Mumbai, Feb. 19 As part of the rollback of the accommodative policy, the Reserve Bank of India has reduced the ceiling rate on export credit by banks to LIBOR plus 200 basis points from LIBOR plus 350 basis points. The revision in the rates of interest would be applicable only to fresh advances, the RBI said in a circular.
According to bankers, the move will make it difficult for banks to raise foreign currency funds. It will now be difficult for banks to lend foreign currency loans as they will not be able to raise funds at a competitive rate, said a senior treasury official with a public sector bank. The move is also likely to impact the margins of banks.
“We raise money at LIBOR plus 90-95 basis points, to which we add our costs. When the ceiling was LIBOR+350, our margins were around 200 basis points. Now, with the reduction in the ceiling, the margin will come down to 50 basis points,” the official said.
Source : Business Line