Export Refinance Window May Be Kept Open

The apex bank wants to bring down export refinance availability in lieu of the cut in CRR. Traditionally, the Reserve Bank has been reducing the export refinance whenever the CRR has been cut.

Whenever there was a CRR cut and marginal withdrawal of export refinance, the result was a net inflow of funds into the banking system. This mainly because the banks had not used the export refinance availability fully.

Even now, banks have not drawn down their refinance availability due to which the combination of a CRR cut with a simultaneous withdrawal of refinance availability will lead to a net inflow.

 

It for this reason that the central bank does not want the refinance window open with the cash reserve ratio cut.

Banks will be able to access the refinance route even after a cut in CRR creating problems in monetary management.

But with falling exports, the commerce ministry is not in favour of the withdrawal of export refinance.

Though the banks have very little drawals of export refinance, it is felt that the existence of this route will give comfort to exporters. Hence the Reserve Bank is expected to strike a balance, bankers feel.

It is believed that the central bank will not totally do away with export refinance but reduce the quantum available.

This could be done either by bringing the reference date forward from March 31, 1996, to September 30, 1996, or cut the refinance availability from 50 per cent to 25 per cent.

The other area where the Reserve Bank will have to do the balancing act is the extent of the cut in CRR. The industry ministry has recommended a reduction of anything between 3 per cent and 5 per cent.

The central bank, however, is not in favour of such a high cut as it will release anything between Rs 6,000 crore to Rs 10,000 crore into the system.

It is felt that such a high cut will only lead a liquidity overhang which will fuel inflation.

It is expected that the Reserve Bank will reject the demand of the industry ministry and opt for a small cut of 0.5 per cent. After this, the apex bank may bring the CRR down to 10 per cent by March 1997. The Reserve Bank governor, who is always in favour of gradualism, will not go for a very high CRR cut, said a banker.

Quite a few banks have been clamouring for shifting from to a syndiacted loan system from the current consortium method. However, weaker banks are not in favour of this as they will turn to marginal players in the process.

Under the syndicated loan system, one bank gives the loan which is then hawked to other banks.

With weak banks are low on capital adequacy, they will not be able to give the loans at the first instance, due to the exposure norms.

This means the large banks will always do the initial syndication, leaving small banks at their mercy for assets.