Date:19/04/2006 URL: http://www.thehindubusinessline.com/2006/04/19/stories/2006041904200700.htm

Back Increased cost of credit worries exporters

Our Bureau

Higher transaction cost will cut into competitive edge

The exporters contend there is no ground to justify an increase in foreign currency export credit, when the RBI has decided to keep the bank rate, repo rate and the reverse repo rate unchanged.

New Delhi , April 18

The exporting community has expressed disappointment over the Reserve Bank of India (RBI) move to increase interest rate ceiling on export credit in foreign currency.

The central bank on Tuesday, in the 2006-07 Credit Policy, increased the ceiling interest rate on export credit in foreign currency by 25 basis point to LIBOR plus one per cent. Prior to this move, the interest rate ceiling on foreign currency export credit stood at LIBOR plus 0.75 percentage point.

Reacting to the credit policy announcement, the Federation of Indian Export Organisations (FIEO) President, Mr O.P. Garg, said that the increased cost of credit to the export sector would add to the transaction costs and make Indian exports less competitive.

The exporting community contended that there was no ground to justify an increase in foreign currency export credit, especially when the RBI has decided to keep the bank rate, repo rate and the reverse repo rate unchanged.

Mr Garg, however, hailed the move to delegate authority to authorised dealers to extend the time limit for realisation of export proceeds beyond the prescribed six months up to an invoice value of $1,00,000.

The FIEO President also expressed the hope that suitable measures would be taken to increase the flow of credit to the export sector.

Stating that the RBI move would affect a sizeable number of exporters, Mr Ajai Sahai, Director General, FIEO, pointed out that in the last few years there had been a quantum jump in the number of exporters who were availing themselves of export credit in foreign currency (both post-shipment and pre-shipment export credit).

"Two to three years ago, majority of the exporters were availing themselves of only rupee-based export credit. Today, about 80 per cent of the exporters are availing themselves of foreign currency export credit.

The latest move of RBI will particularly impact small and medium-sized exporters," he said.

He also hoped that banks, even if they stick on to the new ceiling rates, would not levy any other charges except out-of-pocket expenses to the account of the exporter.