Declining bank credit to affect exporters; traders to flag issue during meeting with Piyush Goyal

The declining bank credit to exporters will hurt the sector, and traders will flag the issue prominently during their meeting with Commerce and Industry Minister Piyush Goyal on September 11. Exports grew by 15 per cent in the rupee terms between 2021-22 and 2023-24, the outstanding credit in March 2024 dropped by 5 per cent over the same month in 2022. Apex exporters body Federation of Indian Export Organisation (FIEO) has said the export credit growth is not keeping pace with rising exports of the country. FIEO Director General Ajay Sahai said ‘We have seen a decline in export credit between March 2022 and March 2024 despite the need for more credit for longer duration due to hike in prices of commodities, sharp spurt in freight (both sea and air) and the Red Sea crisis, leading to longer voyage time and delayed payment’.

According to FIEO, the value of export credit outstanding has come down to Rs 2,17,406 crore in the March 2024 quarter from Rs 2,27,452 crore in the same quarter last year. Sahai said ‘We will raise this issue during the meeting of the exporters community with the minister’, and added that given a consistent decline in credit to exporters during recent times, the RBI should consider prescribing a sub-target for export credit within the existing 40 per cent target for priority sector lending (PSL). He also said this suggestion is worth considering as despite exports being under PSL, the flow of credit has not improved. It was Rs 11,721 crore on June 28 this year against Rs 19,861 crore on July 1, 2022.

FIEO also asked for the availability of pre/post-shipment credit in foreign currency (PCFC) at a competitive price through IFSC (International Financial Services Centre) Banking Units (IBUs). It said ‘This is likely to contribute to the difference in financing cost between Indian exporters and their overseas competitors (typically Chinese and ASEAN exporters) and adversely impact the pricing power of Indian exporters. Enabling Pre-shipment financing in foreign currency for Indian exporters from IBUs (along with the existing activity of post-shipment credit from IBU) can significantly boost trade financing volumes’.

It said due to current geopolitical developments and China plus one policy of the multinational companies, Indian exporters are able to secure additional/new export orders from new or existing buyers. Fulfilment of such export orders requires additional working capital that is pre-shipment and post-shipment export credit. However, the credit risk assessment done by the exporters, banks may not be able to extend the required export credit. The nation's exports can reach $2 trillion by 2030 through the sufficient availability of the required export credit. India has a large access gap compared to advanced economies with respect to non-recourse export credit and collateral-free export credit.

Sahai suggested the government to popularise the gold card scheme for easy flow of credit to exporters. It was rolled out by the RBI for bona-fide exporters with a proven track record. Such exporters are eligible for in-principle limit sanction for three years with a provision for automatic renewal subject to fulfilment of the terms and conditions of the sanction. Further, FIEO suggested that the IES (interest equalisation scheme) excludes from its purview those exporters who are availing of production-linked incentive (PLI) schemes, and this has affected some companies, which availed the PLI scheme to enter into exports. It also flagged that even after generating a BRC (bank realisation certificate) from the DGFT (Directorate General of Foreign Trade) Module, exporters struggle to settle the outstanding entries in the EDPMS (Export Data Processing and Monitoring System).