State Bank of India, the country's largest lender, would cut interest rates on loans for exporters by 25-50 basis points, a senior official said. The new rates are likely to be effective from next week, after the bank's asset liability committee meets this Saturday.
The move comes following the central bank's decision to increase export refinancing limits of banks, to 50 per cent, to improve liquidity in the system. At present, the Export Credit Refinance (ECR) limit is fixed at 15 per cent of the rupee export credit eligible for refinance as at the end of the second preceding fortnight.
The measure was announced by the Reserve Bank of India (RBI) central bank on Monday. According to its estimates, the increase in refinancing limit can provide additional liquidity of Rs 30,000 crore in the banking system.
News agency PTI quoted SBI chairman Pratip Chaudhuri that the bank was mulling a rate cut to exporters following the regulatory relaxation. "We will surely cut lending rates to exporters...the quantum will be decided by our Alco (asset-liability committee) meeting," he was quoted.
The interest rate charged on the ECR facility is equivalent to the repo rate, currently eight per cent. Yesterday, RBI had asked banks to lower interest rates chargeable to eligible exporters, so that the latter could avail of the benefit of two per cent interest subvention scheme of the central government.
"Banks may reduce the interest rate chargeable to the exporters, as per the base rate system... eligible for export credit subvention by the amount of subvention available, subject to a floor rate of seven per cent," the central bank said in a notification.
On the impact of the RBI move on liquidity, Chaudhuri said it would have some impact in the future, but did not say by how much, PTI reported.
The Reserve Bank on Monday, while leaving the key interest rates and cash reserve requirements of banks unchanged at its mid-quarter review, enhanced liquidity to exporters by increasing the refinancing limits. Banks, on an average, have been borrowing Rs 1 lakh crore from RBI daily, due to tight money supply conditions.
Last week, SBI had announced up to a 3.5 per cent cut in lending rates to top-rated companies, small and medium enterprises and farm loan borrowers but not for individuals, effective June 1.
