CHENNAI: Garment exporters in Tirupur, who have incurred losses to the tune of about Rs 300 crore or more from exotic forex derivative products, now appear to be headed for another round of dispute with banks. Banks sold these products as a hedge against falling realisations due to a consistently strong rupee late last year and in the first five months of 2008.

Though losses have been booked in most cases, there are still 'live derivative contracts' worth about Rs 100 crore, which have now become a bone of contention between the banks and exporters. With the dollar ruling steady against major currencies including the Euro recently, exporters claim that they could actually recoup some of the losses from monthly contracts.

"Banks are trying pre-closure of existing live derivative contracts citing the default clause," Raja M Shanmugham, chairman of the newly floated 'Forex Derivative Consumers' Forum'.

According to him, banks are unwilling to give the benefit of the strong dollar to exporters as they would have to shell out more. If banks go ahead with pre-closure, exporters are prepared to mount a legal challenge yet again.

Several of these contracts known as monthly options (with closure date either in the middle or the last of the month) are still outstanding, according to S Dhananjayan, a chartered accountant and advisor to the forum. Garment exporters in Tirupur have floated the forum recently and want banks to bear the entire burden.

Since losses from exotic derivative products range from a crore to Rs 30 crore, exporters are also flummoxed about the loss sharing formula. Some contracts are quite different making any uniform loss sharing formula impossible.

For instance some exporters entered into contracts under which they had to give 'collateral'. This entitles bank to ask for collateral when mark-to-market losses exceed a certain limit. In a recent case, a Tirupur exporter who had given collateral had little choice but to enter into a settlement with a bank.

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