MUMBAI, Oct 6: The Reserve Bank of India (RBI) is likely to cut export credit interest rates later this month in a half-yearly policy statement to counter a worrying deceleration in the country's export growth, bankers said on Monday.

"They could reduce the pre-shipment export credit to 12 per cent (from 13 per cent)," said Solomon Raj, managing director of IndusInd Bank, one of India's leading private banks.

"This would bring it in line with general interest rates."The Federation of Indian Export Organisations (Fieo) president Ramu Deora said high funding costs, along with poor infrastructure and an overvalued currency combined to deny Indian exporters a level playing field in the world market.

The commercial manager at a leading Madras-based export house said a cut in export credit was long overdue."Companies with good credit rating can now borrow at 15 per cent (a year) compared to 18 per cent a year ago, but pre-shipment export credit has been stuck at 13 percent."The gap between the pre-shipment export credit rate and banks' lowest prime lending rate has narrowed to about one percentage point from two to three percentage points in the last two years, bankers said.

A cut in pre-shipment rate is almost certain after the RBI reduced the interest rate on post-shipment rupee export credit by one percentage point to 11 per cent per annum earlier this month, bankers said.

"The ideal combination (pre-shipment and post-shipment credit rates) would be 11 and 10 per cent," said the commercial manager of the Madras-based export firm.

Paresh Sukthankar, head of credit at HDFC Bank said the RBI may think of resuming the practice of offering a lower interest rate on post-shipment credit beyond 90 days.The 11 per cent post-shipment rate is now applicable only for 90 days beyond which the exporter is charged the commercial lending rate. The average lending rate is around 15 percent.

The RBI announces its monetary and credit policy statement on October 21, and aside from lower rates on export credit bankers foresee a reduction in the key bank rate, currently standing at 10 per cent. The head of credit at a foreign bank said banks could offer exporters credit at a very competitive rate of 8.0 per cent annual interest if RBI allowed them to lend out of their EEFC (export earners' foreign currency) account.

Indian exporters are allowed to retain 85 per cent of their receipts in their name in EEFC accounts.But some bankers said cheaper funds will improve export margins, but will not translate to more exports."Cheaper money will not create more demand for Indian products abroad," the head of credit at a Bombay bank said.

RBI deputy governor Y Venugopal Reddy told a foreign exchange dealers meeting on August 15 that a deceleration in Indian export growth in 1996/97 had worried the central bank."The deceleration in export growth during 1996/97 has emerged an area of policy concern...," Reddy told the meeting.

The private Centre for Monitoring Indian Economy (CMIE) has forecast Indian export growth at 10 per cent in 1997/98 (April-March) compared with 4 per cent a year ago.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.