Interest Rates on Export Credit in Foreign Currency – RBI Circular dt. 15.11.2011
17 Nov 2011
Sub : Interest Rates on Export Credit in Foreign Currency
The Reserve Bank of India has issued a Circular No.RBI/2011-12/258 dt 15 Nov 2011 wherein it is mentioned that the ceiling rate on export credit in foreign currency by banks will be raised to LIBOR plus 350 basis points from the present ceiling rate of LIBOR plus 200 basis points with immediate effect till March 31, 2012, subject to the express condition that the banks will not levy any other charges viz. service charge, management charge etc except for recovery towards out of pocket expenses incurred. The circular also states that similar changes may be effected in interest rates in cases where EURO LIBOR/EURIBOR has been used as the benchmark. The revision in the rates of interest would be applicable only to fresh advances.
The above RBI circular further states that the ceiling interest rate on the lines of credit with overseas banks has also been increased from six months LIBOR/EURO LIBOR/EURIBOR plus 100 basis points to six months LIBOR /EURO LIBOR/EURIBOR plus 250 basis points with immediate effect.
Members may kindly take note of the above. A copy of the above RBI circular along with the annexure detailing the interest rates is enclosed herewith for reference.
For information of Members,
1) The LIBOR rate is the average interest rate that leading banks in London charge when lending to other banks. It is an acronym for London Interbank Offered Rate (LIBOR). Banks borrow money for one day, one month, two months, six months, one year etc. and they pay interest to their lenders based on certain rates. The LIBOR figure is an average of these rates
2) Basis Point ( BPS) means a unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instruments including calculation of changes in interest rates, equity indexes and the yield of a fixed-income security. The relationship between percentage changes and basis points can be summarized as follows: 1% change = 100 basis points, and 0.01% = 1 basis point. For example, a loan that bears interest of 0.50% per annum above the London Interbank Offered Rate (LIBOR) is said to be 50 basis points over LIBOR, which is commonly expressed as “L+50bps” or simply “L+50”.
Ali Ahmed Khan