The Reserve Bank of India (RBI) today extended the facility of reduced interest rates for rupee export credit by six months till September 30. In the immediate aftermath of the September 11 incident in the US last year, the RBI had reduced interest rates for export credit -- both pre and post-shipment -- charged by scheduled commercial banks by 100 basis points across the board up to March 31, 2002. Now, this has been extended by another six months.
Last September, the RBI had said that the maximum rate that banks should charge to exporters would be 250 basis points below their prime lending rate for pre-shipment credit up to 180 days and for post-shipment credit up to 90 days.
"The RBI export promotion measure of September 2001 had come at a time when the global economy, especially the US, was buffeted by recession since the beginning of 2001. Though the concessional export interest rate regime was put in place in September, it has not had the desired impact of pushing the Indian exports. Now with the US economy showing distinct signs of picking up, the exports fortune of the country should also see a revival," said a senior banker.
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According to R Venkatramani, general manager, Union Bank of India, there is a strong case for bringing down the export refinance rate from the present 6.5 per cent (same as the bank rate) since the RBI wants the commercial banks to continue to extend concessional credit to exporters.
"Because banks are required to extend concessional export credit, without a back up by way of a cheap refinance rate for the credit so granted, we have to recover the export subsidy from the domestic advances. This makes domestic advances costly vis-a-vis export credit," he explained.
Export performance of the current fiscal year has been dismal so far. In the first nine months of the current fiscal (April-December), it grew by only 5.1 per cent compared with a 26.8 per cent growth during the corresponding period of the last year. On a year-on-year basis, the export growth in December 2001 was 3.6 per cent as against 28.2 per cent growth in the comparable period in the previous year.
The RBI had also followed up the September 2001 announcement with a special financial package for large value exports in the pharmaceuticals, agro chemicals, transport equipment, cement, iron & steel, electrical machinery, leather & leather goods and textiles.
Manufacturer exporters of these products with export contracts of Rs 100 crore and above in value terms in one-year are eligible for the package for one year beginning October 1, 2001. Under this dispensation, the rates of interest for the extended period of pre and post-shipment credit stand reduced to a maximum of PLR plus 0.5 per cent. Earlier the interest rates were decided by banks and the rates could go upto PLR plus 4 per cent.