Exporters finding it hard to get dollar loans from banks
By Neelima Shankar
Dec 3, 2007
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New Delhi: The sub-prime crisis has started to show its effect on exporters in India. Banks have been a major source of foreign currency for exporters but with credit lines drying up for banks themselves, exporters are being denied any dollar loans.

Foreign currency credit lines were drawn by Indian banks primarily from the high street financial institutions in US and Europe. This money was extended as loan to local exporters. The sub-prime crisis has affected the global money market, and these international banks are now reluctant to extend any further foreign currency credit to Indian Banks.

According to existing norms set forth by RBI, banks can only charge the London inter-bank offered rate (Libor) plus one percentage point as interest for their dollar loans. This is called packing credit in foreign currency (PCFC). The liquidity conditions have become very tight after the sub-prime crisis and Indian Banks are not able to procure foreign currency at competitive rates.

PCFC loans are vital for exporters as they use these funds to procure raw materials and because these loans are relatively cheap, exporters save on cost and thus remain competitive. Now, with the rupee appreciating fast and the PCFC loan support non existent, exporters are facing the threat of being wiped out.

Banks are not lending in dollars and asking the borrowers to take loans in rupees instead. If the banks are willing to give dollar loans, the service charge they are demanding are pretty much on the higher side. "We deal with eight to nine banks. The problem is more acute in smaller banks. This is against the RBI norms," said an aggrieved exporter.

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