The Reserve Bank of India (RBI) today reduced the ceiling rate on export credit in foreign currency by banks to Libor plus 200 basis points from Libor plus 350 basis points.
According to the apex bank, the revision would be applicable only to fresh advances. Except for recovery towards out of pocket expenses, RBI has asked banks not to levy any other charges like service charge and management charge. The central bank also reduced the ceiling interest rate on the lines of credit with overseas banks from six months Libor plus 150 bps to six months Libor plus 100 bps. The apex bank’s move has surprised bankers as interest rate environment is expected to harden going forward. “At this time, the measure is slightly counter intuitive because interest rates are expected to go up,” said an executive at a private sector bank.
Yesterday, the US Federal Reserve also increased the discount rate, the rate at which it charges banks for emergency loans, to 0.75 per cent from 0.5 per cent. The move was aimed at encouraging banks to borrow from the private market.