 "RBI offers relief to borrowers on export credit limits")
The Reserve Bank of India (RBI) on Wednesday directed banks to compute the export credit limits of borrowers in such a way that exporters would be insulated from the depreciating rupee.
Banks extend export credit facilities in rupees as well as foreign currency, according to their internal lending policies. While the overall export credit limits are fixed in rupees, the foreign currency component of the credit facility depends on the prevailing exchange rates.
With the rupee weakening in recent months, the un-availed foreign currency component of export credit was reduced for exporters. And, if the foreign currency component was availed of, it was revalued at a higher value in terms of the rupee; exporters were asked to reduce their exposure by part payment. If the export credit limit wasn’t fully disbursed, the available limit for borrowers was reduced and exporters were deprived of funds.
Alternatively, banks can also denominate the foreign currency component of export credit in the foreign currency to protect exporters from currency fluctuations. “The foreign currency component of export credit, sanctioned, disbursed and outstanding would be maintained and monitored in foreign currency. However, to record foreign currency assets in banks’ books, the on-going exchange, or Foreign Exchange Dealers Association Of India, rates may be used,” the central bank said.
The Federation of Indian Export Organisations (FIEO), one of the industry bodies that had requested RBI to look into the issue, welcomed Wednesday’s announcement. “This will certainly help us and ensure exporters do not lose on working capital. We have to see how banks will interpret this. Soon, we will have a meeting with the chairmen of top banks in the country and discuss the issue,” said FIEO President M Rafeeque Ahmed.
Banks extend export credit facilities in rupees as well as foreign currency, according to their internal lending policies. While the overall export credit limits are fixed in rupees, the foreign currency component of the credit facility depends on the prevailing exchange rates.
With the rupee weakening in recent months, the un-availed foreign currency component of export credit was reduced for exporters. And, if the foreign currency component was availed of, it was revalued at a higher value in terms of the rupee; exporters were asked to reduce their exposure by part payment. If the export credit limit wasn’t fully disbursed, the available limit for borrowers was reduced and exporters were deprived of funds.
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The central bank suggested banks calculate the overall export credit limits on an on-going basis, say, monthly, based on the prevalent position of current assets, liabilities and exchange rates, and reallocate the limit towards export credit in foreign currency. “This may result in increasing or decreasing the rupee equivalent of the foreign currency component of export credit,” RBI said.
Alternatively, banks can also denominate the foreign currency component of export credit in the foreign currency to protect exporters from currency fluctuations. “The foreign currency component of export credit, sanctioned, disbursed and outstanding would be maintained and monitored in foreign currency. However, to record foreign currency assets in banks’ books, the on-going exchange, or Foreign Exchange Dealers Association Of India, rates may be used,” the central bank said.
The Federation of Indian Export Organisations (FIEO), one of the industry bodies that had requested RBI to look into the issue, welcomed Wednesday’s announcement. “This will certainly help us and ensure exporters do not lose on working capital. We have to see how banks will interpret this. Soon, we will have a meeting with the chairmen of top banks in the country and discuss the issue,” said FIEO President M Rafeeque Ahmed.