What changed
The government decided to provide 2% interest subvention to banks for rupee export credit to specified sectors. Consequently, RBI amended its April 17, 2007 circular, reducing the maximum lending rate from BPLR minus 2.5% to BPLR minus 4.5% for pre-shipment credit up to 180 days and post-shipment credit up to 90 days. This applies only to the listed sectors and all SME exporters; other exporters continue under the old rate.
What it means for you
Banks must immediately lower their export credit rates by 2% for eligible sectors, absorbing the subvention benefit passed through the government. This reduces banks' net interest income on these loans but supports export competitiveness. Lenders need to adjust systems to apply the new BPLR minus 4.5% cap and track claims for quarterly reimbursement from RBI.
What you must do
- Update lending systems to cap rupee export credit rates at BPLR minus 4.5% for eligible sectors effective April 1, 2007.
- Identify and classify eligible exporters: textiles, garments, leather, handicrafts, engineering, processed agri, marine, sports goods, toys, and all SME exporters.
- Prepare quarterly subvention claims (June 30, Sep 30, Dec 31, 2007) with auditor's certificate and submit to RBI within one month of quarter-end.
- Ensure claims cover only credit from disbursement to repayment or until overdue (pre-shipment max 180 days, post-shipment max 90 days).
Who it affects
All scheduled commercial banks (excluding RRBs) offering rupee export credit, Exporters in specified sectors: textiles, garments, leather, handicrafts, engineering, processed agri, marine, sports goods, toys, SME sector exporters as defined in the circular's annex
Which exporters are eligible for the 2% interest subvention?
Eligible exporters are those in textiles (including handlooms), readymade garments, leather products, handicrafts, engineering products, processed agricultural products, marine products, sports goods, toys, and all exporters from the SME sector as defined in the circular's annex.
What is the new interest rate cap for eligible export credit?
Banks must charge interest not exceeding BPLR minus 4.5% on pre-shipment credit up to 180 days and post-shipment credit up to 90 days, effective April 1, 2007 to December 31, 2007.
How do banks claim the subvention from RBI?
Submit quarterly claims (as at June 30, Sep 30, Dec 31, 2007) within one month of quarter-end to RBI's Department of Banking Operations and Development, Mumbai, accompanied by an auditor's certificate certifying the claim amount.