Increase bank credit to rupee-hit SME sector: FIEO
Ahead of RBI's credit policy later this month, Federation of Indian Export Organisations asks the central bank to provide relief to the rupee-hit small and medium sized exporters.
By PTI |
NEW DELHI: Ahead of Reserve Bank of India's credit policy later this month, Federation of Indian Export Organisations on Tuesday asked the central bank to provide relief to the rupee-hit small and medium sized exporters by increasing bank credit to them to about 15 per cent from the current 12 per cent.
According to RBI guidelines, banks need to earmark 12 per cent of their lendable resources to the export sector. However, the quantum of export credit disbursed by banks is on the decline, FIEO said in a statement.
"As per RBI data, it was 9.8 per cent of the total bank credit in March 2000 and has declined to 5.6 per cent in December 2006. The SME sector contributes about 20 per cent to the GDP, employs more than 40 per cent of the labour force and yet has limited access to bank finances," it said.
It said the unabated rupee appreciation had impacted the export growth of the SME sector, which contributes significantly to employment generation.
The apex body further said credit period for pre-shipment and post-shipment should be increased to 360 days from the current 180 days and 90 days respectively. While the rate of interest has been reduced by 0.75-1 per cent at 7 per cent, the credit cost continues to be higher than other countries.
Sectors like gems and jewellery, plantation crops such as tea, coffee and labour intensive sectors need to be provided the subvention as well, it added.
With the appreciating rupee, there is a need to reduce costs incurred in the production of the end product for export. However the payment of premium by the export sector only adds to the transaction costs and cost of credit.
"RBI may issue necessary directives to the banks to ensure that the same be borne by the banks itself, in the larger interests of export promotion," FIEO said.
According to RBI guidelines, banks need to earmark 12 per cent of their lendable resources to the export sector. However, the quantum of export credit disbursed by banks is on the decline, FIEO said in a statement.
"As per RBI data, it was 9.8 per cent of the total bank credit in March 2000 and has declined to 5.6 per cent in December 2006. The SME sector contributes about 20 per cent to the GDP, employs more than 40 per cent of the labour force and yet has limited access to bank finances," it said.
It said the unabated rupee appreciation had impacted the export growth of the SME sector, which contributes significantly to employment generation.
The apex body further said credit period for pre-shipment and post-shipment should be increased to 360 days from the current 180 days and 90 days respectively. While the rate of interest has been reduced by 0.75-1 per cent at 7 per cent, the credit cost continues to be higher than other countries.
Sectors like gems and jewellery, plantation crops such as tea, coffee and labour intensive sectors need to be provided the subvention as well, it added.
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With the appreciating rupee, there is a need to reduce costs incurred in the production of the end product for export. However the payment of premium by the export sector only adds to the transaction costs and cost of credit.
"RBI may issue necessary directives to the banks to ensure that the same be borne by the banks itself, in the larger interests of export promotion," FIEO said.
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