Urban co-op banks seek rate subsidy for export credit

Faced with risks of losing business, urban cooperative banks (UCBs) have sought interest subsidy to provide support to export intensive units, especially the small and medium enterprises (SMEs) that were hit hard by the slowdown in demand.

The government is offering 2 per cent subvention (subsidy) on export credit as a step to mitigate hardships faced by the exporting units. Only commercial banks are eligible to get the benefit of subvention, which is passed on to the customers.

Arvind Deshpande, chief executive of Maharashtra Urban Cooperative Bank Federation, said, “UCBs, especially scheduled banks, carry the same risks that commercial banks face and are treated almost at par with them for implementing prudential norms for asset classification and capital requirements. Keeping this in mind, UCBs must also get the benefit of schemes such as interest rate subsidy for export credit.”

“The issue (interest subsidy) had been taken up with the government before Commerce Secretary M Pillai last week while presenting the status of the gem and jewellery industry,” said a senior official with a Mumbai-based UCB.

UCBs, including Saraswat Cooperative Bank (SCB) and Shamrao Vittal Cooperative Bank, have substantial exposure to SME units especially in the recession-hit sectors. Many UCBs have recently received permission to do foreign exchange business, but without the interest rate subvention they cannot do business on same footing with large banks.

An executive from SCB said that their exposure to the gems and jewellery industry is around Rs 500 crore and total export credit portfolio is close to Rs 900 crore.

UCBs’ risk with respect to customers (export units) is same as commercial banks. But, they are at a disadvantage since they cannot give better support, partly due to lack of interest subsidy.

“These units might shift their accounts to commercial banks. Thus, we run the risk of losing business,” said a chief of another small UCB. A Reserve Bank of India official said there was no deliberate effort to keep UCBs away from the subvention benefit. The regulator would follow up this demand.