 million tonnes of exports earning over Rs 7,300 crore worth of foreign exchange for the country. The industry is upbeat on exports during the present oil year as the soybean crop has increased by almost 10 per cent during the current season.