Export Credit limits is
provided by the banks in India in the form of Pre-Shipment Credit and Post
Shipment credit. These financing lines are provided to boost the Exports of the
country. I had mentioned about these limits earlier (Pre-shipment
Credit / Post-Shipment
Credit). The limits are extended for a maximum period of upto 360 days
(preshipment) and 365 days (postshipment).
Although the interest
rate to be charged in these lines are not controlled/capped by RBI (which was
the case in the past i.e. upto June 30, 2010), schemes are intended to
facilitate financing to the Exporters at internationally comparable rates.
RBI provides facility
to banks for getting refinanced (upto 32 percent of the Outstanding) their Rupee
Export Credit Finance portfolio for a maximum period of 180 days, thereby the
loss (of margins) of deployment of funds [i.e upto 32 percent (reduced from 50
per cent to 32 per cent in June 2014)] by banks at subsidized interest rate (at
Repo Rate under LAF; The
World of Regulatory Rates) under these lines, is passed on to the RBI. This
way the banks funds (upto 32 per cent of the Export Credit portfolio) gets
unlocked, and banks can redeploy the same for generating better margins.
Although, as per RBI
guidelines, the Export Credit limits should be excluded for bifurcation of the
working capital limit into loan and cash credit components,
generally it is observed that Export Credit limits are sanctioned by banks as
part of umbrella Working Capital (WC) limits. Many times, the Export Credit limits
are set as inner limit or sub limit to Cash Credit (CC)/Fund Based (FB) WC limits.
The system of Cash
Credit limit requires the borrower to submit Stock & Receivable Statement
based on which Drawing Power is arrived. In case, the Export Credit limits are
sanctioned as inner limit to the CC limit, the Export Credit limit will also
fluctuate depending on the DP arrived based on Stock & Receivable Statement.
It may be observed that while the CC limit is based on MPBF (i.e under Eligible
WC Limit method) arrived taking into account the Current Assets, Current
Liabilities and NWC, the Export Credits limit needs to be arrived taking into
account Export Orders of the borrower. It may be mentioned that while
calculating the minimum required NWC, the Export Receivables are excluded from
the Current Assets i.e. benefit is provided to Exporters for facilitating the
100% Export Finance. The practice of associating the Export Credit limit with
the umbrella WC limit many a times leads to inappropriate assessment/management
for Export Credit limit if the intention is to promote Exports from the country
by providing Export Credit Finance.
RBI guidelines mention
that for creditworthy Exporters, banks should calculate the need based Export
Credit limit taking into account the anticipated Export turnover and track
record of the Exporter. Banks should adopt any of the methods, viz. Projected
Balance Sheet method, Turnover method or Cash Budget method, for assessment of
working capital requirements of their Exporter-customers, whichever is most
suitable and appropriate to their business operations.
In light of the above
and considering RBI’s thrust on extending the Export Credit Finance for
supporting the Exports of the country, there needs to be a Standard approved
mechanism with clarity for arriving/calculating the limits and DPs for Export
Credit Finance which may be followed by all the banks. This would standardize
the system of Export Credit Finance to the Exporters.
