The Exim Bank has now completed 15 years of its existence. Adolescence is an awkward period, more so as its parent (the Industrial Development Bank of India), grandparent (the Reserve Bank of India) and great grandparent (the government of India) all expect it to fulfill their hopes and aspirations and yet all seem to have disowned this fine youth. It is undeniable that this 15 year-old strapping youth has more than fulfilled the tasks set out to it when it was born. Yet in the reform process all other banks and financial institutions are being mollycoddled. The Exim Bank has been put out to pasture and shackled with irreconcilable commitments.
First, let us look at the track record of Exim Bank. Its paid-up capital has increased from a little less than Rs 195 crore in 1987 to Rs 500 crore in 1997, while its reserves rose during the same period from around Rs 58 crore to Rs 545 crore. The return on assets at 3.4 per cent appears to be very good and it appears well placed to bear up to the onslaught of increased competition which is inevitable in the ensuing period. The Exim Bank is probably a unique organisation in the public sector to have a lean staff which has remained slim -- against 140 staff in 1987 it now has only 149 persons in 1997 and hence the net profit per employee rose from Rs 14 lakh in 1987 to a little over Rs 1 crore in 1997.
As part of the overall financial sector reform process, various subventions have been removed and rightly so. The LTO allocation from the RBI's profits have been stopped and the Exim Bank is no longer eligible for SLR bonds. The government, strapped for resources, has not provided any additional capital in the recent period nor has it recognised that the behest lending posed an obligation on government which it is not easily owning up to. Contrast this with the ever-generous recapitalisation of the weak banks where the government has, year after year, provided recapitalisation to take care of non-performing assets.
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I would submit that there is an imperative need to take some hard decisions on Exim Bank. In a clime where all financial institutions are being given the signal that they have to move over to market-related activities, a total underwriting of Exim Bank's operations by the government does not appear to be a realistic option, though in the US, the Exim Bank is provided an almost total and unquestioned back up by the government. If the government is not to underwrite the Exim Bank's operations then a number of urgent steps need to be taken. At present, the Exim Bank is required to follow the prudential norms set for financial institutions. These should not be diluted unless the government wishes to give a total assurance as in the case of the US. Nonetheless, these are problems of country defaults and the consequences are for the exporters to bear. While this needs attention, overall dilution of norms, given the government's inability and disinclination to underwrite the Exim Bank, would not be desirable. Hence a number of measures need to be taken immediately.
First, the government must own up to the behest lending that it made the Exim Bank undertake. The argument that these are really Export Credit Guarantee Corporation's (ECGC) liabilities and not that of the government does not really appear convincing. Quite often, the Bank was forced to lend on the strength of ECGC guarantees and these guarantees should be honoured. It would be best to clear off all these liabilities. In fairness, it must be recognised that the Iraqi loans were cleared off through issue of bonds and a similar clean up should be undertaken of other such liabilities.
Second, after the clean-up, the government should no longer push the Exim Bank into any further behest lending. Per contra, the Exim Board, which looks like a distinguished persons gallery, has the clout to also give a firm 'no' to any pressures of behest lending.
Third, the Exim Bank should be encouraged to go to the market and in the first instance the government's share should be very quickly brought down to 51 per cent. As mentioned earlier, any problems before the Exim Bank can go to the market should be tackled by the government expeditiously in terms of a balance sheet clean-up.
Fourth, exporters and importers should be given a special stake in the public issue as users, and rule books should not be waved to prevent legitimate stakeholders from emerging as predominant owners of the Bank. When the time comes for giving up 51 per cent public ownership, the Exim Bank should be first in the queue.
Fifth, the Exim Board should be revamped in anticipation of these changes and in the first instance the regulator (RBI) and other financial institutions (IDBI and ECGC) should on their own opt out of the board to make way for the injection of genuine stakeholders.
Sixth, the Bank should be allowed to provide credit to exporters and importers without any hindrance on short- or long-term lending. Moreover, it should be given unfettered freedom to blend export and import finance in appropriate proportions so that it can, on its own volition, evolve a viable structure on interest rates. We need to get out of the old mindset that export finance is good and that import finance is bad. In an increasingly integrating world, we should be considered with the totality of operations in foreign trade with credit being self-sustaining and viable. While unlike other financial institutions, the Exim Bank has been discouraged from setting up a private sector commercial bank, there is reason to allow it to convert itself into a commercial bank with a strong presence in the foreign trade sector. It is important that in an opening up of the economy we should allow the Exim Bank to operate without let or hindrance.
Last, it is necessary for the government to give attention to the hazards of leaving the ship of the Exim Bank without a captain. This is undesirable in the case of any institution but it is suicidal in the case of an institution like the Exim Bank as we become laughing stocks before the rest of the world under public glare. Whatever be the mitigating circumstances -- inability to find suitable candidates etc -- this serious lapse of management should be rectified forthwith. It is precisely such delays that damage institutions. A fine institution like the Exim Bank surely deserves a better fate.