What changed
The circular extends the existing 2% interest subvention scheme for four export sectors (handicrafts, carpets, handlooms, SMEs) for the period April 1, 2010 to March 31, 2011. It clarifies that with the transition to the Base Rate System from July 1, 2010, banks can reduce the interest rate charged to these exporters by the subvention amount, even if that takes the rate below the Base Rate, provided the final rate does not fall below 7%.
What it means for you
Banks must now apply the Base Rate to all fresh/renewed rupee export credit from July 1, 2010, but can pass on the 2% subvention to eligible sectors, potentially pricing loans below Base Rate without violating guidelines. The 7% floor ensures a minimum interest cost, aligning with priority sector crop loan rates. This gives banks flexibility to offer competitive export credit while managing subvention claims.
What you must do
- Update your lending system to apply Base Rate to all rupee export credit from July 1, 2010, for fresh/renewed advances.
- For handicrafts, carpets, handlooms, and SME exporters, reduce the interest rate by the 2% subvention amount, ensuring the final rate is at least 7%.
- Ensure that loans priced below Base Rate due to subvention are not treated as violations of Base Rate guidelines.
- Maintain separate tracking of subvention-eligible export credit to claim reimbursement from the government.
- Communicate the revised interest rate structure to your export credit customers and branch staff.
Who it affects
All Scheduled Commercial Banks (excluding RRBs) offering rupee export credit, Exporters in handicrafts, carpets, handlooms, and SME sectors, Bank treasury and credit policy teams managing export finance
Can we charge an interest rate below Base Rate for export credit after July 1, 2010?
Yes, but only for the four eligible sectors (handicrafts, carpets, handlooms, SMEs) and only to the extent of the 2% subvention. The final rate must not fall below 7% per annum.
What is the floor rate for subvention-eligible export credit?
The interest rate after subvention cannot go below 7% per annum, which is the rate applicable to short-term crop loans under priority sector lending.
Does this circular apply to all exporters or only specific sectors?
The subvention and below-Base-Rate pricing apply only to handicrafts, carpets, handlooms, and SME exporters. For other exporters, the existing Base Rate guidelines (circular dated May 6, 2010) continue to apply.