Steel manufacturers in India exporting to China say some state-owned banks there are dishonouring letters of credit (L/Cs) according to a report in an Indian financial daily.

The banks are apparently working alongside their customers to help them obtain extra discounts on steel as the market price falls, according to Business Line - which does not point out that if exporters and their banks ensured that fewer discrepancies appeared in their L/Cs, the Chinese banks might be less able to force extra discounts.

Hefty discounts

The exporters are being forced to offer hefty discounts on the price originally agreed with customers, who are forcing Indian companies to renegotiate the price once the consignments reach Chinese ports the report says.

It adds that if the Indian exporter is reluctant to offer a discount and approaches the bank concerned to encash the L/Cs, they are being told that the L/C is invalid.

Discrepancies

Indian exporters quoted by Business Line allege that banks involved include Bank of China, Industrial & Commercial Bank of China and China Commercial Bank.

The state-owned banks are said to be rejecting the L/Cs on the basis that discrepancies have crept into the documents.

Rarely accurate

According to the report, Indian exporters of all sizes are being affected by the Chinese banks' reluctance to encash L/Cs, but a senior official in one company concedes that it would be easy for a bank to find discrepancies in most credits.

"Very rarely are the documents 100 per cent as per L/C terms," he says. "Therefore, even if there is a minor discrepancy, it would require approval/acceptance of the documents by the Chinese buyers as the banks refuse to honour the same," he adds.

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