What changed
The earlier circular (MPD.BC.295/07.01.279/2007-08 dated October 25, 2007) had set the interest rate ceiling on pre-shipment rupee export credit up to 180 days and post-shipment rupee export credit up to 90 days at BPLR minus 2.5%, valid until April 30, 2008. This circular extends that validity to October 31, 2008, with the same ceiling rates continuing from May 1, 2008.
What it means for you
Banks must continue to offer rupee export credit at rates not exceeding BPLR minus 2.5% for the specified tenors until October 31, 2008. This ensures exporters get cheaper credit for working capital and post-shipment periods, but banks' margins on these loans remain capped. Lenders can still charge lower rates if they choose, but cannot exceed the ceiling.
What you must do
- Update internal systems to apply the BPLR minus 2.5% ceiling on pre-shipment credit up to 180 days and post-shipment credit up to 90 days from May 1, 2008 to October 31, 2008.
- Communicate the extended validity to all branches handling export credit to ensure compliance.
- Monitor that no loan in these categories exceeds the ceiling rate, while allowing rates below it.
- Acknowledge receipt of this 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 exact interest rate ceiling for export credit under this circular?
For pre-shipment rupee export credit up to 180 days and post-shipment rupee export credit up to 90 days (including demand bills for transit period and usance bills up to 90 days), the ceiling is BPLR minus 2.5 percentage points. Banks can charge any rate below this ceiling.
Does this circular apply to export credit beyond the specified tenors?
No. For pre-shipment credit beyond 180 days and post-shipment credit beyond 90 days, interest rates are free from any ceiling, as per the note in the circular.
When does this extended dispensation take effect and until when?
The extended validity starts from May 1, 2008 and remains in place until October 31, 2008. The earlier dispensation ended on April 30, 2008.