With the global economy limping back to normalcy and signs of improvement in liquidity

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conditions, importers are getting cheaper credit from banks.

Interest rates on credit have come down by almost 300-350 basis points in the past two quarters. This has led to a 10-15 per cent rise in their buyers’ credit portfolio, say bankers.

There are two types of credit for buyers. In the first case, the bank directly lends to an importer for shipping goods to India. Banks also give letters of credit (LCs) on behalf of their clients to other banks.

According to a senior banker in the international banking division of Canara Bank, Reserve Bank of India has put an all-in-cost cap on interest rates at 350 basis points for importers. One basis point is one hundredth of a percentage.

Interest rates for importers are based on the London inter-bank rate (Libor) plus an additional interest rate (Libor spread). “Libor was in the range of 300-400 basis points in November-December last year. It has come down to sub 1 per cent level now,” said the Canara Bank official.

The sub-prime crisis had resulted in drying up of liquidity and higher inte­rest rates saw bu­yers’ credit getting scarce and costly. Lenders were charging up to 4 per cent above Libor, which made cr­edit rates on par with interest charged on overdrafts (about 13-14 per cent).

“The Libor spread has also come down from 300-350 basis points to around 100-200 basis points on a case-to-case basis,” said R K Bakshi, executive director- retail banking with Bank of Baroda that has Rs 12,000 crore buyers’ credit portfolio.

Bank of India, the third biggest player after SBI and Bank of Baroda with a portfolio of $1billion has seen a rise. “The volumes have been increasing. With lower interest rates and eased liquidity, we are seeing more and more borrowers coming to us,” said B A Prabhakar, executive director of Bank of India.