Interest rate ceilings on foreign currency loans may be hiked to meet exporters’ credit crunch

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New Delhi, Nov 12: headed by the prime minister has held its emergency meeting on Monday after the exports growth nosedived into the negative territory at (-) 15% in September for the first time in five years. The panel is examining ways to revive exports and to eliminate financing constraints faced by the exporters.

The government is also considering setting up a special window for buyer’s credit rollovers in foreign currencies that are appreciating, like Yen and US dollar. This is to help importers who have taken buyer’s credit in those currencies in order to import capital goods and want to roll it over on maturity.

At present, banks are unwilling to allow this, as it will result in losses for them due to the spike in appreciation of such currencies. The proposal for hiking the rate of interest under the PCFC scheme is to make it more attractive to banks to lend to exporters. On Tuesday, the three-month Libor for dollars fell to the lowest level in over four years to 2.24%. “Even if the interest rate is increased by 1.5-2%, it will be around 4.25%, and at this rate too Indian exports can remain competitive. But it important that banks lend them this much-needed credit,” an official said. Industry sources said banks like Canara Bank have totally stopped giving fresh credit under the PCFC scheme.

Currently, banks also include additional service charges as well as management fees along with the foreign currency credit. The government is also expected to persuade banks to accord a higher priority to exporters regarding foreign currency credit than to other corporates.

“Banks can advance loans in foreign currency only if they have foreign currency reserves. Earlier the banks could raise foreign currency short-term lines of credit from international sources to lend to exporters under the PCFC scheme. But with the global financial crisis, banks are unable to get adequate foreign currency anymore,” a source in the banking industry said.

•The move follows high volatility in foreign currency values against the Rupee resulting in exporters’ plans going haywire

•The rupee posted its biggest single-day fall in more than 12 years on Wednesday, closing at 49.30/32 per dollar