Industry Urges RBI to Ensure Export Credit at Lower Rate, RBI Will Make Credit Costlier For Exporters, FIEO Urged RBI to Not Increase Export Credit

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SME Times News Bureau | 22 Jun, 2010
Amid growing concerns that the Reserve Bank of India's decision to shift to the base rate modal from the current Benchmark Prime Lending Rate (BPLR) from July 1 will make credit costlier for exporters, an industry body Monday urged the country's central bank to continue regulating export credit to ensure that the cost of export credit does not increase under the new system.

Expressing apprehension at the RBI's decision to deregulate the interest on export credit, allowing banks to decide the lending rate of export credit, the Federation of Indian Export Organisations (FIEO) said that it will increase the cost of credit making exports uncompetitive.

FIEO President A Sakthivel, commenting on the issue, said that cost of export credit in India is much the international benchmark and about 4 to 5 percent over at which our competitors are getting it .

He added that situation has further compounded due to liquidity crisis particularly in Euro zone and buyers are asking for longer period of credit. "The payments which used to be realized between 3 to 4 months from the shipment are now being realized between 6 to 9 months of shipments, he said.

"This itself necessitate availability of credit at a lower rate for longer duration," the FIEO chief viewed.

Recently, nearly 300 companies surveyed by the Federation of Indian Chambers of Commerce and Industry (FICCI) had also said that shifting to the new base rate modal by banks would result in higher lending rates.

"This will be an intimidating factor if it happens in the current circumstances," it cautioned, adding currency fluctuation and the EU crisis as some of other major challenges faced by the country's export sector.

As per the recommendations of the Working Group on BPLR, the RBI had decided that banks switch over to the system of Base Rate with effect from July 1. But banks are free till December 31 to choose the parameter using which the benchmark rate will be computed.

The base rate guidelines, issued in April, had barred lending below base rate, except for three categories: loans to banks' own employees, loans against deposits and small-ticket borrowers under the differential interest rate (DRI) scheme. Later, RBI also assured banks that it would keep agriculture loans outside the base rate ambit.

Under the present regulation of the RBI, banks should lend 250 basis points lower than the BPLR and then avail maximum 2 percent subvention from the government. But the new guidelines barred banks from lending to the sector below the base rate, allowing banks free to decide the lending rate of export credit.