Banks' export credit dips on high interest rates

High interest rates have hit the export credit portfolio of banks. Reserve Bank of India (RBI) data show banks’ export credit as of April had fallen by 8.7 per cent from the Rs 48,200 crore a year before to about Rs 44,000 crore.

In the same period a year ago, export credit had shown 13.4 per cent growth, from Rs 42,500 crore as of April 2013.

Among all sectors, export credit saw the sharpest decline in deployment of gross bank credit as of April this year.

After the government withdrew the three per cent interest subvention scheme for exports in April 2014, the cost of rupee credit has gone up significantly, say exporters. The government withdrew rupee export credit to the MSME (micro, small and medium enterprises) sector and from almost all engineering export products.

Getting bills discounted from a foreign bank which have a tie-up with the importer’s bank has become a much more viable option. However, the window is available to only large export houses, based on their counterpart importer’s credit record with their respective foreign lender.

“We’re getting rupee credit at around 11 per cent from domestic banks. However, if we get our bills discounted from foreign banks which have a tie-up with importers, the rate of interest is less than two per cent per annum. In addition, we are getting payment in dollars, a win-win situation for us from the point of view of the present rupee pricing,” said P K Shah, director, Nipha Exports.

“We have written to the government to introduce the interest subvention scheme on rupee export credit, as the rising cost credit is a major issue for exporters,” said Rajan Sundaresan, executive director of All India Rice Exporters Association.

According to banks, the low offtake of export credit is linked to production stagnation and rupee movement.

“Generally, the cost of credit is coming down for all businesses. The real problem with export is linked to the rupee, slightly overvalued at present,” said Sanjay Arya, executive director, United Bank of India.

“There has been a decline in export credit. We have also seen that in the past few months, there had been some impact (of lower demand) on export of basmati rice, iron and steel, and coal. There are also issues related to dumping from the Chinese market, which has also taken a hit on exports, particularly iron and steel,” said an official of UCO Bank.

Recently, Arundhati Bhattacharya, head of State Bank of India, had said dumping of foreign products in the iron and steel sector was an area of concern for banks. “We see that of the total iron and steel demand of 21 million tonnes (mt), nearly 12 mt is getting imported, and we believe dumping is going on from China, Russia and Ukraine. That is an area of concern,” she had said here last month.