Commerce Ministry for export credit at 7.5-8% in base rate regime .

New Delhi, June 17 The Commerce Ministry wants export credit to be given by banks at 7.5-8 per cent in the new base rate regime starting July 1. Anything higher would be injurious to exports, it believes.

Exporters now get credit at around 9-10.5 per cent, which is around 2.5 percentage points below the Prime Lending Rate of each bank.

However, bankers said the RBI has allowed them to charge exporters any rate above the base rate (which will be the minimum bank credit rate) that replaces PLR. Bankers said only if the Government reimburses them through interest subsidy, they can lend at rates lower than their base rate to exporters.

Referring to reports that State Bank of India's base rate would be 7.5-8.5 per cent, the Commerce Secretary, Dr Rahul Khullar, told Business Line that, “If the base rate is 7.5-8 per cent, it is a fair rate, provided that base rate (of 7.5-8 per cent) is applied and given to me as an exporter.”

However, he said if the banks fix the base rate at 10 per cent and charge export credit at that rate or more, it would put the exporters in trouble. “Then I will agitate,” Dr Khullar said. Exporters have not recovered fully from the global slowdown. Euro zone debt crisis also worries them as Europe accounts for a fifth of India's total exports.

Mr Ajay Sahai, Director-General, Federation of Indian Export Organisations, said, “When the rates were concessional, it was a signal that exports is a priority area. But after base rate, that message may be lost.

“We have written to the Finance and Commerce Ministers that after the base rate, the cost of credit might increase and affect our competitiveness. Export credit in South-East Asia is around 5 per cent. China gives concessional credit to exporters.”

Dr Khullar, however, said, , “Interest subsidy and export credit are under a grey cloud of indecision and uncertainty. I can't respond till the base rate regime is rolled out and there is greater clarity on the credit system's functioning. If exporters are not covered, then we will see.” He said the Commerce Ministry has sought interest subvention for all struggling sectors and affordable export credit.

Mr G.S. Vedi, Chairman and Managing Director, Punjab & Sind Bank, said, “We've been told that we can lend at whatever rates we feel like to export sector above the base rate. If tomorrow exporters make a hue and cry and approach the Government, there might be a fresh directive. My losses (for lending below base rate to exporters) should be made up by interest subvention. If I don't get that, why should I lose money?”

Source : Business Line