What changed
RBI issued clarifications on subvention eligibility when banks charge variable BPLR-linked rates. The 2% or 4% subvention must be applied with a floor cap of 7% post-subvention, and the floor applies to all specified sectors from the original circular dates. Additional sectors announced on October 6, 2007, get subvention from that circular's issue date.
What it means for you
Banks must ensure that after applying the subvention, the interest rate does not fall below 7%, which is the agriculture sector rate. This floor applies to all eligible export sectors from July 13, 2007, and October 6, 2007, circulars. Banks need to verify past subvention claims and recast them if they didn't adhere to the floor, ensuring full benefit passes to exporters.
What you must do
- Verify all subvention claims submitted to RBI for the period April 1, 2007, to September 30, 2008, ensuring compliance with the 7% floor rate.
- Recast any claims where the post-subvention rate fell below 7% and confirm revised claims to RBI.
- Ensure full pass-through of the 2% or 4% subvention to eligible exporters, with no retention by the bank.
- Apply the subvention to additional sectors from the date of the October 6, 2007, circular, not earlier.
Who it affects
All scheduled commercial banks (excluding RRBs) offering rupee export credit, Exporters in specified sectors eligible for subvention, RBI's export credit monitoring division
What is the floor rate for export credit after subvention?
The interest rate after applying the 2% or 4% subvention must not fall below 7% per annum. This floor applies to all eligible sectors from the original circular dates.
Do banks need to recalculate past subvention claims?
Yes, banks must verify their claims and recast them if the post-subvention rate went below 7%. If no change is needed, banks should confirm the position to RBI.
From when is the subvention applicable for additional sectors announced on October 6, 2007?
The subvention for those additional sectors applies from the date of issue of the October 6, 2007, circular, not retrospectively.