MUMBAI, JUNE 13: A Reserve Bank of India (RBI) constituted working group to review export credit has suggested that interest rates on export credit in foreign currency could be raised by 25 basis points, subject to the express condition that banks will not levy any other charges in any manner barring recovery towards out of pocket expenses incurred.

In view of the substantial increase in export credit in foreign currency met out of borrowings from abroad, it felt that there is a need to look into whether a prudential limit could be prescribed, up to which banks may be allowed to borrow from abroad for the purpose.

According to the Group, the interest rates for the first slab (pre-shipment credit upto 180 days and post-shipment credit upto 90 days) could be London Inter-Bank Offered Rate (Libor) plus 100 basis points and an additional 2% for the second slab (pre-shipment credit availed from 181 to 270 days and post-shipment credit availed from 91 to 180 days). In respect of the rupee export credit, it observed that the present interest rate prescription by the Reserve Bank of India could continue for the time being in the interest of small and medium exporters.

The Group said banks should not levy any other charges in any manner under any name viz, service charge, management charge etc. It felt that levying of other service service charge linked to the amount lent was not in order and should not be done by banks.

Banks, the group felt, should give priority for the foreign currency export credit requirements of exporters over foreign currency loans to non-exporter borrowers. Noting that large corporate exporters received very good treatment in terms of service and interest rates and the small and medium exporters did not get the same treatment, the Group said banks should post nodal officers at regional/ zonal offices and major branches having substantial export credit for attending to the credit related problems of SME exporters.

The group observed that banks should put in place a control and reporting mechanism to ensure that the applications for export credit especially from Small and Medium Exporters are disposed of within the prescribed time frame.