Banks should lend to MSME exporters at LIBOR plus rate: FIEO

New Delhi, Mar 25 (KNN) Batting for MSME exporters, apex body FIEO said that the banks could consider providing export credit in foreign currency at LIBOR plus rates to the MSME export sector as against a deregulated regime of export credit in foreign currency announced a couple of years back.

LIBOR is an interest rate at which banks can borrow funds, in marketable size, from other banks in the London interbank market.  It is also the rate upon which rates for less preferred borrowers are based.

“Net foreign exchange assets of banks have grown to 17.3 per cent and given that exports have shown a decline of 3.7 per cent in USD terms over a year, and rupee is again in a volatile mode, banks could consider providing export credit in foreign currency at LIBOR plus rates as against a deregulated regime of export credit in foreign currency announced a couple of years back,” said President of Federation of Indian Exporters Organisation (FIEO) Rafeeque Ahmed.

This would help the MSME export sector which is unable to borrow through ECB route easily, he added.

FIEO Chief said that providing foreign currency loans at competitive rates in a scenario of appreciating rupee/narrowing CAD due to clamp on gold/ and India‘s exclusion in respect of many important products from the European Union (EU)'s GSP benefits would imply that mineral products, textiles, motor vehicles, bicycles, chemicals etc, which originate from India, will no longer get preferential treatment attracting higher duties in EU.

“This would further impact exports even though markets in advanced countries are showing buoyancy in terms of consumption patterns/volume of world trade increasing by 0.6 per cent in January 2014,” FIEO said.

Ahmed said this while commenting on the forthcoming announcement of the monetary policy review on April-1 prior to the annual policy.  He stated that as the per the RBI update of March 21, WPI had settled at 4.7 per cent and CPI stood at 8.1 per cent, with credit to the commercial sector moderating at 14 per cent. 

RBI could consider a rate cut in the policy given that there is a upsurge in credit and a demand by banks to cut CRR to provide credit to industry.