New Delhi, March 10 On Tuesday, exporters raised concerns about potential payment delays due to the ongoing West Asia crisis during a meeting with the Department of Financial Services, which assured them that the matter would be looked into, according to FIEO.
Delays in shipments due to rerouting of vessels, particularly because of disruptions in the Red Sea region and avoiding the Suez Canal, are likely to create several banking and trade finance challenges for Indian exporters.
As export finance and payments are closely linked to shipment timelines and documentation, extended voyage durations can significantly affect liquidity, compliance, and financing costs for exporters, said Federation of Indian Export Organisations (FIEO) Director General Ajay Sahai.
During the meeting with the department, he said, the issues raised included the risk of expiry or discrepancies under letters of credit; pressure on exporters' working capital cycles; the risk of penal interest rates and loss of interest subvention; and issues relating to the transit period for usance bills.
He said that exporters need an increase in the amount of finance, and an extension of the financial cycle to cover the impact of the war situation; waivers of penalties and deadlines for the submission and realization of payments, and protection of penalty-free interest and interest equalization schemes to cover the extended realization period.
Exporters are badly affected by the war, but exporters of perishable and fashion items (if they miss the season) are likely to be most affected, with the loss of cargo values and the need for financial support, including working capital term loans, to mitigate and recover from the impact of immediate cash flow constraints, he said.
"The Indian Banking Association (IBA) has assured us of their support. They were very sympathetic. They will look into our issues," Sahai said.
He said that the disruption of traditional shipping routes and extended voyage durations have implications not only for logistics but also for export financing, banking procedures, and the cost of credit. In the current circumstances, temporary regulatory and banking flexibility would be essential to ensure that exporters, especially MSMEs, are not financially penalized for delays beyond their control.
When shipping routes change, or vessels are diverted to alternate ports, exporters may need amendments in shipping documents and related banking instruments such as LCs, he said.
These amendments, Sahai said, require the approval of the issuing bank and the importer, and may involve additional charges and procedural delays. While exporters will take up with the buyer, but we require proactive support from banks.
On the issue of penal interest, he said that if export bills are not realized within the stipulated due date, banks may treat them as overdue and apply penal interest rates, which are generally 3-4 per cent higher than the normal export credit rate.
At the same time, exporters may lose the benefit under the Interest Equalization Scheme, which provides a 2.75 per cent interest subvention for eligible exporters.
"The combined impact could raise the effective cost of export credit by about 5.75 per cent to 6.75 per cent, imposing a significant financial burden on exporters already affected by logistics disruptions. This may directly affect the liquidity of the exporters," he added.
Further, the director general said that longer transit periods delay the realization of export proceeds.
Exporters who rely on bank export credit may face extended credit cycles because payment is linked to document acceptance or cargo arrival.
"As a result, working capital remains locked for a longer duration, increasing the need for added finance and financing costs. The impact on the working capital cycle may severely affect the overall business of the exporters," he said, adding, "We need banks' support with enhanced and extended credit or working capital loans to provide time to make up for the losses."