“A move on time will help protect thousands of local manufacturers from incurring huge losses,” said Sanjay Jain, ICC National Textile Committee chairman. MUMBAI/KOLKATA: The lack of digitisation in global trade is set to hit Indian exporters that are seeking state intervention for payments without providing physical evidence of delivery documents.
Physical documents, essential for banks to honour letters of credit, are currently unavailable, with the logistics industry virtually shutting down across large swathes of the planet.
Some banks are resorting to a practice of sending scanned documents to their overseas counterparts to help a few of their known MSME exporting clients. But this is risky as scanned documents are not legally tenable internationally, a bank official familiar with the development said.
The situation has led exporters to seek government intervention in relaxing these norms.
“We have approached the government authorities on this matter. As it requires certain changes in international norms, we are seeking intervention from the local authorities,” said Sanjay Jain, ICC National Textile Committee chairman. “A move on time will help protect thousands of local manufacturers from incurring huge losses.”
When a local manufacturer ships consignments to its overseas client, it is supposed to produce shipment related documents including invoice, and bill of lading to the local bank in India. This local bank in turn is supposed to send physical copies to the consignee’s bank account overseas that provides the letter of credit.
On shipment, sellers get a bill of lading (BL), which they submit to the local lender along with physical copy of bill of exchange, letter of credit and insurance certificate. Local banks send them to their overseas counterparts.
With the suspension of international courier services, a local bank is unable to deliver the documents to an overseas bank. In the entire chain, the LC opening bank declines payment as exporter’s bank has not complied with the condition of sending documents. Shipping companies then deny releasing goods to the buyer in the absence of documents, leading to abandonment of cargo.
“Banks could take advantage of the digital technology available at hand and try to find a solution to handle these documents digitally until the courier services resume,” said Joiel Akilan, chief representative BBVA, a Spanish bank.
“Global banks are facing difficulties in sending physical documents related to exports and imports under LCs or collection basis,” he said.
Some banks have already started sending scanned copies only for their old customers entirely on the basis of trust. This is also restricted to SME clients where the ticket size is much smaller and business relations are pretty old.
The central bank of Algeria has allowed banks in that country to send and accept scanned documents for LCs. Other central banks are also considering similar moves.
“Exporters and their local banks should be allowed to send scanned copies of original documents via emails,” Jain said.