Limit on external loans to fund export credit mooted

The working group set up by the Reserve Bank of India (RBI) to review export credit has hinted at the need for a prudential limit on the external borrowings of individual banks to fund export credit.

The group is of the view that there has been a substantial increase in export credit in foreign currency which is being met out of borrowings made from abroad.

According to bankers, the RBI feels that banks are stretching their borrowing limits for overseas funds even as the domestic liquidity is in surplus.

In order to cope up with the rising cost of overseas funds, the RBI committee feels that the interest rate on export credit in foreign currency charged by banks may be raised by 25 basis points to Libor +1 per cent as against the current rate of Libor + 75 basis points.

While one basis point is one hundredth of a percentage, Libor refers to the international interest rate benchmark "" London Interbank Bid Offer rate.

On the interest rate for export credit in rupees, the working group has recommended continuation of the present rate structure.

In order to review the export credit for non star exporters, banks should post nodal officers at regional/ zonal offices and major branches having substantial export credit for attending to the credit related problems of small and medium exporters (SME), feels the group.

While banks have been advised to dispose of applications for export credit especially from SMEs within prescribed timeframe, the internal/ concurrent audit in banks should comment on whether or not the prescribed time frame are being adhered to by the banks, says the report.

The group in its review of the gold card scheme, has suggested that banks should speed up the process of issue of the gold cards to all eligible exporters , especially the SME exporters within a period of three months.

Further, Indian Banks' Association has been advised to devise a simplified format for issue of gold cards. Further the banks may consider exempting all deserving gold card holder exporters from packing credit guarantee on the basis of their track record.

The group has recommended that the RBI may consider a fresh survey by an external agency regarding the satisfaction of the exporters with the services rendered by banks.

In order to review the existing procedure for export credit , the group has envisaged a greater role for state level export promotion committees.

SMEs, especially in the upcountry centers should be properly trained SSI/ export organisations with technical assistance from banks regarding correct filling of forms and furnishing information to banks.

Banks have been advised to raise their queries in one shot and avoid piecemeal queries.