RBI panel for PCFC rate hike

Says no other charge should be levied on borrowers

Special Correspondent

CHENNAI: A working group constituted by the Reserve Bank of India (RBI) has suggested raising the interest rate on foreign currency credit for exporters by 25 basis points (namely, LIBOR plus one per cent for the first slab and an additional two per cent for the second slab) subject to the condition that banks will not levy any other charges — service charge, management charge and the like — except for recovery towards out-of-pocket expenses.

The group has also suggested that levy of other service charges linked to the loan amount "is not in order'' and should be done away with.

Soaring demand

Noting the high rate of growth in the demand for foreign currency credit compared to rupee credit from exporters, the group has called for consideration of the question whether a prudential limit could be prescribed for borrowal from abroad by banks for purposes of extending foreign currency credit to exporters. Disbursals of export credit in foreign currency (pre-shipment and post-shipment together) increased from a mere Rs. 2,853 crore as of June 2002 to Rs. 31,277 crore in September 2004 (provisional), while disbursals of pre-shipment and post-shipment rupee credit declined in the same period from Rs. 51,714 crore to Rs. 48,391 crore.

The group, headed by Anand Sinha, Chief General Manager, Department of Banking Operations and Development (DBOD) at the RBI headquarters in Mumbai and including representatives of banks and exporters' associations, said banks should give priority to the foreign currency export credit requirements of exporters over foreign currency loans to non-exporter borrowers.

Gold card scheme

It noted that the recommendation for abolition of all charges leviable on beneficiaries of foreign currency export credit would warrant modification of the terms of the Gold Card scheme. It pointed out that less than 3,000 Gold Cards had been issued to exporters by ten reporting banks and this included 1,004 cards by the State Bank of India, followed by 667 by the Bank of India. It suggested that besides implementing the simplified procedures for the issue of Gold Cards as envisaged under the scheme, banks "may consider implementing'' the instructions under the scheme regarding exemption of all deserving card holders from the Packing Credit sector Schemes of the Export Credit Guarantee Corporation (ECGC).

The report said State Level Export Promotion Committees which have been reconstituted as sub-committees of the SLBCs should play a greater role in promoting coordination between banks and exporters.

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