Introduction: The Reserve Bank of India (RBI) has issued Circular RBI/2023-24/124 dated February 22, 2024, addressed to all Scheduled Commercial Banks, Primary (Urban) Cooperative Banks, State Cooperative Banks, and Exim Bank. The circular discusses the extension of the Interest Equalization Scheme (IES) for Pre and Post Shipment Rupee Export Credit.
Detailed Analysis: According to the circular, the Government of India has granted an extension to the Interest Equalization Scheme until June 30, 2024. The scheme provides a 2% interest equalization for Manufacturers and Merchant Exporters exporting under specified 410 HS lines and a 3% equalization to MSME manufacturers exporting under any HS line.
The circular also introduces modifications to the scheme:
a) Average Interest Rate Restriction: Banks with loans covered under the scheme, priced at an average interest rate greater than Repo Rate + 4% before subvention, will face restrictions. The Director General of Foreign Trade (DGFT) will identify such banks, and they will be restricted from participating until they furnish a specified undertaking to DGFT.
b) Cap on Subvention Amount: The annual net subvention amount is capped at Rs 10 Cr per Importer-Exporter Code (IEC) from April 1, 2023, onwards.
All other provisions of the previous circulars remain unchanged. The circular includes an undertaking format, ensuring banks comply with the specified terms and conditions.
Conclusion: The RBI’s decision to extend the Interest Equalization Scheme aligns with the government’s efforts to support exporters. The modified rates and conditions, particularly the cap on subvention amount and restrictions based on average interest rates, aim to enhance the effectiveness and fair distribution of benefits under the scheme. Businesses engaged in export activities should carefully review the circular’s details, ensuring compliance to continue availing of the scheme’s benefits. For further information, refer to Circular RBI/2023-24/124 dated February 22, 2024.
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RESERVE BANK OF INDIA
RBI/2023-24/124
DOR.STR.REC.78/04.02.001/2023-24
February 22, 2024
All Scheduled Commercial Banks (excluding RRBs),
Primary (Urban) Cooperative Banks & State Cooperative Banks (scheduled banks having
AD category-I license), and Exim Bank
Dear Sir / Madam,
Interest Equalization Scheme (IES) on Pre and Post Shipment Rupee Export Credit
Please refer to the instructions issued vide circulars No. DOR.STR.REC.93/04.02.001/2021-22 dated March 8, 2022 and DOR.STR.REC.39/04.02.001/2022-23 dated May 31, 2022.
2. Government of India has allowed for extension of the Interest Equalization Scheme for Pre and Post Shipment Rupee Export Credit (‘Scheme’) up to June 30, 2024. The rate of interest equalization shall be 2% for Manufacturers and Merchant Exporters exporting under specified 410 HS lines and 3% to the MSME manufacturers exporting under any HS line.
3. Further, Government has advised the following modifications to the scheme:
a) Average interest rate: With effect from FY 2023-24, the banks which have priced the loans covered under this scheme at an average interest rate of greater than Repo Rate + 4% prior to subvention would be subjected to certain restrictions under the scheme. Based on an assessment undertaken for FY 2023-24, Director General of Foreign Trade (DGFT) will identify the banks which are in breach of the above provision. Such banks shall be restricted from participating in the scheme till they furnish an undertaking (in the format as enclosed in the Annex) to DGFT. Any further breach as assessed by DGFT thereafter may lead to debarment from the scheme.
b) Cap on subvention amount: The annual net subvention amount has been already capped at Rs 10 Cr per Importer-Exporter Code (IEC) in a given financial year and the same has been communicated to the trade & industry and banks vide DGFT Trade Notice No.05 dated May 25, 2023. Accordingly, all disbursement from April 1, 2023 shall be reckoned for this purpose.
4. All other provisions of the aforesaid circulars shall remain unchanged. Yours faithfully
(Vaibhav Chaturvedi)
Chief General Manager
Annex
UNDERTAKING
We, [Name of the Bank], hereby provide an undertaking to participate in the Interest Equalisation Scheme for MSMEs and non-MSMEs, subject to the following terms and conditions:
1. We understand that if our bank’s average interest rate prior to subvention for MSMES and non-MSMEs is higher than Repo Rate + 4%, we will be debarred under the scheme.
2. We agree that we will keep the average interest rate within Repo Rate + 4% band to continue to participate in the Interest Equalisation Scheme.
3. We hereby undertake to provide all necessary information and documents as required by the Directorate General of Foreign Trade, Ministry of Commerce & Industry for the purpose of monitoring and evaluation of our compliance with the terms and conditions of the Interest Equalisation Scheme.
4. We also agree to adhere to any other guidelines or directives issued by the Directorate General of Foreign Trade, Ministry of Commerce & Industry from time to time.
We hereby certify that we have read and understood the above terms and conditions and undertake to abide by them in letter and spirit.
Signature of authorized signatory:
Name of authorized signatory:
Designation:
Name of the Bank:
Date:
