What changed
The ceiling rate on export credit in foreign currency was revised upward from LIBOR plus 75 basis points to LIBOR plus 100 basis points, effective immediately. Similar adjustments apply where EURO LIBOR or EURIBOR is used as the benchmark. The revision covers both new and existing advances for their remaining tenure.
What it means for you
Banks can now charge up to 100 bps over LIBOR for export credit in foreign currency, up from 75 bps, allowing higher margins on these loans. This change, based on a working group recommendation, aims to align rates with market conditions and may improve banks' profitability on export credit portfolios. Existing advances will also see rate adjustments for the remaining period, impacting borrowers' costs.
What you must do
- Update your bank's lending rates for export credit in foreign currency to the new ceiling of LIBOR + 100 bps immediately.
- Apply the revised rates to both fresh advances and existing advances for the remaining period, as directed.
- Ensure systems reflect the change for EURO LIBOR/EURIBOR benchmarks as well.
- Communicate the rate revision to relevant branches and export credit teams for compliance.
Who it affects
Commercial banks offering export credit in foreign currency, Exporters availing pre-shipment or post-shipment credit in foreign currency, Bank treasury and credit departments handling LIBOR-linked products
Does this revision apply to existing export credit advances?
Yes, the circular explicitly states that the revised ceiling rate applies to both fresh advances and existing advances for the remaining period of the loan.
What is the new ceiling rate for export credit in foreign currency?
The ceiling rate has been increased from LIBOR plus 75 basis points to LIBOR plus 100 basis points, effective April 18, 2006. For EURO LIBOR/EURIBOR benchmarks, the same spread applies.
Are there any exceptions to the ceiling rate for specific types of export credit?
Yes, for Export Credit Not Otherwise Specified (ECNOS), banks are free to decide the interest rate based on rupee credit rates, PLR, and spread guidelines, without the LIBOR ceiling.