What changed
The refinance limit for scheduled banks (excluding RRBs) was increased from 15% to 50% of eligible outstanding export credit, effective the fortnight beginning June 30, 2012. This master circular consolidates all prior instructions up to June 30, 2012, replacing the July 1, 2011 circular.
What it means for you
Banks can now access significantly more liquidity from RBI against their export credit portfolio, which should encourage higher lending to exporters. The lower cost (at repo rate) and no margin requirement make this an attractive funding source. Banks need to update their internal limits and reporting systems to reflect the new 50% threshold.
What you must do
- Update internal refinance limit calculations to 50% of eligible outstanding export credit as at end of second preceding fortnight.
- Ensure reporting formats (Annex III) are correctly used for claiming refinance.
- Review documentation: execute stamped agreement (Form DAD 297) and Demand Promissory Note as per Annex II.
- Monitor ECR utilization to avoid penalties for irregular availment (e.g., exceeding limit, wrong reporting, non-repayment within 180 days).
- Train staff on the revised limit and interest calculation (daily balance, monthly rests at repo rate).
Who it affects
All scheduled banks (excluding RRBs) that are authorized dealers in foreign exchange and extend export credit, Export credit departments and treasury teams of these banks, Borrowers in the export sector (indirectly, through improved credit flow)
What is the new refinance limit and when does it apply?
The limit is 50% of eligible outstanding export credit as at the end of the second preceding fortnight, increased from 15%. It is effective from the fortnight beginning June 30, 2012.
What is the interest rate and repayment period for ECR?
ECR is available at the Repo Rate under LAF. Interest is calculated on daily balances with monthly rests. The facility is repayable on demand or within 180 days, whichever is earlier.
What are the penalties for irregular availment?
Penal interest as decided by RBI will be charged for irregular availment, including exceeding the limit, wrong calculation/reporting, non-repayment within 180 days, or delay in reporting excess utilization.