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Declining bank credit to hurt exporters; issue to figure in Sep 11 meeting with Goyal.


Date: 09-09-2024
Subject: Declining bank credit to hurt exporters; issue to figure in Sep 11 meeting with Goyal
The declining bank credit to exporters will hurt the sector, and traders will flag the issue prominently during their meeting with Commerce and Industry Minister Piyush Goyal on September 11, an industry official said on Sunday. While exports grew by 15 per cent in the rupee terms between 2021-22 and 2023-24, the outstanding credit in March 2024 dropped by 5 per cent over the same month in 2022, according to exporters.

Apex exporters body Federation of Indian Export Organisation (FIEO) said the export credit growth is not keeping pace with rising exports of the country.

"We have seen a decline in export credit between March 2022 and March 2024 despite the need for more credit for longer duration due to hike in prices of commodities, sharp spurt in freight (both sea and air) and the Red Sea crisis, leading to longer voya ..

According to FIEO, the value of export credit outstanding has come down to Rs 2,17,406 crore in the March 2024 quarter from Rs 2,27,452 crore in the same quarter last year.

"We will raise this issue during the meeting of the exporters community with the minister," Sahai said, adding that given a consistent decline in credit to exporters during recent times, the RBI should consider prescribing a sub-target for export credit within the existing 40 per cent target for priority sector lendin ..

This suggestion is worth considering as despite exports being under PSL, the flow of credit has not improved. It was Rs 11,721 crore on June 28 this year against Rs 19,861 crore on July 1, 2022, he added.

FIEO also asked for the availability of pre/post-shipment credit in foreign currency (PCFC) at a competitive price through IFSC (International Financial Services Centre) Banking Units (IBUs).

"This is likely to contribute to the difference in financing cost between Indian exporters and their overseas competitors (typically Chinese and ASEAN exporters) and adversely impact the pricing power of Indian exporters. Enabling Pre-shipment financing in foreign currency for Indian exporters from IBUs (along with the existing activity of post-shipment credit from IBU) can significantly boost trade financing volumes," Sahai said.

Due to current geopolitical developments and China plus one policy of the multinational companies, Indian exporters are able to secure additional/new export orders from new or existing buyers, he added.

Fulfilment of such export orders requires additional working capital that is pre-shipment and post-shipment export credit.

"However, the credit risk assessment done by the exporters, banks may not be able to extend the required export credit. Our nation's exports can reach USD 2 trillion by 2030 through the sufficient availability of the required export credit," Sahai said.

India has a large access gap compared to advanced economies with respect to non-recourse export credit and collateral-free export credit.


ECGC (Export Credit Guarantee Corporation) can play an important role by extending strong insurance cover to banks, which should become a substitute for collateral and other credit risk assessment-related aspects, an exporter said, adding the corporation is already extending insurance cover to mostly public sector banks.

"Our request is to increase the coverage to 90 per cent for all sectors, with stipulations on a case-to-case basis," the exporter added.

Further, Sahai suggested the government to popularise the gold card scheme for easy flow of credit to exporters.

It was rolled out by the RBI for bona-fide exporters with a proven track record. Such exporters are eligible for in-principle limit sanction for three years with a provision for automatic renewal subject to fulfilment of the terms and conditions of the sanction.

"Unfortunately, banks are not encouraging exporters to avail the Gold Card. Banks may be asked to automatically issue gold cards to all eligible customers to extend the benefits flowing from such instruments," he said.

FIEO president Ashwani Kumar said the government should address issues related to the interest equalisation scheme.

Each bank has framed its own rule and applies its own logic to exercise discretion in giving interest equalisation benefit, Kumar said, adding that while the RBI requires banks not to insist on security for export finance, most banks insist on the same.

The purpose of interest subvention, as envisaged by the government, is to reduce the cost of interest on the rupee borrowing for export finance, thus encouraging exports, but the banks are interpreting the policies as convenient to them w ..

Source Name : Economic Times
 

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