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October 20, 2001
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RBI may signal cheaper export credit

BS Banking Bureau

Bankers are expecting the Reserve Bank of India to raise the export credit refinance limit for banks from 15 per cent to 25 per cent of their outstanding export credit in the bi-annual review of the monetary and credit policy to be announced on October 22.

This will help banks to extend export credit at a cheaper rate, as stipulated by the RBI last month. Alternatively, a cut in the banks' cash reserve ratio will also enable banks to compensate for the loss to be suffered on the export credit front.

The central bank had asked banks to reduce interest rates for export credit by 100 basis points across the board. On September 24, it had said the maximum rate that a bank should charge an exporter would be 2.5 percentage points below its prime lending rate for pre-shipment credit up to 180 days and for post-shipment credit up to 90 days. The new measures will remain effective till March 31, 2002.

"Though commercial banks are required to lend at a lower rate to exporters, the refinance rate remains the same, making the spread thinner. Moreover, deposit rates have not come down commensurably in line with gilts yields. The RBI may raise the export credit refinance limit to adequately compensate the banks," R Venkatramani, general manager, Union Bank of India, said.

However, if the bank rate is cut, the export credit refinance limit does not have to be raised.

Also on the cards are announcements on policy guidelines that seek to synchronise commercial banks' systems with the negotiated dealing system and the Clearing Corporation of India Ltd, apart from an announcement on stepping up credit to non-banking finance companies by banks.

Bankers also expect the RBI to lower the maturity of commercial papers from 15 days to seven days, announce compulsory demat of non-convertible debentures and fine tune the investment provisioning norms.

"There is a possibility that the RBI may ask banks to step up credit to corporate-promoted NBFCs that can give secured loans to their customers. This move could boost the sagging demand," said another banker.

The apex bank may allow corporates to issue CPs of seven days duration not only to help them to better manage their working capital but also to address the problem of credit offtake.

The central bank may even announce the specific date by which the second stage of converting the call money market to a purely inter-bank market should start.

In stage I, the RBI capped non-banks' exposure to the call money market at 85 per cent of their daily lending during the last financial year. In the second stage, the limit will further come down to 70 per cent.

The RBI may also move over to liquidity adjustment only through the liquidity adjustment facility, combined with back-stop facility at variable rates, and announce the end of some of the standing liquidity facilities available at the bank rate.

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