Norms eased to allow long-term loan to exporters

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RBI takes step to aid projects stuck due to shortage of funds

The Reserve Bank of India (RBI) on Wednesday allowed banks to offer long-term export advances to exporters for up to 10 years for execution of long-term supply contracts.

These long-duration loans will help exporters access capital to fulfill long-term contracts. Existing norms allow banks to give loans for up to one year only. The RBI move will help turn around many turnkey projects that have been stuck for want of funds.

RBI said in view of requests received from exporters, it decided to permit banks to allow exporters having a minimum of three years’ satisfactory track record to receive long-term export advances for up to 10 years to be utilised for execution of long-term supply contracts for export of goods.

M Rafeeque Ahmed, president of the Federation of Indian Export Organisations (Fieo), said it would help exporters have steady capital flow for implementing turnkey projects in the infrastructure space.

“A number of companies will benefit from the move and help long-term deferred payments of exporters,” he said.

However, RBI put cond­itions that the borrower firm should have capacity, systems and processes in place to ensure that the orders of the said tenure can actually be executed.

Such advances should be adjusted against future exports, RBI said.

The facility will be extended only to those entities that have not come under adverse notice of the enforcement directorate or any such regulatory agency or have not been cautioned.

The rate of interest payable, if any, should not exceed Libor plus 200 basis points, RBI said.

The central bank said such export advances would not be permitted to be used to liquidate rupee loans classified as non-performing assets as per RBI’s asset classification norms. Double financing for working capital for execution of export orders should be avoided, it said.

Receipt of such advances worth $100 million or more should be immediately reported to RBI.

Upasana Bhardwaj, economist at ING Vysya Bank, said exporters should have a minimum of three years’ satisfactory track record to avail such long-term advances provided there were irrevocable supply orders in place and the export contract clearly specified the nature, amount and delivery timelines of the products.

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