Govt to boost export credit

Plans to make liquidity available in foreign currency at smaller banks, extend easy loans

The government is mulling a greater flow of credit for exporters by allowing banks with significant presence abroad, and foreign currency deposits available, to arrange for borrowings abroad or to seek lines of credit from foreign banks.

The decision was recently taken by the department of financial services under the finance ministry.

Merchandise exports have slipped again into the negative territory, with a fall in demand from traditional markets. In the first quarter of 2012-13, exports fell 1.7 per cent to $75.2 billion, compared with $76.5 billion during the same period last year. Exporters say an important reason for the stall in growth is a gradual decline in export credit as a percentage of net bank credit and also as a percentage of exports.

DECLINING TREND OF EXPORT CREDIT
Year	Exports (Rs cr)	Export credit (Rs cr)	Export credit as % of exports
2007-08	655,863	129,983	19.8
2008-09	840,755	128,940	15.3
2009-10	845,533	138,143	16.3
2010-11*	1,142,648	153,794	13.4
*up to December 2011                                               Source: RBI

“The government is now looking at various measures for extending easy loans to the exporting community. We are looking at a liberalised regime of export credit in foreign currency. There is going to be greater synergy within banks, so that exports do not get adversely affected,” Anup K Pujari, director general of foreign trade, told Business Standard.

While the compounded annual growth rate (CAGR) of export credit during 2001-11 was 13.45 per cent, export growth in these 10 years had been at a CAGR of 19.11 per cent. Export credit as a percentage of total exports fell from 19.8 per cent in 2008 to 13.4 per cent in 2011, according to Reserve Bank data.

As a short-term measure, the government has also planned to make finance available in foreign exchange by banks to exporters through other smaller banks that do not have forex liquidity available. Such extra lending by bigger banks to smaller ones would not exceed a mark-up of 10 basis points. It has also been decided that in case of packing credit, the exporter would not be forced to take cover unless it is for an export credit in one convertible currency, for which the export order will be duly invoiced in another convertible currency. Besides short-term credit, the government has also planned to direct banks to provide term loans for modernisation and equipment financing, setting up of units for exports and for project exports.

“The declining trend of export credit, both as a percentage of net bank credit, as well as a percentage of exports, is one of the biggest handicaps for tiny and small units, which are not given timely credit to meet their export requirement,” said Rafeeque Ahmad, president, Federation of Indian Export Organisations.