The Reserve Bank of India today allowed banks to provide loans with tenures of up to 10 years to exporters to help them ensure capital flows to fulfil long-term contracts.
Existing norms allow banks to give loans for up to one year only.
“In view of requests received from exporters, it has been decided to permit banks to allow exporters having a minimum of three years’ satisfactory track record to receive long-term export advance up to a maximum tenor of 10 years to be utilised for execution of long-term supply contracts for export of goods,” RBI said in a notification.
This facility is available with certain conditions, including an interest rate limit of 200 basis points above the London interbank offered rate (Libor), a global benchmark.
Besides, exporters receiving loans of USD 100 million or above need to report the transaction immediately to the RBI.
As per the conditions, there should be irrevocable supply orders in place.
The contract with the overseas party or buyer should be vetted and must clearly specify the nature, amount and delivery timelines of products over the years and the penalty in case of non-performance or contract cancellation, it said.
Such export advances can’t be used to liquidate rupee loans, which are classified as non-performing assets as per RBI norms, it said.
These exporters should have the capacity, systems and processes in place to ensure that orders over the duration of the tenure can be executed, it added.