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Export refinance limit may be lowered

BS Banking Bureau

The Reserve Bank of India is expected to bring down the export refinance limit from the present level of 15 per cent of outstanding credit in the April 29 credit policy even though the banking community is clamouring for a raise in the refinance level.

The RBI has been following a policy of phasing out of export refinance as, under the World Trade Organisation agreement, special concessions to the export sector need to be abolished within a stipulated time frame.

RBI took the first step last April when it rationalised export credit refinance facility, bringing it down from 100 per cent of the incremental export credit to 15 per cent of the outstanding credit level.

Sources feel it may be brought down to 7.5 per cent before abolishing the refinance facility totally by the end of the year.

Two-third of the refinance facility from the RBI is at the bank rate (6.5 per cent), while the balance is at the market related rate linked to Mibor. Bankers want the entire chunk at the bank rate.

Under the WTO globalisation programme, the member countries (including India) are obliged to lower their customs tariffs to facilitate greater access to foreign imports into their markets.

The RBI pegged the export finance rate at 250 basis points below the banks' prime lending rates last year.

Some of the banks have linked the export finance rate to tenor-linked PLR, thereby bringing down the rates further as the short-term tenor linked prime lending rate is lower than the medium term PLR and most of the export loans are for 90-180 days.

Export credit for most banks has been hovering around 10 per cent level now. It has been on a downturn since 1994. During 1994-95, export credit as a percentage of net bank credit was 13.02 per cent.

In successive years, however, the ratio declined steadily to 12.97 per cent, 12.2 per cent, 11.42 per cent, 10.57 per cent and reached 9.82 per cent in 1999-2000. As on March 23, 2001, the figure was even lower at 9.7 per cent.

"Exports depend heavily on adequate availability of export financing from banks and specialised financial institutions. The greater the availability of this facility at a competitive rate of interest, the better would be the prospects for speedy growth in the exports sector," said a senior official of a public sector bank.

However, the RBI is unlikely to raise the limit and is instead for phasing it out. It has already discussed the issue with the commerce ministry, sources said.

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