The RBI’s move to increase the export credit refinance limit is expected to increase lending to exporters in the micro, small and medium enterprises (MSME) segment.

The RBI in its mid-quarter monetary policy review on Monday had enhanced the eligible limit of the Export Credit Refinance (ECR) facility for scheduled banks (excluding regional rural banks) from 15 per cent of the outstanding export credit eligible for refinance, to 50 per cent.

The move, aimed at increasing the credit flow to the export sector, is effective from the fortnight beginning June 30. It will also provide additional liquidity support to banks of over Rs 30,000 crore.

The rate of interest charged on the ECR facility will continue to be the prevailing repo rate, which is currently 8 per cent.

Replenish funds

This move would help the banks replenish funds earmarked for micro, small and medium exporters and ensure that money is easily available to the sector, said Mr M. Rafeeque Ahmed, President, Federation of Indian Export Organisations (FIEO).

According to sources, banks are usually more comfortable lending to big corporate houses that focus on exports. This is due to the higher risk perception associated with lending to smaller exporters. However, the RBI move will help these banks look at smaller players in the export sector more favourably, they said.

The Economic Survey 2011-12 had shown that export credit as a percentage of net bank credit has been decelerating over the years, and accounted for only 4.2 per cent as on December 30, 2011 compared to the 9.8 per cent as on March 24, 2000.

Also, export credit growth had decelerated to 8.4 per cent in 2011-12 (up to December 31, 2011) over end March 2011 as against 22.2 per cent growth in financial year 2010-11 , it said.

Meanwhile, FIEO also pitched for a cut in interest rates to give a boost to exports, which in May had shrunk 4.16 per cent. The slump in the export growth in May was the second such in three months.

> arun.s@thehindu.co.in

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