RBI's thumbs-down for exporters

The Reserve Bank of India has apparently turned down a long- pending demand of exporters, to bring the sector under priority lending norms for both Indian and foreign banks.

As a result, it is unlikely that this would be taken up during the monetary policy review on Wednesday.

A committee on this issue was set up last year, headed by G Padmanabhan, executive director, RBI, which gave its report in May with recommendations.

In addition to inclusion of exports in priority sector lending, the panel recommended an extension of the swap facility, setting up a nodal agency for borrowing in foreign currency from abroad on a pool basis and further lending to these companies in India at competitive rates.

“RBI found these recommendations too lenient towards the exporting community and have decided to scrap it,” a senior commerce department official told Business Standard.

The official said the central bank was now considering another committee to ‘analyse and examine’ demands made by other sectors to also come into the priority lending bracket. RBI is concerned that sectors deserving priority will lose attention if a large number of segments are brought into the category.

The commerce and industry ministry has taken up the matter with RBI Governor Raghuram Rajan.

The latter, it seems, has expressed apprehension that such a move could affect the flow of priority sector lending to other such sectors already under its ambit, such as agriculture, micro and small enterprises, and advances to weaker sections.

Exporters have also taken up the matter with the finance ministry.

Recently, Federation of Indian Export Organisations president Rafeeque Ahmed took up the matter with Finance Minister

P Chidambaram. “We have told them of the 40 per cent (credit) allocation to the priority sector, keep five per cent separately for exports,” said Ajay Sahai, director general of FIEO.

It is not guaranteed that exporters would, under priority sector lending, get a lesser interest rate than now but it will make lending mandatory for banks.

In other words, banks will have to give a certain percentage to the sector, Sahai added.

Export credit as a percentage of total exports was down to 11.36 per cent at Rs 185,803 crore (Rs 1,858.03 billion) in 2012-2013 from 19.82 per cent in 2007-2008 at Rs 129,983 crore (Rs 1,299.83 billion).

Similarly, export credit as a percentage of net bank credit fell to 3.7 per cent in 2012-13 from 9.8 per cent in 1999-2000, according to official statistics.

Currently, export credit interest is between nine and 11 per cent. State Bank of India, Canara Bank, Indian Overseas Bank and Bank of Baroda are among the top lenders.

India-based banks and foreign banks with at least 20 branches in this country have to lend at least 40 per cent of their total net credit to priority sectors.

These currently include agriculture, micro and small enterprises, and advances to weaker sections.

For foreign banks with less than 20 branches, priority sector lending has to be 32 per cent of total net advances.

At present, export credit is not a part of mandatory priority sector lending for domestic commercial banks and foreign banks with over 20 branches.

Merchandise exports rose 6.3 per cent to $204 billion over the first eight months of this financial year.

The government has set a target of $325 bn of exports, against $300 bn in 2012-13.