RBI tightens rules for export credit to repay rupee loans

The Reserve Bank of India (RBI) has tightened the rules for granting long-term export advances to curb the practice of using trade finance to retire old rupee loans.

The facility for long-term export advances was primarily being utilised for refinancing rupee loans of borrowers, instead of using it to execute long-term supply contracts for export of goods.

The foreign currency borrowing and export advances or support obtained from lenders (part of Indian banking system) for refinancing will be treated as restructuring. This is applicable to a borrower who is under financial difficulty and involves concessions that the bank would otherwise not consider, RBI said.

The repayment or refinancing of foreign currency borrowings with a bank by the rupee or other foreign currency loans or support (such as guarantees) from lenders (part of Indian banking system) will also be treated as restructuring.

The financial difficulty would cover instances including repeated undue delay in timely payment of instalments (principal and interest) on term loans and failure to pay statutory liabilities.

The foreign currency borrowings / advances and support could be permitted for refinancing if it is obtained from a lender who is not part of Indian banking system, it added.

RBI has permitted exporters to receive long-term export advance to execute long-term supply contracts for export of goods. They are also allowed to use such export advances to liquidate rupee loans which are not classified as non-performing assets.