It would appear that exporters are caught in an ever-tightening pincer grip. The stronger rupee has made them reluctant to take credit from banks to finance their exports. The sharp dip in total bank credit to exporters from 12% to just over 5%, according to Federation of Indian Export Organisations (FIEO) data, means exporters are taking on fewer shipment commitments.
Exporters depend on bank credit like letters of credit and short-term trade credit to pay for transactions. The drop has been borne out in the falling monthly export figures. The implications could be crippling for the banking sector also. Export credit is part of the bank?s priority sector lending for which the government?s set target is 18% of total credit. Taking note of the situation, RBI has set a meeting with exporters in January.
Worst hit are those in the small & medium enterprise (SME) segment. Though the commerce ministry had said half of total export credit should go to the SMEs, they have received only a minuscule share. Since the government is keen on promoting SMEs, which contribute to 67% of exports and is a major employment generator, poor credit disbursal could lead to parliamentary censure for the chiefs of many public sector banks.
FIEO president GK Gupta said export credit should be made priority sector lending or RBI should fix 12% as the export credit target. He said SMEs should be given pre- and post-shipment export credit at 4-5.5% (the rate applicable competitors in Asean) for the entire credit period. The rate should not be curtailed at 7% for 90 days and increased to 13-15% for the remaining period as is done now, he said.
ECGC, which insures banks for pre- and post-shipment export credit, has cut premium by 10%. According to S Prabhakaran of ECGC, ?Despite the lower cost to banks, the growth of premium paid by banks to us is only a moderate 6%, reflecting that the volume of total disbursement of credit by banks to the export segment is low.?
