The chamber president KP Singh, has suggested to the Reserve Bank of India (RBI) that any effort at financial restructuring of banks must go hand-in-hand with operational resturcturing.

With the cleaning up of the balance sheet, Singh said, simultaneous steps should be initiated to prevent/limit re-emergence of new NPAs as which have seriously undermined commercial banking operations.

The chamber has further suggested that the ratio of the demand loan and cash credit be changed to 60-40. Singh lamented that the current practice of bifurcation of working capital facilities availed of by any corporate into the demand loan component of 80 per cent and cash credit of 20 per cent leaves very little room for flexibility in case ofseasonality in operations.

If in the peak season there are inflows in excess of the cash credit component, corporates stand to lose interest on amount of inflows in excess of the cash credit component. The chamber has further suggested that corporates be permitted to avail of export packing credit from demand loan component. This was necessary because currently only commercial paper, bills and cheques discounting and foreign currency non-resident (FCNR) (B) loans are carved out of the demand loan component whereas any corporates has the flexibility of availing of the working capital facilities in the form of either cash credit, export packing credit, FCNR (B) loans, bills and cheques discounting or commercial paper.

Since the banks bifurcate fund based facilities after deducting packing credit component, this reduces the flexibility available to the corporates and can result in loss of interest.

In order to boost exports, Singh has also suggested availability of credit to exporters at globallycompetitive rates and retaining the interest rates on pre and post-shipment credit at the current level of nine per cent.

Although the RBI has reduced the bank rate by one per cent, the 30 per cent surcharge on import finance continues. This surcharge, Singh said, benefits only the banking sector and penalises the borrowers for imports as their borrowing cost goes up to 21 per cent.

On the contrary, importers will continue to be forced to go in for deferred letter of credit, paying interest at 0.5 to one per cent above Libor which works out between six and seven per cent per annum resulting in non-utilisation of bank finance by the importers and undue interest loss in foreign exchange to the country.