RBI raises interest ceiling on exporters' forex loans

06 February 2009

The Reserve Bank of India (RBI) has raised the interest rate ceiling at which banks can raise export credit in the global market, in a  bid to give relief to exporters who find it difficult to access foreign currency loans.

Banks can now raise export credit in foreign currency at 350 basis points above the the London Interbank Offered Rate (LIBOR) against 100 basis points earlier.

''It has, therefore, been decided, in consultation with the Government of India, to raise the ceiling rate on export credit in foreign currency to LIBOR + 350 basis points with immediate effect subject to the condition that the banks will not levy any other charges, i.e., service charge, management charge, etc. except for recovery towards out-of-pocket expenses incurred,'' RBI said in a release.

Overseas credit costs have gone up substantially in recent times in the backdrop of the global financial crunch. Banks, which used to lend exporters at LIBOR plus 100 points before the financial market meltdown, is now charging interest rates 200-250 bps above LIBOR.

The RBI has also asked banks not to levy any charges like service tax on the credit.

''Similar changes may be effected in interest rates in cases where Euro LIBOR/ Euribor has been used as the benchmark. Correspondingly, the ceiling interest rate on the lines of credit with overseas banks has also been increased from 6 months LIBOR/ Euro LIBOR/ Euribor + 75 basis points to six months LIBOR/ Euo LIBOR/ Euribor + 150 basis points with immediate effect,'' it added.
 
In view of the continuing uncertain credit conditions globally, the Reserve Bank also extended the forex swap facility for public sector banks from the 30 June  2009 to 31 March 2010.