The Hindu Business Line : Banks may be allowed to offer lines of credit

THE Government of India is thinking of routing external lines of credit — funds that provide credit to importers abroad who buy Indian products and services — through commercial banks. Till now, such lines of credit have been routed through either the Exim Bank of India or the governments of the importing countries.

Mr R. Viswanathan, Joint Secretary, Ministry of External Affairs, who is in charge of trade and investment promotion, said that the Government was disinclined towards government-to-government line of credit.

"The next step is to route it through commercial bank," he told Business Line today. Banks such as the Bank of Baroda, which have a large international clientele, would be enabled to offer lines of credit, he said.

He said that the government would subsidise the interest rates, so that the borrower had to pay no more than Libor plus 0.5 per cent. These loans would be for a period of 8-12 years.

The President of the Federation of Indian Export Organisations, Mr Rafeeque Ahmed, told Business Line that this was a welcome move, as "commercial banks are more active than the Exim Bank."

However, other sources in the financial sector were sceptical about this. They said that Canara Bank had been allowed to open a line of credit, but the utilisation of the credit was poor. (This, however, could not be independently confirmed with Canara Bank.)

The sources said that earlier the funds for the lines of credit used to be made available from the Budget, but experience showed that this resulted in a problem: the recipient countries, knowing that it was government's money, often put in a request for a write-off.

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