RBI snub may force Exim to raise foreign debt

New Delhi: After RBI’s refusal to use foreign reserves to lend Exim Bank, the government may be looking at asking the export financier to raise foreign debt to increase line of credit to foreign countries to boost Indian exports.

The commerce and industry ministry has asked RBI to use a part of forex reserves to give long-term loans to the Export Import (Exim) Bank of India at low-interest rates.

Exim Bank could give loans to foreign countries for their projects and they in turn import components and other products for these projects from India to help boost exports. It can be used to give loans to foreign nation to boost exports for capital goods, steel and cement among many others, said trade experts.  

“The RBI was requested to earmark a portion of forex reserves to Exim Bank for project export finance,” minister of state for finance Santosh Kumar Gangwar said in a written reply to the Lok Sabha.

The RBI, he said, had offered the unutilised amount under its limit of $5 billion sanctio-ned to the India Infrastructure Finance Company Ltd (IIFCL) as a long-term loan to Exim Bank.

The proposal, however, found stiff resistance from IIFCL as it had committed the entire $5 billion to its borrowers. With this, the government may ask Exim Bank to raise foreign debt and use the money for extending line of credit to other countries. “With its sound financials and investment grade rating on par with the sovereign, Exim Bank is currently able to command very competitive pricing in its foreign currency debt issues,” the minister added.

According to Federation of Indian Export Organisations (FIEO) director-general and CEO Ajay Sahai, India’s export markets in Africa and South America are facing an issue in paying for Indian imports in dollars. Exim Bank already written to RBI to raise its borrowing by 10 times of its net owned funds.

While Indian companies are asking the government to offer rupee settlement with Africa, Exim Bank loan to these countries could be a solution. While Exim Bank can raise foreign debt at a comparatively lower rate due to India’s sovereign rating, African and South American countries won’t such luxury due to financial stress.

Mr Sahai, however, feels that India should not raise loans. “When India has so much foreign currency, it could be put some productive use,” he said. Last month, the auto industry had also asked government to consider a rupee-based payment mechanism for trading with African nations as they face a major hurdle in dollar-denominated payout.