Export credit enhancement unlikely to ease liquidity: Experts

MUMBAI: Contrary to the Reserve Bank's claim that increasing the export credit refinance (ECR) limit to 50 per cent from 15 per cent will infuse more funds into the system to the tune of over Rs 30,000 crore, experts believe that the move will have little impact on the liquidity scenario.

However, the measure is likely to bring down the widening trade deficit, which will help in bridging the current account deficit by encouraging exports, various industry experts said.

"This step is not a generic step. This is limited to exporters, which will witness infusion of up to Rs 30,000 crore of additional liquidity into the system," Crisil chief economist D K Joshi told PTI here.

The RBI today enhanced the export credit refinance (ECR) limit to 50 per cent of the outstanding rupee export credit for banks, from 15 per cent, a move that will inject Rs 30,000 crore into the system.

"To further augment liquidity and encourage banks to increase credit flow to the export sector, the RBI has increased the limit of export credit finance from 15 per cent of outstanding export credit of banks to 50 per cent, which will potentially release additional liquidity of over Rs 30,000 crore, equivalent to 50 basis points (0.5%) reduction in the cash reserve ratio or CRR," the central bank said in its mid-quarter policy review this morning.

Currently, banks are borrowing around Rs 90,000 crore through the LAF corridor daily, which is above the RBI's comfort level of Rs 60,000 crore plus or minus.

Joshi, however, pointed out that this step will help become domestic exporters more competitive in the global markets.

The banks were expecting RBI to reduce the CRR by 0.25 per cent to bring down cost of funds, which will prompt them to reduce lending rates. However, Rs 30,000 crore additional liquidity, which is equivalent to 50 bps cut in CRR, will not lower the cost of funds for banks, another economist said.