What changed
The earlier dispensation of a one percentage point reduction in the ceiling on pre-shipment and post-shipment rupee export credit, announced on September 24, 2001, was set to expire on April 30, 2005. RBI has now extended this reduced ceiling until October 31, 2005, keeping the rates at BPLR minus 2.5 percentage points for the specified tenors.
What it means for you
Banks must continue to offer export credit at rates not exceeding BPLR minus 2.5 percentage points for pre-shipment credit up to 180 days and post-shipment credit up to 90 days, ensuring cheaper funding for exporters. This extension supports export competitiveness but compresses banks' net interest margins on these loans. Lenders retain flexibility to charge below the ceiling.
What you must do
- Update your lending systems to apply the BPLR minus 2.5% ceiling on pre-shipment (up to 180 days) and post-shipment (up to 90 days) rupee export credit from May 1, 2005 to October 31, 2005.
- Communicate the extended validity to your export credit processing teams and treasury for accurate pricing.
- Ensure that for tenors beyond these limits (pre-shipment beyond 180 days and up to 270 days, post-shipment beyond 90 days and up to 6 months from shipment), rates are set freely without the ceiling.
Who it affects
All scheduled commercial banks offering rupee export credit, Exporters availing pre-shipment and post-shipment rupee credit
What is the exact interest rate ceiling for pre-shipment rupee export credit up to 180 days?
The ceiling is BPLR minus 2.5 percentage points, effective from May 1, 2005 to October 31, 2005.
Does this extension apply to post-shipment credit beyond 90 days?
No, the reduced ceiling applies only to post-shipment credit up to 90 days. For usance bills beyond 90 days and up to 6 months from the date of shipment, banks are free to set rates.
Can banks charge rates below the ceiling?
Yes, the ceiling is a maximum; banks are free to charge any rate below it.