Declining Bank Credit to Hurt Exporters; Issue to Figure in September 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 voyage time and delayed payment," FIEO Director General Ajay Sahai told PTI.

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 lending (PSL).

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 without export promotion being the vision, he said.

"There is a need to increase the rate of subvention to at least 4-5 per cent," he suggested.

"The subvention rates were reduced from 5 per cent to 3 per cent and from 3 per cent to 2 per cent in March 2022 due to drop-in interest rates. It is worthwhile to note that the Repo Rate in March 2022 was 4.4 per cent, which currently is 6.5 per cent.

"An increase in the Repo rate by over 2 per cent, with spread by the banks, has pushed the overall interest rates by close to 3 per cent. These rates are much above the pre-Covid rates. Therefore, to provide competitive interest rates, the interest subvention may be restored to 3 per cent and 5 per cent for MSME manufacturers," Kumar added.

The annual net subvention amount has been capped at Rs 10 crore per Importer-Exporter Code (IEC) in a given financial year. This cap applies to all disbursements made from April 1, 2023, onwards.

He said that this has caused problems for exporters, including some SMEs with impressive export turnover, and the denial of interest subvention beyond Rs 10 crore makes their exports uncompetitive.

Further, FIEO suggested that the IES (interest equalisation scheme) excludes from its purview those exporters who are availing of production-linked incentive (PLI) schemes, and this has affected some companies, which availed the PLI scheme to enter into exports.

It also flagged that even after generating a BRC (bank realisation certificate) from the DGFT (Directorate General of Foreign Trade) Module, exporters struggle to settle the outstanding entries in the EDPMS (Export Data Processing and Monitoring System).

"Some mechanism /linkage needs to be developed to automatically update EDPMS as soon as eBRCs are issued," Sahai said.

Mumbai-based exporter Sharad Kumar Saraf, chairman and founder of Technocraft, said that the global situation is uncertain due to ongoing wars and the Red Sea crisis.

"We are concerned about export growth in the coming months," Saraf said.

Exports during April-July this fiscal surged 4.15 per cent to USD 144.12 billion, and imports grew 7.57 per cent to USD 229.7 billion.

India is targeting USD 2 trillion worth of goods and services exports by 2030.