Federation of Indian Export Organisations (FIEO) has suggested that the rate of export credit in rupee should be linked with bank rate instead of benchmark prime lending rate. Such export credit should be made available at bank rate + 100 basis points.
Pre-shipment and post-shipment credits in foreign currency should be made available to exporters at Libor+100 basis points as stipulated by the Reserve Bank of India. RBI should issue directives to banks to provide such credits to exporters.
In view of difficult financial situation, the government should de-link grant of export benefit subsequent to realisation of export proceeds as buyers will now seek longer tenure of credit and linking of the export benefit with realisation will delay grant of such benefits.
The FIEO said despite depreciation of Indian rupee by about 20% in the current year, exports are not picking due to general slow down.
Exporters are now facing new challenges due to present financial crisis. Some exporters have informed FIEO that due to US sanctions on Iran, prime commercial banks like State Bank of India and other advising banks in India are unable to honour their claims/payments.
Indian Banks have stopped accepting payment guarantees for exporters against Lines of Credit of foreign banks due to fear of Lines of Credit collapsing due to collapse of several banks and financial institutions abroad.
Banks have increased margin money requirement for Bank Guarantees to 100% as against 3% charged from established exporters, which is blocking the working capital requirement of exporters who are already squeezed for finance.
The government may in turn, stand as a guarantor for exporters receiving orders from abroad so as to encourage banks to provide credit to such genuine exporters.
A guarantee by bank will provide necessary cushion and support to bank to provide loan to such deserving exporters.