Mumbai, April 19: The Reserve Bank of India is likely to restore the export credit refinance limit of banks to 100 per cent of export advances in the forthcoming credit policy, bankers said. The refinance limit was cut on January 16 to 50 per cent of the increase in outstanding export credit over the level of such credit as on February 16, 1996.This move will boost export credit which had taken a severe beating after the January 16 decision. Export refinance rate will thus return to being one of the key benchmark rates determining call market rates. Currently, it is the RBI's fixed-rate repos which create the floor below which call rates do not fall.
Top-level bankers said the move to restore 100 per cent export credit refinance will complement the measures announced last week to amend the 1997-2002 Exim Policy by the new government. The policy seeks to ensure 20 per cent annual growth in exports in dollar terms.
"Export credit remained extremely sluggish in the last quarter of 1997-98. After therestoration of the refinance limit to 100 per cent, hopefully export credit should take off", a banker in a public sector bank said. This is likely to lead to higher credit offtake in the current financial year.
"With an exim policy that is so exporter friendly, credit will take off only if the limit is restored to 100 per cent. Otherwise it will be difficult to sustain such a high level of export growth without the rupee being allowed to weaken considerably", the source said. Currently banks can avail themselves of only 50 per cent of their export credit refinance limits at the bank rate. With the restoration of the 100 per cent limit, liquidity will indirectly come into the system. Banks can tap the export refinance window whenever call rates shoot beyond the bank rate. "The restoration of the limit will create a resistance level for call rates. Call rates will not breach the 10 per cent mark (the current bank rate) as banks can then avail themselves of export refinance", a senior executive in a publicsector bank said.
With the fixed rate repo widely expected to go, the export refinance rate will emerge as the new benchmark in the inter-bank money market. Currently, the fixed rate repo, ruling at 7 per cent, provides the benchmark. The RBI slashed export refinance limits in January primarily to tighten liquidity in the wake of the speculative attack on the rupee. The rupee fell to an all time low of 40.45 against the dollar. The RBI hiked the rate at which refinance is available apart from slashing the limit.y
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
