Govt's mega plan to boost exports: Credit at lower rate for small biz soon

Interest rates will likely fall to 3.15% for export credit in dollar terms and 7.35% in rupee terms

The Union government is working on measures to arrest declining exports. For that, it plans to come up with an export financing scheme in the next couple of weeks, to offer lower interest rates in rupee and dollar terms as well as reduced premium cost for small businesses.

Under the Nirvik (Niryat Rin Vikas Yojana) scheme, the interest rates will likely fall to 3.15 per cent for export credit in dollar terms and 7.35 per cent in rupee terms, according to the proposal moved to the Cabinet. Currently, the interest rates are pegged at 3 to 6 per cent for credit in foreign currency and around 10 per cent in rupee terms. 

The Nirvik scheme, to be taken up by the Cabinet in the next one or two weeks, will provide credit at competitive interest rates to exporters, a government official said. According to the data compiled by the Federation of Indian Export Organisation (FIEO), around 53 per cent of the export credit outgo is currently in foreign currency, while 47 per cent is in rupee terms.

“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,” the official said. 

The updated export credit insurance scheme (ECIS) envisages lowering of interest rates by providing higher insurance coverage to banks on their export credit through Export Credit Guarantee Corporation of India (ECGC). 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 scheme will also expand the export credit insurance cover for the working capital loans for exporters to enable lower interest rates for export credit.

Besides, the annual rate of premium for accounts with up to Rs 80 crore would be brought to 0.6 per cent and for those above Rs 80 crore it would be lowered to 0.72 per cent. Officials from ECGC said they would not inspect bank documents and records until losses on a loan reach Rs 10 crore.  Earlier, the threshold was Rs 1 crore.

Exports declined for the fourth successive month in November and for the fifth time this fiscal by 0.32 per cent.

“The export sector will significantly benefit from the lowering of export credit rates as it will do away with the hassle for exporters to negotiate for a better rate and make the system more transparent. It will reduce the price of export cycle or the cycle of operation. Exporters who did two export cycles in a month will be able to do three,” said Ajay Sahai, director general and CEO, FIEO.The ECIS is also targeting quick settlement of claims through provisional payment of up to 50 per cent in 30 days. 

“Apart from lower interest rates for export rates, exporters are also set to benefit from a better rating, since the ECIS can be considered as an export-incentive scheme,’’ he said. As a result, the government hopes banks will be more eager to provide loans to them.

Overall, the ECGC targets a total annual coverage of about Rs 3 trillion of export credit, which remains uncovered till the end of the financial year, according to officials. For taking on the additional burden, the government will boost the Export Credit Guarantee Corporation of India (ECGC)’s coffers by Rs 1,700 crore annually. The commerce department has clarified that the ECGC would cover not only outstanding principal of loans but also unpaid interest.  

The department has pushed for greater loan coverage, easier inspection norms, and streamlining of profiles of exporters to raise annual credit disbursal by 30 per cent in FY20. Export credit disbursal by public sector banks fell by 45 per cent in FY19 to Rs 15,600 crore, according to the RBI data. In the previous year, it was Rs 28,300 crore.  Last year, an inter-ministerial working group started  monitoring disbursal of export credit through a public dashboard. This is now reviewed with the help of trade institutions, with key figures being made available to the public periodically.  SBI would provide foreign exchange funds to banks at the London Interbank Offered Rate plus 50 bps for export credit. The Libor is a benchmark interest rate at which global banks give each other short-term loans.