Export Credit in Foreign Currency: New Benchmark Rate Flexibility

What changed

Previously, banks were required to use LIBOR/EURO LIBOR/EURIBOR as benchmark rates for extending Pre-shipment Credit in Foreign Currency (PCFC). Now, RBI has allowed banks to adopt any other widely accepted Alternative Reference Rate in the relevant currency, as per the circular dated August 6, 2021.

What it means for you

Banks gain flexibility to choose alternative benchmarks like SOFR or SONIA for PCFC, reducing reliance on LIBOR which is being phased out. This ensures continuity in export credit operations without disruption, though banks must ensure the chosen rate is widely accepted and compliant with other existing guidelines.

What banks were required to do at the time

• Review your current PCFC loan agreements and update benchmark rate clauses to include alternative reference rates.
• Train treasury and credit teams on new alternative reference rates (e.g., SOFR, SONIA) for foreign currency export credit.
• Communicate with export clients about the change in benchmark rates and any impact on loan pricing.
• Ensure all other instructions regarding export credit remain unchanged and are followed.

Who it affects

Scheduled Commercial Banks (excluding RRBs), Primary (Urban) Co-operative Banks with AD Category-I license, Small Finance Banks