Exporters get overseas credit at cheaper rates

MUMBAI: Exporters, who have been averse to borrowing overseas, may find some relief through lines of credit being extended by external credit agencies such as ADB and Japan Bank for International Cooperation (JBIC) at favourable interest rates.

Credit extended by these credit agencies in terms of foreign currency loans still works out cheaper by 4-5% compared with rupee-term loans since exporters have a natural hedge since their receivables are in foreign currency.

"In terms of quantum, bank loans are still far higher than amount of lending through ECA," said TCA Ranganathan, CMD, Export-Import Bank of India. "But ECA is available at tipping stone, for a longer duration and pricing is often competitive on a case-to-case basis," he added.

Export-Import Bank of India recently completed disbursements of loans worth 115 million provided by European Investment Bank in 2008.

Exim Bank also has a line of credit worth $500 million from Asian Development Bank, approved in April this year. JBIC has also offered a credit of 275 crore ($50 million) through ICICI Bank to finance imports of renewable energy products.

In June, the RBI allowed infrastructure and manufacturing firms to borrow overseas. But the major limitation still continues to be the availability of long-term debt from overseas.

"Corporates don't have to think in a straight jacket manner," said Melwyn Rego, executive director, IDBI Bank. "Global markets may not be conducive right now. But there are other windows of opportunity available to them, like lines of credit from external credit agencies, where they can avail of long-term credit, too."

The role of external credit agencies that provide finance to importers and exporters becomes pronounced when an economy is going through a slowdown in industrial activity.

Small and medium enterprises have been the worst hit in terms of access to cheaper credit both locally as well as foreign loans, in the face of moderated economic growth.

External credit agencies from countries such as Germany, China or the US can provide credit at a cheaper cost since their cost is linked to yields on AAA-rated sovereign paper.