Govt plans $10bn boost for Exim Bank.

NEW DELHI: The government is looking at adding financial muscle to the Export-Import Bank of India as generationequipment maker Bhel and infrastructure major IRCON fear losing the race for overseas projects worth Rs 50,000 crore to Chinese manufacturers , who are powering ahead on the back of cheap loans.

One option that has emerged as a favourite - and can be done immediately - is to ask the Reserve Bank of India (RBI) to extend a $10-billion line of credit to the Exim Bank at the same rate at which it deploys its reserves. The Exim Bank can then use this money to fund Bhel's project exports. RBI had during the 2008 economic slowdown, extended a $5 billion line of credit to ILFS for helping out public-private partnership (PPP) projects in the infrastructure .

Another option on the table is to infuse Rs 2,000 crore into the Exim Bank's capital base. But, this was seen as time-consuming since it would require changes in statute . As an alternative, a section in the government has suggested, is that the Centre could seek additional dividend from entities such as Bhel - which are seeking Exim backing for their exports - and infuse the funds into the Exim Bank instead of treating the money as revenue .

These are the steps that National Manufacturing Competitiveness Council discussed last fortnight after Bhel and the railways complained that they were losing overseas business because of inability to match the cheap financing facility offered by competitors.

About 70% of Bhel's project exports are executed on cash basis and the remaining 30% with Exim Bank support. The crucial problem, government sources said, is the Exim Bank's lending rate renders Bhel's financing costlier than competitors.

Similarly, IRCON is looking at railway and infrastructure projects worth $1 billion in Sri Lanka. But despite offering cheaper rates, it is facing competition on the financing front. The problem stems from Exim Bank's cost of capital , which works out to 2.5% over Libor for a 10-year period . Since the bank takes a margin of 2.4%, it can offer an interest rate of 4.5% over Libor against 2% by the Chinese or 3.5% by European lenders.

So, even if the 2% interest subvention was extended to engineering goods exports, it would not help Bhel's exports since the facility would be available for one year whereas power projects need longterm line of credit. Exim Bank is also being hamstrung by its capital base and borrowing cap.

The bank's entire capital base is subscribed by the government, while the Central bank has capped its borrowing at Rs 70,000 crore. As of March 2011, Exim bank has provided finance to 331 projects set up by 268 Indian ventures spread across 68 countries .

The sources said there was unanimity in the NMCC that unless the Exim Bank was able to lend at an attractive rate, Bhel or IRCON would not stand a chance against the Chinese or European players.

Source : timesofindia.indiatimes.com