What changed
The validity of the interest rate ceiling on specified categories of pre-shipment and post-shipment rupee export credit, set at BPLR minus 2.5 percentage points, has been extended to June 30, 2010. Starting July 1, 2010, the Base Rate system will replace BPLR for all rupee export credit advances, meaning rates must be at or above the Base Rate.
What it means for you
Banks can continue offering export credit at rates capped at BPLR minus 2.5 percentage points for the specified categories until end-June 2010, providing stability for exporters. From July 1, 2010, the shift to Base Rate will require banks to set export credit rates at or above the Base Rate, potentially increasing borrowing costs for exporters if Base Rate is higher than the previous effective rate.
What you must do
- Continue applying the BPLR minus 2.5 percentage points ceiling on specified categories of pre-shipment and post-shipment rupee export credit until June 30, 2010.
- Prepare for the transition to the Base Rate system from July 1, 2010, ensuring all rupee export credit advances are priced at or above the Base Rate.
- Update internal systems and loan documentation to reflect the new Base Rate pricing for export credit from July 1, 2010.
Who it affects
All Scheduled Commercial Banks (excluding RRBs), Exporters availing rupee export credit, Bank treasury and credit policy teams
What is the interest rate ceiling for rupee export credit until June 30, 2010?
For specified categories including pre-shipment credit up to 270 days and post-shipment credit up to 180 days, the rate cannot exceed BPLR minus 2.5 percentage points. Banks can charge any rate below this ceiling.
What happens after June 30, 2010?
From July 1, 2010, the Base Rate system becomes effective. All rupee export credit advances, regardless of tenor, must be priced at or above the Base Rate.
Are there any categories of export credit not covered by the ceiling?
Yes, export credit beyond the specified tenors (e.g., pre-shipment over 270 days, post-shipment over 180 days) is deregulated, and banks can set rates freely, subject to BPLR and spread guidelines.