Business Standard

RBI's old guard junks priority sector status for export credit

Govt pins hopes on Rajan to deliver on this front as well

Vrishti Beniwal New Delhi
The government’s proposal to include export credit under priority sector lending to help exporters secure easy and affordable loans has hit a roadblock, with the Reserve Bank of India (RBI) expressing reservations on further expanding the priority sector lending list.

Apparently, the objections have come from the old guard in RBI.

The finance ministry had written to RBI to include advances for exports under priority lending to provide a boost to the sector amid the slowdown. On this, the central bank expressed concern, saying if it kept adding new sectors to priority lending, the purpose of this category would be defeated. The move, RBI said, would reduce the share of other sectors in priority lending. In 2007, RBI had included minority sector lending in the priority list, though it was clubbed with lending to weaker sections.

Financial Services Secretary Rajiv Takru told Business Standard because of RBI’s concern, it hadn’t given its approval to the proposal yet, adding was looking at the various pros and cons. “We communicated to RBI; it has its own views on that because priority sector has a window. So, there are arguments on both sides. If advances to exports are going to eat into the share of other priority sectors, RBI has to take a considerate opinion,” he said.

Apparently, Commerce Secretary S R Rao had taken up the matter “personally” with new RBI Governor Raghuram Rajan, urging him to notify the rules based on the recommendations of a committee headed by G Padmanabhan, executive director, RBI. The report by the technical committee on services/facilities for exporters was submitted in May. The recommendations would not only increase the availability of credit, but also help reduce the cost of such credit for exporters.

Officials said as the old guard in RBI didn’t favour expanding the priority lending list, all hopes were now pinned on the new RBI governor to convince the team and deliver on this front, too.

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

“Availability of credit is a major concern for all, particularly for small and medium enterprises. Exports should be brought under priority sector norms, both for Indian and foreign banks with more than 20 branches,” Rafeeque Ahmed, president, Federation of Indian Export Organisations, said at the Board of Trade meeting last month.

Currently, only foreign banks have to disburse 12 per cent of their credit under the priority sector to export companies. Other banks keep aside 40 per cent of their net loans for the priority sector, which includes micro, small & medium enterprises, education, housing, weaker section and agriculture, but not exports.

The share of banks’ export credit to total exports is on the decline. Export credit by banks as percentage of total exports fell to 11.36 per cent (Rs 1.85 lakh crore) in 2012-13 from 19.82 per cent (Rs 1.29 lakh crore) in 2007-08. Export credit by banks as percentage of net bank credit fell to 3.7 per cent in 2012-13 from 9.8 per cent in 1999-2000, according to official data.

Currently, export credit interest stands at 9-11 per cent. Primary lenders are State Bank of India, Canara Bank, Indian Overseas Bank and Bank of Baroda.

Don't miss the most important news and views of the day. Get them on our Telegram channel

First Published: Sep 19 2013 | 12:40 AM IST

Explore News