According to the latest RBI data, banks’ export credit shrank as much as 36.1% year-on-year as of June 21, even on a low base (it had contracted 42.7% a year earlier).
As export credit continues to contract, commerce and industry minister Piyush Goyal on Thursday held a meeting with senior public-sector bankers to push for easier and greater flow of loans at cheaper rates. This comes amid expectations that the government would soon announce a slew of steps to boost faltering export growth.
Both the government and the Reserve Bank of India (RBI) are already in discussion to ease priority-sector lending norms for exports. Though the central bank is learnt to be reluctant to allocate a part of its foreign exchange reserves for export credit — as is being demanded by some — to boost flow of loans, it is amenable to changes in credit norms.
Currently, exporters with a turnover of up to Rs 100 crore each are eligible for credit under the priority-sector norms. Sources had earlier told FE that RBI was considering a proposal to either scrap or substantially double the limit to benefit more exporters. Similarly, the maximum sanctioned limit of loans is also likely to be raised to Rs 40 crore per borrower from the current Rs 25 crore. Even the cap on export credit at 2% of banks’ total loans could be relaxed soon.
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According to the latest RBI data, banks’ export credit shrank as much as 36.1% year-on-year as of June 21, even on a low base (it had contracted 42.7% a year earlier). This is despite the fact that non-food bank credit grew 11.1% y-o-y as of June 21 and overall priority-sector loans rose 10.2%.
Contraction in such credit flows has forced many MSME-exporters to shut shop at a time when a global trade war has already threatened to drag down both economic and export growth, industry has told the government. India’s merchandise export growth collapsed to just 0.6% in April, 3.9% in May, -9.71% in June and 2.2% in July.
“Greater and cheaper credit was high on agenda in today’s meeting. The minister also called for easier procedures to ensure that even small exporters get loans without difficulty,” a source who attended the meeting told FE.
Once tweaked, the revised priority sector lending norms and certain enabling guidelines are expected to release additional credit of anywhere between Rs 35,000 crore and Rs 68,000 crore for exporters, according to an
Earlier this month, finance minister Nirmala Sitharaman, too, held a crucial meeting with both private and public-sector banks on easing the flow of credit to various critical sectors of the economy. To bolster state-run banks’ ability to boost lending, the government has already said it will provide the budgeted Rs 70,000-crore capital to them “upfront” in FY20. This infusion is expected shortly.
Also, the commerce ministry has already circulated a cabinet note to phase out the flagship Merchandise Exports from India Scheme (MEIS) with a more WTO-compatible regime under which various state and central levies on inputs consumed in exports will be reimbursed. Goyal has already held a series of meetings with exporters to address their concerns.