What changed
The Government of India extended a 2 percentage point interest subvention on pre- and post-shipment rupee export credit for specific employment-oriented sectors—handicrafts, carpets, handlooms, and SMEs—for the period April 1, 2010 to March 31, 2011. Banks must now charge interest not exceeding BPLR minus 4.5% (previously BPLR minus 2.5%) on such credit, with a floor of 7% per annum. The subvention applies to pre-shipment credit up to 270 days and post-shipment credit up to 180 days.
What it means for you
For banks, this directive reduces the maximum lending rate on eligible export credit by an additional 2 percentage points, compressing net interest margins on these loans. Lenders must adjust their systems to apply the lower ceiling and ensure the subvention benefit is fully passed to exporters, not retained. The 7% floor prevents rates from falling below the agriculture priority sector lending rate, protecting banks from excessive subsidy. Banks also need to set up quarterly claim processes with auditor certification to receive reimbursement from RBI.
What you must do
- Update lending rate ceilings for eligible export credit to BPLR minus 4.5% for the period April 1, 2010 to March 31, 2011.
- Ensure the 2% subvention benefit is fully passed on to exporters in handicrafts, carpets, handlooms, and SME sectors.
- Implement quarterly claim submission process with external auditor certification for subvention reimbursement.
- Verify that interest rates after subvention do not fall below 7% per annum.
- Train staff on the revised BPLR minus 4.5% ceiling and the 270/180-day limits for pre/post-shipment credit.
Who it affects
All scheduled commercial banks (excluding RRBs) offering rupee export credit, Exporters in handicrafts, carpets, handlooms, and SME sectors, Bank operations teams handling export credit and subvention claims
What is the new interest rate ceiling for eligible export credit?
Banks must charge interest not exceeding BPLR minus 4.5% per annum on pre-shipment credit up to 270 days and post-shipment credit up to 180 days for the specified sectors, effective April 1, 2010 to March 31, 2011.
How do banks claim the subvention from RBI?
Banks submit quarterly claims in the prescribed format to RBI's Department of Banking Operations and Development, accompanied by an external auditor's certificate certifying the claim amount. Subvention is calculated on the outstanding amount from disbursement to repayment or the specified credit period, whichever is earlier.
Which sectors are eligible for this interest subvention?
The subvention applies to rupee export credit for handicrafts, carpets, handlooms, and Small & Medium Enterprises (SMEs) as defined in the annex, with a micro enterprise investment limit of up to Rs. 25 lakh in plant and machinery.