The Reserve Bank of India (RBI) has raised the ceiling on interest rates charged on foreign currency export credit in order to align the rates with other lending rates.In its annual policy for 2006-07, the RBI increased the ceiling on foreign currency export credit interest rate by 25 basis points. The rate stands revised to 100 basis point over LIBOR from 75 basis points over LIBOR with immediate effect. One basis point (bps) is one hundredth of one percentage point and LIBOR (London Interbank Offered Rate) is the international interest rate benchmark.The rate has been revised in sync with foreign currency deposits rates all of which stand revised upwards. The non-resident deposits (FCNR(B)), denominated in dollar, yen, pound, euro, Australian and Canadian dollars carries an interest rate of LIBOR. LIBOR for six month is currently ruling around 5.22%. Earlier it was 25 basis points below LIBOR. Similarly, the ceiling on the interest rate on foreign currency deposits raised in rupee, otherwise referred to as non resident external rupee deposits (NRE) has been raised from 75 basis point to 100 bps over LIBOR.Bankers added that since the deposit rates have gone up, the lending rates consequently have to keep pace. In fact, the RBI constituted a working group on export credit earlier this year had recommended raising the ceiling on export credit interest rate. Corporates with export receivables were availing these loans at cheap rate and using it for purposes other than exports. This used to be the case at a time when he interest rates on the rupee deposit rates in the domestic market had gone up.At present, exporters avail of foreign currency loans for both pre-shipment and post-shipment for a minimum of six months.
