RBI hikes interest rate ceiling on foreign currency export credit

Announcing more measures to help Indian companies beat the global financial turmoil, the Reserve Bank of India today increased the interest rate ceiling on foreign currency export credit by 250 basis points.

The ceiling, which was earlier fixed at Libor plus 100 basis points, has now been revised to Libor plus 350 basis points. The move has been taken as the cost of funds to the banks that are accessing money overseas has gone up and they are finding it difficult to extend credit within this ceiling, the central bank said in a announcement. It has imposed a condition that the banks will not be allowed to levy other charges such as service charge and management charge. The only exception is for recovery towards out-of-pocket expenses incurred.

The facility is also available for Euro Libor. Libor is the international interest rate benchmark. Correspondingly, the interest rate ceiling on the lines of credit with overseas banks has also been raised from Libor plus 75 basis points to Libor plus 150 basis points with immediate effect.

In November 2008, the central bank had extended a forex swap facility for tenors up to three months to Indian banks having global operations, to provide them flexibility in managing their short-term funding requirements at their overseas offices.

The use of this swap facility by Indian banks has been minimal till date. The outstanding amount under this facility was Rs 1,285 crore as on February 04, 2008.