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Amiti Sen Responding to the crisis faced by exporters due to a sharp dip in credit flow to the sector, the Finance Ministry has urged public sector banks (PSBs) to loosen their purse strings.
“The liquidity crunch being faced by small exporters is a matter of concern for the government. The issue was discussed by the Commerce Ministry with the Finance Ministry, which will hold a meeting with public sector banks to direct them to lend more to exporters,” a government official told BusinessLine .
One of the biggest challenges facing the sector right now is dwindling credit from the banking sector, said Ganesh Gupta, President, Federation of Indian Export Organisations (FIEO). “Even getting renewal of limits is taking abnormal time with huge documentation requirement,” he said. Export credit declined by 26.4 per cent in FY18 and 21.1 per cent in Q1 FY19, he added. It June, it touched a high of 42.7 per cent.
The Prime Minister’s Office (PMO) has also expressed concern over the matter and wants the RBI and the Finance Ministry to explore if the export sector could be given priority status in terms of lending from banks, the official added.
Under the guidelines, domestic and foreign banks with at least 20 branches are required to lend a minimum of 40 per cent of their total loans to the priority sector (agriculture, micro enterprises, education, social housing, etc).
Limited coverage
The priority sector norms already cover exports, though in a limited way.
The RBI has stipulated that for units with a turnover of up to ₹100 crore, banks should provide incremental export credit over the corresponding date of the preceding year, up to 2 per cent of the total credit subject to a sanctioned limit of ₹25 crore per borrower.
“Since the current provisioning does not cater to all exporters, there is a need to include exports in the priority sector as a whole,” the official said.
Commerce Minister Suresh Prabhu has been trying to convince the RBI to extend priority sector status to the export sector for a while now.
“Exports promote India’s interest and therefore it’s a strategic priority for India. But it’s not a priority lending sector for banks. This is a complete paradox,” he said at a recent event organised by gems and jewellery exporters.
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