The Reserve Bank of India (RBI) has said it is against empowering the US Exim Bank to invoke India’s Sarfaesi Act to recover bad loans even as the matter is slated to be discussed during the US visit of Prime Minister Manmohan Singh this month.
Washington has been lobbying for Sarfaesi protection to US Exim Bank with tacit backing of some of India’s leading corporate houses that have large exposure to the US government’s official export credit agency, finance ministry sources told FE. A Sarfaesi cover is expected to encourage the US Exim Bank to enhance its India lending.
Among the Indian corporates, the biggest beneficiaries of Exim Bank lending include Reliance Industries (which in December 2012 got $2.1 billion to finance export American petrochemical goods) and Air India (the bank had approved a loan guarantee of $3.4 billion for purchasing Boeing aircraft).
US Exim Bank loans are attractive option for Indian importers of US goods as the minimum interest rates for direct loans upto 18 years are 1.7%-4.04% (according to Exim Bank minimum Commercial Interest Reference Rates).
RBI noted US Exim Bank is facing defaults of $9 million in India, of the total India exposure of $6.7 billion. Sources said, this default level, according to RBI, was “definitely not alarming”.
RBI says Sarfaesi powers are meant only for Indian and multilateral lenders, adding Exim Bank cannot equate itself with multilateral lenders as it is the American government’s export credit agency, whose objective is to help finance the export of American goods and services to overseas markets. Also, Exim Bank carries out its activities on its own and is not lending with other Indian banks and financial institutions.