RBI hikes interest ceiling on foreign currency export credit

The Reserve Bank of India (RBI) today announced an increase in the ceiling rate on export credit in foreign currency by banks to LIBOR plus 350 basis points from the present ceiling rate of LIBOR plus 200 basis points, with immediate effect.

The hike, effected to address the tight liquidity conditions and widening of credit spreads due to recent developments in the international financial markets, will be effective till 31 March 2012, RBI said in a release.

RBI has also asked banks not to levy any additional charges, viz, service charge, management charge etc except for recovery towards out of pocket expenses incurred.

Similar changes may be effected in interest rates in cases where Euro LIBOR / Eurilibor has been used as the benchmark, RBI said.

The revision in the rates of interest would be applicable only to fresh advances and are subject to review after 31 March 2012, RBI said.

Further, RBI has also increased the ceiling interest rate on the lines of credit with overseas banks from six months LIBOR / Euro LIBOR / Eurilibor plus 100 basis points to six months LIBOR / Euro LIBOR / Eurilibor plus 250 basis points with immediate effect, till 31 March 2012 and is subject to review thereafter.