What changed
The Government of India raised the interest subvention rate on pre- and post-shipment rupee export credit for certain employment-oriented sectors from 2% to 3%, effective August 1, 2013. Banks are directed to adjust the interest rate charged to exporters under the Base Rate system by the subvention amount, subject to a minimum floor rate of 7%. This supersedes the earlier 2% subvention rate announced for the period April 1, 2013 to March 31, 2014.
What it means for you
Banks must immediately reduce lending rates on eligible export credit by the additional 1% subvention, ensuring exporters pay no more than the Base Rate minus 3%, with a floor of 7%. This increases the subsidy cost for banks but supports export competitiveness. Lenders need to update their systems and communicate the revised rates to eligible exporters without delay.
What you must do
- Reduce interest rates on eligible rupee export credit by 3% subvention, with a floor rate of 7%, effective August 1, 2013.
- Ensure full pass-through of the subvention benefit to exporters in the specified employment-oriented sectors.
- Update internal systems and loan documentation to reflect the revised subvention rate and floor rate.
- Communicate the change to all branches handling export credit and to eligible exporter customers.
- Maintain records to demonstrate compliance with the directive and subvention pass-through.
Who it affects
All Scheduled Commercial Banks (excluding RRBs), Exim Bank, Exporters in employment-oriented sectors eligible for export credit subvention
Which sectors are eligible for this increased subvention?
The circular refers to 'existing sectors' eligible for export credit subvention as specified in earlier RBI circulars dated January 14, 2013 and May 24, 2013. These are employment-oriented export sectors, but the exact list is not detailed in this notification.
What is the floor rate for export credit after subvention?
The floor rate is 7%. Banks cannot reduce the interest rate below 7% even after applying the 3% subvention.
Does this apply to all export credit or only rupee-denominated credit?
This directive applies specifically to rupee export credit (pre- and post-shipment) for eligible sectors. Foreign currency export credit is not covered.