"If premiums move up, exporters would opt for rupee credit," Mecklai Financial Services' vice-president Ravi Vasantraj said. "The new scheme of extending pre-and post-shipment credit at international rates is a good move, but we have to wait for the nitty-gritties from the Reserve Bank," Bank of India executive director S Gopalkrishnan said.

The Reserve Bank of India is expected to announce the scheme on Sunday.Sinha has proposed to devise a new scheme enabling exporters to get credit at rates prevailing in world markets. He has also proposed to bring about major simplification of export procedures.

Compared to global rates at 5 per cent and below levels, domestic banks charge exporters 9 per cent for pre-shipment creditbacked up by Reserve Bank refinance at 7 per cent.

Interest rates on post-shipment credit is pegged at 9 per cent for up to 90 days and at 11 per cent for above 90 days to 180 days, with refinance at 7 per cent and 9 per cent.

In August last year, the Reserve Bank had permitted pre-shipment to be extended at 200 basis points over Libor. "The scheme failed to take off as exporters found it was more lucrative to take rupee export credit and sell dollars forward and avail of higher premiums to make a spread," Vasantraj explained.

BoI's Gopalakrishnan also echoed a similar view and said that "the Reserve Bank may perhaps, state that pre-shipment export credit be capped at Libor plus 100 basis points. It also remains to be seen how different the new scheme will be from packing credit in foreign currency (PCFC) and posh-shipment credit in foreign currency (PSFC) wherein interest rates are at the discretion of banks".

Commerzbank's treasury head K Harihar, however, agreed that the finance minister'sstatement on the export finance indicated that "interest rates on this front are definitely headed southwards and will give a boost to exports".

In the current fiscal so far, exports have fared badly. According to the Centre for Monitoring Indian Economy's (CMIE) January report, exports in the April-December '98 period stood at lower by -2.9 per cent at $24.2 billion. "Exports in December'98 posted a 7 per cent growth in dollar terms, the second highest rate of growth in a month during the current fiscal till December. However, the growth was achieved over a 5 per cent decline in the same month of 1997", CMIE said.

Bankers pointed out that attempts to reduce transaction costs may prove tougher. "Charges on collection of bills, opening of letters of credit and the like are fixed by the Foreign Exchange Dealers Association of India (Fedai). But I don't see a great scope for reduction here. Costs here, anyway form a very minuscule portion of the pricing of the transaction," explained Gopalakrishnan.

OnLCs, banks now charge a commitment fee of .15 per cent with that on usance at .3 per cent; a flat .4 per cent on LCs and guarantees on a deferred-payment basis; a .1 per cent charge on remittances; and Rs 250 for forward contracts. However, margins on LCs, typically at 5 per cent thereabouts, do pose problems for exporters and cut here could be in the offing. "These margins tend to vary depending on the LC limits that exporters enjoy with consortium banks. In case they need a higher limit, banks jack up the margins on LCs", Vasantraj said.