RBI reduces limit for export credit re-finance

The exporter community is sceptical about the Reserve Bank of India’s decision to reduce availability of funds under the export credit refinance (ECR) window to 32 per cent from 50 per cent of export credit outstanding. This move could affect credit flow to exporters.

However, the RBI, in its second bi-monthly monetary policy, proposes to “fully compensate’’ for the reduction in liquidity under the scheme through a special term repo (borrowing) facility of 0.25 per cent of net demand and time liabilities.

Some exporters are apprehensive that the limited access to export credit refinance (ECR) could raise the cost of credit. “The cost of credit is likely to go up between 0.5 per cent and 1 per cent and it is not clear to what extent the special term repo facility will offset this loss,” said Rafeeque Ahmed, President, FIEO.

Banks would be reluctant to lend to the export sector, which is already facing liquidity crunch, he added. The share of export credit in net bank credit has come down from close to 9 per cent to 3.5 per cent in the last 10 years.

The RBI, in a statement, said that the reduction of funds under export credit refinance and introduction of the special term repo facility should improve access to liquidity for the system as a whole by cutting down on procedural formalities relating to documentary evidence, authorisation and verification associated with the ECR facility.

The move is based on Urjit Patel committee’s recommendations that had called for moving away from sector-specific refinance towards a more generalised provision of system liquidity without preferential access to any particular sector or entity.

The RBI said the limit on accessing funds under the ECR facility will also improve the transmission of policy impulses across the interest rate spectrum and engender efficiency in cash or treasury management. According to Engineering Export Promotion Council Chief Anupam Shah, the new export refinance norms are a non-event for exporters as banks shy away from the facility anyway. What would help exporters survive in the highly competitive global market is availability of credit at bank rates, he added.

Small exporters will not be affected much by the RBI move as their borrowing limits are already small, pointed out Tilak Raj Manaktala, President, Delhi Exporters Association.

“Banks need to reduce borrowing costs of exporters by cutting down on their various charges and fees that are prohibitive for small players,” he said.