Bankers feel the RBI decision to allow full discretion to holders of EEFC account on the usage of the balance coupled with the caveat that the facility can be withdrawn if there is evidence of delays in the repatriation of foreign currency proceeds, reflects the carrot-and-stick policy of the central bank.
Says a banker, "the implied message being that you get more flexibility only if you give up delays in repatriations."
Under the present system EEFC accounts worked as an alternative to foreign currency account held abroad by these entities. On the basis of the average realisation of each applicant the RBI sets a 50 per cent of average realisation limit for each applicant. For units in export prcessing zones (EPZs) and EOUs the limit is 70 per cent and in select cases the RBI even gave 100 per cent limit. The balance in the EEFC accounts can be utilised under some 40 heads of expenditure (both revenue expenditure or for settlement of foreign currency repayment liabilities) either in India or abroad.
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But the exchange control of the RBI also specified the proportion in which the balance could be spend under certain expenditure heads. These were specifically related to write backs of bills, ad expenditure abroad, hotel expenditure, medical expenses and payment of air fare and shipping charges.
While this induced inflexibility and underutilisation of the foreign currency resource with the EEFC holders they also faced settlement problems.
According to exporters they were facing problems for payments as the shipping and air fare companies and also insurance companies were not accepting payments in dollars cheques of the EEFC accounts. Rupee payments were accepted but only after converting at exchange rates higher than the going market rates. This meant higher cost for the EEFC holders. Exporters say with yesterday's package these problems will be remedied.
Exporter association feel the decision to limit the facility to exporters who delay their repatriation will tighten the scope for speculation by large companies and banks. However they doubt the efficacy with which the RBI can manage to keep an eye on the day-to-day transaction of these entities. According to an exporter, since the account gives an interest rate of 5.75% and the exporter community does not expect a large depreciation in the rupee-dollar rate, there is no incentive to keep realisations abroad.
The move to restrict deferment of repatriation of export realisation to only exceptional cases reflects the severity with which RBI wants to deal with errant exporters.
Bankers say that till now extension beyond the due date was allowed by RBI more generally. Now the ETX applications_filed for repatriation purposes under Fera_ will be more severely scrutinised.