Exporters seek full exemption from Rs 2,000-crore derivatives losses

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New Delhi: Economy Bureau

Exporters seek full exemption from the over Rs 2,000-crore losses incurred on derivative products, even as the government is talking to banks to enable equal sharing of the losses.

In a meeting with commerce and industry minister Kamal Nath, Federation of Indian Export Organisations (FIEO) has suggested a 'no-profit, no-loss' model for banks to bear the losses.

According to the exporting community, the derivative products are not in sync with law and hence exporters are not liable to pay for the losses. "The derivative products as a whole were wrongly sold by banks by misusing the adverse situations and ignorance of the customers. Banks also violated all the stipulated norms and procedures of RBI's guidelines and rules," FIEO president A Sakhtivel said at a press conference after the meeting here.

The banks, FIEO suggested, have to be instructed to settle the losses on 'no-profit, no-loss' basis. As per the proposal, "The clients would be made to pay back whatever profit accrued by them through the derivative products and further the banks should not claim any loss out of it. This should be made valid for those contracts that were entered into between April 2007 and June 2008," Sakthivel said. Contracts worth Rs 15,000 crore were entered into during the period.

The commerce ministry has already proposed that banks and exporters share the exporters' losses from the derivative products equally.

The commerce and finance ministries are in discussions with banks in this regard, official sources said. "We are talking to the banks. Banks have two choices, either to bear part of the losses and take part hit on the books or to make exporters go bankrupt and show the loans given to them as NPAs. However, if the banks bear a part of the exporters' losses, when the economy revives, exporters can give banks better returns," a government official said.

However, FIEO said the derivative contracts by their very nature were "illegal" and the exporters should not be asked to meet the losses. "In the insurance business, the insurance firm indemnifies the insured against losses for a premium. But in case of these products, the case was the opposite and hence it was not in sync with the law," FIEO director general Ajay Sahai said.