Govt reveals slew of measures to increase export credit to 30% in FY20

The government is banking on greater loan coverage, easier inspection norms, and streamlining of profiles of exporters to raise annual credit disbursal by 30 per cent in the current fiscal year (2019-20 or FY20), said Commerce and Industry Minister Piyush Goyal on Monday.

After exports declined 6 per cent in August, the government had on Saturday announced a slew of measures to boost outflow of Indian goods. On Monday, Goyal elaborated on what measures the government was taking and what effect it would have.

One focus is increasing export credit insurance, a crucial industry demand. Goyal said premium paid by small businesses would fall. For accounts with limits of Rs 80 crore, the annual premium rate would be bought to 0.6 per cent; for those above Rs 80 crore, it would be 0.72 per cent.

Rates for foreign and rupee export credit interest will be below 4 per cent and 8 per cent, respectively, Goyal said.

Export credit disbursal by public sector banks fell by 45 per cent in FY19 to Rs 15,600 crore, according to the Reserve Bank of India (RBI) data. In the previous year, it was Rs 28,300 crore.

The government wants to now bring down the cost of credit to lower provisioning requirement and quicker settlement of claims.

Finance Minister Nirmala Sitharaman had on Saturday said insurance cover for working capital loans released by banks will rise to 90 per cent, from the current 60 per cent. For this, the government will boost the Export Credit Guarantee Corporation of India (ECGC)’s coffers by Rs 1,700 crore annually.

The commerce department clarified that the ECGC would cover not only outstanding principal of loans but also unpaid interest.

Interest will be covered for a maximum of two quarters or till the loan is declared a non-performing asset — which happens when interest remains unpaid for 90 days — whichever is earlier. The ECGC will cover about Rs 3 trillion of export credit, which remains uncovered till the end of the financial year.

Under the updated Export Credit Insurance Scheme (ECIS), ECGC officials will not inspect bank documents and records until losses on a loan reach Rs 10 crore. Earlier, the threshold was Rs 1 crore.

Goyal said State Bank of India would provide foreign exchange funds to banks at the London Interbank Offered Rate (Libor) plus 50 basis points for export credit. The Libor is a benchmark interest rate at which global banks give each other short-term loans.

The ECIS is also targeting quick settlement of claims through provisional payment of up to 50 per cent in 30 days. “Exporters will benefit as they will get a better rating since the ECIS can be considered as an export-incentive scheme,” said Goyal.

He added good exporters will get an “AA” rating very easily, and as a result, banks will be more eager to provide loans to them.

The government also announced on Saturday an additional Rs 36,000-68,000 crore will be made available to banks for lending to the export sector as part of a planned update to the priority sector lending norms. The RBI will soon bring out enabling guidelines for this.

Data on export finance will now be regularly monitored by an inter-ministerial working group under the commerce department. It will track the disbursal of export credit through a public dashboard, reviewed with the help of trade institutions, with key figures being made available to the public periodically.

With traders now being able to take export credit directly in foreign currencies, the ministry now aims to raise the share of foreign currency in total export credit much beyond the present level of 50 per cent, said a senior official.

The ministry has also discussed in detail the possibility of easing norms for banks, when it comes to lending export credit. The cap on export credit for banks — at 2 per cent of the total loans disbursed — may also be relaxed to boost export credit flows, the official added.

Pushing credit
 

• 45% Fall in export credit disbursal by public sector banks in FY19 to Rs 156 billion
• Rs 10 cr The level at which ECGC officials will start checking bank documents
• 2% Current share of export credit in total loans disbursed by banks
• 50% Share of foreign currency in total export credit