NO.CLE-HO/POL/CIRCULAR/14-15

July 28, 2014

Members of the Council,

Sub : Master Circulars of Reserve Bank of India

Dear Sirs,

The Reserve Bank of India has issued the Master Circulars on various subjects during this month incorporating various amendments made as on June 2014. The following Master Circulars are enclosed herewith for your reference.

• Master Circular(1) on Exports of Goods and Services
• Master Circular(2) on External Commercial Borrowings and Trade Credits
• Master Circular(3) on Export Credit Refinance Facility
• Master Circular(4) – Lending to Micro, Small & Medium Enterprises (MSME) Sector
• Master Circular(5) on Import of Goods and Services
• Master Circular(6) on Foreign Investment in India
• Master Circular(7) – Rupee / Foreign Currency Export Credit and Customer Service To Exporters

The Master circular on Master Circular – Rupee / Foreign Currency Export Credit and Customer Service to Exporters states the following.

a) Rupee Export Credit Interest Rates Subvention

The rupee export credit interest rate subvention scheme was formulated by the Government of India to alleviate the exporters’ concerns for which operational instructions are issued by the Reserve Bank of India based on advice from the Ministry of Finance, Government of India. The sectors / sub-sectors to be included under the interest subvention facility are decided by the Government.

In 2007, the Government of India announced a package of measures to provide interest rate subvention of 2 percentage points per annum on rupee export credit availed of by exporters in nine specified categories of exports, viz., textiles (including handlooms), readymade garments, leather products, handicrafts, engineering products, processed agricultural products, marine products, sports goods and toys and to all exporters from the SME sector defined as micro enterprises, small enterprises and medium enterprises for a period from April 1, 2007 to September 30, 2008. The coverage was extended to include jute and carpets, processed cashew, coffee and tea, solvent extracted de-oiled cake, plastics and linoleum. Further, in respect of leather and leather manufactures, marine products, all categories of textiles under the existing scheme including Ready Made Garments and carpets but excluding man-made fibre and handicrafts, the Govt. provided additional subvention of 2 per cent (in addition to the 2 per cent offered earlier) in pre-shipment credit for 180 days and post-shipment credit for 90 days (for carpet sector, the pre-shipment credit would be available for 270 days). Accordingly, banks would charge interest rate not exceeding BPLR minus 4.5 / 6.5 per cent, as applicable, on pre-shipment credit upto 180 days and post-shipment credit upto 90 days on the outstanding amount for the period April 1, 2007 to September 30, 2008. However, the total subvention will be subject to the condition that the interest rate, after subvention will not fall below 7 per cent which is the rate applicable to the agriculture sector under priority sector lending.

In December 2008, the Government of India announced the second scheme of interest subvention of 2 percentage points for certain employment oriented export sectors viz. Textiles (including Handloom), handicrafts, carpets, leather, gems & jewellery, marine products and Small and Medium Enterprises for the period December 1, 2008 to September 30, 2009. Accordingly, banks would charge interest rate not exceeding BPLR minus 4.5 per cent on pre-shipment credit upto 270 days and post-shipment credit upto 180 days on the outstanding amount for the period December 1, 2008 to September 30, 2009. This scheme was subsequently extended upto March 31, 2010.

In April 2010, the Government of India announced the third scheme of interest rate subvention of 2 percentage points for certain employment oriented export sectors viz. Handicrafts, Carpets, Handlooms and Small & Medium Enterprises (SME) for the period April 1, 2010 to March 31, 2011, subject to the condition that banks will charge interest rate not exceeding BPLR minus 4.5 percentage points on pre-shipment credit upto 270 days and post-shipment credit upto 180 days on the outstanding amount for the above period to these sectors. However, the total subvention is subject to the condition that the interest rate, after subvention will not fall below 7 per cent, which is the rate applicable to the short term crop loan under priority sector lending.

In August 2010, the Government of India decided to extend interest rate subvention of 2 per cent on rupee export credit with effect from April 1, 2010 to March 31, 2011 on the same terms and conditions to certain additional sectors viz. Leather and Leather Manufactures, Jute Manufacturing including Floor covering, Engineering Goods and Textiles.

In October 2011, the Government of India announced the fourth scheme of interest rate subvention of 2 percentage points for certain employment oriented export sectors viz. Handicrafts, Handlooms, Carpets and SMEs.

In June 2012, the Government of India announced the fifth scheme of interest rate subvention of 2 percentage points for certain employment oriented export sectors viz; Handicrafts, Carpet, Handlooms, SMEs, Readymade Garments, Processed Agriculture Products, Sport Goods and Toys.

In January 2013, Government of India announced the sixth scheme of interest rate subvention of 2 percentage points on the same terms and conditions for Handicrafts, Carpet, Handlooms, Small & Medium Enterprises, Readymade Garments, Processed Agriculture Goods, Sports Goods and Toys for the period April 1, 2013 to March 31, 2014. The scheme was also widened to include 134 tariff lines of engineering products on the same terms and conditions for the period January 1, 2013 to March 31, 2014.

In May 2013, the Government extended the 2 per cent interest rate subvention scheme to a list of another 101 tariff lines in engineering goods sector (in addition to the existing 134 tariff lines mentioned above) and 6 tariff lines of textile good sector on the same terms and conditions for the period April 1, 2013 to March 31, 2014.
In August 2013, the rate of interest subvention on the existing sectors was increased from the present 2% to 3% with effect from August 1, 2013. Accordingly, banks have been advised to pass on the benefit of 3% interest subvention completely to the eligible exporters. This is for the period ending March 31, 2014.

With the change over to the Base Rate System, the interest rates applicable for all tenors of rupee export credit advances with effect from July 1, 2010 are at or above Base Rate in respect of all fresh/renewed advances as advised vide circular DBOD. Dir.(Exp). BC. No. 102 /04.02.001/2009-10 dated May 6, 2010. Accordingly, banks should reduce the interest rate chargeable to the exporters as per the Base Rate System in the above mentioned sectors eligible for export credit subvention by the amount of subvention available, subject to a floor rate of 7 Per cent. If, as a consequence, the interest rate charged to exporters goes below the Base Rate, such lending will not be construed to be a violation of the Base Rate guidelines.

Banks are required to completely pass on the benefit of interest subvention, as applicable, to the eligible exporters upfront and submit the claims to RBI for reimbursement duly certified by the external auditor. The subvention would be reimbursed by RBI on the basis of quarterly claims submitted by the banks in the prescribed format.
b) ECGC Whole Turnover Post-shipment Guarantee Scheme

2.6.1 The Whole Turnover Post-shipment Guarantee Scheme of the Export Credit Guarantee Corporation of India Ltd. (ECGC) provides protection to banks against non-payment of post-shipment credit by exporters. Banks may, in the interest of export promotion, consider opting for the Whole Turnover Post-shipment Policy. The salient features of the scheme may be obtained from ECGC.

2.6.2 As the post-shipment guarantee is mainly intended to benefit the banks, the cost of premium in respect of the Whole Turnover Post-shipment Guarantee taken out by banks may be absorbed by the banks and not passed on to the exporters.

2.6.3 Where the risks are covered by the ECGC, banks should not slacken their efforts towards realisation of their dues against long outstanding export bills.

Members may kindly note the above.

Thanks & regards,

R.Ramesh Kumar, IAS
Executive Director
COUNCIL FOR LEATHER EXPORTS

Circular1 || Circular2 || Circular3 || Circular4 || Circular5 || Circular6 || Circular7