Finance Ministry seeks priority lending for exports.

NEW DELHI: In a push to make credit easily available to exporters, the finance ministry has asked the RBI to consider if export credit could be included in priority sector lending of banks. AT present, banks have to set aside 40% of their net credit for lending to priority sectors, including agriculture, micro and small enterprises and advances to other weaker sections.

"It is being discussed with the RBI. We are hopeful that the central bank will take some positive decision which will help to rein in the trade deficit," said a finance ministry official who did not want to be identified. Export promotion has so far been the preserve of the commerce ministry, but the finance ministry seems to have realised that current account deficit cannot be curbed unless exports get a backing from all stakeholders.

India notched up a trade deficit (exports less imports) of $191.6 billion in 2012-13 as exports fell 1.8% while imports grew 0.44%, burdening the country with the highest ever current account deficit (CAD). The Indian rupee has fallen over 17% since April over concerns how this deficit will be funded amidst possibility of US Federal Reserve rolling back its bond purchases that have flooded the world with cheap liquidity.

The final call will be taken by the RBI on whether to include export credit in the existing 40% priority sector lending or the central bank would like to create another category, the official said. In his 10-point programme to revive the economy, P Chidambaram had listed promotion of manufacturing sector and exports as the most urgent steps to boost faltering growth. "We are in discussion with all stake holders, including the commerce ministry," said the finance ministry official. A committee set up by the RBI had in its report presented in May also suggested that export credit to be included under the priority sector lending for all commercial banks for a period of 3 to 5 years subject to periodic review.

It had recommended that within the overall allocation for priority sector, the export credit could be capped at 8% of the aggregate net bank credit.

Bankers, however, feel that unless exports get a boost through other incentives, mandatory lending by banks will not make sense. "Making finance available is just one part of the solution. There has to be an overall effort to fund the business growth of exporters otherwise most banks will miss their targets as is the case with some foreign banks," said an executive director with a state-run bank.

Export credit comes under priority sector lending for foreign banks with less than 20 branches. As per the RBI report, 10 and five foreign banks in March 2011 and 2012, respectively, failed to achieve 12% target in respect of export credit.

Source : timesofindia.indiatimes.com