Banks Wary Of Cheap Pcfc To Exporters

Banks are unwilling to extend packing credit in foreign currency (PCFC) at concessional rates to exporters despite the central bank encouraging them to do so.

Giving PCFC is proving uneconomical in the current scenario when dollar funds are hard to come by, contend the banks.

In fact PCFC can be availed of by exporters at 2.20 per cent (six months London inter-bank offered rate (Libor) :1.45 per cent plus a maximum spread of 75 basis points) but banks are loathe to extend credit under this category as other avenues such as extending working capital demand loans in foreign currency and treasury operations could fetch them a minimum spread of 150-200 basis points.

 

The bullish forecast on the rupee exchange rate coupled with falling US interest rates makes it advantageous to exporters to avail PCFC. This could give a leg up to high value exports from the country.

In rupee terms the ceiling rate on packing credit up to 180 days works out to 7.5 to 8.5 per cent (prime lending rate minus 2.5 per cent) per annum. Taking into account the forward premium available to exporters in selling their export earnings in the forward market, the effective interest cost to exporters works out to 4-5 per cent, which is dearer as compared to PCFC.

The interest cost to exporters has marginally increased over the last one year. From 1.91 per cent in January 2002 to 4 per cent as of now.