The Reserve Bank of India (RBI) has raised the interest rate ceiling at which banks can raise export credit in the global market, in a bid to give relief to exporters who find it difficult to access foreign currency loans.
Banks can now raise export credit in foreign currency at 350 basis points above the the London Interbank Offered Rate (LIBOR) against 100 basis points earlier.
''It has, therefore, been decided, in consultation with the Government of India, to raise the ceiling rate on export credit in foreign currency to LIBOR + 350 basis points with immediate effect subject to the condition that the banks will not levy any other charges, i.e., service charge, management charge, etc. except for recovery towards out-of-pocket expenses incurred,'' RBI said in a release.
Overseas credit costs have gone up substantially in recent times in the backdrop of the global financial crunch. Banks, which used to lend exporters at LIBOR plus 100 points before the financial market meltdown, is now charging interest rates 200-250 bps above LIBOR.
The RBI has also asked banks not to levy any charges like service tax on the credit.
''Similar changes may be effected in interest rates in cases where Euro LIBOR/ Euribor has been used as the benchmark. Correspondingly, the ceiling interest rate on the lines of credit with overseas banks has also been increased from 6 months LIBOR/ Euro LIBOR/ Euribor + 75 basis points to six months LIBOR/ Euo LIBOR/ Euribor + 150 basis points with immediate effect,'' it added.
In view of the continuing uncertain credit conditions globally, the Reserve Bank also extended the forex swap facility for public sector banks from the 30 June 2009 to 31 March 2010.
In November 2008, the RBI extended a forex swap facility for tenors up to three months to Indian public and private sector banks having overseas operations in order to provide them flexibility in managing their short-term funding requirements at their overseas offices.
To check irregularities and frauds, which have taken place under multiple banking arrangements, the RBI, in consultation with the Indian Banks' Association (IBA), has evolved a framework for sharing of information amongst banks which have lent to borrowers banking with more than one bank.
The information sharing framework includes, among others, position in derivatives and unhedged forex exposure of borrowers. The framework was put into public domain on 19 September 2008.
Further, banks were allowed to apply special regulatory treatment for accounts which were standard on 1 September 2008 and taken up for restructuring up to 31 January 2009 even if these had turned non-performing during this period.
All these one-time measures would now be available for restructuring packages implemented till 30 June 2009 since banks have not been able to adhere to the 31 January 2009 deadline, RBI said.