Bank Lending To Exporters Drops.

Despite RBI directive, traders feel credit crunch
Net flow of credit to exporters as a proportion of banks’ total lending has seen a steep decline in past 10 years despite Reserve Bank of India (RBI) policy guidelines for maintaining it at double-digit levels.

Banks total lending to exports as a percentage of their overall lending has come down from 9.8 per cent in 2000 to 4.1 per cent in 2010. Consequently, small exporters are facing acute credit crunch and higher cost of credit despite nearly four-fold jump in absolute export credit in the past 10 years.

According to Subhash Mittal, chairman and managing director of Payal International, India has still one of the highest cost of credit. “Though dollar credit is cheaper than rupee credit, banks are hesitant to lend loans to SMEs who do not have a matching collateral. Even if they lend, it is mostly rupee credit which comes at 10 per cent vis-à-vis 5-6 per cent against dollar credit,” he said.

While the minimum export lending of 12 per cent of their total credit is mandatory for foreign banks operating in India, it is only a suggestion from RBI as far as domestic banks are concerned.

“Though there are circulars that mandate upon banks to give certain amount of credit without any security, in actual terms banks do not comply with these circulars. Hence, there is virtually no availability of funds for small-scale industries, including carpet weavers,” OP Garg, chairman of Carpet Export Promotion Council added.

Export credit is available to exporters both on pre shipment and post shipment basis. Centre had extended interest rate subvention of 2 per cent on pre and post shipment rupee export credit for handicrafts, carpets, handlooms and SMEs up to March 31, 2011 and later extended it for leather, textiles, jute and engineering goods. However, there has been no extension this time.

“Over the last five years there have been substantial increase in lending to automobile and real estate sector and though the credit to exporters have also gone up but it has failed to keep pace with total exports from India. Post the financial turmoil banks continue to be sceptical in funding exporters who are doing business with US and Europe,” Ajay Sahai, director general, Federation of Indian Exports Organisation said.

According to the Economic Survey 2010-11, export credit has gone up from Rs 39,118 crore in 1999-2000 to Rs 1,38,143 crore in 2009-10 and further to Rs 1,53,794 crore in nine months between April and December 2010. It is estimated that 30 per cent of this is from foreign banks while 70 per cent is from domestic banks.

Source : mydigitalfc.com