The Reserve Bank of India (RBI) today directed banks to cut interest rates for both pre- and post shipment export credit by 100 basis points, leading to widespread expectation that it may soon cut the bank rate and the cash reserve ratio. It has also announced a special financial package for large value exporters of six products-- pharmaceuticals, agro chemicals, transport equipment, cement, iron, and steel and electrical machinery. The special package is aimed at manufacturer exporters with export contracts of Rs 100 crore and above, and will be available for one year from October 1.
The central bank today said that banks should charge a maximum rate of 250 basis points below their prime lending rate (PLR), compared with 150 basis point earlier. This means a straight savings of one percentage point in interest costs for exporters. These rates will be applicable for pre-shipment credit up to 180 days and for post-shipment credit up to 90 days. The RBI also said that this concession will apply for all export credit granted by banks from September 26 up to March 31, 2002.
IDBI Bank country head (treasury) Janak Desai said, "The cut in export credit is to syncronise the interest rates on domestic exports after the rate cuts by the Fed and the European Central Bank. If the forward premia is adjusted on the dollar, the funding will be on a par with international rates. It is only a readjustment of the interest rates."
The interest rate for foreign currency loans to exporters will continue to be at the London Inter-Bank Offered Rate (Libor) plus a maximum of 1.0 percentage point. Currently, dollar loans can be availed of by exporters at around 3.72 per cent per annum -- 2.72 per cent (LIBOR rate) plus one per cent, dealers said.
"This move will reduce the cost of borrowings for exporters. As interest rates are going down internationally, our exporters were feeling the pinch. The RBI had to cut the interest rate to help them to be competitive in the international market," a senior banker said.
Exporters covered by the special finance package exporters will be extended credit at a concessional rate of interest for an extended period of up to 365 days at both pre-as well as post-shipment stages compared to the maximum period of 270 and 180 days applicable for normal export credit.
The rate of interest on export credit at the pre-shipment stage for the extended period beyond 270 days and up to 365 days will be the same as that for the normal pre-shipment credit for the period beyond 180 days and up to 270 days. Post-shipment credit will be extended for the period beyond 180 days and up to 365 days at the same rate of interest as applicable for normal post-shipment credit for the period beyond 90 days and up to 180 days.
The RBI has reduced the rate of interest for the extended period of pre-shipment and post-shipment to a maximum of PLR plus 50 basis points from PLR plus 400 basis points. The RBI said this would result in a substantial reduction in the interest cost to exporters.
The apex bank has also made relaxed some procedures. The Exim Bank will be permitted to extend buyers' credit of Rs 200 crore without reference to the RBI. Indian exporters will also be permitted to import raw materials on credit terms for a period beyond 180 days at the rate of interest up to Libor plus one per cent under the special finance package as against the current Libor plus 75 basis point.
