What changed
The validity of the interest rate ceilings on rupee export credit, originally set in April 2008, has been extended from the earlier expiry date to April 30, 2009. The rates themselves remain unchanged: for specified categories, the ceiling is BPLR minus 2.5 percentage points. The directive is effective from November 1, 2008.
What it means for you
Banks must continue to offer export credit at capped rates for the extended period, which may compress margins if BPLR remains high. The extension provides stability for exporters but limits banks' flexibility to raise rates on these loans. For tenors beyond the specified periods, rates remain fully deregulated, allowing banks to set their own spreads.
What you must do
- Update your lending systems to apply the BPLR minus 2.5 percentage points ceiling for eligible export credit categories from November 1, 2008 to April 30, 2009.
- Ensure that for tenors beyond the prescribed limits (e.g., pre-shipment beyond 180 days), interest rates are set freely based on BPLR and spread guidelines.
- Communicate the extended validity to your export credit teams and treasury to avoid any compliance gaps.
- Monitor BPLR movements to assess margin impact on the capped export credit portfolio.
Who it affects
All scheduled commercial banks (excluding RRBs) 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 rupee export credit?
For specified categories like pre-shipment credit up to 180 days and post-shipment usance bills up to 90 days, the ceiling remains BPLR minus 2.5 percentage points per annum.
Does this circular change any interest rates?
No, it only extends the validity of the existing rates until April 30, 2009. The rates themselves are unchanged from the April 2008 circular.
Are banks allowed to charge below the ceiling?
Yes, the ceiling is a maximum rate. Banks are free to charge any rate below it.