What changed
The validity of the interest rate ceilings on rupee export credit, previously set via circulars from October and November 2008, has been extended to October 31, 2009. The new directive takes effect from May 1, 2009, replacing the earlier expiry date. The applicable rates are detailed in the annex to the accompanying directive.
What it means for you
Banks must continue to cap rupee export credit rates at BPLR minus 2.5% for the specified categories and tenors until end-October 2009. This provides stability for exporters but limits banks' pricing flexibility on these loans. For tenors beyond the prescribed limits, banks retain full freedom to set rates based on BPLR and spread guidelines.
What you must do
- Update your lending systems to apply the BPLR minus 2.5% ceiling on all eligible pre-shipment and post-shipment export credit from May 1 to October 31, 2009.
- Ensure that for tenors beyond the specified limits (e.g., pre-shipment beyond 270 days), you follow deregulated pricing guidelines.
- Communicate the extended validity to your export credit teams and treasury to avoid any compliance gaps.
- Review your BPLR and spread policies to ensure consistency with the directive's note on ceiling rates.
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?
The ceiling remains BPLR minus 2.5% per annum for the specified categories (e.g., pre-shipment up to 270 days, post-shipment usance bills up to 180 days). This applies from May 1 to October 31, 2009.
Are banks allowed to charge lower than the ceiling rate?
Yes, the directive explicitly states that since these are ceiling rates, banks are free to charge any rate below the ceiling.
What happens for export credit tenors beyond the specified limits?
Interest rates for tenors beyond the prescribed limits (e.g., pre-shipment beyond 270 days) are deregulated. Banks can decide rates based on BPLR and spread guidelines.