Exim monopoly goes; new windows opened

NEW DELHI: The government has chosen State Bank of India (SBI), Bank of Baroda (BoB) and Indian Overseas Bank (IOB) for channelising government credit to other countries which runs into billions of dollars. Till now, Exim Bank had virtual monopoly in establishing credit facilities in the form of line of credit either to assist a certain country or boost Indian exports to the country.
According to decisions finalised by the finance ministry on the basis of proposals forwarded by the external affairs ministry, the rate of interest on any such line of credit (LoC) will be decided on the basis of four slabs, depending upon the economic health and indebtedness of the country concerned.
Till now, the rate of interest on such LoCs was decided virtually on a case-to-case basis. With the country’s foreign exchange reserves topping $100 billion, there is ample scope to boost Indian exports and also provide relief to select countries through such credit facilities, government officials said.
India has a large number of credit facilities established with various countries, especially those from the African, south American, CIS and Asian region. Nearly $700 million has been committed to African countries under the New Pact for African Development (NEPAD) and Team-9 initiatives. SBI, BoB and IOB will get to operate part of these credit facilities under the new policy, they added. The commerce department has also supported the policy, shortlisting project exports, healthcare, agriculture and infrastructure as the target areas which should get bulk of the credit support. The department of economic affairs (DEA) has given final shape to the strategy and informed the other departments concerned, they added.
The rate of interest applicable under the credit facility will differ from country to country and four categories have been created for this purpose. This comprises highly indebted poor countries (HIPC), low income high debt (LIHD), middle income high debt (MIHD) and middle income low debt (MILD) segments. Countries grouped the first category, HIPC, will get interest at a fixed rate of 1.75% for a period of 20 years, with a grace period of five years. This indicates a grant, in terms of interest saved, of 41.25% as per current interest rates. This grant element has been worked out on the basis of average interest rate in the global market which is around 6% and the current Libor level of 1.24%, the officials said.

For LIHD countries, the interest rate will be 0.5% above Libor for a period of 15 years, with a grace period of five years. The subsidy for this segment works out to 35.11% and officials feel that Indian industry should make use of this facility to boost exports. The same interest rate will apply to MIHD countries too but the term of loan will be 12 years with a grace period of four years and the grant in this case works out to 28.75%. For MILD countries too the interest rate has been fixed at 0.5% above Libor but the credit period would be eight to 10 years, with a grace period of two or three years. The subsidy in this case ranges from 17.11% to 24.56%, depending on the period of repayment. Apart from the first category, the interest rate in all other cases is floating, linked to Libor. By giving an edge to Indian industry, these credit facilities will help both sides. The win-win situation also creates goodwill for India in the beneficiary countries, the officials said.