India's e-commerce exports have a lot to complain about banking issues
Sep 18, 2023
A report by the Global Trade Research Initiative (GTRI) highlights the banking issues are hindering the growth of e-commerce exports from India. These issues include reluctance to process forex through alternate channels, high processing fees, incorrect purpose code allocation, and limitations in the RBI's Export Data Processing and Monitoring System. The report suggests that a mindset change is needed to unlock the sector's potential and calls for actions such as standardizing bank charges.
Expansion of India's e-commerce exports is being impeded by banking-related challenges, including a reluctance to process forex transactions through alternative channels and the imposition of high processing fees, the Global Trade Research Initiative (GTRI) said. To unlock the full potential of the sector and achieve a target of $350 billion in e-commerce exports by 2030, there is a need for a shift in mindset and a resolution of these banking issues that hinder growth and inflate operational expenses, GTRI said.
"To initiate change, both the RBI and banks must shift their mindset towards treating small-value exports differently from larger ones. This shift is essential to prevent misuse while streamlining processes. Without this fundamental change, any reforms attempted by the RBI and banks will fall short," it said.
Small e-commerce companies frequently face difficulties due to the inefficiency of banks in managing low-value transactions, it added.
The key issues range from reluctance to process forex through alternate channels, high processing fees, incorrect purpose code allocation, and limitations in the RBI's EDPMS (Export Data Processing and Monitoring System).
The Reserve Bank of India tracks export payments and reconciliation through its Export Data Processing and Monitoring System.
"Banks are happy to process forex received through bank transfers but reluctant to process forex received through foreign currency cheques, payment gateways like PayPal, credit cards, Western Union, cash receipt when a buyer selects item live in the retail shop," it said.
Banks delay crediting forex received in a firm's account when payments are received through such channels, and this affects cash flow and hampers business operations, the report noted.
Banks charge money multiple times at different stages for the same small-value shipment, it added.
Elaborating this, it said that essential charges include charges for submitting shipping bills (Rs 80 to Rs 2,000) at the time of forex realisation (1-to-2.5 per cent of value), intermediary bank charges during forex transfers (USD 10 to USD 55 per transaction), penalties for bills pending at EDPMS (Rs 100 per shipping bill per month).
"Most charges are fixed for a transaction irrespective of value. Bank charges can exceed 50-60 per cent of the shipment value. This makes e-commerce exports commercially unviable," it said, adding banks allocate purpose codes for each remittance but frequently issue incorrect codes.
For example, purpose code P0103, meant for advance payments, is often assigned even when exports have already occurred and the firm has submitted proof. Incorrect allocation of purpose codes by banks leads to reconciliation problems, EDPMS pendency issues, and issuance of notices and fines on exporters.
The RBI issues notices to exporters for EDPMS defaults but does not give them direct access to view their records, as per the report.
"Exporters must rely on banks/DGFT for critical data, leading to unnecessary delays and complications," GTRI co-founder Ajay Srivastava said.
The report suggested eight action points, such as the creation of a single window platform for e-commerce and small-value shipments, standardise bank charges, defining a time limit for banks to complete all small export-related requests by the RBI, and exempting shipment value up to USD 1,000 per shipment from monitoring till the single window is implemented.
It also pitched for an extension of the timeline for EDPMS closure from the current nine months to 24 months and redesign the courier shipping bill to reflect correct payment terms.
On the single window, Srivastava called for integrating the RBI, banks, Customs, DGFT, India Post, courier companies and exporters.
"This platform should cover all realisation methods other than bank transfers. The exporter should be able to conduct all transactions online. SW will automate the EDPMS reconciliation process," he added.
He said that high processing fees and multiple charges at different stages of exporting hurt small businesses the most, and the banks should charge a one-time fee for each shipment instead of further charges at various stages.
"The government could subsidise these fees to ease the financial burden on small exporters," the report said, adding there is a need to raise the export realisation variation limit from 25 per cent to 100 per cent.
[The Economic Times]