Policy Gives A Major Push To Export Credit

Mumbai, October 29: | Updated: Oct 30 2002, 05:30am hrs
The Reserve Bank of India (RBI) has provided an impetus to export growth by deregulating the export credit interest rate structure with a two-phased strategy for banks to increase the credit flow to this sector.

Under Indias medium-term export strategy (2002-07), a target was set to raise Indias share in world trade to 1 per cent by 2006-07 from the present level of 0.67 per cent. This entails doubling of exports from the present level. Towards meeting this goal, the RBI allowed banks to charge prime lending rate (PLR) or sub-PLR rates for export credit with effect from May 1, 2003. The rates would have to be approved by banks boards, the RBI said.

As of now, banks charge export credit rates with a mark up of 50 basis points (bps) to banks respective PLRs. The RBI move is likely to enhance export credit flow from banks and also increase inter-bank competition, industry experts pointed out.

At a later stage, the RBI will also consider discontinuation of ceiling rates on pre-shipment credit up to 180 days and post-shipment credit up to 90 days. As of now, there are interest rate ceilings of PLR plus 50 bps on pre-shipment credit beyond 180 days and up to 270 days and post-shipment credit beyond 90 days and up to 180 days.

The RBI stated that the move would encourage greater competition among banks to extend such credit at lower rates to exporters with good track record. The RBI has also allowed repayment of pre-shipment credit, subject to mutual agreement between the exporter and the banker. This would offer flexibility to the exporters. For this purpose, balances held in the EEFC account of the exporter can also be used, the RBI said.

While utilising this facility, exporters are advised to strictly adhere to the current regulations in regard to repatriation of export proceeds within the stipulated period. Detailed guidelines are being issued separately. This facility would be available until further notice, the RBI added. At present, the pre-shipment credit granted to an exporter is liquidated out of export bills discounted after shipment of goods.

So far in this fiscal, export performance has been encouraging: During the first five months, export grew by 13.4 per cent over the corresponding period of the previous year to $19.8 billion.