Banks refrain from opening LC for importing RMG commodities

Most commercial banks avoid opening letters of credit (LC) under EDF, UPAS and deferred payment systems for the scarcity of the dollar, which, according to the spinners, could lead to the suspension of the production of basic raw materials for clothing.

The Bangladesh Textile Mills Association (BTMA) revealed on Sunday such a situation with the national spinning mills – a vital upstream link to the country’s main export industry, ready-made garments.

The association of textile spinners said that local spinners could continue their production activities for the next three months only with the existing raw materials they have in stock.

BTMA in a letter, signed by its chairman Mohammad Ali Khokon, to Bangladesh Bank on the day said it could not import needed raw materials like cotton, polyester staple fiber (PSF) and staple fiber of viscose (VSF) to nourish ready-to-wear. garment exporters (RMG) although they (textile millers) have already received orders.

Falling commodity inventories amid commercial banks’ reluctance to open LCs could severely hamper textile and garment production and exports, Khokon said in the letter.

Textile factories must have raw material stocks for at least 4-5 months for uninterrupted production and export activities, he said, explaining that it also takes three to four months to obtain raw materials. first imports.

Thus, factories have to import raw materials like cotton, PSF and VSF on a regular basis, the BTMA leader told Bangladesh Bank, adding, “According to the information we have, the factories may continue to produce for the next three months with their existing raw materials. stock of materials.”

The association feared that the operations of many spinning mills would come to a screeching halt if commercial banks did not open LC for imports of raw materials, which would lead to unavailability of yarn.

Production in the textile mill value chain – weaving, knitting, dyeing, printing and finishing – would be affected if there is no yarn supply from the mills, the letter says.

The disruption of production would not only aggravate the current dollar crisis, but would also affect export earnings, warns the association and also fears unemployment for many workers.

BTMA has requested the central bank to take necessary action and instruct commercial banks accordingly regarding the opening of LC under Export Development Fund (EDF), UPAS (Usance Payable at Sight) and Deferred Schemes .

Under the UPAS letter of credit, the exporter will receive payment at sight if the documents comply with the credit. The importer will have to pay interest, stamping fee and other fees according to LC terms for using this letter of credit, according to the exporters.