RBI eases norms for export credit flow

It will potentially release additionally liquidity of over Rs 300 billion Rs 30,000 crore: RBI

While relaxing norms to enhance credit flow to exporters,the Reserve Bank on Monday said the sliding rupee will benefit exports that have been hit by demand slowdown in developed nations.

RBI increased the limit of the Export Credit Refinance ECR facility for banks from 15 per cent of the outstanding export credit eligible for refinance to 50 per cent.

8220;It will potentially release additionally liquidity of over Rs 300 billion Rs 30,000 crore,equivalent to about 50 basis points reduction in the CRR,8221; RBI said.

The RBI decision comes within days of the government announcing a slew of measures to boost exports that have been hit by global demand slowdown.

On the weakening of the rupee against the US dollar,the central bank said the domestic currency8217;s depreciation over the past several months has helped domestic producers gain in competitiveness over foreign producers.

8220;Over time,this should result in expanding exports and contracting imports,thus acting as a demand stimulus,8221; RBI said in its mid-quarterly review of the monetary policy.

The rupee has depreciated over 20 per cent against the US dollar in the past one year.

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Exports,however,have been hit due to demand slowdown in the developed markets and contracted by 4.17 per cent in May.

The rate of interest charged on the ECR facility will continue to be the prevailing repo rate under the Liquidity Adjustment Facility LAF,which is 8 per cent.

The new limit will be effective from June 30.

M Rafeeque Ahmed,president of Federation of Indian Export Organisations FIEO said that 8220;increase in refinance would provide necessary liquidity to MSME export sector8221;.

He said the move would help banks to replenish the funds earmarked for the MSME export sector and ensure that funds are easily available to the sector in adequate measure.

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Apparel Export Promotion Council complimented RBI Governor D Subbarao for enhancing the eligible limit of the ECR facility to 50 per cent,up from 15 per cent.

However,AEPC Chairman A Sakthivel called for lowering interest rates,saying it would enable the industry to perform better.

8220;High interest rates are hurting the industry very much and that would be a step towards achieving the export target,8221; he added.

Federation of Indian Export Organisations said the move to increase the ECR facility limit will help boost the country8217;s exports.

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8220;There will be additional liquidity for exporters which is a need of the hour as share of export credit in total credit which should be 12 per cent has come down to close to 4.1 per cent,8221; said FIEO Director General Ajay Sahai.