What changed
The ceiling rate on export credit in foreign currency was increased from LIBOR plus 100 basis points to LIBOR plus 350 basis points. For lines of credit with overseas banks, the ceiling was raised from six-month LIBOR/EURO LIBOR/EURIBOR plus 75 basis points to plus 150 basis points. These changes apply only to fresh advances and took immediate effect.
What it means for you
Banks can now charge higher interest on foreign currency export loans, which may improve margins but could increase borrowing costs for exporters. The explicit ban on additional charges like service or management fees ensures transparency. This move likely aims to align with global rate conditions and support bank profitability.
What you must do
- Update loan sanction systems to apply the new ceiling of LIBOR + 350 bps for fresh foreign currency export credit.
- Ensure no extra charges (service, management, etc.) are levied beyond out-of-pocket expenses on these loans.
- Adjust pricing for lines of credit with overseas banks to the new ceiling of six-month LIBOR/EURO LIBOR/EURIBOR + 150 bps.
- Communicate the revised rates to your export credit teams and update relevant master circulars and annexures.
Who it affects
Commercial banks offering foreign currency export credit, Exporters availing foreign currency loans, Banks with lines of credit from overseas banks
Does this revision apply to existing export credit advances?
No, the revision in interest rates is applicable only to fresh advances, not existing loans.
Can banks charge any additional fees on these loans?
No, banks cannot levy service charge, management charge, or similar fees. Only recovery of out-of-pocket expenses is permitted.
What benchmark rates are affected by this change?
The change applies to LIBOR, EURO LIBOR, and EURIBOR benchmarks. For lines of credit, the six-month versions of these benchmarks are used.