RBI proposes free interest rates of export finance

RBI proposes free interest rates of export finance

As part of a plan for implementation of the base rate system, the Reserve Bank of India (RBI) today said it would free interest rates on certain segments of export finance.

Come July, banks will be able to decide the lending rate on pre-shipment rupee credit up to 270 days and post-shipment rupee export credit up to 180 days. These could be linked tothe base rate.

Exporters may have to shell out more, as banks see their base rate settling around 8-9 per cent. On top of the base rate, lenders will also levy a premium. At present, the benchmark prime lending rate (BPLR) ranges between 11.75 per cent and 15.75 per cent for different banks. At present, RBI has mandated banks to provide export finance on these loan tenures at 250 bps below BPLR.

Once the base rate mechanism kicks in, banks would be barred from lending below the new benchmark (base rate), with small-ticket loans under the differential rate of interest (DRI) scheme kept out of the ambit of the final guidelines. Besides small-ticket DRI loans, those offered to employees and against deposits would also be exempted from the ban on the sub-base rate lending.

Under the base rate mechanism, RBI has agreed to free lending rates for all loans, including those extended to farmers. Banks can, however, provide subsidised loans, provided the government offers budgetary support.

The ceiling on lending rates in segments such as export finance and other priority sector loans were often cited as the reason for sub-BPLR lending, which was seen as non-transparent. At present, almost 75 per cent of the lending is below PLR.