What changed
Previously, export credit limits were fixed in INR, and the foreign currency component fluctuated with exchange rates, causing notional excess utilization when the rupee weakened. Now, banks may compute overall export credit limits on an ongoing basis (e.g., monthly) and re-allocate the FC component accordingly. Alternatively, banks can denominate the FC component solely in foreign currency to shield exporters from INR volatility.
What it means for you
For banks, this provides flexibility to adjust export credit limits dynamically, reducing compliance headaches from revaluation-driven limit breaches. Exporters benefit from more stable access to funds, as limits won't shrink due to rupee depreciation. Banks must update their internal policies to adopt either the monthly re-computation or FC denomination approach.
What you must do
- Review and update internal lending policies to adopt monthly re-computation of export credit limits based on current assets, liabilities, and exchange rates.
- Alternatively, implement FC denomination for the foreign currency component of export credit, ensuring limits are monitored in FC and translated using FEDAI rates.
- Communicate the new options to relationship managers and credit teams handling export finance.
- Monitor compliance with the chosen approach and adjust systems for periodic revaluation or FC tracking.
Who it affects
Scheduled Commercial Banks, Exim Bank, Exporters availing PCFC and PSCFC, Bank credit and treasury teams
What triggered this RBI circular?
Exporters' organizations highlighted that rupee depreciation reduced the unavailed FC component of export credit and increased the INR value of availed FC credit, forcing part payments or reducing available limits.
How does the monthly re-computation option work?
Banks can compute overall export credit limits monthly based on current assets, liabilities, and exchange rates, then re-allocate the FC component per their policy, which may increase or decrease the INR equivalent of FC credit.
What is the benefit of denominating FC export credit in foreign currency?
It insulates exporters from rupee fluctuations, as the FC component is sanctioned, disbursed, and monitored in FC, with only translation in banks' books using ongoing exchange rates.