Export credit might get priority sector lending tag

Lenders have to devote 40% of their overall credit to help prop up sectors like agriculture and small scale sector

The Reserve Bank of India (RBI) plans to include export finance under the priority sector lending (PSL) category, with certain riders, Deputy Governor H R Khan said here on Tuesday.

He said an internal group was working on this.

A decision is expected in the final report, scheduled in two months.

"One suggestion, which this group is looking at, is whether up to a particular level of export advance limit, and linked with some turnover of that party, whether there can be incremental amount which can be computed for the purpose of priority sector lending," Khan said. He was speaking at an interactive meeting with exporters on the sidelines of the final day of the Vibrant Gujarat Summit here. Khan said this was a re-alignment exercise within the overall PSL limit, which now stands at 40 per cent.

Lenders have to devote 40 per cent of their overall credit to help prop up sectors like agriculture and small scale sector.

At a bankers' meet earlier this month in Pune, it was decided to review priority sector lending targets since the needs and requirements of the economy have changed with time. RBI had constituted an internal working group to suggest changes in priority sector lending norms much earlier.

"Internally, we are discussing with stakeholders. We will also discuss with the government and come out with our guidelines on including to what extent and what form exports will find place in the new priority sector lending guidelines," Khan said.

The deputy governor said the central bank was monitoring a dip in the share of exports, and added there was a need for state-level banking committees to look into this aspect and suggest corrective steps.

He said RBI was looking to further liberalise and simplify trading in exchange traded derivatives as well.

"Now we are considering further relaxation of limits of exchange-traded derivatives such as currency futures, in which we had allowed up to $10 million without any documentation.

We may consider increasing the amount, increasing dollar-rupee play and may also simplify documentation requirements," Khan said.

He asked banks to be transparent while pushing products and services to exporters, some of which might be complex, and ensure that there were no hidden charges anywhere.

He said in some instances, it was found that frontline staff were lacking and not very well versed with client requirements, he said.

RBI has asked banks to compulsorily train such staff, including certifications, he said, indicating some penal action could be initiated against authorised dealer licences for not working according to expectations.

He came down heavily on currency trading by some exporters, saying they should concentrate on their core business rather than place bets in money markets which could hurt them later.

"Small and medium businesses should focus on their business, rather than punting in the currency markets," Khan said, clarifying RBI appreciates hedging against receivables for an exporter but strongly discourages trading.

Khan said in a few months, a trade receivables discounting system would be in place and added that there are certain challenges in this area due to which RBI has informed the government to make certain amendments in the Factoring Act for smoother functioning.

Talking about overall exports, Khan said at a time when the global economy is slowing down, the key challenge is to meet the ambitious export target.