What changed
The earlier dispensation of a one percentage point reduction in the ceiling on interest rates for pre-shipment and post-shipment rupee export credit, linked to BPLR, was set to expire on October 31, 2005. RBI has now extended this benefit for another six months, from November 1, 2005, to April 30, 2006. The ceiling remains at BPLR minus 2.5 percentage points for the specified tenors.
What it means for you
Banks must continue to offer export credit at concessional rates, with the ceiling at BPLR minus 2.5 percentage points for pre-shipment credit up to 180 days and post-shipment credit up to 90 days. This extension supports exporters by keeping borrowing costs lower, but it also means banks' net interest margins on these loans remain compressed. Lenders are free to charge below the ceiling, so competition may drive rates even lower.
What you must do
- Update your lending system to apply the BPLR minus 2.5 percentage points ceiling for pre-shipment credit up to 180 days and post-shipment credit up to 90 days from November 1, 2005.
- Communicate the extended validity period (up to April 30, 2006) to your export credit processing teams and branches.
- Ensure that for tenors beyond the specified limits, interest rates are set freely as per the circular.
- Acknowledge receipt of the RBI circular as instructed.
Who it affects
All scheduled commercial banks offering rupee export credit, Exporters availing pre-shipment and post-shipment credit, Bank treasury and credit policy teams
What is the new interest rate ceiling for pre-shipment rupee export credit?
For pre-shipment credit up to 180 days, the ceiling is BPLR minus 2.5 percentage points. For credit beyond 180 days and up to 270 days, banks are free to set rates.
How long is this extension valid?
The reduced ceiling rates are applicable from November 1, 2005, to April 30, 2006.
Can banks charge rates lower than the ceiling?
Yes, the circular states that since these are ceiling rates, banks are free to charge any rate below the ceiling.