Exporters split on RBI move to curb export credit refinance

Exporters are divided over the impact of the Reserve Bank's move to reduce availability of funds under the export credit refinance (ECR) window.

Liquidity provided under the ECR facility will be cut from 50% of eligible export credit outstanding to 32% with immediate effect, the RBI said today, adding that it will introduce a special term repo facility to compensate for the reduction.

"It will affect both the availability and cost of credit, which will be detrimental to competitiveness of Indian exports at a time when global economy is gathering momentum," Federation of Indian Export Organisations (FIEO) President M Rafeeque Ahmed said.

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

The Urjit Patel committee 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.

However, engineering exporters' body EEPC India said the new export credit refinance norms are a non-event because banks do not use the facility as they are already flush with liquidity.

"The change in the export refinance system would not make a significant difference to the exporting sector insofar as the cost of borrowing is concerned," EEPC India Chairman Anupam Shah said.