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Commerce department pushes new RBI Governor for priority sector lending to exports

It is expected norms will be notified soon after P Chidambaram made promotion of exports part of his ten-point agenda for economic revival

Nayanima Basu  |  New Delhi 

As new RBI governor Raghuram Rajan on Wednesday took a slew of measures to prop up the rupee as well as provide boost to exports in the medium term, the commerce and industry ministry is hopeful the central bank will also bring banks lending to outbound shipments under priority sector lending norms.

It has asked the new governor to expedite this process for both Indian and foreign banks. The demand has come at a time when exports registered a double digit growth in July after two straight months of contraction.

Apparently, Commerce Secretary S R Rao had taken up the matter “personally” with Raghuram Rajan, who took over as the country’s central bank governor on Wednesday, urging him to notify the rules based on recommendations by a committee headed by G Padmanabhan, executive director, RBI.

The report by the technical committee on services/facilities for the exporters was submitted in May, but “internal processes within RBI has delayed the implementation”, a senior commerce department official told Business Standard.

However, it is expected now that the norms will be notified soon after Finance Minister P Chidambaram made promotion of exports a part of his 10-point agenda for economic revival, the official added.

The new norms, which are expected to be notified by this month, will not only increase the availability of credit, but also help in reducing cost of such credit to exporters.

On his very first day of heading the RBI, Rajan had allowed banks to re-book cancelled forward exchange contracts to 50 per cent of the annulled contracts compared with 25 per cent earlier.

In addition to inclusion of export in priority sector lending, the Padmanabhan committee also recommended extension of swap facility, setting up a nodal agency for borrowing in foreign currency from abroad on a pool basis and further lending to these companies in India at competitive rates.

“The availability of credit is a big concern for all, particularly for the small and medium enterprises. Exports should be brought under priority sector norms both for Indian and foreign banks with over 20 branches,” said Rafeeque Ahmed, president, Federation of Indian Export Organisations (FIEO), during the Board of Trade meeting last month.

The share of export credit by banks in total exports is constantly on the decline. Export credit by banks as percentage of total exports has come down to 11.36 per cent at Rs Rs 1.85 lakh crore in 2012-13 from 19.82 per cent in 2007-08 at Rs 1.29 lakh crore. Similarly, in terms of export credit given by banks at present as a percentage of net bank credit has also decreased to 3.7 per cent last financial year from 9.8 per cent in 1999-2000, according to official statistics.

Ahmed also said it was not guaranteed that under priority sector lending, exporters would get a lesser interest rate than what was prevailing now, but it would make lending mandatory for banks. In other words, banks would have to give a certain percentage to the sector.

Currently, export credit interest ranges from nine per cent to 11 per cent. Some top lenders are State Bank of India (SBI), Canara Bank, Indian Overseas Bank and Bank of Baroda. Before RBI’s notification, which removed foreign banks from lending to the export sector, Standard Chartered and Citibank were the main foreign banks that were lending to exports.

Domestic and foreign banks with at least 20 branches have to lend 40 per cent of their total net credit to priority sectors, which currently include agriculture, micro and small enterprises, advances to weaker sections. For foreign banks with less than 20 branches, priority sector lending has to be 32 per cent of the total net advances.

At present, export credit is not part of mandatory priority sector lending for domestic commercial banks and foreign banks with over 20 branches. Foreign banks, with less than 20 branches, have exports in the priority sector lending but there is no specific target for advances.

However, banks do not always meet the mandatory requirement to this effect. According to RBI data, priority sector advances by public sector banks were at 36.2 per cent (of their advnces) at Rs 12.82 lakh crore as on March 31, 2013, private sector banks at 37.5 per cent at Rs 3.27 lakh crore and by foreign banks the priority sector lending was at 35.1 per cent at Rs 84,854 crore.

According to Aman Chadha, chairman, Engineering Export Promotion Council, issues like treatment of priority sector lending to exports and procedural delays at the port and customs should be addressed immediately to gain advantage of the falling rupee in boosting exports.

During the first four months of this financial year, exports reached $98.29 billion, 1.72 per cent higher than $96.63 billion in the corresponding period of last year. With the rupee plummeting by over 20 per cent against the dollar since April, exports surged by a sudden 11.64 per cent reaching $25.83 billion in July, compared with $23.14 billion in the corresponding month last year.

First Published: Fri, September 06 2013. 00:35 IST