Reduction In ECR Limit Will Affect Exporters: FIEO | SupportBiz


Reduction In ECR Limit Will Affect Exporters: FIEO

The Reserve Bank of India (RBI), on Tuesday, reduced the availability of funds under the export credit refinance (ECR) window from 50 percent of export credit outstanding to 32 percent with immediate effect.

New Delhi: Commenting on the Bi-monthly Monitory Policy statement of the Reserve Bank of India issued on Tuesday, M Rafeeque Ahmed, President, Federation of Indian Export Organisations (FIEO) said that reduction in the Export Credit Re-Finance (ECR) from 50 percent to 32 percent will affect both the availability and cost of credit, which will be detrimental to competitiveness of Indian exports at a time when Global economy is gathering momentum with Global trade forecasted to grow by 4.7 percent in 2014.

Elaborating further Rafeeque said that banks would be reluctant to lend to the export sector, with the reduction in ECR, which is already facing liquidity crunch, as share of exports credit in net bank credit has come down drastically from close to 9 percent to 3.5 percent in last ten years.

The cost of credit is also likely to go up between 0.5 to 1 percent and it is not clear to what extent the special term Repo facility to 0.25 percent of net demand and time liquidity of the bank will offset this loss said Ahmed.

FIEO Chief said that FIEO is pushing to bring exports under priority sector lending and this move has definitely upset us. To compensate for the reduction in liquidity under the scheme, the central bank introduced a special term repo facility of 0.25 percent of net demand and time liabilities (NDTL), it added.

The ECR changes should improve access to liquidity from the RBI for the system as a whole without the procedural formalities related to documentary evidence, authorisation and verification associated with the ECR, the central bank said.