BANGLADESH Bank has asked all scheduled banks not to offer Letters of Credit (LC) support for import of capital machinery, spare parts and industrial raw materials by commercial importers under deferred payment system as per a news report published in an English daily on Monday. It said the system has been violated and it must be corrected. Persons; who are holding commercial import registration certificates (CRC) should not be given this opportunity unless otherwise authorized. Only those holding the industrial import registration certificate (IRC) can use the facility; which is a short-term foreign currency loan at lower interest. Under it, importers are allowed to import capital machinery and industrial raw materials using foreign loans at maximum 6 percent interest as against 15 to 16 percent interest for loans under regular import financing. Its misuse by commercial importers was in practice for quite sometime as a section of bankers were giving the opportunity to commercial importers breaking the rules taking undue advantage from the parties concerned. As the matter came to the notice of the central bank recently, it has taken the step asking banks not to allow it to happen again.
The fact is that industrial import registration (IRC) is offered to persons who own industries or setting up new industry. Parties are allowed the low cost foreign loan on deferred payment basis because they are working on long investment from which no immediate income generation is available to repay the loan. But commercial importers are involved in direct trading by selling the imported goods to the market. Industrial imports and commercial imports fall into two distinct categories. Needless to say that the Chief Controller of Imports and Exports provides industrial IRCs to persons who run industries, while other importers are allowed to take commercial import registration certificates (CRC) from a different window.
The commercial import certificate holders would require prior approval from the Commerce Ministry if they want to open LCs under the deferred payment system in line with the guidelines for Foreign Exchange Transaction Act 2009. They will have to take prior permission from the Commerce Ministry if they want to import coastal vessel, oceangoing ship, agriculture equipment and chemical fertiliser and medicine under the deferred payment system.
It appears that the use of industrial credit is also eligible on commercial imports depending on the nature of the products. But the broad guideline is that banks themselves can’t give the facility to commercial importers unless special permission has been given to such importers to use it. There is growing concern that some bankers are misusing their position to offer controversial banking services to importers as well as loans to persons under the cover of fake trade documents. There is no alternative to central bank’s vigilance. Its latest action deserves appreciation.
